TerraVest Industries — Annual Report 2021

Dec 8, 2021

CONSOLIDATED FINANCIAL STATEMENTS

For the years ended September 30, 2021 and 2020

Independent Auditor's Report

Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8

To the Shareholders of TerraVest Industries Inc.

T 514-878-2691

Opinion

We have audited the consolidated financial statements of TerraVest Industries Inc. (hereafter "the Company"), which comprise the consolidated statements of financial position as at September 30, 2021 and 2020, and the consolidated statements of income, the consolidated statements of comprehensive income, the consolidated statements of cash flows and the consolidated statements of changes in shareholders' equity for the years then ended, and notes to consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Evaluation of the recoverability of the carrying values of goodwill and intangible assets with indefinite useful life

As described in Note 2.20 to the consolidated financial statements, the goodwill and intangible assets with an indefinite useful life are tested for impairment at least annually and more frequently whenever there is an indication that an asset may be impaired. We identified the Company's evaluation of the recoverability of the carrying values of the goodwill and the intangible assets with an indefinite useful life as a key audit matter.

Why the matter was determined to be a key audit matter

This annual impairment test was significant to our audit because the balances of goodwill and other intangible assets, being respectively $30,089,000 and $1,460,000 as at September 30, 2021, are material to the consolidated financial statements. In addition, management's assessment process is based on assumptions, specifically profit margins, growth rates and discount rates, which are affected by expected future market or economic conditions, giving rise to high estimation uncertainty.

How the matter was addressed in the audit

Our audit procedures related to the Company's evaluation of the recoverability of the carrying value of goodwill and intangible assets with indefinite useful life included, among others:

• − We evaluated the reasonableness of the Company's cash flows by comparing projections to:
  • * Historical results;
  • * Industry data;
  • * Current business plans;
• − Using a valuation expert to assist us in evaluating the assumptions, methodologies and data used by the Company, in particular those relating to growth rates, profit margins and discount rates;
• − We assessed the adequacy of the Company's disclosures about those assumptions to which the outcome of the impairment test is most sensitive, that is, those that have the most significant effect on the determination of the recoverable amount of goodwill. The Company's assumptions are detailed in Note 13 of the consolidated financial statements;
• − We tested the completeness and accuracy of the underlying data used in the Company's valuation model;
• − We performed a sensitivity analysis on significant management assumptions used in the valuation model. The Company's assumptions are detailed in Note 13 of the consolidated financial statements.

Information other than the consolidated financial statements and the auditor's report thereon

Management is responsible for the other information. The other information comprises the information, other than the consolidated financial statements and our auditor's report thereon, included in Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• − Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• − Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
• − Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
• − Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
• − Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
• − Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Nancy Wolfe.

Montréal December 7, 2021

Consolidated Statements of Financial Position

(In thousands of Canadian dollars, except share and per share amount)

		As at	As at
	Note	September 30, 2021	September 30, 2020
		$	$
ASSETS
Current
Cash		8,359	27,452
Accounts receivable	6	62,926	44,610
Income taxes receivable		679	783
Inventories	7	136,854	83,955
Other current assets	8	8,590	3,790
		217,408	160,590
Non-Current
Property, plant and equipment	9	85,933	76,359
Right-of-use assets	10	27,806	32,411
Intangible assets	11	16,889	21,404
Net defined benefit asset	18	5,778	-
Deferred income tax assets	17	12,089	8,587
Investments	12	10,000	7,470
Other non-current assets		346	150
Goodwill	13	30,089	12,654
		406,338	319,625
LIABILITIES
Current
Bank overdrafts		878	735
Revolving credit facility	15	251	864
Accounts payable and accrued liabilities	14	51,360	24,536
Deferred revenues		15,043	15,888
Dividends payable	19	1,757	1,868
Income taxes payable		1,829	2,833
Current portion of long-term debt	15	4,516	5,251
Current portion of lease liabilities	16	4,640	4,374
		80,274	56,349
Non-Current
Long-term debt	15	154,179	98,400
Lease liabilities	16	26,148	30,523
Net defined benefit liability	18	5,512	-
Deferred income tax liabilities	17	8,166	8,211
		274,279	193,483
SHAREHOLDERS' EQUITY
Share capital	19	141,712	149,284
Share premium		21,027	35,191
Share-based payments reserve	19	334	417
Accumulated other comprehensiveincome		(1,188)	393
Accumulated deficit		(29,830)	(59,355)
		132,055	125,930
Non-controlling interest		4	212
		132,059	126,142
		406,338	319,625

See accompanying notes to the consolidated financial statements

On behalf of the Board:

/s/ Charles Pellerin, Director /s/ Blair Cook, Director

Consolidated Statements of Income

(In thousands of Canadian dollars, except share and per share amount)

			Years ended
	Note	September 30, 2021	September 30, 2020
		$	$
SALES	29
Products		292,825	293,291
Services		14,638	10,962
		307,463	304,253
Cost of sales		226,829	231,990
Gross profit		80,634	72,263
EXPENSES
Administration		26,816	31,164
Selling		7,690	5,656
Financing costs	22	4,505	5,240
Share of associates and joint venture net loss		78	29
Other (gains) losses	23	(4,501)	(5,324)
		34,588	36,765
EARNINGS BEFORE INCOME TAXES		46,046	35,498
INCOME TAX EXPENSE	17
Current		8,661	8,312
Deferred		975	558
		9,636	8,870
NET INCOME		36,410	26,628
Net income (loss) attributable to:
Common shareholders		36,618	26,839
Non-controlling interest		(208)	(211)
		36,410	26,628
Weighted average number of common shares:
Basic	20	18,099,965	18,486,064
Diluted	20	18,352,184	19,030,735
Net income per share:
Basic	20	$2.02	$1.45
Diluted	20	$2.00	$1.42

See accompanying notes to the consolidated financial statements

Consolidated Statements of Comprehensive Income

(In thousands of Canadian dollars, except share and per share amount)

	Years ended
	September 30, 2021	September 30, 2020
	$	$
NET INCOME	36,410	26,628
Other comprehensive income (loss), net of income tax:Item that may be reclassified subsequently to profit or loss:
Exchange difference on translating foreign operations	(1,581)	230
COMPREHENSIVE INCOME	34,829	26,858
Attributable to:
Common shareholders	35,037	27,069
Non-controlling interest	(208)	(211)
	34,829	26,858

See accompanying notes to the consolidated financial statements

Consolidated Statements of Changes in Shareholders' Equity

(In thousands of Canadian dollars, except share and per share amount)

	Years ended
	Note	September 30, 2021	September 30, 2020
		$	$
Share capital
Common shares:	19
Balance, beginning of year		149,284	139,290
Issued on conversion of convertible debentures		-	10,690
Issued on exercise of stock options		2,304	-
Repurchased and cancelled during the year		(9,876)	(696)
Balance, end of year		141,712	149,284
Share premium
Balance, beginning of year		35,191	36,513
Carrying value of common shares and convertible debentures
repurchased lower than consideration paid		(11,227)	(259)
Reduction on exercise of stock options		(2,937)	-
Excess consideration paid on settlement of stock options		-	(1,063)
Balance, end of year		21,027	35,191
Share-based payments reserve
Balance, beginning of year		417	432
Share-based payments expense	19	70	100
Reduction on exercise of stock options		(153)	-
Reduction on settlement of stock options		-	(115)
Balance, end of year		334	417
Accumulated other comprehensive income (loss)
Balance, beginning of year		393	163
Other comprehensive income (loss)		(1,581)	230
Balance, end of year		(1,188)	393
Equity component of convertible debentures
Balance, beginning of year		-	1,451
Conversion of convertible debentures		-	(1,311)
Convertible debentures repurchased, net of income tax		-	(140)
Balance, end of year		-	-

Consolidated Statements of Changes in Shareholders' Equity – Continued

(In thousands of Canadian dollars, except share and per share amount)

			Years ended
	Note	September 30, 2021	September 30, 2020
		$	$
Accumulated deficit
Balance, beginning of year		(59,355)	(77,346)
Impact of change in accounting policy		- 	(1,407)
Adjusted balance, beginning of year		(59,355)	(78,753)
Net income attributable to common shareholders		36,618	26,839
Net remeasurement gain (loss) on defined benefit plans		113	-
Dividends declared during the year		(7,206)	(7,441)
Balance, end of year		(29,830)	(59,355)
Total shareholders' equity attributable to common shareholders		132,055	125,930
Non-controlling interest
Balance, beginning of year		212	423
Net loss attributable to non-controlling interest		(208)	(211)
Balance, end of year		4	212
Total shareholders' equity		132,059	126,142

See accompanying notes to the consolidated financial statements

Consolidated Statements of Cash Flows

(In thousands of Canadian dollars, except share and per share amount)

			Years ended
	Note	September 30, 2021	September 30, 2020
		$	$
OPERATING ACTIVITIES
Net income		36,410	26,628
Adjustments for:
Current income tax expense		8,661	8,312
Interest expense		4,201	4,832
Items not affecting cash	24	10,877	14,841
Interest paid		(3,801)	(4,993)
Income taxes paid		(9,457)	(5,947)
Contributions to defined benefit plans	18	(25)	-
Settlement of derivative financial instruments		72	(232)
Change in non-cash operating working capital items	24	(23,874)	21,435
		23,064	64,876
INVESTING ACTIVITIES
Consideration paid on business combinations, net of cash acquired	4	(38,543)	(10,491)
Payment of contingent consideration		-	(1,988)
Purchase of other property, plant and equipment		(12,538)	(5,055)
Proceeds from disposal of other property, plant and equipment		726	917
Purchase of property, plant and equipment for rental		(5,867)	(5,618)
Proceeds from disposal of property, plant and equipment for rental		2,993	1,089
Proceeds from disposal of assets held for sale		-	3,065
Purchase of intangible assets		(670)	-
Investment in equity instruments		(855)	(4,561)
Proceeds from disposal of investment in equity instruments		10,034	-
Investment in associates		(7,616)	-
Investment in joint venture		(200)	-
		(52,536)	(22,642)
FINANCING ACTIVITIES
Net change in current revolving credit facility		(613)	(3,844)
Net change in long-term revolving operating loans, net of
transactioncosts		10,202	(9,518)
Issuance of long-term debt, net of transaction costs		51,561	5,440
Repayment of long-term debt		(17,572)	(2,344)
Repayment of lease liabilities		(4,381)	(3,603)
Common shares repurchased and cancelled	19	(21,103)	(1,080)
Convertible debentures repurchased		-	(1,093)
Settlement of stock options	19	(786)	(1,178)
Dividends paid		(7,317)	(7,337)
Net inflows (outflows) for the year		9,991(19,481)	(24,557)17,677
Cash and bank overdrafts, beginning of year		26,717	9,093
Impact of foreign exchange on cash and bank overdrafts		245	(53)
CASH AND BANK OVERDRAFTS, END OF YEAR		7,481	26,717

See accompanying notes to the consolidated financial statements

1. DESCRIPTION OF THE BUSINESS

TerraVest Industries Inc. ("TerraVest" or the "Company") is incorporated under the laws of Alberta and is listed on the Toronto Stock Exchange (equity symbol: TVK). TerraVest's head office is located at 4901 Bruce Road in Vegreville, Alberta, Canada.

TerraVest is a diversified industrial company that manufactures and sells goods and services to various end-markets including: energy, agriculture, mining, and transportation, among others. TerraVest is focused on acquiring and operating market-leading businesses that will benefit from TerraVest's financial and operational support. These opportunities generally center on manufactured steel products that complement TerraVest's existing operations and provide integration benefits.

TerraVest is comprised of three operating segments: Fuel Containment, Processing Equipment and Service.

