Hospira Reports Second-Quarter 2011 Results

In $ millions,

except per share

amounts

GAAP

Three Months Ended

June 30,

Adjusted*

Three Months Ended

June 30,

2011

2010

%

Change

2011

2010

%

Change

Net Sales

$1,064.1

$968.2

9.9%

n/a

n/a

n/a

Gross Profit (Net Sales less

Cost of Products Sold)

$413.4

$369.2

12.0%

$433.4

$416.8

4.0%

Income from Operations

$190.5

$116.3

63.8%

$212.0

$213.1

(0.5)%

Diluted EPS

$0.85

$0.49

73.5%

$0.94

$0.86

9.3%

Statistics (as a % of Net Sales)

Gross Profit (Net Sales less

Cost of Products Sold)

38.8%

38.1%

40.7%

43.0%

Income from Operations

17.9%

12.0%

19.9%

22.0%

Diluted earnings per share -- adjusted*

                                                                    $3.90 - $4.00

Charges related to Project Fuel initiatives

($0.04)

Charges related to facilities optimization initiatives

($0.01)

Charges related to certain Latin America

distributor operations

($0.03)

Tax benefit from the first-quarter 2011 settlement

of a U.S. income tax audit

$0.12

Estimated $81 million for the amortization and impairment

of intangible assets related to certain acquisitions

($0.33)

Diluted earnings per share -- GAAP

$3.61 - $3.71

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 June 30,

% Change

2011

2010

Net sales

$           1,064.1

$               968.2

9.9%

Cost of products sold

      650.7

   599.0

8.6%

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

          1.5

       2.6

(42.3)%

Research and development

        65.8

     80.4

(18.2)%

Selling, general and administrative

      155.6

   169.9

(8.4)%

   Total operating costs and expenses

      873.6

   851.9

2.5%

         Income From Operations

      190.5

   116.3

63.8%

Interest expense

        23.9

     24.2

(1.2)%

Other income, net

        (2.0)

     (0.3)

566.7%

         Income Before Income Taxes

      168.6

     92.4

82.5%

Income tax expense

        36.7

       9.4

290.4%

Equity income from affiliates, net

      (11.7)

     (0.5)

nm   

         Net Income

$              143.6

$                83.5

72.0%

Earnings Per Common Share:

   Basic

$                0.86

$                0.50

72.0%

   Diluted

$                0.85

$                0.49

73.5%

Weighted Average Common Shares Outstanding:

   Basic

      166.1

   165.8

0.2%

   Diluted

      169.0

   169.1

(0.1)%

Adjusted Gross Profit (1)(2)

$              433.4

$             416.8

4.0%

Adjusted Income From Operations (1)

$              212.0

$             213.1

(0.5)%

Adjusted Net Income (1)

$              158.1

$             144.7

9.3%

Adjusted Diluted Earnings Per Share (1)

$                0.94

$               0.86

9.3%

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

GAAP Three Months Ended June 30,

Adjusted (1) Three Months Ended June 30,

2011

2010

2011

2010

Gross Profit (2)

        38.8%

38.1%

40.7%

                 43.0%

Income From Operations

17.9%

12.0%

19.9%

22.0%

Net Income

13.5%

8.6%

14.9%

14.9%

Income Tax Rate

21.8%

10.2%

23.0%

23.8%

(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.

Condensed Consolidated Statements of Income

(Unaudited)

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

Six Months Ended June 30,

% Change

2011

2010

Net sales

$             2,066.4

$            1,975.8

4.6%

Cost of products sold

   1,253.9

   1,176.3

6.6%

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

        14.7

        (5.0)

(394.0)%

Research and development

      122.7

      132.1

(7.1)%

Selling, general and administrative

      320.8

      348.5

(7.9)%

   Total operating costs and expenses

   1,712.1

   1,651.9

3.6%

         Income From Operations

      354.3

      323.9

9.4%

Interest expense

        47.3

        47.6

        (0.6)%

Other income, net

        (4.2)

        (1.5)

180.0%

         Income Before Income Taxes

      311.2

      277.8

12.0%

Income tax expense

        46.6

        53.6

(13.1)%

Equity income from affiliates, net

      (28.9)

