MDS Reports Third Quarter 2007 Results



    Profitability improves with strong results across MDS

    TORONTO, Sept. 6 /CNW/ - MDS Inc. (TSX: MDS; NYSE:   MDZ), a company
providing products and services to the global life sciences markets, today
reported its third quarter 2007 results. For the quarter, MDS reported
revenues of $321 million, net income of $7 million and earnings per share from
continuing operations of $0.07. Adjusted EBITDA rose to $56 million, up 167%
from prior year, and adjusted earnings per share were $0.14, up from $0.01 in
the prior year. Third quarter results were primarily driven by strong
performance at MDS Analytical Technologies and continued improvement at MDS
Pharma Services.

    
    Quarterly Highlights

    -   Delivered $321 million in revenues, up 24% from $258 million in prior
        year
    -   Increased adjusted EPS to $0.14, up from $0.01 in prior year
    -   Delivered adjusted EBITDA of $56 million, up 167% from $21 million
        last year
    -   MDS Analytical Technologies delivered record performance at Molecular
        Devices with $55 million in revenues and $15 million of adjusted
        EBITDA
    -   MDS Analytical Technologies delivered strong performance at Sciex
        with adjusted EBITDA of $21 million, up 40% from $15 million last
        year
    -   MDS Pharma Services delivered their fourth consecutive quarter of
        improved profitability with $4 million of adjusted EBITDA versus a
        loss of $10 million in the prior year
    -   MDS Nordion delivered a solid quarter with adjusted EBITDA of
        $23 million, up 10% sequentially, but down 8% from $25 million in a
        strong third quarter last year.

    "I am pleased with the solid results that we delivered across MDS," said
Stephen P. DeFalco, President and Chief Executive Officer of MDS Inc. "The MDS
Analytical Technologies team has been doing a great job of integrating our new
business and MDS Pharma Services has improved profitability for the fourth
quarter in a row."

    Operating Segment Results

    MDS Pharma Services

                                                             % Change
                                                   --------------------------
    ($ millions)             Q3 2007     Q3 2006      Reported       Organic
    -------------------------------------------------------------------------
    Revenue:
      Early-stage                 62          63           (2%)            -
      Late-stage                  56          50           12%             -
    -------------------------------------------------------------------------
                                 118         113            4%            3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
       $                           4         (10)          n/m           n/m
       %                           3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the third quarter, MDS Pharma Services revenue increased 4% on a
reported basis over the same period last year, and was up 3% organically after
adjusting for foreign exchange impact. Our late-stage businesses continued to
deliver strong growth at 12%. This growth was partially offset by a 2% decline
in our early-stage business. While our results in early-stage continue to show
some weakness, the return of certain bioanalytical and Phase I customers in
the quarter was very encouraging. We are optimistic that this trend will
continue in the next several quarters as we rebuild our relationships with
these customers. Our average backlog for the third quarter was $420 million,
up 5% from the prior year.
    During the quarter, the team at our Montreal site made significant
progress in helping our bioanalytical clients complete generic study audits
required by the FDA. We believe substantially all of the site audit work for
generic submissions has now been completed. Most of our efforts at this time
are focused on follow-up questions and supporting the finalization of our
customers' remaining audit reports. We also continue to work with clients to
support any required review of bioanalytical innovator studies from Montreal.
    MDS Pharma Services continues to make progress implementing previously
announced restructuring plans. During the third quarter, we completed the
consolidation of our European bioanalytical operations from Sittingbourne, UK
to Zurich, Switzerland. We have reduced our workforce while growing our
revenues by 5% year to date. We have Lean Sigma initiatives and other
activities underway to optimize our global network, enhance our productivity,
and improve our ability to serve our customers.
    MDS Pharma Services has recently hired industry experts in Phase II - IV,
Information Technology, and Strategy and Corporate Development to enhance
leadership in strategic growth areas. We also hired industry experts to
support the expansion of our Development and Regulatory Services (DRS)
business in Europe. MDS Pharma Services is now able to offer full-service DRS
consulting services to support the development of new drugs and
biopharmaceutical products for clients in Europe. MDS Pharma Services also
continues to make strategic investments to support our global growth strategy.
These investments include a 300-bed expansion in Phoenix, Arizona for our
Phase I business and several new information systems to enable our
pre-clinical and central lab businesses to serve our customers more
effectively.

    
    MDS Nordion

                                                             % Change
                                                   --------------------------
    ($ millions)             Q3 2007     Q3 2006      Reported       Organic
    -------------------------------------------------------------------------
    Revenue                       76          79           (4%)          (4%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
      $                           23          25           (8%)            -
      %                           30          32             -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Nordion revenues for the third quarter were $76 million, down 4% on a
reported and organic basis compared to a strong quarter last year. Adjusted
EBITDA was $23 million, down 8% as reported but flat organically, as
productivity initiatives partially offset lower revenue and the impact of
foreign currency. MDS Nordion revenue and adjusted EBITDA were up sequentially
from the second quarter 2007 by 9% and 10% respectively.
    During the quarter, MDS Nordion announced a new collaboration with the
University of Ottawa Heart Institute, Canada's largest cardiovascular health
centre, to establish a Molecular Imaging Centre of Excellence to advance
cardiology research. MDS Nordion will invest an estimated $2 million in this
new Centre that will further cardiology research by using advanced imaging
technology to conduct early disease detection and treatment assessment. MDS
Nordion also experienced growth in revenues for its innovative liver
treatment, TheraSphere(R), this past quarter. Demand for this product in
Europe continues to accelerate as it has now been added to treatment
formularies in certain European countries that enable doctors to be
reimbursed.

    
    MDS Analytical Technologies

                                                             % Change
                                                   --------------------------
    ($ millions)             Q3 2007     Q3 2006      Reported       Organic
    -------------------------------------------------------------------------
    Revenue                      127          66           92%           11%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
      $                           36          15          140%           73%
      %                           28          23             -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The third quarter marked our first full quarter including the results of
Molecular Devices. MDS Analytical Technologies delivered strong results this
quarter with revenues up 92% to $127 million. Adjusted EBITDA of $36 million
was up 140% reported, and up 73% organically over the same period last year.
The Molecular Devices acquisition and healthy demand for our Sciex products in
most of our markets drove solid results. We had good sales momentum with our
high-end triple-quad and ion trap instruments. Sciex contributed $72 million
in revenues and $21 million in adjusted EBITDA in the third quarter. Mass
spectrometry end user revenue grew 10%. In the quarter, Molecular Devices
contributed $55 million in revenues and $15 million in adjusted EBITDA. The
integration of Molecular Devices and Sciex is proceeding well and we intend to
meet or exceed the revenue and adjusted EBITDA targets of $190 million and $45
- $50 million in our first full year of ownership.
    During the quarter, MDS Analytical Technologies introduced several new
products to support continued growth in this business. The AquaMax(R) 2000 and
AquaMax(R) 4000 series of microplate washers were launched this quarter. These
liquid handling systems provide researchers with a highly flexible, easy to
configure, multi-application instrument. Another new product introduced this
quarter is a novel food testing methodology that enables simultaneous testing
for melamine and cyanuric acid. This Applied Biosystems/SCIEX product will
help public health laboratories and food manufacturers improve food safety.

    Conference Call

    MDS will be holding a conference call today at 9:00 am (EDT) to discuss
third quarter 2007 results. This call will be webcast live at www.mdsinc.com
and will also be available in archived format at
www.mdsinc.com/news_events/webcasts_presentations.asp after the call.

    About MDS

    MDS Inc. (TSX: MDS; NYSE:   MDZ) is a global life sciences company that
provides market-leading products and services that our customers need for the
development of drugs and diagnosis and treatment of disease. We are a leading
global provider of pharmaceutical contract research, medical isotopes for
molecular imaging, radiotherapeutics, and analytical instruments. MDS has more
than 6,200 highly skilled people in 28 countries. Find out more at
www.mdsinc.com or by calling 1-888-MDS-7222, 24 hours a day.

    Forward-Looking Statement

    This document contains forward-looking statements. Some forward-looking
statements may be identified by words like "expects", "anticipates", "plans",
"intends", "indicates" or similar expressions. The statements are not a
guarantee of future performance and are inherently subject to risks and
uncertainties. The Company's actual results could differ materially from those
currently anticipated due to a number of factors, including, but not limited
to, successful integration of structural changes, including restructuring
plans, acquisitions, technical or manufacturing or distribution issues, the
competitive environment for the Company's products, the degree of market
penetration of the Company's products, and other factors set forth in reports
and other documents filed by the Company with Canadian and US securities
regulatory authorities from time to time.
    The use of non-GAAP measures section in the MD&A outlines the definition
of the terms 'organic' and 'adjusted' as used to explain the operating
performance of the Company. We use certain non-GAAP measures so that readers
have a better understanding of the significant events and transactions that
have had an impact on our results. We provide a reconciliation of these
non-GAAP measures to our GAAP financial results in the accompanying MD&A.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    September 4, 2007

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

    Caution Regarding Forward-Looking Statements

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

    Use of Non-GAAP Measures

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

    Discontinued Operations

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

    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. We are a leading global provider of
pharmaceutical contract research, medical isotopes for molecular imaging,
radiotherapeutics, and analytical instruments.

