Covidien Ltd. (NYSE: COV; BSX: COV) today reported results for the
fourth quarter of fiscal 2007 (July - September 2007), the first
quarter in which the Company operated independent of Tyco
International.
Net sales rose 5% to $2.6 billion from $2.5 billion a year ago,
led by the Medical Devices and Imaging Solutions business segments.
Sales growth was driven by higher volume and new products. Favorable
foreign exchange contributed 2 percentage points to the sales
increase. Strong double-digit sales growth was posted internationally,
fueled by Europe, Asia-Pacific and Other Americas.
Fourth-quarter gross margin of 48% was up 2 full percentage points
from that of the prior year. This substantial improvement reflected
favorable product mix and foreign exchange, as well as cost savings
from manufacturing, which more than offset higher costs for raw
materials and transportation.
Selling, general and administrative expenses were substantially
higher than in the year-ago fourth quarter. The increase was
attributable to planned growth in selling and marketing investments
and higher administrative expenses, primarily compensation and benefit
costs, as well as costs to separate from Tyco International. Research
and Development (R&D) spending in the quarter was well above that of
the year before and represented 3.0% of sales, versus 2.7% of sales
last year.
For the fourth quarter, the Company reported operating income of
$156 million. Operating income included a $290 million non-cash charge
primarily for impairments of long-lived assets in the Imaging
Solutions and Retail Products segments, $32 million of restructuring
charges and $5 million of additional insurance recoveries related to
Covidien´s portion of the Tyco International shareholder class action
settlement. Excluding these three specified items, fourth-quarter
operating income would have been $473 million, representing 18.2% of
sales.
The fourth-quarter effective tax rate of 71% reflected the
goodwill impairment charge, only a portion of which was tax
deductible, and other adjustments to legacy income tax liabilities.
Excluding specified items, the fourth-quarter tax rate was 27%.
Fourth-quarter diluted GAAP earnings per share from continuing
operations of $0.07 included the following items: $0.52 relating to
impairments of long-lived assets, $0.04 for restructuring charges,
$0.01 for other tax matters that affected the effective tax rate and
($0.01) for the insurance recoveries related to Covidien´s portion of
the Tyco International shareholder class action settlement. Excluding
these items, diluted earnings per share from continuing operations
were $0.63.
For fiscal 2007, net sales of $10.2 billion were 5% above the $9.6
billion in the prior year, with favorable foreign exchange
contributing 2 percentage points to the sales increase. Sales rose 2%
in the United States and 11% outside the U.S., with double-digit
growth in Europe, Asia-Pacific and Other Americas.
The Company reported operating income of $438 million in fiscal
2007. The 2007 operating income included a $1.2 billion charge for
Covidien´s portion of the Tyco International shareholder class action
settlement, a $290 million non-cash charge primarily for impairments
of long-lived assets in the Imaging Solutions and Retail Products
segments, $58 million of restructuring charges and $38 million of
in-process R&D charges. Excluding these specified items, fiscal 2007
operating income would have been $2.0 billion, representing 19.9% of
sales.
Fiscal 2007 diluted GAAP loss per share from continuing operations
of ($0.68) included the following items: $2.42 related to Covidien´s
portion of the Tyco International shareholder class action settlement,
$0.53 for the impairments of long-lived assets, $0.31 for the loss on
early extinguishment of debt, $0.07 for restructuring charges, $0.06
for in-process R&D charges, $0.03 for other tax matters that affected
the effective tax rate and ($0.02) for the impact of non-GAAP dilutive
shares. Excluding these items, diluted earnings per share from
continuing operations were $2.72.
"The sales results for the fourth quarter, which was our first
independent quarter following the separation from Tyco International,
and for fiscal 2007 were consistent with our expectations," said
President and Chief Executive Officer Richard J. Meelia.
"Fourth-quarter sales growth was led by strong performances in our
Medical Devices and Imaging Solutions segments, aided by new products
and further recovery from last year´s product-related issues. Our
International businesses again registered excellent sales gains,
reflecting the incremental investments we made in recent years to
augment the sales force and expand geographically.
