Toronto Stock Exchange Symbol: CLC.UN
MISSISSAUGA, ON, Nov. 7 /CNW/ - CML HealthCare Income Fund (the "Fund"),
(TSX: CLC.UN) today reported its financial results for the three and
nine-month periods ended September 30, 2006.
Q3 2006 Highlights
<<
- Revenue increased to $70.4 million from $66.9 million in Q3 2005
- Net earnings increased to $22.1 million compared to $19.7 million in
Q3 2005
- EBITDA(xx) totaled $29.4 million compared to $26.6 million in Q3 2005
- The Fund generated distributable cash(x) of $23.1 million and declared
distributions (including payments to non-controlling interest and
Part VI.1 tax paid) totaling $21.6 million, representing a payout
ratio of 93.5%
>>
"Our business continues to perform in-line with expectations including
continued steady revenue growth and EBITDA margins of approximately 40
percent," said Paul Bristow, President and CEO of CML HealthCare Income Fund.
"We remain focused on advancing our growth plan, which includes completing
accretive acquisitions to further strengthen our operating performance. We are
targeting opportunities that are complementary to our core businesses and that
enable us to expand our referring physician network and enhance our service
offering to our existing network. We will also continue to identify and
execute on opportunities to maximize efficiencies and capacity utilization
within our existing operations. We have a strong balance sheet and the
financial flexibility to pursue strategic, value-enhancing opportunities as
they arise."
Financial Results
For the three months ended September 30, 2006, the Fund generated
distributable cash(x) of $23.1 million, and declared distributions (including
payments to non-controlling interest and Part VI.1 tax paid) totaling
$21.6 million, representing a payout ratio of 93.5%. For the nine months ended
September 30, 2006, the Fund generated distributable cash of $69.5 million,
and declared distributions (including payments to non-controlling interest and
Part VI.1 tax paid) totaling $63.4 million, representing a payout ratio of
91.2%.
Revenue for the Fund in the third quarter of 2006 increased 5.2% to
$70.4 million compared to revenue of $66.9 million in the third quarter of
2005. The Fund's increase in revenue in the quarter primarily resulted from a
$2.0 million increase in base and additional funding cap revenues, and
$1.5 million in organic growth of non-cap revenues including $0.5 million from
a one-time retroactive increase in technical fees.
<<
-------------------------------------------------------------------------
Distributable cash(x) ($000s) July 1, January 1,
2006 to 2006 to
September 30, September 30,
(unaudited) 2006 2006
-------------------------------------------------------------------------
Cash flow from operating activities 25,844 69,388
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Normalizing adjustments to non-cash working
capital items(1) (1,729) 4,423
-------------------------------------------------------------------------
Discretionary/non-recurring expenses(2) 571 2,947
-------------------------------------------------------------------------
Capital Expenditures:
Maintenance capital expenditures (376) (2,783)
Capital lease payments (283) (837)
Changes in maintenance capital expenditure
notional reserve (966) (1,255)
-------------------------------------------------------------------------
Sub-total (1,625) (4,875)
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Part VI.1 tax adjustment(3) 579 1,695
-------------------------------------------------------------------------
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Cash available for distributions 23,640 73,578
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Non-recurring revenue(4) (533) (4,083)
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Distributable cash 23,107 69,495
-------------------------------------------------------------------------
Distributions to unitholders 19,880 58,272
-------------------------------------------------------------------------
Payments to non-controlling interest 1,157 3,390
-------------------------------------------------------------------------
Part VI.1 tax paid 579 1,695
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total distributions/payments to non-controlling
interest and Part VI.1 tax paid 21,616 63,357
-------------------------------------------------------------------------
Total payouts as a percentage of
distributable cash 93.5% 91.2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprised primarily of non-recurring revenue from the MOH net of
taxes, timing differences related to interest payments on long-term
debt, and MOH cap revenue receivables.
(2) Comprised primarily of expenses paid in respect of a potential
acquisition and professional expenses paid in respect of non-
recurring tax planning, and retirement bonus paid to the CEO.
