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MDS Reports First Quarter 2008 Results

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    Net Revenues up 23%, Adjusted EBITDA up 33%

    TORONTO, March 6 /CNW/ - MDS Inc. (TSX: MDS; NYSE: MDZ), a leading
provider of products and services to the global life sciences markets, today
reported its first quarter 2008 results. For the quarter, MDS reported net
revenues of $296 million, net income of $17 million and earnings per share
from continuing operations of $0.14. Adjusted EBITDA rose to $40 million, up
from $30 million in the prior year. Adjusted earnings per share were $0.05,
down from $0.07 in the prior year. This solid start to 2008 is primarily
driven by improvements at MDS Pharma Services and MDS Analytical Technologies,
partially offset by challenges at MDS Nordion.

    <<
    Quarterly Highlights

    -   Delivered $296 million in net revenues, up 23% from $241 million in
        the prior year.
    -   Increased adjusted EBITDA to $40 million, up 33% from $30 million in
        the prior year.
    -   Reported adjusted earnings per share of $0.05, down from $0.07 in the
        prior year impacted by $0.08 of intangible amortization from the
        Molecular Devices acquisition.
    -   MDS Pharma Services delivered $146 million in total revenues and
        $6 million in adjusted EBITDA, up from $1 million in the prior year
        with new business wins at $177 million up 32% over the prior quarter.
    -   MDS Nordion delivered $60 million in revenues, down 10% in the
        quarter impacted by a medical isotope supply disruption and light
        cobalt shipments.
    -   MDS Analytical Technologies delivered $116 million in revenues and
        $27 million in adjusted EBITDA with the highest quarterly revenue in
        Molecular Devices history.
    -   MDS repurchased and cancelled 252,000 Common shares for $5 million
        under its Normal Course Issuer Bid.

    "We are off to a solid start in the first quarter with double-digit growth
in both net revenues and adjusted EBITDA," said Stephen P. DeFalco, President
and Chief Executive Officer of MDS Inc. "I am very pleased with the
performance of the Molecular Devices acquisition which continues to perform
strongly, setting new records in revenue. I am also encouraged by the
accelerating pace of new business wins at MDS Pharma Services which we expect
to result in revenue growth in the second half of 2008."

    Operating Segment Results

    MDS Pharma Services

                                                                    % Change
                                                                   ----------
    ($ millions)                           Q1 2008      Q1 2007     Reported
    -------------------------------------------------------------------------
    Net Revenue:
    Early-stage                                 63           66          (5%)
    Late-stage                                  57           55           4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                           $   120      $   121          (1%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Reimbursement revenues                      26           23            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total revenues                         $   146      $   144            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
                                           $     6      $     1         500%
                                           %     5      %     1            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    For the first quarter, MDS Pharma Services net revenues declined 1% over
the prior year. Adjusted EBITDA was $6 million compared to $1 million last
year, an improvement of $5 million year-over-year, driven primarily by savings
from 2007 restructuring activities.
    MDS Pharma Services initiated the reporting of certain non-GAAP measures
for new business wins and period ending backlog, to track confirmed contracts
to which customers have committed within the period. New orders increased to
$177 million representing three quarters of sequential improvements and are up
32% from last quarter. Contract cancellations were $37 million in the quarter
leaving a quarter-ending backlog of $395 million, down 16% year-over-year and
up 5% sequentially.
    As of the end of the first quarter, MDS Pharma Services has implemented
90% of its restructuring initiatives announced in the second quarter of last
year and is well positioned to accelerate profitable growth with higher second
half revenues coupled with a lower cost base.
    In January, MDS Pharma Services opened its 300-bed expansion of a Phase I
facility in Phoenix, Arizona and is now conducting trials. As well, MDS Pharma
Services launched Apollo, a new study management system for central lab
customers which is designed to improve efficiency and enable MDS to deliver
its brand promise of on-time, high-quality service.

    <<
    MDS Nordion

                                                                    % Change
                                                                   ----------
    ($ millions)                           Q1 2008      Q1 2007     Reported
    -------------------------------------------------------------------------
    Revenue                                $    60      $    67         (10%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
                                           $    11      $    20         (45%)
                                           %    18      %    30            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    MDS Nordion's revenues for the first quarter were $60 million, down 10%
from the prior year driven by a disruption in medical isotope supply and light
cobalt shipments. Adjusted EBITDA was $11 million compared to $20 million in
the first quarter of 2007. This decrease includes $5 million in unfavourable
impact from the medical isotope disruption and a $4 million non-cash charge to
account for foreign exchange impact on supply agreements.
    During the quarter, MDS Nordion announced the sale of two non-strategic
product lines. This sale is expected to close in the second quarter of 2008.

    MDS Analytical Technologies

                                                                    % Change
                                                                   ----------
    ($ millions)                           Q1 2008      Q1 2007     Reported
    -------------------------------------------------------------------------
    Revenue                                $   116      $    53         119%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA:
                                           $    27      $    12         125%
                                           %    23      %    23            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    MDS Analytical Technologies delivered $116 million in revenues, a 119%
increase over prior year and $27 million in adjusted EBITDA, a 125%
year-over-year increase.
    Sciex contributed $60 million in revenues and $16 million in adjusted
EBITDA in the first quarter, up 13% and 33% from the prior year respectively.
Mass spectrometry end user revenue grew 5% compared to the same period last
year.
    Molecular Devices (MD) contributed $56 million in revenues and
$11 million in adjusted EBITDA. This is the highest quarterly revenue for MD
in its history. We remain on track to exceed our first year commitments for
the MD acquisition.

    Conference Call

    MDS will be holding a conference call today at 9:30 am EST to discuss
first quarter 2008 results. This call will be webcast live at www.mdsinc.com
and will also be available in archived format at
www.mdsinc.com/news_events/webcasts_presentations.asp after the call.

    MDS Annual Shareholders Meeting

    MDS will be holding its annual shareholders meeting today for
shareholders of record at 4:00 pm EST in Toronto. The AGM 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.

    About MDS

    MDS Inc. (TSX: MDS; NYSE: MDZ) is a global life sciences company that
provides market-leading products and services that our customers need for the
development of drugs and diagnosis and treatment of disease. We are a leading
global provider of pharmaceutical contract research, medical isotopes for
molecular imaging, radiotherapeutics, and analytical instruments. MDS has more
than 5,500 highly skilled people in 29 countries. Find out more at
www.mdsinc.com or by calling 1-888-MDS-7222, 24 hours a day.

    Caution Concerning Forward-Looking Statements

    This document contains forward-looking statements. Some forward-looking
statements may be identified by words like "expects", "anticipates", "plans",
"intends", "indicates" or similar expressions. The statements are not a
guarantee of future performance and are inherently subject to risks and
uncertainties. MDS's actual results could differ materially from those
expressed in the forward-looking statements due to these risks and a number of
other factors, including, but not limited to, successful implementation of
structural changes, including restructuring plans and acquisitions, technical
or manufacturing or distribution issues, the competitive environment for MDS's
products, the degree of market penetration of its products, the ability to
secure a reliable supply of raw materials, the impact of our clients'
exercising rights to cancel certain contracts, the strength of the Canadian
and US economies, the impact of the movement of the US dollar relative to
other currencies, particularly the Canadian dollar and the euro, uncertainties
associated with critical accounting assumptions and estimates, and other
factors set forth in reports and other documents filed by MDS with Canadian
and US securities regulatory authorities from time to time, including MDS's
quarterly and annual MD&A, annual information form, and annual report on
Form40-F for the fiscal year ended October 31, 2007 filed with the Securities
& Exchange Commission.
    Also note that all financial data is now shown on a US GAAP basis. MDS
converted to US GAAP reporting with the filing of its 2007 annual report and
financial statements on January 29, 2008.

    Use of Non-GAAP Financial Measures

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

    <<
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    >>

    March 5, 2008

    Following is management's discussion and analysis (MD&A) of the results
of operations for MDS Inc. (MDS or the Company) for the quarter ended
January 31, 2008 and its financial position as at January 31, 2008. This MD&A
should be read in conjunction with the unaudited consolidated financial
statements and notes that follow. In 2007, MDS chose to adopt United States
generally accepted accounting principles (US GAAP) for financial reporting. As
a result of this change, the Company restated to US GAAP its previously filed
financial statements for the four quarters of 2007. With US GAAP as our
primary basis of accounting, we will reconcile our US GAAP earnings to
Canadian generally accepted accounting principles (Canadian GAAP). This
reconciliation will be done as required by applicable Canadian regulations on
an annual and quarterly basis for fiscal 2008 and 2009. The results discussed
in this MD&A are based on US GAAP. To supplement the US GAAP MD&A included in
this document, please refer to our separately filed Canadian Supplement to
this MD&A that restates, based on financial information of MDS reconciled to
Canadian GAAP, those parts of our MD&A that would contain material differences
if they were based on financial statements prepared in accordance with
Canadian GAAP.
    For additional information and details, readers are referred to the 2007
annual financial statements and MD&A for 2007 and the Company's 2007 Annual
Information Form (AIF), all of which are published separately and are
available at www.mdsinc.com and at www.sedar.com. In addition, the Company's
40-F filing is available at www.sec.gov.
    Our MD&A is intended to enable readers to gain an understanding of MDS's
current results and financial position as at and for the period ended
January 31, 2008. To do so, we provide information and analysis comparing the
results of operations and financial position for the current interim period to
those of the same period in the preceding fiscal year. We also provide
analysis and commentary that we believe is required to assess the Company's
future prospects. Accordingly, certain sections of this report contain
forward-looking statements that are based on current plans and expectations.
These forward-looking statements are affected by risks and uncertainties that
are discussed in this document, as well as in the AIF, and that could have a
material impact on future prospects. Readers are cautioned that actual events
and results will vary.

    Caution Regarding Forward-looking Statements

    From time to time, we make written or oral forward-looking statements
within the meaning of certain securities laws, including the "safe harbour"
provisions of the Securities Act (Ontario) and the United States Private
Securities Litigation Reform Act of 1995. This document contains such
statements, and we may make such statements in other filings with Canadian
regulators or the United States Securities and Exchange Commission (SEC), in
reports to shareholders or in other communications, including public
presentations. These forward-looking statements include, among others,
statements with respect to our objectives for 2008, our medium-term goals, and
strategies to achieve those objectives and goals, as well as statements with
respect to our beliefs, plans, objectives, expectations, anticipations,
estimates and intentions. The words "may", "could", "should", "would",
"suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect",
"intend", "forecast", "objective", "optimistic", and words and expressions of
similar import are intended to identify forward-looking statements.
    By their very nature, forward-looking statements involve inherent risks
and uncertainties, both general and specific, which give rise to the
possibility that predictions, forecasts, projections and other forward-looking
statements will not be achieved. We caution readers not to place undue
reliance on these statements as a number of important factors could cause our
actual results to differ materially from the beliefs, plans, objectives,
expectations, anticipations, estimates and intentions expressed in such
forward-looking statements. These factors include, but are not limited to:
management of operational risks; the strength of the Canadian and United
States' economies and the economies of other countries in which we conduct
business; our ability to secure a reliable supply of raw materials,
particularly cobalt and critical medical isotopes; the impact of the movement
of the US dollar relative to other currencies, particularly the Canadian
dollar and the euro; changes in interest rate policies of the Bank of Canada
and the Board of Governors of the Federal Reserve System in the United States;
the effects of competition in the markets in which we operate; the timing and
technological advancement of new products introduced by us or by our
competitors; the impact of our clients' exercising rights to cancel certain
contracts; the impact of changes in laws, trade policies and regulations, and
enforcement thereof; judicial judgments and legal proceedings; our ability to
successfully realign our organization, resources and processes; our ability to
complete strategic acquisitions and joint ventures and to integrate our
acquisitions and joint ventures successfully; new accounting policies and
guidelines that impact the methods we use to report our financial condition;
uncertainties associated with critical accounting assumptions and estimates;
the possible impact on our businesses from natural disasters, public health
emergencies, international conflicts and other developments including those
relating to terrorism; and our success in anticipating and managing the
foregoing risks.
    We caution that the foregoing list of important factors that may affect
future results is not exhaustive. When relying on our forward-looking
statements to make decisions with respect to the Company, investors and others
should carefully consider the foregoing factors and other uncertainties and
potential events.