2. ACCOUNTING POLICIES

TerraVest's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). TerraVest adopted the amendments to IFRS 3 Business Combinations that seek to clarify whether a transaction results in an asset or a business acquisition, which has no significant impact on these consolidated financial statements. These consolidated financial statements were approved and authorized for issue by the Board of Directors on December 7, 2021.

At the authorization date of these consolidated financial statements, several new, but not yet effective, standards and amendments to existing standards and interpretation have been published by the International Accounting Standards Board. None of these standards or amendments to existing standards have been adopted early by TerraVest. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement.

New standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on TerraVest's consolidated financial statements.

The following significant accounting policies have been applied to all periods presented in these consolidated financial statements.

2.1 Basis of presentation

These consolidated financial statements have been prepared using the going concern assumption and the historical cost method except for certain financial instruments for which the accounting treatment is described in Note 2.25.

2.2 Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars; TerraVest's functional currency.

2.3 Basis of consolidation

These consolidated financial statements include the accounts of TerraVest and of its subsidiaries. Accounts of the subsidiaries are included in the consolidated financial statements from the date TerraVest obtains control until the date control ceases. All intercompany balances, revenues and expenses and cash flows are fully eliminated upon consolidation.

Subsidiaries are entities controlled by TerraVest. Control is achieved when TerraVest has power over the entity, is entitled to returns from the entity and has the ability to affect those returns through its power over the entity.

TerraVest attributes net income and comprehensive income of subsidiaries between the owners of TerraVest and the non-controlling interest based on their respective ownership interests.

TERRAVEST INDUSTRIES INC. Notes to the Consolidated Financial Statements For the year ended September 30, 2021 (In thousands of Canadian dollars, except share and per share amounts)

The significant subsidiaries of TerraVest included in these consolidated financial statements are as follows:

Name of Subsidiary	Country	% of ownership
MaXfield LP	Canada	100
EnviroVault LP	Canada	100
Segretech Inc.	Canada	76.5
NWP Industries LP	Canada	100
TerraVest Industries Limited Partnership	Canada	100
TerraVest Leasing LP	Canada	100
Argo Sales LP	Canada	100
Diamond Energy Services Limited Partnership	Canada	100
Gestion Jerico Inc.	Canada	100
Granby Industries Limited Partnership	Canada	100
Pro-Par Inc.	Canada	100
Granby Composites Inc.	Canada	100
Granby Furnaces Inc.	Canada	100
Granby FRP Tanks Inc.	Canada	100
Iowa Steel Fabricators, LLC	United States	100
Fischer Tanks, LLC	United States	100
Granby Industries Transport USA, LLC	United States	100
Signature Truck Systems, LLC	United States	100
Granby Heating Products, LLC	United States	100
Pro-Par Industries, LLC	United States	100
ECR International, Inc.	United States	100

2.4 Foreign currency

Transactions and balances

Each subsidiary of TerraVest determines its own functional currency. Transactions in foreign currency are initially recorded in the entity's functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into the entity's functional currency using the exchange rate in effect on the reporting date, whereas non-monetary assets and liabilities denominated in foreign currency are translated using historical exchange rates. All exchange gains and losses arising from the translation of these items and transactions are recorded in the consolidated statements of income as they arise, in other (gains) losses.

Foreign operations

The assets and liabilities of foreign operations with a functional currency different from that of TerraVest are translated into Canadian dollars using the exchange rate in effect on the reporting date. Revenues and expenses are translated to Canadian dollars using the monthly average exchange rate for the period in which the transaction occurred. The exchange gains or losses arising from the translation of foreign operations are recognized in other comprehensive income and are reclassified in income on disposal or partial disposal of the investment in the related foreign operation.

2.5 Business Combinations

Business combinations are accounted for using the acquisition method. Consideration transferred in a business combination is the sum of the acquisition-date fair values of the assets transferred by TerraVest which includes the fair-value of any asset or liability arising from a contingent consideration arrangement. For each business combination, TerraVest measures the non-controlling interest, if any, at the proportionate share in the acquiree's identifiable net assets. Acquisition costs are expensed as incurred in administration expenses.

At the acquisition date, the identifiable assets acquired and liabilities assumed are recognized at their fair value on that date and are classified in accordance with their contractual terms, economic circumstances and pertinent conditions.

Goodwill, initially recognized at cost as an asset, is measured as the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the fair value of the net identified assets and liabilities. If the aggregate of the consideration transferred and the amount recognized for non-controlling interests is lower than the fair value of the identified net assets and liabilities, the difference is recognized in the consolidated statements of income as a bargain purchase gain.

2.6 Segment reporting

TerraVest has three reportable segments as follows:

• Fuel Containment: is a provider of products and services to a variety of industries across Canada and the United States. The Fuel Containment segment manufactures products including: bulk liquefied petroleum gas (LPG) transport trailers, LPG delivery and service trucks, bulk LPG storage tanks, residential and commercial LPG tanks and dispensers, custom pressure vessels, commercial and residential refined fuel tanks, and furnaces and boilers. This segment sells its products direct to end user and through various distribution networks. The end users of the products are fuel distributors, transportation companies, and industrial, commercial and residential consumers.
• Processing Equipment: is a fabricator of equipment for various end-markets including: upstream and midstream oil and gas processing, agriculture, transportation and mining. The Processing Equipment segment manufactures and sells a wide array of equipment such as: wellhead processing equipment and tanks, wellhead desanding units, central facilities processing equipment, natural gas liquids (NGL) and LPG storage tanks, anhydrous ammonia storage tanks, bulk NGL and LPG transport trailers, bulk ammonia transport trailers and wagons, compressed gas transport trailers and a wide variety of customized processing equipment for various applications. This segment's products and services are primarily sold to oil and gas producers, midstream companies, engineering companies, propane distributors, fertilizer distributors and transportation companies.
• Service: provides well servicing to the oil and gas sector in South-Western and Central Saskatchewan. The Service segment currently operates 21 service rigs.

An operating segment is a component of TerraVest that engages in business activities from which it may earn revenues and incur expenses and for which discrete financial information is available. Each operating segment's results are regularly reviewed by management to make decisions about resources to be allocated to the segment and assess its performance. Operating segments can be aggregated into reportable segments when the segments have similar economic characteristics.

Corporate charges, assets and liabilities are not allocated to segments.

2.7 Revenue recognition

TerraVest recognizes revenues from contracts with customers once control is transferred and in an amount equal to the consideration to which TerraVest expects to be entitled.

Product sales are revenues arising from the Fuel Containment and Processing Equipment segments and are recognized at a point of time when the manufacturing of the goods is complete, when the goods leave TerraVest's premises, or when the goods are delivered to the customer, according to the terms of the contract. The contracts entered into are short-term in nature and revenues are generally recognized when the goods are delivered to the customer by the Fuel Containment segment or when the manufacturing of the goods is complete by the Processing Equipment segment.

Services revenues are revenues arising from the Service segment and are recognized at a point in time, when services are provided.

Where payments have been received, or invoices issued, for product and/or services not yet provided; amounts are recorded as deferred revenue on the consolidated statements of financial position and recorded as revenue when the product and/or services have been provided and the requirements for revenue recognition have been met.

2.8 Employee benefits

Short-term employee benefits

The costs of all short-term employee benefits are measured on an undiscounted basis and are expensed during the period in which the employee renders the related service.

Post-employment benefits

The present value of the defined benefit obligation, the current service cost and, if applicable, the past service cost are actuarially determined using the projected unit credit method based on management's best-estimate assumptions of the mortality table. The discount rate is based on the interest rate of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related defined benefit obligation. On each annual reporting date, independent actuaries extrapolate the data of the most recent full actuarial valuation to measure, for accounting purposes, the present value of the defined benefit obligation.

The net defined benefit asset or liability recognized in the consolidated statements of financial position corresponds to the fair value of the plan assets less the present value of the defined benefit obligation. Any asset resulting from this calculation is limited to the present value of the economic benefits available in the form of refunds from the plans or in the form of reductions in future contributions to the plans.

The cost components of post-employment benefits plans are recognized as follows:

• Service cost is recognized in the consolidated statements of income in cost of sales and administration expense and is comprised of:
  • Current service cost;
  • Past service cost recognized in the period in which the plan is amended; and
  • Gains or losses resulting from a plan settlement recognized in the period in which the plan settlement occurs.
• Net interest expense (income) on the net defined benefit liability (asset) is recognized in the consolidated statements of income in administration expenses and is calculated by multiplying the net defined benefit liability (asset) by the discount rate.
• Remeasurements of the net defined benefit liability (asset), net of income taxes, are recognized in accumulated deficit in the consolidated statements of financial position and is comprised of:
  • Actuarial gains or losses arising from experience adjustments and from changes in financial and demographic assumptions;
  • Return on plan assets, excluding amounts included in net interest expense (income) on the net defined benefit liability (asset).

2.9 Government grants

Government grants are recorded when there is a reasonable assurance that the government assistance will be received and that TerraVest will comply with all relevant conditions.

Government grants related to expenses are recorded as a reduction of the related expenses and government grants with general nature are recorded as other income. Government tax credits related to assets are recorded as a reduction of the cost of the related assets. Government grants and government tax credits recorded are based on management's best estimates of amounts expected to be received and are subject to audit by the taxation authorities.

2.10 Deferred development costs

TerraVest periodically invests in research and development activities to support the launch of new products. All costs incurred in the development of new products are recorded as deferred development costs, in other non-current assets on the consolidated statements of financial position, until the product reaches commercial production. At the commencement of commercial production, the deferred development costs are amortized on a straight-line basis over 5 years.

2.11 Borrowing costs

Borrowing costs directly attributable to the acquisition or construction of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are expensed in the period in which they are incurred, in financing costs.

2.12 Income taxes

Income taxes are accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used in the determination of taxable income. A deferred income tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the underlying income tax attributes giving rise to the asset will be utilized. Deferred income tax assets are reduced to the extent that it is no longer probable that the related income tax benefit will be realized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities, when they relate to income taxes levied by the same income tax authority and when TerraVest intends to settle its current income tax assets and liabilities on a net basis.

Deferred income tax assets and liabilities are measured at the income tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on the income taxation rates (and income taxation laws) that have been enacted or substantively enacted by the statements of financial position date. The measurement of deferred income tax assets and liabilities reflects the income tax consequences that would follow from the manner in which TerraVest expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

2.13 Earnings per share

Basic earnings per share is calculated using the net income attributable to shareholders of TerraVest's divided by the weighted average number of common shares outstanding in the period.

Diluted earnings per share is determined using the same method as basic earnings per share, except that the weighted average number of shares outstanding is adjusted for the effects of all dilutive instruments outstanding.

2.14 Cash

Cash is comprised of cash on hand and bank balances. Bank overdrafts are presented as current liabilities.

2.15 Inventories

Inventories are measured at the lower of cost and net realizable value. Cost includes all costs of purchase, manufacturing costs and other costs incurred to bring the inventories to their present location and condition. Manufacturing costs includes a pro rata share of production overheads based on normal production capacity. The cost of certain inventories is based on weighted average cost while the cost of other inventories is determined using a first-in, first-out ("FIFO") method. Net realizable value is the estimated selling price in the ordinary course of business less all estimated costs of completion and costs necessary to make the sale.

2.16 Property, plant and equipment

Property, plant and equipment ("PP&E") are measured at cost less accumulated depreciation and impairment. Cost includes acquisition costs or manufacturing costs and any costs directly attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Financing costs are added to the cost of the asset when funds are borrowed specifically for the construction of the asset. When components of an item of PP&E have different useful lives, they are accounted for as separate items of PP&E. The costs of the day-to-day maintenance of PP&E are recognized in profit or loss as incurred.

