MDS Reports Second Quarter 2008 Results



    Net Revenue up 24%, Adjusted EBITDA up 10%

    TORONTO, June 5 /CNW/ - MDS Inc. (TSX: MDS; NYSE:   MDZ), a leading
provider of products and services to the global life sciences markets, today
reported its second quarter 2008 results for the period ended April 30, 2008.
For the quarter, MDS reported total revenue of $350 million, net income of
$11 million and earnings per share from continuing operations of $0.09. Net
revenue was $326 million and adjusted EBITDA was $34 million, up from
$263 million and $31 million in the prior year, respectively. Adjusted
earnings per share were $0.06, down from $0.11 in the prior year.

    
    Quarterly Highlights

    -   Delivered net revenue of $326 million, up 24% from $263 million in
        the prior year. Excluding the impact of foreign exchange and
        acquisitions, net revenue increased 5%.
    -   Increased adjusted EBITDA to $34 million, up 10% from $31 million in
        the prior year.
    -   Reported adjusted earnings per share of $0.06, down from $0.11 in the
        prior year, impacted by $0.04 of intangible asset amortization from
        the Molecular Devices acquisition.
    -   MDS Pharma Services had another quarter of strong new business wins,
        up 60% from prior year to $165 million. The business delivered
        $128 million in net revenue and a loss of $1 million in adjusted
        EBITDA compared to breakeven in the prior year.
    -   MDS Nordion delivered solid performance in Q2 reporting revenue of
        $80 million, up 13% from $71 million in the prior year. Adjusted
        EBITDA increased 9% to $24 million versus $22 million last year.
    -   MDS Analytical Technologies delivered $118 million in revenue
        compared to $77 million in the prior year. Adjusted EBITDA increased
        13% from $15 million to $17 million and was impacted by softening
        demand for high-end instruments.
    -   MDS repurchased and cancelled 619,700 Common shares for $12 million
        under its Normal Course Issuer Bid.
    

    "While we were able to achieve year-over-year revenue and EBITDA growth,
performance was challenged by softening in high-end instrument sales to
pharmaceutical customers in the US market," said Stephen P. DeFalco, President
and Chief Executive Officer, MDS Inc. "We are evaluating a number of actions
to manage through these market conditions and to translate our revenue
progress at MDS Pharma Services into accelerated EBITDA growth."

    
    Operating Segment Results

    MDS Pharma Services

                                                                    % Change
                                                                   ----------
    ($ millions)                             Q2 2008     Q2 2007    Reported
    -------------------------------------------------------------------------
    Net Revenues:
    Early-stage                                   68          60         13%
    Late-stage                                    60          55          9%
    -------------------------------------------------------------------------
                                             $   128     $   115         11%
    Reimbursement revenues                        24          23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total revenues                           $   152     $   138
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:                         $    (1)    $     -           -
                                             %    (1)    %     -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the second quarter, MDS Pharma Services net revenue increased 11%
over the prior year. Excluding the impact of foreign exchange, revenue
increased approximately 1% as late-stage revenue continues to be impacted by
previously announced contract cancellations. Adjusted EBITDA was a loss of
$1 million compared to nil last year as unfavourable revenue mix, foreign
exchange and investments in growth offset productivity savings. New business
wins of $165 million were up 60% from prior year and increased backlog
sequentially by $36 million to $431 million. Both early-stage and late-stage
contributed to backlog growth, with early-stage backlog supported by
increasing demand at MDS Pharma Services' new Phase I facility in Phoenix,
Arizona.
    Additional progress has been made resolving client FDA audits leading to
a $10 million benefit from the revised estimate for future costs. This benefit
is not included in adjusted EBITDA.

    
    MDS Nordion

                                                                    % Change
                                                                   ----------
    ($ millions)                             Q2 2008     Q2 2007    Reported
    -------------------------------------------------------------------------
    Revenues                                 $    80     $    71         13%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:                         $    24     $    22          9%
                                             %    30     %    31           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Nordion's revenue for the second quarter was $80 million, up 13% from
the prior year, primarily driven by foreign exchange and strength in cobalt
sterilization technologies, which contributed 9% and 4% in revenue growth,
respectively. Adjusted EBITDA was $24 million compared to $22 million in the
second quarter of 2007.
    Subsequent to the quarter, MDS Nordion completed the previously announced
divestiture of two non-strategic product lines.
    After quarter end, Atomic Energy of Canada Limited (AECL) announced its
intention to discontinue the MAPLE project at Chalk River, Ontario. AECL has
indicated its commitment to providing ongoing supply of medical isotopes and
the Canadian government has asked AECL to pursue the extension of the NRU
operation beyond its current license. MDS is reviewing the potential impact of
this announcement. The Company intends to evaluate all options and pursue
appropriate steps to protect the interests of patients, its customers and its
shareholders.

    
    MDS Analytical Technologies

                                                                    % Change
                                                                   ----------
    ($ millions)                             Q2 2008     Q2 2007    Reported
    -------------------------------------------------------------------------
    Revenues                                 $   118      $    77        53%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA                          $    17      $    15        13%
                                             %    14      %    19          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Analytical Technologies delivered $118 million in revenue, a 53%
increase over prior year and $17 million in adjusted EBITDA, a 13%
year-over-year increase. Adjusted for acquisitions and foreign exchange,
revenue increased by 15%. Profitability was impacted by softening demand for
high-end instruments, particularly in the pharmaceutical market.
    Sciex product lines contributed $8 million in adjusted EBITDA in the
second quarter, flat to prior year. Mass spectrometry end user revenue,
including the impact of foreign exchange, grew 6% compared to the same period
last year. Molecular Devices (MD) contributed $55 million in revenue and
$9 million in adjusted EBITDA.
    During the quarter, MDS Analytical Technologies continued to drive
innovation and growth with the launch of the next-generation Arcturus XT(TM)
instrument for laser capture microdissection. The new Arcturus XT(TM) offers
researchers improved speed, precision and flexibility for their
microdissection experiments.

    Guidance

    Primarily as a result of softening demand for high-end instruments in the
pharmaceutical markets and a delay in achieving targeted profitability at
MDS Pharma Services, MDS has revised its guidance for its 2008 financial
performance. For the full year 2008, the Company now expects to achieve the
following results:

    
    (millions of US dollars, except earnings per share)
    -------------------------------------------------------------------------
                         2007 Actual        Revised 2008             Initial
                             Results            Guidance  (February 21, 2008)
    -------------------------------------------------------------------------
    Total Revenues          $  1,210    $  1,350 - 1,400    $  1,350 - 1,410
    Net Revenues            $  1,119    $  1,250 - 1,290    $  1,250 - 1,300
    Adjusted EBITDA         $    145    $      160 - 170    $      175 - 185
    Adjusted EPS            $   0.34    $    0.27 - 0.33    $    0.37 - 0.43
    Income (loss) from
     continuing operations  $    (33)   $        45 - 55    $        55 - 65
    Basic EPS               $  (0.25)   $    0.37 - 0.45    $    0.45 - 0.53
    Capital Expenditures    $     71    $        60 - 70    $        65 - 75
    Effective tax rate           41%            10 - 20%             0 - 10%

    The above guidance is based on assumptions described in our MD&A.
    


    Conference Call

    MDS will be holding a conference call today at 9:30 am EST to discuss
second quarter 2008 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 29 countries. Find out more at
www.mdsinc.com or by calling 1-888-MDS-7222, 24 hours a day.

    Caution Concerning Forward-Looking Statements

    This document contains forward-looking statements. Some forward-looking
statements may be identified by words like "expects", "anticipates", "plans",
"intends", "indicates" or similar expressions. The statements are not a
guarantee of future performance and are inherently subject to risks and
uncertainties. MDS's actual results could differ materially from those
expressed in the forward-looking statements due to these risks and a number of
other factors, including, but not limited to, successful implementation of
structural changes, including restructuring plans and acquisitions, technical
or manufacturing or distribution issues, the competitive environment for MDS's
products and services, the degree of market penetration of its products and
services, the ability to secure a reliable supply of raw materials, the impact
of our clients' exercising rights to cancel certain contracts, the strength of
the Canadian and US economies, the impact of the movement of the US dollar
relative to other currencies, particularly the Canadian dollar and the euro,
uncertainties associated with critical accounting assumptions and estimates,
and other factors set forth in reports and other documents filed by MDS with
Canadian and US securities regulatory authorities from time to time, including
MDS's quarterly and annual MD&A, annual information form, and annual report on
Form 40-F for the fiscal year ended October 31, 2007 filed with the Securities
& Exchange Commission.

    Also note that all financial data is now shown on a US GAAP basis. MDS
converted to US GAAP reporting with the filing of its 2007 annual report and
financial statements on January 29, 2008.

    Use of Non-GAAP Financial Measures

    The use of non-GAAP measures including terms such as net revenue,
adjusted EBITDA, adjusted EPS, new orders and backlog are used to explain the
operating performance of the Company. These terms are not defined by GAAP and
MDS's use may vary from that of other companies. MDS uses certain non-GAAP
measures so that investors and analysts have a better understanding of the
significant events and transactions that have had an impact on results or may
have an impact on MDS's financial outlook. MDS provides a description of these
non-GAAP measures and a reconciliation of these non-GAAP measures for 2007
actual results to GAAP financial results in the MD&A of its 2007 annual
report.


    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

    June 5, 2008

    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
April 30, 2008 and its financial position as at April 30, 2008. This MD&A
should be read in conjunction with the unaudited consolidated financial
statements and notes that follow. In 2007, MDS chose to adopt United States
generally accepted accounting principles (US GAAP) for financial reporting. As
a result of this change, the Company restated to US GAAP its previously filed
financial statements for the four quarters of 2007. With US GAAP as our
primary basis of accounting, we will reconcile our US GAAP earnings to
Canadian generally accepted accounting principles (Canadian GAAP). This
reconciliation will be done as required by applicable Canadian regulations on
an annual and quarterly basis for fiscal 2008 and 2009. The results discussed
in this MD&A are based on US GAAP. To supplement the US GAAP MD&A included in
this document, please refer to our separately filed Canadian Supplement to
this MD&A that restates, based on financial information of MDS reconciled to
Canadian GAAP, those parts of our MD&A that would contain material differences
if they were based on financial statements prepared in accordance with
Canadian GAAP.
    For additional information and details, readers are referred to the 2007
annual financial statements and MD&A and the Company's 2007 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.sec.gov.
    Our MD&A is intended to enable readers to gain an understanding of MDS's
current results and financial position as at and for the period ended
April 30, 2008. To do so, we provide information and analysis comparing the
results of operations and financial position for the current interim period to
those of the same period in 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 (SEC), 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 2008, 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 medical 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 and services introduced by us or by
our competitors; the impact of our clients' exercising rights to cancel
certain contracts; the impact of changes in laws, trade and import/export
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.

    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);
adjusted EBITDA margin; adjusted net income, adjusted earnings per share
(EPS); operating working capital; net revenue; new orders 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
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 amounts 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 GAAP and non-GAAP 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.
    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 have an impact on 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.
    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 have not yet been recognized as
net revenue. A confirmed contract is one for which the Company has received
customer commitment in a manner that is customary for the type of contract
involved. For large, long-term contracts, customer commitment is generally
evidenced by the receipt of a signed contract or confirmation awarding the
work to MDS. For smaller and short-term contracts, customer commitment may be
communicated in other ways, including email messages and oral confirmations.
Only contracts for which such commitments have been received are included in
backlog and the amount of backlog for these contracts is measured based on the
net 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. As at January 31, 2008, we started to
report new orders, which are the confirmed contracts for which we have
received a customer commitment within the fiscal quarter. We have also started
to report period ending backlog which measures our backlog at the period
ending date and we continue to report the average backlog which is the average
of the three month end backlog balances for the interim period.
    Substantially all of the Sciex brand products of MDS Analytical
Technologies are sold 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 from the joint ventures as profit sharing. Under US GAAP, we report
our direct revenues from sales to the joint ventures as revenues and we report
our share of the profits of the joint ventures as equity earnings. We do not
report our share of all end-user revenues, despite the fact that these
revenues contribute substantially to our profitability. In order to provide
readers with a better understanding of the drivers of profitability for the
Sciex products, we report growth in end-user revenues as reported by our joint
venture partners. This figure provides management and readers with additional
information on the performance of our global business, including trends in
customer demand and our performance relative to the overall market.
    Tabular amounts are in millions of United States (US) dollars, except per
share amounts and where otherwise noted.

    Adoption of US GAAP

    Effective with the reporting of our fiscal 2007 annual results, we
adopted US GAAP as our primary reporting standard for our consolidated
financial statements. We have adopted US GAAP to improve the comparability of
our financial information with that of our competitors, the majority of whom
are US-based multinational companies. All figures for prior periods contained
in these documents have been revised to reflect the adoption of US GAAP as our
reporting standard.

    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, sterilization,
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.

    Discontinued Operations

    All financial references in this document exclude those businesses that
we consider to be discontinued. The results of discontinued operations relate
to the diagnostics business we sold in 2007. All financial references for the
prior year have been restated to reflect this treatment.

    Subsequent Event - MAPLE Reactor

    On May 16, 2008, Atomic Energy of Canada Limited (AECL), a Canadian crown
corporation, and the Government of Canada, publicly announced their intention
to discontinue the development work on the MAPLE reactors located at Chalk
River laboratories, effective immediately. The MAPLE reactors were to replace
AECL's current National Research Universal reactor (NRU) and provide MDS
Nordion with a long-term source of supply of medical isotopes. AECL and the
Government of Canada have also publicly announced that they will continue to
supply medical isotopes using the NRU and will pursue an extension of the NRU
operation beyond its current expiry date of October 31, 2011. MDS has
substantial financial interests in the success of the MAPLE reactor project,
primarily through a related 40-year supply agreement with AECL, as a result of
an exchange of non-monetary assets in February 2006 (see below). The Company
was neither consulted nor informed in advance by AECL or the Canadian
government about their decision. AECL's announcement and position represents a
different perspective on the contract than that held by MDS. The Company
intends to evaluate all options and pursue appropriate steps to protect the
interests of patients, its customers and its shareholders.
    On February 22, 2006, the Company had announced an agreement resulting
from a comprehensive mediation process with AECL related to the MAPLE reactor
project. Under the agreement, AECL paid the Company $22 million, and assumed
ownership of the MAPLE facilities and took responsibility for all costs
associated with completing the project and the future production of medical
isotopes from the MAPLE facilities. The parties retained certain rights
related to existing claims. In addition, AECL acquired $47 million of
MAPLE-related inventories in exchange for a non-interest bearing note having a
net present value of $38 million, to be repaid over four years commencing in
2008. The agreement requires AECL to supply medical isotopes to MDS Nordion
over a 40-year period, upon the MAPLE facilities meeting certain operational
criteria, in exchange for a fixed percentage of the selling price. In
accordance with SFAS No. 153, "Exchanges of Non-monetary Assets", the Company
exchanged the MAPLE asset for the 40-year supply agreement which was recorded
as an intangible asset at its fair value of $308 million. This amount is to be
amortized on a straight-line basis over a 40-year period once commercial
production of MAPLE isotopes begins. The Company recorded a loss on this
transaction of $36 million in 2006.
    As a result of the May 16, 2008 announcement by AECL and the Government
of Canada, MDS is reviewing the impact on its business from an operational and
financial reporting perspective. The Company will evaluate all options and
pursue appropriate steps to protect the interests of patients, its customers
and its shareholders. The principal US GAAP reporting exposure for MDS related
to the announcement is its intangible asset associated with the 40-year supply
agreement currently carried at $342 million (revalued at the April 30, 2008
exchange rate). MDS will continue to evaluate the intangible asset for
possible impairment and the relevant financial reporting implications based
upon the progress of any dialogue, negotiations or legal proceedings between
AECL, the Government of Canada and the Company.

    MDS Inc.

