HSP

-- Increases Sales and Earnings Projections for 2005 Full Year -- LAKE FOREST, Ill., Aug. 11 /PRNewswire-FirstCall/ -- Hospira, Inc. (NYSE:HSP), one of the largest hospital products manufacturers in the United States, today reported results for the second quarter ended June 30, 2005. Second-Quarter 2005 Financial Summary -- Net sales were $661.9 million, 0.8 percent below the second quarter of 2004. -- Net income was $72.0 million, compared to $125.8 million in the same quarter of 2004. Diluted earnings per share were $0.44 versus $0.80 in the prior year's second quarter. -- Included in the 2005 diluted earnings per share are $0.05 for non- recurring transition expenses related to building the company's independent infrastructure, and $0.06 per share for obligations assumed as part of the divestiture of the Salt Lake City manufacturing plant. Included in the 2004 diluted earnings per share are a one-time, non-cash curtailment gain of $0.26 related to the discontinuance of one of Hospira's U.S. post-retirement employee benefit programs, and non-recurring transition expenses of $0.02 per share related to building the company's independent infrastructure. "We are pleased with our second-quarter results -- both sales and the gross margin exceeded our expectations," said Christopher B. Begley, chief executive officer, Hospira. "Once again, our performance is a clear indication that Hospira employees are meeting the challenges for 2005 and are a key asset in driving the success of our business. With some significant transition milestones behind us and solid first half numbers, we are increasing our projections for the full year." Significant Events in the Second Quarter -- Launched the international regional headquarters for Europe, the Middle East and Africa (EMEA) in Amsterdam, and for Canada in Montreal. These are the first of four regional hubs that will support Hospira's operations outside the United States. -- Announced an agreement to acquire Physiometrix, Inc., a NASDAQ-listed medical device manufacturer, which subsequently closed on July 29. The acquisition will broaden Hospira's portfolio of products for the hospital operating room and intensive care unit, providing anesthesia- monitoring devices used during surgical and diagnostic procedures. -- Launched the wireless version of the Hospira MedNet(TM) system for the Plum A+(R) infusion pump platform. The new wireless version establishes real-time send-and-receive capability and links to the hospital information system network. The Hospira MedNet medication management software system provides scalable and upgradeable options for hospitals of varying size and technological needs. -- Held the company's first Annual Meeting of Shareholders, at which three directors were elected to three-year terms on Hospira's board, including Judith C. Pelham as a new director. Ms. Pelham previously served as president and chief executive officer of Trinity Health until her retirement in 2004. -- Completed the sale of the Salt Lake City manufacturing facility to ICU Medical. This transaction enables Hospira to combine its sales and marketing capabilities with ICU Medical's expertise in cost-efficient custom manufacturing, allowing Hospira to better address customer needs for a more specialized critical care product line. The transaction also reinforces Hospira's continued commitment to optimize manufacturing productivity and improve efficiencies across its operations, a critical element of the company's stated strategy to improve margins and cash flow. Financial and Operating Review Results for the second quarter of 2005 reflect the company's status as an independent public company; the second quarter of 2004 reflects results for the business operated as a part of Abbott Laboratories for the month of April and as a stand-alone business in May and June. 