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TORONTO, June 11 /PRNewswire-FirstCall/ - MDS Inc. (TSX: MDS; NYSE: MDZ),
a leading provider of products and services to the global life sciences
markets, today reported financial results for the three-month period ended
April 30, 2009. On a GAAP basis, MDS reported total revenue of $282 million, a
net loss of $17 million and a loss per share of $0.15 for the second quarter
of 2009. These results include a non-cash asset write-down of $16 million. Net
revenue was $257 million and adjusted EBITDA was $31 million, compared with
$326 million and $34 million in the prior year, respectively. For the quarter,
the Company announced adjusted earnings per share of $0.03, compared with
$0.08 in the corresponding period a year ago.
Quarterly Highlights
- Net revenue of $257 million, down 21% from $326 million in the prior
year. Excluding the impact of foreign exchange, acquisitions and
divestitures, net revenue decreased 10%.
- Adjusted EBITDA of $31 million with 12% margin, versus $34 million
with 10% margin in the prior year, as $15 million in restructuring
and productivity savings largely offset market declines.
- Adjusted earnings per share of $0.03, compared with $0.08 in the
prior year, primarily driven by lower adjusted EBITDA and higher
interest expense.
- Period-end cash position increased $94 million to $243 million.
- New product introductions to provide customers with advanced
technology and improved performance, including the AB SCIEX TOF/TOF
(TM) 5800 system, a new administration system for TheraSphere(R), a
suite of iMethods tests, and MetaXpress(TM) analysis software.
"With a vigilant focus on productivity, we offset declines in a soft
market, and delivered solid margins and strong cash flow within the quarter,"
said Stephen P. DeFalco, President and Chief Executive Officer, MDS Inc. "We
continue to maintain a balance of disciplined cost control and strategic
investments to make the Company more competitive during this challenging
economic period."
Operating Segment Results
MDS Pharma Services
% Change
(millions of U.S. dollars) Q2 2009 Q2 2008 Reported
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Net Revenue
Early Stage $ 56 $ 68 (18%)
Late Stage 49 60 (18%)
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105 128 (18%)
Reimbursement revenue 25 24
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Total revenue $ 130 $ 152
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Adjusted EBITDA $ 3 $ (1) n.m.
3% (1%)
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n.m. - not meaningful
For the second quarter, MDS Pharma Services reported adjusted EBITDA of $3
million, compared with a loss of $1 million last year. This $4 million
year-over-year increase was largely due to productivity gains and
restructuring savings, partially offset by lower volumes. Net revenue
decreased 18% over the prior-year period with foreign exchange negatively
impacting revenue by $9 million. In the second quarter, Late Stage declines
were primarily due to lower demand in Central Labs. In Early Stage, declines
were largely driven by lower revenues in bioanalytical services.
MDS Pharma Services recorded new business wins totaling $114 million, a
sequential increase of 10%, compared with new business wins in the first
quarter, but down 31% compared with $165 million of new business wins last
year. The sequential improvement was primarily driven by solid orders in Phase
II-IV and Early Stage bioanalytical services. The year-over-year decline was
largely due to the impact of foreign exchange and slower market demand as
customers reprioritize their research and development (R&D) projects.
Period-end backlog was $442 million, down 11% from $496 million in the prior
year. This decrease is primarily related to changes in foreign exchange and
declines in Late Stage, partially offset by a 10% increase in Early Stage
backlog.
As part of the Company's quarterly balance sheet assessment, a non-cash
write-down of $16 million was recorded in the second quarter to reflect the
current fair value of MDS Pharma Services Central Labs fixed assets.
