HSP

-- Reaffirms earnings projections for 2007 -- LAKE FOREST, Ill., May 9 /PRNewswire-FirstCall/ -- Hospira, Inc. (NYSE:HSP), a leading global hospital products company, today reported results for the first quarter ended March 31, 2007. -- Net sales increased 17.8 percent to $782.8 million in the first quarter. Excluding two months of sales contribution from the Mayne Pharma acquisition, net sales grew 0.8 percent. -- Adjusted* first-quarter diluted earnings per share were $0.59 versus $0.63 in the first quarter last year. -- The GAAP first-quarter 2007 loss per diluted share was $0.19 and includes $0.74 of expenses related to the acquisition of Mayne Pharma during the quarter. GAAP diluted earnings per share in the first quarter of 2006 were $0.49. "Hospira's year is off to a good start," said Christopher B. Begley, chief executive officer. "We continued to advance the business during the quarter and remain on track with our earnings expectations for the full year. We also completed the acquisition of Mayne Pharma, a significant move that expands our global leadership position in generic injectable pharmaceuticals, and our integration efforts are now fully in motion. We continue to believe that 2007 will mark another year of significant progress for Hospira, as we build on the momentum we've created by executing our growth strategies." First-quarter Financial Highlights The following table highlights net sales, net income and diluted earnings (loss) per share results for the quarter ended March 31, 2007, which also includes the financial results for Mayne Pharma for Feb. 2 through March 31, 2007. In $ millions, GAAP Adjusted* except per Three Months Ended % Three Months Ended % share amounts March 31 Change March 31 Change 2007 2006 2007 2006 Net Sales $782.8 $664.3 17.8% n/a n/a n/a Net Income (Loss) $(29.4) $80.2 nm $93.9 $103.2 (9.1)% Diluted EPS $(0.19) $0.49 nm $0.59 $0.63 (6.3)% The primary components of the year-over-year increase in net sales for the first quarter are as follows: -- Mayne Pharma acquisition -- a favorable 17.0 percentage points; -- Favorable foreign currency translation -- 0.4 percentage point; and -- Favorable pricing in the U.S. -- 0.3 percentage point. A schedule detailing sales by product line for the first quarters of 2007 and 2006 is attached to this press release. First-quarter 2007 results under U.S. Generally Accepted Accounting Principles (GAAP) include $133.0 million of pre-tax expenses related to the Feb. 2 Mayne Pharma acquisition. The expenses include charges associated with acquired in-process research and development (R&D); inventory step-up, which is the excess of fair value relative to book value of certain inventory on hand at the date of the acquisition; amortization of intangibles; and integration and other acquisition-related costs. GAAP results for the first quarters of 2007 and 2006 also include costs related to Hospira's manufacturing optimization initiatives, non-recurring transition expenses in 2006 relating to Hospira's spin-off from Abbott Laboratories and other items as detailed in the schedules attached to this press release. Significant First-quarter Events -- Completed the acquisition of Mayne Pharma, an Australia-based specialty injectable pharmaceuticals company, for a total transaction value of approximately US$2.1 billion. As a result of the acquisition, Hospira is now the global leader in specialty generic injectable pharmaceuticals. -- Announced a new commercial leadership structure to foster a stronger global perspective, reinforce Hospira's connection to customers and establish a solid foundation for future growth. The new structure includes three regional presidents, and two presidents driving global strategy and growth in the key business areas of pharmaceuticals and devices. -- Successfully completed a $1.425 billion debt offering, with bond maturities ranging from three to 10 years. Hospira used the proceeds to finance the majority of the Mayne Pharma acquisition. -- Announced collaborations with several leading hospital information system providers to establish communications interfaces between their technologies and Hospira's medication management solutions. Additional First-quarter Information In conjunction with the previous table, the following summarizes the financial results for the quarter ended March 31, 2007: In $ millions GAAP Adjusted* Three Months Ended % Three Months Ended % March 