Hospira Reports First-Quarter 2011 Results

In $ millions, 

except per share

amounts

GAAP

Three Months Ended

March 31,

Adjusted*

Three Months Ended

March 31,

2011

2010

%

Change

2011

2010

%

Change

Net Sales

$1,002.3

$1,007.6

(0.5)%

n/a

n/a

n/a

Gross Profit (Net Sales less

Cost of Products Sold)

$399.1

$430.3

(7.3)%

$424.3

$454.7

(6.7)%

Income from Operations

$163.8

$207.6

(21.1)%

$203.4

$239.9

(15.2)%

Diluted EPS

$0.88

$0.84

4.8%

$0.93

$0.94

(1.1)%

Statistics (as a % of Net Sales)

Gross Profit (Net Sales less

Cost of Products Sold)

39.8%

42.7%

42.3%

45.1%

Income from Operations

16.3%

20.6%

20.3%

23.8%

Diluted earnings per share -- adjusted*

                                                                 $3.90 - $4.00

Charges related to Project Fuel initiatives

completed in March 2011

($0.04)

Charges related to facilities optimization initiatives

($0.01)

Charges related to certain Latin America

distributor operations

($0.03)

Tax benefit from the settlement of a

U.S. income tax audit

            $0.12

Estimated $70 million for the amortization and impairment

of intangible assets related to certain acquisitions

($0.27)

Diluted earnings per share -- GAAP

$3.67 - $3.77

Private Securities Litigation Reform Act of 1995 --

A Caution Concerning Forward-Looking Statements

Hospira, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(dollars and shares in millions, except for per share amounts)

Three Months Ended March 31,

% Change

2011

2010

Net sales

$            1,002.3

$            1,007.6

(0.5)%

Cost of products sold

603.2

577.3

4.5%

Restructuring, impairment and (gain) on disposition of assets, net

13.2

(7.6) 

(273.7)%

Research and development

56.9

51.7

10.1%

Selling, general and administrative

165.2

178.6

(7.5)%

   Total operating costs and expenses

838.5

800.0

4.8%

Income From Operations

163.8

207.6

(21.1)%

Interest expense

23.4

23.4

-%

Other income, net

(2.2) 

(1.2) 

83.3%

Income Before Income Taxes

142.6

185.4

(23.1)%

Income tax expense

9.9

44.2

(77.6)%

Equity income from affiliates, net

(17.2) 

(0.5) 

nm%

Net Income

$                149.9

$               141.7

5.8%

Earnings Per Common Share:

   Basic

$                  0.90

$                 0.86

4.7%

   Diluted

$                  0.88

$                 0.84

4.8%

Weighted Average Common Shares Outstanding:

   Basic

166.8

164.1

1.6%

   Diluted

170.2

169.3

0.5%

Adjusted Gross Profit (1)(2)

$               424.3

$               454.7

(6.7)%

Adjusted Income From Operations (1)

$               203.4

$               239.9

(15.2)%

Adjusted Net Income (1)

$               157.5

$               159.4

(1.2)%

Adjusted Diluted Earnings Per Share (1)

$                 0.93

$                 0.94

(1.1)%

Statistics (as a % of net sales, except for income tax rate):

GAAP Three Months Ended March 31,

Adjusted (1) Three Months Ended March 31,

2011

2010

2011

2010

Gross Profit (2)

           39.8%

42.7%

42.3%

                    45.1%

Income From Operations

16.3%

20.6%

20.3%

23.8%

Net Income

15.0%

14.1%

15.7%

15.8%

Income Tax Rate

6.9%

23.8%

23.0%

27.1%

(1)

Adjusted financial measures exclude certain specified items as described and reconciled to comparable GAAP financial measures in the Reconciliation of GAAP to Non-GAAP Financial Measures contained in this press release.

(2)

Gross profit is defined as Net sales less Cost of products sold. Adjusted gross profit excludes certain specified items, as indicated in the previous footnote.

nm - Percentage change is not meaningful.

Hospira, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(dollars and shares in millions, except for per share amounts)

Three months ended March 31, 2011 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1) 

 Income From
Operations 

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                  

$           399.1

$           163.8

$         149.9

$        0.88

Specified items:

  Project Fuel and related charges (A)

5.0

9.6

6.3

0.04

  Facilities Optimization charges (B)

0.8

1.1

0.7

0.01

  Amortization and impairment of certain intangible assets (C)

19.4

21.1

14.5

0.09

  Other restructuring charges (D)

-

7.8

5.8

0.03

  Settlement of IRS tax audit benefit (E)

-

-

(19.7) 

(0.12) 

Adjusted financial measures (3)

$           424.3

$          203.4

$         157.5

$        0.93

GAAP results for the three months ended March 31, 2011 include:

(A)

Project Fuel and related charges: $5.0 million reported in Cost of products sold, $3.4 million reported in Restructuring, impairment and (gain) on disposition of assets, net and $1.2 million reported in Selling, general and administrative. Project Fuel initiatives include costs for process optimization implementation, severance and other employee benefits, exit costs, and other asset charges.

