1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND

RESULTS OF OPERATIONS FOR THE THREE-MONTH AND TWELVE-MONTH PERIODS

ENDED DECEMBER 31, 2013

March 19, 2014

Table of Contents

1.  Caution Concerning Forward-Looking Statements ............................................................................ 1 2.  Performance Highlights ...................................................................................................................... 2 3.  Corporate Overview ............................................................................................................................ 3 4.  Operating and Financial Results for the Three Months Ended December 31, 2013 ........................... 5 5.  Operating and Financial Results for the Twelve Months Ended December 31, 2013 ...................... 10 6.  Quarterly Operating and Financial Information ................................................................................ 14 7.  Performance Measures – Non-IFRS Financial Measures ................................................................. 15 8.  Liquidity, Capital Resources and Financial Condition ..................................................................... 17 9.  Foreign Exchange Forward Contracts ............................................................................................... 21 10.  Related Party Transactions ................................................................................................................ 22 11.  Use of Judgements and Estimates ..................................................................................................... 22 12.  Management’s Responsibility for Financial Reporting and Disclosure Controls ............................. 22 13.  Risk Factors ....................................................................................................................................... 23 14.  Outlook .............................................................................................................................................. 28 15.  List of Tables .................................................................................................................................... 30 

The information in this Management’s Discussion and Analysis (“MD&A”) is supplemental to and should be read in conjunction with the consolidated financial statements of Medical Facilities Corporation (the “Corporation”) for the year ended December 31, 2013 and the notes thereto, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Substantially all of the Corporation’s operating cash flows are in U.S. dollars and all amounts presented in the financial statements and herein are stated in thousands of U.S. dollars, unless indicated otherwise.

Additional information about the Corporation and its annual information form are available on SEDAR at www.sedar.com or the Corporation’s website at www.medicalfacilitiescorp.ca.

1. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements (including, without limitation, in the sections of this MD&A entitled “Liquidity, Capital Resources and Financial Condition” and “Outlook”). Such statements involve known and unknown risks, uncertainties and other factors outside of management’s control, including the risk factors set forth in Section 13 “Risk Factors” of this MD&A and the Corporation’s most recently filed annual information form, that could cause actual results to differ materially from those described or anticipated in the forward-looking statements. The Corporation does not assume responsibility for the accuracy and completeness of these forward-looking statements and, except as may be required by law, does not undertake the obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

2

2. PERFORMANCE HIGHLIGHTS

For the three months ended December 31, 2013, facility service revenue of the Centers, as defined below under Section 3 “Corporate Overview”, increased by $17.8 million or 24.7% and income from operations increased by $6.5 million or 28.1% over the same period in 2012. The Corporation generated cash available for distribution of Cdn$13.5 million which was higher than Cdn$10.7 million generated in the fourth quarter of 2012 by Cdn$2.8 million. The payout ratio for the fourth quarter of 2013 was 65.2%, compared with 74.7% in the same period in 2012.

For the twelve months ended December 31, 2013, facility service revenue increased by $69.8 million or 29.2%, and income from operations increased by $12.4 million or 15.7% over the same period in 2012. The Corporation generated cash available for distribution of Cdn$40.8 million which was higher than Cdn$37.8 million generated in the twelve months of 2012 by Cdn$3.0 million. Distributions per common share increased by 1.7%, resulting in a payout ratio of 84.3%, compared to the payout ratio of 83.3% last year.

The significant increases in facility service revenue for the three and twelve months ended December 31, 2013 are primarily due to the inclusion of Arkansas Surgical Hospital ($12.0 million and $54.2 million, respectively) as well as growth in facility service revenue at all specialty surgical hospitals. Furthermore, as has been the case in the past, the Centers recorded strong operating results in the fourth quarter: 29.0% of total annual facility service revenue and 32.7% of total annual income from operations were achieved in the fourth quarter. In August 2013, Black Hills Surgical Hospital began operations of a second urgent care location. Its urgent care initiatives as well as primary care initiatives at Sioux Falls Specialty Hospital continued to contribute to the year-over-year increase in facility service revenue but at the same time had a negative impact on income from operations during the development phase of these service lines.

Table 1: Performance highlights

Three Months Ended

December 31, Twelve Months Ended

December 31,

2013 2012 % Change 2013 2012 % Change ($’000s, except per share amounts and as indicated otherwise) (unaudited)

Facility service revenue 89,620 71,864 24.7% 309,162 239,380 29.2% Operating expenses 59,864 48,643 23.1% 218,090 160,694 35.7% Income from operations(1) 29,756 23,221 28.1% 91,072 78,686 15.7% Total net income and comprehensive income for the period 21,041 39,919 (47.3%) 45,122 62,175 (27.4%) Attributable to: Owners of the Corporation 10,067 31,078 (67.6%) 11,239 32,815 (65.8%) Non-controlling interest 10,974 8,841 24.1% 33,883 29,360 15.4% Basic earnings per share attributable to owners of the Corporation $ 0.321 $ 1.097 (70.7%) $ 0.369 $ 1.158 (68.1%) Fully diluted earnings per share attributable to owners of the Corporation $ 0.321 $ 0.794 (59.6%) $ 0.369 $ 1.158 (68.1%) Cash available for distribution(1) C$ 13,508 C$ 10,653 26.8% C$ 40,823 C$ 37,769 8.1% Distributions(1) C$ 8,822 C$ 7,967 10.7% C$ 34,402 C$ 31,467 9.3% Cash available for distribution per common share(1) C$ 0.431 C$ 0.376 14.6% C$ 1.340 C$ 1.333 0.5% Distributions per common share(1) C$ 0.281 C$ 0.281 - C$ 1.129 C$ 1.110 1.7% Payout ratio(1) 65.2% 74.7% (12.7%) 84.3% 83.3% 1.2% Total assets 437,877 439,791 (0.4%) 437,877 439,791 (0.4%) Total long-term financial liabilities(2) 59,141 70,119 (15.7%) 59,141 70,119 (15.7%)

Note 1: Please refer to Section 7 “Performance Measures – Non-IFRS Financial Measures” and Table 18 “Reconciliation of Cash Available for Distribution to the Cash Provided by Operating Activities” of this MD&A.

3

Note 2: Total long-term financial liabilities consist of long-term debt and convertible debentures.

The chart below shows the Corporation’s cash available for distribution, distributions and payout ratios for the last nine quarters(1):

Note 1: Please refer to Section 7 “Performance Measures – Non-IFRS Financial Measures”.

3. CORPORATE OVERVIEW

The Corporation is a British Columbia corporation. The capital of the Corporation is in the form of publicly traded common shares and 5.9% convertible unsecured subordinated debentures (“5.9% debentures”). Up to April 30, 2013, the capital of the Corporation also included 7.5% convertible secured debentures (“7.5% debentures”) which matured on April 30, 2013 as discussed in Section 8 “Liquidity, Capital Resources and Financial Condition” of this MD&A. The 7.5% debentures and 5.9% debentures are hereinafter individually or collectively referred to as “convertible debentures”. The Corporation’s current monthly dividend on its common shares is Cdn$0.09375.

Effective July 29, 2013, Dr. Larry Teuber transitioned from his position as President to a consulting role with the Corporation for a term of twelve months, terminating on July 29, 2014. The role of President has been eliminated, and the responsibilities of that office were assumed by members of the Corporation’s senior management team. Dr. Teuber has also stepped down as a director of the Corporation.

Through its wholly-owned subsidiaries, Medical Facilities America, Inc. (“MFA”) and Medical Facilities (USA) Holdings, Inc. (“MFH”), the Corporation owns controlling interests in, and derives substantially all of its income from, six limited liability entities (each a “Center” and, collectively, the “Centers”), each of which owns either a specialty surgical hospital (an “SSH”) or an ambulatory surgery center (an “ASC”). The SSHs are located in South Dakota, Oklahoma and Arkansas and the ASC is located in California. ASCs are specialized surgical centers that only provide outpatient procedures, whereas SSHs are licensed for both inpatient and outpatient surgeries. The Centers provide facilities, including staff, surgical materials and supplies, and other support necessary for scheduled surgical, pain management, imaging, and diagnostic procedures and derive their revenue primarily from the fees charged for the use of these facilities. The Centers mainly focus on a limited number of clinical specialties such as orthopaedic, neurosurgery, pain management and other non-emergency elective procedures. In addition, two of the SSHs provide primary and urgent care to their communities.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-

2.000

4.000

6.000

8.000

10.000

12.000

4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

Cash Available for Distribution

Generated C$ Distributed C$ Payout Ratio

C$mill

4

Facility service revenue for any given period is dependent on the volume of the procedures performed as well as the acuity and complexity of the procedures (“case mix”) and composition of payors (“payor mix”), as various payors have different reimbursement rates for the same type of procedures. The volume of procedures performed at the Centers depends on (among other things): (i) the Centers’ ability to deliver high quality care and superior services to patients and their family members; (ii) the Centers’ success in encouraging physicians to perform procedures at the Centers through, among other things, maintenance of an efficient work environment for physicians as well as availability of facilities; and (iii) established relationships with major third-party payors in the geographic areas served. The case mix at each Center is a function of the clinical specialties of the physicians and medical staff and is also dependent on the equipment and infrastructure at each Center.

Non-controlling interests in the Centers are indirectly owned primarily by physicians practicing at the Centers. Upon acquisition by the Corporation of indirect controlling interests in the SSHs located in South Dakota, Oklahoma and Arkansas, the non-controlling interest owners were granted the right to exchange up to 14% (5% in the case of Arkansas Surgical Hospital) of the ownership interest in their respective Centers for common shares of the Corporation. The non-controlling interest owners of several Centers have exercised portions of their exchangeable interests.

Table 2: Summary of Center information (as of December 31, 2013)

Black Hills

Surgical Hospital

(“BHSH”)

Sioux Falls Specialty Hospital (“SFSH”)

Dakota Plains

Surgical Center

(“DPSC”)

Oklahoma

Spine Hospital (“OSH”)

The Surgery Center of

Newport Coast (“Newport

Coast”)

Arkansas Surgical Hospital (“ASH”)

Location Rapid City

South Dakota Sioux Falls

South Dakota Aberdeen

South Dakota Oklahoma City

Oklahoma Newport Beach

California North Little Rock

Arkansas Year Opened 1997 1985 1998 1999 2004 2001 Year Acquired by the Corporation

2004 2004 2004 2005 2008 2012

Ownership Interest 54.2% 51.0% 64.6% 58.8% 51.0% 51.0% Non-controlling Interest 45.8% 49.0% 35.4% 41.2% 49.0% 49.0% Exchangeable Interest 10.8% 14.0% 0.4% 6.2% - 5.0% Size 75,000 sq ft 76,000 sq ft 19,000 sq ft 61,000 sq ft 7,000 sq ft 126,000 sq ft Operating Rooms 11 13 3 7 2 9 Overnight Rooms 26 35 15 25 - 41(1)

Note 1: Licensed for 51 beds.