    Acquisition of Molecular Devices Corporation

    On March 20, 2007, we completed the acquisition of Molecular Devices
Corporation (MD), a leading provider of high-performance measurement tools for
high-content screening, cellular analysis, and biochemical testing, in a
$622 million cash transaction.
    The acquisition was accounted for in our second quarter using the
purchase method based on certain preliminary estimates relating to the value
of the assets and liabilities of the acquired company. During the third
quarter, we continued the work required to assign final values to the assets
and liabilities acquired, and, we have adjusted the purchase price allocation
reported in the second quarter to reflect the current estimates of value. The
total cost of the acquisition was $622 million, including the cash cost of the
tender offer, the cash cost to acquire outstanding in-the-money options held
by MD employees, and cash transaction costs. The components of the purchase
cost and the preliminary allocation of the costs are as follows:

    
    -------------------------------------------------------------------------
    Cash paid for tendered shares                                    $   587
    Cash paid to acquire vested options                                   27
    Cash transaction costs                                                 8
    -------------------------------------------------------------------------
    Total cost of acquisition                                        $   622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Allocation of cost of acquisition:
    Net tangible assets acquired                                     $    36
    Intangible assets acquired                                           221
    Goodwill                                                             365
    -------------------------------------------------------------------------
    Total                                                            $   622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net tangible assets acquired includes $21 million of acquired cash.
Additional details are provided in note 6 to the unaudited consolidated
financial statements.


    MDS Inc.
    Consolidated Operating Highlights

            Third Quarter                                   Year-to-Date
    -------------------------------                    ----------------------
                       % Change                                      % Change
                   ----------------                                  --------
     2007    2006  Reported Organic                     2007    2006 Reported
    -------------------------------------------------------------------------
    $ 321   $ 258     24%      3%  Net revenues        $ 844   $ 742     14%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                   Operating income
       13       5    160%           (loss)               (64)     30     n/m
                                   Adjustments:
                                   ------------
        3       2                  Restructuring charges  44       4
        -       -                  Valuation provision     6       7
                                   Mark-to-market on
        1       -                   interest rate swaps    1       2
        -       -                  MAPLE settlement       (3)      9
                                   Loss (gain) on sale
        -      (2)                  of businesses          1      (2)
        -       -                  FDA provision          61       -
                                   Acquisition
       11       -                   integration           14       -
    -------------------------------------------------------------------------
                                   Adjusted operating
       28       5                   income                60      50
                                   Depreciation and
       28      16                   amortization          65      45
    -------------------------------------------------------------------------
    $  56   $  21    167%    190%  Adjusted EBITDA     $ 125   $  95     32%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                   Adjusted EBITDA
      17%      8%                   margin               15%     13%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    n/m = not meaningful
    

    Consolidated revenues for the third quarter of 2007 were up 24% on a
reported basis to $321 million compared to $258 million last year. Strong 9%
revenue growth at Sciex, combined with $55 million of revenue from MD in the
third quarter, pushed MDS Analytical Technologies revenues up 92%. MDS Pharma
Services revenues increased 4% compared to the same period in 2006, as our
late-stage MDS Pharma Services businesses continued their strong growth. MDS
Nordion revenues were down 4% on a reported basis compared to the same period
in 2006, as the prior year figures included the realization of deferred
revenue associated with our Zevalin(R) contract, which expired in February
2007 and therefore had no impact in the third quarter of fiscal 2007.
    On an organic basis, revenues grew by 3%, and adjusted EBITDA grew by
190%, which reconcile to reported growth as follows:

    
                                                                    Adjusted
                                                           Revenue    EBITDA
    -------------------------------------------------------------------------
    Reported growth                                            24%      167%
    Growth attributable to the acquisition of MD              (21%)     (71%)
    Impact of currency fluctuations on growth                    -       94%
    -------------------------------------------------------------------------
    Organic growth                                              3%      190%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating income for the third quarter of 2007 was $13 million compared
to $5 million reported for the same period in 2006. Excluding the impact of
MD, operating income for the 2007 quarter was $17 million, as both MDS Pharma
Services and Sciex experienced solid growth in operating income compared to
the prior year. Excluding the $2 million of the Zevalin(R) deferred revenue in
the prior-year period, MDS Nordion operating income was level with 2006.
    Adjusted EBITDA for the quarter was $56 million, compared to $21 million
last year and $37 million reported for the second quarter of fiscal 2007.
Adjusted EBITDA increased 167% on a reported basis. MDS Pharma Services
demonstrated continued steady improvement in adjusted EBITDA, reporting
sequential improvement in adjusted EBITDA for the fourth consecutive quarter.
MDS Analytical Technologies also had a strong quarter on an adjusted EBITDA
basis, both before and after the impact of the MD acquisition.
    Adjustments reported for the quarter include $11 million of costs related
to the integration of MDS Analytical Technologies, $10 million of which
relates to amortization of fair value increments recorded for inventory and
order backlog as part of the purchase accounting for MD. As at July 31, 2007,
the fair value increments related to inventory and order backlog have been
fully expensed.
    Selling, general, and administration (SG&A) expenses for the quarter
totalled $74 million and 23% of revenues compared to $61 million and 24% last
year. The increase reflects the addition of MD, and SG&A in the other
businesses was level with last year.
    We spent $21 million on R&D activities in the third quarter this year and
expensed $9 million, compared to spending of $13 million last year, of which
we expensed $5 million. The majority of the increase in R&D spending comes
from the additional spending in our new MD business.
    Consolidated depreciation and amortization expense increased $12 million
compared to the third quarter of last year. In the third quarter of 2007, we
amortized $8 million of intangible assets acquired as part of the MD
transaction. Capital expenditures for the quarter were $28 million and
included $13 million for a property acquisition related to the expansion of
our early-stage business in Phoenix, Arizona.
    Income from continuing operations for the quarter was $8 million,
reflecting these strong results from our businesses and was up 167% compared
to $3 million reported for continuing operations last year. Excluding
adjusting items, income from continuing operations was $17 million or
$0.14 per share.
    The loss from discontinued operations of $1 million for the third quarter
this year reflects costs associated with the sale of our Canadian diagnostics
businesses. Income from discontinued operations of $16 million for 2006
reflects the operating results of our Canadian diagnostics businesses for that
period.
    Earnings per share from continuing operations were $0.07 for the quarter,
compared to $0.02 in 2006. Adjusted earnings per share from continuing
operations for the quarter were $0.14 compared to $0.01 earned in the same
period last year. Earnings per share from discontinued operations were a loss
of $0.01 compared to income of $0.11 last year. Adjusted earnings per share
for the two periods were as follows:

    
                                           Third Quarter        Year-to-date
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Basic and diluted EPS from
     continuing operations -
     as reported                      $   0.07      0.02  $  (0.37) $   0.11
    Adjustments:
      Restructuring charges               0.01         -      0.26      0.02
      Valuation provision                    -         -      0.05      0.04
      Mark-to-market on interest
       rate swaps                         0.01         -         -         -
      MAPLE settlement                       -         -     (0.02)     0.05
      Loss (gain) on sale of long-term
       investment and businesses             -     (0.01)     0.01     (0.01)
      FDA provision                          -         -      0.30         -
      Acquisition integration             0.05         -      0.06         -
      Tax rate changes                       -         -         -      0.02
    -------------------------------------------------------------------------
    Adjusted EPS                      $   0.14      0.01  $   0.29  $   0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    MDS Pharma Services
    Financial Highlights

            Third Quarter                                   Year-to-Date
    -------------------------------                    ----------------------
                       % Change                                      % Change
                   ----------------                                  --------
     2007    2006  Reported Organic                     2007    2006 Reported
    -------------------------------------------------------------------------
    $  62   $  63     (2%)         Early-stage         $ 188   $ 198     (5%)
       56      50     12%          Late-stage            166     139     19%
    -------------------------------------------------------------------------
      118     113      4%      3%  Net revenues          354     337      5%

      (82)    (93)                 Cost of revenues     (248)   (252)
                                   Selling, general,
      (32)    (33)                  and administration   (98)    (91)
                                   Depreciation and
       (8)     (7)                  amortization         (26)    (21)
                                   Restructuring
       (1)     (1)                  charges              (35)     (1)
        -       -                  Equity earnings         -      (1)
                                   Other income
        -       5                   (expenses)           (65)      5
    -------------------------------------------------------------------------
       (5)    (16)                 Operating loss       (118)    (24)
                                   Adjustments:                    -
                                   Restructuring
        1       1                   charges               35       1
                                   Loss (gain) on sale
        -      (2)                  of a business          4      (2)
        -       -                  FDA provision          61       -
    -------------------------------------------------------------------------
                                   Adjusted operating
       (4)    (17)                  loss                 (18)    (25)
                                   Depreciation and
        8       7                   amortization          26      21
    -------------------------------------------------------------------------
    $   4   $ (10)    n/m     n/m  Adjusted EBITDA     $   8   $  (4)    n/m
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                   Capital
    $  21   $  12                   expenditures       $  28   $  26
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Pharma Services revenues grew 4%, based on solid 12% revenue growth
in our late-stage businesses. Early-stage revenues were down 2% compared to
the same quarter last year, as weakness in both early clinical and
bioanalytical revenues more than offset otherwise strong growth in drug safety
and discovery/preclinical revenues. We have been invited to propose on an
increasing number of generic drug studies and as a result, we have seen some
strength in new orders in the early-stage businesses this quarter. In
addition, bioanalytical revenues were modestly higher on a
quarter-over-quarter basis following three quarters of decline. We believe
that these are positive signs of stability returning to our early-stage
businesses, and an indicator that some of the prior customer uncertainty
created by the FDA issues is being resolved.
    Organic revenue growth of 3% reconciles to reported growth as follows:

    
                                                                     Revenue
    -------------------------------------------------------------------------
    Reported revenue growth                                               4%
    Impact of currency fluctuations on revenue growth                    (1%)
    -------------------------------------------------------------------------
    Organic revenue growth                                                3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Average monthly pharmaceutical research backlog was $420 million for the
third quarter of 2007, an increase of 5% when compared to the average for the
third quarter of fiscal 2006.
    Although we saw some improvement in bid proposals in the quarter, we also
experienced some delays signing contracts and cancellations. As noted last
quarter, a significant contract cancellation occurred late in April, reducing
our backlog to $425 million at the beginning of May and we have experienced a
further decline in reported backlog for the third quarter. As of July 31, 2007
our backlog was $410 million.

