Patheon (TSX:PTI) today announced its results for the fourth quarter ended October 31, 2008 with revenue of $172.1 million,
6.4% higher than last year (approximately 8% in local currencies), and EBITDA before repositioning expenses (hereafter referred to as EBITDA) of $24.8 million, 4.6% higher than last year. Net income for the quarter was $36.9 million vs. a net loss of $7.5 million in the prior year period, reflecting improved operating performance, reduced repositioning expenses and a $34.9 million one-time gain on the extinguishment of debt due to the previously announced JLL Preferred Share Agreement Amendment, discussed below.

    "We are very pleased to close out fiscal 2008 with solid results across the business, including the achievement of a small profit from our Puerto Rico continuing operations in the fourth quarter. The turnaround in Puerto Rico is the result of a combination of cost reduction, improved operating discipline and higher production volumes from new and existing products," said Wes Wheeler, President and Chief Executive Officer of Patheon Inc. "strong revenue and margin growth for both the fourth quarter and full year 2008 are a clear indication of the hard work done to restructure and refocus our company."

    "The decision to shut down Carolina during the first quarter of 2009 represents the last major restructuring step for the Company. We start 2009 as a new beginning for Patheon, with a solid balance sheet and a strong platform for future growth," said Wes Wheeler.

    Fourth Quarter 2008 Operating Results from Continuing Operations

    Consolidated revenue increased 6.4% (approximately 8% in local currencies) to $172.1 million over the prior year fourth quarter consolidated revenue of $161.8 million. Commercial Manufacturing revenues increased 4.6% year-over-year to $135.3 million, driven by a combination of recently signed business and growth in volumes of existing business in all regions. Pharmaceutical Development Services (PDS) fourth quarter 2008 revenues increased 13.3% year-over-year to $36.8 million, supported by strong growth in
the Canadian, Italian and US development centers.    Consolidated EBITDA was $24.8 million, compared with $23.7 million in the
same period last year. The growth in EBITDA this quarter would have been more pronounced had it not been for differences in non-cash net foreign exchange adjustments related to the historic accounting treatment of the Company's convertible preferred shares. This quarter included a $2.3 million foreign exchange loss compared to a $7.5 million gain in the same period last year. This foreign exchange exposure was eliminated in September, 2008 due to the JLL Preferred Share Agreement Amendment. Additionally, the 2007 results included a one-time curtailment gain of $4.3 million related to changes in Company benefit plans. Absent these non-recurring items, EBITDA in the recent quarter was 129% higher than the same period last year    EBITDA from the North American commercial manufacturing operations increased by $6.9 million, driven by a significant improvement in the Puerto Rico operations, where the Company achieved its break-even target for the fourth quarter of 2008 by generating a modest profit. Canadian EBITDA
increased over the same period in 2007, offset in part by Cincinnati due to a change in product in mix. The 2007 results reflected the one-time actuarial gains recorded in 2007. European commercial manufacturing operation EBITDA increased by $8.3 million due to improved margins in the Swindon and Bourgoin operations.

    EBITDA for the global PDS operations was $12.7 million in the fourth quarter of 2008, $3.4 million higher than the same period in 2007. This growth in profitability was derived from increased revenues in both regions, new business in Japan and better overhead absorption.

    Full Year 2008 Operating Results from Continuing Operations

    Consolidated revenue grew 13.1% year-over-year (approximately 9% in local currencies) to $717.3 million vs. $634.1 million for 2007. Consolidated EBITDA before repositioning expenses (hereafter referred to as EBITDA margin) was $82.6 million reflecting an EBITDA margin of 11.5% for 2008, compared with $84.1 million for an EBITDA margin of 13.3% in 2007. The 2008 results included non-cash net foreign exchange losses related to the preferred shares of $6.4 million compared to a non-cash gain of $12.3 million for 2007. The 2008 results also reflect additional costs incurred in connection with recruiting executive and senior management positions, consulting fees related to restructuring and productivity enhancement programs, and severance costs.

