COVIDIEN REPORTS FISCAL 2007 NET SALES OF $10.2 BILLION.

Covidien Ltd. (NYSE: COV; BSX: COV), Hamilton, Bermuda, has reported results for the fourth quarter of fiscal 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 CEO 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," 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," 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.