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Press release from Marketwire

CML HealthCare Inc. Reports 2011 Second Quarter Financial Results

Thursday, August 11, 2011

CML HealthCare Inc. Reports 2011 Second Quarter Financial Results06:00 EDT Thursday, August 11, 2011MISSISSAUGA, ONTARIO--(Marketwire - Aug. 11, 2011) - CML HealthCare Inc. (the "Company" or "CML") (TSX:CLC) today reported its financial results for the three and six month periods ended June 30, 2011 (all amounts are in Canadian dollars, unless noted otherwise).Consolidated Financial Summary:(C$millions, except percent & per share/unit amounts)For the three month period ended June 30:20112010% ChangeRevenue117.3118.6-1.1%Cost of services (COS)74.975.0-0.1%General & administrative (G&A)18.119.3-6.3%Add back: Depreciation & amortization7.58.3-9.6%EBITDA131.832.6-2.5%EBITDA1 Margin27.1%27.5%naDepreciation & amortization7.58.3-9.6%Goodwill impairment5.0-naRestructuring & other expenses net2.60.7naInterest expense3.02.92.0%Provision for (recovery of) income taxes5.6-1.5naOther items0.3-0.1naNet Earnings7.822.4-65.1%EPS0.090.25-64.0%Cash flow from operating activities27.726.64.0%Purchase of property & equipment-5.0-4.317.9%Acquisition of intangible assets-1.7-2.5-32.4%Adjusted Funds from Operations ("AFFO"2)20.919.85.6%During the quarter, negotiations began between the Ontario Association of Medical Laboratories ("OAML"), of which CML is a member, and the Ontario Ministry of Health and Long Term Care ("MOH") on the new funding agreement for capped laboratory services, which make up approximately 55% of Canadian revenues. A new agreement is expected to be in place and announced by early fall 2011. In the interim, the Company continues to be reimbursed based on terms of the existing agreement."Revenues from Canadian operations increased 2.5%, demonstrating continued stability and growth in our core business," noted Tom Weber, Executive Vice President and Chief Financial Officer. "During the quarter, we advanced our investments in technology in the Canadian laboratory and imaging operations which accelerates efficiencies and improved quality. The automation of the chemistry platforms at our central laboratory, completed early in the third quarter, will further heighten the lab's productivity.""The U.S. operations stabilized in the second quarter with both procedural volumes and reimbursements consistent with the first quarter in 2011 ("Q1 2011")," advised Mr. Weber. "As a result of cost containment efforts, both EBITDA and EBITDA margins improved in Q2 2011 over Q1 2011. Given the continued challenging environment, we are focused on reviewing our strategy in the U.S. imaging market and expect to complete our review before the end of this year. During the quarter, CML recorded a $5.0 million goodwill impairment charge associated with the U.S. operations to reflect current assumptions and outlook for the value of this business." Financial Results For the three months ended June 30, 2011 ("Q2 2011"), revenue decreased 1.1% to $117.3 million from $118.6 million for the same period in 2010 ("Q2 2010"). Decreased revenue in Q2 2011 was largely attributable to:$1.5 million from changes in foreign exchange rates; and Reimbursement cuts by Medicare and other payors in the U.S. The above revenue declines were partially offset by increases from Canadian operations resulting from the following:$0.9 million one-time laboratory cap funding from the MOH for the year ended March 31, 2011; and Growth in non-cap lab and imaging revenue Q2 2011 COS and G&A expenses of $93.0 million were 1.4% lower than $94.3 million for the same period in 2010. The decrease reflects:$1.7 million from changes in foreign exchange rates; Effective cost containment including improved inventory management and supply chain cost savings; and A decrease in depreciation and amortization resulting from timing of purchase of property and equipment and intangible impairment recorded in Q4 2010. The above declines in COS and G&A expenses were partially offset by the following:Increase from harmonized sales tax ("HST") in Ontario and British Columbia that took effect July 1, 2010; general inflationary increases impacting salaries and certain services in Canada; and Increase in medical professional fees, in-line with increases in non-cap revenues. Q2 2011 EBITDA1 totaled $31.8 million compared to $32.6 million in Q2 2010. EBITDA1 margin of 27.1% was in line with Q2 2010 of 27.5%.The Company's net earnings for Q2 2011 of $7.8 million were lower than $22.4 million in Q2 2010. The decline was largely attributable to a $5.6 million provision for income taxes in Q2 2011 as a result of the conversion from an income fund to a corporation resulting in CML's income becoming taxable, compared to a $1.5 million recovery of taxes in the