Effective January 31, 2014, Orthopedic Surgery Specialists, a physician practice which includes physicians with interests in DPSC, joined Avera Medical Group ("AMG"). Neither the Corporation’s interest in DPSC, nor the physicians’ 35.4% retained interest, is affected by this change which relates solely to the medical practices of the physicians. The physicians will continue to provide services at both DPSC and AMG facilities.

5

4. OPERATING AND FINANCIAL RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2013

The following table and discussion compares operating and financial results of the Corporation for the three months ended December 31, 2013 to the three months ended December 31, 2012.

Table 3: Operating and financial results for the three months ended December 31, 2013 compared to the three months ended December 31, 2012

Three Months Ended

December 31, (unaudited) ($’000s, except per share amounts and as indicated otherwise) 2013 2012 $ Change % Change

Facility service revenue 89,620 71,864 17,756 24.7%

Operating expenses Salaries and benefits 21,350 17,317 4,033 23.3% Drugs and supplies 24,815 18,498 6,317 34.1% General and administrative expenses 11,194 10,880 314 2.9% Depreciation of property and equipment 2,505 1,948 557 28.6% Total operating expenses 59,864 48,643 11,221 23.1%

Income from operations 29,756 23,221 6,535 28.1%

Amortization of other intangibles 4,680 3,277 1,403 42.8%

Finance costs Interest expense, net of interest income 958 2,826 (1,868) (66.1%) Interest expense on exchangeable interest liability 2,738 1,846 892 48.3% Loss on foreign currency 2,573 651 1,922 295.2% 6,269 5,323 946 17.8%

Increase (decrease) in values of convertible debentures 188 (1,753) 1,941 (110.7%) Increase (decrease) in value of exchangeable interest liability 9,609 (4,916) 14,525 (295.5%)

Income before income taxes 9,010 21,290 (12,280) (57.7%)

Income tax recovery (12,031) (18,629) 6,598 (35.4%)

Net income and comprehensive income for the period 21,041 39,919 (18,878) (47.3%) Attributable to: Owners of the Corporation 10,067 31,078 (21,011) (67.6%) Non-controlling interest 10,974 8,841 2,133 24.1%

Basic earnings per share attributable to owners of the Corporation $ 0.321 $ 1.097 (0.776) (70.7%) Fully diluted earnings per share attributable to owners of the Corporation $ 0.321 $ 0.794 (0.473) (59.6%)

Facility Service Revenue

Table 4: Facility service revenue by Center for the three months ended December 31, 2013 compared to the three months ended December 31, 2012

Three Months Ended December 31, $ Change % Change (unaudited) ($’000s, except as indicated otherwise) 2013 2012

BHSH 20,364 19,414 950 4.9% SFSH 26,199 23,518 2,681 11.4% DPSC 5,136 4,345 791 18.2% OSH 19,026 17,289 1,737 10.0% Newport Coast 2,542 2,937 (395) (13.4%) ASH 16,353 4,361 11,992 275.0% Facility service revenue 89,620 71,864 17,756 24.7%

The Corporation’s consolidated facility service revenue of $89.6 million increased by $17.8 million or 24.7% over the same period in 2012 primarily due to the acquisition of ASH effective November 30, 2012 and growth in facility service revenue at all SSHs. The factors favourably impacting facility service revenue at SSHs were (i) an increase in surgical cases, in particular orthopedic and neurology cases, at SFSH, (ii) an

6

increase in surgical cases and pain management procedures and higher charges per case at OSH, and (iii) increased revenue from urgent care and a favourable case mix at BHSH. Also in the fourth quarter of 2013, most SSHs received Medicare and Medicaid incentive payments for implementing electronic health records (“EHR”) which were recorded in facility service revenue. In particular at DPSC, the EHR incentive payment was the main reason for the increase in facility service revenue. Without accounting for the EHR incentive payment at DPSC, the Center recorded a $0.4 million or 8.9% decline in facility service revenue due to a decrease in surgical cases and pain management procedures. The growth in facility service revenue was also moderated by a less favourable payor mix recorded by the SSHs which was primarily attributable to an increase in Medicare and Medicaid cases at these Centers. In addition, BHSH’s facility service revenue was negatively impacted by a decline in surgical cases as well as receipt of a lower EHR incentive payment in the fourth quarter of 2013 compared to the same period in 2012. Despite an increase in surgical cases and pain management procedures, the Corporation’s ASC recorded a decline in facility service revenue which was primarily attributable to the planned movement to contracting with certain payors. This has resulted in lower reimbursement rates from these payors which have been partially offset by higher case volumes.

Operating Expenses

Consolidated operating expenses, including salaries and benefits, drugs and supplies, and general and administrative expenses, totaled $59.9 million, an increase of $11.2 million or 23.1%. As a percentage of facility service revenue, the consolidated expenses decreased to 66.8% from 67.7% a year earlier. The acquisition of ASH accounted for the majority of the increase in consolidated operating expenses.

Table 5: Operating expenses by Center and corporate level for the three months ended December 31, 2013 compared to the three months ended December 31, 2012

Three Months Ended December 31,

$ Change % Change

2013

% of facility service

revenue 2012

% of facility service

revenue (unaudited) ($’000s, except as indicated otherwise) BHSH 13,787 67.7% 12,986 66.9% 801 6.2% SFSH 14,702 56.1% 12,622 53.7% 2,080 16.5% DPSC 2,384 46.4% 2,319 53.4% 65 2.8% OSH 13,788 72.5% 13,117 75.9% 671 5.1% Newport Coast 1,564 61.5% 1,452 49.4% 112 7.7% ASH 11,949 73.1% 3,757 86.1% 8,192 218.1% Corporate 1,690 n/a 2,390 n/a (700) (29.3%) Operating expenses 59,864 66.8% 48,643 67.7% 11,221 23.1%

Consolidated salaries and benefits increased by $4.0 million or 23.3% compared to the same period in 2012 primarily due to the acquisition of ASH as well as increases at BHSH, SFSH and corporate level. Salaries and benefits increased at BHSH due to the opening of a second urgent care location and employment of hospitalists who were previously under independent contract arrangements. Higher case volumes resulted in an increase in salaries and benefits at SFSH. DPSC, OSH and Newport Coast recorded marginal changes in their salaries and benefits compared to 2012. At the corporate level, salaries and benefits increased primarily due to contractual payments to a former officer of the Corporation and an increase in expenses related to the deferred share unit component of directors’ compensation. As a percentage of facility service revenue, consolidated salaries and benefits declined to 23.8% compared to 24.1% a year earlier.

Consolidated drugs and supplies expenses increased by $6.3 million or 34.1% compared to the same period in 2012 primarily due to the acquisition of ASH and increases at all Centers primarily attributable to higher case volumes, shifts in case mix and inflationary vendor price increases. In addition, SFSH has been performing an increased number of pain management procedures which involve implantation of expensive stimulators while BHSH and OSH had an increase in the types of cases which generate higher supply cost

7

per case. The costs of drugs and supplies at DPSC and Newport Coast were marginally higher compared to the same quarter last year and reflect the types of cases performed at these Centers. As a percentage of facility service revenue, consolidated cost of drugs and supplies increased to 27.7% from 25.7% a year earlier.

Consolidated general and administrative expenses (“G&A”) increased by $0.3 million or 2.9% compared to the same period in 2012 primarily due to an increase in the G&A at SFSH attributable to EHR related costs and higher pharmacy, contracted services and marketing costs. On the other hand, G&A at BHSH declined compared to the same period last year due to the employment of hospitalists and a reduction in urgent care development costs while other Centers recorded marginal changes in their G&A. At the corporate level, G&A was lower compared to the same period in 2012 due to acquisition costs and costs related to the 5.9% debentures offering incurred in 2012. As a percentage of facility service revenue, consolidated G&A decreased to 12.5% from 15.1% a year earlier.

Consolidated depreciation of property and equipment increased by $0.6 million or 28.6% due to the acquisition of ASH and increased depreciation primarily attributable to urgent care initiative at BHSH and investments in EHR systems. As a percentage of facility service revenue, consolidated depreciation of property and equipment increased slightly to 2.8% from 2.7% a year earlier.

Income from Operations

Consolidated income from operations of $29.8 million was $6.5 million or 28.1% higher than consolidated income from operations recorded a year earlier, representing 33.2% of facility service revenue compared to 32.3% in 2012.

Table 6: Income from operations by Center and corporate level for the three months ended December 31, 2013 compared to the three months ended December 31, 2012

Three Months Ended December 31,

$ Change % Change

2013

% of facility service

revenue 2012

% of facility service

revenue (unaudited) ($’000s, except as indicated otherwise) BHSH 6,577 32.3% 6,428 33.1% 149 2.3% SFSH 11,497 43.9% 10,896 46.3% 601 5.5% DPSC 2,752 53.6% 2,026 46.6% 726 35.8% OSH 5,238 27.5% 4,172 24.1% 1,066 25.6% Newport Coast 978 38.5% 1,485 50.6% (507) (34.1%) ASH 4,404 26.9% 604 13.9% 3,800 629.1% Corporate (1,690) n/a (2,390) n/a 700 (29.3%) Income from operations 29,756 33.2% 23,221 32.3% 6,535 28.1%

Newport Coast’s income from operations was impacted by lower reimbursement rates from certain payors and an increase in operating expenses due to higher case volumes.

Amortization of Other Intangibles

The increase of $1.4 million in amortization of other intangibles is primarily due to the acquisition of ASH.

Finance Costs

Interest Expense

The decrease of $1.9 million in interest expense is primarily due to 2012 financing costs related to the issuance of 5.9% debentures in December 2012.

8

Interest on Exchangeable Interest Liability

The increase of $0.9 million in interest expense on exchangeable interest liability is primarily due to the increased distributions from the Centers.

Foreign Currency Losses (Gains)

The change in the foreign currency losses (gains) of $1.9 million is primarily attributable to the losses on foreign exchange forward contracts which matured in the current period as a result of the weakening Canadian dollar. This is in contrast to the gains on foreign exchange forward contracts that matured in the same period in 2012 due to a stronger Canadian dollar during that period.

