HSP

-- Provides Sales and Earnings Projections for 2006 -- LAKE FOREST, Ill., Feb. 28 /PRNewswire-FirstCall/ -- Hospira, Inc. (NYSE:HSP), one of the largest hospital products manufacturers in the United States, today reported results for the fourth quarter and full year ended Dec. 31, 2005. "We completed our first full year as a public company with strong operating results," said Christopher B. Begley, chief executive officer, Hospira. "Our core net sales* grew 5 percent in 2005 -- better than our expectations -- and we made substantial progress in what was a critical year of transition for us, thanks to the hard work and commitment of our employees. Looking forward for 2006, we are building on the momentum we generated in 2005, and expect to see the investments in our new product development begin to pay off. In addition to completing the spin-off transition in 2006, we will continue to work toward achieving our longer-term financial goals." Certain results in this press release are discussed on both a U.S. Generally Accepted Accounting Principles (GAAP) and a non-GAAP (adjusted) basis. A description of the adjusted financial information is provided in the section "Use of Non-GAAP Financial Measures" contained in this press release. A reconciliation of the adjusted financial information to the most comparable GAAP measure is contained in the schedules attached to the press release. Financial and Operating Review Consolidated net sales in the quarter decreased 7.7 percent to $646.2 million, compared to $700.3 million in the fourth quarter of 2004. A schedule detailing sales by product line for the fourth quarters and the full years of 2005 and 2004 is attached to this press release. In the fourth quarter of 2005, compared to the same quarter of 2004, the components of change in consolidated net sales were as follows: -- Termination of the Berlex agreement to distribute its imaging agents -- unfavorable (7.5) percentage points, -- Unfavorable impact of 2004 pump lease adjustment relating to prior periods -- (2.0) percentage points, -- Foreign currency translation -- unfavorable (0.2) percentage point, -- Improved volume and mix (excluding Berlex and the pump lease adjustment noted above) -- 0.7 percentage point, and -- Favorable pricing -- 1.3 percentage points. Gross profit in the quarter was $185.3 million, a decrease of 13.3 percent from $213.8 million in the same period last year. Gross margin in the quarter was 28.7 percent, compared to 30.5 percent in the prior year's fourth quarter. Adjusted* gross profit declined 2.7 percent to $210.6 million, compared to $216.3 million in the same quarter of 2004. The adjusted* gross margin for the fourth quarter of 2005 improved to 32.6 percent from 30.9 percent last year. The adjusted* gross margin improvement was primarily attributable to: -- Improved volume and mix -- 3.7 percentage points, of which 1.8 percentage points represented the impact of the termination of the Berlex agreement, -- Favorable pricing -- 0.9 percentage point, -- Higher commodity costs -- (1.0) percentage point, -- Favorability in 2004 related to a lower rate of returned goods versus historical experience -- (1.0) percentage point, and -- Higher freight and distribution costs -- (0.9) percentage point. Research and development (R&D) expense rose 7.7 percent in the quarter to $42.1 million, or 6.5 percent of sales, compared to $39.0 million, or 5.6 percent of sales, in the fourth quarter of 2004. The company continues to increase its investment in R&D as part of its stated strategy to build its product pipeline to drive longer-term sales growth. Selling, general and administrative (S,G&A) expense in the quarter was $112.8 million, compared to $107.7 million in the fourth quarter of 2004. As a percentage of sales, S,G&A was 17.5 percent in the quarter, compared to 15.4 percent in 2004. Adjusted* S,G&A expense in the quarter was $103.9 million, or 16.1 percent of sales, compared to $92.7 million in the fourth quarter of 2004, or 13.2 percent of sales. The increase in the adjusted* S,G&A primarily was driven by higher ongoing, incremental costs associated with being an independent, public company. Income from operations in the quarter was $30.4 million, compared to $67.1 million in the fourth quarter of 2004. The operating margin for the quarter was 4.7 percent, compared to 9.6 percent for the same period in 