HSP

Hospira Reports First-Quarter 2005 Results -- Reaffirms Projections for 2005 Full Year -- LAKE FOREST, Ill., May 12 /PRNewswire-FirstCall/ -- Hospira, Inc. (NYSE:HSP), one of the largest hospital products manufacturers in the United States, today reported results for the first quarter ended March 31, 2005. First-Quarter 2005 Financial Summary -- Net sales were $662.1 million, 6.6 percent above the first quarter of 2004. -- Net income was $77.2 million, compared to $65.0 million in the same quarter of 2004. Diluted earnings per share were $0.49 versus $0.42 in the prior year's first quarter. -- Included in earnings are $0.05 per share for non-recurring transition expenses related to building the company's independent infrastructure, and $0.01 per share for an asset impairment charge related to the sale of the Salt Lake City critical care manufacturing facility and certain equipment and inventory to ICU Medical. "We are off to an excellent start to the year," said Christopher B. Begley, chief executive officer, Hospira. "Our performance is very much on track with our expectations for 2005, a year in which we not only expect to continue to set the stage for increased growth longer term, but also to make substantial progress on our transition activities." Significant Events for the First Quarter -- Signed a manufacturing, commercialization and development agreement for the Hospira critical care product line with ICU Medical and the related asset purchase agreement for the sale of the Salt Lake City manufacturing facility. Hospira will retain worldwide commercial responsibility -- including sales, marketing, customer contracting, customer service and distribution -- for its critical care product line. The transaction subsequently closed on May 1, 2005. -- Announced a development agreement with Bridge Medical to create a new, wireless point-of-care medication management solution linking the Hospira MedNet(TM) software with the Bridge MedPoint(TM) barcode- enabled point-of-care system. -- Agreed to terms with Berlex Laboratories regarding the "wind-down" of Hospira's contract to distribute Berlex's imaging agents. It is still anticipated that the relationship will end in the second quarter of 2005. Hospira anticipates sales in 2005 will be approximately $60 million to $65 million -- all recorded in the first half of the year. -- Finalized the transition schedule for the country-by-country purchase of the International assets from Abbott Laboratories, expected to be completed by the first half of 2006. Financial and Operating Review Results for the first quarter of 2005 reflect the company's status as an independent public company; the first quarter of 2004, which was prior to the spin-off, reflects results for the business operated as a part of Abbott. Certain results in this press release are discussed on both a generally accepted accounting principles (GAAP) and a non-GAAP (adjusted) basis. A description and reconciliation of the adjusted financial information to the most comparable GAAP measurement is provided in the section "Use of Non-GAAP Financial Measures" contained in this press release. Consolidated net sales in the first quarter of 2005 increased 6.6 percent to $662.1 million, compared to $621.2 million in the first quarter of 2004. The specialty injectable pharmaceuticals and contract manufacturing product lines reported particularly strong sales. (A schedule detailing sales by product line for the first quarters of 2005 and 2004 is attached to this press release.) In the first quarter of 2005, when compared to last year's same period, net sales primarily were favorably affected by: -- Volume and mix, representing 5.6 percentage points of the growth; -- Foreign currency translation, which contributed $4.1 million, or 0.7 percentage points, of the increase; and -- Favorable pricing on sales to third parties, representing 0.4 percentage points of the growth in consolidated net sales. Gross profit in the quarter was $217.8 million, an increase of 29.4 percent from $168.3 million in the same period last year. Gross margin in the first quarter of 2005 was 32.9 percent, compared to 27.1 percent in the prior year's first quarter. Adjusted* gross profit was $220.9 million in the first quarter of 2005, or 33.4 percent of sales. The adjusted* gross margin increase was primarily attributable to: -- Improved volume and product mix -- 1.9 percentage points, -- The changes in certain employee post-retirement benefit plans announced at the end of the second quarter of 2004 -- 1.8 percentage points, -- Manufacturing productivity -- 1.5 percentage points, and -- The inclusion of a profit on the sales to Abbott subsequent to the spin-off -- 1.4 percentage points. (Sales to Abbott were recorded at cost for the first quarter of 2004.) The increases were partially offset by additional depreciation of (0.8) percentage points resulting from the 2004 revision in the estimated useful life for certain drug delivery pumps placed with customers. Research and development (R&D) expense rose 16.1 percent in the quarter