CML HealthCare Income Fund Reports Fiscal 2007 Second Quarter Financial Results



    Toronto Stock Exchange Symbol: CLC.UN

    MISSISSAUGA, ON, Aug. 8 /CNW/ - CML HealthCare Income Fund (the "Fund"),
(TSX: CLC.UN) today reported its financial results for the three and six-month
periods ended June 30, 2007.

    
    Q2 07 Highlights

    -  Revenue increased 6.5% to $77.2 million from $72.5 million in Q2 2006
    -  Net earnings totaled $25.7 million compared to $26.8 million in
       Q2 2006
    -  EBITDA(xx) totaled $30.9 million compared to $28.7 million in Q2 2006
    -  Cash provided by operating activities totaled $33.2 compared to
       $30.1 million in Q2 2006
    -  The Fund generated distributable cash(*) of $25.3 million and declared
       distributions totaling $22.1 million, representing a payout ratio of
       87.5%
    -  The Fund increased annualized unitholder distributions from $1.00 per
       unit to $1.035 per unit, representing an increase of 3.5%
    -  Closed the acquisition of MYK Diagnostic Imaging, Calgary's third
       largest medical imaging services provider
    -  Appointment of Dr. Joseph Fairbrother to CML HealthCare Board of
       Directors and the Fund's Board of Trustees
    

    "Our increase to unitholder distributions in the quarter reflects our
continued strong performance and our commitment to building unitholder value,"
said Paul Bristow, President and CEO of CML HealthCare Income Fund. "In
addition to organic growth of both our laboratory services and medical imaging
revenues, and continued strong operating margins, we have made strong progress
in advancing our medical imaging clinic acquisition strategy. In total for
2006 and 2007 to date, we have completed or announced binding agreements to
acquire 18 medical imaging clinics across Canada, representing an estimated
aggregate of $24.0 million in revenue. Further, we have deposits on eight
additional medical imaging clinics. We remain focused on building our
acquisition pipeline and will continue to ensure that each transaction is
immediately accretive to distributable cash."
    "We have also advanced our national branding initiatives with the
completion of our initial clinic refurbishments and are now evaluating a
company-wide rollout. We continue to assess opportunities to add complementary
healthcare services to our network through our focused diversification
program," added Mr. Bristow.

    Financial Results

    For the three months ended June 30, 2007, cash provided by operating
activities totaled $33.2 million, the Fund generated distributable cash(*) of
$25.3 million, and declared distributions totaling $22.1 million, representing
a payout ratio of 87.5%. For the six months ended June 30, 2007, cash provided
by operating activities totaled $47.2 million, the Fund generated
distributable cash(*) of $48.5 million, and declared distributions (including
payments to non-controlling interest and Part VI.1 tax paid) totaling
$43.7 million, representing a payout ratio of 90.2%.
    Revenue for the Fund in the second quarter of 2007 increased 6.5% to
$77.2 million compared to revenue of $72.5 million in the second quarter of
2006. The Fund's increased revenue in the quarter resulted primarily from:
$2.9 million in net new revenue from the addition of acquired medical imaging
clinics in Ontario and Alberta; a $0.9 million increase in cap revenues and
$0.5 million in additional funding as set-out in the Ontario Ministry of
Health and Long-Term Care ("MOH") funding agreement for laboratory services;
and, growth of non-capped revenue.


    
    -------------------------------------------------------------------------
                                                        April 1,   January 1,
             Distributable cash((*)) ($000s)            2007 to     2007 to
                       (unaudited)                      June 30,    June 30,
                                                          2007        2007
    -------------------------------------------------------------------------
    Cash flow from operating activities                  33,244       47,229
    -------------------------------------------------------------------------
    Normalizing adjustments to non-cash working capital
     items(1)                                            (6,165)       6,278
    -------------------------------------------------------------------------
    Capital Expenditures(2):
      Maintenance capital expenditures                     (503)        (876)
      Capital lease payments                               (293)        (583)
      Changes in maintenance capital expenditure
       notional reserve                                    (937)      (1,924)
    -------------------------------------------------------------------------
      Sub-total                                          (1,733)      (3,383)
    -------------------------------------------------------------------------
    Part VI.1 tax adjustment(3)                               0           27
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash available for distributions                     25,346       50,151
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Non-recurring revenue(4)                                (80)      (1,655)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable cash(*)                                25,266       48,496
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions to unitholders                         22,115       43,666
    -------------------------------------------------------------------------
    Payments to non-controlling interest                      0           53
    -------------------------------------------------------------------------
    Part VI.1 tax paid                                        0           27
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total distributions/payments to non-controlling
     interest and Part VI.1 tax paid                     22,115       43,746
    -------------------------------------------------------------------------
    Total payouts as a percentage of distributable
     cash(*)                                              87.5%        90.2%
    -------------------------------------------------------------------------