same period in 2010. Also impacting net earnings in Q2 2011 was a $5.0 million goodwill impairment charge associated with the U.S. operations as previously noted; and a severance charge of $2.6 million related to the departure of the President and Chief Executive Officer (CEO) and the Chief Operating Officer (COO) of the Company in Q2 2011.AFFO2 in Q2 2011 totaled $20.9 million compared to $19.8 million in Q2 2010. Increased AFFO2 in Q2 2011 reflect a $1.1 million increase in cash flow from operating activities in Q2 2011. Dividends declared were $16.9 million in Q2 2011. Segmented Highlights Canadian Operations (in C$millions, except percent amounts)For the three month period ended June 3020112010% ChangeRevenue95.493.02.5%COS58.856.93.3%G&A10.710.15.3%Add back depreciation & amortization4.23.97.5%EBITDA130.129.90.7%EBITDA1 Margin31.6%32.2%-1.9%Net Earnings14.622.5-35.1%Revenue in Q2 2011 increased 2.5% to $95.4 million compared to $93.0 million in the corresponding period in 2010. The increase was due primarily to: i) $0.9 million of one-time laboratory cap funding for the MOH year ended March 31, 2011 recorded in Q2 2011; and ii) growth in non-cap lab and imaging revenue.Although effective cost containment initiatives in Q2 2011 resulted in supply chain cost savings, Q2 2011 COS and G&A expenses were higher than the same period in 2010 as a result of: i) the impact of HST as previously noted; ii) increased physician fees in-line with increased non-cap revenues; iii) increased depreciation and amortization resulting from the purchase of property and equipment and intangible assets; and iv) general inflation. Net earnings of $14.6 million in Q2 2011 were lower than $22.5 million in Q2 2010. The decrease primarily reflects the provision for income taxes resulting from conversion from an income fund to a corporation, as well as a severance charge of $2.6 million in Restructuring & Other Expenses as previously noted. U.S. Operations (in US$millions, except percent amounts)For the three month period ended June 3020112010% ChangeRevenue22.724.9-8.7%COS16.717.6-5.0%G&A7.68.9-13.9%Add back depreciation & amortization3.44.3-19.9%EBITDA11.82.6-33.8%EBITDA1 Margin7.7%10.6%-27.5%Goodwill impairment5.2-naNet Loss-7.0-0.1naRevenue in Q2 2011 totaled US$22.7 million compared to US$24.9 million in Q2 2010. The decrease in revenue in Q2 2011 primarily reflects previously noted reimbursement cuts by Medicare and other payors effective January 1, 2011. Q2 2011 COS and G&A expenses were lower than the same period in 2010 due primarily to cost reduction initiatives. During the quarter, CML recorded a US$5.2 million goodwill impairment charge associated with its U.S. operations to reflect current assumptions and outlook for the value of the business. Consequently, Q2 2011 net loss of US$7.0 million was greater than US$0.1 million in the same quarter in 2010.Year-to-Date (YTD) Results:(C$millions, except percent & per share amounts)For the six month period ended June 30:20112010% ChangeRevenue231.3243.0-4.8%COS147.3158.6-7.1%G&A35.838.1-5.9%Add back: Depreciation and amortization15.116.6-9.2%EBITDA163.362.90.6%EBITDA1 Margin27.4%25.9%5.6%Depreciation & amortization15.116.6-9.2%Goodwill impairment5.0-naRestructuring & other expenses net2.62.56.2%Interest expense5.85.46.9%Provision for (recovery of) income taxes12.2-4.7naOther items0.40.4-2.6%Net Earnings22.242.7-47.9%EPS0.250.48-47.9%Cash flow from operating activities55.552.55.7%Purchase of property & equipment-11.9-12.3-3.1%Acquisition of intangible assets-3.3-3.3-0.4%Adjusted Funds from Operations ("AFFO" 2)40.336.99.3%For the six-month period ended June 30, 2011, revenue declined by 4.8% compared to the same period in 2010 due primarily to: i) $3.3 million from changes in foreign exchange rates; ii) $8.9 million as a result of changes in accounting for the Management Service Agreement (MSA) with Maryland radiologists effective Q2 2010; and iii) reimbursement cuts from Medicare and other U.S. payors. The decrease in revenue was partially offset by increases from i) $0.9 million increase in total laboratory capped revenue based on the funding agreement with the MOH; ii) $0.9 million in one-time laboratory cap funding for the MOH year ended March 31, 2011; and iii) growth in non-cap lab and imaging revenue.YTD COS and G&A expenses were lower in 2011 compared to 2010 to reflect: i) $8.9 million from the change in accounting for the MSA in Maryland; ii) $3.5 million from changes in foreign exchange rates; iii) decrease in depreciation and amortization; and iv) effective cost containment activities. The decrease in COS and G&A expenses were partially offset by increases from i) general inflation in Canadian operations; ii) increased medical professional fees in-line with increased non-cap revenues; and iii) the