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MDS Reports Preliminary Fourth Quarter 2008 Results
Date:12/17/2008

TORONTO, Dec. 17 /PRNewswire-FirstCall/ - MDS Inc. (TSX: MDS; NYSE: MDZ), a leading provider of products and services to the global life sciences markets, today reported its preliminary and unaudited fourth quarter and year-end results for the period ended October 31, 2008. All amounts in this report are preliminary and unaudited, and do not include the $270 million to $370 million estimated write-down of MDS Pharma Services goodwill that was previously announced on December 10, 2008. The Company expects to file its audited year-end 2008 results, including the MDS Pharma Services goodwill write-down, with its annual reports in January 2009. For the fourth quarter, MDS reported total revenue of $322 million. Including a $246 million after-tax charge to write off the MAPLE asset, the Company reported a net loss of $255 million and loss per share from continuing operations of $2.11. Net revenue was $295 million and adjusted EBITDA was $37 million, compared with $307 million and $35 million in the prior year, respectively. Adjusted earnings per share were $0.02, down from $0.10 in the prior year.

    Quarterly Highlights

        -  MDS reported net revenue of $295 million, down 4% from $307
           million in the prior year. Excluding the impact of foreign
           exchange plus acquisitions and divestitures, net revenue increased
           4%.
        -  MDS delivered adjusted EBITDA of $37 million, up 6% from $35
           million in the prior year.
        -  MDS Pharma Services reported $112 million in net revenue, down
           from $123 million last year, and $8 million in adjusted EBITDA, up
           from $1 million in the prior year.
        -  MDS Nordion delivered solid results with revenue of $84 million,
           up from $76 million last year. Adjusted EBITDA was $21 million
           versus $20 million last year, including an unrealized embedded
           derivative charge of $13 million in 2008 and an unrealized gain of
           $4 million in 2007.
        -  MDS Analytical Technologies continued to be impacted by soft
           demand for high-end instruments and reported revenue of $99
           million and adjusted EBITDA of $17 million, compared with $108
           million and $27 million last year, respectively.
        -  MDS will record a non-cash after-tax charge of $246 million to
           write off the net book value of certain assets related to the
           MAPLE facilities project. In addition, the Company expects to
           record a charge in the range of $270 million to $370 million to
           write down MDS Pharma Services goodwill.
        -  MDS repurchased 1.0 million shares for $12 million under its
           Normal Course Issuer Bid during the fourth quarter. As a result of
           the reported net loss, driven by the write-down charges, a debt
           covenant restricts MDS from further share repurchases for the
           foreseeable future.

    "While 2008 included successes and disappointments, we have made progress
on our improvement initiatives," said Stephen P. DeFalco, President and Chief
Executive Officer, MDS Inc. "We are taking action to make MDS more competitive
as we head into 2009 and a backdrop of challenging economic conditions."

    Operating Segment Results

    MDS Pharma Services

                                                                    % Change
    (millions of U.S. dollars)             Q4 2008      Q4 2007     Reported
    -------------------------------------------------------------------------
    Net Revenues:
    Early-stage                                 65           66          (2%)
    Late-stage                                  47           57         (18%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                           $   112      $   123          (9%)
    Reimbursement revenues                      27           20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total revenues                         $   139      $   143
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:                       $     8      $     1         700%
                                                 7%           1%          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

For the fourth quarter, MDS Pharma Services net revenue decreased 9% over the prior year. Overall, early-stage revenue was flat with growth in Phase I and bioanalytical services. This was offset by a decline in late-stage, which was impacted by customer-driven delays. Adjusted EBITDA was $8 million, compared with $1 million last year, and included restructuring savings and a $9 million improvement related to the impact of foreign exchange. These benefits were partially offset by inflation and lower revenue.

New business wins of $131 million, compared with $134 million in the equivalent period last year, resulted in a backlog of $485 million for the quarter, up 14% from $426 million in the prior year. Sequentially, new business wins decreased 22% as clients continue to reprioritize their product pipelines. With more than 40% of the backlog denominated in currencies outside of the U.S., and a weakening euro during the quarter, backlog decreased 12% sequentially.

As previously announced, the Company carries out goodwill testing on an annual basis and has determined that a write-down of goodwill at MDS Pharma Services is appropriate. This write-down is due to the decline in the overall stock-market valuation of the contract-research sector, the uncertain economic outlook and the delay in profit recovery at MDS Pharma Services. Following completion of its detailed assessment to determine the fair value of the business, MDS expects to record a goodwill write-down in the range of $270 million to $370 million.

During the fourth quarter, MDS Pharma Services moved its Singapore central lab operations to a new and expanded facility. The new facility has doubled the previous capacity for sample storage, processing and safety testing to better serve current and emerging demand for laboratory research services in the Asia-Pacific region. In addition, MDS Pharma Services received two Good Clinical Practice Journal awards for excellence in clinical-trial management.

