CML HealthCare Income Fund Reports 2008 Second Quarter Financial Results


    Toronto Stock Exchange Symbol: CLC.UN

    MISSISSAUGA, Aug. 7 /CNW/ - CML HealthCare Income Fund (the "Fund" or
"CML HealthCare"), (TSX: CLC.UN) today reported its financial results for the
three and six-month periods ended June 30, 2008.

    Q2 2008 Highlights

    -   Revenue increased 53.6% to $118.6 million from $77.2 million in
        Q2 2007
    -   Net earnings increased 2.3% to $26.3 million compared to
        $25.7 million in Q2 2007
    -   EBITDA(*) increased 18.4% to $36.6 million compared to $30.9 million
        in Q2 2007
    -   Cash provided by operating activities increased 31.6% to
        $43.7 million compared to $33.2 million in Q2 2007
    -   The Fund generated distributable cash(xx) of $26.2 million and
        declared distributions totaling $23.7 million, representing a payout
        ratio of 90.6%

    "Our second quarter results reflect the first full quarter contribution
from our acquisition of ARS, which closed in February of this year. The
integration of ARS is proceeding according to plan and we remain focused on
continuing to build our medical imaging business through accretive
acquisitions and organic growth in both Canada and the U.S.," said Paul
Bristow, President and CEO of CML HealthCare Income Fund. "While March 31,
2008 marked the period end of the current Ontario Ministry of Health and
Long-Term Care ("MOH") funding agreement with the Ontario Association of
Medical Laboratories ("OAML") for community-based laboratory testing services,
this agreement will remain in effect until a new funding agreement has been
reached. As part of the OAML, we look forward to negotiating a new funding
agreement with the MOH to ensure continued cost-effective diagnostic
laboratory services for Ontario patients."

    Financial Results

    CML HealthCare's 2008 second quarter and six-month financial results
include the financial contributions from recently completed medical imaging
business acquisitions, including: i) American Radiology Services, Inc.
("ARS"), which was closed on February 29, 2008; ii) Associated Diagnostic
Radiologists ("ADR"), which closed on January 31, 2008; iii) two new imaging
clinics in southwestern Ontario, which closed on February 29, 2008; and, iv)
Laurel Radiology Inc., which closed April 22, 2008. The financial
contributions from these acquisitions are included in the Fund's consolidated
financial results from the date the transactions were closed. Each of these
transactions is accretive to the Fund's distributable cash on a per unit
    For the three months ended June 30, 2008, cash provided by operating
activities totaled $43.7 million, the Fund generated distributable cash(xx) of
$26.2 million, or $0.29 per Fund unit (basic and diluted), and declared
distributions totaling $23.7 million, representing a payout ratio of 90.6% for
the quarter. For the six months ended June 30, 2008, cash provided by
operating activities totaled $58.3 million, the Fund generated distributable
cash(*) of $52.7 million, or $0.60 per Fund unit (basic and diluted), and
declared distributions totaling $46.4 million, representing a payout ratio of
88.0%. Please refer to Standardized Distributable Cash(1) and Distributable
Cash(xx) table below.

                                                         April 1,  January 1,
                                                         2008 to     2008 to
    Standardized Distributable Cash(1) and               June 30,    June 30,
    Distributable Cash(xx) Table ($000s)                    2008        2008
                                                      (unaudited) (unaudited)
    Cash flow from operating activities                   43,702      58,258
      Total capital expenditures as per consolidated
       statement of cash flows                            (5,983)     (8,632)
    Standardized distributable cash(1)                    37,719      49,626
    Normalizing adjustments to non-cash working
     capital items(2)                                    (12,359)     (1,271)
    Capital Expenditures:
      One time capital expenditures                        2,297       2,509
      Non-recurring capital expenditure(3)                 1,767       1,767
      Changes in maintenance capital expenditure
       notional reserve                                   (1,998)     (1,964)
      Capital lease payments                                (308)       (613)
        Sub-total                                          1,758       1,699
    Discretionary/non-recurring expenses(4)                  102       3,486
    Cash available for distribution                       27,220      53,540
    Non-recurring revenue(5)                              (1,049)       (819)
    Distributable cash                                    26,171      52,721
    Distributions to unitholders                          23,724      46,389
    Total payouts as a percentage of distributable
     cash(xx)                                               90.6%       88.0%
    Total payouts as a percentage of standardized
     distributable cash(1)                                  62.9%       93.5%
    Weighted average number of Fund units
     outstanding in the period                        89,842,404  88,347,899

