CML HealthCare Completes Acquisition of American Radiology Services, Inc.



    /NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
    DISSEMINATION IN THE UNITED STATES/

    Toronto Stock Exchange Symbol: CLC.UN

    MISSISSAUGA, ON, Feb. 29 /CNW/ - CML HealthCare Income Fund (the "Fund"
or "CML HealthCare"), (TSX: CLC.UN) today announced that it has closed its
previously announced acquisition (the "Acquisition") of Baltimore,
Maryland-based American Radiology Services, Inc. ("ARS") through the
acquisition of its holding company ARS Holding, Inc. ("ARS Holding"), for
total consideration of approximately US$150.4 million (inclusive of repayment
of ARS' U.S. dollar term debt and capital leases assumed by CML HealthCare),
subject to normal post-closing adjustments. The Acquisition was funded with
CML HealthCare's new C$450 million credit facility (the "New Facility").
Robert Carfagno, President and Chief Executive Officer, and John Rodgers,
Chief Financial Officer, of ARS, retained an approximate US$0.6 million equity
interest in ARS.
    ARS generated US$109.0 million in revenue for the nine-month period ended
September 30, 2007 (Canadian GAAP). Based on pro forma financial results for
the nine-month period ended September 30, 2007, and using the effective
exchange rate on February 28, 2008, the Acquisition would have been 7.5%
accretive to the Fund's distributable cash(*) per unit. (See pro forma
distributable cash table below.)
    ARS is a leading provider of fully-integrated diagnostic medical imaging
services with 15 fixed-site multi-modality and two single-modality outpatient
centers in Maryland and Delaware. ARS also provides radiologist coverage to
11 hospitals in Maryland, and primary or secondary reading services via its
teleradiology network to 25 hospitals across six states in the U.S. ARS is a
regional leader in the U.S. in high-quality medical imaging services,
performing approximately 2.2 million medical imaging interpretations per year
in conjunction with The Johns Hopkins University and The Johns Hopkins Health
System Corporation (collectively "Johns Hopkins"). ARS, through an exclusive,
long-term management services contract with American Radiology Associates,
P.A. ("ARA"), has access to approximately 70 radiologists and has access to
additional radiologists through its affiliation with Johns Hopkins. As part of
the Acquisition, CML HealthCare, ARS Holding and Johns Hopkins have agreed to
enter negotiations to amend the terms of the future relationship among the
parties which could include further initiatives and opportunities in
diagnostic medical imaging. For more information on ARS, please refer to the
news release: "CML HealthCare Income Fund to Purchase American Radiology
Services, Inc.", dated December 21, 2007.
    "CML HealthCare has entered a new phase of growth, while maintaining
strict adherence to the financial discipline that has supported our profitable
growth since inception. ARS is an excellent operational and strategic fit for
CML HealthCare and the transaction is immediately accretive to our
distributable cash. We share a common vision with ARS for the delivery of
exceptional patient care and for the future of medical imaging and believe ARS
augments our competitive strengths and provides a tremendous platform for
future growth," said Paul Bristow, President and CEO of CML HealthCare. "ARS'
geographic concentration of high quality imaging clinics in an attractive
regional market provides us with a strong platform to pursue accretive
acquisitions of medical imaging assets in the United States. Further, with
state-of-the-art imaging equipment, an advanced teleradiology network, robust
information systems, and an exceptional pool of radiologists and technicians,
ARS has a highly scalable network that can support both U.S. growth and the
rollout of our digital imaging implementation in Canada."
    "ARS' strong management team, led by Robert Carfagno and John Rodgers,
will remain with ARS under new employment agreements, and is committed to
maintaining operational excellence and continued growth as part of CML
HealthCare," continued Mr. Bristow. "We are pleased to confirm today that ARS
management will be retaining an equity interest in ARS. We welcome the entire
ARS team to CML HealthCare and look forward to moving ahead with our growth
plans."

    Summary Pro Forma Distributable Cash(*)

    The following summary has been prepared on a pro forma basis as if the
Acquisition was completed on January 1, 2007.

    
                          For the nine months ended September 30th, 2007
                                            (unaudited)
                              (in C$ thousands, except per unit data)
                      -------------------------------------------------------
                               CML           ARS     Pro Forma
                        HealthCare       Holding,    and other  Consolidated
                       Income Fund        Inc.(1)  Adjustments     Pro Forma
                      ------------- ------------- ------------- -------------

    Cash flow from
     operating
     activities       $     78,035  $      5,901  $    3,566(2) $     87,502
    Adjustments:
      Total capital
       expenditures         (5,224)    (5,954)(3)    (1,503)(4)      (12,681)
      Normalized
       adjustments
       to non-
       cash working
       capital items         4,772       3,314(5)                      8,086
      Other                 (2,153)      1,485(6)                       (668)
                      ------------- ------------- ------------- -------------
    Distributable
     cash             $     75,430  $      4,746  $      2,063  $82,239(7)(8)

    Units outstanding       86,642                                    86,642
    Distributable
     cash per unit    $       0.87                              $       0.95
    Accretion                                                      9.0%(7)(8)
    Adjusted accretion                                             7.5%(7)(8)

    (1) Translated using the average exchange rate for the nine months ended
        September 30, 2007 of US$1.00 = C$1.1048. Refer also to
        Note (7).