Change in Values of Convertible Debentures

The convertible debentures are recorded as a financial liability at fair value and re-measured at each reporting date and the changes in fair value are included in net income and comprehensive income for the respective periods. Changes in the recorded values of the convertible debentures are driven by the changes in the market price of the Corporation’s convertible debentures and fluctuations in the value of the Canadian dollar against the U.S. dollar.

Table 7: Calculation of the change in value of 5.9% debentures for the three months ended December 31, 2013 and from the date of offering (December 21, 2012) to December 31, 2012

($’000s, except as indicated otherwise)

Dec. 31,2013

Sep. 30,2013

(unaudited)Change

Dec. 31, 2012

Dec. 21,2012 Change

Face value of 5.9% debentures outstanding C$41,800,000 C$41,800,000 - C$41,800,000 C$41,800,000 - Closing price of the Corporation’s 5.9% debentures C$105.00 C$101.25 C$3.75 C$101.00 C$100.00 C$1.00 Closing exchange rate of U.S. dollar to Canadian dollar 1.0636 1.0303 0.0333 0.9949 0.9942(1) 0.0007 Market value of 5.9% debentures outstanding 41,266 41,078 188 42,434 42,042 392

Note: 1: Noon exchange rate of U.S. dollar to Canadian dollar on the date of offering of 5.9% convertible debentures.

Change in Value of Exchangeable Interest Liability

The liability for the exchangeable interest is recorded at fair value, which is re-measured at each reporting date, and the changes in fair value are included in net income and comprehensive income for the respective periods. Changes in the recorded value of the exchangeable interest liability between the reporting periods are attributable to (i) changes in the number of common shares to be issued for the exchangeable interest liability, which are driven by the distributions to the non-controlling interest during the twelve-month period ending on the reporting date, (ii) changes in the market price of the Corporation’s common shares and (iii) fluctuations of the value of the Canadian dollar against the U.S. dollar.

9

Table 8: Calculation of the change in value of exchangeable interest liability for the three months ended December 31, 2013 compared to the three months ended December 31, 2012

($’000s, except as indicated otherwise)

Dec. 31,2013

Sep. 30,2013

(unaudited) Change

Dec. 31, 2012

Sept. 30, 2012

(unaudited)Change

Number of common shares to be issued for exchangeable interest liability 6,274,969 6,271,197 3,772 6,162,453 5,951,382 211,071 Closing price of the Corporation’s common shares C$17.94 C$15.81 C$2.13 C$13.84 C$14.38 (C$0.54) Closing exchange rate of U.S. dollar to Canadian dollar 1.0636 1.0303 0.0333 0.9949 0.9832 0.0117 Exchangeable interest liability 105,841 96,232 9,609 85,726 87,043 (1,317) Liability to the holders of ASH’s exchangeable interest recognized on acquisition of ASH - (3,599) Change in value of exchangeable interest liability 9,609 (4,916)

Income Tax

Table 9: Current and deferred tax components of the income tax expense (recovery) for the three months ended December 31, 2013 compared to the three months ended December 31, 2012

Three Months Ended December 31,

(unaudited) ($’000s, except as indicated otherwise) 2013

$ 2012

$ $ Change % Change

Current income tax expense 1,240 286 954 333.6% Deferred income tax recovery (13,271) (18,915) 5,644 (29.8%) Income tax recovery (12,031) (18,629) 6,598 (35.4%)

The increase in current income tax expense is primarily attributable to the improved performance of the Centers and decreased corporate expenses.

The decrease in deferred income tax recovery is primarily attributable to the tax effect of the change in exchangeable interest liability offset by the recognition of deferred tax asset related to the Canadian cumulative tax operating losses during 2013.

10

5. OPERATING AND FINANCIAL RESULTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2013

The following table and discussion compares operating and financial results of the Corporation for the twelve months ended December 31, 2013 to the twelve months ended December 31, 2012.

Table 10: Operating and financial results for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012

Twelve Months

Ended December 31, ($’000s, except per share amounts and as indicated otherwise) 2013 2012 $ Change % Change

Facility service revenue 309,162 239,380 69,782 29.2%

Operating expenses Salaries and benefits 79,947 59,934 20,013 33.4% Drugs and supplies 86,425 60,623 25,802 42.6% General and administrative expenses 42,253 33,016 9,237 28.0% Depreciation of property and equipment 9,465 7,121 2,344 32.9% Total operating expenses 218,090 160,694 57,396 35.7%

Income from operations 91,072 78,686 12,386 15.7%

Amortization of other intangibles 17,128 12,709 4,419 34.8%

Finance costs Interest expense, net of interest income 4,742 6,709 (1,967) (29.3%) Interest expense on exchangeable interest liability 9,006 7,624 1,382 18.1% Loss (gain) on foreign currency 5,561 (2,662) 8,223 (308.9%) 19,309 11,671 7,638 65.4%

Increase in values of convertible debentures 306 3,431 (3,125) (91.1%) Increase in value of exchangeable interest liability 20,414 10,818 9,596 88.7%

Income before income taxes 33,915 40,057 (6,142) (15.3%)

Income tax recovery (11,207) (22,118) 10,911 (49.3%)

Net income and comprehensive income for the period 45,122 62,175 (17,053) (27.4%) Attributable to: Owners of the Corporation 11,239 32,815 (21,576) (65.8%) Non-controlling interest 33,883 29,360 4,523 15.4%

Basic and fully diluted earnings per share attributable to owners of the Corporation $ 0.369 $ 1.158 (0.789) (68.1%)

Facility Service Revenue

Table 11: Facility service revenue by Center for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012

Twelve Months Ended December 31, $ Change % Change ($’000s, except as indicated otherwise) 2013 2012

BHSH 69,345 66,261 3,084 4.7% SFSH 89,304 78,906 10,398 13.2% DPSC 16,002 14,030 1,972 14.1% OSH 66,703 65,651 1,052 1.6% Newport Coast 9,206 10,171 (965) (9.5%) ASH 58,602 4,361 54,241 1,243.8% Facility service revenue 309,162 239,380 69,782 29.2%

The Corporation’s consolidated facility service revenue of $309.2 million increased by $69.8 million or 29.2% over the same period in 2012 primarily due to the acquisition of ASH and an increase in facility service revenue at all SSHs. The factors favourably impacting facility service revenue at SSHs were (i) an increase in surgical cases and an increase in complexity of cases resulting in higher charges per case at SFSH, (ii) increased revenue from urgent care and favourable case mix at BHSH, (iii) a receipt of EHR

11

incentive payment and an increase in surgical cases and in cases generating higher per case revenue at DPSC, and (iv) an increase in surgical cases and a receipt of EHR incentive payment at OSH. These favourable factors were partially moderated by a less favourable payor mix at SFSH and OSH, a decline in surgical cases at BHSH and lower charges per case at OSH. Despite an increase in surgical cases, the Corporation’s ASC recorded a decline in facility service revenue which was primarily attributable to the planned movement to contracting with certain payors. This has resulted in lower reimbursement rates from these payors which have been partially offset by higher case volumes.

Operating Expenses

Consolidated operating expenses, including salaries and benefits, drugs and supplies, and general and administrative expenses, totaled $218.1 million, an increase of $57.4 million or 35.7%, reflecting the acquisition of ASH and costs associated with the development phases of the primary and urgent care initiatives at SFSH and BHSH, respectively. As a percentage of facility service revenue, the consolidated expenses increased to 70.5% from 67.1% a year earlier.

Table 12: Operating expenses by Center and corporate level for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012

Twelve Months Ended December 31,

$ Change % Change

2013

% of facility service

revenue 2012

% of facility service

revenue ($’000s, except as indicated otherwise) BHSH 50,470 72.8% 44,579 67.3% 5,891 13.2% SFSH 51,052 57.2% 43,198 54.7% 7,854 18.2% DPSC 8,777 54.8% 8,232 58.7% 545 6.6% OSH 51,260 76.8% 49,268 75.0% 1,992 4.0% Newport Coast 5,656 61.4% 5,405 53.1% 251 4.6% ASH 45,154 77.1% 3,757 86.1% 41,397 1101.9% Corporate 5,721 n/a 6,255 n/a (534) (8.5%) Operating expenses 218,090 70.5% 160,694 67.1% 57,396 35.7%

Consolidated salaries and benefits increased by $20.0 million or 33.4% compared to the same period in 2012 due to the acquisition of ASH and increases in salaries and benefits at BHSH, SFSH, OSH and corporate level. Increases in salaries and benefits were primarily due to annual wages and salaries increases, higher case volumes, shifts in case mix, implementation of EHR at certain Centers, primary and urgent care initiatives at SFSH and BHSH, respectively, and employment of hospitalists at BHSH. Marginal shifts in salaries and benefits were recorded by DPSC and Newport Coast. At the corporate level, salaries and benefits increased primarily due to the contractual payments to a former officer of the Corporation. As a percentage of facility service revenue, consolidated salaries and benefits increased to 25.9% from 25.0% a year earlier.

Consolidated drugs and supplies expenses increased by $25.8 million or 42.6% compared to the same period in 2012 primarily due to the acquisition of ASH and increases at all Centers. These increases were primarily attributable to higher case volumes, shifts in case mix, an increase in complexity of cases and inflationary vendor price increases. In addition, SFSH has been performing an increased number of pain management procedures which involve implantation of expensive stimulators while other Centers had an increase in the types of cases which require the use of implants and thus generate higher supply cost per case. Moreover, in 2012, DPSC took advantage of one-time cost savings in respect of drugs and supplies. As a percentage of facility service revenue, consolidated cost of drugs and supplies increased to 28.0% from 25.3% a year earlier.

Consolidated G&A increased by $9.2 million or 28.0% compared to the same period in 2012. Increases in G&A were primarily due to the acquisition of ASH and a G&A increase at SFSH, partially offset by a

12

decline in G&A at the corporate level and BHSH. SFSH recorded an increase in G&A due to EHR-related costs and higher pharmacy, contracted services and marketing costs. On the other hand, G&A at BHSH declined compared to the same period last year due to the employment of hospitalists, despite urgent care development costs. Other Centers recorded marginal changes in their G&A. The decline in G&A at the corporate level was primarily attributable to acquisition costs and costs related to the 5.9% debentures offering incurred in 2012. As a percentage of facility service revenue, consolidated G&A decreased slightly to 13.7% from 13.8% a year earlier.

Consolidated depreciation of property and equipment increased by $2.3 million or 32.9% primarily due to the acquisition of ASH and increased depreciation attributable to the urgent care initiative at BHSH and investments in EHR systems. As a percentage of facility service revenue, consolidated depreciation of property and equipment increased slightly to 3.1% from 3.0% a year earlier.

