The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated and Combined Financial Statements and the accompanying notes included in this Quarterly Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed under the headings "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 28, 2007, and in "Forward-Looking Statements."

Overview

We operate our continuing businesses through the following four 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 devices, sharpsafety products, clinical care products and other medical device products.

• Imaging Solutions includes the development, manufacture and marketing of radiopharmaceuticals and contrast products.

• Pharmaceutical Products includes the development, manufacture and distribution of dosage pharmaceuticals and active pharmaceutical ingredients.

• Medical Supplies includes the development, manufacture and sale of nursing care products, medical surgical products and original equipment manufacturer products (OEM).

Covidien Ltd. was incorporated in Bermuda in 2000 as a wholly-owned subsidiary of Tyco International Ltd. Until June 29, 2007, Covidien did not engage in any significant business activities and held minimal assets. As part of a plan to separate Tyco International into three independent companies, Tyco International transferred the equity interests of the entities that held all of the assets and liabilities of its healthcare businesses to Covidien and, on June 29, 2007, distributed all of its shares of Covidien to its shareholders. Where we refer to financial results for the quarter and nine months ended June 29, 2007, these results reflect the combined reporting entity consisting of the assets and liabilities used in managing Tyco International Ltd.'s healthcare business.

Our unaudited Consolidated and Combined Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States of America ("GAAP"). For the quarter and nine months ended June 29, 2007, certain general corporate overhead, debt and related net interest expense and loss on early extinguishment of debt have been allocated to us by Tyco International. Management believes such allocations are reasonable; however, they may not be indicative of the actual expenses we would have incurred had we been operating as an independent, publicly-traded company. Note 13 to our Consolidated and Combined Financial Statements provides further information regarding allocated expenses.

Acquisitions

During the nine months ended June 27, 2008, our Medical Devices segment acquired Tissue Science Laboratories plc ("TSL") for $74 million. TSL is a medical device company dedicated to the research, development and commercialization of tissue implant products for surgical and wound care therapies. The acquisition of TSL provides us with a leading tissue repair technology and accelerates our entry into the biologic hernia repair market. TSL's Permacol(R) product complements our current soft tissue product offerings and allows 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 enables us to offer customers innovative soft tissue repair devices for common sports injuries.

In April 2007, our Medical Devices segment acquired intellectual property from Sorbx, LLC ("Sorbx"), a developer of an absorbable tack technology used in hernia repair procedures, for $30 million. The acquisition of the intellectual property from Sorbx allows us to expand our surgical devices portfolio, while leveraging our global distribution capabilities.

In September 2006, our Medical Devices segment acquired over 50% ownership of Airox S.A. ("Airox") for $59 million, net of cash acquired of $4 million. During the first quarter of fiscal 2007, our Medical Devices segment acquired the remaining outstanding shares of Airox in a mandatory tender offer for approximately $47 million.

Divestitures

During the first quarter of fiscal 2008, we approved plans to sell our Specialty Chemical business within the Pharmaceutical Products segment, our Retail Products segment and our European Incontinence Products business within the Medical Supplies segment. We decided to sell these businesses because their products and customer bases are not aligned with our long-term strategic objectives. These businesses have all met the held for sale and discontinued operations criteria and, accordingly, are included in discontinued operations for all periods presented. References to Covidien are to our continuing operations.

During fiscal 2008, we entered into a definitive sale agreement to divest our Retail Products segment for gross cash proceeds of $330 million, subject to working capital adjustments. During the third quarter of fiscal 2008, we received gross cash proceeds of $319 million upon completion of the sale. Deal costs and other adjustments resulted in net cash proceeds of $313 million, which was used to repay a portion of the outstanding borrowings under our revolving credit facility. During the first nine months of fiscal 2008, we recorded a $104 million pre-tax loss on sale from discontinued operations related to our Retail Products segment, which includes 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. The loss on sale is expected to be adjusted in future reporting periods by $12 million in contingent payments due to Covidien, $4 million of which was received in July 2008. In addition, we expect to receive proceeds from the sale of a remaining Retail Products facility. However, the additional proceeds will be offset by incremental costs associated with selling the facility.

