Covidien Reports First-Quarter Results

  Covidien Reports First-Quarter Results

  *Net sales up 5%; Medical Devices sales up 8%
  *First-quarter diluted GAAP earnings per share were $1.03; excluding
    specified items, adjusted diluted earnings per share were $1.10
  *Increasing fiscal 2013 net sales guidance in all segments

Business Wire

DUBLIN -- January 25, 2013

Covidien plc (NYSE: COV) today reported results for the first quarter of
fiscal 2013 (October - December 2012). First-quarter net sales of $3.06
billion were 5% above the $2.90 billion reported in the comparable period a
year ago. Foreign exchange rate movement lowered the quarterly sales growth
rate by one percentage point.

First-quarter 2013 gross margin of 57.5% declined 1.2 percentage points from
the 58.7% of the prior-year period. On an adjusted basis, excluding the
specified items shown on the attached quarterly Non-GAAP reconciliations
table, first-quarter 2013 gross margin of 57.5% was 1.3 percentage points
below that of a year ago. The decline was largely due to unfavorable foreign
exchange rate movement, partially offset by positive business mix and
productivity improvements.

Selling, general and administrative expenses (SG&A) for the first quarter of
2013 were above those of the same period of the year before, reflecting
expenses associated with recent acquisitions, as well as spending on growth
initiatives, including investments to expand the Company’s presence in
emerging markets. Research and development (R&D) expense in the first quarter
of 2013 represented 4.9% of net sales, versus 5.0% of sales in the first
quarter of 2012.

In the first quarter of 2013, the Company reported operating income of $658
million, versus $636 million in the same period the year before. First-quarter
2013 adjusted operating income, excluding specified items on the attached
table, was $686 million, compared with $705 million in the prior year.
First-quarter 2013 adjusted operating income, excluding the specified items,
represented 22.4% of sales, versus 24.3% of sales in the year-ago period.

The first-quarter 2013 effective tax rate was 19.2%, versus an effective tax
rate of 16.7% in the first quarter of 2012. The first-quarter 2013 adjusted
tax rate, excluding specified items on the attached table, was 18.0%, versus
17.4% in the first quarter last year.

Diluted GAAP earnings per share were $1.03 in the first quarter of 2013,
versus $1.02 per share in the comparable quarter of 2012. First-quarter 2013
adjusted diluted earnings per share, excluding specified items on the attached
table, were $1.10, versus $1.13 a year earlier.

“We’re off to a very good start in fiscal 2013, with first-quarter results
exceeding our expectations,” said José E. Almeida, Chairman, President and
CEO. “In our large Medical Devices segment, we continued to generate
above-market growth in a number of key categories, including stapling, energy,
airway and ventilation. We delivered very strong growth in emerging markets,
as we realized the benefits of our recent substantial investments in these
fast-growing regions.

“As a result of our strong performance in the first quarter, coupled with the
recent U.S. FDA approval of generic CONCERTA^® extended-release (ER) tablets,
we are raising our revenue guidance for fiscal 2013,” Mr. Almeida added. “For
the remainder of the year, we plan to make incremental growth-driving
investments in R&D and SG&A that should enhance our future growth. We remain
confident that our robust pipeline of new products, sizable expansion
opportunities in emerging markets and recent promising portfolio additions
will enable us to meet the significant challenges of the global marketplace
and to continue to deliver good operational growth.”

BUSINESS SEGMENT RESULTS

Medical Devices sales of $2.13 billion in the first quarter were 8% higher
than the $1.98 billion in the comparable quarter of last year. Operational
sales growth was 9%, as foreign exchange rate movement reduced the quarterly
sales growth rate by one percentage point. Operationally, first-quarter sales
in Endomechanical were well above those of a year ago, paced by double-digit
gains for stapling that were led by our innovative Tri-Staple™ reloads. In
Soft Tissue Repair, sales growth reflected an increase for suture, mesh and
mechanical fixation products. Energy registered a good sales advance, spurred
by another double-digit quarterly increase for vessel sealing products. In
Oximetry & Monitoring, operational sales rose at a strong double-digit pace,
as higher sales of sensors and monitors were aided by the acquisition of
Oridion. Airway & Ventilation sales were well ahead of those in the year-ago
quarter, chiefly reflecting a double-digit increase for ventilators, primarily
due to the acquisition of Newport Medical. Vascular products posted higher
sales, fueled by exceptional gains for neurovascular products and a good
performance by peripheral vascular products.

