MDS Reports Fourth Quarter 2007 Results



    Strong and Profitable Finish to Year of Significant Improvements at MDS

    TORONTO, Dec. 13 /CNW/ - MDS Inc. (TSX: MDS; NYSE:   MDZ), a company
providing products and services to the global life sciences markets, today
reported its fourth quarter 2007 results. For the quarter, MDS reported total
revenues of $338 million, net income of $15 million and earnings per share
from continuing operations of $0.14. Adjusted EBITDA rose to $44 million, up
91% from the prior year, and adjusted earnings per share were $0.09, up from
$0.02 in the prior year. On a year-over-year basis, the significant decline in
the value of the US dollar negatively impacted adjusted EBITDA by
approximately $15 million in the fourth quarter.

    
    Quarterly Highlights

    -   Delivered $318 million in net revenues, up 22% from $260 million in
        prior year
    -   Delivered adjusted EBITDA of $44 million, up 91% from $23 million
        last year
    -   Increased adjusted EPS to $0.09, up from $0.02 in the prior year
    -   MDS Analytical Technologies delivered strong performance at Molecular
        Devices with $54 million in revenues and $11 million of adjusted
        EBITDA, and at Sciex with adjusted EBITDA of $21 million, up 40% from
        $15 million last year
    -   MDS Pharma Services delivered their fifth consecutive quarter of
        sequential improvement in profitability with $5 million of adjusted
        EBITDA, up $12 million from a loss of $7 million in the prior year
    -   MDS Nordion delivered a solid quarter with adjusted EBITDA of
        $21 million, level with the prior year.
    

    "I am pleased that we have delivered strong year-end results across MDS,
finishing a year of significant improvements to support our global growth
strategy," said Stephen P. DeFalco, President and Chief Executive Officer of
MDS Inc. "I am especially proud of this operational performance in a quarter
of unprecedented currency headwinds."

    
    Operating Segment Results

    MDS Pharma Services
                                                              % Change
                                                      -----------------------
    ($ millions)                 Q4 2007     Q4 2006    Reported     Organic
    -------------------------------------------------------------------------
    Net Revenue:
      Early-stage                     66          70         (6%)          -
      Late-stage                      57          52         10%           -
    -------------------------------------------------------------------------
                                     123         122          1%           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
      $                                5          (7)        n/m         n/m
      %                                4         n/m
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Pharma Services net revenue increased 1% on a reported basis over the
prior year, and was level with last year after adjusting for the impact of
foreign exchange and divestitures. Adjusted EBITDA was $5 million versus a
loss of $7 million last year, an improvement of $12 million year-over-year.
Despite $4 million of unfavourable foreign exchange versus the third quarter,
MDS Pharma Services delivered its fifth consecutive quarter of sequential
improvement in profitability.
    Our late-stage businesses continued to thrive and net revenues grew by
10% over the prior year. This growth was partially offset by a 6% decline in
our early-stage business. While results in early-stage revenues continued to
show some weakness, we are encouraged that Bioanalytical and Phase I customers
continued to return this quarter. We saw their return reflected in the
strength of new orders, especially with our Bioanalytical customers, where new
orders increased 85% over this period last year and were up 33% from the third
quarter. Our average backlog for the fourth quarter was $385 million, down 10%
from the prior year, resulting from an increased conversion of backlog to
revenue and a number of contract cancellations in our Phase II-IV business.
    During the quarter, MDS Pharma Services continued to implement its
restructuring plan. Our Montreal team transferred DMPK operations to Bothell,
Washington and LC-MS operations to Lincoln, Nebraska. The Montreal team also
largely completed the staff reductions at our St. Laurent facility, including
most of the staff supporting the FDA site audits, which appear to be winding
down as we enter 2008. We also consolidated our central laboratory operations
in Europe. We have now implemented 80% of the restructuring initiatives
announced earlier this year that are designed to put MDS Pharma Services on a
profitable growth trajectory.
    MDS Pharma Services is continuing to make strategic investments to
accelerate top-line growth. We recently expanded our central lab operations in
Beijing, China to meet the growing demands from pharmaceutical and biotech
companies conducting clinical trials in China. The 300-bed expansion of our
Phase I business in Phoenix, Arizona is scheduled to open in January 2008, and
we are planning to roll out new information technology systems to enhance our
services for our pre-clinical and central lab customers. MDS Pharma Services
also launched a new brand campaign in November, which highlights our
commitment to deliver "high-quality services on-time".

    
    MDS Nordion

                                                              % Change
                                                      -----------------------
    ($ millions)                 Q4 2007     Q4 2006    Reported     Organic
    -------------------------------------------------------------------------
    Revenue                           76          76           -         (4%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
      $                               21          21           -         10%
      %                               28          28           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Nordion's reported revenues for the fourth quarter were $76 million,
level with the prior year and down 4% organically. Adjusted EBITDA was
$21 million, level as reported and up 10% organically. Excluding deferred
revenue associated with a supply agreement in 2006, revenues were up 3%
compared to the fourth quarter of last year. This increase was fueled by the
strength of the Canadian dollar and increased revenue from expanding our
TheraSphere(R) markets. These gains were offset by declines in cobalt
shipments and production irradiator systems.
    During the quarter, MDS Nordion signed a 17-year contract for the supply
of cobalt-60 with Rosenergoatom, the operating utility of Russia's nuclear
power plants. This contract expands upon an existing agreement for cobalt-60
that is used to sterilize hospital medical supplies. As a result of this
agreement, MDS Nordion's capacity will grow by more than 30 percent over the
next 10 years, placing us in a strong position to meet expected growth in the
sterilization market.
    Subsequent to quarter-end, MDS Nordion signed an agreement with Best
Medical International Inc., a provider of radiotherapy and oncology products,
to divest its external beam therapy and self-contained irradiator product
lines that have annualized revenues of $32 million. This sale is a key part of
MDS Nordion's growth strategy to focus its resources on being a leading
innovator in molecular medicine. The transaction is expected to be finalized
in the second quarter of 2008.
    After quarter end, MDS Nordion received information from Atomic Energy of
Canada Limited (AECL) that an interruption in the supply of medical isotopes
is expected to extend into early to mid-January 2008. AECL advised MDS Nordion
that this extension of the maintenance shutdown at the National Research
Universal reactor is required to complete an upgrade of the electrical back-up
system to address a regulatory issue. There is federal legislation pending to
accelerate the start up of the reactor. MDS Nordion is concerned about the
impact that AECL's supply disruption is having on patients, and has been
working with back-up suppliers to offset some of the impact. Based on the
latest update from AECL, the financial impact of this extended interruption is
currently expected to reduce MDS Nordion's adjusted EBITDA by approximately
$8 - $9 million in total for the first quarter of 2008.

    
    MDS Analytical Technologies

                                                              % Change
                                                      -----------------------
    ($ millions)                 Q4 2007     Q4 2006    Reported     Organic
    -------------------------------------------------------------------------
    Revenue                          119          62         92%          2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
      $                               32          15        113%         74%
      %                               27          24           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Analytical Technologies delivered strong results in our second full
quarter, which included Molecular Devices, with revenues up 92% to
$119 million. Adjusted EBITDA of $32 million was up 113% as reported and up
74% organically over the same period last year. Our results were driven by
strong demand for Sciex mass spectrometry products in most of our markets and
by our Molecular Devices business that we acquired earlier this year.
    Sciex contributed $65 million in revenues and $21 million in adjusted
EBITDA in the fourth quarter, up 40% from the prior year. Mass spectrometry
end user revenue grew 4%. We continue to have strong sales momentum at Sciex
with our high-end triple-quad and ion trap instruments.
    Molecular Devices contributed $54 million in revenues and $11 million in
adjusted EBITDA. We believe we will meet or exceed our projected revenue and
adjusted EBITDA targets of $190 million and $45 - $50 million in our first
full year of ownership.
    During the quarter, MDS Analytical Technologies continued to drive
innovation and growth with the launch of new products. We announced a
significant advance in high-speed imaging technologies with the release of the
MetaMorph(R) ICS (Integrated Confocal System), in partnership with VisiTech
International. As well, MDS Analytical Technologies launched an automated
toxicology testing application for drugs of abuse with its joint venture
partner Applied Biosystems. The new Cliquid(TM) Drug Screen and Quant Software
for Routine Forensic Toxicology application can deliver faster results, more
thorough screening and ultimately, more accurate analysis.

    Conference Call

    MDS will be holding a conference call today at 9:30 am (EDT) to discuss
fourth quarter 2007 results. This call will be webcast live at www.mdsinc.com
and will also be available in archived format at
www.mdsinc.com/news_events/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 5,500 highly skilled people in 28 countries. Find out more at
www.mdsinc.com or by calling 1-888-MDS-7222, 24 hours a day.

    Forward-Looking Statement

    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. The Company's actual results could differ materially from those
currently anticipated due to a number of factors, including, but not limited
to, successful integration of structural changes, including restructuring
plans, acquisitions, technical or manufacturing or supply or distribution
issues, the competitive environment for the Company's products, the degree of
market penetration of the Company's products, and other factors set forth in
reports and other documents filed by the Company with Canadian and US
securities regulatory authorities from time to time.
    The use of non-GAAP measures section in the MD&A outlines the definition
of the terms 'organic' and 'adjusted' as used to explain the operating
performance of the Company. We use certain non-GAAP measures so that readers
have a better understanding of the significant events and transactions that
have had an impact on our results. We provide a reconciliation of these
non-GAAP measures to our GAAP financial results in the accompanying MD&A.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    December 12, 2007

    Following is management's discussion and analysis (MD&A) of the results
of operations for MDS Inc. (MDS or the Company) for the quarter ended
October 31, 2007 and its financial position as at October 31, 2007. This MD&A
should be read in conjunction with the consolidated financial statements and
notes that follow, all of which have been prepared in accordance with Canadian
generally accepted accounting principles. For additional information and
details, readers are referred to the annual consolidated financial statements
and MD&A for 2006 and the Company's Annual Information Form (AIF), all of
which are published separately and are available at www.mdsinc.com and at
www.sedar.com. In addition, the Company's 40-F filing is available at
www.edgar.com.
    Our MD&A is intended to enable readers to gain an understanding of MDS's
current results and financial position. We provide information and analysis in
our MD&A comparing the results of operations for the current period to those
of the same period in the preceding fiscal year and comparing our financial
position to that at the end of the preceding fiscal year. We also provide
analysis and commentary that we believe is required to assess the Company's
future prospects. Accordingly, certain sections of this report contain
forward-looking statements that are based on current plans and expectations.
These forward-looking statements are affected by risks and uncertainties that
are discussed in this document, as well as in the AIF, and that could have a
material impact on future prospects. Readers are cautioned that actual events
and results will vary.

    Caution Regarding Forward-Looking Statements

    From time to time, we make written or oral forward-looking statements
within the meaning of certain securities laws, including the "safe harbour"
provisions of the Securities Act (Ontario) and the United States Private
Securities Litigation Reform Act of 1995. This document contains such
statements, and we may make such statements in other filings with Canadian
regulators or the United States Securities and Exchange Commission, in reports
to shareholders or in other communications, including public presentations.
These forward-looking statements include, among others, statements with
respect to our objectives for 2007, our medium-term goals, and strategies to
achieve those objectives and goals, as well as statements with respect to our
beliefs, plans, objectives, expectations, anticipations, estimates and
intentions. The words "may", "could", "should", "would", "suspect", "outlook",
"believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast",
"objective", "optimistic", and words and expressions of similar import are
intended to identify forward-looking statements.
    By their very nature, forward-looking statements involve inherent risks
and uncertainties, both general and specific, which give rise to the
possibility that predictions, forecasts, projections and other forward-looking
statements will not be achieved. We caution readers not to place undue
reliance on these statements as a number of important factors could cause our
actual results to differ materially from the beliefs, plans, objectives,
expectations, anticipations, estimates and intentions expressed in such
forward-looking statements. These factors include, but are not limited to:
management of operational risks; the strength of the Canadian and United
States economies and the economies of other countries in which we conduct
business; our ability to secure a reliable supply of raw materials,
particularly cobalt and critical nuclear isotopes; the impact of the movement
of the US dollar relative to other currencies, particularly the Canadian
dollar and the Euro; changes in interest rate policies of the Bank of Canada
and the Board of Governors of the Federal Reserve System in the United States;
the effects of competition in the markets in which we operate; the timing and
technological advancement of new products introduced by us or by our
competitors; the impact of changes in laws, trade policies and regulations,
and enforcement thereof; judicial judgments and legal proceedings; our ability
to successfully realign our organization, resources and processes; our ability
to complete strategic acquisitions and joint ventures and to integrate our
acquisitions and joint ventures successfully; new accounting policies and
guidelines that impact the methods we use to report our financial condition;
uncertainties associated with critical accounting assumptions and estimates;
the possible impact on our businesses from natural disasters, public health
emergencies, international conflicts and other developments including those
relating to terrorism; and our success in anticipating and managing the
foregoing risks.
    We caution that the foregoing list of important factors that may affect
future results is not exhaustive. When relying on our forward-looking
statements to make decisions with respect to the Company, investors and others
should carefully consider the foregoing factors and other uncertainties and
potential events. We do not undertake to update any forward-looking statement,
whether written or oral, that may be made from time to time by us or on our
behalf.