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

    We reported an operating loss of $5 million for MDS Pharma Services, a
69% reduction compared to the operating loss of $16 million reported for the
prior year quarter. We are beginning to realize cost savings from our
previously announced restructuring actions and we expect to see these savings
increase as we complete more of these restructuring initiatives during the
fourth quarter. The operating loss for 2006 included $6 million of costs
related to the FDA review of our Montreal-area bioanalytical facilities,
partially offset by a $2 million gain from the sale of an agricultural testing
business and $3 million related to a Hurricane Katrina insurance settlement.
    Adjusted EBITDA for the third quarter was $4 million, up substantially
from the $10 million adjusted EBITDA loss reported for the third quarter of
2006. Adjustments for the 2007 quarter related to restructuring activities
that we were not able to provide for previously. Adjustments in the third
quarter last year comprised restructuring charges and the gain from the sale
of the agricultural testing business.
    During the third quarter of 2007, we continued to implement portions of
our restructuring plan, initiating the resizing of our St. Laurent facility,
and announcing the closure of our Sittingbourne, UK facility. To date, these
restructuring activities have resulted in a headcount reduction of
approximately 200 employees and we utilized $5 million of the restructuring
reserve established in the second quarter of 2007 on these activities.
    Capital expenditures in the pharmaceutical services segment were
$21 million compared to $12 million last year. The increase in expenditures in
fiscal 2007 related to the expansion of our Phoenix, Arizona early clinical
research facility, and included the purchase of the property for the facility.
Expenditures in 2006 related to an ongoing expansion in Lyon, France as well
as an expansion of the Skeletech site in Bothell, Washington.

    Regulatory Review of Montreal Bioanalytical Operations

    We made significant progress during the quarter helping our generic
customers to complete the study audits required of them by the FDA. To date,
we have been in contact with sponsors responsible for approximately 85% of the
217 ANDA submissions under review. Based on our communication with customers
and on the work done at our facility since January, 150 ANDA submissions have
been subjected to third party audits. The FDA imposed a six-month time limit
on completing this work in their January 10, 2007 letter to ANDA sponsors and
we therefore believe that substantially all of site audit work for these ANDA
studies has now been done. Most of our efforts at this time are focused on
follow-up questions and supporting the finalization of our customers'
remaining audit reports.
    In addition to generic studies, the FDA has requested information
regarding submitted NDA applications for innovative drugs that contain data
from bioanalytical studies conducted from January 2000 to December 2004 in our
St. Laurent and Blainville, Quebec facilities. As of today it is difficult to
estimate the full extent of the FDA's intent relative to innovator studies. To
August 29, 2007, we had assisted on 38 study audits for a smaller number of
NDA submissions for which the FDA has requested additional review.
    Also during the quarter, we continued to respond to questions from
customers and from European regulators about the nature of the work being done
for the FDA. At this time, we are not able to assess the impact of possible
European regulatory actions. We are working closely with these regulators to
address their questions utilizing work prepared in the FDA review.
    During the second quarter, we approved and recorded a $61 million
provision for a reimbursement policy for clients who have incurred or will
incur third party audit costs to complete the work required by the FDA and
other regulators. During the third quarter, we utilized $5 million of this
reserve for such costs. Based on information currently available, we believe
that the existing provision will be sufficient to cover any agreements reached
with clients for study audits, study re-runs, and other related costs. As our
experience to date has been that sponsors bill us for costs once their audits
are finalized, we expect the utilization of this reserve to increase
significantly in the fourth quarter and continue into 2008.
    Full and complete resolution of the bioanalytical regulatory issues
remains a key focus for MDS Pharma Services and MDS. We remain committed to
working cooperatively with the FDA, other regulators, and our customers to
address any regulatory concerns and to support our customers while they
complete the study audits. Although we recorded a provision in our second
quarter that reflects our current best estimate of the costs we expect to
incur with respect to this work and for obligations we have to clients, there
can be no assurance at this time that we will not incur costs that exceed the
amounts we have currently estimated. In addition, although the FDA has
approved certain submissions, there can be no certainty that, in all cases,
the study audits conducted by our clients will be acceptable to the FDA or
other regulators, or that such regulators will not require additional work. We
also are unable to judge what further impact this situation will have on our
business development activities, particularly for our bioanalytical and Phase
I operations.

    
    MDS Nordion
    Financial Highlights

            Third Quarter                                   Year-to-Date
    -------------------------------                    ----------------------
                       % Change                                      % Change
                   ----------------                                  --------
     2007    2006  Reported Organic                     2007    2006 Reported
    -------------------------------------------------------------------------
    $  76   $  79     (4%)    (4%) Net revenues        $ 213   $ 221     (4%)
      (39)    (40)                 Cost of revenues     (110)   (111)
                                   Selling, general,
      (13)    (13)                  and administration   (36)    (37)
                                   Research and
       (1)     (1)                  development           (2)     (2)
                                   Depreciation and
       (4)     (4)                  amortization         (10)    (11)
                                   Other income
                -                   (expenses)             4      (9)
    -------------------------------------------------------------------------
       19      21                  Operating Income       59      51
                                   Adjustments:
        -       -                  MAPLE settlement       (3)      9
                                   Gain on sale
        -       -                   of a business         (1)      -
    -------------------------------------------------------------------------
                                   Adjusted operating
       19      21                   income                55      60
                                   Depreciation and
        4       4                   amortization          10      11
    -------------------------------------------------------------------------
    $  23   $  25     (8%)      -  Adjusted EBITDA     $  65   $  71     (8%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                   Capital
    $   3   $   -                   expenditures       $   5   $   -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Nordion revenues were down 4% year-over-year on a reported basis.
Revenues for 2006 included $2 million related to an amount received associated
with the 2004 cancellation of the supply agreement between MDS Nordion and
Biogen Idec. This amount was included in deferred revenue and recognized in
income over 40 months, with the final recognition of this occurring in
February 2007. Excluding the impact of this item, revenues were nearly level
year-over-year, as stronger medical isotopes revenues offset weakness in
cobalt therapy unit sales.
    Organic growth in revenues and adjusted EBITDA reconcile to reported
growth as follows:

    
                                                                    Adjusted
                                                           Revenue    EBITDA
    -------------------------------------------------------------------------
    Reported growth                                            (4%)      (8%)
    Impact of currency fluctuations on growth                    -       (8%)
    -------------------------------------------------------------------------
    Organic growth                                             (4%)        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating income was $19 million compared to $21 million last year in the
same period and adjusted EBITDA was $23 million compared to $25 million for
the third quarter of 2006. Both were $2 million lower due to the contract
cancellation referred to above. There were no adjusting items in the third
quarter of either year, and depreciation and amortization was level,
year-over-year.
    Capital expenditures in the isotopes segment for the quarter were
$3 million, compared to none last year. Spending in the quarter related
primarily to the previously announced plans to invest $6 million to expand our
Belgian production facility to meet the growing demand for Glucotrace(R), a
medical imaging agent used extensively in positron emission tomography (PET)
scans.
    We experienced continued growth in revenues from TheraSphere in the
quarter compared to last year and demand for this product in Europe remains
encouraging. TheraSphere has been added to treatment formularies in certain
European countries, allowing doctors to charge for the utilization of the
product. We are optimistic that this development will drive increased revenue
from this radiotherapeutic product.
    We announced a collaboration with the University of Ottawa Heart
Institute in June to launch a molecular imaging centre of excellence to
advance research in cardiology. We believe this collaboration represents a
unique opportunity for future expansion of MDS Nordion's molecular imaging
business. Also in the quarter, MDS Nordion was granted the C-TPAT Tier 3
designation for cross-border transportation of dangerous goods. This
designation, which reflects the highest level of security clearance for
transportation of dangerous goods, is a direct result of MDS Nordion's
commitment to quality and safety and to the strength of our reputation with
regulators in this area.