Pharmaceuticals sales of $489 million in the first quarter were essentially
unchanged from last year’s first-quarter sales of $490 million. Sales of
Specialty Pharmaceuticals climbed sharply from those of a year ago, primarily
due to the strong performance of EXALGO^® (hydromorphone HCl) ER tablets and
good growth for generic products that was aided by the launch of generic
CONCERTA^® ER tablets. Sales of Active Pharmaceutical Ingredients were below
those of the prior year, largely attributable to customer order timing. Sales
of Contrast Products declined sharply in the quarter, primarily reflecting
difficult comparisons from a one-time order in the year-ago period and
continued weakness in the United States. First-quarter sales of
Radiopharmaceuticals were about even with those of the first quarter of the
year before. The Company remains on track for the mid-2013 spin-off of the
Pharmaceuticals business.

Medical Supplies first-quarter sales of $434 million were up 2% from the $424
million in the comparable quarter of 2012. Operational sales growth in the
quarter was 3%, as foreign exchange rate movement reduced the quarterly sales
growth rate by one percentage point. The increase was due to higher sales of
both Nursing Care products, which were led by a double-digit gain for enteral
feeding, and SharpSafety™ products.

In the first quarter of 2013, Covidien purchased approximately 4.4 million
ordinary shares under its previously announced share buyback program.

FISCAL 2013 OUTLOOK

Covidien has updated its fiscal 2013 guidance to reflect the recent U.S. FDA
approval of generic CONCERTA^®, the extension of the R&D tax credit and better
operational performance thus far in the fiscal year. The Company now estimates
that net sales in fiscal 2013 will be up 5% to 8%, including foreign exchange
at current rates. This compares with prior guidance of a 3% to 6% sales
increase in 2013. Net sales are now expected to be up 5% to 8% versus 2012 in
the Medical Devices segment and up high single digits or better in the
Pharmaceuticals segment. For Medical Supplies, 2013 net sales are now expected
to be 1% to 3% above 2012. There is no change to the forecast for operating
margin, excluding the impact of one-time items, which is still expected to be
in the 22% to 23% range. The effective tax rate, excluding one-time items, is
now expected to be in the 17.5% to 18.5% range, compared with prior guidance
of 18% to 19%.

While the planned spin-off of the Pharmaceuticals business may have a somewhat
dilutive effect on Covidien’s 2013 guidance, the underlying operational
strength of the business, coupled with the expected benefits from generic
CONCERTA^® ER tablets, will temper the expected dilution.

ABOUT COVIDIEN

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 three
segments: Medical Devices, Pharmaceuticals and Medical Supplies. With 2012
revenue of $11.9 billion, Covidien has 43,000 employees worldwide in 70
countries, and its products are sold in over 140 countries. Please visit
www.covidien.com to learn more about our business.

CONCERTA is a registered trademark of ALZA Corporation.

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:

  *At Covidien’s website: http://investor.covidien.com
  *By telephone: For both “listen-only” participants and those participants
    who wish to take part in the question-and-answer portion of the call, the
    telephone dial-in number in the U.S. is 800-561-2693. For participants
    outside the U.S., the dial-in number is 617-614-3523. The access code for
    all callers is 83035324.
  *Through an audio replay: A replay of the conference call will be available
    beginning at 11:30 a.m. on January 25, 2013, and ending at 5:00 p.m. on
    February 1, 2013. The dial-in number for U.S. participants is
    888-286-8010. For participants outside the U.S., the replay dial-in number
    is 617-801-6888. The replay access code for all callers is 90266221.