31 Change March 31 Change 2007 2006 2007 2006 Gross Profit $274.5 $244.8 12.2% $316.7 $263.6 20.1% R&D Expense $43.5 $31.0 40.4% $43.4 $29.1 49.2% Acquired In-process R&D $84.8 -- nm -- -- -- S,G&A Expense $131.9 $101.8 29.5% $122.8 $91.2 34.7% Income from Operations $14.4 $112.0 (87.2)% $150.5 $143.4 5.0% Statistics Gross Margin 35.1% 36.9% 40.5% 39.7% R&D as % of Sales 5.6% 4.7% 5.5% 4.4% S,G&A as % of Sales 16.8% 15.3% 15.7% 13.7% Operating Margin 1.8% 16.9% 19.2% 21.6% The improvement in adjusted* gross margin was attributable primarily to better product mix in Hospira's legacy business, the inclusion of Mayne Pharma in consolidated results, and a $4.6 million benefit from an insurance settlement relating to a business interruption at a Hospira facility during 2004. Partially offsetting these factors were lower production volumes and the related impact on manufacturing activity, as well as higher freight and distribution costs, mainly in the International segment. The inclusion of Mayne Pharma accounted for the majority of the increase in adjusted* R&D expense. Larger investments in drug development programs also contributed to the increase. The higher adjusted* Selling, General and Administrative (S,G&A) expense was driven primarily by the addition of Mayne Pharma, as well as by higher, ongoing, incremental costs associated with establishing Hospira's international infrastructure. The decrease in adjusted* operating margin was due to the higher R&D and S,G&A expenses, which more than offset the increase in adjusted* gross margin. Cash Flow Cash flow from operations for the first quarter of 2007 was $49.8 million, down from $130.5 million in 2006. The decrease in cash flow relates in part to significant payments made on acquired Mayne Pharma liabilities, including merger advisory fees; higher interest expense; and acquisition-related expenses. Capital expenditures were $51.9 million for the first quarter of 2007, compared with $76.0 million for the same period in 2006. The decrease relates mainly to lower spending in 2007 related to manufacturing optimization initiatives and to the completion of the build-out of the company's independent infrastructure in 2006. 2007 Projections Hospira continues to project that net sales for the 2007 year will be in the $3.40 billion to $3.48 billion range, representing growth of approximately 26 to 29 percent. The company's net sales growth projections, excluding Mayne Pharma sales, remain between 3 and 5 percent. Hospira also continues to project that adjusted* diluted earnings per share for 2007 will be in the range of $2.11 to $2.16. The reconciliation between the projected adjusted* and GAAP-basis diluted earnings per share is: Diluted earnings per share -- adjusted* $2.11 - $2.16 Estimated charges related to previously announced manufacturing optimization initiatives (mid-point of an estimated range of $0.13 to $0.17 per diluted share range for 2007) ($0.15) Estimated integration and other acquisition-related expenses (mid-point of an estimated range of $0.18 to $0.22 per diluted share range for 2007) ($0.20) Estimated purchase-accounting charges, which include acquired in-process R&D and inventory charges, resulting from the Mayne Pharma acquisition (mid-point of an estimated range of $0.74 to $0.76 per diluted share range for 2007) ($0.75) Estimated $46 million for the amortization of intangibles related to the Mayne Pharma acquisition (11 months of 2007) ($0.19) Diluted earnings per share -- GAAP basis $0.82 - $0.87 Hospira expects to incur approximately $95 million to $110 million of cash expenditures related to the Mayne Pharma acquisition over the two-year period following the close of the acquisition on Feb. 2, 2007. Of these, the company expects to record approximately $60 million to $75 million as expense on the consolidated statements of income, with $45 million to $55 million estimated in 2007. The remainder of the cash expenditures relate to capital projects and purchase accounting items, such as severance. Hospira now expects cash flow from operations in 2007 to be in the $450 million to $500 million range, a decrease of $50 million from its previous projection. The company's assumptions about the level of cash on the balance sheet at the end of 2007 remain unchanged. The decrease in the cash flow from operations projection relates primarily to significant payments made on acquired Mayne liabilities. These