During the third quarter of fiscal 2008, we also disposed of our European Incontinence business. As a condition of the sale, we were required to contribute cash of $41 million into the business prior to the closing of the transaction. During the first nine months of fiscal 2008, we recorded a $74 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 values used for both the Retail Products segment and the European Incontinence business impairment assessments were based on the respective sale agreements.

Results of Operations

The following table presents results of operations, including percentage of net
sales (dollars in millions):



                                              Quarters Ended                             Nine Months Ended
                                   June 27, 2008         June 29, 2007          June 27, 2008         June 29, 2007
Net sales                        $ 2,595     100.0 %   $  2,269     100.0 %   $ 7,337     100.0 %   $ 6,597     100.0 %
Cost of products sold              1,202      46.3        1,085      47.8       3,434      46.8       3,166      48.0

Gross profit                       1,393      53.7        1,184      52.2       3,903      53.2       3,431      52.0
Selling, general and
administrative expenses              745      28.7          639      28.2       2,130      29.0       1,775      26.9
Research and development
expenses                              85       3.3           64       2.8         238       3.2         187       2.8
In-process research and
development charges                   10       0.4           30       1.3          22       0.3          38       0.6
Restructuring and related
impairment charges                     4       0.2            5       0.2          73       1.0          25       0.4
Class action and shareholder
settlements, net of insurance
recoveries                             4       0.2        1,207      53.2          35       0.5       1,207      18.3

Operating income (loss)              545      21.0         (761 )   (33.5 )     1,405      19.1         199       3.0
Interest expense                      48       1.8           46       2.0         164       2.2         125       1.9
Interest income                      (10 )    (0.4 )         (8 )    (0.4 )       (30 )    (0.4 )       (27 )    (0.4 )
Other (income) expense, net          (13 )    (0.5 )        156       6.9        (196 )    (2.7 )       150       2.3

Income (loss) from continuing
operations before income taxes       520      20.0         (955 )   (42.1 )     1,467      20.0         (49 )    (0.7 )
Income taxes                         189       7.3          180       7.9         442       6.0         377       5.7

Income (loss) from continuing
operations                           331      12.8       (1,135 )   (50.0 )     1,025      14.0        (426 )    (6.5 )
Loss (income) from
discontinued operations, net
of income taxes                       62       2.4          (27 )    (1.2 )        73       1.0         (50 )    (0.8 )

Net income (loss)                $   269      10.4     $ (1,108 )   (48.8 )   $   952      13.0     $  (376 )    (5.7 )

Net sales-Our net sales increased $326 million, or 14.4%, to $2,595 million in the third quarter of fiscal 2008, compared with the third quarter of fiscal 2007. Our net sales for the first nine months of fiscal 2008 increased $740 million, or 11.2%, to $7,337 million, compared with the first nine months of fiscal 2007. Revenue increased across all segments for both the quarter and first nine months of fiscal 2008; however, the increases for both periods were primarily attributable to our Medical Devices segment. Favorable currency exchange rate fluctuations contributed $128 million and $338 million to the increase in net sales for the third quarter and first nine months of fiscal 2008, respectively.

Our non-U.S. businesses generated net sales of $1,193 million and $979 million for the quarters ended June 27, 2008 and June 29, 2007, respectively, and $3,334 million and $2,791 million for the nine months ended June 27, 2008 and June 29, 2007, respectively. Our business outside the U.S. accounted for 46% and 45% of our net sales for the third quarter and first nine months of fiscal 2008, respectively, compared with 43% and 42% of our net sales for the comparable prior year periods.

