Medical Facilities second quarter revenue increases to $54.3 million

Medical Facilities Corporation ("Medical Facilities" or the "Corporation") (TSX: DR), today reported its financial results for the three-month and six-month periods ended June 30, 2011. All amounts are expressed in U.S. dollars unless indicated otherwise.

Second Quarter 2011 Highlights

• Revenue increased to $54.3 million from $51.2 million in Q2 2010
• Operating income increased to $21.4 million from $19.1 million in Q2 2010
• Operating margin improved to 39.5% from 37.3% in Q2 2010

"We are pleased to report on another quarter of strong revenue and operating income growth. Revenue and operating profitability across most of our Centers increased on a year-over-year basis, as they experienced overall positive case mix, improvements in payor mix and same-facility increases in pain management procedures and surgical case numbers," said Dr. Donald Schellpfeffer, CEO of Medical Facilities.

"In addition to these positive factors, our Centers are actively pursuing other revenue increasing and cost reducing opportunities, including provision of new services and new ways of delivering our existing services. We also continue to assist our Centers with their medical staff recruitment efforts. We expect that these initiatives will have a long-term, positive impact on our results."

"During this quarter we successfully completed conversion to a traditional common share structure and restructured our U.S. holding entities. We are confident that our new structure will provide long-term benefits as we execute our growth plans and we intend to maintain our current level of annual dividends of Cdn$1.10 per common share," concluded Dr. Schellpfeffer.

Conversion and Restructuring

The Corporation completed the conversion to a traditional common share structure from an Income Participating Security ("IPS") structure (the "Conversion") and a concurrent restructuring of its U.S. corporate structure (the "Restructuring") on May 31, 2011. As a result of the Conversion, each outstanding IPS unit was effectively exchanged for one new common share of the Corporation. Prior to the Conversion, monthly distributions consisted of interest on subordinated notes and dividends on common shares. Following the Conversion, monthly distributions consist of dividends on common shares.

As the result of the Conversion, the terms of the Corporation's 7.5% convertible secured debentures automatically adjusted and the convertible secured debentures are now convertible into common shares rather than IPS units. No other terms were modified or changed. This adjustment required a re-measurement of the convertible secured debentures using the fair market value at the date of the Conversion and resulted in a non-cash loss of $4.1 million recorded in comprehensive income.

The Conversion and Restructuring resulted in a total of $1.5 million in one-time costs. Conversion costs of approximately $1.1 million were recorded as a reduction to shareholders' equity while Restructuring costs of approximately $0.5 million were recorded in the results of operations.

Financial Results

Three months ended June 30, 2011

The Corporation generated cash available for distribution ("CAFD") of Cdn$8.3 million, or Cdn$0.291 per common share, and declared distributions of Cdn$7.8 million, or Cdn$0.275 per common share, representing a payout ratio of 94.5% for the quarter. The increase in payout ratio from 83.8% for the same quarter last year was largely attributable to the stronger Canadian dollar, which resulted in a lower translation of CAFD, and to the one-time expenses attributable to the Restructuring and the increased provision for current taxes. Excluding expenses attributable to the Restructuring and the increased provision for current taxes, CAFD would have been Cdn$9.4 million and the payout ratio of 83.1% would have been consistent with the prior year payout ratio. In U.S.-dollar terms, CAFD would have been $9.7 million, which is higher than last year's CAFD of $9.1 million.

Consolidated facility service revenue ("revenue") was $54.3 million, an increase of 6.2% from revenue of $51.2 million for the second quarter of 2010. The increase in revenue resulted from a combination of various factors, including, overall positive case mix, same-facility increases in pain management procedures and surgical case numbers and positive changes in payor mix.

Consolidated operating expenses, including salaries and benefits, drugs and supplies, and general and administrative costs ("consolidated expenses") totalled $32.9 million, or 60.5% of revenue, compared with consolidated expenses of $32.1 million, or 62.7% of revenue, a year ago. The $0.8-million increase in consolidated expenses is primarily attributable to an increase in the cost of drugs and supplies and in salaries and benefits, consistent with the changes in case mix, which were offset by a decrease in general and administrative expenses.

Consolidated operating income was $21.4 million, or 39.5% of revenue, a 12.2% increase from consolidated operating income of $19.1 million, or 37.3% of revenue, a year ago.

Total comprehensive loss was $10.2 million, or a loss of $0.605 per share (basic and fully diluted) compared with a total comprehensive income of $19.6 million, or $0.472 per share (basic) and a loss of $0.070 per share (fully diluted), for the same period last year. The decrease in comprehensive income resulted from several factors, including the change in value of the exchangeable interest liability driven by the rise in the Corporation's common share price, the increase in income tax expense and the loss on deemed extinguishment of convertible secured debentures, which were offset by the stronger performance of the Centers, lower interest expense and lower foreign currency loss.

Six months ended June 30, 2011

The Corporation generated CAFD of Cdn$16.2 million, or Cdn$0.571 per common share, and declared distributions of Cdn$15.6 million, or Cdn$0.550 per common share, representing a payout ratio of 96.3%. The increase in payout ratio from 89.3% for the same period last year was largely attributable to the stronger Canadian dollar, the one-time expenses of $0.5 million attributable to the Restructuring and the increased provision for current taxes. Excluding expenses attributable to the Restructuring and the increased provision for current taxes, CAFD would have been Cdn$17.3 million, a slight decline from Cdn$17.5 million for the same period last year and the payout ratio would have been 90.2%. In U.S.-dollar terms, CAFD would have been $17.7 million, compared to $16.9 million for the same period last year.

Revenue was $106.1 million, an increase of 3.4% from $102.5 million a year earlier, which was attributable to the overall positive case mix, same-facility increases in pain management procedures and surgical case numbers and price increases, offset by a somewhat less favourable payor mix.

While the consolidated expenses remained unchanged compared to the same period last year ($66.4 million in both periods), as a percentage of revenue, consolidated expenses declined to 62.6% from 64.8% a year ago. An increase in salaries and benefits was offset by lower drugs and supplies expenses and general and administrative expenses.

Consolidated operating income was $39.6 million, or 37.4% of revenue, a 9.7% increase from consolidated operating income of $36.1 million, or 35.2% of revenue for the same period a year ago.

Total comprehensive loss was $19.0 million, or $1.132 per share (basic and fully diluted) compared with total comprehensive income of $14.7 million, or $0.100 per share (basic) and $0.049 per share (fully diluted), for the same period last year. The decrease in comprehensive income was primarily due to the changes in values of the exchangeable interest liability and subordinated notes payable early redemption option, the increase in income tax expense and the loss on deemed extinguishment of convertible secured debentures, which were offset by a stronger performance of the Centers, lower interest expense and the reduction in foreign currency loss.

As at June 30, 2011, the Corporation had consolidated net working capital of $55.1 million, including cash and cash equivalents of $32.0 million and patient accounts receivable of $35.6 million, compared with net working capital of $62.8 million, including cash and cash equivalents of $31.6 million and patient accounts receivable of $40.8 million, as at December 31, 2010. Long-term debt at the Centers' level, including the current portion, was $46.5 million as at June 30, 2011 compared with $50.4 million as at December 31, 2010.

As at June 30, 2011, the Corporation had 28,446,342 common shares outstanding.