    Use of Non-GAAP Measures

    In addition to measures based on generally accepted accounting principles
(GAAP) in this MD&A, we use terms such as adjusted operating income; adjusted
earnings before interest, taxes, depreciation and amortization (EBITDA);
adjusted EBITDA margin; adjusted net income, adjusted earnings per share
(EPS); operating working capital; net revenue; new orders and backlog. These
terms are not defined by GAAP and our use of such terms or measurement of such
items may vary from that of other companies. In addition, measurement of
growth is not defined by GAAP and our use of these terms or measurement of
these items may vary from that of other companies. Where relevant, and
particularly for earnings-based measures, we provide tables in this document
that reconcile the non-GAAP measures used to amounts reported on the face of
the consolidated financial statements. Our executive management team assesses
the performance of our businesses based on a review of results comprising GAAP
measures and these non-GAAP measures. We also report on our performance to the
Company's Board of Directors based on these GAAP and non-GAAP measures. In
addition, adjusted EBITDA and operating working capital are the primary
metrics for our annual incentive compensation plan for senior management. We
provide this non-GAAP detail so that readers have a better understanding of
the significant events and transactions that have had an impact on our
results, and can view our results through the eyes of management.
    Throughout this report, when we refer to total revenues we mean revenues
including reimbursement revenues. We use the term net revenues to mean
revenues excluding such amounts. All revenue growth figures and adjusted
EBITDA margin figures are based on net revenues. We use net revenues to
measure the growth and profitability of MDS and MDS Pharma Services because
the pass-through invoicing of reimbursable out-of-pocket expenses varies from
period-to-period, is not a reliable measure of the underlying performance of
the business, and does not have an impact on net income or cash flows in any
significant way. Management assesses and rewards the performance of MDS Pharma
Services and the segment's senior management team using metrics that are based
on net revenues.
    MDS Pharma Services measures and tracks contract backlog. Contract
backlog is a non-GAAP measure that we define to include the amount of contract
value associated with confirmed contracts that have not yet been recognized as
net revenue. A confirmed contract is one for which the Company has received
customer commitment in a manner that is customary for the type of contract
involved. For large, long-term contracts, customer commitment is generally
evidenced by the receipt of a signed contract or confirmation awarding the
work to MDS. For smaller and short-term contracts, customer commitment may be
communicated in other ways, including email messages and oral confirmations.
Only contracts for which such commitments have been received are included in
backlog and the amount of backlog for these contracts is measured based on the
net revenue that is expected to be earned by MDS under the contract terms. A
contract is removed from backlog if the Company receives notice from the
customer that the contract has been cancelled, indefinitely delayed, or
reassigned to another service provider. As at January 31, 2008, we have
started to report new orders, which are the confirmed contracts that we have
received a customer commitment for within the interim period. We have also
started to report period ending backlog which measures our backlog at the
period ending date and we continue to reported average backlog which is the
average of the three month end backlog balances for the interim period.
    Substantially all of the Sciex brand products of MDS Analytical
Technologies are sold through two joint ventures. Under the terms of these
joint ventures, we are entitled to a 50% share of the net earnings of the
worldwide business that we conduct with our partners in these joint ventures.
These earnings include a share of the profits generated by our partners that
are paid to the joint ventures as profit sharing. Under US GAAP, we report our
direct revenues from sales to the joint ventures as revenues and we report our
share of the profits of the joint ventures as equity earnings. We do not
report our share of all end-user revenues, despite the fact that these
revenues contribute substantially to our profitability. In order to provide
readers with a better understanding of the drivers of profitability for the
Sciex products of MDS Analytical Technologies, we report growth in end-user
revenues as reported by our joint venture partners. This figure provides
management and readers with additional information on the performance of our
global business, including trends in customer demand and our performance
relative to the overall market.
    Tabular amounts are in millions of United States (US) dollars, except per
share amounts and where otherwise noted.

    Adoption of US GAAP

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

    Introduction

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

    Discontinued Operations

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


    <<
    MDS Inc.

    Consolidated operating highlights and reconciliation of
    consolidated adjusted EBITDA

                                                            First Quarter
                                                       ----------------------

                                                           2008         2007
    -------------------------------------------------------------------------
    Total revenues                                      $   322      $   264
    Reimbursement revenues                                  (26)         (23)
    -------------------------------------------------------------------------
    Net revenues                                        $   296      $   241
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income from continuing operations                        17            -
    Income taxes (recovery) expense                          (7)           3
    Net interest expense                                      -            2
    Depreciation and amortization                            27           14
    -------------------------------------------------------------------------
    EBITDA                                                   37           19
    Restructuring charges, net                                -           13
    Acquisition integration and in-process R&D                3            -
    Loss (gain) on sale of assets/investments                 2           (2)
    Gain on interest rate swap                               (2)           -
    -------------------------------------------------------------------------
    Adjusted EBITDA                                     $    40      $    30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted EBITDA margin                                  14%          12%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    Consolidated net revenues, which exclude reimbursement revenues
associated with reimbursed expenses in the MDS Pharma Services segment, were
up 23% on a reported basis to $296 million for the first quarter of 2008
compared to $241 million last year. The Molecular Devices (MD) business of MDS
Analytical Technologies, which was acquired in the second quarter of 2007,
added $56 million of net revenue in the quarter, its highest quarter to date,
and that led net revenue for MDS Analytical Technologies to more than double
compared to that of the first quarter of 2007. MDS Pharma Services net
revenues decreased 1% compared to the same period in 2007, with slight growth
in late-stage net revenues being offset by a decline in early-stage net
revenues. MDS Nordion net revenues were down 10% compared to the same period
in 2007, due primarily to a medical isotope supply disruption and lower cobalt
shipments. Foreign exchange impacts increased net revenue in the first quarter
of 2008 compared to the first quarter of 2007 by approximately $25 million.
    Income from continuing operations for the first quarter of 2008 was
$17 million compared to nil reported for the same period in 2007. The first
quarter of 2008 included $12 million in expenses for integration and
amortization related to MD and a $11 million gain on deferred taxes related to
a reduction in future income tax rates by the Canadian government.
    Adjusted EBITDA for the quarter was $40 million, up 33% compared to
$30 million reported for last year. MD contributed $11 million of adjusted
EBITDA in the first quarter of 2008. MDS Pharma Services delivered $5 million
of improvement in adjusted EBITDA; MDS Analytical Technologies also had a
strong quarter on an adjusted EBITDA basis, with and without the impact of the
MD acquisition; and, MDS Nordion was adversely impacted by approximately
$5 million from the medical isotope supply disruption, lower cobalt shipments
and an embedded derivative loss of $4 million in the first quarter of 2008
(nil in 2007). In the first quarter of 2008, a $7 million gain was recorded
relating to certain stock-based compensation programs, primarily as a result
of a reduction in MDS's stock price, compared to a $1 million gain in 2007.
Primarily due to the strengthening of the US dollar relative to the Canadian
dollar from our fiscal year end to January 31, 2008, we recorded a $4 million
gain from the impact of foreign exchange on certain monetary assets and
liabilities up $1 million from the first quarter of 2007. However, in the
first quarter of 2008 we also experienced a negative impact of approximately
$3 million on adjusted EBITDA from the net impact of foreign exchange, on our
operations, due to the decline of the US dollar, from the first quarter of
2007 to the first quarter of 2008.
    Adjustments reported for the quarter in 2008 include a $4 million loss
associated with the expected sale of MDS Nordion's beam therapy and
self-contained irradiator product lines, a $2 million gain resulting from the
settlement of a mortgage that in 2000 had been determined to be uncollectible
at that time, $2 million of costs related to the acquisition and integration
of MDS Analytical Technologies, $1 million of in-process research and
development (in-process R&D) related to an acquisition within the quarter, and
a $2 million gain resulting from the settlement of interest rate swaps. In
2007, adjustments reported for the quarter included restructuring costs
totalling $13 million, of which $8 million related to ongoing profit
improvement initiatives in MDS Pharma Services, and $5 million related to
transition of our information technology infrastructure and support to a new
provider. The other adjusting item in the first quarter of 2007 was a
$2 million gain realized on the sale of our debt interest in Hemosol Corp.
    Selling, general, and administration (SG&A) expenses for the
quarter-totalled $64 million, and represents 22% of net revenues compared to
$54 million and 22% respectively, in the same period last year. The increase
in SG&A spending is a result of the addition of MD and foreign exchange which
was partially offset by lower stock-based compensation expense, and spending
on the FDA issue in the first quarter of 2007.
    We spent $20 million on R&D activities in the first quarter of 2008
compared to $12 million in the first quarter of 2007. The increase in spending
is a result of the additional MD spending and higher investment related to the
Sciex brand products of MDS Analytical Technologies.
    Consolidated depreciation and amortization expense increased $13 million
in the first quarter of 2008 compared to the same period last year. The
increase is principally related to the amortization of intangible assets
associated with the MD acquisition. Capital expenditures for the quarter were
$13 million compared to $9 million in the first quarter of 2007.
    Reported earnings per share from continuing operations were $0.14 for the
quarter, compared to nil in the first quarter of 2007. Adjusted earnings per
share from continuing operations for the quarter were $0.05 compared to $0.07
earned in the same period last year. In addition to the adjusting items
affecting adjusted EBITDA that were described earlier, adjusting items include
a $0.09 reduction in our deferred tax liabilities due to the enactment of
income tax rate reductions in Canada. Earnings per share from discontinued
operations were nil compared to $0.11 for 2007. Results from discontinued
operations include only the results of the diagnostics business that we sold
in 2007. Adjusted net income and adjusted earnings per share for the two
periods were as follows:

    <<
                                                                Earnings
                                            Net income          per share
                                      ---------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    From continuing operations -
     as reported                       $    17   $     -   $  0.14   $     -
    Adjusted for - after tax:
      Restructuring charges, net             -        11         -      0.08
      Acquisition integration and
       in-process R&D                        2         -      0.02         -
      Gain on sale of business and
       long-term investments                 -        (1)        -     (0.01)
      Gain on interest rate swaps           (2)        -     (0.02)        -
      Tax rate changes                     (11)        -     (0.09)        -
    -------------------------------------------------------------------------
    Adjusted                           $     6   $    10   $  0.05   $  0.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    MDS Pharma Services

    Financial highlights

                                                     First Quarter
                                      ---------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Early-stage                        $    63       53%   $    66       55%
    Late-stage                              57       47%        55       45%
    -------------------------------------------------------------------------
    Net revenues                           120      100%       121      100%
    Reimbursement revenues                  26         -        23         -
    -------------------------------------------------------------------------
    Total revenues                     $   146         -   $   144         -
      Cost of revenues                     (88)     (73%)      (89)     (74%)
      Reimbursed expenses                  (26)        -       (23)        -
      Selling, general, and
       administration                      (29)     (24%)      (33)     (26%)
      Depreciation and amortization         (9)      (8%)       (8)      (7%)
      Restructuring charges - net            -         -        (8)      (7%)
      Other income (expense)                 5        4%         2        2%
    -------------------------------------------------------------------------
    Operating loss                          (1)      (1%)      (15)     (12%)
    Adjustments:
      Restructuring charges - net            -         -         8        7%
      Gain on settlement                    (2)      (2%)        -        0%
      Depreciation and amortization          9        8%         8        7%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $     6        5%   $     1        1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         27%         -       26%         -
      Adjusted EBITDA                       5%         -        1%         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     6             $     2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    MDS Pharma Services net revenues declined 1% as reported. The impact on
revenue of the change in foreign exchange rates from the first quarter of 2007
to the first quarter of 2008 was an increase of approximately $9 million or
7%. Both our early-stage and late-stage businesses had lower revenue excluding
the impact of foreign exchange. The late-stage decline was primarily a result
of contract cancellations related to failures of compounds that occurred in
the current and prior quarters. While we have seen an increase in early-stage
orders, the timing of service delivery relative to our capacity did not allow
us to convert these orders into revenue in the quarter and this business
continued to show declines versus the prior year.
    New orders in the first quarter of 2008 of $177 million were up 32%
sequentially and were higher than any quarter in 2007; however, we also
experienced a high level of contract cancellations relating to compound
failures affecting our late-stage businesses. As order cancellations occurred
early in the quarter and order receipts were higher at the end of the quarter,
we saw an overall decrease in our average monthly backlog to $360 million,
down $25 million from the fourth quarter of 2007 and down 20% compared to the
first quarter of 2007. Despite these cancellations and given the strength of
new orders, our quarter end backlog increased sequentially by $20 million to
$395 million.

