Medical Facilities Corporation Reports Third Quarter 2010 Results

TORONTO, Nov. 12 /CNW/ - Medical Facilities Corporation ("Medical Facilities" or "the Corporation") (TSX: DR.UN), today reported its financial results for the three- and nine-month periods ended September 30, 2010. All amounts are expressed in U.S. dollars unless indicated otherwise.

"We are pleased to report continued improvement in our key performance metrics during the third quarter: our consolidated revenue increased by 4.2% on a year-over-year basis, our operating margin improved to 37.1% from 35.5% last year and our cash available for distribution grew by 4.5% year-over-year to Cdn$8.9 million, resulting in an improved payout ratio of 87.9%. Our cash available for distribution actually increased by 10.4% in U.S.-dollar terms," said Dr. Donald Schellpfeffer, CEO of Medical Facilities.

Q3 2010 Summary

• Facility service revenue was $51.0 million ($49.0 million in Q3 2009)
• Operating margin was 37.1% (35.5% in Q3 2009)
• Operating income was $18.9 million ($17.4 million in Q3 2009)
• Cash available for distribution¹ was Cdn$8.9 million (Cdn$8.5 million in Q3 2009)
• Payout ratio was 87.9% (91.7% in Q3 2009)

Dr. Schellpfeffer added, "While we also continued to see an overall higher proportion of cases covered by payors with lower reimbursement rates, we are encouraged by the revenue improvement at our specialty surgical hospitals.  In addition, as we indicated in our last quarterly results, we divested our interest in Barranca Surgery Center in California, which should positively impact our overall operating performance going forward.  Furthermore, we completed our expansion at Black Hills as planned, adding two operating rooms and expanding our common and support areas. This and our other recent overnight room expansions should position us better for increases in surgical and inpatient cases, especially in light of restrictions on expansion of physician-owned hospitals imposed by the healthcare reform."

Financial Results
Three months ended September 30, 2010
For the three months ended September 30, 2010, Medical Facilities generated cash available for distribution ("CAFD") of Cdn$8.9 million or Cdn$0.313 per income participating security ("IPS") unit, and declared distributions (comprised of interest on subordinated notes and dividends on common shares) of Cdn$7.8 million or Cdn$0.275 per IPS unit, representing a payout ratio of 87.9% for the quarter.

Consolidated facility service revenue ("revenue") for the third quarter of 2010 increased by 4.2% to $51.0 million compared with $49.0 million in the third quarter of 2009. The increased revenue is primarily a reflection of a favourable case mix at the Corporation's South Dakota specialty surgical hospitals ("SSHs") resulting in a 7.5% increase in aggregate average revenue per case at these Centers. Lower case counts at some of the Centers and a higher proportion of cases covered by payors with lower reimbursement rates were the factors partially offsetting growth of revenue. Oklahoma Spine Hospital's revenue remained constant between the periods as a marginal increase in surgical cases was offset by a decline in pain management procedures and an unfavourable case mix. The Corporation's California ambulatory surgery centers ("ASCs") continued to experience weaker demand and lower revenues.

Consolidated operating expenses, including salaries and benefits, drugs and supplies, and general and administrative costs ("consolidated expenses") for the third quarter of 2010 totalled $32.1 million, or 62.9% of revenue, compared with consolidated expenses of $31.6 million, or 64.5% of revenue, a year ago. The $0.5-million increase consisted of increases in drugs and supplies expenses ($0.2 million), general, administrative and operating expenses ($0.2 million), and salaries and benefits ($0.1 million).

Consolidated operating income, before depreciation and amortization, interest expense, loss on foreign currency translation and minority interest ("consolidated operating income") for the third quarter of 2010 was $18.9 million, or 37.1% of revenue, compared with consolidated operating income of $17.4 million, or 35.5% of revenue, a year ago.

Consolidated net loss for the third quarter of 2010 was $1.9 million, or $0.068 per IPS unit (basic and fully diluted), compared with a net income of $2.3 million, or $0.078 per IPS unit (basic and fully diluted), in the comparable period last year.

Nine months ended September 30, 2010
For the nine months ended September 30, 2010, Medical Facilities generated CAFD of Cdn$26.3 million or Cdn$0.928 per IPS unit, and declared distributions (consisting of interest on subordinated notes and dividends on common shares) of Cdn$23.4 million or Cdn$0.825 per IPS unit, representing a payout ratio of 88.9% for the period.

Revenue for the nine-month period ended September 30, 2010 grew by $4.2 million, or 2.8%, to $153.6 million from $149.4 million during the same period a year ago.

This growth in revenue was driven by an increase in revenue of $7.2 million at the Corporation's three largest SSHs, which was offset by a decrease in revenue of $3.0 million at the Corporation's ASCs and Dakota Plains Surgical Center. Increases in orthopaedic and neurosurgery procedures and pain management cases were the primary causes of the increase in revenue while the decline in revenue at other Centers is attributable to an unfavourable case mix and an unchanged case volume.

