CML Healthcare Income Fund reports increase revenue for 2009 fiscal year

CML HealthCare Income Fund (the "Fund" or "CML HealthCare"), (TSX: CLC.UN) today reported its financial results for the three and twelve-month periods ended December 31, 2009 (all amounts are in Canadian dollars, unless noted otherwise).

Highlights: ----------- ------------------------------------------------------------------------- Three- Three- Twelve- Twelve- months months months months ended ended (C$ million ended ended December December except December December 31, 2009 31, 2008 % Change percent 31, 2009 31, 2008 % Change ("Q4 ("Q4 in Q4 amounts) ("F2009") ("F2008") in F2009 2009") 2008") 2009 ------------------------------------------------------------------------- Revenue 518.5 462.5 12.1% 128.0 133.4 (4.1%) ------------------------------------------------------------------------- Operating, general, & administration expenses 378.4 324.3 16.7% 93.8 95.7 (2.0%) ------------------------------------------------------------------------- EBITDA(1) 140.1 138.2 1.4% 34.2 37.8 (9.4%) ------------------------------------------------------------------------- EBITDA(1) Margin 27.0% 29.9% (9.7%) 26.7% 28.3% (5.7%) ------------------------------------------------------------------------- Goodwill impairment 50.0 - na 50.0 - na ------------------------------------------------------------------------- Net Earnings/ (Loss) 55.5 101.5 (45.3%) (17.6) 26.9 (165.2%) ------------------------------------------------------------------------- Adjusted Net Earnings(2) 105.5 101.5 3.9% 32.4 26.9 20.4% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash provided by operating activities 131.7 116.4 13.1% 32.6 29.7 9.8% ------------------------------------------------------------------------- Distributable cash(3) 106.4 109.8 (3.2%) 25.4 24.8 2.3% ------------------------------------------------------------------------- Distributions declared 96.0 94.4 1.7% 24.0 24.0 0.0% ------------------------------------------------------------------------- Payout ratio 90.2% 85.9% 5.0% 94.4% 96.6% (2.3%) ------------------------------------------------------------------------- -------------------------------------------------------------------------

"We achieved revenue and EBITDA(1) growth of 12.1% and 1.4% respectively in fiscal 2009 compared to the prior year, while maintaining a payout ratio of approximately 90%. Fourth quarter 2009 results included revenue and EBITDA(1) declines of 4.1% and 9.4% respectively. The decline experienced in Q4 2009 was due primarily to foreign exchange and lower volumes on high-tech modalities at our U.S. medical imaging clinics" said Paul Bristow, President and CEO of CML HealthCare Income Fund. "To strengthen the focus in our U.S. operations, on February 24, 2010 we announced the appointment of Kent Wentzell as Senior Vice President of U.S. imaging operations" continued Mr. Bristow. "Over the coming months, I will be taking a leadership role and a more hands-on approach in the U.S. including working closely with Kent to identify additional opportunities in our U.S operations."

"We are committed to our U.S. medical imaging business as a platform for future growth. Our Canadian operations continue to perform well, and we have made good progress on the clinic refurbishment project with approximately 40 clinics now completed or under construction, a number of which are combined clinics offering both laboratory and medical imaging services. The implementation of the RIS/PACS digitization of our Canadian medical imaging services is underway, and we expect to realize both efficiencies and revenue growth once completed," continued Mr. Bristow. "We will continue to explore accretive acquisition opportunities of medical diagnostic assets in both Canada and in the U.S. With our strong balance sheet, cash and cash equivalent of $21.8 million as at December 31, 2009, $69.4 million available under our revolving credit facility, and solid cash flow from operations; we have the liquidity and capital resources to maintain operations, fulfill our capital commitments, and invest in growth opportunities."

"In the fourth quarter of each year, in accordance with GAAP, the Fund must re-evaluate the assumptions used to value its goodwill and intangible assets annually or earlier if there are indicators of impairment of assets," noted Tom Weber, Chief Financial Officer of the Fund. "In light of the evolving U.S. healthcare environment and the forecast for lower volume growth and Medicare reimbursement reductions, the Fund has determined the fair value for goodwill at ARS was lower than its carrying amount. As a result, as at December 31, 2009, the Fund reported a goodwill impairment charge of $50.0 million."