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 second quarter of 2005 decreased 0.8 percent to $661.9 million, compared to $667.4 million in the second quarter of 2004. A schedule detailing sales by product line for the second quarter and first six months of 2005 and 2004 is attached to this press release. In the second quarter of 2005, compared to the same quarter of 2004, consolidated net sales were negatively affected 1.0 percentage point by the decline in sales to Abbott. The decline resulted from the exclusion of the bulk drug cost for certain products subsequent to the spin-off, and decreased demand. Consolidated net sales were favorably affected 0.2 percentage points by growth in sales to third parties, driven by: -- Volume and mix (excluding Berlex) -- 3.1 percentage points, -- Favorable pricing -- 1.5 percentage points, -- Foreign currency translation -- 0.6 percentage points, and -- Wind-down of the Berlex agreement to distribute its imaging agents -- (5.0) percentage points. The "wind-down" of the company's agreement to distribute the low-margin Berlex imaging agents was completed in the second quarter, and no additional sales are expected to be generated during the remainder of the year. Gross profit in the quarter was $218.4 million, an increase of 3.7 percent from $210.6 million in the same period last year. Gross margin in the second quarter of 2005 was 33.0 percent, compared to 31.6 percent in the prior year's second quarter. Adjusted* gross profit was $233.6 million in the second quarter of 2005, or 35.3 percent of sales, compared to $211.5 million in the same quarter of 2004, or 31.7 percent of sales. The adjusted* gross margin increase was primarily attributable to: -- Wind-down of the Berlex agreement -- 1.3 percentage points, -- Improved volume and mix (excluding Berlex) -- 1.2 percentage points, -- Favorable pricing on sales -- 1.0 percentage point, and -- Inclusion of a profit on the sales to Abbott subsequent to the spin- off -- 0.6 percentage points. (Sales to Abbott were recorded at cost for the month of April in the second quarter of 2004.) The increases were partially offset by additional depreciation of (0.5) 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 17.0 percent in the quarter to $32.9 million, or 5.0 percent of sales, compared to $28.1 million, or 4.2 percent of sales, in the second quarter of 2004. The company continues to increase its investment in R&D as part of its stated strategy to build its new product pipeline to drive longer-term sales growth. Selling, general and administrative (S,G&A) expense in the quarter was $87.4 million, compared to $66.9 million in the 2004 second quarter. As a percentage of sales, S,G&A was 13.2 percent in the second quarter of 2005, compared to 10.0 percent in 2004. Adjusted* S,G&A expense in the second quarter of 2005 was $79.2 million, or 12.0 percent of sales, compared to $63.4 million in the second quarter of 2004, or 9.5 percent of sales. As expected, the increase in the adjusted* S,G&A primarily 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 $98.2 million, compared to $180.2 million in the second quarter of 2004, which included a one-time, non- cash curtailment gain of $64.6 million related to the previously discussed benefit change. The operating margin for the second quarter of 2005 was 14.8 percent, compared to 27.0 percent for the same period in 2004. Adjusted* income from operations in the quarter was $121.7 million, an increase of 1.4 percent from $120.1 million in the second quarter of 2004. The adjusted* operating margin for the second quarter of 2005 was 18.4 percent, compared to 18.0 percent in 2004. 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 second quarter of 2005 was $6.9 million, compared to $2.7 million in interest expense in the same period of 2004. The 2005 quarter reflects a full quarter of interest expense on Hospira's outstanding senior unsecured notes. In the second quarter of 2004, Hospira only incurred interest for the months of May and June, at lower average interest rates. Other income was $3.5 million in the quarter, compared to other expense of $0.5 million for 2004. The majority of the change is due to higher interest income earned on cash balances. Prior to the spin-off, Hospira, as part of Abbott, did not hold cash. Net income in the quarter was $72.0 million, compared to $125.8 million in the second quarter of 2004. Adjusted* net income for the quarter increased 1.1 percent to $89.9 million, from $88.9 million in 2004. The tax rate for the second quarter of 2005 was 24.0 percent, compared to 24.0 percent, excluding the impact of the one-time curtailment gain, in the same quarter of 2004. Results by Geographic Segment Net sales in the United States