(3) Adjustment to normalize the income tax expense which would not be
payable if the Exchangeable Shares were converted to Trust units.
Refer to the table for corresponding inclusion of Part VI.1 tax paid
in total distributions/payments to non-controlling interest.
(4) Comprised of recovery of the note receivable and revenue recognized
from the MOH relating to 2005.
>>
Operating, general and administrative expenses for the third quarter of
2006 were $41.0 million, or 58.2% of revenue, compared to operating, general
and administrative expenses of $40.3 million, or 60.2% of revenue, in the
third quarter a year ago. Increased operating, general and administrative
expenses for the three months ended September 30, 2006 primarily resulted from
an increase in operating expenses to support the increased billings and
$0.8 million in expenses related to the retirement of former CEO, Dr. John
Mull. This increase was offset by $0.6 million of adjustments to supplies
inventories and a recovery of provisions resulting from the resolution of a
legal claim and a disputed receivable balance, totaling $0.6 million.
Earnings Before Interest, Taxes, Depreciation, Amortization, Other
Expenses and Provisions (EBITDA)(xx) in the third quarter of 2006 totaled
$29.4 million, or 41.8% of revenue, compared to EBITDA of $26.6 million, or
39.8% of revenue, for the three months ended September 30, 2005.
The Fund's net earnings for the third quarter of 2006 increased 12.2% to
$22.1 million or $0.28 per Fund unit (basic and diluted), compared to net
earnings of $19.7 million or $0.25 per Fund unit (basic and diluted) in the
third quarter of 2005.
For the nine months ended September 30, 2006 revenue for the Fund totaled
$216.8 million, EBITDA totaled $90.5 million or 41.7% of revenue, and net
earnings totaled $70.6 million or $0.89 per Fund unit (basic and diluted).
Operating, general and administrative expenses for the nine months ended
September 30, 2006 totaled $126.3 million or 58.3% of revenue.
As at September 30, 2006, the Fund had working capital of $73.0 million
including cash and cash equivalents of $65.7 million, compared to working
capital of $68.6 million including cash and cash equivalents of $68.2 million
as at December 31, 2005. Long-term debt of the Fund, including the current
portion, was $192.6 million as at September 30, 2006, compared to
$193.4 million as at December 31, 2005.
In January 2005, the Emerging Issues Committee issued EIC 151,
Exchangeable Securities Issued by Subsidiaries of Income Trusts. The EIC was
further clarified during February 2005. EIC 151 requires that in certain
circumstances such as those pertaining to the Fund, exchangeable shares issued
by a subsidiary of an income trust be presented as non-controlling interest in
the subsidiary company and not as part of unitholders' equity. In accordance
with the transitional provisions of EIC 151, during the quarter ended
September 30, 2005, the Fund retroactively restated the financial statements
to reclassify the exchangeable shares from unitholders' equity to
non-controlling interest and apply fair value accounting to the conversions of
exchangeable shares to units of the Fund. There is no cash impact on the Fund
resulting from the adoption of EIC 151 provisions.
Subsequent to the end of the third quarter, on October 31, 2006 the
Department of Finance (Canada) announced the "Tax Fairness Plan" whereby the
income tax rules applicable to publicly traded trusts and partnerships will be
significantly modified. In particular, certain income of (and distributions
made by) these entities will be taxed in a manner similar to income earned by
(and distributions made by) a corporation. These proposals, if adopted, will
be effective for the 2007 taxation year with respect to trusts which commence
public trading after October 31, 2006, but the application of the rules will
be delayed to the 2011 taxation year with respect to trusts, such as CML
HealthCare Income Fund, which were publicly traded prior to November 1, 2006.
The Fund is considering this announcement and the possible impact of the
proposed rules to the Fund. The proposed rules may adversely affect the
marketability of the Fund's units and the ability of the Fund to undertake
financings and acquisitions, and, at such time as the proposed rules apply to
the Fund, the distributable cash of the Fund may be materially reduced. The
Trustees of the Fund and senior management of CML HealthCare will continue to
monitor this development.