to $28.4 million, or 4.3 percent of sales, compared to $24.4 million, or 3.9 percent of sales, in the first quarter of 2004. The company continues to increase its investment in R&D as part of its stated strategy to drive higher sales growth. Selling, general and administrative (S,G&A) expense in the quarter was $81.9 million, compared to $57.5 million in the 2004 first quarter. As a percentage of sales, S,G&A was 12.4 percent in the first quarter of 2005, compared to 9.3 percent in 2004. Adjusted* S,G&A expense in the first quarter of 2005 was $72.0 million, or 10.9 percent of sales. As expected, the increase in the adjusted* S,G&A was driven by the ongoing, incremental costs associated with being an independent, public company that were not required when the business was part of Abbott. Income from operations in the quarter was $107.5 million, compared to $86.4 million in the first quarter of 2004. Adjusted* income from operations in the quarter was $120.7 million, an increase of 39.1 percent over the first quarter of 2004. The operating margin for the first quarter of 2005 was 16.2 percent, compared to 13.9 percent for the same period in 2004. The adjusted* operating margin for the first quarter of 2005 was 18.2 percent. The increase was attributable to the improvement in gross margin, partially offset by higher R&D and S,G&A spending. Interest expense in the first quarter of 2005 was $7.2 million, compared to no interest expense in the same period of 2004. The increase was primarily due to interest paid on the senior unsecured notes that were issued in June 2004. Net income in the quarter was $77.2 million, compared to $65.0 million in the first quarter of 2004. Adjusted* net income for the quarter increased 33.5 percent to $87.2 million, from $65.3 million in 2004. The tax rate for the first quarter of 2005 was 24.0 percent, the same as the tax rate in last year's first quarter. Results by Geographic Segment Net sales in the United States grew 5.7 percent in the first quarter of 2005 to $550.4 million, from $520.9 million in the same quarter of 2004. Income from operations in the first quarter of 2005 was $98.2 million, compared to $80.1 million last year. In the International segment, net sales were $111.7 million, an 11.4 percent increase from last year's $100.3 million, due to increased sales to Abbott and the benefit of foreign exchange. Excluding the $4.1 million benefit from foreign currency translation, net sales in the segment increased 7.3 percent, primarily due to an increase in the sales to Abbott. Income from operations in the first quarter of 2005 was $21.7 million, compared to $17.4 million in the same quarter of 2004. Cash Flow Items Cash flow from operations for the first quarter of 2005 was $90.4 million, compared to $72.3 million in last year's first quarter. The increase was primarily driven by higher net income. Depreciation and amortization expense was $40.6 million for the quarter, compared to $38.1 million for the same period in 2004. Capital expenditures were $50.1 million for the quarter, compared to $59.1 million for the first quarter of 2004. The decrease is due to the timing of spending. 2005 Projections Hospira continues to project that annual revenue for the fiscal year 2005 will be approximately $2.5 billion. The company also reaffirmed that diluted earnings per share are projected to be in the range of $1.21 to $1.28, including estimated non-recurring transition expenses described below and the charges related to the previously announced transaction with ICU Medical. Adjusted* diluted earnings per share for 2005, which exclude the non- recurring transition expenses and the charges related to the ICU Medical transaction, are projected to be in the range of $1.53 to $1.60. The reconciliation between the projected adjusted* diluted earnings per share and earnings per share on a GAAP basis is: Diluted earnings per share -- adjusted* $1.53 - $1.60 Non-recurring transition expenses related to becoming an independent, stand-alone company (mid-point of an estimated $0.21 to $0.25 per diluted share range for 2005) ($0.23) Charges for ICU Medical transaction (approximately $20 million on a pre-tax basis) ($0.09) Diluted earnings per share -- GAAP basis $1.21 - $1.28 The earnings per share projection on both a GAAP and adjusted basis do not include the effect of any future decision to repatriate foreign earnings under the Jobs Creation Act of 2004, or the expensing of stock options. The company expects to implement the accounting standard related to stock option expensing on Jan. 1, 2006. *Use of Non-GAAP Financial Measures In addition to the results reported in accordance with GAAP in the United States included within this press release, Hospira has provided certain information that is considered non-GAAP financial measures. As used in this press release, "adjusted" refers to operating performance measures that exclude the non-recurring transition expenses related to becoming an independent, stand-alone company and charges related to the ICU Medical transaction. The adjusted information is reconciled to its closest GAAP measure in accordance with Securities and Exchange Commission Rules and is included in the attached supplemental data. Management believes that these non-GAAP financial measures are useful to both management and its investors in their analysis of the company's ongoing business and operating performance. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by Hospira may not be comparable to similarly titled measures reported by other companies. In the first quarter of 2005, Hospira incurred non-recurring pre-tax transition expenses of $10.7 million ($8.2 million, or $0.05 per share, after tax) related to establishing an independent infrastructure. The company has previously stated that these non-recurring transitional expenses are expected to total approximately $100 million over the 24-month period ending April 30, 2006. A total of $43.1 million of these costs have been incurred through March 31, 2005. Webcast A conference call for investors and media will be held at 9 a.m. Central Time, Thursday, May 12, 2005. A live webcast of the conference call will be available at http://www.hospira.com/. Listeners should log on approximately 10 minutes in advance to ensure proper computer setup to receive the webcast. A replay will be available on the Hospira Web site for 30 days following the call. About Hospira Hospira, Inc. is a global specialty pharmaceutical and medication delivery company dedicated to Advancing Wellness(TM) by developing, manufacturing and marketing products that help improve the productivity, safety and efficacy of patient care. Created from the core global hospital products business of Abbott Laboratories in April 2004, Hospira is a new company with 70 years of service to the hospital industry. The company's portfolio includes one of the industry's broadest lines of generic acute-care injectables, which help address the high cost of proprietary pharmaceuticals in hospitals; integrated solutions for medication management and infusion therapy; and the leading U.S. injectable contract manufacturing business. Headquartered in Lake Forest, Ill., north of Chicago, Hospira has approximately 13,000 employees and 14 manufacturing facilities worldwide. Hospira's news releases and other information can be found at http://www.hospira.com/. Private Securities Litigation Reform Act of 1995 -- A Caution Concerning Forward-Looking Statements Some statements in this news release may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. 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, technological and other factors that may affect Hospira's operations and may cause actual results to be materially different from expectations include the risks and uncertainties set forth under the heading "Item 1 Business -- Risk Factors" in Hospira's Annual Report on Form 10-K for the year ended Dec. 31, 2004 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. Consolidated Statements of Income (Unaudited) (dollars and shares in thousands, except for per share amounts) Three Months Ended March 31 % Change 2005 2004 Net sales $616,695 $575,198 7.2 Net sales to Abbott Laboratories 45,366 46,020 (1.4) Total Net Sales 662,061 621,218 6.6 Cost of products sold 444,285 452,879 (1.9) Gross Profit 217,776 168,339 29.4 Research and development 28,391 24,446 16.1 Selling, general and administrative 81,875 57,510 42.4 Income From Operations 107,510 86,383 24.5 Interest expense 7,169 - nm Other (income) expense, net (1,205) 868 nm Income Before Income Taxes 101,546 85,515 18.7 Income tax expense 24,371 20,524 18.7 Net Income $77,175 $64,991 18.7 Earnings Per Common Share: Basic $0.49 $0.42 A 16.7 Diluted $0.49 $0.42 A 16.7 Weighted Average Common Shares Outstanding: Basic 157,191 156,043 A 0.7 Diluted 158,519 156,043 A 1.6 A -- All prior-year earnings per share amounts are based on shares outstanding at the date of the spin-off (April 30, 2004). Hospira, Inc. Reconciliation of Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Three Months Ended March 31, 2005 2004 GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $616,695 $616,695 $575,198 $575,198 Net sales to Abbott Laboratories 45,366 45,366 46,020 46,020 Total Net Sales 662,061 - 662,061 621,218 - 621,218 Cost of products sold 444,285 (3,141) A 441,144 452,879 (86) B 452,793 Gross Profit 217,776 3,141 220,917 168,339 86 168,425 Research and development 28,391 (108) B 28,283 24,446 (11) B 24,435 Selling, general and administrative 81,875 (9,919) B 71,956 57,510 (303) B 57,207 Income From Operations 107,510 13,168 120,678 86,383 400 86,783 Interest expense 7,169 7,169 - - Other (income) expense, net (1,205) - (1,205) 868 - 868 Income Before Income Taxes 101,546 13,168 114,714 85,515 400 85,915 Income tax expense 24,371 3,160 27,531 20,524 96 20,620 Net Income $77,175 $10,008 $87,183 $64,991 $304 $65,295 Earnings Per Common Share: Basic $0.49 $0.06 $0.55 $0.42 $- $0.42 C Diluted $0.49 $0.06 $0.55 $0.42 $- $0.42 C Weighted Average Common Shares Outstanding: Basic 157,191 157,191 157,191 156,043 156,043 156,043 C Diluted 