    (1) Comprised of adjustments related to known and measurable timing
        differences in respect of: MOH cap revenue receivables; interest
        payments on long-term debt; insurance pre-payment; and, corporate
        bonus and LTIP payments.
    (2) Adjustments relate to Fund's actual spending related to maintenance
        capital expenditures and capital lease payments. There is also an
        adjustment for the change in the notional maintenance capital
        expenditure reserve established by the Fund. An annual reserve is
        established which represents management's estimate of average
        maintenance capital expenditures required over time. The Fund has
        adequate cash on hand to fund this notional reserve.
    (3) Adjustment to normalize the income tax expense which would not be
        payable if the Exchangeable Shares were converted to units. Refer to
        the table for corresponding inclusion of Part VI.1 tax paid in total
        distributions/payments to non-controlling interest.
    (4) The adjustment of $0.08 million relating to Q2 07 represents the
        additional revenue received from Alberta Health for services
        performed in fiscal 2006 as a result of agreed fee increases. The
        year-to-date adjustment of $1.7 million represents the additional
        funding as set out in the MOH agreement for the year ending March 31,
        2007, relating to services performed in fiscal 2006.
    

    Operating, general and administrative ("OG&A") expenses for the second
quarter of 2007 were $46.3 million, or 60.0% of revenue, compared to OG&A
expenses of $43.8 million, or 60.4% of revenue, in the second quarter a year
ago. The increase in OG&A expenses resulted from higher operating expenses
(including salaries and professional fees) in line with increased billings and
the addition of recently acquired medical imaging clinics.
    Earnings before Interest, Taxes, Depreciation, Amortization,
Non-Controlling Interest, Other Expenses, and Provisions (EBITDA)(xx) in the
second quarter of 2007 totaled $30.9 million, or 40.0% of revenue, compared to
EBITDA(xx) of $28.7 million, or 39.6% of revenue, in the second quarter of
2006.
    The Fund's net earnings for the second quarter of 2007 totaled
$25.7 million or $0.30 per Fund unit (basic and diluted), compared to net
earnings of $26.8 million or $0.34 per Fund unit (basic and diluted) in the
second quarter of 2006. Decreased net earnings in the second quarter of 2007
resulted from a $5.2 million decrease in future income tax recoveries compared
to the second quarter a year ago.
    For the six months ended June 30, 2007, revenue for the Fund totaled
$152.4 million, EBITDA(xx) totaled $61.3 million or 40.2% of revenue, and net
earnings totaled $50.3 million or $0.58 per Fund unit (basic and diluted)
compared to revenue of $146.4 million, EBITDA(xx) of $61.2 million or 41.8% of
revenue, and net earnings of $48.6 million or $0.61 per Fund unit (basic and
diluted), in the first half of 2006. Operating, general and administrative
expenses for the six months ended June 30, 2007 totaled $91.1 million or 59.8%
of revenue, compared to $85.3 million or 58.2% of revenue, in the first half
of 2006.
    As at June 30, 2007, the Fund had working capital of $64.5 million,
including cash and cash equivalents of $56.2 million, compared to working
capital of $72.9 million, including cash and cash equivalents of $70.7 million
as at December 31, 2006. Long-term debt of the Fund, including the current
portion, was $191.7 million as at June 30, 2007, compared to $192.3 million as
at December 31, 2006.
    As at June 30, 2007, there were 86,642,404 Fund units issued and
outstanding.

    Notice of Conference Call

    Management of CML HealthCare Income Fund will host a conference call
today, August 8 at 10:00 am (EDT) to discuss the Fund's 2007 second quarter
financial results. 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 August 15 at midnight at
1-877-289-8525 or 416-640-1917, reference number 21240771 followed by the
number sign.

    (*)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. In addition, 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 sustainable into the next period. The
    Fund uses distributable cash to evaluate sustainable cash generated from
    its operations, and to evaluate cash available for distributions and for
    operations.

    (xx)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 and compare
    profitability between periods. Investors should be cautioned, however,
    that EBITDA should not be construed as an alternative to net income 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.

    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; and our success in anticipating and managing the
foregoing risks.
    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.

    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.