    MDS Nordion

                                                                    % Change
    (millions of U.S. dollars)             Q4 2008      Q4 2007     Reported
    -------------------------------------------------------------------------
    Revenues                               $    84      $    76          11%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:                       $    21      $    20           5%
                                                25%          26%          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

MDS Nordion's revenue for the fourth quarter was $84 million, compared with $76 million last year driven by strength in sterilization technologies and medical isotopes. In 2008, foreign exchange and the sale of non-strategic product lines both had a negative impact on revenue growth. Adjusted EBITDA was $21 million, up 5% from $20 million last year. Adjusted EBITDA benefited from strength in high-margin sterilization technologies volumes and from increased medical isotope demand due to a nuclear reactor shutdown in Europe. Additional volume realized as a result of the European reactor shutdown delivered approximately $6 million of incremental adjusted EBITDA this quarter.

MDS Nordion has a long-term contract to buy cobalt from a Russian supplier. This contract is denominated in U.S. dollars and, according to U.S. GAAP, creates an embedded derivative. The pronounced rise in the U.S. dollar during the fourth quarter of 2008 resulted in a $13 million loss on this embedded derivative. A $4 million embedded derivative gain was recorded in the fourth quarter of 2007 on that same contract. Excluding the impact of these unrealized embedded derivative charges, adjusted EBITDA more than doubled year over year.

During the fourth quarter, the Company assessed its MAPLE assets and determined, based on its dispute with Atomic Energy of Canada Limited (AECL) and the Government of Canada, that a net write-off of $246 million was appropriate under applicable accounting rules. This was driven by the difficulty of projecting a specific outcome for any dispute of this nature. MDS believes that it has a strong case against AECL and the Government of Canada with respect to the MAPLE agreement, which the Company continues to actively pursue.

In addition, MDS has determined that its original accounting in 2006 for the MAPLE transaction as an intangible asset was incorrect and has restated its historical results to report the MAPLE facilities as construction-in-progress. The MAPLE write-off includes the impact of this restatement.

    MDS Analytical Technologies

                                                                    % Change
    (millions of U.S. dollars)             Q4 2008      Q4 2007     Reported
    -------------------------------------------------------------------------
    Revenues                               $    99      $   108          (8%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA                        $    17      $    27         (37%)
                                                17%          25%           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

MDS Analytical Technologies reported $99 million in revenue, down 8% from $108 million in the prior year. The year-over-year decline was largely driven by lower shipments of mass spectrometers as end-user revenue decreased 11%. MDS Analytical Technologies continues to see strength across Asia and in applied markets for food, water and environmental testing; however, demand for high-end instruments, particularly in North America and to a lesser extent Europe, remains soft. Foreign exchange had a negative impact on revenue of $3 million during the quarter. For the quarter, MDS Analytical Technologies reported $17 million for adjusted EBITDA, compared with $27 million last year. Declines were primarily driven by lower revenues.

To better serve our fastest growing markets and to further improve profitability, MDS Analytical Technologies is accelerating the transfer of its manufacturing base from North America to Asia. These actions and others are expected to generate approximately $7 million in annualized savings. MDS expects to record a restructuring charge in the first quarter of 2009 of roughly $5 million. This restructuring is expected to impact approximately 200 people.

During the fourth quarter, MDS Analytical Technologies introduced a next-generation mass spectrometry platform with the launch of two of the most advanced mass spectrometry systems, the AB SCIEX Triple Quad(TM) 5500 and the AB SCIEX QTRAP(R) 5500. These two new systems provide researchers with complete workflow solutions that deliver superior functionality, speed and performance. The systems were both announced and shipped to customers in the fourth-quarter.

    Corporate and Other

                                                                    % Change
    (millions of U.S. dollars)             Q4 2008      Q4 2007     Reported
    -------------------------------------------------------------------------
    Selling, general and administration    $    (9)     $   (11)         18%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA                        $    (9)     $   (13)         31%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Corporate SG&A expenses were $9 million in the fourth quarter of 2008 down $2 million from the fourth quarter of 2007, primarily due to foreign exchange gains and lower incentive and stock-based compensation costs.

During the quarter, MDS also recorded $8 million in write-downs for certain long-term investments and treated these write-downs as adjusting items.

New Disclosure and Delivery Method for Reporting Financial Results

MDS has adopted a new approach to releasing quarterly financial results. The Company will no longer use the newswires to issue quarterly Management Discussion and Analysis (MD&A) and financial statements and notes. For the Company's first, second and third quarters, MD&A and financial statements and notes will be posted to the Company's Website at mdsinc.com and filed with the relevant Canadian and U.S. securities regulators. Commencing this quarter, for fourth quarter results, a press release will be issued with expanded disclosure. However, fourth quarter results will no longer be accompanied by an MD&A and financial statements and notes. A comprehensive MD&A with financial statements and notes will be provided on a year-end basis with the Company's Annual Report, Annual Information Form and Proxy Circular Filings. These documents are expected to be filed in January 2009 with the relevant securities regulators, and will also be posted to mdsinc.com.

Conference Call

MDS will hold a conference call today at 9:30 a.m. EST to discuss fourth quarter 2008 results. This call will be Webcast live at www.mdsinc.com and will also be available in archived format at www.mdsinc.com/news_events/webcasts_presentations.asp after the call.