Notice of Conference Call
Management of CML Healthcare Income Fund will host a conference call
today, November 7 at 10:00 am (EST) to discuss the Fund's 2006 third 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 November 14 at midnight at
1-877-289-8525 or 416-640-1917, reference number 21206866 followed by the
number sign.
<<
(x) Distributable Cash is not a recognized measure under Canadian
generally accepted accounting principles ("GAAP"); however, the Fund
believes that distributable cash is a useful measure as it provides
investors with an indication of cash available for distribution. The
Fund's method of calculating distributable cash may differ from that
of other issuers and, accordingly, distributable cash may not be
comparable to measures used by other issuers. Investors are
cautioned that distributable cash should not be construed as an
alternative to the statement of cash flows as a measure of liquidity
and cash flows of the Fund.
(xx) EBITDA is not a recognized measure under Canadian generally accepted
accounting principles (GAAP). Management believes that in addition
to net income, EBITDA is a useful supplemental measure as it
provides investors with an indication of the Fund's performance.
Investors should be cautioned, however, that EBITDA should not be
construed as an alternative to net income. 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 (assuming the exchange for units of all of the outstanding
exchangeable shares of CML HealthCare Inc., excluding those held by the Fund
or its affiliates). To reach CML HealthCare Income Fund via the worldwide web
log on to www.cmlhealthcare.com.
<<
CML HealthCare Income Fund
Unaudited Consolidated Balance Sheets
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(in thousands of dollars)
September 30, December 31,
2006 2005
$ $
ASSETS
Current assets
Cash and cash equivalents 65,747 68,178
Accounts receivable 27,841 27,590
Income taxes receivable 1,594 2,487
Other current assets 2,823 1,778
Future income taxes 1,315 1,113
Due from related parties (note 9) 399 56
--------------------------------
99,719 101,202
Property and equipment 21,886 19,375
Licences 431,507 430,538
Goodwill 154,321 153,678
Investments and other assets 2,186 1,261
Restricted cash 912 912
--------------------------------
710,531 706,966
--------------------------------
--------------------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 18,948 25,231
Distributions payable (note 7) 6,626 6,284
Current portion of long-term debt 1,165 1,122
--------------------------------
26,739 32,637
Long-term debt 191,438 192,318
Future income taxes 57,022 60,994
--------------------------------
275,199 285,949
--------------------------------
Non-controlling interest (note 4) 12,374 9,622
--------------------------------
UNITHOLDERS' EQUITY
Trust units (note 5) 406,861 407,654
Retained earnings 16,097 3,741
--------------------------------
422,958 411,395
--------------------------------
--------------------------------
710,531 706,966
--------------------------------
--------------------------------
- -
The accompanying notes are an integral part of these consolidated
financial statements.
CML HealthCare Income Fund
Unaudited Consolidated Statements of Earnings
-------------------------------------------------------------------------
(in thousands of dollars,
except for per unit amounts)
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September September September September
30 2006 30 2005 30 2006 30 2005
$ $ $ $
Revenue (note 10) 216,845 203,460 70,400 66,863
------------------------- -------------------------
Expenses
Operating, general and
administrative
(note 13) 126,295 121,202 41,013 40,315
Amortization of
property and equipment 2,319 2,122 808 689
Other expenses
(note 11) 2,113 - 21 -
------------------------- -------------------------
130,727 123,324 41,842 41,004
------------------------- -------------------------
Income before the
undernoted 86,118 80,136 28,558 25,859
Recovery of impairment
of investments and
other assets (note 12) (553) - (553) -
Interest expense
Long-term 8,473 8,572 2,820 2,887
------------------------- -------------------------
Earnings from continuing
operations before
income taxes 78,198 71,564 26,291 22,972
------------------------- -------------------------
Provision for
(recovery of) income
taxes (note 8)
Current taxes 5,609 1,985 1,297 813
Future taxes (4,190) 1,959 1,002 759
------------------------- -------------------------
1,419 3,944 2,299 1,572
Earnings before the
following 76,779 67,620 23,992 21,400
Non-controlling
interest (note 4) 6,151 5,429 1,922 1,717
------------------------- -------------------------
Net earnings for
the period 70,628 62,191 22,070 19,683
------------------------- -------------------------
------------------------- -------------------------
Basic and diluted
earnings per unit
(note 6) 0.89 0.78 0.28 0.25
The accompanying notes are an integral part of these consolidated
financial statements.