Subsequent to the quarter, as part of its ongoing strategic review
process, MDS announced that it will strategically focus MDS Pharma Services on
the delivery of Early Stage (Discovery through Phase IIa) services where the
Company has a top-three market position. As a result, MDS intends to sell its
Late Stage (Phase II-IV and Central Labs) operations. On June 1, 2009, the
Company announced an agreement to sell its Phase II-IV operations to INC
Research, Inc. for approximately $50 million, including certain transition
services and customary post-closing contingencies and adjustments. This sale
is expected to close during MDS's fiscal third quarter of 2009 (the three
months ending July 31, 2009). A suitable buyer is being sought for Central
Labs.
To further improve operating performance in a challenging economic
environment, to sharpen the Company's focus on Early Stage, and to reduce
overhead associated with the exit from Late Stage, MDS Pharma Services has
initiated restructuring actions in the third quarter of 2009. MDS estimates
the cost of this restructuring to be approximately $4 million, impacting some
180 people and generating roughly $9 million in annual savings. As the Company
plans to sell these operations, Late Stage will no longer be classified as
part of continuing operations for financial reporting beginning in the third
quarter of 2009.
To further build core competencies in Early Stage, MDS Pharma Services
initiated a project in the second quarter to renovate and expand its
preclinical operations in Taiwan. The expanded facility will double the
previous capacity to better serve emerging demand for services in the
Asia-Pacific region.
MDS Nordion
% Change
(millions of U.S. dollars) Q2 2009 Q2 2008 Reported
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Net revenue $ 65 $ 80 (19%)
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Adjusted EBITDA $ 23 $ 24 (4%)
35% 30%
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MDS Nordion reported adjusted EBITDA of $23 million in the second quarter,
down 4% compared with last year, and included an embedded derivative gain of
$3 million, versus a gain of $2 million last year. Excluding divestitures and
foreign exchange, adjusted EBITDA increased 12% compared with last year.
Revenue for the second quarter was $65 million, compared with $80 million last
year. Excluding the $10 million negative impact of foreign exchange and $10
million related to the divestiture of certain product lines, revenue increased
by $4 million, or 6% year-over-year. Excluding the divestitures and foreign
exchange, year-over-year improvement in revenue and adjusted EBITDA was
primarily driven by strength in medical isotopes.
During the quarter, MDS Nordion launched an improved TheraSphere(R)
administration system for physicians. TheraSphere(R) is a targeted internal
radiation therapy for patients with inoperable, primary liver cancer. The new
administration system allows for safer, faster, and more efficient
administration of TheraSphere(R), providing better treatment delivery for
patients.
Subsequent to the quarter, MDS Nordion commenced the manufacture of
Cardiogen-82(R) (Rubidium-82 generators) for Bracco Diagnostics Inc. (Part of
Bracco Group). CardioGen-82 is the only generator-based, cardiac Positron
Emission Tomography (PET) perfusion imaging agent approved by the United
States Food and Drug Administration (FDA). PET is a highly sensitive
medical-imaging technique that produces a three-dimensional image of the
functioning heart, allowing the cardiologist to identify regions of the heart
muscle receiving poor blood flow.
After the end of the quarter, in May 2009, Atomic Energy of Canada Limited
(AECL) announced that its National Research Universal (NRU) reactor would be
out of service for at least three months. Based on historical EBITDA trends
related to NRU-supplied isotopes, MDS expects the financial impact of this
shutdown to reduce MDS Nordion's adjusted EBITDA by approximately $4 million
for every month the NRU is out of service. MDS is assessing plans to reduce
costs over the extended shutdown period. MDS Nordion continues to deliver
positive EBITDA from sterilization technologies and radiopharmaceutical
product and service lines.
MDS continues to work to secure a long-term reliable supply of medical
isotopes. In 1996, MDS Nordion contracted with AECL to complete and commission
the MAPLE reactors, which were intended to replace the NRU. In May 2008, this
project was unilaterally discontinued by AECL and the Government of Canada.
