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8-K - FORM 8-K - Covidien plc | d8k.htm |
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Exhibit 99.1
2009 IRISH STATUTORY ACCOUNTS
These accounts form a part of our 2009 Annual Report to Shareholders
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COVIDIEN PUBLIC LIMITED COMPANY
Directors Report and Consolidated Financial Statements
For the Year Ended September 25, 2009
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Consolidated Reconciliation of Movement in Shareholders Funds |
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2009 Irish Statutory Accounts | 2 |
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For the Fiscal Year Ended September 25, 2009
The directors present their report and audited consolidated financial statements for the fiscal year ended September 25, 2009, which are set out on pages 31 to 105.
The directors have elected to prepare the consolidated and parent company financial statements of Covidien plc in accordance with section 1 of the Companies (Miscellaneous Provisions) Act, 2009, which provides that a true and fair view of the state of affairs and profit or loss may be given by preparing the financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), as defined in Section 1(1) of the Companies (Miscellaneous Provisions) Act 2009, to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Companies Acts or of any regulations made thereunder.
Basis of Presentation
The accompanying financial statements reflect the consolidated operations of Covidien plc and its subsidiaries (Covidien or the Company). The results of the parent company (Covidien plc) are included in the consolidated financial statements from January 16, 2009, the date of incorporation.
Reorganization
On January 16, 2009, Covidien plc was incorporated in Ireland, in order to effectuate moving Covidien Ltd.s principal executive office from Bermuda to Ireland. Covidien plc operated as a wholly-owned subsidiary of Covidien Ltd., a Bermuda registered company and the then ultimate parent company, until June 4, 2009, when the outstanding common shares of Covidien Ltd. were cancelled and Covidien plc issued ordinary shares with substantially the same rights and preferences on a one-to-one basis to holders of the Covidien Ltd. common shares that were cancelled. Upon completion of this transaction, Covidien plc replaced Covidien Ltd. as the ultimate parent company and Covidien Ltd. became a wholly-owned subsidiary of Covidien plc. This transaction was accounted for in the consolidated financial statements as a merger between entities under common control; accordingly, the historical consolidated financial statements of Covidien Ltd. for periods prior to this transaction are considered to be the historical financial statements of Covidien plc. No changes in capital structure, assets or liabilities of the consolidated financial statements resulted from this transaction, other than Covidien plc has provided a guarantee of amounts due under certain borrowing arrangements of a subsidiary as described in notes 10 and 11 to the consolidated financial statements.
Principal Activities
Covidien plc is the parent company of a group whose principal activity is the development, manufacture and sale of healthcare products for use in clinical and home settings.
Review of the Development and Performance of the Business
Covidien is a global leader in the development, manufacture and sale of healthcare products for use in clinical and home settings. The Companys products are found in almost every hospital in the United States, and it has a significant and growing presence in non-U.S. markets. Covidiens mission is to create and deliver innovative healthcare solutions, developed in ethical collaboration with medical professionals, which enhance the quality of life for patients and improve outcomes for its customers and shareholders.
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Covidien operates its businesses through three segments:
| Medical Devices includes the development, manufacture and sale of endomechanical instruments, soft tissue repair products, energy devices, oximetry and monitoring products, airway and ventilation products, products used in vascular therapies and other medical products. |
| Pharmaceuticals includes the development, manufacture and distribution of specialty pharmaceuticals, active pharmaceutical ingredients, specialty chemicals, contrast products and radiopharmaceuticals. |
| Medical Supplies includes the development, manufacture and sale of nursing care products, medical surgical products, SharpSafety products and original equipment manufacturer products (OEM). |
Key Performance Indicators
The financial measures discussed below are considered non-U.S. GAAP financial measures and should be considered supplemental to and not a substitute for financial information prepared in accordance with U.S. GAAP. Our definition of these non-GAAP measures may differ from similarly titled measures used by others. The non-U.S. GAAP financial measures discussed below adjust for specified items that can be highly variable or difficult to predict. We generally use these non-U.S. GAAP financial measures to facilitate our financial and operational decision-making, including evaluation of Covidiens historical operating results, comparison to competitors operating results and determination of management incentive compensation. Because non-U.S. GAAP financial measures exclude the effect of items that will increase or decrease Covidiens reported results of operations, we strongly encourage investors to review the Companys consolidated financial statements and publicly filed reports in their entirety.
Operational revenue growth, which represents revenue growth after adjusting for the impact of foreign exchange translation was 8% for the Company in fiscal 2009, compared to 7% in fiscal 2008. During fiscal 2008, we entered into a license agreement which allowed us to sell limited quantities of oxycodone hydrochloride extended-release tablets (Oxy ER) for a limited period of time. Sales of Oxy ER in fiscal 2009 and fiscal 2008 were $354 million and $57 million, respectively. We achieved the sales quantity of Oxy ER allowable under the agreement during fiscal 2009; accordingly, there will be no further sales of such tablets. Reconciliations for this non-U.S. GAAP financial measure to increases in net sales, the most directly comparable U.S. GAAP financial measure, are as follows:
Fiscal Years | Increase in Net Sales |
Change Due to Currency |
Operational Revenue Growth |
||||||||||||
(Dollars in Millions) | 2009 | 2008 | |||||||||||||
Total net sales as filed in Annual Report on Form 10-K |
$ | 10,677 | $ | 10,358 | 3 | % | (5 | )% | 8 | % | |||||
Fiscal Years | Increase in Net Sales |
Change Due to Currency |
Operational Revenue Growth |
||||||||||||
(Dollars in Millions) | 2008 | 2007 | |||||||||||||
Total net sales as filed in Annual Report on Form 10-K |
$ | 10,358 | $ | 9,317 | 11 | % | 4 | % | 7 | % |
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Adjusted operating margin excludes the items set forth in the reconciliations provided below. Adjusted operating margin decreased slightly to 20.1% in fiscal 2009, compared to 20.3% in fiscal 2008. Growth in adjusted diluted earnings per share (EPS) from continuing operations is the year-over-year improvement in diluted EPS from continuing operations before the items set forth in the reconciliations provided below (net of related tax). In fiscal 2009, the Companys adjusted diluted EPS from continuing operations increased by 5% to $2.84, compared to $2.70 in fiscal 2008. Reconciliations of these non-U.S. GAAP financial measures to operating margin and diluted EPS from continuing operations, the most directly comparable U.S. GAAP financial measures, are as follows:
Fiscal Year Ended September 25, 2009 | |||||||||||||||||||
Sales | Operating Income |
Operating margin |
Income from continuing operations |
Diluted EPS from continuing operations |
|||||||||||||||
U.S. GAAP, as filed in Annual Report on Form 10-K |
$ | 10,677 | $ | 1,856 | 17.4 | % | $ | 902 | $ | 1.78 | |||||||||
Adjustments: |
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Reclass of discontinued operations (1) |
| 9 | 66 | 0.13 | |||||||||||||||
Legal charges (2) |
| 94 | 58 | 0.12 | |||||||||||||||
Licensing fees (3) |
| 30 | 19 | 0.04 | |||||||||||||||
Environmental charge (4) |
| 53 | 32 | 0.06 | |||||||||||||||
Loss on divestiture (5) |
| 21 | 17 | 0.03 | |||||||||||||||
In-process research and development charges (6) |
| 115 | 114 | 0.23 | |||||||||||||||
Restructuring charges (7) |
| 61 | 39 | 0.08 | |||||||||||||||
Shareholder settlements (8) |
| 183 | 183 | 0.36 | |||||||||||||||
Impact of tax sharing agreement (9) |
| | (126 | ) | (0.25 | ) | |||||||||||||
Tax matters (10) |
| | 389 | 0.77 | |||||||||||||||
As adjusted |
10,677 | 2,422 | 22.7 | 1,693 | 3.35 | ||||||||||||||
Impact of Oxy ER (11) |
(354 | ) | (345 | ) | 97.5 | (259 | ) | (0.51 | ) | ||||||||||
As adjusted, excluding impact of Oxy ER |
$ | 10,323 | $ | 2,077 | 20.1 | $ | 1,434 | 2.84 | |||||||||||
(1) | Consists of incremental depreciation and amortization expense recorded relating to the period from the first quarter of fiscal 2008 when we classified our Specialty Chemicals pharmaceuticals business as held for sale through the end of fiscal 2008 and the write-off of a previously recognized deferred tax asset. |
(2) | Represents legal charges associated with three anti-trust cases, which are included in selling, general and administrative expenses. |
(3) | Consists of research and development expenses related to up front fees and milestone payments for licensing arrangements entered into by our Pharmaceuticals segment. |
(4) | Represents the estimated additional cost to remediate environmental matters at a site located in Orrington, Maine. |
(5) | Represents charges included in selling, general and administrative expenses for the loss on sale of Sleep Diagnostics and the write down of Oxygen Therapy to its fair value less cost to sell. |
(6) | Relates to acquisitions by our Medical Devices segment, primarily VNUS Medical Technologies, Inc. and Power Medical Interventions, Inc. |
(7) | Primarily relates to severance costs across the Company and impairment charges within our Pharmaceuticals segment. |
(8) | Represents our portion of Tyco Internationals legal settlements with certain shareholders and our portion of the estimated cost to settle all of the remaining securities cases outstanding. |
(9) | Represents other income recorded under our tax sharing agreement with Tyco International and Tyco Electronics, primarily resulting from Tyco Internationals settlement with the IRS of certain outstanding tax matters in the 2001 through 2004 audit cycle. |
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(10) | Primarily relates to an increase in income tax liabilities resulting from the effect of Tyco Internationals settlement with the IRS of certain outstanding tax matters in the 2001 through 2004 audit cycle and withholding tax incurred on repatriated earnings. |
(11) | Represents the sales and direct costs attributable to selling Oxy ER. |
Fiscal Year Ended September 26, 2008 | |||||||||||||||||||
Sales | Operating Income |
Operating margin |
Income from continuing operations |
Diluted EPS from continuing operations |
|||||||||||||||
U.S. GAAP, as filed in Annual Report on Form 10-K |
$ | 10,358 | $ | 2,001 | 19.3 | % | $ | 1,537 | $ | 3.04 | |||||||||
Adjustments: |
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In-process research and development charges (1) |
| 22 | 22 | 0.04 | |||||||||||||||
Restructuring charges (2) |
| 77 | 60 | 0.12 | |||||||||||||||
Shareholder settlements, net of insurance recoveries (3) |
| 42 | 42 | 0.08 | |||||||||||||||
Impact of tax sharing agreement (4) |
| | (193 | ) | (0.38 | ) | |||||||||||||
Tax matters (5) |
| | (70 | ) | (0.14 | ) | |||||||||||||
As adjusted |
10,358 | 2,142 | 20.7 | 1,398 | 2.77 | ||||||||||||||
Impact of Oxy ER (6) |
(57 | ) | (47 | ) | 82.5 | (34 | ) | (0.07 | ) | ||||||||||
As adjusted, excluding impact of Oxy ER |
$ | 10,301 | $ | 2,095 | 20.3 | $ | 1,364 | 2.70 | |||||||||||
(1) | Primarily relates to acquisitions by our Medical Devices segment. |
(2) | Consists of restructuring charges of $59 million and related asset impairment charges of $18 million, both primarily within our Medical Devices segment. |
(3) | Represents our portion of Tyco Internationals 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 included in other income. |
(5) | Primarily represents the tax benefit resulting from the establishment of a deferred tax asset related to our Specialty Chemicals pharmaceuticals business. |
(6) | Represents the sales and direct costs attributable to selling Oxy ER. |
Adjusted free cash flow is viewed as an important indicator of the strength and quality of the business and the availability to the Company of funds for reinvestment or for return to the shareholder. Adjusted free cash flow represents the Companys cash flow from continuing operating activities before the Tyco International-related class action settlement less capital expenditures. In fiscal 2009, adjusted free cash flow was $1.463 billion for the Company, compared to adjusted free cash flow of $1.461 in fiscal 2008. A reconciliation of this non-U.S. GAAP financial measure to net cash provided by continuing operating activities, the most directly comparable U.S. GAAP financial measure, is as follows:
(Dollars in Millions) | 2009 | 2008 | ||||||
Net cash provided by continuing operating activities |
$ | 1,875 | $ | 633 | ||||
Class action settlement |
| 1,257 | ||||||
Capital expenditures |
(412 | ) | (429 | ) | ||||
Adjusted free cash flow |
$ | 1,463 | $ | 1,461 | ||||
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Acquisitions
In November 2009, our Medical Devices segment acquired Aspect Medical Systems, Inc. (Aspect), a provider of brain monitoring technology, for approximately $210 million, net of cash and short-term investments acquired. This purchase price included the assumption of approximately $60 million of debt. The acquisition of Aspect broadens our product offerings and adds a brain monitoring technology to our product portfolio.
In September 2009, our Medical Devices segment acquired Power Medical Interventions, Inc. (PMI), a provider of computer-assisted, power-actuated surgical cutting and stapling products, for approximately $65 million, including debt assumed of $25 million. The acquisition of PMI expanded our surgical stapling solutions.
In June 2009, our Medical Devices segment acquired VNUS Medical Technologies, Inc. (VNUS), a developer of medical devices for minimally invasive treatment of venous reflux disease, for $473 million, net of cash acquired of $42 million. The acquisition of VNUS expanded our portfolio of vascular intervention products and our presence in the vascular market.
During fiscal 2008, our Medical Devices segment acquired Tissue Science Laboratories plc (TSL), a medical device company dedicated to the research, development and commercialization of tissue implant products for surgical and wound care therapies, for $74 million. The acquisition of TSL provided us with a leading tissue repair technology and accelerated our entry into the biologic hernia repair market. TSLs Permacol(R) product complemented our soft tissue product offerings and allowed us to offer a full line of differentiated hernia repair products.
In November 2007, our Medical Devices segment acquired Scandius Biomedical, Inc. (Scandius), a developer of medical devices for sports-related surgeries, for $27 million. The acquisition of Scandius enabled us to offer customers innovative soft tissue repair devices for common sports injuries.
Licensing Agreements
In June 2009, our Pharmaceuticals segment entered into a licensing agreement with Nuvo Research Inc. (Nuvo). This licensing agreement grants us commercial rights to market and distribute Pennsaid Lotion and Pennsaid Gel, product candidates for the treatment of osteoarthritis. Pennsaid Lotion was approved by the FDA in November 2009, while Pennsaid Gel remains in development. This license arrangement included an up-front cash payment of $10 million, which was included in research and development expenses. We are also responsible for all future development activities and expenses. In addition, we may be required to make additional payments up to $120 million based upon the successful completion of specified regulatory and sales milestones, as well as royalty payments on future sales of the products.
In June 2009, our Pharmaceuticals segment entered into a licensing agreement with Neuromed Development Inc. (Neuromed), a subsidiary of Neuromed Pharmaceuticals Ltd. This licensing agreement grants us commercial rights to market and distribute in the United States EXALGO (hydromorphone HCL extended release), a pain management drug candidate, for an up-front cash payment of $10 million, which was included in research and development expenses. Under the license arrangement, we are obligated to make additional payments up to $73 million based upon the successful completion of specified development and regulatory milestones. During fiscal 2009, $10 million of such milestone payments were made and included in research and development expenses. We will also contribute up to $16 million toward additional development costs incurred by Neuromed and pay royalties on any commercial sales of the developed product.
Divestitures
During fiscal 2009, we sold our Sleep Diagnostics product line within our Medical Devices segment. In addition, we entered into a definitive agreement to sell our Oxygen Therapy product line, also within our Medical Devices segment. Selling, general and administrative expenses for fiscal 2009 includes charges totaling
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$21 million for the loss on sale of Sleep Diagnostics and the write-down of Oxygen Therapy to its fair value less cost to sell based on the sale agreement. In September 2009, we also announced our plan to divest our Sleep Therapy product line within our Medical Devices segment. We plan to reallocate the resources previously used to support these product lines to our faster-growing, higher-margin businesses in which we have or can develop a global competitive advantage.
During fiscal 2008, we sold our Retail Products segment and our European Incontinence Products business within our Medical Supplies segment because their products and customer bases were not aligned with our long-term strategic objectives. Both of these businesses met the discontinued operations criteria and, accordingly, have been included in discontinued operations for all periods presented. See Discontinued Operations for further information.
Results of Operations
The following table presents results of operations, including percentage of net sales:
Fiscal Years | ||||||||||||||
(Dollars in Millions) | 2009 | 2008 | ||||||||||||
Net sales |
$ | 10,677 | 100.0 | % | $ | 10,358 | 100.0 | % | ||||||
Cost of goods sold |
4,938 | 46.2 | 4,943 | 47.7 | ||||||||||
Gross profit |
5,739 | 53.8 | 5,415 | 52.3 | ||||||||||
Selling, general and administrative expenses |
3,136 | 29.4 | 2,923 | 28.2 | ||||||||||
Research and development costs |
438 | 4.1 | 350 | 3.4 | ||||||||||
In-process research and development charges |
115 | 1.1 | 22 | 0.2 | ||||||||||
Restructuring charges |
61 | 0.6 | 77 | 0.7 | ||||||||||
Shareholder settlements, net of insurance recoveries |
183 | 1.7 | 42 | 0.4 | ||||||||||
Operating income |
1,806 | 16.9 | 2,001 | 19.3 | ||||||||||
Interest income |
25 | 0.2 | 44 | 0.4 | ||||||||||
Interest expense |
(175 | ) | (1.6 | ) | (209 | ) | (2.0 | ) | ||||||
Other income, net |
145 | 1.4 | 199 | 1.9 | ||||||||||
Income before taxation from continuing operations |
1,801 | 16.9 | 2,035 | 19.6 | ||||||||||
Taxation |
930 | 8.7 | 498 | 4.8 | ||||||||||
Profit after taxation from continuing operations |
871 | 8.2 | 1,537 | 14.8 | ||||||||||
Income (loss) from discontinued operations, net of taxation |
5 | | (176 | ) | (1.7 | ) | ||||||||
Profit after taxation |
$ | 876 | 8.2 | $ | 1,361 | 13.1 | ||||||||
Net salesOur net sales for fiscal 2009 increased $319 million, or 3.1%, to $10.677 billion, compared with $10.358 billion in fiscal 2008. Unfavorable currency exchange rate fluctuations resulted in a $469 million decrease to net sales in fiscal 2009. The remaining increase in net sales was primarily driven by increased sales within our Medical Devices segment and $297 million of incremental sales of Oxy ER within our Pharmaceuticals segment.
Net sales generated by our businesses in the United States were $6.170 billion and $5.713 billion in fiscal 2009 and 2008, respectively. Our non-U.S. businesses generated net sales of $4.507 billion and $4.645 billion in fiscal 2009 and 2008, respectively. Our business outside the United States represents approximately 42% and 45% of our net sales for fiscal 2009 and 2008, respectively. The decrease in the proportion of non-U.S. net sales in fiscal 2009, compared with fiscal 2008 is attributable to the sales of Oxy ER in the United States and currency exchange rate fluctuations.
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Costs of goods soldCost of goods sold was 46.2% of net sales for fiscal 2009, compared with 47.7% of net sales for fiscal 2008. The decrease in cost of products sold as a percent of net sales in fiscal 2009 was primarily attributable to favorable sales mix in the Pharmaceuticals segment, resulting largely from sales of Oxy ER, which resulted in a decrease of 1.3 percentage points.
Selling, general and administrative expensesSelling, general and administrative expenses increased $213 million, or 7.3%, to $3.136 billion in fiscal 2009, compared with $2.923 billion in fiscal 2008. Selling, general and administrative expenses were 29.4% of net sales for fiscal 2009, compared with 28.2% of net sales for fiscal 2008. The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to increased legal and consulting costs, $127 million of which related to three anti-trust cases, an increase in estimated environmental remediation costs of $82 million, primarily related to a site in Orrington, Maine, and planned growth in selling and marketing. These cost increases were partially offset by currency gains.
Research and development expensesResearch and development expense increased $88 million, or 25.1%, to $438 million in fiscal 2009, compared with $350 million in fiscal 2008. This increase resulted primarily from $37 million of incremental research and development expenses incurred in connection with the Nuvo and Neuromed license arrangements entered into by our Pharmaceuticals segment and increased spending in our Medical Devices segment. As a percentage of our net sales, research and development expenses were 4.1% for fiscal 2009, compared with 3.4% for fiscal 2008.
In-process research and development chargesDuring fiscal 2009, our Medical Devices segment recorded a charge of $59 million for the write-off of in-process research and development associated with the acquisition of VNUS. The $59 million in-process research and development charge is related to an alternative minimally invasive device for the treatment of varicose veins and venus reflux that VNUS is developing, which has not yet received regulatory approval. As of the date of acquisition, this technology was not considered to be technologically feasible or to have any alternative future use. Design, testing, clinical trials and regulatory submission are required in order to bring the project to completion. If the device receives regulatory approval, we anticipate that it will occur in fiscal 2013 and be released to the market shortly thereafter. Management determined the valuation of the in-process research and development using, among other factors, appraisals. The value was based primarily on the discounted cash flow method and was discounted at a 31% rate, which was considered commensurate with the projects risks and stage of development. Future residual cash flows that could be generated from the project were determined based upon managements estimate of future revenue and expected profitability of the project and technology involved. These projected cash flows were then discounted to their present values taking into account managements estimate of future expenses that would be necessary to bring the project to completion. We can not assure that the underlying assumptions used to prepare the discounted cash flow analysis will prove to be accurate or that the timely completion of the project to commercial success will occur. Actual results may differ from our estimates due to the inherent uncertainties associated with research and development projects. In addition to this charge, during fiscal 2009, our Medical Devices segment recorded charges of $56 million for the write-off of in-process research and development, of which $36 million was associated with the acquisition of PMI and $20 million with the acquisition of intellectual property.
During fiscal 2008, our Medical Devices segment recorded a charge of $12 million for the write-off of in-process research and development associated with the acquisition of Scandius. In addition to this charge, our Medical Devices and Pharmaceuticals segments recorded in-process research and development charges totaling $10 million in connection with two smaller acquisitions. These above in-process research and development charges related to the development of second-generation technology that had not yet obtained regulatory approval.
Restructuring chargesDuring fiscal 2009, we recorded restructuring charges of $61 million, comprised of restructuring charges of $66 million, partially offset by changes in estimates of $5 million. The $66 million of restructuring charges includes asset impairment charges of $12 million primarily related to the write-down of long-lived assets of a manufacturing facility within our Pharmaceutical segment, which will be closed as a result of cost savings initiatives. The remaining charges and changes in estimates primarily relate to severance costs across all segments and corporate.
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During fiscal 2008, we recorded restructuring charges of $77 million, which is comprised of restructuring charges of $83 million, partially offset by changes in estimates of $6 million. The $83 million of restructuring charges includes asset impairment charges of $18 million primarily related to the write-down of long-lived assets of a manufacturing facility within our Medical Devices segment, which has been closed as a result of cost savings initiatives. The remaining charges and changes in estimates primarily relate to workforce reductions also within Medical Devices.
Class action and shareholder settlements, net of insurance recoveriesIn March 2009, Tyco International reached agreements with the State of Colorado and Franklin Investment Advisors, pursuant to which Tyco International agreed to pay approximately $19 million and $42 million, respectively, to settle these cases. During fiscal 2009, we recorded charges of $26 million for our portion of these settlements in accordance with the sharing percentages included in the Separation and Distribution Agreement. As a result of these and other recent settlements, the reserves for unresolved legacy Tyco International-related securities matters were reassessed and the best estimate for probable loss was determined to be $375 million. During fiscal 2009, we recorded an additional charge of $157 million for our portion of the estimated cost to settle these unresolved matters in accordance with the sharing percentages included in the Separation and Distribution Agreement. During fiscal 2009, Tyco International agreed to settle with five of the remaining plaintiffs that had opted-out of the class action settlement and with plaintiffs who had brought Employee Retirement Income Security Act related claims for a total of $269 million. In accordance with the sharing percentages included in the Separation and Distribution Agreement, our share of these settlements is $113 million, which was within the range of loss previously provided.
During fiscal 2008, Tyco International paid $109 million to settle two of the remaining cases. These payments were subject to the sharing percentages included in the Separation and Distribution Agreement. Accordingly, during the fiscal 2008, we recorded a charge of $46 million for the payment of our portion of these settlements to Tyco International.
In November 2008, Tyco International signed definitive agreements to settle three additional cases. These agreements called for Tyco International to make payments totaling $28 million. These payments were also subject to the sharing percentages included in the Separation and Distribution Agreement. Accordingly, in fiscal 2008, we recorded an additional charge of $12 million for our portion of these settlements.
During fiscal 2008, Tyco International received insurance recoveries totaling $38 million related to the class action settlement discussed above. Tyco International in turn paid us $16 million for our portion of the recoveries in accordance with the sharing percentages included in the Separation and Distribution Agreement.
Operating incomeIn fiscal 2009, operating income decreased $195 million to $1.806 billion, compared with $2.001 billion in fiscal 2008. The decrease in operating income in fiscal 2009 was primarily due a $181 million increase in research and development expenditures resulting primarily from the acquisitions of VNUS and PMI and the Nuvo and Neuromed license arrangements, a $141 million increase in net shareholder settlements, increased legal costs, $127 million of which related to three anti-trust cases, and an $82 million increase in estimated environmental remediation costs, primarily related to a site located in Orrington, Maine, partially offset by higher sales and increased gross profit.
Interest Expense and Interest IncomeDuring fiscal 2009 and 2008, interest expense was $175 million and $209 million, respectively. The decrease in interest expense for fiscal 2009, compared with fiscal 2008, resulted from a decrease in our average outstanding debt balances. During fiscal 2009 and 2008, interest income was $25 million and $44 million, respectively.
Other Income (Expense), netOther income, net of $145 million for fiscal 2009 includes income of $148 million and a corresponding increase to our receivable from Tyco International and Tyco Electronics, which reflects 58% of interest and other income tax payable amounts recorded during fiscal 2009 that will be covered
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under the Tax Sharing Agreement. The $148 million includes income of $107 million which represents the effect of Tyco Internationals settlement of certain outstanding tax matters with the IRS on our receivable from Tyco International and Tyco Electronics.
Other income, net of $199 million for fiscal 2008 includes income of $214 million and a corresponding increase to our receivable from Tyco International and Tyco Electronics. The $214 million includes $231 million ($0.46 for both basic and diluted earnings per share) which represents the indirect effect of changes to our accounting for uncertain income tax positions discussed in Recently Adopted Accounting Pronouncements included in the notes to the consolidated financial statements. Other income, net for fiscal 2008 also includes income of $21 million related to an increase in our receivable from Tyco International and Tyco Electronics in accordance with the Tax Sharing Agreement, primarily related to interest. These amounts are partially offset by adjustments to certain pre-separation tax contingencies and an audit settlement, which resulted in a $38 million decrease to our receivable from Tyco International and Tyco Electronics and a corresponding charge to other expense.
Income Tax ExpenseIncome tax expense was $930 million and $498 million on income from continuing operations before income taxes of $1.801 billion and $2.035 billion for fiscal 2009 and 2008, respectively. Our effective tax rate was 51.6% for fiscal 2009 compared with 24.5% for fiscal 2008.
The increase in the effective tax rate for fiscal 2009, compared with fiscal 2008, resulted from the effect of Tyco Internationals settlement with the IRS of certain outstanding tax matters within the 2001 through 2004 audit cycle and withholding tax incurred on repatriated earnings. We, together with Tyco International and Tyco Electronics have significant potential tax liabilities related to periods prior to the separation from Tyco International. Under the Tax Sharing Agreement, Tyco International has the right to administer, control and settle all U.S. income tax audits for periods prior to and including June 29, 2007. The timing, nature and amount of any settlement agreed to by Tyco International may not be in our best interests. In September 2009, Tyco International agreed to a negotiated settlement of certain matters within the 2001 through 2004 audit cycle, although the cycle remains open and subject to examination and resolution. This settlement, which includes interest, will result in a payment by us of approximately $205 million to the IRS, offset by a receivable of $107 million from Tyco International and Tyco Electronics under the Tax Sharing Agreement. This settlement should not be considered an indication of the likely outcome of any other tax contingency identified by the Company. In addition, during fiscal 2009, we provided for U.S. and non-U.S. income taxes and a 5% withholding tax in the amount of $167 million on earnings that were repatriated in connection with the implementation of our tax planning strategies. The increase in the effective tax rate for fiscal 2009 was also due to the write-off of a previously recognized $60 million deferred tax asset related to our Specialty Chemicals business and $141 million of incremental net shareholder settlement charges and $93 million of incremental in-process research and development charges, for which no tax benefit was recorded.
Discontinued OperationsDuring fiscal 2008, we sold our Retail Products segment and our European Incontinence Products business within the Medical Supplies segment because their products and customer bases were not aligned with our long-term strategic objectives.
During fiscal 2008, we sold our Retail Products segment for gross cash proceeds of $330 million, subject to working capital adjustments. Deal costs and other adjustments resulted in net cash proceeds of $308 million, which was used to repay a portion of the outstanding borrowings under our revolving credit facility. During fiscal 2008, we recorded a $111 million pre-tax loss on sale from discontinued operations related to our Retail Products segment, which included charges totaling $75 million recorded during the first six months of fiscal 2008, to write down the business to its fair value less cost to sell. Fair value used for the impairment assessment was based on the sale agreement. The loss on sale was adjusted in fiscal 2009 because of the receipt of contingent payments and net proceeds from the sale of a Retail Products facility totaling $12 million.
During fiscal 2008, we also sold our European Incontinence business. As a condition of the sale, we were required to contribute cash of $43 million into the business prior to the closing of the transaction. During fiscal
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2008, we recorded a $75 million pre-tax loss on sale from discontinued operations related to our European Incontinence business, which includes charges totaling $23 million recorded during the first six months of fiscal 2008, to write down the business to its fair value less costs to sell. Fair value used for the impairment assessment was based on the sale agreement.
Change in Plan of SaleDuring fiscal 2008, we decided to sell our Specialty Chemical business within the Pharmaceuticals segment because its products and customer base were not aligned with our long-term strategic objectives. The Specialty Chemicals business had been classified as held for sale and the results of its activities reflected within discontinued operations. During the fourth quarter of fiscal 2009, we ceased efforts to market this business given market conditions existing at the time. As a result, the Specialty Chemicals business no longer met the held for sale and discontinued operations criteria and, accordingly, was reclassified from held for sale to held and used and from discontinued operations to continuing operations for all periods presented. During the fourth quarter of fiscal 2009, we recorded $18 million of incremental depreciation and amortization expense relating to the period from the first quarter of fiscal 2008 through the third quarter of fiscal 2009 when the Specialty Chemicals business was classified as held for sale. In addition, as discussed under Income Tax Expense we recorded a charge of $60 million for the write-off of a previously recognized deferred tax asset resulting from the reclassification of this business to continuing operations.
Principal Risks and Uncertainties
You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical events and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business, operations, financial condition and liquidity.
Risks Relating to Our Business
We face the following risks in connection with the general conditions and trends of the industries in which we operate.
We may be unable to effectively introduce and market new products or may fail to keep pace with advances in technology.
The healthcare industry is characterized by continuous technological change, resulting in changing customer preferences and requirements. The success of our business depends on our ability to introduce new products and adapt to these changing technologies and customer demands. The success of new product development depends on many factors, including our ability to anticipate and satisfy customer needs, obtain regulatory and reimbursement approvals on a timely basis, develop and manufacture products in a cost-effective and timely manner, maintain advantageous positions with respect to intellectual property and differentiate our products from those of our competitors. To compete successfully in the marketplace, we must make substantial investments in new product development whether internally or externally through licensing or acquisitions. Our failure to introduce new and innovative products in a timely manner would have an adverse effect on our business, results of operations, financial condition and cash flows.
Even if we are able to develop, manufacture and obtain regulatory and reimbursement approvals for our new products, the success of those products depends on market acceptance. Market acceptance for our new products could be affected by several factors, including:
| the availability of alternative products from our competitors; |
| the price of our products relative to that of our competitors; |
| the timing of our market entry; and |
| our ability to market and distribute our products effectively. |
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Sales of our products are affected by the reimbursement practices of a small number of large public and private insurers.