CML HealthCare Income Fund
Unaudited Consolidated Statements of Retained Earnings (Deficit)
-------------------------------------------------------------------------
(in thousands of dollars)
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September September September September
30 2006 30 2005 30 2006 30 2005
$ $ $ $
Retained earnings -
Beginning of period
as previously
reported 3,741 1,321 13,907 4,337
Change in accounting
policy (note 2) - (1,775) - -
------------------------- -------------------------
Retained earnings
(deficit) - Beginning
of period as restated 3,741 (454) 13,907 4,337
Distributions declared
during the period to
unitholders (note 7) (58,272) (56,574) (19,880) (18,857)
Net earnings for
the period 70,628 62,191 22,070 19,683
------------------------- -------------------------
Retained earnings -
End of period 16,097 5,163 16,097 5,163
------------------------- -------------------------
------------------------- -------------------------
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
nine months nine months three months three months
ended ended ended ended
September September September September
30 2006 30 2005 30 2006 30 2005
$ $ $ $
Cash provided by
(used in)
Operating activities
Net earnings for
the period 70,628 62,191 22,070 19,683
Items not affecting
cash
Amortization of
property and
equipment 2,319 2,122 808 689
Long-term incentive
plan expense 1,235 660 605 220
Non-cash interest
expense 157 158 52 53
Future income taxes (4,190) 1,959 1,002 759
Non-controlling
interest 6,151 5,429 1,922 1,717
------------------------- -------------------------
76,300 72,519 26,459 23,121
Net change in
non-cash working
capital items (6,912) 4,867 (615) 5,382
------------------------- -------------------------
69,388 77,386 25,844 28,503
------------------------- -------------------------
Investing activities
Purchase of property
and equipment (3,938) (1,502) (1,147) (354)
Acquisition of
licences (376) (199) - (199)
Business acquisition
(note 15) (3,043) - (3,043) -
Decrease in
investments and
other assets - 158 - 95
------------------------- -------------------------
(7,357) (1,543) (4,190) (458)
------------------------- -------------------------
Financing activities
Principal repayment
of long-term debt (837) (876) (283) (270)
Distributions paid (57,930) (56,576) (19,881) (18,863)
Payments to non-
controlling interest
(note 7) (3,390) (3,300) (1,157) (1,098)
Treasury units
acquired (1,962) (1,250) - (1,250)
Decrease (increase) in
due from related
parties - net (343) 661 (88) 224
------------------------- -------------------------
(64,462) (61,341) (21,409) (21,257)
Increase in cash and
cash equivalents (2,431) 14,502 245 6,788
Cash and cash
equivalents, beginning
of period 68,178 51,198 65,502 58,912
------------------------- -------------------------
Cash and cash
equivalents,
end of period 65,747 65,700 65,747 65,700
------------------------- -------------------------
------------------------- -------------------------
Supplementary
information
Interest paid 11,048 11,147 5,500 5,567
Taxes paid 6,051 4,527 3,428 2,963
The accompanying notes are an integral part of these consolidated
financial statements.
CML HealthCare Income Fund
Notes to Unaudited Consolidated Financial Statements
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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 $635,146,000 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 Change in accounting policy
In January 2005, the Emerging Issues Committee issued EIC 151,
Exchangeable Securities Issued by Subsidiaries of Income Trusts. The
EIC was further clarified during February 2005. EIC 151 requires
that, in certain circumstances such as those pertaining to the Fund,
exchangeable shares issued by a subsidiary of an income trust be
presented as non-controlling interest in the subsidiary and not as
part of unitholders' equity. In accordance with the transitional
provisions of EIC 151, during the quarter ended June 30, 2005, the
Fund retroactively restated the consolidated financial statements to
reclassify the exchangeable shares of CML HealthCare Inc. from
unitholders' equity to non-controlling interest and to apply fair
value accounting to the conversions of exchangeable shares into units
of the Fund.
