/FIRST AND FINAL ADD - TO347 - MDS Inc./
08 Mars 2007 - 1:00PM
PR Newswire (US)
Assets held for sale and liabilities related to assets held for
sale comprised: As at As at January 31 October 31 2007 2006
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Assets held for sale Accounts receivable $ 28 $ 31 Inventories 3 3
Prepaid expenses and other 5 3 Property, plant and equipment 24 28
Future tax asset 55 63 Long-term investments and other 13 13
Goodwill 52 54 Intangibles 1 1
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Total assets held for sale 181 196 Less: Current assets held for
sale(1) (181) (196)
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Long-term assets held for sale $ - $ -
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Liabilities related to assets held for sale Accounts payable and
accrued liabilities $ 24 $ 33 Income taxes payable 1 - Long-term
debt 3 4 Other long-term obligations 6 6 Future tax liabilities 48
55 Minority interest 16 16
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Total liabilities related to assets held for sale 98 114 Less:
Current liabilities related to assets held for sale(1) (98) (114)
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Long-term liabilities related to assets held for sale $ - $ -
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(1) Assets held for sale and liabilities related to assets held for
sale have been classified as current if the Company has signed
agreements where such assets are expected to be disposed of within
one year. 8. Research and Development Three months ended January 31
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2007 2006
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Gross expenditures $ 13 $ 13 Investment tax credits (1) (1)
Recoveries from partners (5) (6) Development costs deferred (2) (1)
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Research and development expense $ 5 $ 5
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For the three months ended January 31, 2007, depreciation and
amortization includes $1 million (2006 - $1 million) related to
equipment used for research and development. 9. Restructuring
Charges An analysis of the activity in the provision through
January 31, 2007 is as follows: Cumulative drawdowns Provision
--------------------- Balance at Restructuring January 31, Charge
Cash Non-cash 2007
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2005: Workforce reductions $ 34 $ (30) $ (1) $ 3 Equipment and
other asset write-downs - adjustment 7 - (7) - Contract
cancellation charges 10 (2) (8) -
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$ 51 $ (32) $ (16) $ 3
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2006: Workforce reductions $ 1 $ (1) $ - $ - Contract cancellation
charges (8) (1) 9 -
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$ (7) $ (2) $ 9 $ -
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2007: Workforce reductions $ 3 $ (2) $ - $ 1 Contract cancellation
charges 5 (5) - - Other 5 (1) - 4
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$ 13 $ (8) $ - $ 5
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$ 8
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The Company has continued to utilize the reserves established in
prior years relating to change initiatives affecting support
services, senior management reductions, and system implementations.
10. Earnings Per Share a) Dilution Three months ended January 31
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(number of shares in millions) 2007 2006
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Weighted average number of Common shares outstanding - basic 145
143 Impact of stock options assumed exercised - 1
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Weighted average number of Common shares outstanding - diluted 145
144
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b) Pro-Forma Impact of Stock-Based Compensation Compensation
expense related to the fair value of stock options granted prior to
November 1, 2003 is excluded from the determination of net income
and is, instead, calculated and disclosed on a pro-forma basis in
the notes to the consolidated financial statements. Compensation
expense for purposes of these pro-forma disclosures is determined
in accordance with a methodology prescribed in CICA Handbook
Section 3870 "Stock-Based Compensation and Other Stock-Based
Payments". The Company used the Black-Scholes option valuation
model to estimate the fair value of options granted. For purposes
of these pro-forma disclosures, the Company's net income and basic
and diluted earnings per share would have been: Three months ended
January 31
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2007 2006
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Net income $ 14 $ 47 Compensation expense for options granted prior
to November 1, 2003 - (1)
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Net income - pro-forma $ 14 $ 46
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Pro-forma basic earnings per share $ 0.10 $ 0.32 Pro-forma diluted
earnings per share $ 0.10 $ 0.32
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During the quarter, the Company granted 59,000 options (2006 -
934,450) at an average exercise price of C$20.71 (2006 - C$19.98).