Sales of our products depend, in part, on the extent to which the costs of our products are reimbursed by governmental health administration authorities, private health coverage insurers and other third-party payors. Our potential customers ability to obtain appropriate reimbursement for products and services from these third-party payors affects the selection of products they purchase and the prices they are willing to pay. In addition, demand for new products may be limited unless we obtain reimbursement approval from governmental and private third-party payors prior to introduction. Reimbursement criteria vary by country, are becoming increasingly stringent and require management expertise and significant attention to obtain and maintain qualification for reimbursement.
Major third-party payors for healthcare services both within and outside of the United States continue to work to contain costs through, among other things, the introduction of cost containment incentives and closer scrutiny of healthcare expenditures. Recently, President Obama and members of Congress have proposed significant reforms to the U.S. healthcare system. The Obama administrations fiscal year 2010 budget included proposals to limit Medicare payments, reduce drug spending and increase taxes. In addition, members of Congress have proposed a single-payer healthcare system, a government health insurance option to compete with private plans and other expanded public healthcare measures. We cannot predict what healthcare initiatives, if any, will be implemented, or the effect any future legislation or regulation will have on us. However, the implementation of healthcare reforms both within and outside of the United States may reduce the level at which reimbursement is provided and adversely affect demand for and profitability of our products. Legislative or administrative reforms to U.S. or non-U.S. reimbursement practices that significantly reduce or deny reimbursement for treatments using our products could adversely affect the acceptance of our products and the prices for which our customers are willing to pay and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
If certain proposed healthcare reform legislative proposals are enacted into law, our business, financial condition, results of operations and cash flows could be significantly and adversely affected.
In 2009, both the U.S. Senate and House of Representatives passed healthcare reform legislation that includes provisions that would impose a fee or excise tax on certain medical devices. The proposals would apply to certain of our medical device and supply products. Because the House and Senate versions currently differ, both Houses of Congress must agree on a final version that would then be signed by the President. If either of these specific medical device proposals is enacted into law, our results of operations could be materially and adversely affected.
Cost-containment efforts of our customers, purchasing groups, third-party payors and governmental organizations could adversely affect our sales and profitability.
Many existing and potential customers for our products within the United States have become members of GPOs and IDNs, in an effort to reduce costs. GPOs and IDNs negotiate pricing arrangements with healthcare product manufacturers and distributors and offer the negotiated prices to affiliated hospitals and other members. GPOs and IDNs typically award contracts on a category-by-category basis through a competitive bidding process. Bids are generally solicited from multiple manufacturers with the intention of driving down pricing. Due to the highly competitive nature of the GPO and IDN contracting processes, we may not be able to obtain or maintain contract positions with major GPOs and IDNs across our product portfolio.
Furthermore, the increasing leverage of organized buying groups may reduce market prices for our products, thereby reducing our profitability.
While having a contract with a GPO or IDN for a given product category can facilitate sales to members of that GPO or IDN, such contract position can offer no assurance that sales volumes of those products will be
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maintained. GPOs and IDNs increasingly are awarding contracts to multiple suppliers for the same product category. Even when we are the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN generally are free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause upon 60 to 90 days notice. Accordingly, although we have multiple contracts with many major GPOs and IDNs, the members of such groups may choose to purchase from our competitors due to the price or quality offered by such competitors, which could result in a decline in our sales and profitability.
Distributors of our products also have begun to negotiate terms of sale more aggressively to increase their profitability. Failure to negotiate distribution arrangements having advantageous pricing and other terms of sale could cause us to lose market share and would adversely affect our business, results of operations, financial condition and cash flows.
Outside the United States, we have experienced pricing pressure from centralized governmental healthcare authorities and increased efforts by such authorities to lower healthcare costs. We frequently are required to engage in competitive bidding for the sale of our products to governmental purchasing agents. Our failure to offer acceptable prices to these customers could adversely affect our sales and profitability in these markets.
We may be unable to protect our intellectual property rights or may infringe on the intellectual property rights of others.
We rely on a combination of patents, trademarks, trade secrets and nondisclosure agreements to protect our proprietary intellectual property. Our efforts to protect our intellectual property and proprietary rights may not be sufficient. We cannot assure you that our pending patent applications will result in the issuance of patents to us, that patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors or that these patents will be found to be valid or sufficiently broad to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications. In addition, our ability to enforce and protect our intellectual property rights may be limited in certain countries outside the United States, which could make it easier for competitors to capture market position in such countries by utilizing technologies that are similar to those developed or licensed by us. Competitors also may harm our sales by designing products that mirror the capabilities of our products or technology without infringing our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.
We operate in an industry characterized by extensive patent litigation. Patent litigation is costly to defend and can result in significant damage awards, including treble damages under certain circumstances, and injunctions that could prevent the manufacture and sale of affected products or force us to make significant royalty payments in order to continue selling the affected products. At any given time, we are involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time. We can expect to face additional claims of patent infringement in the future. A successful claim of patent or other intellectual property infringement against us could adversely affect our business, results of operations, financial condition and cash flows.
We are subject to complex and costly regulation.
Our products are subject to regulation by the FDA and other national, supranational, federal and state governmental authorities. It can be costly and time-consuming to obtain regulatory approvals to market a medical device or pharmaceutical product. Approvals might not be granted for new devices or drugs on a timely basis, if at all. Regulations are subject to change as a result of legislative, administrative or judicial action, which may further increase our costs or reduce sales. Our failure to maintain approvals or obtain approval for new products could adversely affect our business, results of operations, financial condition and cash flows.
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We also rely on licenses from the DEA to purchase raw materials used in many of our pharmaceutical products and to manufacture and distribute such products. Our failure to maintain these licenses could adversely affect our pharmaceuticals business.
In addition, we are subject to regulations covering manufacturing practices, product labeling and advertising and adverse-event reporting that apply after we have obtained approval to sell a product. Many of our facilities and procedures and those of our suppliers are subject to ongoing oversight, including periodic inspection by governmental authorities. Compliance with production, safety, quality control and quality assurance regulations is costly and time-consuming.
Our manufacturing facilities and those of our suppliers could be subject to significant adverse regulatory actions in the future. These actions could include warning letters, fines, injunctions, civil penalties, recalls, seizures of our products and criminal prosecution. Possible consequences of such actions could include:
| substantial modifications to our business practices and operations; |
| a total or partial shutdown of production in one or more of our facilities while we remediate the alleged violation; |
| the inability to obtain future pre-market clearances or approvals; and |
| withdrawals or suspensions of current products from the market. |
Any of these events, in combination or individually, could disrupt our business and adversely affect our business, results of operations, financial condition and cash flows.
The manufacture of our products is highly exacting and complex, and our business could suffer if we or our suppliers encounter manufacturing problems.
The manufacture of our products is highly exacting and complex, due in part to strict regulatory requirements. Problems may arise during manufacturing for a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and environmental factors. If problems arise during the production of a batch of product, that entire batch of product may have to be discarded. These problems could lead to increased costs, lost revenue, damage to customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other products. If problems are not discovered before the product is released to the market, we also could incur recall and product liability costs. Significant manufacturing problems could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Defects or failures associated with our products could lead to recalls or safety alerts and negative publicity.
Manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall of, or issuance of a safety alert relating to, our products and result in significant costs and negative publicity. Due to the strong name recognition of our brands, an adverse event involving one of our products could result in reduced market acceptance and demand for all products within that brand, and could harm our reputation and our ability to market our products in the future. In some circumstances, adverse events arising from or associated with the design, manufacture or marketing of our products could result in the suspension or delay of regulatory reviews of our applications for new product approvals. We also may undertake voluntarily to recall products or temporarily shut down production lines based on internal safety and quality monitoring and testing data. Any of the foregoing problems could disrupt our business and have a material adverse effect on our business, results of operations, financial condition and cash flows.
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We may incur product liability losses and other litigation liability.
In the ordinary course of business, we are subject to product liability claims and lawsuits, including potential class actions, alleging that our products have resulted or could result in an unsafe condition or injury. Any product liability claim brought against us, with or without merit, could be costly to defend and could result in an increase of our insurance premiums. Some claims brought against us might not be covered by our insurance policies. In addition, we have significant self-insured retention amounts which we would have to pay in full before obtaining any insurance proceeds to satisfy a judgment or settlement. Furthermore, even where the claim is covered by our insurance, our insurance coverage might be inadequate and we would have to pay the amount of any settlement or judgment that is in excess of our policy limits. We may not be able to obtain insurance on terms acceptable to us or at all since insurance varies in cost and can be difficult to obtain. Our failure to maintain adequate insurance coverage or successfully defend against product liability claims could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are subject to antitrust claims and lawsuits in which competitors allege that we use our market position to exclude competitors from certain markets and to prevent customers from purchasing the competitors products. We also are subject to consumer antitrust class action lawsuits in which the putative class representatives, on behalf of themselves and other customers, seek to recover overcharges they allege that they paid for certain products. Any antitrust claim brought against us, with or without merit, could be costly to defend and could result in significant damages against us.
An interruption in our ability to manufacture our products or an inability to obtain key components or raw materials may adversely affect our business.
Many of our key products are manufactured at single locations, with limited alternate facilities. If an event occurs that results in damage to one or more of our facilities, we may be unable to manufacture the relevant products at previous levels or at all. In addition, for reasons of quality assurance or cost effectiveness, we purchase certain components and raw materials from sole suppliers. Due to the stringent regulations and requirements of the FDA and other similar non-U.S. regulatory agencies regarding the manufacture of our products, we may not be able to quickly establish additional or replacement sources for certain components or materials. A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials or components, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may experience higher costs to produce our products as a result of changes in prices for oil, gas and other commodities.
We use resins, other petroleum-based materials and pulp as raw materials in many of our products. Prices of oil and gas also significantly affect our costs for freight and utilities. Oil, gas and pulp prices are volatile and may increase, resulting in higher costs to produce and distribute our products. Due to the highly competitive nature of the healthcare industry and the cost-containment efforts of our customers and third party payors, we may be unable to pass along cost increases through higher prices. If we are unable fully to recover these costs through price increases or offset these increases through other cost reductions, we could experience lower margins and profitability and our business, results of operations, financial condition and cash flows could be materially and adversely affected.
Divestitures of some of our businesses or product lines may materially adversely affect our business, results of operations and financial condition.
We continue to evaluate the performance of all of our businesses and may sell a business or product line. Any divestitures may result in significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our business, results of operations and financial condition.
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Divestitures could involve additional risks, including difficulties in the separation of operations, services, products and personnel, the diversion of managements attention from other business concerns, the disruption of our business and the potential loss of key employees. We may not be successful in managing these or any other significant risks that we encounter in divesting a business or product line.
We may not be successful in our strategic acquisitions of, investments in or alliances with other companies and businesses, and acquisitions could require us to issue additional debt or equity.
We may pursue acquisitions of complementary businesses, technology licensing arrangements and strategic alliances to expand our product offerings and geographic presence as part of our business strategy. We may not complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the expected benefits of any acquisition, license arrangement or strategic alliance. Other companies may compete with us for these strategic opportunities. Even if we are successful in making an acquisition, the products and technologies that we acquire may not be successful or may require significantly greater resources and investments than we originally anticipated. We also could experience negative effects on our results of operations and financial condition from acquisition-related charges, amortization of intangible assets and asset impairment charges. These effects, individually or in the aggregate, could cause a deterioration of our credit rating and result in increased borrowing costs and interest expense. We could experience difficulties in integrating geographically separated organizations, systems and facilities, and personnel with diverse backgrounds. Integration of an acquired business also may require management resources that otherwise would be available for development of our existing business. If an acquired business fails to operate as anticipated or cannot be successfully integrated with our existing business, our business, results of operations, financial condition and cash flows could be materially and adversely affected.
In connection with acquisitions, we may incur or assume significant debt and unknown or contingent liabilities, such as environmental remediation expense, products liability, patent infringement claims or other unknown liabilities. Financing for acquisitions could decrease our ratio of earnings to fixed charges and adversely affect our borrowing capacity. Furthermore, acquisition financing may not be available to us on acceptable terms if and when required. If we were to undertake an acquisition by issuing equity securities, the acquisition could have a dilutive effect on the interests of the holders of our shares.
We face significant competition and may not be able to compete effectively.
We compete with many companies ranging from other multinationals to start-up companies. Competition takes many forms, including price reductions on products that are comparable to our own, development of new products that are more cost-effective or have superior performance than our current products, and the introduction of generic versions when our proprietary products lose their patent protection. Our current or future products could be rendered obsolete or uneconomic as a result of this competition. Our failure to compete effectively could cause us to lose market share to our competitors and have a material adverse effect on our business, results of operations, financial condition and cash flows.
We also face competition for marketing, distribution and collaborative development agreements, for establishing relationships with academic and research institutions, and for licenses to intellectual property. In addition, academic institutions, governmental agencies and other public and private research organizations also may conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring necessary product technologies.
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We are subject to risks associated with doing business outside of the United States.
Our operations outside of the United States are subject to risks that are inherent in conducting business under non-U.S. laws, regulations and customs. Sales outside of the United States made up approximately 42% of our net sales in fiscal 2009 and we expect that non-U.S. sales will contribute significantly to future growth. The risks associated with our operations outside the United States include:
| changes in non-U.S. medical reimbursement policies and programs; |
| multiple non-U.S. regulatory requirements that are subject to change and that could restrict our ability to manufacture and sell our products; |
| possible failure to comply with anti-bribery laws such as the FCPA and similar anti-bribery laws in other jurisdictions; |
| different local product preferences and product requirements; |
| trade protection measures and import or export licensing requirements; |
| difficulty in establishing, staffing and managing non-U.S. operations; |
| different labor regulations; |
| changes in environmental, health and safety laws; |
| potentially negative consequences from changes in or interpretations of tax laws; |
| political instability and actual or anticipated military or political conflicts; |
| economic instability and inflation, recession or interest rate fluctuations; and |
| minimal or diminished protection of intellectual property in some countries. |
These risks, individually or in aggregate, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Foreign currency exchange rates may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates. Approximately 42% of our net sales for fiscal 2009 were derived from sales in non-U.S. markets, and we expect sales from non-U.S. markets to continue to represent a significant portion of our net sales. Therefore, if the U.S. dollar strengthens in relation to the currencies of other countries where we sell our products, such as the euro, our U.S. dollar reported revenue and income will decrease. Changes in the relative values of currencies occur regularly and, in some instances, may have a significant effect on our operating results.
Most of our customer relationships outside of the United States are with governmental entities and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions.
The FCPA and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Because of the predominance of government-sponsored healthcare systems around the world, most of our customer relationships outside of the United States are with governmental entities and are therefore subject to such anti-bribery laws. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree, and in certain circumstances strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance programs, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or agents. As noted in the Legal Proceedings
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discussion in Part I, Item 3 of this annual report, we and Tyco International have disclosed to the Department of Justice (DOJ) and SEC potential non-compliance with the FCPA, including by subsidiaries which are now a part of Covidien. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, financial condition and cash flows.
We are subject to healthcare fraud and abuse regulations that could result in significant liability, require us to change our business practices and restrict our operations in the future.
We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs outside the United States. These laws and regulations are wide ranging and subject to changing interpretation and application, which could restrict our sales or marketing practices. Furthermore, since many of our customers rely on reimbursement from Medicare, Medicaid and other governmental programs to cover a substantial portion of their expenditures, our exclusion from such programs as a result of a violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our operations expose us to the risk of material environmental liabilities, litigation and violations.
We are subject to numerous federal, state, local and non-U.S. environmental protection and health and safety laws governing, among other things:
| the generation, storage, use and transportation of hazardous materials; |
| emissions or discharges of substances into the environment; |
| investigation and remediation of hazardous substances or materials at various sites; and |
| the health and safety of our employees. |
We may not have been, or we may not at all times be, in compliance with environmental and health and safety laws. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators. Environmental laws outside of the United States are becoming more stringent resulting in increased costs and compliance burdens.
Certain environmental laws assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties at which they have disposed of hazardous substances. Liability for investigative, removal and remedial costs under certain federal and state laws are retroactive, strict and joint and several. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. We have received notification from the U.S. Environmental Protection Agency (EPA) and similar state environmental agencies that conditions at a number of formerly owned sites where we and others have disposed of hazardous substances require investigation, cleanup and other possible remedial action and may require that we reimburse the government or otherwise pay for the costs of investigation and remediation and for natural resource damage claims from such sites.
While we have budgeted for future capital and operating expenditures to maintain compliance with environmental laws, our costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances may exceed our estimates or adversely affect our business, results of operations, financial condition and cash flows. We may also be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities.
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The volatility and disruption of the capital and credit markets and adverse changes in the global economy may negatively impact our business and our ability to access financing.
We have exposure to many different industries and counterparties, including commercial banks, investment banks, customers (which include distributors, governments and healthcare organizations) and customers who are dependent upon governmental entities to provide funding to pay for our products that could experience liquidity issues pending different economic and market environments. Any such issues may impact these parties ability to fulfill contractual obligations to us or might limit or place burdensome conditions upon future transactions with us. Customers may also reduce spending during times of economic uncertainty, and it is possible that suppliers may be negatively impacted. Decreased consumer spending levels, increased difficulty in collecting accounts receivable and increased pressure on prices for our products and services could all result in decreased revenues and have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, although we intend to finance expansion and renovation projects with existing cash, cash flow from operations and borrowing under our existing commercial paper program or senior credit facility, we may require additional financing to support our continued growth. Uncertainties in the capital and credit markets, however, could limit our access to capital on terms acceptable to us or at all.
Further, general economic conditions could result in severe downward pressure on the stock and credit markets, which could reduce the return available on invested corporate cash, reduce the return on investments under pension plans and thereby potentially increase funding obligations, all of which, if severe and sustained, could have a material adverse effect on our results of operations, financial condition and cash flows.
Risks Relating to Our Separation from Tyco International
We are responsible for a portion of Tyco Internationals contingent and other corporate liabilities.
On June 29, 2007, we entered into a Separation and Distribution Agreement and a Tax Sharing Agreement with Tyco International and Tyco Electronics. Under the Separation and Distribution Agreement and other agreements, subject to certain exceptions contained in the Tax Sharing Agreement, we, Tyco International and Tyco Electronics have agreed to assume and be responsible for 42%, 27% and 31%, respectively, of certain of Tyco Internationals contingent and other corporate liabilities. All costs and expenses associated with the management of these contingent and other corporate liabilities are shared equally among the parties. These contingent and other corporate liabilities primarily relate to consolidated securities litigation, any actions with respect to the separation plan or the distribution of Covidien and Tyco Electronics common shares by Tyco International to its shareholders brought by any third party and tax liabilities for periods prior to and including the distribution date, June 29, 2007. For more information on the contingent tax liabilities, see the risk factors relating to such liabilities below. Contingent and other corporate liabilities do not include liabilities that are specifically related to one of the three separated companies, which are allocated 100% to the relevant company.
If any party responsible for such liabilities were to default in its payment, when due, of any of these assumed obligations, each non-defaulting party would be required to pay equally with any other non-defaulting party the amounts in default. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of the assumed obligations related to such contingent and other corporate liabilities, including associated costs and expenses.
An adverse outcome of unresolved liabilities for which we will assume joint and several liability under the Separation and Distribution Agreement could be material with respect to our results of operations and cash flows in any given reporting period. Furthermore, Tyco International has the right to control the defense and settlement of outstanding litigation, subject to certain limitations. The timing, nature and amount of any settlement may not be in our best interests. Also, in the event of any subsequent settlement, we may have limited notice before we would be required to pay our portion of the settlement amount.
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We share responsibility for certain of our, Tyco Internationals and Tyco Electronics income tax liabilities for tax periods prior to and including June 29, 2007.
Under the Tax Sharing Agreement, we share responsibility for certain of our, Tyco Internationals and Tyco Electronics income tax liabilities based on a sharing formula for periods prior to and including June 29, 2007. More specifically, we, Tyco International and Tyco Electronics share 42%, 27% and 31%, respectively, of U.S. income tax liabilities that arise from adjustments made by tax authorities to our, Tyco Internationals and Tyco Electronics U.S. income tax returns, certain income tax liabilities arising from adjustments made by tax authorities to intercompany transactions or similar adjustments, and certain taxes attributable to internal transactions undertaken in anticipation of the separation. All costs and expenses associated with the management of these shared tax liabilities will be shared equally among the parties. We are responsible for all of our own taxes that are not shared pursuant to the Tax Sharing Agreements sharing formula.
All the tax liabilities of Tyco International associated with our businesses became our tax liabilities following the separation. Although we share certain of these tax liabilities with Tyco International and Tyco Electronics pursuant to the Tax Sharing Agreement, we are primarily liable for all of these liabilities. Accordingly, if Tyco International and Tyco Electronics default on their obligations to us under the Tax Sharing Agreement, we would be liable for the entire amount of these liabilities.
If any party to the Tax Sharing Agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no partys fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, we could be legally liable under applicable tax law for such liabilities and be required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed upon share of our, Tyco Internationals and Tyco Electronics tax liabilities.
Our, Tyco Internationals and Tyco Electronics income tax returns are periodically examined by various tax authorities. In connection with such examinations, tax authorities, including the U.S. Internal Revenue Service (IRS), have proposed tax adjustments. Tyco International has appealed certain of the proposed tax adjustments and it is our understanding that Tyco International intends to vigorously defend its previously filed tax returns.
We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. We adjust these liabilities as a result of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, we would incur an additional charge to expense. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities generally would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.
Under the Tax Sharing Agreement, Tyco International has the right to administer, control and settle all U.S. income tax audits for periods prior to and including June 29, 2007. The timing, nature and amount of any settlement agreed to by Tyco International may not be in our best interests. Moreover, the other parties to the Tax Sharing Agreement will be able to remove Tyco International as the controlling party only under limited circumstances, including a change of control or bankruptcy of Tyco International, or by a majority vote of the parties. All other tax audits will be administered, controlled and settled by the party that would be responsible for paying the tax.
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One of our directors may have actual or potential conflicts of interest because of his ongoing employment by Tyco International.
One of our directors, Christopher J. Coughlin, is the Chief Financial Officer of Tyco International, a position that could create, or appear to create, potential conflicts of interest when our and Tyco Internationals management and directors face decisions that could have different implications for us or Tyco International. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between us and Tyco International regarding the terms of the Separation and Distribution Agreement and the Tax Sharing Agreement. In addition, Tyco International manages the ongoing shareholder litigation, subject to certain limitations, and could settle such litigation at a time, on terms or for an amount not in our best interest. Potential conflicts of interest could also arise if we and Tyco International enter into any commercial arrangements with each other in the future. We expect that Mr. Coughlin would recuse himself from any decisions and discussions relating to material matters between us and Tyco International.
If the distribution of Covidien and Tyco Electronics common shares by Tyco International to its shareholders or certain internal transactions undertaken in anticipation of the separation are determined to be taxable for U.S. federal income tax purposes, we could incur significant U.S. federal income tax liabilities.
Tyco International has received private letter rulings from the IRS regarding the U.S. federal income tax consequences of the distribution of Covidien and Tyco Electronics common shares by Tyco International to its shareholders, substantially to the effect that the distribution, except for cash received in lieu of a fractional share, of our shares and the Tyco Electronics common shares, will qualify as tax-free under Sections 368(a)(1)(D) and 355 of the Code. The private letter rulings also provided that certain internal transactions undertaken in anticipation of the separation would qualify for favorable treatment under the Code. In addition to obtaining the private letter rulings, Tyco International obtained opinions from the law firm of McDermott Will & Emery LLP confirming the tax-free status of the distribution and certain internal transactions. The private letter rulings and the opinions relied on certain facts and assumptions, and certain representations and undertakings, from us, Tyco Electronics and Tyco International regarding the past and future conduct of our respective businesses and other matters. Notwithstanding the private letter rulings and the opinions, the IRS could determine on audit that the distribution or the internal transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the distributions should be taxable for other reasons, including as a result of significant changes in stock or asset ownership after the distribution. If the distribution ultimately is determined to be taxable, Tyco International would recognize a gain in an amount equal to the excess of the fair market value of our shares and Tyco Electronics common shares distributed to Tyco International shareholders on the distribution date over Tyco Internationals tax basis in such common shares. Such gain, if recognized, generally would not be subject to U.S. federal income tax; however, we would incur significant U.S. federal income tax liabilities if it ultimately is determined that certain internal transactions undertaken in anticipation of the separation should be treated as taxable transactions.
In addition, under the terms of the Tax Sharing Agreement, in the event the distribution or the internal transactions were determined to be taxable and such determination was the result of actions taken after the distribution by us, Tyco International or Tyco Electronics, the party responsible for such failure would be responsible for all taxes imposed on us, Tyco International or Tyco Electronics as a result thereof. If such determination is not the result of actions taken after the distribution by us, Tyco International or Tyco Electronics, then we, Tyco International and Tyco Electronics would be responsible for 42%, 27% and 31%, respectively, of any taxes imposed on us, Tyco International or Tyco Electronics as a result of such determination. Such tax amounts could be significant. In the event that any party to the Tax Sharing Agreement defaults in its obligation to pay distribution taxes to another party that arise as a result of no partys fault, each non-defaulting party would be responsible for an equal amount of the defaulting partys obligation to make a payment to another party in respect of such other partys taxes.
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Risks Relating to Our Jurisdiction of Incorporation
Legislative action in the United States could materially and adversely affect us.
Tax-Related Legislation
Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could override tax treaties upon which we rely, which would adversely affect our effective tax rate and/or require us to take further action, at potentially significant expense, to seek to preserve our effective tax rate. In May 2009, President Obamas administration announced proposed future tax legislation that could substantially modify the rules governing the U.S. taxation of certain non-U.S. affiliates. These potential changes include, but are not limited to limiting the deferral of U.S. taxation of certain foreign earnings; and modifying the deductibility or treaty benefit eligibility of payments made to certain non-U.S. related parties under selected U.S. income tax treaties. Many details of the proposal remain unknown, and any legislation enacting such modifications would require Congressional approval. We cannot predict the outcome of any specific legislative proposals. However, if any of these proposals are enacted into law, they could impact our effective tax rate. In addition, if proposals were enacted that had the effect of disregarding the Irish reorganization, limiting our ability as an Irish company to take advantage of tax treaties with the United States, we could incur additional tax expense and/or otherwise incur business detriment.
Legislation Relating to Governmental Contracts
Various U.S. federal and state legislative proposals that would deny governmental contracts to U.S. companies that move their corporate location abroad may affect us. We are unable to predict the likelihood that, or final form in which, any such proposed legislation might become law, the nature of regulations that may be promulgated under any future legislative enactments, or the effect such enactments and increased regulatory scrutiny may have on our business.
Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.
It may not be possible to enforce court judgments obtained in the United States against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.
As an Irish company, Covidien plc is governed by the Irish Companies Acts, which differ in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of Covidien plc securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.
We may not be able to maintain a competitive worldwide effective corporate tax rate.
While we believe that the Irish reorganization should improve our ability to maintain a competitive worldwide effective corporate tax rate, we cannot give any assurance as to what our effective tax rate will be because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate. Our
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actual effective tax rate may vary from our expectation and that variance may be material. Additionally, the tax laws of Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our effective tax rate.
Financial Risk Management
We have exposure to many different industries and counterparties, including commercial banks, investment banks, customers (which include distributors, governments and healthcare organizations) and customers who are dependent upon governmental entities to provide funding to pay for our products that could experience liquidity issues pending different economic and market environments. Any such issues may impact these parties ability to fulfill contractual obligations to us or might limit or place burdensome conditions upon future transactions with us. Customers may also reduce spending during times of economic uncertainty, and it is possible that suppliers may be negatively impacted. Decreased consumer spending levels, increased difficulty in collecting accounts receivable and increased pressure on prices for our products and services could all result in decreased revenues and have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are also subject to market risk associated with changes in currency exchange rates, interest rates and commodity prices. In order to manage the volatility to our more significant market risks, we enter into derivative financial instruments such as forward currency exchange contracts. Foreign currency risk arises from our investments in affiliates and subsidiaries owned and operated in foreign countries. Such risk is also a result of transactions with customers in countries outside the United States. We use foreign currency exchange forward and option contracts on accounts and notes receivable, accounts payable, intercompany loan balances and forecasted transactions denominated in certain foreign currencies. Further details relating to the Companys financial risks are disclosed in note 12 to the consolidated financial statements.
Research and Development
We are engaged in research and development in an effort to introduce new products, to enhance the effectiveness, ease of use, safety and reliability of our existing products, and to expand the applications for our products. Our research and development efforts include internal initiatives and those that use licensed or acquired technology. In addition, we evaluate for possible investment or acquisition developing technologies in areas where we have technological or marketing expertise. We are focused on developing technologies that will provide patients and healthcare providers with solutions that meet their clinical needs in treating medical conditions through less invasive procedures and in a cost-effective manner.
Research and development expense increased $88 million, or 25.1%, to $438 million in fiscal 2009, compared with $350 million in fiscal 2008. This increase resulted primarily from $37 million of incremental research and development expenses incurred in connection with the Nuvo and Neuromed license arrangements entered into by our Pharmaceuticals segment and increased spending in our Medical Devices segment. As a percentage of our net sales, research and development expenses were 4.1% for fiscal 2009, compared with 3.4% for fiscal 2008.
Acquisition of Own Shares
During fiscal 2009, we authorized a program to purchase up to $300 million of our ordinary shares to partially offset dilution related to equity compensation plans. Shares may be repurchased from time to time, based on market conditions. During fiscal 2009, we repurchased approximately 6 million ordinary shares (with a par value of $1.2 million), or 1.2% of outstanding shares, for $225 million under this program. We also repurchase shares from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares and to settle certain option exercises. During fiscal 2009, an additional $7 million was spent to acquire shares in connection with such share-based awards. In fiscal 2009, prior to the reorganization discussed in note 1, we retired the 2.1 million shares (with a par value of $0.4 million)
2009 Irish Statutory Accounts | 24 |
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that Covidien Ltd. held in treasury, which represented 0.4% of outstanding shares. As of September 25, 2009, we had approximately 3.9 million shares (with a par value of $0.8 million) held in treasury, representing 0.8% of outstanding shares, with a value of $155 million. These amounts also represent the maximum amounts held during the year.
Dividends
Dividend payments were $322 million during fiscal 2009. On September 24, 2009, we increased our quarterly cash dividend from $0.16 per share to $0.18 per share. The dividend declared of $0.18 per share to shareholders of record on October 6, 2009, totaling $87 million, was paid on November 6, 2009. We expect that we will continue to pay dividends comparable to this increased amount to holders of our ordinary shares. The timing, declaration and payment of future dividends to holders of our ordinary shares, however, will depend upon many factors, including the statutory requirements of Irish law, our earnings and financial condition, the capital requirements of our businesses, industry practice and any other factors that are deemed relevant.
Likely Future Developments
We expect research and development expenditures associated with internal initiatives, as well as licensing or acquiring technology from third parties, to increase as we continue to make incremental investments in research and development. We intend to continue to invest in research and development and focus our internal and external investments in fields that we believe will offer the greatest potential for near and long-term growth. We are committed to investing in pharmaceutical pain management products and products that have a demonstrable clinical impact and value to the healthcare system. In addition, we plan to invest in areas in which we can benefit from our core competencies and global infrastructure.
During fiscal 2009, we undertook several portfolio initiatives, including acquisitions and divestitures of non-strategic businesses. We plan to reallocate the resources previously used to support the product lines that we exited to our faster-growing, higher-margin businesses in which we have or can develop a global competitive advantage. In fiscal 2010, we plan to continue analyzing our business portfolio, which may lead to the acquisition or divestiture of businesses.
Company Books of Account
The directors are responsible for ensuring that the Company keeps proper books of accounting records and appropriate accounting systems. To achieve this, the directors have appointed a Chief Financial Officer who makes regular reports to the Board of Directors and ensures compliance with the requirements of Section 202 of the Companies Act, 1990. The Company also has a Chief Accounting Officer and Controller, who works closely with the Chief Financial Officer and who makes regular reports to the Audit Committee of the Board of Directors. In addition, the head of the Companys internal audit department and the Companys Ombudsman each make regular reports to the Audit Committee regarding fraud and other financial-related irregularities. The Audit Committee, in turn, briefs the full Board of Directors on significant financial matters arising from reports of the Chief Financial Officer, the Chief Accounting Officer and Controller, the head of internal audit, the external auditor and the Ombudsman.