About MDS

MDS Inc. (TSX: MDS; NYSE: MDZ) is a global life sciences company that provides market-leading products and services that our customers need for the development of drugs and diagnosis and treatment of disease. We are a leading global provider of pharmaceutical contract research, medical isotopes for molecular imaging, radiotherapeutics, and analytical instruments. MDS has more than 5,000 highly skilled people in 29 countries. Find out more at www.mdsinc.com or by calling 1-888-MDS-7222, 24 hours a day.

Caution Concerning Forward-Looking Statements

This document contains forward-looking statements. Some forward-looking statements may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. The statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. MDS's actual results could differ materially from those expressed in the forward-looking statements due to these risks and a number of other factors, including, but not limited to, successful implementation of structural changes, including restructuring plans and acquisitions, technical or manufacturing or distribution issues, the competitive environment for MDS's products and services , the degree of market penetration of its products and services, the ability to secure a reliable supply of raw materials, the impact of our clients' exercising rights to delay or cancel certain contracts, the strength of the global economy, the stability of global equity markets, the availability and cost of financing, the impact of the movement of the U.S. dollar relative to other currencies, particularly the Canadian dollar and the euro, uncertainties associated with critical accounting assumptions and estimates, and other factors set forth in reports and other documents filed by MDS with Canadian and U.S. securities regulatory authorities from time to time, including MDS's quarterly and annual MD&A, annual information form, and annual report on Form 40-F for the fiscal year ended October 31, 2007 filed with the Securities & Exchange Commission.

Also note that all financial data is now shown on a U.S. GAAP basis. MDS converted to U.S. GAAP reporting with the filing of the Company's 2007 Annual Report and financial statements on January 29, 2008.

Use of Non-GAAP Financial Measures

The use of non-GAAP measures including terms such as net revenue, adjusted EBITDA, adjusted EPS, new orders and backlog are used to explain the operating performance of the Company. These terms are not defined by GAAP and MDS's use may vary from that of other companies. MDS uses certain non-GAAP measures so that investors and analysts have a better understanding of the significant events and transactions that have had an impact on results or may have an impact on MDS's financial outlook. MDS provides a description of these non-GAAP measures and a reconciliation of these non-GAAP measures for actual results to GAAP financial results in its MD&A and Annual Report.

    MDS INC.
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    (PRELIMINARY AND UNAUDITED)

    Results excluding the estimated $270 million - $370 million write-down
    of MDS Pharma Services goodwill

    As at October 31                                                    2007
    (millions of U.S. dollars)                              2008    Restated
    -------------------------------------------------------------------------
    ASSETS

    Current assets
    Cash and cash equivalents                         $      120  $      222
    Restricted cash                                           13          13
    Short-term investments                                     -         102
    Accounts receivable, net                                 264         287
    Notes receivable                                          72           -
    Unbilled revenue                                          86          99
    Inventories, net                                          85         128
    Income taxes recoverable                                  57          54
    Current portion of deferred tax assets                    43          45
    Prepaid expenses and other                                17          22
    Assets held for sale                                       6           1
    -------------------------------------------------------------------------
    Total current assets                                     763         973

    Property, plant and equipment, net                       301         975
    Deferred tax assets                                       58           4
    Long-term investments and other assets                   127         290
    Goodwill(1)                                              772         782
    Intangible assets, net                                   155         219
    -------------------------------------------------------------------------
    Total assets                                      $    2,176  $    3,243
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
    Accounts payable and accrued liabilities          $      267  $      384
    Current portion of deferred revenue                       79          71
    Income taxes payable                                      14          57
    Current portion of long-term debt                         19          94
    Current portion of deferred tax liabilities               17          10
    -------------------------------------------------------------------------
    Total current liabilities                                396         616

    Long-term debt                                           263         451
    Deferred revenue                                          10          17
    Other long-term obligations                               31          30
    Deferred tax liabilities                                  70         188
    -------------------------------------------------------------------------
    Total liabilities                                        770       1,302
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares                                            488         493
    Additional paid-in capital                                76          72
    Retained earnings(1)                                     621         880
    Accumulated other comprehensive income(1)                221         496
    -------------------------------------------------------------------------
    Total shareholders' equity                             1,406       1,941
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity        $    2,176  $    3,243
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.



    MDS INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (PRELIMINARY AND UNAUDITED)

    Results excluding the estimated $270 million - $370 million write-down
    of MDS Pharma Services goodwill

                                  Three months ended             Years ended
                                          October 31              October 31
    -------------------------------------------------------------------------
                                                2007                    2007
    (millions of U.S. dollars)      2008    Restated        2008    Restated
    -------------------------------------------------------------------------
    Revenues
      Products                $      161  $      160  $      636  $      564
      Services                       134         147         579         555
      Reimbursement revenues          27          20         100          91
    -------------------------------------------------------------------------
      Total revenues                 322         327       1,315       1,210
    -------------------------------------------------------------------------