    Revenue for the Fund in the second quarter of 2008 increased 53.6% to
$118.6 million compared to revenue of $77.2 million in the second quarter of
2007. The Fund's increased revenue for the three months ended June 30, 2008
resulted from: $33.4 million in new revenue from ARS; $4.5 million in new
revenue from the acquisitions of imaging clinics in Ontario, Alberta, and
British Columbia; and organic growth in non cap revenue. Further, a
$0.2 million net aggregate increase in additional funding based on the MOH
Funding Agreement for laboratory services was recorded in the quarter. The
Fund recognized $1.1 million of additional funding in the second quarter of
fiscal 2008 of which $0.8 million relates to fiscal 2007. This compares to
$0.9 million of additional funding recognized in the second quarter of 2007,
all of which related to that period. The following table reconciles the
additional funding recognized under the industry cap agreement.

     1  On July 18, 2007, the Canadian Institute of Chartered Accountants
        issued its interpretive release "Standardized Distributable Cash in
        Income Trusts and Other Flow Through Entities: Guidance on
        Preparation and Disclosures". The Fund has reviewed the interpretive
        release and has adopted the guidance as applicable to the Fund. The
        above table represents a summarized presentation. Please refer to our
        June 30, 2008 Management's Discussion and Analysis ("MD&A") for
        complete disclosure relating to Standardized Distributable Cash.
    2   Comprised of adjustments related to known and measurable timing
        differences in respect of: MOH cap revenue receivables; interest
        payments on long-term debt; insurance; bonus payments, lease
        cancellation fee payment; tax installments; and work fee paid for
        acquisitions that were not completed.
    3   Non-recurring capital expenditure relates to certain property and
        equipment purchased by ARS prior to the date of acquisition but paid
        for subsequent to the acquisition date.
    4   Discretionary/Non-recurring expenses represents costs paid in
        establishing the new credit facility.
    5   Non-recurring revenue represents adjustment of additional funding as
        set out in the MOH agreement for the MOH year ended March 31, 2008.

    ($000s)               CML's share       Additional funding recognized
                         of available  --------------------------------------
                           additional                                For the
                        funding under      For the      For the    six month
                              the MOH   year ended   year ended period ended
                         industry cap  December 31, December 31,     June 30,
                            agreement         2006         2007         2008
    MOH Year ended
     March 31, 2006             1,400        1,400            -            -
    MOH Year ended
     March 31, 2007             4,800        1,100        3,300            -
    MOH Year ended
     March 31, 2008             8,200            -        5,300        2,900
    Total                      14,400        2,500        8,600        2,900