The gain or loss on disposal or retirement of an item of PP&E is determined as the difference between the proceeds from disposal and the carrying amount of the asset and is recognized in the consolidated statements of income as other (gains) losses.

PP&E are depreciated over the estimated useful life of the specific asset as follows:

Categories	Estimated useful lives
Land and buildings
Land	-
Buildings	10 to 25 years
Leasehold improvements	Lesser of estimated economic life or lease term
Machinery and equipment
Production and shop equipment	5 to 10 years
Service rigs	Hours of operation – useful life 2,000 to 48,000 hours
Equipment for rental	5 to 10 years
Others
Vehicles	5 to 15 years
Office equipment and furnishings	3 to 10 years
Computer hardware	1 to 3 years

Land is not depreciated. An item of PP&E is not depreciated until it can be operated in the manner intended by management. The depreciation methods, estimated useful lives and residual values are reassessed annually, with the effect of any changes in estimates being accounted for on a prospective basis.

2.17 Intangible assets

Identifiable intangible assets acquired in a business combination are recognized separately from goodwill if they meet the definition of intangible asset and if their fair value can be measured reliably. The cost of these intangible assets equals their acquisition-date fair value. After initial recognition, intangible assets are recorded at cost less accumulated amortization, if they are amortizable, and less accumulated impairment.

Intangible assets with a finite useful life are amortized on a straight line-basis over their estimated useful lives from the date they are available for use as follows:

Categories	Estimated useful lives
Customer-related
Sales order backlog	5 to 13 months
Customer relationships	7 to 10 years
Technology-based
Technologies and technical drawings	5 years
Patents	10 to 15 years
Computer software	5 to 10 years
Non-compete agreements	3 to 5 years

The amortization method and estimated useful lives are reassessed annually, with the effect of any changes in estimates being accounted for on a prospective basis.

Intangible assets with indefinite lives are trademarks. They are not amortized but are tested annually for impairment. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

2.18 Investment in associates and investment in a joint venture

Investment in associates and investment in a joint venture are accounted for using the equity method.

2.19 Goodwill

After initial recognition, goodwill is measured at cost less any accumulated impairment.

2.20 Impairment of non-financial assets

An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. Impairment is recognized in profit or loss. An impairment loss is reversed only if there is an indication that the impairment loss may no longer exists and there has been a change in the estimates used to determine the recoverable amount, however, not to an amount higher than the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized in previous years.

Property, plant and equipment, right-of-use assets and intangible assets with finite useful lives

The carrying amounts of TerraVest's assets are reviewed at each reporting period to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, TerraVest estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the CGU to which the asset belongs.

Goodwill and intangible assets with indefinite lives

Goodwill and intangible assets with indefinite lives are allocated to each of TerraVest's CGUs that are expected to benefit from the business combination, irrespective of whether assets or liabilities of the acquiree are assigned to those units. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently if events and circumstances indicate that the asset may be impaired.

2.21 Leases

Lessee

At the inception of a contract, TerraVest assesses whether the contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases are recognized in the statements of financial position through the recognition of a right-of-use asset and a lease liability, except for leases with a term of 12 months or less and leases for which the underlying asset is of low value, which are recognized in profit or loss on a straight-line basis over the lease term.

The lease liability is initially measured at the present value of future lease payments using the implicit rate of the lease, if it can be readily determined, or using TerraVest subsidiary's incremental borrowing rate. Future lease payments include fixed payments, variable payments that depend on an index or rate, and payments for extension and termination or purchase options that are reasonably certain to be exercised. When lease payments include amounts relating to non-rental components, they are included in the calculation of the lease liability. The lease liability is then measured at amortized cost using the effective interest rate method.

The right-of-use asset is measured at cost, which corresponds to the initial measurement of the lease liability. Cost also includes any initial direct costs incurred, an estimate of any costs to dismantle and remove the asset at the end of the lease and any lease payments made in advance of the lease commencement date, net of any incentives received. It is then measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated over the lesser of the lease term or the estimated useful life on a straight-line basis.

Variable lease payments not included in the lease liability are recognized in the profit or loss of the period in which the expense occurred.

If a lease is modified or if the lease term is revised, the lease liability is remeasured and a corresponding adjustment is made to the right-of-use asset. If the lease modification represents a decrease in the scope of a lease, the difference between the adjustment to the lease liability and the right-of-use asset, if any, is accounted for as a gain or loss upon lease modification. If the lease modification represents a separate lease component, it is accounted for as a separate lease.

Lessor

Leases for which TerraVest is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease and is included in the consolidated statements of income as products sales. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the property, plant and equipment for rental.

2.22 Provisions

Provisions are recognized when TerraVest has a present obligation, legal or constructive, as a result of a past event, if it is more likely than not that TerraVest will be required to settle the obligation, and if a reliable estimate can be made of the amount of the obligation.

2.23 Share premium

Share premium includes the amount paid in excess of, or less than the carrying value of the common shares when TerraVest repurchases its common shares and the difference between the amount paid for the convertible debentures and the carrying value of the liability and equity components of the convertible debentures when TerraVest repurchases its convertible debentures.

2.24 Share-based payments

Equity-settled share-based payments are measured at fair value at grant date. The value of the compensation for the stock option plan is measured using a Black-Scholes option pricing model. The effect of any change in the number of options that are expected to vest is accounted for in the period in which the estimate is revised. Compensation expense is recognized on a straight-line basis over the vesting period of the stock option, with a corresponding increase in the share-based payments reserve in shareholder's equity. Any consideration paid by plan participants on the exercise of stock options is credited to share capital up to the nominal value of the shares issued with any excess being recorded as share premium.

2.25 Financial instruments

Recognition and initial measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and financial liabilities, including derivatives, are recognized in the consolidated statements of financial position when, and only when, TerraVest becomes a party to the contractual provisions of the instrument and are measured initially at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss ("FVTPL"), transaction costs that are directly attributable to the acquisition or issue of the financial instrument.

Derecognition

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards of ownership are transferred. Financial liabilities are derecognized when they are extinguished, discharged, cancelled or expired.

Classification

On initial recognition, all financial instruments are measured at fair value. Financial assets are subsequently classified and measured at amortized cost, at fair value through other comprehensive income or at FVTPL. TerraVest classifies its financial assets according to the business model used to manage these financial assets and to the contractual cash flow characteristics of the financial assets. Financial liabilities are classified and subsequently measured at amortized cost or at FVTPL.

TerraVest has made the following classifications:

• Cash, accounts receivable, bank overdrafts, revolving credit facilities, accounts payable and accrued liabilities, dividend payable and long-term debt are classified as subsequently measured at amortized cost using the effective interest rate method; and
• Derivative financial instruments and investment in equity instruments are classified as subsequently measured at FVTPL. Gains and losses arising from periodic remeasurement are recognized in profit or loss in other (gains) losses.

Impairment of financial assets

On initial recognition and at each reporting date, TerraVest estimates expected credit losses for financial assets classified at amortized cost. These expected credit losses are measured using historical credit loss experience and are adjusted to reflect receivable-specific factors, general economic conditions, and an assessment of both the current and projected direction of economic conditions at the reporting date, including the time value of money, if applicable. The net change in expected credit losses on financial assets classified at amortized cost is recognized in profit or loss.

For financial assets carried at amortized cost, the amount of the impairment is the amount equal to lifetime expected credit losses.

If, in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Equity instruments

Common shares are classified as equity in share capital. Incremental costs attributable to the issuance of common shares are recognized as a deduction from share capital in equity, net of any income tax effects.

Convertible debentures

Convertible debentures are classified according to their liability and equity components using the residual approach, whereby TerraVest estimates the fair value of the liability component and assigns the residual value of the convertible debentures to the equity component. Transaction costs related to the issuance of convertible debentures are allocated to the liability and equity components in proportion to the initial carrying values. The liability component is classified as convertible debentures and the equity component is classified as a conversion option and recorded in shareholder's equity as the equity component of convertible debentures, net of income tax effects.

The discount is amortized using the effective interest rate method over the term of the related liability and recognized in the consolidated statements of income as financing costs. The unamortized discount is accounted for as a reduction of the convertible debentures' liability.

Upon conversion of debentures to common shares, a pro rata portion of the convertible debenture liability, convertible debenture equity as well as accrued but unpaid interest, will be transferred to share capital. Upon repurchase of debentures by TerraVest, a pro rata portion of the convertible debenture liability, convertible debenture equity as well as accrued but unpaid interest, will be deducted from the purchase price and the difference reflected in the consolidated statements of income and in share premium. If any convertible debentures mature without being converted, the remaining conversion option balance will remain in shareholders' equity in accumulated deficit.

Derivative financial instruments

TerraVest uses derivative financial instruments to manage its foreign currency exposure and interest rate risk. Gains and losses arising from periodic remeasurement of derivative financial instruments that are economic hedges but that do not qualify for hedge accounting are recognized in the consolidated statements of income as other (gains) losses.

3. ACCOUNTING JUDGMENTS AND SOURCES OF ESTIMATION UNCERTAINTY

The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for estimates about carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised. The actual results of items subject to estimates and assumptions may differ from these estimates and assumptions.

The main judgments, estimates and assumptions are as follows:

3.1 Business Combinations

Valuations techniques are used when determining fair values of certain assets and liabilities acquired in a business combination. Estimates that have an impact on the determination of fair values include the selected weighted average cost of capital, growth rate, and forecast of future cash flows. Refer to Note 4 for more information on valuation techniques used in business combinations.

3.2 Income tax expense

Current and deferred income tax expense, assets and liabilities may require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to each jurisdiction where TerraVest operates. Determination of deferred income tax assets and liabilities requires judgment as to the reversal of the underlying temporary differences between accounting values and income tax attributes resulting in the deferred income tax assets or liabilities and estimates as to the appropriate income tax rates to apply to determine the future income tax assets or liabilities.

3.3 Impairment of non-financial assets and goodwill

In assessing impairment, TerraVest estimates the recoverable amount of each asset or CGU based on expected future cash flows and uses an interest rate to calculate present value. Estimation uncertainty relates to the assumptions about future operating results, growth rate and the determination of a suitable discount rate. Refer to Note 13 for the goodwill impairment test disclosures.

3.4 Right-of-use assets and lease liabilities

Future lease payments used to calculate the value of the right-of-use asset and lease liability include payments for lease extension and termination or purchase options that are reasonably certain to be exercised. Determining the economic benefits of exercising these options requires the use of assumptions and estimates such as the future expected use of the leased asset and future market conditions. Whether or not future lease payments relating to the extension, termination or purchase options are taken into account can have a significant impact on the value of the right-of-use asset and the lease liability.

3.5 Defined benefit obligation

The measurement of defined benefit obligation requires the use of statistical data and other parameters used to anticipate future changes such as the discount rate and the mortality table. If the actuarial assumptions are found to be significantly different from the actual data subsequently observed, it could lead to substantial changes to the amount of the benefit cost of post-retirement benefits plans recognized in profit or loss and in accumulated deficit and to the net defined benefit asset or liability presented in the consolidated statements of financial position. Refer to Note 18 for additional information on the assumptions used.

4. BUSINESS COMBINATIONS

2021 Business Combination

4.1 Acquisition of ECR International, Inc.

On August 19, 2021, a subsidiary of TerraVest entered into an acquisition agreement to acquire all of the issued and outstanding shares of ECR International, Inc. ("ECR"), a privately-owned manufacturing company head-quartered in Utica New York that produces heating and cooling products under a family of brand names in North America, including the Dunkirk, Utica and Olsen brands, among others.