2004. Adjusted* income from operations in the quarter was $65.1 million, a decrease of 23.1 percent from $84.7 million in the fourth quarter of 2004. The adjusted* operating margin for the quarter was 10.1 percent, compared to 12.1 percent in 2004. The decrease was attributable to the higher R&D and S,G&A spending, which more than offset the improvement in gross margin. Interest expense in the quarter was $7.3 million, compared to $7.8 million in the same period of 2004. The decline was primarily due to higher capitalized interest in the current quarter. Other income was $5.7 million in the quarter, compared to other income of $1.5 million for 2004. The majority of the change is due to higher interest income. Net income in the quarter was $26.6 million, compared to $49.5 million in the fourth quarter of 2004. Adjusted* net income for the quarter decreased 15.2 percent to $53.4 million, from $62.9 million in 2004. The tax rate for the quarter was 7.4 percent, compared to 18.6 percent in 2004. The company's tax rate for the full year, excluding taxes of $9.1 million related to the repatriation of foreign earnings under the Jobs Creation Act of 2004, was 24.0 percent. This full-year rate was a decrease from the previously projected annual rate of 25.5 percent, primarily due to two factors: the proportionately greater-than-projected mix of income from lower-tax-rate jurisdictions, which was partially driven by the previously announced impairment charges, and a reduction in state tax expense due to certain state tax credits earned. As a result, the 2005 fourth-quarter tax rate reflects the adjustment necessary to provide for income taxes at the 24.0 percent rate for the full year, excluding the impact of the repatriation. Full-Year 2005 Results Results for the full year of 2005 reflect the company's status as an independent public company. The 12 months of 2004 reflect results for the business operated as a part of Abbott Laboratories for the months of January through April, and as a stand-alone business for the subsequent eight months. Consolidated net sales for 2005 were $2.63 billion compared to $2.65 billion in 2004, a decrease of 0.7 percent. Net sales for the year were favorably affected by foreign currency translation of $9.3 million. Excluding the benefit from foreign currency translation, net sales declined 1.0 percent over 2004. Net income was $235.6 million, compared to $301.6 million in 2004. Diluted earnings per share were $1.46, compared to $1.92 last year. Adjusted* net income was $308.5 million, compared to $285.6 million last year. Adjusted* diluted earnings per share in 2005 were $1.91, compared to $1.82 in the prior year. Cash Flow Items Cash flow from operations for 2005 was $571.1 million, compared to $387.0 million in 2004. Depreciation and amortization expense was $156.3 million for 2005, compared to $145.5 million in 2004. The increase is due to higher levels of capital spending. Capital expenditures were $256.1 million for 2005, compared to $228.9 million for 2004. The increase is driven by spending related to building the company's independent infrastructure, capacity expansion and ongoing projects. Projections for 2006 Hospira projects that annual net sales growth for the 2006 year will be in the 4 to 6 percent range. Adjusted* diluted earnings per share for 2006, which exclude the items listed below, are projected to be in the range of $2.05 to $2.10. The adjusted* operating margin is estimated to be in the 17.0 to 17.5 percent range, excluding options expense. The reconciliation between the projected adjusted* diluted earnings per share and earnings per share on a GAAP basis is: Diluted earnings per share -- adjusted* $2.05 - $2.10 Estimated non-recurring transition expenses related to transitioning into an independent, stand-alone company (mid-point of an estimated $0.10 to $0.12 per diluted share range for 2006) ($0.11) Estimated charges related to previously announced manufacturing optimization initiatives (mid-point of an estimated $0.25 to $0.29 per diluted share range for 2006) ($0.27) Diluted earnings per share -- excluding options expense $1.67 - $1.72 Estimated stock option expense ($0.15) Diluted earnings per share -- GAAP basis $1.52 - $1.57 In addition, the company projects that cash flow from operations in 2006 will be in the $520 million to $570 million range. Depreciation and amortization is projected