Tuesday November 18, 12:30 PM
Covidien Reports Fourth-Quarter and Fiscal 2008 Results |
 |
Hamilton, Bermuda, Tuesday, November 18, 2008 -- (Business Wire India) --
Covidien Ltd. (NYSE: COV; BSX: COV) reported results for the
fourth quarter of fiscal 2008 (July –
September 2008). Fourth-quarter net sales rose 12% to $2.6 billion from
$2.3 billion a year ago, fueled by strong growth in the Medical Devices,
Pharmaceutical Products and Medical Supplies business segments. Sales
growth was driven by higher volume and new products. Favorable foreign
exchange contributed 3 percentage points to the sales increase. All
International regions -- Europe, Asia-Pacific and Other Americas --
reported strong double-digit sales gains.
Fourth-quarter gross margin of 54.6% was up 2.8 percentage points from
the prior year period. This significant improvement reflected favorable
foreign exchange and positive product mix, including benefits from the
launch of new products in the Dosage pharmaceutical business.
Improvement was also aided by the incremental investments made to grow
the Company’s higher-margin businesses.
Selling, general and administrative expenses were higher than in the
fourth quarter of last year. The increase was attributable to planned
growth in selling and marketing investments, foreign exchange and higher
administrative costs. Research and Development (R&D) expense in the
quarter was up 41% over the prior year and represented 4.0% of sales.
For the fourth quarter, the Company reported operating income of $541
million, versus $386 million a year ago. Fourth-quarter adjusted
operating income, excluding the specified items shown in the attached
Quarterly Non-GAAP Reconciliations table, was $552 million, versus $447
million in the fourth quarter of the prior year. Fourth-quarter adjusted
operating income represented 21.5% of sales, versus 19.5% a year ago.
The fourth-quarter effective tax rate was 18.4%. Excluding the specified
items shown in the Quarterly Non-GAAP Reconciliations table, the
fourth-quarter tax rate was 27.0%. The rate was lower primarily due to
favorable foreign exchange offset by changes to certain non-U.S. tax
rates.
Fourth-quarter diluted GAAP earnings per share from continuing
operations were $0.82, versus $0.52 per share in the fourth quarter of
last year. The fourth-quarter non-GAAP diluted earnings per share,
excluding the specified items shown in the Quarterly Non-GAAP
Reconciliations table, were $0.73, versus $0.62 a year ago.
For fiscal 2008, net sales of $9.9 billion were 11% above the $8.9
billion in the prior year, with favorable foreign exchange contributing
4 percentage points to the sales increase.
The Company reported operating income of $1.95 billion in fiscal 2008
versus $585 million the year before. Fiscal 2008 adjusted operating
income, excluding the specified items shown in the Annual Non-GAAP
Reconciliations table, was $2.09 billion, representing 21.1% of sales,
versus $1.92 billion and 21.5% of sales a year ago.
The effective tax rate was 27.1% for fiscal 2008. Excluding the
specified items shown in the Annual Non-GAAP Reconciliations table, the
tax rate for the year was 29.2%.
Fiscal 2008 diluted GAAP earnings per share from continuing operations
were $2.86, versus a loss of $0.33 per share in the prior year. The
fiscal 2008 non-GAAP diluted earnings per share, excluding the specified
items shown in the Annual Non-GAAP Reconciliations table, were $2.70,
versus $2.63 a year ago.
“We finished fiscal 2008 with our strongest
quarterly operational results since becoming a public company in
mid-2007,” said Chairman, President and Chief
Executive Officer Richard J. Meelia. “Growth
was broad-based, with three of our four segments reporting double-digit
increases. Our performance was especially strong in markets outside the
U.S., as we continued to benefit from the incremental investments made
over the last few years to augment our sales force and expand
geographically. Our Imaging segment, however, posted disappointing
fourth-quarter results, but we have plans in place designed to improve
its performance going forward.
“Looking at 2009, we remain comfortable with
the operational growth targets communicated at our Investor Day in
September,” Mr. Meelia said. “Although
reported results will most likely be negatively impacted by the recent
strengthening of the U.S. dollar, we have a strong pipeline of new
products, fueled by strategic investments in R&D, that will enhance our
growth in the coming year and beyond.”
Results by business segment follow.