"For the fourth consecutive quarter, we delivered a significant
improvement in gross margin. On an adjusted basis, our operating
margin for fiscal 2007 was slightly below our expectations, due to an
accelerated investment in selling and marketing and some
separation-related expenses. We were also pleased to execute on a
major objective by refinancing $2.75 billion of debt after the quarter
closed. We replaced a large portion of our borrowings under an
unsecured bridge loan with fixed rate notes," Mr. Meelia said.
"The entire Covidien organization played an integral part in our
2007 performance, as we successfully managed the separation from Tyco
International while meeting our operational expectations. The Company
is in an excellent position to strengthen our position as a global
leader in the healthcare industry," Mr. Meelia added.
Results by business segment follow.
Medical Devices sales climbed 9% in the fourth quarter to $1.6
billion from $1.5 billion in the previous year. Sales growth was
driven by new products, volume and acquisitions, as well as by
favorable foreign exchange, which contributed 3 percentage points to
the sales increase. Sales of Endomechanical (laparoscopic instruments
and stapling) were well above those of a year ago, paced by Europe and
Asia, where sales force expansion contributed to the advance. Both
Energy (vessel sealing, electrosurgery and hardware) and Soft Tissue
Repair (sutures, mesh and biosurgery products) registered strong
double-digit growth in the quarter.
The Energy increase was due to vessel sealing and hardware
products, while Soft Tissue Repair benefited from higher sales of mesh
and sutures. Sales of Vascular (compression and vascular therapy) and
SharpSafety (needles, syringes, and sharps disposal) were both well
ahead of those of a year ago. Airway & Ventilation (airway management,
ventilators, breathing systems, sleep and inhalation therapy) sales
rose in the quarter, due to a good performance in International
markets and the acquisition of Airox.
For fiscal 2007, Medical Devices sales grew 8% to $6.2 billion
from $5.7 billion a year ago, due primarily to higher sales of
Endomechanical, Energy and Soft Tissue Repair products. Favorable
foreign exchange contributed 3 percentage points to the sales advance.
Following the close of the quarter, the Company announced the
acquisition of Scandius Biomedical, Inc., a developer of devices for
sports-related surgeries. In addition, Covidien announced an agreement
with Allergan, Inc. to co-promote the Lap-Band(R) adjustable gastric
banding system.
Pharmaceutical Products sales increased 4% to $327 million from
$314 million in the fourth quarter of last year. Growth was paced by
Specialty Chemicals, which posted sales well above those of a year
ago, and by higher sales of Active Pharmaceutical Ingredients (API).
In Specialty Chemicals, the quarterly sales advance was due to higher
pharmaceutical sales in Europe and increased laboratory chemicals
sales in the U.S., while the API sales gain was attributable to growth
in narcotic products and bulk acetaminophen. These increases more than
offset a slight decline in Dosage Pharmaceuticals.
For fiscal 2007, Pharmaceutical Products sales climbed 9% to $1.3
billion from $1.2 billion last year. Sales growth was broad-based,
with good gains across all product lines.
Imaging Solutions sales rose 11% to $252 million, compared with
$228 million in the prior year´s fourth quarter. Favorable foreign
exchange contributed 2 percentage points to the sales increase. Sales
growth was paced by a sizable gain for Radiopharmaceuticals, due to
higher U.S. sales of cardiology and oncology products, and somewhat
increased sales of Contrast Products, attributable to higher sales of
delivery systems. Contrast agent unit volume grew in the quarter, but
sales were flat, due to significant pricing declines.
For fiscal 2007, Imaging Solutions sales climbed 8% to $942
million, versus $870 million the year before. Favorable foreign
exchange contributed 2 percentage points to the sales growth. The
segment´s 2007 sales increase was fueled by a strong double-digit gain
for Radiopharmaceuticals, reflecting recovery from product-related
issues in 2006.