    (2) "This pro forma adjustment consists of three components: i) pro
        forma net interest expense would have been $229 higher compared to
        total interest expense recorded by CML HealthCare and ARS. This
        increase reflects the net effect of repayment of ARS' term debt on
        closing of the acquisition and drawings under CML HealthCare's New
        Facility used to refinance the senior secured notes and to fund the
        cash portion of the consideration paid for ARS; ii) pro forma cash
        taxes would have been $3,422 lower as a result of intercompany
        structures that will reduce U.S. and Canadian income taxes payable;
        and iii) fees totaling $373 paid by ARS under a management contract
        will not be incurred subsequent to the acquisition.

    (3) Consists of total capital expenditures and capital lease payments
        reported in the consolidated statements of cash flows for the nine
        months ended September 30, 2007.

    (4) Management estimates average annual maintenance capital expenditures
        for ARS to be approximately US$9,000 per annum or US$6,750 (C$7,457)
        for a nine month period, based on historical annual maintenance
        capital expenditures and estimated annual requirements for the
        foreseeable future. This adjustment represents the difference
        between actual capital expenditures and capital lease payments made
        by ARS in the period, compared to management's estimate of average
        maintenance capital expenditures.

    (5) During the nine month period ended September 30, 2007, payments of
        $3,314 were made by ARS to settle two outstanding legal claims
        related to a prior period which are not considered to be recurring.

    (6) Non-recurring fees incurred by ARS for $1,485 of consulting services
        incurred to identify cost savings opportunities in response to
        regulatory fee cuts that took effect at the beginning of 2007.

    (7) As described in Note (1), the exchange rate used in the pro forma
        period was US$1.00 = C$1.1048 which results in accretion
        of 9.0%. An increase or decrease in this exchange rate by 10% would
        result in an increase or decrease of distributable cash of $950.
        This would have a corresponding impact on accretion. If the exchange
        rate as of February 28, 2008, US$1.00 = C$0.9719, was
        used in the calculation, the accretion would have been 7.5%.

    (8) Monthly distributions of the Fund may or may not be increased
        following, and as a result, of the Acquisition.
    

    "When we announced the acquisition, we committed to providing detailed
financial information on closing of the transaction," noted Tom Weber, Chief
Financial Officer. "In addition to being a strategic acquisition, the numbers
show the acquisition is also very attractive from a financial perspective."
    The Fund today also announced that it has refinanced its C$190 million
senior secured notes, through early repayment, with the New Facility and has
entered into an interest rate swap agreement at a fixed rate of 4.078% on
C$200 million of new term debt (plus applicable credit spreads that management
expects to range from 70 to 100 basis points) for a period of five years. The
early repayment of the senior secured notes included a "make whole" payment of
approximately C$13.5 million.
    "The strength of CML HealthCare's balance sheet is a hallmark of our
history and corporate culture. Post acquisition, our balance sheet remains
strong, we have locked in a very attractive rate of interest on a significant
portion of our debt and both S&P and DBRS have confirmed our stability
ratings." added Mr. Weber. "In addition, we have a C$100 million revolving
credit facility in place that is currently undrawn with which to pursue future
growth opportunities."

    
    ARS Holding Summary Financial Information

    (In US$ thousands, Canadian GAAP)

                              For the nine month
                                    period ended,         For the year ended,
                      --------------------------- ---------------------------
                      September 30, September 30,  December 31,  December 31,
                              2007          2006          2006          2005
                      ------------- ------------- ------------- -------------
                              (unaudited)                 (unaudited)

    Net revenue       $    109,006  $    115,050  $    152,442  $    147,580
    EBITDA(1)         $     13,578  $     19,457  $     25,494  $     15,797
    Adjusted
     EBITDA(1)        $     15,817  $     20,801  $     27,530  $     25,800
    Net loss          $     (4,943) $     (1,237) $     (1,955) $    (15,786)

    (1) EBITDA and Adjusted EBITDA are not recognized measures under
        Canadian GAAP and do not have standardized meanings prescribed by
        Canadian GAAP. Therefore, EBITDA and Adjusted EBITDA may not be
        comparable to similar measures presented by other issuers. See
        "Definitions of Non-GAAP Measures" below.
    