    
    CML HealthCare Income Fund
    Unaudited Consolidated Balance Sheets
    -------------------------------------------------------------------------

    (in thousands of dollars)
                                                        June 30, December 31,
                                                           2007         2006
                                                              $            $
    -------------------------------------------------------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                            56,152       70,715
    Accounts receivable                                  36,962       29,772
    Income taxes receivable                               1,056        3,088
    Other current assets                                  2,059        2,097
    Future income taxes                                   1,198        1,383
    Due from related parties (note 8)                        39          123
                                                     ------------------------
                                                         97,466      107,178
                                                     ------------------------

    Property and equipment                               27,196       23,318
    Licences (note 3)                                   498,802      491,980
    Intangible assets (note 12)                           3,244            -
    Goodwill                                            200,889      195,437
    Investments and other assets                          1,253        1,551
    Restricted cash                                         912          912
                                                     ------------------------
    Total Assets                                        829,762      820,376
                                                     ------------------------
                                                     ------------------------

    LIABILITIES
    Current liabilities
    Accounts payable and accrued liabilities             24,253       26,022
    Distributions payable (note 6)                        7,456        7,125
    Current portion of long-term debt                     1,211        1,180
                                                     ------------------------
                                                         32,920       34,327
                                                     ------------------------

    Long-term debt                                      190,524      191,138
    Future income taxes                                  71,354       69,848
                                                     ------------------------
    Total Liabilities                                   294,798      295,313
                                                     ------------------------

    Non-controlling interest  (note 3)                        -        7,902

    UNITHOLDERS' EQUITY
    Trust units (note 4)                                512,463      500,636
    Retained earnings                                    22,501       16,525
                                                     ------------------------
                                                        534,964      517,161
                                                     ------------------------
    Total Liabilities and Unitholders' equity           829,762      820,376
                                                     ------------------------
                                                     ------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.


    CML HealthCare Income Fund
    Unaudited Consolidated Statements of Earnings and Comprehensive Income
    -------------------------------------------------------------------------

    (in thousands of dollars, except for per unit amounts)

                                                        For the      For the
                              For the      For the        three        three
                           six months   six months       months       months
                                ended        ended        ended        ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
                                    $            $            $            $
    -------------------------------------------------------------------------

    Revenue                   152,359      146,445       77,190       72,482
                           --------------------------------------------------
    Expenses
    Operating, general and
     administrative            91,056       85,282       46,315       43,751
    Amortization of
     property and equipment     2,056        1,511        1,064          770
    Amortization of
     intangible assets
     (note 12)                     78            -           78
    Other expenses
     (note 11)                      -        2,092            -          201
                           --------------------------------------------------
                               93,190       88,885       47,457       44,722
                           --------------------------------------------------

    Income before the
     undernoted                59,169       57,560       29,733       27,760

    Interest expense
      Long-term debt            5,514        5,653        2,756        2,825
                           --------------------------------------------------
    Earnings before income
     taxes                     53,655       51,907       26,977       24,935
                           --------------------------------------------------

    Provision for
     (recovery of) income
     taxes (note 7)
    Current taxes               2,319        4,312        1,551        1,244
    Future taxes                  890       (5,192)        (285)      (5,456)
                           --------------------------------------------------
                                3,209         (880)       1,266       (4,212)

    Earnings before the
     following                 50,446       52,787       25,711       29,147

    Non-controlling
     interest (note 3)            169        4,229            -        2,338
                           --------------------------------------------------
    Net earnings and
     comprehensive income
     for the period            50,277       48,558       25,711       26,809
                           --------------------------------------------------
    Basic and diluted
     earnings per unit
     (note 5)                    0.58         0.61         0.30         0.34
                           --------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.



    CML HealthCare Income Fund
    Unaudited Consolidated Statement of Unitholders' Equity
    -------------------------------------------------------------------------

    (in thousands)
                                   Trust Units            Treasury Units
                           --------------------------------------------------
                               Number         $          Number         $
                           --------------------------------------------------
    January 1, 2007            85,681      501,670           70        1,034
    Trust units acquired
     (note 4)                                               129        1,902
    Exchangeable shares
     exchanged for trust
     units (note 3)               961       13,729            -            -
    Distributions declared
     during the period to
     unitholders (note 6)
    Change in accounting
     policy - net of taxes
     of $329 (note 2)

    Net earnings for the
     period
                           --------------------------------------------------
    June 30, 2007              86,642      515,399          199      2,936
                           --------------------------------------------------
                           --------------------------------------------------


    (in thousands)
                                                                      Total
                                                                      Unit-
                                                       Retained      holders'
                                          Net Units    Earnings       Equity
                           --------------------------------------------------
                               Number         $            $            $
                           --------------------------------------------------
    January 1, 2007            85,611      500,636       16,525      517,161
    Trust units acquired
     (note 4)                    (129)      (1,902)                   (1,902)
    Exchangeable shares
     exchanged for trust units
     (note 3)                     961       13,729                    13,729
    Distributions declared
     during the period to
     unitholders (note 6)                               (43,666)     (43,666)
    Change in accounting
     policy - net of taxes
     of $329 (note 2)                                      (635)        (635)

    Net earnings for the
     period                                              50,277       50,277
                           --------------------------------------------------
    June 30, 2007              86,443      512,463       22,501      534,964
                           --------------------------------------------------
                           --------------------------------------------------