Medical Supplies sales decreased 1% to $250 million from $253
million in the fourth quarter of the previous year. Higher sales of
nursing care products were more than offset by lower sales of Original
Equipment Manufacturer (OEM) products, including needles and
pre-filled syringes, and the discontinuance of a supply agreement.
For fiscal 2007, sales of Medical Supplies, at $993 million,
remained relatively flat versus those of a year ago. Higher sales of
nursing care products and favorable foreign exchange countered the
impact of a mid-year 2006 divestiture.
Retail Products sales of $164 million in the fourth quarter were
23% below last year´s $213 million. The sales decline resulted
primarily from lower infant care volume, attributable to the planned
withdrawal from several low-margin, private-label contracts, coupled
with greater price competition by branded competitors.
For fiscal 2007, sales of Retail Products declined 13% to $744
million from $855 million a year ago.
FISCAL 2008 OUTLOOK
Consistent with prior guidance, the Company estimates sales growth
for the 2008 fiscal year will be in the 3% - 5% range, excluding the
impact of foreign exchange, or 4% - 6% including foreign exchange at
current rates. Net sales, including foreign exchange at current rates,
are expected to grow 6% to 8% versus 2007 in the Medical Devices
segment, 3% to 6% in Pharmaceutical Products and 7% to 10% in Imaging
Solutions. The Company expects sales in Medical Supplies to be flat to
down 3%, with Retail Products sales flat to down 5%. Consistent with
prior guidance, the operating margin is expected to be in the 19% -
20% range and we anticipate the effective tax rate will be in the 30%
- 32% range for fiscal 2008, excluding the impact of one-time items.
ABOUT COVIDIEN LTD.
Covidien is a leading global healthcare products company that
creates innovative medical solutions for better patient outcomes and
delivers value through clinical leadership and excellence. Covidien
manufactures, distributes and services a diverse range of
industry-leading product lines in five segments: Medical Devices,
Pharmaceutical Products, Imaging Solutions, Medical Supplies and
Retail Products. With 2007 revenue of $10 billion, Covidien has more
than 43,000 employees worldwide in 57 countries, and its products are
sold in over 130 countries. Please visit www.covidien.com to learn
more about our business.
CONFERENCE CALL AND WEBCAST
The Company will hold a conference call for investors today,
beginning at 8:30 a.m. ET. This call can be accessed three ways:
-- Web - Go to Covidien´s website at www.covidien.com. A replay
of the call will be available through December 13 at the same
website.
-- Telephone - The dial-in number for participants in the United
States is (800)-510-0219. For participants outside the United
States, the dial-in number is (617)-614-3451. The access code
for both numbers is 92427674.
-- Audio replay - The conference call will be available for
replay, beginning at noon ET on December 6, 2007, and ending
at 11:59 p.m. on December 13, 2007. The dial-in number for
participants in the United States is (888)-286-8010. For
participants outside the United States, the replay dial-in
number is (617)-801-6888. The replay access code for all
callers is 43084639.
NON-GAAP FINANCIAL MEASURES
This press release contains financial measures, including adjusted
operating income, adjusted earnings per share and adjusted operating
margin, that are considered "non-GAAP" financial measures under
applicable Securities & Exchange Commission rules and regulations.
These non-GAAP financial measures should be considered supplemental to
and not a substitute for financial information prepared in accordance
with generally accepted accounting principles. The definition of these
non-GAAP measures may differ from similarly titled measures used by
others.
The non-GAAP financial measures used in this press release adjust
for specified items that can be highly variable or difficult to
predict. The Company generally uses these non-GAAP financial measures
to facilitate management´s financial and operational decision-making,
including evaluation of Covidien´s historical operating results,
comparison to competitors´ operating results and determination of
management incentive compensation. These non-GAAP financial measures
reflect an additional way of viewing aspects of the Company´s
operations that, when viewed with GAAP results and the reconciliations
to corresponding GAAP financial measures, may provide a more complete
understanding of factors and trends affecting Covidien´s business.
