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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning, ladies and gentlemen, and welcome to CML Healthcare's conference call to discuss the closing of its acquisition of American Radiology Services, Inc. Before turning the call over to management, listeners' are cautioned that today's discussions and responses to questions may contain forward-looking statements within the meaning of the Safe Harbor provisions of Canadian Provencial Securities laws. Forward-looking statements involves risks and uncertainties, and undue reliance should not be placed on such statements. 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.
For additional information about factors that may cause actual results to differ materially from expectations or to material factors or assumptions applied in made in forward-looking statements, please consult the "Risk Factors" section of CML's annual information from their filings with Canadian securities regulators, including CML's news release dated February 29, 2008. CML does not undertake to update any forward-looking statements and such statements speak only as of the date made. Listeners are also reminded that today's call is being recorded and broadcast live via the internet for the benefit of individual unit holders, the media and other interested parties.
I would now like to turn the call over to Paul Bristow, President and CEO of CML Healthcare. Please go ahead, Mr. Bristow.
PAUL BRISTOW, PRESIDENT & CEO, CML HEALTHCARE INCOME FUND: Thank you, Kerran, and good morning, ladies and gentlemen. With me on today's call is Tom Weber, Chief Financial Officer, and Cameron Duff, Executive Vice President, corporate development. We issued a news release last Friday afternoon announcing the successful closing of our acquisition of American Radiology Services, Inc., or ARS, through the acquisition of its holding company, ARS Holdings, Inc., for total consideration of approximately US$150.4 million, subject to normal post-closing adjustments. The total purchase consideration includes repayment of ARS's term debt and capital leases assumed by CML Healthcare. You can access the news release via our website at www.cmlhealthcare.com. The acquisition was funded through our new C$450 million credit facility. Based in Baltimore, Maryland, ARS is a leading provider of fully-integrated diagnostic medical imaging services, with 15 fixed sites multi-modality, and two single-modality outpatient centers in Maryland and Delaware.
ARS also provides radiologist coverage to 11 hospitals in Maryland, and primary or secondary reading services via its teleradiology network to 25 hospitals across six states in the U.S. ARS, through an exclusive long=term management services contract with American Radiology Associates, or ARA, has access to approximately 70 radiologists and access to additional radiologists through its affiliation with Johns Hopkins. We believe this transaction provides CML with a number of very attractive strategic and financial benefits. Most importantly, the acquisition is immediately accretive to CML Healthcare Income Fund's distributable cash on a per unit basis and it provides CML with a strong platform for future growth in medical imaging. ARS's strong management team, lead by Bob Carfagno and John Rodgers, will remain with ARS under new employment agreements. Both Bob and John are committed to maintaining operational excellence and continued growth as part of CML Healthcare.
I'd like to turn the call over to Tom Weber to discuss financial highlights of the transaction in greater detail. Tom?
TOM WEBER, CFO, CML HEALTHCARE INCOME FUND: Thanks, Paul, and good morning, everyone. When we announced the acquisition we committed to providing detailed financial information on closing of the transaction. In our news release last Friday, we included a summary of pro forma distributable cash for the nine-month period ended September 30, 2007, showing the impact of the ARS acquisition, had it been completed on January 1, 2007. We also included a financial performance summary for ARS for the same period. Please note that these results are unaudited. ARS generated US$109 million in revenue and adjusted EBITDA of US$15.8 million for the nine-month period ended September 30, 2007 under Canadian GAAP. Please refer to the financial tables in our acquisition closing news release to see a reconciliation of net income to adjusted EBITDA.
Based on pro forma financial results for the nine-month period ended September 30, 2007, and using the U.S. to Canadian dollar exchange rate of C$1.1048 in effect during this period, the acquisition would have been 9% accretive to distributable cash per unit. On a pro forma basis, the Fund cash available for distribution would have been approximately C$82.2 million or C$0. 95 per unit as compared to the Fund's actual cash available for distribution of C$75.4 million or C$0.87 per unit for the nine months ended September 30. Using the effective U.S. To Canadian dollar exchange rate of C$0.9719 on February 28, 2008, the day prior to the closing of the ARS acquisition, the transaction would have been 7.5% accretive to the Fund's distributable cash per unit on a pro forma basis, reflecting the increased value of the Canadian dollar as compared to the September 30, 2007 period. Our objective for disclosing the distributable cash calculation in our February 29th news release is to outline the net cash flow generated by the Fund and ARS that would have been available for distribution during the period and anticipated to be sustainable in the future.
We calculate distributable cash by starting with cash flow from operating activities inclusive of the impact of working capital changes from the cash flow statement. We then make certain adjustments, as I will outline, in order to determine a normalized sustainable cash flow. We make specific adjustments relating to working capital items that the are known and predictable in nature. We include a notional capital expenditure reserve adjustment determined to be reasonable and necessary for continuing operations. Certain adjustments for non-recurring revenues, if applicable, are also made in the period. These adjustments are made by the Fund to indicate the non- recurring nature of certain transactions that in the Fund's view should not be part of a reasonable expectation of future cash flows, and we also make certain adjustments for discretionary or non-recurring expenditures funded out of cash on hand at the beginning of the period. We will apply this consistent and conservative methodology for all acquisitions. including ARS. Please refer to the distributable cash table in our acquisition closing news release and the relevant notes presented below this table to better understand these adjustments.
I would, however, like...
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