    Lower revenue and earnings for the nine months ended September 30, 2007
compared to the same period in 2006 reflect Medicare reimbursement reductions
as a result of the Deficit Reduction Act ("DRA") in the United States, which
came into effect on January 1, 2007. These DRA reductions are fully reflected
in the 2007 results.
    The following table reconciles EBITDA and Adjusted EBITDA to net loss
based on the consolidated financial statements of ARS Holding for the
indicated periods.

    
    (In US$ thousands, Canadian GAAP)

                              For the nine month
                                    period ended,         For the year ended,
                      --------------------------- ---------------------------
                      September 30, September 30,  December 31,  December 31,
                              2007          2006          2006          2005
                      ------------- ------------- ------------- -------------
                              (unaudited)                 (unaudited)

    Net loss          $     (4,943) $     (1,237) $     (1,955) $    (15,786)
      Income tax
      (recovery)
      provision               (761)        1,200         1,453           834
      Depreciation and
       amortization         10,125        10,860        14,438        14,099
      Interest expense       9,157         8,634        11,558        16,650
                      ------------- ------------- ------------- -------------
    EBITDA(1)         $     13,578  $     19,457  $     25,494  $     15,797
      Non-cash stock
      compensation(2)          462           585           821         1,527
      Equipment
       write-offs(3)           468           337           437         1,661
      Unrealized and
       realized gain
       on derivative
       instrument(4)           (35)         (374)         (464)         (592)
      Non-recurring
       fees(5)               1,344           796         1,242             -
      Compensatory
       dividends(6)              -             -             -         3,805
      Costs related
       to dividend
       recapitaliz-
       ation(7)                  -             -             -         3,602
                      ------------- ------------- ------------- -------------
    Adjusted
     EBITDA(1)        $     15,817  $     20,801  $     27,530  $     25,800
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (1) EBITDA and Adjusted EBITDA are not recognized measures under Canadian
        GAAP and do not have standardized meanings prescribed by Canadian
        GAAP. Therefore, EBITDA and Adjusted EBITDA may not be comparable to
        similar measures presented by other issuers. See "Definitions of Non-
        GAAP Measures" below.

    (2) Amount represents non-cash stock compensation expense related to
        shares issued under equity incentive plans.

    (3) Amount represents non-cash write-offs primarily of medical equipment.

    (4) Amount represents the change in fair value of an interest rate swap
        agreement related to ARS' long-term debt.

    (5) Amount represents non-recurring legal, accounting and consulting
        costs.

    (6) Amount represents portion of dividends paid as part of the dividend
        recapitalization of ARS that were deemed compensatory in nature for
        accounting purposes.

    (7) Amount represents legal expenses and loan origination fees associated
        with the dividend recapitalization of ARS.
    

    Notice of Conference Call
    -------------------------
    Management of CML HealthCare Income Fund will host a conference call
Monday, March 3, 2008 at 10:30 am (ET) to discuss the closing of the American
Radiology Services, Inc. acquisition. A live audio webcast of the call will be
available at www.cmlhealthcare.com. Webcast attendees are welcome to listen to
the conference in real-time or on-demand at your convenience. A taped replay
of the conference call will be available until Monday, March 10, 2008 at
midnight at 1-877-289-8525 or 416-640-1917, reference number 21265044 followed
by the number sign.


    About CML HealthCare Income Fund

    CML HealthCare Income Fund is an unincorporated open-ended trust that
owns CML HealthCare Inc., one of Canada's largest healthcare services
businesses. CML is a leading provider of laboratory testing services in
Ontario and the largest private provider of medical imaging services in
Canada. CML HealthCare Income Fund is publicly traded on the Toronto Stock
Exchange under the symbol "CLC.UN" and has approximately 86.6 million units
outstanding. To reach CML HealthCare Income Fund via the worldwide web log on
to www.cmlhealthcare.com.

