MDS Reports Preliminary Fourth Quarter 2008 Results
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 $12 million under its
Normal Course Issuer Bid during the fourth quarter. As a result of
the reported net loss, driven by the write-down charges, a debt
covenant restricts MDS from further share repurchases for the
foreseeable future.
"While 2008 included successes and disappointments, we have made progress
on our improvement initiatives," said Stephen P. DeFalco, President and Chief
Executive Officer, MDS Inc. "We are taking action to make MDS more competitive
as we head into 2009 and a backdrop of challenging economic conditions."
Operating Segment Results
MDS Pharma Services
% Change
(millions of U.S. dollars) Q4 2008 Q4 2007 Reported
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Net Revenues:
Early-stage 65 66 (2%)
Late-stage 47 57 (18%)
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$ 112 $ 123 (9%)
Reimbursement revenues 27 20
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Total revenues $ 139 $ 143
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Adjusted EBITDA: $ 8 $ 1 700%
7% 1% -
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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
New business wins of
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
During the fourth quarter, MDS Pharma Services moved its
MDS Nordion
% Change
(millions of U.S. dollars) Q4 2008 Q4 2007 Reported
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Revenues $ 84 $ 76 11%
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Adjusted EBITDA: $ 21 $ 20 5%
25% 26% -
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MDS Nordion’s revenue for the fourth quarter was
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
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
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
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Revenues $ 99 $ 108 (8%)
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Adjusted EBITDA $ 17 $ 27 (37%)
17% 25% -
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MDS Analytical Technologies reported
To better serve our fastest growing markets and to further improve profitability, MDS Analytical Technologies is accelerating the transfer of its manufacturing base from
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
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Selling, general and administration $ (9) $ (11) 18%
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Adjusted EBITDA $ (9) $ (13) 31%
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Corporate SG&A expenses were
During the quarter, MDS also recorded
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
Conference Call
MDS will hold a conference call today at
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
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
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
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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
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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
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Total assets $ 2,176 $ 3,243
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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
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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
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Total liabilities 770 1,302
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Shareholders' equity
Common shares 488 493
Additional paid-in capital 76 72
Retained earnings(1) 621 880
Accumulated other comprehensive income(1) 221 496
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Total shareholders' equity 1,406 1,941
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Total liabilities and shareholders' equity $ 2,176 $ 3,243
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(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
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2007 2007
(millions of U.S. dollars) 2008 Restated 2008 Restated
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Revenues
Products $ 161 $ 160 $ 636 $ 564
Services 134 147 579 555
Reimbursement revenues 27 20 100 91
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Total revenues 322 327 1,315 1,210
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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)
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Total costs and expenses (674) (326) (1,687) (1,318)
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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
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(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)
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(Loss) income from
continuing operations(1) (255) 17 (233) (25)
Income (loss) from
discontinued operations - net
of income tax - (2) - 806
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Net (loss) income(1) $ (255) $ 15 $ (233) $ 781
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Basic (loss) earnings
per share
- from continuing
operations $ (2.11) $ 0.14 (1.91) $ (0.19)
- from discontinued
operations - $ (0.01) - 6.12
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Basic (loss) earnings
per share(1) $ (2.11) $ 0.13 $ (1.91) $ 5.93
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Diluted (loss) earnings
per share
- from continuing
operations $ (2.11) $ 0.14 $ (1.91) (0.19)
- from discontinued
operations - (0.01) - 6.11
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Diluted (loss) earnings
per share(1) $ (2.11) $ 0.13 $ (1.91) $ 5.92
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(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
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2007 2007
(millions of U.S. dollars) 2008 Restated 2008 Restated
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Operating activities
Net (loss) income(1) $ (255) $ 15 $ (233) $ 781
Less: Income (loss) from
discontinued operations -
net of tax - (2) - 806
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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
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Cash provided by (used
in) operating activities
of continuing operations 53 71 (10) 178
Cash used in operating
activities of discontinued
operations - (4) - (56)
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53 67 (10) 122
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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)
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Cash provided by (used in)
investing activities of
continuing operations (13) (38) 52 (627)
Cash provided by investing
activities of discontinued
operations - - - 929
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(13) (38) 52 302
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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)
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Cash used in financing
activities of continuing
operations (34) (13) (126) (449)
Cash used in financing
activities of discontinued
operations - - - (2)
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(34) (13) (126) (451)
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Effect of foreign exchange
rate changes on cash and
cash equivalents (16) (4) (18) 10
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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
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Cash and cash equivalents,
end of period $ 120 $ 222 $ 120 $ 222
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(1) Subject to finalization of MDS Pharma Services goodwill impairment
charge.