    Use of Non-GAAP Measures

    In addition to measures based on generally accepted accounting principles
(GAAP), in this MD&A we use terms such as adjusted operating income; adjusted
earnings before interest, taxes, depreciation and amortization (EBITDA);
EBITDA margin; adjusted net income; adjusted EPS; net revenue; operating
working capital; and backlog. These terms are not defined by GAAP and our use
of such terms or measurement of such items may vary from that of other
companies. In addition, measurement of both reported and organic growth is not
defined by GAAP and our use of these terms or measurement of these items may
vary from that of other companies. Where relevant, and particularly for
earnings-based measures, we provide tables in this document that reconcile the
non-GAAP measures used to GAAP measures reported on the face of the
consolidated financial statements.
    Our executive management team assesses the performance of our businesses
based on a review of results comprising GAAP measures and these non-GAAP
measures. We also report on our performance to the Company's Board of
Directors based on these measures. In addition, adjusted EBITDA and operating
working capital are the primary metrics for our annual incentive compensation
plan for senior management. We provide this non-GAAP detail so that readers
have a better understanding of the significant events and transactions that
have had an impact on our results and can view our results through the eyes of
management.
    We also discuss the results of our operations, isolating variances that
relate to changes in exchange rates and to acquisitions and divestitures. We
use the term "organic" to describe the results presented in this way. To
isolate the effect of currency movements, we eliminate the impact of foreign
currency hedging activities in both the current and prior periods and
recalculate the figures for the prior period using the exchange rates that
were in effect for the current period. We provide a reconciliation that shows
the differences between reported and organic growth figures highlighting the
variances caused by currency fluctuations and those caused by business
acquisitions or divestitures.
    Substantially all of the business of the Sciex division of MDS Analytical
Technologies is conducted through two joint ventures. Under the terms of these
joint ventures, we are entitled to a 50% share of the net earnings of the
worldwide business that we conduct with our partners in these joint ventures.
These earnings include a share of the profits generated by our partners that
are paid to the joint ventures as profit sharing and which do not qualify as
revenues for the joint ventures.
    Under Canadian GAAP, we report only our direct revenues and our share of
revenues from the joint ventures after deducting appropriate intercompany
eliminations, and, consequently, we do not report our share of all end-user
revenues, despite the fact that these other businesses contribute to our
profitability. In order to provide readers with a better understanding of the
drivers of profitability for the Sciex division of MDS Analytical
Technologies, in addition to the organic growth of our reported revenues, we
also report growth in end-user revenues as reported to us by our joint venture
partners. This figure provides management and readers with additional
information on the performance of our global business, including trends in end
customer demand and our performance relative to the overall market. We are
unable to provide the organic growth in this measure because we do not have
access to the underlying currency data.
    MDS Pharma Services measures and tracks contract backlog. Contract
backlog is a non-GAAP measure that we define to include the amount of contract
value associated with confirmed contracts that has not yet been recognized as
revenue. A confirmed contract is one for which the Company has received
customer acceptance in a manner that is customary for the type of contract
involved. For large, long-term contracts, customer acceptance is generally
evidenced by the receipt of a signed contract or confirmation awarding the
work to MDS. For smaller and short-term contracts, customer acceptance may be
documented in other ways, including email messages and oral confirmations.
Only contracts for which such acceptances have been received are included in
backlog and the amount of backlog for these contracts is measured based on the
revenue that is expected to be earned by MDS under the contract terms. A
contract is removed from backlog if the Company receives notice from the
customer that the contract has been cancelled, indefinitely delayed, or
reassigned to another service provider.
    Amounts are in millions of United States dollars, except per share
amounts and where otherwise noted.

    Discontinued Operations

    All financial references in this document exclude those businesses that
we consider to be discontinued. Our discontinued businesses include our
diagnostics businesses, certain early-stage pharmaceutical research services
operations, and our interest in Source Medical Corporation (Source). All
financial references for the prior year have been restated to reflect this
treatment.

    Change in Presentation Related to Reimbursement of Out-of-Pocket Costs

    MDS Pharma Services incurs certain out-of-pocket costs on behalf of its
customers for which the Company has a right to reimbursement. These include
stipends paid to study participants in early-stage clinical trials, courier
costs associated with the delivery of study samples to central laboratories,
and other out-of-pocket costs, mostly related to travel. The Company has the
right to bill customers for reimbursement of these amounts but is generally
not entitled to a mark-up or other form of profit margin related to these
activities.
    In financial reports filed for prior periods, the amount of the
reimbursement was offset against the related out-of-pocket cost, and, because
these amounts offset, neither a revenue nor an expense item was reported
associated with this activity. During the fourth quarter, management
determined that this presentation was inconsistent with competitor
disclosures, generally prepared in accordance with US GAAP. In addition,
management has determined that this presentation is consistent with Canadian
GAAP. Therefore, we determined that it would be appropriate to present the
financial statements contained in this interim report reflecting separate, but
offsetting, revenue (reimbursement revenue) and expense items (reimbursed
expenses) for these reimbursable out-of-pocket costs. We have revised the
consolidated revenue and expenses reported for the current period and for the
comparable period in 2006, along with the revenues and expenses reported for
the MDS Pharma Services segment for these periods. In addition, consolidated
revenues reported in the Quarterly Highlights table later in this MD&A have
been similarly revised. This change has no impact on operating income, net
income, earnings per share, cash flows, or any captioned item on the
consolidated statements of financial position.
    Throughout this report, when we refer to total revenues we mean revenues
including reimbursement revenues. We use the term net revenues to mean
revenues excluding such amounts. All revenue growth figures and adjusted
EBITDA margin figures are based on net revenues. We use net revenues to
measure the growth and profitability of MDS and MDS Pharma Services because
the pass-through invoicing of reimbursable out-of-pocket expenses varies from
period-to-period, is not a reliable measure of the underlying performance of
the business, and does not impact net income or cash flows in any significant
way. Management assesses and rewards the performance of MDS Pharma Services
and the segment's senior management team using metrics that are based on net
revenues.

    Introduction

    MDS is a global life sciences company that provides market-leading
products and services that our customers use for the development of drugs and
the diagnosis and treatment of disease. Through our three business segments,
we are a leading global provider of pharmaceutical contract research services
(MDS Pharma Services), medical isotopes for molecular imaging and
radiotherapeutics (MDS Nordion), and analytical instruments (MDS Analytical
Technologies). Each of these business segments sells a variety of products and
services to customers in markets around the world.

    
    MDS Inc.

    Consolidated Operating Highlights

             Fourth Quarter                                Fiscal Year
    ----------------------------------               ------------------------
                        % Change                                    % Change
                    ------------------                              ---------
      2007    2006  Reported  Organic                  2007    2006 Reported
    -------------------------------------------------------------------------
    $  318  $  260       22%      (1%) Net revenues  $1,162  $1,002      16%
                                       Reimbursement
        20      25                      revenues         91     105
    -------------------------------------------------------------------------
                                       Total
    $  338  $  285                      revenues     $1,253  $1,107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       Operating
        25      18       39%            income (loss)   (39)     48      n/m
                                       Adjustments:
                                       ------------
                                       Restructuring
        (4)    (11)                     charges, net     40      (7)
                                       Valuation
         2       -                      provision         8       6
                                       Mark-to-market
                                        on interest
        (2)     (2)                     rate swaps       (1)      1
                                       MAPLE
        (3)      -                      settlement       (6)      9
                                       Gain on sale
        (5)      -                      of businesses    (4)     (2)
         -       -                     FDA provision     61       -
                                       Acquisition
         5       -                      integration      19       -
    -------------------------------------------------------------------------
                                       Adjusted
                                        operating
        18       5      260%            income           78      55      42%
                                       Depreciation and
        26      18                      amortization     91      63
    -------------------------------------------------------------------------
                                       Adjusted
    $   44  $   23       91%     177%   EBITDA       $  169  $  118      43%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                       Adjusted EBITDA
                                        margin on net
       14%      9%                      revenue         15%     12%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    n/m = not meaningful
    

    Consolidated net revenues, which exclude reimbursement revenues
associated with reimbursed expenses in the MDS Pharma Services segment, were
up 22% on a reported basis to $318 million for the fourth quarter of 2007
compared to $260 million last year. The Molecular Devices (MD) division of MDS
Analytical Technologies, which was acquired earlier this year, added
$54 million of net revenue in the quarter, pushing net revenue growth for MDS
Analytical Technologies to 92% compared to the fourth quarter of 2006. MDS
Pharma Services net revenues increased 1% compared to the same period in 2006,
as 10% growth in our late-stage businesses continued to be offset by declines
in the early-stage businesses. MDS Nordion net revenues were level compared to
the same period in 2006 on a reported basis, and up 3% excluding the impact of
deferred revenue realized last year associated with our Zevalin(R) contract,
which expired in February 2007.
    On an organic basis, net revenues were down by 1% while adjusted EBITDA
grew by 177%, which reconcile to reported growth as follows:

    
                                                             Net    Adjusted
                                                         Revenue      EBITDA
    -------------------------------------------------------------------------
    Reported growth                                          22%         91%
    Growth attributable to the acquisition of MD            (21%)       (48%)
    Impact of Hamburg clinic sale                             1%          4%
    Impact of currency fluctuations on growth                (3%)       130%
    -------------------------------------------------------------------------
    Organic growth                                           (1%)       177%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating income for the fourth quarter of 2007 was $25 million compared
to $18 million reported for the same period in 2006. Excluding the impact of
MD, which had an operating loss of $2 million after deducting $11 million in
expenses for integration and amortization, operating income for the fourth
quarter of 2007 was $27 million, an increase of 50% over the same period last
year. All businesses experienced growth in operating income compared to the
prior year.
    Adjusted EBITDA for the quarter was $44 million, up 91% compared to
$23 million reported for last year. On a year-over-year basis, the significant
decline in the value of the US dollar negatively impacted adjusted EBITDA by
$15 million due to both the foreign exchange impact on our operating
activities and the impact of foreign exchange on certain monetary assets and
liabilities. MDS Pharma Services delivered continued improvement in adjusted
EBITDA, reporting sequential improvement in adjusted EBITDA for the fifth
consecutive quarter. MDS Analytical Technologies also had a strong quarter on
an adjusted EBITDA basis, with and without the impact of the MD acquisition.
    Adjustments reported for the quarter include $5 million of costs related
to the integration of MDS Analytical Technologies, including $2 million
related to amortization of fair value increments recorded for deferred revenue
from service contracts. Although we report this deferred revenue adjustment as
an operating income adjustment in this non-GAAP measure, our GAAP-based income
statement reports this amount as a reduction in revenues.
    Other adjustments for the quarter include an additional $3 million of
investment tax credits realized as we settled prior year claims associated
with the MAPLE facility and a $2 million mark-to-market adjustment on interest
rate hedges. We also released $4 million of restructuring reserves related
primarily to severance costs for employees who left voluntarily prior to their
planned termination.
    In early August 2007, we invested in $17 million of asset-backed
commercial paper that has since been affected by the recent liquidity
disruption in that market. We recorded a valuation provision of $2 million as
an adjusting item to reflect our estimate of the current value of that asset.
The provision reflects management's best estimate of the likely impairment
based on a risk-adjusted estimate of expected future cash flows. Continuing
uncertainties regarding the value of the assets, the nature and timing of
future cash flows, and the outcome of the restructuring of this financial
market may impact the amount that MDS will ultimately realize on this
investment.
    In October, we were advised that we were entitled to receive $5 million
of bankruptcy proceeds resulting from the final liquidation of Protana Inc.
(formerly MDS Proteomics Inc.). This recovery is included in other income and
it has been treated as an adjusting item.
    Selling, general, and administration (SG&A) expenses for the quarter
totaled $92 million or 29% of net revenues compared to $59 million and 23%
last year. The increase in SG&A of $33 million includes $17 million resulting
from the addition of MD during the year. Also, the significant $0.12 drop in
the value of the US dollar compared to the Canadian dollar following our July
quarter-end resulted in consolidated foreign exchange losses from the
translation of certain monetary assets and liabilities of $11 million,
compared to a $1 million loss in the prior-year quarter.
    We spent $22 million on research and development (R&D) activities in the
fourth quarter this year and expensed $8 million, compared to spending of
$14 million last year, of which we expensed $7 million. The majority of the
increase in R&D spending comes from the spending in our new MD business.
    Consolidated depreciation and amortization expense increased $8 million
compared to the fourth quarter of last year. In the fourth quarter of 2007, we
amortized $6 million of intangible assets acquired as part of the MD
transaction. In total, we recorded $161 million of intangible assets related
to acquired technology, reagents, and intellectual property that we currently
estimate will be amortized over a weighted average useful life of 6 years.
Capital expenditures for the quarter were $28 million, compared to $14 million
in the fourth quarter of 2006.
    Income from continuing operations for the quarter was $17 million,
reflecting these strong results from our businesses and was up 21% compared to
$14 million reported for continuing operations last year.
    The loss from discontinued operations of $2 million for the fourth
quarter this year reflects costs associated with the sale of our Canadian
diagnostics businesses. Income from discontinued operations of $33 million for
2006 reflects the operating results of our Canadian diagnostics businesses for
that period.
    Earnings per share from continuing operations were $0.14 for the quarter,
compared to $0.10 in 2006. Adjusted earnings per share from continuing
operations for the quarter were $0.09 compared to $0.02 earned in the same
period last year. Earnings per share from discontinued operations were a loss
of $0.01 compared to income of $0.23 last year. Adjusted earnings per share
for the two periods were as follows:

