Hospira Reports Third-Quarter 2012 Results

In $ millions,

except per share

amounts

GAAP

Three Months Ended

September 30,

Adjusted*

Three Months Ended

September 30,

2012

2011

%

Change

2012

2011

%

Change

Net Sales

$994.0

$976.7

1.8%

n/a

n/a

n/a

Gross Profit (Net Sales less

Cost of Products Sold)

$214.3

$303.9

(29.5)%

$334.0

$361.3

(7.6)%

(Loss) Income from

Operations

$(16.5)

$(85.2)

80.6%

$112.6

$142.4

(20.9)%

Diluted Earnings (Loss) per

Share

$0.01

$(0.54)

101.9%

$0.47

$0.66

(28.8)%

Statistics (as a % of Net Sales)

Gross Profit (Net Sales less

Cost of Products Sold)

21.6%

31.1%

33.6%

37.0%

(Loss) Income from

Operations

(1.7)%

(8.7)%

11.3%

14.6%

Projected diluted earnings per share -- adjusted*

$2.00

Estimated amortization of intangible assets

related to certain acquisitions (mid-point of an

estimated range of $0.30 to $0.32 per diluted share)

$(0.31)

Estimated charges for certain quality and

product-related matters (mid-point of an

estimated range of $0.78 to $0.88 per diluted share)

                                                                               $(0.83)

Estimated charges related to capacity expansion

(mid-point of an estimated range of $0.07 to $0.09

per diluted share)

$(0.08)

Estimated charges related to facilities optimization

(mid-point of an estimated range of $0.08 to $0.10

per diluted share)

$(0.09)

Estimated charges for other restructuring

$(0.07)

Charges related to impairment of certain assets

$(0.09)

Projected diluted earnings per share -- GAAP

$0.53

Private Securities Litigation Reform Act of 1995 --

A Caution Concerning Forward-Looking Statements

Hospira, Inc.

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

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

Three Months Ended September 30,

% Change

2012

2011

Net sales

$                  994.0

$                   976.7

1.8%

Cost of products sold

779.7

672.8

15.9%

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

9.4

170.2

(94.5)%

Research and development

66.2

69.3

(4.5)%

Selling, general and administrative

155.2

149.6

3.7%

   Total operating costs and expenses

1,010.5

1,061.9

(4.8)%

       Loss From Operations

(16.5)

(85.2)

80.6%

Interest expense

21.1

23.4

(9.8)%

Other expense (income), net

2.8

(1.8)

255.6%

       Loss Before Income Taxes

(40.4)

(106.8)

62.2%

Income tax benefit

(34.7)

(8.6)

(303.5)%

Equity income from affiliates, net

(6.9)

(9.3)

(25.8)%

       Net Income (Loss)

$                      1.2

$                   (88.9)

101.3%

Earnings (Loss) Per Common Share:

   Basic

$                    0.01

$                   (0.54)

101.9%

   Diluted

$                    0.01

$                   (0.54)

101.9%

Weighted Average Common Shares Outstanding:

   Basic

165.1

164.5

0.4%

   Diluted

165.9

164.5

0.9%

Adjusted Gross Profit (1)(2)

$                  334.0

$                   361.3

(7.6)%

Adjusted Income From Operations (1)

$                  112.6

$                   142.4

(20.9)%

Adjusted Net Income (1)

$                    78.4

$                   109.7

(28.5)%

Adjusted Diluted Earnings Per Share (1)

$                    0.47

$                     0.66

(28.8)%

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

GAAP Three Months Ended September 30,

Adjusted (1) Three Months Ended September 30,

2012

2011

2012

2011

Gross Profit (2)

21.6%

31.1%

33.6%

                      37.0%

(Loss) Income From Operations

(1.7)%

(8.7)%

11.3%

14.6%

Net Income (Loss)

0.1%

(9.1)%

7.9%

11.2%

Income Tax Rate

85.9%

8.1%

19.0%

16.9%

(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.