(B)

Facilities Optimization charges: $0.8 million reported in Cost of products sold and $0.3 million reported in Restructuring, impairment and (gain) on disposition of assets, net. These charges relate to facilities optimization from the closure or departure from certain manufacturing and research and development ("R&D") facilities and include costs for severance and other employee benefits, accelerated depreciation and relocation of production and R&D operations.

(C)

Amortization and impairment of certain intangible assets: $19.4 million reported in Cost of products sold and $1.7 million reported in Restructuring, impairment and (gain) on disposition of assets, net resulting from acquisitions including Mayne Pharma Limited ("Mayne Pharma"), Javelin  Pharmaceuticals, Inc. ("Javelin Pharma") and a generic injectable business by Hospira Healthcare India Private Limited (“Hospira India”).

(D)

Other restructuring charges: $7.8 million reported in Restructuring, impairment and (gain) on disposition of assets, net for distribution contract termination charges related to certain Latin America operations.

(E)

Settlement of IRS tax audit benefit of $19.7 million reported in Income tax expense. This discrete income tax benefit is related to the completion and effective settlement of U.S. tax return audits.

Three months ended March 31, 2010 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1) 

 Income From

Operations 

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                  

$           430.3

$            207.6

$         141.7

$        0.84

Specified items:

  Project Fuel and related charges(A)

3.7

(1.4) 

(4.6) 

(0.03) 

  Facilities Optimization charges (B)

2.0

3.0

2.1

0.01

  Amortization of certain intangible assets (C)

18.7

18.7

12.6

0.08

  Acquisition and integration-related charges (D)

-

12.0

7.6

0.04

Adjusted financial measures (3)

$           454.7

$           239.9

$         159.4

$        0.94

GAAP results for the three months ended March 31, 2010 include:

(A)

Project Fuel and related charges: $3.7 million reported in Cost of products sold, $(8.6) million reported in Restructuring, impairment and (gain) on disposition of assets, net, $0.2 million reported in Research and development and $3.3 million reported in Selling, general and administrative. Project Fuel initiatives include costs for process optimization implementation, severance and other employee benefits, exit costs, and other asset charges. These charges are offset by a $11.4 million gain reported in Restructuring, impairment and (gain) on disposition of assets, net related to the disposal of the non-strategic net assets associated with the Wasserburg, Germany, facility.

(B)

Facilities Optimization charges: $2.0 million reported in Cost of products sold and $1.0 million reported in Restructuring, impairment and (gain) on disposition of assets, net. These charges relate to facilities optimization from the closure or departure from certain manufacturing and research and development ("R&D") facilities and include costs for severance and other employee benefits, accelerated depreciation and relocation of production and R&D operations.

(C)

Amortization of certain intangible assets reported in Cost of products sold resulting from acquisitions including Mayne Pharma and a generic injectable business by Hospira India.

(D)

Acquisition and integration-related charges: $1.0 million reported in Research and development and $11.0 million reported in Selling, general and administrative. These charges include acquisition and integration costs related to the acquisition by Hospira India.

(1)

Gross profit is defined as Net sales less Cost of products sold.

(2)

Adjusted Net Income is shown net of tax of $32.0 million and $14.8 million for the three months ended March 31, 2011 and 2010, respectively, based on the statutory tax rate in the various tax jurisdictions in which the adjustments occurred.

(3)

The Non-GAAP financial measures contained in this press release (including adjusted gross profit, adjusted income from operations, adjusted net income and adjusted diluted Earnings Per Share) adjust for certain specified items. All Non-GAAP financial measures are intended to supplement the applicable GAAP measures and should not be considered in isolation from, or a replacement for, financial measures prepared in accordance with GAAP. Refer to Hospira’s filing on Form 8-K filed on April 26, 2011 for additional information.

Hospira, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(dollars in millions)

March 31,
2011

December 31,
2010

Assets

Current Assets:

Cash and cash equivalents

$             597.1

$          604.3

Trade receivables, less allowances of $10.5 in 2011 and $8.2 in 2010

719.6

605.0

Inventories

1,072.7

955.5

Deferred income taxes

161.0

165.2

Prepaid expenses

43.8

43.6

Other receivables

74.4

103.9

         Total Current Assets

2,668.6

2,477.5

Property and equipment, net

1,296.4

1,279.2

Intangible assets, net

509.2

527.7

Goodwill

1,491.2

1,471.2

Deferred income taxes

174.3

161.0

Investments

83.1

64.7

Other assets

67.1

65.0

         Total Assets

$         6,289.9

$       6,046.3

Liabilities and Shareholders' Equity

Current Liabilities:

Short-term borrowings

$              34.9

$            33.5

Trade accounts payable

291.1

320.7

Salaries, wages and commissions

112.4

136.0

Other accrued liabilities

492.4

441.4

         Total Current Liabilities

930.8

931.6

Long-term debt

1,710.6

1,714.4

Deferred income taxes

4.3

4.4

Post-retirement obligations and other long-term liabilities

190.3

212.4

Commitments and Contingencies

Total Shareholders' Equity

3,453.9

3,183.5

Total Liabilities and Shareholders' Equity

$         6,289.9

$       6,046.3

Hospira, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in millions)

Three Months Ended March 31,

2011

2010

Cash Flow From Operating Activities:

 Net income

$ 149.9

$ 141.7

 Adjustments to reconcile net income to net cash from operating activities-

   Depreciation

40.8

39.1

   Amortization of intangible assets

22.2

21.5

   Stock-based compensation expense

13.7

17.3

   Undistributed equity income from affiliates

(17.2) 

(0.5) 

   Deferred income taxes and other tax adjustments

(15.1) 

22.3

   Impairment and other asset charges

6.8

-

   Gain on disposition of assets

-

(11.4) 

 Changes in assets and liabilities-

   Trade receivables

(100.8) 

(141.2) 

   Inventories

(115.1) 

(11.2) 

   Prepaid expenses and other assets

6.7

(7.3)

   Trade accounts payable

(27.5) 

18.1

   Other liabilities

44.0

(94.6) 

 Other, net

(2.3) 

0.5

     Net Cash Provided by (Used in) Operating Activities

6.1

(5.7) 

Cash Flow From Investing Activities:                                                                         

 Capital expenditures (including instruments placed with or leased to customers)

(62.2) 

(40.6) 

 Acquisition, net of cash acquired

-

(381.0) 

 Purchases of intangibles and other investments

(2.5) 

(8.7) 

 Proceeds from disposition of businesses and assets

13.3

62.6

   Net Cash Used in Investing Activities

(51.4) 

(367.7) 

Cash Flow From Financing Activities:

 Other borrowings, net

0.4

0.1

 Excess tax benefit from stock-based compensation arrangements

4.6

7.9

 Proceeds from stock options exercised

26.8

67.3

   Net Cash Provided by Financing Activities

31.8

75.3

Effect of exchange rate changes on cash and cash equivalents

6.3

(1.6)

Net change in cash and cash equivalents

(7.2) 

(299.7) 

Cash and cash equivalents at beginning of period

604.3

946.0

Cash and cash equivalents at end of period

$ 597.1

$ 646.3

Supplemental Cash Flow Information:

Cash paid (received) during the period-

  Interest

$   31.0

$   30.5

  Income taxes, net of refunds

$  (21.0)

$   21.0

Hospira, Inc.

Net Sales by Product Line

(Unaudited)

(dollars in millions)

Three Months Ended March 31,

2011

2010

% Change at

Actual Currency

Rates

% Change at

Constant Currency

Rates (1)

Americas--

  Specialty Injectable Pharmaceuticals

$           511.3

$            483.9

5.7%

5.2%

  Medication Management

196.0

206.5

(5.1)%

(6.0)%

  Other Pharma

101.6

125.4

(19.0)%

(19.1)%

Total Americas

808.9

815.8

(0.8)%

(1.4)%

Europe, Middle East & Africa--

  Specialty Injectable Pharmaceuticals

68.5

69.9

(2.0)%

(2.6)%

  Medication Management

33.8

34.0

(0.6)%

-%

  Other Pharma

17.7

18.6

(4.8)%

(5.9)%

Total Europe, Middle East & Africa

120.0

122.5

(2.0)%

(2.4)%

Asia Pacific--

  Specialty Injectable Pharmaceuticals

58.8

57.6

2.1%

(5.6)%

  Medication Management

10.4

9.6

8.3%

(1.0)%

  Other Pharma

4.2

2.1

100.0%

76.2%

Total Asia Pacific

73.4

69.3

5.9%

(2.5)%

Net Sales                                                       

$        1,002.3

$        1,007.6

(0.5)%

(1.6)%

Global--

  Specialty Injectable Pharmaceuticals

$           638.6

$           611.4

4.4%

3.3%

  Medication Management

240.2

250.1

(4.0)%

(5.0)%

  Other Pharma

123.5

146.1

(15.5)%

(16.1)%

Net Sales

$        1,002.3

$        1,007.6

(0.5)%

(1.6)%

(1)

The Non-GAAP financial measures contained in this press release include comparisons at constant currency rates (reflecting comparative local currency balances at prior period foreign exchange rates), which we define as current period net sales excluding the impact of the change in foreign exchange rates less prior period reported net sales divided by prior period reported net sales. This financial measure provides information on the change in net sales assuming that foreign currency exchange rates have not changed between the prior and the current period. Management believes the use of this financial measure aids in the understanding of our change in net sales without the impact of foreign currency. All Non-GAAP financial measures are intended to supplement the applicable GAAP measures and should not be considered in isolation from, or a replacement for, financial measures prepared in accordance with GAAP.