Because non-GAAP financial measures exclude the effect of items
that will increase or decrease the Company´s reported results of
operations, management strongly encourages investors to review the
Company´s consolidated financial statements and publicly filed reports
in their entirety. A reconciliation of the non-GAAP financial measures
to the most directly comparable GAAP financial measures is included in
the tables accompanying this release.
The Company presents its operating margin forecast before special
items to give investors a perspective on the expected underlying
business results. Because the Company cannot predict the amount and
timing of such items and the associated charges or gains that will be
recorded in the Company´s financial statements, it is difficult to
include the impact of those items in the forecast.
FORWARD-LOOKING STATEMENTS
Any statements contained in this press release that do not
describe historical facts may constitute forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act
of 1995. Any forward-looking statements contained herein are based on
our management´s current beliefs and expectations, but are subject to
a number of risks, uncertainties and changes in circumstances, which
may cause actual results or Company actions to differ materially from
what is expressed or implied by these statements. The factors that
could cause actual future results to differ materially from current
expectations include, but are not limited to, risks and uncertainties
relating to the integration of businesses we have acquired or may
acquire in the future, changing technologies, product development and
market acceptance of our products, the cost and pricing of our
products, manufacturing, competition, customers´ capital spending and
government funding policies, changes in governmental regulations, the
use and protection of intellectual property rights, litigation and
exposure to foreign currency fluctuations. These and other factors are
identified and described in more detail in our filings with the SEC.
We disclaim any obligation to update these forward-looking statements
other than as required by law.
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Covidien Ltd.
Consolidated and Combined Statements of Operations
Quarters Ended September 28, 2007 and September 29, 2006
(dollars in millions, except per share data)
Quarters Ended
-----------------------------------
Percent Percent
September of Net September of Net
28, 2007 Sales 29, 2006 Sales
----------------- -----------------
Net sales $ 2,601 100.0% $ 2,481 100.0%
Cost of products sold 1,354 52.1% 1,341 54.1%
--------- ---------
Gross profit 1,247 47.9% 1,140 45.9%
Selling, general and
administrative expenses 697 26.8% 520 21.0%
Research and development expenses 77 3.0% 68 2.7%
In-process research and
development charges - 0.0% 60 2.4%
Class action settlement, net of
insurance recoveries (5) -0.2% - 0.0%
Impairments of long-lived assets 290 11.1% - 0.0%
Restructuring and other charges,
net 32 1.2% - 0.0%
(Gain) on divestiture - 0.0% (3) -0.1%
--------- ---------
Operating income 156 6.0% 495 20.0%
Interest expense 63 2.4% 40 1.6%
Interest income (8) -0.3% (9) -0.4%
Other expense, net (15) -0.6% 9 0.4%
--------- ---------
Income from continuing
operations before income taxes 116 4.5% 455 18.3%
Income taxes 82 3.2% 120 4.8%
--------- ---------
Income from continuing
operations 34 1.3% 335 13.5%
(Income) from discontinued
operations, net of income taxes - 0.0% (5) -0.2%
--------- ---------
Net income $ 34 1.3% $ 340 13.7%
========= =========
Basic earnings per share (1)
Income from continuing
operations $ 0.07 $ 0.68
(Income) from discontinued
operations - (0.01)
Net income 0.07 0.69
Diluted earning per share (1)
Income from continuing
operations $ 0.07 $ 0.68
(Income) from discontinued
operations - (0.01)
Net income 0.07 0.69
Weighted-average number of shares
outstanding (1)
Basic 497 497
Diluted 500 497
----------------------------------
(1) Following the separation from Tyco International, Covidien had 497
million common shares outstanding. This amount is being utilized to
calculate earnings per share for the periods prior to the Separation.
The same number of shares has been used to calculate diluted earnings
per share and basic earnings per share for periods prior to the
Separation because there were no common shares of Covidien publicly
traded prior to July 2, 2007, and no Covidien restricted shares nor
share options were outstanding prior to the Separation.