The effect of this change in accounting policy on the consolidated
statement of retained earnings (deficit) as at January 1, 2005,
was as follows:
Balance as
previously Balance as
reported Adjustment restated
(in thousands of dollars) $ $ $
Opening retained earnings
(deficit) 1,321 (1,775) (454)
3 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 financial statements do not include all of the disclosures
required by generally accepted accounting principles for annual
financial statements and should be read in conjunction with the 2005
annual 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 nine-months ended
September 30, 2006 are not necessarily indicative of the results that
may be expected for the 12 month period ending December 31, 2006.
There have been no changes to the accounting policies as described in
Note 1 to the consolidated financial statements for the year ended
December 31, 2005.
4 Acquisition of non-controlling interest
During the nine month period ended September 30, 2006, 11,000
exchangeable shares of CML HealthCare Inc. were converted to 11,000
units of the Fund. 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. The 11,000 units of the Fund were
valued at $160,000. This amount less the excess of the purchase price
over the carrying value of the non-controlling interest of $9,000 was
allocated as follows:
nine-month period ended
September 30, 2006
(in thousands of dollars) $
Licences 86
Goodwill 81
Future tax liability (16)
-------------------
151
-------------------
-------------------
As at September 30, 2006, 6,938,588 exchangeable shares of CML
HealthCare Inc. are issued and outstanding (excluding those held by
the Fund and its affiliates).
5 Unitholders' equity
The authorized capital of the Fund consists of an unlimited amount of
trust units. Under the Arrangement, shareholders of CML transferred
their common shares, directly or indirectly, to the Fund and received
either four units of the Fund, or four exchangeable shares of CML
AcquisitionCo, a wholly-owned subsidiary of the Fund. Exchangeable
shares can be converted at the option of the holder on a one-to-one
basis for units of the Fund. Any exchangeable shares still held as of
February 23, 2007 will be exchanged into one unit of the Fund on that
date. In addition, if on any date, the aggregate number of issued and
outstanding exchangeable shares is less than 7,409,000, then on that
date or any date thereafter, the Fund has the option to convert these
exchangeable shares into a corresponding number of units of the Fund.
The following is a summary of changes in unitholders' equity from
December 31, 2005 to September 30, 2006:
Trust Treasury Net
(in thousands) Units Units Units
Number $ Number $ Number $
December 31,
2005 79,693 408,278 44 624 79,649 407,654
Treasury units
acquired - - 135 1,962 (135) (1,962)
Treasury units
distributed
to employees (68) (1,009) 68 1,009
Exchangeable
shares
exchanged
for trust
units (note 4) 11 160 - - 11 160
------------------------------------------------------
September 30,
2006 79,704 408,438 111 1,577 79,593 406,861
------------------------------------------------------
------------------------------------------------------
During the nine month period ended September 30, 2006, 11,000
exchangeable shares of CML were exchanged for 11,000 trust units.
During the nine month period ended September 30, 2006, the Fund
funded $1,962,000 to a trust in respect of exceeding certain 2005
defined distributable cash thresholds contained in the Fund's long-
term incentive plan ("LTIP"). The trust subsequently acquired 135,000
units of the Fund on the open market. The Fund units will be
distributed to the employees in accordance with the terms of the
LTIP.
On September 7, 2006, 68,000 units of the Fund that had vested were
distributed to the eligible employees.
6 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 9-month period ended
September 30, 2006, was 79,699,541 (September 30, 2005 - 79,664,518)
and the 3-month period ended September 30, 2006, was 79,703,816 -
79,678,016).