to range between $150 million to $160 million. Capital expenditures are projected to be in the $230 million to $260 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 to be non-GAAP financial measures. As used in this press release, "adjusted" refers to operating performance measures that exclude the non-recurring transition expenses in 2005 and 2004 related to becoming an independent, stand-alone company; charges related to the company's manufacturing optimization initiatives, which in 2005 included the sale of the Salt Lake City facility to ICU Medical, Inc. and the planned closing of the Donegal, Ireland facility; impairment charges in 2005 related to the Montreal, Canada and Ashland, Ohio facilities; the tax impact of the repatriation of foreign earnings in 2005; and a curtailment gain in 2004. "Core net sales," as used in this press release, refer to Hospira's consolidated net sales excluding U.S. and international sales to Abbott, sales of Berlex imaging agents under the arrangement that terminated during the second quarter of 2005, and the impact of foreign exchange translation. Management believes that core net sales provide investors an additional measure to assess the underlying sales trend of Hospira's ongoing business. Management believes that the charges, gains and sales which are excluded in the manner described above are not necessarily indicative of the company's base business results. Therefore, management believes that these non-GAAP financial measures, when presented together with, and reconciled to, the comparable measures presented in accordance with GAAP, are useful to both management and investors in their analysis of the company's ongoing business and operating performance. Management believes that such presentation enables investors to have more complete information with which to assess the company's base results of operation and prospects. Such presentation also facilitates period-to-period comparison of Hospira's base operating results. In addition, management 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 fourth quarter of 2005, Hospira incurred non-recurring pre-tax transition expenses of $15.0 million ($11.4 million, or $0.07 per share, after tax) related to establishing an independent infrastructure. Also included in the fourth quarter 2005 GAAP diluted earnings per share are $0.09 per share for charges related to the planned closing of the Donegal, Ireland facility and impairment charges related to the Montreal, Canada and Ashland, Ohio facilities. In the fourth quarter of 2004, Hospira incurred non-recurring pre-tax transition expenses of $17.6 million ($13.4 million, or $0.09 per share, after tax) related to establishing an independent infrastructure. For the full year of 2005, Hospira incurred non-recurring pre-tax transition expenses of $46.0 million ($35.0 million, or $0.21 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 $78.4 million has been incurred through Dec. 31, 2005. Also included in the full-year 2005 GAAP diluted earnings per share are $0.18 per share for charges associated with the impairment related to the Montreal, Canada and Ashland, Ohio facilities and the company's manufacturing optimization initiatives, which for 2005 included the planned closing of the company's Donegal, Ireland facility and the sale of the Salt Lake City manufacturing facility; and $0.06 per share related to the company's decision to repatriate undistributed foreign earnings of $175.0 million under the Jobs Creation Act of 2004. For the 2004 full year, the non-recurring pre-tax transition expenses were $32.4 million ($24.4 million, or $0.16 per share, after tax). The 2004 results also include the one-time, non-cash curtailment gain of $64.6 million ($40.4 million, or $0.26 per share, after tax) recorded in the second quarter of 2004. Webcast A conference call for investors and media will be held at 9 a.m. Central Time, Tuesday, Feb. 28, 2006. 