    Costs and expenses
      Direct cost of products        (91)        (97)       (387)       (360)
      Direct cost of services        (83)        (83)       (374)       (338)
      Reimbursed expenses            (27)        (20)       (100)        (91)
      Selling, general and
       administration                (77)        (84)       (279)       (265)
      Research and development       (14)        (20)        (75)        (68)
      Depreciation and
       amortization                  (25)        (23)       (100)        (79)
      Write-off of MAPLE
       facilities                   (501)          -        (501)          -
      Forgiveness of MAPLE debt      160           -         160           -
      Asset impairments                -           -         (11)          -
      Restructuring charges - net     (2)          4         (13)        (37)
      Change in fair value of
       embedded derivatives          (13)          4         (14)          4
      Impairment of goodwill(1)      TBD           -         TBD           -
      Other income (expenses)
       - net                          (1)         (7)          7         (84)
    -------------------------------------------------------------------------
      Total costs and expenses      (674)       (326)     (1,687)     (1,318)
    -------------------------------------------------------------------------

    Operating (loss) income from
     continuing operations(1)       (352)          1        (372)       (108)

    Interest expense                  (7)         (4)        (18)        (15)
    Interest income                    4           7          17          25
    Change in fair value of
     interest rate swaps               -           1           2           1
    Equity earnings                   11          13          49          53
    -------------------------------------------------------------------------
    (Loss) income from continuing
     operations before income
     taxes(1)                       (344)         18        (322)        (44)

    Income tax (expense) recovery
      - current                      (15)         (9)        (39)         25
      - deferred                     104           8         128          (6)
    -------------------------------------------------------------------------
    (Loss) income from
     continuing operations(1)       (255)         17        (233)        (25)

    Income (loss) from
     discontinued operations - net
     of income tax                     -          (2)          -         806
    -------------------------------------------------------------------------
    Net (loss) income(1)      $     (255) $       15  $     (233) $      781
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic (loss) earnings
     per share
      - from continuing
       operations             $    (2.11) $     0.14       (1.91) $    (0.19)
      - from discontinued
       operations                      -  $    (0.01)          -        6.12
    -------------------------------------------------------------------------
    Basic (loss) earnings
     per share(1)             $    (2.11) $     0.13  $    (1.91) $     5.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted (loss) earnings
     per share
      - from continuing
       operations             $    (2.11) $     0.14  $    (1.91)      (0.19)
      - from discontinued
       operations                      -       (0.01)          -        6.11
    -------------------------------------------------------------------------
    Diluted (loss) earnings
     per share(1)             $    (2.11) $     0.13  $    (1.91) $     5.92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.
    TBD = To Be Determined



    MDS INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (PRELIMINARY AND UNAUDITED)

    Results excluding the estimated $270 million - $370 million write-down
    of MDS Pharma Services goodwill

                                  Three months ended             Years ended
                                          October 31              October 31
    -------------------------------------------------------------------------
                                                2007                    2007
    (millions of U.S. dollars)      2008    Restated        2008    Restated
    -------------------------------------------------------------------------
    Operating activities
    Net (loss) income(1)      $     (255) $       15  $     (233) $      781
    Less: Income (loss) from
     discontinued operations -
     net of tax                        -          (2)          -         806
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations          (255)         17        (233)        (25)
    Adjustments to reconcile
     net income to cash
     provided by operating
     activities relating to
     continuing operations
    Items not affecting current
     cash flow(1)                    274          (9)        331         181
    Net changes in non-cash
     working capital balances
     relating to operations           34          63        (108)         22
    -------------------------------------------------------------------------
    Cash provided by (used
     in) operating activities
     of continuing operations         53          71         (10)        178
    Cash used in operating
     activities of discontinued
     operations                        -          (4)          -         (56)
    -------------------------------------------------------------------------
                                      53          67         (10)        122
    -------------------------------------------------------------------------
    Investing activities
      Acquisitions                     -           1         (18)       (600)
      Purchases of property,
       plant and equipment           (15)        (28)        (56)        (71)
      Proceeds on sale of
       property, plant and
       equipment                       -           4           2           4
      Proceeds from sale of
       businesses and investments      -           -          23          13
      Proceeds on sale of
       short-term investments          -           -         101         165
      Purchases of short-term
       investments                     -           -           -        (118)
      (Increase) decrease in
       restricted cash                 2          (2)          -          (5)
      Other                            -         (13)          -         (15)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     investing activities of
     continuing operations           (13)        (38)         52        (627)
    Cash provided by investing
     activities of discontinued
     operations                        -           -           -         929
    -------------------------------------------------------------------------
                                     (13)        (38)         52         302
    -------------------------------------------------------------------------
    Financing activities
      Decrease in bank
       indebtedness                  (15)          -           -           -
      Repayment of long-term debt     (8)        (10)        (89)        (18)
      Decrease in deferred
       revenue and other
       long-term obligations           -          (3)          -          (2)
      Payment of cash dividends        -           -           -          (3)
      Issuance of shares               1           -           7          15
      Repurchase of shares           (12)          -         (44)       (441)
    -------------------------------------------------------------------------
    Cash used in financing
     activities of continuing
     operations                      (34)        (13)       (126)       (449)
    Cash used in financing
     activities of discontinued
     operations                        -           -           -          (2)
    -------------------------------------------------------------------------
                                     (34)        (13)       (126)       (451)
    -------------------------------------------------------------------------
    Effect of foreign exchange
     rate changes on cash and
     cash equivalents                (16)         (4)        (18)         10
    -------------------------------------------------------------------------
    Net (decrease) increase in
     cash and cash equivalents
     during the period               (10)         12        (102)        (17)
    Cash and cash equivalents,
     beginning of period             130         210         222         239
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            $      120  $      222  $      120  $      222
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.