Hospira, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

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

Nine Months Ended September 30,

% Change

2012

2011

Net sales

$                  2,993.2

$                  3,043.1

(1.6)%

Cost of products sold

2,195.4

1,926.7

13.9%

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

41.6

184.9

(77.5)%

Research and development

218.9

192.0

14.0%

Selling, general and administrative

509.3

470.4

8.3%

   Total operating costs and expenses

2,965.2

2,774.0

6.9%

       Income From Operations

28.0

269.1

(89.6)%

Interest expense

64.3

70.7

(9.1)%

Other expense (income), net

12.8

(6.0)

313.3%

       (Loss) Income Before Income Taxes

(49.1)

204.4

(124.0)%

Income tax (benefit) expense

(61.0)

38.0

(260.5)%

Equity income from affiliates, net

(27.0)

(38.2)

(29.3)%

       Net Income

$                       38.9

$                     204.6

(81.0)%

Earnings Per Common Share:

   Basic

$                       0.24

$                       1.23

(80.5)%

   Diluted

$                       0.23

$                       1.21

(81.0)%

Weighted Average Common Shares Outstanding:

   Basic

165.0

165.8

(0.5)%

   Diluted

166.0

168.7

(1.6)%

Adjusted Gross Profit (1)(2)

$                  1,062.3

$                  1,219.0

(12.9)%

Adjusted Income From Operations (1)

$                     334.1

$                     557.8

(40.1)%

Adjusted Net Income (1)

$                     242.0

$                     425.3

(43.1)%

Adjusted Diluted Earnings Per Share (1)

$                       1.46

$                       2.52

(42.1)%

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

GAAP Nine Months Ended September 30,

Adjusted (1) Nine Months Ended September 30,

2012

2011

2012

2011

Gross Profit (2)

26.7%

36.7%

35.5%

                        40.1%

Income From Operations

0.9%

8.8%

11.2%

18.3%

Net Income

1.3%

6.7%

8.1%

14.0%

Income Tax Rate

124.2%

18.6%

19.0%

21.5%

(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.

Hospira, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(dollars in millions, except for per share amounts)

Three months ended September 30, 2012 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1) 

(Loss) Income

From Operations 

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                        

$                          214.3

$                           (16.5)

$                              1.2

$                            0.01

Specified items:

  Amortization of certain intangible assets (A)

18.3

18.3

12.4

0.07

  Impairment of certain assets (B)

-

11.3

8.2

0.05

  Certain quality and product related charges (C)

97.3

97.3

60.9

0.37

  Capacity expansion related charges (D)

4.1

4.1

2.4

0.01

  Other restructuring charges (E)

-

(1.9)

(6.7)

(0.04)

Adjusted financial measures (3)

$                          334.0

$                          112.6

$                            78.4

$                            0.47

GAAP results for the three months ended September 30, 2012 include:

(A)

Amortization of certain intangible assets reported in Cost of products sold 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").

(B)

Impairment of certain assets: $11.3 million reported in Restructuring, impairment, and (gain) on disposition of assets, net, related to impairments of certain intangible assets.

(C)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs, extended production downtime related costs, device product review and remediation costs to address identified issues, and costs for corrective actions. These charges are directly associated with Hospira's response to the United States Food and Drug Administration ("FDA") warning letters and charges related to certain device related remediation activities.

(D)

Capacity expansion related charges reported in Cost of products sold include start-up charges related to manufacturing capacity expansion in India.

(E)

Other Restructuring Charges: $(1.9) million reported in Restructuring, impairment, and (gain) on disposition of assets, net, for a gain on disposition of a non-strategic product line.