Income from Operations

Consolidated income from operations of $91.2 million was $12.4 million or 15.7% higher than consolidated income from operations recorded a year earlier, representing 29.5% of facility service revenue compared to 32.9% in 2012.

Table 13: Income from operations by Center and corporate level for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012

Twelve Months Ended December 31,

$ Change % Change

2013

% of facility service

revenue 2012

% of facility service

revenue ($’000s, except as indicated otherwise) BHSH 18,875 27.2% 21,682 32.7% (2,807) (12.9%) SFSH 38,252 42.8% 35,708 45.3% 2,544 7.1% DPSC 7,225 45.2% 5,798 41.3% 1,427 24.6% OSH 15,443 23.2% 16,383 25.0% (940) (5.7%) Newport Coast 3,550 38.6% 4,766 46.9% (1,216) (25.5%) ASH 13,448 22.9% 604 13.9% 12,844 2126.5% Corporate (5,721) n/a (6,255) n/a 534 (8.5%) Income from operations 91,072 29.5% 78,686 32.9% 12,386 15.7%

BHSH’s income from operations was impacted by a decline in surgical cases and costs related to its urgent care development phase. OSH’s income from operations was impacted by a shift in case and payor mix. Newport Coast’s income from operations was impacted by lower pain management revenues and lower reimbursement rates from certain payors.

Amortization of Other Intangibles

The increase of $4.4 million in amortization of other intangibles is primarily due to the acquisition of ASH.

Finance Costs

Interest Expense

The decrease of $2.0 million in interest expense is primarily due to 2012 financing costs related to the issuance of 5.9% debentures in December 2012.

Interest on Exchangeable Interest Liability

The increase of $1.4 million in interest expense on exchangeable interest liability is primarily due to the increased distributions from the Centers in 2013.

13

Foreign Currency Losses (Gains)

The change in the foreign currency losses (gains) of $8.2 million is attributable to the fluctuations in the value of the Canadian dollar in relation to U.S. dollar during 2013 compared to 2012.

Change in Values of Convertible Debentures

The convertible debentures are recorded as a financial liability at fair value and re-measured at each reporting date and the changes in fair value are included in net income and comprehensive income for the respective periods. Changes in the recorded values of the convertible debentures are driven by the changes in the market price of the Corporation’s convertible debentures and fluctuations in the value of the Canadian dollar against the U.S. dollar.

Table 14: Calculation of the change in value of 5.9% debentures for the twelve months ended December 31, 2013

($’000s, except as indicated otherwise) Dec. 31,

2013 Dec. 31,

2012 Change

Face value of 5.9% debentures outstanding C$41,800,000 C$41,800,000 - Closing price of the Corporation’s 5.9% debentures C$105.00 C$101.00 C$4.00 Closing exchange rate of U.S. dollar to Canadian dollar 1.0636 0.9949 0.0687 Market value of 5.9% debentures outstanding 41,266 42,434 (1,168)

As discussed in Section 8 “Liquidity, Capital Resources and Financial Condition” of this MD&A, the 7.5% debentures matured on April 30, 2013. From January 1, 2013 to the date of their maturity, the change in value of 7.5% debentures was $1,474.

Change in Value of Exchangeable Interest Liability

The liability for the exchangeable interest is recorded at fair value, which is re-measured at each reporting date, and the changes in fair value are included in net income and comprehensive income for the respective periods. Changes in the recorded value of the exchangeable interest liability between the reporting periods are attributable to (i) changes in the number of common shares to be issued for the exchangeable interest liability, which are driven by the distributions to the non-controlling interest during the twelve-month period ending on the reporting date, (ii) changes in the market price of the Corporation’s common shares and (iii) fluctuations of the value of the Canadian dollar against the U.S. dollar.

Table 15: Calculation of the change in value of exchangeable interest liability for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012

($’000s, except as indicated otherwise) Dec. 31,

2013 Dec. 31,

2012 Change Dec. 31,

2012 Dec. 31,

2011 Change

Number of common shares to be issued for exchangeable interest liability 6,274,969 6,162,453 112,516 6,162,453 6,288,026 (125,573) Closing price of the Corporation’s common shares C$17.94 C$13.84 C$4.10 C$13.84 C$11.65 C$2.19 Closing exchange rate of U.S. dollar to Canadian dollar 1.0636 0.9949 0.0687 0.9949 1.0170 (0.0221) Exchangeable interest liability 105,841 85,726 20,115 85,726 72,031 13,695 Exercise of exchangeable rights by non-controlling interests 299 722 Liability to the holders of ASH’s exchangeable interest recognized on acquisition of ASH - (3,599) Change in value of exchangeable interest liability 20,414 10,818

14

Income Tax

Table 16: Current and deferred tax components of the income tax expense (recovery) for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012

Twelve Months Ended December 31,

($’000s, except as indicated otherwise) 2013

$ 2012

$ $ Change % Change

Current income tax expense 1,929 2,198 (269) (12.2%) Deferred income tax recovery (13,136) (24,316) 11,180 (46.0%) Income tax recovery (11,207) (22,118) 10,911 (49.3%)

The decrease in current tax expense is primarily attributable to higher interest expense claim for income tax purposes and the reduction in the amounts of the taxable realized foreign exchange gains.

The decrease in deferred income tax recovery is primarily attributable to the tax effect of the change in exchangeable interest liability offset by the recognition of the deferred tax asset related to the Canadian cumulative tax operating losses during 2013.

6. QUARTERLY OPERATING AND FINANCIAL INFORMATION

Table 17: Summary of the eight most recently completed consolidated quarterly operating and financial results

2013 2012 (unaudited) ($’000s, except per share amounts) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Facility service revenue 89,620 72,974 73,677 72,891 71,864 54,322 54,285 58,909

Operating expenses Salaries and benefits 21,350 19,601 19,439 19,556 17,317 14,615 14,080 13,922 Drugs and supplies 24,815 20,843 20,707 20,060 18,498 14,444 13,539 14,142 General and administrative expenses 11,194 10,799 10,405 10,679 10,880 7,465 7,478 7,193 Depreciation of property and equipment 2,505 2,458 2,312 2,191 1,948 1,736 1,723 1,714 Total operating expenses 59,864 53,701 52,863 52,486 48,643 38,260 36,820 36,971

Income from operations 29,756 19,273 20,814 20,405 23,221 16,062 17,465 21,938

Amortization of other intangibles 4,680 4,195 4,149 4,104 3,277 3,112 3,078 3,242

Finance costs Interest expense, net of interest income 958 1,201 1,142 1,719 2,826 1,315 1,295 1,273 Interest expense on exchangeable interest liability 2,738 1,995 1,939 2,334 1,846 1,635 2,126 2,017 Loss (gain) on foreign currency 2,573 (2,105) 3,079 2,015 651 (3,195) 1,549 (1,667) 6,269 1,091 6,160 6,068 5,323 (245) 4,970 1,623

Increase (decrease) in values of convertible debentures 188 (154) (3,232) 3,505 (1,753) 4,577 (709) 1,316 Increase (decrease) in value of exchangeable interest liability 9,609 7,816 (4,609) 7,595 (4,916) 10,254 2,403 3,077

Income (loss) before income taxes 9,010 6,325 18,346 (867) 21,290 (1,636) 7,723 12,680

Income tax expense (recovery) (12,031) (1,688) 3,588 (1,076) (18,629) (3,291) (712) 514

Net income and comprehensive income for the period 21,041 8,013 14,758 209 39,919 1,655 8,435 12,166 Attributable to: Owners of the Corporation 10,067 1,075 7,406 (7,308) 31,078 (4,298) 1,875 4,160 Non-controlling interest 10,974 6,938 7,352 7,517 8,841 5,953 6,560 8,006

Basic earnings (loss) per share attributable to owners of the Corporation $ 0.321 $ 0.034 $ 0.241 $ (0.258) $ 1.097 $ (0.152) $ 0.066 $ 0.147 Fully diluted earnings (loss) per share attributable to owners of the Corporation $ 0.321 $ 0.034 $ 0.096 $ (0.258) $ 0.794 $ (0.152) $ 0.062 $ 0.147

15

7. PERFORMANCE MEASURES – NON-IFRS FINANCIAL MEASURES

The Corporation uses certain non-IFRS measures which it believes provide useful measures for evaluation and assessment of the Corporation’s performance. Non-IFRS measures do not have any standard meaning prescribed by IFRS, are unlikely to be comparable to similar measures presented by other issuers, and should not be considered as alternatives to comparable measures determined in accordance with IFRS as indicators of the Corporation’s financial performance, including its liquidity, cash flows and profitability.

Income from operations, as used by the Corporation, is a non-IFRS measure used to measure operating results before amortization of other intangibles, interest expense, gains or losses on foreign currency and other non-operating income and expenses.

Cash available for distribution (presented in Table 18 below) is a non-IFRS measure of cash generated from operations during a reporting period which is available for distribution to common shareholders. Cash available for distribution is derived from cash flows from operations before changes in non-cash working capital, less maintenance capital expenditures, interest and principal repayments on non-revolving debt obligations and non-controlling interest in cash flows at the Center level and gains or losses on foreign exchange forward contracts matured in the respective periods.

Distributions (presented in Table 18 below) are a non-IFRS measure that represent the aggregate of dividends paid to common shareholders.

The payout ratio (presented in Table 18 below) is a non-IFRS measure calculated as distributions divided by cash available for distribution.

Pro forma cash available for distribution excluding realized gains or losses on foreign exchange forward contracts and interest expense on convertible debentures (presented in Table 22 below) is a non-IFRS measure calculated as the actual amount of cash available for distribution for the twelve months ended December 31, 2013 adjusted for the interest expense on the convertible debentures that are deemed to be converted and excluding realized gains or losses on foreign exchange forward contracts matured during the period.

Pro forma dividend payments (presented in Table 22 below) are the amount of dividends expected to be paid over the period indicated, calculated as the number of common shares outstanding at the end of the period multiplied by the annualized dividend of Cdn$1.125 per common share.

16

Table 18 below presents the reconciliation of cash available for distribution to the cash provided by operating activities.