The books and accounting records of Covidien plc are maintained at the Companys registered office at Cherrywood Business Park, Block G, First Floor, Loughlinstown, Co., Dublin, Ireland.
Important Events Since Year End
In November 2009, our Medical Devices segment acquired Aspect Medical Systems, Inc. (Aspect), a provider of brain monitoring technology, for approximately $210 million, net of cash and short-term investments acquired. This purchase price included the assumption of approximately $60 million of debt. The acquisition of Aspect broadens our product offerings and adds a brain monitoring technology to our product portfolio.
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In November 2009, we completed the sale of our Oxygen Therapy product line and in December 2009, we entered into a definitive agreement to sell our radiopharmacies in the United States, which is subject to customary closing conditions and is expected to close during the second quarter of fiscal 2010.
On January 8, 2010, we reached a settlement agreement pursuant to which the Company will pay the certified class $32.5 million to resolve all claims in the Natchitoches Parish Hospital Service District, et al. v. Tyco International, Ltd., et al. class action lawsuit filed against the Company on September 15, 2005 in the United States District Court for the District of Massachusetts. Accordingly, subsequent to the filing of the our Annual Report on Form 10-K, but prior to the issuance of these consolidated financial statements, we recorded a $32.5 million charge in selling, general and administrative expenses, which is reflected in fiscal 2009 in these consolidated financial statements. The district court has scheduled a settlement approval hearing for March 10, 2010.
In addition to the legal charge discussed above, subsequent to the filing of our Annual Report on Form 10-K, but prior to the issuance of these consolidated financial statements, we recorded other legal charges of $17.5 million, which are also reflected in selling, general and administrative expense in fiscal 2009 in these consolidated financial statements.
Directors
The present directors of the Company are listed in the table below and have served from the period June 4, 2009 through September 25, 2009 and since the year end.
Directors and Secretarys Interests in Shares
No director, the secretary or any member of their immediate families had any interest in shares or debentures of any subsidiary. Directors remuneration is set forth in note 24 to the consolidated financial statements. The interests of the directors and company secretary in the ordinary share capital of Covidien plc at the end of year and at June 4, 2009, the date they first became directors and secretary, are presented in the table below. Eric C. Green, John W. Kapples, John H. Masterson and Donald E. Whitt served as directors from January 19, 2009 (date of incorporation) until they resigned on June 4, 2009.
Ordinary shares of US$0.20 each | ||||||||||||
At September 25, 2009 | At June 4, 2009 | |||||||||||
Shares1 | Options | Shares1 | Options | |||||||||
Directors |
||||||||||||
Richard J. Meelia |
328,749 | 2 | 2,688,578 | 344,925 | 2 | 2,688,578 | ||||||
Craig Arnold |
9,185 | 9,600 | 9,170 | 9,600 | ||||||||
Robert H. Brust |
8,704 | 9,600 | 8,689 | 9,600 | ||||||||
John M. Connors, Jr. |
8,704 | 9,600 | 8,689 | 9,600 | ||||||||
Christopher J. Coughlin |
49,235 | 3 | 158,848 | 4 | 49,220 | 3 | 158,848 | 4 | ||||
Timothy M. Donahue |
8,704 | 9,600 | 8,689 | 9,600 | ||||||||
Kathy J. Herbert |
8,704 | 9,600 | 8,689 | 9,600 | ||||||||
Randall J. Hogan, III |
9,068 | 3 | 9,600 | 9,053 | 3 | 9,600 | ||||||
Dennis H. Reilley |
38,161 | 9,600 | 38,146 | 9,600 | ||||||||
Tadataka Yamada |
8,704 | 9,600 | 8,689 | 9,600 | ||||||||
Joseph A. Zaccagnino |
8,704 | 9,600 | 8,689 | 9,600 | ||||||||
Secretary |
||||||||||||
John W. Kapples |
21,514 | 2 | 49,974 | 22,617 | 2 | 49,974 |
1 | Includes shares underlying unvested restricted stock units and unvested dividend equivalent units. |
2 | Does not include unvested performance shares units. |
3 | Includes shares held by trust. |
4 | Includes options held by trust. |
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Political Donations
No political contributions that require disclosure under Irish law were made during the year.
Subsidiary Companies and Branches
Information regarding subsidiary undertakings, including information regarding branches, is provided in note 32 to the consolidated financial statements.
Going Concern
The directors have a reasonable expectation that Covidien plc and the Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Auditors
Deloitte & Touche, Chartered Accountants, who were appointed during the period, will continue in office.
On behalf of the Directors | ||||||
Richard J. Meelia | Robert H. Brust | |||||
Chairman | Director |
January 21, 2010
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STATEMENT OF DIRECTORS RESPONSIBILITIES
Irish Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:
| select suitable accounting policies for the group and the company financial statements and then apply them consistently; |
| make judgments and estimates that are reasonable and prudent; and |
| prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. |
The directors are responsible for ensuring that the Company keeps proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and enable them to ensure that the financial statements comply with Irish statute comprising the Companies Acts, 1963 to 2009 and are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), as defined in Section 1(1) of the Companies (Miscellaneous Provisions) Act 2009, to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Companies Acts or of any regulations made there under. The directors are also responsible for safeguarding the assets of the company and of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF COVIDIEN PLC
We have audited the financial statements of Covidien plc for the year ended 25 September 2009 which comprise the Consolidated Profit and Loss Account, the Consolidated Balance Sheet, the Consolidated Reconciliation of Movement in Shareholders Funds, the Consolidated Statement of Cash Flows, the Company Balance Sheet and the related notes 1 to 32. These financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the companys members, as a body, in accordance with Section 193 the Companies Act, 1990. Our audit work has been undertaken so that we might state to the companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the companys members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the financial statements, as set out in the Statement of Directors Responsibilities, in accordance with applicable law and using US generally accepted accounting principles, as defined in Section 1(1) of the Companies (Miscellaneous Provisions) Act 2009 (US GAAP), to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Companies Acts or of any regulations made there under.
Our responsibility, as independent auditor, is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view, in accordance with US GAAP to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Companies Acts or of any regulations made there under, and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2009. We also report to you whether in our opinion: proper books of account have been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the Directors Report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purpose of our audit and whether the company balance sheet is in agreement with the books of account.
We also report to you if, in our opinion, any information specified by law regarding directors remuneration and directors transactions is not disclosed and, where practicable, include such information in our report.
We read the directors report and consider the implications for our report if we become aware of any apparent misstatement within it. Our responsibilities do not extend to other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the groups circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we evaluated the overall adequacy of the presentation of information in the financial statements.
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Opinion
In our opinion the financial statements:
| give a true and fair view, in accordance with US GAAP to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Companies Acts or of any regulations made there under, of the state of the affairs of the company and the group as at 25 September 2009 and of the profit of the group for the year then ended; and |
| have been properly prepared in accordance with the Companies Acts, 1963 to 2009. |
We have obtained all the information and explanations we considered necessary for the purpose of our audit. In our opinion proper books of account have been kept by the company. The companys balance sheet is in agreement with the books of account.
In our opinion the information given in the Directors Report is consistent with the financial statements.
The net assets of the company, as stated in the company balance sheet are more than half the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 25 September 2009 a financial situation which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the company.
Deloitte & Touche
Chartered Accountants and Registered Auditors
Dublin
Date: 21 January 2010
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CONSOLIDATED PROFIT AND LOSS ACCOUNT
Fiscal Year Ended September 25, 2009
(in millions, except per share data)
Note | 2009 | 2008 | ||||||||
Net sales |
20 | $ | 10,677 | $ | 10,358 | |||||
Cost of goods sold |
4,938 | 4,943 | ||||||||
Gross profit |
5,739 | 5,415 | ||||||||
Selling, general and administrative expenses |
3,136 | 2,923 | ||||||||
Research and development costs |
438 | 350 | ||||||||
In-process research and development charges |
2 | 115 | 22 | |||||||
Restructuring charges |
4 | 61 | 77 | |||||||
Shareholder settlements, net of insurance recoveries |
19 | 183 | 42 | |||||||
Operating income |
1,806 | 2,001 | ||||||||
Interest income |
25 | 44 | ||||||||
Interest expense |
(175 | ) | (209 | ) | ||||||
Other income, net |
22 | 145 | 199 | |||||||
Income before taxation from continuing operations |
1,801 | 2,035 | ||||||||
Taxation |
5 | 930 | 498 | |||||||
Profit after taxation from continuing operations |
871 | 1,537 | ||||||||
Income (loss) from discontinued operations, net of taxation |
3 | 5 | (176 | ) | ||||||
Profit after taxation |
$ | 876 | $ | 1,361 | ||||||
Basic earnings per ordinary share |
6 | |||||||||
Profit after taxation from continuing operations |
$ | 1.73 | $ | 3.08 | ||||||
Income (loss) from discontinued operations, net of taxation |
0.01 | (0.35 | ) | |||||||
Profit after taxation |
1.74 | 2.72 | ||||||||
Diluted earnings per ordinary share |
6 | |||||||||
Profit after taxation from continuing operations |
$ | 1.72 | $ | 3.04 | ||||||
Income (loss) from discontinued operations, net of taxation |
0.01 | (0.35 | ) | |||||||
Profit after taxation |
1.73 | 2.70 |
Approved by the Board of Directors on January 21, 2010 and signed on its behalf by:
Richard J. Meelia Chairman |
Robert H. Brust Director |
31 | 2009 Irish Statutory Accounts |
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CONSOLIDATED BALANCE SHEET
At September 25, 2009
(in millions, except share data)
Note | 2009 | 2008 | ||||||
Fixed Assets |
||||||||
Intangible assets |
||||||||
Goodwill |
9 | $ | 6,046 | $ | 5,846 | |||
Other intangible assets |
9 | 1,562 | 1,273 | |||||
7,608 | 7,119 | |||||||
Tangible assets |
||||||||
Property, plant and equipment, net |
8 | 2,661 | 2,584 | |||||
Other tangible assets |
8 | 116 | 109 | |||||
2,777 | 2,693 | |||||||
Financial assets |
26 | 202 | 199 | |||||
10,587 | 10,011 | |||||||
Current Assets |
||||||||
Inventory |
7 | 1,334 | 1,347 | |||||
Debtors |
27 | 3,625 | 3,364 | |||||
Cash and cash equivalents |
1,467 | 1,208 | ||||||
6,426 | 5,919 | |||||||
Creditors (amounts falling due within one year) |
||||||||
Debt |
10 | 30 | 19 | |||||
Accruals and other creditors |
28 | 1,873 | 1,826 | |||||
1,903 | 1,845 | |||||||
Net Current Assets |
4,523 | 4,074 | ||||||
Total Assets Less Current Liabilities |
15,110 | 14,085 | ||||||
Creditors (amounts falling due after more than one year) |
||||||||
Debt |
10 | 2,961 | 2,986 | |||||
Income taxes payable |
5 | 1,774 | 1,397 | |||||
Accruals and other creditors |
29 | 168 | 125 | |||||
4,903 | 4,508 | |||||||
Provisions for Liabilities |
||||||||
Pensions and similar obligations |
13 | 421 | 343 | |||||
Guaranteed contingent tax liabilities |
17 | 718 | 707 | |||||
Deferred taxes |
5 | 366 | 296 | |||||
Other provisions |
30 | 732 | 484 | |||||
2,237 | 1,830 | |||||||
Net Assets |
$ | 7,970 | $ | 7,747 | ||||
Capital and Reserves |
||||||||
Preference shares, $0.20 par value, 125,000,000 authorized; none outstanding |
14 | $ | | $ | | |||
Ordinary shares (called-up share capital), $0.20 par value, 1,000,000,000 authorized; 503,029,579 and 503,163,656 outstanding |
101 | 101 | ||||||
Share premium |
10 | | ||||||
Other reserves |
7,859 | 7,646 | ||||||
Shareholders Funds |
$ | 7,970 | $ | 7,747 | ||||
Approved by the Board of Directors on January 21, 2010 and signed on its behalf by:
Richard J. Meelia Chairman |
Robert H. Brust Director |
2009 Irish Statutory Accounts | 32 |
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CONSOLIDATED RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS
Fiscal Year September 25, 2009
(in millions)
Ordinary Shares | Other Reserves | |||||||||||||||||||||||||||
Number | Amount | Share Premium |
Profit and Loss Account |
Profit and Loss Account Treasury Shares |
Other (Note 14) | Accumulated Other Comprehensive Income (Note 16) |
Total | |||||||||||||||||||||
Balance at September 29, 2007 |
498 | $ | 100 | $ | | $ | | $ | (2 | ) | $ | 6,001 | $ | 643 | $ | 6,742 | ||||||||||||
Comprehensive income, net of tax: |
||||||||||||||||||||||||||||
Profit after taxation |
| | | 1,361 | | | | 1,361 | ||||||||||||||||||||
Currency translation |
| | | | | | 71 | 71 | ||||||||||||||||||||
Benefit plan adjustments |
| | | | | | (5 | ) | (5 | ) | ||||||||||||||||||
Unrecognized gain on securities |
| | | | | | 2 | 2 | ||||||||||||||||||||
Unrecognized loss on derivatives |
| | | | | | (4 | ) | (4 | ) | ||||||||||||||||||
Total comprehensive income |
$ | 1,425 | ||||||||||||||||||||||||||
Dividends declared |
| | | (320 | ) | | | | (320 | ) | ||||||||||||||||||
Repurchase of shares |
| | | | (6 | ) | | | (6 | ) | ||||||||||||||||||
Share options exercised |
5 | 1 | | (2 | ) | 8 | 157 | | 164 | |||||||||||||||||||
Share-based compensation |
| | | | | 79 | | 79 | ||||||||||||||||||||
Change in method of accounting for uncertain tax positions (note 1) |
| | | (355 | ) | (355 | ) | |||||||||||||||||||||
Adjustments to income taxes assumed upon separation from Tyco International |
| | | | | 18 | | 18 | ||||||||||||||||||||
Balance at September 26, 2008 |
503 | 101 | | 684 | | 6,255 | 707 | 7,747 | ||||||||||||||||||||
Comprehensive income, net of tax: |
| |||||||||||||||||||||||||||
Profit after taxation |
| | | 876 | | | | 876 | ||||||||||||||||||||
Currency translation |
| | | | | | (125 | ) | (125 | ) | ||||||||||||||||||
Benefit plan adjustments |
| | | | | | (50 | ) | (50 | ) | ||||||||||||||||||
Unrecognized loss on securities |
| | | | | | (4 | ) | (4 | ) | ||||||||||||||||||
Unrecognized gain on derivatives |
| | | | | | 1 | 1 | ||||||||||||||||||||
Total comprehensive income |
| $ | 698 | |||||||||||||||||||||||||
Change in measurement date for benefit plans, net of tax (note 1) |
| | | (4 | ) | | | | (4 | ) | ||||||||||||||||||
Vesting of restricted shares |
1 | | | | | | | | ||||||||||||||||||||
Dividends declared |
| | | (332 | ) | | | | (332 | ) | ||||||||||||||||||
Repurchase of shares |
| | | | (232 | ) | | | (232 | ) | ||||||||||||||||||
Retirement of treasury shares |
(2 | ) | | | (75 | ) | 75 | | | | ||||||||||||||||||
Share options exercised |
1 | | 10 | | 2 | 6 | | 18 | ||||||||||||||||||||
Share-based compensation |
| | | | | 75 | | 75 | ||||||||||||||||||||
Balance at September 25, 2009 |
503 | $ | 101 | $ | 10 | $ | 1,149 | $ | (155 | ) | $ | 6,336 | $ | 529 | $ | 7,970 | ||||||||||||
33 | 2009 Irish Statutory Accounts |
Table of Contents
COMPANY BALANCE SHEET
At September 25, 2009
(in millions, except share data)
Note | 2009 | |||||
Fixed Assets |
||||||
Financial assets. |
26 | $ | 17,897 | |||
Current Assets |
||||||
Debtors |
$ | 4 | ||||
Cash at bank |
1 | |||||
5 | ||||||
Creditors (amounts falling due within one year) |
||||||
Amounts owed to subsidiary |
22 | |||||
Accrued dividends |
90 | |||||
112 | ||||||
Net Current Liabilities |
(107 | ) | ||||
Total Assets Less Current Liabilities |
17,790 | |||||
Creditors (amounts falling due after one year) |
||||||
Amounts owed to subsidiary |
227 | |||||
Net Assets |
$ | 17,563 | ||||
Capital and Reserves |
||||||
Preference shares, $0.20 par value, 125,000,000 authorized; none outstanding |
14 | $ | | |||
Ordinary shares, $0.20 par value, 1,000,000,000 authorized; 503,029,579 outstanding |
14 | 101 | ||||
Share premium |
14 | 3,872 | ||||
Other reserves |
14 | 13,590 | ||||
Shareholders Funds |
14 | $ | 17,563 | |||
Approved by the Board of Directors on January 21, 2010 and signed on its behalf by:
Richard J. Meelia Chairman |
Robert H. Brust Director |
2009 Irish Statutory Accounts | 34 |
Table of Contents
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Year September 25, 2009
(in millions)
2009 | 2008 | |||||||
Cash Flows From Operating Activities: |
||||||||
Profit after taxation |
$ | 876 | $ | 1,361 | ||||
(Income) loss from discontinued operations, net of taxation |
(5 | ) | 176 | |||||
Profit after taxation from continuing operations |
871 | 1,537 | ||||||
Adjustments to reconcile net cash provided by continuing operating activities: |
||||||||
Change in receivable from former parent and affiliates related to Tax Sharing Agreement |
(148 | ) | (214 | ) | ||||
In-process research and development charges |
115 | 22 | ||||||
Non-cash restructuring charges |
12 | 18 | ||||||
Depreciation and amortization |
440 | 400 | ||||||
Share-based compensation |
75 | 78 | ||||||
Deferred income taxes |
(92 | ) | (48 | ) | ||||
Provision for losses on accounts receivable and inventory |
70 | 72 | ||||||
Other non-cash items |
81 | 43 | ||||||
Changes in assets and liabilities, net of the effects of acquisitions and divestitures: |
||||||||
Accounts receivable, net |
71 | (134 | ) | |||||
Inventories |
(53 | ) | (199 | ) | ||||
Accounts payable |
(68 | ) | 78 | |||||
Income taxes |
310 | 13 | ||||||
Accrued and other liabilities |
356 | 189 | ||||||
Class action settlement |
| (1,257 | ) | |||||
Other |
(165 | ) | 35 | |||||
Net cash provided by continuing operating activities |
1,875 | 633 | ||||||
Cash Flows From Investing Activities: |
||||||||
Capital expenditures |
(412 | ) | (429 | ) | ||||
Acquisition-related payments, net of cash acquired |
(608 | ) | (157 | ) | ||||
Acquisition of licenses and technology |
(56 | ) | (1 | ) | ||||
Sale of investments |
48 | 4 | ||||||
Divestitures, net of cash retained by businesses sold |
6 | 263 | ||||||
Decrease in restricted cash |
4 | 22 | ||||||
Interest in class action settlement fund |
| 1,257 | ||||||
Other |
(9 | ) | 15 | |||||
Net cash (used in) provided by continuing investing activities |
(1,027 | ) | 974 | |||||
Cash Flows From Financing Activities: |
||||||||
Net (repayment) issuance of commercial paper |
(20 | ) | 171 | |||||
Repayment of external debt |
(19 | ) | (4,007 | ) | ||||
Issuance of external debt |
| 2,727 | ||||||
Dividends paid |
(322 | ) | (320 | ) | ||||
Repurchase of shares |
(232 | ) | (6 | ) | ||||
Proceeds from exercise of share options |
19 | 157 | ||||||
Other |
(1 | ) | (5 | ) | ||||
Net cash used in continuing financing activities |
(575 | ) | (1,283 | ) | ||||
Discontinued Operations: |
||||||||
Net cash provided by discontinued operating activities |
| 27 | ||||||
Net cash used in discontinued investing activities |
| (8 | ) | |||||
Net cash provided by discontinued operations |
| 19 | ||||||
Effect of currency rate changes on cash |
(14 | ) | (7 | ) | ||||
Net increase in cash and cash equivalents |
259 | 336 | ||||||
Cash and cash equivalents at beginning of year |
1,208 | 872 | ||||||
Cash and cash equivalents at end of year |
$ | 1,467 | $ | 1,208 | ||||
Supplementary Cash Flow Information: |
||||||||
Interest paid |
$ | 176 | $ | 138 | ||||
Income taxes paid, net of refunds |
$ | 706 | $ | 534 |
35 | 2009 Irish Statutory Accounts |
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Reorganization
On January 16, 2009, Covidien plc was incorporated in Ireland, in order to effectuate moving Covidien Ltds principal executive office from Bermuda to Ireland. Covidien plc operated as a wholly-owned subsidiary of Covidien Ltd., a Bermuda registered company and the ultimate parent company of the Covidien group, which includes all subsidiaries (Covidien or the Company), until June 4, 2009, when the outstanding common shares of Covidien Ltd. were cancelled and Covidien plc issued ordinary shares with substantially the same rights and preferences on a one-for-one basis to the holders of the Covidien Ltd. common shares that were cancelled. Upon completion of this transaction, Covidien plc replaced Covidien Ltd. as the ultimate parent company and Covidien Ltd. became a wholly-owned subsidiary of Covidien plc. This transaction was accounted for in the consolidated financial statements as a merger between entities under common control; accordingly, the historical consolidated financial statements of Covidien Ltd. for periods prior to this transaction are considered to be the historical financial statements of Covidien plc. No changes in capital structure, assets or liabilities of the consolidated financial statements resulted from this transaction, other than Covidien plc has provided a guarantee of amounts due under certain borrowing arrangements of a subsidiary as described in notes 10 and 11.
Irish company law requires that Covidien plcs investment in Covidien Ltd. is recorded in Covidien plcs company balance sheet at fair value on the date of the reorganization, based on the Companys market capitalization at that date. This initial valuation became Covidien plcs cost basis in Covidien Ltd. Irish Company law also requires that the premium on the shares, representing the difference between the fair value on the date of the reorganization and the nominal value of the shares, be reflected within share premium. Irish company law restricts the use of the share premium account. However, on June 29, 2009, the Irish High Court approved the creation of distributable reserves of Covidien plc through the reduction of the share premium account, so as to facilitate the ongoing payment of dividends to the shareholders of Covidien plc and to effect the repurchase of shares. The court order authorizing the creation of distributable reserves was filed with the Registrar of Companies in Ireland and became effective on July 8, 2009.
Basis of Presentation
The directors have elected to prepare the consolidated and parent company financial statements in accordance with section 1 of the Companies (Miscellaneous Provisions) Act, 2009, which provides that a true and fair view of the state of affairs and profit or loss may be given by preparing the financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), as defined in Section 1(1) of the Companies (Miscellaneous Provisions) Act 2009, to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of the Companies Acts or of any regulations made there under.
The preparation of the financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates. These financial statements were issued on January 21, 2010 and subsequent events have been evaluated through that date.
These financial statements were prepared in accordance with Irish Company Law, to present to the shareholders of the Company and file with the Companies Registration Office in Ireland. Accordingly, these financial statements include disclosures required by the Republic of Irelands Companies Acts, 1963 to 2009 in addition to those required under U.S. GAAP.
2009 Irish Statutory Accounts | 36 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The accompanying financial statements have been prepared in U.S. dollars and reflect the consolidated operations of Covidien plc (formerly the consolidated operations of Covidien Ltd.) and its subsidiaries. Prior to June 29, 2007, Covidien Ltd. was part of Tyco International Ltd. (Tyco International). On June 29, 2007, Tyco International distributed one common share of Covidien for every four common shares of Tyco International, as well as its shares of its former electronics business (Tyco Electronics), to holders of Tyco International common shares (the separation) and Covidien Ltd. became a stand alone entity. The results of Covidien plc are included in the consolidated financial statements from the date of incorporation.
Accounting Policies
Principles of ConsolidationThe Company consolidates companies in which it owns or controls more than fifty percent of the voting shares or has the ability to control through similar rights. All intercompany transactions have been eliminated. The results of companies acquired or disposed of are included in the financial statements from the effective date of acquisition or up to the date of disposal.
Revenue RecognitionThe Company recognizes revenue for product sales when title and risk of loss have transferred from the Company to the buyer, which may be upon shipment or upon delivery to the customer site, based on contract terms or legal requirements in non-U.S. jurisdictions.
In certain circumstances, the Company enters into arrangements in which it provides multiple deliverables to its customers. Agreements with multiple deliverables are divided into separate units of accounting. Total revenue is first allocated among the deliverables based upon their relative fair values. Revenue is then recognized for each deliverable in accordance with the principles described above. Fair values are determined based on sales of the individual deliverables to other third parties.
Customers may also require the Company to maintain consignment inventory at the customers location. The Company recognizes revenues and costs associated with consignment inventory upon the notification of usage by the customer.
The Company sells products both direct to end user customers and through distributors who resell the products to end user customers. Rebates are provided to certain distributors that sell to end user customers at prices determined in accordance with a contract between the Company and the end user customer. Provisions for rebates, as well as sales discounts and returns, are accounted for as a reduction of sales when revenue is recognized and are included in the reserve for returns, rebates and sales allowances within accounts receivable trade on the balance sheets. Rebates are estimated based on sales terms, historical experience and trend analyses. In estimating rebates, the Company considers the lag time between the point of sale and the payment of the distributors rebate claim, distributor-specific sales trend analyses, contractual commitments, including stated rebate rates, and other relevant information. The Company adjusts reserves to reflect differences between estimated and actual experience, and records such adjustment as a reduction of sales in the period of adjustment. Rebates charged against gross sales amounted to $2.873 billion and $2.400 billion in fiscal 2009 and 2008, respectively.
Research and DevelopmentInternal research and development costs are expensed as incurred. Research and development expenses include salary and benefits, allocated overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services and other costs.
Amounts related to research and development collaborations with third parties are expensed as incurred up to the point of regulatory approval. Third-party costs subsequent to regulatory approval are capitalized and amortized over the estimated useful life of the related product. Amounts capitalized for such costs are included in intangible assets, net of accumulated amortization.
37 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
AdvertisingAdvertising costs are expensed when incurred. Advertising expense was $83 million and $89 million in fiscal 2009 and 2008, respectively, and is included in selling, general and administrative expenses.
Currency TranslationFor the Companys non-U.S. subsidiaries that transact in a functional currency other than U.S. dollars and do not operate in highly inflationary environments, assets and liabilities are translated into U.S. dollars using year-end exchange rates. Revenues and expenses are translated at the average exchange rates in effect during the related month. The net effect of these translation adjustments is shown in the financial statements as a component of accumulated other comprehensive income within shareholders funds. For subsidiaries operating in highly inflationary environments or where the functional currency is different from local currency, inventories and property, plant and equipment, including related expenses, are translated at the rate of exchange in effect on the date the assets were acquired, while other assets and liabilities are translated at year-end exchange rates. Translation adjustments of these subsidiaries are included in net income.
Cash and Cash EquivalentsAll highly liquid investments purchased with maturities of three months or less from the time of purchase are considered to be cash equivalents.
Allowance for Doubtful AccountsThe allowance for doubtful accounts receivable reflects the best estimate of losses inherent in the Companys accounts receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other available evidence. Accounts receivable are written off when management determines they are uncollectible.
InventoriesInventories are recorded at the lower of cost or market value, primarily first-in, first-out. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.
Investments in subsidiaryCovidien plcs investment in Covidien Ltd. was recorded at fair value on the date of the reorganization, based on the Companys market capitalization at that date. This initial valuation became Covidien plcs cost basis for its investment in Covidien Ltd. The investment is tested for impairment if circumstances or indicators suggest that impairment may exist.
Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Land and construction in progress are not depreciated. The Company generally utilizes the straight-line method of depreciation over the following estimated useful lives of the assets:
Buildings and related improvements |
2 to 40 years | |
Machinery and equipment |
2 to 25 years |
Upon retirement or other disposal of property, plant and equipment, the cost and related amount of accumulated depreciation are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds is included in net income.
The Company reviews property, plant and equipment for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of assets using undiscounted cash flows. If an asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the assets fair value. The fair value is estimated based upon the present value of discounted future cash flows or other reasonable estimates of fair value.
2009 Irish Statutory Accounts | 38 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Intangible AssetsIntangible assets include intellectual property consisting primarily of patents, trademarks, unpatented technology and customer lists. The Company records intangible assets at cost and amortizes certain of such assets using the straight-line method over the following estimated useful lives of the assets:
Unpatented technology |
15 to 25 years | |
Patents and trademarks |
10 to 40 years | |
Customer lists |
10 to 30 years | |
Other |
15 to 30 years |
Amortization expense is included in selling, general and administrative expenses. The Company evaluates the remaining useful life of intangible assets on a periodic basis to determine whether events and circumstances warrant a revision to the remaining useful life. If the estimate of an intangible assets remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. Since not all intangible assets decline in value, straight-line amortization of certain intangible assets over an arbitrary period does not reflect the economic reality. Therefore, in order to present a true and fair view of the economic reality, under U.S. GAAP, certain of the Companys intangible assets, primarily certain trademarks, are considered indefinite-lived and are not subject to amortization. These intangible assets are tested for impairment in the same manner as goodwill. The Company reviews intangible assets subject to amortization for impairment in the same manner as property, plant and equipment discussed above.
Business CombinationsAmounts paid for acquisitions are allocated to the tangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The Company then allocates the purchase price in excess of net tangible assets acquired to identifiable intangible assets, including purchased research and development. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
The Companys purchased research and development represents the estimated fair value as of the acquisition date of in-process projects that have not reached technological feasibility and have no alternative future use. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval. The Company expenses the value attributable to in-process research and development (IPR&D) projects at the time of acquisition.
The valuation of IPR&D is determined using the discounted cash flow method. In determining the value of IPR&D, the Company considers, among other factors, appraisals, the stage of completion of the projects, the technological feasibility of the projects, whether the projects have an alternative future use and the estimated residual cash flows that could be generated from the various projects and technologies over their respective projected economic lives. The discount rate used is determined at the time of acquisition and includes a rate of return which accounts for the time value of money, as well as risk factors that reflect the economic risk that the cash flows projected may not be realized.
GoodwillSince not all goodwill declines in value and goodwill that does decline in value rarely does so on a straight-line basis, straight-line amortization of goodwill over an arbitrary period does not reflect the economic reality. Therefore, in order to present a true and fair view of the economic reality, under U.S. GAAP, goodwill is considered an indefinite-lived intangible asset and is not amortized. Rather, the Company tests goodwill during the fourth quarter of each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist. The Company utilizes a two-step approach. The first step requires a comparison of the carrying value of the reporting units to the fair value of these units. The Company
39 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
estimates the fair value of its reporting units through internal analyses and valuation, utilizing an income approach based on the present value of future cash flows. If the carrying value of a reporting unit exceeds its fair value, the Company will perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of a reporting units goodwill with its carrying value. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The Company allocates the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Upon disposal of a business, the amount of goodwill attributable to the business (not previously written off) is included in the determination of the gain or loss on disposal.
Income TaxesThe income tax benefits of a consolidated income tax return have been reflected where such returns have or could be filed based on the entities and jurisdictions included in the financial statements.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the book and tax bases of assets and liabilities and operating loss carryforwards, using tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to reduce net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. The tax benefit of any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. To the extent a full benefit is not expected to be realized on the uncertain tax position, an income tax liability is established. Interest and penalties on income tax obligations are included in income tax expense.
The calculation of the Companys tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across the Companys global operations. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from current estimates of the tax liabilities. If the Companys estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities may result in income tax benefits being recognized in the period when it is determined that the liabilities are no longer necessary. Substantially all of these potential tax liabilities are not expected to be paid within one year.
Recently Adopted Accounting Pronouncements
Disclosures about Derivative Instruments and Hedging ActivitiesIn March 2008, the Financial Accounting Standards Board (FASB) issued enhanced disclosure requirements for derivative instruments and hedging activities. The additional disclosures are intended to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. The required disclosures regarding derivative instruments and hedging activities are presented in note 12.