    Net loss for the year was $1.4 million vs. a loss of $94.6 million in the prior year, reflecting improved operating performance, reduced losses from discontinued operations and a $34.9 million one-time gain on the extinguishment of debt due to the previously announced JLL Preferred Share Agreement Amendment, discussed below.

    Commercial manufacturing revenues increased 11.5% year-over-year to $577.7 million reflecting growth from the existing customer base in the European and Canadian and Puerto Rico operations. EBITDA from the commercial manufacturing operations was $77.5 million, 45% or 24.1 million higher than in 2007.

    PDS revenues grew 20.4% year-over-year to $139.5 million from $115.9 million reflecting continued broad based growth in all regions. EBITDA from the global PDS operations was $42.1 million compared to $30.4 million in 2007. This reflected the benefit of volume gains in all regions.

    Restructuring Activities

    Patheon believes that the majority of the Company's restructuring expenses related to continuing operations have now been recognized. Repositioning expenses were $19.9 million for 2008 compared to $14.5 million for 2007 attributable to changes in executive and senior management, the previously announced workforce reduction in Swindon and the on-going York
Mills/Whitby consolidation and restructuring of the Puerto Rico operations. Costs related to an early retirement program at Cincinnati were included in operating costs, as noted above.

    Convertible Preferred Shares

    As previously announced on September 19, 2008, the Company completed an agreement with JLL Patheon Holdings, LLC (JLL) under which JLL waived its right to the mandatory redemption provision of the Company's convertible preferred shares. The change in terms resulted in a deemed repayment of the debt and equity components of the convertible preferred shares. The Company
recognized in the fourth quarter a non-cash gain of approximately $35 million on the deemed repayment of the debt component, which was higher than originally estimated due to changes in market valuations and comparables. The agreement resulted in a net increase in shareholders' equity of approximately $153 million.

    Additional details on the Agreement can be found in the Company's year ended October 31, 2008 MD&A.

    Subsequent Events

    Subsequent to the end of fiscal 2008, the Company decided to shut down its Carolina, Puerto Rico facility if a timely sale could not be completed. The Carolina facility is classified as a discontinued operation, with related assets and liabilities being classified as held for sale as of October 31, 2008. Serious interest has been shown by strategic buyers and negotiations have occurred with multiple parties. However, the Company has determined that eliminating the cash drain of Carolina through an immediate shutdown outweighs the risk of the sale process taking an extended period of time to complete and/or ultimately being unsuccessful. Assuming that a timely sale cannot be completed, the Company expects to close the facility by the end of the first quarter of 2009 and estimates that severance and other closure costs will be approximately $3.0 million.
    On December 8, 2008 JLL announced in a press release its intention to make an unsolicited offer to acquire any or all the outstanding restricted voting shares of Patheon that it does not already own at a price of USD $2.00 per share in cash which is equivalent to C$2.54 per share based on the exchange rate on December 5, 2008. JLL holds convertible preferred shares of
the Company, which when converted and taken together with its holdings of restricted voting shares, would represent approximately 29% of the restricted voting shares of the Company.

    Patheon's Board of Directors has appointed a special committee of independent directors, none of whom is associated with JLL to review and evaluate the proposed unsolicited bid from JLL, and make recommendations to the Board of Directors. Patheon's Board of Directors will advise shareholders of its recommendation with respect to this proposed bid in due course and until such time shareholders have been advised to take no action with respect to the bid. The Company remains very confident in its business plan and continues to run its business as usual.

    Outlook

    Revenues are expected to decline slightly for the first quarter of fiscal 2009 versus the same quarter last year due to strengthening of the US dollar. EBITDA in the first quarter is expected to be comparable with the first quarter of 2008, reflecting the normal seasonality in the business due to the December holiday shutdowns and customer purchasing practices around the
calendar yearend. These forecasts are subject to the strength of the U.S. dollar relative to the Canadian dollar, euro and pounds sterling.    These expectations are based on internal management forecasts, which in the case of the revenue forecasts, are based on client purchase orders and forecasts of anticipated demand and other factors. These internal management
forecasts were prepared for internal planning purposes and may not be appropriate for forecasting future financial results or for other purposes.