The business combination has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition. Acquisition-related cost of $433 were incurred and recognized as administration expense during the year ended September 30, 2021.

Fair value of the consideration transferred at the acquisition date

	Preliminary
	$
Cash paid	39,528
Consideration receivable from vendors i)	(2,030)
Fair value of the consideration transferred	37,498

i) Amount receivable from the vendors upon the determination of the estimated purchase price adjustments as per the acquisition agreement.

Assets acquired and liabilities assumed at the acquisition date

The preliminary fair value allocation of the identifiable assets acquired and liabilities assumed as at August 19, 2021 acquisition date is as follows:

	Preliminary
	Allocation
	$
ASSETS
Cash	985
Accounts receivable	15,366
Inventories	19,933
Prepaid expenses	425
Income taxes receivable	100
Property, plant and equipment	7,962
Right-of-use assets	125
Net defined benefit asset	5,822
Deferred income tax assets	4,578
	55,296
LIABILITIES
Accounts payable and accrued liabilities	16,368
Long-term debt	13,432
Lease liabilities	125
Net defined benefit liability	5,636
	35,561
Net identifiable assets acquired	19,735

Determination of fair value

The fair value of assets acquired and liabilities assumed at the acquisition date was determined based on TerraVest's assumptions and estimates.

Accounts receivable

Receivables were recognized at their fair value, which is not substantially different from their gross contractual value and expected receipts.

Inventories

Inventories were recognized at their estimated fair value, which is the lower of cost and net realizable value at the transaction closing date. Cost includes all costs of purchase, manufacturing costs and other costs incurred to bring the inventories to their present location and condition.

Property, plant and equipment

PP&E were recognized at their estimated fair value. TerraVest is currently evaluating their fair value using their original cost, acquisition date and net carrying value at the transaction closing date.

Right-of-use assets and lease liabilities

For acquired assets under leases, the right-of-use assets were measured at the same amount as the lease liabilities. The lease liabilities were measured at the present value of ECR's future lease payments using its incremental borrowing rate as at August 19, 2021.

Net defined benefit asset and liability

Net defined benefit asset and liability were recognized at their actuarial value determined in accordance with TerraVest's accounting policy and using an actuarial valuation report as at the acquisition date.

Intangible assets

TerraVest is currently evaluating the fair value of the identifiable intangible assets acquired. The intangible assets are valued using a discounted cash flow methodology with consideration given to historical and projected revenues, customer attrition rates and any other relevant assumptions.

Goodwill arising from the business combination

	Preliminary
	$
Consideration transferred	37,498
Less:
Fair value of net identifiable assets acquired	19,735
Goodwill	17,763

The acquisition was done in order to increase TerraVest's footprint in the North American home heating market. The goodwill associated with this acquisition is mainly attributable to brand recognition and an assembled workforce.

ECR contribution to TerraVest results

TerraVest's consolidated net income during the year ended September 30, 2021 includes sales of $11,109 and a net income of $647 generated from ECR's result since the acquisition date of August 19, 2021.

Due to lack of IFRS-specific data prior to the acquisition of ECR, pro-forma revenue and profit or loss of the combined entity during the year ended September 30, 2021 cannot be determined reliably.

2020 Business Combination

4.2 Acquisition of Argo Sales Inc.

On December 13, 2019, a subsidiary of TerraVest entered into an acquisition agreement to acquire all of the assets of Argo Sales Inc. ("Argo"), a privately-owned Alberta based company primarily focused on manufacturing wellhead processing and production equipment for the Canadian oil and gas market.

The business combination has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition. Acquisition-related cost of $409 were incurred and recognized as administration expense during the year ended September 30, 2020.

Fair value of the consideration transferred at the acquisition date

	Final
	$
Cash paid	11,083
Assumption of Argo's revolving credit facility	4,708
Fair value of the consideration transferred	15,791

Assets acquired and liabilities assumed at the acquisition date

The final fair value allocation of the identifiable assets acquired and liabilities assumed as at December 13, 2019 acquisition date is as follows:

allocation$ASSETSCashAccounts receivableInventoriesPrepaid expensesProperty, plant and equipmentRight-of-use assetsIntangible assetsLIABILITIESAccounts payable and accrued liabilitiesDeferred revenues	Final
	422
	20,779
	4,706
	357
	2,582
	6,384
	1,734
	36,964
	10,210
	4,849
Lease liabilities	6,384
	21,443
Net identifiable assets acquired	15,521

Determination of fair value

The fair value of assets acquired and liabilities assumed at the acquisition date was determined based on TerraVest's assumptions and estimates.

Accounts receivable

Receivables were recognized at their fair value, which is not substantially different from their gross contractual value and expected receipts.

Inventories

Inventories were recognized at their estimated fair value, which is the lower of cost and net realizable value at the transaction closing date. Cost includes all costs of purchase, manufacturing costs and other costs incurred to bring the inventories to their present location and condition.

Property, plant and equipment

PP&E were recognized at their estimated fair value. TerraVest estimated their fair value based on their original cost, acquisition date and net carrying value at the transaction closing date.

Right-of-use assets and lease liabilities

TerraVest also recognized right-of-use assets and lease liabilities for acquired assets under leases. The right-of-use assets were measured at the same amount as the lease liabilities. The lease liabilities were measured at the present value of Argo's future lease payments using its incremental borrowing rate as at December 13, 2019.

Intangible assets

TerraVest estimated the fair value of intangible assets acquired using different valuation techniques, all primarily based upon discounted cash flow according to currently available information, such as historical and projected revenues, customer attrition rates and certain other relevant assumptions.

Notes to the Consolidated Financial Statements

For the year ended September 30, 2021

(In thousands of Canadian dollars, except share and per share amounts)

	Estimated	Final
	useful lives	fair value
		$
Customer relationships	7years	1,250
Sales order backlog	13months	266
Non-compete agreements	5years	218
Intangible assets		1,734

Goodwill arising from the business combination

	Final
	$
Consideration transferred	15,791
Less:
Fair value of net identifiable assets acquired	15,521
Goodwill	270

The acquisition was done in order to strengthen TerraVest's presence in the Western Canadian's oil and gas market. The goodwill associated with this acquisition is mainly attributable to brand recognition and an assembled workforce and is deductible for income tax purposes.

5. FINANCIAL INSTRUMENTS

5.1 Fair value hierarchy

Financial instruments recorded at fair value on the consolidated statements of financial position and financial instruments measured at cost for which fair value is disclosed are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Level 1: valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: valuation techniques based on inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3: valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

Notes to the Consolidated Financial Statements

For the year ended September 30, 2021

(In thousands of Canadian dollars, except share and per share amounts)

5.2 Categories of financial instruments

TerraVest has classified its financial instruments as follows:

		As at	As at
	Level	September 30, 2021	September 30, 2020
		$	$
Financial assets
At amortized cost
Cash	2	8,359	27,452
Accounts receivable	2	62,926	44,610
		71,285	72,062
At fair value through profit or loss
Investment in equity instruments	1	1,065	6,273
Derivative financial instruments i)	2	715	-
		1,780	6,273
Financial liabilities
At amortized cost
Bank overdrafts	2	878	735
Revolving credit facility	2	251	864
Accounts payable and accrued liabilities	2	51,360	23,978
Dividends payable	2	1,757	1,868
Long-term debt (current and non-current)	2	158,695	103,651
		212,941	131,096
At fair value through profit or loss
Derivative financial instruments i)	2	-	558
		-	558

i) As at September 30, 2021, the derivative financial instruments assets are included in other current asset (the liability as at September 30, 2020 was included in accounts payable and accrued liabilities).

The fair values of revolving credit facility and long-term debt have been determined based on discounted cash flows using interest rates for similar instruments. The fair values of the other financial instruments measured at amortized cost are not significantly different to their carrying values. The fair value of the investment in equity instruments has been determined based on the quoted price in active markets.

TerraVest's derivative financial instruments are forward exchange contracts and interest rate swap agreement which are not traded in active markets. Forward exchange contracts have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contracts. The interest rate swap agreement has been fair valued using observable interest rates corresponding to the maturity of the agreement. The effects of non-observable inputs are not significant for forward exchange contracts and interest rate swap agreement.

6. ACCOUNTS RECEIVABLE

	As at	As at
	September 30, 2021	September 30, 2020
	$	$
Net trade receivables	57,194	40,424
Other receivables	5,732	4,186
	62,926	44,610

Allowance for doubtful accounts included in net trade receivables was $278 as at September 30, 2021 ($117 as at September 30, 2020).

7. INVENTORIES

	As at	As at
	September 30, 2021	September 30, 2020
	$	$
Raw materials	74,621	36,596
Work in progress	39,407	31,090
Finished goods	22,826	16,269
	136,854	83,955

Inventories expensed in cost of sales for the year ended September 30, 2021 totaled $208,496 ($217,836 for the year ended September 30, 2020), which includes an amount of $209 of inventory write-downs ($502 for the year ended September 30, 2020).

8. OTHER CURRENT ASSETS

	As at	As atSeptember 30, 2020
	September 30, 2021
	$	$
Prepaid expenses	6,618	2,597
Derivative financial instruments	715	-
Other	1,257	1,193
	8,590	3,790

Notes to the Consolidated Financial Statements

For the year ended September 30, 2021

(In thousands of Canadian dollars, except share and per share amounts)

9. PROPERTY, PLANT AND EQUIPMENT

					Capital
	Land andbuildings	Machinery andequipment	Others	Equipmentfor rental	projects inprogress	Total
	$	$	$	$	$	$
Cost
Balance as at September 30, 2019	25,964	77,614	7,468	6,641	1,692	119,379
Acquired in business
combinations (Note 4)	777	1,513	292	-	-	2,582
Additions	378	2,274	695	5,618	995	9,960
Disposals/transfers	(957)	-	(382)	(858)	(1,306)	(3,503)
Exchange difference	63	42	15	-	1	121
Balance as at September 30, 2020	26,225	81,443	8,088	11,401	1,382	128,539
Acquired in business
combinations (Note 4)	6,172	1,387	403	- 	-	7,962
Additions	881	2,806	1,713	5,867 	5,273	16,540
Disposals/transfers	(151)	(1,471)	(459)	(4,849)	(922)	(7,852)
Exchange difference	(373)	(354)	(89)	- 	8	(808)
Balance as at September 30, 2021	32,754	83,811	9,656	12,419 	5,741	144,381
Accumulated depreciation
Balance as at September 30, 2019	1,971	37,554	4,515	871	-	44,911
Depreciation for the year	1,274	5,582	1,098	831	-	8,785
Disposals	(277)	(874)	(303)	(70)	-	(1,524)
Exchange difference	4	4	-	-	-	8
Balance as at September 30, 2020	2,972	42,266	5,310	1,632	-	52,180
Depreciation for the year	1,413	5,809	996	1,316	-	9,534
Disposals	(51)	(2,174)	(295)	(572)	-	(3,092)
Exchange difference	(32)	(122)	(20)	-	-	(174)
Balance as at September 30, 2021	4,302	45,779	5,991	2,376	-	58,448
Net carrying value
As at September 30, 2020	23,253	39,177	2,778	9,769	1,382	76,359
As at September 30, 2021	28,452	38,032	3,665	10,043 	5,741	85,933

(In thousands of Canadian dollars, except share and per share amounts)

