moving from Canadian GAAP to US GAAP on our key financial measures The five key GAAP differences are explained in more detail in the following five charts Hedges and Derivatives Stock-Based Compensation Investment Tax Credits Research and Development Joint Venture Accounting Net Income Adjusted EBITDA* Revenue Higher or Lower Higher or Lower Generally lower Generally lower Generally Neutral Generally Neutral * Adjusted EBITDA is a non * Adjusted EBITDA is a non - - GAAP measure that MDS discloses with its financial results GAAP measure that MDS discloses with its financial results January 2008 4 DESCRIPTION AND ANALYSIS IMPACT ON MDS FINANCIAL STATEMENT IMPACT X X X X Disclosures Cash Flows Income Statement Balance Sheet 1.<br><br> Key Accounting Differences " Under US GAAP , for joint ventures (JVs) where a company does not have a majority or controlling interest, the financial statements are not consolidated and equity accounting is applied. " Where a company has a majority financial interest or management control, the company fully consolidates the financial statements of the joint venture. " Under Canadian GAAP , JVs are consolidated based on the proportion of ownership.<br><br> For example if there is 50% ownership in a JV, 50% of the JV 9s income statement (revenues, cost of sales, SG&A, etc.) and 50% of the JV 9s balance sheet are consolidated into the consolidated financial statements. 2. Key Presentation and Disclosure Differences " Under US GAAP for JVs that are not consolidated, but where the company has the ability to exert significant influence, the initial investment is recorded at cost.<br><br> The portion of net income from the JV is shown on the income statement as equity earnings. Under US GAAP equity earnings are not included in operating income. " Under Canadian GAAP the proportional consolidation results in the majority of net income from the JVs appearing in operating income.<br><br> " MDS has two JVs: AB/Sciex and Perkin Elmer/Sciex with 50% ownership in each. Under US GAAP, these JVs will not be consolidated and therefore MDS will record 50% of the net income from the JVs as equity income. MDS will, however, include 100% of its sales to the JVs as revenue, with the associated cost of sales and balance sheet items.<br><br> Currently, MDS generates the majority of its income associated with the JVs from the JVs net income and not from the sales to the JVs. " The difference in accounting for JVs will not result in a change to net income, however some significant impacts include reductions of revenue, operating income, adjusted EBITDA (which will include equity earnings in its calculation) and cash balance. " Under Canadian GAAP our proportionate 50% share of the JV 9s income statement and balance sheet were consolidated into the MDS Consolidated financial statements.<br><br> X X Analytical Technologies Nordion Pharma Services MDS Inc. US GAAP Primer 3 Joint Venture Accounting BUSINESS SEGMENT IMPACT January 2008 5 DESCRIPTION AND ANALYSIS IMPACT ON MDS FINANCIAL STATEMENT IMPACT X X X X Disclosures Cash Flows Income Statement Balance Sheet 1. Key Accounting Differences " Under US GAAP , research and development (R&D) is expensed in the period that it is incurred.<br><br> As well, assets, such as machinery, equipment, patents, and the fair value of R&D acquired in a business combination, are expensed in the period of acquisition unless the asset or acquired R&D has a alternate future use. " Under Canadian GAAP , R&D is capitalized if the development activities meet certain criteria, including reasonable assurance regarding future benefit. These capitalized costs are then amortized on a straight line basis when the new product development is complete and commercial production commences.