Medical Devices sales of $1.7 billion in the fourth quarter were
up 10% from $1.6 billion in the comparable quarter of last year. The
sales gain was aided by favorable foreign exchange, which contributed 4
percentage points to the increase, as well as by new products and higher
volume. Sales in Endomechanical were well above those of a year ago, led
by sharply higher sales of laparoscopic instruments. Energy again
registered strong double-digit quarterly growth, paced by vessel sealing
and hardware products. Sales in Soft Tissue Repair climbed
significantly, driven by stronger sales of hernia mesh products.
For fiscal 2008, Medical Devices sales grew 12% to $6.8 billion from
$6.0 billion a year ago. Favorable foreign exchange contributed 6
percentage points to the sales advance.
Imaging
Solutions fourth-quarter sales rose 3% to $300
million from $291 million a year ago, with the entire gain attributable
to favorable foreign exchange. Radiopharmaceutical sales were above
those of the year before, while Contrast Product sales were unchanged,
reflecting lower volume and continued pricing pressures in the United
States.
For the fiscal year, Imaging Solutions sales climbed 13% to $1.2 billion
versus $1.1 billion last year. Favorable foreign exchange contributed 5
percentage points to the sales increase.
Pharmaceutical Products sales of $296 million in the fourth
quarter were 37% above the prior year’s $216
million. Growth was attributable to significantly higher sales of Dosage
pharmaceuticals, due largely to the launches of oxycodone hydrochloride
extended-release tablets and TussiCaps®
extended-release capsules late in the quarter. Dosage sales in the
quarter also benefited from a competitor’s
continued supply constraints. The strong Dosage increase more than
offset lower sales of Active Pharmaceutical Ingredients, reflecting a
decline for narcotic products.
For the fiscal year, Pharmaceutical Products sales were up 12% to $1.0
billion from $908 million last year.
Medical Supplies fourth-quarter sales grew 10% to $245 million
from $223 million in the fourth quarter of the previous year. The
increase was primarily due to higher sales of Nursing Care and OEM
products.
For the fiscal year, Medical Supplies sales, at $920 million, were 4%
above last year’s $887 million.
FISCAL 2009 OUTLOOK
The Company has updated its fiscal 2009 guidance to reflect the recent
strengthening of the US dollar against most currencies which negatively
impacts sales and profit growth in the Medical Devices and Imaging
Solutions segments. The Company now estimates that sales in the 2009
fiscal year will be flat to up 3%, including foreign exchange at current
rates. Operational growth, excluding foreign exchange, remains at the
previously communicated range of 6% to 9% for fiscal 2009. Including
foreign exchange at current rates, net sales are expected to be -3% to
flat versus 2008 in the Medical Devices segment and -4% to -1% in
Imaging Solutions. There are no changes to previous 2009 guidance for
the Pharmaceutical Products or Medical Supplies segments, where sales
are expected to increase 20%+ and 2% to 5%, respectively. Including
foreign exchange at current rates and excluding the impact of one-time
items, the operating margin is expected to be in the 21.5% to 22.5%
range, consistent with prior guidance. We now anticipate the effective
tax rate will be in the 28% to 31% range for fiscal 2009, 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 four segments: Medical Devices, Imaging Solutions,
Pharmaceutical Products and Medical Supplies. With 2008 revenue of
nearly $10 billion, Covidien has more than 41,000 employees worldwide in
59 countries, and its products are sold in over 140 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 November 24 at the same
website.
Telephone – The dial-in number for
participants in the United States is (866)-800-8649. For participants
outside the United States, the dial-in number is (617)-614-2703. The
access code for both numbers is 91716204.
Audio replay – The conference call will be
available for replay, beginning at 10:30 a.m. ET on November 17, 2008,
and ending at 11:59 p.m. on November 24, 2008. 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 97956744.
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 Company’s 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.
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, our ability to effectively introduce and market
new products or keep pace with advances in technology, the reimbursement
practices of a small number of large public and private insurers,
cost-containment efforts of customers, purchasing groups, third-party
payers and governmental organizations, intellectual property rights
disputes, complex and costly regulation, including healthcare fraud and
abuse regulations, manufacturing or supply chain problems or
disruptions, rising commodity costs, recalls or safety alerts and
negative publicity relating to Covidien or its products, product
liability losses and other litigation liability, including legacy
Tyco-related litigation, divestitures of some of our businesses or
product lines, our ability to execute strategic acquisitions of,
investments in or alliances with other companies and businesses,
competition, risks associated with doing business outside of the United
States, foreign currency exchange rates, issues related to our existing
material weakness in accounting for income taxes or potential
environmental liabilities. 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.