impact of HST in British Columbia and Ontario. As a result of lower expenses, both EBITDA and EBITDA margin improved YTD in 2011 compared to 2010.The decline in 2011 YTD net earnings compared to 2010 was primarily attributable to the provision for income taxes in 2011 since the Company became taxable after its conversion from an income trust to a corporation effective January 1, 2011. During Q2 2011, CML recorded a $5.0 million goodwill impairment charge associated with the U.S. operations to reflect current assumptions and outlook for the value of this business.YTD AFFO of $40.3 million was higher than $36.9 million in 2010 as a result of increased cash flow from operations and a decrease in property and equipment purchases. Dividends declared were $33.9 million YTD in 2011. Balance Sheet As at June 30, 2011, the Company had cash balances of $7.1 million, compared to $9.5 million as at December 31, 2010, and $9.3 million as at March 31, 2011. Long-term debt of the Company, including the current portion, was $315.9 million as at June 30, 2011, compared to $330.2 million as at December 31, 2010 and $320.5 million as at March 31, 2011. As at June 30, 2011, the Company had approximately $62.0 million available under the revolving credit facility with 89,842,404 common shares issued and outstanding. Notice of Conference Call Patrice Merrin, Interim CEO and Chairman of the Board will be hosting a conference call today, Thursday, August 11, 2011 at 10:00 am (EST) to discuss the Company's 2011 second quarter financial results. Investors and analysts are invited to join the call by dialing 416-340-2216 or 866-226-1792. Please dial in 15 minutes prior to the call to secure a line. You will be put on hold until the conference call begins.A live audio webcast of the conference call will be available through www.cmlhealthcare.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be needed to hear the webcast. An archived replay of the webcast will be available for 90 days.A taped replay of the conference call will also be available until Thursday, August 25, 2011 by calling 905-694- 9451 or 800-408-3053, reference number 2337877.The Company defines EBITDA as earnings before interest, taxes, depreciation, amortization, restructuring and other expenses-net, goodwill impairment, impairment of non-financial assets, loss on disposal of property and equipment, equity loss from joint ventures, and foreign exchange gains/losses. EBITDA margins are calculated by dividing EBITDA by revenue. EBITDA is not a recognized measure under IFRS. Management believes that, in addition to net earnings, EBITDA is a useful supplemental measure, as it provides investors with an indication of the Company's performance. EBITDA is used by the Company to analyze performance and compare profitability between periods. Investors should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS. The Company's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be comparable to measures used by other companies.Adjusted funds from operations ("AFFO") is not a recognized measure under IFRS. The Company uses this as a measure of financial performance, as an indicator of its cash flow strength, its ability to meet future operational and capital expenditure requirements and ability to pay dividends on the Company's common shares.About CML HealthCare Inc.CML HealthCare Inc. is one of North America's largest community-based healthcare services providers. Based in Mississauga, Ontario, CML HealthCare Inc. is a leading provider of laboratory testing services in Ontario, the largest provider of medical imaging services in Canada and operates 23 medical imaging centres in the U.S. Northeast. CML HealthCare Inc. is publicly-traded on the Toronto Stock Exchange under the symbol "CLC" and has approximately 89.8 million common shares outstanding. To reach CML HealthCare Inc. via the worldwide web, log on to www.cmlhealthcare.com.Caution concerning forward-looking statementsThis document includes forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities law in Canada. These forward-looking statements include, among others, statements with respect to our objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective" and "continue" (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. We caution readers not to place undue reliance on these statements, as a number of important factors, many of which are beyond our control, could cause our actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: dependence on government-based revenues in Canada; general economic conditions; pending and proposed legislative or regulatory developments in Canada including the impact of changes in laws, regulations and the enforcement thereof; reliance on funding models in Canada; intensifying competition, resulting from