From time to time, Covidien discusses measures which may be considered “non-GAAP” financial measures under applicable Securities and Exchange Commission rules and regulations.  These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles.  The definition of these non-GAAP measures may differ from similarly titled measures used by others. 

The Company generally uses non-GAAP financial measures to facilitate management’s internal comparisons to Covidien’s historical operating results, to competitors’ operating results and to guidance provided to investors.  In addition, the use of these non-GAAP financial measures provided greater transparency to investors of supplemental information used by management in its financial and operational decision-making, including to evaluate Covidien’s operating performance and to determine management incentive compensation. Certain non-GAAP financial measures may exclude certain charges and credits because Covidien believes that such items are not indicative of its core operating results, are not indicative of trends and do not provide meaningful comparisons with other reporting periods.

The following is a list of non-GAAP financial measures which Covidien has discussed or expects to discuss in the future.

• Operational Growth: Year over year adjusted net sales increase excluding the impact of foreign exchange, expressed as a percentage.

• Adjusted Operating Income: Operating income adjusted for specified items (including but not limited to Oxy ER, charges or income for class action and shareholder settlements, net of insurance recoveries, restructuring and related charges, legal settlements, intangible impairments, licensing fees, gain/loss on divestiture, environmental charges, transaction costs, separation costs and in-process R&D).

• Adjusted non-GAAP basic earnings per share: Net income adjusted for specified items (including but not limited to Oxy ER, charges or income for class action and shareholder settlements, net of insurance recoveries, restructuring and related charges, legal settlements, intangible impairments, licensing fees, gain/loss on divestiture, environmental charges, transaction costs, separation costs and in-process R&D) divided by basic weighted-average shares outstanding.

• Adjusted non-GAAP diluted earnings per share: Net income adjusted for specified items (including but not limited to Oxy ER, charges or income for class action and shareholder settlements, net of insurance recoveries, restructuring and related charges, legal settlements, intangible impairments, licensing fees, gain/loss on divestiture, environmental charges, transaction costs, separation costs and in-process R&D) divided by diluted weighted-average shares.

• Return on Invested Capital (ROIC):  Adjusted income from continuing operations plus after-tax net interest expense divided by total assets less total liabilities.

• Free cash flow:  Net cash provided by continuing operating activities excluding class action and shareholder settlements minus capital expenditures.