10. RIGHT-OF-USE ASSETS

	Land and
	buildings	Others	Total
	$	$	$
Cost
Balance as at October 1, 2019	26,739	346	27,085
Acquired in business combinations (Note 4)	6,322	62	6,384
Additions	3,222	166	3,388
Disposals	(46)	(182)	(228)
Exchange difference	(32)	-	(32)
Balance as at September 30, 2020	36,205 	392 	36,597 
Acquired in business combinations (Note 4)	- 	125 	125
Additions	- 	268 	268
Disposals	- 	(84)	(84)
Exchange difference	(92)	(5)	(97)
Balance as at September 30, 2021	36,113	696	36,809
Accumulated depreciation
Balance as at October 1, 2019	-	-	-
Depreciation for the year	4,045	178	4,223
Disposals	(5)	(32)	(37)
Balance as at September 30, 2020	4,040	146	4,186
Depreciation for the year	4,700	178	4,878
Disposals	-	(58)	(58)
Exchange difference	(2)	(1)	(3)
Balance as at September 30, 2021	8,738	265	9,003
Net carrying value
As at September 30, 2020	32,165	246	32,411
As at September 30, 2021	27,375	431	27,806

11. INTANGIBLE ASSETS

	Customerrelated	Technologybased	Non-competeagreements	Trademark	Total
	$	$	$	$	$
Cost
Balance as at September 30, 2019	33,700	3,009	5,532	1,460	43,701
Acquired in business combinations (Note 4)	1,516	-	218	-	1,734
Final purchase price allocation impact	3,486	-	798	-	4,284
Exchange difference	78	-	11	-	89
Balance as at September 30, 2020	38,780	3,009	6,559	1,460	49,808
Additions	20	640 	10 	- 	670 
Exchange difference	(562)	2	(90)	-	(650)
Balance as at September 30, 2021	38,238	3,651	6,479	1,460	49,828
Accumulated amortization
Balance as at September 30, 2019	17,919	607	4,139	-	22,665
Amortization for the year	4,743	317	669	-	5,729
Exchange difference	7	-	3	-	10
Balance as at September 30, 2020	22,669	924	4,811	-	28,404
Amortization for the year	3,625	436	780	-	4,841
Exchange difference	(258)	-	(48)	-	(306)
Balance as at September 30, 2021	26,036	1,360	5,543	-	32,939
Net carrying value
As at September 30, 2020	16,111	2,085	1,748	1,460	21,404
As at September 30, 2021	12,202	2,291	936	1,460	16,889

12. INVESTMENTS

	As at	As at
	September30, 2021	September 30, 2020
	$	$
Investment in associates	8,800	1,197
Investment in equity instruments	1,065	6,273
Investment in joint venture	135	-
	10,000	7,470

13. GOODWILL

Goodwill acquired in business combinations and intangible assets with indefinite lives have been allocated to three cash-generating units ("CGUs") for impairment testing as follows:

• Fuel Containment CGU
• Processing Equipment CGU
• Service CGU

13.1 Goodwill reconciliation and allocation table

	Fuel	Processing
	Containment	Equipment	Total
	$	$	$
Balance as at September30,2019	7,587	9,023	16,610
Final purchase price allocation impact	-	(4,284)	(4,284)
Acquired inbusiness combinations (Note4)	-	270	270
Exchange difference	32	26	58
Balance as at September30,2020	7,619	5,035	12,654
Acquired in business combinations (Note4)	17,763	-	17,763
Exchange difference	(271)	(57)	(328)
Balance as at September30,2021	25,111	4,978	30,089

The net carrying amount of the Service CGU goodwill is $nil and the carrying amount of indefinite life intangible asset attributable to Fuel Containment CGU is $1,460 as at September 30, 2021 ($1,460 as at September 30, 2020).

13.2 Impairment testing

TerraVest performed an annual goodwill impairment test. The recoverable values of the CGUs were determined based on value-in-use calculations, covering a five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives. The recoverable values of the Fuel Containment and Processing Equipment CGUs exceeded their carrying amounts. Accordingly, no impairment loss was recognized on goodwill for the years ended September 30, 2021 and 2020.

Management's primary assumptions about projected cash flows when determining value in use are as follows:

• Projected growth over the 5-year forecast period takes into account factors such as the nature of the industry in which the CGU operates, market growth projections, market maturity and TerraVest's strategic plan as set by management; and
• The discount rate reflects appropriate adjustments relating to market risk and specific risk factors of each CGUs.

	As at September30, 2021		As at September30, 2020
	FuelProcessingContainmentEquipment		FuelContainment	ProcessingEquipment
	%	%	%	%
Projected growth – next fiscal year	2.00	2.00	2.00	0.00
Projected growth – thereafter	2.00	2.00	2.00	2.00
Discount rate	9.08	13.13	9.05	10.60

TerraVest returns to usual projected 2% growth in fiscal 2022 and after, with pre-COVID-19 sales level in fiscal 2023.

14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	As atSeptember30, 2021	As atSeptember30, 2020
	$	$
Trade accounts payable	24,977	12,451
Accrued liabilities	25,812	11,441
Interest payable	571	86
Derivative financial instruments liability	-	558
	51,360	24,536

15. SHORT-TERM REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

15.1 Short-term revolving credit facility

The maximum borrowing amount available based on margin requirements and the amount drawn were as follows:

	As at	As atSeptember30, 2020
	September30, 2021
	$	$
Revolving credit facility
Amount drawn	251	864
Maximum amount	3,460	4,250

As at September 30, 2021, a subsidiary of TerraVest operating in the Processing Equipment segment had a credit facility consisting of a revolving operating loan of $9,000 ($9,000 as at September 30, 2020) with a Canadian financial institution. Borrowing capacity is based on the margining of certain accounts receivable and inventories less certain accounts payable. The revolving operating loan can be used for general corporate purposes and bears interest at Canadian prime rate plus 65 basis points. As at September 30, 2021, the interest rate was 3.10% (3.45% as at September 30, 2020). The revolving operating loan is due on demand.

The revolving operating loan contains an obligation to comply with the following quarterly financial covenants:

	Required	As at
Financial covenants	measurements	September30, 2021
Total debt to equity ratio	≤ 2.50:1	1.21
Current ratio	≥ 1.15:1	1.64

The revolving operating loan is secured by:

• a first ranking security on all present and future personal property of a subsidiary operating in the Processing Equipment segment; and
• an assignment of insurance policies.

(In thousands of Canadian dollars, except share and per share amounts)

15.2 Long-term debt

		As at	As at
	Notes	September 30,2021	September 30,2020
		$	$
Revolving credit facilities:
Revolvingcreditfacility,floatingrate,maturingin
December 2023	15.2.1	69,995	64,740
Revolving credit facilities, interest at prime rate plus 0.25%,
maturing in February 2023	15.2.2	35,225	31,820
Interest bearing financing:
Loans, interest at 6%, payable in 59 equal and consecutive
monthly instalments of $90, starting in June 2023 and final
payment for the remaining balance at maturity, maturing in
May 2028	15.2.3	50,000	-
Loans, interest at prime rate plus a margin of 0% or 0.20%,
payable in 72 equal and consecutive monthly capitalinstalmentstotaling$23plusinterest,maturingin
January2025	15.2.4	1,039	1,181
Loans, forgiven in fiscal 2021		-	3,122
Other		229	205
Non-interest bearing financing:
Loans, effective interest rates between 2.70% and 3.95%, payable
in 60 equal and consecutive monthly instalments totaling $20,
starting in January 2021, maturing in February 2026		958	1,107
Loans, effective interest rates between 3.45% and 3.95%, payable
in 72 equal and consecutive monthly instalments totaling $23,
starting in May 2020, maturing in July 2026	15.2.4	1,249	1,476
		158,695	103,651
Current portion of long-term debt		(4,516)	(5,251)
		154,179	98,400

Revolving credit facilities

15.2.1 Revolving operating credit facility

As at September 30, 2021, certain subsidiaries of TerraVest operating in the Fuel Containment segment had a credit facility with a Canadian financial institution. The new credit facility includes a revolving operating loan of $100,000 ($100,000 as at September 30, 2020) and a derivative risk facility in the amount of $7,000 ($7,000 as at September 30, 2020) granted to enter into forward exchange contracts and interest rate swap agreement. On March 17, 2021, the term of their credit facility was extended and now expires on December 1, 2023.

The revolving operating credit facility can be used to finance current operations, purchase PP&E and finance business acquisitions. It bears interest at Canadian or U.S. prime rate, depending on the currency of the borrowing, plus 0 to 75 basis points for open ended borrowings and/or bears interest at the financial institution offered rate, plus 140 to 265 basis points, upon the use of term borrowings. As at September 30, 2021, the interest rate on Canadian open ended borrowings was 2.45% (2.45% as at September 30, 2020). Interest rates margin varies based on a prescribed ratio. As at September 30, 2021 and 2020 the standby fee was $nil.

The credit facility contains an obligation to comply with the following quarterly financial covenants:

	Required	As at
Financial covenants	measurements	September30, 2021
Interest-bearing debt to EBITDA ratio	≤ 4.00:1	2.38
Interest coverage ratio	≥ 3.50:1	20.52

The credit facility is secured by:

• a first ranking security in the amount of $110,000 over movable and immovable properties and movable assets, tangible and intangible, present and future of certain subsidiaries;
• a first ranking collateral charge on the universality of certain subsidiaries real property;
• a security agreement on machinery and equipment, inventory and accounts receivable of a specific subsidiary; and
• an assignment of insurance policies.

The transaction costs of $9, incurred during the year ended September 30, 2021 to renegotiate the credit facility, were recorded as prepaid expenses and are amortized on a straight-line basis over the remaining term.

15.2.2 Revolving credit facilities

As at September 30, 2021, certain subsidiaries of TerraVest operating in the Processing Equipment and Service segments had credit facilities totaling $50,000 with a Canadian financial institution. The credit facilities include a revolving operating loan for a maximum available borrowing capacity of $30,000 and a revolving term loan of $20,000. Borrowing capacity for the revolving operating loan is based on the margining of certain accounts receivable and inventories less certain accounts payable. On March 31, 2021, the term of their credit facilities was extended and now expire on February 15, 2023 with a one-year renewal option remaining.

The revolving operating loan can be used to finance current operations, including working capital requirements and permitted acquisitions. The revolving term loan can be used to refinance existing debt and to purchase PP&E. These credit facilities bear interest at Canadian or U.S. prime rate, depending on the currency of the borrowing, plus 25 basis points. As at September 30, 2021, the interest rate was 2.70 % (2.70% as at September 30, 2020).

The credit facilities contain an obligation to comply with the following quarterly financial covenants:

	Required	As at
Financial covenants	measurements	September30, 2021
Funded debt to EBITDA ratio	≤ 3.00:1	2.21
Fixed charge coverage ratio	≥ 1.15:1	2.95

The credit facilities are secured by:

• a first ranking security on all present and future personal property and assets of certain subsidiaries operating in the Processing Equipment and Service segments and of TerraVest; and
• an assignment of insurance policies.

Transaction costs of $86, incurred during the year ended September 30, 2021 ($168 during the year ended September 30, 2020) to obtain and amend the credit facilities, were recorded as prepaid expenses and are amortized on a straight-line basis over the remaining term of those facilities.

Interest bearing and non-interest bearing financings

15.2.3 Term loan

On June 9, 2021, a subsidiary of TerraVest operating in the Fuel Containment segment obtained an unsecured interest-bearing loan totaling $50,000 with a Canadian financial institution. The loan includes a $10,000 tranche that can be used to finance working capital for growth opportunities and a $40,000 tranche that can be used to finance business acquisitions which can be drawn by multiples of $10,000.

Transaction costs of $365, incurred during the year ended September 30, 2021 to obtain the loan, were recorded as prepaid expenses and are amortized on a straight-line basis over the 84-month term.