Financial Results -----------------

Twelve Months Ended December 31

For the twelve months ended December 31, 2009 ("F2009"), revenue for the Fund increased 12.1% to $518.5 million from $462.5 million for the same period in 2008. Increased revenue in F2009 is largely attributable to:

- $26.0 million from full-year contribution from ARS compared to ten months in F2008 as ARS was acquired on February 29, 2008; - $1.3 million in revenue from the acquisition of six medical imaging clinics (in Rhode Island and Maryland) as well as the opening of a new joint venture clinic in Maryland in F2009; - Increased reimbursements in the U.S. resulting from the conversion to digital mammography; - $5.1 million from changes in foreign exchange rates impacting revenue from ARS; - $8.6 million in revenue from full-year contribution from medical imaging clinics acquired in Canada throughout 2008; - $4.7 million increase in total cap revenue based on the Ministry of Health ("MOH") funding agreement for laboratory services; - $3.2 million in one-time technical and professional fee payments from the MOH and retroactive payments for imaging test fee increases in British Columbia related to F2006, F2007, and F2008; and - Organic growth in non-cap revenue

Operating, general and administrative ("OG&A") expenses totaled $378.4 million in F2009 compared to $324.3 million in F2008. Higher OG&A expenses in F2009 compared to the prior year reflect:

- $23.5 million increase in expenses related to full-year operations of ARS compared to ten months in F2008; - $4.7 million in additional expenses from ARS due to changes in foreign exchange rates; - $6.5 million from full-year operations of medical imaging acquisitions in Canada completed in F2008; - $2.5 million relating to systems implementations to support the Fund's growth plans; and - Investments made in corporate infrastructure and additional laboratory service costs to support utilization increases in excess of MOH cap funding

F2009 EBITDA(1) totaled $140.1 million compared to $138.2 million in F2008. EBITDA(1) margin in F2009 of 27.0% was lower than F2008 of 29.9% in F2008 largely as a result of a higher proportion of consolidated revenue being derived from medical imaging services acquired in Canada and the U.S. over the past two years.

The Fund's net earnings for F2009 of $55.5 million or $0.62 per Fund unit were 45.3% lower than $101.5 million in F2008. The reason for the decline is a goodwill impairment loss of $50.0 million in Q4 2009 as previously noted. Excluding the goodwill impairment loss, F2009 Adjusted Net Earnings(2) were $105.5 million.

------------------------------------------------------------------------- Twelve- Twelve- Three- Three- Financial Summary months months months months (C$ millions, except ended ended ended ended percent amounts) December December December December (unaudited) 31, 2009 31, 2008 31, 2009 31, 2008 ------------------------------------------------------------------------- Net earnings (loss) for the period 55.5 101.5 (17.6) 26.9 ------------------------------------------------------------------------- Less: recovery of income taxes (13.6) (2.7) (10.1) (1.5) ------------------------------------------------------------------------- Add: interest expense 13.6 14.7 3.2 4.1 ------------------------------------------------------------------------- Less: Loss (gain) on sale of property & equipment 0.3 (0.6) 0.1 1.4 ------------------------------------------------------------------------- Add: Transaction cost on debt financing - 3.5 - - ------------------------------------------------------------------------- Add: Other expenses 0.9 1.3 0.5 0.2 ------------------------------------------------------------------------- Less: Foreign exchange gain (0.2) (2.0) - (2.0) ------------------------------------------------------------------------- Add: Goodwill impairment 50.0 - 50.0 - ------------------------------------------------------------------------- Add: Amortization 33.7 22.5 8.1 8.6 ------------------------------------------------------------------------- EBITDA(1) 140.1 138.2 34.2 37.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Revenue 518.5 462.5 128.0 133.4 ------------------------------------------------------------------------- EBITDA(1) margin as a percent of revenue 27.0% 29.9% 26.7% 28.3% -------------------------------------------------------------------------