    
    MDS Analytical Technologies
    Financial Highlights

    MDS Nordion
    Financial Highlights

            Third Quarter                                   Year-to-Date
    -------------------------------                    ----------------------
                       % Change                                      % Change
                   ----------------                                  --------
     2007    2006  Reported Organic                     2007    2006 Reported
    -------------------------------------------------------------------------
    $ 127   $  66    92%      11%  Net revenues        $ 277   $ 184     51%
      (71)    (41)                 Cost of revenues     (158)   (112)
                                   Selling, general,
      (22)     (6)                  and administration   (41)    (13)
                                   Research and
       (8)     (4)                  development          (19)     (9)
                                   Depreciation and
      (15)     (5)                  amortization         (27)    (13)
                                   Other income
       (1)      -                   (expenses)            (2)      -
    -------------------------------------------------------------------------
       10      10                  Operating income       30      37
                                   Adjustment:
                                   Acquisition
       11       -                   integration           14       -
    -------------------------------------------------------------------------
                                   Adjusted operating
       21      10                   income                44      37
                                   Depreciation and
       15       5                   amortization          27      13
    -------------------------------------------------------------------------
    $  36   $  15   140%      73%  Adjusted EBITDA     $  71   $  50     42%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                   Capital
    $   3   $   2                   expenditures       $   8   $   5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MDS Analytical Technologies reported revenues of $127 million for the
third quarter of 2007, compared to $66 million for the same period last year.
Fiscal 2007 revenues included $55 million from the newly acquired Molecular
Devices business. The Sciex division of MDS Analytical Technologies reported
9% revenue growth compared to the prior-year period.
    Growth was strong in the Sciex business for the quarter, especially in
the small molecule markets. Our high-end triple-quad and ion-trap instruments
have maintained strong sales momentum, across all the geographic markets. Good
strength from our core LC/MS products was augmented by strength from our
ICP/MS product line. Service revenues continue to be a strong driver of growth
and profitability for the worldwide business, building on the large installed
base of equipment, and for our share of operating income from the Applied
Biosystems/Sciex and MDS/PerkinElmer partnerships. End-user revenues for Sciex
products grew 10% in the third quarter compared to the same period last year.
    Organic growth in revenues and adjusted EBITDA reconcile to reported
growth as follows:

    
                                                                    Adjusted
                                                           Revenue    EBITDA
    -------------------------------------------------------------------------
    Reported growth                                            92%      140%
    Growth attributable to the acquisition of MD              (83%)    (100%)
    Impact of currency fluctuations on growth                   1%       33%
    -------------------------------------------------------------------------
    Organic growth                                             10%       73%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    MD has been a strong contributor to segment revenues and adjusted EBITDA
since we acquired it. Given the strong start, we believe the division is on
track to meet or exceed the expected $190 million in revenues and $45 - $50
million in adjusted EBITDA in the first full year of ownership. MD revenues
were up 16% compared to the same three-month period in their fiscal 2006.
    MDS acquired Molecular Devices effective March 20, 2007. During the third
quarter we continued our work to finalize the determination of the fair value
of the assets and liabilities acquired and to finalize the estimates of the
costs associated with the integration actions we plan to take. The purchase
price allocation reflected in the July 31, 2007 statement of financial
position and the charges recorded in the period related to the amortization of
intangible assets and fair value increments have been updated compared to
those reported in April 2007 for changes in the preliminary valuation
estimates. These valuations remain preliminary under purchase accounting
guidelines and are subject to change.
    In our report for the second quarter we indicated that the fair value
increment for inventory and the value of pre-acquisition backlog were subject
to significant judgment and that they would be amortized as expenses to income
over a short period. In the third quarter, we expensed $10 million related to
these items as acquisition date inventories were sold and essentially all
order backlog from the pre-acquisition period has been shipped. We also
expensed $8 million of amortization related to intangible assets, primarily
related to MD technologies. We expect to finalize the determination of the
purchase accounting by year-end.
    One particular area of focus for MDS Analytical Technologies is the
integration of our manufacturing operations in Asia. We now have our plants in
Singapore and China fully operational and an increasing amount of our product
is being manufactured in Asia. Our integration plan includes consideration of
the appropriate mix of products for these plants to maximize the economic
benefits while protecting our intellectual property and our access to markets
in which trade protectionism is a factor.
    Operating income was $10 million for the third quarter of 2007 compared
to an equal amount for the third quarter of 2006. Operating income for the
third quarter this year includes a $4 million operating loss from MD,
reflecting the purchase-related items discussed above. Operating income for
Sciex was $14 million compared to the $10 million reported last year. The
increase in Sciex operating income relates principally to the higher sales
reported by this division.
    Adjusted EBITDA for the quarter was $36 million compared to $15 million
last year. Adjustments of $11 million for the quarter reflect costs of the MD
acquisition, including $1 million of costs that we have incurred as we begin
to integrate the businesses and $10 million of non-cash fair market value
adjustments applied to inventory and order backlog as described above. There
were no adjustments in the prior year.
    Increased SG&A and R&D expenses in MDS Analytical Technologies for the
third quarter of 2007 reflect the additional costs associated with the MD
business. Depreciation and amortization expense was also up, reflecting
$8 million for amortization of intangible assets acquired as part of the MD
acquisition, along with depreciation on MD property, plant, and equipment.
    Capital expenditures (excluding capitalized development costs) were
$3 million this year and $2 million in the third quarter last year.
    The MD division of MDS Analytical Technologies announced the release of
the AquaMax 2000 and AquaMax 4000 series of microplate washers to add speed
and flexibility to microplate washing for bioanalytical assays. In addition,
Sciex and its partner Applied Biosystems announced the release of a new food
testing method for LC/MS to help address recent concerns about melamine and
cyanuric acid in food. This announcement marks the launch of the first
commercially available method to test for these contaminants simultaneously.

    
    Corporate and Other

    Financial Highlights

     Third Quarter                                             Year-to-Date
    ---------------                                        -----------------
     2007     2006                                           2007      2006
    ------------------------------------------------------------------------
    $  (7)   $  (9)  Selling, general, and administration  $  (19)   $  (25)
       (2)      (1)  Restructuring charges                     (9)       (3)
       (1)       -   Other income (expense)                    (5)       (3)
        -        -   Equity earnings                            -        (3)
    ------------------------------------------------------------------------
      (10)     (10)  EBITDA                                   (33)      (34)
                     Adjustments:
        -        -   Gain on sale of investments               (2)        -
        1        -   Mark-to-market adjustments                 1         2
        -        -   Valuation provisions                       6         7
        2        1   Restructuring charges                      9         3
    ------------------------------------------------------------------------
    $  (7)   $  (9)  Adjusted EBITDA                       $  (19)   $  (22)
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------
    

    Corporate SG&A expenses were $7 million for quarter this year, compared
to $9 million in the third quarter of 2006. Expenses for the prior year
included $4 million related to the FDA matter and our initial SOx
certification initiative.
    Other expenses for the quarter include a $1 million mark-to-market loss
on certain debt derivatives and $2 million of restructuring, both of which
were treated as adjustments to arrive at adjusted EBITDA.
    Third quarter interest expense increased from $4 million in 2006 to
$6 million in 2007 and interest income in the quarter was $4 million in both
years.

    Income Taxes

    Our effective income tax rate for the quarter was 27% and below our
expected rate of 36% due primarily to the improved performance of certain of
our foreign operations, including the stronger performance this quarter of the
late-stage business in MDS Pharma Services. This resulted in the use of tax
loss carry forwards in these foreign jurisdictions. The tax benefit of these
losses had not previously been recognized in our accounts.

    
    Discontinued Operations

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

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Net revenues                      $      -  $     82  $     95  $    280
    Cost of revenues                         -       (49)      (57)     (180)
    Selling, general and
     administration                          -       (11)      (15)      (38)
    Depreciation and amortization            -        (2)        -        (7)
    Restructuring charges                    -         -         -        (1)
    Equity earnings                          -         1         1         2
    -------------------------------------------------------------------------
    Operating income                         -        21        24        56
    Gain on sale of discontinued
     operations                             (1)        -       904        24
    Dividend and interest income             -         -         1         1
    Income taxes                             -        (3)     (117)       (9)
    Minority interest - net of tax           -        (2)       (4)       (7)
    -------------------------------------------------------------------------
    Income from discontinued
     operations - net of tax          $     (1) $     16  $    808  $     65
    -------------------------------------------------------------------------
    Basic earnings per share          $  (0.01) $   0.11  $   5.99  $   0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per share        $  (0.01) $   0.11  $   5.98  $   0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    Liquidity and Capital Resources

    
                                             July 31    October 31    Change
                                                2007          2006
    -------------------------------------------------------------------------
    Cash, cash equivalents
     and short-term investments              $   314       $   388      (19%)
    Operating working capital(1)             $    81       $   104      (22%)
    Current ratio                                1.6           2.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Our measure of operating working capital equals accounts receivable
        plus unbilled revenue and inventory less accounts payable, accrued
        liabilities, and current deferred revenue.
    

    Cash and short-term investments totalled $314 million compared to
$322 million at the end of April 2007 and $388 million at the end of October
2006. The increase in capital expenditures to $28 million this quarter
compared to $17 million in total during the first six months of 2007 accounts
for the decrease in cash balances.
    As at the date of this report, we have C$17 million in short-term
investments in asset-backed commercial paper (ABCP) that was purchased
subsequent to July 31, 2007. This ABCP is due to mature on September 7, 2007
and the issuer has been affected by the recent liquidity issues in these
investment markets. While we have not received notice of the intentions of the
issuer on these investments, this issuer has not honoured maturities of its
other ABCP since August 14th, and we currently expect that this issuer will
extend the maturity on these investments. At the present time, we do not have
sufficient information to determine whether a write-down in the value of these
investments is required, nor do we know when we will be able to convert these
investments into cash.
    Operating working capital of $81 million at the end of the third quarter
was up from $75 million at the end of April, but continues to be down
substantially from the October 2006 balance. The decline since year-end is
primarily because accounts payable and accrued liabilities as at July 31, 2007
reflect the impact of the FDA and restructuring provisions recorded in the
second quarter. These provisions are offsetting the addition of operating
working capital associated with MD. We expect that our operating working
capital will rise to normal levels in future quarters as these reserves are
utilized.
    We expect our operating cash inflows to remain strong during the balance
of this year and throughout fiscal 2008. Cash outflows will include FDA
settlements with our customers and the payment of severance obligations
associated with our restructuring activities. In addition, we will make a
principal repayment of $79 million on our long-term debt in December 2007.
These liquidity needs can be satisfied from cash generated from operations and
cash on hand. We also have available a C$500 million, five-year, committed,
revolving credit facility to fund our liquidity requirements. There were no
borrowings under this facility as at July 31, 2007. We do not believe that the
liquidity issues affecting ABCP markets at this time will have any significant
impact on our liquidity.
    Cash used in investing activities for continuing operations totalled
$101 million for the third quarter this year, compared to $152 million for
2006, primarily due to purchases of short-term investments and capital
expenditures. The $28 million of capital expenditures this year includes
higher levels of capital expenditures in MDS Pharma Services for reasons noted
above.
    Financing activities (excluding discontinued operations) generated
$5 million of cash in the quarter from the issuance of shares compared to
$1 million in the prior year. Financing activities this year were limited to
small regularly scheduled payments on certain long-term debt, offset by the
proceeds for shares issued under the MDS employee share ownership and stock
option plans. Cash from financing activities for the prior year was net of a
$4 million dividend payment.
    We believe that cash flow generated from operations, coupled with
available borrowings from existing financing sources, will be sufficient to
meet our anticipated requirements for acquisitions, capital expenditures,
research and development expenditures, FDA settlements, restructuring costs
and operations in 2007 and 2008. At this time, we do not reasonably expect any
presently known trend or uncertainty to affect our ability to access our
current sources of cash. We remain in compliance with all covenants for our
senior unsecured notes and our bank credit facility.