Table 18: Reconciliation of cash available for distribution to the cash provided by operating activities

Three Months Ended

December 31, Twelve Months Ended

December 31, 2013 2012 2013 2012 ($’000s, except as indicated otherwise) (unaudited)

CASH PROVIDED BY OPERATING ACTIVITIES USD 30,463 26,225 85,275 77,145 Non-controlling interest in cash flows of the Centers(1) (14,524) (11,358) (44,447) (37,793) Interest expense on exchangeable interest liability(2) 2,155 1,846 9,006 7,624 Maintenance capital expenditures(3) (912) (1,100) (4,295) (3,526) Difference between accrual based amounts and actual cash flows related to interest and taxes(4) (1,307) 414 (5,195) (3,000) Change in non-cash operating working capital items(5) (1,290) (4,646) 4,901 (2,839) Realized gains (losses) on foreign exchange forward contracts which matured in the current period(6) (389) 375 97 3,522 Repayment of debt (non-revolving)(7) (1,324) (1,010) (5,704) (3,349)

CASH AVAILABLE FOR DISTRIBUTION USD 12,872 10,746 39,638 37,784 CDN 13,508 10,653 40,823 37,769

Realized losses (gains) on matured foreign exchange forward contracts, net of taxes USD 229 (221) (58) (2,078)

CASH AVAILABLE FOR DISTRIBUTION EXCLUDING REALIZED LOSSES (GAINS) ON FOREIGN EXCHANGE FORWARD CONTRACTS

USD 13,101 10,525 39,580 35,706 CDN 13,748 10,433 40,763 35,692

DISTRIBUTIONS CDN 8,822 7,967 34,402 31,467 CASH AVAILABLE FOR DISTRIBUTION PER COMMON SHARE(8) Including realized losses (gains) on foreign exchange forward contracts CDN $ 0.431 $ 0.376 $ 1.340 $ 1.333 Excluding realized losses (gains) on foreign exchange forward contracts CDN $ 0.438 $ 0.368 $ 1.338 $ 1.260 TOTAL DISTRIBUTIONS PER COMMON SHARE(8)(9) CDN $ 0.281 $ 0.281 $ 1.129 $ 1.110 PAYOUT RATIO Including realized losses (gains) on foreign exchange forward contracts 65.2% 74.7% 84.3% 83.3% Excluding realized losses (gains) on foreign exchange forward contracts 64.2% 76.4% 84.4% 88.1% Average exchange rate of Cdn$ to US$ for the period 1.0494 0.9913 1.0299 0.9996 Weighted average number of common shares outstanding 31,366,749 28,328,681 30,474,446 28,336,905

Note 1: Non-controlling interest in cash flows of the Centers is deducted in determining cash available for distribution as distributions from the Centers to the non-controlling interest holders are required to be made concurrently with distributions from the Centers to the Corporation.

Note 2: Interest expense on exchangeable interest liability represents a notional amount of interest expense deducted in the determination of net income and comprehensive income attributable to owners of the Corporation. It is added back to determine cash available for distribution as it is a non-cash charge and is not distributable to the holders of the non-controlling interest.

Note 3: Maintenance capital expenditures at the Center level reflect expenditures incurred to maintain the current operating capacities of the Centers and are deducted in the calculation of cash available for distribution.

Note 4: Cash flows from operating activities, as presented in the Corporation’s consolidated statements of cash flows, represent actual cash inflows and outflows, while calculation of cash available for distribution is based on the accrued amounts and, therefore, the difference between the accrual based amounts and actual cash inflows and outflows related to interest, income and withholding taxes are included in Table 18 above.

Note 5: While changes in non-cash operating working capital are included in the calculation of cash provided by operating activities, they are not included in the calculation of cash available for distribution as they represent only temporary sources or uses of cash due to the differences in timing of recording facility service revenue and corresponding expenses and actual receipts and outlays of cash. Such changes in non-cash operating working capital are financed from the available cash or credit facilities of the Centers.

Note 6: Realized gains (losses) on foreign exchange forward contracts which matured in the current period are adjusted in the determination of cash available for distribution while they are excluded from cash provided by operating activities.

Note 7: Repayment of non-revolving debt at the Centers’ level reflects contractual obligations of the Centers and is deducted in the calculation of cash available for distribution.

Note 8: Calculated based on the weighted average number of common shares outstanding.

Note 9: The Corporation’s current level of annual distributions is Cdn$1.125 per common share. However, due to the dividends paid on the additional common shares resulting from the conversion of 7.5% debentures into common shares, as discussed in Section 8 “Liquidity, Capital Resources and Financial Condition” of this MD&A, the average annual distribution per common share was Cdn$1.129 in 2013.

Cash available for distribution in the three-month period ended December 31, 2013 (Cdn$13.5 million) exceeded the total amount of distributions in the same period (Cdn$8.8 million) by Cdn$4.7 million. On a per common share basis, cash available for distribution of Cdn$0.431 was Cdn$0.150, or 53.4%, higher

17

than distributions of Cdn$0.281, resulting in a payout ratio of 65.2% as compared to a payout ratio of 74.7% in the same period in 2012.

Compared to the three-month period ended December 31, 2012, the cash available for distribution in U.S.-dollar terms increased by US$2.1 million primarily due to a stronger operating performance of the Centers, lower corporate expense and lower interest expense on convertible debentures, which were partially offset by a decline in foreign currency gains and higher provision for current income taxes (please refer to Table 19 below).

Cash available for distribution in the twelve-month period ended December 31, 2013 (Cdn$40.8 million) exceeded the total amount of distributions in the same period (Cdn$34.4 million) by Cdn$6.4 million. On a per common share basis, cash available for distribution of Cdn$1.340 was Cdn$0.211, or 18.7%, higher than distributions of Cdn$1.129, resulting in a payout ratio of 84.3% as compared to a payout ratio of 83.3% in the same period in 2012.

Compared to the twelve-month period ended December 31, 2012, the cash available for distribution in U.S.-dollar terms increased by US$1.9 million as stronger operating performance of the Centers was partially offset by declines in foreign currency gains (please refer to Table 19 below).

The following table provides the reconciliation of the Corporation’s cash available for distribution to cash flows from the Centers.

Table 19: Reconciliation of cash available for distribution to cash flows from the Centers

Three Months Ended

December 31, Twelve Months Ended

December 31, 2013 2012 2013 2012 ($’000s) (unaudited)

Cash flows from the Centers: Income before interest expense and depreciation 33,910 27,518 106,096 91,900 Debt service costs: Interest (402) (444) (1,433) (1,850) Repayment of debt (non-revolving) (1,324) (1,010) (5,704) (3,349) Maintenance capital expenditures (912) (1,100) (4,295) (3,526) Cash available for distribution at Center level 31,272 24,964 94,664 83,175 Non-controlling interest in cash available for distribution at Center level (14,524) (11,358) (44,447) (37,793) Corporation's share of the cash available for distribution at Center level 16,748 13,606 50,217 45,382 Corporate expenses (1,655) (2,060) (5,446) (5,623) Interest expense on convertible debentures (592) (889) (3,301) (3,299) Realized gains (losses) on foreign exchange forward contracts which matured in the current period (389) 375 97 3,522 Provision for current income taxes (1,240) (286) (1,929) (2,198) Cash available for distribution 12,872 10,746 39,638 37,784

8. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

As noted in the cautionary language concerning forward-looking disclosures in Section 1 “Caution Concerning Forward-Looking Statements” of this MD&A, this section contains forward-looking statements including with respect to the Corporation’s and the Centers’ abilities to renew and extend their respective credit facilities, the level of dividends and future contractual payments. Such statements involve known and unknown risks, uncertainties and other factors outside of management’s control, including the risk factors set forth in Section 13 “Risk Factors” of this MD&A and the Corporation’s most recently filed annual information form, that could cause results to differ materially from those described or anticipated in the forward-looking statements.

18

The Corporation has cash balances as follows:

Table 20: Cash and cash equivalents, including short-term and long-term investments

($’000s) December 31, 2013 December 31, 2012Centers 13,796 13,741Corporate 34,948 32,919Total cash and cash equivalents, including short-term and long-term investments 48,744 46,660

The Centers have credit facilities in place, excluding capital leases, in the aggregate amount of $55.9 million, of which $38.4 million was utilized as at December 31, 2013. The balances available under the credit facilities, combined with cash and cash equivalents as at December 31, 2013, are available to manage the Corporation’s accounts receivable, supply inventory and other short-term cash requirements. The Corporation’s access to available financing resources is sufficient to manage its exposure to changes in interest rates on the Centers’ revolving credit facilities, which are on a floating basis. Management does not expect that the current conditions in the credit markets will impact the Centers’ abilities to renew and extend their credit facilities.

The Corporation has in place a Cdn$50.0 million line of credit with a Canadian chartered bank which matures on July 4, 2015. This line of credit can be used to finance acquisitions, repay convertible debentures and/or repurchase the Corporation’s common shares. As at December 31, 2013, no amount was drawn under this line of credit.

Dividend declarations are determined based on monthly reviews of the Corporation’s earnings, capital expenditures and related cash flows. Such declarations take into account that the cash generated in the period is to be distributed to the maximum extent considered prudent after (i) debt service obligations, (ii) other expense and tax obligations, and (iii) reasonable reserves for working capital, collateral for foreign exchange forward contracts and capital expenditures. The Corporation maintained a consistent level of monthly distributions since its formation (in aggregate Cdn$1.10 per common share annually) until September 2012, when the monthly distribution was increased to Cdn$0.09375 per common share (or Cdn$1.125 per common share annually). The Corporation expects, subject to its monthly performance reviews as explained above, to maintain the current level of dividends on its common shares. Cash distributions declared in the period from January 1, 2013 to December 31, 2013 totaled Cdn$1.129 per common share. The amount of distributions declared in 2013 was higher than the current level of annual distributions of Cdn$1.125 per common share due to the dividends paid on the additional common shares resulting from the conversion of 7.5% debentures into common shares as discussed below.

As at December 31, 2013, the Corporation had consolidated net working capital of $48.4 million. Cash balances, including short-term and long-term investments, were $48.7 million and accounts receivable were $50.3 million. Accounts payable and accrued liabilities totaled $30.3 million. Total assets at December 31, 2013 were $437.9 million and total long-term liabilities were $59.1 million.

The Corporation’s convertible debentures are denominated in Canadian dollars and are reflected in the financial statements in U.S. dollars at fair value at the rate of exchange in effect at the balance sheet date.

The Corporation’s Cdn$42,979 (US$42,659) principal amount 7.5% debentures matured on April 30, 2013. Under the terms of the trust indenture governing the terms of the 7.5% debentures, the holders of the 7.5% debentures had the right to convert their holdings into common shares at a conversion price of $13.10 per common share. From June 18, 2012 (the first conversion) through April 30, 2013, Cdn$41,201 (US$40,894) principal amount of 7.5% debentures was converted into an aggregate of 3,145,093 common shares. On April 30, 2013, the Corporation redeemed the remaining outstanding principal amount of Cdn$1,778 (US$1,765) for cash.