    KEY QUARTERLY DISCLOSURES:
    (PRELIMINARY AND UNAUDITED)

    Results excluding the estimated $270 million - $370 million write-down
    of MDS Pharma Services goodwill

    MDS Inc.

    Consolidated operating highlights and reconciliation of consolidated
    adjusted EBITDA

    (millions of U.S. dollars)

        Fourth Quarter                                      Year-To-Date
    -----------------------                           -----------------------

          2008        2007                                  2008        2007
    -------------------------------------------------------------------------
           322         327  Total revenues                 1,315       1,210
           (27)        (20) Reimbursement revenues           100          91
    -------------------------------------------------------------------------
    $      295  $      307  Net revenues              $    1,215  $    1,119
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            Income (loss) from
          (255)         17   continuing operations(1)       (233)        (25)
           (89)          1  Income tax expense (recovery)    (89)        (19)
             3          (3) Net interest expense (income)      1         (10)
                            Mark-to-market on interest
             -          (1)  rate swaps                       (2)         (1)
            25          23  Depreciation and amortization    100          79
    -------------------------------------------------------------------------
          (316)         37  EBITDA                          (223)         24
             2          (4) Restructuring charges, net        15          37
             -           -  Asset impairments                 11           -
             8           2  Valuation provisions              11           8
                            Loss (gain) on sale of a
             -          (5)  business/investment               3          (4)
                            (Reversal) provision for
             -           -   FDA-related costs               (10)         61
             2           5  Acquisition integration            4          19
                            MAPLE write-off and
           341           -   forgiveness of debt             341           -
    -------------------------------------------------------------------------
    $       37  $       35  Adjusted EBITDA           $      152  $      145
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
           13%         11%  Adjusted EBITDA margin           13%         13%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.

Consolidated net revenues, which exclude reimbursement revenue, were down 4% on a reported basis in the fourth quarter of 2008 with declines at MDS Pharma Services and MDS Analytical Technologies offsetting an increase at MDS Nordion. On a year over year basis, foreign exchange impacts decreased net revenue in the fourth-quarter by approximately $13 million and the sale of certain product lines within MDS Nordion reduced revenue by roughly $10 million. Excluding the impact of foreign exchange plus acquisitions and divestitures, net revenue increased 4%.

The net loss from continuing operations, excluding the expected 2008 MDS Pharma Services goodwill write-down estimated at $270 million to $370 million, for the fourth quarter of 2008 was $255 million, compared with income of $17 million last year. Primary drivers for this decline include the MAPLE write-off of $246 million, $8 million of long-term investment write-downs and a $2 million in-process R&D expense related to a technology acquisition. The fourth quarter of 2007 included $5 million of acquisition and integration costs associated with the Molecular Devices Corporation acquisition; a $4 million reduction in restructuring relating to employees who left voluntarily prior to their planned termination; a $5 million gain resulting from the bankruptcy proceeds of Protana Inc.; and a $2 million provision related to our investment in asset-backed commercial paper. Note the above does not include the pending fourth quarter write-down of MDS Pharma Services goodwill. The items listed above were treated as adjusting items in calculating adjusted EBITDA.

Adjusted EBITDA of $37 million in the fourth quarter of 2008 was up $2 million from the fourth quarter of 2007. On a year-over-year basis, foreign exchange gains from the revaluation of certain assets and liabilities resulted in a $20 million increase in adjusted EBITDA, which was largely offset by a $17 million reduction due to losses on embedded derivatives. Excluding foreign exchange and embedded derivative impacts, higher cobalt shipment and medical isotope demand increased adjusted EBITDA at MDS Nordion, which was offset by declines at both MDS Analytical Technologies and MDS Pharma Services primarily as a result of lower revenue.

Adjusted net income and adjusted earnings per share reflect the adjustments described above on an after-tax basis.

    Earnings Per Share

    (excluding the estimated $270 million - $370 million write-down of
    MDS Pharma Services goodwill)

                                     Fourth Quarter           Year-To-Date
    -------------------------------------------------------------------------
    (U.S. dollars)                  2008        2007        2008        2007
    -------------------------------------------------------------------------
    Basic earnings (loss) per
     share from continuing
     operations - as
     reported(1)              $    (2.11) $     0.14  $    (1.91) $    (0.19)
    Adjusted for (after tax):
      Restructuring charges,
       net                          0.01       (0.02)       0.08        0.19
      FDA-related provision            -           -       (0.06)       0.31
      Asset impairment                 -           -        0.07           -
      Valuation provisions          0.07        0.01        0.09        0.06
      Mark-to-market on
       interest rate swaps             -       (0.01)      (0.02)      (0.01)
      Loss (gain) on sale of
       business and long-term
       investments                     -       (0.04)       0.01       (0.02)
      Acquisition integration
       and in-process R&D           0.02        0.02        0.02        0.09
      MAPLE write-off and
       forgiveness of debt          2.03           -        2.02           -
      Tax rate changes                 -           -       (0.09)          -
    -------------------------------------------------------------------------
    Adjusted EPS              $     0.02  $     0.10  $     0.21  $     0.43
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.