    Contractual Obligations

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

    Derivative Instruments

    We use derivative financial instruments to manage our foreign currency
and interest rate exposure. These instruments consisted of forward foreign
exchange and option contracts and interest rate swap agreements entered into
in accordance with our established risk management policies and procedures.
All derivative instrument contracts are with banks listed on Schedules I to
III to the Bank Act (Canada) and the Company utilizes financial information
provided by certain of these banks to assist in the determination of fair
market values of the financial instruments.
    The net mark-to-market value of all derivative instruments at July 31,
2007 was nil. We recorded a $1 million mark-to-market loss on interest rate
swaps during the third quarter of 2007.

    Capitalization

    
                                             July 31    October 31
                                                2007          2006    Change
    -------------------------------------------------------------------------
    Long-term debt                           $   387       $   394       (2%)
    Less: cash and cash equivalents
     and short-term investments                  314           388      (19%)
    -------------------------------------------------------------------------
    Net debt                                      73             6     1100%
    Shareholders' equity                       1,778         1,414       26%
    -------------------------------------------------------------------------
    Capital employed(1)                      $ 1,851       $ 1,420       30%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Debt to Total Capital                        18%           22%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Capital employed is a measure of how much of our net assets is
        financed by debt and equity.
    

    Long-term debt decreased $7 million due mostly to principal payments.
Changes in the value of the US-dollar denominated debt, the majority of which
is treated as a hedge in the US net investment, are reflected in Accumulated
Other Comprehensive Income in the Statement of Financial Position. The current
portion of the long-term debt is $93 million compared to $20 million at
October 31, 2006, reflecting the transfer to current portion of $79 million of
long-term debt which will be repaid in December 2007. During the third
quarter, we de-designated $70 million of the US-dollar debt as a hedge of our
US net investment in accordance with the provisions of CICA Handbook Section
3865 and entered into foreign exchange contracts to fix the exchange rate that
we will pay to buy the US dollars required to make the December debt payments.
Gains and losses on the foreign exchange contracts and on this portion of the
US-dollar denominated debt are offsetting.

    US GAAP Reconciliation

    Note 17 to our consolidated financial statements for the third quarter of
2007 contains a reconciliation of results reported in Canadian GAAP to the net
income we would report in US GAAP. The only material reconciling item in the
quarter and the year-to-date is deferred development costs that are
capitalized for Canadian purposes and expensed under US GAAP.
    During the third quarter, we continued the work required to ascribe a
fair value to the MD assets acquired and determined that in-process R&D
(IPR&D) had nil fair value because the cost to complete such projects exceeded
the fair value of the technology as at March 20, 2007. As a result, the US
GAAP deduction of $11 million reported in the second quarter for IPR&D has
been revised to nil. US GAAP adjustments in the quarter increased net income
from continuing operations by $1 million compared to a decrease in net income
from continuing operations of $3 million reported for the third quarter last
year. The decrease for the prior year was due principally to deferred
development costs.

    Quarterly Highlights

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


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

                                Trailing
                                    Four     July      Apr      Jan      Oct
                                Quarters     2007     2007     2007     2006
    -------------------------------------------------------------------------
    Net revenues                 $ 1,104  $   321  $   273  $   250  $   260
    Operating income (loss)      $   (46) $    13  $   (80) $     3  $    18

    Income (loss) from
     continuing operations       $   (37) $     8  $   (57) $    (2) $    14
    Net income (loss)            $   804  $     7  $   736  $    14  $    47
    Earnings (loss) per share
     from continuing operations
      Basic and diluted          $ (0.27) $  0.07  $ (0.42) $ (0.02) $  0.10
    Earnings (loss) per share
      Basic and diluted          $  5.85  $  0.06  $  5.36  $  0.10  $  0.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                Trailing
                                    Four     July      Apr      Jan      Oct
                                Quarters     2006     2006     2006     2005
    -------------------------------------------------------------------------
    Net revenues                 $   999  $   258  $   242  $   242  $   257
    Operating income (loss)      $    (9) $     5  $     2  $    23  $   (39)

    Income (loss) from
     continuing operations       $   (18) $     3  $    (2) $    14  $   (33)
    Net income (loss)            $    39  $    19  $    14  $    47  $   (41)
    Earnings (loss) per share
     from continuing operations
      Basic and diluted          $ (0.12) $  0.02  $ (0.01) $  0.10  $ (0.23)
    Earnings (loss) per share
      Basic and diluted          $ (0.27) $  0.13  $  0.10  $  0.33  $ (0.29)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Items that impact the comparability of operating income include:

    -   Results for the quarter ended April 30, 2007 reflect a $792 million
        net gain from the sale of our diagnostics businesses, the 41 days of
        operating results of Molecular Devices, $61 million of charges
        related to assisting clients in respect of the FDA review, and
        $28 million of restructuring charges.
    -   Results for the quarter ended January 31, 2007 reflect the impact of
        restructuring charges totalling $13 million.
    -   Results for the quarter ended April 30, 2006 reflect a loss of
        $9 million resulting from the completion of the MAPLE settlement.
    -   Results for the quarter ended October 31, 2005 reflect restructuring
        charges of $47 million and valuation provisions on certain long-term
        investments totalling $11 million.
    

    Outlook

    Our third quarter marks the first full quarter following our transition
to a global life sciences company - the first full quarter with MD and without
our diagnostics business. We are very pleased with the results we achieved
this quarter.
    Both MDS Analytical Technologies businesses delivered strong results in
the third quarter. Efforts to integrate these businesses are tracking well to
plan and we continue to believe that the MD business will meet or exceed our
target revenues of $190 million and adjusted EBITDA of between $45 million and
$50 million in its first 12 months of MDS ownership. Continued growth from
these businesses is expected to be generated, in part, from the new products
announced by both businesses this year and from synergies we expect to realize
as we integrate the businesses and expand our production capabilities in Asia.
    As we stated in our report for our second quarter, our goal is to
maintain an ongoing supply of high-quality products and services as we
introduce exciting new technologies to increase our customers' productivity.
Our focus for the balance of the year is to continue to serve our customers
well as we drive a smooth integration of the Sciex and Molecular Devices
businesses to realize the significant synergies we believe are available to
these businesses.
    We are pleased with the results from our MDS Pharma Services business. In
the three months ended July 31, 2007, they delivered their fourth consecutive
quarter of sequential improvement in adjusted EBITDA. They have completed
several key steps in restructuring the business, including the downsizing of
our St. Laurent operation and the transfer of operations from Sittingbourne to
Zurich. Additional actions are underway for completion by year-end, including
the transfer of certain discovery/preclinical operations from St. Laurent to
Bothell, and central laboratory services from Hamburg to Baillet. These
actions and other restructuring moves will provide significant savings in the
fourth quarter and throughout 2008.
    As stated earlier, revenue growth throughout this year has been strong in
our late-stage and preclinical businesses. In our remaining early-stage
businesses, we believe that significant progress has been made completing FDA
related study audits for the ANDA studies. Although uncertainty remains
related to NDA studies and potential EMEA actions, we currently believe that
we have adequate reserves to cover the expected costs. Our early-stage
businesses are also focused on serving our customers more effectively and we
are seeing positive signs that we are regaining their trust. We have seen an
increased number of invitations to bid on new projects, including some from
customers who left us in 2006. This renewed growth in early-stage, combined
with productivity from restructuring and other efficiency improvements, is
expected to deliver improved profitability in 2008 and beyond.
    MDS Nordion has continued solid performance so far this year and has been
able to grow both revenues and adjusted EBITDA after taking into account
foreign exchange and the unusual market conditions that existed in the first
half of 2006. New product developments and new commercial relationships
provide opportunities to expand in the molecular imaging market. We see
continued strong demand for TheraSphere in Europe, and we believe the
potential for this innovative therapy is high.
    We continue to monitor currency markets and there has been significant
volatility in the value of the US dollar all year. Although we have hedged a
significant portion of our net US-dollar cash flows from our Canadian-based
businesses this year, currency markets will continue to have an impact on our
reported results. We continue to report organic measures of revenue and
adjusted EBITDA growth to help readers understand the impact of these market
dynamics.
    We also continue to monitor the markets in our industry for appropriate
acquisition opportunities. We remain focused on our three businesses and will
pursue only those acquisition opportunities that are reasonably priced and
synergistic with our existing businesses.