MDS invested over $350 million in the MAPLE project, and believes that the
completion of the MAPLE reactors is the best solution to provide global
medical isotope supply. More recently, MDS Nordion urged the AECL and Canadian
Government to consult with international experts and obtain their assistance
to activating the MAPLE project to address the current medical-isotope supply
shortage. In addition, MDS Nordion is examining longer-term supply
alternatives and announced in the second quarter its collaboration with
TRIUMF, Canada's national laboratory for particle and nuclear physics, to
study the feasibility of producing a viable and reliable supply of photo
fission-based Molybdenum-99.
MDS Analytical Technologies
% Change
(millions of U.S. dollars) Q2 2009 Q2 2008 Reported
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Net revenue $ 87 $ 118 (26%)
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Adjusted EBITDA $ 13 $ 17 (24%)
15% 14%
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In the second quarter, MDS Analytical Technologies reported $13 million in
adjusted EBITDA, compared with $17 million in the corresponding quarter last
year. Excluding $5 million of unfavorable impact from foreign exchange,
primarily as a result of hedge positions established in 2008, adjusted EBITDA
increased $1 million or 4%, driven by restructuring and productivity savings,
which were largely offset by pricing and lower volumes. For the quarter, MDS
Analytical Technologies reported $87 million in revenue, down 26% from $118
million in the prior year. The effect of foreign exchange reduced reported
revenue by $11 million, or 9% year-over-year. Including the impact of foreign
exchange, total end-user revenue decreased 13%, with an 11% decline in mass
spectrometry end-user revenue. Soft end-user demand in pharmaceutical markets
for instruments was the primary driver for the year-over-year decline in
volumes across all product lines. The Company continues to see growth in
applied markets, services and new products - particularly the recently
launched 5500 series of mass spectrometers, which are being well received by
customers.
In the second quarter, MDS Analytical Technologies continued to introduce
innovative technologies and products. The Company and its joint venture
partner, Applied Biosystems (a division of Life Technologies Corporation)
launched the AB SCIEX TOF/TOF(TM) 5800 system - the fastest, most sensitive
MALDI-based mass spectrometer ever built. This system is already commercially
available and will help researchers advance the discovery of biomarkers. MDS
Analytical Technologies and Applied Biosystems also introduced a new suite of
iMethod tests that simplify the use of mass spectrometry for food and water
quality testing, forensic toxicology and clinical research, and
MetaXpressPowerCore(TM) and MetaXpress(R) 3.0 image acquisition and analysis
software, which are designed to accelerate the throughput of high content
screening and expand toxicity applications.
Corporate and Other
% Change
(millions of U.S. dollars) Q2 2009 Q2 2008 Reported
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Selling, general and administration $ (7) $ (7) -
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Adjusted EBITDA $ (8) $ (6) (33%)
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Corporate selling, general and administration expenses were $7 million in
the second quarter of 2009, level compared with the second quarter of 2008.
These expenses included $3 million in corporate development costs primarily
associated with the sale of MDS Pharma Services' Phase II-IV operations, which
were offset by a $2 million recovery in stock-based compensation expense.
Relative to cash performance, as of the end of the second quarter, MDS
reported $243 million in cash and cash equivalents, which is approximately
equivalent to the Company's debt position of $276 million minus a government
loan of $39 million, which is entirely offset by a corresponding financial
instrument.
New Disclosure and Delivery Method for Reporting Financial Results
In the fourth quarter of 2008, MDS adopted a new approach to releasing
quarterly financial results. The Company no longer uses the newswires to issue
its quarterly Management Discussion and Analysis (MD&A), and financial
statements and notes. For the Company's first, second and third quarters, the
respective MD&A, and financial statements and notes, which are assessable
through this link: http://www.mdsinc.com/investors/financial_results.asp, will
be posted, concurrently with the press release announcing quarterly results,
to the Company's Website at mdsinc.com, and filed with Canadian and U.S.
securities regulators. 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 - all of which will also be posted to mdsinc.com.
Conference Call
MDS will hold a conference call today at 9:30 a.m. EDT to discuss second
quarter 2009 results.