    <<
                                                                      Period
                                               New      Average       Ending
    New orders and backlog                  Orders      Backlog      Backlog
    -------------------------------------------------------------------------
    Fiscal 2007 - Quarter 1                $   159      $   450      $   472
                  Quarter 2                    103          450          428
                  Quarter 3                    119          420          408
                  Quarter 4                    134          385          375
    Fiscal 2008 - Quarter 1                    177          360          395
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    MDS Pharma Services had an operating loss of $1 million for the quarter,
compared to a loss of $15 million for the same period last year. This
reduction in operating loss was driven by lower costs in the first quarter of
2008 resulting from the restructuring actions taken in 2007; a $2 million
reduction in stock-based compensation costs in the first quarter of 2008; a
$2 million gain related to the settlement of a mortgage that in 2000 had been
determined uncollectible and a $3 million foreign currency gain on the
revaluation of certain assets and liabilities in the quarter, compared to a
$2 million gain the first quarter of 2007. As well, in the first quarter of
2007, our operating loss reflects $8 million of restructuring charges and
$4 million of spending on the US Food and Drug Administration (FDA) review of
our Montreal bioanalytical operations. In the first quarter of 2008 there was
no impact to operating income from these items, although we did spend
$2 million on the FDA matter and it was charged to the reserve we established
for this purpose in the second quarter of 2007. Partially offsetting these
reductions in our operating loss was the lower amount of gross profit
associated with the net revenue declines, excluding the impact of foreign
exchange, described in our discussion of net revenues, and the negative impact
of foreign exchange on our operations resulting from the decline in the US
dollar from the first quarter of 2007 to the first quarter of 2008 of
approximately $3 million.
    Adjusted EBITDA for MDS Pharma Services for the first quarter of 2008 was
$6 million, up substantially from $1 million for the first quarter of 2007
driven by restructuring savings and the other items described above, except
that the $2 million gain on the mortgage settlement in the first quarter of
2008 and the $8 million restructuring charges in the first quarter of 2007
were adjusting items.
    SG&A of $29 million in the first quarter of 2008 was $4 million lower
than the first quarter of 2007 due to $2 million of lower stock-based
compensation and productivity, partially offset by the negative impact of
foreign exchange on spending from the strengthening of the Canadian dollar,
British pound and the euro over the same period.
    During the first quarter of 2008, we continued to implement our
restructuring plan announced in 2007. These plans are now 90% complete with
the balance of actions expected to be substantially completed in the second
quarter of 2008.
    During the first quarter of 2008, we opened a new 300 bed facility in
Phoenix, Arizona to expand our capacity to deliver early-stage services to
both pharmaceutical and biotech clients. Our late-stage business also launched
a new proprietary software application to allow our clients real-time access
to their study data. This new application will benefit our customers both in
terms of efficiency and standardization in study management.
    Capital expenditures in the pharmaceutical services segment were
$6 million compared to $2 million in the first quarter of 2007.

    Regulatory Review of Montreal Bioanalytical Operations

    The six-month time limit imposed by the FDA for generic audits has
passed, and we believe we have substantially completed all required site
audits for generic customers. We continue to receive a limited number of study
audit requests from innovator customers and expect we may continue to receive
these requests in low numbers in the coming months.
    We have responded to questions from European regulators about the nature
of the work that was done for the FDA. Although we are not yet able to fully
assess the potential impact of possible, if any, foreign regulatory actions,
we are satisfied with the progress of our discussions with these regulators.
    During the second quarter of 2007, we approved and recorded a $61 million
provision to reimburse clients who have incurred or will incur third party
audit costs or study re-run costs to complete the work required by the FDA and
other regulators. We have utilized $13 million of this reserve for such costs,
an amount that was partially offset by a foreign currency translation gain on
the US-dollar denominated components of the cost estimate. Although we believe
we have substantially completed the majority of all required site audits, we
still await final reimbursement requests for many of these audits. Based on
information currently available, we believe that the remaining reserve of
$52 million will be sufficient to cover any agreements reached with clients
for study audits, study re-runs, and other related costs.

    <<
    MDS Nordion

    Financial highlights

                                                     First Quarter
                                      ---------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Product revenues                   $    59       98%   $    67      100%
    Service revenues                         1        2%         -         -
    -------------------------------------------------------------------------
    Net revenues                            60      100%        67      100%
      Cost of product revenues             (34)     (57%)      (34)     (51%)
      Cost of service revenues               -         -        (1)      (2%)
      Selling, general, and
       administration                      (11)     (18%)      (11)     (16%)
      Research and development               -         -        (1)      (2%)
      Depreciation and amortization         (3)      (5%)       (3)      (4%)
      Other expense                         (8)     (13%)        -         -
    -------------------------------------------------------------------------
    Operating income                         4        7%        17       26%
      Adjustments:
      Loss on sale of business               4        7%         -         -
      Depreciation and amortization          3        5%         3        4%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    11       18%   $    20       30%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         43%         -       47%         -
      Adjusted EBITDA                      18%         -       30%         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     3             $     1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    MDS Nordion revenues were down $7 million or 10% from the first quarter
of 2007 on a reported basis. The decline of the US dollar in the first quarter
of 2008, compared to the first quarter of 2007, increased reported revenue by
approximately $9 million. The $16 million decline, net of foreign exchange
impacts was due to a disruption in supply of medical isotopes at our
supplier's reactor; lower shipments of Cobalt, largely as a result of shipping
delays in Asia, which we expect to recover in the middle of the fiscal year;
and the revenues for 2007 included $2 million related to deferred revenue
associated with the 2004 cancellation of a supply agreement.
    Operating income was $4 million compared to $17 million last year and
adjusted EBITDA was $11 million in the first quarter of 2008, down $9 million
compared to the first quarter of 2007. The reduction in operating income and
adjusted EBITDA was primarily a result of a $5 million decrease from the
medical isotope supply disruption, lower Cobalt shipments, and 2004
cancellation of the supply agreement noted above. In addition, there was
$4 million related to a non-cash loss on embedded derivatives in the first
quarter of 2008 which is included in other expense. These reductions were
partially offset by foreign exchange and lower R&D expense versus the first
quarter of 2007. In the first quarter of 2008, the adjusting item in the
amount of $4 million relates to the loss we recorded on the previously
announced sale of the MDS Nordion external beam therapy and self-contained
irradiator product lines, which is described below in more detail.
    SG&A of $11 million in the first quarter of 2008 was level with the first
quarter of 2007.
    Capital expenditures in the MDS Nordion segment for the quarter were
$3 million primarily related to increased capacity for our Glucotrace(R)
product in Europe, compared to $1 million last year.
    In the quarter, we announced the signing of an agreement to sell our
external beam therapy and self-contained irradiator product lines. The sale is
a key part of MDS Nordion's strategy to strengthen its position as a leading
innovator in molecular medicine. Under the terms of this agreement, Best
Medical International Inc., a provider of radiotherapy and oncology products,
will purchase MDS Nordion's external beam therapy and self-contained
irradiator product lines. Best Medical International Inc. will acquire these
two product lines with combined annualized revenues of approximately
US$32 million and approximately 150 employees. The transaction, which is
subject to the usual closing conditions, is expected to close in the second
quarter of 2008. In the first quarter of 2008, we are reporting a loss on
disposal of this business in the amount of $4 million, including all costs to
sell the product lines. The operating results of these product lines will be
reported in the MDS Nordion segment up to the transaction closing date.

    <<
    MDS Analytical Technologies

    Financial highlights

                                                     First Quarter
                                      ---------------------------------------
                                                % of net            % of net
                                          2008  revenues      2007  revenues
    -------------------------------------------------------------------------
    Product revenues                   $    92       79%   $    38       72%
    Service revenues                        24       21%        15       28%
    -------------------------------------------------------------------------
    Net revenues                           116      100%        53      100%
      Cost of product revenues             (61)     (53%)      (37)     (70%)
      Cost of service revenues              (4)      (3%)        -         -
      Selling, general, and
       administration                      (19)     (16%)       (6)     (11%)
      Research and development             (20)     (17%)      (11)     (21%)
      Depreciation and amortization        (15)     (13%)       (3)      (5%)
      Other expense                         (2)      (2%)       (1)      (2%)
    -------------------------------------------------------------------------
    Operating loss                          (5)      (4%)       (5)      (9%)
    Adjustments:
      Acquisition integration and
       in-process R&D                        3        3%         -         -
      Equity earnings                       14       12%        14       26%
      Depreciation and amortization         15       13%         3        6%
    -------------------------------------------------------------------------
    Adjusted EBITDA                    $    27       23%   $    12       23%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Margins:
      Gross margin                         44%         -       30%         -
      Adjusted EBITDA                      23%         -       23%         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures               $     2             $     3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    The Sciex brand channel of MDS Analytical Technologies carries out the
majority of its business through joint ventures. Currently, MDS generates the
majority of its income associated with these joint ventures from the net
income of the joint ventures, and not from its sales to the joint ventures. We
use the equity method of accounting for the joint ventures and therefore the
majority of the income related to the Sciex division is reflected in equity
earnings, which represent our share of the net income from the joint ventures.
We include equity earnings in our calculation of adjusted EBITDA, however,
these earnings are not included in operating income.
    MDS Analytical Technologies reported revenues of $116 million for the
first quarter of 2008, compared to $53 million for the same period last year.
First quarter revenues for the current year include $56 million of revenues
from the MD brand channel. This is the highest quarterly revenue for MD yet
reported, and with $194 million in revenue since the acquisition, MD has
already exceeded our first year target of $190 million in revenue after only
ten months. MD revenues were up $4 million or 8% compared to the same
three-month period in 2007, which was prior to the date when MDS acquired the
business.
    Sciex revenues were up $7 million or 13%. Sciex revenues are primarily
from the sale of products, and SG&A and R&D services to its joint ventures,
and $6 million of the revenue increase was related to foreign exchange.
End-user revenues for Sciex products grew 5% in the first quarter compared to
the same period last year and the small molecule markets continued to be an
area of strength for the business. Our high-end triple-quad and ion-trap mass
spectrometer instruments have maintained strong sales momentum, across most
markets. Good strength in mass spectrometer sales from our core LC/MS products
was augmented by continued strength from our ICP/MS product line.
    The operating loss for MDS Analytical Technologies for the first quarter
of 2008 was $5 million, level with the first quarter of 2007. On an operating
income basis, MD lost $2 million in the first quarter because of the
acquisition-related items which partially offset the $2 million improvement in
Sciex performance. Equity earnings, which are not included in operating income
and represent our share of earnings from the Sciex joint ventures were
$14 million for the first quarter of 2008, and level with the first quarter of
2007.
    Adjusted EBITDA for the quarter was $27 million compared to $12 million
last year. Excluding the $11 million of growth attributable to the acquisition
of MD, adjusted EBITDA grew by 33% largely as a result of improved gross
margins. In the first ten months of ownership by MDS, MD has delivered
$44 million in adjusted EBITDA on target to meet or exceed our expectations of
$45 - $50 million in adjusted EBITDA for the first full year of MDS ownership.
The two adjustments in the first quarter of 2008 are $2 million of MD
acquisition and integration costs and $1 million of in-process R&D expense
associated with a small technology acquisition described below. There were no
adjustments in the prior year.
    Increased SG&A and R&D expenses in MDS Analytical Technologies for the
first quarter of 2008 primarily reflects the addition of the MD business and
the increased R&D investment related to the Sciex brands. Depreciation and
amortization expense was also up, reflecting $10 million for amortization of
intangible assets acquired as part of the MD acquisition, plus the inclusion
of depreciation on MD property, plant, and equipment. Capital expenditures
were $2 million in the first quarter of 2008, compared to $3 million in the
first quarter of 2007.
    During the first quarter of 2008, MDS Analytical Technologies acquired a
small company that was in the process of developing a complimentary product
for our MD portfolio.