The loan contains an obligation to comply with the following quarterly financial covenants:

	Required	As at
Financial covenants	measurements	September30, 2021
Funded debt to EBITDA ratio	≤ 3.50:1	2.48
Interest coverage ratio	≥ 3.50:1	23.60

15.2.4 Loans

The loans contain an obligation to comply with the following annual financial covenant:

	Required	As at
Financial covenant	measurement	September30, 2021
Fixed charge coverage ratio	≥ 1.20:1	6.40

The loans are secured by:

• a security in the amount of $4,008 over the universality of movable assets, tangible and intangible, present and future, of specific subsidiaries of TerraVest;
• a security agreement of $3,340 from a specific subsidiary of TerraVest; and
• an assignment of insurance policies.

15.3 Long-term debt maturities

The aggregate maturities of TerraVest's long-term debt for each of the next five years and beyond are as follows:

	Total principalpayments
	$
2022	4,584
2023	34,315
2024	76,200
2025	6,002
2026	5,789
Beyond 2026	32,000
	158,890

15.4 Covenants

As at September 30, 2021, TerraVest was in compliance with all of its financial and non-financial covenants.

16. LEASE LIABILITIES

	As at	As at
	September 30, 2021	September30, 2020
		$
Balance, beginning of year	34,897	-
Adoption of IFRS 16 on October 1, 2019	-	28,955
Adjusted balance, beginning of year	34,897	28,955
Acquired in business combinations (Note 4)	125	6,384
Additions	268	3,388
Lease payments	(4,381)	(3,603)
Disposals	(26)	(195)
Exchange difference	(95)	(32)
	30,788	34,897
Current portion of lease liabilities	4,640	(4,374)
Balance, end of year	26,148	30,523

Rent payments were $5,780 for the year ended September 30, 2021 ($5,058 for the year ended September 30, 2020).

16.1 Lease liabilities maturities

The aggregate maturities of TerraVest's lease liabilities for each of the next five years and beyond are as follows:

	Principal	Interests	Total
	$	$	$
2022	4,640	964	5,604
2023	3,640	821	4,461
2024	3,463	714	4,177
2025	2,976	619	3,595
2026	2,999	535	3,534
Beyond 2026	13,070	1,494	14,564
	30,788	5,147	35,935

For the detail on right-of-use assets, please refer to Note 10.

17. INCOME TAXES

17.1 Reconciliation between earnings before income taxes and income tax expense

The following is a reconciliation of income taxes, calculated at the Canadian combined federal and provincial income tax rate, to the income tax expense included in the consolidated statements of income:

	As at	As at
	September30, 2021	September30, 2020
	$	$
Earnings before income taxes	46,046	35,498
i)Income tax –statutory rate	23.9%	25.2%
Income taxes at statutory rate	11,005	8,945
Income tax rates in other jurisdictions and rate changes	838	506
Non-taxable items	(1,217)	(265)
Change in unrecognized assets	(726)	(69)
Change in estimates related to prior years	(281)	(182)
Other	17	(65)
Income tax expense	9,636	8,870

i) The statutory rate decreased primarily due to the reduction of the tax rate of certain jurisdictions where TerraVest operates.

(In thousands of Canadian dollars, except share and per share amounts)

17.2 Income tax expense

	As atSeptember30, 2021	As atSeptember30, 2020
	$	$
Current income tax expense
Current year	8,661	8,312
Deferred income tax expense
Origination and reversal of temporary differences	2,329	1,117
Change in income tax rates	(500)	(169)
Change in unrecognized deductible temporary differences	(726)	(69)
Adjustment for prior years	(56)	(299)
Other	(72)	(22)
	975	558
Income tax expense	9,636	8,870

Deferred income tax expense reflects the net effect of losses carried forward and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

17.3 Significant components of TerraVest's deferred income tax assets and liabilities

	As atSeptember 30, 2021	As atSeptember 30, 2020
	$	$
Deferred income tax assets
Inventories	367	256
Non-capital losses carried forward	4,447	4,031
Income tax credits carried forward	1,989	-
Goodwill and intangible assets	6,834	6,992
Property, plant and equipment	278	126
Net defined benefit liability	1,378	-
Accounts payable and accrued liabilities	1,593	-
Lease liabilities	7,574	8,516
Other	370	436
Deferred income tax assets	24,830	20,357
Offset by deferred income tax liabilities	(12,741)	(11,770)
	12,089	8,587

Notes to the Consolidated Financial Statements

For the year ended September 30, 2021

(In thousands of Canadian dollars, except share and per share amounts)

	As atSeptember 30, 2021	As atSeptember 30, 2020
	$	$
Deferred income tax liabilities
Inventories	582	-
Property, plant and equipment	10,194	10,273
Right-of-use assets	6,836	7,904
Goodwill and intangible assets	982	1,391
Net defined benefit asset	1,594	-
Other	719	413
Deferred income tax liabilities	20,907	19,981
Offset by deferred income tax assets	(12,741)	(11,770)
	8,166	8,211

17.4 Movement in deferred income tax assets and liabilities

					As at September 30, 2021
	Net assets(liabilities),openingbalance	Acquired inbusinesscombinations(Note 4)	Recognized inshareholders'equity	Recognized inprofit or loss	Net assets(liabilities),closingbalance
	$	$	$	$	$
Non-capital losses carried forward	4,031	1,966	-	(1,550)	4,447
Income tax credits carried forward	-	1,785	-	204	1,989
Goodwill and intangible assets	5,601	-	-	251	5,852
Property, plant and equipment	(10,147)	63	-	168	(9,916)
Right-of-use assets	(7,904)	(30)	-	1,098	(6,836)
Net defined benefit asset	-	(1,632)	(11)	49	(1,594)
Inventories	256	(584)	-	113	(215)
Accounts payable and accrued liabilities	-	1,572	-	21	1,593
Lease liabilities	8,516	30	-	(972)	7,574
Net defined benefit liability	-	1,389	(25)	14	1,378
Other	23	19	(20)	(371)	(349)
	376	4,578	(56)	(975)	3,923

Notes to the Consolidated Financial Statements

For the year ended September 30, 2021

(In thousands of Canadian dollars, except share and per share amounts)

					As at September 30, 2020
	Net assets(liabilities),openingbalance	Impact onadoption ofnew standard	Recognized inshareholders'equity	Recognized inprofit or loss	Net assets(liabilities),closingbalance
	$	$	$	$	$
Non-capital losses carried forward	3,506	-	-	525	4,031
Goodwill and intangible assets	5,421	-	-	180	5,601
Property, plant and equipment	(9,077)		-	(1,070)	(10,147)
Right-of-use assets		(6,666)		(1,238)	(7,904)
Inventories	149	-	-	107	256
Convertible debentures	(106)	-	386	(280)	-
Lease liabilities	-	7,129	-	1,387	8,516
Other	192	-	-	(169)	23
	85	463	386	(558)	376

17.5 Deferred income tax

As at September 30, 2021, TerraVest has non-capital losses carried forward of $18,867 ($16,589 as at September 30, 2020). These losses expire between 2030 and 2041, except for certain losses in the amount of $2,981 which can be carried forward indefinitely. Deferred income tax assets have been recognized in respect of these losses as it is probable that future taxable profit will be available against which TerraVest can utilize these benefits.

TerraVest also has capital losses of $54,406 ($60,428 as at September 30, 2020) that are available for carry forward indefinitely. No deferred income tax asset has been recognized with respect to these capital losses.

18. POST-EMPLOYMENT BENEFITS

18.1 Description of the plans

A subsidiary of TerraVest administers two defined benefit pension plans and one unfunded post-retirement healthwelfare plan to various groups of its employees and retirees. One of the defined benefit plans was frozen in 2000. TerraVest's subsidiary defined benefit plan funding policy is to contribute annually amounts which at least meet the funding requirement under the Employee Retirement Income Security Act of 1974 (ERISA) of the United States Department of Labor.

18.2 Exposure to actuarial risk

TerraVest is exposed to the following actuarial risks:

Investment risk

All assets selected for inclusion in the portfolios must have a readily ascertainable market value and must be generally considered marketable at time of purchase. TerraVest believes the plan asset allocation as presently structured will ensure the long-term rate of return will be attained while appropriately minimizing investment risk.

Interest rate risk

A decrease in interest rate on high quality corporate bonds, which would reduce the discount rate used, would increase the present value of the defined benefit obligation. However, this increase would be partially offset by an increase in the fair value of certain plan assets.

Longevity risk

An increase in life expectancy of plan participants would increase the defined benefit obligation as the plans are providing benefits for life to plan participants.

18.3 Change in the present value of the defined benefit obligation

			As at September 30, 2021
	Defined benefit	Post-retirement
	pension plans	plan	Total
	$	$	$
Balance, beginning of year	-	-	-
Acquired in business combinations(Note4)	27,203	5,636	32,839
Current service cost	40	14	54
Interest expense	79	16	95
Benefitspaid	(114)	(25)	(139)
Actuarial (gains)losses arising from:
Effect of changes in financial assumptions	(487)	(105)	(592)
Effect of experience adjustments	64	-	64
Exchange difference	(110)	(24)	(134)
Balance, end of year	26,675	5,512	32,187

The weighted average duration of the defined benefit obligation is 12.3 years at September 30, 2021.

18.4 Change in the fair value of plan assets

	As atSeptember 30, 2021
	$
Balance, beginning of year	-
Acquired in business combinations(Note4)	33,025
Interest income	96
Return on plan assets, excludingamounts included in interest income	(378)
Employer contributions	25
Benefitspaid	(139)
Administrative expenses	(42)
Exchange difference	(134)
Balance, end of year	32,453

18.5 Net defined benefit asset (liability)

	As at
	September 30, 2021
	$
Fair value of plan assets	32,453
Defined benefit obligation	(32,187)
Net defined benefit asset	266
Presented as follows in the consolidated statementsof financial position:
Net defined benefit asset	5,778
Net defined benefit liability	(5,512)
	266
18.6 Cost of benefits
	As at
	September 30, 2021
	$
Cost of benefitsrecognized in profit or loss
Current service cost	54
Net interestexpense (income)	(1)
Administrative expenses	42
	95
Cost of benefitsrecognized inaccumulated deficit
Actuarial (gains)losses	(528)
Return on plan assets, excludingamounts included in net interest	378
	(150)
18.7 Composition of pension plan assets
	As at
	September 30, 2021
	$
Plan assets quoted in active markets
Cash and cash equivalent	3,237
Debt instruments	3,146
Investment funds	15,077
Equity instruments	6,278

Plan assets not quoted in active markets

Debt instruments	4,715
Total plan assets	32,453

27,738

18.8 Expected contributions

During fiscal 2022, TerraVest does not expect to contribute to its defined benefit pension plans.

18.9 Actuarial assumptions

The key actuarial assumptions used for the valuation of the defined benefit obligation are as follows:

	As at
	September 30, 2021
Defined benefit obligation
Discount rate	2.76%
Mortality table	PRI-2012 i)

i) PRI-2012 with MP-2020 Projection, Blue Collar for one defined benefit plan.

18.10 Sensitivity analyses

The sensitivity analyses were prepared in accordance with TerraVest's accounting policies described in Note 2.8. The sensitivity analyses of the defined benefit obligation were calculated based on reasonably possible changes to each key actuarial assumption without considering simultaneous changes to several key actuarial assumptions. A change in one actuarial assumption could trigger a change in another actuarial assumption, which could amplify or mitigate the impact of the change in these assumptions on the present value of the defined benefit obligation. The actual results of items subject to assumptions may differ.