    (in thousands)
                                   Trust Units            Treasury Units
                           --------------------------------------------------
                               Number         $          Number         $
                           --------------------------------------------------
    January 1, 2006            79,693      408,278           44          624
    Trust units acquired
     (note 4)                                               135        1,962
    Exchangeable shares
     exchanged for trust
     units (note 3)                11          160            -            -
    Distributions declared
     during the year to
     unitholders (note 6)

    Net earnings for the
     period
                           --------------------------------------------------
    June 30, 2006              79,704      408,438          179        2,586
                           --------------------------------------------------
                           --------------------------------------------------


    (in thousands)
                                                                      Total
                                                                      Unit-
                                                       Retained      holders'
                                          Net Units    Earnings       Equity
                           --------------------------------------------------
                               Number         $            $            $
                           --------------------------------------------------
    January 1, 2006            79,649      407,654        3,741      411,395
    Trust units acquired
     (note 4)                    (135)      (1,962)                   (1,962)
    Exchangeable shares
     exchanged for trust
     units (note 3)                11          160                       160
    Distributions declared
     during the year to
     unitholders (note 6)                               (38,392)     (38,392)

    Net earnings for the
     period                                              48,558       48,558
                           --------------------------------------------------
    June 30, 2006              79,525      405,852       13,907      419,759
                           --------------------------------------------------
                           --------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.



    CML HealthCare Income Fund
    Unaudited Consolidated Statements of Cash Flows
    -------------------------------------------------------------------------

    (in thousands of dollars)
                                                        For the      For the
                              For the      For the        three        three
                           six months   six months       months       months
                                ended        ended        ended        ended
                              June 30      June 30      June 30      June 30
                                 2007         2006         2007         2006
                                    $            $            $            $
    -------------------------------------------------------------------------
    Cash provided by
     (used in)

    Operating activities
      Net earnings for the
       period                  50,277       48,558       25,711       26,809
      Items not affecting
       cash            -
        Amortization of
         property and
         equipment              2,056        1,511        1,064          770
        Amortization of
         definite-lived
         intangible asset          78            -           78            -
        Long-term incentive
         plan expense             714          630          357          315
        Phantom unit plan
         expense                   30            -           30            -
        Non-cash interest
         expense                    -          105            -           52
        Future income taxes       890       (5,192)        (285)      (5,456)
        Non-controlling
         interest                 169        4,229            -        2,338
    -------------------------------------------------------------------------
                               54,214       49,841       26,955       24,828
      Net change in non-
       cash working capital
       items (note 9)          (6,985)      (6,297)       6,289        5,256

    -------------------------------------------------------------------------
                               47,229       43,544       33,244       30,084
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Investing activities
      Purchase of property
       and equipment           (1,128)      (2,791)        (755)      (1,217)
      Acquisition of
       licence                      -         (376)           -          (50)
      Deposit paid for
       future acquisitions     (1,166)           -       (1,062)           -
      Business acquisitions
       (note 12)              (10,172)           -      (10,172)           -
    -------------------------------------------------------------------------
                              (12,466)      (3,167)     (11,989)      (1,267)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Financing activities
      Principal repayment
       of long-term debt       (4,120)        (554)      (3,830)        (278)
      Distributions paid      (43,335)     (38,049)     (21,862)     (19,196)
      Trust units acquired     (1,902)      (1,962)           -       (1,962)
      Payments to non-
       controlling interest       (53)      (2,233)           -       (1,137)
      Increase in due from
       related parties -
       net                         84         (255)         435          (45)
    -------------------------------------------------------------------------
                              (49,326)     (43,053)     (25,257)     (22,618)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (Decrease)/Increase in
     cash and cash
     equivalents              (14,563)      (2,676)      (4,003)       6,199
    Cash and cash
     equivalents, beginning
     of period                 70,715       68,178       60,155       59,303
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end of
     period                    56,152       65,502       56,152       65,502
    -------------------------------------------------------------------------

    Supplementary
     information
    Interest paid           $   5,499    $   5,548    $       3    $      39
    Income taxes paid       $   1,404    $   2,623    $     584    $   1,338

    The accompanying notes are an integral part of these consolidated
    financial statements.



    CML HealthCare Income Fund
    Notes to Unaudited Consolidated Financial Statements

    1   Organization and nature of operations

    The CML HealthCare Income Fund (the "Fund") is a trust established under
    the laws of the Province of Ontario pursuant to a declaration of trust
    dated January 16, 2004. The Fund was created to invest in common shares
    and $729,207,000 of 12% unsecured subordinated notes of CML HealthCare
    Inc. ("CML"). Through its wholly-owned subsidiaries, the Fund provides
    medical laboratory services in Ontario and medical imaging services in
    the provinces of Ontario, Quebec, Manitoba, Alberta and British Columbia.