    <<
    Corporate and Other

    Financial highlights

                                                            First Quarter
                                                        ---------------------
                                                           2008         2007
    -------------------------------------------------------------------------
      Selling, general, and administration              $    (5)     $    (4)
      Restructuring charges                                   -           (5)
      Other income                                            1            3
    -------------------------------------------------------------------------
    Operating loss                                           (4)          (6)
    Adjustments:
      Gain on sale of business and investments                -           (2)
      Restructuring charges                                   -            5
    -------------------------------------------------------------------------
    Adjusted EBITDA                                     $    (4)     $    (3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

    Corporate SG&A expenses were $1 million higher this year compared to 2007
due to the impact of foreign exchange on our Canadian dollar spending and
increased costs within our finance function including our costs to convert to
US GAAP, which was partially offset by $2 million of lower stock based
compensation expense.
    The 2007 adjustments include restructuring charges related to the
transition of IT support and infrastructure to a new provider and a gain of
$2 million as a result of selling a debt interest in Hemosol Corporation.
There were no adjusting items in 2008.
    Net interest expense was nil in the first quarter of 2008, compared to
$2 million in the first quarter of 2007 due to higher interest income in 2008.
In addition, in the first quarter of 2008, we recorded a $2 million gain on
the settlement of interest rate swaps. Net interest expense and the swap gain
are not included in our operating income or adjusted EBITDA.

    Income Taxes

    In the quarter we recorded a net $11 million reduction in our deferred
tax liabilities due to the enactment of income tax rate reductions in Canada.
In addition, the favourable impact of tax credits relating to eligible
research and development reduced the taxes we reported in the quarter by
approximately $1 million. Our expected taxes for the quarter were $4 million
based on the $10 million of income before income taxes we reported from
continuing operations. However, due largely to the above adjustments we
reported a tax recovery of $7 million for the quarter.

    Discontinued Operations

    Income from discontinued operations for fiscal 2007 reflects only the
results of our remaining diagnostics businesses. We sold the diagnostics
business in the second quarter of 2007 and there is no income from
discontinued operations in 2008.

    <<
                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                                        2007
    -------------------------------------------------------------------------
    Net revenues                                                     $    75
      Cost of revenues                                                   (46)
      Selling, general and administration                                 (8)
    -------------------------------------------------------------------------
    Operating income                                                      21
      Income taxes                                                        (3)
      Minority interest                                                   (3)
      Equity earnings                                                      1
    -------------------------------------------------------------------------
    Income from discontinued operations                                   16
    -------------------------------------------------------------------------
    Basic EPS from discontinued operations                           $  0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Liquidity and Capital Resources

                                        January 31,  October 31,
                                              2008         2007       Change
    -------------------------------------------------------------------------
    Cash, cash equivalents and
     short-term investments                $   144      $   337         (57%)
    Operating working capital(1)           $   113      $    59          93%
    Current ratio (excludes net assets
     held for sale)                            1.7          1.6           6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Our measure of operating working capital equals accounts receivable
        plus unbilled revenue and inventory less accounts payable, accrued
        liabilities, and current deferred revenue.
    >>

    During the first quarter, $193 million of cash was utilized for
$89 million of scheduled long-term debt principal and interest repayments that
were due in the quarter, $57 million of income taxes related to the 2007 gain
on the sale of the diagnostics business and an increase in operating working
capital as a result of year end compensation payouts and decreases in our
accounts payable balances principally related to lower capital expenditures in
the first quarter. In addition, there was a $43 million reduction in cash from
the effect of foreign exchange rate changes in the quarter. The increase in
the current ratio is primarily attributable to the reduction of current
liabilities related to the payment of long term debt and income taxes payable.
    We expect to have net operating cash inflows for the remainder of fiscal
2008. Expected cash outflows include FDA-related reimbursements to our
customers and the payment of severance obligations associated with our
remaining restructuring activities. In addition to cash generated by
operations and cash on hand, we have available a C$500 million, five-year,
committed, revolving credit facility, that expires in July, 2010, to fund our
liquidity requirements. There were no borrowings under this facility as at
January 31, 2008.
    Cash provided by investing activities for continuing operations totalled
$92 million for the first quarter of 2008, compared to inflows of $107 million
for the first quarter of 2007, principally from the sale of short-term
investment of $101 million in the first quarter of 2008, compared to
$126 million in the same period in 2007. Capital expenditures for the quarter
totalled $13 million, compared to $9 million of expenditures in the first
quarter of 2007, and $28 million of expenditures in the fourth quarter of
2007.
    Financing activities (excluding discontinued operations) used $83 million
of cash in the quarter, primarily for scheduled debt repayments, compared to
$4 million in the prior year. We made purchases of $5 million under our
existing Normal Course Issuers Bid during the quarter which retired
0.3 million shares representing less than 1% of our outstanding Common shares.
Cash used in financing activities for the prior year included a $3 million
dividend payment.
    We continue to hold $15 million, net of a $2 million provision, of
asset-backed commercial paper (ABCP) in long-term investments.
    We believe that cash flow generated from operations, coupled with
available borrowings from existing financing sources, will be sufficient to
meet our anticipated requirements for operations, capital expenditures,
research and development expenditures, FDA settlements, restructuring costs
and potential acquisitions in 2008. At this time, we do not reasonably expect
any presently known trend or uncertainty to affect our ability to access our
current sources of cash. We remain in compliance with all covenants for our
senior unsecured notes and our bank credit facility.

    Contractual Obligations

    There have been no material changes in contractual obligations since
October 31, 2007, and other than the repayment of long-term debt that came due
in the quarter, 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 other parties, nor do we have any
off-balance sheet arrangements.

    Derivative instruments

    We use derivative financial instruments to manage our foreign currency
and interest rate exposure. These instruments consisted of forward foreign
exchange and option contracts and interest rate swap agreements entered into
in accordance with established risk management policies and procedures. All
derivative instrument contracts are with banks listed on Schedules I to III to
the Bank Act (Canada) and the Company utilizes financial information provided
by these banks to assist in the determination of the fair market values of the
financial instruments.
    We also have embedded derivatives as a result of long term contracts,
such as the cobalt supply agreements with our Russian supplier that are
denominated in US dollars.
    During the quarter we settled our outstanding interest rate swaps and no
longer hold any interest rate derivatives. The net mark-to-market value of all
derivative financial instruments at January 31, 2008 was nil. The net
mark-to-market value of our embedded derivatives as at January 31, 2008 was
nil.

    <<
    Capitalization

                                        January 31,  October 31,
                                              2008         2007       Change
    -------------------------------------------------------------------------
    Long-term debt                         $   301      $   384         (22%)
    Less: cash and cash equivalents
     and short-term investments               (144)        (337)        (57%)
    -------------------------------------------------------------------------
    Net debt                                   157           47         234%
    Shareholders' equity                     1,834        1,897          (3%)
    -------------------------------------------------------------------------
    Capital employed(1)                    $ 1,991      $ 1,944           2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Capital employed is a measure of how much of our net assets are
        financed by debt and equity.
    >>

    Long-term debt decreased $83 million due to the $80 million repayment of
long term debt and the revaluation of our Canadian dollar denominated
long-term debt to reflect the strength of the US dollar at the end of the
first quarter of 2008, compared to our 2007 fiscal year-end.

    Quarterly Highlights

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

    <<
    (millions of US dollars, except earnings per share)
    -------------------------------------------------------------------------
                            Trailing
                                Four       Jan       Oct       Jul       Apr
                            Quarters      2008      2007      2007      2007
    -------------------------------------------------------------------------
    Net revenues             $ 1,174   $   296   $   307   $   308   $   263
    Operating income (loss)  $  (105)  $    (6)  $     1   $    (4)  $   (96)

    Income (loss) from
     continuing operations   $   (16)  $    17   $    15   $     7   $   (55)
    Net income               $   774   $    17   $    13   $     7   $   737
    Earnings (loss) per
     share from continuing
     operations
      Basic and diluted      $ (0.08)  $  0.14   $  0.12   $  0.06   $ (0.40)
    Earnings per share
      Basic                  $  5.67   $  0.14   $  0.11   $  0.05   $  5.37
      Diluted                $  5.65   $  0.14   $  0.11   $  0.05   $  5.35
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (millions of US dollars, except earnings per share)
    -------------------------------------------------------------------------
                            Trailing
                                Four       Jan       Oct       Jul       Apr
                            Quarters      2007      2006      2006      2006
    -------------------------------------------------------------------------
    Net revenues             $   966   $   241   $   250   $   241   $   234
    Operating loss           $   (69)  $    (9)  $    (3)  $   (21)  $   (36)

    Income (loss) from
     continuing operations   $     9  $      -   $    12   $    (2)  $    (1)
    Net income               $    90  $     16   $    45   $    14   $    15
    Earnings (loss) per
     share from continuing
     operations
      Basic and diluted      $  0.06  $   0.00   $  0.08   $ (0.01)  $ (0.01)
    Earnings per share
      Basic and diluted      $  0.62  $   0.11   $  0.30   $  0.10   $  0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Items that impact the comparability of operating income include:

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

    -   Results for the quarter ended April 30, 2007 reflect a $791 million
        net gain from the sale of our diagnostics businesses, the 41 days of
        operating results of MD, $61 million of charges related to assisting
        clients in respect of the FDA review, and $25 million of
        restructuring charges.