Three Months Ended December 31

For the three months ended December 31, 2009 ("Q4 2009"), revenue for the Fund totaled $128.0 million, and EBITDA(1) totaled $34.2 million, or 26.7% of revenue; compared to revenue of $133.4 million and EBITDA(1) of $37.8 million, or 28.3% of revenue for the three months ended December 31, 2008 ("Q4 2008"). The decrease in revenue was primarily attributable to foreign exchange on U.S. revenues as well as lower medical imaging volumes at CML's U.S. subsidiary in Q4 2009 compared to the same quarter in 2008. With the goodwill impairment loss of $50.0 million in Q4 2009, the Fund reported net loss of $17.6 million or $0.20 per Fund unit compared to net earnings of $26.9 million or $0.30 per Fund unit in Q4 2008. Excluding the goodwill impairment loss, Q4 2009 net earnings would have totaled $32.4 million.

Distributable Cash(3) ---------------------

For the year ended December 31, 2009, the Fund generated distributable cash(3) of $106.4 million and declared distributions totaling $96.0 million, representing a payout ratio(3) of 90.2%. For the year ended December 31, 2008, the Fund generated distributable cash(3) of $109.8 million and declared distributions totaling $94.4 million, representing a payout ratio of 85.9%. Please refer to Standardized Distributable Cash(3) and Distributable Cash(3) table below.

------------------------------------------------------------------------- Twelve- Twelve- Three- Three months months months months Standardized Distributable ended ended ended ended Cash(4) & Distributable December December December December Cash(2) Table (C$000s) 31, 2009 31, 2008 31, 2009 31, 2008 ------------------------------------------------------------------------- Cash flow from operating activities 131,727 116,433 32,562 29,675 ------------------------------------------------------------------------- Less: Total capital expenditures as per consolidated statement of cash flows (25,677) (23,103) (3,427) (6,567) Acquisition of licences and intangible assets (5,176) - (2,279) - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Standardized distributable cash(4) 100,874 93,330 26,856 23,108 ------------------------------------------------------------------------- Normalizing adjustments to non-cash working capital items(5) (5,323) 6,590 (1,486) 3,679 ------------------------------------------------------------------------- Capital Expenditures: Add back: One time capital expenditures 11,220 5,690 1,805 434 Non-recurring capital expenditure - 1,767 - - Changes in capital expenditure notional reserve 825 1,184 (192) 1,963 Capital lease payments (224) (1,162) (167) (237) ------------------------------------------------------------------------- Sub-total 107,372 107,399 26,816 28,947 ------------------------------------------------------------------------- Discretionary/non-recurring (recovery)expenses(6) 533 4,746 185 751 One-time acquisition of licences & intangible assets 1,319 - - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash available for distribution 109,224 112,145 27,001 29,698 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Non-recurring revenue(7) (2,864) (2,300) (1,588) (4,853) ------------------------------------------------------------------------- Distributable cash(3) 106,360 109,845 25,413 24,845 ------------------------------------------------------------------------- Distributions to unitholders 95,974 94,387 23,996 24,004 ------------------------------------------------------------------------- Total payouts as a percentage of distributable cash(3) 90.2% 85.9% 94.4% 96.6% ------------------------------------------------------------------------- Total payouts as a percentage of standardized distributable cash(3) 95.1% 101.1% 89.3% 103.9% ------------------------------------------------------------------------- Weighted average number of Fund units outstanding in the period 89,842,404 89,099,235 89,842,404 89,842,404 ------------------------------------------------------------------------- (4) 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 December 31, 2009 Management's Discussion and Analysis ("MD&A") for complete disclosure relating to Standardized Distributable Cash. (5) Comprised of adjustments related to known and measurable timing differences in respect of MOH cap revenue receivables; insurance adjustments; bonus adjustments; ARS tax refunds related to pre- acquisition periods; and non-recurring settlement of a pre- acquisition liability relating to ARS. (6) Discretionary/Non-recurring expenses represents pre-implementation costs related to certain business re-engineering projects; a one-time tax adjustment; a one-time write off of a deposit; and non-recurring commodity tax recoveries. (7) Non-recurring revenue represents retroactive payments for professional and lab fees from MOH, retroactive payments in British Columbia and retroactive MOH cap adjustment in the first quarter and recovery of an impaired investment. Segmented Highlights -------------------- Canadian Operations ------------------------------------------------------------------------- Twelve- Twelve- Three- Three (C$ millions, except months months months months percentages and business ended ended ended ended days) December December December December (unaudited) 31, 2009 31, 2008 31, 2009 31, 2008 ------------------------------------------------------------------------- Revenue 362.1 339.1 92.0 91.3 ------------------------------------------------------------------------- OG&A 241.1 216.8 61.0 58.9 ------------------------------------------------------------------------- EBITDA(1) 121.0 122.3 30.9 32.3 ------------------------------------------------------------------------- EBITDA(1) margin 33.4% 36.1% 33.7% 35.4% ------------------------------------------------------------------------- Net earnings for the period 103.0 99.9 32.2 27.0 -------------------------------------------------------------------------