decreased 1.1 percent in the second quarter of 2005 to $549.4 million, from $555.5 million in the same quarter of 2004, reflecting the impact of the "wind-down" of the Berlex agreement, partially offset by other volume and mix gains. Income from operations in the second quarter of 2005 was $92.7 million, compared to $159.5 million last year, which included the one-time, non-cash curtailment gain of $64.6 million. In the International segment, net sales were $112.5 million, a 0.6 percent increase from last year's $111.9 million, due to the benefit of foreign exchange. Excluding the $4.0 million benefit from foreign currency translation, net sales in the segment declined 3.1 percent, primarily due to lower third-party sales. Income from operations in the second quarter of 2005 was $20.5 million, compared to $34.5 million in the same quarter of 2004. Six-Month Results For the six months ended June 30, 2005, consolidated net sales increased 2.7 percent to $1.32 billion, compared to $1.29 billion in the same period of 2004. Net sales were favorably affected by foreign currency translation of $8.1 million. Excluding the foreign exchange impact, net sales increased 2.1 percent. Net income was $149.2 million, compared to $190.8 million in the first six months of 2004. Diluted earnings per share were $0.93, compared to $1.22 last year. Adjusted* net income was $177.1 million, compared to $154.2 million last year. Adjusted* diluted earnings per share in the first six months of 2005 were $1.11, compared to $0.98 in the prior year. Cash Flow Items Cash flow from operations for the first six months of 2005 was $300.2 million, compared to $219.6 million in last year's same period. Depreciation and amortization expense was $80.5 million for the first six months, compared to $69.8 million for the same period in 2004. The increase is due to higher levels of capital spending and increased depreciation related to the change in the fourth quarter of 2004 in the estimated useful life for certain drug delivery pumps placed with customers. Capital expenditures were $131.1 million for the first half of 2005, compared to $108.3 million for the first half of 2004. The increase is driven by spending related to building the company's independent infrastructure, capacity expansion and ongoing projects. Updated 2005 Projections Hospira increased its projection for annual net sales for the fiscal year 2005 to approximately $2.6 billion. The company also increased its diluted earnings per share projection to a range of $1.47 to $1.52, including estimated non-recurring transition expenses described below and the charges related to the 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 $1.77 to $1.82. The reconciliation between the projected adjusted* diluted earnings per share and earnings per share on a GAAP basis is: Diluted earnings per share -- adjusted* $1.77 - $1.82 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 ($15.8 million on a pre-tax basis) ($0.07) Diluted earnings per share -- GAAP basis $1.47 - $1.52 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. Additional information on selected income statement items is outlined in the table below. Income Implied Projections for the Statement 2005 Projections on Second Half of 2005 on Item an Adjusted* Basis an Adjusted* Basis Net Sales Approximately $2.6 billion Approximately $1.3 billion Gross Margin Approximately 32.8% to 33.3% Approximately 31.5% to 32.0% Research & Approximately 5.0% to 5.5% Approximately 5.8% to 6.3% Development of sales S,G&A Approximately 12.0% to 12.5% Approximately 13.0% to 13.5% of sales Interest Approximately $29 to Approximately $15 to Expense $30 million $16 million Tax Rate Approximately 24.0% Approximately 24.0% Assumed Shares Outstanding For Diluted EPS Calculation Approximately 161.5 million Approximately 163.0 million In addition, the company projects that cash flow from operations will be in the $425 million to $475 million range in 2005. Depreciation and amortization for 2005 is projected to be in the $160 million to $170 million range. Capital expenditures for 2005 are projected to be in the $250 million to $275 million range. *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, charges related to the ICU Medical transaction in 2005 and the one-time curtailment gain reported in the year-to- date results for 2004. 