    
    Consolidated operating highlights and reconciliation of consolidated
    adjusted EBITDA

    Second Quarter                                              Year-to-date
    ---------------                                           ---------------
      2008    2007                                              2008    2007
    -------------------------------------------------------------------------
       350     286     Total revenues                            672     550
       (24)    (23)    Reimbursement revenues                    (50)    (46)
    -------------------------------------------------------------------------
    $  326  $  263     Net revenues                           $  622  $  504
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                       Income (loss) from continuing
        11     (55)     operations                                28     (55)
         5     (27)    Income tax expense (recovery)              (2)    (24)
         2      (2)    Net interest expense                        2       -
         -      (1)    Mark-to-market on interest rate swaps      (2)     (1)
        23      18     Depreciation and amortization              50      32
    -------------------------------------------------------------------------
        41     (67)    EBITDA                                     76     (48)
         1      25     Restructuring charges, net                  1      38
         3       6     Valuation provisions                        3       6
         -       3     Loss on sale of a business/investment       2       1
                       (Reversal) provision for FDA-related
       (10)     61      costs                                    (10)     61
        (1)      3     Acquisition integration                     2       3
    -------------------------------------------------------------------------
    $   34  $   31     Adjusted EBITDA                        $   74  $   61
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
       10%     12%     Adjusted EBITDA margin                    12%     12%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Consolidated net revenues which exclude reimbursement revenues associated
with reimbursed expenses in the MDS Pharma Services segment, were up 24% on a
reported basis to $326 million for the second quarter of 2008 compared to
$263 million last year. The Molecular Devices (MD) business of MDS Analytical
Technologies, which was acquired in the second quarter of 2007, increased net
revenues by $26 million in the second quarter of 2008, compared to the 41 day
post-acquisition period in the second quarter of 2007. Foreign exchange
impacts increased net revenue in the second quarter of 2008 compared to the
second quarter of 2007 by approximately $25 million or 10%. Excluding the
impact of the MD acquisition and foreign exchange, net revenues increased
$12 million or 5% with growth across all businesses.
    MDS Pharma Services net revenues increased 11% compared to the same
period in 2007, with growth in both early-stage and late-stage net revenues.
MDS Nordion revenues were also up 13% compared to the same period in 2007. MDS
Analytical Technologies revenues were up $41 million, including the $26
million increase associated with MD.
    Income from continuing operations for the second quarter of 2008 was
$11 million compared to a loss of $55 million reported for the same period in
2007. The second quarter of 2008 included $7 million of after tax income from
the revision of our best estimate of the remaining Food and Drug
Administration (FDA) provision related to our Montreal Bioanalytical business.
The $55 million loss for the second quarter of 2007 includes the after tax
provision set-up for FDA-related costs, a restructuring charge and a long-term
investment valuation. These items amounted to $66 million on an after-tax
basis.
    Adjusted EBITDA for the quarter was $34 million, up 10% compared to
$31 million reported for last year. MDS Nordion adjusted EBITDA increased by
$2 million. MDS Analytical Technologies adjusted EDITDA grew $2 million to
$17 million. MD contributed $9 million of adjusted EBITDA in the second
quarter of 2008 compared to $7 million in the 41 days post-acquisition period
in the second quarter of 2007. MDS Pharma Services reported a loss of
$1 million in the quarter versus breakeven last year. In the second quarter of
2008, we experienced a negative impact of approximately $4 million on adjusted
EBITDA from the net impact of foreign exchange, due to the year-over-year
weakness of the US dollar; however, this was partially offset by a $3 million
reduction in the foreign exchange loss on the revaluation of net monetary
assets.
    Adjustments reported for the second quarter of 2008 include income of
$10 million due to a revision of our best estimate of the provision associated
with the FDA issue, $3 million expense related to an additional 20% provision
against an investment in asset-backed commercial paper (ABCP), $1 million
expense related to facilities restructuring charges and $1 million related to
final adjustments of MD integration costs. In the second quarter of 2007,
adjustments included a $61 million charge related to the FDA provision,
$25 million of restructuring costs related mostly to profit improvement
initiatives in MDS Pharma Services, a $6 million valuation provision related
to a long-term equity investment, a $3 million loss resulting primarily from
the sale of our Hamburg Phase 1 facility, and $3 million of integration costs
incurred by MDS Analytical Technologies.
    Selling, general, and administration (SG&A) expenses for the quarter
totalled $75 million and 23% of net revenues compared to $61 million and 23%
last year. The increase includes the impact from the acquisition of MD partway
through the second quarter in 2007, as well as the impact of foreign exchange.
    We spent $22 million on R&D activities in the second quarter this year,
compared to spending of $16 million last year. The majority of the increase in
R&D spending comes from the impact of a full quarter of MD compared to the 41
day post-acquisition period in the second quarter of 2007.
    Consolidated depreciation and amortization expense increased $5 million
compared to last year. We also amortized $9 million of intangible assets
acquired as part of the purchase of MD in the second quarter of 2008 compared
to $2 million in the second quarter of 2007. Capital expenditures for the
quarter were $15 million compared to $7 million in the second quarter of 2007.
    Other income for the quarter includes the $10 million FDA provision
release, $3 million ABCP provision and a $3 million embedded derivative gain.
Other income for the second quarter of 2007 includes a $61 million FDA
provision charge, $6 million valuation provision, $3 million loss on sale of
business and a foreign exchange loss of $4 million related to the revaluation
of certain monetary assets and liabilities in the quarter, compared to a
$1 million loss in the second quarter of 2008.
    Results from discontinued operations for 2007 include the operating
results of our Canadian diagnostics businesses for the period prior to sale
and the gain resulting from the sale of the business.
    In the second quarter of 2008, we repurchased $12 million or 0.6 million
shares as part of our Normal Course Issuers Bid (NCIB). In the second quarter
of 2007, we completed a substantial issuer bid and repurchased approximately
22.8 million Common shares for C$500 million (US$ 441 million) at a price of
C$21.90 per share. As a result of this substantial issuer bid, we reduced the
number of Common shares outstanding in the second quarter of 2007 from
approximately 144 million to 122 million, and we have 122 million Common
shares outstanding as of the second quarter 2008.
    Reported earnings per share from continuing operations were $0.09 for the
quarter, compared to a loss of $0.40 in 2007. Adjusted earnings per share from
continuing operations for the quarter were $0.06 compared to $0.11 earned in
the same period last year. Increased amortization of the intangible assets
related to the MD acquisition reduced the second quarter of 2008 adjusted EPS
by $0.04 compared to the second quarter of 2007. Earnings per share from
discontinued operations were nil compared to $5.77 which included $5.76
related to the gain on sale of the diagnostics business in the second quarter
of 2007. Adjusted earnings per share and adjusted income from continuing
operations for the two periods were as follows:

    
    Earnings Per Share

                                          Second Quarter       Year-to-date
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Basic earnings (loss) per share
     from continuing operations -
     as reported                       $  0.09   $ (0.40)  $  0.23   $ (0.39)
    Adjusted for:
      Restructuring charges, net          0.01      0.15      0.01      0.23
      FDA-related provision              (0.06)     0.29     (0.06)     0.29
      Valuation provisions                0.03      0.04      0.03      0.04
      Mark-to-market on interest rate
       swaps                                 -         -     (0.02)        -
      MAPLE investment tax credits           -     (0.02)        -     (0.02)
      Loss sale of business and
       long-term investments                 -      0.03         -      0.02
      Acquisition integration            (0.01)     0.02      0.01      0.02
      Tax rate changes                       -         -     (0.09)        -
    -------------------------------------------------------------------------
    Adjusted EPS                       $  0.06   $  0.11   $  0.11   $  0.19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income from Continuing Operations

                                          Second Quarter       Year-to-date
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations - as reported          $    11   $   (55)  $    28   $   (55)
    Adjusted for (after tax):
      Restructuring charges, net             1        21         1        33
      FDA-related provision                 (7)       40        (7)       40
      Valuation provisions                   3         5         3         5
      Mark-to-market on interest rate
       swaps                                 -         -        (2)        -
      MAPLE investment tax credits           -        (2)        -        (2)
      Loss sale of business and
       long-term investments                 -         4         -         2
      Acquisition integration               (1)        2         1         2
      Tax rate changes                       -         -       (11)        -
    -------------------------------------------------------------------------
    Adjusted income from continuing
     operations                        $     7   $    15   $    13   $    25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MDS Pharma Services
    Financial Highlights

                                                     Second Quarter
                                       --------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Early-stage                        $    68       53%   $    60       52%
    Late-stage                              60       47%        55       48%
    -------------------------------------------------------------------------
    Net revenues                           128      100%       115      100%
    Reimbursement revenues             $    24         -   $    23         -
    -------------------------------------------------------------------------
    Total revenues                         152         -       138         -
      Cost of revenues                     (95)     (74%)      (80)     (70%)
      Reimbursed expenses                  (24)        -       (23)        -
      Selling, general, and
       administration                      (33)     (26%)      (32)     (28%)
      Depreciation and amortization         (8)      (6%)      (10)      (9%)
      Restructuring charges                 (1)      (1%)      (23)     (20%)
      Other income (expense)                 9        7%       (68)     (58%)
    -------------------------------------------------------------------------
    Operating income (loss)                  -         -       (98)     (85%)
    Adjustments:
      Reversal (provision) for
       FDA-related costs                   (10)      (8%)       61       53%
      Restructuring charges                  1        1%        23       20%
      Loss (gain) on sale of a
       business                              -         -         4        3%
    -------------------------------------------------------------------------
                                            (9)      (7%)      (10)      (9%)
      Depreciation and amortization          8        6%        10        9%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    (1)      (1%)  $     -        0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         26%                 30%
      Adjusted EBITDA                        -                  0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     9             $     5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    	                                                  Year-to-date
                                       --------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Early-stage                        $   131       53%   $   126       53%
    Late-stage                             117       47%       110       47%
    -------------------------------------------------------------------------
    Net revenues                           248      100%       236      100%
    Reimbursement revenues             $    50         -   $    46         -
    -------------------------------------------------------------------------
    Total revenues                         298         -       282         -
      Cost of revenues                    (183)     (74%)     (169)     (72%)
      Reimbursed expenses                  (50)        -       (46)        -
      Selling, general, and
       administration                      (62)     (25%)      (65)     (28%)
      Depreciation and amortization        (17)      (7%)      (18)      (8%)
      Restructuring charges                 (1)        -       (31)     (13%)
      Other income (expense)                14        6%       (66)     (27%)
    -------------------------------------------------------------------------
    Operating income (loss)                 (1)        -      (113)     (48%)
    Adjustments:
      Reversal (provision) for
       FDA-related costs                   (10)      (4%)       61       25%
      Restructuring charges                  1         -        31       13%
      Loss (gain) on sale of a
       business                             (2)      (1%)        4        2%
    -------------------------------------------------------------------------
                                           (12)      (5%)      (17)      (8%)
      Depreciation and amortization         17        7%        18        8%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $     5        2%   $     1        0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         26%                 28%
      Adjusted EBITDA                       2%                  -%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $    15             $     7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In the second quarter of 2008, MDS Pharma Services net revenues increased
by 11% as reported versus the prior year quarter. The impact on revenue of the
change in foreign exchange rates from the second quarter of 2007 to the second
quarter of 2008 was an increase of approximately $11 million or 10%. Both our
early-stage and late-stage businesses had slightly higher revenue excluding
the impact of foreign exchange. The late-stage increase was primarily a result
of increases in our central lab business which was partially offset by the
impact of contract cancellations in Phase II-IV related to failures of
compounds that occurred in prior quarters. Early-stage increased revenue was
primarily a result of increased activity in Phase I including the impacts of
our new Phoenix facility and increased demand in bioanalytical services.
    New orders in the second quarter of 2008 of $165 million were up 60%
compared to the same period last year. We saw a $36 million or 9% increase in
period end backlog and a 13% increase in average backlog from the first
quarter of 2008. Period-end backlog was up 1% compared to the same period in
2007; however average backlog was down 10%. In the second quarter of 2007 we
experienced a high level of contract cancellations at the end of the quarter.

    
    Average monthly backlog

                                                                      Period
                                                     New   Average       End
                                                  Orders   Backlog   Backlog
    -------------------------------------------------------------------------
                       Fiscal 2007 - Quarter 1       159       450       472
                                     Quarter 2       103       450       428
                                     Quarter 3       119       420       408
                                     Quarter 4       134       385       375
                       Fiscal 2008 - Quarter 1       177       360       395
                                     Quarter 2       165       405       431
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Pharma Services had an operating income of nil for the quarter,
compared to a loss of $98 million for the same period last year. In the second
quarter of 2007, we recorded a $61 million provision for customer
reimbursements related to the FDA review of our Montreal bioanalytical
operations and a $23 million restructuring charge to improve profitability at
MDS Pharma Services. Based on costs incurred to date and our best estimated
future liability, we reversed $10 million of the FDA provision to income in
the second quarter of 2008. As well, during the same period, a $1 million
restructuring charge was incurred related to facility closures. In both 2007
and 2008, the FDA charge, revision of our best estimate and the restructuring
charges were treated as adjusting items. In the second quarter of 2007, the
$4 million loss on the sale of our Hamburg facility was also an adjusting
item.
    MDS Pharma Services adjusted EBITDA for the second quarter of 2008
decreased by $1 million to a loss of $1 million compared to the same period in
2007. This decrease was primarily the result of higher margin services
reported in our late-stage business in the second quarter of 2007, increased
investments for growth in certain areas of our business in 2008, and the
impact of the previously announced contract cancellations, all of which offset
the impact of savings achieved from our restructuring activities that were
initiated in the second quarter of 2007. The negative impact of foreign
exchange on our operations resulting from the decline of the US dollar from
the second quarter of 2007 to the second quarter of 2008 of approximately
$3 million offset the unfavourable impact of the $3 million on the revaluation
of certain assets and liabilities in the second quarter of 2007. In addition,
we reported a $2 million provision release associated with a customer
settlement in the second quarter of 2008 and $2 million of income related to
refundable tax credits in the second quarter of 2007.
    SG&A of $33 million in the second quarter of 2008 was $1 million higher
than the second quarter of 2007 due primarily to the negative impact of
foreign exchange on spending from the strengthening of the Canadian dollar,
British pound and the euro over the same period.
    During the second quarter of 2008, we continued to work toward completion
of our restructuring plan announced in 2007 and these plans are now over 95%
complete.
    Capital expenditures in the pharmaceutical services segment were
$9 million compared to $5 million in the second quarter of 2007.

    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 required site
audits for generic customers. 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. We believe the European regulators are
satisfied with the work completed for the FDA and do not expect to incur any
significant costs associated with actions, if any of European regulators.
    During the second quarter of 2007, we approved and recorded a $61 million
provision to reimburse 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 $19 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. Although we believe
we have substantially completed the majority of all required site audits, we
still await final reimbursement requests for many of these audits. Based on
information currently available, we believe a reserve of $33 million is
required to cover any agreements reached with clients for study audits, study
re-runs, and other related costs. Accordingly, approximately $10 million has
been reversed this quarter and is included in other income.

    
    MDS Nordion
    Financial Highlights

                                                     Second Quarter
                                       --------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Product revenues                   $    76       95%   $    67       94%
    Service revenues                         4        5%         4        6%
    -------------------------------------------------------------------------
    Net revenues                            80      100%        71      100%
      Cost of product revenues             (42)     (53%)      (35)     (49%)
      Cost of service revenues              (2)      (3%)       (1)      (1%)
      Selling, general, and
       administration                      (13)     (16%)      (12)     (18%)
      Research and development              (2)      (3%)       (1)      (1%)
      Depreciation and amortization         (3)      (4%)       (3)      (4%)
      Other income (expense)                 3        4%         1        1%
    -------------------------------------------------------------------------
    Operating income                        21       25%        20       28%
    Adjustments:
      Loss (Gain) on a sale of a
       business                              -         -        (1)      (1%)
    -------------------------------------------------------------------------
                                            21       25%        19       27%
      Depreciation and amortization          3        4%         3        4%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    24       30%   $    22       31%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         45%                 50%
      Adjusted EBITDA                      30%                 31%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     3             $     1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                      Year-to-date
                                       --------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Product revenues                   $   135       96%   $   134       97%
    Service revenues                         5        4%         4        3%
    -------------------------------------------------------------------------
    Net revenues                           140      100%       138      100%
      Cost of product revenues             (76)     (54%)      (69)     (50%)
      Cost of service revenues              (2)      (1%)       (2)      (1%)
      Selling, general, and
       administration                      (24)     (17%)      (23)     (17%)
      Research and development              (2)      (1%)       (2)      (1%)
      Depreciation and amortization         (6)      (4%)       (6)      (4%)
      Other income (expense)                (5)      (4%)        1        1%
    -------------------------------------------------------------------------
    Operating income                        25       19%        37       27%
    Adjustments:
      Loss (Gain) on a sale of a
       business                              4        3%        (1)      (1%)
    -------------------------------------------------------------------------
                                            29       21%        36       26%
      Depreciation and amortization          6        4%         6        4%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    35       25%   $    42       30%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         44%                 49%
      Adjusted EBITDA                      25%                 30%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     6             $     2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    MDS Nordion revenues were up 13% from the second quarter of 2007 on a
reported basis, inclusive of a foreign exchange impact of $6 million related
to the decline of the US dollar in the second quarter of 2008 compared to the
second quarter of 2007. The remaining $3 million increase was due to the
shipment of a cobalt sterilization system and higher sales across most product
lines, which were partially offset by higher sales of medical isotopes in the
second quarter of 2007 which occurred as a result of a supply disruption at a
competitor.
    Operating income in the second quarter of 2008 was $21 million compared
to $20 million last year and adjusted EBITDA was $24 million this year
compared to $22 million in 2007. The second quarter of 2008 includes a
$3 million gain on embedded derivatives, while the second quarter 2007
included $4 million related to higher medical isotope revenues during a period
of competitor disruption. Excluding these items, improvements in profitability
were driven by growth and productivity.
    SG&A in the second quarter of 2008 increased by $1 million to $13 million
compared to the same period last year primarily related to the decline of the
US dollar compared to the Canadian dollar over the same period. R&D investment
increased by $l million in the second quarter of 2008.
    Other income for the second quarter of 2007 included the release of a
$1 million provision related to a business sold in 2003. This item has been
treated as an adjusting item.
    Capital expenditures for MDS Nordion were $3 million, compared to
$1 million last year driven by investments to expand capacity in Europe for
our Glucotrace(R) product.
    Effective May 1, 2008, we completed the sale of our external beam therapy
and self-contained irradiator product lines to Best Medical International Inc.
The expected $4 million loss was previously recorded in the first quarter of
2008. The operating results for these product lines were reported in the MDS
Nordion segment in the second quarter of 2008.