    
                                      Fourth Quarter             Fiscal Year
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Basic EPS from continuing
     operations - as reported $     0.14  $     0.10  $    (0.26) $     0.21
    Adjustments:
      Restructuring charges,
       net                         (0.02)      (0.05)       0.24       (0.04)
      Valuation provision           0.01           -        0.06        0.05
      Mark-to-market on
       interest rate swaps         (0.01)          -       (0.01)          -
      MAPLE settlement             (0.01)          -       (0.03)       0.04
      Gain on sale of long-term
       investment and businesses   (0.04)          -       (0.02)          -
      FDA provision                    -           -        0.31           -
      Acquisition integration       0.02           -        0.09           -
      Tax rate changes                 -       (0.03)          -       (0.03)
    -------------------------------------------------------------------------
    Adjusted EPS              $     0.09  $     0.02  $     0.38  $     0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MDS Pharma Services

    Financial Highlights


             Fourth Quarter                                Fiscal Year
    ----------------------------------               ------------------------
                        % Change                                    % Change
                    ------------------                              ---------
      2007    2006  Reported  Organic                  2007    2006 Reported
    -------------------------------------------------------------------------
    $   66  $   70       (6%)          Early-stage   $  254  $  268      (5%)
        57      52       10%           Late-stage       223     191      17%
    -------------------------------------------------------------------------
       123     122        1%        -  Net revenues     477     459       4%
                                       Reimbursement
        20      25                      revenues         91     105
    -------------------------------------------------------------------------
       143     147                     Total revenues   568     564

                                       Cost of
       (78)    (91)                     revenues       (326)   (343)
                                       Reimbursed
       (20)    (25)                     expenses        (91)   (105)
                                       Selling,
                                        general, and
       (40)    (37)                     administration (138)   (128)
                                       Depreciation and
        (9)     (9)                     amortization    (35)    (30)
                                       Restructuring
         4       1                      charges, net    (31)      -
                                       Equity earnings
         -       -                      (loss)            -      (1)
                                       Other income
         -      (1)                     (expenses)      (65)      4
    -------------------------------------------------------------------------
         -     (15)                    Operating loss  (118)    (39)
                                       Adjustments:
                                       Restructuring
        (4)     (1)                     charges, net     31       -
                                       Loss (gain) on
                                        sale of a
         -       -                      business          4      (2)
         -       -                     FDA provision     61       -
    -------------------------------------------------------------------------
                                       Adjusted
        (4)    (16)      n/m            operating loss  (22)    (41)     n/m
                                       Depreciation and
         9       9                      amortization     35      30
    -------------------------------------------------------------------------
                                       Adjusted
    $    5  $   (7)      n/m      n/m   EBITDA       $   13  $  (11)     n/m
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                       Capital
    $   20  $    9                      expenditures $   48  $   35
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Pharma Services net revenues grew 1% as a result of continued revenue
growth from our late-stage businesses. Late-stage revenues grew 10% compared
to the fourth quarter of 2006; however, this growth was largely offset by
weaker early-stage revenues, which were down 6% compared to the same quarter
last year. Weakness in revenues from bioanalytical and discovery/preclinical
services more than offset otherwise strong growth in drug safety testing.
Phase I revenues were level with the fourth quarter last year and are gaining
momentum sequentially.
    Organic growth in net revenue was nil for the quarter, which reconciles
to reported growth as follows:

    
                                                                 Net Revenue
    -------------------------------------------------------------------------
    Reported net revenue growth                                           1%
    Impact of Hamburg clinic sale                                         3%
    Impact of currency fluctuations on revenue growth                    (4%)
    -------------------------------------------------------------------------
    Organic net revenue growth                                             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Early-stage contract awards were strong this quarter compared to last
year; however, we experienced some order weakness and a higher than normal
level of contract cancellations relating to compound failures and customer
mergers affecting our late-stage businesses. Combined with the improved
conversion of contract backlog, this weakness contributed to an overall
decrease in average monthly pharmaceutical research backlog to $385 million,
down 10% compared to the fourth quarter of 2006. We are encouraged by the
strength of new bioanalytical orders, which doubled compared to the fourth
quarter of 2006, as well as the improved quality of our period-end backlog
resulting from our focus on bidding on contracts that enable us to achieve
reliable profitability.

    
    Average monthly backlog during the quarter
    -------------------------------------------------------------------------
      Fiscal 2005 - Quarter 1                                     $      315
                    Quarter 2                                            305
                    Quarter 3                                            315
                    Quarter 4                                            340
      Fiscal 2006 - Quarter 1                                            370
                    Quarter 2                                            400
                    Quarter 3                                            400
                    Quarter 4                                            430
      Fiscal 2007 - Quarter 1                                            450
                    Quarter 2                                            450
                    Quarter 3                                            420
                    Quarter 4                                            385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Pharma Services broke even at an operating income level for the
quarter, compared to a loss of $15 million for the same period last year.
Operating income for the current quarter includes $3 million of investment tax
credits (ITCs) resulting from the settlement of prior-year claims. MDS Pharma
Services also experienced approximately $6 million of unfavourable foreign
currency impact in the quarter compared to the prior year. Fourth quarter 2006
operating income reflects $8 million of spending on the US Food and Drug
Administration (FDA) review of our Montreal bioanalytical operations. Spending
on this matter during the fourth quarter of 2007 amounted to $6 million, and
this was charged to the reserve established for this purpose.
    Adjusted EBITDA for the fourth quarter was $5 million, up substantially
from the $7 million adjusted EBITDA loss reported for the fourth quarter of
2006. Fiscal 2007 adjustments reflect the release of restructuring provisions
related to severance for employees who resigned prior to being terminated and
to whom no severance was therefore paid. Fiscal 2006 operating income was
adjusted downwards by $1 million to eliminate a net recovery of certain
restructuring costs as the related restructuring initiatives were completed
below budget.
    During the fourth quarter of 2007, we continued to implement our
restructuring plan, largely completing the staff reductions at our Montreal
facility, including a substantial reduction of staff supporting the FDA audits
and other audits being conducted by our clients. We made substantial progress
on the consolidation of central laboratory operations in Europe and completed
the closure of our Sittingbourne, UK facility. During the quarter, we also
completed the transfer of certain operations from Montreal to our Bothell,
Washington and Lincoln, Nebraska facilities. To date, these restructuring
activities have resulted in a headcount reduction of approximately
400 employees and we have utilized $15 million of the restructuring reserve
established in the second quarter of 2007 on these activities. The remaining
reserve is $11 million and we anticipate further headcount reductions
affecting 100 positions in the first half of next year.
    Capital expenditures in the pharmaceutical services segment were
$20 million compared to $9 million last year. Late in the quarter, our
Beijing, China central laboratory facility moved to larger and more modern
facilities, resulting in a significant increase in testing capacity. The new
facility also provides for more kit production space and can accommodate a
wider range of specialized clinical testing services.

    Regulatory Review of Montreal Bioanalytical Operations

    The six-month time limit imposed by the FDA for generic audits has
passed, and we believe we have substantially completed all site audits for
generic customers that were required of them by the FDA. We continue to
receive a limited number of study audit requests from innovator customers and
expect we may continue to receive these requests in low numbers in the coming
months.
    We have responded to questions from European regulators about the nature
of the work that was done for the FDA. Although we are not able to assess the
potential impact of possible foreign regulatory actions, if any, at this time
we are satisfied with the progression of these discussions.
    During the second quarter, we approved and recorded a $61 million
provision for a reimbursement policy for clients who have incurred or will
incur third party audit costs or study re-run costs to complete the work
required by the FDA and other regulators. We have utilized $11 million of this
reserve for such costs, an amount that was partially offset by a foreign
currency translation gain on the US-dollar denominated components of the cost
estimate. We await reimbursement requests for the majority of the generic and
innovator study audits that were completed in our facility. Based on
information currently available, we believe that the remaining reserve of $55
 million will be sufficient to cover any agreements reached with clients for
study audits, study re-runs, and other related costs.
    Full and complete resolution of the bioanalytical regulatory issues has
been a key area of focus for MDS Pharma Services and MDS. We remain committed
to working cooperatively with the FDA, other regulators, and our customers to
address any regulatory concerns and to support our customers with further
follow up, if any. The remaining reserve reflects our current best estimate of
the costs we expect to incur with respect to this work and for obligations we
have to clients. There can be no assurance at this time that the full balance
of this reserve will be required, or that costs will not exceed the amounts we
have currently estimated.

    
    MDS Nordion

    Financial Highlights

             Fourth Quarter                                Fiscal Year
    ----------------------------------               ------------------------
                        % Change                                    % Change
                    ------------------                              ---------
      2007    2006  Reported  Organic                  2007    2006 Reported
    -------------------------------------------------------------------------
    $   76  $   76         -      (4%) Net revenues  $  289  $  297      (3%)
                                       Cost of
       (40)    (39)                     revenues       (150)   (150)
                                       Selling,
                                        general, and
       (15)    (14)                     administration  (51)    (51)
                                       Research and
         -      (2)                     development      (2)     (4)
                                       Depreciation and
        (3)     (4)                     amortization    (13)    (15)
                                       Restructuring
                 2                      charges           -       2
                                       Other income
         3       -                      (expenses)        7      (9)
    -------------------------------------------------------------------------
        21      19       11%           Operating Income  80      70      14%
                                       Adjustments:
        (3)      -                     MAPLE settlement  (6)      9
                                       Restructuring
                (2)                     charges           -      (2)
                                       Gain on sale of
         -       -                      a business       (1)      -
    -------------------------------------------------------------------------
                                       Adjusted
                                        operating
        18      17        6%            income           73      77      (5%)
                                       Depreciation and
         3       4                      amortization     13      15
    -------------------------------------------------------------------------
                                       Adjusted
    $   21  $   21         -      10%   EBITDA       $   86  $   92      (7%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                       Capital
    $    3  $    -                      expenditures $    8  $    -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Nordion revenues were level year-over-year on a reported basis.
Revenues for 2006 included $2 million related to deferred revenue associated
with the 2004 cancellation of the supply agreement between MDS Nordion and
Biogen Idec. Excluding the impact of this item, revenues were up 3% compared
to the fourth quarter of 2006, largely due to the strength of the Canadian
dollar this year and increased revenue associated with our expanding
TheraSphere(R) markets. These increases were offset by declines in cobalt
shipments and the prior-year sale of a production irradiator that was not
repeated in the current-year quarter.

