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(x) 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(x) 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(x) 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.
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April 1, January 1,
Distributable cash((x)) ($000s) 2007 to 2007 to
(unaudited) June 30, June 30,
2007 2007
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Cash flow from operating activities 33,244 47,229
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Normalizing adjustments to non-cash working capital
items(1) (6,165) 6,278
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Capital Expenditures(2):
Maintenance capital expenditures (503) (876)
Capital lease payments (293) (583)
Changes in maintenance capital expenditure
notional reserve (937) (1,924)
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Sub-total (1,733) (3,383)
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Part VI.1 tax adjustment(3) 0 27
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Cash available for distributions 25,346 50,151
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Non-recurring revenue(4) (80) (1,655)
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Distributable cash(x) 25,266 48,496
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Distributions to unitholders 22,115 43,666
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Payments to non-controlling interest 0 53
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Part VI.1 tax paid 0 27
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Total distributions/payments to non-controlling
interest and Part VI.1 tax paid 22,115 43,746
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Total payouts as a percentage of distributable
cash(x) 87.5% 90.2%
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(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.
(x)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
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(in thousands of dollars)
June 30, December 31,
2007 2006
$ $
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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
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(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
$ $ $ $
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Revenue 152,359 146,445 77,190 72,482
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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
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(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
--------------------------------------------------
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The accompanying notes are an integral part of these consolidated
financial statements.
CML HealthCare Income Fund
Unaudited Consolidated Statements of Cash Flows
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(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
$ $ $ $
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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
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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
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47,229 43,544 33,244 30,084
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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) -
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(12,466) (3,167) (11,989) (1,267)
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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)
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(49,326) (43,053) (25,257) (22,618)
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(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
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Cash and cash
equivalents, end of
period 56,152 65,502 56,152 65,502
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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