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MDS Lowers Revenue Guidance, Expects Charges Exceeding $500M for FY2008

NEW YORK (GenomeWeb News) – MDS today lowered its revenue guidance for fiscal year 2008, one week before it will report results, to a range of $1.21 billion to $1.22 billion from its previous expectations of $1.23 billion to $1.25 billion.
 
The Toronto-based firm also lowered its expected adjusted EBITDA to a range of between $148 million and $154 million from a range of between $160 million and $170 million for the fiscal year, which ended Oct. 31.
 
MDS said that the lowered guidance was due primarily to foreign exchange fluctuations and “soft demand in some segments of the company’s North American customer base.”
 
In addition to the new forecast, MDS said that it will take a non-cash, after-tax charge of around $260 million to write off the net book value of its MAPLE nuclear-reactor project asset. The project included an agreement in 2006 that called for Atomic Energy of Canada Ltd. to bring the MAPLE reactors into service commencing October 2008 and provide MDS with a 40-year supply of isotopes.
 
However, earlier this year, AECL and the Canadian government decided to scrap the project. MDS has since filed for arbitration against AECL and has filed a $1.6 billion court claim against AECL and the government of Canada.
 
“We continue to believe we have a strong case against AECL and the Government of Canada relating to the MAPLE agreement,” MDS President and CEO Stephen DeFalco said in a statement today.
 
In addition to the charges associated with the MAPLE project, the firm expects to take a non-cash write down of MDS Pharma Services goodwill in the range of $270 million to $370 million, which it said was due to “the decline in overall contract research organization stock market valuations, current economic uncertainty, and the delay in profit recovery.”
 
MDS is in the process of restructuring the Pharma Services segment, which includes reducing headcount and closing several offices. The firm said in July that it planned to lay off 210 employees in a restructuring effort aimed at improving profitability in its MDS Pharma Services and MDS Analytical Technologies business units.
 
MDS said that the charges announced today and certain debt covenants will preclude the firm from repurchasing its common shares for the foreseeable future.
 

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