Accounting for Defined Benefit Pension and Other Postretirement PlansIn September 2006, the FASB issued authoritative literature regarding accounting for defined benefit pension and other postretirement plans, which requires that employers recognize the funded status of defined benefit pension and other postretirement
2009 Irish Statutory Accounts | 40 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
benefit plans as a net asset or liability on the balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as a component of net periodic benefit cost. Additional financial statement disclosures are also required. The Company adopted the recognition and disclosure provisions at the end of fiscal 2007, and accordingly, recognized an after-tax reduction of $51 million in accumulated other comprehensive income, a component of shareholders funds. In addition, companies are required to measure plan assets and benefit obligations as of their fiscal year end. The Company previously used a measurement date of August 31st; however, in the first quarter of fiscal 2009, the Company transitioned to a measurement date that coincides with its fiscal year end. The adoption of the measurement date provision resulted in a reduction to shareholders funds to reflect the incremental one-month charge from August to September.
Accounting for Uncertain Tax PositionsIn June 2006, the FASB issued authoritative literature, which clarifies the accounting for uncertainty in income taxes recognized in a companys financial statements. This literature prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. On September 29, 2007, the Company adopted these provisions. The cumulative effect of adopting these provisions was a $355 million reduction in retained earnings, a $197 million increase in deferred tax assets, primarily due to interest and state specific items, and a $642 million and $90 million increase in income taxes payable and receivable, respectively. In addition, the Company recorded an increase in amounts due from former parent and affiliates pursuant to the Tax Sharing Agreement of $231 million as other income, representing the indirect effect of adoption. Notes 5 and 17 provide additional information regarding income taxes and the Tax Sharing Agreement, respectively.
Recently Issued Accounting Pronouncements
Disclosures about Postretirement Benefit Plan AssetsIn December 2008, the FASB issued enhanced disclosure requirements for defined benefit pension and other postretirement benefit plan assets. The additional disclosures are intended to provide users of financial statements with an enhanced understanding of (a) how investment allocation decisions are made, (b) the major categories of plan assets, (c) the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and (e) significant concentrations of risk within plan assets. The Company is required to comply with these disclosure requirements beginning in fiscal 2010.
Business CombinationsIn December 2007, the FASB issued authoritative literature on business combinations, which expands the definition of a business combination and changes the manner in which the Company accounts for business combinations beginning in fiscal 2010. Significant changes include the capitalization of IPR&D as an indefinite-lived asset, the recognition of certain acquired contingent assets and liabilities at fair value, the expensing of acquisition-related restructuring actions and transaction costs, and the recognition of contingent purchase price consideration at fair value on the acquisition date. In addition, post-acquisition changes in deferred tax asset valuation allowances and acquired income tax uncertainties will be recognized as income tax expense or benefit. The accounting treatment for taxes will be applicable to acquisitions that close both prior and subsequent to the adoption of this pronouncement.
41 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Acquisitions and License Agreements
Fiscal 2009
Power Medical Interventions, Inc.In September 2009, the Companys Medical Devices segment acquired Power Medical Interventions, Inc. (PMI), a provider of computer-assisted, power-actuated surgical cutting and stapling products, for approximately $65 million, including debt assumed of $25 million. The acquisition of PMI expanded the Companys surgical stapling solutions. The Company recorded an IPR&D charge of $36 million in connection with the acquisition of PMI. This charge related to the development of second-generation technology that had not yet obtained regulatory approval.
VNUS Medical Technologies, Inc.In June 2009, the Companys Medical Devices segment acquired VNUS Medical Technologies, Inc. (VNUS), a developer of medical devices for minimally invasive treatment of venous reflux disease, for $473 million, net of cash acquired of $42 million. The acquisition of VNUS expanded the Companys portfolio of vascular intervention products and its presence in the vascular market.
The Companys preliminary allocation of the purchase price for VNUS is as follows (dollars in millions):
Current assets (including cash of $42) |
$ | 98 | |
Intangible assets (including in-process research and development) |
348 | ||
Other non-current assets |
49 | ||
Goodwill (non-tax deductible) |
176 | ||
Total assets acquired |
671 | ||
Current liabilities |
33 | ||
Deferred tax liabilities (non-current) |
112 | ||
Other non-current liabilities |
11 | ||
Total liabilities assumed |
156 | ||
Net assets acquired |
$ | 515 | |
Intangible assets acquired include $59 million assigned to in-process research and development that was written off at the date of acquisition. The remaining $289 million of intangible assets relates to $237 million of completed technology with useful life of 11 years and $52 million of customer relationships with a weighted-average useful life of 12 years.
The $59 million in-process research and development charge is related to an alternative minimally invasive device for the treatment of varicose veins and venus reflux that VNUS is developing, which has not yet received regulatory approval. As of the date of acquisition, this technology was not considered to be technologically feasible or to have any alternative future use. Design, testing, clinical trials and regulatory submission are required in order to bring the project to completion. The Company determined the valuation of the in-process research and development using, among other factors, appraisals. The value was based primarily on the discounted cash flow method and was discounted at a 31% rate, which was considered commensurate with the projects risks and stage of development. Future residual cash flows that could be generated from the project were determined based upon managements estimate of future revenue and expected profitability of the project and technology involved. These projected cash flows were then discounted to their present values taking into account managements estimate of future expenses that would be necessary to bring the project to completion.
The following unaudited pro forma data summarize the results of operations for the periods indicated as if the acquisition of VNUS had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisition and adjustments to interest income, intangible asset
2009 Irish Statutory Accounts | 42 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
amortization and income taxes. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts are not indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future.
(Dollars in Millions, Except per Share Data) | 2009 (1) | 2008 | ||||
Net sales |
$ | 10,751 | $ | 10,452 | ||
Income from continuing operations |
899 | 1,504 | ||||
Net income |
903 | 1,328 | ||||
Basic earnings per share: |
||||||
Income from continuing operations |
$ | 1.79 | $ | 3.01 | ||
Net income |
1.80 | 2.66 | ||||
Diluted earnings per share: |
||||||
Income from continuing operations |
$ | 1.78 | $ | 2.98 | ||
Net income |
1.79 | 2.63 |
(1) | Excludes the $59 million in-process research and development charge associated with the acquisition of VNUS. |
Nuvo Research Inc.In June 2009, the Companys Pharmaceuticals segment entered into a licensing agreement with Nuvo Research Inc. (Nuvo). This licensing agreement grants Covidien commercial rights to market and distribute Pennsaid Lotion and Pennsaid Gel, product candidates for the treatment of osteoarthritis. Pennsaid Lotion was approved by the U.S. Food and Drug Administration in November 2009, while Pennsaid Gel remains in development. This license arrangement included an up-front cash payment of $10 million, which was included in research and development expenses. Covidien is also responsible for all future development activities and expenses. In addition, Covidien may be required to make additional payments up to $120 million based upon the successful completion of specified regulatory and sales milestones, as well as royalty payments on future sales of the products.
Neuromed Development Inc.In June 2009, the Companys Pharmaceuticals segment entered into a licensing agreement with Neuromed Development Inc. (Neuromed), a subsidiary of Neuromed Pharmaceuticals Ltd. This licensing agreement grants Covidien commercial rights to market and distribute in the United States EXALGO (hydromorphone HCL extended release), a pain management drug candidate, for an up-front cash payment of $10 million, which was included in research and development expenses. Under the license arrangement, Covidien is obligated to make additional payments up to $73 million based upon the successful completion of specified development and regulatory milestones. During fiscal 2009, $10 million of such milestone payments were made and included in research and development expenses. Covidien will also contribute up to $16 million toward additional development costs incurred by Neuromed and pay royalties on any commercial sales of the developed product.
In addition, during fiscal 2009, the Company completed two smaller acquisitions, acquired a distributor and acquired intangible assets. The Company recorded an IPR&D charge of $20 million associated with the acquisition of intellectual property.
Fiscal 2008
During fiscal 2008, the Companys Medical Devices segment acquired Tissue Science Laboratories plc (TSL), a medical device company dedicated to the research, development and commercialization of tissue implant products for surgical and wound care therapies, for $74 million. The acquisition of TSL provided the Company with a leading tissue repair technology and accelerated its entry into the biologic hernia repair market. TSLs Permacol(R) product complemented the Companys soft tissue product offerings and allowed the Company to offer a full line of differentiated hernia repair products.
43 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In November 2007, the Companys Medical Devices segment acquired Scandius Biomedical, Inc. (Scandius), a developer of medical devices for sports-related surgeries, for $27 million. The acquisition of Scandius enabled the Company to offer customers innovative soft tissue repair devices for common sports injuries. The Company recorded an IPR&D charge of $12 million in connection with this acquisition.
In addition, the Company completed two smaller acquisitions during fiscal 2008 and recorded IPR&D charges totaling $10 million.
3. Discontinued Operations and Divestitures
Discontinued Operations
During fiscal 2008, the Company sold its Retail Products segment and its European Incontinence Products business within the Medical Supplies segment because their products and customer bases were not aligned with the Companys long-term strategic objectives. Both of these businesses met the discontinued operations criteria.
Retail Products segmentDuring fiscal 2008, the Company sold its Retail Products segment for gross cash proceeds of $330 million, subject to working capital adjustments. Deal costs and other adjustments resulted in net cash proceeds of $308 million, which was used to repay a portion of the Companys outstanding borrowings under its credit facility. During fiscal 2008, the Company recorded a $111 million pre-tax loss on sale from discontinued operations related to the Retail Products segment, which included charges totaling $75 million recorded during the first six months of fiscal 2008, to write down the business to its fair value less cost to sell. Fair value used for the impairment assessment was based on the sale agreement. The loss on sale was adjusted in fiscal 2009 because of the receipt of contingent payments and net proceeds from the sale of a Retail Products facility totaling $12 million.
European Incontinence businessDuring fiscal 2008, the Company also sold its European Incontinence business. As a condition of the sale, the Company was required to contribute cash of $43 million into the business prior to the closing of the transaction. During fiscal 2008, the Company recorded a $75 million pre-tax loss on sale from discontinued operations related to the European Incontinence business, which includes charges totaling $23 million recorded during the first six months of fiscal 2008, to write down the business to its fair value less costs to sell. Fair value used for the impairment assessment was based on the sale agreement.
Financial informationNet sales, income from operations and income (loss) on disposition for discontinued operations are as follows:
(Dollars in Millions) | 2009 | 2008 | |||||
Net sales |
$ | | $ | 421 | |||
Income from operations, net of income tax provision of $ and $11 |
$ | | $ | 1 | |||
Income (loss) on disposition, net of income tax provision (benefit) of $2 and $(9) |
5 | (177 | ) | ||||
Income (loss) from discontinued operations, net of income taxes |
$ | 5 | $ | (176 | ) | ||
Change in Plan of Sale
During fiscal 2008, the Company decided to sell its Specialty Chemical business within the Pharmaceuticals segment because its products and customer base were not aligned with the Companys long-term strategic objectives. The Specialty Chemicals business had been classified as held for sale and the results of its activities reflected within discontinued operations. During the fourth quarter of fiscal 2009, the Company ceased efforts to
2009 Irish Statutory Accounts | 44 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
market this business given market conditions existing at the time. As a result, the Specialty Chemicals business no longer met the held for sale and discontinued operations criteria and, accordingly, was reclassified from held for sale to held and used and from discontinued operations to continuing operations for all periods presented. During the fourth quarter of fiscal 2009, the Company recorded $18 million of incremental depreciation and amortization expense relating to the period from the first quarter of fiscal 2008 through the third quarter of fiscal 2009 when the Specialty Chemicals business was classified as held for sale. In addition, the Company recorded a charge of $60 million for the write-off of a previously recognized deferred tax asset resulting from the reclassification of this business to continuing operations.
Divestitures
During fiscal 2009, the Company sold its Sleep Diagnostics product line within the Medical Devices segment. In addition, the Company entered into a definitive agreement to sell its Oxygen Therapy product line, also within the Medical Devices segment. Selling, general and administrative expenses for fiscal 2009 includes charges totaling $21 million for the loss on sale of Sleep Diagnostics and the write-down of Oxygen Therapy to its fair values less cost to sell based on the sale agreement. In September 2009, the Company also announced its plan to divest its Sleep Therapy product line within the Medical Devices segment. The Company plans to reallocate the resources previously used to support these product lines to its faster-growing, higher-margin businesses in which it has or can develop a global competitive advantage.
4. Restructuring Charges
In fiscal 2007, the Company launched a $150 million restructuring program, primarily in its Medical Devices and Medical Supplies segments. This program includes exiting unprofitable product lines in low-growth and declining-growth markets, reducing excess machine capacity, moving production to lower cost alternatives through plant consolidations and outsourcing initiatives, and relocating certain functions. As of September 26, 2008, the Company had substantially completed this program.
In fiscal 2009, the Company launched an additional restructuring program, designed to improve the Companys cost structure and to deliver improved operational growth. This program includes actions across all three segments, as well as corporate. The Company expects to incur charges as these actions are undertaken of approximately $200 million under this program, most of which is expected to occur by the end of 2010. This program excludes acquisition-related restructuring actions, which may be initiated in future periods.
Restructuring charges, including associated asset impairments, by segment are as follows:
(Dollars in Millions) | 2009 | 2008 | ||||
Medical Devices |
$ | 7 | $ | 61 | ||
Pharmaceuticals |
27 | 6 | ||||
Medical Supplies |
17 | 10 | ||||
Corporate |
10 | | ||||
$ | 61 | $ | 77 | |||
45 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Activity in the Companys restructuring reserves during fiscal 2008 and 2009 is as follows:
(Dollars in Millions) | Employee Severance and Benefits |
Other | Asset Impairment Charges |
Total | ||||||||||||
Balance at September 29, 2007 |
$ | 27 | $ | 1 | $ | | $ | 28 | ||||||||
Charges |
58 | 7 | 18 | 83 | ||||||||||||
Utilization |
(18 | ) | (7 | ) | (18 | ) | (43 | ) | ||||||||
Changes in estimate |
(6 | ) | | | (6 | ) | ||||||||||
Currency translation |
(4 | ) | | | (4 | ) | ||||||||||
Balance at September 26, 2008 |
57 | 1 | | 58 | ||||||||||||
Charges |
51 | 3 | 12 | 66 | ||||||||||||
Utilization |
(34 | ) | (4 | ) | (12 | ) | (50 | ) | ||||||||
Changes in estimate |
(5 | ) | | | (5 | ) | ||||||||||
Currency translation |
(4 | ) | | | (4 | ) | ||||||||||
Balance at September 25, 2009 |
$ | 65 | $ | | $ | | $ | 65 | ||||||||
At September 25, 2009, restructuring liabilities of $65 million remained on the balance sheet, $61 million of which are included in accrued and other current liabilities and the remainder of which are included in other liabilities.
5. Income Taxes
Significant components of income taxes related to continuing operations for each fiscal year are as follows:
(Dollars in Millions) | 2009 | 2008 | ||||||
Current: |
||||||||
United States: |
||||||||
Federal |
$ | 693 | $ | 379 | ||||
State |
46 | 31 | ||||||
Non-U.S. |
283 | 140 | ||||||
Current income tax provision |
1,022 | 550 | ||||||
Deferred: |
||||||||
United States: |
||||||||
Federal |
(76 | ) | (16 | ) | ||||
State |
(7 | ) | 15 | |||||
Non-U.S. |
(9 | ) | (51 | ) | ||||
Deferred income tax provision |
(92 | ) | (52 | ) | ||||
$ | 930 | $ | 498 | |||||
Non-U.S. income from continuing operations before income taxes was $1.186 billion and $1.072 billion for fiscal 2009 and 2008, respectively.
2009 Irish Statutory Accounts | 46 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The reconciliation between U.S. federal income taxes at the statutory rate and the Companys provision for income taxes on continuing operations is as follows:
(Dollars in Millions) | 2009 | 2008 | ||||||
Notional U.S. federal income taxes at the statutory rate |
$ | 630 | $ | 712 | ||||
Adjustments to reconcile to the income tax provision: |
||||||||
U.S. state income tax provision, net |
25 | 39 | ||||||
Rate differences between non-U.S. and U.S. jurisdictions(1) |
(332 | ) | (304 | ) | ||||
Shareholder and class action settlement costs |
64 | 18 | ||||||
Valuation allowances |
10 | 1 | ||||||
Adjustments to accrued income tax liabilities and uncertain tax positions |
299 | 68 | ||||||
Allocated loss on the retirement of debt |
| | ||||||
Investment in subsidiary |
60 | (60 | ) | |||||
In-process research and development charges |
34 | 8 | ||||||
Withholding tax on repatriated earnings |
167 | | ||||||
Other |
(27 | ) | 16 | |||||
Provision for income taxes |
$ | 930 | $ | 498 | ||||
(1) | Excludes non-deductible charges and other items which are broken out separately in the statutory rate reconciliation presented. |
The Company is the primary obligor to the taxing authorities for $1.774 billion and $1.397 billion of contingent tax liabilities that are recorded on the balance sheet at September 25, 2009 and September 26, 2008, respectively. At September 25, 2009 and September 26, 2008, the total amount of the Companys unrecognized tax benefits included within income taxes payable was $1.359 billion and $1.053 billion, respectively, of which $1.174 billion would impact the effective tax rate and $185 million would be offset by the write off of related deferred and other tax assets, if recognized. Interest and penalties associated with uncertain tax positions are recognized as components of income tax expense. The Company accrued $130 million of interest and $8 million of penalties during fiscal 2009 and $89 million of interest and $3 million of penalties during fiscal 2008. The total amount of accrued interest related to uncertain tax positions included within income taxes payable was $459 million and $329 million at September 25, 2009 and September 26, 2008, respectively. In addition, the total amount of accrued penalties included within income taxes payable related to uncertain tax positions was $26 million and $18 million at September 25, 2009 and September 26, 2008, respectively.
The following table summarizes the activity related to the Companys unrecognized tax benefits:
(Dollars in Millions) | 2009 | 2008(1) | ||||||
Balance at beginning of fiscal year |
$ | 1,053 | $ | 1,006 | ||||
Additions related to current year tax positions |
23 | 43 | ||||||
Additions related to prior period tax positions |
320 | 42 | ||||||
Reductions related to prior period tax positions |
(37 | ) | (3 | ) | ||||
Settlements |
| (28 | ) | |||||
Lapse of statute of limitations |
| (7 | ) | |||||
Balance at end of fiscal year |
$ | 1,359 | $ | 1,053 | ||||
(1) | Amounts have been revised to properly classify certain items. |
47 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Companys and its subsidiaries income tax returns are periodically examined by various tax authorities. Open periods for examination include periods during which the Company was a subsidiary of Tyco International. The resolution of these matters is subject to the conditions set forth in the Tax Sharing Agreement discussed in note 17. Tyco International has the right to administer, control and settle all U.S. income tax audits for periods prior to the separation. The Company has significant potential tax liabilities related to these periods and has included its best estimate of the amounts which relate to its operations within the non current income taxes payable.
The IRS has concluded its field examination of certain of Tyco Internationals U.S. federal income tax returns for the years 1997 through 2000. Tyco International has appealed certain of the tax adjustments proposed by the IRS which affect all three of the companies and total approximately $1 billion. The Company believes that the amounts recorded in its financial statements related to these matters are adequate. At September 25, 2009, non-current income taxes payable includes approximately $163 million of gross unrecognized tax benefits, which is expected to be settled within the next twelve months, primarily related to the 1997 through 2000 audit cycle. However, the majority of the related cash payments are not expected to be made until fiscal 2011. Non-current income taxes payable also includes anticipated refunds and other items not related to uncertain tax positions.
In addition, in September 2009, Tyco International and the U.S. Internal Revenue Service (IRS) entered into settlements related to certain outstanding tax matters within the 2001 through 2004 audit cycle, which cycle remains open and subject to examination and resolution of other matters. The net effect of the settlements will require Covidien to make a payment of approximately $205 million to the IRS, potentially in fiscal 2011, which is included in non-current income taxes payable on the balance sheet. However, pursuant to the Tax Sharing Agreement, Covidien will receive payments totaling approximately $107 million from Tyco International and Tyco Electronics, which is included in due from former parent and affiliates. The impacts of these settlements are reflected in income tax expense and other income, respectively. Covidien will also be required to reimburse Tyco International and Tyco Electronics an insignificant amount for the Companys portion of their settlements.
As of September 25, 2009, a summary of tax years that remain subject to examination in the Companys major tax jurisdictions are as follows:
United Statesfederal |
1997 and forward | |
United Statesstate |
1996 and forward | |
Australia |
2004 and forward | |
Canada |
2000 and forward | |
France |
2000 and forward | |
Germany |
2002 and forward | |
Ireland |
2004 and forward | |
Italy |
2004 and forward | |
Japan |
1998 and forward | |
Netherlands |
2003 and forward | |
Switzerland |
2004 and forward | |
United Kingdom |
2004, 2006 and forward |
2009 Irish Statutory Accounts | 48 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The following table sets forth the components of the net deferred tax asset at the end of fiscal 2009 and 2008:
(Dollars in Millions) | 2009 | 2008 | ||||||
Deferred tax assets: |
||||||||
Accrued liabilities and reserves |
$ | 434 | $ | 356 | ||||
Tax loss and credit carryforwards |
6,594 | 6,715 | ||||||
Inventories |
110 | 65 | ||||||
Postretirement benefits |
133 | 47 | ||||||
Federal and state benefit of uncertain tax positions |
239 | 180 | ||||||
Investment in subsidiaries |
| 60 | ||||||
Deferred compensation |
74 | 40 | ||||||
Other |
131 | 163 | ||||||
7,715 | 7,626 | |||||||
Deferred tax liabilities: |
||||||||
Property, plant and equipment |
(299 | ) | (312 | ) | ||||
Intangible assets |
(814 | ) | (651 | ) | ||||
Other |
| (7 | ) | |||||
(1,113 | ) | (970 | ) | |||||
Net deferred tax asset before valuation allowances |
6,602 | 6,656 | ||||||
Valuation allowances |
(6,492 | ) | (6,617 | ) | ||||
Net deferred tax asset |
$ | 110 | $ | 39 | ||||
Net deferred tax asset activity for fiscal 2009 is as follows:
(Dollars in Millions) | ||||
Balance at September 26, 2008 |
$ | 39 | ||
Provisions |
92 | |||
Acquisitions |
(68 | ) | ||
Charge to equity |
22 | |||
Currency translation and other |
25 | |||
Balance at September 25, 2009 |
$ | 110 | ||
Deferred taxes were comprised of the following:
(Dollars in Millions) | 2009 | 2008 | ||||||
Deferred income taxes included in debtors |
$ | 476 | $ | 335 | ||||
Deferred income taxes included in provisions |
(366 | ) | (296 | ) | ||||
Net deferred tax asset |
$ | 110 | $ | 39 | ||||
At September 25, 2009, the Company had approximately $22.6 billion of net operating loss carryforwards in certain non-U.S. jurisdictions, of which $21.6 billion have no expiration, and the remaining $1.0 billion will expire in future years through 2029. Included in these net operating loss carryforwards are approximately $20 billion of net operating losses that the Company recorded in fiscal 2008 as a result of the receipt of a favorable
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
tax ruling from certain non-U.S. taxing authorities. The Company has recorded a full valuation allowance against this net operating loss as management believes that it is highly unlikely that any of this net operating loss will be utilized. Since there was no impact on the Companys effective tax rate, the net operating loss and corresponding valuation allowance have been excluded from the rate reconciliation previously presented. The Company had $464 million of U.S. federal net operating loss carryforwards and $258 million of U.S. federal capital loss carryforwards at September 25, 2009, which will expire between 2011 through 2029. For U.S. state purposes, the Company had $874 million of net operating loss carryforwards and $241 million of capital loss carryforwards at September 25, 2009, which will also expire between 2010 through 2029.
At September 25, 2009, the Company also had $23 million of tax credits available to reduce future income taxes payable, primarily in jurisdictions within the United States, of which $7 million have no expiration, and the remainder expire during 2010 through 2029.
The valuation allowances for deferred tax assets of $6.492 billion and $6.617 billion at September 25, 2009 and September 26, 2008, respectively, relate principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various jurisdictions. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets.
At September 25, 2009, the Company had certain potential non-U.S. tax attributes that had not been recorded in the financial statements. These attributes include $11.7 billion of non-U.S. special deductions with an indefinite carryforward period. The Company has treated these amounts as special deductions for financial statement purposes since utilization is contingent upon the annual performance of certain economic factors. The Company intends to recognize the applicable portion of the special deduction annually at an estimated tax rate of between 1% and 3% when and if these economic factors are met.
During fiscal 2009, the Company provided for U.S. and non-U.S. income taxes and a 5% withholding tax in the amount of $167 million on earnings that were repatriated (i) in connection with a one-time transaction that was implemented as part of the Companys tax planning strategies and (ii) in jurisdictions where the Company is not permanently reinvested. In general, the remaining earnings of the Companys subsidiaries are considered to be permanently reinvested. At September 25, 2009, there are no significant U.S. accumulated earnings that have not been repatriated. The Company does not believe it practicable to estimate either the accumulated earnings in other jurisdictions or the potential income taxes thereon which could potentially be triggered if repatriation were to occur.
6. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share for fiscal 2009 and 2008:
2009 | 2008 | |||||||||||||||
(Amounts in Millions, Except per Share Data) | Income | Shares | Per Share Amount |
Income | Shares | Per Share Amount | ||||||||||
Basic earnings per share: |
||||||||||||||||
Profit after taxation from continuing operations |
$ | 871 | 503 | $ | 1.73 | $ | 1,537 | 500 | $ | 3.08 | ||||||
Diluted earnings per share: |
||||||||||||||||
Share options and restricted shares |
| 2 | | 5 | ||||||||||||
Profit after taxation from continuing operations giving effect to dilutive adjustments |
$ | 871 | 505 | $ | 1.72 | $ | 1,537 | 505 | $ | 3.04 | ||||||
2009 Irish Statutory Accounts | 50 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The computation of diluted earnings per share for fiscal 2009 and 2008 excludes the effect of the potential exercise of options to purchase 15 million and 5 million shares, respectively, because the effect would be anti-dilutive.
7. Inventories
At the end of fiscal 2009 and 2008, inventories were comprised of:
(Dollars in Millions) | 2009 | 2008 | ||||
Purchased materials and manufactured parts |
$ | 303 | $ | 273 | ||
Work in process |
331 | 244 | ||||
Finished goods |
700 | 830 | ||||
Inventories |
$ | 1,334 | $ | 1,347 | ||
Aggregate reductions in the carrying value with respect to inventories that were still on hand at September 25, 2009 and September 26, 2008, that were deemed to be excess, obsolete, slow-moving or that had a carrying value in excess of market, were $144 million and $122 million, respectively.
8. Property, plant and equipment
At the end of fiscal 2009 and 2008 property, plant and equipment at cost and accumulated depreciation were:
(Dollars in Millions) | 2009 | 2008 | ||||||
Land |
$ | 137 | $ | 138 | ||||
Buildings and related improvements |
1,147 | 1,084 | ||||||
Machinery and equipment |
3,101 | 2,859 | ||||||
Leasehold improvements |
194 | 175 | ||||||
Construction in progress |
350 | 393 | ||||||
Accumulated depreciation |
(2,268 | ) | (2,065 | ) | ||||
Property, plant and equipment, net |
$ | 2,661 | $ | 2,584 | ||||
At September 25, 2009 and September 26, 2008, the Company had property under capital lease of $77 million and $224 million, respectively, consisting primarily of buildings. Amortization of capitalized lease assets was $4 million and $9 million in fiscal 2009 and 2008, respectively. Accumulated amortization of capitalized lease assets was $64 million and $161 million at the end of fiscal 2009 and 2008, respectively.
Demonstration product (Demo) is capital equipment utilized by the sales force as a sales tool. Demo is located with the sales force or placed with customers on a temporary basis for use in evaluating the product. Demo is capitalized and amortized over 3 to 5 years based on expected useful life. In addition, the Company maintains a pool of loaned capital equipment, primarily items that are provided to customers for use when the customer owned item is sent in for repair. Upon completion of the repair the loaned equipment is returned to the Company. Demo and loaned equipment totaled $116 million and $109 million at September 25, 2009 and September 26, 2008, respectively.
Depreciation expense was $353 million and $323 million in fiscal 2009 and 2008, respectively. These amounts include $54 million and $47 million for fiscal 2009 and 2008, respectively, of depreciation expense on demonstration equipment which is included in other tangible assets on the balance sheet. Maintenance and repair expenditures are charged to expense when incurred and were $101 million in fiscal 2009 and $108 million in fiscal 2008.
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Fixed asset activity for fiscal 2009 is as follows:
(Dollars in Millions) | Land, Buildings and Leasehold Improvements |
Machinery and Equipment |
Construction in Process |
Total | ||||||||||||
Cost: |
||||||||||||||||
At September 26, 2008 |
$ | 1,397 | $ | 2,859 | $ | 393 | $ | 4,649 | ||||||||
Additions |
20 | 59 | 333 | 412 | ||||||||||||
Acquisitions |
3 | 6 | | 9 | ||||||||||||
Impairment |
(2 | ) | | (1 | ) | (3 | ) | |||||||||
Disposals |
(14 | ) | (133 | ) | | (147 | ) | |||||||||
Transfers |
68 | 306 | (374 | ) | | |||||||||||
Currency translation |
6 | 4 | (1 | ) | 9 | |||||||||||
At September 25, 2009 |
$ | 1,478 | $ | 3,101 | $ | 350 | $ | 4,929 | ||||||||
Depreciation and impairment: |
||||||||||||||||
At September 26, 2008 |
$ | 524 | $ | 1,541 | $ | | $ | 2,065 | ||||||||
Depreciation expense |
60 | 239 | | 299 | ||||||||||||
Impairment |
15 | 5 | | 20 | ||||||||||||
Disposals |
(13 | ) | (110 | ) | | (123 | ) | |||||||||
Transfers |
(2 | ) | 2 | | | |||||||||||
Currency translation |
3 | 4 | | 7 | ||||||||||||
At September 25, 2009 |
$ | 587 | $ | 1,681 | $ | | $ | 2,268 | ||||||||
Net book value: |
||||||||||||||||
At September 26, 2008 |
$ | 873 | $ | 1,318 | $ | 393 | $ | 2,584 | ||||||||
At September 25, 2009 |
$ | 891 | $ | 1,420 | $ | 350 | $ | 2,661 |
9. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for fiscal 2009 and 2008 were as follows:
(Dollars in Millions) | Medical Devices |
Medical Supplies |
Pharma- ceuticals |
Total | ||||||||
Goodwill at September 29, 2007 |
$ | 4,871 | $ | 389 | $ | 532 | $ | 5,792 | ||||
Acquisitions |
51 | | | 51 | ||||||||
Currency translation |
3 | | | 3 | ||||||||
Goodwill at September 26, 2008 |
4,925 | 389 | 532 | 5,846 | ||||||||
Acquisitions |
200 | | | 200 | ||||||||
Goodwill at September 25, 2009 |
$ | 5,125 | $ | 389 | $ | 532 | $ | 6,046 | ||||
2009 Irish Statutory Accounts | 52 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The gross carrying amount and accumulated amortization of intangible assets at the end of fiscal 2009 and 2008 were as follows:
2009 | 2008 | |||||||||||||||
(Dollars in Millions) | Gross Carrying Amount |
Accumulated Amortization |
Weighted Average Amortization Period |
Gross Carrying Amount |
Accumulated Amortization |
Weighted Average Amortization Period | ||||||||||
Amortizable: |
||||||||||||||||
Unpatented technology |
$ | 657 | $ | 251 | 21 years | $ | 626 | $ | 218 | 21 years | ||||||
Patents and trademarks |
943 | 349 | 15 years | 659 | 310 | 18 years | ||||||||||
Customer lists |
158 | 44 | 16 years | 97 | 34 | 18 years | ||||||||||
Other |
168 | 73 | 29 years | 163 | 66 | 29 years | ||||||||||
Total |
1,926 | 717 | 18 years | 1,545 | 628 | 20 years | ||||||||||
Non-Amortizable: |
||||||||||||||||
Trademarks |
353 | 356 | ||||||||||||||
Total intangible assets |
$ | 2,279 | $ | 717 | $ | 1,901 | $ | 628 | ||||||||
Intangible asset amortization expense for fiscal 2009 and 2008 was $87 million and $77 million, respectively. The estimated aggregate amortization expense is expected to be $102 million for fiscal 2010, $100 million for fiscal 2011, $99 million for fiscal 2012, $98 million for fiscal 2013 and $97 million for fiscal 2014.