<br><br> 2. Key Presentation and Disclosure Differences " Under US GAAP, R&D spending is reported on a separate line in the income statement or in the notes to the financial statements. " Under Canadian GAAP the amounts capitalized, amortized and expensed in the period are disclosed in the notes to the financial statements.<br><br> " The Analytical Technologies segment has a number of product and software development programs that qualified for capitalization under Canadian GAAP which under US GAAP will be expensed in the period. " From 2005 to 2007, MDS had capitalized more R&D than it had amortized and the conversion from Canadian to US GAAP will result in a reduction to net income related to R&D. As well, the amortization of R&D expense was reported in depreciation and amortization, and therefore, adjusted EBITDA calculated under US GAAP will be reduced by the full amount of the R&D that was previously capitalized under Canadian GAAP.<br><br> X X X X Analytical Technologies Nordion Pharma Services MDS Inc. US GAAP Primer 3 Research & Development BUSINESS SEGMENT IMPACT January 2008 6 DESCRIPTION AND ANALYSIS IMPACT ON MDS FINANCIAL STATEMENT IMPACT X X Disclosures Cash Flows Income Statement Balance Sheet 1. Key Accounting Differences " Under US GAAP, investment tax credits (ITCs) that are not refundable are treated as a reduction to income tax expense.<br><br> " Under Canadian GAAP, non-refundable ITCs are treated as a reduction of the expense that they are associated with. 2. Key Presentation and Disclosure Differences Under US GAAP, if material, non- refundable ITCs that are accounted for as a reduction to income tax expense are disclosed in the Income Tax note to the financial statements.<br><br> Under Canadian GAAP, if material, non- refundable ITCs related to R&D are disclosed in the R&D note to the financial statements. " The MDS segments have a number of research and development programs that qualify for ITCs. Under Canadian GAAP, these reduced R&D expense for Analytical Technologies and Nordion.<br><br> Non-refundable ITCs earned for work performed for non- Canadian customers reduced cost of sales for Pharma under Canadian GAAP. " Under US GAAP the adjusted EBITDA for the segments will be reduced by the amount of non-refundable ITCs recorded in the period due to the reclassification of non- refundable ITCs to income tax. X X X X Analytical Technologies Nordion Pharma Services MDS Inc.<br><br> US GAAP Primer 3 Investment Tax Credits BUSINESS SEGMENT IMPACT January 2008 7 DESCRIPTION AND ANALYSIS IMPACT ON MDS FINANCIAL STATEMENT IMPACT X X X X Disclosures Cash Flows Income Statement Balance Sheet 1. Key Accounting Differences " Under US GAAP, compensation awards that are settled in cash and based on stock price (or market based) hurdles must be revalued at the end of each accounting period using a complex valuation model. " Under Canadian GAAP, compensation awards that are settled in cash and based on stock price hurdles are valued based on the stock price, which is marked to market at the end of each accounting period.<br><br> 2. Key Presentation and Disclosure Differences None " The MDS medium term incentive plan (MTIP) is a cash settled award that is payable if MDS shares reach certain values on the Toronto Stock Exchange within three years. Under US GAAP, the MTIP awards are valued at the end of each accounting period using a statistical model to determine the value of these awards primarily on the stock price and its volatility.