    Organic growth in revenues and adjusted EBITDA reconcile to reported
growth as follows:

    
                                                             Net    Adjusted
                                                         Revenue      EBITDA
    -------------------------------------------------------------------------
    Reported growth                                            -           -
    Impact of currency fluctuations on growth                (4%)        10%
    -------------------------------------------------------------------------
    Organic growth                                           (4%)        10%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating income was $21 million compared to $19 million last year in the
same period and adjusted EBITDA was level at $21 million. There was one
adjusting item in the fourth quarter of each year. In the fourth quarter of
2007, we recorded ITCs totaling $3 million as we settled prior-year claims for
R&D associated with the MAPLE facility. The adjustment for 2006 was for unused
restructuring reserves associated with our European generic
radiopharmaceutical manufacturing business, the closure of which was completed
at the end of last year.
    Capital expenditures in the isotopes segment for the quarter were
$3 million, compared to none last year.
    Late in the quarter, MDS Nordion announced the signing of a 17-year,
$83 million agreement for the supply of cobalt-60 with Rosenergoatom, the
operating utility of Russia's nuclear power plants. This contract, together
with an existing agreement signed in 2005, provides for a 30% increased supply
of cobalt-60 to MDS Nordion by 2016. Cobalt-60 is primarily used for the
sterilization of hospital medical supplies to help prevent patient infection
and disease by reducing harmful bacteria.
    Subsequent to the year-end, we announced the signing of an agreement to
sell our external beam therapy and self-contained irradiator product lines.
The sale is a key part of MDS Nordion's strategy to focus its resources on
being a leading innovator in molecular medicine. Under the terms of this
agreement, Best Medical International Inc., a provider of radiotherapy and
oncology products, will purchase MDS Nordion's external beam therapy and
self-contained irradiator product lines. Best Medical International Inc. will
acquire these two product lines with combined annualized revenues of
approximately US$32 million at an adjusted EBITDA margin of 5% and
approximately 150 employees. The transaction, which is subject to the usual
closing conditions, is expected to close in the second quarter of 2008. We
anticipate that we will report a loss on disposal of this business, including
all costs associated with the disposal, in the range of $4 million to
$6 million.

    
    MDS Analytical Technologies
    Financial Highlights

             Fourth Quarter                                Fiscal Year
    ----------------------------------               ------------------------
                        % Change                                    % Change
                    ------------------                              ---------
      2007    2006  Reported  Organic                  2007    2006 Reported
    -------------------------------------------------------------------------
    $  119  $   62       92%       2%  Net revenues  $  396  $  246      61%
                                       Cost of
       (60)    (39)                     revenues       (218)   (151)
                                       Selling,
                                        general, and
       (23)     (3)                     administration  (64)    (16)
                                       Research and
        (8)     (5)                     development     (27)    (14)
                                       Depreciation and
       (14)     (5)                     amortization    (41)    (18)
                                       Other income
        (1)      -                      (expenses)       (3)      -
    -------------------------------------------------------------------------
        13      10       30%           Operating income  43      47      (9%)
                                       Adjustment:
                                       Acquisition
         5       -                      integration      19       -
    -------------------------------------------------------------------------
                                       Adjusted
                                        operating
        18      10       80%            income           62      47      32%
                                       Depreciation and
        14       5                      amortization     41      18
    -------------------------------------------------------------------------
                                       Adjusted
    $   32  $   15      113%      74%   EBITDA       $  103  $   65      58%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                       Capital
    $    2  $    2                      expenditures $   10  $    7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Analytical Technologies reported revenues of $119 million for the
fourth quarter of 2007, compared to $62 million for the same period last year.
Fourth quarter revenues for the current year include $54 million of revenues
from the newly acquired Molecular Devices business (MD). This amount is net of
a $2 million purchase price adjustment related to assigning fair value to
deferred service contracts that were on the acquisition date balance sheet of
MD. Excluding this adjustment, MD revenues were up 15% compared to the same
three-month period in 2006, and have totalled $140 million since the
acquisition date.
    MD has been a strong contributor to segment revenues and adjusted EBITDA
since it was combined with Sciex. Given the strong start, we believe the
division is on track to exceed the expected $190 million in revenues and
$45 - $50 million in adjusted EBITDA in the first full year of MDS ownership.
    Sciex grew revenues by 5%, and the small molecule markets continued to be
an area of strength for the business. Our high-end triple-quad and ion-trap
instruments have maintained strong sales momentum, across most markets. Good
strength from our core LC/MS products was augmented by continued strength from
our ICP/MS product line, although the proteomics markets continued to perform
below expectations. End-user revenues for Sciex products grew 4% in the fourth
quarter compared to the same period last year.
    Organic growth in revenues and adjusted EBITDA reconcile to reported
growth as follows:

    
                                                             Net    Adjusted
                                                         Revenue      EBITDA
    -------------------------------------------------------------------------
    Reported growth                                          92%        113%
    Growth attributable to the acquisition of MD            (87%)       (73%)
    Impact of currency fluctuations on growth                (3%)        34%
    -------------------------------------------------------------------------
    Organic growth                                            2%         74%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating income was $13 million for the fourth quarter of 2007 compared
to $10 million for the fourth quarter of 2006, an increase of 30%, all of
which results from the Sciex business. On an operating income basis, MD lost
$2 million in the fourth quarter because of the acquisition-related items.
    Adjusted EBITDA for the quarter was $32 million compared to $15 million
last year. Excluding growth attributable to the acquisition of MD and the
impact of currency fluctuations on growth adjusted EBITDA grew by 74% as a
result of improved gross margins, increased development costs deferred and a
$2 million gain on the sale of land. The adjustment for integration costs of
$5 million for the quarter includes $2 million of deferred service contract
revenue adjustments. There were no adjustments in the prior year.
    Increased SG&A and R&D expenses in MDS Analytical Technologies for the
fourth quarter of 2007 reflect the additional costs associated with the MD
business. Depreciation and amortization expense was also up, reflecting
$6 million for amortization of intangible assets acquired as part of the MD
acquisition, plus the inclusion of depreciation on MD property, plant, and
equipment.
    Capital expenditures (excluding capitalized development costs) were
$2 million this year and last year.
    During the fourth quarter, MDS Analytical Technologies announced the
launch of a significant advance in high-speed imaging technologies with the
release of the MetaMorph(R) ICS (Integrated Confocal System), in partnership
with VisiTech International, a manufacturer of confocal hardware. This
turnkey, confocal microscope is the first of its kind in the imaging industry.
It has the capability to obtain high resolution images in multiple dimensions
to support researchers in their exploration of live cell and functional
imaging without the limitations inherent in other high-speed imaging
technologies.
    The division also introduced a new automated toxicology testing
application for drugs of abuse. The new Cliquid(TM) Drug Screen and Quant
Software for Routine Forensic Toxicology applications equips toxicology
laboratories for the first time with a built-in library of 1,200 compounds and
a search reporting function designed to screen hundreds of drugs in less than
20 minutes. This software application is an improvement over existing
toxicology testing methods. It enables faster delivery of results, more
thorough screening and, ultimately, more accurate analysis to be used as
evidence in criminal court cases.

    
    Corporate and Other

    Financial Highlights

     Fourth Quarter                                             Fiscal Year
    ----------------                                         ----------------
      2007    2006                                              2007    2006
    -------------------------------------------------------------------------
    $  (14) $   (5)  Selling, general, and administration     $  (33)    (30)
         -       8   Restructuring charges                        (9)      5
         5       2   Other income (expense)                        -      (1)
         -      (1)  Equity earnings                               -      (4)
    -------------------------------------------------------------------------
        (9)      4   EBITDA                                      (42)    (30)
                     Adjustments:
        (5)      -   Gain on sale of investments                  (7)      -
        (2)     (2)  Mark-to-market adjustments                   (1)      1
         2       -   Valuation provisions                          8       6
         -      (8)  Restructuring charges                         9      (5)
    -------------------------------------------------------------------------
    $  (14) $   (6)  Adjusted EBITDA                          $  (33) $  (28)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Corporate SG&A expenses were $14 million for the quarter this year,
including a $4 million of foreign exchange loss on balance sheet translation.
    Other income for the quarter includes a $2 million mark-to-market gain on
certain interest rate derivatives and a $2 million valuation provision for
asset-backed commercial paper we own and which is not currently liquid. Also
included in other income is $5 million of bankruptcy proceeds resulting from
the wind-up of Protana Inc., a successor company to MDS Proteomics. We were
advised by the liquidator of these proceeds late in the fourth quarter and we
expect to receive the funds in the first half of 2008. Other income for the
fourth quarter in 2006 included a $2 million mark-to-market gain and an
$8 million release of restructuring reserves originally set aside in 2005 for
expected contract cancellation costs. We were able to negotiate termination of
this contract without penalty during 2006 and as a consequence, this reserve
was no longer required. All of these items were treated as adjustments to
arrive at adjusted EBITDA for the quarter.
    Fourth quarter interest expense increased from $6 million in 2006 to
$7 million in 2007 and interest income in the quarter was $7 million this year
compared to $4 million last year.

    Income Taxes

    Our effective income tax rate for the quarter was 32% and below our
expected rate of 36% due to the fact that the bankruptcy proceeds that we
recorded in the quarter relating to the wind-up of Protana Inc. are not
subject to income tax.

    Discontinued Operations

    The results of our discontinued businesses for the fourth quarter of 2007
and 2006 were as follows:

    
                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net revenues              $        -  $       82  $       95  $      362
    Cost of revenues                   -         (45)        (57)       (225)
    Selling, general and
     administration                   (1)        (15)        (16)        (53)
    Depreciation and
     amortization                      -          (3)          -         (10)
    Restructuring charges              -           -           -          (1)
    Other expenses                     -          (3)          -          (3)
    Equity earnings                    -           1           1           3
    -------------------------------------------------------------------------
    Operating income (loss)           (1)         17          23          73
    Gain on sale of
     discontinued operations           -           -         904          24
    Dividend and interest
     income                            -           1           1           2
    Income tax recovery
     (expense)                         -          16        (117)          7
    Minority interest -
     net of tax                       (1)         (1)         (5)         (8)
    -------------------------------------------------------------------------
    Income (loss) from
     discontinued operations
      - net of tax            $       (2) $       33  $      806  $       98
    -------------------------------------------------------------------------
    Basic earnings per share  $    (0.01) $     0.23  $     6.12  $     0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per
     share                    $    (0.01) $     0.23  $     6.10  $     0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results from discontinued operations in the fourth quarter of 2007
reflect expenses associated with the sale of our diagnostics business. The
results from discontinued operations for 2006 include results from the
Canadian diagnostic services business and certain small MDS Pharma Services
businesses discontinued in 2005.

    Liquidity and Capital Resources

                                          October 31  October 31      Change
                                                2007        2006
    -------------------------------------------------------------------------
    Cash, cash equivalents and short-term
     investments                          $      350  $      388        (10%)
    Operating working capital(1)          $       55  $      104        (47%)
    Current ratio                                1.6         2.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Our measure of operating working capital equals accounts receivable
        plus unbilled revenue and inventory less accounts payable, accrued
        liabilities, and current deferred revenue.
    

    Cash and short-term investments totalled $350 million compared to
$314 million at the end of July 2007 and $388 million at the end of October
2006. The increase in cash primarily results from an increase in accounts
payable at year-end.
    As at the date of this report, we had $17 million in short-term
investments in asset-backed commercial paper (ABCP) that was purchased in
August 2007. This ABCP was due to mature on September 7, 2007 and the issuer
has been affected by the recent liquidity issues in these investment markets.
We received notice on the roll-over date that the sponsor of these obligations
would be unable to meet its obligations. At the present time, we have only
limited access to information that would help us to determine the amount and
timing for the repayment of these obligations. As a result, we have estimated
that a write-down in the value of these investments is required, and
accordingly, we recorded a $2 million provision in the fourth quarter. In
addition, while these investment vehicles would ordinarily qualify as cash
equivalents, we believe that the current market conditions are such that it is
no longer appropriate to record these investments as current assets. We have
therefore classified these commercial paper assets as long-term investments
that are available for sale.
    Operating working capital of $55 million at the end of the fourth quarter
was down from $81 million at the end of July, and down substantially compared
to the October 2006 balance of $104 million. The decline since the 2006
year-end reflects higher than usual accounts payable and accrued liabilities
as at October 31, 2007. This reflects, in part, the balance that remains
unpaid from the FDA and restructuring provisions recorded in the second
quarter, along with an increase in trade payables at year-end, partially
driven by increased capital expenditures in the fourth quarter. The FDA and
restructuring provisions are offsetting the addition of operating working
capital associated with MD. We expect that our operating working capital will
rise to normal levels in future quarters as these reserves are utilized and
accounts payable drop to normal levels.
    We expect our operating cash inflows to remain strong throughout fiscal
2008. Cash outflows are expected to include FDA-related reimbursements to our
customers and the payment of severance obligations associated with our
restructuring activities. In addition, we will make a principal repayment of
$79 million on our long-term debt in December 2007. We believe that these
liquidity needs can be satisfied from cash generated by operations and cash on
hand. We also have available a C$500 million, five-year, committed, revolving
credit facility to fund our liquidity requirements. There were no borrowings
under this facility as at October 31, 2007. We do not believe that the current
liquidity issues affecting the ABCP markets will have any significant impact
on our liquidity.
    Cash used in investing activities for continuing operations totalled
$48 million for the fourth quarter this year, compared to $11 million for
2006, primarily due to capital expenditures. The $28 million of capital
expenditures this year includes higher levels of capital expenditures in MDS
Pharma Services related to investments in information systems to support
growth in MDS Pharma Services, the 300-bed expansion of our Phoenix, Arizona
Phase I clinic and the build-out of our central laboratory in Beijing, China.
    Financing activities (excluding discontinued operations) used $13 million
of cash in the quarter, primarily for scheduled debt repayments, compared to
$5 million in the prior year. Cash used in financing activities for the prior
year included a $3 million dividend payment.
    We believe that cash flow generated from operations, coupled with
available borrowings from existing financing sources, will be sufficient to
meet our anticipated requirements for acquisitions, capital expenditures,
research and development expenditures, FDA settlements, restructuring costs
and operations in 2008. At this time, we do not reasonably expect any
presently known trend or uncertainty to affect our ability to access our
current sources of cash. We remain in compliance with all covenants for our
senior unsecured notes and our bank credit facility.