Net sales by geographic area are shown in the following table (dollars in millions):

                              Quarters Ended                       Nine Months Ended
                      June 27,     June 29,    Percent      June 27,     June 29,    Percent
                        2008         2007      Change         2008         2007      Change
    U.S.             $    1,402   $    1,290       8.7 %   $    4,003   $    3,806       5.2 %
    Other Americas          152          126      20.6            426          346      23.1
    Europe                  740          607      21.9          2,071        1,733      19.5
    Japan                   166          139      19.4            482          420      14.8
    Asia-Pacific            135          107      26.2            355          292      21.6

                     $    2,595   $    2,269      14.4     $    7,337   $    6,597      11.2

Costs of products sold-Cost of products sold was 46.3% and 46.8% of net sales in the third quarter and first nine months of fiscal 2008, respectively, compared with 47.8% and 48.0% of net sales in the third quarter and first nine months of fiscal 2007, respectively. The decreases in cost of products sold as a percent of net sales in the fiscal 2008 periods are primarily attributable to favorable sales mix and currency exchange rate fluctuations.

Selling, general and administrative expenses-Selling, general and administrative expenses increased $106 million to $745 million in the third quarter of fiscal 2008, compared with the third quarter of fiscal 2007 and increased $355 million to $2,130 million for the first nine months of fiscal 2008, compared with the same prior year period. Selling, general and administrative expenses were 28.7% and 29.0% of net sales in the third quarter and first nine months of fiscal 2008, respectively, compared with 28.2% and 26.9% of net sales in the third quarter and first nine months of fiscal 2007, respectively. The increases in selling, general and administrative expenses as a percent of net sales are primarily due to increases in selling and marketing expenses of $80 million and $221 million for the quarter and nine months, respectively, largely resulting from investments made in our Medical Devices segment to support our growth initiatives.

Research and development expenses-Research and development expense increased 32.8% to $85 million and 27.3% to $238 million, in the third quarter and nine months of fiscal 2008, respectively, compared with the same prior year periods. These increases resulted primarily from increased spending in our Medical Devices segment. The increase in the nine month period was also due to the write-off of previously capitalized property, plant and equipment relating to a research and development project. As a percentage of our net sales, research and development expense was 3.3% and 3.2% for the third quarter and first nine months of fiscal 2008, respectively, compared with 2.8% for both the third quarter and first nine months of fiscal 2007.

In-process research and development charges-During the third quarter of fiscal 2008, our Medical Devices and Imaging Solutions segments recorded in-process research and development charges totaling $10 million in connection with two small acquisitions. In addition to these charges, during the first nine months of 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, a developer of medical devices for sports-related surgeries.

During the third quarter of fiscal 2007, our Medical Devices segment recorded an in-process research and development charge of $30 million in connection with the acquisition of intellectual property from Sorbx. This charge related to the development of second-generation technology that had not yet obtained regulatory approval. As of the acquisition date, the IPR&D was not considered to be technologically feasible or to have any alternative future use. In addition to this charge, during the first nine months of fiscal 2007, our Medical Devices segment recorded an $8 million in-process research and development charge in connection with the acquisition of the remaining outstanding shares of Airox.

Restructuring and related impairment charges-In fiscal 2007, we launched a restructuring program, primarily in our Medical Devices segment. 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. We expect to incur charges of $150 million under this program, most of which are expected to occur by the end of calendar year 2008.

During the third quarter and first nine months of fiscal 2008, we recorded charges of $4 million and $73 million, respectively. The charge for the first nine months of fiscal 2008 includes asset impairment charges of $18 million primarily related to the write-down of specific long-lived assets of a manufacturing facility within our Medical Devices segment that will be closed as a result of cost savings initiatives. The remaining restructuring charges primarily relate to reductions in workforce also within Medical Devices. During the third quarter and first nine months of fiscal 2007, we recorded restructuring charges of $5 million and $25 million, respectively, primarily related to severance costs resulting from workforce reductions within our Medical Devices segment.