Covidien Ltd.
Consolidated Statements of Income
Quarters Ended September 26, 2008 and September 28, 2007
(in millions, except per share data)
Quarter Ended
Percent of
Quarter Ended
Percent of
September 26, 2008
Net Sales
September 28, 2007
Net Sales
Net sales
$
2,573
100.0
%
$
2,298
100.0
%
Cost of products sold
1,167
45.4
1,107
48.2
Gross profit
1,406
54.6
1,191
51.8
Selling, general and administrative expenses
751
29.2
671
29.2
Research and development expenses
103
4.0
73
3.2
Restructuring charges
4
0.2
32
1.4
Shareholder settlements, net of insurance recovery
7
0.3
(5
)
(0.2
)
Intangible asset impairment charges
-
-
34
1.5
Operating income
541
21.0
386
16.8
Interest expense
(45
)
(1.7
)
(63
)
(2.7
)
Interest income
13
0.5
8
0.3
Other income, net
3
0.1
15
0.7
Income from continuing operations before income taxes
512
19.9
346
15.1
Income tax expense
94
3.7
85
3.7
Income from continuing operations
418
16.2
261
11.4
Loss from discontinued operations, net of income taxes
(9
)
(0.3
)
(227
)
(9.9
)
Net income
$
409
15.9
$
34
1.5
Basic earnings per share:
Income from continuing operations
$
0.83
$
0.53
Loss from discontinued operations
(0.02
)
(0.46
)
Net income
0.81
0.07
Diluted earnings per share:
Income from continuing operations
$
0.82
$
0.52
Loss from discontinued operations
(0.02
)
(0.46
)
Net income
0.81
0.07
Weighted-average number of shares outstanding:
Basic
502
497
Diluted
508
500
Covidien Ltd.
Non-GAAP Reconciliations
Quarters Ended September 26, 2008 and September 28, 2007
(in millions, except per share data)
Quarter Ended September 26, 2008
Operating income
Income from continuing operations before income taxes
Income from continuing operations
Diluted earnings per share from continuing operations
GAAP
$
541
$
512
$
418
$
0.82
Adjustments:
Restructuring charges (1)
4
4
1
-
Shareholder settlements, net of insurance recovery (2)
7
7
7
0.01
Impact of tax sharing agreement (3)
-
(12
)
(12
)
(0.02
)
Tax matters (4)
-
-
(41
)
(0.08
)
As adjusted
$
552
$
511
$
373
0.73
(1) Relates to restructuring charges
primarily within our Imaging segment.
(2) Represents our portion of Tyco
International's legal settlements with certain shareholders, net of
our portion of insurance recovery.
(3) Represents the non-interest
portion of the impact of our tax sharing agreement with Tyco
International and Tyco Electronics resulting from adjustments to our
adoption of FIN 48 and adjustments to legacy income tax liabilities
subject to the tax sharing agreement.
(4) Primarily consists of the
settlement of certain income tax matters and adjustments to legacy
income tax liabilities, a portion of which are not subject to the
tax sharing agreement with Tyco International and Tyco Electronics.
Quarter Ended September 28, 2007
Operating income
Income from continuing operations before income taxes
Income from continuing operations
Diluted earnings per share from continuing operations
GAAP
$
386
$
346
$
261
$
0.52
Adjustments:
Restructuring charges (1)
32
32
21
0.04
Class action settlement insurance recovery (2)
(5
)
(5
)
(5
)
(0.01
)
Intangible asset impairment charges (3)
34
34
21
0.04
Tax matters (4)
-
-
13
0.03
As adjusted
$
447
$
407
$
311
0.62
(1) Consists of restructuring
charges of $23 million and related asset impairment charges of $9
million primarily within our Medical Devices segment.
(2) Represents our portion of Tyco
International's insurance recovery.
(3) Primarily represents the
write-off of a non-amortizable trademark within our Imaging
Solutions segment.
(4) Primarily consists of
adjustments to legacy income tax liabilities, a portion of which not
subject to the tax sharing agreement with Tyco International and
Tyco Electronics.
Covidien Ltd.
Segment and Geographical Sales
Quarters Ended September 26, 2008 and September 28, 2007
(dollars in millions)
Quarters Ended
September 26, 2008
September 28, 2007
Percent change
Percent change currency
Operational growth
Medical Devices (1)
United States
$
742
$
705
5
%
-
%
5
%
Non-U.S.