    Operating, general and administrative ("OG&A") expenses for the second
quarter of 2008 totaled $82.0 million, or 69.1% of revenue, compared to OG&A
expenses of $46.3 million, or 60.0% of revenue in the second quarter a year
ago. Increased OG&A expenses in the second quarter of 2008 resulted primarily
from: increased operating expenses (including salaries, rent and professional
fees) related to acquisitions, including $28.6 million with respect of ARS;
investments in corporate infrastructure to support the Fund's growth plans;
and increased costs in line with revenue increases.
    Earnings Before Interest, Taxes, Depreciation, Amortization,
Non-Controlling Interest, Other Expenses and Provisions ("EBITDA")(*) in the
second quarter of 2008 totaled $36.6 million, or 30.9% of revenue, compared to
EBITDA(*) of $30.9 million, or 40.0% of revenue for the second quarter of 2007.
Lower EBITDA(*) margins are inherent from a higher proportion of consolidated
revenue derived from medical imaging services in the quarter compared to a
year ago, primarily resulting from CML HealthCare's acquisitions of ARS and
medical imaging clinics across Canada over the past 18 months. The decline in
EBITDA(*) margins in the quarter also reflects, in part, higher OG&A expenses
incurred in the second quarter of 2008 indicated above.
    The Fund's net earnings for the second quarter of 2008 totaled
$26.3 million or $0.29 per Fund unit (basic and diluted), compared to net
earnings of $25.7 million or $0.30 per Fund unit in the second quarter of
2007. Net earnings in the second quarter of 2008 reflects an increase of
$1.4 million in amortization of intangible assets over the same quarter last
year. The increase in intangible assets is primarily the result of purchase
accounting adjustments on the acquisition of ARS.
    For the six months ended June 30, 2008, revenue for the Fund totaled
$211.2 million, EBITDA(*) totaled $66.8 million or 31.6% of revenue, and net
earnings totaled $48.2 million or $0.55 per Fund unit (basic and diluted)
compared to revenue of $152.4 million, EBITDA(*) of $61.3 million or 40.2% of
revenue, and net earnings of $50.3 million or $0.58 per Fund unit (basic and
diluted), in the first half of 2007. Operating, general and administrative
expenses for the six months ended June 30, 2008 totaled $144.3 million or
68.3% of revenue, compared to $91.1 million or 59.8% of revenue, in the first
half of 2007.
    As at June 30, 2008, the Fund had working capital of $26.5 million,
including cash and cash equivalents of $45.7 million, compared to working
capital of $62.7 million, including cash and cash equivalents of $58.4 million
as at December 31, 2007. Lower working capital and cash and cash equivalents
as at June 30, 2008 is primarily the result of cash outlays for the completion
of medical imaging clinic acquisitions. Long-term debt of the Fund, including
the current portion, was $312.6 million as at June 30, 2008, compared to
$205.1 million as at December 31, 2007. Increased debt resulted primarily from
the Fund's acquisition of ARS.
    As at June 30, 2008, there were 89,842,404 Fund units issued and

    Medical Imaging Acquisitions

    On January 31, 2008, the Fund completed the acquisition of Associated
Diagnostic Radiologists ("ADR"), which comprises three medical imaging clinics
in the Greater Vancouver Area. On February 29, 2008, the Fund completed the
acquisition of Niagara Falls and Pelham X-Ray and Ultrasound Services
("Niagara Falls"), which comprises two medical imaging clinics located in the
Niagara Falls region of southwestern Ontario. Total net cash consideration
paid for these acquisitions was $10.8 million, prior to normal post-closing
    On February 29, 2008, the Fund closed the acquisition of Baltimore,
Maryland-based ARS, through the acquisition of its holding company ARS
Holding, Inc., and paid cash of approximately $73.8 million, subject to normal
post-closing adjustments, for the outstanding common and preferred stock of
ARS. In connection with the acquisition, the Fund repaid $69.8 million of ARS'
term debt and assumed capital leases of $12.1 million. 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 27 hospitals across six states in the U.S.
    On April 22, 2008, the Fund completed the acquisition of British Columbia
based Laurel Radiology Inc. for a cash consideration of $1.2 million, subject
to normal post-closing adjustments. Laurel Radiology's two multi-modality
clinics provide general medical imaging services, as well as specialized
fertility imaging services.
    Subsequent to the end of the second quarter, on July 10, 2008, the Fund
closed the acquisition of Applemed X-Ray and Ultrasound Services ("Applemed"),
a multi-modality clinic located in Niagara Falls, Ontario. On August 5, 2008,
the Fund entered into definitive agreements to acquire General Medical Imaging
Services comprising four multi-modality clinics and one single-modality clinic
in the Greater Vancouver Area; and Calgary Women's Imaging Centre, Canada's
first full-service women's-only diagnostic imaging facility, located in
Calgary, Alberta.