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Covidien Ltd.
Non-GAAP Reconciliations
Quarters Ended September 28, 2007 and September 29, 2006
(dollars in millions, except per share data)
Quarter Ended September 28, 2007
---------------------------------------------
Income from Diluted
continuing earnings
operations per share
before Income from from
Operating income continuing continuing
income taxes operations operations
--------- ----------- ----------- -----------
GAAP $ 156 $ 116 $ 34 $ 0.07
Adjustments:
Class action
settlement, net of
insurance recoveries (5) (5) (5) (0.01)
Impairments of long-
lived assets (1) 290 290 262 0.52
Restructuring and
other charges, net
(2) 32 32 20 0.04
Tax matters 4 0.01
--------- ----------- -----------
As adjusted $ 473 $ 433 $ 315 0.63
========= =========== ===========
------------------------
(1) We recorded asset impairment charges of $290 million, primarily
related to a goodwill impairment charge of $256 million, within our
Retail Products segment, and a non-amortizable trademark impairment
of $33 million, within our Imaging Solutions segment.
(2) Restructuring charges of $32 million related primarily to
severance costs and asset impairment charges within our Medical
Devices segment.
Quarter Ended September 29, 2006
---------------------------------------------
Income from Diluted
continuing earnings
operations per share
before Income from from
Operating income continuing continuing
income taxes operations operations
--------- ----------- ----------- -----------
GAAP $ 495 $ 455 $ 335 $ 0.68
Adjustments:
In-process research
and development
charges (1) 60 60 60 0.12
(Gain) on divestiture (3) (3) (2) -
Tax matters (2) 18 0.04
--------- ----------- -----------
As adjusted $ 552 $ 512 $ 411 0.83
========= =========== ===========
------------------------
(1) The Medical Devices segment recorded in-process research and
development charges of $49 million in connection with the acquisition
of 100% of Confluent Surgical, Inc. and $11 million in connection
with the acquisition of 50% of Airox S.A.
(2) Our tax rate was negatively impacted by $18 million, which
primarily consists of tax and interest related to federal, state and
non-U.S. tax audit activity.
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Covidien Ltd.
Segment and Geographical Sales
Quarters Ended September 28, 2007 and September 29, 2006
(dollars in millions)
Quarters Ended
-------------------------------------------------
September Percent
September 29, Percent change Operational
28, 2007 2006(2) change currency growth
--------- --------- ------- --------- -----------
Medical Devices (1)
United States $ 705 $ 666 6% 0% 6%
Non-U.S. 903 807 12% 6% 6%
--------- ---------
1,608 1,473 9% 3% 6%
Pharmaceutical
Products (1)
United States 266 260 2% 0% 2%
Non-U.S. 61 54 13% 6% 7%
--------- ---------
327 314 4% 1% 3%
Imaging Solutions
(1)
United States 179 162 10% 0% 10%
Non-U.S. 73 66 11% 8% 3%
--------- ---------
252 228 11% 2% 8%
Medical Supplies (1)
United States 223 227 -2% 0% -2%
Non-U.S. 27 26 4% 8% -4%
--------- ---------
250 253 -1% 1% -2%
Retail Products (1)
United States 164 213 -23% 0% -23%
Non-U.S. - - 0% 0% 0%
--------- ---------
164 213 -23% 0% -23%
Covidien Ltd. (1)
United States 1,537 1,528 1% 0% 1%
Non-U.S. 1,064 953 12% 6% 5%
--------- ---------
$ 2,601 $ 2,481 5% 2% 2%
--------------------
(1) Sales to external customers are reflected in the regions based on
the location of the sales force executing the transaction.
(2) Certain geographic sales have been reclassified to conform to
current year presentation.
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Covidien Ltd.