Assumption	Change inassumption	Impact i) ofincrease inassumption	Impact i) ofdecrease inassumption
		$	$
Discount rate	0.25%	(922)	970
Mortality table–life expectancyof plan participants	1year	1,369	(1,332)

i) Increase (decrease) in the defined benefit obligation.

19. SHARE CAPITAL AND SHARE-BASED PAYMENTS

19.1 Common shares

Changes in the common shares issued and outstanding were as follows:

	As at September 30, 2021		As at September 30, 2020
	Number	Amount	Number	Amount
		$		$
Balance, beginning of year	18,681,250	149,284	17,642,489	139,290
Issued on conversion of convertible debentures	-	-	1,125,931	10,690
Issued on exercise of stock options	120,031	2,304	-	-
Repurchased and cancelled	(1,233,826)	(9,876)	(87,170)	(696)
Balance, end of year	17,567,455	141,712	18,681,250	149,284

During the year ended September 30, 2021, TerraVest repurchased 1,233,826 common shares (87,170 during the year ended September 30, 2020) under its common shares normal course issuer bid ("NCIB") for total consideration of $21,103 ($1,080 during the year ended September 30, 2020). The difference between the amount paid for the common shares and their carrying value was recorded in share premium.

On March 17, 2021, TerraVest renewed its common shares NCIB under which it may repurchase 1,028,726 common shares. The common shares NCIB expires on March 16, 2022. On April 15, 2021, TerraVest has entered into an Automatic Share Purchase Plan ("ASPP") in order to facilitate, on any trading day, the repurchase of common shares under its common shares NCIB. The remaining number of common shares available for repurchase under the current common shares NCIB was nil as at September 30, 2021.

19.2 Share-based payments arrangement

TerraVest has a stock option plan for which options are granted to key management personnel to purchase common shares of TerraVest. Of the 1,500,000 common shares reserved for issuance, 367,500 were available for issuance under the stock option plan as at September 30, 2021.

Total expense arising from the share-based payment transactions recognized during the year ended September 30, 2021 as compensation expense was $70 ($100 for the year ended September 30, 2020).

Grant Date	Expiry Date	Exercise price	Openingbalance	Settled orexercised	Closingbalance	Vested andexercisable	Unvested
Feb. 9, 2017	Feb. 9, 2022	$9.10	333,000	(333,000)	-	-	-
Mar. 9, 2017	Mar. 9, 2024	$9.10	267,500	-	267,500	267,500	-
Jan. 20, 2020	Jan. 20, 2027	$13.12	100,000	-	100,000	33,333	66,667
			700,500	(333,000)	367,500	300,833	66,667
	Weighted average exercise price		$9.67	$9.10	$10.19	$9.55

The stock options outstanding and the weighted average exercise prices as at September 30, 2021 were as follows:

During the year ended September 30, 2021, no stock options were granted or forfeited and 333,000 stock options were exercised by way of cashless exercise. The aggregate value of the issued common shares and the withholding tax obligation represented the intrinsic value of the 333,000 stock options at the exercise date and was recorded in share premium. The net settlement of this transaction resulted in TerraVest issuing 120,031 common shares at a weighted average share price of $17.92 per common share based on the average trading price of the common shares on the Toronto Stock Exchange for the five trading days immediately preceding the exercise date of the stock options.

19.3 Dividends

During the year ended September 30, 2021, TerraVest has declared dividends totaling $0.40 per common share ($0.40 per common share during the year ended September 30, 2020). As at September 30, 2021, $1,757 was included in dividends payable.

Subsequent to the end of the year, TerraVest declared a cash dividend of $0.10 per common share payable on January 10, 2022 to shareholders of record on December 31, 2021.

20. EARNINGS PER SHARE

The following table provides a breakdown of the numerator and denominator used in the calculation of earnings per share and diluted earnings per share:

	Years ended
	September 30, 2021	September 30, 2020
Numerator
Net income attributed to common shareholders	$36,618	$26,839
Financing costs on convertible debentures, net of income tax	-	203
Diluted net income attributed to common shareholders	$36,618	$27,042
Denominator
Common shares, beginning of year	18,681,250	17,642,489
Weighted average shares issued	41,435	892,398
Weighted average shares repurchased	(622,720)	(48,823)
Weighted average shares, end of year - basic	18,099,965	18,486,064
Dilutive effect of convertible debentures	-	271,542
Dilutive effect of options	252,219	273,129
Weighted average shares, end of year - diluted	18,352,184	19,030,735
Net income per share - basic	$2.02	$1.45
Net income per share - diluted	$2.00	$1.42

21. OPERATING EXPENSES

	Years ended
	September 30, 2021	September 30, 2020
	$	$
Cost of sales
Personnel expenses	64,379	62,950
Depreciation of other property, plant and equipment	7,335	6,747
Depreciation of property, plant and equipment for rental	1,316 	831
Depreciation of right-of-use assets	4,347	3,633
Amortization of deferred development costs	-	130
Administration
Personnel expenses	14,863	17,590
Depreciation of other property, plant and equipment	881	1,207
Depreciation of right-of-use assets	495	590
Amortization of finite life intangible assets	4,841	5,729
Selling
Personnel expenses	6,481	4,575
Depreciation of other property, plant and equipment	2	-
Depreciation of right-of-use assets	36	-

Government subsidies related to personnel expenses have not been included in the table above. Refer to Note 30 for complementary information.

22. FINANCING COSTS

	Years ended
	September 30, 2021	September 30, 2020
	$	$
Interest on revolving credit facilities and long-term debt	2,803	3,223
Interest on lease liabilities	1,399	1,455
Interest on convertible debentures	-	154
Accretion of convertible debentures	-	122
Amortization of financing costs	303	277
Convertible debentures retirement costs	-	9
	4,505	5,240

23. OTHER (GAINS) LOSSES

	Years ended
	September 30, 2021	September 30, 2020
	$	$
(Gain) loss on foreign exchange	2,119	(604)
Change in fair value of derivative financial instruments	(1,345)	127
Change in fair value of investment in equity instruments	(3,992)	(1,713)
(Gain) loss on disposal of other property, plant and equipment	(475)	(260)
(Gain) loss on disposal of property, plant and equipment for rental	(808)	(295)
(Gain) loss on disposal of assets held for sale	-	(931)
(Gain) loss on contingent considerations	-	(1,648)
	(4,501)	(5,324)

TERRAVEST INDUSTRIES INC. Notes to the Consolidated Financial Statements For the year ended September 30, 2021 (In thousands of Canadian dollars, except share and per share amounts)

24. SUPPLEMENTAL CASH FLOW INFORMATION

		Years ended
	September 30, 2021	September 30, 2020
	$	$
Adjustments for items not affecting cash
Depreciation of other property, plant and equipment	8,218	7,954
Depreciation of property, plant and equipment for rental	1,316	831
Depreciation of right-of-use assets	4,878	4,223 
Amortization of intangible assets	4,841	5,729
Amortization of deferred development costs	-	130
Amortization of financing costs	303	277
Post-employment benefits costs	95	-
Share-based compensation expense	70	100
Net change of inventory valuation allowance	(348)	(214)
Change in fair value of derivative financial instruments	(1,345)	127
Change in fair value of investment in equity instruments	(3,992)	(1,713)
(Gain) loss on disposal of other property, plant and equipment	(475)	(260)
(Gain) loss on disposal of property, plant and equipment for rental	(808)	(295)
(Gain) loss on disposal of assets held for sale	-	(931)
(Gain) loss on contingent considerations	-	(1,648)
Deferred income tax expense	975	558
Accretion of convertible debentures	-	122
Convertible debentures retirement costs	-	9
Share of associates and joint venture net loss	78	29
Forgiveness of long-term debt	(2,960)	-
Other	31	(187)
	10,877	14,841
Change in non-cash operating working capital items
Accounts receivable	812	26,270
Inventories	(33,435)	4,650
Other current assets	(1,903)	392
Accounts payable and accrued liabilities	11,257	(13,170)
Deferred revenues	(605)	3,293
	(23,874)	21,435

24.1 Additional cash flow information

Deposits on purchase PP&E of $1,646 were recorded in other current assets as at September 30, 2021 ($nil as at September 30, 2020).

Purchase of PP&E of $nil was unpaid and recorded as accounts payable and accrued liabilities as at September 30, 2021 ($219 as at September 30, 2020).

Leases, for which an amount of $268 was recognized in right-of-use assets and lease liabilities during the year ended September 30, 2021 ($9,772 during the year ended September 30, 2020), had no cash impact on investing and financing activities at initial recognition.

25. FINANCIAL INSTRUMENTS RISKS

TerraVest is exposed to various risks in relation to financial instruments. The main type of risks are market risk, credit risk and liquidity risk. An analysis of these risks as at September 30, 2021, is provided below.

25.1 Market risk

TerraVest is exposed to market risk, through its use of financial instruments, specifically to foreign currency risk, interest rate risk and certain commodity price risk.

Foreign currency risk

Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the Canadian dollar. TerraVest is subject to foreign currency risk for:

• sales and operating expenses denominated in foreign currencies made by Canadian entities; and
• financial instruments denominated in foreign currency in Canadian entities.

	As at	As at
	September30,2021	September30,2020
	US$	US$
Financial assets and liabilities exposure
Cash	3,243	14,477
Trade and other receivables	6,302	5,627
Investment in equity instruments	835	115
Accounts payable and accrued liabilities	(2,651)	(1,678)
Long-term debt	(15,000)	-
	(7,271)	18,541

Based on the net U.S. dollar exposure as at September 30, 2021, a one cent increase in the Canadian/U.S. dollar exchange rate would have had a unfavorable impact of $70 on net income (favorable impact of $185 for the year ended September 30, 2020). A one cent decrease in the Canadian/U.S. dollar exchange rate would have had an impact of a similar magnitude but in opposite directions on net income.

TerraVest does not have a policy to hedge its foreign currency risk and manages its exposure to foreign currency risk by periodically entering into forward exchange contracts. As at September 30, 2021, TerraVest had forward exchange contracts totaling $30,002 ($29,792 as at September 30, 2020) outstanding to sell, at various rates and expiring on various dates up to and including July 28, 2023. The fair value of forward exchange contracts was an asset of $281 as at September 30, 2021 included in other current assets (a liability of $391 as at September 30, 2020 was included in accounts payable and accrued liabilities).

Interest rate risk

TerraVest does not have a policy to hedge its interest rate risk and is exposed to interest rate risk arising from fluctuations in interest rates on revolving credit facilities and long-term debt at variable interest rates. As at September 30, 2021, TerraVest had an interest rate swap agreement expiring on June 9, 2025 for the notional amount of $25,000. Under the interest rate swap agreement, TerraVest receives interest on the notional amount at the 1-month CDOR rate in exchange for payments at a fixed rate of 0.87%, plus 140 to 265 basis points based on a prescribed ratio. The fair value of the interest rate swap was an asset of $434 as at September 30, 2021 (a liability of $167 as at September 30, 2020 was included in accounts payable and accrued liabilities).

For the year ended September 30, 2021, a 1% increase in the interest rate would have had an unfavorable impact of $590 on net income ($676 for the year ended September 30, 2020), calculated using the average outstanding balances during the year on revolving credit facilities and long-term debt at variable interest rates. A 1% decrease in the interest rate would have had an impact of a similar magnitude but in opposite directions on net income.

Commodity price risk

TerraVest is sensitive to changes in commodity prices for crude oil and natural gas. Fluctuations in commodity prices for crude oil and natural gas have an indirect impact on TerraVest's portfolio businesses operating in the oil and natural gas sectors. The indirect impact is the effect that the price variations have on activity levels for customers of those portfolio businesses and, therefore, the demand for goods and services. The indirect impact is not quantifiable.