Three months ended September 30, 2011 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1) 

(Loss) Income

From Operations 

Net (Loss)

Income (2)

Diluted EPS

GAAP financial measures                                                                                                                         

$                          303.9

$                           (85.2)

$                           (88.9)

$                           (0.54)

Specified item:

  Amortization of certain intangible assets (A)

19.2

19.2

13.0

0.08

  Impairment of certain assets (B) 

-

15.2

10.4

0.06

  Certain quality and product related charges (C)

36.7

36.7

22.9

0.14

  Capacity expansion related charges (D)

1.5

1.5

1.0

0.01

  Goodwill impairment (E)

-

155.0

151.3

0.92

  Diluted shares impact

(0.01)

Adjusted financial measures (3)

$                          361.3

$                          142.4

$                          109.7

$                            0.66

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

(A)

Amortization of certain intangible assets: $19.2 million reported in Cost of products sold resulting from acquisitions including Mayne Pharma, Javelin Pharma and a generic injectable business by Hospira India.

(B)

Impairment of certain assets: $15.2 million reported in Restructuring, impairment and (gain) on disposition of assets, net, related to impairments of certain intangible assets.

(C)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs, extended production downtime related costs, device product review and remediation costs to address identified issues, and costs for corrective actions. These charges are directly associated with Hospira's response to the FDA warning letter and charges related to certain device related remediation activities.

(D)

Capacity expansion related charges reported in Cost of products sold include start-up charges related to manufacturing capacity expansion in India.

(E)

Goodwill impairment: $155.0 million reported in Restructuring, impairment and (gain) on disposition of assets, net related to Hospira's Europe, Middle East & Africa ("EMEA") reporting unit.

(1)

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

(2)

Adjusted Net income is shown net of tax of $51.6 million and $29.0 million for the three months ended September 30, 2012 and 2011, respectively, based on the statutory tax rates in the various tax jurisdictions in which the items 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 November 7, 2012 for additional information.

Hospira, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(dollars in millions, except for per share amounts)

Nine months ended September 30, 2012 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1) 

Income From

Operations 

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                             

$                          797.8

$                            28.0

$                            38.9

$                            0.23

Specified items:

  Facilities Optimization charges (A)

-

17.4

10.7

0.06

  Amortization of certain intangible assets (B)

54.8

54.8

37.8

0.23

  Impairment of certain assets (C)

-

14.0

15.3

0.09

  Certain quality and product related charges (D)

192.6

192.6

120.5

0.73

  Capacity expansion related charges (E)

11.3

11.3

7.6

0.05

  Other restructuring charges (F)

5.8

16.0

11.2

0.07

Adjusted financial measures (3)

$                       1,062.3

$                          334.1

$                          242.0

$                            1.46

GAAP results for the nine months ended September 30, 2012 include:

(A)

Facilities Optimization charges: $17.4 million reported in Restructuring, impairment, and (gain) disposition of assets, net. The equipment and facility impairment charges relate to Hospira's plans to exit a specialty injectable drug finishing operation.

(B)

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

(C)

Impairment of certain assets: $14.0 million reported in Restructuring, impairment, and (gain) on disposition of assets, net, and $8.4 million reported in Other expense (income), net. These charges relate to impairments of certain intangible assets and a cost method investment, respectively.

(D)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs, extended production downtime related costs, device product review and remediation costs to address identified issues, and costs for corrective actions. These charges are directly associated with Hospira's response to the FDA warning letters and charges related to certain device related remediation activities.

(E)

Capacity expansion related charges reported in Cost of products sold include start-up charges related to manufacturing capacity expansion in India.

(F)

Other Restructuring Charges: $5.8 million reported in Cost of products sold and $10.2 million reported in Restructuring, impairment, and (gain) on disposition of assets, net. These charges include inventory charges, equipment impairments, contract termination charges and gain on disposition associated with Hospira's exit of non-strategic product lines.