NON-GAAP FINANCIAL MEASURES

This press release contains financial measures, including operational growth,
adjusted gross margin, adjusted operating income, adjusted earnings per share
and adjusted operating margin, which 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 communication 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 payors and governmental organizations, intellectual property
rights disputes, complex and costly regulation, including healthcare fraud and
abuse regulations and the Foreign Corrupt Practices Act, 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, 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 and environmental remediation
costs. These and other factors are identified and described in more detail in
our Annual Report on Form 10-K for the fiscal year ended September 28, 2012,
and in subsequent filings with the SEC. We disclaim any obligation to update
these forward-looking statements other than as required by law.

                                                              
Covidien plc
Consolidated Statements of Income
Quarters Ended December 28, 2012 and December 30, 2011
(dollars in millions, except per share data)
                                                                       
                                                                       
                        Quarter          Percent       Quarter         Percent
                        Ended            of            Ended           of
                        December 28,     Net          December       Net
                        2012             Sales         30, 2011        Sales
                                                                       
Net sales               $  3,056         100.0   %     $  2,898        100.0 %
Cost of goods sold      1,300           42.5          1,197          41.3
^(1)
Gross profit            1,756            57.5          1,701           58.7
Selling, general
and administrative      941              30.8          907             31.3
expenses ^(1)
Research and
development             149              4.9           144             5.0
expenses
Restructuring           8               0.3           14             0.5
charges, net
Operating income        658              21.5          636             21.9
Interest expense        (51       )      (1.7    )     (51       )     (1.8  )
Interest income         2                0.1           6               0.2
Other income            1               —             2              0.1
Income before           610              20.0          593             20.5
income taxes
Income tax expense      117             3.8           99             3.4
Net income              $  493          16.1          $  494         17.0
Net income per
share:
Basic                   $  1.04                        $  1.02
Diluted                 1.03                           1.02
Weighted-average
number of shares
outstanding (in
millions):
Basic                   472                            483
Diluted                 477                            486

                                                                       
^(1) Amortization expense of intangible assets is included in the following
income statement captions in the amounts shown:
Cost of goods sold      $  48                          $  39
Selling, general
and administrative      16                            12        
expenses
                        $  64                         $  51     

                                                                                             
Covidien plc
Non-GAAP Reconciliations
Quarters Ended December 28, 2012 and December 30, 2011
(dollars in millions, except per share data)
                                                                                                              
                  Quarter Ended December 28, 2012
                                              Gross                     Operating     Income      Net         Diluted
                  Sales         Gross         margin      Operating     margin        before      income      earnings
                                profit        percent     income        percent       income      ^(1)        per
                                                                                      taxes                   share
                                                                                                              
GAAP              $ 3,056       $ 1,756       57.5  %     $  658        21.5   %      $ 610       $ 493       $  1.03
Adjustments:
Restructuring
and related       —             1                         9                           9           3           0.01
charges, net
^(2)
Separation        —             —                         19                          19          16          0.03
costs ^(3)
Tax matters       —            —                        —                          —          11         0.02
^(4)
As adjusted       $ 3,056      $ 1,757      57.5        $  686       22.4          $ 638      $ 523      1.10
                                                                                                              
                                                                                                              
                  Quarter Ended December 30, 2011
                                              Gross                     Operating     Income      Net         Diluted
                  Sales         Gross         margin      Operating     margin        before      income      earnings
                                profit        percent     income        percent       income      ^(1)        per
                                                                                      taxes                   share
                                                                                                              
GAAP              $ 2,898       $ 1,701       58.7  %     $  636        21.9   %      $ 593       $ 494       $  1.02
Adjustments:
Restructuring
and related       —             4                         18                          18          14          0.03
charges, net
^(5)
Legal charges     —             —                         47                          47          35          0.07
^(6)
Separation        —            —                        4                          4          4          0.01
costs ^(3)
As adjusted       $ 2,898      $ 1,705      58.8        $  705       24.3          $ 662      $ 547      1.13
                                                                                                              

                                                                                                              

^(1) Adjustments are tax effected at the applicable local statutory tax rates.