    Contractual Obligations

    In October 2007, we signed a 17-year, $83 million cobalt supply agreement
in the normal course of business. Aside from this, there have been no material
changes in contractual obligations since October 31, 2006 other than those
arising from the acquisition of MD, and there has been no substantive change
in any of our long-term debt or other long-term obligations since that date.
We have not entered into any new guarantees of the debt of third parties, nor
do we have any off-balance sheet arrangements. The acquisition of MD has added
$6 million of annual commitments related to operating leases and approximately
$14 million of inventory purchase commitments in 2007.

    Derivative Instruments

    We use derivative financial instruments to manage our foreign currency
and interest rate exposure. These instruments consist of forward foreign
exchange and option contracts and interest rate swap agreements entered into
in accordance with our established risk management policies and procedures.
All derivative instrument contracts are with banks listed on Schedules I to
III to the Bank Act (Canada) and the Company utilizes financial information
provided by certain of these banks to assist in the determination of fair
market values of the financial instruments.
    The net mark-to-market value of all derivative instruments at October 31,
2007 was a net liability of $6 million. We recorded a $2 million
mark-to-market gain on interest rate swaps during the fourth quarter of 2007.

    
    Capitalization

                                          October 31, October 31
                                                2007        2006      Change
    -------------------------------------------------------------------------
    Long-term debt                        $      384  $      394         (3%)
    Less: cash and cash equivalents and
     short-term investments                      350         388        (10%)
    -------------------------------------------------------------------------
    Net debt                                      34           6        466%
    Shareholders' equity                       1,929       1,414         36%
    -------------------------------------------------------------------------
    Capital employed(1)                   $    1,963  $    1,420         38%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Debt to Total Capital                        17%         22%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Capital employed is a measure of how much of our net assets is
        financed by debt and equity.
    

    Long-term debt decreased $10 million due to principal payments, and the
current portion of the long-term debt is $94 million compared to $20 million
at October 31, 2006. The increase in the current portion reflects the
inclusion of $79 million of long-term debt that will be repaid in December
2007. During the third quarter, we de-designated $70 million of the US-dollar
debt as a hedge of our US net investment in accordance with the provisions of
CICA Handbook Section 3865 and entered into foreign exchange contracts to fix
the exchange rate that we will pay to buy the US dollars required to make the
December debt payments. Gains and losses on the foreign exchange contracts and
on this portion of the US-dollar denominated debt are offsetting.

    Quarterly Highlights

    Following is a summary of selected financial information derived from the
Company's unaudited interim period consolidated financial statements for each
of the eight most recently completed quarters. This financial data has been
prepared in accordance with Canadian GAAP and prior periods have been restated
to reflect the discontinuance of the operations and the inclusion of
reimbursement revenues in the MDS Pharma Services segment, both of which are
discussed above.

    
    (millions of US dollars, except earnings per share)
    -------------------------------------------------------------------------

                     Fiscal 2007   Oct 2007  July 2007   Apr 2007   Jan 2007
    -------------------------------------------------------------------------
    Gross revenues      $  1,253   $    338   $    346   $    296   $    273
    Net revenues        $  1,162   $    318   $    321   $    273   $    250
    Operating income
     (loss)             $    (39)  $     25   $     13   $    (80)  $      3

    Income (loss) from
     continuing
     operations         $    (34)  $     17   $      8   $    (57)  $     (2)
    Net income (loss)   $    772   $     15   $      7   $    736   $     14
    Earnings (loss) per
     share from
     continuing
     operations
      Basic and diluted $  (0.26)  $   0.14   $   0.07   $  (0.42)  $  (0.02)
    Earnings (loss)
     per share
      Basic and diluted $   5.86   $   0.13   $   0.06   $   5.36   $   0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (millions of US dollars, except earnings per share)
    -------------------------------------------------------------------------

                     Fiscal 2006   Oct 2006  July 2006   Apr 2006   Jan 2006
    -------------------------------------------------------------------------
    Gross revenues      $  1,107   $    285   $    280   $    268   $    274
    Net revenues        $  1,002   $    260   $    258   $    242   $    242
    Operating income
     (loss)             $     48   $     18   $      5   $      2   $     23

    Income (loss) from
     continuing
     operations         $     29   $     14   $      3   $     (2)  $     14
    Net income (loss)   $    127   $     47   $     19   $     14   $     47
    Earnings (loss) per
     share from
     continuing
     operations
      Basic and diluted $   0.21   $   0.10   $   0.02   $  (0.01)  $   0.10
    Earnings (loss) per
     share
      Basic and diluted $   0.89   $   0.33   $   0.13   $   0.10   $   0.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Items that impact the comparability of operating income include:

    -   Results for the quarter ended April 30, 2007 reflect a $792 million
        net gain from the sale of our diagnostics businesses, the 41 days of
        operating results of Molecular Devices, $61 million of charges
        related to assisting clients in respect of the FDA review, and
        $28 million of restructuring charges.

    -   Results for the quarter ended January 31, 2007 reflect the impact of
        restructuring charges totaling $13 million.

    -   Results for the quarter ended April 30, 2006 reflect a loss of
        $9 million resulting from the completion of the MAPLE settlement.
    

    Outlook

    On November 30 and December 5, 2007, we announced that MDS Nordion was
experiencing an interruption in supply of medical isotopes from our primary
supplier, Atomic Energy of Canada Limited while they completed a scheduled
shutdown and an upgrade to the electrical system of the National Research
Universal reactor. Our supplier advised us that they are working closely with
industry regulators on this matter. They also advised us that production was
scheduled to recommence in early to mid-January. While we are working closely
with our global supply network to lessen the impact of this shutdown, we will
not be able to fully mitigate the impact of this supply disruption on our
results. We currently estimate the impact of this disruption on adjusted
EBITDA at $8 to $9 million in total for the first quarter of 2008.
    We closed our 2007 fiscal year strongly, with all businesses showing
growth over the prior year. Despite the supply issues at MDS Nordion, we
believe that the Company is well positioned as we enter fiscal 2008.
    Our integration of MDS Analytical Technologies is tracking well to plan
and we continue to believe that the MD business will exceed our first year
targets of $190 million in revenue and adjusted EBITDA of between $45 million
and $50 million. We are pleased by the continued pace of new product launches
and we will continue to drive innovation in this business next year. Our
MetaMorph(R) ICS microscope launch this quarter was well received and is an
example of our commitment to provide leading-edge technology to our customers
in the drug development industry. Strong sales of FLIPR Tetra and Image
Express during the year have contributed to positive momentum as we enter
fiscal 2008. Continued growth from our many new platforms is expected. We also
anticipate continuing strong adjusted EBITDA margins from MDS Analytical
Technologies as we complete our integration and drive further migration of our
production capabilities to Asia.
    We are pleased with the continuing improvement in profitability at MDS
Pharma Services. The business has now delivered five straight quarters of
sequential improvement in adjusted EBITDA. By year-end, the business had
implemented 80% of the restructuring initiatives announced earlier in the
year, although the timing of completing these steps meant that the savings
from these activities were only partially realized this year. We expect
adjusted EBITDA in this business to improve further in fiscal 2008 because of
the actions we took this year.
    We have been very pleased with the performance of our late-stage
operations this year, which produced strong revenue growth and solid adjusted
EBITDA. Although a number of contract cancellations have resulted in reduced
reported backlog at year-end, our focus on bidding only on contracts from
which we can achieve solid profitability has improved the quality of the
remaining backlog. In addition, the increase in bioanalytical orders in the
fourth quarter increases our level of confidence that our customers in this
line of business are returning.
    MDS Nordion has continued solid performance this year and has been able
to grow both revenues and adjusted EBITDA after taking into account foreign
exchange, the Biogen Idec deferred revenue, and the unusual market conditions
that existed in the first half of 2006. Our expanded contract for cobalt
supply with Rosenergoatom positions MDS Nordion well to serve continued growth
in cobalt sterilization. It is also evidence of our strength in establishing
new business relationships on a global basis.

    
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    (UNAUDITED)

    As at October 31                                        2007        2006
                                                                    (Revised
    (millions of US dollars)                                         Note 17)
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                         $      259  $      253
    Short-term investments                                    91         135
    Accounts receivable                                      284         229
    Unbilled revenue                                          99         121
    Inventories                                              134          86
    Income taxes recoverable                                  54          42
    Current portion of future tax assets                      45           -
    Prepaid expenses and other                                21          21
    Assets held for sale (note 7)                              1         196
    -------------------------------------------------------------------------
                                                             988       1,083

    Property, plant and equipment                            390         339
    Future tax assets                                          4          37
    Long-term investments and other                          284         170
    Goodwill                                                 797         417
    Intangibles                                              601         338
    -------------------------------------------------------------------------
    Total assets                                      $    3,064  $    2,384
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities          $      391  $      239
    Deferred revenue                                          71          93
    Income taxes payable                                      57           8
    Future tax liabilities                                    10           -
    Current portion of long-term debt                         94          20
    Liabilities related to assets held for sale
     (note 7)                                                  -         114
    -------------------------------------------------------------------------
                                                             623         474

    Long-term debt                                           290         374
    Deferred revenue                                          16          17
    Other long-term obligations                               29          23
    Future tax liabilities                                   182          82
    Minority interest                                          1           -
    -------------------------------------------------------------------------
                                                      $    1,141  $      970
    -------------------------------------------------------------------------
    Shareholders' equity
    Share capital (note 5)                                   502         572
    Retained earnings                                        945         495
    Cumulative translation adjustment                        n/a         347
    Accumulated other comprehensive income (note 4)          476         n/a
    -------------------------------------------------------------------------
                                                           1,923       1,414
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity        $    3,064  $    2,384
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes

    N/A - Not applicable. Effective November 1, 2006, certain new accounting
    pronouncements issued by the Canadian Institute of Chartered Accountants
    (CICA) were adopted by the Company (see note 3). Certain financial
    statement categories were rendered not applicable by these new
    pronouncements.



    CONSOLIDATED STATEMENTS OF INCOME
    (UNAUDITED)

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
    (millions of                    2007        2006        2007        2006
     US dollars, except                     (Revised                (Revised
     per share amounts)                      Note 17)                Note 17)
    -------------------------------------------------------------------------
    Net revenues              $      318  $      260  $    1,162  $    1,002
    Reimbursement revenues            20          25          91         105
    -------------------------------------------------------------------------
    Total revenues                   338         285       1,253       1,107

    Cost of revenues                (178)       (169)       (694)       (644)
    Reimbursed expenses              (20)        (25)        (91)       (105)
    Selling, general and
     administration                  (92)        (59)       (286)       (225)
    Research and
     development (note 8)             (8)         (7)        (29)        (18)
    Depreciation and
     amortization                    (26)        (18)        (91)        (63)
    Restructuring charges
     - net (note 9)                    4          11         (40)          7
    Other income (expenses)
     - net (note 11)                   7           1         (61)         (6)
    Equity earnings (loss)             -          (1)          -          (5)
    -------------------------------------------------------------------------
    Operating income (loss)           25          18         (39)         48

    Interest expense                  (7)         (6)        (27)        (21)
    Dividend and interest
     income                            7           4          25          15
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations
     before income taxes              25          16         (41)         42
    Income taxes recovery
     (expense) (note 16)              (8)         (2)          7         (13)
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations            17          14         (34)         29
    Income (loss) from
     discontinued operations
     - net of tax (note 7)            (2)         33         806          98
    -------------------------------------------------------------------------
    Net income                $       15  $       47  $      772  $      127
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss)
     per share (note 10)
    - from continuing
       operations             $     0.14  $     0.10  $    (0.26) $     0.21
    - from discontinued
       operations                  (0.01)       0.23        6.12        0.68
    -------------------------------------------------------------------------
    Basic earnings per share  $     0.13  $     0.33  $     5.86  $     0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss)
     per share (note 10)
    - from continuing
       operations             $     0.14  $     0.10  $    (0.25) $     0.21
    - from discontinued
       operations                  (0.01)       0.23        6.10        0.68
    -------------------------------------------------------------------------
    Diluted earnings per
     share                    $     0.13  $     0.33  $     5.85  $     0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    (UNAUDITED)