    Notice of Conference Call

    Management of CML HealthCare Income Fund will host a conference call
today, Thursday, August 7, 2008 at 10:00 am (EST) to discuss the Fund's 2008
second quarter results. A live audio webcast of the call will be available at Please connect at least 15 minutes prior to the
conference call to ensure adequate time for any software download that may be
needed to hear the webcast. An archived replay of the webcast will be
available for 90 days. A taped replay of the conference call will also be
available until Thursday, August 14, 2008 by calling 1-877-289-8525 or
416-640-1917, reference number 21278219 followed by the number sign.

    (*)    The Fund defines EBITDA as earnings before interest, taxes,
           depreciation, amortization, other expenses, non-controlling
           interest and provisions for, or recovery of impairments, of
           investments and other assets. EBITDA is not a recognized measure
           under Canadian GAAP. Management believes that, in addition to net
           earnings, EBITDA is a useful supplemental measure, as it provides
           investors with an indication of the Fund's performance. EBITDA is
           used by the Fund to analyze performance and compare profitability
           between periods. Investors should be cautioned, however, that
           EBITDA should not be construed as an alternative to net earnings
           determined in accordance with GAAP. The Fund's method of
           calculating EBITDA may differ from other companies or income
           trusts and, accordingly, EBITDA may not be comparable to measures
           used by other companies or income trusts.
    (xx)   Distributable Cash of the Fund is not a Canadian generally
           accepted accounting principle ("GAAP") measure, and though it is
           generally used by Canadian open-ended trusts as an indicator of
           financial performance, it should not be seen as a measure of
           liquidity or a substitute for comparable metrics prepared in
           accordance with GAAP. One characteristic of certain non-GAAP
           measures such as Distributable Cash is the inclusion of
           management's adjustments for entity-specific issues not
           contemplated in a standard measurement, such as Standardized
           Distributable Cash that focuses on comparability across entities
           and consistency over time. Therefore, the Fund's Distributable
           Cash may differ from similar calculations as reported by other
           similar entities and, accordingly, may not be comparable to
           Distributable Cash as reported by such entities. The Fund's
           objective for disclosing the Distributable Cash calculation is to
           outline the net cash flow generated by the Fund that was available
           for distribution during the period and anticipated to be
           sustainable into the next period. The Fund uses Distributable Cash
           to evaluate, on a consistent basis, sustainable cash generated
           from its operations, and to evaluate cash available for

    To view CML HealthCare's second quarter financial statements, please
click here:

    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. Based in Mississauga, Ontario, CML HealthCare Inc. is a leading
provider of laboratory testing services in Ontario and the largest private
provider of medical imaging services in Canada. The Fund also owns American
Radiology Services, Inc., a leading provider of fully-integrated diagnostic
medical imaging services based in Baltimore, Maryland. CML HealthCare Income
Fund is publicly traded on the Toronto Stock Exchange under the symbol
"CLC.UN" and has approximately 89.8 million units outstanding. To reach CML
HealthCare Income Fund via the worldwide web log on to

    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 ability to
renegotiate the MOH contract on favourable terms; 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 recent acquisition of American Radiology Services, Inc. ("ARS") include,
but are not limited to, the Fund's ability to successfully integrate the
operations of ARS, additional liabilities or costs attributable to the
acquisition of ARS, 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 The Johns Hopkins
University and The Johns Hopkins Health System Corporation (collectively
"Johns Hopkins") and changes in U.S. federal and state healthcare laws and
regulations, including with respect to Medicare and Medicaid reimbursements
    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. Except as required by Canadian securities law,
we do not undertake to update any forward-looking statements, whether written
or oral, that may be made from time to time by us or on our behalf; such
statements speak only as of the date made.

    %SEDAR: 00020333E

For further information:

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

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