Consolidated expenses for the nine months ended September 30, 2010 totalled $98.7 million, or 64.3% of revenue, compared to consolidated expenses of $93.9 million, or 62.9% of revenue, during the same period last year. The increase in consolidated expenses as a percentage of revenue resulted from a 7.5% growth in drugs and supplies expenses due to overall changes in case mix, a 4.4% growth in salaries and benefits mostly due to higher staffing to accommodate growth in inpatient volume at some of the SSHs, and a 2.4% growth in general, administrative and other operating expenses.

Consolidated operating income for the nine months ended September 30, 2010 was $54.9 million, or 35.7% of revenue, compared with operating income of $55.4 million, or 37.1% of revenue, for the prior-year period.

Consolidated net loss for the nine-month period ended September 30, 2010 totalled $1.1 million, or $0.037 per IPS unit (basic and fully diluted), compared with consolidated net loss of $0.6 million, or $0.018 per IPS unit (basic and fully diluted), during the same period in 2009.

As at September 30, 2010, the Corporation had consolidated net working capital of $55.5 million, including cash and cash equivalents of $25.1 million and patient accounts receivable of $31.8 million, compared with net working capital of $46.4 million, including cash and cash equivalents of $29.0 million and patient accounts receivable of $36.6 million, as at December 31, 2009. Long-term debt at the Centers' level, including the current portion, was $49.6 million as at September 30, 2010 compared with $43.8 million as at December 31, 2009.

Normal Course Issuer Bid
On April 22, 2010, the Corporation announced that it received regulatory approval for a normal course issuer bid ("NCIB") to purchase up to 1,417,975 of its IPS units at prevailing market prices during the period from April 26, 2010 to April 25, 2011. All IPS units purchased under the NCIB will be cancelled. By repurchasing and cancelling its units, Medical Facilities reduces the total amount of distributions payable, resulting in cash savings for the Corporation. The remaining unitholders also benefit from the NCIB as the distributable cash per unit increases.

Under this NCIB, 68,200 IPS units of Medical Facilities were repurchased and cancelled during the third quarter at an average cost of Cdn$8.83 per unit, for a total consideration of Cdn$0.6 million. Year to date, 91,100 IPS units of Medical Facilities were repurchased and cancelled at an average cost of Cdn$9.14 per unit, for a total consideration of Cdn$0.8 million.

As at September 30, 2010, the Corporation had 28,340,849 IPS units outstanding.

Medical Facilities' complete 2010 third quarter financial statements and Management Discussion & Analysis will be issued and filed on SEDAR on Friday, November 12, 2010 and will be available on the same day via Medical Facilities' website at www.medicalfacilitiescorp.ca.

Notice of Conference Call
Management of Medical Facilities will host a conference call today, Friday, November 12, 2010 at 10:00 am (ET) to discuss its 2010 third quarter financial results. You can join the call by dialing 647-427-7450 or 1-888-231-8191. A taped replay of the conference call will be available until Friday, November 19, 2010 at midnight by calling 416-849-0833 or 1-800-642-1687, reference number 18420863.

To view Medical Facilities Q3 2010 financial statements and notes, please click here: http://files.newswire.ca/736/MFC_FS_Q32010.pdf

About Medical Facilities
Medical Facilities owns controlling interests in four specialty surgical hospitals, located in South Dakota and Oklahoma, as well as an ambulatory surgery center in California. The specialty hospitals perform scheduled surgical, imaging and diagnostic procedures, and derive their revenue from the fees charged for the use of their facilities. The ambulatory surgery center specializes in outpatient surgical procedures, with patient stays of less than 24 hours. Medical Facilities is structured so that a majority of its free cash flow from operations is distributed to holders of its IPS units, of which a portion is interest on subordinated debt and a portion is dividend. For more information, please visit www.medicalfacilitiescorp.ca.

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.  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.  Factors that could cause results to vary include those identified in Medical Facilities' filings with Canadian securities regulatory authorities such as legislative or regulatory developments, intensifying competition, technological change and general economic conditions.  All forward-looking statements presented herein should be considered in conjunction with such filings.  Medical Facilities does not undertake to update any forward-looking statements; such statements speak only as of the date made.

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¹ Cash available for distribution is a non-GAAP measure and is not intended to be representative of cash flow or results of operations determined in accordance with GAAP. Accordingly, Medical Facilities provides a reconciliation of cash available for distributions to reported cash flow from operations in the Corporation's MD&A. Investors are cautioned that cash available for distribution, as calculated by Medical Facilities, is unlikely to be comparable to similar measures used by other issuers.

%SEDAR: 00020386E

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