        (1.0)

nm    

         Net Income

$                293.5

$              225.2

30.3%

Earnings Per Common Share:

   Basic

$                  1.76

$                1.36

29.4%

   Diluted

$                  1.73

$                1.34

29.1%

Weighted Average Common Shares Outstanding:

   Basic

      166.5

      165.0

0.9%

   Diluted

      169.6

      168.5

0.7%

Adjusted Gross Profit (1)(2)

$               857.7

$              871.5

(1.6)%

Adjusted Income From Operations (1)

$               415.4

$              453.0

(8.3)%

Adjusted Net Income (1)

$               315.6

$              304.1

3.8%

Adjusted Diluted Earnings Per Share (1)

$                 1.86

$                1.80

3.3%

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

GAAP Six Months Ended June 30,

Adjusted (1) Six Months Ended June 30,

2011

2010

2011

2010

Gross Profit (2)

            39.3%

40.5%

41.5%

                  44.1%

Income From Operations

17.1%

16.4%

20.1%

22.9%

Net Income

14.2%

11.4%

15.3%

15.4%

Income Tax Rate

15.0%

19.3%

23.0%

25.6%

(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 June 30, 2011 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1)

Income From

Operations

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                                              

$          413.4

$         190.5

$         143.6

$       0.85

Specified item:

  Amortization and impairment of certain intangible assets (A)

20.0

21.5

14.5

0.09

Adjusted financial measures (3)

$          433.4

$         212.0

$         158.1

$       0.94

GAAP results for the three months ended June 30, 2011 include:

(A)

Amortization and impairment of certain intangible assets: $20.0 million reported in Cost of products sold and $1.5 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”).

Three months ended June 30, 2010 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1)

Income From

Operations

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                                              

$          369.2

$         116.3

$           83.5

$       0.49

Specified items:

  Project Fuel and related charges (A)

4.0

11.1

7.4

0.05

  Facilities Optimization charges (B)

2.1

2.5

1.8

0.01

  Amortization of certain intangible assets (C)

15.7

15.7

9.6

0.06

  Certain quality and product related charges (D)

25.8

25.8

16.6

0.10

  Acquisition and integration-related charges (E)

-

0.2

0.1

-

  Litigation settlement and related charges (F)

-

14.0

8.5

0.05

  Research and development charge (G)

-

27.5

17.2

0.10

Adjusted financial measures (3)

$          416.8

$         213.1

$         144.7

$       0.86

GAAP results for the three months ended June 30, 2010 include:

(A)

Project Fuel and related charges: $4.0 million reported in Cost of products sold, $2.2 million reported in Restructuring, impairment and (gain) on disposition of assets, net, $0.1 million reported in Research and development and $4.8 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: $2.1 million reported in Cost of products sold and $0.4 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)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs and penalties for failure to supply certain product to customers. These charges are directly associated with Hospira's response to the United States Food and Drug Administration ("FDA") Warning Letter received in April 2010.

(E)

Acquisition and integration-related charges: $1.2 million reported in Research and development and $(1.0) million reported in Selling, general and administrative. These charges include acquisition and integration costs resulting from acquisitions including Javelin Pharma and a generic injectable business by Hospira India.

(F)

Retractable Technologies, Inc. (“RTI”) litigation settlement and related charges reported in Selling, general and administrative.

(G)

Research and development charge resulting from an initial payment related to an agreement with DURECT and corresponding milestone reached for development of a long-acting local anesthetic product that has not yet achieved regulatory approval.

(1)

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

(2)

Adjusted Net Income is shown net of tax of $7.0 million and $35.7 million for the three months ended June 30, 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 July 27, 2011 for additional information.

Hospira, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

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

Six months ended June 30, 2011 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1)

Income From

Operations

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                                              

$          812.5

$         354.3

$         293.5

$       1.73

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)

39.4

42.6

29.0

0.17

  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)

$          857.7

$         415.4

$         315.6

$       1.86

GAAP results for the six months ended June 30, 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 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: $39.4 million reported in Cost of products sold and $3.2 million reported in Restructuring, impairment and (gain) on disposition of assets, net resulting from acquisitions including Mayne Pharma, Javelin Pharma and a generic injectable business by 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.