    Caution concerning forward-looking statements
    ---------------------------------------------
    Statements made in this news release, other than those concerning
historical financial information, may be forward-looking and therefore subject
to various risks and uncertainties. Some forward-looking statements may be
identified by words like "may", "will", "anticipate", "estimate", "expect",
"intend", or "continue" or the negative thereof or similar variations. Readers
are cautioned not to place undue reliance on such statements, as actual
results may differ materially from those expressed or implied in such
statements. Factors that could cause results to vary include, but are not
limited to: dependence on government-based revenues; pending and proposed
legislative or regulatory developments including the impact of changes in
laws, regulations and the enforcement thereof; intensifying competition from
established competitors and new entrants in the businesses in which we
operate; technological change; interest rate fluctuations and general economic
conditions; insurance coverage of sufficient scope to satisfy any liability
claims; fluctuations in operating results; dependence on our operating
subsidiary to pay its interest obligations; fluctuations in cash distributions
and capital investment; management of credit, market, liquidity and funding
and operational risks; judicial judgments and legal proceedings; our ability
to complete strategic acquisitions and to integrate our acquisitions
successfully; changes in accounting policies and methods we use to report our
financial condition, including uncertainties associated with critical
accounting assumptions and estimates; operational and infrastructure risks
including possible equipment failure and performance of information technology
systems; fluctuations in total patient referrals; loss of services of key
senior management personnel; other factors that may affect future growth and
results including, timely development and introduction of new products and
services; changes in our estimates relating to reserves and allowances; future
sales of units; changes in tax laws; technological changes and obsolescence,
natural disasters, the possible impact on our businesses from public health
emergencies, international conflicts and other developments including those
relating to terrorism; the effect of anyone or more of such events and risks
on our stability ratings and any changes thereto; and our success in
anticipating and managing the foregoing risks. Additional factors related to
the Acquisition include, but are not limited to, the Fund's ability
successfully to integrate the operations of ARS, additional liabilities or
costs attributable to the Acquisition, unknown liabilities of ARS, the ability
to retain senior management of ARS, the ability to complete accretive
acquisitions in the U.S., the continuation and nature of the relationship with
Johns Hopkins and changes in U.S. federal and state healthcare laws and
regulations, including with respect to Medicare and Medicaid reimbursements
levels.
    We caution that the foregoing list of factors is not exhaustive and that
when reviewing our forward-looking statements, investors and others should
refer to the "Risk Factors" section of the Fund's Annual Information Form, the
"Risks and Uncertainties" and other sections of our Management's Discussion
and Analysis of Operating Results and Financial Position and our other
periodic filings with Canadian securities regulatory authorities. All
forward-looking statements presented herein should be considered in
conjunction with such filings. The Fund does not undertake to update any
forward-looking statements; such statements speak only as of the date made.

    Definitions of Non-GAAP Measures
    --------------------------------
    ((*)) Distributable Cash is not a recognized measure under Canadian
generally accepted accounting principles ("GAAP"); however, the Fund believes
that distributable cash is a useful measure as it provides investors with an
indication of cash available for distribution. The Fund's method of
calculating distributable cash may differ from that of other issuers and,
accordingly, distributable cash may not be comparable to measures used by
other issuers. Investors are cautioned that distributable cash should not be
construed as an alternative to the statement of cash flows as a measure of
liquidity and cash flows of the Fund.
    References to "EBITDA" are to earnings before interest, taxes,
depreciation, amortization, other expenses, non-controlling interest and
provisions. EBITDA is used by Management in evaluating the Fund's performance.
EBITDA is a metric used by many investors to compare issuers on the basis of
ability to generate cash from operations. EBITDA is not a recognized measure
under Canadian GAAP and is not intended to be representative of cash flow or
results of operations determined in accordance with GAAP or cash available for
distribution. Investors are cautioned, however, that EBITDA should not be
construed as an alternative to net income as determined in accordance with
GAAP or to cash flows from operating, investing and financing activities as a
measure of liquidity and cash.
    References to "Adjusted EBITDA" are to earnings before interest, taxes,
depreciation, amortization, stock compensation expense, equipment write offs,
unrealized gain on derivative instruments, and other one time expenses.
Adjusted EBITDA is used by Management in evaluating ARS' performance. Adjusted
EBITDA is a metric used by many investors to compare issuers on the basis of
ability to generate cash from operations. Adjusted EBITDA is not a recognized
measure under Canadian GAAP and is not intended to be representative of cash
flow or results of operations determined in accordance with GAAP or cash
available for distribution. Investors are cautioned, however, that Adjusted
EBITDA should not be construed as an alternative to net income as determined
in accordance with GAAP or to cash flows from operating, investing and
financing activities as a measure of liquidity and cash flows, or as an
indicator of ARS' performance. Adjusted EBITDA may not be comparable to
similarly titled amounts reported by other issuers.





For further information:

For further information: Bruce Wigle, Investor Relations, The Equicom
Group Inc., (416) 815-0700 ext 228, (416) 815-0080 fax, Email:
bwigle@equicomgroup.com; Tom Weber, Chief Financial Officer, CML HealthCare
Income Fund, (905) 565-0043 ext 204, (905) 565-1776 fax, Internet:
www.cmlhealthcare.com

Organization Profile

CML HEALTHCARE INC. (FORMERLY CML HEALTHCARE INCOME FUND)

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