These options have a fair value determined using the Black-Scholes
model of C$4.40 per share (2006 - C$4.13) based on the following
assumptions: 2007 2006
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Risk-free interest rate 4.0% 3.9% Expected dividend yield 0.0% 0.7%
Expected volatility 0.22 0.23 Expected time to exercise (years)
3.25 3.25
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11. Other Income (Expense) - Net Three months ended January 31
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2007 2006
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Write-down of other long-term assets $ - $ (1) Gain on sale of
investment 2 - Unrealized loss on interest rate swaps (1) -
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Other income (expense) - net $ 1 $ (1)
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12. Post Employment Obligations The Company sponsors various
post-employment benefit plans including defined benefit and
contribution pension plans, retirement compensation arrangements,
and plans that provide extended health care coverage to retired
employees. All defined benefit pension plans sponsored by the
Company are funded plans. Other post-employment benefits are
unfunded. During 2005, the Company amended the terms of certain
post-employment plans such that effective January 1, 2008, and
subject to certain transitional conditions, newly retired employees
will no longer be entitled to extended health care benefits. The
post employment obligation expense for the quarter was $1 million
(2006 - $1 million). 13. Supplementary Cash Flow Information
Non-cash items affecting net income comprise: Three months ended
January 31
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2007 2006
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Depreciation and amortization $ 17 $ 13 Stock option compensation 1
2 Deferred revenue (2) (3) Future income taxes (2) (2) Gain on sale
of investment (2) - Unrealized loss on interest rate swaps 1 -
Other - 2
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$ 13 $ 12
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Changes in non-cash working capital balances relating to operations
include: Three months ended January 31
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2007 2006
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Accounts receivable $ 16 $ 36 Unbilled revenue (16) 8 Inventories
(4) (2) Prepaid expenses and other (26) (13) Accounts payable and
deferred revenue (10) (77) Income taxes 12 5
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$ (28) $ (43)
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14. Segmented Information Three months to January 31, 2007
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MDS Pharma MDS MDS Corporate Services Nordion Sciex and Other Total
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Net revenues $ 121 $ 67 $ 62 $ - $ 250 Cost of revenues (88) (34)
(38) - (160) Selling, general and administration (32) (11) (5) (5)
(53) Research and development - (1) (4) - (5) Depreciation and
amortization (9) (3) (5) - (17) Restructuring charges - net (8) - -
(5) (13) Other income (expense) - net - - - 1 1 Equity earnings
(loss) - - - - -
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Operating income (loss) $ (16) $ 18 $ 10 $ (9) $ 3
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Total assets $ 865 $ 602 $ 162 $ 473 $ 2,102
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Capital expenditures $ 2 $ 1 $ 3 $ 2 $ 8
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Three months to January 31, 2006
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MDS Pharma MDS MDS Corporate Services Nordion Sciex and Other Total
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Net revenues $ 111 $ 70 $ 61 $ - $ 242 Cost of revenues (80) (34)
(38) - (152) Selling, general and administration (28) (11) (3) (6)
(48) Research and development - (1) (4) - (5) Depreciation and
amortization (7) (3) (3) - (13) Restructuring charges - net 1 - -
(2) (1) Other income (expense) - net - - - (1) (1) Equity earnings
(loss) - - - 1 1
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Operating income (loss) $ (3) $ 21 $ 13 $ (8) $ 23
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Total assets $ 732 $ 692 $ 161 $ 448 $ 2,033
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Capital expenditures $ 7 $ 10 $ 1 $ 4 $ 22
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15. Financial Instruments The carrying amounts and fair values for
all derivative financial instruments are as follows: As at January
31 As at January 31
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2007 2006
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Carrying Fair Carrying Fair Amount Value Amount Value
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Asset (liability) position: Currency forward and option - asset $ -
$ - $ 2 $ 5 Currency forward and option - liabilities $ (4) $ (4) $
- $ - Interest rate swap and option contracts $ (3) $ (3) $ (2) $
(2)
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As of January 31, 2007, the Company had outstanding foreign
exchange contracts and options in place to sell up to US$178
million at a weighted average exchange rate of C$1.1468 maturing
over the next 12 months. The Company also had interest rate swap
contracts that economically convert a notional amount of US$80
million of debt from a fixed to a floating interest rate. Foreign
exchange options and interest rate swaps not eligible for hedge
accounting are included in accounts payable and are marked to
market each period. 16. Income Taxes A reconciliation of expected
income taxes to reported income tax expense is provided below.
Income before taxes for continuing operations for the quarter ended
January 31, 2007 include losses incurred in foreign jurisdictions
for which no tax effect has been recorded. As a result, income tax
expense for the quarter of $3 million exceeded the amount expected
based on statutory rates. Three months ended January 31
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2007 2006
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Expected income taxes expense at MDS's 35% (2006 - 35%) statutory
rate $ - $ 8 Increase (decrease) to tax expense as a result of:
Impact of tax rate changes on future tax balances - 2 Foreign tax
losses not recognized 4 - Other (1) (2)
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Reported income tax expense $ 3 $ 8
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17. Differences Between Canadian and United States Generally
Accepted Accounting Principles The consolidated financial
statements have been prepared in accordance with Canadian GAAP. The
principles adopted in these financial statements conform in all
material respects to those of US GAAP except as summarized below.
Significant differences between Canadian and US GAAP would have the
following effect on net income of the Company: Three months ended
January 31
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2007 2006
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Net income (loss) from continuing operations in accordance with
Canadian GAAP $ (2) $ 14 US GAAP adjustments: Deferred development
costs (1) - Reduction in income tax expense arising from GAAP
adjustments 1 -
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Net income (loss) from continuing operations in accordance with US
GAAP (2) 14 Income from discontinued operations in accordance with
Canadian and US GAAP - net of tax 16 33
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Net income in accordance with US GAAP $ 14 $ 47
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Basic and diluted earnings (loss) per share in accordance with US
GAAP - from continuing operations $ (0.02) $ 0.10 - from
discontinued operations 0.12 0.23
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$ 0.10 $ 0.33
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18. Subsequent Events a) On February 26, 2007, MDS announced that
it has finalized the sale of its Canadian laboratory services
business, MDS Diagnostic Services, to Borealis Infrastructure
Management Inc. in a C$1.325 billion transaction. From the total
transaction price of C$1.325 billion, MDS will realize net proceeds
of approximately C$1.052 billion, comprised of C$977 million in
cash and C$75 million in an unconditional note, payable in March
2009, after provision for taxes, expenses and amounts attributable
to minority interests. Also on February 26, 2007 and coinciding
with the completion of the sale of the diagnostics business, MDS
announced the launch of a substantial issuer's bid. Under the bid,
the Company proposes to repurchase up to C$500 million of the
Company's outstanding Common shares (US$425 million). The Company
expects this bid to close in early April. b) On February 6, 2007,
the Company drew C$500 million from its five-year committed
revolving credit facility. 19. Comparative Figures All comparative
financial information has been restated to reflect the Company's
results as if they had been historically reported in US dollars.
Certain figures for the previous year have been reclassified to
conform to the current year's financial statement presentation. In
addition, segmented information for 2006 has been revised to
reflect the discontinued operations reported. DATASOURCE: MDS Inc.
CONTACT: PRNewswire - - 03/08/2007
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