Intangible asset activity for fiscal 2009 is as follows:
(Dollars in Millions) | Unpatented Technology |
Patents and Trademarks |
Customer Lists |
Other | Total | ||||||||||
Cost: |
|||||||||||||||
At September 26, 2008 |
$ | 626 | $ | 1,015 | $ | 97 | $ | 163 | $ | 1,901 | |||||
Acquisitions |
31 | 280 | 60 | 5 | 376 | ||||||||||
Currency translation |
| 1 | 1 | | 2 | ||||||||||
At September 25, 2009 |
$ | 657 | $ | 1,296 | $ | 158 | $ | 168 | $ | 2,279 | |||||
Amortization: |
|||||||||||||||
At September 26, 2008 |
$ | 218 | $ | 310 | $ | 34 | $ | 66 | $ | 628 | |||||
Amortization expense |
33 | 38 | 9 | 7 | 87 | ||||||||||
Currency translation |
| 1 | 1 | | 2 | ||||||||||
At September 25, 2009 |
$ | 251 | $ | 349 | $ | 44 | $ | 73 | $ | 717 | |||||
Net book value: |
|||||||||||||||
At September 26, 2008 |
$ | 408 | $ | 705 | $ | 63 | $ | 97 | $ | 1,273 | |||||
At September 25, 2009 |
$ | 406 | $ | 947 | $ | 114 | $ | 95 | $ | 1,562 |
53 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Debt
At the end of fiscal 2009 and 2008, debt was comprised of:
(Dollars in Millions) | 2009 | 2008 | ||||
Current maturities of long-term debt: |
||||||
Capital lease obligations |
$ | 5 | $ | 19 | ||
Other |
25 | | ||||
Total |
30 | 19 | ||||
Long-term debt: |
||||||
Commercial paper program |
151 | 171 | ||||
5.2% senior notes due October 2010 |
250 | 250 | ||||
5.5% senior notes due October 2012 |
500 | 500 | ||||
6.0% senior notes due October 2017 |
1,150 | 1,150 | ||||
6.6% senior notes due October 2037 |
850 | 850 | ||||
Capital lease obligations |
41 | 45 | ||||
Other |
19 | 20 | ||||
Total |
2,961 | 2,986 | ||||
Total debt |
$ | 2,991 | $ | 3,005 | ||
The Company has a $1.425 billion five-year unsecured senior revolving credit facility expiring in 2012. Borrowings under this credit facility bear interest, at the Companys option, at a base rate or LIBOR, plus a margin dependent on the Companys credit default swap rate (subject to a floor and a cap that is dependent upon the Companys credit ratings). The credit facility agreement contains a covenant limiting the Companys ratio of debt to earnings before interest, income taxes, depreciation and amortization. In addition, the agreement contains other customary covenants, none of which are considered restrictive to the Companys operations. No amount was outstanding under the credit facility at either September 25, 2009 or September 26, 2008.
In February 2008, Covidien International Finance S.A. (CIFSA), an indirect wholly-owned subsidiary of the Company, initiated a commercial paper program. The notes issued under the commercial paper program are fully and unconditionally guaranteed by both Covidien plc and Covidien Ltd. Proceeds from the sale of the notes are used for working capital and other corporate purposes. The weighted-average interest rate on the notes issued under the commercial paper program was 0.4% and 3.6% at September 25, 2009 and September 26, 2008, respectively. CIFSA is required to maintain an available unused balance under its revolving credit facility sufficient to support amounts outstanding under the commercial paper program.
Capital lease obligations are generally due in installments based on the underlying agreements. All other debt is due in lump-sums. The aggregate amounts of external debt, including capital lease obligations, maturing during the next five fiscal years and thereafter are as follows: $30 million, $255 million, $155 million, $504 million, $10 million and $2.037 billion.
The fair value of the Companys unsecured senior notes was approximately $3.068 billion and $2.697 billion at September 25, 2009 and September 26, 2008, respectively.
2009 Irish Statutory Accounts | 54 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
11. Guarantees
CIFSA, a Luxembourg company, is a holding company that owns, directly or indirectly, all of the operating subsidiaries of Covidien plc. CIFSA is the issuer of the Companys senior notes and commercial paper and the borrower under the revolving credit facility, substantially all of which are fully and unconditionally guaranteed by both Covidien plc and Covidien Ltd., the owners of CIFSA.
Pursuant to the Separation and Distribution Agreement and Tax Sharing Agreement, the Company entered into certain guarantee commitments and indemnifications with Tyco International and Tyco Electronics, which are discussed in note 17.
In disposing of assets or businesses, the Company often provides representations, warranties and indemnities to cover various risks including, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company does not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, the Company has no reason to believe that these uncertainties would have a material adverse effect on its results of operations, financial condition or cash flows.
The Company has recorded liabilities for known indemnifications included as part of environmental liabilities, which are discussed in note 19. In addition, the Company is liable for product performance; however in the opinion of management, such obligations will not significantly affect the Companys results of operations, financial condition or cash flows.
12. Financial Instruments
The Company is exposed to certain risks relating to its business operations. Risks that relate to interest rate exposure, foreign exchange exposure and commodity price exposure are managed by using derivative instruments. Interest rate lock contracts were entered into prior to the issuance of the Companys fixed rate senior notes to manage the risk of changes in interest rates prior to issuance of the debt. Foreign currency option and forward contracts are used to economically manage the foreign exchange exposures of operations outside the United States. Swap contracts on various commodities are periodically entered into to manage the price risk associated with forecasted purchases of commodities used in the Companys manufacturing processes.
The company recognizes all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company has designated the interest rate lock contracts and certain commodity swap contracts as cash flow hedges. The Company has not designated the foreign currency forward and option contracts as hedging instruments.
Cash Flow Hedges
Interest Rate ExposureDuring fiscal 2007, CIFSA entered into a series of forward interest rate lock contracts to hedge the risk of variability in the market interest rates prior to the issuance of its fixed rate senior notes. The rate locks had an aggregate notional value of $1.3 billion and were designated as cash flow hedges at inception. The rate locks were terminated in fiscal 2007 and fiscal 2008 prior to the issuance of the notes. The termination of the rate locks resulted in an aggregate loss of $61 million, substantially all of which was considered to be highly effective at mitigating the risk associated with changes in interest rates. This amount was recorded within accumulated other comprehensive income and is being reclassified to interest expense over the terms of the notes. The amount of loss reclassified from accumulated other comprehensive income to interest
55 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
expense was insignificant for each of fiscal 2009 and 2008. As of September 25, 2009, $54 million of this loss remained in accumulated other comprehensive income. The Company has not entered into any other interest rate-related derivative instruments.
Derivative not Designated as Hedging Instruments
Foreign Exchange ExposuresThe Companys operations outside the United States are significant. As a result, the Company has both transactional and translational foreign exchange exposure. The Companys policy is to use various forward and option contracts to economically manage foreign currency exposures on accounts and notes receivable, accounts payable, intercompany loans and forecasted transactions denominated in certain foreign currencies, principally the euro, Japanese yen, British pound and Canadian dollar. All forward and option contracts are recorded on the balance sheet at fair value. At September 25, 2009, the Company had foreign currency forward and option contracts outstanding with a notional amount of $765 million. These contracts do not meet the necessary criteria to qualify for hedge accounting. Accordingly, all associated changes in fair value are recognized in earnings.
The fair value of foreign exchange forward and option contracts not designated as hedging instruments is as follows:
(Dollars in Millions) | September 25, 2009 | ||
Prepaid expenses and other current assets(1) |
$ | 30 | |
Accrued and other current liabilities(1) |
49 |
(1) | The Company nets derivative assets and liabilities when aggregating derivative contracts for presentation in the consolidated financial statements if certain criteria are met. The table above presents such contracts on a gross basis. |
The net gain (loss) on foreign exchange forward and option contracts not designated as hedging instruments and related hedged items included in selling, general and administrative expenses was $36 million and $(44) million in fiscal 2009 and 2008, respectively.
The following table provides a summary of significant assets and liabilities that are measured at fair value on a recurring basis as of September 25, 2009:
September 25, 2009 | Basis of Fair Value Measurement | |||||||||||
(Dollars in Millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) | |||||||||
Assets |
||||||||||||
Foreign currency contracts |
$ | 30 | $ | | $ | 30 | $ | | ||||
Liabilities |
||||||||||||
Foreign currency contracts |
$ | 49 | $ | | $ | 49 | $ | |
The majority of derivatives entered into by the Company are valued using over-the-counter quoted market prices for similar instruments. The Company does not believe that fair values of these derivative instruments differs materially from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a material effect on its results of operations, financial condition or cash flows.
2009 Irish Statutory Accounts | 56 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Fair Value of Financial Instruments
The Companys financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, amounts due from former parent and affiliates, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable, investments, accounts payable and derivative financial instruments approximated their carrying values at the end of fiscal 2009 and 2008. The fair value of debt is set forth in note 10. It is not practicable to estimate the fair value of the amounts due to or from former parent and affiliates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivative financial instruments. The Company invests its excess cash in deposits or money market funds and diversifies the concentration of cash among different financial institutions that have at least an A credit rating. The Company provides credit and does not generally require collateral; however, concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their diversity across many geographic areas. Counterparties to the Companys derivative financial instruments are limited to major financial institutions with at least an A/A2 long-term debt rating. While the Company does not require collateral or other security to be furnished by the counterparties to its derivative financial instruments, it minimizes exposure to credit risk by dealing with a diversified group of major financial institutions and actively monitoring outstanding positions.
13. Retirement Plans
At the end of fiscal 2009 and 2008, pension and similar obligations were comprised of:
(Dollars in Millions) | 2009 | 2008 | ||||
U.S. defined benefit pension plans |
$ | 161 | $ | 73 | ||
Non-U.S. defined benefit pension plans |
90 | 102 | ||||
Postretirement benefit obligations |
135 | 131 | ||||
Other |
35 | 37 | ||||
$ | 421 | $ | 343 | |||
Defined Benefit Pension PlansThe Company sponsors a number of defined benefit retirement plans covering certain of its U.S. and non-U.S. employees. The Companys periodic contributions to the plans are generally held in trust. Net periodic pension benefit cost is based on periodic actuarial valuations which use the projected unit credit method of calculation and is charged to expense on a systematic basis over the expected average remaining service lives of current participants. Contribution amounts are determined based on the advice of professionally qualified actuaries. The benefits under the defined benefit plans are based on various factors, such as years of service and compensation.
The amounts included in the Companys financial statements are based on the most recent actuarial valuations, which are generally as of the end of the fiscal year. The actuarial valuations are performed by the individual plans independent and professionally qualified actuaries. The actuarial reports are not available for public inspection.
57 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The net periodic benefit cost for all U.S. and non-U.S. defined benefit pension plans is as follows:
U.S. Plans | Non-U.S. Plans | |||||||||||||||
(Dollars in Millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost |
$ | 7 | $ | 7 | $ | 15 | $ | 15 | ||||||||
Interest cost |
35 | 34 | 17 | 18 | ||||||||||||
Expected return on plan assets |
(32 | ) | (41 | ) | (13 | ) | (14 | ) | ||||||||
Amortization of prior service cost |
2 | 2 | | | ||||||||||||
Amortization of net actuarial loss |
11 | 6 | 2 | 2 | ||||||||||||
Plan settlements, curtailment and special termination benefits |
| 5 | 4 | 1 | ||||||||||||
Net periodic benefit cost |
$ | 23 | $ | 13 | $ | 25 | $ | 22 | ||||||||
Weighted-average assumptions used to determine net pension cost during the year: |
||||||||||||||||
Discount rate |
7.0 | % | 6.3 | % | 5.6 | % | 5.0 | % | ||||||||
Expected return on plan assets |
7.4 | % | 8.0 | % | 5.7 | % | 5.5 | % | ||||||||
Rate of compensation increase |
3.8 | % | 4.3 | % | 3.8 | % | 3.8 | % |
The estimated amounts that will be amortized from accumulated income into net periodic benefit cost in fiscal 2010 are as follows:
(Dollars in Millions) | U.S. Plans | Non-U.S. Plans | ||||||
Amortization of net actuarial loss |
$ | (20 | ) | $ | (2 | ) | ||
Amortization of prior service cost |
(2 | ) | |
2009 Irish Statutory Accounts | 58 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table represents the changes in benefit obligations, plan assets and the net amounts recognized on the balance sheet for all U.S. and non-U.S. defined benefit plans at the end of fiscal 2009 and 2008:
U.S. Plans | Non-U.S. Plans | |||||||||||||||
(Dollars in Millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Change in benefit obligations: |
||||||||||||||||
Benefit obligations at beginning of year |
$ | 526 | $ | 577 | $ | 345 | $ | 341 | ||||||||
Change in measurement date |
| | 2 | | ||||||||||||
Service cost |
7 | 7 | 15 | 15 | ||||||||||||
Interest cost |
35 | 34 | 17 | 18 | ||||||||||||
Employee contributions |
| | 2 | 2 | ||||||||||||
Actuarial loss (gain) |
72 | (29 | ) | (10 | ) | (21 | ) | |||||||||
Benefits and administrative expenses paid |
(47 | ) | (38 | ) | (13 | ) | (13 | ) | ||||||||
Plan settlements, curtailments and special termination benefits |
(4 | ) | (25 | ) | (4 | ) | (1 | ) | ||||||||
Currency translation |
| | | 4 | ||||||||||||
Benefit obligations at end of year |
$ | 589 | $ | 526 | $ | 354 | $ | 345 | ||||||||
Change in plan assets: |
||||||||||||||||
Fair value of plan assets at beginning of year |
$ | 452 | $ | 535 | $ | 242 | $ | 244 | ||||||||
Change in measurement date |
(4 | ) | | (1 | ) | | ||||||||||
Actual return on plan assets |
5 | (31 | ) | 4 | (11 | ) | ||||||||||
Employer contributions |
26 | 11 | 33 | 19 | ||||||||||||
Employee contributions |
| | 2 | 2 | ||||||||||||
Plan settlements |
(4 | ) | (25 | ) | (6 | ) | (2 | ) | ||||||||
Benefits and administrative expenses paid |
(47 | ) | (38 | ) | (13 | ) | (13 | ) | ||||||||
Currency translation |
| | 3 | 3 | ||||||||||||
Fair value of plan assets at end of year |
$ | 428 | $ | 452 | $ | 264 | $ | 242 | ||||||||
Funded status at end of year |
$ | (161 | ) | $ | (74 | ) | $ | (90 | ) | $ | (103 | ) | ||||
Contributions after the measurement date |
| 1 | | 1 | ||||||||||||
Net amount recognized on the balance sheet |
$ | (161 | ) | $ | (73 | ) | $ | (90 | ) | $ | (102 | ) | ||||
Amounts recognized on the balance sheet: |
||||||||||||||||
Amount to be settled within one year |
$ | (3 | ) | $ | (3 | ) | $ | (4 | ) | $ | (4 | ) | ||||
Amount to be settled after one year |
(158 | ) | (70 | ) | (86 | ) | (98 | ) | ||||||||
Net amount recognized on the balance sheet |
$ | (161 | ) | $ | (73 | ) | $ | (90 | ) | $ | (102 | ) | ||||
Amounts recognized in accumulated other comprehensive income consist of: |
||||||||||||||||
Net actuarial loss |
$ | (232 | ) | $ | (143 | ) | $ | (41 | ) | $ | (46 | ) | ||||
Prior service (cost) credit |
(5 | ) | (6 | ) | 5 | 3 | ||||||||||
Net amount recognized in accumulated other comprehensive income |
$ | (237 | ) | $ | (149 | ) | $ | (36 | ) | $ | (43 | ) | ||||
Weighted-average assumptions used to determine pension benefit obligations at year end: |
||||||||||||||||
Discount rate |
5.5 | % | 7.0 | % | 5.4 | % | 5.6 | % | ||||||||
Rate of compensation increase |
2.8 | % | 3.8 | % | 3.6 | % | 3.8 | % |
59 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the Companys U.S. plans, the discount rate is based on the market rate for a broad population of Moodys AA-rated corporate bonds over $250 million. For the Companys non-U.S. plans, the discount rate is generally determined by reviewing country and region specific government and corporate bond interest rates.
The accumulated benefit obligation for all U.S. and non-U.S. plans at the end of fiscal 2009 and 2008 is as follows:
U.S. Plans | Non-U.S. Plans | |||||||||||
(Dollars in Millions) | 2009 | 2008 | 2009 | 2008 | ||||||||
Accumulated benefit obligation |
$ | 590 | $ | 527 | $ | 316 | $ | 311 |
The accumulated benefit obligation and fair value of plan assets for all U.S. and non-U.S. pension plans with accumulated benefit obligations in excess of plan assets at the end of fiscal 2009 and 2008 are as follows:
U.S. Plans | Non-U.S. Plans | |||||||||||
(Dollars in Millions) | 2009 | 2008 | 2009 | 2008 | ||||||||
Accumulated benefit obligation |
$ | 573 | $ | 527 | $ | 204 | $ | 238 | ||||
Fair value of plan assets |
411 | 452 | 108 | 151 |
In determining the expected return on plan assets, the Company considers the relative weighting of plan assets by class and individual asset class performance expectations as provided by external advisors. The Companys overall investment objective is to obtain a long-term return on plan assets that is consistent with the level of investment risk that is considered appropriate. Investment risks and returns are reviewed regularly against benchmarks to ensure objectives are being met.
The Companys U.S. pension plans have a target allocation of either 60% equity securities and 40% debt securities or 30% equity securities and 70% debt securities, depending on the status and duration of liabilities of the plan. Various asset allocation strategies are in place for non-U.S. pension plans depending upon local law, status, funding level and duration of liabilities. The Companys non-U.S. pension plans have a weighted-average target allocation of 33% equity securities, 58% debt securities and 9% other asset classes, primarily cash and cash equivalents.
Pension plans have the following weighted-average asset allocations at the end of fiscal 2009 and 2008:
U.S. Plans | Non-U.S. Plans | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
Equity securities |
49 | % | 46 | % | 30 | % | 36 | % | ||||
Debt securities |
51 | 53 | 62 | 55 | ||||||||
Real estate |
| | 1 | 2 | ||||||||
Cash and cash equivalents |
| 1 | 7 | 7 | ||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % | ||||
Covidien ordinary shares are not a direct investment of the Companys pension funds; however, the pension funds may indirectly include Covidien ordinary shares. The aggregate amount of the Covidien ordinary shares would not be material relative to the total pension fund assets.
The Companys funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates as well as to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will at least make minimum required contributions of $41 million to its U.S. and non-U.S. pension plans in fiscal 2010.
2009 Irish Statutory Accounts | 60 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Benefit payments expected to be paid, reflecting future expected service as appropriate, are as follows:
(Dollars in Millions) | U.S. Plans | Non-U.S. Plans | ||||
Fiscal 2010 |
$ | 62 | $ | 14 | ||
Fiscal 2011 |
53 | 13 | ||||
Fiscal 2012 |
48 | 15 | ||||
Fiscal 2013 |
47 | 16 | ||||
Fiscal 2014 |
47 | 16 | ||||
Fiscal 2015-2019 |
225 | 94 |
Defined Contribution Retirement PlansThe Company maintains voluntary 401(k) retirement plans, in which the Company matches a percentage of each employees contributions. Total Company matching contributions to the plans were $69 million and $63 million for fiscal 2009 and 2008, respectively.
Deferred Compensation PlansThe Company maintains one active nonqualified deferred compensation plan in the United States, which permits eligible employees to defer a portion of their compensation. A record keeping account is set up for each participant and the participant chooses from a variety of measurement funds for the deemed investment of their accounts. The measurement funds generally correspond to the funds offered in the Companys U.S. tax-qualified retirement plan and the account balance fluctuates with the investment returns on those funds. Deferred compensation expense for each period presented was insignificant. Total deferred compensation liabilities were $67 million and $53 million at the end of fiscal 2009 and 2008, respectively.
Rabbi Trusts and Other InvestmentsThe Company maintains several rabbi trusts, the assets of which may be used to pay retirement benefits. The trusts primarily hold life insurance policies and debt and equity securities. The value of the assets held by these trusts was $81 million and $82 million at September 25, 2009 and September 26, 2008, respectively, which were included in other assets on the balance sheets. The rabbi trust assets, which are consolidated, are subject to the claims of the Companys creditors in the event of the Companys insolvency. Plan participants are general creditors of the Company with respect to these benefits. In addition, the Company has other investments which serve as collateral for certain pension plan benefits amounting to $40 million at both September 25, 2009 and September 26, 2008. These amounts were also included in other assets on the balance sheets.
Postretirement Benefit PlansThe Company generally does not provide postretirement benefits other than retirement plan benefits for its employees. However, certain acquired operations provide postretirement medical benefits to employees who were eligible at the date of acquisition, and a small number of U.S. and Canadian operations provide eligibility for such benefits.
Net periodic postretirement benefit cost is as follows:
(Dollars in Millions) | 2009 | 2008 | ||||||
Service cost |
$ | 1 | $ | 2 | ||||
Interest cost |
9 | 9 | ||||||
Amortization of prior service credit |
(7 | ) | (6 | ) | ||||
Amortization of net actuarial loss |
| 1 | ||||||
Net periodic postretirement benefit cost |
$ | 3 | $ | 6 | ||||
Weighted-average assumptions used to determine net postretirement benefit cost during the year: |
||||||||
Discount rate |
7.0 | % | 6.2 | % |
61 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The estimated prior service credit and net loss for postretirement benefit plans that will be amortized from accumulated comprehensive income into net periodic benefit cost in fiscal 2010 aggregate $6 million.
The following table presents the components of the accrued postretirement benefit obligations, all of which are unfunded, at the end of fiscal 2009 and 2008:
(Dollars in Millions) | 2009 | 2008 | ||||||
Change in benefit obligations: |
||||||||
Benefit obligations at beginning of year |
$ | 132 | $ | 166 | ||||
Change in measurement date |
1 | | ||||||
Service cost |
1 | 2 | ||||||
Interest cost |
9 | 9 | ||||||
Plan amendments |
| (20 | ) | |||||
Actuarial loss (gain) |
1 | (16 | ) | |||||
Benefits paid |
(9 | ) | (9 | ) | ||||
Benefit obligations at end of year |
$ | 135 | $ | 132 | ||||
Change in plan assets: |
||||||||
Fair value of assets at beginning of year |
$ | | $ | | ||||
Employer contributions |
9 | 9 | ||||||
Benefits paid |
(9 | ) | (9 | ) | ||||
Fair value of plan assets at end of year |
$ | | $ | | ||||
Funded status at end of year |
$ | (135 | ) | $ | (132 | ) | ||
Contributions after the measurement date |
| 1 | ||||||
Accrued postretirement benefit cost |
$ | (135 | ) | $ | (131 | ) | ||
Amounts recognized on the balance sheet: |
||||||||
Amount to be settled within one year |
$ | (11 | ) | $ | (11 | ) | ||
Amount to be settled after one year |
(124 | ) | (120 | ) | ||||
Total provision recognized on the balance sheet |
$ | (135 | ) | $ | (131 | ) | ||
Amounts recognized in accumulated other comprehensive income consist of: |
||||||||
Net actuarial loss |
$ | (17 | ) | $ | (16 | ) | ||
Prior service credit |
47 | 55 | ||||||
Net amounts recognized in accumulated other comprehensive income |
$ | 30 | $ | 39 | ||||
Weighted-average assumptions used to determine postretirement benefit obligations at year end: |
||||||||
Discount rate |
5.4 | % | 7.0 | % |
Health care cost trend assumptions are as follows:
2009 | 2008 | |||||
Health care cost trend rate assumed for next fiscal year |
8.30 | % | 9.56 | % | ||
Rate to which the cost trend rate is assumed to decline |
4.51 | % | 5.00 | % | ||
Fiscal year the ultimate trend rate is achieved |
2029 | 2015 |
2009 Irish Statutory Accounts | 62 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
(Dollars in Millions) | 1-Percentage-Point Increase |
1-Percentage-Point Decrease | ||
Effect on total of service and interest cost |
1 | (1) | ||
Effect on postretirement benefit obligation |
9 | (8) |
The Company expects to make contributions to its postretirement benefit plans of $11 million in fiscal 2010.
Benefit payments expected to be paid, reflecting future expected service as appropriate, are as follows (dollars in millions):
Fiscal 2010 |
$ | 11 | |
Fiscal 2011 |
11 | ||
Fiscal 2012 |
10 | ||
Fiscal 2013 |
10 | ||
Fiscal 2014 |
11 | ||
Fiscal 2015-2019 |
53 |
14. Shareholders Funds
Preference SharesCovidien has authorized 125,000,000 preference shares, par value of $0.20 per share, none of which were issued and outstanding at September 25, 2009 and September 26, 2008. Rights as to dividends, return of capital, redemption, conversion, voting and otherwise with respect to the preference shares may be determined by Covidiens board of directors on or before the time of issuance. In the event of the liquidation of the Company, the holders of any preference shares then outstanding would be entitled to payment to them of the amount for which the preference shares were subscribed and any unpaid dividends prior to any payment to the ordinary shareholders.
OtherThis is primarily comprised of the capital contribution that was recorded upon separation from Tyco International Ltd.
Share Repurchase ProgramDuring fiscal 2009, the Board of Directors authorized a program to purchase up to $300 million of the Companys ordinary shares to partially offset dilution related to equity compensation plans. Shares may be repurchased from time to time, based on market conditions. During fiscal 2009, the Company repurchased approximately 6 million ordinary shares (with a par value of $1.2 million), or 1.2% of outstanding shares, for $225 million under this program. The Company also repurchases shares from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares and to settle certain option exercises. During fiscal 2009, an additional $7 million was spent to acquire shares in connection with such share-based awards. In fiscal 2009, prior to the reorganization discussed in note 1, the Company retired the 2.1 million shares (with a par value of $0.4 million) that Covidien Ltd. held in treasury, which represented 0.4% of outstanding shares. As of September 25, 2009, the Company had approximately 3.9 million shares (with a par value of $0.8 million) held in treasury, representing 0.8% of outstanding shares, with a value of $155 million. These amounts also represent the maximum amounts held during the year.
DividendsCovidien paid cash dividends totaling $322 and $320 million during fiscal 2009 and 2008, respectively. On September 24, 2009, the Board of Directors declared a quarterly cash dividend of $0.18 per share to shareholders of record at the close of business on October 6, 2009. The dividend, totaling $87 million, was paid on November 6, 2009.
63 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Shareholders funds activity of the Parent Company is as follows:
Ordinary Shares | Other Reserves | |||||||||||||||||||||||
(In Millions) | Number | Amount | Share Premium |
Profit and Loss Account |
Profit and Loss Account - Treasury Shares |
Other | Total | |||||||||||||||||
At January 16, 2009 |
| $ | | $ | | $ | | $ | | $ | | $ | | |||||||||||
Issuance of shares upon Reorganization |
502 | 101 | 17,796 | | | | 17,897 | |||||||||||||||||
Transfer to profit and loss account |
| | (13,934 | ) | 13,934 | | | | ||||||||||||||||
Net loss |
| | | (41 | ) | | | (41 | ) | |||||||||||||||
Dividends declared |
| | | (170 | ) | | | (170 | ) | |||||||||||||||
Repurchase of shares |
| | | | (156 | ) | | (156 | ) | |||||||||||||||
Share options exercised |
1 | | 10 | | 1 | | 11 | |||||||||||||||||
Share-based compensation |
| | | | | 22 | 22 | |||||||||||||||||
At September 25, 2009 |
503 | $ | 101 | $ | 3,872 | $ | 13,723 | $ | (155 | ) | $ | 22 | $ | 17,563 | ||||||||||
Ordinary sharesOn January 20, 2009, the Parent Company issued 40,000 ordinary shares, par value of 1 per share, for $0.052 million, all of which were redeemed in connection with the Reorganization described in note 1.
Reverse acquisitionOn June 4, 2009 all of the outstanding common shares of Covidien Ltd. were cancelled and Covidien plc issued 502,019,511 ordinary shares, par value of $0.20, with substantially the same rights and preferences on a one-for-one basis to the holders of the Covidien Ltd. common shares that were cancelled. The fair value of these shares in Covidien Ltd. received as consideration for the issue of these shares was $17.897 billion, which resulted in a share premium of $17.796 billion for Covidien plc. On a consolidated basis, since the acquisition was accounted for as a reverse acquisition, the shares of Covidien plc, the new legal parent, were recognized and the shares of Covidien Ltd. were derecognized. A reverse acquisition adjustment has been made for the share capital of Covidien Ltd. and is offset against the share premium of the new legal parent.
Transfer of share premium to profit and loss accountOn June 29, 2009, the Irish High Court approved the creation of distributable reserves of Covidien plc through the reduction of the share premium account, so as to facilitate the ongoing payment of dividends to the Shareholders of the Company and to effect the repurchase of shares. The court order authorizing the creation of distributable reserves was filed with the Registrar of Companies in Ireland and became effective on July 8, 2009.
15. Share Plans
Stock Compensation Plans
In March 2009, shareholders approved an amendment and restatement of the Companys 2007 Stock and Incentive Plan, which provides a maximum of 35 million ordinary shares to be issued as stock options, stock appreciation rights, annual performance bonuses, long-term performance awards, restricted units, restricted stock, deferred stock units, promissory stock and other stock-based awards.
Share OptionsOptions are granted to purchase ordinary shares at prices that are equal to the fair market value of the shares on the date the option is granted. Options generally vest in equal annual installments over a period of four years and expire 10 years after the date of grant. The grant-date fair value of options, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience.
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Option activity for fiscal 2008 and 2009 is as follows:
Shares | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (dollars in millions) | ||||||||
Outstanding at September 29, 2007 |
28,662,252 | $ | 40.57 | 6.21 | $ | 156 | |||||
Granted |
518,035 | 41.69 | |||||||||
Exercised |
(4,819,292 | ) | 32.59 | ||||||||
Expired/Forfeited |
(2,349,562 | ) | 48.47 | ||||||||
Outstanding at September 26, 2008 |
22,011,433 | 41.49 | 5.61 | 319 | |||||||
Granted |
4,859,065 | 34.24 | |||||||||
Exercised |
(909,533 | ) | 20.97 | ||||||||
Expired/Forfeited |
(2,344,749 | ) | 44.69 | ||||||||
Outstanding at September 25, 2009 |
23,616,216 | 40.47 | 5.73 | 116 | |||||||
Exercisable as of September 25, 2009 |
16,087,644 | 41.92 | 4.41 | 82 | |||||||
Expected to vest at September 25, 2009 |
6,591,482 | 37.47 | 8.55 | 29 | |||||||
As of September 25, 2009, there was $47 million of total unrecognized compensation cost related to unvested options, which is expected to be recognized over a weighted-average period of 1.3 years.
The Company uses the Black-Scholes pricing model to estimate the fair value of options on the date of grant. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The expected volatility assumption is based on the historical and implied volatility of the Companys peer group with similar business models. The expected life assumption is based on the contractual and vesting term of the option, employee exercise patterns and employee post-vesting termination behavior. The expected annual dividend per share is based on the Companys historical experience as well as expected dividend rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The weighted-average assumptions used in the Black-Scholes pricing model for Covidien options granted in fiscal 2009 and 2008 were as follows:
2009 | 2008 | |||||||
Expected stock price volatility |
31.84 | % | 26.66 | % | ||||
Risk free interest rate |
1.97 | % | 3.37 | % | ||||
Expected annual dividend per share |
$ | 0.64 | $ | 0.64 | ||||
Expected life of options (years) |
5.20 | 5.00 |
The weighted-average grant-date fair value of Covidien options granted in fiscal 2009 and 2008 was $8.87 and $8.70, respectively. The total intrinsic value of options exercised during fiscal 2009 and 2008 was $19 million and $74 million, respectively. The related excess cash tax benefit classified as a financing cash inflow for fiscal 2009 and 2008 was not significant.
Restricted Stock UnitsRecipients of restricted stock units (RSUs) have no voting rights and generally receive dividend equivalent units which vest upon the vesting of the related shares. RSUs generally vest in equal annual installments over a four-year period. Restrictions on RSUs generally lapse upon normal retirement, death or disability of the employee. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the service period. The fair market value of RSUs is determined based on the market value of the Companys shares on the date of grant.