<br><br> " Under Canadian GAAP, the MTIP is expensed based on the value of the MDS stock price and is marked to market based on the change in stock price for the period. " Under both US and Canadian GAAP, the amounts are accrued on a straight-line basis based on the average expected time to settlement and adjusted for forfeitures. X X X X Analytical Technologies Nordion Pharma Services MDS Inc.<br><br> US GAAP Primer 3 Stock-Based Compensation BUSINESS SEGMENT IMPACT January 2008 8 DESCRIPTION AND ANALYSIS IMPACT ON MDS FINANCIAL STATEMENT IMPACT X X X Disclosures Cash Flows Income Statement Balance Sheet 1. Key Accounting Differences " Guidance on the accounting for hedges, including specific criteria related to the effectiveness of hedges was implemented first under US GAAP. As of 2005, US and Canadian GAAP became harmonized in this area.<br><br> " While US and Canadian GAAP are substantially harmonized for the accounting of embedded derivatives, there are differences related to the determination of whether a contract currency would be considered a normal contracting currency. 2. Key Presentation and Disclosure Differences None " There were certain hedges that MDS entered into prior to 2005 that had no hedge designation under US GAAP.<br><br> Under US GAAP, non-designated hedges are reported at fair value in each period. Under Canadian GAAP, these hedge gains were reported when the contracts matured. " The impact of the above difference is a reduction in net income and adjusted EBITDA in the years 2005 to 2007.<br><br> " Nordion entered into a US dollar contract with a Russian supplier for Cobalt. This contract was determined to include a US dollar foreign exchange embedded derivative. With the decline in the US dollar, a gain was reported in other income in 2007.<br><br> This contract was not considered to contain an embedded derivative under Canadian GAAP. X X X X Analytical Technologies Nordion Pharma Services MDS Inc. US GAAP Primer 3 Hedges and Derivatives BUSINESS SEGMENT IMPACT January 2008 9 Other GAAP Differences Other GAAP differences that affect the MDS financial statements include: Pension accounting Certain aspects of accounting for acquisitions and divestures Other presentation differences in our US GAAP financial statements include: Separating product and service revenue and cost of sales on the Income Statement.<br><br> Reclassifying transactional foreign exchange gains and losses to cother income d from cSG&A d. Classification of the equity associated with unexercised stock options to cadditional paid in capital d from ccommon shares d. MDS INC.<br><br> CONSOLIDATED STATEMENT OF INCOME 2007 CDN GAAP vs US GAAP Bridge Year ended October 31 (million of US dollars except per share amounts) Revenues Product revenues $1,162 ($103) $2 ($497) $564 Service revenues 0 58 0 497 555 Reimbursement revenues 91 91 Total revenues 1,253 (103) 58 0 0 0 0 2 0 0 0 0 1,210 Costs and expenses Direct cost of products 694 3 1 332 360 Direct cost of services 0 6 332 338 Reimbursed expenses (91) (91) Selling, general and administration 286) 17 14) 6 4) 16 265) Research and development (29) 14 (44) (4) (5) (68) Depreciation and amortization (91) 9 3 (79) Restructuring charges - net 40 3 37 Other income (expense) - net 61 6 3 16 80 Total costs and expenses (1,292) 43 (58) (4) 3 (17) 6 0 3 (2) 0 0 (1,318) Op. income (loss) from cont. ops.