    
    MDS Analytical Technologies
    Financial Highlights

                                                      Second Quarter
                                       --------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Product revenues                   $    93       79%   $    62       81%
    Service revenues                        25       21%        15       19%
    -------------------------------------------------------------------------
    Net revenues                           118      100%        77      100%
      Cost of product revenues             (64)     (54%)      (48)     (63%)
      Cost of service revenues              (4)      (3%)       (1)      (1%)
      Selling, general, and
       administration                      (22)     (19%)      (11)     (14%)
      Research and development             (20)     (17%)      (15)     (20%)
      Depreciation and amortization        (12)     (10%)       (4)      (5%)
      Restructuring charges                  -         -         -         -
      Other income (expense) net             -         -        (1)      (1%)
    -------------------------------------------------------------------------
    Operating income (loss)                 (4)      (3%)       (3)      (4%)
    Adjustments:
      Equity earnings                       10        8%        11       14%
      Acquisition integration               (1)      (1%)        3        4%
    -------------------------------------------------------------------------
                                             5        4%        11       14%
      Depreciation and amortization         12       10%         4        5%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    17       14%   $    15       19%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         42%                 36%
      Adjusted EBITDA                      14%                 19%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     1             $     1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                     Year-to-date
                                       --------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Product revenues                   $   185       79%   $   100       77%
    Service revenues                        49       21%        30       23%
    -------------------------------------------------------------------------
    Net revenues                           234      100%       130      100%
      Cost of product revenues            (125)     (53%)      (85)     (65%)
      Cost of service revenues              (8)      (3%)       (1)      (1%)
      Selling, general, and
       administration                      (41)     (18%)      (17)     (13%)
      Research and development             (40)     (17%)      (26)     (20%)
      Depreciation and amortization        (27)     (12%)       (7)      (5%)
      Restructuring charges                  -         -        (2)      (2%)
      Other income (expense) net            (2)      (1%)        -         -
    -------------------------------------------------------------------------
    Operating income (loss)                 (9)      (4%)       (8)      (6%)
    Adjustments:
      Equity earnings                       24       10%        25       19%
      Acquisition integration                2        1%         3        3%
    -------------------------------------------------------------------------
                                            17        7%        20       16%
      Depreciation and amortization         27       12%         7        5%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    44       19%   $    27       21%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         43%                 34%
      Adjusted EBITDA                      19%                 21%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     3             $     4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Sciex brand channel of MDS Analytical Technologies carries out the
majority of its business through joint ventures. Currently, MDS generates the
majority of its income associated with these joint ventures from the net
income of the joint ventures, and not from its sales to the joint ventures.
Under US GAAP, we equity account for the joint ventures and therefore the
majority of the income related to the Sciex brand channel is reflected in
equity earnings, which represent our share of the net income of the joint
ventures. Our reported revenues are related to products manufactured and
services performed for the joint ventures and are not a direct indicator of
end-customer revenues. We include equity earnings in our calculation of
adjusted EBITDA, however, under US GAAP, these earnings are not included in
operating income.
    The second quarter of 2007 includes the results of the Sciex brand
channel, along with the results of the MD business for the 41-day period from
the close of the acquisition on March 20, 2007 to the quarter-end.
    MDS Analytical Technologies revenue grew by $41 million to $118 million
in the second quarter of 2008, compared to the same period in the prior year.
The second quarter of 2008 includes $55 million of revenue from the MD brand
channel compared to $29 million reported for the 41-day post-acquisition
period in the second quarter of 2007. MD revenues were up $4 million or 8% in
the second quarter of 2008, compared to the same three-month period in 2007.
In the first full year since the acquisition, the MD brand channel generated
$220 million of revenue which was 16% above our first-year target of $190
million.
    Sciex revenues to the joint venture were up $15 million or 31%, including
$8 million of impact from foreign exchange due to the decline in the US dollar
compared to the Canadian dollar. End-user revenues for Sciex products grew 6%
in the second quarter including the impact of foreign exchange. Compared to
the same period last year unit volume declined as pharmaceutical customers
reduced capital spending for large instruments in the quarter.
    MDS Analytical Technologies reported an operating loss of $4 million for
the second quarter of 2008 compared to a $3 million loss in the second quarter
of 2007. Equity earnings, which are not included in operating income and
represent our share of earnings from the Sciex joint ventures was $10 million
for the second quarter of 2008 versus $11 million for the second quarter of
2007. Reported operating income for the second quarter of 2007 includes the
results for MD from the date of acquisition, and $3 million of integration
costs and purchase accounting adjustments. During the second quarter of 2008,
$1 million of integration cost were reversed as part of the finalization of
the MD purchase price allocation.
    Adjusted EBITDA for the quarter was $17 million compared to $15 million
during the same period last year. Adjustments of $1 million of income in the
second quarter of 2008 and $3 million of expense for the second quarter of
2007 reflect integration costs related to the MD acquisition. The Sciex brand
channel delivered $8 million of adjusted EBITDA, flat with prior year, driven
by the impact of lower customer sales of our larger, higher margin products
which was offset primarily by the impact of higher end-user service revenue in
the second quarter of 2008.
    Adjusted EBITDA for the MD brand channel was $9 million in the second
quarter of 2008, up $2 million from the $7 million reported for the 41-day
post-acquisition period in the second quarter of 2007. MD profitability was
also impacted by soft demand for high margin, high-end instruments and by
transition expenses related to our manufacturing shift to Asia. In the first
full year of ownership MD has delivered $46 million in adjusted EBITDA which
met the target of $45-$50 million in adjusted EBITDA.
    SG&A increased for the second quarter of 2008 by $11 million to
$22 million reflecting the full quarter of costs associated with the MD
business. R&D expense increased $5 million to $20 million for the second
quarter of 2008 compared to the same period in 2007, due to the R&D costs
incurred by the MD brand channel and increased investment in Sciex products
that will launch within the next 12 months. Depreciation and amortization
expense was also up, reflecting, a complete quarter of intangible assets
amortization related to the MD acquisition.
    Capital expenditures were $1 million this year and last.
    During the quarter, MDS Analytical Technologies continued to drive
innovation and growth with the launch of the next-generation Arcturus XT(TM)
instrument for laser capture microdissection (LCM). The new Arcturus XT(TM)
offers researchers improved speed, precision and flexibility for their
microdissection experiments.

    
    Corporate and Other

    Financial Highlights

     Second Quarter                                             Year-to-Date
    ----------------                                           --------------
      2008    2007                                              2008    2007
    -------------------------------------------------------------------------
    $   (7)  $  (6)      Selling, general, and administration  $ (12)  $ (10)
         -      (1)      Depreciation and amortization                    (1)
         -      (2)      Restructuring charges                            (7)
        (2)     (6)      Other expense                            (1)     (3)
    -------------------------------------------------------------------------
        (9)    (15)    Operating income                          (13)    (21)
                       Adjustments:
         -       -       Gain on sale of investments               -      (2)
         3       6       Valuation provisions                      3       6
         -       2       Restructuring                             -       7
         -       1       Depreciation and amortization             -       1
    -------------------------------------------------------------------------
    $   (6)  $  (6)    Adjusted EBITDA                         $ (10)  $  (9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Corporate SG&A expenses were $7 million in the second quarter of 2008 and
compared to $6 million in the second quarter of 2007.

    Other expense for the second quarter of 2008 include an additional
$3 million provision to write down the value of ABCP. This increased the
provision from 10% to 30% on $17 million of ABCP that we hold. The second
quarter of 2007 included a $6 million valuation provision related to Lumira
Capital Corp. Both of these were treated as adjusting items. The 2007
$2 million charge related to restructuring in the corporate functions was also
an adjusting item.
    In the second quarter of 2008 net interest expense was $2 million
compared to net interest income of $2 million in the second quarter of 2007.
The $4 million decrease is primarily a result of lower interest earned on
lower cash balances.

    Income taxes

    Our effective tax rate this quarter was 31%. Our tax expense was reduced
by $2 million of tax credits relating to research and development that we
recognized during the quarter. The tax benefit recorded this quarter on the
ABCP provision reflects the fact that any tax loss arising on ABCP will be
treated as a capital loss.

    Discontinued Operations

    The results of our discontinued businesses for the second quarter of 2007
were as follows:

    
                                          Second Quarter       Year-to-date
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Net revenues                        $    -    $   20    $    -    $   95
      Cost of revenues                               (12)                (58)
      Selling, general and
       administration                                 (6)                (15)
    -------------------------------------------------------------------------
    Operating income                         -         2         -        22
      Gain on sale of discontinued
       operations                                    905                 905
      Interest income                                  -                   1
      Income taxes                                  (114)               (117)
      Minority interest                               (1)                 (4)
      Equity earnings                                  -                   1
    -------------------------------------------------------------------------
    Income from discontinued operations      -       792         -       808
    -------------------------------------------------------------------------
    Basic EPS from discontinued
     operations                         $    -    $ 5.77    $    -    $ 5.73
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results from discontinued operations for 2007 reflect only the
Canadian diagnostic services business.

    Liquidity and Capital Resources

                                        April 30,   October 31,
                                            2008          2007        Change
    -------------------------------------------------------------------------
    Cash, cash equivalents and
     short-term investments           $      139    $      337          (59%)
    Operating working capital(1)      $      125    $       59          112%
    Current ratio (excludes net
     assets held for sale)            $      1.9    $      1.6           19%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Our measure of operating working capital equals accounts receivable
        plus unbilled revenue and inventory less accounts payable, accrued
        liabilities, and current deferred revenue.
    

    During the second quarter of 2008, $5 million of cash was used, including
$12 million related to share repurchases under our NCIB. For the first six
months of 2008, $198 million of cash and short-term investments were utilized
including $89 million of scheduled long-term debt principle and interest
repayments, $65 million of income taxes related to the 2007 gain on the sale
of the diagnostics business, an increase in operating working capital as a
result of year end compensation payouts and decreases in our accounts payable
balances. The increase in the current ratio is primarily attributable to the
reduction of current liabilities related to the payment of long term debt and
income taxes payable and the movement of a $73 million note receivable to
current.
    We expect to have net operating cash inflows for the remainder of fiscal
2008. Expected cash outflows include FDA-related reimbursements to our
customers and the payment of severance obligations associated with
restructuring activities. In addition to cash generated by operations and cash
on hand, we have available a C$500 million, five-year, committed, revolving
credit facility, that expires in July, 2010, to fund our liquidity
requirements. There were no borrowings under this facility as at April 30,
2008.
    Cash used by investing activities for continuing operations totalled
$13 million for the second quarter of 2008, compared to outflows of $599
million for the second quarter of 2007, of which $603 million is related to
the MD acquisition. Capital expenditures for the quarter totalled $15 million,
compared to $7 million of expenditures in the second quarter of 2007.
    Financing activities (excluding discontinued operations) used $10 million
of cash in the quarter, primarily driven by $12 million of purchases under our
existing NCIB during the quarter which retired 0.6 million Common shares
representing less than 1% of our outstanding Common shares. Cash used in
financing activities for the prior year of $437 million included a
$441 million share repurchase.
    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 operations, capital expenditures,
research and development expenditures, FDA settlements, restructuring costs
and potential acquisitions 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. In the third quarter of
2008, we received $15 million in cash from the May 1, 2008 sale of our
external beam therapy and self-contained irradiator product lines.

    Asset Backed Commercial Paper (ABCP)

    The Company owns investments in non-bank sponsored ABCP issued by two
trusts with an original cost of $17 million. These investments matured in
September 2007, but as a result of liquidity issues in the ABCP market, they
did not settle at maturity.
    In September 2007, a Pan-Canadian Investors Committee for Third Party
Asset Backed Commercial Paper (the Committee) was formed to propose a solution
to the liquidity problem in the ABCP market.
    At that time, the Company performed a probability-weighted discounted
cash flow adjustment valuation reflecting the uncertainties in the timing and
the amount of its investment to be recovered. This analysis was performed for
both a short-term and long-term hold scenario and based on this, MDS took a
provision of 10% or $2 million in the fourth quarter 2007.
    In March 2008, the Committee filed with the Ontario Superior Court of
Justice a restructuring arrangement to convert the ABCP into various long-term
floating rate notes with maturities matching the maturities of the underlying
assets. A substantial majority of ABCP holders voted in favour of the
Committee's restructuring plan, subject to final judicial approval. The
Company has revised its valuation of its investment in ABCP to reflect the
additional information available in the market and to consider the impact of
the Committee's restructuring plan to convert the ABCP into various long-term
floating rate notes with revised maturities. The DBRS rating for the majority
of the new notes is expected to be AA and BB.
    The Company has continued to use a scenario-based probability-weighted
discounted cash flow approach to value its investment at April 30, 2008 which
considered the revised credit quality of the investments, estimated
renegotiated maturity dates of approximately five to eight years, estimated
coupon rates of 3.1% to 3.6% and estimated restructuring fees. As a result of
this valuation, the Company revised its fair value estimates for the ABCP it
holds to be 70% of the face value. As a result, in the second quarter of 2008
an additional provision of $3 million was recorded to bring the total reserve
to $5 million or 30% of face value.

    Contractual Obligations

    There have been no material changes in contractual obligations since
October 31, 2007 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.

    Derivative Instruments

    We use derivative financial instruments to manage our foreign currency
and interest rate exposure. These instruments consisted of forward foreign
exchange and option contracts and interest rate swap agreements entered into
in accordance with 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 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 April 30,
2008 was a liability of $2 million.
    In addition to the above derivatives, isotope supply agreements include
terms that result in the creation of an embedded currency derivative under
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". The
fair value of this derivative at April 30, 2008 is an asset of $2 million.

    
    Capital Structure
                                        April 30,   October 31,
                                            2008          2007        Change
    -------------------------------------------------------------------------
    Long-term debt                    $      300    $      384          (22%)
    Less: cash and cash equivalents
     and short-term investments             (139)         (337)         (59%)
    -------------------------------------------------------------------------
    Net debt                                 161            47          243%
    Shareholders' equity                   1,837         1,897           (3%)
    -------------------------------------------------------------------------
    Capital employed(1)               $    1,998    $    1,944            3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Capital employed is a measure of how much of our net assets is
        financed by debt and equity.


    Long-term debt decreased $84 million primarily due to $80 million of
repayment of the long-term debt in the first quarter 2008 and the revaluation
of our Canadian dollar dominated long-term debt to reflect the strength of the
US dollar at the end of the second quarter of 2008, compared to our 2007
fiscal year end.

    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 US GAAP and prior periods have been restated to
reflect the discontinuance of the operations discussed above.


    (millions of US dollars,
      except earnings per
      share)
    -------------------------------------------------------------------------
                            Trailing
                                Four       Apr       Jan       Oct      July
                            Quarters      2008      2008      2007      2007
    -------------------------------------------------------------------------
    Net revenues            $  1,237  $    326  $    296  $    307  $    308
    Operating income (loss)       (1)        8  $     (6) $      1  $     (4)

    Income from continuing
     operations             $     50  $     11  $     17  $     15  $      7
    Net income              $     48  $     11  $     17  $     13  $      7
    Earnings per share from
     continuing operations
      Basic and diluted     $   0.41  $   0.09  $   0.14  $   0.12  $   0.06
    Earnings per share
      Basic                 $   0.39  $   0.09  $   0.14  $   0.11  $   0.05
      Diluted               $   0.39  $   0.09  $   0.14  $   0.11  $   0.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (millions of US dollars,
      except earnings per
      share)
    -------------------------------------------------------------------------
                            Trailing
                                Four       Apr       Jan       Oct      July
                            Quarters      2007      2007      2006      2006
    -------------------------------------------------------------------------
    Net revenues            $    995  $    263  $    241  $    250  $    241
    Operating income (loss) $   (129) $    (96) $     (9) $     (3) $    (21)

    Income (loss) from
     continuing operations  $    (45) $    (55) $      -  $     12  $     (2)
    Net income              $    812  $    737  $     16  $     45  $     14
    Earnings (loss) per
     share from continuing
     operations
      Basic and diluted     $  (0.33) $  (0.40) $   0.00  $   0.08  $  (0.01)
    Earnings per share
      Basic                 $   5.88  $   5.37  $   0.11  $   0.30  $   0.10
      Diluted               $   5.86  $   5.35  $   0.11  $   0.30  $   0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Items that impact the comparability of operating income include:

    -   Results for the quarter ended April 30, 2008 reflect income of $10
        million from the reduction of the FDA provision

    -   Results for the quarter ended January 31, 2008 reflect a $11 million
        gain from the reduction of future Canadian income tax rates

    -   Results for the quarter ended April 30, 2007 reflect a $792 million
        net gain from the sale of our diagnostics businesses, 41 days of
        operating results of Molecular Devices, $61 million of charges
        related to assisting clients in respect to the FDA review, and
        $25 million of restructuring charges.

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

    Outlook

    In recent quarters, we have seen strong growth in new order wins at MDS
Pharma Services including $342 million in new orders reported in the first
half of 2008. While we expect these new orders to begin driving increased
revenue in the second half of 2008, attention continues to be focused on
restoring profitability by streamlining and strengthening the solid platforms
we have throughout our business. We are continuing to invest in building our
global business development capability to accelerate growth in key global
markets. This has included hiring experienced staff, new sales incentive
programs, training and a focus on winning more profitable business. These
initiatives include corresponding growth investments in facilities such as our
Phoenix Phase I facility and our Beijing central laboratory, as well as
investments in customer-facing systems designed to achieve our On-Time,
High-Quality brand promise. At the same time, we have streamlined our
infrastructure through our restructuring initiatives announced in 2007. These
savings have allowed us to offset the unfavorable impact of inflation and
foreign exchange while we incur the above investments to drive growth. We
anticipate increases in adjusted EBITDA in the second half of 2008 and beyond
as higher revenues from our increasing backlog leveraged this improved cost
structure. In addition, we will continue to implement new productivity
initiatives to further improve profitability.
    MDS Nordion returned to more traditional levels of revenue and adjusted
EBITDA in the second quarter of 2008 after a first quarter disruption in the
supply of medical isotopes, related to the shutdown of our supplier's reactor
and cobalt shipment delays in the Asia region. We remain encouraged by the
ongoing global expansion of our TheraSphere(R) product line and continue to
seek new partnerships for growth in medical isotopes. Our expanded contract
for cobalt supply with Rosenergoatom positions MDS Nordion well to serve
continued growth in cobalt sterilization demand in the long term. We are
encouraged by the projected outlook for expected growth in our global markets
and we are focusing on being positioned in these markets to capitalize on
these opportunities.
    On May 16, 2008, AECL and the Government of Canada publicly announced
their intention to discontinue the development work on the MAPLE reactors. At
the same time, AECL and the Government of Canada also publicly announced that
they will continue to supply medical isotopes from the current NRU, and will
pursue a license extension of the NRU operation past its current expiry date
of October 31, 2011. MDS Nordion is assessing the situation and intends to
take appropriate steps to protect the interest of patients, its customers and
its shareholders.
    Our integration of MDS Analytical Technologies is tracking well to plan
and MD exceeded our first year target of $190 million in revenue, reaching
$220 million. MD adjusted EBITDA for the first twelve months was $46 million
and met our first year target for adjusted EBITDA of between $45 million and
$50 million.
    In the past quarter at MDS Analytical Technologies, we have begun to see
deferrals of capital expenditures for high-end instruments by pharmaceutical
customers. This has negatively affected our second quarter results as these
high-end instruments also command higher margins. We expect this market
softness to continue into the second half 2008.
    In order to improve our profitability we are evaluating a number of
cost-reduction activities to be implemented in the third quarter of 2008.
Primarily as a result of softening demand for high-end instruments in the
pharmaceutical markets and a delay in achieving targeted profitability at MDS
Pharma Services, we have revised our guidance as outlined in the table below.

