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HOSPIRA, INC. (HSP)

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HOSPIRA I : Hospira Reports Second-Quarter 2011 Results

07/27/2011 | 07:35am US/Eastern
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LAKE FOREST, Ill., July 27, 2011 /PRNewswire/ -- Hospira, Inc. (NYSE: HSP), a leading global specialty pharmaceutical and medication delivery company, today reported results for the second quarter ended June 30, 2011. Net sales for the quarter were $1.1 billion, and adjusted* diluted earnings per share were $0.94. (Adjusted* measures exclude certain specified items as described later in this press release and the attached schedules.)

"Hospira delivered strong second-quarter performance, driven primarily by positive results for the oncolytic docetaxel in the United States," said F. Michael Ball, chief executive officer. "We continued to advance the business and make progress on our quality and product supply improvement initiatives. In part due to the quarter's results, we are increasing our sales projections for the year, and remain focused on driving value for our customers, patients and shareholders."

Second-Quarter 2011 Results

The following table highlights selected financial results for the second quarter of 2011 compared to the same period in 2010:



    In $
     millions,           GAAP                          Adjusted*
    except
     per
     share               ----                          ---------
                      Three Months                    Three Months
    amounts              Ended                           Ended
                     -------------                   -------------
                       June 30,                        June 30,
                       --------                        --------
                     2011      2010%               2011      2010%
                     ----      ----                ----      ----
                                      Change                        Change
                                      ------                        ------
    Net
     Sales       $1,064.1    $968.2       9.9%      n/a       n/a       n/a
    ------       --------    ------       ---       ---       ---       ---
    Gross
     Profit
     (Net
     Sales
     less          $413.4    $369.2      12.0%   $433.4    $416.8       4.0%
    -------        ------    ------      ----    ------    ------       ---
    Cost of Products
     Sold)
    ----------------
    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            38.8%     38.1%                40.7%     43.0%
    -------          ----      ----                ----      ----
    Cost of Products
     Sold)
    ----------------
    Income
     from
     Operations      17.9%     12.0%               19.9%     22.0%
    -----------      ----      ----                ----      ----

Results under U.S. Generally Accepted Accounting Principles (GAAP) include items as detailed in the schedules attached to this press release.

Net sales increased 9.9 percent to $1.1 billion in the second quarter of 2011, compared to $968 million in the second quarter of 2010. Driving the quarter's performance was strong sales in Specialty Injectable Pharmaceuticals, primarily driven by U.S. sales of the oncolytic docetaxel, as well as by contribution from several other newer compounds.

Adjusted* income from operations decreased 0.5 percent to $212 million in the second quarter of 2011, compared to $213 million in the second quarter of 2010. The decrease is primarily due to a difficult year-over-year comparison driven by strong margin contribution from U.S. sales of oncolytic oxaliplatin in the second quarter of 2010, as well as the 2011 impact of the joint-venture arrangement related to the production of docetaxel, which tempered the margin contribution of U.S. docetaxel sales.

The effective tax rate on an adjusted basis* in the quarter was 23.0 percent, a slight decrease from the second-quarter 2010 rate of 23.8 percent.

Cash Flow

Cash flow from operations for the first six months of 2011 was $253 million, compared to the $144 million generated for the same period in 2010. The increase primarily reflects the timing of rebate and chargeback payments, partially offset by higher inventory levels.

Capital expenditures were $139 million for the first six months of 2011, compared to $79 million for the first six months of 2010. The increase is related to the company's capacity expansion and information technology (IT) initiatives.

During the second quarter, Hospira entered into accelerated share repurchase (ASR) agreements under its $1 billion share repurchase authorization. Under the agreements, which the company completed in July 2011, the company repurchased 3.7 million shares of common stock for a total of $200 million.

2011 Projections

Hospira is now projecting full-year net sales growth of approximately 7 to 9 percent on a constant-currency basis, with foreign exchange now expected to contribute an additional 2 percent.

The company anticipates that the projected higher sales growth will be offset by lower than originally anticipated gross margin performance. As a result, Hospira is maintaining its adjusted* diluted earnings per share projection for full-year 2011, which is expected to range between $3.90 and $4.00 per share, representing year-over-year growth of 18 to 21 percent.

The reconciliation between the projected 2011 adjusted* diluted earnings per share and GAAP diluted earnings per share follows:


    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
                                       =============

The adjusting items are shown net of tax in aggregate of $32 million, which is calculated for the specified adjustments stated above, based on the statutory tax rate in the various tax jurisdictions in which the items are expected to occur.