Select Product Line Sales
Quarters Ended September 28, 2007 and September 29, 2006
(dollars in millions)
Quarters Ended
-------------------------------------------------
Percent
September September Percent change Operational
28, 2007 29, 2006 change currency growth
--------- --------- ------- --------- -----------
Medical Devices
Endomechanical (1) $ 479 $ 443 8% 4% 4%
Soft Tissue Repair
(2) 127 110 15% 5% 10%
Energy (3) 169 135 25% 3% 22%
Oximetry and
Monitoring (4) 150 145 3% 3% 1%
Airway and
Ventilation (5) 202 192 5% 4% 2%
Vascular (6) 127 117 9% 2% 7%
SharpSafety (7) 119 109 9% 2% 7%
Clinical Care (8) 97 93 4% 3% 1%
Imaging Solutions
Radiopharmaceuticals
(9) $ 124 $ 105 18% 3% 15%
Contrast (10) 128 123 4% 2% 2%
---------------------
(1) Endomechanical includes our laparoscopic instruments and surgical
staplers.
(2) Soft Tissue Repair includes our suture products, mesh products and
biosurgery products.
(3) Energy includes our vessel sealing products, electrosurgical
products, ablation products and related capital equipment.
(4) Oximetry and Monitoring includes our sensors and monitors products
and our temperature management products.
(5) Airway and Ventilation includes our airway products, ventilator
products, breathing systems, sleep products and inhalation therapy
products.
(6) Vascular includes our compression products and vascular therapy
products.
(7) SharpSafety includes our needles and syringes products and our
sharps disposable products.
(8) Clinical Care includes our urology products, enteral feeding
products and other advanced woundcare products.
(9) Radiopharmaceuticals includes our radioactive isotopes and
associated pharmaceutical products used for the diagnosis and
treatment of disease.
(10) Contrast includes our contrast delivery systems and contrast
agents.
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Covidien Ltd.
Consolidated and Combined Statements of Operations
Fiscal Years Ended September 28, 2007 and September 29, 2006
(dollars in millions, except per share data)
Fiscal Years
--------------------------------
Percent Percent
of Net of Net
2007 Sales 2006 Sales
---------------- ---------------
Net sales $10,170 100.0% $9,647 100.0%
Cost of products sold 5,333 52.4% 5,161 53.5%
-------- -------
Gross profit 4,837 47.6% 4,486 46.5%
Selling, general and administrative
expenses 2,537 24.9% 2,081 21.6%
Research and development expenses 274 2.7% 262 2.7%
In-process research and development
charges 38 0.4% 63 0.7%
Class action settlement, net of
insurance recoveries 1,202 11.8% - 0.0%
Impairments of long-lived assets 290 2.9% - 0.0%
Restructuring and other charges, net 58 0.6% - 0.0%
(Gain) on divestitures, net - 0.0% (48) -0.5%
-------- -------
Operating income 438 4.3% 2,128 22.1%
Interest expense 188 1.8% 171 1.8%
Interest income (36) -0.4% (32) -0.3%
Other expense, net 135 1.3% 15 0.2%
-------- -------
Income from continuing operations
before income taxes 151 1.5% 1,974 20.5%
Income taxes 488 4.8% 504 5.2%
-------- -------
(Loss) income from continuing
operations (337) -3.3% 1,470 15.2%
Loss from discontinued operations,
net of income taxes 5 0.0% 315 3.3%
-------- -------
Net (loss) income $ (342) -3.4% $1,155 12.0%
======== =======
Basic earnings per share (1)
(Loss) income from continuing
operations $ (0.68) $ 2.96
Loss from discontinued operations 0.01 0.63
Net (loss) income (0.69) 2.33
Diluted earning per share (1)
(Loss) income from continuing
operations $ (0.68) $ 2.96
Loss from discontinued operations 0.01 0.63
Net (loss) income (0.69) 2.33
Weighted-average number of shares
outstanding (1)
Basic 497 497
Diluted 497 497
-------------------------------------
(1) Following the separation from Tyco International, Covidien had 497
million common shares outstanding. This amount is being utilized to
calculate earnings per share for the periods prior to the Separation.