990
863
15
8
7
$
1,732
$
1,568
10
4
6
Imaging Solutions (1)
United States
$
174
$
180
(3
)
%
-
%
(3
)
%
Non-U.S.
126
111
14
9
5
$
300
$
291
3
3
-
Pharmaceutical Products (1)
United States
$
271
$
195
39
%
-
%
39
%
Non-U.S.
25
21
19
(10
)
29
$
296
$
216
37
(1
)
38
Medical Supplies (1)
United States
$
245
$
223
10
%
-
%
10
%
Non-U.S.
-
-
-
-
-
$
245
$
223
10
-
10
Covidien Ltd. (1)
United States
$
1,432
$
1,303
10
%
-
%
10
%
Non-U.S.
1,141
995
15
7
8
$
2,573
$
2,298
12
3
9
(1)
Sales to external customers
are reflected in the regions based on the location of the sales force
executing the transaction.
Covidien Ltd.
Select Product Line Sales
Quarters Ended September 26, 2008 and September 28, 2007
(dollars in millions)
Quarters Ended
September 26, 2008
September 28, 2007
Percent change
Percent change currency
Operational growth
Medical Devices
Endomechanical
$
541
$
479
13
%
4
%
9
%
Soft Tissue Repair
154
128
20
5
15
Energy
213
171
25
5
20
Oximetry and Monitoring
158
150
5
2
3
Airway and Ventilation
209
202
3
4
(1
)
Vascular
138
127
9
3
6
SharpSafety
118
118
-
-
-
Clinical Care
103
97
6
4
2
Imaging Solutions
Radio-pharmaceuticals
$
136
$
127
7
%
3
%
4
%
Contrast
164
164
-
3
(3
)
Covidien Ltd.
Consolidated and Combined Statements of Operations
Fiscal Years Ended September 26, 2008 and September 28, 2007
(in millions, except per share data)
Fiscal Year Ended
Percent of
Fiscal Year Ended
Percent of
September 26, 2008
Net Sales
September 28, 2007
Net Sales
Net sales
$
9,910
100.0
%
$
8,895
100.0
%
Cost of products sold
4,601
46.4
4,273
48.0
Gross profit
5,309
53.6
4,622
52.0
Selling, general and administrative expenses
2,881
29.1
2,446
27.5
Research and development expenses
341
3.4
260
2.9
In-process research and development charges
22
0.2
38
0.4
Restructuring charges
77
0.8
57
0.6
Class action and shareholder settlements, net of insurance recoveries
42
0.4
1,202
13.5
Intangible asset impairment charges
-
-
34
0.4
Operating income
1,946
19.6
585
6.6
Interest expense
(209
)
(2.1
)
(188
)
(2.1
)
Interest income
43
0.4
35
0.4
Other income (expense), net
199
2.0
(135
)
(1.5
)
Income from continuing operations before income taxes
1,979
20.0
297
3.3
Income tax expense
536
5.4
462
5.2
Income (loss) from continuing operations
1,443
14.6
(165
)
(1.9
)
Loss from discontinued operations, net of income taxes
(82
)
(0.8
)
(177
)
(2.0
)
Net income (loss)
$
1,361
13.7
$
(342
)
(3.8
)
Basic earnings per share:
Income (loss) from continuing operations
$
2.89
$
(0.33
)
Loss from discontinued operations
(0.16
)
(0.36
)
Net income (loss)
2.72
(0.69
)
Diluted earnings per share:
Income (loss) from continuing operations
$
2.86
$
(0.33
)
Loss from discontinued operations
(0.16
)
(0.36
)
Net income (loss)
2.70
(0.69
)
Weighted-average number of shares outstanding:
(1)
Basic
500
497
Diluted
505
497
(1) The common shares outstanding
immediately following the separation from Tyco International were used
to calculate basic and diluted earnings per share prior to the
separation because no common shares, share options or restricted shares
of Covidien were outstanding on or before June 29, 2007.
Covidien Ltd.
Non-GAAP Reconciliations
Fiscal Years Ended September 26, 2008 and September 28, 2007
(in millions, except per share data)
Fiscal Year Ended September 26, 2008
Operating income
Income from continuing operations before income taxes
Income from continuing operations
Diluted earnings per share from continuing operations
GAAP
$
1,946
$
1,979
$
1,443
$
2.86
Adjustments:
In-process research and development charges (1)
22
22
22
0.04
Restructuring charges(2)
77
77
60
0.12
Class action and shareholder settlements, net of insurance
recoveries (3)
42
42
42
0.08
Impact of tax sharing agreement (4)
-
(193
)
(193
)
(0.38
)
Tax matters (5)
-
-
(10
)
(0.02
)
As adjusted
$
2,087
$
1,927
$
1,364
2.70
(1) Write-off of in-process research
and development primarily relates to acquisitions by our Medical
Devices segment.