    
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    (UNAUDITED)

                                                              2007      2006
    As at July 31 with comparatives at October 31                   (Revised
    (millions of US dollars)                                          Note 7)
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                             $    224  $    253
    Short-term investments                                      90       135
    Accounts receivable                                        265       229
    Unbilled revenue                                           110       121
    Inventories                                                124        86
    Income taxes recoverable                                    54        42
    Prepaid expenses and other                                  25        21
    Assets held for sale (note 7)                                1       196
    -------------------------------------------------------------------------
                                                               893     1,083

    Property, plant and equipment                              356       339
    Future tax assets                                            5        37
    Long-term investments and other                            233       170
    Goodwill                                                   784       417
    Intangibles                                                563       338
    -------------------------------------------------------------------------
    Total assets                                          $  2,834  $  2,384
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities              $    330  $    239
    Deferred revenue                                            88        93
    Income taxes payable                                        54         8
    Future tax liabilities                                       9         -
    Current portion of long-term debt                           93        20
    Liabilities related to assets held for sale (note 7)         -       114
    -------------------------------------------------------------------------
                                                               574       474

    Long-term debt                                             294       374
    Deferred revenue                                            16        17
    Other long-term obligations                                 26        23
    Future tax liabilities                                     145        82
    Minority interest                                            1         -
    -------------------------------------------------------------------------
                                                          $  1,056  $    970
    -------------------------------------------------------------------------
    Shareholders' equity
    Share capital (note 5)                                     499       572
    Retained earnings                                          930       495
    Cumulative translation adjustment                          n/a       347
    Accumulated other comprehensive income (note 4)            349       n/a
    -------------------------------------------------------------------------
                                                             1,778     1,414
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity            $  2,834  $  2,384
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes

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



    CONSOLIDATED STATEMENTS OF INCOME
    (UNAUDITED)

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    (millions of US dollars,                    (Revised            (Revised
     except per share amounts)                    Note 7)             Note 7)
    -------------------------------------------------------------------------
    Net revenues                      $    321  $    258  $    844  $    742
    Cost of revenues                      (192)     (174)     (516)     (475)
    Selling, general and
     administration                        (74)      (61)     (194)     (166)
    Research and development (note 8)       (9)       (5)      (21)      (11)
    Depreciation and amortization          (28)      (16)      (65)      (45)
    Restructuring charges - net
     (note 9)                               (3)       (2)      (44)       (4)
    Other income (expenses) - net
     (note 11)                              (2)        5       (68)       (7)
    Equity earnings                          -         -         -        (4)
    -------------------------------------------------------------------------
    Operating income (loss)                 13         5       (64)       30

    Interest expense                        (6)       (4)      (20)      (11)
    Dividend and interest income             4         4        18         7
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations before income taxes         11         5       (66)       26
    Income taxes recovery (expense)
     (note 16)                              (3)       (2)       15       (11)
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations                              8         3       (51)       15
    Income (loss) from discontinued
     operations - net of tax (note 7)       (1)       16       808        65
    -------------------------------------------------------------------------
    Net income                        $      7  $     19  $    757  $     80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss) per share
     (note 10)
    - from continuing operations      $   0.07  $   0.02  $  (0.37) $   0.11
    - from discontinued operations       (0.01)     0.11      5.99      0.45
    -------------------------------------------------------------------------
    Basic earnings per share          $   0.06  $   0.13  $   5.62  $   0.56
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss)
     per share (note 10)
    - from continuing operations      $   0.07  $   0.02  $  (0.38) $   0.11
    - from discontinued operations       (0.01)     0.11      5.98      0.45
    -------------------------------------------------------------------------
    Diluted earnings per share        $   0.06  $   0.13  $   5.60  $   0.56
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    (UNAUDITED)

    -------------------------------------------------------------------------
                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
    (millions of US dollars)              2007      2006      2007      2006
    -------------------------------------------------------------------------
    Retained earnings, beginning
     of period                        $    923  $    438  $    495  $    385
    Net income                               7        19       757        80
    Repurchase of shares                     -         -      (318)        -
    Dividends - cash                         -        (4)       (3)      (10)
    Dividends - stock                        -        (1)       (1)       (3)
    -------------------------------------------------------------------------
    Retained earnings, end of period  $    930  $    452  $    930  $    452
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (UNAUDITED)

    -------------------------------------------------------------------------
                                                             Three      Nine
                                                            months    months
                                                                to        to
                                                           July 31   July 31
    -------------------------------------------------------------------------
    (millions of US dollars)                                  2007      2007
    -------------------------------------------------------------------------
    Net income                                            $      7  $    757
    -------------------------------------------------------------------------
    Other comprehensive income (loss) - net of income tax:
    Unrealized gains on derivatives designated as cash
     flow hedges, net of tax                                     -         4
    Reclassification of losses on derivatives designated
     as cash flow hedges to net income                           -        (2)
    Unrealized gains on translation of debt designated
     as a hedge of self-sustaining foreign operations,
     net of tax                                                 10        (7)
    Foreign currency translation losses on
     self-sustaining foreign operations                        (14)      (18)
    Translation gains resulting from the application
     of US dollar reporting                                     16        25
    -------------------------------------------------------------------------
    Other comprehensive income                                  12         2
    -------------------------------------------------------------------------
    Comprehensive income                                  $     19  $    759
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
                                                (Revised            (Revised
    (millions of US dollars)                      Note 7)             Note 7)
    -------------------------------------------------------------------------
    Operating activities
    Net income                        $      7  $     19  $    757  $     80
    Income (loss) from discontinued
     operations - net of tax                (1)       16       808        65
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations                              8         3       (51)       15
    Adjustments to reconcile net
     income to cash provided by
     operating activities relating to
     continuing operations (note 13)
    Items not affecting current
     cash flow                              41        17       136        49
    Changes in non-cash working capital
     balances relating to operations       (41)      (24)       29       (77)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities of
     continuing operations                   8        (4)      114       (13)
    Cash provided by (used in)
     operating activities of
     discontinued operations                 1        17       (52)       51
    -------------------------------------------------------------------------
                                             9        13        62        38
    -------------------------------------------------------------------------
    Investing activities
    Acquisitions (note 6)                    2         -      (601)        -
    Purchase of intangibles                 (1)        -        (1)        -
    Increase in deferred development
     charges                                (5)       (3)       (7)       (6)
    Proceeds from MAPLE transaction          -         -         -        24
    Purchase of property, plant and
     equipment (note 14)                   (28)      (17)      (45)      (39)
    Proceeds on sale of short-term
     investments                            14         -       165         -
    Purchases of short-term investments    (81)     (134)     (118)     (134)
    Proceeds on divestitures                 -         2        13         2
    Other                                   (2)        -        (2)      (16)
    -------------------------------------------------------------------------
    Cash used in investing activities
     of continuing operations             (101)     (152)     (596)     (169)
    -------------------------------------------------------------------------
    Cash provided by investing
     activities of discontinued
     operations                              -         4       929        81
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt             (1)        -        (8)       (1)
    Decrease in deferred revenue and
     other long-term obligations             1         -         1        (9)
    Payment of cash dividends                -        (4)       (3)      (10)
    Issuance of shares                       5         5        15        24
    Repurchase of shares                     -         -      (441)        -
    -------------------------------------------------------------------------
    Cash provided by (used in)
     financing activities of
     continuing operations                   5         1      (436)        4
    -------------------------------------------------------------------------
    Cash used in financing activities
     of discontinued operations              -        (1)       (2)       (9)
    -------------------------------------------------------------------------
    Effect of foreign exchange
     rate changes on cash and cash
     equivalents                            10       (10)       14         7
    -------------------------------------------------------------------------
    Decrease in cash and cash
     equivalents during the period         (77)     (145)      (29)      (48)
    Cash and cash equivalents,
     beginning of period                   301       321       253       224
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                    $    224  $    176  $    224  $    176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



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

    1.  Basis of Presentation

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

    Prior year amounts have been revised to reflect the results of
    discontinued operations.

    2.  Reporting Currency

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

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

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

    3.  Changes in Accounting Policies

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

    (a) Comprehensive Income

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

    (b) Financial Assets and Financial Liabilities

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

    (c) Derivatives and Hedge Accounting

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

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

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

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

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

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

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

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

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

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

    -------------------------------------------------------------------------
    Classification
    -------------------------------------------------------------------------
    Held-for-trading                                                $    224
    Held-to-maturity                                                      42
    Loans and receivables                                                383
    Available-for-sale                                                    90
    Other liabilities                                               $    797
    -------------------------------------------------------------------------

    (d) Measurement Uncertainty

    To determine the assets held for sale related to those operations
    classified as discontinued operations, we are required to make estimates
    and assumptions that affect the reported amounts of these assets and
    liabilities and, therefore, these amounts are subject to measurement
    uncertainty.

    (e) Future Changes in Accounting Policies

    Capital Disclosures

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

    Financial Instruments

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

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

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

    4.  Accumulated Other Comprehensive Income

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

                                                                       As at
                                                                     July 31,
                                                                        2007
    -------------------------------------------------------------------------
    Accumulated other comprehensive income, net of income taxes
    -------------------------------------------------------------------------
    Unrealized gains on derivatives designated as cash flow hedges  $      2
    Unrealized gains on translation of debt designated as a hedge        129
    Foreign currency translation (losses) on self-sustaining
     foreign operations                                                 (176)
    Unrealized gain on translation resulting from the application
     of US dollar reporting                                              394
    -------------------------------------------------------------------------
    Accumulated other comprehensive income balance
     as at July 31, 2007                                            $    349
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    5.  Share Capital and Stock Options

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

    (number of shares in thousands)                         Number    Amount
    -------------------------------------------------------------------------
    Common shares
    Balance as at October 31, 2006                         144,319  $    572
    Issued during the period                                 1,051        18
    Repurchased during the period                          (22,831)      (91)
    -------------------------------------------------------------------------
    Balance as at July 31, 2007                            122,539  $    499
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter, the Company repurchased and cancelled 22,831
    Common shares, under the terms of a substantial issuer bid. In the
    financial statement for the second quarter the share capital reduction
    associated with the share repurchase was incorrectly reported using the
    average exchange rate for April instead of the weighted average historic
    rate applicable to share capital. Correction of this reporting error
    resulted in an increase in US dollar reported share capital of
    $32 million and a corresponding reduction in other comprehensive income
    translation gains resulting from the application of US dollar reporting.