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RSU activity for fiscal 2008 and 2009 is as follows:
Shares | Weighted-Average Grant-Date Fair Value | |||||
Non-vested at September 29, 2007 |
4,401,907 | $ | 40.80 | |||
Granted |
255,924 | 44.10 | ||||
Vested |
(1,308,618 | ) | 41.40 | |||
Forfeited |
(407,903 | ) | 40.76 | |||
Non-vested at September 26, 2008 |
2,941,310 | 40.82 | ||||
Granted |
914,956 | 34.37 | ||||
Vested |
(1,313,481 | ) | 39.68 | |||
Forfeited |
(277,854 | ) | 40.10 | |||
Non-vested at September 25, 2009 |
2,264,931 | 38.97 | ||||
The total fair value of RSUs vested during fiscal 2009 and 2008 was $52 million and $54 million, respectively. As of September 25, 2009, there was $51 million of unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 1.2 years.
Performance Share UnitsSimilar to recipients of RSUs, recipients of performance share units (PSUs) have no voting rights and generally receive dividend equivalent units which vest upon the vesting of the related shares. The grant-date fair value of PSUs, adjusted for estimated forfeitures, is generally recognized as expense on a straight-line basis from the grant date through the end of the performance period.
In fiscal 2009, the Company granted 721,578 PSUs. The vesting of PSUs is generally based on relative total shareholder return (total shareholder return for the Company as compared to total shareholder return of a healthcare industry index), measured over a three-year performance period. The healthcare industry index is comprised of seventeen healthcare companies which generally replicate the Companys mix of businesses. Depending on Covidiens relative performance during the performance period, a recipient of the award is entitled to receive a number of ordinary shares equal to a percentage, ranging from 0% to 200%, of the award granted. The Company generally uses the Monte Carlo model to estimate the probability of satisfying the performance criteria and the resulting fair value of the awards. The assumptions used in the Monte Carlo model for PSUs granted in fiscal 2009 were as follows:
Expected stock price volatility |
28.20 | % | |
Peer group stock price volatility |
29.91 | % | |
Correlation of returns |
42.39 | % |
The weighted-average grant-date fair value per share of PSUs granted in fiscal 2009 was $41.01. As of September 25, 2009, there were 652,250 PSUs outstanding with a weighted-average grant-date fair value per share of $41.22. As of September 25, 2009, there was $14 million of unrecognized compensation cost related to such shares, which is expected to be recognized over a weighted-average period of 1.1 years.
Equity-Based CompensationCompensation costs related to share-based transactions are recognized in the financial statements based on fair value. Total equity-based compensation cost related to continuing operations was $77 million and $78 million for fiscal 2009 and 2008, respectively, and has been included in selling, general and administrative expenses. The Company recognized a related tax benefit associated with its equity-based compensation arrangements of $27 million and $24 million during fiscal 2009 and 2008, respectively.
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Employee Stock Purchase PlansSubstantially all full-time employees of the Companys U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries are eligible to participate in an employee stock purchase plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. The Company matches the first $25 thousand of an employees contribution by contributing an additional 15% of the employees payroll deduction. This plan provides for a maximum of 5 million ordinary shares to be issued. All shares purchased under the plan are purchased on the open market by a designated broker.
The Company also maintains a Savings Related Share Plan for the benefit of employees of certain qualified non-U.S. subsidiaries in the United Kingdom. The terms of this plan provides for the Company to grant to certain employees the right to purchase shares of the Company at a stated price and receive certain tax benefits. Under this plan, eligible employees in the United Kingdom are granted options to purchase shares at the end of a three-year period at 85% of the fair market value of a Company share on the day before the date such employees were invited to apply for the grant of options. Options under the plan are generally exercisable after a period of three years from the invitation date and expire six months after the date of vesting. This plan provides for a maximum of 1 million ordinary shares to be issued.
16. Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income are as follows:
(Dollars in Millions) | Currency Translation |
Benefit Plans |
Unrecognized Loss on Derivatives |
Unrecognized Loss (Gain) on Securities |
Accumulated Other Comprehensive Income |
|||||||||||||||
Balance at September 29, 2007 |
$ | 794 | $ | (99 | ) | $ | (54 | ) | $ | 2 | $ | 643 | ||||||||
Pretax current period change |
71 | (1 | ) | (4 | ) | 2 | 68 | |||||||||||||
Income tax expense |
| (4 | ) | | | (4 | ) | |||||||||||||
Balance at September 26, 2008 |
865 | (104 | ) | (58 | ) | 4 | 707 | |||||||||||||
Pretax current period change |
(125 | ) | (89 | ) | (1 | ) | (4 | ) | (219 | ) | ||||||||||
Income tax expense |
| 39 | 2 | | 41 | |||||||||||||||
Balance at September 25, 2009 |
$ | 740 | $ | (154 | ) | $ | (57 | ) | $ | | $ | 529 | ||||||||
17. Transactions with Former Parent and Affiliates
Separation and Distribution AgreementOn June 29, 2007, the Company entered into a Separation and Distribution Agreement and other agreements with Tyco International and Tyco Electronics. These agreements provided for the allocation to Covidien and Tyco Electronics of certain of Tyco Internationals assets, liabilities and obligations attributable to periods prior to the separation. In addition, these agreements govern the ongoing relationships among Covidien, Tyco International and Tyco Electronics.
Under the Separation and Distribution Agreement and other agreements, subject to certain exceptions contained in the Tax Sharing Agreement, Covidien, Tyco International and Tyco Electronics assumed 42%, 27% and 31%, respectively, of certain of Tyco Internationals contingent and other corporate liabilities. All costs and expenses associated with the management of these contingent and other corporate liabilities will be shared equally among the parties. These contingent and other corporate liabilities primarily relate to consolidated securities litigation and any actions with respect to the separation brought by any third party. These contingent and other corporate liabilities do not include liabilities that are specifically related to one of the three separated companies, which will be allocated 100% to the relevant company. If any party responsible for such liabilities were to default in its payment, when due, of any of these assumed obligations, each non-defaulting party would
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be required to pay equally with any other non-defaulting party the amounts in default. Accordingly, under certain circumstances, Covidien may be obligated to pay amounts in excess of its agreed-upon share of the assumed obligations related to such contingent and other corporate liabilities, including associated costs and expenses.
Tax Sharing AgreementOn June 29, 2007, the Company entered into a Tax Sharing Agreement, under which the Company shares responsibility for certain of its, Tyco Internationals and Tyco Electronics income tax liabilities for periods prior to the separation. Covidien, Tyco International and Tyco Electronics share 42%, 27% and 31%, respectively, of U.S. income tax liabilities that arise from adjustments made by tax authorities to its, Tyco Internationals and Tyco Electronics U.S. income tax returns, certain income tax liabilities arising from adjustments made by tax authorities to intercompany transactions or similar adjustments, and certain taxes attributable to internal transactions undertaken in anticipation of the separation. All costs and expenses associated with the management of these tax liabilities will be shared equally among the parties. The Company is responsible for all of its own taxes that are not shared pursuant to the Tax Sharing Agreement.
All the tax liabilities of Tyco International that were associated with the former healthcare businesses of Tyco International became Covidiens tax liabilities following the separation. Although Covidien agreed to share certain of these tax liabilities with Tyco International and Tyco Electronics pursuant to the Tax Sharing Agreement, Covidien remains primarily liable for all of these liabilities. Accordingly, if Tyco International and Tyco Electronics default on their obligations to Covidien under the Tax Sharing Agreement, Covidien would be liable for the entire amount of these liabilities.
If any party to the Tax Sharing Agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no partys fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, the Company could be legally liable under applicable tax law for such liabilities and be required to make additional tax payments. Accordingly, under certain circumstances, the Company may be obligated to pay amounts in excess of the Companys agreed upon share of its, Tyco Internationals and Tyco Electronics tax liabilities.
The Company has used available information to develop its best estimates for certain assets and liabilities related to periods prior to separation, including amounts subject to or impacted by the provisions of the Tax Sharing Agreement. However, the actual amounts that Covidien may be required to ultimately accrue or pay under the Tax Sharing Agreement could vary depending upon the outcome of the unresolved tax matters, which may not occur for several years. Final determination of the balances will be made in subsequent periods, primarily related to certain pre-separation tax liabilities and tax years open for examination. These balances will also be impacted by the filing of final or amended income tax returns in certain jurisdictions where those returns include a combination of Tyco International, Covidien and/or Tyco Electronics legal entities for periods prior to the separation.
The Company is the primary obligor to the taxing authorities for $1.774 billion of contingent tax liabilities that are recorded on the balance sheet at September 25, 2009, $1.220 billion of which relates to periods prior to the separation and is shared with Tyco International and Tyco Electronics pursuant to the Tax Sharing Agreement.
Income Tax ReceivablesThe Company has a long-term receivable from Tyco International and Tyco Electronics totaling $708 million and $585 million at September 25, 2009 and September 26, 2008, respectively. This receivable, which reflects 58% of the contingent tax liabilities that are subject to the Tax Sharing Agreement, is classified as due from former parent and affiliates on the balance sheets. Adjustments to this
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receivable are recorded in other income (expense), net. During fiscal 2009, the Company recorded other income of $148 million and a corresponding increase to the receivable from Tyco International and Tyco Electronics, which reflects 58% of interest and other income tax payable amounts recorded during fiscal 2009 that will be covered under the Tax Sharing Agreement. This amount includes income of $107 million which represents the effect of Tyco Internationals settlement of certain outstanding tax matters with the IRS on our receivable from Tyco International and Tyco Electronics as discussed in note 5. During fiscal 2008, the Company recorded other income of $214 million and a corresponding increase to its receivable from Tyco International and Tyco Electronics. This amount includes $231 million ($0.46 for both basic and diluted earnings per share) which reflects the indirect effect of adopting the provisions that clarified the accounting for uncertainty in income taxes discussed in note 1.
Guaranteed Tax LiabilitiesPursuant to the Separation and Distribution Agreement and Tax Sharing Agreement, the Company entered into certain guarantee commitments and indemnifications with Tyco International and Tyco Electronics. These guarantee arrangements and indemnifications primarily relate to certain contingent tax liabilities; Covidien assumed and is responsible for 42% of these liabilities. Regarding the guarantees, if any of the companies responsible for all or a portion of such liabilities were to default in its payment of costs related to any such liability, the Company would be responsible for a portion of the defaulting party or parties obligation. These arrangements were valued upon separation from Tyco International using appraisals and a liability of $760 million related to these guarantees was recorded, the offset of which was reflected as a reduction in shareholders funds.
Each reporting period, the Company evaluates the potential loss which it believes is probable as a result of its commitments under the agreements. To the extent such potential loss exceeds the amount recorded on the balance sheet, an adjustment will be required to increase the recorded liability to the amount of such potential loss. This guarantee is not amortized because no predictable pattern of performance currently exists. As a result, the liability generally will be reduced upon the Companys release from its obligations under the agreements, which may not occur for some years. In addition, as payments are made to indemnified parties, such payments are recorded as reductions to the liability and the impact of such payments is considered in the periodic evaluation of the sufficiency of the liability. During fiscal 2009, following analyses of the tax contingency reserves allocated to the Company and Tyco Electronics at the separation date, the Company increased its guaranteed tax liability by $11 million. A liability of $718 million and $707 million relating to these guarantees was included on the Companys balance sheet at September 25, 2009 and September 26, 2008, respectively.
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18. Leases
The Company has facility, vehicle and equipment leases that expire at various dates through the year 2021. Rental expense under facility, vehicle and equipment operating leases was $140 million and $127 million for fiscal 2009 and 2008, respectively. The Company also has facility and equipment commitments under capital leases.
Following is a schedule of minimum lease payments for non-cancelable leases as of September 25, 2009:
(Dollars in Millions) | Operating Leases |
Capital Leases |
|||||
Fiscal 2010 |
$ | 97 | $ | 7 | |||
Fiscal 2011 |
66 | 7 | |||||
Fiscal 2012 |
50 | 6 | |||||
Fiscal 2013 |
39 | 6 | |||||
Fiscal 2014 |
35 | 6 | |||||
Thereafter |
86 | 29 | |||||
Total minimum lease payments |
$ | 373 | 61 | ||||
Less interest portion of payments |
(15 | ) | |||||
Present value of minimum lease payments |
$ | 46 | |||||
19. Commitments and Contingencies
The Company has purchase obligations related to commitments to purchase certain goods and services. At September 25, 2009, such obligations were as follows: $108 million in fiscal 2010, $31 million in fiscal 2011, $26 million in fiscal 2012, $14 million in fiscal 2013 and $15 million in fiscal 2014. These amounts include $2 million related to contracted capital expenditures. Capital expenditures that have been authorized but not yet contracted were $171 million as of September 25, 2009.
The Company is subject to various legal proceedings and claims, including patent infringement claims, antitrust claims, product liability matters, environmental matters, employment disputes, disputes on agreements and other commercial disputes. Management believes that these legal proceedings and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these proceedings, based upon the Companys experience, current information and applicable law, management does not expect that these proceedings will have a material adverse effect on the Companys financial condition. However, one or more of the proceedings could have a material adverse effect on the Companys results of operations or cash flows for a future period. The most significant of these matters are discussed below.
Patent Litigation
The Company and Applied Medical Resources Corp. are involved in the following patent infringement actions related to trocar products used in minimally invasive surgical procedures:
(1) | Applied Medical Resources Corp. v. United States Surgical is a patent infringement action that was filed in the United States District Court for the Central District of California on July 31, 2003. U.S. Surgical is a subsidiary of the Company. The complaint alleges that U.S. Surgicals Versaseal Plus trocar product infringes Applied Medicals U.S. Patent No. 5,385,553. Applied Medical seeks injunctive relief and unspecified monetary damages, including enhanced damages for alleged willful infringement. Applied |
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Medical filed a motion for a preliminary injunction, which the district court denied on December 23, 2003. On February 7, 2005, the district court granted U.S. Surgicals motion for summary judgment of non-infringement. Applied Medical appealed the summary judgment ruling. On May 15, 2006, the United States Court of Appeals for the Federal Circuit issued a decision on the appeal vacating the district courts grant of summary judgment and remanded the case for further proceedings. On January 9, 2007, the district court entered an order that denied both parties motions for summary judgment on the grounds that material facts remain in dispute. On February 20, 2008, following a five week trial, a jury returned a verdict finding that U.S. Surgicals product does not infringe Applied Medicals 553 patent. On April 29, 2008, the district court denied Applied Medicals post-trial motion seeking judgment as a matter of law or, alternatively, a new trial. Following this ruling, Applied Medical appealed to the United States Court of Appeals for the Federal Circuit seeking a new trial. Oral argument in that appeal took place on November 6, 2008. On February 24, 2009, the federal appeals court affirmed the district courts denial of Applied Medicals request for a new trial. |
(2) | Tyco Healthcare Group LP v. Applied Medical Resources Corp. is a patent infringement action that was filed in the United States District Court for the Eastern District of Texas, Lufkin Division, on July 19, 2006. The complaint alleges that Applied Medicals Universal Seal in its trocar product infringes the Companys U.S. Patent No. 5,304,143, No. 5,685,854, No. 5,542,931, No. 5,603,702 and No. 5,895,377. The Company is seeking injunctive relief and monetary damages. The parties are in the discovery stage. Trial is scheduled to begin in March 2010. |
Becton Dickinson and Company v. Tyco Healthcare Group LP is a patent infringement action that was filed in the United States District Court for the District of Delaware on December 23, 2002. The complaint alleges that the Companys Monoject Magellan safety needle and safety blood collector products infringe Becton Dickinsons U.S. Patent No. 5,348,544. Following trial, on October 26, 2004, the jury returned a verdict finding that the Company willfully infringed Becton Dickinsons patent and awarded Becton Dickinson $4 million in lost profits damages and reasonable royalty damages. In post-trial proceedings, the Company filed motions for judgment as a matter of law, or, alternatively, for a new trial. Becton Dickinson filed a post-trial motion for enhanced damages, attorneys fees, pre-judgment interest and post-judgment interest, and a motion for a permanent injunction. On March 31, 2006, the trial court issued a memorandum and order on the parties post- trial motions denying the Companys motion for judgment as a matter of law; granting the Companys motion for a new trial on the issue of infringement; and denying Becton Dickinsons motion for enhanced damages, attorneys fees, pre-judgment interest and post-judgment interest, and a permanent injunction. On November 30, 2007, following the new trial, a jury returned a verdict finding that the Company infringed Becton Dickinsons patent. Before submitting the case to the jury, the district court granted judgment as a matter of law in the Companys favor finding that the Company did not willfully infringe Becton Dickinsons patent. The Company filed post-trial motions in the district court for judgment as a matter of law, or, in the alternative, for a new trial. Becton Dickinson filed a motion for permanent injunction. On September 11, 2008, the district court denied the Companys motion for a new trial. On October 17, 2008 the district court denied the Companys motion for judgment as a matter of law. On October 29, 2008, the district court awarded Becton Dickinson $58 million in damages and prejudgment interest; ordered a post-verdict accounting for additional damages that have accrued since the trials conclusion; and ordered a permanent injunction precluding the Company from selling the Monoject Magellan safety needle products that the jury found to have infringed. The injunction took effect on December 17, 2008. The Company has appealed to the United States Court of Appeals for the Federal Circuit. Oral argument in the appeal is scheduled for February 1, 2010. The Company has launched redesign products that it believes do not infringe Becton Dickinsons patent. The Company has assessed the status of this matter and has concluded that it is more likely than not that the infringement finding will be overturned, and, further, intends to vigorously pursue all available means to achieve such reversal. Accordingly, no provision has been made in the financial statements with respect to any damage award.
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The Company and Medrad, Inc. were involved in patent infringement actions related to powered injectors used for the delivery of contrast media to patients undergoing diagnostic imaging procedures. During fiscal 2008, the Company and Medrad entered into an agreement to resolve these cases. In accordance with this agreement, the Company paid Medrad $17 million in exchange for Medrad agreeing not to assert any claim of patent infringement under certain Medrad patents against the Companys power injectors. This settlement charge was included in selling, general and administrative expenses.
Antitrust Litigation
Masimo Corporation v. Tyco Healthcare Group LP and Mallinckrodt, Inc. was filed on May 22, 2002 in the United States District Court for the Central District of California. Masimo alleged violations of antitrust laws by the Company and Mallinckrodt in the markets for pulse oximetry products, claiming that the Company and Mallinckrodt used their market position to prevent hospitals from purchasing Masimos pulse oximetry products. Masimo sought injunctive relief and monetary damages, including treble damages. Trial in this case began on February 22, 2005. The jury returned its verdict on March 21, 2005, and awarded Masimo $140 million in damages, which are automatically trebled under the antitrust statute to $420 million. On March 22, 2006, the district court issued its memorandum of decision regarding the post-trial motions. In the memorandum, the district court vacated the jurys liability findings on two business practices; affirmed the jurys liability finding on two other business practices; vacated the jurys damage award in its entirety; and ordered a new trial on damages. The district court held the new trial on the damages on October 18 and 19, 2006. On January 25, 2007, the district court ordered an additional hearing on the issue of damages, which took place on March 22, 2007. On June 7, 2007, the district court issued its memorandum of decision in the new trial on damages and awarded Masimo $14.5 million in damages. The damages are automatically trebled under the antitrust statute to an award of $43.5 million. On June 29, 2007, the district court entered final judgment awarding Masimo $43.5 million in damages, denying Masimos demand for a permanent injunction, and retaining jurisdiction to determine the amount of attorneys fees and costs, if any, to be awarded Masimo. On November 5, 2007, the district court issued an order granting Masimo $8.7 million in attorneys fees and costs. Following entry of judgment, both parties appealed to the United States Court of Appeals for the Ninth Circuit. On October 28, 2009, the United States Court of Appeals for the Ninth Circuit rejected the appeals of both parties and affirmed the district courts award of $43.5 million in damages to Masimo and denial of Masimos demand for permanent injunction. As a result of this ruling, in fiscal 2009, the Company recorded a charge of $58 million, which includes the damage award, the Companys post-judgment interest and Masimos attorneys fees and costs. This charge was included in selling, general and administrative expenses.
Beginning on August 29, 2005, with Allied Orthopedic Appliances, Inc. v. Tyco Healthcare Group, L.P., and Mallinckrodt Inc., 12 consumer class actions have been filed in the United States District Court for the Central District of California. In all of the complaints, the putative class representatives, on behalf of themselves and others, seek to recover overcharges they allege they paid for pulse oximetry products as a result of anticompetitive conduct by the Company in violation of the federal antitrust laws. The 12 complaints were subsequently consolidated into a single proceeding styled In re: Pulse Oximetry Antitrust litigation. By stipulation among the parties, six putative class representatives dismissed their claims against the Company, leaving six remaining putative class representatives as plaintiffs in the consolidated proceeding. On December 21, 2007, the district court denied the plaintiffs motion for class certification. On March 14, 2008, the United States Court of Appeals for the Ninth Circuit denied the plaintiffs request for leave to appeal the district courts denial of their motion for class certification. On July 9, 2008, the district court granted the Companys motion for summary judgment which resulted in the dismissal of all claims. The plaintiffs have appealed both rulings to the United States Court of Appeals for the Ninth Circuit. On January 6, 2010, the Court of Appeals affirmed the district courts order granting summary judgment dismissing all claims against the Company.
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Rochester Medical Corporation, Inc. v. C.R. Bard, Inc., et al. is a complaint filed against the Company, another manufacturer and two group purchasing organizations (GPOs) in the United States District Court for the Eastern District of Texas on March 15, 2004, seeking injunctive relief and damages. The complaint alleges that the Company and the other defendants conspired or acted to exclude Rochester Medical from markets for urological products in violation of federal and state antitrust laws. Rochester Medical also asserts claims under the Lanham Act and for business disparagement, common law conspiracy and tortious interference with business relationships. In fiscal 2009, the Company entered into a Settlement Agreement and Release of Claims with Rochester Medical pursuant to which the Company paid Rochester Medical $3.5 million to resolve all claims in this case. This settlement charge was included in selling, general and administrative expenses.
Daniels Sharpsmart, Inc. v. Tyco International (US) Inc., et al. is a complaint filed against the Company, another manufacturer and three GPOs in the United States District Court for the Eastern District of Texas on August 31, 2005, seeking injunctive relief and unspecified monetary damages, including treble damages. The complaint alleges that the Company monopolized or attempted to monopolize the market for sharps containers and that the Company and the other defendants conspired or acted to exclude Daniels from the market for sharps containers in violation of federal and state antitrust laws. Daniels also asserts claims under the Lanham Act and for business disparagement, common law conspiracy and tortious interference with business relationships. In fiscal 2009, the Company entered into a Settlement Agreement and Release of Claims with Daniels pursuant to which the Company paid Daniels $32.5 million to resolve all claims in this case. This settlement charge was included in selling, general and administrative expenses.
Natchitoches Parish Hospital Service District, et al. v. Tyco International, Ltd., et al. is a class action lawsuit filed against the Company on September 15, 2005 in the United States District Court for the District of Massachusetts. In the complaint, the putative class representatives, on behalf of themselves and others, seek to recover overcharges they allege that they and others paid for sharps containers as a result of anticompetitive conduct by the Company in violation of federal antitrust laws. On August 29, 2008, the district court granted the plaintiffs motion for class certification. On December 5, 2008, the United States Court of Appeals for the First Circuit denied the Companys request for leave to appeal the district courts granting of the plaintiffs motion for class certification. Trial in this case began on December 7, 2009. On January 8, 2010, the parties reached a settlement agreement pursuant to which the Company will pay the certified class $32.5 million to resolve all claims in this case. Accordingly, subsequent to the filing of the Companys Annual Report on Form 10-K, but prior to the issuance of these consolidated financial statements, the Company recorded a $32.5 million charge in selling, general and administrative expenses, which is reflected in fiscal 2009 in these consolidated financial statements. The district court has scheduled a settlement approval hearing for March 10, 2010.
Products Liability Litigation
Mallinckrodt Inc., a subsidiary of the Company, is one of four manufacturers of gadolinium-based contrast agents involved in litigation alleging that administration of these agents causes development of a recently-identified disease, nephrogenic systemic fibrosis, in a small number of patients with advanced renal impairment. The litigation includes a federal multi-district litigation in the United States District Court for the Northern District of Ohio and cases in various state courts. Generally, complaints allege design and manufacturing defects, failure to warn, breach of warranty, fraud and violations of various state consumer protection laws. The Company believes that it has meritorious defenses to these complaints and will vigorously defend against them. When appropriate, the Company settles cases. As of September 25, 2009, there were 66 cases in which the plaintiff has either documented or specifically alleged use of the Companys product, Optimark. The cases are in various stages of the discovery process. The Company believes that it has adequate amounts recorded related to these matters. While it is not possible at this time to determine with certainty the ultimate outcome of these cases, the Company believes that the
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final resolution of all known claims, after taking into account amounts already accrued and insurance coverage, will not have a material adverse effect on the Companys results of operations, financial condition or cash flows.
Asbestos Matters
Mallinckrodt Inc. is named as a defendant in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims, based principally on allegations of past distribution of products incorporating asbestos. A limited number of the cases allege premises liability, based on claims that individuals were exposed to asbestos while on Mallinckrodts property. Each case typically names dozens of corporate defendants in addition to Mallinckrodt. The complaints generally seek monetary damages for personal injury or bodily injury resulting from alleged exposure to products containing asbestos.
The Companys involvement in asbestos cases has been limited because Mallinckrodt did not mine or produce asbestos. Furthermore, in the Companys experience, a large percentage of these claims were never substantiated and have been dismissed by the courts. The Company has not suffered an adverse verdict in a trial court proceeding related to asbestos claims, and intends to continue to vigorously defend these lawsuits. When appropriate, the Company settles claims; however, amounts paid to settle and defend all asbestos claims have been immaterial. As of September 25, 2009, there were approximately 10,900 asbestos liability cases pending against Mallinckrodt.
The Company estimates pending asbestos claims and claims that were incurred but not reported, as well as related insurance recoveries. The Companys estimate of its liability for pending and future claims is based on claim experience over the past five years and covers claims expected to be filed over the next seven years. The Company believes that it has adequate amounts recorded related to these matters. While it is not possible at this time to determine with certainty the ultimate outcome of these asbestos-related proceedings, the Company believes that the final outcome of all known and anticipated future claims, after taking into account insurance coverage, will not have a material adverse effect on the Companys results of operations, financial condition or cash flows.
Environmental Proceedings
The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup and timing of future cash flow is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of September 25, 2009, the Company concluded that it was probable that it would incur remedial costs in the range of $189 million to $375 million, with the high end of the range reflecting the estimated cost to comply fully with Maine Department of Environmental Protections (MDEP) order discussed below. As of September 25, 2009, the Company concluded that the best estimate within this range was $203 million, of which $18 million was included in accrued and other current liabilities and $185 million was included in other liabilities on the balance sheet. The most significant of these liabilities pertains to a site in Orrington, Maine, which is discussed below. The Company believes that any potential payment of such estimated amounts will not have a material adverse effect on its results of operations, financial condition or cash flows. The Company discounts environmental liabilities using a risk-free rate of return when the obligation is fixed or reliably determinable. The impact of the discount was not material in any period presented.
Mallinckrodt LLC, a subsidiary of the Company, owned and operated a chemical manufacturing facility in Orrington, Maine from 1967 until 1982. Mallinckrodt is responsible for the costs of completing an environmental site investigation required by the United States Environmental Protection Agency (EPA) and the MDEP. Based
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on the site investigation, Mallinckrodt submitted a Corrective Measures Study plan and identified a preferred alternative which was submitted to the EPA and MDEP for approval in 2004. MDEP disagreed with the proposed alternative and served a compliance order on Mallinckrodt LLC and United States Surgical Corporation in December 2008. The compliance order included a directive to remove a significant volume of soils at the site. The Company disagrees with this approach and is vigorously challenging both the process of issuing the compliance order and the ultimate remedy selection described in the compliance order.
On December 19, 2008, Mallinckrodt filed an appeal with the Maine Board of Environmental Protection (Maine Board) to challenge the terms of the compliance order. Mallinckrodt, MDEP and the Maine Board have been in preliminary proceedings to address numerous procedural issues. A hearing date has been scheduled to begin on January 25, 2010. In preparation for the hearing on this matter, the Company engaged outside consultants to review and assess its existing plan and to assist in the presentation of its case. As a result of this process, during the fourth quarter of fiscal 2009, the Company revised some of its assumptions regarding remediation options and recorded a charge of $53 million. As of September 25, 2009, the Company estimates that the cost to comply with these proposed remediation alternatives at this site ranges from approximately $96 million to $198 million, with the high end of the range including the estimated cost to comply fully with MDEP order. Although there are still significant uncertainties in the outcome of the pending litigation, and the Company continues to disagree with the level of remediation outlined in the MDEP order, this range is included in the estimate of aggregate environmental remedial costs described above.
The Company recorded asset retirement obligations (AROs) for the estimated future costs primarily associated with legal obligations to decommission two facilities within the Pharmaceuticals segment. As of September 25, 2009 and September 26, 2008, the Companys AROs were $111 million and $99 million, respectively. The accretion of the liability and the depreciation of the capitalized cost are recognized over the estimated useful lives of the facilities, which range from 23 to 25 years. The increase in AROs in fiscal 2009 resulted primarily from interest accretion and additions. The Company believes that any potential payment of such estimated amounts will not have a material adverse effect on its results of operations, financial condition or cash flows.
Other Matters
The Company is a defendant in a number of other pending legal proceedings incidental to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its results of operations, financial condition or cash flows.
Tyco International Legal Proceedings
As discussed in note 17, pursuant to the Separation and Distribution Agreement, the Company assumed a portion of Tyco Internationals contingent and other corporate liabilities, including potential liabilities related to certain of Tyco Internationals outstanding litigation matters and will be responsible for 42% of any liabilities that arise upon settlement. Covidien, Tyco International and Tyco Electronics are jointly and severally liable for the full amount of these liabilities under the Separation and Distribution Agreement. Accordingly, if Tyco International or Tyco Electronics were to default on their obligation to pay their allocated share of these liabilities, the Company would be required to pay additional amounts.
During fiscal 2008, Tyco International received insurance recoveries totaling $38 million related to its previously settled securities class action lawsuit. Tyco International in turn paid Covidien $16 million for its portion of the recoveries in accordance with the sharing percentages included in the Separation and Distribution Agreement.
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Shareholder Settlements
Prior to the separation, Tyco International and certain of its former directors and officers were named as defendants in a number of lawsuits alleging violations of the disclosure provisions of the federal securities laws. During fiscal 2008, Tyco International paid $109 million to settle two of such cases. These payments were subject to the sharing percentages included in the Separation and Distribution Agreement. Accordingly, during the fiscal 2008, Covidien recorded a charge of $46 million for the payment of its portion of these settlements to Tyco International.
In November 2008, Tyco International signed definitive agreements to settle three additional cases. These agreements called for Tyco International to make payments totaling $28 million. These payments were also subject to the sharing percentages included in the Separation and Distribution Agreement. Accordingly, in fiscal 2008, Covidien recorded an additional charge of $12 million for its portion of these settlements, which were paid in fiscal 2009.
In March 2009, Tyco International reached agreements with the State of Colorado and Franklin Investment Advisors, pursuant to which Tyco International agreed to pay approximately $19 million and $42 million, respectively, to settle these cases. During fiscal 2009, Covidien recorded charges of $26 million for its portion of these settlements in accordance with the sharing percentages included in the Separation and Distribution Agreement. As a result of these and other recent settlements, the reserves for unresolved legacy Tyco International-related securities matters were reassessed and the best estimate for probable loss were determined to be $375 million. During fiscal 2009, the Company recorded an additional charge of $157 million for its portion of the estimated cost to settle these unresolved matters in accordance with the sharing percentages included in the Separation and Distribution Agreement. During fiscal 2009, Tyco International agreed to settle with five of the remaining plaintiffs that had opted-out of the class action settlement and with plaintiffs who had brought Employee Retirement Income Security Act related claims for a total of $269 million. In accordance with the sharing percentages included in the Separation and Distribution Agreement, Covidiens share of these settlements is $113 million, which was within the range of loss previously provided.