The company is maintaining its guidance for cash flow from operations, depreciation and amortization and capital expenditures. Cash flow from operations is projected to range between $650 million and $700 million. Depreciation and amortization is projected to range between $230 million to $250 million, and capital expenditures are projected to range between $375 million and $400 million.

*Use of Non-GAAP Financial Measures

Adjusted measures used in this press release are reconciled to the most comparable measures calculated in accordance with GAAP in the schedules attached to this release. For more information regarding these non-GAAP financial measures, please see Hospira's Current Report on Form 8-K furnished to the Securities and Exchange Commission on the date of this press release.

Webcast / Complementary Material

Hospira will hold a conference call for investors and media at 8 a.m. Central time on Wednesday, July 27, 2011. A simultaneous webcast of the conference call will be available on Hospira's website at www.hospirainvestor.com. Listeners should log on approximately 10 minutes in advance to ensure proper setup for receiving the webcast. In addition, complementary information will be available on the presentations page of the Investor Relations website at the beginning of the conference call. A replay will be available on the website for 30 days following the call.

About Hospira

Hospira, Inc. is a global specialty pharmaceutical and medication delivery company dedicated to Advancing Wellness(TM). As the world leader in specialty generic injectable pharmaceuticals, Hospira offers one of the broadest portfolios of generic acute-care and oncology injectables, as well as integrated infusion therapy and medication management solutions. Through its products, Hospira helps improve the safety, cost and productivity of patient care. The company is headquartered in Lake Forest, Ill., and has approximately 14,000 employees. Learn more at www.hospira.com.


               Private Securities Litigation Reform Act of 1995 --
                 A Caution Concerning Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections of certain measures of Hospira's results of operations, projections of certain charges and expenses, cash flow and other statements regarding Hospira's goals and strategy. Hospira cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, regulatory, legal, technological and other factors that may affect Hospira's operations and may cause actual results to be materially different from expectations include the risks, uncertainties and factors discussed under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Hospira's latest Annual Report on Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission, which are incorporated by reference. Hospira undertakes no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments.


                             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,
                         -----------------------------
                        2011                    2010
                        ----                    ----
    Gross Profit (2)    38.8%                      38.1%
    Income From
     Operations         17.9%                      12.0%
    Net Income          13.5%                       8.6%
    Income Tax Rate     21.8%                      10.2%



                        Adjusted (1) Three Months Ended
                                      June 30,
                      -------------------------------
                        2011                       2010
                        ----                       ----
    Gross Profit (2)    40.7%                     43.0%
    Income From
     Operations         19.9%                     22.0%
    Net Income          14.9%                     14.9%
    Income Tax Rate     23.0%                     23.8%


             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
    (1)      contained in this press release.
             Gross profit is defined as Net sales less Cost of products sold.
             Adjusted gross profit excludes certain specified items, as
    (2)      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,
                               ------------------------------
                                    2011                   2010
                                    ----                   ----
    Gross Profit (2)                39.3%                  40.5%
    Income From
     Operations                     17.1%                  16.4%
    Net Income                      14.2%                  11.4%
    Income Tax Rate                 15.0%                  19.3%



                               Adjusted (1) Six Months Ended
                                          June 30,
                               -----------------------------
                                   2011                  2010
                                   ----                  ----
    Gross Profit (2)               41.5%                 44.1%
    Income From
     Operations                    20.1%                 22.9%
    Net Income                     15.3%                 15.4%
    Income Tax Rate                23.0%                 25.6%


            Adjusted financial measures exclude certain specified items
            as described and reconciled to comparable GAAP financial
            measures in the Reconciliation of GAAP to Non-GAAP
    (1)     Financial Measures contained in this press release.
            Gross profit is defined as Net sales less Cost of products
            sold. Adjusted gross profit excludes certain specified
    (2)     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      Income    Net Income       Diluted
                        Profit (1)     From          (2)            EPS
                       -----------   -------   -----------      --------
                                   Operations
                                   ----------

    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      Income   Net Income       Diluted
                         Profit (1)     From         (2)            EPS
                        -----------   -------  -----------      --------
                                    Operations
                                    ----------
    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:

               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
      (A)      asset charges.

               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
      (B)      production and R&D operations.

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

               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
      (D)      2010.

               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
      (E)      business by Hospira India.

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

               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
      (G)      has not yet achieved regulatory approval.

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

               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
    (2)        occurred.

               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
    (3)        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      Income    Net Income       Diluted
                       Profit (1)     From          (2)            EPS
                      -----------   -------   -----------      --------
                                  Operations
                                  ----------
    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:
               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
      (A)      other asset charges.