<br><br> (39) (60) 0 (4) 3 (17) 6 2 3 (2) 0 0 (108) Interest expense (27) 0 (27) Mark-to-market on interest note swaps 0 1 1 Interest income 25 0 25 Equity earnings 0 60 (10) 3 53 Income (loss) before income taxes (41) 0 0 14 6 17 6 2 4 2 0 0 (56) Income taxes (expense) recovery - current 7 17 1 25 - deferred 0 (2) (2) Income (loss from continuing operations) (34) 0 0 14 6 0 4 2 4 1 0 0 (33) Income from disc. ops. - net of income tax 806 806 Net income (loss) $772 $0 $0 ($14) $6 $0 $4 $2 $4 ($1) $0 $0 $773 Basic earnings per share - from continuing operations $0.26 $0.25 - from discontinued operations 6.12 6.12 Basic earnings per share $5.86 $5.87 Diluted earnings per share - from continuing operations $0.25 $0.25 - from discontinued operations 6.10 6.11 Diluted earnings per share $5.85 $5.86 January 2008 10 Joint Ventures Research & Dev't.<br><br> Hedges & Derivatives Reclassification Fx Pension & Others US GAAP 2007 Service Revenue Embedded Derivatives Expense Def. Dev Costs Reversal of Forward Hedges Stock-based Comp. JV Deconsol CDN GAAP 2007 Investment Tax Credits Gross Up Charge- backs Reversal of Amort of Def.<br><br> Dev Costs MDS ANALYTICAL TECHNOLOGIES STATEMENT OF INCOME 2007 CDN GAAP vs US GAAP Bridge Revenues Product revenues $396 ($103) $1 ($14) $280 Service revenues 0 58 14 72 Reimbursement revenues 0 0 Total revenues 396 (103) 58 0 0 0 1 0 0 352 Costs and ex enses Direct cost of products 218) 3 3 213) Direct cost of services 0 3) 3) Reimbursed expenses 0 0 Selling, general and administration 64) 17 14) 3 57) Research and development 27) 14 44) 4) 3) 64) Depreciation and amortization 41) 9 3 29) Restructuring charges - net 0 0 Other income (expense) - net 3) 3) 6) Total costs and expenses (353) 43 (58) (4) 3 (3) 0 0 0 (372) Op. income (loss) from cont. ops.<br><br> 43 (60) 0 (4) 3 (3) 1 0 0 (20) Equity earnings 0 60 (10) 3 53 Segment earnings (loss) $43 $0 $0 ($14) $6 ($3) $1 $0 $0 $33 Other adjustments Acquisition integration 19 19 Depreciation and amortization 41 9) 3) 29 Impact on adjusted EBITDA $103 $9) $0 $14) $3 $3) $1 $0 $0 $81 January 2008 11 Joint Ventures Expense Def. Dev Costs Reversal of Amort of Def. Dev Costs Research & Dev't.<br><br> Year ended October 31 (million of US dollars) JV Deconsol CDN GAAP 2007 Gross Up Charge- backs Investment Tax Credits US GAAP 2007 Hedges & Derivatives Fx Reclassification Service Revenues/ COS MDS NORDION STATEMENT OF INCOME 2007 CDN GAAP vs US GAAP Bridge Revenues Product revenues $289 $1 ($6) $284 Service revenues 0 6 6 Reimbursement revenues 0 0 Total revenues 289 0 1 0 0 0 0 290 Costs and expenses Direct cost of products (150) 3 (147) Direct cost of services 0 (3) (3) Reimbursed expenses 0 0 Selling, general and administration (51) (4) 1 (54) Research and development (2) (2) (4) Depreciation and amortization (13) (13) Restructuring charges - net 0 0 Other income (expense) - net 7 (6) 4 (1) (1) 3 Total costs and expenses (209) (8) 0 4 (5) 0 0 (218) Op. income (loss) from cont. ops.<br><br> 80 (8) 1 4 (5) 0 0 72 Equity earnings 0 0 Segment earnings (loss) $80 ($8) $1 $4 ($5) $0 $0 $72 Other adjustments MAPLE settlement (6) 6 0 Gain on sale of business (1) (1) Depreciation and amortization 13 13 Impact on adjusted EBITDA $86 ($2) $1 $4 ($5) $0 $0 $84 January 2008 12 Year ended October 31 (million of US dollars) CDN GAAP 2007 Investment Tax Credits Service Revenue Reversal of Forward Hedges Hedges & Derivatives Reclassification Fx Embedded Derivatives Pension & Others US GAAP 2007 MDS PHARMA SERVICES STATEMENT OF INCOME 2007 CDN GAAP vs US GAAP Bridge Revenues Product revenues $477 ($477) $0 Service revenues 0 477 477 Reimbursement revenues 91 91 Total revenues 568 0 0 0 0 568 Costs and expenses Direct cost of products (326) 326 0 Direct cost of services 0 (6) (326) (332) Reimbursed expenses (91) (91) Selling, general and administration (138) (1) 9 (130) Research and development 0 0 Depreciation and amortization (35) (35) Restructuring charges - net (31) 3 (28) Other income (expense) - net (65) (9) (74) Total costs and expenses (686) (6) 2 0 0 (690) Op. income (loss) from cont. ops.