    2   Basis of presentation

    The accompanying interim consolidated financial statements of the Fund
    have been prepared in accordance with accounting principles generally
    accepted in Canada for interim reporting. Accordingly, these consolidated
    financial statements do not include all of the disclosures required by
    generally accepted accounting principles for annual consolidated
    financial statements and should be read in conjunction with the 2006
    annual consolidated financial statements of the Fund. In the opinion of
    management, all adjustments considered necessary for fair presentation
    have been included. All such adjustments are of a normal recurring
    nature. Operating results for the six months ended June 30, 2007 are not
    necessarily indicative of the results that may be expected for the year
    ending December 31, 2007.

    There have been no changes to the accounting policies as described in
    Note 2 to the consolidated financial statements for the year ended
    December 31, 2006, except as described below.

    The following section describes the impact of recently issued accounting
    standards:

    Impact of recently issued accounting standards

    Financial Instruments:

    The new CICA Handbook Section 3855, Financial Instruments - Recognition
    and Measurement, prescribes when a financial asset, financial liability,
    or non-financial derivative is to be recognized on the balance sheet and
    at what amount - initially at fair value and subsequently either at fair
    value or cost-based measures. It also specifies how financial instrument
    gains and losses are to be presented. The Fund adopted CICA Handbook
    Section 3855 effective January 1, 2007. In accordance with this standard,
    the Fund has classified its financial assets and liabilities as follows:

        i)  The Fund's long-term debt is designated as held to maturity and
            is therefore carried at amortized cost. The deferred finance fees
            are transaction costs associated with the long-term debt and
            management has elected an accounting policy to expense these
            costs as incurred. Accordingly, deferred finance fees of $964,000
            ($635,000, net of tax of $329,000), as at January 1, 2007, have
            been adjusted through retained earnings.

        ii) The Fund has classified its cash and cash equivalents as held-
            for-trading financial assets; accounts receivable and due from
            related parties as receivables and accounted for at cost; and
            distributions payable, accounts payable and accrued liabilities
            as other financial liabilities.

    Credit risk exposures

    Financial instruments that potentially subject the Fund to credit risk
    consist principally of cash and cash equivalents and accounts receivable.
    The Fund places its cash with high credit quality financial institutions.
    Credit risk with respect to accounts receivable is limited, as the
    majority of the receivable balance is due from the Ministry of Health and
    Long-Term Care ("MOH") and other government bodies.

    Interest rate exposures

    The Fund's long-term debt of $190,000,000 has a fixed interest rate.
    Accordingly, the fair value of the long-term debt will vary with changes
    in interest rates.

    Fair values of financial assets and liabilities

    The fair values of cash and cash equivalents, accounts receivable,
    accounts payable and accrued liabilities, amounts due from related
    parties, and distributions payable approximate their carrying amounts
    included in the consolidated balance sheets, due to the relatively short
    period of maturity of the instruments.

    The fair value of the capital lease obligations approximates their
    carrying values.

    As at December 31, 2006, the fair value of long-term debt was estimated
    to be $197,298,000 based on current interest rates adjusted for the
    Fund's credit rating. There is no formal market for the long-term debt
    and, therefore, the estimated fair market value may not be representative
    of the aggregate fair value of the securities.

    Other Accounting Changes:

    Also effective January 1, 2007, the Fund adopted the CICA handbook
    sections 3865, Hedges; 1530, Comprehensive Income; and 3251, Equity. The
    adoption of these CICA handbook sections has not had a material impact on
    the consolidated financial statements.


    3   Acquisition of non-controlling interest

    During the six-month period ended June 30, 2007, the remaining 961,392
    exchangeable shares of CML HealthCare Inc. were converted to 961,392
    units of the Fund, pursuant to the exchangeable share provisions. The
    conversion of the exchangeable shares has been accounted for as a step
    acquisition and has resulted in a reduction of the non-controlling
    interest to a balance of nil as at June 30, 2007. The 961,392 units of
    the Fund were valued at $13,729,000. The excess of the purchase price
    over the carrying value of the non-controlling interest of $8,018,000 was
    allocated to licences in the amount of $6,881,000 and to future income
    tax liabilities in the amount of $1,170,000.

    As at June 30, 2007, there are no exchangeable shares of CML HealthCare
    Inc. issued and outstanding (excluding those held by the Fund).

    4   Unitholders' equity

    The authorized capital of the Fund consists of an unlimited amount of
    units. The exchangeable shares of CML HealthCare Inc. were convertible on
    a one for one basis to units of the Fund. The remaining exchangeable
    shares held (other than by the Fund) as of February 23, 2007 were
    exchanged into units of the Fund on that date. As a result, during the
    six-month period ended June 30, 2007, 961,392 exchangeable shares of CML
    HealthCare Inc. were converted to 961,392 units of the Fund.

    As at June 30, 2007, 86,642,404 units of the Fund are issued and
    outstanding, of which 198,564 units were held by the Fund as treasury
    units in connection with the Long-Term Incentive Plan "LTIP".