The same number of shares has been used to calculate diluted earnings
per share and basic earnings per share for periods prior to the
Separation because there were no common shares of Covidien publicly
traded prior to July 2, 2007, and no Covidien restricted shares nor
share options were outstanding prior to the Separation.
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Covidien Ltd.
Non-GAAP Reconciliations
Fiscal Years Ended September 28, 2007 and September 29, 2006
(dollars in millions, except per share data)
Fiscal Year 2007
---------------------------------------------
Diluted
Income from (loss)
continuing (Loss) earnings
operations income per share
before from from
Operating income continuing continuing
income taxes operations operations
--------- ----------- ----------- -----------
GAAP $ 438 $ 151 $ (337) $ (0.68)
Adjustments:
In-process research
and development
charges (1) 38 38 30 0.06
Class action
settlement, net of
insurance recoveries
(2) 1,202 1,202 1,202 2.42
Impairments of long-
lived assets (3) 290 290 262 0.53
Restructuring and
other charges, net
(4) 58 58 37 0.07
Loss on the early
extinguishment of
debt (5) 155 152 0.31
Tax matters (6) 16 0.03
Impact of non-GAAP
dilutive shares (7) (0.02)
--------- ----------- -----------
As adjusted $ 2,026 $ 1,894 $ 1,362 2.72
========= =========== ===========
------------------------
(1) Our Medical Devices segment recorded an in-process research and
development charge of $30 million in connection with the acquisition
of intellectual property from Sorbx, LLC. In addition, our Medical
Devices segment recorded an in-process research and development
charge of $8 million in connection with the acquisition of the
remaining outstanding shares of Airox S.A.
(2) We were allocated a net charge of $1,202 million from Tyco
International for our portion of Tyco International´s class action
settlement. This amount is comprised of our portion of the class
action settlement of $1,249 million, net of our portion of the
related insurance recovery of $47 million.
(3) We recorded asset impairment charges of $290 million, primarily
related to a goodwill impairment charge of $256 million, within our
Retail Products segment, and a non-amortizable trademark impairment
of $33 million, within our Imaging Solutions segment.
(4) Restructuring charges of $58 million related primarily to
severance costs and asset impairment charges within our Medical
Devices segment.
(5) We recorded a loss on the early extinguishment of debt of $155
million, of which $146 million was allocated to us by Tyco
International. The loss on the early extinguishment of debt was
included in "Other expense, net" in our Consolidated Statement of
Operations.
(6) Our tax rate was negatively impacted by $16 million, which
consists of certain tax costs incurred in connection with our
separation from Tyco International and other adjustments to legacy
income tax liabilities, partially offset by the release of deferred
tax valuation allowances related to changes in non-U.S. tax law.
(7) We have 497 million GAAP basic and diluted weighted-average shares
outstanding for fiscal 2007. There are no dilutive shares outstanding
for fiscal 2007 as we have a GAAP loss from continuing operations and
an increase in weighted-average shares outstanding would have a anti-
dilutive effect. For our non-GAAP income from continuing operations
we had an incremental dilutive effect of 3 million shares or
weighted-average shares outstanding of 500 million shares. The impact
of the non-GAAP dilutive shares was a decrease of $0.02 per share.
Fiscal Year 2006
---------------------------------------------
Income from Diluted
continuing earnings
operations per share
before Income from from
Operating income continuing continuing
income taxes operations operations
--------- ----------- ----------- -----------
GAAP $ 2,128 $ 1,974 $ 1,470 $ 2.96
Adjustments:
In-process research
and development
charges (1) 63 63 63 0.13
(Gain) on divestiture
(2) (48) (48) (38) (0.08)
Tax matters (3) 25 0.05
--------- ----------- -----------
As adjusted $ 2,143 $ 1,989 $ 1,520 3.06
========= =========== ===========
------------------------
(1) The Medical Devices segment recorded in-process research and
development charges of $49 million in connection with the acquisition
of 100% of Confluent Surgical, Inc., $11 million in connection with
the acquisition of 50% of Airox S.A. and $3 million in connection
with the acquisition of over 90% of Floreane Medical Implants, S.A.