^(2) Includes $8 million in restructuring charges, net and $1 million of
restructuring-related accelerated depreciation included in cost of goods sold.

^(3) Represents costs incurred related to the separation of our
Pharmaceuticals segment, which are included in selling, general and
administrative expenses.

^(4) Consists primarily of an adjustment to prior year deferred income tax
assets, which are not subject to the tax sharing agreement with Tyco
International and TE Connectivity.

^(5) Includes $14 million in restructuring charges, net and $4 million of
restructuring-related accelerated depreciation included in cost of goods sold.

^(6) Relates to our indemnification obligations for certain claims pertaining
to all known pending and estimated future pelvic mesh product liability cases,
which is included in selling, general and administrative expenses.

                                                           
Covidien plc
Segment and Geographical Sales
Quarters Ended December 28, 2012 and December 30, 2011
(dollars in millions)
                                                                             
                   Quarter Ended
                   December     December    Percent   Currency   Operational
                   28,          30,         change    impact     growth ^(1) 
                   2012         2011
                                                                             
Medical Devices
United States      $  929       $ 895       4    %    —    %     4           %
Non-U.S.           1,204       1,089      11        (2   )     13
                   $  2,133     $ 1,984     8         (1   )     9
                                                                             
Pharmaceuticals
United States      $  334       $ 323       3    %    —    %     3           %
Non-U.S.           155         167        (7   )    (2   )     (5          )
                   $  489       $ 490       —         —          —
                                                                             
Medical Supplies
United States      $  385       $ 375       3    %    —    %     3           %
Non-U.S.           49          49         —         (1   )     1
                   $  434       $ 424       2         (1   )     3
                                                                             
Covidien plc
United States      $  1,648     $ 1,593     3    %    —    %     3           %
Non-U.S.           1,408       1,305      8         (2   )     10
                   $  3,056     $ 2,898     5         (1   )     6
                                                                             
                                                                             
                                                                             


^(1) Operational growth, a non-GAAP financial measure, measures the change in
sales between current and prior year periods using a constant currency, the
exchange rate in effect during the applicable prior year period. See
description of non-GAAP financial measures contained in this release.

                                                             
Covidien plc
Select Product Line Sales
Quarters Ended December 28, 2012 and December 30, 2011
(dollars in millions)
                                                                   
                        Quarter Ended
                        December   December   Percent   Currency   Operational
                        28,        30,        change    impact     growth ^(1)
                        2012       2011
                                                                   
Medical Devices
Endomechanical          $  620     $  581     7    %    (1   )%    8      %
Instruments
Soft Tissue Repair      225        218        3         (1   )     4
Products
Energy Devices          346        321        8         (1   )     9
Oximetry & Monitoring   241        207        16        (2   )     18
Products
Airway & Ventilation    195        181        8         (1   )     9
Products
Vascular Products       414        387        7         (1   )     8
                                                                   
Pharmaceuticals
Specialty               $  167     $  134     25   %    —    %     25     %
Pharmaceuticals
Active Pharmaceutical   93         102        (9   )    —          (9     )
Ingredients
Contrast Products       121        145        (17  )    (2   )     (15    )
Radiopharmaceuticals    108        109        (1   )    (1   )     —
                                                                   

^(1) Operational growth, a non-GAAP financial measure, measures the change in
sales between current and prior year periods using a constant currency, the
exchange rate in effect during the applicable prior year period. See
description of non-GAAP financial measures contained in this release.

Contact:

Covidien plc
Bruce Farmer, 508-452-4372
Vice President
Public Relations
bruce.farmer@covidien.com
or
Coleman Lannum, CFA, 508-452-4343
Vice President
Investor Relations
cole.lannum@covidien.com
or
Todd Carpenter, 508-452-4363
Senior Director
Investor Relations
todd.carpenter@covidien.com