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

    -   Results for the quarter ended April 30, 2006 reflect a loss of
        $36 million resulting from the completion of the MAPLE settlement.
    >>

    Outlook

    The improved profitability at MDS Pharma Services in 2007 was a first
step towards moving this division to industry-level performance. We believe
that the majority of customer site audits required by the FDA have been
substantially completed and all associated costs are expected to be covered by
the remaining balance of our FDA provision. By the end of the first quarter,
the business had implemented 90% of the restructuring initiatives announced in
the first half of 2007. As many of these initiatives were completed in the
second half of 2007, the majority of the benefits are expected to be realized
in 2008. We also invested heavily in new or expanded capacity in our core
services to accelerate growth in key global markets. These investments include
a significant expansion of our Phoenix Phase I facility and our Beijing
central laboratory, as well as investments in customer-facing technology and
systems designed to achieve our On-Time, High-Quality brand promise. In
mid-2007, we also launched efforts to strengthen our business development
teams. This has included hiring experienced staff, new sales incentive
programs, training and a focus on winning more profitable business. We are
encouraged by the increase in new orders over the past three quarters,
including the $177 million in new orders reported in the first quarter of
2008. We expect adjusted EBITDA in this business to benefit further in fiscal
2008 because of the actions we have taken in 2007 and early 2008.
    Although we have been pleased with the increasing level of new contract
awards, we also experienced a higher than normal rate of contract
cancellations in our late-stage business during the second half of 2007 and
these have continued as we enter fiscal 2008. As noted in our previous MD&A
discussion, these cancellations have resulted largely from adverse events
associated with the compounds affected, which is an industry risk more fully
described in our Annual Information Form. These contract cancellations have
resulted in reduced revenue, and adjusted EBITDA during the first of 2008 will
result in a reduction in the rate of revenue growth for our late-stage
business in 2008, particularly in the first half compared to what we
experienced in 2007. In spite of these cancellations, our focus on bidding on
contracts from which we can achieve solid profitability has improved the
quality of the remaining backlog. With our higher quality backlog, our
increased focus on business development and our streamlined cost structure, we
expect profitable growth to accelerate in the second half of 2008.
    MDS Nordion was impacted in the first quarter of 2008 by a disruption in
supply of medical isotopes, due to the shutdown of our supplier's reactor and
by the impact of cobalt shipment delays in the Asia region. The supply of
medical isotopes stabilized in December and we expect the cobalt to be
delivered in the middle of our fiscal year. We expect MDS Nordion to return to
more traditional levels of revenue and adjusted EBITDA starting in the second
quarter of 2008. We remain encouraged by the ongoing global expansion of our
Therasphere(R) product line and continue to seek new partnerships for growth
in medical isotopes. Our expanded contract for cobalt supply with
Rosenergoatom positions MDS Nordion well to serve continued growth in cobalt
sterilization demand in the long term. We are encouraged by the projected
outlook for expected growth in our global markets, and we are focusing on
being positioned in these markets to capitalize on these opportunities.
    Our integration of MDS Analytical Technologies is tracking well to plan
and the MD business has exceeded our first year target of $190 million in
revenue, reaching $194 million at the end of the first quarter of 2008. MD
adjusted EBITDA has reached $44 million at the end of the first quarter of
2008 and we expect to meet or exceed our first year target for adjusted EBITDA
of between $45 million and $50 million. Global demand for Sciex brand mass
spectrometers also remains strong. We anticipate continued growth in adjusted
EBITDA margins at MDS Analytical Technologies as we complete our integration
and migrate additional production capabilities to Asia. The addition of MD in
2007 provides a global sales and marketing capability not previously available
to us and we are taking steps to leverage this new potential.
    We are pleased by the pace of new product launches for both our Sciex and
MD brands, and we expect to continue to drive innovation in this business next
year. In the first quarter of 2008, we also acquired a business that is
developing new technology to compliment our existing product and development
initiatives. Our strategy of in-house innovation, combined with the
disciplined acquisition of new technologies should help us to meet our
customer's future needs.

    Canadian GAAP Reconciliation

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

    Accounting Changes

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

    Recent accounting Pronouncements

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

    Internal Control over Financial Reporting

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

    <<
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

    As at January 31 with comparatives at October 31
    (millions of US dollars)                               2008         2007
    -------------------------------------------------------------------------

    ASSETS
    Current Assets
    Cash and cash equivalents                           $   144      $   235
    Short-term investments                                    -          102
    Accounts receivable, net                                275          287
    Unbilled revenue                                        105           99
    Inventories, net                                        108          128
    Income taxes recoverable                                 54           54
    Current portion of deferred tax assets                   54           45
    Prepaid expenses and other                               32           22
    Assets held for sale                                     29            1
    -------------------------------------------------------------------------
    Total Current Assets                                    801          973

    Property, plant and equipment, net                      364          386
    Deferred tax assets                                       3            4
    Long-term investments and other                         267          290
    Goodwill                                                774          782
    Intangible assets, net                                  549          583
    -------------------------------------------------------------------------
    Total Assets                                        $ 2,758      $ 3,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities
    Accounts payable and accrued liabilities            $   300      $   384
    Deferred revenue                                         75           71
    Income taxes payable                                     30           57
    Current portion of long-term debt                        20           94
    Current portion of deferred tax liabilities              20           10
    Liabilities related to assets held for sale              14            -
    -------------------------------------------------------------------------
    Total Current Liabilities                               459          616

    Long-term debt                                          281          290
    Deferred revenue                                         15           17
    Other long-term obligations                              30           30
    Deferred tax liabilities                                139          168
    -------------------------------------------------------------------------
    Total Liabilities                                       924        1,121
    -------------------------------------------------------------------------

    Shareholders' Equity
    Common shares, at par - Authorized shares: unlimited;
     Issued and outstanding shares: 122,359,211 and
     122,578,331 for January 31, 2008 and October 31,
     2007 respectively                                      492          493
    Additional paid in capital                               74           72
    Retained earnings                                       856          842
    Accumulated other comprehensive income                  412          490
    -------------------------------------------------------------------------
    Total Shareholders' Equity                            1,834        1,897
    -------------------------------------------------------------------------
    Total Liabilities and Shareholders' Equity          $ 2,758      $ 3,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Incorporated under the Canada Business Corporation Act
    See accompanying notes



    CONSOLIDATED STATEMENTS OF OPERATIONS
    (UNAUDITED)

                                               Three months ended January 31
    (millions of US dollars except                              Restated See
     per share amounts)                                               Note 2
                                                           2008         2007
    -------------------------------------------------------------------------
    Revenues
      Products                                          $   151      $   105
      Services                                              145          136
      Reimbursement revenues                                 26           23
    -------------------------------------------------------------------------
      Total revenues                                        322          264
    -------------------------------------------------------------------------

    Costs and expenses
      Direct cost of products                               (95)         (71)
      Direct cost of services                               (92)         (90)
      Reimbursed expenses                                   (26)         (23)
      Selling, general and administration                   (64)         (54)
      Research and development                              (20)         (12)
      Depreciation and amortization                         (27)         (14)
      Restructuring charges - net                             -          (13)
      Other income (expense) - net                           (4)           4
    -------------------------------------------------------------------------
      Total costs and expenses                             (328)        (273)
    -------------------------------------------------------------------------

    Operating loss from continuing operations                (6)          (9)

    Interest expense                                         (6)          (6)
    Interest income                                           6            4
    Gain on settlement of interest rate swaps                 2            -
    Equity earnings                                          14           14
    -------------------------------------------------------------------------
    Income from continuing operations before
     income taxes                                            10            3

    Income tax (expense) recovery
      - current                                             (22)          (2)
      - deferred                                             29           (1)
    -------------------------------------------------------------------------
    Income from continuing operations                        17            -

    Income from discontinued operations - net of
     income tax                                               -           16
    -------------------------------------------------------------------------
    Net income                                          $    17      $    16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings per share
      - from continuing operations                      $  0.14      $     -
      - from discontinued operations                          -         0.11
    -------------------------------------------------------------------------
    Basic and diluted earnings per share                $  0.14      $  0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (UNAUDITED)

                                               Three months ended January 31
    (millions of US dollars)                                        Restated
                                                                  See Note 2
                                                           2008         2007
    -------------------------------------------------------------------------
    Net income                                          $    17      $    16
    -------------------------------------------------------------------------
    Foreign currency translation                            (74)         (13)
    Unrealized loss on available-for-sale
     assets, net of tax                                       1           (3)
    Unrealized loss on derivatives designated
     as cash flow hedges, net of tax                         (4)           -
    Repurchase and cancellation of Common shares             (1)           -
    -------------------------------------------------------------------------
    Other comprehensive loss                                (78)         (16)
    -------------------------------------------------------------------------
    Comprehensive loss                                  $   (61)     $     -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)

                                               Three months ended January 31
    (millions of US dollars)                                    Restated See
                                                                      Note 2
                                                           2008         2007
    -------------------------------------------------------------------------
    Operating activities
    Net income                                          $    17      $    16
    Less: income from discontinued operations
     - net of tax                                             -           16
    -------------------------------------------------------------------------
    Income from continuing operations                        17            -
    Adjustments to reconcile net income to cash
     provided by operating activities relating
     to continuing operations
      Items not affecting current cash flow                  30           28
      Net changes in non-cash working capital
       balances relating to operations                     (104)         (33)
    -------------------------------------------------------------------------
    Cash used in operating activities of
     continuing operations                                  (57)          (5)
    Cash provided by operating activities of
     discontinued operations                                  -           16
    -------------------------------------------------------------------------
                                                            (57)          11
    -------------------------------------------------------------------------
    Investing activities
    Purchase of property, plant and equipment               (13)          (9)
    Proceeds on sale of property, plant and
     equipment                                                1            -
    Proceeds on sale of short-term investments              101          126
    Purchase of short-term investments                        -          (22)
    Proceeds on sale of long-term investments                 3           11
    Other                                                     -            1
    -------------------------------------------------------------------------
    Cash provided by investing activities of
     continuing operations                                   92          107
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                             (80)          (6)
    Increase in deferred revenue and other
     long-term obligations                                    1            1
    Payment of cash dividends                                 -           (3)
    Repurchase of shares                                     (5)           -
    Issuance of shares                                        1            4
    -------------------------------------------------------------------------
    Cash used in financing activities of
     continuing operations                                  (83)          (4)
    -------------------------------------------------------------------------
    Cash used in financing activities of
     discontinued operations                                  -           (2)
    -------------------------------------------------------------------------
    Effect of foreign exchange rate changes on
     cash and cash equivalents                              (43)         (24)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash
     equivalents during the period                          (91)          88
    Cash and cash equivalents, beginning of period          235          247
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period            $   144      $   335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



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

    1.  Basis of Presentation

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

    These policies are consistent with accounting policies generally accepted
    in Canada (Canadian GAAP) in all material respects except as described in
    Note 19.

    Use of Estimates

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

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

    2.  Changes Affecting Fiscal 2008 Consolidated Financial Statements

    a.  Restatement of 2007 Interim Financial Statements

    During the preparation of the 2007 annual financial statements, an error
    was identified in the US GAAP reconciliation provided as part of the
    fiscal 2007 interim financial statements with respect to certain stock-
    based incentive compensation plans for which an incorrect valuation
    methodology was utilized. The Company has corrected this error by
    restating selling, general and administration expenses for the period
    ended January 31, 2007 with a reduction of $2 million in the accompanying
    quarterly consolidated financial statements and reducing the value of
    accrued liabilities by a similar amount. The Canadian GAAP financial
    statements previously reported were not impacted by the change, except
    for the reconciliation to US GAAP (see Note 19).

    b.  Recently adopted accounting pronouncements

    On November 1, 2007, the Company adopted the provisions of the US
    Financial Accounting Standards Board (FASB) interpretation No. 48
    (FIN 48), "Accounting for Uncertainty in Income Taxes, an Interpretation
    of FASB Statement No. 109". FIN 48 clarifies accounting for uncertainty
    in income taxes recognized in an enterprise's financial statements and
    prescribes a recognition threshold of more likely than not to be
    sustained upon audit examination.

    As a result of the implementation an adjustment to the liability for
    unrecognized tax benefits was not required; accordingly no adjustment was
    made to opening retained earnings for the period. At the beginning of
    2008 the total amount of unrecognized tax benefits, including interest
    and penalties, was $29 million. $21 million of these unrecognized tax
    benefits, if recognized, would favourably affect the effective income tax
    rate in the future. There were no significant changes to the liability
    for unrecognized tax benefits during the quarter. The amount of
    unrecognized tax benefits at January 31, 2008, including interest and
    penalties, is $28 million. The reduction in the unrecognized tax benefit
    liability during the quarter is attributable to the impact of foreign
    exchange rate fluctuations.