                                                                     Average
                                                                    Exercise
    (number of shares in thousands)                        Number      Price
    -------------------------------------------------------------------------
    Stock options
    Balance as at October 31, 2006                          5,850  C$  18.76
    Activity during the period:
    Granted                                                 1,223  C$  21.73
    Exercised                                                (942) C$  16.45
    Cancelled or forfeited                                   (517) C$  20.34
    -------------------------------------------------------------------------
    Balance as at July 31, 2007                             5,614  C$  19.65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There were 3,266 stock options exercisable as at July 31, 2007.

    6.  Acquisition of Molecular Devices Corporation

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

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

    The aggregate purchase consideration (net of cash acquired of
    $21 million) was approximately $601 million paid in cash from existing
    cash on hand. Included in the consideration is the cash cost of
    $27 million to settle all outstanding in-the-money options of MD at the
    closing date of the acquisition. Direct and incremental third party
    acquisition costs associated with the acquisition were approximately
    $8 million.

    The acquisition has been accounted for as a purchase in accordance with
    CICA Handbook Section 1581 "Business Combinations" and the Company has
    accordingly allocated the purchase price of the acquisition based upon
    the preliminary fair values of the assets acquired and liabilities
    assumed. During the quarter, the Company revised the allocation of the
    purchase price. The impact of the revision was to decrease net tangible
    assets acquired by $35 million, increase developed technology by
    $50 million, decrease in-process research and development by $11 million,
    and decrease goodwill by $6 million. The purchase price and related
    allocations have not been finalized and may be revised as a result of
    adjustments made to the purchase price as additional information becomes
    available regarding liabilities incurred and revisions are made to
    preliminary estimates of fair values made at the acquisition date. In
    connection with determining the fair value of the assets acquired and
    liabilities assumed, management performed assessments of intangible
    assets using customary valuation procedures and techniques.

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

    -------------------------------------------------------------------------
    Consideration and acquisition costs:
    Cash and payments, net of cash acquired                         $    593
    Transaction costs                                                      8
    -------------------------------------------------------------------------

    Net consideration and acquisition costs                         $    601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Allocation of purchase price
    Net tangible assets acquired                                    $     15
    Intangible assets acquired:
    Developed technologies                                               161
    Brands                                                                60
    Goodwill (non-tax deductible)                                        365
    -------------------------------------------------------------------------
    Total purchase price                                            $    601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

    Other assets and liabilities include $26 million of net future tax
    liabilities. Net tangible assets acquired include a charge of $7 million
    to eliminate redundant positions and consolidate redundant facilities at
    MD over the course of the next year. The developed technologies will be
    amortized over their estimated lives, which are between five and seven
    years, while the brands have an indefinite life and are not amortized.

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

    7.  Sale of Canadian Diagnostics Business and Discontinued Operations

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

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

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

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

    Net assets                                                      $     84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Net revenues                      $      -  $     82  $     95  $    280
    Cost of revenues                         -       (49)      (57)     (180)
    Selling, general and
     administration                          -       (11)      (15)      (38)
    Depreciation and amortization            -        (2)        -        (7)
    Restructuring charges                    -         -         -        (1)
    Equity earnings                          -         1         1         2
    -------------------------------------------------------------------------
    Operating income                         -        21        24        56
    Gain on sale of discontinued
     operations                             (1)        -       904        24
    Dividend and interest income             -         -         1         1
    Income taxes                             -        (3)     (117)       (9)
    Minority interest - net of tax           -        (2)       (4)       (7)
    -------------------------------------------------------------------------
    Income (loss) from discontinued
     operations - net of tax          $     (1) $     16  $    808  $     65
    -------------------------------------------------------------------------
    Basic earnings per share          $  (0.01) $   0.11  $   5.99  $   0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per share        $  (0.01) $   0.11  $   5.98  $   0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

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

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


    8.  Research and Development

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Gross expenditures                $     21  $     13  $     50  $     38
    Investment tax credits                  (1)       (1)       (3)       (6)
    Recoveries from partners                (6)       (5)      (17)      (17)
    Development costs deferred              (5)       (2)       (9)       (4)
    -------------------------------------------------------------------------
    Research and development expense  $      9  $      5  $     21  $     11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three months ended July 31, 2007 depreciation and amortization
    includes $2 million (2006 - $2 million) related to equipment used for
    research and development, and $2 million from amortization of deferred
    development costs (2006 - $1 million). For the nine months ended July 31,
    2007 depreciation and amortization includes $4 million (2006 -
    $5 million) related to equipment used for research and development and
    $5 million (2006 - $4 million) from amortization of deferred development
    costs.

    9.  Restructuring

    An analysis of the activity in the provision through July 31, 2007 is as
    follows:

                                           Cumulative drawdowns    Provision
                                         ------------------------ Balance at
                           Restructuring                             July 31,
                                  Charge        Cash    Non-cash        2007
    -------------------------------------------------------------------------
    2005:
    Workforce reductions      $       34  $      (32) $       (1) $        1
    Equipment and other asset
     write-downs - adjustment          7           -          (7)          -
    Contract cancellation
     charges                          10          (2)         (8)          -
    -------------------------------------------------------------------------
                              $       51  $      (34) $      (16) $        1
    -------------------------------------------------------------------------
    2006:
    Workforce reductions      $        1  $       (1) $        -  $        -
    Contract cancellation
     charges                          (8)         (1)          9
    -------------------------------------------------------------------------
                              $       (7) $       (2) $        9  $        -
    -------------------------------------------------------------------------
    2007:
    Workforce reductions      $       21  $       (8) $       (1) $       12
    Equipment and other
     asset write-downs                 5           -          (3)          2
    Contract cancellation
     charges                           5          (5)          -           -
    Other                             13          (6)         (3)          4
    -------------------------------------------------------------------------
                              $       44  $      (19) $       (7) $       18
    -------------------------------------------------------------------------
                                                                  $       19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    10. Earnings Per Share

    (a) Dilution

                                            Three months         Nine months
                                             to July  31          to July 31
    -------------------------------------------------------------------------
    (number of shares in millions)        2007      2006      2007      2006
    -------------------------------------------------------------------------
    Weighted average number of Common
     shares outstanding - basic            123       143       135       143
    Impact of stock options assumed
     exercised                               -         1         -         1
    -------------------------------------------------------------------------
    Weighted average number of Common
     shares outstanding - diluted          123       144       135       144
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (b) Pro-Forma Impact of Stock-Based Compensation

    Compensation expense related to the fair value of stock options granted
    prior to November 1, 2003 is excluded from the determination of net
    income and is, instead, calculated and disclosed on a pro-forma basis in
    the notes to the consolidated financial statements. Compensation expense
    for purposes of these pro-forma disclosures is determined in accordance
    with a methodology prescribed in CICA Handbook Section 3870 "Stock-Based
    Compensation and Other Stock-Based Payments". The Company used the Black-
    Scholes option valuation model to estimate the fair value of options
    granted.

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

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Net income                        $      7  $     19  $    757  $     80
    Compensation expense for
     options granted prior to
     November 1, 2003                        -         -        (1)       (2)
    -------------------------------------------------------------------------
    Net income - pro-forma            $      7  $     19  $    756  $     78
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pro-forma basic earnings
     per share                        $   0.06  $   0.13  $   5.61  $   0.55
    Pro-forma diluted earnings
     per share                        $   0.06  $   0.13  $   5.59  $   0.54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) Stock Options

    During the quarter, the Company granted 883,600 options (2006 - 25,600)
    at an average exercise price of C$21.77 (2006 - C$20.96). These options
    have a fair value determined using the Black-Scholes model of C$4.44 per
    share (2006 - C$4.10) based on the following assumptions:

                                                              2007      2006
    -------------------------------------------------------------------------
    Risk-free interest rate                                   3.9%      3.9%
    Expected dividend yield                                   0.0%      0.7%
    Expected volatility                                       0.21      0.23
    Expected time to exercise (years)                         3.17      3.25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Of the stock options issued during the third quarter, 100,000 are
    performance contingent options that vest if the ten-day simple average
    share price on the Toronto Stock Exchange reaches $25 within two years of
    the grant date.

    11. Other Income (Expense) - Net

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Write-down of other long-term
     assets                           $      -  $      -  $      -  $     (1)
    Write-down of investments                -         -        (6)        -
    Gain on sale of investment               -         2         2         2
    Loss on sale of Hamburg clinic           -         -        (4)        -
    Gain on sale of business                 -         -         1         -
    Acquisition integration costs           (1)        -        (2)        -
    FDA Provision                            -         -       (61)        -
    Unrealized gain (loss) on
     interest rate swaps                    (1)        -        (1)       (2)
    MAPLE settlement                         -         -         3        (9)
    Insurance settlement                     -         3         -         3
    -------------------------------------------------------------------------
    Other income (expense) - net      $     (2) $      5  $    (68) $     (7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Post-Employment Obligations

    The Company sponsors various post-employment benefit plans including
    defined benefit and contribution pension plans, retirement compensation
    arrangements, and plans that provide extended health care coverage to
    retired employees. All defined benefit pension plans sponsored by the
    Company are funded plans. Other post-employment benefits are unfunded.
    During 2005, the Company amended the terms of certain post-employment
    plans such that effective January 1, 2008, and subject to certain
    transitional conditions, newly retired employees will no longer be
    entitled to extended health care benefits.