    Income from Continuing Operations

    (excluding the estimated $270 million - $370 million write-down of
    MDS Pharma Services goodwill)

                                     Fourth Quarter           Year-To-Date
    -------------------------------------------------------------------------
    (U.S. dollars)                  2008        2007        2008        2007
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations -
     as reported(1)           $     (255) $       17  $     (233) $      (25)
    Adjusted for (after tax):
      Restructuring charges,
       net                             1          (2)         10          25
      FDA-related provision            -           -          (7)         41
      Asset impairment                 -           -           8           -
      Valuation provisions             8           1          11           8
      Mark-to-market on
       interest rate swaps             -          (1)         (2)         (1)
      Loss (gain) sale of
       business and long-term
       investments                     -          (5)          1          (3)
      Acquisition integration
       and in-process R&D              2           2           3          12
      MAPLE write-off and
       forgiveness of debt           246           -         246           -
      Tax rate changes                 -           -         (11)          -
    -------------------------------------------------------------------------
    Adjusted income from
     continuing operations    $        2  $       12  $       26  $       57
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.



    MDS Pharma Services Backlog Table (Prior period backlog amounts have
    been recalculated per note below)

                                          Previously
                                            Reported
                                     New  Period-End              Period-End
       Orders                     Orders     Backlog Adjustments     Backlog
    -------------------------------------------------------------------------
    Fiscal 2007 - Quarter 1          159         472          24         496
                  Quarter 2          103         428          35         463
                  Quarter 3          119         408          37         445
                  Quarter 4          134         375          51         426
    Fiscal 2008 - Quarter 1          177         395          53         448
                  Quarter 2          165         431          65         496
                  Quarter 3          169         486          65         551
                  Quarter 4          131                                 485
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

In the fourth quarter of 2008, the Company identified certain adjustments related to the calculation of MDS Pharma Services order backlog which resulted in an increase to the third quarter 2008 ending backlog of approximately $65 million. The increase in ending backlog was a result of improper calculation of foreign exchange impacts and the exclusion of certain orders or portions of orders.

New orders of $131 million in the fourth quarter of 2008 were down 2% from the fourth quarter of 2007, primarily due to lower orders in preclinical early-stage services. Compared with the fourth quarter of 2007, period-end backlog was up 14% driven by higher new order wins, particularly in the first three quarters of 2008, which were partially offset by a foreign exchange revaluation due to a decline in the euro at the end of 2008, compared with the end 2007. Period-ending backlog declined $66 million from the third quarter of 2008, primarily driven by the impact of foreign exchange due to a weaker euro in the fourth quarter and a moderate level of cancellations.

MDS Pharma Services Goodwill

During the annual fourth-quarter evaluation of goodwill, MDS determined that the carrying value of its MDS Pharma Services reporting unit exceeded its estimated fair value, indicating that its goodwill was impaired. The Company believes that the decline in overall contract research sector's market valuations, ongoing economic uncertainty and the delay in profit recovery at its MDS Pharma Services business are principal factors that drive the decline in its estimated fair market value as compared with its book value.

The Company is currently performing the second step of the goodwill impairment test for its MDS Pharma Services business. This involves allocating the estimated fair value of the reporting unit to all of its assets, including intangible assets regardless of whether they are recorded, and liabilities other than goodwill and comparing the residual amount to the carrying value of goodwill. The Company is in the process of finalizing its calculations and, at this time, believes that the goodwill impairment will be in the range of $270 million to $370 million. The final goodwill impairment charge will be incorporated into MDS's 2008 year-end reports which are expected to be filed in January 2009.

Restated Results

MDS has reviewed its accounting for the 2006 MAPLE transaction which resulted from a mediated dispute with AECL, and has determined that the original accounting treatment was not correct. Instead, the transaction should have been accounted for as a construction-in-progress, and when completed, as a capitalized lease over the estimated 40-year useful life of the MAPLE facilities. Under lease accounting, the $356 million incurred to build the MAPLE reactors prior to their transfer to AECL have been reclassified as a construction-in-progress and no gain or loss was recorded. As a result, the $36 million pre-tax loss and associated income taxes previously reported in 2006 have been reversed and the 2007 balance sheet has been restated. From 2006 to 2008, $147 million of additional costs incurred by AECL in their efforts to complete the project were recorded in construction-in-progress and a corresponding amount was recorded as a long-term non-cash financing liability. In addition, $25 million of implicit interest expense associated with MDS construction costs during the period should have been capitalized, resulting in an increase in net income in each period subsequent to the 2006 transaction with AECL. Prior to the write-off of the MAPLE facilities in the fourth quarter 2008, the restatement increases net assets approximately $38 million and 2008 net income by about $4 million.