    Long-Term Incentive Plan

    Effective February 23, 2004, the Fund created an LTIP for certain
    employees of the Fund. On July 18, 2005, the Fund created a Trust,
    administered by a third party, to act as Trustee for the Fund's LTIP.
    Pursuant to the LTIP, the Fund pays to the Trust amounts for exceeding
    certain defined distributable cash threshold amounts, as defined in the
    agreement, over the base distribution on an annual basis of $1.06 per
    unit. The Trust purchases units of the Fund in the open market on behalf
    of eligible employees. The units will be transferred to the employees
    each year over a three-year vesting period commencing November 30.

    During the six-month period ended June 30, 2007, the Fund paid $1,902,000
    (six months ended June 30, 2006 - $1,962,000) to the Trust for exceeding
    certain 2006 defined distributable cash threshold amounts, subsequent to
    which the Trustee acquired 129,000 units (six months ended June 30, 2006
    - 135,000 units) of the Fund on the open market. The Fund units held by
    the Trust will be distributed to the employees in accordance with the
    terms of the LTIP. During the period ended June 30, 2007, there were no
    distributions to the employees. However, the Fund paid $336,000 to a
    unitholder and Trustee of the Fund, to settle an LTIP liability in cash
    rather than units of the Fund.

    As at June 30, 2007, the Fund has recorded a liability of $2,048,000
    relating to the LTIP and recognized compensation expense of $714,000 (six
    months ended June 30, 2006 - $630,000) in respect of this LTIP.

    Phantom unit plan

    The Fund has established a phantom unit plan that provides for the
    granting of stock appreciation rights ("SARs") to directors and certain
    employees (the "participants"). The SARs provide the holder with the
    opportunity to earn a cash benefit equal to the fair market value of the
    Fund's units less the price at which the SARs were issued. Compensation
    expense is measured based on the market price of the Fund's units at the
    end of each reporting period and recognized as an expense over the
    vesting period. The SARs outstanding under the plan have been granted at
    the average closing price of the Fund's units five days prior to the date
    of grant and vest at the end of the three-year period.

    During the six-months ended June 30, 2007, the Fund granted 41,475 and
    50,000 SARs which vest on March 16, 2010 and May 11, 2010, respectively.
    The participants will be entitled to a cash payment equal to the
    difference between the quoted market value of the Fund units and $14.25
    and $15.02 respectively, the average market value of a Fund unit for the
    five days prior to the date of grant. As at June 30, 2007, the total
    number of SARs outstanding was 561,475. Of this amount, 470,000 relates
    to SARs granted during the year ended December 31, 2006. A total
    compensation cost of $30,000 has been recognized in the consolidated
    financial statements for the six-month period ended June 30, 2007 in
    respect of the SARs.

    5   Earnings per unit

    Earnings per unit is calculated using the weighted average number of
    units outstanding, including the treasury units. The weighted average
    number of units outstanding for the six-month period ended June 30, 2007
    was 86,356,729 (June 30, 2006 - 79,697,368) and the three-month period
    ended June 30, 2007 was 86,642,404 (June 30, 2006 - 79,699,992).

    Diluted earnings per unit reflects the effect of the conversion of the
    exchangeable shares of CML HealthCare Inc. for units of the Fund. The
    following table reconciles the basic and diluted weighted average number
    of Fund units outstanding and basic and diluted earnings per unit:


                                             Adjustments for         Diluted
                                       Basic  conversions of        earnings
    (in thousands of dollars,   earnings per    exchangeable        per Fund
    except per unit amounts)       Fund unit          shares            unit


                                              Six months ended June 30, 2007
    Net earnings for the period  $    50,277     $       169     $    50,446
    Earnings per Fund unit       $      0.58                     $      0.58
    Weighted average number of
     Fund units outstanding       86,356,729         285,675      86,642,404


                                               Six month ended June 30, 2006
    Net earnings for the period  $    48,558     $     4,229     $    52,787
    Earnings per Fund unit       $      0.61                     $      0.61
    Weighted average number of
     Fund units outstanding       79,697,368       6,938,588      86,635,956


                                             Three month ended June 30, 2007
    Net earnings for the period  $    25,711     $         -     $    25,711
    Earnings per Fund unit       $      0.30                     $      0.30
    Weighted average number of
     Fund units outstanding       86,642,404               -      86,642,404


                                             Three month ended June 30, 2006
    Net earnings for the period  $    26,809     $     2,338     $    29,147
    Earnings per Fund unit       $      0.34                     $      0.34
    Weighted average number of
     Fund units outstanding       79,699,992       6,938,588      86,638,580


    6   Distributions and payments to non-controlling interest declared

    During the six-month period ended June 30, 2007, the Fund declared total
    distributions to unitholders of $43,666,000 and total dividends to non-
    controlling interest of $53,000. The amounts and record dates of
    distributions and payments were as follows:


    (in thousands of dollars,
     except per unit and per
     share amounts)

                                   Trust Units
                                           Amount
    Record Date                   $       per Unit
    -----------------------------------------------
    January 31, 2007            7,134       0.0833
    February 28, 2007           7,214       0.0833
    March 30, 2007              7,203       0.0833
    April 30, 2007              7,203       0.0833
    May 31, 2007                7,456      0.08625
    June 29, 2007               7,456      0.08625
    -----------------------------------------------
                               43,666       0.5057
    -----------------------------------------------

    During the six-month period ended June 30, 2006, the Fund declared total
    distributions to unitholders of $38,392,000 and total dividends to non-
    controlling interest of $2,233,000. The amounts and record dates of
    distributions and payments were as follows:

                                                            Non-controlling
                                   Trust Units                  interest
                                           Amount                   Amount
    Record Date                   $       per Unit           $     per Share
    -------------------------------------------------------------------------
    January 31, 2006            6,284       0.0789          366       0.0526
    February 28, 2006           6,285       0.0789          365       0.0526
    March 31, 2006              6,285       0.0789          365       0.0526
    April 30, 2006              6,285       0.0789          365       0.0526
    May 31, 2006                6,626       0.0833          386       0.0556
    June 30, 2006               6,627       0.0833          386       0.0556
    -------------------------------------------------------------------------
                               38,392       0.4822        2,233       0.3216
    -------------------------------------------------------------------------


    7   Income taxes

    The effective income tax rate on consolidated earnings is influenced by
    items such as non-taxable income and non-deductible expenses:

                                           For the      For the
                                        six months   Six Months
                                             ended        Ended
                                           June 30,     June 30,
                                              2007         2006
    (in millions of dollars)                     $            $

    Combined Canadian federal and
     provincial income tax rate of
     35.90% (2006 - 36.12%)                 19,262       18,749

    Increase (decrease) in statutory
     income tax resulting from the
     following:

    Fund income not taxable                (15,418)     (13,475)

    Reduction in Future income taxes
     resulting from reduction in
     substantively enacted tax rates        (1,090)      (6,271)

    Non-deductible expenses and other          455          117

                                        ------------------------
    Provision for income taxes               3,209         (880)
                                        ------------------------


    8   Related party balances and transactions

    On February 23, 2004, CML entered into an administrative services
    agreement with Cipher Pharmaceuticals Inc. ("Cipher"). Under this
    agreement, CML was to provide certain general and administrative services
    to Cipher including investor relations services, securities compliance,
    and certain administrative services. This agreement to provide these
    services to Cipher was terminated on June 30, 2007. For the six-month
    period ended June 30, 2007, CML charged Cipher $62,000 (six-month period
    ended June 30, 2006 - $62,000) in accordance with the administration
    agreement. The due from related parties balance as at June 30, 2007 of
    $39,000 consists of amounts due from Cipher and its wholly-owned
    subsidiaries, in respect of the provision of administrative services by
    CML and certain other reimbursements to CML.

    The Fund leases facilities from companies that are subject to significant
    influence or are controlled by a unitholder and Trustee of the Fund. Rent
    expense for the six-month period ended June 30, 2007 of $575,600
    (six-month period ended June 30, 2006 - $575,600) relating to these
    leased facilities, measured at the exchange amount as agreed to between
    the parties, has been included in operating, general and administrative
    expenses.

    The Fund has also entered into a commitment to lease office space from a
    company that is subject to significant influence or control by a
    unitholder and Trustee of the Fund. Annual net rent of this office space
    is expected to be approximately $371,000. The lease is expected to
    commence in 2008.

    See also Note 4.

    9   Statement of cash flows

                              For the      For the      For the      For the
                                  six          six        three        three
                               months       months       months       months
                                ended        ended        ended        ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    (in thousands of dollars)       $            $            $            $
    -------------------------------------------------------------------------
    Net change in non-cash
     working capital items
     comprises
      Accounts receivable      (6,542)      (5,386)       2,276        5,137
      Other current assets         38        1,700          119          (36)
      Accounts payable and
       accured liabilities     (2,513)        (705)       1,997         (936)
      Income taxes receivable   2,032       (1,906)       1,897        1,361
    -------------------------------------------------------------------------
                               (6,985)      (6,297)       6,289        5,256
    -------------------------------------------------------------------------

    10   Industry cap agreement

    During the six-month period ended June 30, 2007, the Fund recognized
    $2,450,000 in respect of the $4,800,000 additional funding available
    under the industry cap agreement, for the MOH year ended March 31, 2007.
    A further $1,050,000 in respect of the $4,800,000 was previously
    recognized during the second, third and fourth quarters of fiscal 2006.
    Also, during the three-month period ended June 30, 2007, the Fund
    recognized $875,000 in respect of the $8,200,000 additional funding
    available under the industry cap agreement, for the MOH year ending
    March 31, 2008. Due to the inherent uncertainties and the limited
    information on industry conditions available at the time these
    consolidated financial statements were prepared, further additional
    funding has not been recorded during the six-month period ended June 30,
    2007. Revenue recognized during the six-month period ended June 30, 2007
    is based on management's best estimate of its share of the additional
    funding earned in the period based on information currently available.