    The Company accrues interest and penalties relating to unrecognized tax
    benefits in its provision for income taxes. As of November 1, 2007, the
    balance of accrued interest and penalties was $4 million. No significant
    changes were made to the penalty and interest accrual during the quarter.

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

    3.  Recent US Accounting Pronouncements

    a.  In September 2006, the FASB issued Statement of Financial Accounting
        Standards (SFAS) No. 157, "Fair Value Measurements". SFAS 157
        provides guidance for using fair value to measure assets and
        liabilities. It also responds to investors' requests for expanded
        information about the extent to which companies measure assets and
        liabilities at fair value, the information used to measure fair
        value, and the effect of fair value measurements on earnings. SFAS
        157 applies whenever other standards require (or permit) assets or
        liabilities to be measured at fair value, and does not expand the use
        of fair value in any new circumstances. SFAS 157 is effective for
        financial statements issued for fiscal years beginning after
        November 15, 2007 and is required to be adopted by the Company in the
        first quarter of fiscal 2009. The Company is currently evaluating the
        effect that the adoption of SFAS 157 will have on its consolidated
        results of operations and financial condition and is not yet in a
        position to determine such effects.

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

    c.  In December 2007, the FASB issued SFAS No. 141R, "Business
        Combinations" a substantial amendment to SFAS 141. The objective of
        this Statement is to improve the relevance, representational
        faithfulness, and comparability of the information that a reporting
        entity provides in its financial reports about a business combination
        and its effects. To accomplish that, this statement establishes
        principles and requirements for how the acquirer: a) recognizes and
        measures in its financial statements the identifiable assets
        acquired, the liabilities assumed, and any non-controlling interest
        in the acquiree; b) recognizes and measures the goodwill acquired in
        the business combination or a gain from a bargain purchase; and c)
        determines what information to disclose to enable users of the
        financial statements to evaluate the nature and financial effects of
        the business combination. The Company is required to adopt the
        provisions of SFAS 141R effective for acquisitions occurring after
        October 31, 2009.

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

    4.  Acquisitions

    a.  Acquisition of Molecular Devices Corporation

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

    MD is principally involved in the design, development, manufacture, sale
    and service of bioanalytical measurement systems that accelerate and
    improve drug discovery and other life sciences research. The Company
    acquired MD primarily to add their leading-edge products to those of MDS
    Sciex and to strengthen the Company's position as one of the top global
    providers of analytical instrumentation and related products marketed to
    life sciences customers. The operations for this acquisition are reported
    within the results of the Company's MDS Analytical Technologies segment
    (which combines MD with the previous analytical instruments segment) in
    the consolidated financial statements from the date of acquisition.

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

    The acquisition has been accounted for as a purchase in accordance with
    SFAS No. 141, and the Company has accordingly allocated the purchase
    price of the acquisition based upon the preliminary estimate of the fair
    values of the assets acquired and liabilities assumed, pending completion
    of a comprehensive valuation with mainly the valuation of brands to be
    finalized. The purchase price and related allocations will be finalized
    in the second quarter of fiscal 2008.

    b. Other acquisition

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

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

    c.  Pro forma information (unaudited)

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

                                              Three months ending January 31
    -------------------------------------------------------------------------
                                                              2008      2007
    -------------------------------------------------------------------------
    Net revenues                                        $      322 $     315
    -------------------------------------------------------------------------
    Income from continuing operations, net of income
     taxes                                                      17        (3)
    Income from discontinued operations, net of income
     taxes                                                       -        16
    -------------------------------------------------------------------------
    Net income                                                  17        13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
    Basic                                               $     0.14 $    0.09
    Diluted                                             $     0.14 $    0.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    The unaudited pro forma information reflects interest on the purchase
    price calculated at the Company's short-term investments rates for the
    period prior to the acquisition date for the respective periods.

    5.  Discontinued Operations and Assets Held for Sale

    In November 2007, the Company signed an agreement to sell its external
    beam therapy and self-contained irradiator product lines. Under the terms
    of this agreement, Best Medical International Inc., a provider of
    radiotherapy and oncology products, will purchase MDS Nordion's external
    beam therapy and self-contained irradiator product lines for $15 million
    cash. Best Medical International Inc. will acquire these two product
    lines, which have combined annualized revenues of approximately
    $32 million and approximately 150 employees. The transaction, which is
    subject to the usual closing conditions, is expected to close in the
    second quarter of 2008. Once the Company made the decision, the Company
    followed the guidance of SFAS No. 144 "Accounting for the Impairment or
    Disposal of Long-lived Assets" and recorded a loss on sale of this
    business in the amount of $4 million. The related assets have been
    reclassified as assets held for sale as of the first quarter of 2008.

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

    The results of discontinued MDS Diagnostic Services operations in the
    first quarter were as follows (no activity in 2008):

                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                                        2007
    -------------------------------------------------------------------------
    Net revenues                                                   $      75
      Cost of revenues                                                   (46)
      Selling, general and administration                                 (8)
    -------------------------------------------------------------------------
    Operating income                                                      21
      Income taxes                                                        (3)
      Minority interest                                                   (3)
      Equity earnings                                                      1
    -------------------------------------------------------------------------
    Income from discontinued operations                                   16
    -------------------------------------------------------------------------
    Basic EPS from discontinued operations                         $    0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                                            As at      As at
                                                       January 31 October 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Assets held for sale
    Accounts receivable, net                            $       4  $       -
    Inventories, net                                           19          -
    Property, plant and equipment, net                          4          -
    Long-term investments and other                             1          1
    Goodwill                                                    1          -
    -------------------------------------------------------------------------
    Total assets held for sale                          $      29  $       1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities related to assets held for sale
    Accounts payable and accrued liabilities            $      11  $       -
    Deferred revenue                                            3          -
    -------------------------------------------------------------------------
    Total liabilities related to assets held for sale   $      14  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  Inventories

                                                            As at      As at
                                                       January 31 October 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Raw materials and supplies                          $      68  $      83
    Work-in process                                            27         34
    Finished goods                                             27         26
    -------------------------------------------------------------------------
                                                              122        143
    Allowance for excess and obsolete inventory               (14)       (15)
    -------------------------------------------------------------------------
    Inventory, net                                      $     108  $     128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  Long-Term Investments and Other

                                                            As at      As at
                                                       January 31 October 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Financial instrument pledged as security on
     long-term debt                                     $      44  $      46
    Long-term notes receivable                                119        125
    Equity investments                                         10         10
    Equity investments in joint ventures                       25         38
    Available for sale investments                             18         24
    Deferred pension assets                                    40         39
    Other long-term investments                                 9          4
    Venture capital investments                                 2          4
    -------------------------------------------------------------------------
    Long-term investments and other                     $     267  $     290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    a.  Fair value

    The financial instrument pledged as security on long-term debt, which is
    classified as held to maturity, and the long-term notes receivable, have
    fair values that approximate their carrying value. Other long-term
    investments, excluding those classified as available for sale, are
    recorded at cost. Included with available for sale investments is an
    investment in asset backed commercial paper (ABCP) of $15 million net of
    a $2 million provision. MDS provided $2 million against the investment in
    2007 to reflect the conditions in the ABCP market. As there have been no
    significant developments with regard to this investment, MDS believes the
    current provision is adequate.

    b.  Long-term notes receivable

    In 2006, as a result of a comprehensive mediation process that resulted
    in an exchange of assets between the Company and AECL related to the
    MAPLE reactor project, a long-term note receivable for $38 million was
    received by the Company. This non-interest bearing note receivable is
    repayable over four years commencing in 2008. The note receivable is net
    of an unamortized discount based on an imputed interest rate of 4.5%. The
    note receivable will be accreted up to its face amount of C$53 million
    over a period of four years. Long-term notes receivable also include
    amounts due related to the sale of MDS Diagnostic Services.

    c.  Equity investments

                                                            As at      As at
                                                       January 31 October 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Lumira Capital Corp                                        10         10
    MDS Sciex joint ventures                                   25         38
    -------------------------------------------------------------------------
    Equity investments                                  $      35  $      48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    8.  Restructuring Charges

    An analysis of the activity in the provision through January 31, 2008 is
    as follows:

                                             Cumulative drawdowns  Provision
                                 Cumulative --------------------- Balance at
                              Restructuring                       January 31,
                                     Charge       Cash   Non-cash       2008
    -------------------------------------------------------------------------
    2005:
      Workforce reductions        $      34  $     (33) $      (1) $       -
      Equipment and other asset
       write-downs                        7          -         (7)         -
      Contract cancellation
       charges                           10         (2)        (8)         -
    -------------------------------------------------------------------------
                                  $      51  $     (35) $     (16) $       -
    -------------------------------------------------------------------------
    2006:
      Workforce reductions        $       1  $      (1) $       -  $       -
      Contract cancellation
       charges                           (8)        (1)         9          -
    -------------------------------------------------------------------------
                                  $      (7) $      (2) $       9  $       -
    -------------------------------------------------------------------------
    2007:
      Workforce reductions        $      17  $     (15) $       -  $       2
      Equipment and other asset
       write-downs                        2          -          -          2
      Contract cancellation
       charges                            5         (5)         -          -
      Other                              13         (9)        (2)         2
    -------------------------------------------------------------------------
                                  $      37  $     (29) $      (2) $       6
    -------------------------------------------------------------------------
                                                                   $       6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the first quarter of 2008 cash drawdowns were $7 million and non-cash
    drawdowns were $1 million. The remaining balance primarily relates to the
    MDS Pharma Services segment.

    9.  Earnings Per Share

    a)  Dilution

                                               Three months ended January 31
    -------------------------------------------------------------------------
    (number of shares in millions)                           2008       2007
    -------------------------------------------------------------------------
    Weighted average number of Common shares
     outstanding - basic                                      123        145
    Impact of shares repurchased during the period              -          -
    -------------------------------------------------------------------------
    Impact of stock options assumed exercised                   -          -
    -------------------------------------------------------------------------

    Weighted average number of Common shares
     outstanding - diluted                                    123        145
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b)  Pro forma Impact of stock-based compensation

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

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


                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                                    Restated
                                                                  See Note 2
                                                             2008       2007
    -------------------------------------------------------------------------
    Net income                                          $      17  $      16
    Compensation expense for options granted prior to
     November 1, 2003                                           -          -
    -------------------------------------------------------------------------
    Net income - pro forma                              $      17  $      16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pro forma basic earnings per share                  $    0.14  $    0.11
    Pro forma diluted earnings per share                $    0.14  $    0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. Share Capital

    At January 31, 2008, the authorized share capital of the Company consists
    of unlimited Common shares. The Common shares are voting and are entitled
    to dividends if, as and when declared by the Board of Directors.

    The following table summarizes information on share capital and stock
    options and related matters as at January 31, 2008:

    (number of shares in thousands)                        Number     Amount
    -------------------------------------------------------------------------
    Common shares
    Balance as at October 31, 2007                        122,578  $     493
    Issued during the period                                   33          -
    Repurchased during the period                            (252)        (1)
    -------------------------------------------------------------------------
    Balance as at January 31, 2008                        122,359  $     492
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the quarter, the Company repurchased and cancelled 252,400 Common
    shares under a normal course issuer bid for a cost of $4.5 million. Of
    the total cost, $1 million was charged to share capital, $0.5 million was
    charged to other comprehensive income and $3 million was charged to
    retained earnings.