Class action and shareholder settlements, net of insurance recoveries-In June 2008, Tyco International entered into an Agreement in Principle ("Agreement") with the trustee of various trusts that brought claims against Tyco International alleging, among other things, securities fraud in connection with Tyco International's 1999 acquisition of AMP, Inc. The Agreement calls for Tyco International to make a payment of $36 million to the plaintiffs to settle the previously disclosed action captioned Ballard v. Tyco International Ltd., et al. This payment is subject to the sharing percentages included in the Separation and Distribution Agreement discussed below. Accordingly, during the third quarter of fiscal 2008, we recorded a charge of $15 million for our portion of this settlement. We paid Tyco International our portion of the settlement during the fourth quarter of fiscal 2008.

During the third quarter of fiscal 2008, Tyco International signed a definitive agreement with the State of New Jersey which provides for Tyco International to make a payment of $73 million to the plaintiffs in exchange for the plaintiffs' agreement to dismiss the case against Tyco International and certain of its former directors and a former employee. In addition to the settlement charge discussed above, during the nine months ended June 27, 2008, we also recorded a charge of $31 million for the payment of our portion of this settlement in accordance with the sharing percentages included in the Separation and Distribution Agreement.

During the third quarter of fiscal 2007, Tyco International entered into a memorandum of understanding with plaintiffs' counsel in connection with the settlement of 32 securities class action lawsuits. Under the terms of the memorandum of understanding, the plaintiffs agreed to release all claims against Tyco International, the other settling defendants and ten other individuals in consideration of the payment to the certified class of $2.975 billion plus accrued interest. Under the Separation and Distribution Agreement, the companies share in the liability, with Covidien assuming 42%, Tyco International 27% and Tyco Electronics 31% of the total amount. In addition, Covidien, Tyco International and Tyco Electronics are jointly and severally liable for the full amount of the settlement.

During the third quarter of fiscal 2007, we were allocated a net charge of $1.207 billion from Tyco International. This amount is comprised of our portion of the class action settlement of $1.249 billion, net of our portion of the related insurance recovery of $42 million. At September 28, 2007, we had a $2.992 billion class action settlement liability for the full amount owed under the settlement, including accrued interest, and a $1.735 billion receivable from Tyco International and Tyco Electronics for their portion of the liability. In fiscal 2007, we funded our portion of the payment into an escrow account intended to be used to settle the liability. "Interest in class action settlement fund" in our Consolidated Balance Sheet at September 28, 2007, represents our $1.257 billion interest in Tyco International's funds held in escrow to settle the class action lawsuits.

During the first quarter of fiscal 2008, the United States District Court for the District of New Hampshire entered a final order approving the class action settlement in accordance with the terms of the memorandum of understanding. All legal contingencies that could have affected the final order approving the settlement expired on February 21, 2008. Accordingly, during the second quarter of fiscal 2008, we removed the class action

settlement liability and the related class action settlement receivable and interest in class action settlement fund from our Consolidated Balance Sheet. While the finalization of the class action settlement resulted in a decrease to our cash flow from continuing operations during the first nine months of fiscal 2008, it did not affect our cash balance because we had previously fully funded our portion of the class action settlement into an escrow account intended to be used to settle the liability, as discussed above.

During the third quarter of fiscal 2008, Tyco International received insurance recoveries related to its class action settlement totaling $25 million. Tyco International in turn paid us $5 million of the $11 million due to us for our portion of the recoveries in accordance with the sharing percentages included in the Separation and Distribution Agreement. The remainder was received during the fourth quarter of fiscal 2008.

Operating income-In the third quarter of fiscal 2008, we had operating income of $545 million, compared to an operating loss of $761 million in the third quarter of fiscal 2007. Operating income for the third quarter of fiscal 2007 included a net charge of $1,207 million allocated to us by Tyco International for our portion of the class action settlement. The remaining increase in operating income was primarily attributable to increased gross profit of $209 million, resulting from higher sales and positive sales mix, partially offset by an increase in selling and marketing expenses of $80 million, mostly within our Medical Devices segment.