Six months ended June 30, 2010 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1)

Income From

Operations

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                                              

$          799.5

$         323.9

$         225.2

$       1.34

Specified items:

  Project Fuel and related charges (A)

7.7

9.7

2.8

0.02

  Facilities Optimization charges (B)

4.1

5.5

3.9

0.02

  Amortization of certain intangible assets (C)

34.4

34.4

22.2

0.13

  Certain quality and product related charges (D)

25.8

25.8

16.6

0.10

  Acquisition and integration-related charges (E)

-

12.2

7.7

0.04

  Litigation settlement and related charges (F)

-

14.0

8.5

0.05

  Research and development charge (G)

-

27.5

17.2

0.10

Adjusted financial measures (3)

$          871.5

$         453.0

$         304.1

$       1.80

GAAP results for the six months ended June 30, 2010 include:

(A)

Project Fuel and related charges: $7.7 million reported in Cost of products sold, $5.0 million reported in Restructuring, impairment and (gain) on disposition of assets, net, $0.3 million reported in Research and development and $8.1 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: $4.1 million reported in Cost of products sold and $1.4 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 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)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs and penalties for failure to supply certain product to customers. These charges are directly associated with Hospira's response to the FDA Warning Letter received in April 2010.

(E)

Acquisition and integration-related charges: $2.2 million reported in Research and development and $10.0 million reported in Selling, general and administrative. These charges include acquisition and integration costs resulting from acquisitions including Javelin Pharma and a generic injectable business by Hospira India.

(F)

RTI litigation settlement and related charges reported in Selling, general and administrative.

(G)

Research and development charge resulting from an initial payment related to an agreement with DURECT and corresponding milestone reached for development of a long-acting local anesthetic product that has not yet achieved regulatory approval.

(1)

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

(2)

Adjusted Net Income is shown net of tax of $19.3 million and $50.5 million exclusive of the 2011 tax audit settlement for the six months ended June 30, 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 July 27, 2011 for additional information.

Hospira, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(dollars in millions)

June 30,

December 31,

2011

2010

Assets

Current Assets:

Cash and cash equivalents

$           601.4

$          604.3

Trade receivables, less allowances of $10.8 in 2011 and $8.2 in 2010

593.8

605.0

Inventories

1,141.6

955.5

Deferred income taxes

149.0

165.2

Prepaid expenses

57.1

43.6

Other receivables

60.3

103.9

       Total Current Assets

2,603.2

2,477.5

Property and equipment, net

1,346.0

1,279.2

Intangible assets, net

448.8

480.3

Goodwill

1,531.7

1,500.8

Deferred income taxes

216.5

178.8

Investments

91.1

64.7

Other assets

74.4

65.0

       Total Assets

$        6,311.7

$       6,046.3

Liabilities and Shareholders' Equity

Current Liabilities:

Short-term borrowings

$             43.1

$            33.5

Trade accounts payable

280.3

320.7

Salaries, wages and commissions

128.1

136.0

Other accrued liabilities

476.6

441.4

       Total Current Liabilities

928.1

931.6

Long-term debt

1,716.4

1,714.4

Deferred income taxes

4.5

4.4

Post-retirement obligations and other long-term liabilities

189.0

212.4

Commitments and Contingencies

Total Shareholders' Equity

3,473.7

3,183.5

Total Liabilities and Shareholders' Equity

$        6,311.7

$       6,046.3

Hospira, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in millions)

Six Months Ended June 30,

2011

2010

Cash Flow From Operating Activities:

 Net income

$         293.5

$          225.2

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

   Depreciation

81.7

79.9

   Amortization of intangible assets

45.1

40.2

   Stock-based compensation expense

23.0

27.8

   Undistributed equity income from affiliates

(28.9)

(1.0)

   Deferred income taxes and other tax adjustments

(24.6)

12.1

   Impairment and other asset charges (benefits)

8.3

(5.9)

   Gain on disposition of assets

-

(11.4)

 Changes in assets and liabilities-

   Trade receivables

29.1

(126.7)