Covidien, Tyco International and Tyco Electronics are jointly and severally liable for any settlement obligations with respect to these matters pursuant to the Separation and Distribution Agreement. Accordingly, as of September 25, 2009, Covidien has a $106 million provision for the full amount of the estimated cost to settle these unresolved matters and a corresponding $62 million receivable from Tyco International and Tyco Electronics. Although Covidien believes the net liability reflects the best estimate of the probable loss related to the unresolved Tyco International-related legacy securities claims, the ultimate resolution of these matters could result in a greater or lesser amount than estimated. In addition, it is not possible to estimate the amount of loss or possible loss, if any, that might result from an adverse resolution of any unasserted claims.
Subpoenas and Document Requests from Governmental Entities
Tyco International and others have received various subpoenas and requests from the U.S. Department of Labor, the General Service Administration and others seeking the production of voluminous documents in connection with various investigations into Tyco Internationals governance, management, operations, accounting and related controls. The Department of Labor is investigating Tyco International and the administrators of certain of its benefit plans. Tyco International cannot predict when these investigations will be completed, nor can it predict what the results of these investigations may be. It is possible that Tyco International will be required to pay material fines or suffer other penalties. The Companys share of any losses resulting from an adverse resolution of this matter is not estimable at this time and could have a material adverse effect on its results of operations, financial condition or cash flows.
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Compliance Matters
Tyco International has received and responded to various allegations that certain improper payments were made in recent years by Tyco International subsidiaries, including subsidiaries which are now part of the Company. During 2005, Tyco International reported to the U.S. Department of Justice (DOJ) and the SEC the investigative steps and remedial measures that it had taken in response to the allegations. Tyco International also informed the DOJ and the SEC that it retained outside counsel to perform a company-wide baseline review of its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act (FCPA), that it would continue to make periodic progress reports to these agencies and that it would present its factual findings upon conclusion of the baseline review. The Company has continued to communicate with the DOJ and SEC to provide updates on the baseline review and follow-up investigations, including, as appropriate, briefings concerning additional instances of potential improper conduct identified by the Company in the course of its ongoing compliance activities. To date, the baseline review and other compliance reviews have revealed that some business practices may not comply with Covidien and FCPA requirements. At this time, the Company cannot predict the outcome of these matters or other allegations reported to regulatory and law enforcement authorities and therefore cannot estimate the range of potential loss or extent of risk, if any, which may result from an adverse resolution of these matters. However, it is possible that the Company may be required to pay judgments, suffer penalties or incur settlements in amounts that may have a material adverse effect on its results of operations, financial condition or cash flows.
Any judgment required to be paid or settlement or other cost incurred by the Company in connection with these matters would be subject to the liability sharing provisions of the Separation and Distribution Agreement, which provides that Covidien, Tyco International and Tyco Electronics will retain liabilities primarily related to each of its continuing operations. Any liabilities not primarily related to particular continuing operations will be shared equally among Covidien, Tyco International and Tyco Electronics.
20. Segment and Geographic Data
The Company manages and operates its business through the following three segments:
| Medical Devices includes the development, manufacture and sale of endomechanical instruments, soft tissue repair products, energy devices, oximetry and monitoring products, airway and ventilation products, vascular products, clinical care products and other medical products. |
| Pharmaceuticals includes the development, manufacture and distribution of specialty pharmaceuticals, active pharmaceutical ingredients, specialty chemicals, contrast products and radiopharmaceuticals. |
| Medical Supplies includes the development, manufacture and sale of nursing care products, medical surgical products, SharpSafety products and original equipment manufacturer products (OEM). |
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Selected information by business segment is presented in the following tables:
(Dollars in Millions) | 2009 | 2008 | ||||||
Net sales(1): |
||||||||
Medical Devices |
$ | 6,061 | $ | 5,914 | ||||
Pharmaceuticals |
2,864 | 2,655 | ||||||
Medical Supplies |
1,752 | 1,789 | ||||||
$ | 10,677 | $ | 10,358 | |||||
Operating income: |
||||||||
Medical Devices |
$ | 1,730 | $ | 1,786 | ||||
Pharmaceuticals |
685 | 480 | ||||||
Medical Supplies |
211 | 193 | ||||||
Corporate(2) |
(820 | ) | (458 | ) | ||||
$ | 1,806 | $ | 2,001 | |||||
Total assets(3): |
||||||||
Medical Devices |
$ | 9,556 | $ | 9,182 | ||||
Pharmaceuticals |
2,915 | 2,976 | ||||||
Medical Supplies |
1,512 | 1,523 | ||||||
Corporate(4) |
3,175 | 2,322 | ||||||
$ | 17,158 | $ | 16,003 | |||||
Depreciation and amortization: |
||||||||
Medical Devices |
$ | 220 | $ | 198 | ||||
Pharmaceuticals |
128 | 110 | ||||||
Medical Supplies |
89 | 91 | ||||||
Corporate |
3 | 1 | ||||||
$ | 440 | $ | 400 | |||||
Capital expenditures: |
||||||||
Medical Devices |
$ | 185 | $ | 154 | ||||
Pharmaceuticals |
170 | 175 | ||||||
Medical Supplies |
57 | 99 | ||||||
Corporate |
| 1 | ||||||
$ | 412 | $ | 429 | |||||
(1) | Amounts represent sales to external customers. Intersegment sales are not significant. Sales to one of the Companys distributors, which supplies products from all of the Companys segments to many end users, represented 10% of net sales in fiscal 2009. No other customer represented 10% or more of the Companys total net sales in any period presented. |
(2) | Includes Company corporate expenses, share-based compensation expense, gains and losses from financing hedges and unallocated segment expenses. |
(3) | The Company nets certain assets and liabilities for presentation in the consolidated financial statements, however these amounts are presented on a gross basis. |
(4) | Includes cash and cash equivalents, income tax assets and other corporate assets. |
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Net sales by groups of products within the Companys segments are as follows:
(Dollars in Millions) | 2009 | 2008 | ||||
Endomechanical Instruments |
$ | 1,982 | $ | 1,928 | ||
Soft Tissue Repair Products |
807 | 786 | ||||
Energy Devices |
867 | 805 | ||||
Oximetry & Monitoring Products |
636 | 636 | ||||
Airway & Ventilation Products |
763 | 806 | ||||
Vascular Products |
574 | 493 | ||||
Other Products |
432 | 460 | ||||
Medical Devices |
6,061 | 5,914 | ||||
Specialty Pharmaceuticals |
898 | 582 | ||||
Active Pharmaceutical Ingredients |
405 | 431 | ||||
Specialty Chemicals |
414 | 448 | ||||
Contrast Products |
591 | 635 | ||||
Radiopharmaceuticals |
556 | 559 | ||||
Pharmaceuticals |
2,864 | 2,655 | ||||
Nursing Care Products |
790 | 784 | ||||
Medical Surgical Products |
417 | 431 | ||||
SharpSafety Products |
334 | 362 | ||||
Original Equipment Manufacturer Products |
211 | 212 | ||||
Medical Supplies |
1,752 | 1,789 | ||||
$ | 10,677 | $ | 10,358 | |||
Selected information by geographic area is as follows:
(Dollars in Millions) | 2009 | 2008 | ||||
Net sales(1): |
||||||
United States |
$ | 6,170 | $ | 5,713 | ||
Other Americas |
560 | 586 | ||||
Europe |
2,579 | 2,823 | ||||
AsiaPacific |
1,368 | 1,236 | ||||
$ | 10,677 | $ | 10,358 | |||
Long-lived assets: |
||||||
United States |
$ | 2,074 | $ | 1,980 | ||
Other Americas |
147 | 164 | ||||
Europe |
426 | 435 | ||||
AsiaPacific |
130 | 114 | ||||
$ | 2,777 | $ | 2,693 | |||
(1) | Sales to external customers are reflected in the regions based on the reporting entity that records the transaction. |
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21. Subsequent Events
In November 2009, the Companys Medical Devices segment acquired Aspect Medical Systems, Inc. (Aspect), a provider of brain monitoring technology, for approximately $210 million, net of cash and short-term investments acquired. This purchase price included the assumption of approximately $60 million of debt. The acquisition of Aspect broadens the Companys product offerings and adds a brain monitoring technology to its product portfolio.
In November 2009, the Company completed the sale of its oxygen therapy product line and in December 2009, the Company entered into a definitive agreement to sell its radiopharmacies in the United States, which is subject to customary closing conditions and is expected to close during the second quarter of fiscal 2010.
As discussed in note 19, on January 8, 2010, the Company reached a settlement agreement with the certified class pursuant to which the Company will pay the certified class $32.5 million to resolve all claims in the Natchitoches Parish Hospital Service District, et al. v. Tyco International, Ltd., et al. class action lawsuit filed against the Company on September 15, 2005 in the United States District Court for the District of Massachusetts. Accordingly, subsequent to the filing of the Companys Annual Report on Form 10-K, but prior to the issuance of these consolidated financial statements, the Company recorded a $32.5 million charge in selling, general and administrative expenses, which is reflected in fiscal 2009 in these consolidated financial statements. The district court has scheduled a settlement approval hearing for March 10, 2010.
In addition to the legal charge discussed above, subsequent to the filing of the Companys Annual Report on Form 10-K, but prior to the issuance of these consolidated financial statements, the Company recorded other legal charges of $17.5 million, which are also reflected in selling, general and administrative expenses in fiscal 2009 in these consolidated financial statements.
22. Other Income, Net
(Dollars in Millions) | 2009 | 2008 | ||||||
Income recorded under Tax Sharing Agreement (note 17) |
$ | 148 | $ | 214 | ||||
Loss on investments |
(3 | ) | (13 | ) | ||||
Loss on debt |
| (2 | ) | |||||
Other income, net |
$ | 145 | $ | 199 | ||||
23. Profit Attributable to Covidien plc
In accordance with Section 148(8) of the Companies Act, 1963 and section 7(1A) of the Companies (Amendment) Act, 1986, the Company is availing of the exemption from presenting its individual profit and loss account. Covidien plcs loss for the financial year as determined in accordance with U.S. GAAP was $41 million.
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24. Directors Remuneration
Directors remuneration is set forth in the table below. Mr. Meelia, the Companys Chairman, President and Chief Executive Officer, is not compensated for his services as a director. Accordingly, the amounts below include compensation for Mr. Meelias services as President and Chief Executive Officer (referred to as Managerial Services) as well as compensation for all non-employee directors in their capacities as such (referred to as Director Services).
(Dollars in Millions) | 2009 | 2008 | ||||||
Director Services |
$ | 3 | (1) | $ | 3 | (1) | ||
Managerial Services |
15 | (2) | 17 | (2) |
(1) | Includes cash payments and amounts expensed for outstanding equity awards. |
(2) | Includes cash payments, amounts expensed for outstanding equity awards, pension contributions, insurance premiums paid by the Company and tax reimbursements related thereto, dividends/earnings on equity awards and personal use of Company aircraft. |
Employment Agreement with Mr. Meelia
Mr. Meelia, the Companys Chairman and Chief Executive Officer, is the only director with an employment agreement. This agreement provides that Mr. Meelia will receive a base salary, bonus and a long-term incentive opportunity determined by the Companys Board of Directors, as well as be eligible to participate in all employee benefit plans and programs applicable to executives generally. The agreement will continue for an indefinite term, and Mr. Meelia will be employed by the Company at will. The general terms of the agreement also provide that, if Mr. Meelias employment is terminated for any reason other than by the Company for cause and subject to the execution of a general release in favor of the Company in the form provided in the agreement, the Company is obligated to pay him a lump sum cash payment in an amount equal to two times the sum of (1) the greater of his then-current base salary or his base salary as in effect immediately before December 29, 2006, and (2) the greater of (i) his then-current target annual bonus or (ii) the average annual bonus received by him or his target bonus, whichever is greater, for the two fiscal years immediately preceding the date his employment terminates. The terms of the agreement provide that the Company may pay an additional tax gross-up payment to Mr. Meelia. Also, Mr. Meelia and his eligible dependents will receive continued coverage for two years in all health and welfare plans in which he participated on his date of termination under the same terms and conditions as in effect on the date of termination, subject to Mr. Meelias continued payment of applicable premiums. The termination benefits provided under the agreement are in lieu of any termination or severance benefits for which Mr. Meelia may be eligible under any of the Companys plans, policies or programs.
Indemnification Agreements
The Company has entered into indemnification agreements with each of the directors of Covidien plc and its Secretary that provide that the Company will indemnify them against claims related to their service to the Company, except (i) in respect of any claim as to which a judgment is rendered against the indemnitee for an accounting of profits made from the purchase or sale by such indemnitee of securities of Covidien plc pursuant to the provisions of Section 16(b) of the U.S Securities and Exchange Act or similar provision of any federal, state, or local laws; (ii) in respect of any claim as to which a court of competent jurisdiction has determined that indemnification is not permitted under applicable law; or (iii) in respect of any claim as to which the indemnitee is convicted of a crime constituting a felony under the laws of the jurisdiction where the criminal action was brought (or, where a jurisdiction does not classify any crime as a felony, a crime for which the indemnitee is sentenced to death or imprisonment for a term exceeding one year).
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25. Auditors Remuneration
Auditors remuneration is as follows:
(Dollars in Millions) | 2009 | 2008 | ||||
Auditors remuneration(1) |
$ | 1 | $ | |
(1) | The Company incurred an additional $26 million of fees during both fiscal 2009 and 2008, respectively, payable to affiliates of Deloitte & Touche, Ireland. These additional amounts reflect fees for all professional services rendered, including audit fees payable to Deloitte & Touche LLP in the United States for the audit of the Companys consolidated financial statements. |
26. Financial Assets
The Companys financial assets were comprised of:
(Dollars in Millions) | 2009 | 2008 | ||||
Assets held in rabbi trust (note 13) |
$ | 81 | $ | 82 | ||
Investments for pension plans (note 13) |
40 | 40 | ||||
Other investments |
36 | 28 | ||||
Restricted cash |
29 | 32 | ||||
Deferred debt fees |
16 | 17 | ||||
$202 | $199 | |||||
During 2009, Covidien plc acquired 100% of the ordinary share capital of Covidien Ltd., a company incorporated in Bermuda. The principal activity of Covidien Ltd. is an investment holding company. Covidien plcs investment in Covidien Ltd. was recorded at fair value on the date of the reorganization based on the Companys market capitalization at that date. This initial valuation became Covidien plcs cost basis in Covidien Ltd.
(Dollars in Millions) | |||
At January 16, 2009 |
$ | | |
Investment in subsidiary undertakings, at cost |
17,897 | ||
At September 25, 2009 |
$ | 17,897 | |
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27. Debtors
(Dollars in Millions) | 2009 | 2008 | ||||
Amounts falling due within one year |
||||||
Accounts receivable trade |
$ | 1,724 | $ | 1,758 | ||
Shareholder settlement receivables (note 19) |
62 | 16 | ||||
Income tax receivables |
94 | 105 | ||||
Deferred taxes (note 5) |
476 | 335 | ||||
VAT recoverable |
70 | 75 | ||||
Other debtors and prepayments |
242 | 238 | ||||
2,668 | 2,527 | |||||
Amounts falling due after more than one year |
||||||
Due from former parent and affiliates (note 17) |
708 | 585 | ||||
Income tax receivables |
130 | 126 | ||||
Other debtors |
119 | 126 | ||||
957 | 837 | |||||
$ | 3,625 | $ | 3,364 | |||
28. Accruals and Other Creditors (falling due within one year)
(Dollars in Millions) | 2009 | 2008 | ||||
Trade creditors |
$ | 500 | $ | 558 | ||
Accrued payroll and payroll related costs |
380 | 362 | ||||
VAT payable |
116 | 115 | ||||
Accrued dividends |
90 | 81 | ||||
Other taxes (including employee payroll withholdings) |
79 | 65 | ||||
Accrued interest |
78 | 78 | ||||
Accrued professional fees |
71 | 55 | ||||
Accrued rebates |
65 | 60 | ||||
Accrued legal settlements (including Tyco-related shareholder settlements) |
91 | 28 | ||||
Payables on hedges |
45 | 47 | ||||
Income tax payable |
40 | 92 | ||||
Other |
318 | 285 | ||||
$ | 1,873 | $ | 1,826 | |||
29. Accruals and Other Creditors (falling due after more than one year)
(Dollars in Millions) | 2009 | 2008 | ||||
Deferred compensation (note 13) |
$ | 67 | $ | 53 | ||
Other |
101 | 72 | ||||
$ | 168 | $ | 125 | |||
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30. Other Provisions
Other provision activity during fiscal 2009 is as follows:
(Dollars in Millions) | Environmental | Asset Retirement Obligations |
Legal Claims (including Tyco International- related Shareholder Claims) |
Insurance Claims |
Restructuring | Other | Total | ||||||||||||||||||||
At September 26, 2008 |
$ | 131 | $ | 99 | $ | 13 | $ | 114 | $ | 58 | $ | 69 | $ | 484 | |||||||||||||
Provisions, net |
82 | 5 | 432 | 87 | 61 | 67 | 734 | ||||||||||||||||||||
Utilization |
(11 | ) | | (281 | ) | (107 | ) | (50 | ) | (47 | ) | (496 | ) | ||||||||||||||
Other, primarily currency translation |
1 | 7 | | | (4 | ) | 6 | 10 | |||||||||||||||||||
At September 25, 2009 |
$ | 203 | $ | 111 | $ | 164 | $ | 94 | $ | 65 | $ | 95 | $ | 732 | |||||||||||||
31. Employees
The average number of persons, including executive directors, employed by the Company during the year was as follows:
2009 | 2008 | |||
Manufacturing |
26,452 | 28,109 | ||
Sales, marketing and distribution |
10,439 | 10,315 | ||
Research and development |
1,634 | 1,435 | ||
General and administrative |
3,975 | 3,717 | ||
42,500 | 43,576 | |||
Employee costs consist of the following:
(Dollars in Millions) | 2009 | 2008 | ||||
Wages and salaries |
$ | 2,439 | $ | 2,434 | ||
Social security costs |
293 | 299 | ||||
Pension and postretirement costs |
131 | 113 | ||||
$ | 2,863 | $ | 2,846 | |||
2009 Irish Statutory Accounts | 84 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
32. Subsidiary Undertakings
As of September 25, 2009, the Company had the following subsidiary undertakings:
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
ASE Partners S.A. |
Healthcare | 100 | 2 Rue Diderot La Clef De Saint Pierre, Elancourt 78990 France | |||
Accucomp (Pty.) Ltd. |
Healthcare | 100 | PO Box 85, Century City, 7446 South Africa | |||
Accufusion (Pty.) Ltd. |
Healthcare | 100 | PO Box 85, Century City, 7446 South Africa | |||
Advanced Absorbent Products Holdings Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Airox S.A. |
Healthcare | 99.99 | Parc dactivite Pau-Pyrenees, Z.I. de lEchangeur, Pau Cedex BP 833-64008 France | |||
Airox, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Argyle Medical Industries (U.K.) Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Aspect Medical Systems International B.V. |
Healthcare | 100 | Rijnzathe 7 D2, 3454 PV DeMeern, DeMeern 3454 Netherlands | |||
Aspect Medical Systems UK Limited |
Healthcare | 100 | 4 Pavilion Court 600 Pavilion Dr Brackmills Northampton, NN47SL, United Kingdom | |||
Aspect Medical Systems, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Auto Suture Belgium B.V. |
Healthcare | 100 | Huis ter Heideweg 16, Zeist 3705 Netherlands | |||
Auto Suture Company, Australia |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Auto Suture Company, Canada |
Healthcare | 100 | 4490 Garand Street, Ville St. Laurent, Quebec H4R2A2 Canada | |||
Auto Suture Company, Netherlands |
Healthcare | 100 | Officia 1, De Boelelaan 7, 1083 HJ Amsterdam, Holland | |||
Auto Suture Company, U.K. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Auto Suture Eastern Europe, Inc. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Auto Suture European Services Center, SAS |
Healthcare | 100 | 2 Rue Denis Diderot, La Clef de St Pierre, 78990 Elancourt France |
85 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Auto Suture Holdings Pty Limited |
Holding Co | 100 | Riverview Park, Level 1, 166 Epping Road, Lane Cove NSW 2066 Australia | |||
Auto Suture International, Inc. |
Healthcare | 100 | 6157 NW 167th Street, Unit 11, Miami, Florida 33015 United States | |||
Auto Suture Norden Co. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Auto Suture Puerto Rico, Inc. |
Healthcare | 100 | P.O. Box 7292, Sabanetas Industrial Park, Ponce, Puerto Rico, 00731 | |||
Auto Suture Russia, Inc. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Auto Suture Surgical Instruments |
Healthcare | 100 | 19/25 Aleksandra nevskogo Street, Building 1, Moscow, 125947 Russia | |||
Auto Suture U.K. Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Auto Suture UK Export Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Auto Suture do Brasil Ltda. |
Healthcare | 100 | 900 Moema, Sao Paula SP-CEP 04074-020 Brazil | |||
CDK U.K. Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Carnforth Limited |
Healthcare | 100 | Applebys, Canon Court, 22 Victoria Street, Hamilton HM12 Bermuda | |||
Comercial Kendall (Chile) Limitada |
Healthcare | 100 | Vitacura 2763 Ofice 501, Las Condes, Santiago Chile | |||
Comforta Healthcare Ltd. (UK) |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Confluent Surgical, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Controles Graphicos Ibericos, S.A. |
Healthcare | 100 | calle Fructuos Gelabert 6, San Joan Despi 08970 Spain | |||
Covidien (Gibraltar) Limited |
Holding Co | 100 | 57/63 Line Wall Road Gibraltar | |||
Covidien (HKSAR) Co., Limited |
Healthcare | 99.9 | Unit 12-16, 18th Floor, BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kwun Tong, Kowloon Hong Kong | |||
Covidien (Israel) Ltd. |
Healthcare | 100 | 5 Shacham Street, PO Box 3069, Caesaria, 38900 Israel |
2009 Irish Statutory Accounts | 86 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Covidien (Proprietary) Limited |
Healthcare | 100 | 379 Roan Crescent, Randjiespark, Midrand, Gauteng, South Africa | |||
Covidien (Shanghai) Management Consulting Co., Ltd. |
Healthcare | 100 | 3rd & 4th Floor Tyco Plaza, 99 Tian Zhou Road, Caohejing Hi-Tech Park, Shanghai 200233 China | |||
Covidien (UK) Commercial Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Covidien AG |
Healthcare | 100 | Victor von Bruns-Strasse 19, Neuhausen am Rheinfall CH-8212 Switzerland | |||
Covidien Australia Pty Ltd |
Healthcare | 100 | Riverview Park Level 1, 166 Epping Road, Lane Cove NSW 2066 Australia | |||
Covidien Austria GmbH |
Healthcare | 100 | Campus 21, Europaring F09402, Burnn am Gebirge, 2345 Vienna Austria | |||
Covidien Belgium BVBA/Sprl |
Healthcare | 100 | Generaal De Wittelaan 9/5 2800 Mechelen Belgium | |||
Covidien Canada Holdings (A) Cooperatie U.A. |
Holding Co | 100 | Westerduinweg 3, 1755LE Petten, Postbus 3, 1755ZG Petten, The Netherlands | |||
Covidien Canada Holdings (B) Cooperatie U.A. |
Holding Co | 100 | Westerduinweg 3, 1755LE Petten, Postbus 3, 1755ZG Petten, The Netherlands | |||
Covidien Canada Holdings (C) Cooperatie U.A. |
Holding Co | 100 | Westerduinweg 3, 1755LE Petten, Postbus 3, 1755ZG Petten, The Netherlands | |||
Covidien Canada Holdings LLC |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Covidien Danmark A/S |
Healthcare | 100 | Langebrogade 6E, 4 Kopenhavn K 1411 Denmark | |||
Covidien Deutschland GmbH |
Healthcare | 100 | Gewerbepark 1 Neustadt 93333 Germany | |||
Covidien ECE s.r.o. |
Healthcare | 100 | Galvaniho 9 Bratislava 2 Bratislava 2 821 04 Slovakia | |||
Covidien Finance GmbH |
Healthcare | 100 | Victor von Bruns-Strasse 19 8212 Neuhausen am Rheinfall Switzerland | |||
Covidien Finance Ireland Limited |
Healthcare | 100 | Block G, First Floor, Cherrywood Business Park, Dublin, Ireland | |||
Covidien Finland Oy |
Healthcare | 100 | Pursimiehenkatu 26-30 C 00150 Helsinki Finland |
87 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Covidien France Holdings (A) Cooperatie U.A. |
Holding Co | 100 | Westerduinweg 3, 1755LE Petten, Postbus 3, 1755ZG Petten, The Netherlands | |||
Covidien France Holdings (B) Cooperatie U.A. |
Holding Co | 100 | Westerduinweg 3, 1755LE Petten, Postbus 3, 1755ZG Petten, The Netherlands | |||
Covidien France Holdings, Inc. |
Holding Co | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Covidien France SAS |
Healthcare | 99.992158 | 2 rue Denis Diderot CS 60075 La Clef de St. Pierre 78852 Elancourt France | |||
Covidien Group S.a.r.l. |
Holding Co | 100 | 3b, bd Prince Henri, Luxembourg L-1724 Luxembourg | |||
Covidien Healthcare Holding UK Limited |
Holding Co | 100 | 154 Fareham Road, Hampshire, PO13OAS Gosport PO13 OAS, United Kingdom | |||
Covidien Hellas S.A. |
Healthcare | 100 | 8 Fragoklissias Street 151 25 Maroussi Greece | |||
Covidien Holdings GmbH |
Holding Co | 100 | Victor von Bruns-Str. 19. Neuhausen am Rheinfall Neuhausen 8212 Switzerland | |||
Covidien Hungary Kft. |
Healthcare | 100 | Mariassy u7, 1095 Budapest 1095, Hungary | |||
Covidien Imaging France Sarl |
Healthcare | 100 | Elancourt (78990), 2 rue Diderot, La Clef de Saint Pierre France | |||
Covidien Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Covidien International Finance S.A. |
Healthcare | 100 | 3b, bd Prince Henri Luxembourg L-1724 Luxembourg | |||
Covidien Ireland Commercial Limited |
Healthcare | 100 | Riverside One Sir John Rogersons Quay Dublin 2 Ireland | |||
Covidien Italia, S.p.A. |
Healthcare | 100 | Via Rivoltana 2/D, Segrate 20090 Italy | |||
Covidien Logistics BVBA |
Healthcare | 100 | Weg naar Zwartberg, Opglobbeek 3660, Belgium | |||
Covidien Ltd. |
Holding Co | 100 | Applebys, Canon Court, 22 Victoria Street, Hamilton HM12 Bermuda | |||
Covidien Manufacturing Grenoble SAS |
Healthcare | 100 | 16 avenue de Generale de Gaulle BP 117 F38 800 Le Pont de Claix France | |||
Covidien Medical |
Healthcare | 100 | 113093 Liusinovskaya Street, 36, bld 1 Moscow Russia |
2009 Irish Statutory Accounts | 88 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Covidien Medical Products (Shanghai) Manufacturing L.L.C. |
Healthcare | 100 | Building #10, 789 Puxing Road, Caohejing Export Processing Zone, Pujiang Town, Minhang District, Shanghai 201114 China | |||
Covidien Nederland B.V. |
Healthcare | 100 | Hogeweg 105, 5301LL PO Box 2205 Zaltbommel 5300CE 5300CE Netherlands | |||
Covidien Norge AS |
Healthcare | 100 | Holmengaten 24 Nesbru N-1394 Norway | |||
Covidien Polska Sp.z.o.o. |
Healthcare | 100 | ul. Pawinskiego 5A 02-106 Warszawa Poland | |||
Covidien Portugal, Produtos De Saude Lda. |
Healthcare | 100 | Estrada Outeiro de Polima, Iote 10-1°, Aboboda, Sao Domingos de Rana 2785-521 Portugal | |||
Covidien Pty Limited |
Healthcare | 100 | Riverview Park Level 1, 166 Epping Road, Lane Cove 2066 Australia | |||
Covidien Saglik A.S. |
Healthcare | 99.96 | Dereboyu Sokak Sun Plaza No:24 Kat:3, Masiak, 34398 Istanbul, 34398 Turkey | |||
Covidien Services Europe Limited |
Healthcare | 100 | Block G, First Floor, Cherrywood Business Park, Dublin, Ireland | |||
Covidien Spain S.L. |
Healthcare | 100 | Fructuós Gelabert, 6 8ª 08970 Sant Joan Despi 08970 Barcelona Sant Joan Despi Spain | |||
Covidien Sverige AB |
Healthcare | 100 | PO Box 54 Hemvarnsgatan 9, Solna Strand 54 Solna 171 54 Sweden | |||
Covidien Switzerland AG |
Healthcare | 100 | Roostrasse 53 Wollerau 8832 Switzerland | |||
Covidien UK Holding Ltd |
Holding Co | 100 | 154 Fareham Road, Gosport, Hampshire, PO13 OAS United Kingdom | |||
Covidien Ventures Ltd. |
Healthcare | 100 | Applebys, Canon Court, 22 Victoria Street, Hamilton HM12 Bermuda | |||
DISAB Diagnostic Imaging Holding AB |
Holding Co | 100 | c/o Tyco Helathcare Norden AB PO Box 54 Solna SE-171 74 Sweden | |||
Davis & Geck Caribe Limited |
Healthcare | 100 | Close Brothers (Cayman) Limited, PO Box 1034, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1102 Cayman Islands |
89 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Dritte CORSA Verwaltungsgesellschaft mbH |
Healthcare | 100 | Gewerbepark 1, Neustadt 93333 Germany | |||
Elkay Services LLC |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Especialidades Medicas Kenmex, S.A. de C.V. |
Healthcare | 99 | Calle 9 sur No. 125 Ciudad Industrial Tijuana 22244 Mexico | |||
Euro-Flex de Mexico, S.A. de C.V. |
Healthcare | 100 | Poniente 44 No. 3401 Col San Salvador Xochimanco Mexico City 02780 Mexico | |||
First Lafayette Holdings, Inc. |
Holding Co | 100 | 675 McDonnell Boulevard St. Louis MO 63042-2301 United States | |||
Floreane Medical Implants |
Healthcare | 100 | 116 avenue de Formans Trevoux 01600 France | |||
GC Holding, Inc. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
GC Holding, Inc. I |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ganmill Limited |
Healthcare | 100 | 154 Fareham Road Gosport, Hampshire PO13 OAS United Kingdom | |||
General Sub Acquisition Corp. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