    
    MDS Inc.
    2008 Guidance

    (millions of US dollars, except earnings per share)
    -------------------------------------------------------------------------
                                      2007          Revised          Initial
                                    Actual             2008             2008
                                   Results         Guidance         Guidance
    -------------------------------------------------------------------------
    Total Revenues          $        1,210  $ 1,350 - 1,400  $ 1,350 - 1,410
    Net Revenue             $        1,119  $ 1,250 - 1,290  $ 1,250 - 1,300
    Adjusted EBITDA         $          145  $     160 - 170  $     175 - 185
    Adjusted EPS            $         0.34  $   0.27 - 0.33  $   0.37 - 0.43
    Income (loss) from
     continuing operations  $          (33) $       45 - 55  $       55 - 65
    Basic EPS               $        (0.25) $   0.37 - 0.45  $   0.45 - 0.53
    Capital Expenditures    $           71  $       60 - 70  $       65 - 75
    Effective tax rate                 41%         10 - 20%          0 - 10%
    

    Our revised 2008 guidance is based on the following assumptions:
    Net revenues for 2008 are expected to grow in the range of 12% - 15%
based on: the net impact of the Molecular Devices acquisition, foreign
exchange, the divestiture of the MDS Nordion external beam therapy and
self-contained irradiator product lines, and increased revenues across all
three business units due to expected market growth and improved sales
execution. The decline in the higher end of the guidance range by $10 million
from our Initial 2008 Guidance issued on February 21, 2008 to our Revised 2008
Guidance is primarily a result of lower expected revenue in MDS Analytical
Technologies as pharmaceutical customers have started to reduce capital
expenditures. Total revenue is a GAAP measure that includes a forecast for
reimbursement revenues, which are then excluded from the calculation of net
revenues.
    Adjusted EBITDA is expected to grow at 10% to 17% and to be in the range
of $160 - $170 million driven by: productivity improvements, particularly in
MDS Pharma Services, revenue growth across MDS, and the full-year impact of
the acquisition of Molecular Devices. The $15 million decline in the low and
high end of our range in adjusted EBITDA guidance from our Initial 2008
Guidance to our Revised 2008 Guidance is a result of lower than expected
demand from our pharmaceutical customers on large instruments which results in
lower gross profit and lower equity earnings from our joint venture, and a
delay in achieving targeted profitability at MDS Pharma Services. For 2008,
the adjusting items used in calculating adjusted EBITDA include; the revision
of our best estimate of the remaining FDA provision, the provision for ABCP,
the loss on the sale of MDS Nordion's divested product lines and certain other
items.
    Adjusted earnings per share (adjusted EPS) for 2008 are expected to be in
the range of $0.27 - $0.33. In addition to the adjusting items outlined above,
adjusted EPS also excludes an expected 2008 gain on deferred taxes associated
with future Canadian income tax rates.
    Income from continuing operations and basic EPS for 2008 primarily
reflects adjusted EBITDA growth and the income tax gain described above.
    Capital expenditures in 2008 are expected to be lower than 2007 as we are
reducing spending based on lower forecast profitability for the remainder of
the year.
    The expected effective tax rate in 2008 is in the range of 10% - 20%
reflecting an expected gain associated with the reduction of future Canadian
income tax rates, the use of foreign tax loss carry-forwards and research and
development investment tax credits. The expected effective tax rate range is
ten percentage points higher in our Revised 2008 Guidance compared to our
Initial 2008 Guidance due to changes in earnings and a lower than expected
gain associated with the reduction of future Canadian income tax rates.
    Our income from continuing operations and basic EPS could be materially
reduced, including the possibility of a significant loss in 2008, if we
determine there is an impairment of the intangible asset associated with the
MAPLE reactors or if we implement a significant second half restructuring plan
as part of cost reduction initiatives. The above items could also affect our
effective tax rate.

    Canadian GAAP Reconciliation

    Note 19 to our consolidated financial statements for the second quarter
of 2008 contains a reconciliation of results reported in US GAAP to the
results based on Canadian GAAP. The material reconciling items for net income
in the quarter are deferred development costs that are capitalized for
Canadian GAAP purposes and expensed under US GAAP, a difference in the
methodologies used to value certain stock-based compensation programs and
certain contracts that under US GAAP have an embedded derivative associated
with them. In the second quarter of 2007 the differences relate to treatment
of Income Tax Credits, deferred development costs and stock-based compensation
plans.
    Our Canadian Supplement to this MD&A provides descriptions and
reconciliations of the material differences between this MD&A based on US GAAP
and the financial information for the quarter based on Canadian GAAP

    Accounting Changes

    In July 2006, the US Financial Accounting Standards Board (FASB) issued
FASB interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109". FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing the recognition
threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 was adopted by the Company in the first
quarter of fiscal 2008. We adopted FIN 48 in the first quarter of 2008 and we
did not have to record any change to liabilities for uncertain tax positions.
For additional information see Note 2 of our unaudited interim financial
statements.

    Recent Accounting Pronouncements

    In September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, "Fair Value Measurements". SFAS 157 provides
guidance for using fair value to measure assets and liabilities. It also
responds to investors' requests for expanded information about the extent to
which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurements on
earnings. SFAS 157 applies whenever other standards require (or permit) assets
or liabilities to be measured at fair value, and does not expand the use of
fair value in any new circumstances. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and is
required to be adopted by the Company on November 1, 2008. The Company is
currently evaluating the effect that the adoption of SFAS 157 will have on its
consolidated results of operations and financial condition and is not yet in a
position to determine such effects.
    In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115". This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting
provisions. The Company is required to adopt the provisions of SFAS 159
effective fiscal 2009 and is currently evaluating the effect of the adoption
of SFAS 159. The adoption is not expected to have a material impact on the
consolidated results of operations and financial condition.
    In December 2007, the FASB issued SFAS No. 141R, "Business Combinations"
a substantial amendment to SFAS 141. The objective of this Statement is to
improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and its effects. To accomplish that, this statement
establishes principles and requirements for how the acquirer: a) recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree; b)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The Company is required to
adopt the provisions of SFAS 141R effective for acquisitions after October 31,
2009. The Company is currently evaluating the effect that the adoption of SFAS
141R will have on its consolidated results of operations and financial
condition and is not yet in a position to determine such effects.
    In December 2007, the FASB issued SFAS No. 160, "Non-controlling
Interests in Consolidated Financial Statements- an Amendment of ARB No. 51".
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements related to the non-controlling interest
held by others in entities that are consolidated by the reporting entity. MDS
does not consolidate entities with material non-controlling interests and the
provisions of SFAS 160 are not expected to have a material impact on its
consolidated results of operations and financial condition.
    In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities - An Amendment of FASB Statement
133 (SFAS 133). SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. MDS plans to adopt the provisions of SFAS
161 on February 1, 2009.
    In April 2008, the FASB issued Financial Statement Position SFAS 142-3,
"Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). FSP
142-3 provides guidance with respect to estimating the useful lives of
recognized intangible assets acquired on or after the effective date and
requires additional disclosure related to the renewal or extension of the
terms of recognized intangible assets. FSP 142-3 is effective for fiscal years
and interim periods beginning after December 15, 2008. The adoption is not
expected to have a material impact on the consolidated results of operations
and financial position.

    International Financial Reporting Standards

    We have been monitoring the deliberations and progress being made by
accounting standard setting bodies and securities regulators both in Canada
and the United States with respect to their plans regarding convergence to
International Financial Reporting Standards (IFRS). The Accounting Standards
Board in Canada and the Canadian Securities Administrators (CSA) have recently
confirmed that domestic issuers will be required to transition to IFRS for
fiscal years beginning on or after January 1, 2011. The CSA in a Concept Paper
released on February 13, 2008, provided a tentative conclusion that allows
domestic issuers who are also Securities and Exchange Commission (SEC)
registrants, like MDS, to continue to report under US GAAP for a further two
years from the transition date for domestic issuers. Separately, the SEC in
late 2007 also eliminated the requirement of reconciling financial statements
to US GAAP for foreign private issuers that file under IFRS, effective
November 15, 2007.
    We adopted US GAAP as our primary reporting standard for our consolidated
financial statements in fiscal 2007. We commenced reporting under US GAAP to
improve the comparability of our financial information with that of our
competitors, the majority of whom are US-based multinational companies that
report under US GAAP. If current proposals by the CSA are approved without
changes, the earliest we will be required to adopt IFRS as our primary
reporting standard will be in fiscal 2014. We may adopt IFRS as our primary
reporting standard earlier if the SEC either requires domestic registrants in
the US to transition to IFRS prior to fiscal 2014 or if it permits domestic
registrants to voluntarily adopt IFRS prior to fiscal 2014 and the majority of
our competitors commence to report under IFRS.

    Internal Control over Financial Reporting

    As a result of our internal controls review during the preparation of our
2007 annual financial statements, we concluded that effective internal control
over financial reporting was not maintained with respect to accounting for and
disclosure of the fair value of compensation expense and period-end
liabilities for certain stock-based incentive compensation plans. As this
error resulted in a material audit adjustment to our statements for fiscal
2007 and a restatement of the 2007 interim financial statements to correct the
Canadian to US GAAP reconciliation tables in the notes to the financial
statements, we concluded that this constituted a material weakness in the
Company's internal control over financial reporting and that the Company's
internal control over financial reporting was not effective as at October 31,
2007. Although we believe that the reported material weakness is narrow in
scope and that it does not have a pervasive impact on internal control over
financial reporting at MDS, we will continue to evaluate our internal control
over financial reporting on an ongoing basis and will upgrade and enhance
internal control over financial reporting as needed.
    To address the identified material weakness, management implemented
measures in the first quarter of 2008 to remediate the control deficiency,
including review of certain stock-based incentive compensation plans with
third-party compensation experts, the calculation of fair value for these
plans using a Monte Carlo simulation, and a review of accounting regulations
for stock-based compensation plans with third-party accounting experts. These
measures have strengthened internal control associated with the calculation
and reporting of the fair value of stock-based incentive compensation plan
liability and expense. These measures were implemented prior to the
preparation of the financial statements for the quarter ended January 31, 2008
and will be subject to the Company's assessment of internal controls in fiscal
2008.

    
    Consolidated Statements of Financial Position
    (unaudited)

                                                            2008        2007
    As at April 30 with comparatives at October 31                  Restated
    (millions of US dollars)                                         (Note 2)
    -------------------------------------------------------------------------
    ASSETS
    Current Assets
    Cash and cash equivalents                         $      139  $      235
    Short-term investments                                     -         102
    Accounts receivable, net                                 260         287
    Note receivable                                           73           -
    Unbilled revenue                                         111          99
    Inventories, net                                         117         128
    Income taxes recoverable                                  56          54
    Current portion of deferred tax assets                    47          45
    Prepaid expenses and other                                32          22
    Assets held for sale                                      27           1
    -------------------------------------------------------------------------
    Total Current Assets                                     862         973

    Property, plant and equipment, net                       364         386
    Deferred tax assets                                       31           4
    Long-term investments and other                          178         290
    Goodwill                                                 799         782
    Intangible assets, net                                   510         583
    -------------------------------------------------------------------------
    Total Assets                                      $    2,744  $    3,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities
    Accounts payable and accrued liabilities          $      288  $      384
    Current portion of deferred revenue                       75          71
    Income taxes payable                                      16          57
    Current portion of long-term debt                         20          94
    Current portion of deferred tax liabilities               33          10
    Liabilities related to assets held for sale               12           -
    -------------------------------------------------------------------------
    Total Current Liabilities                                444         616

    Long-term debt                                           280         290
    Deferred revenue                                          14          17
    Other long-term obligations                               30          30
    Deferred tax liabilities                                 139         168
    -------------------------------------------------------------------------
    Total Liabilities                                        907       1,121
    -------------------------------------------------------------------------

    Shareholders' Equity
    Common shares, at par - Authorized shares:
     unlimited; Issued and outstanding shares:
     122,036,150 and 122,578,331 for April 30, 2008
     and October 31, 2007, respectively.                     494         493
    Additional paid-in capital                                75          72
    Retained earnings                                        858         842
    Accumulated other comprehensive income                   410         490
    -------------------------------------------------------------------------
    Total shareholders' equity                             1,837       1,897
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity        $    2,744  $    3,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Incorporated Under The Canada Business Corporations Act
    See accompanying notes.


    CONSOLIDATED STATEMENTS OF OPERATIONS
    (UNAUDITED)

    -------------------------------------------------------------------------
                                      Three months            Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    (millions of US dollars,                Restated                Restated
    except per share amounts)                (Note 2)                (Note 2)
    -------------------------------------------------------------------------
    Revenues
      Products                $      169  $      129  $      320  $      234
      Services                       157         134         302         270
      Reimbursement revenues          24          23          50          46
    -------------------------------------------------------------------------
    Total revenues                   350         286         672         550
    -------------------------------------------------------------------------
    Costs and expenses
      Direct cost of products       (106)        (83)       (201)       (154)
      Direct cost of services       (101)        (82)       (193)       (172)
      Reimbursed expenses            (24)        (23)        (50)        (46)
      Selling, general and
       administration                (75)        (61)       (139)       (115)
      Research and development       (22)        (16)        (42)        (28)
      Depreciation and
       amortization                  (23)        (18)        (50)        (32)
      Restructuring charges - net     (1)        (25)         (1)        (38)
      Other income (expenses)
       - net                          10         (74)          6         (70)
    -------------------------------------------------------------------------
    Total costs and expenses        (342)       (382)       (670)       (655)
    -------------------------------------------------------------------------
    Operating income (loss) from
     continuing operations             8         (96)          2        (105)
    Interest expense                  (6)         (8)        (12)        (14)
    Interest income                    4          10          10          14
    Mark-to-market on interest
     rate swaps                        -           1           2           1
    Equity earnings                   10          11          24          25
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations
     before income taxes              16         (82)         26         (79)
    Income tax (expense) recovery
      - current                       (3)         31         (25)         29
      - deferred                      (2)         (4)         27          (5)
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations            11         (55)         28         (55)

    Income from discontinued
     operations - net of
     income tax                        -         792           -         808
    -------------------------------------------------------------------------
    Net income                $       11  $      737  $       28  $      753
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss)
     per share
      - from continuing
         operations           $     0.09  $    (0.40) $     0.23  $    (0.39)
      - from discontinued
         operations                    -        5.77           -        5.73
    -------------------------------------------------------------------------
    Basic earnings per share  $     0.09  $     5.37  $     0.23  $     5.34
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss)
     per share
      - from continuing
         operations           $     0.09  $    (0.40) $     0.23  $    (0.39)
      - from discontinued
         operations                    -        5.75           -        5.72
    -------------------------------------------------------------------------
    Diluted earnings per
     share                    $     0.09  $     5.35  $     0.23  $     5.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes


    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (UNAUDITED)

                                      Three months             Six months
                                     ended April 30          ended April 30
                                    2008        2007        2008        2007
                                            Restated                Restated
                                             (Note 2)                (Note 2)
    -------------------------------------------------------------------------
    Net income                $       11  $      737  $       28  $      753
    -------------------------------------------------------------------------
    Foreign currency
     translation                      (1)         41         (75)         28
    Unrealized gain (loss) on
     available-for-sale assets         -           -           1          (3)
    Unrealized gain (loss) on
     derivatives designated as
     cash flow hedges, net of tax      -           5          (4)          5
    Reclassification of
     realized losses                   -          (2)          -          (2)
    Repurchase and cancellation
     of Common shares                 (1)        (33)         (2)        (33)
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss)            $       (2)  $      11  $      (80)  $      (5)
    -------------------------------------------------------------------------
    Comprehensive income
     (loss)                   $        9   $     748  $      (52)  $     748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Cash Flows
    (UNAUDITED)

                                      Three months             Six months
                                     ended April 30          ended April 30
                                    2008        2007        2008        2007
                                            Restated                Restated
    (millions of US dollars)                 (Note 2)                (Note 2)
    -------------------------------------------------------------------------
    Operating activities
    Net income                $       11  $      737  $       28  $      753
    Less: Income from
     discontinued operations -
     net of tax                        -         792           -         808
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations            11         (55)         28         (55)
    Adjustments to reconcile
     net income to cash
     provided (used in)
     operating activities
     relating to continuing
     operations:
      Items not affecting
       current cash flow              (1)        132          29         160
      Changes in non-cash
       operating assets and
       liabilities balances
       relating to operations        (24)         34        (128)          1
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities of
     continuing operations           (14)        111         (71)        106
    Cash used in operating
     activities of discontinued
     operations                        -         (69)          -         (53)
    -------------------------------------------------------------------------
                                     (14)         42         (71)         53
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions                      (2)       (603)         (2)       (603)
    Purchase of property, plant
     and equipment                   (15)         (7)        (28)        (16)
    Proceeds on sale of
     property, plant and equipment     2           -           3           -
    Proceeds on sale of
     short-term investments            -          25         101         151
    Purchases of short-term
     investments                       -         (15)          -         (37)
    Proceeds on sale of long-term
     investment                        4           2           7          13
    Other                             (2)         (1)         (2)          -
    -------------------------------------------------------------------------
    Cash provided by (used in)
     investing activities of
     continuing operations           (13)       (599)         79        (492)
    -------------------------------------------------------------------------
    Cash provided by investing
     activities of discontinued
     operations                        -         929           -         929
    -------------------------------------------------------------------------
                                     (13)        330          79         437
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt       (1)         (1)        (81)         (7)
    Decrease in deferred revenue
     and other long-term
     obligations                      (1)         (1)          -           -
    Payment of cash dividends          -           -           -          (3)
    Issuance of shares                 4           6           5          10
    Repurchase of shares             (12)       (441)        (17)       (441)
    -------------------------------------------------------------------------
    Cash used in financing
     activities of continuing
     operations                      (10)       (437)        (93)       (441)
    -------------------------------------------------------------------------
    Cash used in financing
     activities of discontinued
     operations                        -           -           -          (2)
    -------------------------------------------------------------------------
                                     (10)       (437)        (93)       (443)
    -------------------------------------------------------------------------
    Effect of foreign exchange
     rate changes on cash and
     cash equivalents                 32          28         (11)          4
    -------------------------------------------------------------------------
    Net increase (decrease) in
     cash and cash equivalents
     during the period                (5)        (37)        (96)         51
    Cash and cash equivalents,
     beginning of period             144         335         235         247
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            $      139  $      298  $      139  $      298
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes




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

    1.  Basis of Presentation

    The accompanying unaudited consolidated financial statements have been
    prepared by the Company in United States (US) dollars and in accordance
    with US generally accepted accounting principles (US GAAP) for interim
    financial reporting, which do not conform in all respects to the
    requirements of US GAAP for annual financial statements. Accordingly,
    these condensed notes to the unaudited consolidated financial statements
    should be read in conjunction with the audited consolidated financial
    statements and notes thereto prepared in accordance with US GAAP that are
    contained in the Company's amended Annual Report for the fiscal year
    ended October 31, 2007, filed on January 29, 2008 with the US Securities
    and Exchange Commission, the Ontario Securities Commission, and other
    securities regulatory authorities in Canada. These interim consolidated
    financial statements have been prepared using accounting policies that
    are consistent with the policies used in preparing the Company's audited
    consolidated financial statements for the year ended October 31, 2007.
    There have been no material changes to the Company's significant
    accounting policies since October 31, 2007, except as described below
    under "Recently Adopted Accounting Pronouncements". These policies are
    consistent with accounting principles generally accepted in Canada
    (Canadian GAAP) in all material respects except as described in Note 19.