    11. Stock-based Compensation

                                                                     Average
    C$ options                                                      Exercise
    (number of stock options in thousands)                 Number      Price
    -------------------------------------------------------------------------
    Stock options
    Balance as at October 31, 2007                          5,555  $   19.66
    Activity during the period:
      Granted                                                   9      19.58
      Exercised                                               (33)     15.77
      Cancelled or forfeited                                  (56)     21.55
    -------------------------------------------------------------------------
    Balance as at January 31, 2008                          5,475  $   19.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                                     Average
    US$ options                                                     Exercise
    (number of stock options in thousands)                 Number      Price
    -------------------------------------------------------------------------
    Stock options
    Balance as at October 31, 2007                              -  $       -
    Activity during the period:
      Granted                                                   2      18.78
      Exercised                                                 -          -
      Cancelled or forfeited                                    -          -
    -------------------------------------------------------------------------
    Balance as at January 31, 2008                              2  $   18.78
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the quarter, the Company granted 9,000 C$ options and 2,000 US$
    options (2007 - 59,000 and nil) at an average exercise price of C$19.58
    and US$ 18.78 respectively (2007 - C$20.71 and US$ nil). These options
    have a fair value determined using the Black-Scholes model of C$4.87 and
    US$4.67 per share respectively (2007 - C$4.40 and US$ nil) based on the
    following:

    C$ options                                               2008       2007
    -------------------------------------------------------------------------
    Risk-free interest rate                                 4.0 %      4.0 %
    Expected dividend yield                                 0.0 %      0.0 %
    Expected volatility                                      0.21       0.22
    Expected time to exercise (years)                        4.40       3.25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    US$ options                                              2008       2007
    -------------------------------------------------------------------------
    Risk-free interest rate                                 3.0 %        - %
    Expected dividend yield                                 0.0 %        - %
    Expected volatility                                      0.22          -
    Expected time to exercise (years)                        4.40          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The stock compensation expense for the three months ended January 31,
    2008 was $1 million (2007 - $1 million).

    Incentive Plans

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

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

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

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

                                                            As at      As at
                                                          January    October
    Liability                                            31, 2008   31, 2007
    -------------------------------------------------------------------------
    2006 Plan                                           $       3  $      11
    2007 Plan                                                   1          3
    2008 Plan                                                   1          -
    -------------------------------------------------------------------------
    Total                                               $       5  $      14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                               Three months ended January 31
    -------------------------------------------------------------------------
    (Income)Expense                                          2008       2007
    -------------------------------------------------------------------------
    2006 Plan                                           $      (5) $      (1)
    2007 Plan                                                  (2)         -
    2008 Plan                                                   1          -
    -------------------------------------------------------------------------
    Total                                               $      (6) $      (1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Accumulated Other Comprehensive Income

                                                            As at      As at
                                                          January    October
                                                         31, 2008   31, 2007
    -------------------------------------------------------------------------
    Accumulated other comprehensive income, net of
     income taxes, beginning of period                  $     490  $     366
    Foreign currency translation                              (74)       112
    Unrealized gain on available-for-sale assets,
     net of tax                                                 1          -
    Unrealized (loss) gain on derivatives designated
     as cash flow hedges, net of tax                           (4)         1
    Adoption of FAS 158                                         -         11
    Repurchase and cancellation of Common shares               (1)         -
    -------------------------------------------------------------------------
    Accumulated other comprehensive income, net of
     income taxes, end of period                        $     412  $     490
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. Other Income (Expense) - Net

                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Loss on sale of business                            $      (4) $       -
    Gain on sale of investment                                  2          2
    Foreign exchange gain                                       4          3
    Loss on embedded derivatives                               (4)         -
    Other                                                      (2)        (1)
    -------------------------------------------------------------------------
    Other income (expense) - net                        $      (4) $       4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. Employee Benefit Plan

    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 following table represents the net periodic benefit cost of defined
    benefit pension plans. The cost of other post-employment benefit plans
    was nil in the first quarter of 2008 and 2007.

                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Service cost                                        $       1  $       1
    Interest cost                                               3          2
    Expected return on plan assets                             (4)        (3)
    -------------------------------------------------------------------------
    Net periodic benefit cost (credit)                  $       -  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    15. Supplementary Cash Flow Information

    Non-cash items affecting net income comprise:

                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Depreciation and amortization                       $      27  $      14
    Stock option compensation                                   1          1
    Deferred revenue                                           (1)        (2)
    Deferred income taxes                                     (12)        16
    Loss on sale of business                                    4          -
    Gain on investment                                         (2)        (2)
    Mark-to-market on derivatives                               4          -
    Dividend from joint ventures, net of equity earnings       12          -
    Other                                                      (3)         1
    -------------------------------------------------------------------------
                                                        $      30  $      28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                             2008       2007
    -------------------------------------------------------------------------
    Accounts receivable                                 $       7  $      13
    Unbilled revenue                                           (6)       (16)
    Inventories                                                 1         (4)
    Prepaid expenses and other                                (12)       (24)
    Accounts payable and deferred revenue                     (67)       (14)
    Income taxes                                              (27)        12
    -------------------------------------------------------------------------
                                                        $    (104) $     (33)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    16. Segment Information

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

                                            Three months to January 31, 2008
    -------------------------------------------------------------------------
                                                   MDS
                             MDS            Analytical
                          Pharma        MDS   Technol-  Corporate
                        Services    Nordion      ogies  and Other      Total
    -------------------------------------------------------------------------
    Product revenues   $       -  $      59  $      92  $       -  $     151
    Service revenues         120          1         24          -        145
    Reimbursement
     revenues                 26          -          -          -         26
    -------------------------------------------------------------------------
    Total revenues           146         60        116          -        322
    Direct product cost        -        (34)       (61)         -        (95)
    Direct service costs     (88)         -         (4)         -        (92)
    Reimbursed expenses      (26)         -          -          -        (26)
    Selling, general
     and administration      (29)       (11)       (19)        (5)       (64)
    Research and
     development               -          -        (20)         -        (20)
    Depreciation and
     amortization             (9)        (3)       (15)         -        (27)
    Other income
     (expense) - net           5         (8)        (2)         1         (4)
    Equity earnings            -          -         14          -         14
    -------------------------------------------------------------------------

    Segment earnings
     (loss)            $      (1) $       4  $       9  $      (4) $       8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets       $     805  $     723  $     854  $     347  $   2,729
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures      $       6  $       3  $       2  $       2  $      13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets for 2008 and 2007 exclude assets held for sale.



                                            Three months to January 31, 2007
    -------------------------------------------------------------------------
                                                   MDS
                             MDS            Analytical
                          Pharma        MDS    Techno-  Corporate
                        Services    Nordion     logies  and Other      Total
    -------------------------------------------------------------------------
    Product revenues   $       -  $      67  $      38  $       -  $     105
    Service revenues         121          0         15          -        136
    Reimbursement
     revenues                 23          -          -          -         23
    -------------------------------------------------------------------------
    Total revenues           144         67         53          -        264
    Direct product cost        -        (34)       (37)         -        (71)
    Direct service costs     (89)        (1)         -          -        (90)
    Reimbursed expenses      (23)         -          -          -        (23)
    Selling, general
     and administration      (33)       (11)        (6)        (4)       (54)
    Research and
     development               -         (1)       (11)         -        (12)
    Depreciation and
     amortization             (8)        (3)        (3)         -        (14)
    Restructuring
     charges - net            (8)         -          -         (5)       (13)
    Other income
     (expense) - net           2          -         (1)         3          4
    Equity earnings            -          -         14          -         14
    -------------------------------------------------------------------------
    Segment earnings
     (loss)            $     (15)  $     17  $       9  $      (6) $       5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets       $     846   $    604  $     125  $     491  $   2,066
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures      $       2   $      1  $       3  $       3  $       9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In segment reporting, equity earnings are included in the determination
    of segment earnings (loss). Excluding equity earnings of $14 million
    results in an operating loss of $6 million in the first quarter of 2008
    and a $9 million loss in 2007. Segment earnings (loss) is the same as
    operating income (loss) except for the MDS Analytical Technologies
    segment.

    17. Financial Instruments

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

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

    As of January 31, 2008, the Company had outstanding foreign exchange
    contracts in place to sell $36 million at a weighted average exchange
    rate of C$1.0225 maturing over the next 12 months. In the first quarter
    of 2008, the Company recorded a $2 million gain on the settlement of
    interest rate swaps.

    In addition to the above derivatives, isotope supply agreements totaling
    $120 million include terms that result in the creation of an embedded
    currency derivative under SFAS 133 - "Accounting for Derivative
    Instruments and Hedging Activities". Under the rules contained in SFAS
    133, we have determined the value of this derivative and marked it to
    market as at January 31, 2008. The supply contract is denominated in US
    dollars and due to currency movements between the US and Canadian dollar
    we have recorded an unrealized, mark-to- market loss of $4 million on the
    contract in 2008. There was no significant mark-to-market adjustment
    required for the first quarter of 2007.

    18. Income Taxes

    A reconciliation of expected income taxes to reported income tax expense
    is provided below. Significant reconciling items include an $11 million
    net reduction in deferred tax liabilities due to the enactment during the
    quarter of reductions in Canadian federal income tax rates.

                                               Three months ended January 31
    -------------------------------------------------------------------------
                                                                    Restated
                                                                  See note 2
                                                             2008       2007
    -------------------------------------------------------------------------
    Expected income tax expense at MDS's 33% (2007 - 35%)
     statutory rate                                     $       3  $       1
    Increase (decrease) to tax expense as a result of:
      Tax credits for research and development                 (1)        (2)
      Impact of tax rate changes on deferred tax balances     (11)         -
      Foreign losses that have not been recognized, net         1          4
      Other                                                     1          -
    -------------------------------------------------------------------------
    Reported income tax expense (recovery)              $      (7) $       3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    19. Differences Between US and Canadian Generally Accepted Accounting
        Principles

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

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

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

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

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

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

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

        g) Pensions - Under US GAAP, the net funded status of pension plans
           sponsored by a Company are fully reflected in the consolidated
           assets or liabilities of the Company. FAS 158 required the Company
           to fully recognize the funded status of its benefit plans. Each
           overfunded plan is recognized as an asset and each underfunded
           plan is recognized as a liability. Previously unrecognized net
           losses and unrecognized plan changes are recognized as a component
           of AOCI. Under Canadian GAAP, only the net actuarial asset or
           liability is reflected in the consolidated financial statements.