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; 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 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 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, technological and other factors that may affect Hospira's operations and may cause actual results to be materially different from expectations include the factors, 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 (SEC) and in Hospira's other SEC filings, including its quarterly reports on Form 10-Q, 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 Twelve Months Ended December 31 % December 31 % 2005 2004 Change 2005 2004 Change Net sales $608,485 $654,303 (7.0) $2,457,588 $2,465,052 (0.3) Net sales to Abbott Laboratories 37,665 46,013 (18.1) 169,108 179,984 (6.0) Total Net Sales 646,150 700,316 (7.7) 2,626,696 2,645,036 (0.7) Cost of products sold 460,850 486,508 (5.3) 1,777,640 1,858,435 (4.3) Gross Profit 185,300 213,808 (13.3) 849,056 786,601 7.9 Research and development 42,067 39,049 7.7 138,834 119,583 16.1 Selling, general and administrative 112,840 107,664 4.8 373,607 304,004 22.9 Curtailment of post-retirement medical and dental benefits - - nm - (64,636) nm Income From Operations 30,393 67,095 (54.7) 336,615 427,650 (21.3) Interest expense 7,334 7,806 (6.0) 28,276 18,758 50.7 Other (income), net (5,646) (1,484) nm (13,736) (2,628) nm Income Before Income Taxes 28,705 60,773 (52.8) 322,075 411,520 (21.7) Income tax expense 2,128 11,297 (81.2) 86,437 109,968 (21.4) Net Income $26,577 $49,476 (46.3) $235,638 $301,552 (21.9) Earnings Per Common Share: Basic $0.16 $0.32 (50.0) $1.48 $1.93 (23.3) Diluted $0.16 $0.31 (48.4) $1.46 $1.92 (24.0) Weighted Average Common Shares Outstanding: Basic 161,171 156,401 3.0 159,275 156,187 2.0 Diluted 164,144 158,047 3.9 161,634 157,160 2.8 Hospira, Inc. Reconciliation of Consolidated Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Three Months Ended December 31, 2005 2004 Adjust- Adjust- GAAP ments Adjusted GAAP ments Adjusted Net sales $608,485 $ - $608,485 $654,303 $ - $654,303 Net sales to Abbott Laboratories 37,665 - 37,665 46,013 - 46,013 Total Net Sales 646,150 - 646,150 700,316 - 700,316 Cost of products sold 460,850 (25,281)A 435,569 486,508 (2,511)B 483,997 Gross Profit 185,300 25,281 210,581 213,808 2,511 216,319 Research and development 42,067 (531)B 41,536 39,049 (87)B 38,962 Selling, general and administrative 112,840 (8,934)B 103,906 107,664 (14,965)B 92,699 Income From Operations 30,393 34,746 65,139 67,095 17,563 84,658 Interest expense 7,334 - 7,334 7,806 - 7,806 Other (income), net (5,646) - (5,646) (1,484) - (1,484) Income Before Income Taxes 28,705 34,746 63,451 60,773 17,563 78,336 Income tax expense 2,128 7,963 C 10,091 11,297 4,145 D 15,442 Net Income $26,577 $26,783 $53,360 $49,476 $13,418 $62,894 Earnings Per Common Share: Basic $0.16 $0.17 $0.33 $0.32 $0.09 $0.41 Diluted $0.16 $0.16 $0.32 $0.31 $0.09 $0.40 Weighted Average Common Shares Outstanding: Basic 161,171 161,171 161,171 156,401 156,401 156,401 Diluted 164,144 164,144 164,144 158,047 158,047 158,047 Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 28.7% 32.6% 30.5% 30.9% R&D 6.5% 6.4% 5.6% 5.6% SG&A 17.5% 16.1% 15.4% 13.2% Income From Operations 4.7% 10.1% 9.6% 12.1% Income Before Income Taxes 4.4% 9.8% 8.7% 11.2% Net Income 4.1% 8.3% 7.1% 9.0% Income tax rate 7.4% 15.9% 18.6% 19.7% % Change vs. Prior Year GAAP Adjusted Net sales (7.0) (7.0) Net sales to Abbott Laboratories (18.1) (18.1) Total Net Sales (7.7) (7.7) Cost of products sold (5.3) (10.0) Gross Profit (13.3) (2.7) Research and development 7.7 6.6 Selling, general and administrative 4.8 12.1 Income From Operations (54.7) (23.1) Interest expense (6.0) (6.0) Other (income), net nm nm Income Before Income Taxes (52.8) (19.0) Income tax expense (81.2) (34.7) Net Income (46.3) (15.2) Earnings Per Common Share: Basic (50.0) (19.5) Diluted (48.4) (20.0) Weighted Average Common Shares Outstanding: Basic 3.0 3.0 Diluted 3.9 3.9 A -- Includes impairment charges of $13,074 related to the Montreal and Ashland, Ohio manufacturing facilities, $6,338 related to the planned Donegal, Ireland manufacturing plant closure, $350 related to the sale of the Salt Lake City manufacturing plant to ICU Medical, and non-recurring transition costs of $5,519. B -- Non-recurring transition costs. C -- Includes the impact of decreasing the overall effective tax rate from 25.5% to 24.0%, and ($361) tax impact of earnings repatriation related to The American Jobs Creation Act. D -- Includes the impact of decreasing the overall effective tax rate from 26.0% to 24.7%. Hospira, Inc. Reconciliation of Consolidated Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Twelve Months Ended December 31, 2005 2004 Adjust- Adjust- GAAP ments Adjusted GAAP ments Adjusted Net sales $2,457,588 $ - $2,457,588 $2,465,052 $ - $2,465,052 Net sales to Abbott Laborato- ries 169,108 - 169,108 179,984 - 179,984 Total Net Sales 2,626,696 - 2,626,696 2,645,036 - 2,645,036 Cost of products sold 1,777,640 (48,722)A 1,728,918 1,858,435 (4,819)B 1,853,616 Gross Profit 849,056 48,722 897,778 786,601 4,819 791,420 Research and develop- ment 138,834 (906)B 137,928 119,583 (279)B 119,304 Selling, general and administra- tive 373,607 (34,249)B 339,358 304,004 (27,123)B 276,881 Curtailment of post- retirement medical and dental benefits - - - (64,636) 64,636 C - Income From Oper- ations 336,615 83,877 420,492 427,650 (32,415) 395,235 Interest expense 28,276 - 28,276 18,758 - 18,758 Other (income), net (13,736) - (13,736) (2,628) (189)B (2,817) Income Before Income Taxes 322,075 83,877 405,952 411,520 (32,226) 379,294 Income tax expense 86,437 10,991 D 97,428 109,968 (16,234)C 93,734 Net Income $235,638 $72,886 $308,524 $301,552 $(15,992) $285,560 Earnings Per Common Share: Basic $1.48 $0.46 $1.94 $1.93 $ (0.10) $1.83 Diluted $1.46 $0.45 $1.91 $1.92 $ (0.10) $1.82 Weighted Average Common Shares Outstanding: Basic 159,275 159,275 159,275 156,187 156,187 156,187 Diluted 161,634 161,634 161,634 157,160 157,160 157,160 Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 32.3% 34.2% 29.7% 29.9% R&D 5.3% 5.3% 4.5% 4.5% SG&A 14.2% 12.9% 11.5% 10.5% Income From Operations 12.8% 16.0% 16.2% 14.9% Income Before Income Taxes 12.3% 15.5% 15.6% 14.3% Net Income 9.0% 11.7% 11.4% 10.8% Income tax rate 26.8% 24.0% 26.7% 24.7% % Change vs. Prior Year GAAP Adjusted Net sales (0.3) (0.3) Net sales to Abbott Laboratories (6.0) (6.0) Total Net Sales (0.7) (0.7) Cost of products sold (4.3) (6.7) Gross Profit 7.9 13.4 Research and development 16.1 15.6 Selling, general and administrative 22.9 22.6 Curtailment of post-retirement medical and dental benefits nm nm Income From Operations (21.3) 6.4 Interest expense 50.7 50.7 Other (income), net nm nm Income Before Income Taxes (21.7) 7.0 Income tax expense (21.4) 3.9 Net Income (21.9) 8.0 Earnings Per Common Share: Basic (23.3) 6.0 Diluted (24.0) 4.9 Weighted Average Common Shares Outstanding: Basic 2.0 2.0 Diluted 2.8 2.8 A -- Includes an impairment charge of $2,429 and other charges of $13,754 related to the sale of the Salt Lake City manufacturing plant to ICU Medical, $8,616 related to the planned closure of the Donegal, Ireland manufacturing plant, impairment charges of $13,074 related to the Montreal and Ashland, Ohio manufacturing facilities, and non- recurring transition costs of $10,849. B -- Non-recurring transition costs. C -- 2004 curtailment gain ($64,636) is tax effected at 37.5%, while 2004 non-recurring transition costs were tax effected at 24.7%. D -- Includes $9,139 tax impact of earnings repatriation related to The American Jobs Creation Act. Hospira, Inc. Consolidated Balance Sheets (Unaudited) (dollars in thousands) December 31 December 31 Assets 2005 2004 Current Assets: Cash and cash equivalents $520,610 $127,695 Marketable securities - 72,438 Net trade receivables 327,146 326,356 Inventory 510,268 518,324 Deferred income taxes 144,124 116,295 Prepaid expenses, deferred income taxes and other receivables 59,017 37,217 Total Current Assets 1,561,165 1,198,325 Net property and equipment 990,813 946,304 Intangible assets, net of amortization 14,926 1,057 Goodwill 89,197 80,973 Deferred income taxes 17,692 - Other assets 115,389 116,131 Total Assets $2,789,182 $2,342,790 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $2,579 $ - Trade accounts payable 129,865 101,537 Salaries, wages, and commissions 107,615 77,875 Other accrued liabilities 277,098 190,740 Due to Abbott, net 79,079 166,042 Total Current Liabilities 596,236 536,194 Due to Abbott, net - 23,100 Long-term debt 695,285 698,841 Deferred income taxes 3,958 4,575 Post-retirement obligations and other long-term liabilities 165,836 96,161 Commitments and Contingencies - - Total Liabilities 1,461,315 1,358,871 Total Shareholders' Equity 1,327,867 983,919 Total Liabilities and Shareholders' Equity $2,789,182 $2,342,790 Hospira, Inc. Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) Twelve Months Ended December 31 2005 2004 Cash Flow From (Used in) Operating Activities: Net income $235,638 $301,552 Adjustments to reconcile net income to net cash from operating activities -- Depreciation 154,460 141,245 Amortization of intangibles 1,831 4,278 Impairment of long-lived assets 13,074 - Curtailment of post-retirement medical and dental benefits - (64,636) Trade receivables (10,707) (28,051) Inventories (9,722) 22,715 Prepaid expenses and other assets (8,094) (3,914) Trade accounts payable and other liabilities 164,196 51,515 Other, net 30,411 (37,681) Net Cash From Operating Activities 571,087 387,023 Cash Flow (Used in) From Investing Activities: Acquisitions of property and equipment (256,108) (228,854) Proceeds from asset dispositions 31,818 - Acquisition of business (23,590) - Purchase of intangibles and other investments (8,990) - Purchase of marketable securities, net - (72,438) Sales of marketable securities 72,438 - Net Cash (Used in) Investing Activities (184,432) (301,292) Cash Flow From (Used in) Financing Activities: Net transactions with Abbott Laboratories prior to spin-off - 24,209 Pre-distribution dividend to Abbott - (700,000) Payment to Abbott for international assets (116,727) - Issuance of long-term debt, net of fees paid 5,252 1,393,344 Repayment of long-term debt (124) (700,000) Other borrowings, net 1,385 - Proceeds from stock options exercised 118,819 23,046 Net Cash From Financing Activities 8,605 40,599 Effect of exchange rate changes on cash and cash equivalents (2,345) 1,365 Net change in cash and cash equivalents 392,915 127,695 Cash and cash equivalents at beginning of period 127,695 - Cash and cash equivalents at end of period $520,610 $127,695 Hospira, Inc. Sales by Product Line (Unaudited) (dollars in millions) Three Months Ended Twelve Months Ended December 31 December 31 Percent Percent Change Change vs. vs. Prior Prior 2005 2004 Year* 2005 2004 Year* U.S. -- Specialty Injectable Pharmaceuticals $214 $233 (8.0) $845 $894 (5.5) Medication Delivery Systems 197 217 (8.7) 796 783 1.7 Injectable Pharmaceutical Contract Manufacturing 33 49 (33.2) 179 179 0.0 Sales to Abbott Laboratories 25 25 (2.8) 105 120 (12.6) Other 68 63 7.1 263 244 7.3 Total U.S. 537 587 (8.5) 2,188 2,220 (1.5) International -- Sales to Third Parties 96 92 3.9 375 365 2.7 Sales to Abbott Laboratories 13 21 (36.3) 64 60 7.0 Total International Sales 109 113 (3.6) 439 425 3.3 Consolidated Net Sales $646 $700 (7.7) $2,627 $2,645 (0.7) Reconciliation of Consolidated Net Sales to Core Net Sales Percent Percent Change Change vs. vs. Prior Prior 2005 2004 Year* 2005 2004 Year* Consolidated Net Sales $646 $700 (7.7) $2,627 $2,645 (0.7) Less: Sales to Abbott Laboratories (38) (46) (169) (180) Berlex imaging agents - (52) (67) (197) Impact of foreign currency 2 - (9) - Core Net Sales $610 $602 1.4 $2,382 $2,268 5.0 * Percent change computed based on unrounded numbers. Note: Three months ended December 31, 2004 includes an adjustment to net sales of approximately $14 million related to prior periods resulting from the reclassification of certain drug delivery pump leases from operating to sales-type leases. Approximately one-half of the adjustment relates to 2003 and the remaining half relates to the first three quarters of 2004. The adjustment is not material to any prior period. Hospira, Inc. Segment Information (Unaudited) (dollars in thousands) Three Months Ended December 31 Income from Net Sales % Operations % 2005 2004 Change 2005 2004 Change U.S. $536,676 $586,808 (8.5) $38,786 $77,785 (50.1) International 109,474 113,508 (3.6) 10,410 14,558 (28.5) Total reportable segments $646,150 $700,316 (7.7) 49,196 92,343 (46.7) Corporate functions (18,803) (25,248) (25.5) Income from operations 30,393 67,095 (54.7) Other, net (1,688) (6,322) nm Income before income taxes $28,705 $60,773 (52.8) Twelve Months Ended December 31 Income from Net Sales % Operations % 2005 2004 Change 2005 2004 (1) Change U.S. $2,187,775 $2,220,070 (1.5) $328,517 $404,876 (18.9) International 438,921 424,966 3.3 68,407 88,723 (22.9) Total reportable segments $2,626,696 $2,645,036 (0.7) 396,924 493,599 (19.6) Corporate functions (60,309) (65,949) (8.6) Income from operations 336,615 427,650 (21.3) Other, net (14,540) (16,130) nm Income before income taxes $322,075 $411,520 (21.7) (1) 2004 U.S. Income from operations includes curtailment benefit of $64,636. First Call Analyst: FCMN Contact: 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 Tareta Adams, +1-224-212-2535, or Financial Community, Lynn McHugh, +1-224-212-2363, all of Hospira Web site: http://www.hospira.com/

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