General Surgical Holdings, Inc. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
General Surgical Innovations, Inc. |
Healthcare | 100 | 10460 Bubb Road Cupertino CA 95014 United States | |||
Graphic Controls (Barbados), Ltd. |
Healthcare | 100 | PO Box 169W Bridgetown Barbados | |||
Graphic Holdings, Inc. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Healthcare Aviation Trust |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Heartstone Services GmbH |
Healthcare | 100 | Victor von Bruns-Strasse 19 Neuhausen am Rheinfall CH-8212 Switzerland | |||
Hygieia Holdings (Canada) Inc. |
Holding Co | 100 | 870 Ellingham Street City of Pointe Claire Quebec H9R 354 Canada | |||
IMC Exploration Company |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Imedex Biomateriaux |
Healthcare | 100 | 116 avenue de Formans Trevoux 01600 France |
2009 Irish Statutory Accounts | 90 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Inbrand Corporation (Canada) Inc. |
Healthcare | 100 | 870 Ellingham Street City of Pointe Claire Quebec H9R 354 Canada | |||
Inbrand Holdings Limited |
Holding Co | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Inbrand Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Inbrand UK Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Infrasonics Technologies, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
InnerDyne Holdings, Inc. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
InnerDyne, Inc. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Ittac Production |
Healthcare | 100 | Quartier Beauregard, La Mure 38350 France | |||
J.T. Baker Chemical Products Trading (Shanghai) Co., Ltd. |
Healthcare | 100 | Unit A 14th Floor, Unit 999, Pudong New Area District, Pudong South Road, Shanghai 200120 China | |||
J.T. Baker Chemicals Private Limited |
Healthcare | 99.9 | 702-704, 7th Floor, Tardeco AC Market, Tardoe, Mumbai 400034 Maharashtra India | |||
KMS Colon, Panama, S.A. |
Healthcare | 100 | Avenida anta Isabel y Calle 20, Zona libre de Colon, PO Box 0302-00504 Colon Zona Libre Panama | |||
KMS Montevideo, Uruguay, S.A. |
Healthcare | 100 | 7300 Corporate Center Drive, Suite 313, Miami, FL 33126 United States | |||
Kendall Company of South Africa (Pty) Limited, The |
Healthcare | 100 | PO Box 85 Century City 7446 South Africa | |||
Kendall Espana S.A. |
Healthcare | 100 | c/ Cadiz, n 7,4 50004 Zaragoza Spain | |||
Kendall Gammatron Limited |
Healthcare | 85 | P.O. Box 9 or 117 Moo 2 Petchkasem Road Sampran Nakaornpathom 73110 Thailand | |||
Kendall Healthcare Products (Japan) Co., Ltd. |
Healthcare | 100 | 10-2, Yoga 4-chome, Setagaya-ku Tokyo 151-0051 Japan | |||
Kendall Holding Corp. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Kendall Innovadores en Cuidados al Paciente S.A. |
Healthcare | 100 | San Jose, Sabana Norte del Restaurante, Las Tunas, 100 Norte y 50 Este Costa Rica |
91 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Kendall SAS |
Healthcare | 100 | 2, rue Denis Diderot Z.A. La Clef Saint Pierre Elancourt 78852 France | |||
Kendall de Mexico, S.A. de C.V. |
Healthcare | 100 | Av. Ermita Iztapalapa 1514 Col Barrio San Miguel Mexico | |||
Kendall de Venezuela, C.A. |
Healthcare | 100 | Calle Caroni Con Madrid, Edificio Centro Caroni, Piso #3, Urb Las Merces Caracas, Venezula | |||
Kendall, S.A. (Panama) |
Healthcare | 100 | 55-0739 Paitilla, Calle Primera (Harry Eno) Urbanizacion Industrial Los Angeles Panama | |||
LCP Holding |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
LCP, Inc. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
La Trevoltiane |
Healthcare | 100 | 116 avenue de Formans Trevoux 01600 France | |||
Lafayette Healthcare Limited |
Healthcare | 100 | 154 Fareham Road Gosport, Hampshire PO13 OAS United Kingdom | |||
Lafayette Pharmaceuticals (Canada) Inc. |
Healthcare | 100 | 20 Bay Street, Suite 3800 South Tower, Royal Bank Plana, Toronto, Ontario M5J2J7 Canada | |||
Lafayette Pharmaceuticals Pty Limited |
Healthcare | 100 | Riverview Park, Level 1, 166 Epping Road, Lane Cove 2066 Australia | |||
Lafayette Pharmaceuticals, Incorporated |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Liebel-Flarsheim Company |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Life Design Systems, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ludlow Canada, Inc. |
Healthcare | 100 | McMillan Binch, Suite 3800, South Tower, Royal Bank Plaza, Toronto, Ontario, M5J2J7 Canada | |||
Ludlow Coated Products LP |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ludlow Company LP, The |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ludlow Corporation |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States |
2009 Irish Statutory Accounts | 92 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Ludlow Jute Company Limited |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ludlow Services LLC |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ludlow Technical Products Canada, Ltd. |
Healthcare | 100 | 215 Herbert Street Gananoque Ontario K7G2Y7 Canada | |||
Ludlow Technical Products Corporation |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Ludlow Technical Products France |
Healthcare | 100 | Z.I. La Pilaterie, Rue de la Couture-BP 6037 59706 Marcq En Baroeul Cedex France | |||
MKG Medical U.K. Ltd. |
Healthcare | 100 | Hall Lane, Staveley, Chesterfield, Derbyshire S43 3RW United Kingdom | |||
MMJ, S.A. de C.V. |
Healthcare | 100 | Carr. Juarez Porvenir, No 8914 Parque Industrial, Cd Juarez Chih A.j. Bermudez 32401 Mexico | |||
MSCH LLC |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt Asia Pacific Pte. Ltd. |
Healthcare | 100 | No. 26 Ang Mo Kio Industrial Park 2 #-01 Singapore 560507 Singapore | |||
Mallinckrodt Australia Pty Limited |
Healthcare | 100 | Riverview Park Level 1, 166 Epping Road Lane Cove NSW 2066 Australia | |||
Mallinckrodt Baker B.V. |
Healthcare | 100 | Teugseweg 20 7418AM Deventer, The Netherlands | |||
Mallinckrodt Baker Deutschland, Zweigniederlassung der Mallinckrodt Baker B.V. |
Healthcare | 100 | Teugseweg 20, Deventer 7418 AM The Netherlands | |||
Mallinckrodt Baker International, Inc. |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt Baker S.A. de C.V. |
Healthcare | 100 | Plomo No. 2, Fraccionamiento Industrial, Esfuerzo Nacional Xalostoc CP 55320 Mexico | |||
Mallinckrodt Baker Sdn. Bhd. |
Healthcare | 100 | A1201-2, 12th Floor, Kelana Brem Tower Jalan SS7/15 (Jalan Stadium) Kelana Jaya, Selangor Malaysia | |||
Mallinckrodt Baker, Inc. |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt Belgium N.V./S.A. |
Healthcare | 100 | Generaal de Wittelaan 9/5, 2800 Mechelen Belgium |
93 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Mallinckrodt Benelux B.V. |
Healthcare | 100 | Hogeweg 105, 5301LL, PO Box 2205, Zaltbommel 5300 CE Netherlands | |||
Mallinckrodt Brand Pharmaceuticals, Inc. |
Healthcare | 100 | 675 McDonnell Boulevard St. Louis MO 63042-2301 United States | |||
Mallinckrodt Canada ULC |
Healthcare | 100 | 7500 Trans Canada Highway, Pointe Claire H9R 5H8 Canada | |||
Mallinckrodt Caribe, Inc. |
Healthcare | 100 | 675 McDonnell Boulevard St. Louis MO 63042-2301 United States | |||
Mallinckrodt Chemical GmbH |
Healthcare | 100 | Gewerbepark 1 Neustadt 93333 Germany | |||
Mallinckrodt Chemical Holdings (U.K.) Ltd. |
Holding Co | 100 | Hall Lane, Staveley, Chesterfield, Derbyshire S43 3RW United Kingdom | |||
Mallinckrodt Chemical Holdings GmbH |
Holding Co | 100 | Gewerbepark 1 Neustadt 93333 Germany | |||
Mallinckrodt Chemical Limited |
Healthcare | 100 | Hall Lane, Staveley, Chesterfield, Derbyshire S43 3RW United Kingdom | |||
Mallinckrodt DAR Srl |
Healthcare | 100 | Via G. Bove 2-4-6-8, 41037 Mirandola MO Italy | |||
Mallinckrodt Developpement France S.A.S. |
Healthcare | 100 | 10 allée Pelletier Doisy, 54600 Villers Les Nancy 54600 France | |||
Mallinckrodt Europe B.V. |
Healthcare | 100 | Hogeweg 105, 5301LL, PO Box 2205, Zaltbommel 5300 CE Netherlands | |||
Mallinckrodt Holdings B.V. |
Holding Co | 100 | Hogeweg 105, 5301LL, PO Box 2205, Zaltbommel 5300 CE Netherlands | |||
Mallinckrodt Holdings, LLC |
Holding Co | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt Hong Kong Limited |
Healthcare | 100 | Unit 12-16, 18th Floor, BEA Tower, Millenium City 5, 418 Kwun Tong Road, Kwun Tong Kowloon Hong Kong | |||
Mallinckrodt Inc. |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt International Corporation |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt International Financial Services Company |
Healthcare | 100 | 2nd Floor, George Quay House, 43 Townsend Street, Dublin 1 Ireland | |||
Mallinckrodt Italia Srl |
Healthcare | 100 | Cristoforo Colombo No. 80, Rome Italy |
2009 Irish Statutory Accounts | 94 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Mallinckrodt LLC |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt Medical |
Healthcare | 100 | Cornamaddy Industrial Estate, Athlone County Westmeath Ireland | |||
Mallinckrodt Medical Argentina Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Mallinckrodt Medical B.V. |
Healthcare | 100 | Westerduinweg 3, 1755LE Petten, Postbus 3, 1755ZG Petten The Netherlands | |||
Mallinckrodt Medical GmbH |
Healthcare | 100 | Josef-Dietzen-Str. 1-3 53773 Hennef Germany | |||
Mallinckrodt Medical Holdings (U.K.) Limited |
Holding Co | 100 | Hall Lane, Staveley, Chesterfield, Derbyshire S43 3RW United Kingdom | |||
Mallinckrodt Medical Holdings GmbH |
Holding Co | 100 | Gewerbepark 1, Neustadt 93333 Germany | |||
Mallinckrodt Medical ImagingIreland |
Healthcare | 100 | Damastown, Mulhuddart, Dublin 15 Ireland | |||
Mallinckrodt Medical S.A. |
Healthcare | 100 | Avenida de San Pablo 28, Edificio II Poligono Industrial, Coslada, Madrid, Spain | |||
Mallinckrodt Medical S.A. de C.V. |
Healthcare | 100 | Ermita Iztapalapa # 1514 Col. Barrio de San Miguel C.P. 09360 Mexico, D.F. Mexico | |||
Mallinckrodt Operations B.V. |
Healthcare | 100 | Hogeweg 105, 5301LL, PO Box 2205, Zaltbommel 5300 CE Netherlands | |||
Mallinckrodt Polska Sp.z o.o. |
Healthcare | 100 | ul. Pawinskiego 5A lok. 33, 02-106 Warsaw Poland | |||
Mallinckrodt Services B.V. |
Healthcare | 100 | Hogeweg 105, 5301LL, PO Box 2205, Zaltbommel 5300 CE Netherlands | |||
Mallinckrodt Sweden AB |
Healthcare | 100 | PO Box 54, Solna SE 171 74 Sweden | |||
Mallinckrodt Switzerland Limited |
Healthcare | 100 | Roosstrasse 5e, Wollerau CH-8832 Switzerland | |||
Mallinckrodt U.K. Ltd. |
Healthcare | 100 | Hall Lane, Staveley, Chesterfield, Derbyshire S43 3RW United Kingdom | |||
Mallinckrodt Veterinary, Inc. |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Mallinckrodt do Brasil, Ltda. |
Healthcare | 100 | Avenida das Nacoes Unidas 23.013, Part B, Sao Paulo 04795-100 Brazil |
95 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Mareane SA |
Healthcare | 100 | 116 Avenue Formans Trevoux 01600 France | |||
Medefield Pty Limited |
Healthcare | 100 | Riverview Park Level 1, 166 Epping Road Lane Cove NSW 2066 Australia | |||
Mediquip Sdn. Bhd. |
Healthcare | 100 | Padang Lti Mukim Paya 02450, Kangar Perlis Indera Kayangan Malaysia | |||
National Catheter Corporation |
Healthcare | 100 | 675 McDonnell Boulevard St. Louis MO 63042-2301 United States | |||
Nellcor Puritan Bennett (Melville) ULC |
Healthcare | 100 | 181 Bay Street, Suite 2100 Toronto, Ontario M5J2T3 Canada | |||
Nellcor Puritan Bennett Export Inc. |
Healthcare | 100 | 675 McDonnell Boulevard St. Louis MO 63042-2301 United States | |||
Nellcor Puritan Bennett France Holdings SAS |
Holding Co | 100 | Parc dAffaires Technopolis, 3 Avenue du Canada, Batiment Sigma LP 851 Les Ulis Courtaboeuf Cedex 91975 France | |||
Nellcor Puritan Bennett Ireland |
Healthcare | 100 | Michael Collins Road, Mervue, Galway Ireland | |||
Nellcor Puritan Bennett Ireland Holdings |
Healthcare | 100 | Michael Collins Road, Mervue, Galway Ireland | |||
Nellcor Puritan Bennett LLC |
Healthcare | 100 | 675 McDonnell Boulevard, St. Louis, MO 63042-2301 United States | |||
Nellcor Puritan Bennett Mexico, S.A. de C.V. |
Healthcare | 100 | Blvd. Insurgentes 19030 Colonia Libramiento CP 22225 Mexico | |||
Nippon Sherwood Medical Industries Ltd. |
Healthcare | 100 | 10-2, Yoga 4- chome, Setagaya-ku, Tokyo, Japan | |||
Old Colony State Insurance Company |
Healthcare | 100 | One Church Street Burlington VT 05401 United States | |||
PTB International LLC |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Polysuture Industria e Comercio Ltda. |
Healthcare | 100 | Avenida Gabriel Ramos da Silva, ar. 1245, Parque Industrial Joao Fernando Zanin, Sao Schastiao do Paraiso, Minas Gerais Brazil | |||
Power Medical Interventions Deutschland GmbH |
Healthcare | 100 | Papenreye 65 Hamburg 22453 Germany | |||
Power Medical Interventions Japan, Inc. |
Healthcare | 100 | 10-2 Yoga 4 chome, setagaya-ku Tokyo Japan | |||
Power Medical Interventions, LLC |
100 | 15 Hampshire Street, Mansfield, MA 02048 United States |
2009 Irish Statutory Accounts | 96 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Power Medical Inverventions France S.a.r.l. |
Healthcare | 100 | 8 Esplanade Compans Caffarelli Immeuble Atria Toulouse 31000 France | |||
Pryor and Howard (1988) Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Regentix Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Retail Group de Mexico S.A. de C.V. |
Healthcare | 100 | Blvd. Bellas Artes No. 24317, Cd. Ind. Chilpaningo, Tijuana Baja California 22444 Mexico | |||
Scandius Biomedical, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Sherwood Medical Company I |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Sherwood-Accurate Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Sofradim Corporation |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
Sofradim GmbH |
Healthcare | 100 | Gewerbepark 1 Neustadt D-93333 Germany | |||
Sofradim Ltd |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Sofradim Production |
Healthcare | 100 | 116 avenue de Formans, Trevoux 01600 France | |||
Sofradim SAS |
Healthcare | 100 | 116 avenue de Formans, Trevoux 01600 France | |||
Spitafield |
Healthcare | 100 | 2nd Floor, George Quay House, 43 Townsend Street, Dublin 1 Ireland | |||
Surgical Service Corporation |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
THC Holdings Limited |
Holding Co | 49 | 140/38 ITF Tower Building, 17TH Floor, Silom Road, Khwang Suriyawongse, Khet Bangrak, Bangkok 10500 Thailand | |||
THC Pool LLC |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tibset Steril Tibbi Aletler Sanayi ve Ticaret Anonim Sirketi |
Healthcare | 99.96 | Ayazaga Mah. Dereboya Sok, No 24 Sun Plaza, 2-3 Sisli, Istanbul Turkey | |||
Tissue Science Laboratories (UK) Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom |
97 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Tissue Science Laboratories Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Trigate (Pty.) Ltd. |
Healthcare | 100 | PO Box 85, Century City 7446 South Africa | |||
Trinance (Pty.) Ltd. |
Healthcare | 100 | PO Box 85, Century City 7446 South Africa | |||
Tyco AR Funding 2002 LLC |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Healthcare (Gibraltar) Holding Limited |
Holding Co | 100 | 57/63 Line Wall Road Gibraltar | |||
Tyco Healthcare (HKSAR) Limited |
Healthcare | 99.9 | Unit 12-16, 18th Floor, BEA Tower, Millenium City 5, 418 Kwun Tong Road, Kwun Tong Kowloon Hong Kong | |||
Tyco Healthcare (Taiwan) Ltd. |
Healthcare | 100 | 4F, No. 407, RueiGuang Road, NeiHu District, Taipei, Taiwan, ROC | |||
Tyco Healthcare (Thailand) Limited |
Healthcare | 99.99 | 99 Berli Jucker Building, 14th Floor, Sukhumvit 42 Road, Prakaong Bangkok Thailand | |||
Tyco Healthcare (UK) Manufacturing Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Tyco Healthcare Asia Investments Limited |
Holding Co | 100 | c/o MauriTrust Consulting & Management Limited 210, St. James Court, Rue St. Denis Port Louis Mauritius | |||
Tyco Healthcare Colombia S.A. |
Healthcare | 100 | Edificio Campos de la Morea, Carretera Central del Norte (Cra 7) Kilometro 18 Chia Colombia | |||
Tyco Healthcare Deutschland Manufacturing GmbH |
Healthcare | 100 | Gewerbepark 1 Neustadt D-93333 Germany | |||
Tyco Healthcare Group Canada Inc. |
Healthcare | 100 | 7300 Trascanada Highway Point Claire Quebec H9R1C7 Canada | |||
Tyco Healthcare Group LP |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Healthcare India Pvt Limited |
Healthcare | 100 | 6th Floor, Doshi Tower, No 156 Poonamalee, High Road, Kilpauk, Chennai Tamilnadu 600010 India | |||
Tyco Healthcare International Trading (Shanghai) Co., Ltd. |
Healthcare | 100 | 2nd Floor Tyco Plaza, 99 Tian Zhou Road, Cachejing Hi-Tech Park, Shanghai 200233 |
2009 Irish Statutory Accounts | 98 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Tyco Healthcare Ireland Limited |
Healthcare | 100 | 85 Marrion Square Dubin 2 Ireland | |||
Tyco Healthcare Japan, Inc. |
Healthcare | 100 | 10-2, Yoga 4-chome, Setagaya-ku, Tokyo Japan | |||
Tyco Healthcare Korea, Inc. |
Healthcare | 100 | 4th Floor Bando Bldg 48-1 Banpo-Dong Seocho-ku Seoul South Korea | |||
Tyco Healthcare Limited |
Healthcare | 100 | c/- Russell McVeagh, Level 30, Vero Centre, 48 Shortland Street, Auckland New Zealand | |||
Tyco Healthcare Lyon |
Healthcare | 100 | 2 Rue Diderot La Clef De Saint Pierre Elancourt 78990 France | |||
Tyco Healthcare Medical Supplies Sdn Bhd |
Healthcare | 100 | Suite A-17-1, Menara Atlas, Plaza Pantai, No. 5 Jalan 4/83A Off Jalan Pantai Baru KL 59200 Malaysia | |||
Tyco Healthcare Peru S.A. |
Healthcare | 100 | Av. E. Cavenecia No. 225 of. 405 Lima 27 Peru | |||
Tyco Healthcare Pte Ltd |
Healthcare | 100 | No. 26 Ang Mo Kio Industrial Park 2, #04-01 Singapore 569507 Singapore | |||
Tyco Healthcare Pty Limited |
Healthcare | 100 | Riverview Park Level 1, 166 Epping Road, Lane Cove 2066 Australia | |||
Tyco Healthcare Retail Services AG |
Healthcare | 100 | Victor von Bruns-Strasse 19 Neuhausen am Rheinfall CH-8212 Switzerland | |||
Tyco Healthcare SA |
Healthcare | 100 | 16, avenue du General al Gaulle 38800 Pont de Claix France | |||
Tyco Healthcare Services LLC |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Healthcare Trading (Shanghai) Co., Ltd. |
Healthcare | 100 | 2F/, No. 14 Building, No. 99 Tian Zhou Road CaoHeJing Hi-Tech Park Shanghai 200233 China | |||
Tyco Healthcare Trevoux |
Healthcare | 100 | 2 rue Diderot, La Clef de Saint-Pierre, Elancourt 78852 France | |||
Tyco Healthcare UK Limited |
Healthcare | 99.99 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Tyco Healthcare UK Pension Trustees Limited |
Healthcare | 100 | 154 Fareham Road, Gosport, Hampshire PO13 OAS United Kingdom | |||
Tyco Healthcare do Brasil Ltda. |
Healthcare | 100 | Avenida das Nações Unidas, 23.013, suite 1, Vila Almeida Sao Paulo, SP-ZIP code 04795-100 Brazil | |||
Tyco Holding VII (Denmark) ApS |
Holding Co | 100 | Langebrogade 6 E 4, 1411 København K, Denmark |
99 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Tyco Holding XIII (Denmark) ApS |
Holding Co | 100 | Langebrogade 6 E 4, 1411 København K, Denmark | |||
Tyco Holding XIV (Denmark) ApS |
Holding Co | 100 | Langebrogade 6 E 4, 1411 København K, Denmark | |||
Tyco Holding XV (Denmark) ApS |
Holding Co | 100 | Langebrogade 6 E 4, 1411 København K, Denmark | |||
Tyco Holding XVI (Denmark) ApS |
Holding Co | 100 | Langebrogade 6 E 4, 1411 København K, Denmark | |||
Tyco International (US) International Holdings A, LLC |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco International Finance Alpha GmbH |
Holding Co | 100 | Victor von Bruns-Strasse 19, Neuhausen am Rheinfall 8212 Switzerland | |||
Tyco International Holding AG |
Holding Co | 100 | Victor von Bruns-Strasse 19, Neuhausen am Rheinfall 8212 Switzerland | |||
Tyco Safety Holdings, Inc. |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Sigma Limited |
Holding Co | 100 | Applebys, Canon Court, 22 Victoria Street, Hamilton HM12 Bermuda | |||
U.S.S.C. Puerto Rico (NY), Inc. |
Healthcare | 100 | 201 Sabanetas Industrial Park Ponce 00716-4401 United States | |||
U.S.S.C. Puerto Rico, Inc. (Cayman Islands) |
Healthcare | 100 | Close Brothers (Cayman) Limited, PO Box 1034, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1102 Cayman Islands | |||
USSC (Deutschland) GmbH |
Healthcare | 100 | Gewerbepark 1 Neustadt D-93333 Germany | |||
USSC FSC, Inc. |
Healthcare | 100 | c/o Trident Corporate Services (Barbados) Ltd, Worthing Corporate Centre, Worthing Main Road, Christ Church BB 15008 Barbados | |||
USSC Financial Services Inc. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
USSC Medical GmbH |
Healthcare | 100 | Gewerbepark 1 Neustadt D-93333 Germany | |||
United States Surgical Corporation |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States | |||
VNUS Medical Technologies GmbH |
Healthcare | 100 | Germany |
2009 Irish Statutory Accounts | 100 |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
VNUS Medical Technologies II, Inc. |
Healthcare | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
VNUS Medical Technologies UK Ltd. |
Healthcare | 100 | United Kingdom | |||
Valera Holdings S.a.r.l. |
Holding Co | 100 | 4th Floor 3b, bd Prince Henri Luxembourg L-1724 | |||
Valleylab (Australia) Pty Limited |
Healthcare | 100 | Riverview Park Level 1, 166 Epping Road Lane Cove NSW 2066 Australia | |||
Valleylab Holding Corporation |
Holding Co | 100 | 5920 Longbow Drive, Boulder CO 80301 United States | |||
Velum 1998 Limited |
Holding Co | 100 | 57/63 Line Wall Road Gibraltar | |||
Verdana Holdings Limited |
Holding Co | 100 | 57/63 Line Wall Road Gibraltar | |||
Vivant Medical, Inc. |
Healthcare | 100 | 150 Glover Avenue, Norwalk, CT 06856 United States |
The following entities are associated with the historical Tyco Plastics, Adhesives and Ludlow Coated Products businesses and the historical Tyco A&E Products business, which were sold in fiscal 2006.
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
A&E Construction Products, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048, United States | |||
A&E GP Holding, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048, United States | |||
A&E Hangers Taiwan Co., Ltd. |
Non-operating | 99.988 | 4F, No. 407, RueiGuang Road, NeiHu District, Taipei, Taiwan, ROC | |||
A&E Hangers, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
A&E Holding GP |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
A&E India Pvt Ltd |
Non-operating | 100 | S-454 Greater Kailash Part II, New Delhi, 110048 India | |||
A&E Karner Limited |
Non-operating | 100 | 2 Humber Quays, East Yorkshire United Kingdom | |||
A&E Productos de Costa Rica, S.A. |
Non-operating | 100 | Heredia, La Aurora, Ultrapark Zona Franca, Building Four-B Costa Rica | |||
A&E Products (Far East) Limited |
Non-operating | 99.9995 | Unit 12-16, 18th Floor, BEA Tower, Millenium City 5, 418 Kwun Tong Road, Kwun Tong, Kowloon Hong Kong |
101 | 2009 Irish Statutory Accounts |
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COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
A&E Products Group LP |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
A&E Products Group, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
A&E Products Korea Ltd. |
Non-operating | 100 | GTC Corporate Services Limited, P.O. Box SS-5383, Sassoon House, Shirley Street & Victoria Avenue, Nassau The Bahamas | |||
A&E Products South Africa (Proprietary) Limited |
Non-operating | 100 | PO Box 85, Century City, 7446 South Africa | |||
A&E Products de Honduras S.A. |
Non-operating | 99.84 | Zoli Zip Calpules KM 7 Carretera a La Lima, San Pedro Sula Honduras | |||
A&E Products do Brasil Ltda. |
Non-operating | 50 | Rua Viscondde de Piraja 550 SL/2110, Ipanema, Rio de Janerio RJ CEP 22410-002 Brazil | |||
AEPG, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
AWZ Inc. |
Non-operating | 100 | 8235 220th Street West, Lakeville, MN 55044 United States | |||
Adhesives Holding GP |
Holding Co | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Batts Far East Limited |
Non-operating | 100 | Unit 12-16, 18th Floor BEA Tower, Millennium city 5, 418 Kwun Tong Road, Kwun Tong, Kowloon Hong Kong | |||
Batts Holdings, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Batts Korea Ltd. |
Non-operating | 51 | 4th Floor, Jinjin Building, 1667-13, Seocho-Dong, Seocho-Ku, Seoul South Korea | |||
Batts, Inc. |
Non-operating | 100 | 200 Franklin Street, Zeeland, MI 49464 United States | |||
Carlisle Philippines, Inc. |
Non-operating | 99.3 | 3rd Floor East Chem Building, No.14 Ilang-ilang Street, New Manila, Q.C. Philippines | |||
Carlisle Plastics Holding LLC |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Carlisle Recycling de Mexico S.A. de C.V. |
Non-operating | 99.9 | Carr Libramiento Oriente 10001, Tijuana, 6-637-1890 Mexico |
2009 Irish Statutory Accounts | 102 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Coated Products GP, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Coated Products Holdings, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Forever Hangers, Inc. |
Non-operating | 100 | 200 Franklin, Zeeland MI 49464 United States | |||
FRM Services, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Georgia Packaging, Inc. |
Non-operating | 100 | 918 8th Avenue PO Box 1158 Columbus GA 31902-1158 United States | |||
Karner Europe (UK) Ltd. |
Non-operating | 100 | 2 Humber Quays, Wellington Street, East Yorkshire, West Hull HU1 2BN United Kingdom | |||
Karner Europe AB |
Non-operating | 100 | c/o Ohrlings PWC Box 2023 Lidkoping S-531-02 Sweden | |||
Karner Europe Aski Ticaret Limited Sirketi |
Non-operating | 100 | 1476 Sok. No.1 16 Alsngak Izmir Turkey | |||
Karner Europe GmbH |
Non-operating | 100 | Gewerbepark 1 Neustadt 93333 Germany | |||
Karner Europe SARL |
Non-operating | 100 | 2 Rue Diderot La Clef De Saint Pierre Elancourt 78990 France | |||
Karner Europe SRL |
Non-operating | 100 | 133, Calea Serban Voda, Central Business Park, Ground Floor, 4th District Bucharest 040205 Romania | |||
Karner Europe, Lda |
Non-operating | 100 | Rua Diamantina 5E9 freguesia de paranhos Porto 4300-145 | |||
Karner-Batts SRL |
Non-operating | 100 | Via Aldo Kupfer, 25036 Palazzolo s/o (Brescia) Italy | |||
King Packaging Co., Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Mode Plastics, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
National Tape Corporation |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
National Tape Holdings, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Plastics Holding Corporation |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States |
103 | 2009 Irish Statutory Accounts |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Name |
Nature of |
Group Share % |
Registered Office and Country of Incorporation | |||
Polyken Technologies Europe, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Raychem Tecnologias, S. de R.L. de C.V. |
Non-operating | 100 | Calle 11 Norte No 11002, Cd. Industrial Neuter Tijuana, B.C. Calf. Mexico CP 22500 | |||
Raychem Tijuana Services, S.A. de C.V. |
Non-operating | 100 | Calle 11 Norte No 11002, Cd. Industrial Neuter Tijuana, B.C. Calf. Mexico CP 22500 | |||
Sunbelt Holding LLC |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Sunbelt Holding, Inc. I |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Sunbelt Holdings, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Sunbelt Manufacturing, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
TA, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Adhesives BVBA |
Non-operating | 100 | Generaal de Wittelaan 9/5, 2800 Mechelen Belgium | |||
Tyco Adhesives GP Holding, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Adhesives Italia Srl |
Non-operating | 100 | Via Vittor Pisani 16 Milan 20124 Italy | |||
Tyco Adhesives LP |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Adhesives, Inc. |
Non-operating | 100 | 15 Hampshire Street, Mansfield, MA 02048 United States | |||
Tyco Plastics International Trading (Shanghai) Co., Ltd. |
Non-operating | 100 | Room 619, No. 6, JiLong Road WGQ FTZ Shanghai China | |||
Tyco Plastics LP |
Non-operating | 100 | 1401 West 94th Street, Minneapolis, MN 55431 United States | |||
Tyco Plastics Services AG |
Non-operating | 100 | Victor von Bruns-Strasse Neuhausen am Rheinfall 8212 Switzerland | |||
W.A.F. Group, Inc. |
Non-operating | 100 | 30-10 Review Avenue, Long Island City, NY 10019 United States |
2009 Irish Statutory Accounts | 104 |
Table of Contents
COVIDIEN PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of September 25, 2009, the Company had the following branches outside of Ireland:
Branch |
Country | |
A&E Products Group, Inc. (Dominican Republic Branch) |
Dominican Republic | |
A&E Products Korea Ltd (Bahamas, Bermuda) (Korea Branch) |
South Korea | |
Auto Suture Company, UK (Branch) |
United Kingdom | |
Covidien AG (Belgrade Rep Office) |
Belgrade | |
Covidien AG (Czech Branch) |
Czech Republic | |
Covidien ECE s.r.o. (Bulgarian Rep Office) |
Bulgaria | |
Covidien ECE s.r.o. (Czech Branch) |
Czech Republic | |
Covidien ECE s.r.o. (Romanian Rep Office) |
Romania | |
Covidien ECE s.r.o.(Hungarian Branch) |
Hungary | |
Covidien France Holding Inc. (French Branch) |
France | |
Covidien Group S.a.r.l. (Italian Branch) |
Italy | |
Covidien Group S.à r.l., Luxembourg (LU)( Neuhausen am Rheinfall Branch) |
Switzerland | |
Davis & Geck Caribe, LTD (Dominican Republic Branch) |
Dominican Republic | |
Mallinckrodt Baker B.V. Italian Branch |
Italy | |
Mallinckrodt Baker Deutschland, Zweigniederlassung der Mallinckrodt Baker B.V. |
Netherlands | |
Mallinckrodt Baker International, Korea Branch |
South Korea | |
Mallinckrodt Caribe, Inc. (Puerto Rico Branch) |
Puerto Rico | |
Mallinckrodt Medical Argentina Limited (Argentina Branch) |
Argentina | |
Mallinckrodt Services B.V. Hennef Branch |
Netherlands | |
Polyken Technologies Europe, Inc. (Belgium Branch) |
Belgium | |
Representative Office of Covidien AG in Russia |
Russia | |
Tyco Healthcare Group AG Egypt Scientific Office |
Egypt | |
Tyco Healthcare Pte Ltd (Bangladesh Liaison Office) |
Bangladesh | |
Tyco Healthcare Pte Ltd (Beijing Rep Office) |
China | |
Tyco Healthcare Pte Ltd (Indonesia Rep Office) |
Indonesia | |
Tyco Healthcare Pte Ltd (Pakistan Rep Office) |
Pakistan | |
Tyco Healthcare Pte Ltd (Philippines Rep Office) |
Philippines | |
Tyco Healthcare Pte Ltd (Sri Lanka Liaison Office) |
Sri Lanka | |
Tyco Healthcare Pte Ltd (Vietnam Rep Office) |
Vietnam | |
U.S.S.C. Puerto Rico (NY), Inc. (Puerto Rico Branch) |
Puerto Rico | |
U.S.S.C. Puerto Rico, Inc. (Cayman Islands) (Puerto Rico Branch) |
Puerto Rico |
105 | 2009 Irish Statutory Accounts |