In the first nine months of fiscal 2008, operating income was $1,405 million, compared with $199 million in the same prior year period. Operating income for the first nine months of fiscal 2008 included net shareholder settlement charges totaling $35 million, while operating income for the first nine months of fiscal 2007 included a net charge of $1,207 million allocated to us by Tyco International for our portion of the class action settlement. The remaining $34 million increase in operating income was primarily attributable to higher sales, increased gross profit and a $16 million decrease in in-process research and development charges, partially offset by increased selling and marketing expenses of $221 million, increased research and development expenses of $51 million and incremental restructuring and related impairment charges of $48 million, all mostly within our Medical Devices segment, and a $26 million increase in legal costs within our Imaging Solutions segment.

Analysis of Operating Results by Segment

Net sales by segment are shown in the following table (dollars in millions):



                                        Quarters Ended                            Nine Months Ended
                              June 27,       June 29,      Percent       June 27,       June 29,      Percent
                                2008           2007        Change          2008           2007        Change
Medical Devices              $    1,781     $    1,549        15.0 %    $    5,031     $    4,455        12.9 %
Imaging Solutions                   319            271        17.7             914            786        16.3
Pharmaceutical Products             257            228        12.7             717            692         3.6
Medical Supplies                    238            221         7.7             675            664         1.7

                             $    2,595     $    2,269        14.4      $    7,337     $    6,597        11.2

Operating income by segment and as a percentage of segment net sales is shown in the following table (dollars in millions):

                                      Quarters Ended                           Nine Months Ended
                             June 27,              June 29,              June 27,             June 29,
                               2008                  2007                  2008                 2007
Medical Devices           $  494     27.7 %   $    436      28.1 %   $ 1,350     26.8 %   $  1,297     29.1 %
Imaging Solutions             32     10.0           32      11.8          75      8.2          103     13.1
Pharmaceutical Products       86     33.5           76      33.3         219     30.5          229     33.1
Medical Supplies              39     16.4           39      17.6         107     15.9          111     16.7
Corporate                   (106 )              (1,344 )                (346 )              (1,541 )

                          $  545     21.0     $   (761 )   (33.5 )   $ 1,405     19.1     $    199      3.0

Medical Devices

Net sales for the third quarter of fiscal 2008 increased $232 million, or 15.0%, to $1,781 million, compared with the third quarter of fiscal 2007. Favorable currency exchange rate fluctuations contributed $113 million to the increase in net sales for the segment. Net sales for Endomechanical instruments in the third quarter of fiscal 2008 increased $99 million, or 20.6%, of which currency exchange rate fluctuations had a favorable impact of $41 million. The remaining increase in sales of Endomechanical products was primarily driven by continued demand for our laparoscopic instruments in the United States and internationally, particularly in Europe. Energy devices net sales for the third quarter of fiscal 2008 increased $48 million, or 29.1%, of which currency exchange rate fluctuations had a favorable impact of $12 million. The remaining increase in Energy devices net sales was primarily due to higher sales volume of vessel sealing products worldwide. Net sales of Soft Tissue Repair products increased $27 million, or 20.9%, of which currency exchange rate fluctuations had a favorable impact of $12 million. The remaining increase in Soft Tissue Repair products is resulted primarily from increased sales volume of mesh hernia repair products.

Operating income for the third quarter of fiscal 2008 increased $58 million to $494 million, compared with the third quarter of fiscal 2007. Our operating margin was 27.7% for the quarter ended June 27, 2008, compared with 28.1% for the quarter ended June 29, 2007. The increase in our operating income and margin was primarily attributable to increased gross profit on the favorable sales performance discussed above. This increase was partially offset by higher operating expenses, primarily selling and marketing expenses of $68 million, resulting principally from our growth initiatives and sales force investment. In addition, research and development expenses increased, although to a lesser extent.

Net sales for the first nine months of fiscal 2008 increased $576 million, or 12.9%, to $5,031 million, compared with the first nine months of fiscal 2007. Favorable currency exchange rate fluctuations contributed $298 million to the increase in net sales for the segment. Net sales for Endomechanical instruments in the first nine months of fiscal 2008 increased $218 million, or 15.8%, of . . .