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 conver- Diluted
Basic sions of earnings
(in thousands of dollars, earnings per exchangeable per
except per unit amounts) Fund unit shares Fund unit
Nine months ended September 30, 2006
Net earnings for the
period $ 70,628 $ 6,151 $ 76,779
Earnings per Fund unit $ 0.89 $ 0.89
Weighted average number of
Fund units outstanding 79,699,541 6,938,588 86,638,129
Nine months ended September 30, 2005
Net earnings for the
period $ 62,191 $ 5,429 $ 67,620
Earnings per Fund unit $ 0.78 $ 0.78
Weighted average number of
Fund units outstanding 79,664,518 6,949,588 86,614,106
Three months ended September 30, 2006
Net earnings for the
period $ 22,070 $ 1,922 $ 23,992
Earnings per Fund unit $ 0.28 $ 0.28
Weighted average number of
Fund units outstanding 79,703,816 6,938,588 86,642,404
Three months ended September 30, 2005
Net earnings for the
period $ 19,683 $ 1,717 $ 21,400
Earnings per Fund unit $ 0.25 $ 0.25
Weighted average number of
Fund units outstanding 79,678,016 6,949,588 86,627,604
7 Distributions declared and dividends declared to non-controlling
interest
During the nine-month period ended September 30, 2006, the
Fund declared total distributions to unitholders of $58,272,000 and
total dividends to non-controlling interest of $3,390,000. The
amounts and record dates of distributions and payments to non-
controlling interest
(in thousands of dollars, except per unit and per share amounts)
Non-
Trust controlling
Units interest
Amount Amount
Record Date $ per Unit $ per Share
---------------------------------------------------------------------
January 31, 2006 6,285 0.0789 365 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 6,627 0.0833 386 0.0556
June 30, 2006 6,627 0.0833 386 0.0556
July 31, 2006 6,626 0.0833 386 0.0556
August 31, 2006 6,626 0.0833 386 0.0556
September 30, 2006 6,626 0.0833 386 0.0556
---------------------------------------------------------------------
58,272 0.7321 3,390 0.4884
---------------------------------------------------------------------
---------------------------------------------------------------------
During the nine-month period ended September 30, 2005, the Fund
declared total distributions to unitholders of $56,574,000 and total
dividends to non-controlling interest of $3,297,000. The amounts and
record dates of distributions and payments to non-controlling
interest were as follows:
(in thousands of dollars, except per unit and per share amounts)
Non-
Trust controlling
Units interest
Amount Amount
Record Date $ per Unit $ per Share
---------------------------------------------------------------------
January 31, 2005 6,283 0.0789 369 0.0526
February 28, 2005 6,286 0.0789 366 0.0526
March 31, 2005 6,287 0.0789 366 0.0526
April 30, 2005 6,287 0.0789 366 0.0526
May 31, 2005 6,287 0.0789 366 0.0526
June 30, 2005 6,287 0.0789 366 0.0526
July 31, 2005 6,288 0.0789 366 0.0526
August 31, 2005 6,288 0.0789 366 0.0526
September 30, 2005 6,281 0.0789 366 0.0526
---------------------------------------------------------------------
56,574 0.7101 3,297 0.4734
---------------------------------------------------------------------
---------------------------------------------------------------------
8 Income taxes
The effective income tax rate on consolidated earnings is influenced
by items such as non-taxable income and non-deductible expenses:
nine-month nine-month
period ended period ended
September 30, 2006 September 30, 2005
(in thousands of dollars) $ $
Combined Canadian federal
and provincial income tax
at statutory rate of 36.12% 28,245 25,849
Increase (decrease) in
statutory income tax
resulting from the following:
Fund income not taxable (20,396) (20,351)
Reduction in future income
taxes resulting from
decreases in enacted
income tax rate (6,271) -
Non-deductible expenses
and other (159) (1,554)
------------------- -------------------
Provision for income taxes 1,419 3,944
------------------- -------------------
------------------- -------------------
9 Due from related parties
Due from related parties consists of amounts due from Cipher
Pharmaceuticals Inc. ("Cipher") and its wholly-owned subsidiaries, in
respect of the provision of management services by the Fund and
certain other reimbursements to the Fund. During the nine-month
period ended September 30, 2006, the Fund charged Cipher $93,000
(nine-month period ended September 30, 2005 - $400,000) in accordance
with the administration agreement between the Fund and Cipher.