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 second quarter of 2005, Hospira incurred non-recurring pre-tax transition expenses of $10.2 million ($7.7 million, or $0.05 per share, after tax) related to establishing an independent infrastructure. The company has previously stated that these non-recurring transition expenses are expected to total approximately $100 million over the 24-month period ending April 30, 2006. Of these costs, a total of $53.3 million has been incurred through June 30, 2005. Additionally, in the second quarter of 2005 Hospira incurred a $13.4 million ($10.2 million, or $0.06 per share, after tax) charge for obligations related to the sale of the Salt Lake City manufacturing facility. Webcast A conference call for investors and media will be held at 9 a.m. Central Time, Thursday, Aug. 11, 2005. A live webcast of the conference call will be available at http://www.hospirainvestor.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. With 70 years of service to the hospital industry, Hospira'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 Six Months Ended June 30 % Change June 30 % Change 2005 2004 2005 2004 Net sales $618,510 $617,367 0.2 $1,235,205 $1,192,565 3.6 Net sales to Abbott Laboratories 43,405 50,025 (13.2) 88,771 96,045 (7.6) Total Net Sales 661,915 667,392 (0.8) 1,323,976 1,288,610 2.7 Cost of products sold 443,497 456,765 (2.9) 887,782 909,644 (2.4) Gross Profit 218,418 210,627 3.7 436,194 378,966 15.1 Research and development 32,851 28,087 17.0 61,242 52,533 16.6 Selling, general and administrative 87,409 66,931 30.6 169,284 124,441 36.0 Curtailment of post-retirement medical and dental benefits - (64,636) nm - (64,636) nm Income From Operations 98,158 180,245 (45.5) 205,668 266,628 (22.9) Interest expense 6,857 2,684 155.5 14,026 2,684 422.6 Other (income) expense, net (3,476) 526 nm (4,681) 1,394 nm Income Before Income Taxes 94,777 177,035 (46.5) 196,323 262,550 (25.2) Income tax expense 22,746 51,265 (55.6) 47,117 71,789 (34.4) Net Income $72,031 $125,770 (42.7) $149,206 $190,761 (21.8) Earnings Per Common Share: Basic $0.45 $0.80 (43.8) $0.94 $1.22 (23.0) Diluted $0.44 $0.80 (45.0) $0.93 $1.22 (23.8) Weighted Average Common Shares Outstanding: Basic 158,568 156,048 1.6 157,896 156,048 1.2 Diluted 160,908 156,551 2.8 159,757 156,551 2.0 Hospira, Inc. Reconciliation of Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Three Months Ended June 30, 2005 2004 GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $618,510 $618,510 $617,367 $617,367 Net sales to Abbott Laboratories 43,405 43,405 50,025 50,025 Total Net Sales 661,915 - 661,915 667,392 - 667,392 Cost of products sold 443,497 (15,230) A 428,267 456,765 (905) B 455,860 Gross Profit 218,418 15,230 233,648 210,627 905 211,532 Research and development 32,851 (112) B 32,739 28,087 (19) B 28,068 Selling, general and administra- tive 87,409 (8,218) B 79,191 66,931 (3,546) B 63,385 Curtailment of post-retirement medical and dental benefits - - - (64,636) 64,636 C - Income From Operations 98,158 23,560 121,718 180,245 (60,166) 120,079 Interest expense 6,857 - 6,857 2,684 2,684 Other (income) expense, net (3,476) - (3,476) 526 (189) 337 Income Before Income Taxes 94,777 23,560 118,337 177,035 (59,977) 117,058 Income tax expense 22,746 5,655 28,401 51,265 (23,121) C 28,144 Net Income $72,031 $17,905 $89,936 $125,770 $(36,856) $88,914 Earnings Per Common Share: Basic $0.45 $0.11 $0.56 $0.80 $(0.24) $0.56 Diluted $0.44 $0.11 $0.55 $0.80 $(0.24) $0.56 Weighted Average Common Shares Outstanding: Basic 158,568 158,568 158,568 156,048 156,048 156,048 Diluted 160,908 160,908 160,908 156,551 156,551 156,551 Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 33.0% 35.3% 31.6% 31.7% R&D 5.0% 4.9% 4.2% 4.2% SG&A 13.2% 12.0% 10.0% 9.5% Income From Operations 14.8% 18.4% 27.0% 18.0% Income Before Income Taxes 14.3% 17.9% 26.5% 17.5% Net Income 10.9% 13.6% 18.8% 13.3% Income tax rate 24.0% 24.0% 29.0% 24.0% % Change vs. Prior Year GAAP Adjusted Net sales 0.2 0.2 Net sales to Abbott Laboratories (13.2) (13.2) Total Net Sales (0.8) (0.8) Cost of products sold (2.9) (6.1) Gross Profit 3.7 10.5 Research and development 17.0 16.6 Selling, general and administrative 30.6 24.9 Curtailment of post-retirement