    The Fund has used the latest available information in estimating the
    amount of fees received that will have to be reimbursed. Assumptions were
    made with respect to the amount of reimbursement required and the volume
    and type of laboratory tests referred to the Fund. It is possible that
    changes in future conditions in the near term could require a change in
    the amount to be reimbursed, or received, and such changes could be
    material.

    11  Other expenses

    During the six-month period ended June 30, 2006, the fund incurred and
    expensed professional fees of $2,092,000 in respect of a potential
    acquisition that was not completed.

    12  Business acquisitions

    On April 23, 2007, the Fund completed the business acquisition of MYK
    Diagnostic Imaging ("MYK"). MYK is the third largest medical imaging
    services provider in Calgary, Alberta, providing both adult and pediatric
    specialty imaging services, including MRI, x-ray, ultrasound,
    mammography, fluoroscopy, and bone densitometry.

    Total cash consideration paid for this acquisition was $10,534,000. On
    April 23, 2007, the Fund repaid the long-term debt and capital lease
    obligations assumed in the acquisition in the amount of $3,537,000. The
    purchase price relating to this acquisition was allocated as follows:


                                                               Total for the
                                                            six months ended
                                                               June 30, 2007
    (in thousands of dollars)                                              $
    -------------------------------------------------------------------------
    Intangible assets                                                  3,322
    Goodwill                                                           5,489
    Property and equipment                                             4,612
    Grant receivable                                                     648
    Long-term debt and capital lease                                  (3,537)
    -------------------------------------------------------------------------
    Cash consideration paid                                           10,534
    -------------------------------------------------------------------------


    The intangible assets acquired of $3,322,000 represent the lists and
    records pertaining to physicians who refer clients and patients to the
    acquired clinics. These assets are being amortized over their estimated
    useful life of 10 years.

    As a result of negotiations between the provincial ministry of health and
    the provincial medical association, an adjustment to fees for diagnostic
    imaging services provided by the acquired entity is expected to be
    confirmed and paid, retroactive to October 1, 2006. This amount is not
    reasonably estimable at this time and will be recorded as an adjustment
    to the purchase allocation when known.

    The goodwill and intangibles assets arising in this acquisition are
    deductible for income tax purposes.

    This acquisition has been accounted for by the purchase method, with the
    results from operations included in earnings from the date of
    acquisition. The purchase price has been allocated to these assets
    acquired and liabilities assumed based on management's best estimate of
    the fair values. Given the short time that has elapsed since the
    acquisition, the allocation of the purchase price is subject to change
    based on the final resolution of these estimates, which may result in
    changes to the allocated amounts.

    Also during the six-month period ended June 30, 2007, the Fund paid
    $138,000 additional consideration for a business acquisition which was
    completed during the year ended December 31, 2006. This amount has
    primarily been allocated to property and equipment and licenses.

    On July 2, 2007, the Fund entered into a binding agreement to acquire
    Toronto-based North York Diagnostic Imaging ("North York") and Quality
    Medical Imaging ("QMI"). The acquisition of the North York and QMI clinic
    network will add four additional medical imaging clinics in the North
    York region, two additional clinics in the downtown core, and one clinic
    in Scarborough, Ontario. Management expects to complete this acquisition
    during the third quarter of fiscal 2007.

    On July 25, 2007, the Fund completed the business acquisition of ProMed
    Echo-Ultrasound ("ProMed"). ProMed is an ultrasound medical imaging
    clinic based in the North York region of Toronto, Ontario. The total cash
    consideration paid for this acquisition was $875,000.

    As at June 30, 2007, the Fund had deposits and acquisition costs of
    $1,166,000 primarily related to three potential acquisitions, comprising
    of 15 diagnostic imaging clinics, pursuant to signed letters of intent.
    The North York and QMI acquisition referred to above comprises seven of
    these 15 clinics.
    

    %SEDAR: 00020333E




For further information:

For further information: Barry Hildred or Bruce Wigle, Investor
Relations, The Equicom Group Inc., (416) 815-0700 ext 224, ext 228, (416)
815-0080 fax, Email: bhildred@equicomgroup.com or bwigle@equicomgroup.com; Tom
S. Weber, CA, Chief Financial Officer, CML HealthCare Income Fund, (905)
565-0043, (905) 565-2844 fax, Internet: www.cmlhealthcare.com

Organization Profile

CML HEALTHCARE INC. (FORMERLY CML HEALTHCARE INCOME FUND)

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