25.2 Credit risk

Credit risk is the risk that a counterparty will fail to perform its obligations to TerraVest. TerraVest's credit risk comes mainly from accounts receivable and is mitigated through credit policies that limit transactions according to counterparties' creditworthiness, which is assessed by considering counterparties' financial position, past experience and other factors. In addition, a large majority of TerraVest's clients are well established companies with a history of prompt payment. Accounts receivable amounts are presented on the consolidated statements of financial position net of the allowance for doubtful accounts. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due. The expected loss rates are based on the payment profile for sales based on historical credit losses. Trade receivables are written off when there is no reasonable expectation of recovery. Failure to make payments within 180 days from the invoice date and failure to engage with TerraVest on alternative payment arrangement, amongst other, may be considered indicators of no reasonable expectation of recovery. The credit risk on cash is considered negligible since cash is held in reputable financial institutions with high quality external credit ratings. TerraVest's maximum exposure to credit risk is $71,285 as at September 30, 2021 ($72,062 as at September 30, 2020).

25.3 Liquidity risk

Liquidity risk refers to the possibility of TerraVest not being able to meet its financial obligations when due. TerraVest's objective is to maintain cash and cash availability to meet its liquidity requirements. TerraVest monitors its cash and trade receivable balances as well as cash flows generated from operations to meet its financial obligations. TerraVest also has access to various authorized revolving credit facilities to manage its liquidity need.

		Contractual cash flows
	Carrying value	Next 12 months	2 to 5 years	Beyond 5 years	Total i)
	$	$	$	$	$
Bank overdrafts	878	878	-	-	878
Revolving credit facility	251	251	--		251
Accounts payable and
accruedliabilities	51,360	51,360	-	-	51,360
Dividends payable	1,757	1,757	-	-	1,757
Long-term debt ii)	158,695	4,584	122,306	32,000	158,890
Interest on long-term debt	-	5,220	12,471	2,775	20,466
As at September 30, 2021	212,941	64,050	134,777	34,775	233,602
As at September 30, 2020	131,654	35,035	100,592	315	135,942

As at September 30, 2021 and 2020, TerraVest contractual financial liabilities maturities are as follows:

i) The amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the liabilities at the reporting date.

ii) Include current and non-current portion of long-term debt.

26. CAPITAL MANAGEMENT

The capital structure of TerraVest consists of its revolving credit facilities, long-term debt and shareholders' equity attributable to common shareholders as presented in the consolidated statements of financial position. TerraVest's objective in managing its capital resources is to ensure that there are adequate capital resources to support the operations of its various business segments and maximize the return to shareholders. Management continually assesses TerraVest's capital needs to meet its objectives. There were no significant changes in TerraVest's capital management approach from the prior year.

The following table outlines TerraVest's capital structure:

	As at	As at
	September 30, 2021	September 30, 2020
	$	$
Bank overdrafts	878	735
Drawn on current revolving credit facility	251	864
Available on current revolving credit facility, net of amount drawn	3,209	3,386
Drawn on long-term operating loans	87,754	77,457
Available on long-term operating loans, net of amount drawn	34,983	42,957
Long-term debt (current and non-current)	70,941	26,194
Shareholders' equity attributable to common shareholders	132,055	125,930
	330,071	277,523

Other than the financial covenants and restrictive non-financial covenants contained in the loan agreements described in Note 15, TerraVest is not subject to any externally imposed capital restrictions.

The Board of Directors does not establish quantitative return on capital criteria for management. TerraVest intends to maintain a flexible capital structure that is consistent with its stated objectives and adjust it in the light of changes in economic conditions and the risk characteristics of the underlying instruments. In order to maintain or adjust its capital structure, TerraVest may, from time to time, acquire shares for cancellation in connection with an SIB or an NCIB, issue new shares, raise capital through various debt instruments or refinance current debt through instruments with different characteristics.

27. CONTINGENCIES

In the ordinary course of business, TerraVest is exposed to various proceedings and claims. TerraVest assesses the validity of these proceedings and claims. Provisions are made whenever a penalty seems probable and a reliable estimate can be made of the amount.

A number of these claims are related to a subsidiary of TerraVest who has been named as one of the defendants in numerous lawsuits alleging personal injury arising from asbestos-containing materials allegedly contained in certain boilers manufactured by the subsidiary or its predecessors, many of which are covered by insurance. The subsidiary is vigorously defending these lawsuits and as one of the numerous defendants initially named, the amount of damages sought and the proportionate share of liability, if any, is not estimable in this regard. Although management believes that the costs and liabilities associated with these lawsuits will not have a material adverse effect on its operations or financial position, there can be no assurance to this effect.

Management believes that any settlement arising from these claims will not have a significant effect on TerraVest's current consolidated financial position or on net income. Therefore, no provision has been recognized in these consolidated financial statements.

28. RELATED PARTY TRANSACTIONS

28.1 Identification

As at September 30, 2021 and 2020, TerraVest common shares were held by multiple shareholders, none of whom controlled TerraVest. As at September 30, 2021, a member of TerraVest's Board of Directors was considered having significant influence over TerraVest*.*

A joint venture is an entity that TerraVest has significant influence over, by holding 50% of the voting rights of the entity. An associate is an entity that TerraVest has significant influence over, by holding 20% or greater of the voting rights of the entity. Key management personnel includes members of the Board of Directors, the President and Chief Executive Officer, the Chief Investment Officer and the Chief Financial Officer. Other related parties include close family members of key management personnel and entities controlled by a key management personnel.

28.2 Transactions and account balances

			Year ended September 30, 2021
	Joint venture	Associate	Other relatedparties
	$	$	$
Transactions
Sales i)	31	292	-
Purchases i)	172	-	-
Professional fees expense i)	-	-	150
Rental expense i)	-	-	13
Account balances
Accounts receivable	-	305	-
Other current assets	36	44	-
Accounts payable and accrued liabilities	12	-	-

i) The related party transactions during the year ended September 30, 2021 were carried out under market terms and conditions and as part of ordinary course of business.

		Year ended September 30, 2020
		Other related
	Associate	parties
	$	$
Transactions
Purchases i)	14	-
Professional fees expense i)	-	158
Rental expense i)	-	21
Proceeds from disposal of assets held for sale ii)	-	3,000
Account balances
Accounts payable and accrued liabilities	-	33

i) The related party transactions during the year ended September 30, 2020 were carried out under market terms and conditions and as part of ordinary course of business.

ii) On March 25, 2020, TerraVest sold an immovable property for a total consideration of $3,000 to Armco Rive Nord inc. (formerly 11925890 Canada inc.), an entity jointly controlled by the Executive Chairman of TerraVest's Board of Directors and by George Armoyan, a former member of TerraVest's Board of Directors. The transaction resulted in a gain on disposal of assets held for sale of $1,111 and was carried out under market terms and conditions.

28.3 Additional information on other related parties' transactions

	Years ended
	September 30, 2021September 30, 2020
	$	$
Professional fees expense
Pellerin Strategies Conseils Inc. i)	150	135
Armco Capital Inc. ii)	-	23
	150	158
Rental expense
Clarke Inc. ii)	13	21

i) Controlled by the Executive Chairman of TerraVest's Board of Directors.

ii) Controlled by George Armoyan, a member of TerraVest's Board of Directors up to February 10, 2021.

28.4 Compensation of key management personnel

	Years ended
	September 30, 2021September 30, 2020
	$	$
Compensation expense including Directors' fee	1,076	897
Share-based compensation expense	70	100
	1,146	997

29. SEGMENTED INFORMATION

29.1 Reportable segments

TerraVest determines its reportable segments based on the structure of its operations, which as at September 30, 2021 is divided into three operating business units: Fuel Containment, Processing Equipment and Service. Corporate is not a segment and is disclosed for reconciliation purposes.

The following tables also provide information on disaggregated revenue as part of its segmented information disclosure.

	FuelContainment			Year ended September 30, 2021
		ProcessingEquipment	Service	Corporate	Total
	$	$	$	$	$
Sales	185,359	107,435	14,638	31	307,463
Depreciation and amortization	7,836	9,844	1,572	1	19,253
Financing costs	2,559	1,752	214	(20)	4,505
Income tax expense (recovery)	9,309	(777)	37	1,067	9,636
Net income (loss)	28,269	7,261	1,166	(286)	36,410
Goodwill and intangible assets	32,870	14,108	-	-	46,978
Segment assets	238,791	134,652	19,627	13,268	406,338
Segment liabilities	180,160	76,771	14,505	2,843	274,279
Purchase of property, plant and
equipment, net of proceeds	7,472	6,486	726	2	14,686
				Year ended September 30, 2020

	Fuel	Processing
	Containment	Equipment	Service	Corporate	Total
	$	$	$	$	$
Sales	158,996	134,295	10,962	-	304,253
Depreciation and amortization	7,952	9,420	1,494	1	18,867
Financing costs	2,468	2,171	333	268	5,240
Income tax expense (recovery)	8,232	1,091	18	(471)	8,870
Net income (loss)	21,524	4,404	(184)	884	26,628
Goodwill and intangible assets	18,154	15,904	-	-	34,058
Segment assets	164,119	124,736	19,107	11,663	319,625
Segment liabilities	105,050	70,635	15,151	2,647	193,483
Purchase of property, plant and
equipment, net of proceeds	2,930	5,522	215	-	8,667

For the years ended September 30, 2021 and 2020, no customer accounted for more than 10% of consolidated sales.

29.2 Geographical information

TerraVest generates revenue from two segmental regions. The concentration of TerraVest's revenue is derived from Canadian and U.S. sales.

		Years ended
	September 30, 2021	September 30, 2020
	$	$
SALES
Canada	173,652	180,400
United States	133,811	123,853
	307,463	304,253

Certain non-current assets and goodwill by geographic segment:

		As at September 30, 2021
	Canada	United States	Total
	$	$	$
Property, plant and equipment	64,538	21,395	85,933
Right-of-use assets	25,955	1,851	27,806
Intangible assets	11,134	5,755	16,889
Goodwill	6,915	23,174	30,089
	108,542	52,175	160,717

		As at September 30, 2020
	Canada	United States
	$	$	$
Property, plant and equipment	62,672	13,687	76,359
Right-of-use assets	30,363	2,048	32,411
Intangible assets	13,948	7,456	21,404
Goodwill	6,915	5,739	12,654
	113,898	28,930	142,828

30. IMPACT OF COVID-19

Management continues to monitor and assess the ongoing development of the COVID-19 and respond accordingly. The impacts, if any, will be accounted for when they are known and may be assessed. During the year ended September 30, 2021, certain subsidiaries of TerraVest's recognized government subsidies totaling $18,095 ($12,553 during the year ended September 30, 2020) in net income. Government subsidies helped maintain employment during a period where revenues have been temporarily reduced.

31. SUBSEQUENT EVENT

Effective November 1, 2021, TerraVest acquired an additional 6,202,740 shares in Green Energy Services ("GES") and now owns 66.8% of the outstanding shares of GES. GES, operating under the name Fraction Energy Services, is an industry leader in water management and environmental solutions. TerraVest acquired the shares of GES using its existing credit facilities and the issuance of TerraVest common shares. As at September 30, 2021, TerraVest owned 25.4% of the outstanding shares of GES and was included in investment in associates.

On November 24, 2021, certain subsidiaries of TerraVest operating in the Fuel Containment segment renegotiated their credit facility from $100,000 to $130,000 with a Canadian financial institution. The credit facility is now secured by a first ranking security in the amount of $150,000 over movable and immovable properties and movable assets, tangible and intangible, present and future of certain subsidiaries. All the other borrowing terms remain the same. Refer to Note 15 for complementary information.