medical and dental benefits nm nm Income From Operations (45.5) 1.4 Interest expense 155.5 155.5 Other (income) expense, net nm nm Income Before Income Taxes (46.5) 1.1 Income tax expense (55.6) 0.9 Net Income (42.7) 1.1 Earnings Per Common Share: Basic (43.8) 1.8 Diluted (45.0) (1.8) Weighted Average Common Shares Outstanding: Basic 1.6 1.6 Diluted 2.8 2.8 A -- Includes non-recurring charges of $13,404 related to the sale of the Salt Lake City manufacturing plant to ICU Medical, and non-recurring transition costs of $1,826. B -- Non-recurring transition costs. C -- 2004 Curtailment gain ($64,636) is tax effected at 37.5%, while second quarter of 2004 non-recurring transition costs were tax effected at 24%. Hospira, Inc. Reconciliation of Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Six Months Ended June 30, 2005 2004 GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $1,235,205 $1,235,205 $1,192,565 $1,192,565 Net sales to Abbott Laboratories 88,771 88,771 96,045 96,045 Total Net Sales 1,323,976 - 1,323,976 1,288,610 - 1,288,610 Cost of products sold 887,782 (18,371) A 869,411 909,644 (991) B 908,653 Gross Profit 436,194 18,371 454,565 378,966 991 379,957 Research and development 61,242 (220) B 61,022 52,533 (30) B 52,503 Selling, general and administra- tive 169,284 (18,137) B 151,147 124,441 (3,849) B 120,592 Curtailment of post-retirement medical and dental benefits - - - (64,636) 64,636 C - Income From Operations 205,668 36,728 242,396 266,628 (59,766) 206,862 Interest expense 14,026 14,026 2,684 2,684 Other (income) expense, net (4,681) - (4,681) 1,394 (189) 1,205 Income Before Income Taxes 196,323 36,728 233,051 262,550 (59,577) 202,973 Income tax expense 47,117 8,815 55,932 71,789 (23,025) C 48,764 Net Income $149,206 $27,913 $177,119 $190,761 $(36,552) $154,209 Earnings Per Common Share: Basic $0.94 $0.18 $1.12 $1.22 $(0.24) $0.98 Diluted $0.93 $0.18 $1.11 $1.22 $(0.24) $0.98 Weighted Average Common Shares Outstanding: Basic 157,896 157,896 157,896 156,048 156,048 156,048 Diluted 159,757 159,757 159,757 156,551 156,551 156,551 Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 32.9% 34.3% 29.4% 29.5% R&D 4.6% 4.6% 4.1% 4.1% SG&A 12.8% 11.4% 9.7% 9.4% Income From Operations 15.5% 18.3% 20.7% 16.1% Income Before Income Taxes 14.8% 17.6% 20.4% 15.8% Net Income 11.3% 13.4% 14.8% 12.0% Income tax rate 24.0% 24.0% 27.3% 24.0% % Change vs. Prior Year GAAP Adjusted Net sales 3.6 3.6 Net sales to Abbott Laboratories (7.6) (7.6) Total Net Sales 2.7 2.7 Cost of products sold (2.4) (4.3) Gross Profit 15.1 19.6 Research and development 16.6 16.2 Selling, general and administrative 36.0 25.3 Curtailment of post-retirement medical and dental benefits nm nm Income From Operations (22.9) 17.2 Interest expense 422.6 422.6 Other (income) expense, net nm nm Income Before Income Taxes (25.2) 14.8 Income tax expense (34.4) 14.7 Net Income (21.8) 14.9 Earnings Per Common Share: Basic (23.0) 14.3 Diluted (23.8) 12.2 Weighted Average Common Shares Outstanding: Basic 1.2 1.2 Diluted 2.0 2.0 A -- Includes an impairment charge of $2,429 and other charges of $13,404 related to the sale of the Salt Lake City manufacturing plant to ICU Medical, and non-recurring transition costs of $2,538. B -- Non-recurring transition costs. C -- 2004 Curtailment gain ($64,636) is tax effected at 37.5%, while first six months of 2004 non-recurring transition costs were tax effected at 24%. Hospira, Inc. Consolidated Balance Sheets (Unaudited) (dollars in thousands) June 30 December 31 Assets 2005 2004 Current Assets: Cash and cash equivalents $424,681 $127,695 Marketable securities - 72,438 Net trade receivables 317,928 326,356 Inventory 494,789 518,324 Prepaid expenses, deferred income taxes and other receivables 161,590 153,512 Total Current Assets 1,398,988 1,198,325 Net property and equipment 960,726 946,304 Intangible assets, net of amortization 621 1,057 Goodwill 80,973 80,973 Other assets 108,597 116,131 Total Assets $2,549,905 $2,342,790 Liabilities and Shareholders' Equity Current Liabilities: Trade accounts payable $96,779 $101,537 Salaries payable and other accruals 330,985 268,615 Due to Abbott, net 122,469 166,042 Total Current Liabilities 550,233 536,194 Due to Abbott, net - 23,100 Long-term debt 698,618 698,841 Post-retirement obligations, deferred income taxes and other long-term liabilities 99,059 100,736 Commitments and Contingencies - - Total Liabilities 1,347,910 1,358,871 Total Shareholders' Equity 1,201,995 983,919 Total Liabilities and Shareholders' Equity $2,549,905 $2,342,790 Hospira, Inc. Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) Six Months Ended June 30 2005 2004 Cash Flow From (Used in) Operating Activities: Net income $149,206 $190,761 Adjustments to reconcile net income to net cash from operating activities-- Depreciation 79,606 67,639 Amortization of intangibles 936 2,153 Curtailment of post-retirement medical and dental benefits - (64,636) Trade receivables (812) (23,808) Inventories 5,339 (37,275) Prepaid expenses and other assets (5,721) (4,458) Trade accounts payable and other liabilities 20,729 85,020 Other, net 50,875 4,161 Net Cash From Operating Activities 300,158 219,557 Cash Flow (Used in) From Investing Activities: Acquisitions of property and equipment (131,089) (108,347) Proceeds from asset dispositions 31,818 - Sale of marketable securities 72,438 - Net Cash (Used in) Investing Activities (26,833) (108,347) Cash Flow From (Used in) Financing Activities: Net transactions with Abbott Laboratories prior to spin-off - (20,845) Pre-distribution dividend to Abbott - (700,000) Payment to Abbott for international net assets (45,768) - Issuance of long-term debt, net of fees paid 1,750 1,393,425 Repayment of long-term debt (44) (700,000) Net change in revolving credit facility - 25,000 Proceeds from stock options exercised 70,255 103 Net Cash From (Used in) Financing Activities 26,193 (2,317) Effect of exchange rate changes on cash and cash equivalents (2,532) (13) Net change in cash and cash equivalents 296,986 108,880 Cash and cash equivalents at beginning of period 127,695 - Cash and cash equivalents at end of period $424,681 $108,880 Hospira, Inc. Sales by Product Line (Unaudited) (dollars in millions) Three Months Ended Six Months Ended June 30 June 30 Percent Percent Change Change vs. Prior vs. Prior 2005 2004 Year* 2005 2004 Year* U.S. -- Specialty Injectable Pharmaceuticals $201 $221 (9.2) $426 $426 (0.1) Medication Delivery Systems 204 192 6.2 393 379 3.5 Injectable Pharmaceutical Contract Manufacturing 52 46 13.6 102 84 22.0 Sales to Abbott Laboratories 27 34 (21.0) 55 71 (21.9) Other 65 62 5.1 124 117 6.6 Total U.S. 549 555 (1.1) 1,100 1,077 2.2 International -- Sales to Third Parties 96 96 0.1 190 187 2.1 Sales to Abbott Laboratories 17 16 3.2 34 25 31.6 Total International Sales 113 112 0.6 224 212 5.7 Consolidated Net Sales $662 $667 (0.8) $1,324 $1,289 2.7 * Percent change computed based on unrounded numbers. Note: Consolidated Net Sales for second quarter and year-to-date include the favorable impact of 1.5% and 1.0%, respectively, related to the change in business model in late 2004, which resulted in sales-type lease accounting for new pump leases. Hospira, Inc. Segment Information (Unaudited) (dollars in thousands) Three Months Ended June 30 Net Sales Income from Operations 2005 2004 % Change 2005 2004 (1) % Change U.S. $549,380 $555,501 (1.1) $92,674 $159,515 (41.9) International 112,535 111,891 0.6 20,539 34,480 (40.4) Total reportable segments $661,915 $667,392 (0.8) 113,213 193,995 (41.6) Corporate functions (15,055) (13,750) 9.5 Income from operations 98,158 180,245 (45.5) Other, net (3,381) (3,210) nm Income before income taxes $94,777 $177,035 (46.5) Six Months Ended June 30 Net Sales Income from Operations 2005 2004 % Change 2005 2004 (1) % Change U.S. $1,099,770 $1,076,432 2.2 $190,826 $239,639 (20.4) International 224,206 212,178 5.7 42,192 51,832 (18.6) Total reportable segments $1,323,976 $1,288,610 2.7 233,018 291,471 (20.1) Corporate functions (27,350) (24,843) 10.1 Income from operations 205,668 266,628 (22.9) Other, net (9,345) (4,078) nm Income before income taxes $196,323 $262,550 (25.2) (1) 2004 U.S. Income from operations includes curtailment benefit of $65 million. http://www.newscom.com/cgi-bin/prnh/20040503/HSPLOGO http://photoarchive.ap.org/ DATASOURCE: Hospira, Inc. CONTACT: Media, Stacey Eisen, +1-224-212-2276, or Financial Community, Lynn McHugh, +1-224-212-2363, both of Hospira, Inc. Web site: http://www.hospira.com/ http://www.hospirainvestor.com/

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