<br><br> (118) (6) 2 0 0 (122) Equity earnings 0 0 Segment earnings (loss) ($118) ($6) $2 $0 $0 ($122) Other Adjustments Restructuring charges 31 (3) 28 Loss (gain) on sale of business 4 4 FDA Provision 61 61 Depreciation and amortization 35 35 Impact on adjusted EBITDA $13 ($6) ($1) $0 $0 $6 January 2008 13 Pension & Others US GAAP 2007 Year ended October 31 (million of US dollars) CDN GAAP 2007 Investment Tax Credits Service Revenue Reclassification Fx MDS INC. CORPORATE AND OTHER STATEMENT OF INCOME 2007 CDN GAAP vs US GAAP Bridge Revenues Product revenues $0 $0 Service revenues 0 0 Reimbursement revenues 0 0 Total revenues 0 0 0 0 0 Costs and expenses Direct cost of products 0 0 Direct cost of services 0 0 Reimbursed expenses 0 0 Selling, general and administration (33) 6 3 (24) Research and development 0 0 Depreciation and amortization (2) (2) Restructuring charges - net (9) (9) Other income (expense) - net 0 (1) (3) (3) Total costs and expenses (44) 6 (1) 0 (38) Op. income (loss) from cont.<br><br> ops. (44) 6 (1) 0 (38) Equity earnings 0 0 Segment earnings (loss) ($44) $6 ($1) $0 ($38) Other adjustments Restructuring charges 9 9 Mark-to-market adjustments (1) 1 0 Loss (gain) on sale of business (7) (7) Valuations provisions 8 8 Depreciation and amortization 2 2 Impact on adjusted EBITDA ($33) $6 $0 $0 ($26) January 2008 14 Year ended October 31 (million of US dollars) CDN GAAP 2007 Stock based Comp. Fx Hedges & Derivatives US GAAP 2007 MDS INC.<br><br> CONSOLIDATED STATEMENTS OF FINANICAL POSITION 2007 CDN GAAP vs US GAAP Bridge As at October 31 (million of US dollars) ASSETS Current Assets Cash and cash equivalents $259 ($14) ($11) $235 Short-term investments, net 91 11 102 Accounts receivable, net 284 (1) 1 4 (1) 287 Unbilled revenue 99 99 Inventories, net 134 (6) 128 Income taxes recoverable 54 54 Current portion of future tax assets 45 45 Prepaid expenses and other 21 2 22 Current assets of Disc Ops 1 1 Total Current Assets $988 ($21) $0 $0 $1 $4 $2 $0 $0 $0 $0 $0 $0 ($1) $973 Property, plant and equipment, net 390 (4) 1 386 Deferred tax assets 4 4 Long-term investments 284 39 (12) 11 1 (5) (3) (25) 290 Goodwill 797 (22) 8 782 Intangible assets, net 601 (18) 583 Total Assets $3,064 ($4) ($11) $0 $1 $4 $13 $1 ($5) $0 $0 $0 ($25) ($18) $3,018 LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $391 0 (6) $384 Deferred revenue 71 71 Income taxes payable 57 57 Current portion of long-term debt 94 94 Deferred tax liability, current 10 10 Total Current Liabilities $623 $0 $0 ($6) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $616 Long-term debt 290 290 Deferred revenue 16 17 Other long-term obligations 29 30 Deferred tax liabilities 182 2 (2) (15) 2 168 Minority interest 1 0 Total Liabilities $1,141 $0 $0 ($4) $0 $0 $0 $0 ($2) $0 $0 ($15) $0 $2 $1,121 Shareholders 9 equity Common shares, at par 3 Authorized shares 502 (4) (6) 493 Additional paid-in capital 0 4 63 6 72 Retained earnings 945 (7) 4 1 4 (3) 1 12 (84) (31) 842 Accumulated other comprehensive income 476 (4) (4) 16 (3) 3 (4) 11 490 Total Shareholders 9 equity $1,923 ($4) ($11) $4 $1 $4 $13 $1 ($3) $0 $0 $15 ($25) ($20) $1,897 Total Liabilities & Shareholders 9 equity $3,064 ($4) ($11) $0 $1 $4 $13 $1 ($5) $0 $0 $0 ($25) ($18) $3,018 January 2008 15 CDN GAAP 2007 Joint Ventures Research& Dev't Short-term Investment Reclass Embedded Derivatives Stock based Comp. Stock Options Acquired IPR&D Hedges Investment Fair Value Pension Consol Tax US GAAP 2007 Other Prior Year Entries Prior Year Acquisition & Divestiture

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