19

On December 21, 2012, the Corporation issued, in a public offering, Cdn$41,800 (US$42,042) aggregate principal amount of 5.9% debentures. The 5.9% debentures pay interest semi-annually in arrears on June 30 and December 31 of each year. The 5.9% debentures mature on December 31, 2019 and are convertible into 52.3286 common shares per Cdn$1,000 principal amount of 5.9% debentures, at any time, at the option of the holder, representing a conversion price of Cdn$19.11 per common share. If the holders of the 5.9% debentures do not exercise their right to convert their holdings into the Corporation’s common shares prior to their maturity date on December 31, 2019, the principal amount is due and payable in full. The 5.9% debentures are subordinate to all other existing and future senior unsecured indebtedness of the Corporation.

The mandatory repayments under the credit facilities, notes payable and other contractual obligations and commitments including expected interest payments, on a non-discounted basis, as of December 31, 2013, are as follows:

Table 21: Mandatory repayments under credit facilities, notes payable and other contractual obligations and commitments

Future payments (including principal and interest)

($’000s) Carrying values at Dec. 31, 2013 Total

Less than1 year 1-3 years 4-5 years Thereafter

Dividends payable 2,765 2,765 2,765 - - -

Accounts payable 14,965 14,965 14,965 - - -

Accrued liabilities 15,328 15,328 15,328 - - -

Revolving credit facilities 4,508 4,575 4,575 - - -

Notes payable and term loans 33,919 36,197 20,049 9,450 4,118 2,580

Finance lease obligations 3,992 4,209 1,206 2,033 844 126 Operating leases and other commitments (not recorded in the financial statements) - 63,381 7,295 11,191 9,522 35,373 5.9% debentures 41,266 54,656 2,435 4,869 4,869 42,483

Total contractual obligations 116,743 196,076 68,618 27,543 19,353 80,562

The Corporation anticipates renewing, extending, repaying or replacing its credit facilities which fall due over the next twelve months and expects that cash flows from operations and working capital will be adequate to meet future payments on other contractual obligations over the next twelve months.

The Centers derive revenues, incur expenses and make distributions to their owners, including the Corporation, in U.S. dollars. The Corporation pays dividends to common shareholders and incurs a portion of its expenses in Canadian dollars. The amounts of distributions from the Centers to their owners, including the Corporation and non-controlling interests, are dependent on the results of the operations and cash flow generated by the Centers in any particular period.

Strengthening of the Canadian dollar against the U.S. dollar negatively impacts currency translation differences with respect to the funds available for the Corporation’s Canadian dollar denominated dividend payments and interest payments on the convertible debentures. A weakening Canadian currency in relation to U.S. currency has the opposite effect.

Since the Corporation’s formation in March 2004, the value of the Canadian dollar has fluctuated from Cdn$1.31 = US$1.00 on March 29, 2004 to Cdn$1.11 = US$1.00 on February 28, 2014, reaching a high of Cdn$0.93 = US$1.00 and a low of Cdn$1.40 = US$1.00 between these dates.

20

The graph below shows the movement of the monthly average exchange rates between Canadian and U.S. dollars since February 2009:

From time to time, the Corporation enters into foreign exchange forward contracts to limit its exposure to the fluctuations in the exchange rate between U.S. and Canadian currencies, to facilitate business planning and decision-making and to enhance predictability of the cash flows necessary to fund the Corporation’s dividend payments to its common shareholders.

Table 22 below shows the relationship between (i) total pro forma cash available for distribution excluding gains or losses on matured foreign exchange forward contracts for the twelve months ended December 31, 2013 (assuming, for illustrative purposes, achievement of a consistent result for the periods covered by the portfolio of foreign exchange forward contracts in place as of December 31, 2013 as illustrated in Table 22 below), (ii) total amount of U.S. dollars to deliver and Canadian dollars to receive for the foreign exchange forward contracts that will mature in the same periods, and (iii) total pro forma dividend payments on the common shares for the same periods.

Table 22: Summary of cash available for distribution, foreign exchange forward contracts and pro forma dividend payments

Total Pro Forma Cash Available for Distribution Excluding

Realized Gains or Losses on Foreign Exchange Forward

Contracts and Interest Expense on Convertible Debentures(1)

(US$’000s)

US$ to be Delivered under Foreign

Exchange Forward Contracts in Place

(US$’000s)

Cdn$ to be Received under Foreign

Exchange Forward Contracts in Place

(Cdn$’000s)

TotalPro Forma

Dividend Payments(2)

(Cdn$’000s)

Jan 2014 – Dec 2014 42,881 38,447 39,118 37,748

Jan 2015 – Nov 2015(3) 39,308 34,158 35,729 34,603

Note 1: Assumes that the actual amounts generated for the twelve months ended December 31, 2013 (without taking into consideration interest expense on the convertible debentures that are deemed to be converted for the purposes of this table) will be generated in each of these years.

Note 2: Based on the actual number of outstanding common shares as of December 31, 2013 and the assumed number of common shares issued upon conversion of all 5.9% debentures (2,187,335) and assuming the current level of dividends (Cdn$1.125 annually) is continued for these years.

Note 3: As of December 31, 2013, the Corporation had a portfolio of monthly foreign exchange forward contracts through November 2015 and, therefore, only eleven months of data is presented for the period from January 2015 to November 2015.

The current level of performance would generate sufficient U.S. dollars to satisfy the obligations under the foreign exchange forward contracts for the periods covered by the portfolio of foreign exchange forward

$0.90

$0.95

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

$1.30

Feb 2009 Jun 2009 Oct 2009 Feb 2010 Jun 2010 Oct 2010 Feb 2011 Jun 2011 Oct 2011 Feb 2012 Jun 2012 Oct 2012 Feb 2013 Jun 2013 Oct 2013 Feb 2014

Canadian Dollars per 1 U.S. Dollar

21

contracts in place as of December 31, 2013. The Canadian dollar amounts to be received upon maturity of these contracts and accumulated cash on hand will provide the Corporation substantially sufficient Canadian dollars to satisfy the anticipated dividend payments assuming a consistent level of dividends (Cdn$1.125 per common share) and the number of common shares described in Note 2 to Table 22 above and the Corporation’s obligation for interest payments on its 5.9% debentures. There is no assurance that the current level of performance or dividends will continue, and the Corporation’s performance is subject to the risk factors described in Section 13 “Risk Factors” of this MD&A and in the most recently filed annual information form available on SEDAR at www.sedar.com.

As at December 31, 2013, the Corporation had 31,366,750 common shares and Cdn$41,800 aggregate principal amount of 5.9% debentures outstanding. In the event all outstanding 5.9% debentures were converted into the common shares of the Corporation prior to their maturity date, the total number of common shares issuable would be 2,187,335.

Normal Course Issuer Bids

The Corporation’s current normal course issuer bid for its common shares is in effect from May 15, 2013 to May 14, 2014. During the three-month period ended December 31, 2013, the Corporation did not purchase any of its common shares. During the twelve-month period ended December 31, 2013, the Corporation purchased 83,300 of its common shares for a total consideration of $1,215.

Pursuant to the normal course issuer bid which terminated on May 14, 2013, during the three-month period ended December 31, 2012, the Corporation purchased 47,216 of its common shares for a total consideration of $649. During the twelve-month period ended December 31, 2012, the Corporation purchased 81,774 of its common shares for a total consideration of $1,111.

All common shares acquired were cancelled. Cancellation of common shares purchased in 2013 reduced the annual dividends paid by the Corporation by Cdn$0.9 million (at a current rate of Cdn$1.125 per common share).

In December 2013, the Corporation received regulatory approval for a normal course issuer bid under which the Corporation may purchase up to Cdn$1,045 aggregate principal amount of its outstanding 5.9% debentures during the period from December 30, 2013 to December 29, 2014. As of the date of this MD&A, the Corporation did not purchase any of its 5.9% debentures under this normal course issuer bid.

Dividend Reinvestment and Share Purchase Plan

The Corporation has a Dividend Reinvestment and Share Purchase Plan which allows shareholders resident in Canada to automatically re-invest, in a cost-effective manner, the monthly cash dividends on their common shares into additional common shares of the Corporation. For 2013, total reinvestment of monthly cash dividends amounted to Cdn$1.6 million.

9. FOREIGN EXCHANGE FORWARD CONTRACTS

The Corporation enters into foreign exchange forward contracts to manage its exposure to fluctuations in the exchange rate between U.S. and Canadian currencies, which exposure arises from the operating income of the Corporation generated in U.S. dollars while certain corporate expenses, payment of dividends on its common shares and payment of interest on and repayment of its indebtedness are in Canadian dollars.

22

As of December 31, 2013, the Corporation was committed to deliver between US$3.0 million and US$4.2 million monthly through November 2015 in exchange for Canadian dollars at stipulated exchange rates as follows:

Table 23: Summary of foreign exchange forward contracts

Contract Dates US$ to be Delivered (‘000s)

Cdn$ to be Received (‘000s)

Cdn$ Received per US$ (weighted average)

Jan 2014 – Dec 2014 38,447 39,118 1.0175

Jan 2015 – Nov 2015 34,158 35,729 1.0460

72,605 74,847

The fair value of the outstanding contracts as at December 31, 2013 was a liability of $2.8 million (December 31, 2012: an asset of $1.5 million) as reflected in the consolidated balance sheet as of December 31, 2013, while the change in the fair value of these contracts since December 31, 2012 (a loss of $4.3 million) is recorded as part of the loss on foreign currency (see note 20 to the Corporation’s consolidated financial statements for the year ended December 31, 2013). It is the Corporation’s intention to maintain these contracts in place until their scheduled maturity dates.

10. RELATED PARTY TRANSACTIONS

Note 21 to the consolidated financial statements of the Corporation for the year ended December 31, 2013 contains details of related parties and transactions with related parties in 2013.

11. USE OF JUDGEMENTS AND ESTIMATES

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies, reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, facility service revenue and expenses. Management uses historical experience and various other factors it believes to be reasonable under the circumstances as the basis for its judgments and estimates. Actual results may differ from these estimates. Such differences in estimates are recognized when realized.

Management’s judgment is required in respect of (i) consolidation, (ii) functional currency, (iii) recognition of deferred tax assets and liabilities and (iv) classification of leases.

Management’s estimates are required in respect of (i) facility service revenue and accounts receivable, (ii) supply inventory, (iii) fair value measurements and valuation of financial instruments, (iv) acquired assets and liabilities, primarily goodwill and other intangibles, (v) impairment of goodwill and other intangibles, (vi) provision for potential liabilities and contingencies and (vii) income tax provisions.

12. MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING AND DISCLOSURE CONTROLS

Management’s Responsibility

Management is responsible for the financial information published by the Corporation. In accordance with National Instrument 52-109, the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) have certified that annual filings fairly present in all material respects the financial condition, results of operations and cash flows and have also certified regarding controls as described below. By their nature,

23

controls, no matter how well conceived or operated, provide reasonable assurance, but not absolute assurance, that the objectives of the control systems will be met.

Internal Controls over Financial Reporting (“ICOFR”)

Under the supervision of, and with the participation of the CEO and the CFO, management performed an evaluation of the design and effectiveness of the ICOFR in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The CEO and the CFO have concluded that the design and operation of the ICOFR as of December 31, 2013 were effective, except as detailed below.

Due to the limited number of staff at the corporate office, finance personnel do not have all the technical knowledge to address complex and non-routine accounting issues such as the identification of differences between U.S. GAAP and IFRS (as Centers maintain their accounts under U.S. GAAP and the Corporation reports under IFRS), impact of tax legislation, valuation of complex financial instruments and requirements of new accounting pronouncements as they might apply to the Corporation, and, in this respect, the Corporation utilizes resources of outside experts and advisors.

Management has evaluated whether there were any material changes to the Corporation’s ICOFR during the period beginning on October 1, 2013 and ended on December 31, 2013 and determined that there were no changes that have materially affected, or are reasonably likely to materially affect, its ICOFR.

Disclosure Controls

Under the supervision of, and with the participation of the CEO and the CFO, management performed an evaluation of the design and effectiveness of the disclosure controls and procedures that provide reasonable assurance that material information relating to the Corporation (including its subsidiaries) is made known to the CEO and the CFO by others within the Corporation. Based on that evaluation, the CEO and the CFO have concluded that the design and operation of these disclosure controls and procedures as of December 31, 2013 were effective.

13. RISK FACTORS

Risks Related to the Business and the Industry of the Corporation

The revenue and profitability of the Corporation and its subsidiaries, including the Centers, depend heavily on payments from third-party payors, including government healthcare programs (Medicare and Medicaid) and managed care organizations, which are subject to frequent regulatory changes and cost containment initiatives. Changes in the terms and conditions of, or reimbursement levels under, insurance or healthcare programs, which are typically short-term agreements, could adversely affect the revenue and profitability of the Corporation. The Corporation’s revenue and profitability could be impacted by its ability to obtain and maintain contractual arrangements with insurers and payors active in its service areas and by changes in the terms of such contractual arrangements.

The revenue and profitability of the Centers is dependent upon physician relationships. There can be no assurance that physician groups performing procedures at the Centers will maintain successful medical practices, or that one or more key members of a particular physician group will continue practicing with that group or that the members of that group will continue to perform procedures at the Centers at current levels or at all.

24

Healthcare facilities, such as the Centers, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. Receipt and renewal of such licenses, certifications and accreditations are often based on inspections, surveys, audits, investigations or other reviews, some of which may require affirmative compliance actions by the Centers that could be burdensome and expensive.

There are a number of U.S. federal and state regulatory initiatives, which apply to healthcare providers, and in particular to SSHs, including the Centers. Among the most significant are the federal Anti-Kickback Statute, the federal physician self-referral law (commonly referred to as the Stark Law), the Patient Protection and Affordable Care Act (“PPACA”), the False Claims Act and the federal rules relating to management and protection of patient records and patient confidentiality.

The PPACA contains provisions that prohibit the formation or development of any new physician owned hospitals in the United States after a specified date. However, the grandfathering provisions of the law that permit existing physician owned hospitals, such as the Centers, to continue their operations and billings to government payors like Medicare and Medicaid for hospital services, provided they meet certain investment and patient transparency requirements. The law, among other things:

(a) prohibits the existing or grandfathered hospitals from expanding the baseline number of overnight beds, operating rooms or procedure rooms from the number of such rooms that the existing hospital had as of the date of enactment of the legislation, unless certain narrowly-drawn growth criteria are met;

(b) prohibits increases in the aggregate percentage value of physician ownership or investment in physician owned hospitals, or in entities whose investments include the hospitals;

(c) imposes restrictions on the manner of physician investment in physician owned hospitals; and

(d) requires disclosure to patients of physician ownership and requires hospitals to obtain a signed patient acknowledgement as to whether the hospital has physicians present 24 hours a day, seven days a week.

The full impact of PPACA on the Corporation is not clear, as the roll-out of the law continues to develop. The Corporation has undertaken an extensive review to ensure that the Centers’ operating agreements and procedures are in compliance with the provisions and limitations of the PPACA. As a consequence of its reviews, all Centers have updated the operating agreements and procedures to conform to the requirements of the PPACA.

While the Centers carry general and professional liability insurance against claims arising in the ordinary course of business, the insurance market is dynamic and there can be no assurance that adequate coverage will be available in the future or that any coverage in place will be adequate to cover claims.

Any major capital expenditures at the Centers will require additional capital, which may be funded through additional debt or equity financings. These funding sources could result in significant additional interest expense or ownership dilution to current holders of the Corporation’s securities.

There is significant competition in the healthcare business. The Centers compete with other healthcare facilities in providing services to physicians and patients, contracting with managed care payors and recruiting qualified staff.

The Centers may be vulnerable to economic downturns and may be limited in their ability to withstand such financial pressures. Increased unemployment or other adverse economic conditions may impact the volume

25

of services performed, cause shifts to payors with lower reimbursements (e.g., Medicare) and/or result in higher uncollectible accounts.

Maintenance capital expenditures, which are deducted in the calculation of cash available for distribution (see Section 7 “Performance Measures – Non-IFRS Financial Measures” above), represent expenditures that are required to maintain the productive capacity of the Centers. Historically, such expenditures have represented on average 1.3% of the facility service revenue of the Centers. Management believes that such level of maintenance capital expenditures will continue in the future and, accordingly, will not adversely impact the cash available for distribution generated by the Corporation.

Risks Related to the Structure of the Corporation

The Corporation is entirely dependent on the operations and assets of the Centers through the indirect ownership of between 51.0% and 64.6% of these Centers. Future dividend payments by the Corporation are not guaranteed and are totally dependent upon the operating results and related cash flows from the Centers and the limitations of applicable laws.

The payout by the Centers and the Corporation of a substantial majority of their operating cash flows will make additional capital and operating expenditures dependent on increased cash flows or additional financing in the future.

The Corporation’s dividend payments to its shareholders are denominated in Canadian dollars, whereas all of its revenue is denominated in U.S. dollars. To the extent that future dividend payments are not covered by foreign exchange forward contracts, the Corporation is exposed to currency exchange risk.

There can be no assurance that the Corporation will be able to repay the principal amount outstanding on its convertible debentures when due. Additionally, the convertible debentures are payable in Canadian dollars and, therefore, the Corporation is exposed (at maturity and/or repayment) to currency exchange risk with respect to the principal amounts of these instruments.

Non-competition agreements executed by physician owners of the non-controlling interests in the Centers may not be enforceable, which lack of enforceability could impact the revenue and profitability of the Centers.

The Corporation does not have the ability to direct day-to-day governance or management inputs in respect of the Centers, except in certain limited circumstances.

The degree to which the Corporation is leveraged on a consolidated basis could have important consequences to the holders of the common shares, including:

(a) The Corporation’s and Centers’ ability in the future to obtain additional financing for working capital, capital expenditures, acquisitions or other purposes may be limited. Under the terms attached to the Corporation’s convertible debentures, the Corporation’s ability to incur additional debt, including the issuance of common shares, is dependent upon the Corporation meeting certain pro forma financial ratios at the time of incurring additional debt.

(b) The Corporation or Centers being unable to refinance indebtedness on terms acceptable to the Corporation or at all.

(c) A portion of the Corporation’s cash flow (on a consolidated basis) from operations is likely to be dedicated to the payment of the principal of and interest on its indebtedness, thereby reducing funds

26

available for future operations, capital expenditures, acquisitions and/or dividends on its common shares.

The Corporation has a credit facility that contains restrictive covenants which limit the discretion of the Corporation or its management with respect to certain matters. Furthermore, the Centers have credit facilities that contain restrictive covenants which may limit the Centers’ abilities to make distributions.

Additional common shares may be issued by the Corporation pursuant to exchange agreements with the holders of the non-controlling interests in the Centers, in connection with future financing or acquisitions by the Corporation or in connection with the exercise of the conversion option by the holders of the convertible debentures. The issuance of common shares may dilute an investor’s investment in the Corporation and reduce distributable cash per common share.

MFA and MFH are organized under the laws of the State of Delaware. The Centers that are located in South Dakota are formed under the laws of the State of South Dakota. The Center located in Oklahoma is formed under the laws of the State of Oklahoma, the Center located in Arkansas is formed under the laws of the State of Arkansas and the Center located in California is formed under the laws of the State of Delaware. All of the assets of the Centers are located outside of Canada and certain of the directors and officers of the Corporation and its subsidiaries are residents of the United States. As a result, it may be difficult or impossible for investors to effect service within Canada upon the Corporation’s subsidiaries, the Centers, or their directors and officers who are not residents of Canada, or to realize against them in Canada upon judgments of courts of Canada predicated upon the civil liability provisions of applicable Canadian provincial securities laws.

The market price of the common shares may be subject to general volatility.

Payment of Dividends is not Guaranteed

Dividends to shareholders are paid at the discretion of the Corporation’s board of directors and are not guaranteed. The Corporation may alter its dividend level and dividends from the Corporation, if any, will depend on, among other things, the results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law, and other factors that the board of directors may deem relevant. The directors may decrease the level of dividends provided for in their existing dividend policies, or discontinue dividends at any time, and without prior notice.

Eligibility for Investment

There can be no assurance that the common shares will continue to be qualified investments for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, tax-free savings accounts and registered disability savings plans.

The Corporation is Subject to Canadian Tax

As a Canadian corporation, the Corporation is generally subject to Canadian federal, provincial and other taxes. The Corporation is required to include in computing its taxable income the interest received by the Corporation on the two promissory notes issued by MFA to the Corporation (“MFA Promissory Notes”). Management expects that the Corporation’s existing tax attributes will be available initially to offset this income inclusion such that it will not result in an immediate material increase to the Corporation’s liability for Canadian taxes. However, once the Corporation fully utilizes its existing tax attributes (or if, for any reason, these attributes were not available to the Corporation), the Corporation’s Canadian tax liability would materially increase. Although management intends to explore potential opportunities in the future to

27

preserve the tax efficiency of the Corporation’s structure, no assurances can be given that the Corporation’s Canadian tax liability will not materially increase at that time.