    Use of Estimates

    In preparing the Company's consolidated financial statements, management
    is required to make estimates and assumptions that affect the reported
    amounts of assets and liabilities, the disclosure of contingent assets
    and liabilities at the dates of the consolidated financial statements and
    the reported amounts of revenue and expenses during the reporting
    periods. Actual results could differ from these estimates and the
    operating results for the interim periods presented are not necessarily
    indicative of the results expected for the full year.

    On an ongoing basis, management reviews its estimates to ensure that
    these estimates appropriately reflect changes in the Company's business
    and new information as it becomes available. If historical experience and
    other factors used by management to make these estimates do not
    reasonably reflect future activity, the Company's results of operations
    and financial position could be materially impacted.

    2.  Changes Affecting Fiscal 2008 Consolidated Financial Statements

    a.  Restatement of 2007 Interim Financial Statements

    During the preparation of the 2007 annual financial statements, an error
    was identified in the US GAAP reconciliation provided as part of the
    fiscal 2007 interim financial statements with respect to certain
    stock-based incentive compensation plans for which an incorrect valuation
    methodology was utilized. The Company has corrected this error by
    restating selling, general and administration expenses for the three
    months ended April 30, 2007 with a reduction of $1 million in the
    accompanying quarterly consolidated financial statements and reducing the
    value of accrued liabilities by a similar amount. The Canadian GAAP
    financial statements previously reported were not impacted by the change,
    except for the reconciliation to US GAAP (see Note 19).

    b. Recently adopted accounting pronouncements

    On November 1, 2007, the Company adopted the provisions of the US
    Financial Accounting Standards Board (FASB) interpretation No. 48 (FIN
    48), "Accounting for Uncertainty in Income Taxes, an Interpretation of
    FASB Statement No. 109". FIN 48 clarifies accounting for uncertainty in
    income taxes recognized in an enterprise's financial statements and
    prescribes a recognition threshold of more likely than not to be
    sustained upon audit examination. As a result of the implementation an
    adjustment to the liability for unrecognized tax benefits was not
    required; accordingly, no adjustment was made to opening retained
    earnings at November 1, 2007.

    At February 1, 2008, the total amount of unrecognized tax benefits,
    including interest and penalties, was $28 million. Of these unrecognized
    tax benefits, $21 million, if recognized, would favourably affect the
    effective income tax rate in the future. The amount of unrecognized tax
    benefits at April 30, 2008, including interest and penalties, is
    $29 million.

    The Company accrues interest and penalties relating to unrecognized tax
    benefits in its provision for income taxes. As of February 1, 2008, the
    balance of accrued interest and penalties was $5 million. During the
    quarter there was an increase to the liability for interest and penalties
    by approximately $1 million.

    MDS is subject to taxation in Canada and the US, its principal
    jurisdictions, and in numerous other countries around the world. With few
    exceptions, MDS is no longer subject to examination by Canadian tax
    authorities for tax years before 2002, while most tax returns for 2002
    and beyond remain open for examination. Tax returns filed in the US
    generally are not subject to examination for years before 2003, while
    2003 and subsequent US tax filings generally remain open for audit by tax
    authorities. In certain circumstances, selective returns in earlier years
    are also open for examination.

    3. Recent US Accounting Pronouncements

    a. In September 2006, the FASB issued Statement of Financial Accounting
    Standards (SFAS) No. 157, "Fair Value Measurements". SFAS 157 provides
    guidance for using fair value to measure assets and liabilities. It also
    responds to investors' requests for expanded information about the extent
    to which companies measure assets and liabilities at fair value, the
    information used to measure fair value, and the effect of fair value
    measurements on earnings. SFAS 157 applies whenever other standards
    require (or permit) assets or liabilities to be measured at fair value,
    and does not expand the use of fair value in any new circumstances. SFAS
    157 is effective for financial statements issued for fiscal years
    beginning after November 15, 2007 and is required to be adopted by the
    Company on November 1, 2008. The Company is currently evaluating the
    effects that the adoption of SFAS 157 will have on its consolidated
    results of operations and financial condition and is not yet in a
    position to determine such effects.

    b.  In February 2007, the FASB issued SFAS No. 159, "The Fair Value
    Option for Financial Assets and Financial Liabilities Including an
    Amendment of FASB Statement No. 115". This Statement permits entities to
    choose to measure many financial instruments and certain other items at
    fair value. The objective is to improve financial reporting by providing
    entities with the opportunity to mitigate volatility in reported earnings
    caused by measuring related assets and liabilities differently without
    having to apply complex hedge accounting provisions. The Company is
    required to adopt the provisions of SFAS 159 effective fiscal 2009 and is
    currently evaluating the effects of the adoption of SFAS 159. The
    adoption is not expected to have a material impact on the consolidated
    results of operations and financial condition.

    c.  In December 2007, the FASB issued SFAS No. 141R, "Business
    Combinations", a substantial amendment to SFAS 141. The objective of this
    statement is to improve the relevance, representational faithfulness, and
    comparability of the information that a reporting entity provides in its
    financial reports about a business combination and its effects. To
    accomplish that, this statement establishes principles and requirements
    for how the acquirer: a) recognizes and measures in its financial
    statements the identifiable assets acquired, the liabilities assumed, and
    any non-controlling interest in the acquiree; b) recognizes and measures
    the goodwill acquired in the business combination or a gain from a
    bargain purchase; and c) determines what information to disclose to
    enable users of the financial statements to evaluate the nature and
    financial effects of the business combination. The Company is required to
    adopt the provisions of SFAS 141R effective for acquisitions after
    October 31, 2009. The Company is currently evaluating the effects that
    the adoption of SFAS 141R will have on its consolidated results of
    operations and financial condition and is not yet in a position to
    determine such effects.

    d.  In December 2007, the FASB issued SFAS No. 160, "Non-controlling
    Interests in Consolidated Financial Statements- an Amendment of ARB No.
    51". SFAS 160 is effective for fiscal years beginning after December 15,
    2008. The objective of this Statement is to improve the relevance,
    comparability, and transparency of the financial information that a
    reporting entity provides in its consolidated financial statements
    related to the non-controlling interest held by others in entities that
    are consolidated by the reporting entity. MDS does not consolidate
    entities with material non-controlling interests and the provisions of
    SFAS 160 are not expected to have a material impact on the Company's
    consolidated results of operations and financial condition.

    e.  In March 2008, the FASB issued SFAS No. 161, "Disclosures about
    Derivative Instruments and Hedging Activities - An Amendment of FASB
    Statement 133 (SFAS 133) SFAS 161 is effective for fiscal years and
    interim periods beginning after November 15, 2008. MDS plans to adopt the
    provisions of SFAS 161 on February 1, 2009.

    f.  In April 2008, the FASB issued Financial Statement Position SFAS
    142-3, "Determination of the Useful Life of Intangible Assets" (FSP
    142-3). FSP 142-3 provides guidance with respect to estimating the useful
    lives of recognized intangible assets acquired on or after the effective
    date and requires additional disclosure related to the renewal or
    extension of the terms of recognized intangible assets. FSP 142-3 is
    effective for fiscal years and interim periods beginning after December
    15, 2008. The adoption is not expected to have a material impact on the
    Company's consolidated results of operations and financial condition.

    g.  MDS has been monitoring the deliberations and progress being made by
    accounting standard setting bodies and securities regulators both in
    Canada and the United States with respect to their plans regarding
    convergence to International Financial Reporting Standards (IFRS). The
    Accounting Standards Board in Canada and the Canadian Securities
    Administrators (CSA) have recently confirmed that domestic issuers will
    be required to transition to IFRS for fiscal years beginning on or after
    January 1, 2011. The CSA in a Concept Paper released on February 13,
    2008, provided a tentative conclusion that allows domestic issuers who
    are also Securities and Exchange Commission (SEC) registrants, like MDS,
    to continue to report under US GAAP for a further two years from the
    transition date. Separately, the SEC in late 2007 also eliminated the
    requirement of reconciling financial statements to US GAAP for foreign
    private issuers that file under IFRS effective November 15, 2007.

    MDS adopted US GAAP as the primary reporting standard for the Company's
    consolidated financial statements in fiscal 2007. MDS commenced reporting
    under US GAAP to improve the comparability of the financial information
    with that of its competitors, the majority of whom are US-based
    multinational companies that report under US GAAP. If current proposals
    by the CSA are approved without changes, the earliest the company will be
    required to adopt IFRS as the primary reporting standard will be in
    fiscal 2014. MDS may adopt IFRS as the primary reporting standard earlier
    if the SEC either requires domestic registrants in the US to transition
    to IFRS prior to fiscal 2014 or if it permits domestic registrants to
    voluntarily adopt IFRS prior to fiscal 2014 and the majority of the
    Company's competitors commence to report under IFRS.

    4.  Acquisitions

    a.  Acquisition of Molecular Devices Corporation

    On March 20, 2007, MDS completed a tender offer which resulted in the
    Company acquiring all of the outstanding shares of Molecular Devices
    Corporation (MD), a leading provider of high-performance measurement
    tools for high content screening, cellular analysis and biochemical
    testing.

    MD is principally involved in the design, development, manufacture, sale
    and service of 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 and to strengthen the Company'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 MDS Analytical Technologies segment
    (which combines MD with the previous analytical instruments segment) in
    the consolidated financial statements from the date of acquisition.

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

    The acquisition has been accounted for as a purchase in accordance with
    SFAS No. 141, and the Company has accordingly allocated the purchase
    price of the acquisition based upon the estimated fair values of the
    assets acquired and liabilities assumed.

    The purchase price and related allocations were finalized in the second
    quarter of 2008 as follows:

    -------------------------------------------------------------------------
                                                        April 30, October 31,
                                                            2008        2007
    -------------------------------------------------------------------------
    Net tangible assets                               $       21  $       15
    Developed technologies (five-year weighted average
     useful life)                                            161         161
    Brands                                                    30          60
    Goodwill                                                 388         364
    -------------------------------------------------------------------------
    Total purchase price                              $      600  $      600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Since October 31, 2007, the principal change in the purchase price
    allocation relates to a lower value placed upon acquired brands of
    $30 million. The following table summarizes the components of the net
    tangible assets acquired at fair value:

    -------------------------------------------------------------------------
                                                        April 30, October 31,
                                                            2008        2007
    -------------------------------------------------------------------------
    Inventories                                       $       40  $       40
    Property, plant and equipment                             12          12
    Other assets and liabilities, net                        (31)        (37)
    -------------------------------------------------------------------------
    Net tangible assets acquired                      $       21  $       15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The value of brands decreased due to shortened estimates of useful lives
    as the final valuation of intangibles was completed in the second
    quarter. Net tangible assets increased as a result of the final valuation
    of deferred revenue being completed in the second quarter and there was a
    decrease in the deferred tax liability recorded following a decrease in
    the brand value. The changes in fair values were reflected in the
    adjustment of the goodwill balance.

    Pro forma information

    The following unaudited pro forma information is provided for MDS
    assuming the acquisition of MD occurred on November 1, 2006.

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Revenues                  $      350  $      308  $      672         623
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations, net
     of income taxes                  11         (75)         28         (78)
    Income from discontinued
     operations, net of income
     taxes                             -         792           -         808
    -------------------------------------------------------------------------
    Net income                $       11  $      717  $       28  $      730
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
    Basic                     $     0.09  $     5.08  $     0.23  $     5.17
    Diluted                   $     0.09  $     5.07  $     0.23  $     5.16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The information presented above is for illustrative purposes only and is
    not indicative of the results that would have been achieved had the
    acquisition taken place as of the beginning of the earliest period
    presented.

    b.  Other acquisition

    In December 2007, MDS acquired 100% of the stock of a small company that
    is in the process of developing a complimentary product to our MDS
    Analytical Technologies product portfolio. Consideration for the
    transaction was $2 million net of cash acquired, plus an additional
    $2 million in cash payments expected in 2008 which have been placed in
    escrow according to the agreement. The additional $2 million payment
    included in prepaid expenses and other is contingent on the retention of
    certain key employees and the completed validation of the functionality
    and technical specification of prototypes of the product acquired.

    The purchase price and related allocations have not been finalized and
    may be revised as a result of adjustments made to the purchase price,
    additional information regarding liabilities assumed, and revisions of
    preliminary estimates of fair values made at the date of purchase. In
    connection with the fair valuing of the assets acquired and liabilities
    assumed, MDS performed assessments of intangible assets using customary
    valuation procedures and techniques. A preliminary value of $1 million
    was assigned to in-process research and development which has been
    expensed accordingly.

    5.  Discontinued Operations and Assets Held for Sale

    a.  In November 2007, the Company signed an agreement to sell its
    external beam therapy and self-contained irradiator product lines. The
    sale closed effective May 1, 2008 and a purchase price adjustment and
    closing costs will be finalized in the third quarter. Under the terms of
    this agreement, Best Medical International Inc., a provider of
    radiotherapy and oncology products, purchased MDS Nordion's external beam
    therapy and self-contained irradiator product lines for $15 million in
    cash. Best Medical International Inc. acquired these two product lines,
    which have combined annualized revenues of approximately $32 million and
    approximately 150 employees. Once the Company made the decision to
    dispose of the product lines, the Company followed the guidance of SFAS
    No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets"
    and recorded a loss on sale of this business in the amount of $4 million
    in the first quarter of 2008. Related to the disposal, $1 million of the
    loss was allocated to the impairment of goodwill. In accordance with SFAS
    No. 88, "Employers' Accounting for Settlements and Curtailments of
    Defined Benefit Pension Plans and for Termination Benefits", a pension
    curtailment gain of approximately $1 million was recorded as a result of
    the transfer of employees to Best Medical International Inc. The related
    assets have been reclassified as assets held for sale as of the second
    quarter of 2008.

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

                                                           As at       As at
                                                        April 30  October 31
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------
    Assets held for sale
    Accounts receivable, net                          $        5  $        -
    Inventories, net                                          20           -
    Property, plant and equipment, net                         2           -
    Long-term investments and other                            -           1
    -------------------------------------------------------------------------
    Total assets held for sale                        $       27  $        1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities related to assets held for sale
    Accounts payable and accrued liabilities          $        9  $        -
    Deferred revenue                                           3           -
    -------------------------------------------------------------------------
    Total liabilities related to assets held for sale $       12  $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b.  In October 2006, the Company signed an agreement to sell its Canadian
    laboratory services business, MDS Diagnostic Services, in a
    C$1.325 billion transaction. The sale of MDS Diagnostic Services closed
    in February 2007. This strategic sale was designed to shift the Company's
    business focus to the global life sciences market.

    The results of discontinued MDS Diagnostic Services in the quarter and
    the six months ended April 30, 2007 were as follows:

    -------------------------------------------------------------------------
                                                 Second Quarter Year-to-date
    -------------------------------------------------------------------------
                                                           2007         2007
    -------------------------------------------------------------------------
    Net revenues                                      $       20  $       95
    Cost of revenues                                         (12)        (58)
    Selling, general and administration                       (6)        (15)
    -------------------------------------------------------------------------
    Operating income                                           2          22
    Gain on sale of discontinued operations                  905         905
    Interest income                                            -           1
    Income taxes                                            (114)       (117)
    Minority interest                                         (1)         (4)
    Equity earnings                                            -           1
    -------------------------------------------------------------------------
    Income from discontinued operations               $      792  $      808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings per share from discontinued
     operations                                       $     5.77  $     5.73
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  Inventories

                                                           As at       As at
                                                        April 30  October 31
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------
    Raw materials and supplies                        $       78  $       83
    Work-in process                                           23          34
    Finished goods                                            30          26
    -------------------------------------------------------------------------
                                                             131         143
    Allowance for excess and obsolete inventory              (14)        (15)
    -------------------------------------------------------------------------
    Inventories net                                   $      117  $      128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  Long-Term Investments and Other
                                                           As at       As at
                                                        April 30, October 31,
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------
    Financial instrument pledged as security on
     long-term debt (note a)                          $       42  $       46
    Long-term notes receivable (note c)                       40         125
    Equity investments (note d)                                6          10
    Equity investments in joint ventures (note d)             23          38
    Available for sale investments (note b)                   16          24
    Deferred pension assets                                   40          39
    Other long-term investments                               11           4
    Venture capital investments                                -           4
    -------------------------------------------------------------------------
    Long-term investments and other                   $      178  $      290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    a.  Fair value

    The financial instrument pledged as security on long-term debt, which is
    classified as held to maturity, and the long-term notes receivable, have
    fair values that approximate their carrying value. Other long-term
    investments, excluding those classified as available for sale, are
    recorded at cost.

    b.  Asset Backed Commercial Paper

    Included with available for sale investments is an investment in non-bank
    sponsored asset backed commercial paper (ABCP) issued by two trusts with
    an original cost of $17 million. These investments matured in September
    2007 but as a result of liquidity issues in the ABCP market, did not
    settle at maturity. In September 2007, a Pan-Canadian Investors Committee
    for Third Party Asset Backed Commercial Paper (the Committee) was formed
    to propose a solution to the liquidity problem in the ABCP market.

    Whilst no adjustment was recorded in the first quarter of 2008, an
    impairment loss of $2 million was recognized in the fourth quarter of
    fiscal 2007. In March 2008, the Committee filed with the Ontario Superior
    Court of Justice a restructuring arrangement. The holders of ABCP voted
    in favour of the Committee's restructuring plan. The Company has
    estimated the fair value of its investments in ABCP using all currently
    available information and assumptions that market participants would use
    in pricing such investments. The Company reviewed information provided by
    the Committee, JP Morgan, DBRS, current investment ratings, valuation
    estimates of the underlying assets and general economic conditions.
    Accordingly, the Company used a scenario-based probability-weighted
    discounted cash flow approach to value its investment at April 30, 2008
    and recognized an impairment loss of $3 million in the second quarter of
    2008 representing a 20% reduction of the face value of the investments
    and for a total write-down of $5 million representing a 30% reduction in
    the fair value of the investment. A change in the estimate of the
    composition of the underlying assets may affect the face value of the
    investments in the future.

    c.  Long-term notes receivable

    In 2006, as a result of a comprehensive mediation process that resulted
    in an exchange of assets between the Company and Atomic Energy of Canada
    Limited related to the MAPLE reactor project, a long-term note receivable
    for $38 million after discounting was received by the Company. This non-
    interest bearing note receivable is repayable over four years commencing
    in 2008. The note receivable is net of an unamortized discount based on
    an imputed interest rate of 4.5%. The value as at April 30, 2008 is
    $48 million, of which $8 million is included in prepaid expenses and
    other. The note receivable will be accreted up to its face amount of
    C$53 million over a period of four years.