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
    (millions of
     US dollars)                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of period      $      930  $      452  $      495  $      385
    Net income                        15          47         772         127
    Repurchase of shares               -           -        (318)          -
    Dividends - cash                   -          (3)         (3)        (13)
    Dividends - stock                  -          (1)         (1)         (4)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period            $      945  $      495  $      945  $      495
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (UNAUDITED)

                                                    Three months  Year ended
                                                   to October 31  October 31
    -------------------------------------------------------------------------
    (millions of
     US dollars)                                            2007        2007
    -------------------------------------------------------------------------
    Net income                                        $       15  $      772
    -------------------------------------------------------------------------
    Other comprehensive income (loss) - net of
     income tax:
    Unrealized gains on derivatives designated
     as cash flow hedges, net of tax                           4           8
    Reclassification of losses on derivatives
     designated as cash flow hedges to net income             (2)         (4)
    Unrealized foreign currency gains on debt
     designated as a hedge operations, net of tax             12           5
    Unrealized foreign currency gain (loss)
     on translation                                          111         124
    -------------------------------------------------------------------------
    Other comprehensive income                               125         133
    -------------------------------------------------------------------------
    Comprehensive income                              $      140  $      905
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    (millions of                            (Revised                (Revised
     US dollars)                             Note 17)                Note 17)
    -------------------------------------------------------------------------
    Operating activities
    Net income                $       15  $       47  $      772  $      127
    Income (loss) from
     discontinued operations
     - net of tax                     (2)         33         806          98
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations            17          14         (34)         29
    Adjustments to reconcile
     net income to cash
     provided by operating
     activities relating to
     continuing operations
     (note 13)
    Items not affecting
     current cash flow                11          51         147         100
    Changes in non-cash
     working capital balances
     relating to operations           58         (19)         87         (96)
    -------------------------------------------------------------------------
    Cash provided by operating
     activities of continuing
     operations                       86          46         200          33
    Cash provided by (used in)
     operating activities of
     discontinued operations          (4)         53         (56)        104
    -------------------------------------------------------------------------
                                      82          99         144         137
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions (note 6)              1           -        (600)          -
    Purchase of intangibles            -           -          (1)          -
    Increase in deferred
     development charges              (7)         (4)        (14)        (10)
    Proceeds from MAPLE
     transaction                       -           -           -          24
    Purchase of property, plant
     and equipment (note 14)         (28)        (14)        (73)        (53)
    Proceeds from sale of
     capital assets                    4           -           4           -
    Proceeds on sale of short-
     term investments                  -           -         165           -
    Purchases of short-term
     investments                       -          (1)       (118)       (135)
    Proceeds on divestitures           -           3           -           5
    Proceeds on sale of
     investment                        -           -          13           -
    Other                            (18)          5         (20)        (11)
    -------------------------------------------------------------------------
    Cash used in investing
     activities of continuing
     operations                      (48)        (11)       (644)       (180)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     investing activities of
     discontinued operations           -          (8)        929          73
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt      (10)         (6)        (18)         (7)
    Increase (decrease) in
     deferred revenue and other
     long-term obligations            (3)          2          (2)         (7)
    Payment of cash dividends          -          (3)         (3)        (13)
    Issuance of shares                 -           2          15          26
    Repurchase of shares               -           -        (441)          -
    -------------------------------------------------------------------------
    Cash used in financing
     activities of continuing
     operations                      (13)         (5)       (449)         (1)
    -------------------------------------------------------------------------
    Cash used in financing
     activities of discontinued
     operations                        -          (3)         (2)        (12)
    -------------------------------------------------------------------------
    Effect of foreign exchange
     rate changes on cash and
     cash equivalents                 14           5          28          12
    -------------------------------------------------------------------------
    Increase in cash and cash
     equivalents during the
     period                           35          77           6          29
    Cash and cash equivalents,
     beginning of period             224         176         253         224
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            $      259  $      253  $      259  $      253
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    (All tabular amounts in millions of US Dollars, except where noted)

    1.  Basis of Presentation

    These interim consolidated financial statements of MDS Inc. (MDS or the
    Company) have been prepared in accordance with Canadian generally
    accepted accounting principles (GAAP) and follow the same accounting
    policies and methods of application as the Company's consolidated
    financial statements for the year ended October 31, 2006, except as
    described in Note 3. Under GAAP, additional disclosures are required in
    the annual financial statements and accordingly, these interim
    consolidated financial statements should be read in conjunction with the
    audited consolidated financial statements for the year ended October 31,
    2006 and the accompanying notes on pages 32 to 63 of the Company's annual
    report.

    Amounts for the prior year have been revised to reflect the results of
    discontinued operations.

    2.  Reporting Currency

    The Company has historically prepared its consolidated financial
    statements in Canadian dollars and in accordance with Canadian GAAP.
    Effective November 1, 2006, the Company adopted the United States (US)
    dollar as the reporting currency for presentation of its consolidated
    financial statements. A significant portion of revenues, expenses and
    assets and liabilities are denominated in US dollars and the
    international focus of the Company's sales and operations is continuing
    to increase; consequently, the Company believes that investors will gain
    a better understanding of the operating results when presented in US
    dollars. The Company will continue to report its financial results for
    fiscal 2007 in accordance with Canadian GAAP. In accordance with Canadian
    generally accepted accounting principles, the Company is required to
    restate all amounts presented in US dollars using the current rate
    method. Under this method, all revenues, expenses and cash flows for each
    year (or period) are translated into the reporting currency using the
    rates in effect at the date of the transactions. Assets and liabilities
    are translated using the exchange rate at the end of that year or period.
    All resulting exchange differences are reported as a separate component
    of shareholders' equity. The functional currency of each of the Company's
    operations is unchanged. Assets and liabilities of the Company's
    operations having a functional currency other than US dollars are
    translated into US dollars using the exchange rate in effect at the end
    of the period, and revenues and expenses are translated at the average
    rate during the period.

    As a result of the change in the reporting currency, the Company reported
    a cumulative translation adjustment balance of $347 million as at
    October 31, 2006.

    All comparative financial information has been restated to reflect the
    Company's results as if they had been historically reported in US
    dollars.

    3.  Accounting Policies

    The Company adopted the Canadian Institute of Chartered Accountants
    (CICA) Handbook Sections 1530, "Comprehensive Income"; 3855, "Financial
    Instruments - Recognition and Measurement"; 3861, "Financial Instruments
    - Disclosure and Presentation" and 3865, "Hedges" on November 1, 2006.
    The adoption of these new standards resulted in changes in the accounting
    for financial instruments and hedges, as well as the recognition of
    certain transition adjustments, that have been recorded in opening
    accumulated comprehensive income as described below. The comparative
    interim consolidated financial statements have not been restated. With
    the adoption of these standards, the Company's accounting for financial
    instruments is now largely harmonized with US GAAP for this area. The
    principal changes in the accounting for financial instruments and hedges
    due to the adoption of these accounting standards are described below.

    (a)  Comprehensive Income

    Comprehensive income is composed of the Company's net income and other
    comprehensive income. Other comprehensive income includes unrealized
    gains and losses on assets held for sale, unrealized exchange gains and
    losses on translation of self-sustaining foreign operations, translation
    gains and losses resulting from the application of US dollar reporting,
    unrealized gains and losses on translation of debt designated as a hedge,
    and changes in the fair market value of derivative instruments designated
    as cash flow hedges, net of applicable income taxes. The components of
    comprehensive income are disclosed in the consolidated statements of
    comprehensive income.

    (b)  Financial Assets and Financial Liabilities

    Under the new standards, all financial instruments are classified into
    one of the following five categories: held-for-trading, held-to-maturity
    investments, loans and receivables, available-for-sale financial assets
    or other financial liabilities. All financial instruments, including
    derivatives, are included on the consolidated statements of financial
    position and are measured at fair value except for loans and receivables,
    held-to-maturity investments and other financial liabilities which are
    measured at amortized cost. Held-for-trading financial investments are
    recorded at cost as they are initiated and are subsequently measured at
    fair value and all gains and losses are included in net income in the
    period in which they arise. Available-for-sale financial instruments are
    also initially recorded at cost and are subsequently measured at fair
    value with revaluation gains and losses included in other comprehensive
    income until the instrument is disposed, derecognized, or impaired. As a
    result of the adoption of these standards, the Company has classified its
    cash and cash equivalents as held-for-trading. Short-term investments are
    classified as available-for-sale investments. Accounts receivable, and
    long-term note receivables are classified as loans and receivables. The
    financial instrument pledged as security on long-term debt is classified
    as a held-to-maturity investment. Accounts payable, long-term debt and
    capital lease obligations have been classified as other financial
    liabilities, all of which are measured at amortized cost.

    The carrying value, which equals the fair value of financial assets and
    liabilities as at October 31, 2007 is summarized as follows:

    -------------------------------------------------------------------------
    Classification
    -------------------------------------------------------------------------
    Held-for-trading                                              $      259
    Held-to-maturity                                                      46
    Loans and receivables                                                413
    Available-for-sale                                                   116
    Other liabilities                                             $      855
    -------------------------------------------------------------------------

    (c) Derivatives and Hedge Accounting

    Derivatives
    -----------
    All derivative instruments, including embedded derivatives, are recorded
    in the statement of financial position at fair value unless exempted from
    derivative treatment as a normal purchase and sale. All changes in their
    fair value are recorded in income unless cash flow hedge accounting is
    used, in which case the changes in fair value associated with the
    effective portions of the hedge is recorded in other comprehensive
    income. The Company has elected to apply this accounting treatment for
    all embedded derivatives in host contracts entered into on or after
    November 1, 2003. The impact of the change in the accounting policy
    related to embedded derivatives was not material.

    Hedge Accounting
    ----------------
    At the inception of a hedging relationship, the Company documents the
    relationship between the hedging instrument and the hedged item, as well
    as the risk management objectives and strategy for undertaking various
    hedge transactions. This process includes linking all derivatives to
    specific assets and liabilities on the consolidated statements of
    financial position or to specific firm commitments or forecasted
    transactions. The Company also assesses, both at the inception of the
    hedge and on an ongoing basis, whether the derivatives that are used are
    effective in offsetting changes in fair values or cash flows of hedged
    items.

    Under the previous standards, derivatives that met the requirements for
    hedge accounting were generally accounted for on an accrual basis. Under
    the new standards, all derivatives are recorded at fair value.

    All gains and losses from changes in the fair value of derivatives not
    designated as a part of a hedging relationship are recognized in the
    statement of income. These gains and losses are reported in other income
    (expense).

    When derivatives are designated as hedges, the Company classifies them
    either as: (i) hedges of the change in fair value of recognized assets or
    liabilities or firm commitments (fair value hedges); (ii) hedges of the
    variability in highly probable future cash flows attributable to a
    recognized asset or liability, or a forecasted transaction (cash flow
    hedges); or (iii) hedges of net investments in a foreign operation (net
    investment hedges).

    Cash flow hedge
    ---------------
    The Company operates globally, which gives rise to risks that its
    earnings and cash flows may be adversely impacted by fluctuations in
    foreign exchange rates. The Company enters into foreign currency forward
    contracts and foreign currency option contracts to hedge foreign exchange
    exposures on anticipated sales.

    The effective portion of changes in the fair value of derivatives that
    are designated and qualify as cash flow hedges is recognized in other
    comprehensive income. Any gain or loss in fair value relating to the
    ineffective portion is recognized immediately in the statement of income
    in other income (expense).

    Amounts accumulated in other comprehensive income are reclassified to the
    statement of income in the period in which the hedged item affects
    income. When a hedging instrument expires or is sold, or when a hedge no
    longer meets the criteria for hedge accounting, any cumulative gain or
    loss existing in other comprehensive income at that time remains in other
    comprehensive income as long as the occurrence of the forecasted
    transaction is still probable and it would be recognized in the statement
    of income in the period the hedged transaction impacts income. When a
    forecasted transaction is no longer expected to occur, the cumulative
    gain or loss that was reported in other comprehensive income is
    immediately transferred to the statement of income. Upon adoption of the
    new standards, the Company recorded a net increase in derivatives assets
    included in accounts receivables of $1 million designated as cash flow
    hedges and an increase of $1 million pre-tax in accumulated other
    comprehensive income.