               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
      (B)      operations.

               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
      (C)      a generic injectable business by Hospira India.

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

               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
      (E)      settlement of U.S. tax return audits.


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

                           Gross     Income     Net Income       Diluted
                        Profit (1)    From           (2)            EPS
                       -----------  -------    -----------      --------
                                   Operations
                                   ----------
    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:
               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,
      (A)      Germany, facility.

               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
      (B)      operations.

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

               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
      (D)      Warning Letter received in April 2010.

               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
      (E)      generic injectable business by Hospira India.

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

               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
      (G)      regulatory approval.

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

               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
    (2)        jurisdictions in which the adjustments occurred.

               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
    (3)        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,
                                  ---------------------------
                                 2011   2010    % Change at   % Change at
                                 ----   ----    -----------   -----------
                                                                Constant
                                             Actual Currency    Currency
                                             ---------------   ---------
                                                   Rates       Rates (1)
                                                   -----       ---------
    Americas--
       Specialty Injectable
        Pharmaceuticals        $528.7 $453.0             16.7%         15.9%
       Medication Management    200.5  205.2            (2.3)%        (4.4)%
       Other Pharma             113.9  122.9            (7.3)%        (5.7)%
                                -----  -----
    Total Americas              843.1  781.1              7.9%          7.2%

    Europe, Middle East &
     Africa--
       Specialty Injectable
        Pharmaceuticals          76.1   67.3             13.1%        (0.4)%
       Medication Management     33.9   28.6             18.5%          4.5%
       Other Pharma              24.6   24.9            (1.2)%        (8.4)%
                                 ----   ----
    Total Europe, Middle
     East & Africa              134.6  120.8             11.4%        (0.9)%

    Asia Pacific--
       Specialty Injectable
        Pharmaceuticals          70.4   54.1             30.1%         12.0%
       Medication Management     12.1   10.4             16.3%          2.9%
       Other Pharma               3.9    1.8            116.7%        116.7%
                                  ---    ---
    Total Asia Pacific           86.4   66.3             30.3%         13.4%

    Net Sales                $1,064.1 $968.2              9.9%          6.6%
                             ======== ======

    Global--
       Specialty Injectable
        Pharmaceuticals        $675.2 $574.4             17.5%         13.6%
       Medication Management    246.5  244.2              0.9%        (3.0)%
       Other Pharma             142.4  149.6            (4.8)%        (4.7)%




    Net Sales                $1,064.1 $968.2              9.9%          6.6%
                             ======== ======




                                 Six Months Ended June 30,
                                 -------------------------
                            2011     2010   % Change at    % Change at
                            ----     ----   -----------    -----------
                                                             Constant
                                          Actual Currency    Currency
                                          ---------------   ---------
                                               Rates        Rates (1)
                                               -----        ---------
    Americas--
       Specialty
        Injectable
        Pharmaceuticals $1,040.0   $936.9             11.0%         10.4%
       Medication
        Management         396.5    411.7            (3.7)%        (5.2)%
       Other Pharma        215.5    248.3           (13.2)%       (12.4)%
                           -----    -----
    Total Americas       1,652.0  1,596.9              3.5%          2.8%

    Europe, Middle East
     & Africa--
       Specialty
        Injectable
        Pharmaceuticals    144.6    137.2              5.4%        (1.5)%
       Medication
        Management          67.7     62.6              8.1%          2.1%
       Other Pharma         42.3     43.5            (2.8)%        (7.4)%
                            ----     ----
    Total Europe,
     Middle East &
     Africa                254.6    243.3              4.6%        (1.6)%

    Asia Pacific--
       Specialty
        Injectable
        Pharmaceuticals    129.2    111.7             15.7%          3.0%
       Medication
        Management          22.5     20.0             12.5%          1.5%
       Other Pharma          8.1      3.9            107.7%         97.4%
                             ---      ---
    Total Asia Pacific     159.8    135.6             17.8%          5.5%

    Net Sales           $2,066.4 $1,975.8              4.6%          2.4%
                        ======== ========

    Global--
       Specialty
        Injectable
        Pharmaceuticals $1,313.8 $1,185.8             10.8%          8.3%
       Medication
        Management         486.7    494.3            (1.5)%        (4.0)%
       Other Pharma        265.9    295.7           (10.1)%       (10.2)%




    Net Sales           $2,066.4 $1,975.8              4.6%          2.4%
                        ======== ========




               The Non-GAAP financial measures contained in this press
               release include comparisons at constant currency rates
               (reflecting comparative local currency balances at
    (1)        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.

SOURCE Hospira, Inc.

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