    The post-employment obligation expense for the quarter was nil (2006 -
    nil) and $1 million (2006 - $1 million) for the nine months.

    13. Supplementary Cash Flow Information

    Non-cash items affecting net income comprise:

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Depreciation and amortization     $     28  $     16  $     65  $     45
    Stock option compensation                1                   2         3
    Deferred revenue                        (1)       (1)       (3)       (6)
    Future income taxes                      -        (4)       46       (13)
    Equity earnings - net
     of distribution                         -         1         -         8
    Write-down of MAPLE assets               -         -         -         9
    Write-down of investments                -         -         6         -
    Loss on sale of Hamburg clinic           -        (2)        4        (2)
    Equipment and other asset
     write-downs                             1         -         6         -
    Gain on sale of investment               -         -        (2)        -
    Amortization of purchase price
     adjustments                            10         -        12         -
    Other                                    2         7         -         5
    -------------------------------------------------------------------------
                                      $     41  $     17  $    136  $     49
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Accounts receivable               $    (24) $      2  $     (9) $     (2)
    Unbilled revenue                         1       (40)       12       (69)
    Inventories                             (4)        7       (10)       45
    Prepaid expenses and other              (2)       (6)        8       (11)
    Accounts payable and deferred
     revenue                               (17)       13        32       (41)
    Income taxes                             5         -        (4)        1
    -------------------------------------------------------------------------
                                      $    (41) $    (24) $     29  $    (77)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. Segmented Information

                                               Three months to July 31, 2007
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   118   $    76       $   127    $     -  $   321
    Cost of revenues         (82)      (39)          (71)         -     (192)
    Selling, general and
     administration          (32)      (13)          (22)        (7)     (74)
    Research and
     development               -        (1)           (8)         -       (9)
    Depreciation and
     amortization             (8)       (4)          (15)        (1)     (28)
    Restructuring charges
     - net                    (1)        -             -         (2)      (3)
    Other income
     (expense) - net           -         -            (1)        (1)      (2)
    Equity earnings
     (loss)                    -         -             -          -        -
    -------------------------------------------------------------------------
    Operating income
     (loss)              $    (5)  $    19       $    10    $   (11) $    13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $   838   $   699       $   877    $   420  $ 2,834
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures $    21   $     3       $     3    $     1  $    28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                               Three months to July 31, 2006
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   113   $    79       $    66    $     -  $   258
    Cost of revenues         (93)      (40)          (41)         -     (174)
    Selling, general and
     administration          (33)      (13)           (6)        (9)     (61)
    Research and
     development               -        (1)           (4)         -       (5)
    Depreciation and
     amortization             (7)       (4)           (5)         -      (16)
    Restructuring charges
     - net                    (1)        -             -         (1)      (2)
    Other income
     (expense) - net           5         -             -          -        5
    Equity earnings
     (loss)                    -         -             -          -        -
    -------------------------------------------------------------------------
    Operating income
     (loss)              $   (16)  $    21       $    10    $   (10) $     5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets         $   805   $   640       $   181    $   694  $ 2,320
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures $    12   $     -       $     2    $     3  $    17
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Nine months to July 31, 2007
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   354   $   213       $   277    $     -  $   844
    Cost of revenues        (248)     (110)         (158)         -     (516)
    Selling, general and
     administration          (98)      (36)          (41)       (19)    (194)
    Research and
     development               -        (2)          (19)         -      (21)
    Depreciation and
     amortization            (26)      (10)          (27)        (2)     (65)
    Restructuring charges
     - net                   (35)        -             -         (9)     (44)
    Other income
     (expense) - net         (65)        4            (2)        (5)     (68)
    Equity earnings
     (loss)                    -         -             -          -        -
    -------------------------------------------------------------------------
    Operating income
     (loss)              $  (118)  $    59       $    30    $   (35) $   (64)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures $    28   $     5       $     8    $     4  $    45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Nine months to July 31, 2006
    -------------------------------------------------------------------------
                                                     MDS
                      MDS Pharma       MDS    Analytical  Corporate
                        Services   Nordion  Technologies  and Other    Total
    -------------------------------------------------------------------------
    Net revenues         $   337   $   221       $   184    $     -  $   742
    Cost of revenues        (252)     (111)         (112)         -     (475)
    Selling, general and
     administration          (91)      (37)          (13)       (25)    (166)
    Research and
     development               -        (2)           (9)         -      (11)
    Depreciation and
     amortization            (21)      (11)          (13)         -      (45)
    Restructuring charges
     - net                    (1)        -             -         (3)      (4)
    Other income
     (expense) - net           5        (9)            -         (3)      (7)
    Equity earnings
     (loss)                   (1)        -             -         (3)      (4)
    -------------------------------------------------------------------------
    Operating income
     (loss)              $   (24)  $    51       $    37    $   (34) $    30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures $    26   $     -       $     5    $     8  $    39
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    15. Financial Instruments

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

                                           As at July 31       As at July 31
    -------------------------------------------------------------------------
                                                    2007                2006
    -------------------------------------------------------------------------
                                      Carrying      Fair  Carrying      Fair
                                        Amount     Value    Amount     Value
    -------------------------------------------------------------------------
    Asset (liability) position:
      Currency forward and option
       - asset                        $      4  $      4  $      1  $      4
      Currency forward and option
       - liabilities                  $     (2) $     (2) $     (1) $     (1)
    Interest rate swap and option
     contracts                        $     (3) $     (3) $     (4) $     (4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As of July 31, 2007 the Company had outstanding foreign exchange
    contracts in place to sell US$69 million at a weighted average exchange
    rate of C$1.1339 maturing over the next six months. The Company also had
    interest rate swap contracts that convert a notional amount of
    US$80 million of debt from a fixed to a floating interest rate.

    Foreign exchange options and interest rate swaps not eligible for hedge
    accounting are included in accounts payable and are marked to market each
    period.

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

    16. Income Taxes

    A reconciliation of expected income taxes to the reported income tax
    recovery is provided below. The Company's tax recovery for the quarter
    was lower than expected as portions of the restructuring charge related
    to foreign jurisdictions where full valuation allowances have been
    recorded against existing tax assets. In addition, the Company was unable
    to recognize any tax benefit on the Hamburg clinic loss or valuation
    provision.

                                                     Three months to July 31
    -------------------------------------------------------------------------
                                                              2007      2006
    -------------------------------------------------------------------------
    Expected income tax expense (recovery) at
     MDS's 35% (2006 - 35%) statutory rate                $      4  $      2
    Increase (decrease) to taxes expense as a result of:
      Foreign tax losses not previously recognized              (1)        -
    -------------------------------------------------------------------------
    Reported income tax expense (recovery)                $      3  $      2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    17. Differences Between Canadian and United States Generally Accepted
        Accounting Principles

    The consolidated financial statements have been prepared in accordance
    with Canadian GAAP. The principles adopted in these financial statements
    conform in all material respects to those of US GAAP except as summarized
    below. Significant differences between Canadian and US GAAP would have
    the following effect on net income of the Company:


                                            Three months         Nine months
                                              to July 31          to July 31
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Net income (loss) from
     continuing operations in
     accordance with Canadian GAAP    $      8  $      3  $    (51) $     15
    US GAAP adjustments:
      Deferred development costs            (7)       (3)       (9)       (3)
      Deferred development cost
       amortization                          5         -         8         -
      Reduction in income tax expense
       arising from GAAP adjustments         3         -         3         -
    -------------------------------------------------------------------------
    Net income (loss) from continuing
     operations in accordance with
     US GAAP                                 9         -       (49)       12
    Income from discontinued operations
     in accordance with Canadian and
     US GAAP - net of tax                   (1)       16       808        65
    -------------------------------------------------------------------------
    Net income in accordance with
     US GAAP                          $      8  $     16  $    759  $     77
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss) per share
     in accordance with US GAAP
      - from continuing operations    $   0.07  $    0.0  $  (0.36) $   0.08
      - from discontinued operations     (0.01)     0.11      5.99      0.46
    -------------------------------------------------------------------------
    Basic earnings per share          $   0.06  $   0.11  $   5.63  $   0.54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss) per
     share in accordance with US GAAP
      - from continuing operations    $   0.07  $    0.0  $  (0.36) $   0.08
      - from discontinued operations     (0.01)     0.11      5.98      0.45
    -------------------------------------------------------------------------
    Diluted earnings per share        $   0.06  $   0.11  $   5.62  $   0.53
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the quarter, as a result of updating management's preliminary
    valuation of acquired intangibles, the Company determined that amounts
    previously identified as in-process research and development costs for US
    GAAP purposes had nil value. Accordingly, net income under US GAAP for
    2007 has been increased by $6 million.

    18. Comparative Figures

    All comparative financial information has been restated to reflect the
    Company's results as if they had been historically reported in US
    dollars. Certain figures for the previous period have been reclassified
    to conform to the current period's financial statement presentation. In
    addition, segmented information for 2006 has been revised to reflect the
    discontinued operations reported.
    





For further information:

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

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