    Selected Line Items from Consolidated Statement of Financial Position
    (excluding the estimated $270 million - $370 million write-down of MDS
    Pharma Services goodwill)

                              October 31,
                                    2008            October 31, 2007
    -------------------------------------------------------------------------
                                          Previously
    (millions of U.S. dollars)  Reported    Reported Adjustments    Restated
    -------------------------------------------------------------------------
    ASSETS
    Property, plant and
     equipment                  $    301    $    386    $    589 a  $    975
    Intangible assets                155         583        (364)b       219
    Other(1)                       1,720       2,049           -       2,049
    -------------------------------------------------------------------------
    Total assets                   2,176       3,018         225       3,243
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND
     SHAREHOLDERS' EQUITY
    Long-term debt              $    263    $    290    $    161 c  $    451
    Deferred tax liabilities          70         168          20 d       188
    Retained earnings(1)             621         842          38 e       880
    Accumulated other
     comprehensive income(1)         221         490           6         496
    Other                          1,001       1,228           -       1,228
    -------------------------------------------------------------------------
    Total liabilities and
     shareholders' equity       $  2,176    $  3,018    $    225    $  3,243
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.

    Notes for adjustments

    (a) Recording of construction-in-progress and capitalized interest for
        capital lease accounting: $589 million
    (b) Reversal of intangible assets for long-term supply agreement
        recognized in 2006: $(364) million
    (c) Recording of financial liability relating to lease accounting: $161
        million
    (d) Deferred tax liabilities relating to capitalized interest and
        reversal of loss on non-monetary transaction: $20 million
    (e) Fiscal 2007 P&L adjustment for capitalized interest and taxes: $8
        million
        Fiscal 2006 P&L adjustment for reversal of loss on non-monetary
        transaction, capitalized interest and taxes: $30 million
        Total impact on retained earnings as of October 31, 2007: $38 million



    Selected Line Items from Consolidated Statements of Operations
    (excluding the estimated $270 million - $370 million write-down of MDS
    Pharma Services goodwill)

    -------------------------------------------------------------------------
                                         Fourth
                                        Quarter
                                     October 31,          Fourth Quarter
                                           2008          October 31, 2007
    -------------------------------------------------------------------------
                                                    Prev-
                                                   iously
    (millions of U.S. dollars)         Reported  Reported     Adj.  Restated
    -------------------------------------------------------------------------
    Revenue                             $   322   $   327            $   327
    Costs and expenses                     (674)     (326)              (326)
    -------------------------------------------------------------------------
    Operating loss from continuing
     operations                            (352)        1                  1
    Interest expense                         (7)       (7)       3 e      (4)
    Interest income                           4         7                  7
    Change in fair value of interest
     rate swaps                               -         1                  1
    Equity earnings                          11        13                 13
    Income tax (expense) recovery
      - current                             (15)       (9)                (9)
      - deferred                            104         9       (1)e       8
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations(1)                         (255)       15        2        17
    -------------------------------------------------------------------------
    Income (loss) from discontinued
     operations                               -        (2)                (2)
    -------------------------------------------------------------------------
    Net (Loss) Income(1)                $  (255)  $    13   $    2   $    15
    -------------------------------------------------------------------------
    Basic (loss) earnings per share
      from continuing operations(1)       (2.11)     0.12     0.02      0.14
      from discontinued operations            -     (0.01)       -     (0.01)
    -------------------------------------------------------------------------
    Basic (loss) earnings per share       (2.11)     0.11     0.02      0.13
    -------------------------------------------------------------------------
    Diluted (loss) earnings per share
      from continuing operations(1)       (2.11)     0.12     0.02      0.14
      from discontinued operations            -     (0.01)       -     (0.01)
    -------------------------------------------------------------------------
    Diluted (loss) earnings per share   $ (2.11)  $  0.11     0.02   $  0.13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                          Year-
                                        to-Date
                                     October 31,           Year-To-Date
                                           2008          October 31, 2007
    -------------------------------------------------------------------------
                                                    Prev-
                                                   iously
    (millions of U.S. dollars)         Reported  Reported     Adj.  Restated
    -------------------------------------------------------------------------
    Revenue                             $ 1,315   $ 1,210            $ 1,210
    Costs and expenses                   (1,687)   (1,318)            (1,318)
    -------------------------------------------------------------------------
    Operating loss from continuing
     operations                            (372)     (108)              (108)
    Interest expense                        (18)      (27)      12 e     (15)
    Interest income                          17        25                 25
    Change in fair value of interest
     rate swaps                               2         1                  1
    Equity earnings                          49        53                 53
    Income tax (expense) recovery
      - current                             (39)       25                 25
      - deferred                            128        (2)      (4)e      (6)
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations(1)                         (233)      (33)       8       (25)
    -------------------------------------------------------------------------
    Income (loss) from discontinued
     operations                               -       806                806
    -------------------------------------------------------------------------
    Net (Loss) Income(1)                $  (233)  $   773   $    8   $   781
    -------------------------------------------------------------------------
    Basic (loss) earnings per share
      from continuing operations(1)       (1.91)    (0.25)    0.06     (0.19)
      from discontinued operations            -      6.12        -      6.12
    -------------------------------------------------------------------------
    Basic (loss) earnings per share       (1.91)     5.87     0.06      5.93
    -------------------------------------------------------------------------
    Diluted (loss) earnings per share
      from continuing operations(1)       (1.91)    (0.25)    0.06     (0.19)
      from discontinued operations            -      6.11        -      6.11
    -------------------------------------------------------------------------
    Diluted (loss) earnings per share   $ (1.91)  $  5.86     0.06   $  5.92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.