(2) Consists of restructuring
charges of $59 million and related impairment charges of $18 million
primarily within our Medical Devices segment.
(3) Represents our portion of Tyco
International's legal settlements with certain shareholders, net of
our portion of insurance recoveries.
(4) Represents the non-interest
portion of the impact of our tax sharing agreement with Tyco
International and Tyco Electronics primarily resulting from the
adoption of FIN 48 and adjustments to legacy income tax liabilities
subject to the tax sharing agreement.
(5) Primarily consists of the
settlement of certain income tax matters and adjustments to legacy
income tax liabilities, a portion of which are not subject to the
tax sharing agreement with Tyco International and Tyco Electronics.
Fiscal Year Ended September 28, 2007
Operating income
Income from continuing operations before income taxes
(Loss) income from continuing operations
Diluted (loss) earnings per share from continuing operations
GAAP
$
585
$
297
$
(165
)
$
(0.33
)
Adjustments:
In-process research and development charges (1)
38
38
30
0.06
Restructuring charges(2)
57
57
37
0.07
Class action settlement, net of insurance recoveries (3)
1,202
1,202
1,202
2.42
Intangible asset impairment charges (4)
34
34
21
0.04
Loss on early extinguishment of debt (5)
-
155
152
0.31
Tax matters (6)
-
-
34
0.07
Impact of dilutive shares (7)
-
-
-
(0.02
)
As adjusted
$
1,916
$
1,783
$
1,311
2.63
(1) Write-off of in-process research
and development relates to acquisitions by our Medical Devices
segment.
(2) Consists of restructuring
charges of $48 million and related asset impairment charges of $9
million primarily within our Medical Devices segment.
(3) Represents our portion of Tyco
International's class action settlement, net of our portion of the
related insurance recoveries.
(4) Primarily represents the
write-off of a non-amortizable trademark within our Imaging
Solutions segment.
(5) Represents losses on the early
extinguishment of debt, of which $146 million was allocated to us by
Tyco International.
(6) Consists of certain tax costs
incurred in connection with our separation from Tyco International
and other adjustments to legacy income tax liabilities, a portion
of which are not subject to the tax sharing agreement with Tyco
International and Tyco Electronics, partially offset by the
release of deferred tax valuation allowances related to changes in
non-U.S. tax law.
(7) GAAP diluted weighted-average
shares outstanding excludes 3 million shares related primarily to
the effect of potential option exercises because the effect would be
anti-dilutive. Diluted weighted-average shares outstanding on an
adjusted basis includes the incremental dilutive effect of the 3
million shares, resulting in an as adjusted weighted-average shares
outstanding of 500 million.
Covidien Ltd.
Segment and Geographical Sales
Fiscal Years Ended September 26, 2008 and September 28, 2007
(dollars in millions)
Fiscal Year Ended
September 26, 2008
September 28, 2007
Percent change
Percent change currency
Operational growth
Medical Devices (1)
United States
$ 2,882
$ 2,722
6
%
-
%
6
%
Non-U.S.
3,881
3,301
18
11
7
$ 6,763
$ 6,023
12
6
6
Imaging Solutions (1)
United States
$ 718
$ 671
7
%
-
%
7
%
Non-U.S.
496
406
22
11
11
$ 1,214
$ 1,077
13
5
8
Pharmaceutical Products (1)
United States
$ 915
$ 829
10
%
-
%
10
%
Non-U.S.
98
79
24
1
23
$ 1,013
$ 908
12
1
11
Medical Supplies (1)
United States
$ 920
$ 887
4
%
-
%
4
%
Non-U.S.
-
-
-
-
-
$ 920
$ 887
4
-
4
Covidien Ltd. (1)
United States
$ 5,435
$ 5,109
6
%
-
%
6
%
Non-U.S.
4,475
3,786
18
11
7
$ 9,910
$ 8,895
11
4
7
(1)
Sales to external customers
are reflected in the regions based on the location of the sales force
executing the transaction.
Covidien Ltd.
Select Product Line Sales
Fiscal Years Ended September 26, 2008 and September 28, 2007
(dollars in mi
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