The F2009 and Q4 2009 increase in revenue in Canada compared to the corresponding periods in 2008 reflect primarily: i) full-year contributions from acquisitions of medical imaging clinics completed in 2008; ii) increase in cap revenue based on the MOH agreement; iii) one-time retroactive technical and professional fee payments from the MOH and British Columbia medical services plan; and iv) organic growth in non-cap revenue. F2009 and Q4 2009 OG&A increased relative to the same periods in 2008 reflect full-year operations of medical imaging clinics acquired in 2008. F2009 and Q4 2009 EBITDA(1) margins were lower than the same period in 2008 primarily due to: i) a higher proportion of revenue derived from medical imaging services resulting from acquisitions completed in 2008; ii) investments made in corporate infrastructure and systems implementations to support the Fund's growth plans; and iii) additional laboratory service costs to support increased utilization.

U.S. Operations ------------------------------------------------------------------------- Twelve- Twelve- Three- Three (US$ millions, except months months months months percentages and business ended ended ended ended days) December December December December (unaudited) 31, 2009 31, 2008* 31, 2009 31, 2008 ------------------------------------------------------------------------- Number of business days 255 213 64 64 ------------------------------------------------------------------------- Revenue 136.9 114.5 34.1 34.8 ------------------------------------------------------------------------- OG&A 120.2 99.8 31.0 30.3 ------------------------------------------------------------------------- EBITDA(1) 16.8 14.7 3.1 4.5 ------------------------------------------------------------------------- EBITDA(1) margin 12.2% 12.8% 9.1% 12.9% ------------------------------------------------------------------------- Goodwill impairment $50.0 - $50.0 - ------------------------------------------------------------------------- Net earnings for the period (45.6) 1.4 (47.5) (0.1) ------------------------------------------------------------------------- * Represents ARS operations from March 1, 2008 onwards

F2009 revenue exceeded F2008 by 19.6% since ARS was acquired on February 29, 2008. The decline in revenue in Q4 2009 compared to the same period in 2008 reflects decreased volumes in high-tech modalities in the quarter, partially offset by higher reimbursement resulting from conversion to digital mammography. F2009 and Q4 2009 OG&A expenses were greater than the corresponding periods in 2008 primarily as a result of: i) full-year operations at ARS acquired in February 2008 (applies to F2009 only); ii) acquisition of Quarry Lake and TII, and the opening of UCH in F2009; and iii) increased physician salary costs as a result of market rate adjustments. The lower EBITDA(1) margins for F2009 and Q4 2009 compared to the same periods in 2008 reflect the items previously discussed.

Balance Sheet -------------

As at December 31, 2009, the Fund had working capital of $25.2 million, including cash and cash equivalents of $21.8 million, compared to working capital of $37.5 million, including cash and cash equivalents of $21.5 million as at December 31, 2008. Long-term debt of the Fund, including the current portion, was $320.5 million as at December 31, 2009, compared to $320.2 million as at December 31, 2008. As at December 31, 2009, the Fund had approximately $69.4 million available under the revolving credit facility. As at December 31, 2009, there were 89,842,404 Fund units issued and outstanding.

Tax Fairness Plan -----------------

In June of 2007, the Government of Canada enacted legislation previously proposed on October 31, 2006 that will apply a tax at the income trust level on unitholder distributions commencing January 1, 2011. At this time, the Fund does not anticipate making changes to its structure prior to 2011. The Fund is now in the process of planning for this corporate conversion and will communicate a definitive plan and timeline in due course.

Source: CML HEALTHCARE INCOME FUND