    Notes for adjustments

    (a) Recording of construction in progress and capitalized interest for
        capital lease accounting: $589 million
    (b) Reversal of intangible assets for long-term supply agreement
        recognized in 2006: $(364) million
    (c) Recording of financial liability relating to lease accounting:
        $161 million
    (d) Deferred tax liabilities relating to capitalized interest and
        reversal of loss on non-monetary transaction: $20 million
    (e) Fiscal 2007 P&L adjustment for capitalized interest and taxes:
        $8 million
        Fiscal 2006 P&L adjustment for reversal of loss on non-monetary
        transaction, capitalized interest and taxes: $30 million
        Total impact on retained earnings as of October 31, 2007:
        $38 million

Write-off of MAPLE facilities

In the fourth quarter, MDS assessed the MAPLE facilities net assets in light of its dispute with AECL and the Government of Canada, and determined that a net write-off of $246 million was appropriate under applicable accounting rules, given the difficulty of projecting a specific outcome for any dispute of this nature. After restating the MAPLE facilities transaction, the write-off includes $501 million of construction-in-progress and $160 million of long-term financing liabilities. This write-off also resulted in the recognition of $95 million of deferred tax assets.

Debt Covenants Impact on Normal Course Issuer Bid

MDS long-term senior unsecured notes, which mature in several tranches up to 2014, contain a covenant that restricts the Company's use of cash for certain purposes if cumulative net income from the date of issuance of the notes falls below a predefined amount. The restrictions on the use of cash include the repurchase of shares, payment of dividends and investments in businesses that the Company does not control. While MDS had no plans to pay dividends or invest in non-controlled businesses, the Company has repurchased shares in the past two years. In 2008, MDS purchased 2.9 million shares for $44 million under its Normal Course Issuer Bid. In 2007, MDS used $441 million to purchase 22.8 million shares under its substantial issuer bid. With the write-off of certain MAPLE net assets and the expected write-down of MDS Pharma Services goodwill, its cumulative net income is expected to be below the amount defined in the covenant. At this time, the Company cannot determine when it will overcome this restriction.

    Guidance
    (excluding the estimated $270 million - $370 million write-down of MDS
    Pharma Services goodwill)

    -------------------------------------------------------------------------
                                                                        2008
    (millions of U.S.                                            Preliminary
     dollars, except per              2007   September 2008        Unaudited
     share amount)          Actual Results         Guidance          Results
    -------------------------------------------------------------------------
    Total revenue          $         1,210  $ 1,330 - 1,350  $         1,315
    Net revenue            $         1,119  $ 1,230 - 1,250  $         1,215
    Adjusted EBITDA        $           145  $     160 - 170  $           152
    Adjusted EPS           $          0.43  $   0.27 - 0.33  $          0.21
    Income (loss) from
     continuing
     operations(1)         $           (25) $       18 - 28  $          (233)
    Basic EPS(1)           $         (0.19) $   0.15 - 0.23  $         (1.91)
    Capital expenditures   $            71  $       50 - 60  $            56
    Effective tax rate(1)              43%        10% - 20%              28%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Subject to finalization of MDS Pharma Services goodwill impairment
        charge.

Given the impact of the MAPLE write-off and the expected write-down of MDS Pharma Services goodwill, MDS expects the loss from continuing operations and the loss per share to be significantly below its annual guidance range. These write-offs are also expected to have a significant impact on the Company's 2008 effective tax rate.

The table above compares preliminary unaudited 2008 results, excluding the write-down of MDS Pharma Services goodwill with the annual guidance MDS provided in September, 2008. An updated comparison of audited 2008 results to annual guidance will be included in the Company's MD&A which is expected to be filed in January 2009.

The Company's preliminary full-year performance on total revenue and net revenue is expected to be below the low end of its September 2008 guidance by $15 million as a result of impact of foreign exchange from the strengthening of the U.S. dollar in the latter part of the fourth quarter of 2008, lower than expected demand for high-end instruments at MDS Analytical Technologies and lower revenue at MDS Pharma Services as a result of higher-than-expected, customer-driven project delays and cancellations.

Preliminary adjusted EBITDA and adjusted EPS are expected to be $152 million and $0.21, below the low end of the Company's guidance range by $8 million and $0.06, respectively. Excluding the impact of the significant strengthening of the U.S. dollar in the latter part of the fourth quarter of 2008, which resulted in a $13 million loss on embedded derivatives and a $9 million gain from the revaluation of certain assets and liabilities, MDS's results are expected to be $4 million below guidance primarily as a result of the shortfalls in revenue at MDS Analytical Technologies and MDS Pharma Services as described above.

Preliminary 2008 capital expenditures are expected to be $56 million and within the guidance range MDS provided in September 2008.

In 2008, MDS provided annual guidance to facilitate the transition to U.S. GAAP. Moving forward, the Company does not intend to issue guidance.


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SOURCE MDS Inc.
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