There can be no assurance that Canadian federal income tax laws and Canada Revenue Agency’s administrative policies respecting the Canadian federal income tax consequences generally applicable to the Corporation or to a holder of common shares will not be changed in a manner which adversely affects holders of the Corporation’s common shares.

The Corporation’s Structure may be Subject to Additional U.S Federal Income Tax Liability

MFA is subject to U.S. federal income tax on its income at regular corporate rates (currently 35%, plus state and local taxes). MFA will claim interest deductions with respect to the MFA Promissory Notes in computing its income for U.S. federal income tax purposes. To the extent this interest expense is disallowed or is otherwise not deductible, the U.S. federal income tax liability of MFA will increase, which could materially affect the after-tax cash available to distribute to the Corporation and therefore to holders of common shares. While the Corporation has received advice from an independent third party, based on certain representations by the Corporation and MFA and determinations made by the Corporation’s independent financial advisors, that the MFA Promissory Notes should be treated as debt for U.S. federal income tax purposes, it is possible that the Internal Revenue Service (“IRS”) could successfully challenge that position and assert that the MFA Promissory Notes should be treated as equity rather than debt for U.S. federal income tax purposes.

The determination of whether the MFA Promissory Notes are debt or equity for U.S. federal income tax purposes is based on an analysis of the facts and circumstances. There is no clear statutory definition of debt for U.S. federal income tax purposes, and its characterization is governed by principles developed in case law, which analyzes numerous factors that are intended to identify the economic substance of the purported creditor’s interest in the corporation. Furthermore, not all courts have applied this analysis in the same manner, and some courts have placed more emphasis on certain factors than other courts have. Moreover, subsequent changes in fact or subsequent actions or inactions by the Corporation or MFA could impact this analysis or could be used by the IRS to call into question this analysis or the facts as of the date such indebtedness was incurred. A successful challenge of this position would increase the U.S. federal income tax liability of MFA for the applicable open tax years, which would affect the ability of MFA to make interest and principal payments on the MFA Promissory Notes and would reduce the amount of after-tax cash generated by MFA that could otherwise be available to make distributions to the Corporation. In addition, otherwise deductible payments of interest would be re-characterized as non-deductible equity distributions and would be subject to U.S. withholding tax to the extent MFA had current or accumulated earnings and profits.

Alternatively, the IRS could argue that the interest on the MFA Promissory Notes exceeds an arm’s length rate, in which case only the portion of the interest expense that does not exceed an arm’s length rate may be deductible and the remainder would be subject to U.S. withholding tax to the extent that MFA had current or accumulated earnings and profits. The Corporation has received advice from independent financial advisors that the interest rates on the MFA Promissory Notes are commercially reasonable in the circumstances. However, the advice received by the Corporation is not binding on the IRS. Furthermore, MFA’s deductions attributable to the interest expense on the MFA Promissory Notes may be limited by the amount by which its net interest expense (the interest paid by MFA on all debt, including the MFA Promissory Notes, less its interest income) exceeds 50% of its adjusted taxable income (generally, U.S. federal taxable income before net interest expense, depreciation, amortization and taxes). Any disallowed interest expense may currently be carried forward to future years. Proposed legislation has been introduced, though not enacted, several times in recent years that would further limit the 50% of adjusted taxable income

28

cap described above to 25% of adjusted taxable income, although recent proposals in the U.S. Federal Fiscal Year Budget for 2014 would only apply the revised rules to certain foreign corporations that were expatriated. Furthermore, other limitations on the deductibility of interest under U.S. federal income tax laws, potentially including limitations applicable to certain high-yield debt obligations, could apply under certain circumstances to defer and/or eliminate all or a portion of the interest deduction that MFA would otherwise be entitled to with respect to interest on such indebtedness.

United States Investment Company Act of 1940

While the Corporation believes that through its subsidiaries and affiliates it is actively engaged in operating businesses and does not meet the definition of an investment company for purposes of the United States Investment Company Act of 1940 (the “1940 Act”), depending on the composition and valuation of the Corporation’s assets and the sources of the Corporation’s income from time to time, the Corporation could fall within the technical definition of the term "investment company" in the 1940 Act. Moreover, the determination of whether a company like the Corporation is an investment company involves complex analysis of regulations and facts, and the Corporation has not sought and does not anticipate seeking confirmation from the Securities and Exchange Commission (the “SEC”) that it agrees with the Corporation's analysis. If the SEC were to disagree with the Corporation's analysis or the Corporation otherwise were to determine that it is an investment company as defined in the 1940 Act, the Corporation may, among other steps, prudently acquire or sell assets in order to avoid remaining an "investment company" as defined under the 1940 Act. Such acquisitions or sales could be on terms other than those on which it would otherwise acquire or sell such assets or the timing of such transactions could be disadvantageous to the Corporation. If the Corporation were unable to avoid being an investment company and were therefore required to register as such under the 1940 Act, the Corporation would become subject to substantial regulation with respect to its capital structure (including its ability to use leverage), management, operations, transactions with affiliated persons, portfolio composition (including restrictions with respect to diversification), and other matters.

The foregoing information is a summary of risk factors and is qualified in its entirety by reference to, and must be read in conjunction with the detailed information appearing in the Corporation’s most recently filed annual information form and management information circular available on SEDAR at www.sedar.com.

14. OUTLOOK

As noted in the cautionary language concerning forward-looking disclosures in Section 1 “Caution Concerning Forward-Looking Statements” of this MD&A, this section contains forward-looking statements including with respect to the Corporation’s outlook, the economy, healthcare industry and the Corporation’s management strategies. Such statements involve known and unknown risks, uncertainties and other factors outside of management’s control that could cause results to differ materially from those described or anticipated in the forward-looking statements.

The outlook for the Corporation is influenced by many inter-related factors including the economy, the healthcare industry and the management strategies of the Corporation.

The Economy

Management believes that the Corporation will continue its current levels of operating performance and generation of cash available for distribution. These expectations could be impacted by the state of the U.S. economy. Two key indicators of the U.S. economy, employment levels and the housing market, have shown some improvement in 2013. While financial markets continue to show resilience, it remains difficult to predict the future.

29

Management believes that the Corporation will continue to benefit from the fact that over 97% of the Corporation’s revenues are generated in jurisdictions that continue to have unemployment and residential foreclosure rates below the national average. Management expects that, as the economy recovers and unemployment rates decline further, non-Medicare and non-Medicaid patient volumes, which declined during the recession, will grow and have a positive impact on the results of the Corporation’s operations.

Healthcare Industry

Continued implementation of the PPACA, demographic pressures and continuously growing healthcare costs will result in continuing pressure on reimbursement levels from government funded plans (Medicare, Medicaid and similar plans) and private insurance companies. At the same time, the increasing average age and life expectancy of the U.S. population, overall population growth and advances in science and technology will combine to drive demand for the services provided by the Corporation’s Centers. While the impact on the Corporation’s Centers from the increased proportion of the population which will have access to health insurance under the PPACA is expected to be an increase in volume of services provided, the recent experiences with the rollout of the insurance exchanges make it difficult to quantify such impact.

Management believes that its business model, strong balance sheet and operating margins and past management track record will sustain the Corporation in successfully managing the challenges created by current economic conditions and healthcare reform.

Management Strategies

Management believes that the Corporation’s Centers are well positioned to benefit from the provisions of the PPACA that are designed to reward healthcare entities that operate in the most efficient way and have lower costs.

Management also expects that the Corporation will continue to benefit from the utilization of the expanded facilities at its SSHs, which are contributing to increased case loads and more favourable case mix. Similarly, physician recruitment efforts and the resulting increase in the number of physicians holding both (i) medical staff privileges and (ii) ownership interests in its SSHs and ASC will positively impact results. The Corporation’s Centers continually review existing service lines and cost reduction strategies to identify and implement new services or changes in strategies that will improve their performance.

Management intends to continue their search for suitable accretive acquisition opportunities which will enhance the Corporation's operating performance and sustainability of cash available for distribution.

Management of the Corporation believes that implementation of these strategies will allow continuation of the cash distribution practices referred to in Section 8 “Liquidity, Capital Resources and Financial Condition” of this MD&A.

30

15. LIST OF TABLES

Page Table 1: Performance highlights .................................................................................................................................................... 2 

Table 2: Summary of Center information (as of December 31, 2013) ........................................................................................... 4 

Table 3: Operating and financial results for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 ........................................................................................................................................................................ 5 

Table 4: Facility service revenue by Center for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 ........................................................................................................................................................................ 5 

Table 5: Operating expenses by Center and corporate level for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 ................................................................................................................................................. 6 

Table 6: Income from operations by Center and corporate level for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 ........................................................................................................................................ 7 

Table 7: Calculation of the change in value of 5.9% debentures for the three months ended December 31, 2013 and from the date of offering, December 21, 2012 to December 31, 2012 ................................................................................................................. 8 

Table 8: Calculation of the change in value of exchangeable interest liability for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 .............................................................................................................. 9 

Table 9: Current and deferred tax components of the income tax expense (recovery) for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 .............................................................................. 9 

Table 10: Operating and financial results for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012 ...................................................................................................................................................................... 10 

Table 11: Facility service revenue by Center for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012 ............................................................................................................................................................ 10 

Table 12: Operating expenses by Center and corporate level for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012 .................................................................................................................................... 11 

Table 13: Income from operations by Center and corporate level for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012 .............................................................................................................................. 12 

Table 14: Calculation of the change in value of 5.9% debentures for the twelve months ended December 31, 2013 ................. 13 

Table 15: Calculation of the change in value of exchangeable interest liability for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012 ......................................................................................................... 13 

Table 16: Current and deferred tax components of the income tax expense (recovery) for the twelve months ended December 31, 2013 compared to the twelve months ended December 31, 2012 ......................................................................... 14 

Table 17: Summary of the eight most recently completed consolidated quarterly operating and financial results ...................... 14 

Table 18: Reconciliation of cash available for distribution to the cash provided by operating activities .................................... 16 

Table 19: Reconciliation of cash available for distribution to cash flows from the Centers ........................................................ 17 

Table 20: Cash and cash equivalents, including short-term and long-term investments .............................................................. 18 

Table 21: Mandatory repayments under credit facilities, notes payable and other contractual obligations and commitments .... 19 

Table 22: Summary of cash available for distribution, foreign exchange forward contracts and pro forma dividend payments . 20 

Table 23: Summary of foreign exchange forward contracts ........................................................................................................ 22