Nine months ended September 30, 2011 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1) 

Income From

Operations 

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                                                

$                       1,116.4

$                          269.1

$                          204.6

$                            1.21

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 of certain intangible assets (C)

58.6

58.6

40.9

0.24

  Impairment of certain assets (D)

-

18.4

11.5

0.07

  Certain quality and product related charges (E)

36.7

36.7

22.9

0.13

  Capacity expansion related charges (F)

1.5

1.5

1.0

0.01

  Other restructuring charges (G)

-

7.8

5.8

0.03

  Goodwill impairment (H)

-

155.0

151.3

0.90

  Settlement of IRS tax audit benefit (I)

-

-

(19.7)

(0.12)

Adjusted financial measures (3)

$                       1,219.0

$                          557.8

$                          425.3

$                            2.52

GAAP results for the nine months ended September 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 of certain intangible assets: $58.6 million reported in Cost of products sold resulting from acquisitions including Mayne Pharma, Javelin Pharma, and a generic injectible business by Hospira India.

(D)

Impairment of certain assets: $18.4 million reported in Restructuring, impairment and (gain) on disposition of assets, net, related to impairments of certain intangible assets.

(E)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs, extended production downtime related costs, device product review and remediation costs to address identified issues, and costs for corrective actions. These charges are directly associated with Hospira's response to the FDA warning letter and charges related to certain device related remediation activities.

(F)

Capacity expansion related charges reported in Cost of products sold include start-up charges related to manufacturing capacity expansion in India.

(G)

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.

(H)

Goodwill impairment: $155.0 million reported in Restructuring, impairment and (gain) on disposition of assets, net related to Hospira's EMEA reporting unit.

(I)

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.

(1)

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

(2)

Adjusted Net income is shown net of tax of $111.4 million and $48.3 million exclusive of the 2011 tax audit settlement for the nine months ended September 30, 2012 and 2011, respectively, based on the statutory tax rates in the various tax jurisdictions in which the items 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 November 7, 2012 for additional information.

Hospira, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(dollars in millions)

September 30,

December 31,

Assets

2012

2011

Current Assets:

Cash and cash equivalents

$               841.2

$               597.5

Trade receivables, less allowances of $14.1 in 2012 and $15.7 in 2011

585.1

639.9

Inventories

1,009.2

1,027.0

Deferred income taxes

163.8

174.4

Prepaid expenses

70.6

45.9

Other receivables

120.1

86.0

       Total Current Assets

2,790.0

2,570.7

Property and equipment, net

1,405.7

1,355.0

Intangible assets, net

288.5

355.8

Goodwill

1,083.8

1,082.9

Deferred income taxes

284.1

232.2

Investments

64.7

48.7

Other assets

157.4

133.8

       Total Assets

$            6,074.2

$            5,779.1

Liabilities and Shareholders' Equity

Current Liabilities:

Short-term borrowings

$                 87.0

$                 36.6

Trade accounts payable

267.7

241.3

Salaries, wages and commissions

130.0

113.0

Other accrued liabilities

519.5

456.9

       Total Current Liabilities

1,004.2

847.8

Long-term debt

1,708.8

1,711.9

Deferred income taxes

2.8

5.7

Post-retirement obligations and other long-term liabilities

327.4

275.7

Commitments and Contingencies

Total Shareholders' Equity

3,031.0

2,938.0

Total Liabilities and Shareholders' Equity

$            6,074.2

$            5,779.1

Hospira, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in millions)

Nine months ended September 30,

2012

2011

Cash Flow From Operating Activities:

 Net income

$                 38.9

$               204.6

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

   Depreciation

122.2

123.6

   Amortization of intangible assets

62.6

67.1

   Stock-based compensation expense

29.9

32.1

   Undistributed equity income from affiliates

(27.0)

(38.2)

   Distributions received from equity method affiliates

-

30.3

   Deferred income tax and other tax adjustments

(47.0)

(31.9)

   Impairment and other asset charges

58.3

181.4

   Gains on disposition of assets

(5.9)

-

 Changes in assets and liabilities-

   Trade receivables

55.4

(7.8)

   Inventories

9.5

(161.4)

   Prepaid expenses and other assets

(39.9)

(53.7)

   Trade accounts payable

31.1

(84.8)