established competitors and new entrants in the businesses in which we operate; our ability to complete strategic acquisitions and to integrate our acquisitions successfully; insurance coverage of sufficient scope to satisfy any liability claims; operational and infrastructure risks including possible equipment failure and performance of information technology systems; fluctuations in total patient referrals; technological change and obsolescence; loss of services of key senior management personnel; privacy laws; ability to pay dividends in the future; leverage and restrictive covenants; fluctuations in cash timing and amount of capital expenditures; tax-related risks; unpredictability and volatility of the price of common shares; dilution; future sales of common shares. Additional factors related to business operations in the U.S. imaging market include, but are not limited to: potential termination of the arrangements with contracted radiology practices; fluctuations in total patient referrals; changes in third-party reimbursement rates or methodology; increased pressure to control healthcare costs; increased competition; technological change; exposure to professional malpractice liability; potential termination of relationship with Johns Hopkins; currency fluctuations; ability to grow business in the United States; U.S. income tax matters; different regulatory environment characterized by extensive regulation; penalties arising from failure to comply with all regulations; federal and state fraud and abuse laws; loss of licensing, certification or accreditation; Certificate of Need regulations; privacy legislation; legislative change affecting prices that physicians or suppliers can charge; avoidance of fee-splitting; environmental health and safety laws; and the uncertainty of, and changes in, the U.S. healthcare regulatory environment.We caution that the foregoing list of important factors that may affect future results is not exhaustive. When reviewing our forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward- looking statements, may be found in the "Risk Factors" section of our Annual Information Form, under "Business Risks" and elsewhere in our Management's Discussion and Analysis of Operating Results and Financial Position for the year ended December 31, 2010 and elsewhere in our filings with Canadian securities regulators. Except as required by Canadian securities law, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf; such statements speak only as of the date made.CML HealthCare Inc.Unaudited Consolidated Balance Sheets(in thousands of Canadian dollars)June 30,December 31,January 1,201120102010$$$ASSETSCurrent assetsCash7,1359,50621,309Trade and other receivables52,69353,92156,205Income taxes recoverable--523Other current assets2,9763,3774,436Restricted cash-995-62,80467,79982,473Property and equipment81,83383,22782,676Licences232,259232,259232,259Intangible assets21,76220,86742,821Goodwill (Note 17)39,76945,15977,092Investments and other assets5,5795,6671,883Total Assets444,006454,978519,204LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities39,99943,35448,310Dividends and distributions payable (Note 12)5,649-8,007Income taxes payable6,1221,720798Current portion of long-term debt1,8562,3403,596Provisions (Note 15)3,0201,537-56,64648,95160,711Long-term debt314,016327,827310,287Other long-term liabilities10,86012,41013,598Deferred tax liabilities22,75614,77720,193Total Liabilities404,278403,965404,789SHAREHOLDERS' EQUITYCommon shares (Note 7)54,911--Contributed surplus10--Trust equity-54,461116,654Accumulated other comprehensive loss (Note 14)(3,564)(3,448)(2,239)Deficit(11,629)--39,72851,013114,415Total Liabilities and Shareholders' Equity444,006454,978519,204CML HealthCare Inc.Unaudited Consolidated Statements of Earnings and Comprehensive Income(in thousands of Canadian dollars, except share/unit and per share/unit amounts)Six month period endedThree month period endedJune 30,June 30,June 30,June 30,2011201020112010$$$$Revenue231,272242,956117,257118,583Cost of services (Notes 8 and 16)147,253158,55074,90474,994Gross margin84,01984,40642,35343,589ExpensesGeneral and administrative (Notes 8 and 16)35,84138,10118,05419,264Foreign exchange loss (gain)278369(7)(118)Goodwill impairment (Note 17)5,000-5,000-Restructuring and other expenses, net (Note 15)2,6072,4552,60769943,72640,92525,65419,845Income before the undernoted40,29343,48116,69923,744Interest expense5,7655,3932,9562,897Foreign exchange (gain) loss(19)-236-Equity loss from joint ventures12141851Earnings before income taxes34,42638,04713,42220,846Provision for (recovery of) income taxes (Note 6)Current taxes4,6192854,619193Deferred taxes7,558(4,936)995(1,726)12,177(4,651)5,614(1,533)Net earnings for the period22,24942,6987,80822,379Other comprehensive income (loss), net of income taxesUnrealized gain (loss) on interest rate swap1,5071137(1,806)(Provision for) recovery of income taxes(383)(3)(9)460Net1,124828(1,346)Foreign currency translation adjustment(1,203)954(1,233)1,850(Provision for) recovery of income taxes(37)152142412Net(1,240)1,106(1,091)2,262Total other comprehensive (loss) income(116)1,114(1,063)916Comprehensive income for the period22,13343,8126,74523,295Basic and diluted earnings per share/unit (Note 9)0.250.480.090.25Weighted average number of common shares/units outstanding - basic89,842,40489,842,40489,842,40489,842,404Weighted average number of common shares/units outstanding - diluted90,074,74689,842,40489,842,40489,842,404CML HealthCare Inc.Unaudited Consolidated Statements of Cash Flows(in thousands of Canadian dollars)Six month period endedThree month period endedJune 30,June 30,June 30,June 30,2011201020112010$$Cash provided by (used in)Operating activitiesNet earnings for the period22,24942,6987,80822,379Items not affecting cashDepreciation of property and equipment12,70913,3766,3006,601Amortization of intangible assets2,3943,2521,2091,709Unrealized foreign exchange gain--255-Interest expense5,7655,3932,9562,897Income tax expense4,6192854,619193Goodwill impairment (Note 17)5,000-5,000-Equity loss from joint ventures12141851Restructuring and other expenses2,6071,6502,607-Other non-cash items2071,212433774Deferred income taxes7,558(4,936)995(1,726)Net change in non-cash working capital items (Note 13)(1,075)(7,057)(1,109)(4,568)Supplier incentive received-1,755-1,755Interest paid(6,527)(6,354)(3,394)(3,223)Income taxes (paid)/recovered(103)1,191(112)(205)55,52452,50627,65226,587Investing activitiesPurchase of property and equipment(11,947)(12,331)(5,037)(4,272)Acquisition of intangible assets(3,256)(3,270)(1,692)(2,502)Proceeds from restricted cash986---Payments received from (to) joint ventures-52-(26)(14,217)(15,549)(6,729)(6,800)Financing activitiesPrincipal repayment of long-term debt and obligations under capital lease(14,951) (2,923 )(6,181) (1,269 )Proceeds from long-term debt-7,000-4,000Dividends and distributions paid(28,229)(48,030)(16,934)(24,009)Shares and units acquired(392)(518)--(43,572)(44,471)(23,115)(21,278)Effects of foreign exchange on cash(106)(21)(7)(89)Decrease in cash(2,371)(7,535)(2,199)(1,580)Cash, beginning of period9,50621,3099,33415,354Cash, end of period7,13513,7747,13513,774CML HealthCare Inc.Unaudited Consolidated Statements of Shareholders' EquityFor the six month period ended June 30, 2011(in thousands)Trust UnitsTreasury UnitsNet UnitsCommon sharesTreasury SharesNet SharesContributed SurplusDeficitAccumulated Other Comprehensive Loss (Note 14)Total Shareholders' EquityNum- ber$Num- ber$Num- ber$Num- ber$Num- ber$Num- ber$$$$Balance at January 1, 201189,842562,6606178689,781561,874-------(507,413)(3,448)51,013Conversion from an income trust into a corporation (Note 1)(89,842)(562,660)(61)(786)(89,781)(561,874)89,842562,6606178689,781561,874Net earnings for the period22,24922,249Derivative financial instruments- interest rate swap - current period gain1,1241,124Currency translation adjustment- current period loss(1,240)(1,240)Total comprehensive income-------------22,249(116)22,133Transactions with ownersCommon shares acquired (Note 7)38392(38)(392)(392)Common shares distributed to employees (Note 7)(70)(842)70842842Stock compensation expense1010Dividends declared (Note 12)(33,878)(33,878)Reduction of stated capital (Note 1)(507,413)(507,413)507,413Total transactions with owners-------(507,413)(32)(450)32(506,963)10473,535-(33,418)Balance at June 30, 2011------89,84255,2472933689,81354,91110(11,629)(3,564)39,728For the six month period ended June 30, 2010(in thousands)Trust UnitsTreasury UnitsNet UnitsCommon sharesTreasury SharesNet SharesDeficitAccumulated Other Comprehensive Loss (Note 14)Total Trust EquityNum- ber$Num- ber$Num- ber$Num- ber$Num- ber$Num- ber$$$$Balance at January 1, 201089,842562,6601482,03689,694560,624------(443,970)(2,239)114,415Net earnings for the period42,69842,698Derivative financial instruments- interest rate swap- current period gain88Currency translation adjustment- current period loss1,1061,106Total comprehensive income------------42,6981,11443,812Transactions with ownersUnits acquired (Note 7)41518(41)(518)(518)Distributions declared to unitholders (Note 12)(48,026)(48,026)Total transactions with owners--41518(41)(518)------(48,026)-(48,544)Balance at June 30, 201089,842562,6601892,55489,653560,106------(449,298)(1,125)109,683FOR FURTHER INFORMATION PLEASE CONTACT: Alice DunningCML HealthCare Inc.Director, Corporate Communications(905) 565-0043 ext.3472(905) 565-2844 (FAX)ORTom WeberCML HealthCare Inc.Executive Vice President & Chief Financial Officer(905) 565-0043 ext.3204(905) 565-2844 (FAX)www.cmlhealthcare.com