    A $73 million note receivable relating to the sale of the diagnostics
    business referred to in Note 5 was reclassified from long-term
    investments and other to note receivable as it is now due within one
    year.

    d.  Equity investments

                                                           As at       As at
                                                        April 30  October 31
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------
    Lumira Capital Corp                               $        6  $       10
    MDS Sciex joint ventures                                  23          38
    -------------------------------------------------------------------------
    Equity investments                                $       29  $       48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company accounts for its investments in significantly influenced
    companies and joint ventures using the equity method of accounting.

    The Company owns 45.7% of the outstanding share capital of Lumira Capital
    Corp ("Lumira" - formerly MDS Capital Corp.) Lumira is an investment fund
    management company that also has long-term investments in development -
    stage enterprises that have not yet earned significant revenues from
    their intended business activities or established their commercial
    viability. The recovery of invested amounts and the realization of
    investment returns is dependent upon the successful resolution of
    scientific, regulatory, competitive, political and other risk factors, as
    well as the eventual commercial success of these enterprises. These
    investments are subject to measurement uncertainty, and adverse
    developments could result in further write-downs of the carrying values.
    In 2007, the Company wrote down this investment to its estimated fair
    value and recorded a provision of $6 million in other expenses. In
    February 2008, the Company received $4 million in cash from Lumira as a
    distribution and reduction in stated capital. The Company reduced its
    investment in Lumira accordingly.

    8.  Restructuring Charges

    An analysis of the activity in the provision through April 30, 2008 is as
    follows:

                                                                   Provision
                                           Cumulative drawdowns   Balance at
                           Restructuring  -----------------------   April 30,
                                  Charge        Cash    Non-cash        2008
    -------------------------------------------------------------------------
    2005:
      Workforce reductions    $       34  $      (33) $       (1) $        -
      Equipment and other
       asset write-downs -
       adjustment                      7           -          (7)          -
      Contract cancellation
       charges                        10          (2)         (8)          -
    -------------------------------------------------------------------------
                              $       51  $      (35)  $     (16)  $       -
    -------------------------------------------------------------------------
    2006:
      Workforce reductions    $        1  $       (1)  $       -   $       -
      Contract cancellation
       charges                        (8)         (1)          9           -
    -------------------------------------------------------------------------
                              $       (7) $       (2)  $       9   $       -
    -------------------------------------------------------------------------
    2007:
      Workforce reductions    $       17  $      (13)  $      (2)  $       2
      Equipment and other
       asset write-downs               2          (1)          2           3
      Contract cancellation
       charges                         5          (6)          1           -
      Other                           14         (11)         (3)          -
    -------------------------------------------------------------------------
                              $       38  $      (31)  $      (2)  $       5
    -------------------------------------------------------------------------
                                                                   $       5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the second quarter of 2008 there was a restructuring charge of
    $1 million, and cash utilization of $2 million. The remaining balance
    primarily relates to the MDS Pharma Services segment. The restructuring
    activities will be completed by the end of 2009.

    9.  Other Income (Expenses)

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Write-down of investments/
     valuation provisions             (3)         (6)         (3)         (6)
    Gain on sale of investment         -           -           2           2
    Loss on sale of Hamburg clinic     -          (4)          -          (4)
    Gain (loss) on sale of
     business                          -           1          (4)          1
    Curtailment gain on pension        1           -           1           -
    Acquisition integration costs     (1)         (1)         (1)         (1)
    FDA provision                     10         (61)         10         (61)
    Foreign exchange gain (loss)      (1)         (4)          3          (1)
    Gain (loss) on embedded
     derivatives                       3           -          (1)          -
    Other                              1           1          (1)          -
    -------------------------------------------------------------------------
    Other income (expense) -
     net                      $       10  $      (74) $        6  $      (70)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter of 2008, a write-down of investments of
    $3 million relating to the impairment loss on the Company's investment in
    asset-backed commercial paper was taken.

    In the second quarter of 2007, the Company recorded a provision of
    $61 million to reimburse clients who have incurred or will incur third-
    party audit costs or study re-run costs to complete the work required by
    the US Food and Drug Administration (FDA) or other regulators. We have
    utilized approximately $19 million of this reserve to date, an amount
    partially offset by the impact of foreign currency fluctuations on the
    liability. Although we believe we have substantially completed the
    majority of all required site audits, we still await final reimbursement
    requests for many of these audits. Based on information currently
    available, we believe that a reserve of approximately $33 million is
    required to cover study audits, re-runs and other related costs.
    Accordingly, approximately $10 million has been reversed this quarter.
    Management will continue to closely monitor the FDA matter and related
    provision.

    10. Earnings Per Share

    a.  Dilution

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
    (number of shares
    in millions)                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Weighted average number of
     Common shares outstanding
      - basic                        122         137         122         141
    Impact of stock options
     assumed exercised                 -           1           -           -
    -------------------------------------------------------------------------
    Weighted average number of
     Common shares outstanding
      - diluted                      122         138         122         141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b.  Pro-Forma Impact of Stock-Based Compensation

    Companies are required to calculate and disclose, in the notes to the
    consolidated financial statements, compensation expense related to the
    grant-date fair value of stock options for all grants of options for
    which no expense has been recorded in the consolidated statements of
    operations. For the Company, this includes those stock options issued
    prior to November 1, 2003.

    For purposes of these pro-forma disclosures, the Company's net income and
    basic and diluted earnings per share would have been:

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Net income                $       11  $      737  $       28  $      753
    Compensation expense for
     options granted prior to
     November 1, 2003                  -           -           -          (1)
    -------------------------------------------------------------------------
    Net income - pro-forma    $       11  $      737  $       28  $      752
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pro-forma basic earnings
     per share                $     0.09  $     5.37  $     0.23  $     5.34
    Pro-forma diluted earnings
     per share                $     0.09  $     5.35  $     0.23  $     5.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Share Capital

    At April 30, 2008, the authorized share capital of the Company consists
    of unlimited Common shares. The Common shares are voting and are
    entitled to dividends if, as and when declared by the Board of Directors.

    The following table summarizes information on share capital and stock
    options and related matters as at April 30, 2008:

    (number of shares in thousands)                       Number      Amount
    -------------------------------------------------------------------------
    Common shares
    Balance as at October 31, 2007                       122,578  $      493
    Issued during the period                                 330           5
    Repurchased during the period                           (872)         (4)
    -------------------------------------------------------------------------
    Balance as at April 30, 2008                         122,036  $      494
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter, the Company repurchased and cancelled 619,700
    Common shares under a normal course issuer bid for a cost of $12 million.
    Of the total cost, $3 million was charged to share capital, $1 million
    was charged to other comprehensive income and $8 million was charged to
    retained earnings. For the six months ended April 30, 2008, $4 million
    was charged to share capital, $2 million was charged to comprehensive
    income and $11 million was charged to retained earnings. A share
    repurchase of 63,200 shares was entered into on April 30, 2008 and will
    settle in the first week of May 2008. The total cost of this repurchase
    was $1 million.

    12. Stock-based Compensation

                                                                     Average
    C$ options                                                      Exercise
    (number of stock options in thousands)                Number       Price
    -------------------------------------------------------------------------
    Stock options
    Balance as at October 31, 2007                         5,555  $    19.66
    Activity during the period:
      Granted                                                 39       20.29
      Exercised                                             (330)      16.29
      Cancelled or forfeited                                (184)      20.87
    -------------------------------------------------------------------------
    Balance as at April 30, 2008                           5,080  $    19.84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                     Average
    US$ options                                                     Exercise
    (number of stock options in thousands)                Number       Price
    -------------------------------------------------------------------------
    Stock options
    Balance as at October 31, 2007                             -  $        -
    Activity during the period:
      Granted                                                 12       17.91
    -------------------------------------------------------------------------
    Balance as at April 30, 2008                              12  $    17.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the quarter, the Company granted 30,000 C$ options and 10,000 US$
    options (2007 - 280,500 and nil) at an average exercise price of C$20.50
    and US$17.74, respectively (2007 - C$21.84 and US$ nil).  These options
    have a fair value determined using the Black-Scholes model of C$4.40 and
    US$4.07 per share respectively (2007 - C$4.62 and US$ nil) based on the
    following:

    C$ options                                              2008        2007
    -------------------------------------------------------------------------
    Risk-free interest rate                                 3.0%        3.9%
    Expected dividend yield                                 0.0%        0.0%
    Expected volatility                                      21%         22%
    Expected time to exercise (years)                       4.40        3.25
    ------------------------------------------------- ----------- -----------
    ------------------------------------------------- ----------- -----------

    US$ options                                             2008        2007
    -------------------------------------------------------------------------
    Risk-free interest rate                                 3.0%           -
    Expected dividend yield                                 0.0%           -
    Expected volatility                                      22%           -
    Expected time to exercise (years)                       4.40           -
    ------------------------------------------------- ----------- -----------
    ------------------------------------------------- ----------- -----------

    The stock compensation expense for the six months ended April 30, 2008
    was $3 million (six months ended April 30, 2007  -  $1 million), which
    has been recorded in selling, general and administration expenses and as
    additional paid in-capital within share capital.

    Incentive Plans

    The Company has been utilizing mid-term incentive plans (MTIP) since
    2005. The 2006 MTIP will vest in two equal tranches, based on achieving
    specified share price hurdles of C$22.00 and C$26.00 respectively. The
    term of the Performance Share Units (PSUs) is three years and payout will
    occur at the later of 24 months from the date of grant and achievement of
    each share price hurdle. Payout on certain PSUs will be in the form of
    Deferred Share Units (DSUs) and the balance will be paid in cash. During
    2006, the price hurdle was met and 50% of the issued units vested. A
    payment of $3 million was made related to these vested units in November
    2007.

    The 2007 MTIP will vest in two equal tranches, based on achieving
    specified share price hurdles of C$25.30 and C$27.50, respectively. The
    term of the PSUs is three years and payout will occur at the later of 24
    months from the date of grant and achievement of each share price hurdle.

    The 2008 MTIP will vest on December 15, 2010 and the number of PSUs
    granted will be determined based on achieving a target rate for 2010 cash
    earnings per share of between US $1.17 and US $1.31. The final number of
    vested units can range from 0% to 200% of the number of PSUs granted.
    Payout will occur not later than 60 days following the vesting date.

    The Company records the cost of its MTIP compensation plans at fair value
    based on assumptions that are consistent with those used to determine the
    fair value of stock compensation. The table below shows the liability
    and expense related to the plans:

                                                           As at       As at
                                                        April 30, October 31,
    Liability                                               2008        2007
    -------------------------------------------------------------------------
    2006 Plan                                         $        4  $       11
    2007 Plan                                                  2           3
    2008 Plan                                                  2           -
    -------------------------------------------------------------------------
    Total                                             $        8  $       14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                      Three months             Six months
    Expense (Income)                 ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    2006 Plan                 $        1  $        2  $       (4) $        1
    2007 Plan                          1           -          (1)          -
    2008 Plan                          1           -           1           -
    -------------------------------------------------------------------------
    Total                     $        3  $        2  $       (4) $        1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. Accumulated Other Comprehensive Income

                                                           As at       As at
                                                        April 30, October 31,
    (millions of US dollars)                                2008        2007
    -------------------------------------------------------------------------
    Accumulated other comprehensive income, net of
     income taxes, beginning of period                $      490  $      328
    Foreign currency translation                             (75)        183
    Unrealized gain on available-for-sale assets, net
     of tax                                                    1          (3)
    Unrealized gain (loss) on derivatives designated
     as cash flow hedges, net of tax                          (4)          8
    Reclassification of realized gains, net of tax             -          (4)
    Adoption of FAS 158                                        -          11
    Repurchase and cancellation of Common shares              (2)        (33)
    -------------------------------------------------------------------------
    Accumulated other comprehensive income, net of
     income taxes, end of period                      $      410  $      490
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The foreign currency translation gain in 2007 was mainly a result of the
    effect of the strengthening Canadian dollar (approximately 19% for 2007)
    and the strengthening euro on assets and earnings. The foreign currency
    translation loss in 2008 was mainly a result of the effect of the
    weakening Canadian dollar (approximately 6% for the first two quarters of
    2008) on Canadian denominated assets.

    14. Employee Benefit Plans

    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.

    Defined Benefit Pension Plans:

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Service cost              $        1  $        1  $        2  $        2
    Interest cost                      3           2           6           4
    Expected return on plan
     assets                           (4)         (3)         (8)         (6)
    Recognition of actuarial
     gains                             -          (1)          -          (1)
    Curtailment gain                  (1)          -          (1)          -
    -------------------------------------------------------------------------
                              $       (1) $       (1) $       (1) $       (1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other Benefit Plans:

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Service cost              $        -  $        -  $        -  $        -
    Interest cost                      1           1           1           1
    Expected return on plan
     assets                            -           -           -           -
    -------------------------------------------------------------------------
                              $        1  $        1  $        1  $        1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    MDS has recorded a curtailment gain of $1 million related to the transfer
    of staff from MDS to Best Medical International Inc. as a result of the
    sale of the external beam therapy and self-contained irradiator product
    lines, as per Note 5.

    15. Supplementary Cash Flow Information

    Non-cash items affecting net income comprise:

                                      Three months             Six months
                                     ended April 30          ended April 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Depreciation and
     amortization             $       23  $       18  $       50  $       32
    Stock option compensation          2           -           3           1
    Deferred revenue                   1           -           -          (2)
    Deferred income taxes            (15)         31         (27)         47
    Equity earnings - net of
     distribution                     (2)          9          10           9
    Write-down of investments          3          10           3          10
    Loss on disposal of
     equipment and other assets        2           4           4           2
    Mark-to-market of
     derivatives                      (3)         (1)          1          (1)
    FDA provision (reversal)         (10)         61         (10)         61
    Other                             (2)          -          (5)          1
    -------------------------------------------------------------------------
                              $       (1)  $     132  $       29  $      160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Prior year comparatives have been reclassified to conform to the current
    year presentation

    Changes in non-cash operating assets and liabilities balances relating to
    operations include:

                                      Three months             Six months
                                     ended April 30          ended April 30
    (millions of US dollars)        2008        2007        2008        2007
    -------------------------------------------------------------------------
    Accounts receivable       $       13  $       (5) $       20  $        8
    Unbilled revenue                  (7)         27         (13)         11
    Inventories                       (3)         (3)         (2)         (7)
    Prepaid expenses and others       11          35          (1)         11
    Accounts payable and
     accrued liabilities             (25)          1         (92)        (13)
    Income taxes                     (19)        (21)        (46)         (9)
    Deferred income                    4           -           4           -
    Other operating asset and
     liabilities                       2           -           2           -
    -------------------------------------------------------------------------
                              $      (24) $       34  $     (128) $        1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Prior year comparatives have been reclassified to conform to the current
    year presentation


    16. Segment Information

    In accordance with SFAS No 131, "Disclosures About Segments of an
    Enterprise and Related Information", the Company operates within three
    business segments - pharmaceutical services, isotopes and analytical
    technologies. These segments are organized predominantly around the
    products and services provided to customers identified for the
    businesses.

                                           Three months ended April 30, 2008
    -------------------------------------------------------------------------
                             MDS                     MDS
                          Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Product revenues     $     -   $    76       $    93    $        $   169
    Service revenues         128         4            25                 157
    Reimbursement revenues    24         -             -                  24
    -------------------------------------------------------------------------
    Total revenues           152        80           118                 350
    Direct product cost        -       (42)          (64)               (106)
    Direct service cost      (95)       (2)           (4)               (101)
    Reimbursed expenses      (24)        -             -                 (24)
    Selling, general and
     administration          (33)      (13)          (22)        (7)     (75)
    Research and
     development               -        (2)          (20)         -      (22)
    Depreciation and
     amortization             (8)       (3)          (12)         -      (23)
    Restructuring charges
     - net                    (1)        -             -          -       (1)
    Other income (expenses)
     - net                     9         3             -         (2)      10
    Equity earnings            -         -            10          -       10
    -------------------------------------------------------------------------
    Segment earnings
     (loss)              $     -   $    21       $     6    $    (9) $    18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets         $   793   $   692       $   820    $   412  $ 2,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital
     expenditures        $     9   $     3       $     1    $     2  $    15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets exclude assets held for sale.

    In segment reporting, equity earnings are included in the determination
    of segment earnings (loss). Excluding equity earnings of $10 million
    (2007 - $11 million) results in operating earnings of $8 million (2007 -
    $96 million loss).


                                           Three months ended April 30, 2007
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Product revenues     $     -   $    67       $    62    $     -  $   129
    Service revenues         115         4            15          -      134
    Reimbursement
     revenues                 23         -             -          -       23
    -------------------------------------------------------------------------
    Total revenues           138        71            77          -      286
    Direct product cost        -       (35)          (48)         -      (83)
    Direct service cost      (80)       (1)           (1)         -      (82)
    Reimbursed expenses      (23)        -             -          -      (23)
    Selling, general
     and administration      (32)      (12)          (11)        (6)     (61)
    Research and
     development               -        (1)          (15)         -      (16)
    Depreciation and
     amortization            (10)       (3)           (4)        (1)     (18)
    Restructuring
     charges - net           (23)        -             -         (2)     (25)
    Other income
     (expenses) - net        (68)        1            (1)        (6)     (74)
    Equity earnings            -         -            11          -       11
    -------------------------------------------------------------------------
    Segment earnings
     (loss)              $   (98)  $    20       $     8    $   (15) $   (85)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $   810   $   660       $   819    $   435  $ 2,724
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $     5   $     1       $     1    $     -  $     7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Six months ended April 30, 2008
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Product revenues     $     -   $   135       $   185    $     -  $   320
    Service revenues         248         5            49          -      302
    Reimbursement
     revenues                 50         -             -          -       50
    -------------------------------------------------------------------------
    Total revenues           298       140           234          -      672
    Direct product cost        -       (76)         (125)         -     (201)
    Direct service cost     (183)       (2)           (8)         -     (193)
    Reimbursed expenses      (50)        -             -          -      (50)
    Selling, general
     and administration      (62)      (24)          (41)       (12)    (139)
    Research and
     development               -        (2)          (40)         -      (42)
    Depreciation and
     amortization            (17)       (6)          (27)         -      (50)
    Restructuring
     charges - net            (1)        -             -          -       (1)
    Other income
     (expenses) - net         14        (5)           (2)        (1)       6
    Equity earnings            -         -            24          -       24
    -------------------------------------------------------------------------
    Segment earnings
     (loss)              $    (1)  $    25       $    15    $   (13) $    26
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $   793   $   692       $   820    $   412  $ 2,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $    15   $     6       $     3    $     4  $    28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets exclude assets held for sale.