The call will be Webcast live at www.mdsinc.com and will also be available
in archived format at
http://www.mdsinc.com/investors/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, 2008, filed
with the U.S. 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
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
As of As of
(UNAUDITED) April 30 October 31
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(millions of U.S. dollars,
except share amounts) 2009 2008
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ASSETS
Current assets
Cash and cash equivalents $ 243 $ 117
Accounts receivable, net 223 264
Notes receivable 14 75
Unbilled revenue 86 86
Inventories, net 88 85
Income taxes recoverable 64 61
Current portion of deferred tax assets 18 20
Prepaid expenses and other 33 16
Assets held for sale 6 6
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Total current assets 775 730
Property, plant and equipment, net 278 301
Deferred tax assets 82 95
Long-term investments 25 30
Other long-term assets 98 108
Intangible assets, net 136 155
Goodwill 455 452
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Total assets $ 1,849 $ 1,871
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 246 $ 266
Current portion of deferred revenue 93 79
Income taxes payable 9 1
Current portion of long-term debt 36 19
Current portion of deferred tax liabilities 9 4
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Total current liabilities 393 369
Long-term debt 240 263
Deferred revenue 11 10
Other long-term obligations 33 31
Deferred tax liabilities 81 108
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Total liabilities 758 781
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Shareholders' equity
Common shares at par - Authorized shares:
unlimited; Issued and outstanding shares:
120,137,229 and 120,137,229 as of April 30,
2009 and October 31, 2008, respectively 489 489
Additional paid-in capital 76 75
Retained earnings 286 301
Accumulated other comprehensive income 240 225
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Total shareholders' equity 1,091 1,090
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Total liabilities and shareholders' equity $ 1,849 $ 1,871
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MDS Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Six months
(UNAUDITED) ended April 30 ended April 30
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(millions of U.S. dollars, 2008 2008
except per share amounts) 2009 Restated 2009 Restated
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Revenues
Products $ 135 $ 169 $ 269 $ 320
Services 122 157 245 302
Reimbursement revenues 25 24 43 50
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Total revenues 282 350 557 672
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Costs and expenses
Direct cost of products 82 106 164 201
Direct cost of services 77 101 154 193
Reimbursed expenses 25 24 43 50
Selling, general and
administration 62 75 122 139
Research and development 14 22 28 42
Depreciation and
amortization 23 23 45 50
Restructuring charges, net - 1 4 1
Change in fair value of
embedded derivatives (3) (3) - 1
Other expenses
(income), net 18 (7) 16 (7)
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Total costs and expenses 298 342 576 670
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Operating (loss) income (16) 8 (19) 2
Interest expense (5) (3) (10) (6)
Interest income 3 4 6 10
Change in fair value
of interest rate swaps - - - 2
Equity earnings 9 10 15 24
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(Loss) income before
income taxes (9) 19 (8) 32
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Income tax (expense) recovery
- current (2) (3) (12) (25)
- deferred (6) (3) 5 25
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(8) (6) (7) -
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Net (loss) income $ (17) $ 13 $ (15) $ 32
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Basic and diluted (loss)
earnings per share $ (0.15) $ 0.11 $ (0.13) $ 0.27
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MDS Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Six months
(UNAUDITED) ended April 30 ended April 30
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2008 2008
(millions of U.S. dollars) 2009 Restated 2009 Restated
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Operating activities
Net (loss) income $ (17) $ 13 $ (15) $ 32
Adjustments to reconcile
net (loss) income to cash
provided by (used in)
operating activities:
Items not affecting
current cash flows 43 (3) 52 22
Changes in non-cash
operating assets
and liabilities 71 4 98 (134)
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Cash provided by (used in)
operating activities 97 14 135 (80)
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Investing activities
Purchase of property,
plant and equipment (7) (15) (14) (28)
Proceeds on sale of
property, plant
and equipment - 2 3 3
Proceeds on sale of
short-term investments - - - 101
Proceeds on sale of
long-term investment - 4 - 7
Decrease (increase)
in restricted cash - (2) 8 (3)
Other - (2) - (2)
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Cash (used in) provided
by investing activities (7) (13) (3) 78
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Financing activities
Repayment of long-term debt (1) (1) (7) (81)
Issuance of shares - 4 - 5
Repurchase of shares - (12) - (17)
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Cash used in financing
activities (1) (9) (7) (93)
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Effect of foreign exchange
rate changes on cash and
cash equivalents 5 3 1 (2)
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Net increase (decrease) in
cash and cash equivalents
during the period 94 (5) 126 (97)
Cash and cash equivalents,
beginning of period 149 130 117 222
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Cash and cash equivalents,
end of period $ 243 $ 125 $ 243 $ 125
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MDS Inc.