10 Industry cap agreement
On March 29, 2006, a new industry cap agreement was signed with the
Ministry of Health and Long-Term Care ("MOH") which provides for an
increase in the Fund's share of the funding of approximately
$2,500,000 for the period of April 1, 2005 to December 31, 2005. This
revenue has been recognized in the three-month period ended
March 31, 2006. In addition, the agreement provides additional
funding if the industry meets certain conditions. Management believes
that the industry had met these conditions for the MOH fiscal year
ended March 31, 2006 and accordingly the Fund has recorded additional
revenue of $1,400,000.
In the second quarter of 2006, the Fund recognized revenue of
$0.4 million in respect of the $4.8 million additional funding
available for the MOH year ended March 31, 2007. An additional
$0.3 million was also recognized in the third quarter of 2006.
Certain additional revenue included in the agreement with the MOH is
recognized based on management's best estimates of its share of the
additional funding earned in the period based on information
currently available. A further $2.9 million of the $4.8 million
additional funding may be recognized in fiscal 2006, based on
services performed and growth in the private lab industry.
11 Other expenses
During the nine-month period ended September 30, 2006, the Fund
incurred and expensed professional fees of $2,113,000 in respect
of a potential acquisition.
12 Provision for impairment of investments and other assets
During 2005, the Fund determined that a note receivable was impaired
due to the uncertainty of the amounts and timing of repayments of
this note receivable. Accordingly, an impairment charge of $1,733,000
was recorded to reduce the carrying value of the note receivable to
its estimated fair value of $nil. In the third quarter of 2006, the
Fund recovered $553,000 in respect of this note receivable.
13 Phantom unit plan
The Fund has a phantom unit plan that provides for the granting of
stock appreciation rights ("SARS") to directors and certain employees
(the "participants"). The SARS provides the holder with the
opportunity to earn a cash benefit equal to the fair market value of
the Fund's trust units less the price at which the SARS was issued.
Compensation expense is measured based on the market price of the
Fund's units at the end of the reporting period. The SARS outstanding
under the plan have been granted at the average closing price of the
Fund's trust units 5 days prior to the date of grant and vest at the
end of the 3 year period.
During the three months ended September 30, 2006, the Fund granted
430,000 and 40,000 SARS which vest on August 11, 2009 and September
7, 2009 respectively. The participants will be entitled to a cash
payment equal to the difference between the quoted market value of
the Fund units and $14.97 and $14.95 respectively, the average market
value of a Fund unit for the 5 days prior to the date of grant. Total
compensation expense estimated to be $517,000 is recognized over the
vesting period of three years on a marked to market basis. As of
September 30, 2006, compensation cost of $25,000 has been recognized
in the financial statements.
14 LTIP and salary benefits
In the third quarter of 2006, the Fund paid a retirement bonus of
$450,000 to the former CEO. In addition, the Fund distributed 68,000
Fund units with a value of $1,009,000 in accordance with the terms of
the LTIP.
15 Business acquisition
During the three-months ended September 30, 2006, the Fund acquired
an imaging clinic for cash consideration of $1,961,000.
The preliminary purchase price has been allocated as follows:
nine-month
period ended
September 30, 2006
(in thousands of dollars) $
Licences 507
Goodwill 562
Property and Equipment 892
-------------------
1,961
-------------------
-------------------
The acquisition has been accounted for by the purchase method, with
results from operations included in earnings from the date of
acquisition. The purchase price has been allocated to the assets
acquired and liabilities assumed based on management's best estimate
of fair values. Given the short time that has elapsed since the
acquisition, the cost and 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.
In addition, during the three-months ended September 30, 2006, the
Fund has made deposits on two business acquisitions in the amount of
$1,082,000. One acquisition closed on October 2, 2006 and the other
is expected to close in November 2006.
16 Subsequent event
On October 2, 2006, 5,973,196 exchangeable shares of CML HealthCare
Inc. were converted to 5,973,196 units of the Fund. The conversion of
the exchangeable shares will be accounted for as a step acquisition
and will result in a reduction of non-controlling interest. The
excess of the purchase price over the carrying value of the non-
controlling interest will be allocated to licences, goodwill and
future tax liability. The fair value of the 5,973,196 units of the
Fund is $93,182,000.
>>
%SEDAR: 00020333E