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

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

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

                                                Recon-
                                       2008     ciling
    As at January 31               Canadian    Adjust-               2008 US
    (millions of US dollars)           GAAP      ments  Reference       GAAP
    -------------------------------------------------------------------------

    Assets
    Current assets
    Cash and cash equivalents     $     150  $      (6)         a  $     144
    Accounts receivable, net            273          2        a,d        275
    Unbilled revenue                    105          -                   105
    Inventories, net                    114         (6)         a        108
    Income taxes recoverable             54          -                    54
    Current portion of deferred
     tax assets                          54          -                    54
    Prepaid expenses and other           30          2                    32
    Assets held for sale                 29          -                    29
    -------------------------------------------------------------------------
    Total current assets                809         (8)                  801

    Property, plant and
     equipment, net                     367         (3)         a        364
    Deferred tax asset                    3          -                     3
    Long-term investments and other     275         (8)     a,b,g        267
    Goodwill                            797        (23)                  774
    Intangible assets, net              566        (17)         a        549
    -------------------------------------------------------------------------
    Total assets                  $   2,817  $     (59)            $   2,758
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS'
     EQUITY
    Current liabilities
    Accounts payable and accrued
     liabilities                 $      313  $     (13)     a,d,h  $     300
    Deferred revenue                     75          -                    75
    Income taxes payable                 30          -                    30
    Current portion of long-term
     debt                                20          -                    20
    Current portion of deferred
     tax liabilities                     20          -                    20
    Liabilities related to
     assets held for sale                14          -                    14
    -------------------------------------------------------------------------
    Total current liabilities           472        (13)                  459

    Long-term debt                      281          -                   281
    Deferred revenue                     16         (1)                   15
    Other long-term obligations          30          -                    30
    Deferred tax liabilities            152        (13)       f,h        139
    -------------------------------------------------------------------------
    Total liabilities                   951        (27)                  924
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital                       502        (10)         h        492
    Additional paid in capital            -         74          h         74
    Retained earnings                   963       (107)   b,d,g,h        856
    Accumulated other
     comprehensive income               401         11      a,f,g        412
    -------------------------------------------------------------------------
    Total shareholders' equity        1,866        (32)                1,834
    -------------------------------------------------------------------------
    Total liabilities and
     shareholders' equity        $    2,817  $     (59)            $   2,758
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    -------------------------------------------------------------------------
                                                Recon-
                                       2007     ciling
    As at October 31               Canadian    Adjust-               2007 US
    (millions of US dollars)           GAAP      ments  Reference       GAAP
    -------------------------------------------------------------------------

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

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

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

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

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



    CONSOLIDATED STATEMENTS OF OPERATIONS

                                         Three months ended January 31, 2008
    -------------------------------------------------------------------------
                                                Recon-
    (millions of US dollars        Canadian     ciling
     except per share amounts)         GAAP      Items  Reference    US GAAP
    -------------------------------------------------------------------------
    Revenues
    Products and services         $     304  $      (8)         a  $     296
    Reimbursement revenues               26          -                    26
    -------------------------------------------------------------------------
      Total revenues                    330         (8)                  322
    -------------------------------------------------------------------------

    Costs and expenses
    Cost of revenues                   (187)         -        a,c       (187)
    Reimbursed expenses                 (26)         -                   (26)
    Selling, general and
     administration                     (58)        (6)     a,e,h        (64)
    Research and development             (9)       (11)     a,b,c        (20)
    Depreciation and amortization       (30)         3          a        (27)
    Restructuring charges - net           -          -                     -
    Other expense - net                  (3)        (1)       b,d         (4)
    -------------------------------------------------------------------------
      Total costs and expenses         (313)       (15)                 (328)
    -------------------------------------------------------------------------

    Operating income (loss) from
     continuing operations               17        (23)                   (6)

    Interest expense                     (6)         -                    (6)
    Interest income                       6          -                     6
    Gain on interest rate swaps           -          2                     2
    Equity earnings                       -         14          a         14
    -------------------------------------------------------------------------
    Income from continuing
     operations before income
     taxes                               17         (7)                   10

    Income tax (expense) recovery
      - current                         (24)         2                   (22)
      - deferred                         28          1                    29
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations                          21         (4)                   17

    Income from discontinued
     operations
    - net of income tax                   -          -                     -
    -------------------------------------------------------------------------
    Net income                    $      21  $      (4)            $      17
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss) per
     share
    - from continuing operations  $    0.17  $    0.03             $    0.14
    - from discontinued operations        -          -                     -
    -------------------------------------------------------------------------
    Basic earnings (loss) per
     share                        $    0.17  $    0.03             $    0.14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss)
     per share
    - from continuing operations  $    0.17  $    0.03             $    0.14
    - from discontinued operations        -          -                     -
    -------------------------------------------------------------------------
    Diluted earnings(loss) per
     share                        $    0.17  $    0.03             $    0.14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS

                                         Three months ended January 31, 2007
    -------------------------------------------------------------------------

                                                Recon-
    (millions of US dollars        Canadian     ciling              Restated
    except per share amounts)          GAAP      Items  Reference    US GAAP
    -------------------------------------------------------------------------
    Revenues
    Products and services         $     250  $      (9)         a  $     241
    Reimbursement revenues               23          -                    23
    -------------------------------------------------------------------------
      Total revenues                    273         (9)                  264
    -------------------------------------------------------------------------

    Costs and expenses
    Cost of revenues                   (160)        (1)       a,c       (161)
    Reimbursed expenses                 (23)         -                   (23)
    Selling, general and
     administration                     (53)        (1)     a,e,h        (54)
    Research and development             (5)        (7)     a,b,c        (12)
    Depreciation and amortization       (17)         3        a,b        (14)
    Restructuring charges - net         (13)         -                   (13)
    Other expense - net                   1          3        b,d          4
    -------------------------------------------------------------------------
      Total costs and expenses         (270)        (3)                 (273)
    -------------------------------------------------------------------------

    Operating income (loss) from
     continuing operations                3        (12)                   (9)

    Interest expense                     (6)         -                    (6)
    Interest income                       4          -                     4
    Equity earnings                       -         14          a         14
    -------------------------------------------------------------------------
    Income from continuing
     operations before income
     taxes                                1          2                     3

    Income tax expense
      - current                          (3)         1                    (2)
      - deferred                          -         (1)                   (1)
    -------------------------------------------------------------------------
    Income (loss) from
     continuing operations               (2)         2                     -

    Income from discontinued
     operations - net of
     income tax                          16          -                    16
    -------------------------------------------------------------------------
    Net income                    $      14  $       2             $      16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss) per
     share
    - from continuing operations  $   (0.02) $    0.02             $       -
    - from discontinued operations     0.12      (0.01)                 0.11
    -------------------------------------------------------------------------
    Basic earnings (loss) per
     share                        $    0.10  $    0.01             $    0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings (loss) per
     share
    - from continuing operations  $   (0.02) $    0.02             $       -
    - from discontinued operations     0.12      (0.01)                 0.11
    -------------------------------------------------------------------------
    Diluted earnings(loss) per
     share                        $    0.10  $    0.01             $    0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                         Three months ended January 31, 2008
    -------------------------------------------------------------------------
                                                           Recon-
                                              Canadian     ciling
    (millions of US dollars)                      GAAP      Items    US GAAP
    -------------------------------------------------------------------------
    Operating activities
    Net income                               $      21  $      (4) $      17
    Less: Income from discontinued
     operations - net of tax                         -          -          -
    -------------------------------------------------------------------------
    Income from continuing operations               21         (4)        17
    Adjustments to reconcile net income to
     cash provided by operating activities
     relating to continuing operations
      Items not affecting current cash flow        (22)        52         30
      Net changes in non-cash working capital
       balances relating to operations             (97)        (7)      (104)
    -------------------------------------------------------------------------
    Cash used in operating activities of
     continuing operations                         (98)        41        (57)
    Cash provided by operating activities
     of discontinued operations                      -          -          -
    -------------------------------------------------------------------------
                                                   (98)        41        (57)
    -------------------------------------------------------------------------
    Investing activities
    Decrease in deferred development charges        (5)         5          -
    Purchase of property, plant and equipment      (13)         -        (13)
    Proceeds on sale of property, plant and
     equipment                                       1          -          1
    Proceeds on sale of short-term investments     101          -        101
    Proceeds on sale of long-term investments        3          -          3
    Other                                           (1)         1          -
    -------------------------------------------------------------------------
    Cash provided by in investing activities
     of continuing operations                       86          6         92
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                    (80)         -        (80)
    Increase in deferred revenue and other
     long-term obligations                           1          -          1
    Repurchase of shares                            (5)         -         (5)
    Issuance of shares                               1          -          1
    -------------------------------------------------------------------------
    Cash used in financing activities of
     continuing operations                         (83)         -        (83)
    -------------------------------------------------------------------------
    Effect of foreign exchange rate changes
     on cash and cash equivalents                   (3)       (40)       (43)
    -------------------------------------------------------------------------
    Decrease in cash and cash equivalents
     during the period                             (98)         7        (91)
    Cash and cash equivalents, beginning of
     period                                        248        (13)       235
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period $     150  $      (6) $     144
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                         Three months ended January 31, 2007
    -------------------------------------------------------------------------
                                                           Recon-
                                              Canadian     ciling   Restated
    (millions of US dollars)                      GAAP      Items    US GAAP
    -------------------------------------------------------------------------
    Operating activities
    Net income                               $      14  $       2  $      16
    Less: Income from discontinued
     operations - net of tax                        16          -         16
    -------------------------------------------------------------------------
    Loss from continuing operations                 (2)         2          -
    Adjustments to reconcile net income to
     cash provided by operating activities
     relating to continuing operations
      Items not affecting current cash flow         13         15         28
    Net changes in non-cash working capital
     balances relating to operations               (28)        (5)       (33)
    -------------------------------------------------------------------------
    Cash used in operating activities of
     continuing operations                         (17)        12         (5)
    Cash provided by operating activities
     of discontinued operations                     16          -         16
    -------------------------------------------------------------------------
                                                    (1)        12         11
    -------------------------------------------------------------------------
    Investing activities
    Decrease in deferred development charges        (2)         2          -
    Purchase of property, plant and equipment       (8)        (1)        (9)
    Proceeds on sale of short-term investments     126          -        126
    Purchase of short-term investments             (22)         -        (22)
    Proceeds on sale of long-term investments       11          -         11
    Other                                            1          -          1
    -------------------------------------------------------------------------
    Cash provided by investing activities of
     continuing operations                         106          1        107
    -------------------------------------------------------------------------
    Financing activities
    Repayment of long-term debt                     (6)         -         (6)
    Decrease in deferred revenue and other
     long-term obligations                           1          -          1
    Payment of cash dividends                       (3)         -         (3)
    Issuance of shares                               4          -          4
    -------------------------------------------------------------------------
    Cash used in financing activities of
     continuing operations                          (4)         -         (4)
    -------------------------------------------------------------------------
    Cash used in financing activities of
     discontinued operations                        (2)         -         (2)
    -------------------------------------------------------------------------
    Effect of foreign exchange rate changes
     on cash and cash equivalents                  (12)       (12)       (24)
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents
     during the period                              87          1         88
    Cash and cash equivalents,
     beginning of period                           253         (6)       247
    Cash and cash equivalents, end of period $     340  $      (5) $     335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                               Three months ended January 31
                                                             2008       2007
    -------------------------------------------------------------------------
    Net income (loss) from continuing
     operations in accordance with US GAAP              $      17  $       -

    US GAAP adjustments:
      Deferred development costs - net                          4          -
      Mid term incentive plan                                  (4)        (2)
      Mark to market on embedded derivatives                    4          -
      Defined benefit pension plans                             1          -
      Reduction in income tax expense arising from
       GAAP adjustments                                        (1)         -
    -------------------------------------------------------------------------
    Net income (loss) from continuing operations in
     accordance with Canadian GAAP                             21         (2)
    -------------------------------------------------------------------------
    Income from discontinued operations in accordance
     with Canadian and US GAAP - net of tax                     -         16
    -------------------------------------------------------------------------
    Net income in accordance with Canadian GAAP         $      21  $      14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings per share in
     accordance with Canadian GAAP
      - from continuing operations                      $    0.17  $   (0.02)
      - from discontinued operations                            -       0.12
    -------------------------------------------------------------------------
                                                        $    0.17  $    0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Recent Canadian Accounting Pronouncements

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

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

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

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

    20. Comparative Figures

    All comparative financial information has been restated to reflect the
    Company's results as if they had been historically reported in US dollars
    and in accordance with US GAAP. Certain figures for the previous year
    have been reclassified to conform to the current year's financial
    statement presentation.
    >>



For further information: Investor Inquiries: Kim Lee, Director, Investor
Relations, (416) 675-6777 ext. 32606, kim.lee@mdsinc.com; Media Inquiries:
Lesley Beneteau, Manager, External Communications, (416) 675-6777 ext. 32265,
lesley.beneteau@mdsinc.com