    In segment reporting, equity earnings are included in the determination
    of segment earnings (loss). Excluding equity earnings of $24 million
    (2007 - $25 million) results in an operating earnings of $2 million
    (2007 - 105 million loss)


                                             Six months ended April 30, 2007
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Product revenues     $    -    $   134       $   100    $     -  $   234
    Service revenues        236          4            30          -      270
    Reimbursement
     revenues                46          -             -          -       46
    -------------------------------------------------------------------------
    Total revenues          282        138           130          -      550
    Direct product cost       -        (69)          (85)         -     (154)
    Direct service cost    (169)        (2)           (1)         -     (172)
    Reimbursed expenses     (46)         -             -          -      (46)
    Selling, general
     and administration     (65)       (23)          (17)       (10)    (115)
    Research and
     development              -         (2)          (26)         -      (28)
    Depreciation and
     amortization           (18)        (6)           (7)        (1)     (32)
    Restructuring
     charges - net          (31)         -             -         (7)     (38)
    Other income
     (expenses) - net       (66)         1            (2)        (3)     (70)
    Equity earnings           -          -            25          -       25
    -------------------------------------------------------------------------
    Segment earnings
     (loss)              $ (113)   $    37       $    17    $   (21) $   (80)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $  810    $   660       $   819    $   435  $ 2,724
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures        $    7    $     2       $     4    $     3  $    16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    17. Financial Instruments

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

                                           As at April 30   As at October 31
                                                     2008               2007
    -------------------------------------------------------------------------
                                          Carrying   Fair    Carrying   Fair
                                            Amount  Value      Amount  Value
    -------------------------------------------------------------------------
    Asset (liability) position:
      Currency forward and
       option              - assets        $    -  $    -      $    7  $   7
      Currency forward and
       option              - liabilities   $   (2) $   (2)     $  (12) $ (12)
    Interest rate swap and
     option contracts                      $    -  $    -      $   (1) $  (1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    As of April 30, 2008, the Company had outstanding foreign exchange
    contracts in place to sell $54 million at a weighted average exchange
    rate of C$1.0143 maturing over the next twelve months.

    In addition to the above derivatives, isotope supply agreements totalling
    $123 million include terms that result in the creation of an embedded
    currency derivative under SFAS 133, "Accounting for Derivative
    Instruments and Hedging Activities". Under the rules contained in SFAS
    133, we have determined the value of this derivative and marked it to
    market as at April 30, 2008. The supply contract is denominated in
    US dollars and due to currency movements between the US and Canadian
    dollar we have recorded an unrealized, mark-to-market gain of $3 million
    on the contract in the second quarter of 2008 ($1 million loss year to
    date). There was no significant mark-to-market adjustment required for
    the second quarter of 2007.

    18. Income Taxes

    The Company's effective tax rate this quarter was 31%. The tax expense
    was reduced by $2 million of tax credits relating to research and
    development that were recognized during the quarter. The tax benefit
    recorded this quarter on the ABCP provision reflects the fact that any
    tax loss arising on ABCP will be treated as a capital loss.

    
                                                    Three months to April 30
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------
    Expected income tax expense (recovery)
     at MDS's 33% (2007 - 35%) statutory rate         $        5  $      (28)
    Increase (decrease) to tax expense as a
     result of:
      Tax credits for research and development                (2)         (5)
      Valuation provisions                                     1           2
      Foreign losses not recognized                            -           4
    Other                                                      1           -
    -------------------------------------------------------------------------
    Reported income tax expense (recovery)            $        5  $      (27)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    19. Differences Between Canadian and US Generally Accepted Accounting
        Principles

    US GAAP accounting principles used in the preparation of these
    consolidated financial statements conform in all material respects to
    Canadian GAAP, except as set out below.

    a.  Accounting for equity interests in joint ventures - The Company owns
    50% interests in two partnerships that are subject to joint control.
    Under US GAAP, the Company records its share of earnings of these
    partnerships as equity earnings. Under Canadian GAAP, the Company
    proportionately consolidates these businesses. Under the proportionate
    consolidation method of accounting, MDS recognizes its share of the
    results of operations, cash flows, and financial position of the
    partnerships on a line-by-line basis in its consolidated financial
    statements and eliminates its share of all material intercompany
    transactions with the partnerships. While there is no impact on net
    income from continuing operations or earnings per share from continuing
    operations as a result of this difference, there are numerous
    presentation differences affecting the disclosures in these consolidated
    financial statements and in certain of the supporting notes.

    b.  Research and development - The Company expenses research and
    development costs as incurred. Under Canadian GAAP, the Company is
    required to capitalize development costs provided certain conditions are
    met. Such capitalized costs are referred to as deferred development costs
    and they are amortized over the estimated useful life of the related
    products, generally periods ranging from three to five years.

    c.  Investment tax credits - The Company records non-refundable
    investment tax credits as a reduction in current income tax expense in
    the year in which the tax credits are earned. The majority of non-
    refundable investment tax credits earned by MDS are related to research
    and development expenditures. Under Canadian GAAP, non-refundable
    investment tax credits are recorded as a reduction in the expense or the
    capital expenditure to which they relate.

    d.  Embedded derivatives - Under SFAS 133, "Accounting for Derivative
    Instruments and Hedging Activities", certain contractual terms are
    considered to behave in a similar fashion to a derivative contract and
    parties to the contracts are therefore required to separate the
    accounting for these embedded derivatives from the accounting for the
    host contract. Once separated, these embedded derivatives are subject to
    the general derivative accounting guidelines outlined in SFAS 133,
    particularly the requirement to mark these derivatives to market. For
    MDS, these terms typically relate to the currency in which the contract
    is denominated. Canadian GAAP is largely aligned with SFAS 133 for most
    embedded derivatives; however, Canadian GAAP provides exemptions for
    contracts that are written in a currency that is not the functional
    currency of one of the substantial parties to the contract but which is a
    currency in Common usage in the economic environment of one of the
    contracting parties. The Company has elected to use this exemption
    available under Canadian GAAP in accounting for certain cobalt supply
    contracts entered into with a supplier located in Russia. The affected
    contracts are denominated in US dollars.

    e.  Currency forward and option contracts - The Company currently
    designates the majority of the forward foreign exchange contracts it
    enters into as hedges of future anticipated cash inflows. In prior years,
    these contracts did not qualify for treatment as hedges and, accordingly,
    such contracts were carried at fair value and changes in fair value were
    reflected in earnings. Under Canadian GAAP, all such contracts were
    eligible for hedge accounting, and as a result, gains and losses on these
    contracts were deferred and recognized in the period in which the cash
    flows to which they relate were incurred.

    f.  Comprehensive income - US GAAP requires that a statement of other
    comprehensive income and accumulated other comprehensive income be
    displayed with the same prominence as other financial statements. Under
    Canadian GAAP, statements of other comprehensive income and accumulated
    other comprehensive income were not required for years prior to the
    Company's 2007 fiscal year.

    g.  Pensions - Under US GAAP, the net funded status of pension plans
    sponsored by a company are fully reflected in the consolidated assets or
    liabilities of the Company. The amount by which plan assets exceed
    benefit obligations or benefit obligations exceed plan assets, on a plan-
    by-plan basis, is reflected as an increase in assets or liabilities, with
    a corresponding adjustment to accumulated other comprehensive income.
    Under Canadian GAAP, only the net actuarial asset or liability is
    reflected in the consolidated financial statements.

    h.  Stock-based compensation - Under US GAAP, certain equity-based
    incentive compensation plans are accounted for under the liability method
    using a fair value model to determine the amount of the liability at each
    period end. Under Canadian GAAP, these plans are accounted for under the
    liability method using intrinsic value to measure the liability at each
    period end.

    i. As per Note 3 (g): The Accounting Standards Board announced that
    Canadian Generally Accepted Accounting Principles for publicly
    accountable enterprises will be replaced with International Financial
    Reporting Standards (IFRS) for fiscal years beginning on or after
    January 1, 2011. While domestic issuers will be required to make the
    transition by 2011, the CSA in a Concept Paper provided a tentative
    conclusion allowing domestic issuers who are also SEC registrants, like
    MDS, to continue to report under US GAAP for two years from the
    transaction date of 2011. Early conversion to IFRS for fiscal years
    beginning on or after January 1, 2009 may also be permitted.

    As mentioned in Note 2, in the fourth quarter of 2007 during the
    preparation of the 2007 annual financial statements under US GAAP, an
    error was identified in the prior interim financial statements with
    respect to certain stock-based incentive compensation plans. The Company
    has corrected this error of $1 million in these consolidated financial
    statements. The previous Canadian GAAP to US GAAP reconciliation is
    therefore amended by the below restated reconciliation.


    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    -------------------------------------------------------------------------

                                                  Recon-
                                          2008    ciling
    As at April 30, 2008              Canadian   Adjust-    Refer-      2008
    (millions of US dollars)              GAAP     ments      ence   US GAAP
    -------------------------------------------------------------------------

    Assets
    Current Assets
    Cash and cash equivalents          $   143   $    (4)        a   $   139
    Short-term investments                   -         -                   -
    Accounts receivable, net               261        (1)      a,d       260
    Note receivable                         73         -                  73
    Unbilled revenue                       111         -                 111
    Inventories, net                       121        (4)        a       117
    Income taxes recoverable                56         -                  56
    Current portion of deferred
     tax assets                             47         -                  47
    Prepaid expenses and other              33        (1)                 32
    Assets held for sale                    27         -                  27
    -------------------------------------------------------------------------
    Total Current Assets               $   872   $   (10)            $   862
                         -
    Property, plant and equipment, net     366        (2)        a       364
    Deferred tax assets                     31         -                  31
    Long-term investments and other        191       (13)    a,b,g       178
    Goodwill                               820       (21)                799
    Intangible assets, net                 526       (16)        a       510
    -------------------------------------------------------------------------
    Total Assets                       $ 2,806   $   (62)            $ 2,744
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS'
     EQUITY
    Current Liabilities
    Accounts payable and accrued
     liabilities                       $   303   $   (15)    a,d,h   $   288
    Current portion of deferred
     revenue                                75         -                  75
    Income taxes payable                    17        (1)                 16
    Current portion of long-term debt       20         -                  20
    Current portion of deferred tax
     liabilities                            33         -                  33
    Liabilities related to assets
     held for sale                          12         -                  12
    -------------------------------------------------------------------------
    Total Current Liabilities          $   460   $   (16)            $   444

    Long-term debt                         280         -                 280
    Deferred revenue                        14         -                  14
    Other long-term obligations             30         -                  30
    Deferred tax liabilities               152       (13)      f,h       139
    -------------------------------------------------------------------------
    Total Liabilities                  $   936   $   (29)            $   907
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital                          506       (12)        h       494
    Additional paid in capital               -        75         h        75
    Retained earnings                      961      (103)  b,d,g,h       858
    Accumulated other comprehensive
     income                                403         7     a,f,g       410
    -------------------------------------------------------------------------
    Total shareholders' equity         $ 1,870   $   (33)            $ 1,837
    -------------------------------------------------------------------------
    Total liabilities and
     shareholders' equity              $ 2,806   $   (62)            $ 2,744
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    -------------------------------------------------------------------------

                                                  Recon-
                                          2007    ciling
    As at October 31                  Canadian   Adjust-    Refer-      2007
    (millions of US dollars)              GAAP     ments      ence   US GAAP
    -------------------------------------------------------------------------

    ASSETS
    Current assets
    Cash and cash equivalents          $   259   $   (24)        a   $   235
    Short-term investments                  91        11                 102
    Accounts receivable                    284         3       a,d       287
    Unbilled revenue                        99         -                  99
    Inventories, net                       134        (6)        a       128
    Income taxes recoverable                54         -                  54
    Current portion of income taxes         45         -                  45
    Prepaid expenses and other              21         1                  22
    Assets held for sale                     1         -                   1
    -------------------------------------------------------------------------
    Total Current Assets                   988       (15)                973

    Property, plant and equipment, net     390        (4)        a       386
    Deferred tax assets                      4         -                   4
    Long-term investments and other        284         6     a,b,g       290
    Goodwill                               797       (15)                782
    Intangible assets, net                 601       (18)        a       583
    -------------------------------------------------------------------------
    Total Assets                       $ 3,064   $   (46)            $ 3,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued
     liabilities                       $   391   $    (7)      a,h   $   384
    Current portion of deferred
     revenue                                71         -                  71
    Income taxes payable                    57         -                  57
    Current portion of long-term debt       94         -                  94
    Current portion of deferred tax
     liabilities                            10         -                  10
    -------------------------------------------------------------------------
    Total Current Liabilities              623        (7)                616

    Long-term debt                         290         -                 290
    Deferred revenue                        16         1                  17
    Other long-term obligations             29         1                  30
    Deferred tax liabilities               182       (14)      f,h       168
    Minority interest                        1        (1)                  -
    -------------------------------------------------------------------------
    Total Liabilities                    1,141       (20)              1,121
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital                          502        (9)        h       493
    Additional paid-in capital             n/a        72         h        72
    Retained earnings                      945      (103)  b,d,g,h       842
    Accumulated other comprehensive
     income                                476        14     a,f,g       490
    -------------------------------------------------------------------------
    Total shareholders' equity           1,923       (26)              1,897
    -------------------------------------------------------------------------
    Total liabilities and
     shareholders' equity              $ 3,064   $   (46)            $ 3,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS
    -------------------------------------------------------------------------
                          Three months ended        Six months ended
                              April 30, 2008          April 30, 2008
    -------------------------------------------------------------------------
    (millions of US
    dollars except       CDN  Recon.      US     CDN  Recon.     US   Refer-
    per share amounts)  GAAP Items(1)   GAAP    GAAP Items(1)   GAAP    ence

    Revenues
      Products        $  180  $  (11) $  169  $  331  $  (11) $  320       a
      Services           149       8     157     302       -     302
      Reimbursement
       revenues           24       -      24      50       -      50
    -------------------------------------------------------------------------
    Total revenues       353      (3)    350     683     (11)    672
    -------------------------------------------------------------------------

    Costs and expenses
      Direct cost of
       products         (106)      -    (106)   (201)      -    (201)    a,c
      Direct cost of
       services         (101)      -    (101)   (193)      -    (193)
      Reimbursed
       expenses          (24)      -     (24)    (50)      -     (50)
      Selling, general
       and
       administration    (73)     (2)    (75)   (131)     (8)   (139)  a,e,h
      Research and
       development       (11)    (11)    (22)    (20)    (22)    (42)  a,b,c
      Depreciation and
       amortization      (26)      3     (23)    (56)      6     (50)      a
      Restructuring
       charges - net      (1)      -      (1)     (1)      -      (1)
      Other expense
       - net               6       4      10       3       3       6     b,d
    -------------------------------------------------------------------------
    Total costs and
     expenses           (336)     (6)   (342)   (649)    (21)   (670)
    -------------------------------------------------------------------------

    Operating income
     (loss) from
     continuing
     operations           17      (9)      8      34     (32)      2

    Interest expense      (5)     (1)     (6)    (11)     (1)    (12)
    Interest income        4       -       4      10       -      10
    Mark-to-market on
     interest rate
     swaps                 -       -       -       -       2       2
    Equity earnings        -      10      10       -      24      24       a
    -------------------------------------------------------------------------
    Income (loss)
     from continuing
     operations before
     income taxes         16       -      16      33      (7)     26

    Income tax (expense)
      recovery
    - current             (7)      4      (3)    (31)      6     (25)
    - deferred            (2)      -      (2)     26       1      27
    -------------------------------------------------------------------------
    Income (loss) from
     continuing
     operations            7       4      11      28       -      28

    Income from
     discontinued
     operations - net
     of income tax         -       -       -       -       -       -
    -------------------------------------------------------------------------
    Net income        $    7  $    4  $   11  $   28  $    -  $   28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings
     (loss) per share
      - from
       continuing
       operations     $ 0.06  $(0.03) $ 0.09  $ 0.23  $    -  $ 0.23
      - from
       discontinued
       operations          -       -       -       -       -       -
    -------------------------------------------------------------------------
    Basic earnings
     (loss) per
     share            $ 0.06  $(0.03) $ 0.09  $ 0.23  $    -  $ 0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings
     (loss) per share
      - from
       continuing
       operations     $ 0.06  $(0.03) $ 0.09  $ 0.23  $    -  $ 0.23
      - from
       discontinued
       operations          -       -       -       -       -       -
    -------------------------------------------------------------------------
    Diluted earnings
     (loss) per
     share            $ 0.06  $(0.03) $ 0.09  $ 0.23  $    -  $ 0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Reconciling items between Canadian GAAP and US GAAP



    CONSOLIDATED STATEMENTS OF OPERATIONS

    -------------------------------------------------------------------------
                           Three months ended        Six months ended
                               April 30, 2007          April 30, 2007
    -------------------------------------------------------------------------
    (millions of US                  Restated                Restated
    dollars except       CDN  Recon.  US GAAP    CDN  Recon.  US GAAP  Refer-
    per share amounts)  GAAP Items(1) (Note 2)  GAAP Items(1) (Note 2)  ence

    Revenues
      Products        $    -  $    -  $  129  $    -  $    -  $  234       a
      Services             -       -     134       -       -     270
      Reimbursement
       revenues            -       -      23       -       -      46
    -------------------------------------------------------------------------
     Total revenues      273      13     286     523      27     550
    -------------------------------------------------------------------------