    Net investment hedges
    ---------------------
    Hedges of net investments in foreign operations are accounted for in a
    manner that is similar to cash flow hedges. Any gain or loss on the
    hedging instrument relating to the effective portion of the hedge is
    recognized in other comprehensive income. The gain or loss relating to
    the ineffective portion is recognized immediately in the statement of
    income. Gains and losses accumulated in other comprehensive income are
    included in the statement of income upon the repatriation, reduction or
    disposal of the investment in the foreign operation. The adoption of the
    new standards resulted in the reclassification of $347 million previously
    recorded in the foreign currency translation adjustment account to
    opening accumulated comprehensive income.

    (d) Measurement Uncertainty

    The preparation of consolidated financial statements that confirm with
    GAAP requires management to make estimates and assumptions that affect
    the reported amount of assets and liabilities and disclosures of
    contingent liabilities at the date of the consolidated financial
    statements and the reported amounts of revenue and expenses during the
    reporting period. Estimates are derived from financial models that are
    based on historical experience, current trends and other assumptions that
    are believed to be reasonable under the circumstances. Actual results
    could differ from those estimates.

    In early August 2007, we invested in $17 million of asset-backed
    commercial paper that has since been affected by the recent liquidity
    disruption in that market. We recorded a valuation provision of
    $2 million as an adjusting item to reflect our estimate of the current
    value of that asset. The provision reflects management's best estimate of
    the likely impairment based on a risk-adjusted estimate of expected
    future cash flows. Continuing uncertainties regarding the value of the
    assets, the nature and timing of future cash flows, and the outcome of
    the restructuring of this financial market may impact the amount that MDS
    will ultimately realize on this investment

    (e) Future Changes in Accounting Policies

    Capital Disclosures

    The CICA issued a new accounting standard, Section 1535 - "Capital
    Disclosures", which requires the disclosure of both qualitative and
    quantitative information that enables users of financial statements to
    evaluate the entity's objectives, policies and processes for managing
    capital. This new standard is effective for the Company beginning
    November 1, 2007.

    Financial Instruments

    The CICA issued two new accounting standards, Section 3862 - "Financial
    Instruments - Disclosures", and Section 3863, "Financial Instruments -
    Presentation", which apply to interim and annual financial statements
    relating to fiscal years beginning on or after October 1, 2007. The
    Company intends to adopt these new standards effective November 1, 2007.

    Accounting for Transaction Costs of Financial Instruments Classified
    Other than as Held for Trading

    On June 1, 2007, the EIC issued EIC-166, "Accounting Policy Choice for
    Transaction Costs", which allows an entity the accounting policy choice
    of recognizing all transaction costs in net income or adding to the
    initial carrying cost those transaction costs that are directly
    attributable to the acquisition or issue of the financial instrument for
    all similar financial instruments other than those classified as held for
    trading. The guidance is effective beginning November 1, 2007. The new
    guidance is not expected to have a material effect on the financial
    position or earnings of the Company.

    4.  Accumulated Other Comprehensive Income

    The accumulated balances related to each component of other comprehensive
    income, net of income taxes are as follows:

                                                                       As at
                                                                  October 31,
                                                                        2007
    -------------------------------------------------------------------------
    Unrealized gains on derivatives designated as
     cash flow hedges                                             $        4
    Unrealized foreign currency gains on debt designated
     as a hedge                                                          135
    Unrealized foreign currency gain (loss) on translation               337
    -------------------------------------------------------------------------
    Accumulated other comprehensive income balance as at
     October 31, 2007                                             $      476
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income tax liabilities related to the above components of accumulated
    other comprehensive income for unrealized gains on derivatives designated
    as cash flow hedges and unrealized gains on translation of debt
    designated as a hedge are $2 million and $24 million, respectively.

    5.  Share Capital and Stock Options

    The following table summarizes information on share capital and stock
    options and related matters as at October 31, 2007:

    (number of shares in thousands)                       Number      Amount
    -------------------------------------------------------------------------
    Common shares
    Balance as at October 31, 2006                       144,319  $      572
    Issued during the period                               1,090          21
    Repurchased during the period                        (22,831)        (91)
    -------------------------------------------------------------------------
    Balance as at October 31, 2007                       122,578  $      502
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter, the Company repurchased and cancelled
    22,831 Common shares, under the terms of a substantial issuer bid.

                                                                     Average
                                                                    Exercise
    (number of options in thousands)                      Number       Price
    -------------------------------------------------------------------------
    Stock options
    Balance as at October 31, 2006                         5,850  C$   18.76
    Activity during the period:
    Granted                                                1,241  C$   21.72
    Exercised                                               (982) C$   16.47
    Cancelled or forfeited                                  (554) C$   20.35
    -------------------------------------------------------------------------
    Balance as at October 31, 2007                         5,555  C$   19.66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There were 3,223 stock options exercisable as at October 31, 2007.

    6.  Acquisition of Molecular Devices Corporation

    On March 20, 2007, the Company completed a tender offer which resulted in
    MDS acquiring 100% of the shares of Molecular Devices Corporation (MD), a
    California-based company with global operations. MD designs, develops,
    manufactures, sells and services bioanalytical measurement systems that
    accelerate and improve drug discovery and other life sciences research.
    The Company acquired MD primarily to add their leading-edge products to
    those of MDS Sciex to strengthen MDS's position as one of the top global
    providers of analytical instrumentation and related products marketed to
    life sciences customers.

    The operations for this acquisition are reported within the results of
    the Company's newly formed MDS Analytical Technologies segment (which
    combines MD with the previous Instruments segment) in the consolidated
    financial statements from the acquisition date.

    The aggregate purchase consideration (net of cash acquired of
    $21 million) was approximately $600 million paid in cash from existing
    cash on hand. Included in the consideration is the cash cost of
    $27 million to settle all outstanding in-the-money options of MD at the
    closing date of the acquisition. Direct and incremental third party
    acquisition costs associated with the acquisition were approximately
    $7 million.

    The acquisition has been accounted for as a purchase in accordance with
    CICA Handbook Section 1581 "Business Combinations" and the Company has
    accordingly allocated the purchase price of the acquisition based upon
    the preliminary fair values of the assets acquired and liabilities
    assumed. The purchase price and related allocations have not been
    finalized and may be revised as a result of adjustments made to the
    purchase price as additional information becomes available regarding
    liabilities incurred and revisions are made to preliminary estimates of
    fair values made at the acquisition date. In connection with determining
    the fair value of the assets acquired and liabilities assumed, management
    performed assessments of intangible assets using customary valuation
    procedures and techniques.

    The components of the preliminary purchase price allocation for the
    acquisition cost of MD are as follows:

    -------------------------------------------------------------------------
    Consideration and acquisition costs:
    Cash and payments, net of cash acquired                       $      593
    Transaction costs                                                      7
    -------------------------------------------------------------------------

    Net consideration and acquisition costs                       $      600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Allocation of purchase price:
    Net tangible assets acquired                                  $       15
    Intangible assets acquired:
    Developed technologies                                               161
    Brands                                                                60
    Goodwill (non-tax deductible)                                        364
    -------------------------------------------------------------------------
    Total purchase price                                          $      600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    The following table summarizes the components of the net tangible assets
    acquired at fair value:

    -------------------------------------------------------------------------
    Inventories                                                   $       40
    Property, plant and equipment                                         12
    Other assets and liabilities, net                                    (37)
    -------------------------------------------------------------------------
    Net tangible assets acquired                                  $       15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other assets and liabilities include $25 million of net future tax
    liabilities. Net tangible assets acquired include a charge of $8 million
    to eliminate redundant positions and consolidate redundant facilities at
    MD over the course of the next year. The developed technologies will be
    amortized over their estimated lives, which are estimated to range
    between five and seven years, while the brands have an indefinite life
    and are not amortized.

    The acquisition of MD has added $6 million of annual commitments related
    to operating leases and $14 million of inventory purchase commitments in
    2007.

    7.  Sale of Canadian Diagnostics Business and Discontinued Operations

    In 2005, The Board of Directors of the Company approved a strategic plan
    to focus the Company on its life sciences businesses and to close or
    divest of businesses that were not strategic to this plan. As a result,
    the Company had reclassified its Canadian diagnostics business as
    discontinued operations.

    On February 26, 2007, the Company completed the sale of its Canadian
    diagnostic services business to Borealis Infrastructure Management Inc.
    for gross proceeds of C$1.325 billion. The sale was structured as an
    asset purchase transaction and after provision for taxes, expenses and
    amounts attributable to minority interests, resulted in net proceeds of
    US$988 million comprising $929 million in cash and $65 million in an
    unconditional non-interest bearing note payable in March 2009. This note
    was recorded at an effective interest rate of 4.4% and had a book value
    of $59 million. Included in income from discontinued operations, the
    Company recorded a net gain of US$791 million on the transaction.

    As a result of the sale, MDS sold $84 million in net assets consisting
    of:

    -------------------------------------------------------------------------
    Accounts receivable                                           $       31
    Property, plant and equipment                                         27
    Long-term investments and other                                       18
    Goodwill                                                              57
    Accounts payable and accrued liabilities                             (25)
    Long-term debt and other long-term obligations                       (24)
    -------------------------------------------------------------------------
    Net assets                                                    $       84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results of discontinued operations in the quarter and the twelve-
    months ended October 31 were as follows:


                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net revenues              $        -  $       82  $       95  $      362
    Cost of revenues                   -         (45)        (57)       (225)
    Selling, general and
     administration                   (1)        (15)        (16)        (53)
    Depreciation and
     amortization                      -          (3)          -         (10)
    Restructuring charges              -           -           -          (1)
    Other expenses                     -          (3)          -          (3)
    Equity earnings                    -           1           1           3
    -------------------------------------------------------------------------
    Operating income (loss)           (1)         17          23          73
    Gain on sale of
     discontinued operations           -           -         904          24
    Dividend and interest
     income                            -           1           1           2
    Income tax recovery
     (expense)                         -          16        (117)          7
    Minority interest - net
     of tax                           (1)         (1)         (5)         (8)
    -------------------------------------------------------------------------
    Income (loss) from
     discontinued operations
     - net of tax             $       (2) $       33  $      806  $       98
    -------------------------------------------------------------------------
    Basic earnings per share  $    (0.01) $     0.23  $     6.12  $     0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per
     share                    $    (0.01) $     0.23  $     6.10  $     0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results from discontinued operations for 2007 reflect only the
    Canadian diagnostic services business. The results from discontinued
    operations for 2006 include results from the Canadian diagnostic services
    business, the results of Source Medical Corporation, and certain small
    MDS Pharma Services businesses discontinued in 2005. In accordance with
    Section 3475 of the CICA Handbook, long-lived assets classified as held
    for sale are measured at the lower of carrying value and fair value less
    costs to sell.

    Assets held for sale and liabilities related to assets held for sale
    comprised:

                                                           As at       As at
                                                      October 31  October 31
                                                            2007        2006
    -------------------------------------------------------------------------
    Assets held for sale
    Accounts receivable                               $        -  $       31
    Inventories                                                -           3
    Prepaid expenses and other                                 -           3
    Property, plant and equipment                              -          28
    Future tax asset                                           -          63
    Long-term investments and other                            1          13
    Goodwill                                                   -          54
    Intangibles                                                -           1
    -------------------------------------------------------------------------
    Total assets held for sale                                 1         196
    Less: Current assets held for sale(1)                     (1)       (196)
    -------------------------------------------------------------------------
    Long-term assets held for sale                    $        -  $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities related to assets held for sale
    Accounts payable and accrued liabilities          $        -  $       33
    Income taxes payable                                       -           -
    Long-term debt                                             -           4
    Other long-term obligations                                -           6
    Future tax liabilities                                     -          55
    Minority interest                                          -          16
    -------------------------------------------------------------------------
    Total liabilities related to assets held for sale          -         114
    Less: Current liabilities related to assets
          held for sale(1)                                     -        (114)
    -------------------------------------------------------------------------
    Long-term liabilities related to assets held
     for sale                                         $        -  $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Assets held for sale and liabilities related to assets held for sale
        have been classified as current as the Company had signed agreements
        where such assets were expected to be disposed of within one year.


    8.  Research and Development

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Gross expenditures        $       22  $       14  $       72  $       52
    Investment tax credits            (2)         (3)         (5)         (9)
    Recoveries from partners          (7)         (4)        (24)        (21)
    Development costs
     deferred                         (5)          -         (14)         (4)
    -------------------------------------------------------------------------
    Research and development
     expense                  $        8  $        7  $       29  $       18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three months ended October 31, 2007 depreciation and amortization
    includes $2 million (2006 - $2 million) related to equipment used for
    research and development, and $2 million from amortization of deferred
    development costs (2006 - $2 million). For the twelve months ended
    October 31, 2007 depreciation and amortization includes $6 million
    (2006 - $7 million) related to equipment used for research and
    development and $6 million (2006 - $6 million) from amortization of
    deferred development costs.