158,519 158,519 158,519 156,043 156,043 156,043 C Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 32.9% 33.4% 27.1% 27.1% R&D 4.3% 4.3% 3.9% 3.9% SG&A 12.4% 10.9% 9.3% 9.2% Income From Operations 16.2% 18.2% 13.9% 14.0% Income Before Income Taxes 15.3% 17.3% 13.8% 13.8% Net Income 11.7% 13.2% 10.5% 10.5% Income tax rate 24.0% 24.0% 24.0% 24.0% % Change vs. Prior Year GAAP Adjusted Net sales 7.2 7.2 Net sales to Abbott Laboratories (1.4) (1.4) Total Net Sales 6.6 6.6 Cost of products sold (1.9) (2.6) Gross Profit 29.4 31.2 Research and development 16.1 15.7 Selling, general and administrative 42.4 25.8 Income From Operations 24.5 39.1 Interest expense nm nm Other (income) expense, net nm nm Income Before Income Taxes 18.7 33.5 Income tax expense 18.7 33.5 Net Income 18.7 33.5 Earnings Per Common Share: Basic 16.7 31.0 Diluted 16.7 31.0 Weighted Average Common Shares Outstanding: Basic 0.7 0.7 Diluted 1.6 1.6 A -- Includes an impairment charge of $2,429 related to the sale of the Salt Lake City manufacturing plant to ICU Medical, and non-recurring transition costs of $712. B -- Non-recurring transition costs. C -- All prior-year earnings per share amounts are based on shares outstanding at the date of the spin-off (April 30, 2004). Hospira, Inc. Consolidated Balance Sheets (Unaudited) (dollars in thousands) March 31 December 31 Assets 2005 2004 Current Assets: Cash and cash equivalents $256,786 $127,695 Marketable securities - 72,438 Net trade receivables 350,548 326,356 Inventory 523,438 518,324 Assets held for sale 20,694 - Prepaid expenses, deferred income taxes and other receivables 151,196 153,512 Total Current Assets 1,302,662 1,198,325 Net property and equipment 929,823 946,304 Intangible assets, net of amortization 242 1,057 Goodwill 80,973 80,973 Other assets 107,350 116,131 Total Assets $2,421,050 $2,342,790 Liabilities and Shareholders' Equity Current Liabilities: Trade accounts payable $104,943 $101,537 Salaries payable and other accruals 288,967 268,615 Due to Abbott, net 139,799 166,042 Total Current Liabilities 533,709 536,194 Due to Abbott, net 14,678 23,100 Long-term debt 693,562 698,841 Post-retirement obligations, deferred income taxes, and other long-term liabilities 105,894 100,736 Commitments and contingencies - - Total Liabilities 1,347,843 1,358,871 Total Shareholders' Equity 1,073,207 983,919 Total Liabilities and Shareholders' Equity $2,421,050 $2,342,790 Hospira, Inc. Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) Three Months Ended March 31 2005 2004 Cash Flow From (Used in) Operating Activities: Net income $77,175 $64,991 Adjustments to reconcile net income to net cash from operating activities-- Depreciation 39,770 37,035 Amortization of intangibles 815 1,091 Trade receivables (28,753) (24,072) Inventories (8,370) (22,906) Prepaid expenses and other assets 1,079 (1,403) Trade accounts payable and other liabilities 5,675 20,830 Other, net 3,013 (3,288) Net Cash From Operating Activities 90,404 72,278 Cash Flow From (Used in) Investing Activities: Acquisitions of property and equipment (50,065) (59,088) Sale of marketable securities 72,438 - Net Cash From (Used in) Investing Activities 22,373 (59,088) Cash Flow From (Used in) Financing Activities: Net transactions with Abbott Laboratories - (13,177) Issuance of long-term debt 1,750 - Proceeds from stock options exercised 15,338 - Net Cash From (Used in) Financing Activities 17,088 (13,177) Effect of exchange rate changes on cash and cash equivalents (774) (13) Net change in cash and cash equivalents 129,091 - Cash and cash equivalents at beginning of period 127,695 - Cash and cash equivalents at end of period $256,786 $- Hospira, Inc. Sales by Product Line (Unaudited) (dollars in millions) Three Months Ended March 31 Percent Change vs. 2005 2004 Prior Year* U.S. -- Specialty Injectable Pharmaceuticals $224 $205 9.6 Medication Delivery Systems 188 187 0.7 Injectable Pharmaceutical Contract Manufacturing 50 38 32.1 Sales to Abbott Laboratories 28 36 (22.6) Other 60 55 8.3 Total U.S. 550 521 5.7 International -- Sales to Third Parties 95 90 4.2 Sales to Abbott Laboratories 17 10 79.5 Total International Sales 112 100 11.4 Consolidated Net Sales $662 $621 6.6 * Percent change computed based on unrounded numbers. Hospira, Inc. Segment Information (Unaudited) (dollars in thousands) Three Months Ended March 31 Net Sales Income from Operations 2005 2004 % Change 2005 2004 % Change U.S. $550,390 $520,931 5.7 $98,152 $80,124 22.5 International 111,671 100,287 11.4 21,653 17,352 24.8 Total reportable segments $662,061 $621,218 6.6 119,805 97,476 22.9 Corporate functions (12,295) (11,093) 10.8 Income from operations 107,510 86,383 24.5 Other, net (5,964) (868) nm Income before income taxes $101,546 $85,515 18.7 http://www.newscom.com/cgi-bin/prnh/20040503/HSPLOGO http://photoarchive.ap.org/ DATASOURCE: Hospira, Inc. CONTACT: Media, Tareta Adams, +1-224-212-2535, or Financial Community, Lynn McHugh, +1-224-212-2363, both of Hospira, Inc. Web site: http://www.hospira.com/

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