   Inventories

(173.6)

(41.9)

   Prepaid expenses and other assets

(2.7)

(12.6)

   Trade accounts payable

(44.9)

34.0

   Other liabilities

43.9

(94.7)

 Other, net

3.1

18.8

     Net Cash Provided by Operating Activities

253.0

143.8

Cash Flow From Investing Activities:

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

(138.6)

(79.4)

 Acquisitions, net of cash acquired

-

(397.7)

 Purchases of intangibles and other investments

(4.2)

(11.2)

 Proceeds from disposition of businesses and assets

13.3

62.6

   Net Cash Used in Investing Activities

(129.5)

(425.7)

Cash Flow From Financing Activities:

 Other borrowings, net

6.7

(3.5)

 Common stock repurchased

(200.0)

-

 Excess tax benefit from stock-based compensation arrangements

6.8

16.3

 Proceeds from stock options exercised

44.0

112.4

   Net Cash (Used in) Provided by Financing Activities

(142.5)

125.2

Effect of exchange rate changes on cash and cash equivalents

16.1

(6.0)

Net change in cash and cash equivalents

(2.9)

(162.7)

Cash and cash equivalents at beginning of period

604.3

946.0

Cash and cash equivalents at end of period

$         601.4

$          783.3

Supplemental Cash Flow Information:

Cash paid during the period-

  Interest

$           50.8

$            50.3

  Income taxes, net of refunds

$           31.2

$            70.9

Hospira, Inc.

Net Sales by Product Line

(Unaudited)

(dollars in millions)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

% Change at

Actual Currency

Rates

% Change at

Constant Currency

Rates (1)

2011

2010

% Change at

Actual Currency

Rates

% Change at

Constant Currency

Rates (1)

Americas--

  Specialty Injectable Pharmaceuticals

$    528.7

$ 453.0

16.7%

15.9%

$ 1,040.0

$    936.9

11.0%

10.4%

  Medication Management

200.5

205.2

(2.3)%

(4.4)%

396.5

411.7

(3.7)%

(5.2)%

  Other Pharma

113.9

122.9

(7.3)%

(5.7)%

215.5

248.3

(13.2)%

(12.4)%

Total Americas

843.1

781.1

7.9%

7.2%

1,652.0

1,596.9

3.5%

2.8%

Europe, Middle East & Africa--

  Specialty Injectable Pharmaceuticals

76.1

67.3

13.1%

(0.4)%

144.6

137.2

5.4%

(1.5)%

  Medication Management

33.9

28.6

18.5%

4.5%

67.7

62.6

8.1%

2.1%

  Other Pharma

24.6

24.9

(1.2)%

(8.4)%

42.3

43.5

(2.8)%

(7.4)%

Total Europe, Middle East & Africa

134.6

120.8

11.4%

(0.9)%

254.6

243.3

4.6%

(1.6)%

Asia Pacific--

  Specialty Injectable Pharmaceuticals

70.4

54.1

30.1%

12.0%

129.2

111.7

15.7%

3.0%

  Medication Management

12.1

10.4

16.3%

2.9%

22.5

20.0

12.5%

1.5%

  Other Pharma

3.9

1.8

116.7%

116.7%

8.1

3.9

107.7%

97.4%

Total Asia Pacific

86.4

66.3

30.3%

13.4%

159.8

135.6

17.8%

5.5%

Net Sales

$ 1,064.1

$ 968.2

9.9%

6.6%

$ 2,066.4

$ 1,975.8

4.6%

2.4%

Global--

  Specialty Injectable Pharmaceuticals

$    675.2

$ 574.4

17.5%

13.6%

$ 1,313.8

$ 1,185.8

10.8%

8.3%

  Medication Management

246.5

244.2

0.9%

(3.0)%

486.7

494.3

(1.5)%

(4.0)%

  Other Pharma

142.4

149.6

(4.8)%

(4.7)%

265.9

295.7

(10.1)%

(10.2)%

Net Sales                                                          

$ 1,064.1

$ 968.2

9.9%

6.6%

$ 2,066.4

$ 1,975.8

4.6%

2.4%

(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.