Consolidated operating highlights and reconciliation of consolidated
adjusted EBITDA
(millions of U.S. dollars)
Second Quarter Year-to-date
-------------- ---------------
2009 2008 2009 2008
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$ 282 $ 350 Total revenues $ 557 $ 672
(25) (24) Reimbursement revenues (43) (50)
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$ 257 $ 326 Net revenues $ 514 $ 622
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$ (17) $ 13 Net (loss) income $ (15) $ 32
8 6 Income tax expense 7 -
2 (1) Interest expense (income), net 4 (4)
- - Change in fair value of interest rate swaps - (2)
23 23 Depreciation and amortization 45 50
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16 41 EBITDA 41 76
- 1 Restructuring charges, net 6 1
16 - Impairment of property, 16 -
plant and equipment, net
- 3 Write-down of investments 1 3
and valuation provisions
- (10) Change in FDA estimate - (10)
- - Loss on sale of business - 2
(1) (1) Acquisition integration (1) 2
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$ 31 $ 34 Adjusted EBITDA $ 63 $ 74
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12% 10% Adjusted EBITDA margin 12% 12%
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Consolidated operating highlights and reconciliation of consolidated
adjusted Earnings Per Share
Second Quarter Year-to-date
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2009 2008 2009 2008
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Basic (loss) earnings per
share from operations -
as reported $ (0.15) $ 0.11 $ (0.13) $ 0.27
Adjusted for:
Restructuring charges, net - 0.01 0.03 0.01
Write-down of investments
and valuation provisions - 0.03 0.01 0.03
Impairment of property,
plant and equipment, net 0.11 - 0.11 -
Change in FDA estimate - (0.06) - (0.06)
Change in fair value
of interest rate swaps - - - (0.02)
Acquisition integration (0.01) (0.01) (0.01) 0.01
Write-off of tax assets 0.08 - 0.08 -
Tax rate changes - - - (0.09)
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Adjusted earnings per
share from operations $ 0.03 $ 0.08 $ 0.09 $ 0.15
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Consolidated operating highlights and reconciliation of consolidated
adjusted Income from Continuing Operations
(millions of U.S. dollars)
Second Quarter Year-to-date
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2009 2008 2009 2008
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(Loss) income from
operations - as reported $ (17) $ 13 $ (15) $ 32
Adjusted for (after tax):
Restructuring charges, net - 1 4 1
Write-down of investments
and valuation provisions - 3 1 3
Impairment of property,
plant and equipment, net 13 - 13 -
Change in FDA estimate - (7) - (7)
Change in fair value of
interest rate swaps - - - (2)
Acquisition integration (1) (1) (1) 1
Write-off of tax assets 9 - 9 -
Tax rate changes - - - (11)
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Adjusted income
from operations $ 4 $ 9 $ 11 $ 17
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SOURCE MDS Inc.
CONTACT: MEDIA: Janet Ko, (905) 267-4226, janet.ko@mdsinc.com;
INVESTORS: Kim Lee, (905) 267-4230, kim.lee@mdsinc.com
(MDS. MDZ)