(2) (Gain) of $48 million is primarily related to the sale of the
Radionics product line within the Medical Devices segment.
(3) Our tax rate was negatively impacted by $25 million, which
primarily consists of tax and interest related to federal, state and
non-U.S. tax audit activity.
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Covidien Ltd.
Segment and Geographical Sales
Fiscal Years Ended September 28, 2007 and September 29, 2006
(dollars in millions)
Fiscal Years
----------------------------------------------
Percent
Percent change Operational
2007 2006(2) change currency growth
------- -------- ------- --------- -----------
Medical Devices (1)
United States $ 2,722 $ 2,608 4% 0% 4%
Non-U.S. 3,439 3,103 11% 5% 6%
------- --------
6,161 5,711 8% 3% 5%
Pharmaceutical Products
(1)
United States 1,104 1,018 8% 0% 8%
Non-U.S. 226 201 12% 6% 6%
------- --------
1,330 1,219 9% 1% 8%
Imaging Solutions (1)
United States 671 633 6% 0% 6%
Non-U.S. 271 237 14% 8% 6%
------- --------
942 870 8% 2% 6%
Medical Supplies (1)
United States 887 894 -1% 0% -1%
Non-U.S. 106 98 8% 8% 0%
------- --------
993 992 0% 1% -1%
Retail Products (1)
United States 744 855 -13% 0% -13%
Non-U.S. - - 0% 0% 0%
------- --------
744 855 -13% 0% -13%
Covidien Ltd. (1)
United States 6,128 6,008 2% 0% 2%
Non-U.S. 4,042 3,639 11% 6% 6%
------- --------
$10,170 $ 9,647 5% 2% 3%
-------------------------------
(1) Sales to external customers are reflected in the regions based on
the location of the sales force executing the transaction.
(2) Certain geographic sales have been reclassified to conform to
current year presentation.
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-0-
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Covidien Ltd.
Select Product Line Sales
Fiscal Years Ended September 28, 2007 and September 29, 2006
(dollars in millions)
Fiscal Years
-------------------------------------------
Percent
Percent change Operational
2007 2006 change currency growth
------ ------ ------- --------- -----------
Medical Devices
Endomechanical (1) $1,858 $1,727 8% 3% 4%
Soft Tissue Repair (2) 494 421 17% 5% 13%
Energy (3) 629 523 20% 3% 17%
Oximetry and Monitoring
(4) 597 559 7% 2% 5%
Airway and Ventilation
(5) 766 730 5% 3% 2%
Vascular (6) 482 454 6% 1% 5%
SharpSafety (7) 461 430 7% 1% 6%
Clinical Care (8) 372 352 6% 3% 3%
Imaging Solutions
Radiopharmaceuticals (9) $ 476 $ 422 13% 2% 10%
Contrast (10) 466 448 4% 2% 2%
---------------------------------
(1) Endomechanical includes our laparoscopic instruments and surgical
staplers.
(2) Soft Tissue Repair includes our suture products, mesh products and
biosurgery products.
(3) Energy includes our vessel sealing products, electrosurgical
products, ablation products and related capital equipment.
(4) Oximetry and Monitoring includes our sensors and monitors products
and our temperature management products.
(5) Airway and Ventilation includes our airway products, ventilator
products, breathing systems, sleep products and inhalation therapy
products.
(6) Vascular includes our compression products and vascular therapy
products.
(7) SharpSafety includes our needles and syringes products and our
sharps disposable products.
(8) Clinical Care includes our urology products, enteral feeding
products and other advanced woundcare products.
(9) Radiopharmaceuticals includes our radioactive isotopes and
associated pharmaceutical products used for the diagnosis and
treatment of disease.
(10) Contrast includes our contrast delivery systems and contrast
agents.
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