    Costs and expenses
      Direct cost of
       products            -     (83)    (83)      -    (154)   (154)    a,c
      Direct cost of
       services         (164)     82     (82)   (324)    152    (172)
      Reimbursed
       expenses            -     (23)    (23)      -     (46)    (46)
      Selling, general
       and
       administration    (67)      6     (61)   (120)      5    (115)  a,e,h
      Research and
       development        (7)     (9)    (16)    (12)    (16)    (28)  a,b,c
      Depreciation and
       amortization      (20)      2     (18)    (37)      5     (32)    a,b
      Restructuring
       charges - net     (28)      3     (25)    (41)      3     (38)
      Other expenses
       - net             (67)     (7)    (74)    (66)     (4)    (70)    b,d
    -------------------------------------------------------------------------
    Total costs and
     expenses           (353)    (29)   (382)   (600)    (55)   (655)
    -------------------------------------------------------------------------

    Operating loss
     from continuing
     operations          (80)    (16)    (96)    (77)    (28)   (105)

    Interest expense      (8)      -      (8)    (14)      -     (14)
    Interest income       10       -      10      14       -      14
    Mark-to-market on
     interest note
     swaps                 -       1       1       -       1       1
    Equity earnings        -      11      11       -      25      25       a
    -------------------------------------------------------------------------
    Loss from
     continuing
     operations
     before income
     taxes               (78)     (4)    (82)    (77)     (2)    (79)

    Income tax
     (expense)
     recovery
      - current           21      10      31      18      11      29
        deferred                  (4)     (4)      -      (5)     (5)
    -------------------------------------------------------------------------
    Income (loss) from
     continuing
     operations          (57)      2     (55)    (59)      4     (55)

    Income from
     discontinued
     operations - net
     of income tax       793      (1)    792     809      (1)    808
    -------------------------------------------------------------------------
    Net income        $  736  $    1  $  737  $  750  $    3  $  753
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings
     (loss) per share
      - from
       continuing
       operations     $(0.42) $ 0.02  $(0.40) $(0.42) $ 0.03  $(0.39)
      - from
       discontinued
       operations       5.77       -    5.77    5.74   (0.01)   5.73
    -------------------------------------------------------------------------
    Basic earnings
     (loss) per share $ 5.35  $ 0.02  $ 5.37  $ 5.32  $ 0.02  $ 5.34
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings
     (loss) per share
      - from
       continuing
       operations     $(0.41) $ 0.01  $(0.40) $(0.42) $ 0.03  $(0.39)
      - from
       discontinued
       operations       5.75       -    5.75    5.72       -    5.72
    -------------------------------------------------------------------------
    Diluted earnings
     (loss) per share $ 5.34  $ 0.01  $ 5.35  $ 5.30  $ 0.03  $ 5.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                           Three months ended April 30, 2008
    -------------------------------------------------------------------------
                                                     CDN   Recon.         US
    (millions of US dollars)                        GAAP   Items(1)     GAAP
    -------------------------------------------------------------------------
    Operating activities
    Net income                                   $     7   $     4   $    11
    Less: Income from discontinued
     operations - net of tax                           -         -         -
    -------------------------------------------------------------------------
    Income (loss) from continuing operations           7         4        11
    Adjustments to reconcile net income to
     cash provided (used in) operating
     activities relating to
     continuing operations
      Items not affecting current cash flow           33       (34)       (1)
      Changes in non-cash working capital
       balances relating to operations               (26)        2       (24)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating
     activities of continuing operations              14       (28)      (14)
    Cash provided by operating activities
     of discontinued operations                        -         -         -
    -------------------------------------------------------------------------
                                                      14       (28)      (14)
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions                                       -       (2)        (2)
    Increase in deferred development charges           -        -          -
    Purchase of property, plant and equipment        (15)       -        (15)
    Proceeds from sale of property, plant
     and equipment                                     2        -          2
    Proceeds on sale of short-term investments         -        -          -
    Proceeds on sale of long-term investment           4        -          4
    Other                                             (3)       1         (2)
    -------------------------------------------------------------------------
    Cash provided by (used in) investing
     activities of continuing operations             (12)      (1)       (13)
    -------------------------------------------------------------------------
    Cash provided by investing activities
     of discontinued operations                        -        -          -
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                       (1)       -         (1)
    Increase (decrease) in deferred revenue
     and other long-term obligations                  (1)       -         (1)
    Issuance of shares                                 4        -          4
    Repurchase of shares                             (12)       -        (12)
    -------------------------------------------------------------------------
    Cash used in financing activities of
     continuing operations                           (10)       -        (10)
    -------------------------------------------------------------------------
    Cash used in financing activities of
     discontinued operations                           -        -          -
    -------------------------------------------------------------------------
    Effect of foreign exchange rate changes on
     cash and cash equivalents                         1       31         32
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash
     equivalents during the period                    (7)       2         (5)
    Cash and cash equivalents,
     beginning of period                             150       (6)       144
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                               $   143   $   (4)   $   139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Six months ended April 30, 2008
    -------------------------------------------------------------------------
                                                    CDN    Recon.         US
    (millions of US dollars)                        GAAP   Items(1)     GAAP
    -------------------------------------------------------------------------
    Operating activities
    Net income                                   $    28   $     -   $    28
    Less: Income from discontinued
     operations - net of tax                           -         -         -
    -------------------------------------------------------------------------
    Income (loss) from continuing operations          28         -        28
    Adjustments to reconcile net income to
     cash provided (used in) operating
     activities relating to
     continuing operations
      Items not affecting current cash flow           11        18        29
      Changes in non-cash working capital
       balances relating to operations              (123)       (5)     (128)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating
     activities of continuing operations             (84)       13       (71)
    Cash provided by operating activities
     of discontinued operations                        -         -         -
    -------------------------------------------------------------------------
                                                     (84)       13       (71)
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions                                      (2)        -        (2)
    Increase in deferred development charges          (5)        5         -
    Purchase of property, plant and equipment        (28)        -       (28)
    Proceeds from sale of property, plant
     and equipment                                     3         -         3
    Proceeds on sale of short-term investments       101         -       101
    Proceeds on sale of long-term investment           7         -         7
    Other                                             (2)        -        (2)
    -------------------------------------------------------------------------
    Cash provided by (used in) investing
     activities of continuing operations              74         5        79
    -------------------------------------------------------------------------
    Cash provided by investing activities
     of discontinued operations                        -         -         -
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                      (81)        -       (81)
    Increase (decrease) in deferred revenue
     and other long-term obligations                   -         -         -
    Issuance of shares                                 5         -         5
    Repurchase of shares                             (17)                (17)
    -------------------------------------------------------------------------
    Cash used in financing activities of
     continuing operations                           (93)        -       (93)
    -------------------------------------------------------------------------
    Cash used in financing activities of
     discontinued operations                           -         -         -
    -------------------------------------------------------------------------
    Effect of foreign exchange rate changes on
     cash and cash equivalents                        (2)       (9)      (11)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash
     equivalents during the period                  (105)        9       (96)
    Cash and cash equivalents,
     beginning of period                             248       (13)      235
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                               $   143   $    (4)  $   139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Reconciling items between Canadian GAAP and US GAAP



    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                           Three months ended April 30, 2007
    -------------------------------------------------------------------------
                                                                    Restated
                                                     CDN   Recon.    US GAAP
    (millions of US dollars)                        GAAP   Items(1)  (Note 2)
    -------------------------------------------------------------------------
    Cash flows from operating activities
    Net income                                     $ 736   $     1   $   737
    Less: Income from discontinued
     operations - net of tax                         793        (1)      792
    -------------------------------------------------------------------------
    Income (loss) from continuing operations         (57)        2       (55)
    Adjustments to reconcile net income to
     cash provided by operating activities
     relating to continuing operations
      Items not affecting current cash flow          143       (11)      132
      Changes in non-cash working capital
       balances relating to operations                37        (3)       34
    -------------------------------------------------------------------------
    Cash provided by (used in) operating
     activities of continuing operations             123       (12)      111
    Cash used in operating activities of
     discontinued operations                         (69)        -       (69)
    -------------------------------------------------------------------------
                                                      54       (12)       42
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions                                    (603)        -      (603)
    Increase in deferred development charges           -         -         -
    Purchase of property, plant and equipment         (9)        2        (7)
    Proceeds from sale of property,
     plant and equipment                               -         -         -
    Proceeds on sale of short-term investments        25         -        25
    Purchase of short-term investments               (15)        -       (15)
    Proceeds on sale of long-term investments          -         2         2
    Other                                              1        (2)       (1)
    -------------------------------------------------------------------------
    Cash provided by investing activities
     of continuing operations                       (601)        2      (599)
    -------------------------------------------------------------------------
    Cash provided by (used in) investing
     activities of discontinued operations           929         -       929
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                       (1)        -        (1)
    Increase (decrease) in deferred revenue and
     other long-term obligations                      (1)        -        (1)
    Payment of cash dividends                          -         -         -
    Issuance of shares                                 6         -         6
    Repurchase of shares                            (441)        -      (441)
    -------------------------------------------------------------------------
    Cash used in financing activities
     of continuing operations                       (437)        -      (437)
    -------------------------------------------------------------------------
    Cash used in financing activities
     of discontinued operations                        -         -         -
    -------------------------------------------------------------------------
    Effect of foreign exchange rate
     changes on cash and cash equivalents             16        12        28
    -------------------------------------------------------------------------
    Net increase in cash and cash
     equivalents during the period                   (39)        2       (37)
    Cash and cash equivalents,
     beginning of period                             340        (5)      335
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                               $   301   $    (3)  $   298
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Six months ended April 30, 2007
    -------------------------------------------------------------------------
                                                                    Restated
                                                    CDN    Recon.    US GAAP
    (millions of US dollars)                       GAAP    Items(1)  (Note 2)
    -------------------------------------------------------------------------
    Cash flows from operating activities
    Net income                                   $   750   $     3   $   753
    Less: Income from discontinued
     operations - net of tax                         809        (1)      808
    -------------------------------------------------------------------------
    Income (loss) from continuing operations         (59)        4       (55)
    Adjustments to reconcile net income to
     cash provided by operating activities
     relating to continuing operations
      Items not affecting current cash flow          156         4       160
      Changes in non-cash working capital
       balances relating to operations                 9        (8)        1
    -------------------------------------------------------------------------
    Cash provided by (used in) operating
     activities of continuing operations             106         -       106
    Cash used in operating activities of
     discontinued operations                         (53)        -       (53)
    -------------------------------------------------------------------------
                                                      53         -        53
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions                                    (603)        -      (603)
    Increase in deferred development charges          (2)        2         -
    Purchase of property, plant and equipment        (17)        1       (16)
    Proceeds from sale of property,
     plant and equipment                               -         -         -
    Proceeds on sale of short-term investments       151         -       151
    Purchase of short-term investments               (37)        -       (37)
    Proceeds on sale of long-term investments         13         -        13
    Other                                              -         -         -
    -------------------------------------------------------------------------
    Cash provided by investing activities
     of continuing operations                       (495)        3      (492)
    -------------------------------------------------------------------------
    Cash provided by (used in) investing
     activities of discontinued operations           929         -       929
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                       (7)        -        (7)
    Increase (decrease) in deferred revenue and
     other long-term obligations                       -         -         -
    Payment of cash dividends                         (3)        -        (3)
    Issuance of shares                                10         -        10
    Repurchase of shares                            (441)        -      (441)
    -------------------------------------------------------------------------
    Cash used in financing activities
     of continuing operations                       (441)        -      (441)
    -------------------------------------------------------------------------
    Cash used in financing activities
     of discontinued operations                       (2)        -        (2)
    -------------------------------------------------------------------------
    Effect of foreign exchange rate
     changes on cash and cash equivalents              4         -         4
    -------------------------------------------------------------------------
    Net increase in cash and cash
     equivalents during the period                    48         3        51
    Cash and cash equivalents,
     beginning of period                             253        (6)      247
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                               $   301   $    (3)  $   298
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Reconciling items between Canadian GAAP and US GAAP



                                            Three months          Six months
                                          ended April 30      ended April 30
    -------------------------------------------------------------------------
                                                Restated            Restated
                                                  Note 2              Note 2
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Net income (loss) from continuing
     operations in accordance
     with US GAAP                      $    11   $   (55)  $    28   $   (55)
    US GAAP adjustments:
      Deferred development costs - net       2        (2)        6        (2)
      Mid term incentive plan reversal      (2)       (1)       (6)       (3)
      Mark-to-market on
       embedded derivatives                 (3)        -         1         -
      Defined benefit pension plans          -         -         1         -
      Reduction in income tax expense
       arising from GAAP adjustments        (1)        1        (2)        1
    -------------------------------------------------------------------------
    Net income (loss) from continuing
     operations in accordance
     with Canadian GAAP                      7       (57)       28       (59)
    Income from discontinued operations
     in accordance with Canadian and
     US GAAP - net of tax                    -       793         -       809
    -------------------------------------------------------------------------
    Net income in accordance
     with Canadian GAAP                $     7   $   736   $    28   $   750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss) per share
     in accordance with Canadian GAAP
      - from continuing operations     $  0.06   $ (0.42)  $  0.23   $ (0.42)
      - from discontinued operations         -      5.77         -      5.74
    -------------------------------------------------------------------------
    Basic earnings per share           $  0.06   $  5.35   $  0.23   $  5.32
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss) per share
     in accordance with Canadian GAAP
      - from continuing operations     $  0.06   $ (0.41)  $  0.23   $ (0.42)
      - from discontinued operations         -      5.75         -      5.72
    -------------------------------------------------------------------------
    Diluted earnings per share         $  0.06   $  5.34   $  0.23   $  5.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Recent Canadian Accounting Pronouncements

    a.  Capital disclosures - The CICA issued Section 1535, "Capital
        Disclosures", which requires the disclosure of both the qualitative
        and quantitative information that enables users of financial
        statements to evaluate the entity's objectives, policies, and
        processes for managing capital.

    b.  Inventories - The CICA issued Section 3031, "Inventories", which
        replaces existing Section 3030 and harmonizes the Canadian standards
        related to inventories with International Financial Reporting
        Standards. The new Section includes changes to the measurement of
        inventories, including guidance on costing, impairment testing, and
        disclosure requirements.

    c.  Financial instruments - The CICA issued Section 3862 "Financial
        Instruments - Disclosure" and Section 3863, "Financial Instruments -
        Presentation" to replace Section 3861, "Financial Instruments -
        Disclosure and Presentation".

    The Company has adopted Sections 1535, 3862 and 3863 effective for its
    fiscal year beginning November 1, 2007 and these sections affect
    disclosures only. The Company is required to adopt Section 3031 effective
    November 1, 2008. The Company is currently evaluating the effects that
    the adoption of Section 3031 will have on its consolidated results of
    operations and financial condition and is not yet in a position to
    determine such effects.

    20. 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
    and in accordance with US GAAP. Certain figures for the previous year
    have been reclassified to conform to the current year's financial
    statement presentation. In addition, segmented information for 2006 has
    been revised to reflect the discontinued operations reported.

    21. Subsequent Events - MAPLE Reactor

    On May 16, 2008, Atomic Energy of Canada Limited (AECL), a Canadian crown
    corporation, and the Government of Canada, publicly announced their
    intention to discontinue the development work on the MAPLE reactors
    located at Chalk River laboratories, effective immediately. The MAPLE
    reactors were to replace AECL's current National Research Universal
    reactor (NRU) and provide MDS Nordion with a long-term source of supply
    of medical isotopes. AECL and the Government of Canada have also publicly
    announced that they will work closely with MDS Nordion and continue to
    supply medical isotopes using the NRU and will pursue an extension of the
    NRU operation beyond its current expiry date of October 31, 2011. MDS has
    substantial financial interests in the success of the MAPLE reactor
    project, primarily through a related 40-year supply agreement with AECL,
    as a result of an exchange of non-monetary assets in February 2006 (see
    below). The Company was neither consulted nor informed in advance by AECL
    or the Canadian government about their decision. AECL's announcement and
    position represents a different perspective on the contract than that
    held by MDS. The Company will evaluate all options and pursue appropriate
    steps to protect the interests of patients, its customers and its
    shareholders.

    On February 22, 2006, the Company had announced an agreement resulting
    from a comprehensive mediation process with AECL related to the MAPLE
    reactor project. Under the agreement, AECL paid the Company $22 million,
    and assumed ownership of the MAPLE facilities and took responsibility for
    all costs associated with completing the project and the future
    production of medical isotopes from the MAPLE facilities. The parties
    retained certain rights related to existing claims. In addition, AECL
    acquired $47 million of MAPLE-related inventories in exchange for a
    non-interest bearing note having a net present value of $38 million, to
    be repaid over four years commencing in 2008. The agreement requires AECL
    to supply medical isotopes to MDS Nordion over a 40-year period, upon the
    MAPLE facilities meeting certain operational criteria, in exchange for a
    fixed percentage of the selling price. In accordance with SFAS No. 153,
    "Exchanges of Non-Monetary Assets", the Company exchanged the MAPLE asset
    for the 40-year supply agreement which was recorded as an intangible
    asset at its fair value of $308 million. This amount is to be amortized
    on a straight-line basis over a 40-year period once commercial production
    of MAPLE isotopes begins. The Company recorded a loss on this transaction
    of $36 million in 2006.

    As a result of the May 16, 2008 announcement by AECL and the Government
    of Canada, MDS is reviewing the impact on its business from an
    operational and financial reporting perspective. The Company will
    evaluate all options and pursue appropriate steps to protect the
    interests of patients, its customers and its shareholders. The principal
    US GAAP reporting exposure for MDS related to the announcement is its
    intangible asset associated with the 40-year supply agreement currently
    carried at $342 million (revalued at the April 30, 2008 exchange rate).
    MDS will continue to evaluate the intangible asset for possible
    impairment and the relevant financial reporting implications based upon
    the progress of any dialogue, negotiations or legal proceedings between
    AECL, the Government of Canada and the Company.
    





For further information:

For further information: Investor Inquiries: Kim Lee, (416) 213-4721,
kim.lee@mdsinc.com; Media Inquiries: Janet Ko, (416) 213-4167,
janet.ko@mdsinc.com

Organization Profile

Nordion Inc.

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