KEY QUARTERLY DISCLOSURES:
(PRELIMINARY AND UNAUDITED)
Results excluding the estimated $270 million - $370 million write-down
of MDS Pharma Services goodwill
MDS Inc.
Consolidated operating highlights and reconciliation of consolidated
adjusted EBITDA
(millions of U.S. dollars)
Fourth Quarter Year-To-Date
----------------------- -----------------------
2008 2007 2008 2007
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322 327 Total revenues 1,315 1,210
(27) (20) Reimbursement revenues 100 91
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$ 295 $ 307 Net revenues $ 1,215 $ 1,119
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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
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(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 -
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$ 37 $ 35 Adjusted EBITDA $ 152 $ 145
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13% 11% Adjusted EBITDA margin 13% 13%
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(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
The net loss from continuing operations, excluding the expected 2008 MDS Pharma Services goodwill write-down estimated at
Adjusted EBITDA of
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
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(U.S. dollars) 2008 2007 2008 2007
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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) -
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Adjusted EPS $ 0.02 $ 0.10 $ 0.21 $ 0.43
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(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
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(U.S. dollars) 2008 2007 2008 2007
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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) -
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Adjusted income from
continuing operations $ 2 $ 12 $ 26 $ 57
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(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
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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
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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
New orders of
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
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
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
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Previously
(millions of U.S. dollars) Reported Reported Adjustments Restated
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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
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Total assets 2,176 3,018 225 3,243
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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
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Total liabilities and
shareholders' equity $ 2,176 $ 3,018 $ 225 $ 3,243
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(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)
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Fourth
Quarter
October 31, Fourth Quarter
2008 October 31, 2007
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Prev-
iously
(millions of U.S. dollars) Reported Reported Adj. Restated
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Revenue $ 322 $ 327 $ 327
Costs and expenses (674) (326) (326)
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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
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Income (loss) from continuing
operations(1) (255) 15 2 17
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Income (loss) from discontinued
operations - (2) (2)
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Net (Loss) Income(1) $ (255) $ 13 $ 2 $ 15
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Basic (loss) earnings per share
from continuing operations(1) (2.11) 0.12 0.02 0.14
from discontinued operations - (0.01) - (0.01)
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Basic (loss) earnings per share (2.11) 0.11 0.02 0.13
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Diluted (loss) earnings per share
from continuing operations(1) (2.11) 0.12 0.02 0.14
from discontinued operations - (0.01) - (0.01)
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Diluted (loss) earnings per share $ (2.11) $ 0.11 0.02 $ 0.13
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Year-
to-Date
October 31, Year-To-Date
2008 October 31, 2007
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Prev-
iously
(millions of U.S. dollars) Reported Reported Adj. Restated
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Revenue $ 1,315 $ 1,210 $ 1,210
Costs and expenses (1,687) (1,318) (1,318)
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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)
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Income (loss) from continuing
operations(1) (233) (33) 8 (25)
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Income (loss) from discontinued
operations - 806 806
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Net (Loss) Income(1) $ (233) $ 773 $ 8 $ 781
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Basic (loss) earnings per share
from continuing operations(1) (1.91) (0.25) 0.06 (0.19)
from discontinued operations - 6.12 - 6.12
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Basic (loss) earnings per share (1.91) 5.87 0.06 5.93
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Diluted (loss) earnings per share
from continuing operations(1) (1.91) (0.25) 0.06 (0.19)
from discontinued operations - 6.11 - 6.11
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Diluted (loss) earnings per share $ (1.91) $ 5.86 0.06 $ 5.92
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(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
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
Guidance
(excluding the estimated $270 million - $370 million write-down of MDS
Pharma Services goodwill)
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2008
(millions of U.S. Preliminary
dollars, except per 2007 September 2008 Unaudited
share amount) Actual Results Guidance Results
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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%
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(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
The Company’s preliminary full-year performance on total revenue and net revenue is expected to be below the low end of its
Preliminary adjusted EBITDA and adjusted EPS are expected to be
Preliminary 2008 capital expenditures are expected to be
In 2008, MDS provided annual guidance to facilitate the transition to U.S. GAAP. Moving forward, the Company does not intend to issue guidance.
SOURCE MDS Inc.