    9.  Restructuring

    An analysis of the activity in the reserve, which covers restructuring
    plans announced and recorded in 2005, 2006 and 2007, is as follows:

                                          Cumulative drawdowns
                                        ------------------------
                           Restructuring                             Reserve
                                  Charge        Cash    Non-cash     Balance
    -------------------------------------------------------------------------
    2005 Restructuring Plan:
    Workforce reductions      $       34  $      (32) $       (1) $        1
    Equipment and other
     asset write-downs -
     adjustment                        7           -          (7)          -
    Contract cancellation
     charges                          10          (2)         (8)          -
    -------------------------------------------------------------------------
      Total for 2005 Plan     $       51  $      (34) $      (16) $        1
    -------------------------------------------------------------------------
    2006 Restructuring Plan:
    Workforce reductions      $        1  $       (1) $        -  $        -
    Contract cancellation
     charges                          (8)         (1)          9           -
    -------------------------------------------------------------------------
      Total for 2006 Plan     $       (7) $       (2) $        9  $        -
    -------------------------------------------------------------------------
    2007 Restructuring Plan:
    Workforce reductions      $       18  $       (9) $        -  $        9
    Equipment and other
     asset write-downs                 4           -          (2)          2
    Contract cancellation
     charges                           5          (5)          -           -
    Other                             13          (9)         (2)          2
    -------------------------------------------------------------------------
      Total for 2007 Plan     $       40  $      (23) $       (4) $       13
    -------------------------------------------------------------------------
      Remaining Reserve
       Balance, Total                                             $       14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the quarter ended April 30, 2007, management of the Company
    approved a restructuring plan designed principally to improve the
    profitability of MDS Pharma Services. The Company recorded a
    restructuring provision of $28 million in the second quarter including
    $17 million for severance, $5 million to reduce the carrying value of
    certain assets and $6 million for other costs. During the three months
    ended October 31, 2007, the Company utilized $5 million of this
    provision.

    10. Earnings Per Share

    (a) Dilution


                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
    (number of shares
     in millions)                   2007        2006        2007        2006
    -------------------------------------------------------------------------
    Weighted average number
     of Common shares
     outstanding - basic             123         143         132         143
    Impact of stock options
     assumed exercised                 -           1           -           1
    -------------------------------------------------------------------------
    Weighted average number
     of Common shares
     outstanding - diluted           123         144         132         144
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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              Year ended
                                       to October 31           to October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net income                $       15  $       47  $      772  $      127
    Compensation expense for
     options granted prior
     to November 1, 2003               -           -           -          (2)
    -------------------------------------------------------------------------
    Net income - pro-forma    $       15  $       47  $      772  $      125
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pro-forma basic
     earnings per share       $     0.13  $     0.33  $     5.86  $     0.89
    Pro-forma diluted
     earnings per share       $     0.13  $     0.33  $     5.85  $     0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) Stock Options

    During the quarter, the Company granted 17,900 options (2006 - 9,000) at
    an average exercise price of C$20.87 (2006 - C$19.77). These options have
    a fair value determined using the Black-Scholes model of C$5.32 per share
    (2006 - C$4.18) based on the following assumptions:

                                                            2007        2006
    -------------------------------------------------------------------------
    Risk-free interest rate                                 4.2%        4.0%
    Expected dividend yield                                 0.0%        0.0%
    Expected volatility                                     0.20        0.21
    Expected time to exercise (years)                       4.40        3.25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Other Income (Expense) - Net

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Write-down of other
     long-term assets         $        -  $        -  $        -  $       (1)
    Write-down of
     investments                       -           -          (6)          -
    Gain on sale of
     long-term assets                  1           -           3           2
    Loss on sale of
     Hamburg clinic                    -           -          (4)          -
    Gain on sale of business           -           -           1           -
    Acquisition integration
     costs                            (2)          -          (4)          -
    FDA provision                      -           -         (61)          -
    Valuation provision               (2)          -          (2)          -
    Protana settlement                 5           -           5           -
    Unrealized gain on
     interest rate swaps               2           2           1           -
    MAPLE settlement                   3           -           6          (9)
    Insurance settlement               -          (1)          -           2
    -------------------------------------------------------------------------
    Other income (expense)
     - net                    $        7  $        1  $      (61) $       (6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 nil
    (2006 - nil) and $2 million (2006 - $1 million) for the year.

    13. Supplementary Cash Flow Information

    Non-cash items affecting net income comprise:

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Depreciation and
     amortization             $       26  $       18  $       91  $       63
    Stock option compensation          2           1           4           4
    Deferred revenue                  (2)         (1)         (5)         (7)
    Future income taxes              (10)         32          36          19
    Equity earnings - net
     of distribution                   -           7           -          15
    Write-down of MAPLE assets         -           -           -           9
    Write-down of investments          2           -           8           -
    Write-down of intangibles          1           -           1           -
    Loss on sale of Hamburg
     clinic                            -           -           4           -
    (Gain) loss on disposal of
     equipment and other assets       (5)          -           1           -
    Gain on sale of
     investment/business               -           -          (2)         (2)
    Amortization of purchase
     price adjustments                 2           1          14           1
    Other                             (5)         (7)         (5)         (2)
    -------------------------------------------------------------------------
                              $       11  $       51  $      147  $      100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Changes in non-cash working capital balances relating to operations
    include:

                          Three months to October 31   Year ended October 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Accounts receivable       $      (21) $      (17) $      (30) $      (19)
    Unbilled revenue                  11          44          23         (25)
    Inventories                      (10)          4         (20)         49
    Prepaid expenses and
     other                            25           6          33          (5)
    Accounts payable and
     deferred revenue                 49           -          81         (41)
    Income taxes                       4         (56)          -         (55)
    -------------------------------------------------------------------------
                              $       58  $      (19) $       87  $      (96)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. Segmented Information

                                            Three months to October 31, 2007
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   123   $    76       $   119    $     -  $   318
    Cost of revenues         (78)      (40)          (60)         -     (178)
    Selling, general
     and administration      (40)      (15)          (23)       (14)     (92)
    Research and
     development               -         -            (8)         -       (8)
    Depreciation and
     amortization             (9)       (3)          (14)         -      (26)
    Restructuring
     charges - net             4         -             -          -        4
    Other income
     (expense) - net           -         3            (1)         5        7
    -------------------------------------------------------------------------
    Operating income
      (loss)             $     -   $    21       $    13    $    (9) $    25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $   853   $   772       $   938    $   501  $ 3,064
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $    20   $     3       $     2    $     3  $    28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                            Three-months to October 31, 2006
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   122   $    76       $    62    $     -  $   260
    Cost of revenues         (91)      (39)          (39)         -     (169)
    Selling, general
     and administration      (37)      (14)           (3)        (5)     (59)
    Research and
     development               -        (2)           (5)         -       (7)
    Depreciation and
     amortization             (9)       (4)           (5)         -      (18)
    Restructuring
     charges - net             1         2             -          8       11
    Other income
    (expense) - net           (1)        -             -          2        1
    Equity loss                -         -             -         (1)      (1)
    -------------------------------------------------------------------------
    Operating income
     (loss)              $   (15)  $    19       $    10    $     4  $    18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total Assets         $   877   $   621       $   166    $   720  $ 2,384
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $     9   $     -       $     2    $     3  $    14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                 Year ended October 31, 2007
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   477   $   289       $   396    $     -  $ 1,162
    Cost of revenues        (326)     (150)         (218)         -     (694)
    Selling, general
     and administration     (138)      (51)          (64)       (33)    (286)
    Research and
     development               -        (2)          (27)         -      (29)
    Depreciation and
     amortization            (35)      (13)          (41)        (2)     (91)
    Restructuring
     charges - net           (31)        -             -         (9)     (40)
    Other income
     (expense) - net         (65)        7            (3)         -      (61)
    -------------------------------------------------------------------------
    Operating income
     (loss)              $  (118)  $    80       $    43    $   (44) $   (39)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $   853   $   772       $   938    $   501  $ 3,064
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $    48   $     8       $    10    $     7  $    73
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                 Year ended October 31, 2006
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   459   $   297       $   246    $     -  $ 1,002
    Cost of revenues        (343)     (150)         (151)         -     (644)
    Selling, general
     and administration     (128)      (51)          (16)       (30)    (225)
    Research and
     development               -        (4)          (14)         -      (18)
    Depreciation and
     amortization            (30)      (15)          (18)         -      (63)
    Restructuring
     charges - net             -         2             -          5        7
    Other income
     (expense) - net           4        (9)            -         (1)      (6)
    Equity loss               (1)        -             -         (4)      (5)
    -------------------------------------------------------------------------
    Operating income
     (loss)              $   (39)  $    70       $    47    $   (30) $    48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total Assets         $   877   $   621       $   166    $   720  $ 2,384
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $    35   $     -       $     7    $    11  $    53
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    15. Financial Instruments

    The carrying amounts and fair values for all derivative financial
    instruments are as follows:


                                    As at October 31        As at October 31
    -------------------------------------------------------------------------
                                                2007                    2006
    -------------------------------------------------------------------------
                                Carrying        Fair    Carrying        Fair
                                  Amount       Value      Amount       Value
    -------------------------------------------------------------------------
    Asset (liability) position:
      Currency forward and
       option - asset         $        7  $        7  $        1  $        1
      Currency forward and
       option - liabilities   $      (12) $      (12) $        -  $        -
    Interest rate swap and
     option contracts         $       (1) $       (1) $       (2) $       (2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As of October 31, 2007, the Company had outstanding foreign exchange
    contracts in place to sell US$34 million at a weighted average exchange
    rate of C$1.1280 maturing over the next five months. The Company also had
    interest rate swap contracts that 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.

    During the third quarter, the Company de-designated $70 million of the
    US dollar debt from being a hedge of its US net investment, and entered
    into foreign exchange contracts to lock in the exchange rate the Company
    would pay to buy the US dollars required to make the scheduled December
    debt payments. Gains and losses on the foreign exchange contracts and on
    this portion of the US dollar denominated debt are offsetting in the
    income statement.

    16. Income Taxes

    A reconciliation of expected income taxes to the reported income tax
    expense is provided below. Our effective tax rate for the quarter was
    lower than expected due to the bankruptcy proceeds that we recorded this
    quarter relating to Protana Inc., that are not subject to income tax.

                                                  Three months to October 31
    -------------------------------------------------------------------------
                                                            2007        2006
    -------------------------------------------------------------------------
    Expected income tax expense (recovery) at MDS's
     35% (2006 - 35%) statutory rate                  $        9  $        6
    Decrease to taxes expense as a result of:
      Protana bankruptcy proceeds not subject to tax          (1)
      Impact of tax rate changes on future tax
       balances                                                           (4)
    -------------------------------------------------------------------------
    Reported income tax expense                       $        8  $        2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    17. 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 period have been
    reclassified to conform to the current period's financial statement
    presentation.

    18. Subsequent Events

    Subsequent to the year-end, the Company signed an agreement to sell its
    external beam therapy and self-contained irradiator product lines. The
    sale is a result of MDS Nordion's strategy to focus its resources on
    being a leading innovator in molecular medicine. Under the terms of this
    agreement, Best Medical International Inc., a provider of radiotherapy
    and oncology products, will purchase MDS Nordion's external beam therapy
    and self-contained irradiator product lines for $15 million. Best Medical
    International Inc. will acquire these two product lines with combined
    annualized revenues of approximately US$32 million and approximately
    150 employees. The transaction, which is subject to the usual closing
    conditions, is expected to close in the second quarter of 2008. The
    Company will report a loss on disposal of this product line, including
    all costs associated with the disposal, in the range of $4 million to
    $6 million.

    On November 30 and December 5, 2007, we announced that MDS Nordion was
    experiencing an interruption in supply of medical isotopes from our
    primary supplier, Atomic Energy of Canada Limited (AECL) while they
    completed a scheduled shutdown and an upgrade to the electrical system of
    the National Research Universal reactor. AECL advised us that they are
    working closely with industry regulators on this matter. They also
    advised us that production was scheduled to recommence in early to mid-
    January. While we are working closely with our global supply network to
    lessen the impact of this shutdown, we will not be able to fully mitigate
    the impact of this supply disruption on our results. We currently
    estimate the impact of this disruption on operating income at
    $8 to $9 million in total for the first quarter of 2008.
    





For further information:

For further information: Investor Inquiries, Sharon Mathers, Senior
Vice-President, Investor Relations and External Communications, (416)
213-4721, sharon.mathers@mdsinc.com; Media Inquiries, Catherine Melville,
Director, External Communications, (416) 675-6777 ext. 32265,
catherine.melville@mdsinc.com

Organization Profile

Nordion Inc.

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