   Other liabilities

114.5

4.6

 Other, net

1.8

11.1

     Net Cash Provided by Operating Activities

404.4

277.0

Cash Flow From Investing Activities:

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

(201.8)

(211.3)

 Other payments to acquire business

(15.0)

-

 Purchases of intangibles and other investments

(9.6)

(5.2)

 Proceeds from disposition of businesses and assets

9.6

13.3

   Net Cash Used in Investing Activities

(216.8)

(203.2)

Cash Flow From Financing Activities:

 Other borrowings, net

45.8

8.5

 Common stock repurchased

-

(200.0)

 Excess tax benefit from stock-based compensation arrangements

2.1

7.4

 Proceeds from stock options exercised

6.9

47.5

   Net Cash Provided by (Used in) Financing Activities

54.8

(136.6)

Effect of exchange rate changes on cash and cash equivalents

1.3

(14.1)

Net change in cash and cash equivalents

243.7

(76.9)

Cash and cash equivalents at beginning of period

597.5

604.3

Cash and cash equivalents at end of period

$               841.2

$               527.4

Supplemental Cash Flow Information:

Cash paid during the period-

  Interest

$                 65.8

$                 82.4

  Income taxes, net of refunds

$                   0.5

$                 34.0

Hospira, Inc.

Net Sales by Product Line

(Unaudited)

(dollars in millions)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

% Change at

Actual Currency

Rates

% Change at

Constant Currency

Rates (1)

2012

2011

% Change at

Actual Currency

Rates

% Change at

Constant Currency

Rates (1)

Americas--

  Specialty Injectable Pharmaceuticals

$                502.0

$                485.2

3.5%

4.4%

$                1,451.4

$               1,525.2

(4.8)%

(4.0)%

  Medication Management

197.6

199.9

(1.2)%

(0.3)%

624.2

596.4

4.7%

5.3%

  Other Pharma

89.5

82.8

8.1%

8.2%

294.1

298.3

(1.4)%

(1.1)%

Total Americas                                                                             

789.1

767.9

2.8%

3.6%

2,369.7

2,419.9

(2.1)%

(1.3)%

Europe, Middle East & Africa--

  Specialty Injectable Pharmaceuticals

76.6

75.2

1.9%

13.5%

235.1

219.8

7.0%

16.6%

  Medication Management

27.1

29.6

(8.4)%

2.7%

88.1

97.3

(9.5)%

(1.2)%

  Other Pharma

19.2

24.5

(21.6)%

(17.3)%

62.9

66.8

(5.8)%

(1.3)%

Total Europe, Middle East & Africa

122.9

129.3

(4.9)%

5.2%

386.1

383.9

0.6%

8.9%

Asia Pacific--

  Specialty Injectable Pharmaceuticals

64.6

66.4

(2.7)%

(0.9)%

187.3

195.6

(4.2)%

(2.5)%

  Medication Management

11.9

11.1

7.2%

8.2%

35.6

33.6

6.0%

6.4%

  Other Pharma

5.5

2.0

175.0%

177.0%

14.5

10.1

43.6%

43.6%

Total Asia Pacific

82.0

79.5

3.1%

4.9%

237.4

239.3

(0.8)%

0.7%

Net Sales

$                994.0

$                976.7

1.8%

3.9%

$                2,993.2

$               3,043.1

(1.6)%

0.1%

Global--

  Specialty Injectable Pharmaceuticals

$                643.2

$                626.8

2.6%

4.9%

$                1,873.8

$               1,940.6

(3.4)%

(1.5)%

  Medication Management

236.6

240.6

(1.7)%

0.5%

747.9

727.3

2.8%

4.5%

  Other Pharma

114.2

109.3

4.5%

5.6%

371.5

375.2

(1.0)%

0.1%

Net Sales

$                994.0

$                976.7

1.8%

3.9%

$                2,993.2

$               3,043.1

(1.6)%

0.1%