liabilities were paid with the higher-than-expected level of cash acquired at the time of the closing of the acquisition, which is reflected in the net amount of the acquisition reported under the "Cash Flow Used in Investing Activities" section of the consolidated statements of cash flows. The company continues to expect capital expenditures to range between $230 million and $260 million in 2007. The company anticipates that depreciation and amortization will range between $230 million and $240 million, which includes amortization of $46 million related to the Mayne Pharma acquisition. *Use of Non-GAAP Financial Measures Non-GAAP financial 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. The 2006 adjusted diluted earnings per share figure of $0.63 differs from the adjusted diluted earnings per share of $0.62 reported in the first quarter of 2006. The difference relates to a reclassification made in the second quarter of 2006 of certain first-quarter costs, which were determined to be non-recurring transition costs associated with the spin-off from Abbott, rather than ongoing costs. The reclassification had an impact of less than one penny on first-quarter 2006 adjusted diluted earnings per share. This reclassification also affected first-quarter 2006 gross margin, income from operations and net income. Webcast A conference call for investors and media will be held at 8 a.m. Central Time on Wednesday, May 9, 2007. 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 for receiving 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. In February 2007, Hospira acquired Mayne Pharma Limited to become the world leader in specialty generic injectable pharmaceuticals. With 70 years of service to the hospital industry, Hospira's portfolio includes one of the industry's broadest lines of generic acute-care and oncology injectables, which help address the high cost of proprietary pharmaceuticals; and integrated solutions for medication management and infusion therapy. Headquartered north of Chicago in Lake Forest, Ill., Hospira has approximately 15,000 employees 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, statements regarding the financial impact of the acquisition of Mayne Pharma 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 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 Annual Report on Form 10-K for the year ended Dec. 31, 2006, filed with the Securities and Exchange Commission, which is 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 thousands, except for per share amounts) Three Months Ended March 31 % Change 2007 2006 Net sales $782,798 $664,294 17.8 Cost of products sold 508,249 419,498 21.2 Gross Profit 274,549 244,796 12.2 Research and development 43,511 31,001 40.4 Acquired in-process research and development 84,800 - nm Selling, general and administrative 131,863 101,794 29.5 Income From Operations 14,375 112,001 (87.2) Interest expense 30,522 7,657 298.6 Other (income), net (703) (4,746) (85.2) Income (Loss) Before Income Taxes (15,444) 109,090 (114.2) Income tax expense 13,912 28,907 (51.9) Net Income (Loss) $(29,356) $80,183 (136.6) Earnings Per Common Share: Basic $(0.19) $0.50 (138.0) Diluted $(0.19) $0.49 (138.8) Weighted Average Common Shares Outstanding: Basic 156,076 160,933 (3.0) Diluted 158,357 164,345 (3.6) Hospira, Inc. Reconciliation of Condensed Consolidated Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Three Months Ended March 31 2007 2006 GAAP Adjustments Adjusted GAAP Adjustments Adjusted (1) (1) Net sales $782,798 $ - $782,798 $664,294 $ - $664,294 Cost of products sold 508,249 (42,118)A 466,131 419,498 (18,828)H 400,670 Gross Profit 274,549 42,118 316,667 244,796 18,828 263,624 Research and development 43,511 (152)B 43,359 31,001 (1,934)I 29,067 Acquired in-process research and development 84,800 (84,800)C - - - - Selling, general and administrative 131,863 (9,033)D 122,830 101,794 (10,608)I 91,186 Income From Operations 14,375 136,103 150,478 112,001 31,370 143,371 Interest expense 30,522 (2,265)E 28,257 7,657 - 7,657 Other (income), net (703) (5,653)F (6,356) (4,746) - (4,746) Income (Loss) Before Income Taxes (15,444) 144,021 128,577 109,090 31,370 140,460 Income tax expense 13,912 20,804 G 34,716 28,907 8,313 J 37,220 Net Income (Loss) $(29,356) $123,217 $93,861 $80,183 $23,057 $103,240 Earnings Per Common Share: Basic $(0.19) $0.79 $0.60 $0.50 $0.13 $0.63 Diluted $(0.19) $0.78 $0.59 $0.49 $0.14 $0.63 Weighted Average Common Shares Outstanding: Basic 156,076 156,076 156,076 160,933 160,933 160,933 Diluted 158,357 158,357 158,357 164,345 164,345 164,345 (1) As described in this press release, an additional $1.8 million was reclassified as non-recurring transition costs and is recorded in cost of products sold. Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 35.1% 40.5% 36.9% 39.7% R&D 5.6% 5.5% 4.7% 4.4% SG&A 16.8% 15.7% 15.3% 13.7% Income From Operations 1.8% 19.2% 16.9% 21.6% Income (Loss) Before Income Taxes -2.0% 16.4% 16.4% 21.1% Net Income (Loss) -3.8% 12.0% 12.1% 15.5% Income tax rate -90.1% 27.0% 26.5% 26.5% % Change vs. Prior Year GAAP Adjusted Net sales 17.8 17.8 Cost of products sold 21.2 16.3 Gross Profit 12.2 20.1 Research and development 40.4 49.2 Acquired in-process research and development nm nm Selling, general and administrative 29.5 34.7 Income From Operations (87.2) 5.0 Interest expense 298.6 269.0 Other (income), net (85.2) 33.9 Income (Loss) Before Income Taxes (114.2) (8.5) Income tax expense (51.9) (6.7) Net Income (Loss) (136.6) (9.1) Earnings Per Common Share: Basic (138.0) (4.8) Diluted (138.8) (6.3) Weighted Average Common Shares Outstanding: Basic (3.0) (3.0) Diluted (3.6) (3.6) A -- Includes inventory step-up charge of $21,408 and intangible assets amortization of $8,428 related to the Mayne Pharma acquisition; costs of $10,838 related to the planned closures of the Donegal, Ireland; Ashland, OH; Montreal, Canada; and North Chicago, IL facilities as part of Hospira's manufacturing optimization initiatives; and Mayne Pharma integration costs of $1,444. B -- Acquisition integration costs. C -- Acquired in-process research and development related to the acquisition of Mayne Pharma. D -- Acquisition integration costs. E -- Other acquisition-related cost: bridge loan fees incurred as a result of the Mayne Pharma acquisition expensed upon refinancing of loan during the first quarter. F -- Other acquisition-related cost: foreign exchange losses related to the Mayne Pharma acquisition. G -- Reflects the tax effect of the above adjustments, except for the non-tax deductible write-off of acquired in-process research and development related to the Mayne Pharma acquisition. H -- Includes costs of $16,059 related to the planned closures of the Donegal, Ireland; Ashland, OH; Montreal, Canada; and North Chicago, IL facilities as part of Hospira's manufacturing optimization initiatives; and non-recurring transition costs of $2,769. I -- Non-recurring transition costs. J -- Reflects the tax effect of the above adjustments. Hospira, Inc. Reconciliation of Earnings Per Share (Unaudited) Three Months Ended March 31 2007 2006 Diluted Earnings Per Common Share - GAAP $(0.19) $0.49 Adjustments: Acquired in-process research and development -- Mayne Pharma 0.54 - Inventory step-up charge -- Mayne Pharma acquisition 0.09 - Integration and other acquisition-related costs 0.07 - Intangible assets amortization -- Mayne Pharma acquisition 0.04 - Charges related to manufacturing optimization initiatives 0.04 0.07 Non-recurring transition costs - 0.07 Subtotal of Adjustments 0.78 0.14 Diluted Earnings per Common Share - Adjusted $0.59 $0.63 Hospira, Inc. Condensed Consolidated Balance Sheets (Unaudited) (dollars in thousands) March 31 December 31 Assets 2007 2006 Current Assets: Cash and cash equivalents $250,220 $322,045 Net trade receivables 536,977 335,334 Inventories 833,321 626,934 Prepaid expenses, deferred income taxes and other receivables 223,230 238,577 Total Current Assets 1,843,748 1,522,890 Net property and equipment 1,242,967 1,039,431 Intangible assets, net of amortization 527,679 17,103 Goodwill 1,202,226 91,857 Deferred income taxes 39,023 76,367 Investments 40,190 31,341 Other assets 78,688 68,598 Total Assets $4,974,521 $2,847,587 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $101,088 $4,532 Trade accounts payable 182,187 130,968 Salaries payable and other accruals 487,283 470,726 Total Current Liabilities 770,558 606,226 Long-term debt 2,525,356 702,044 Post-retirement obligations, deferred income taxes and other long-term liabilities 309,842 178,228 Commitments and Contingencies Total Liabilities 3,605,756 1,486,498 Total Shareholders' Equity 1,368,765 1,361,089 Total Liabilities and Shareholders' Equity $4,974,521 $2,847,587 Hospira, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) Three Months Ended March 31 2007 2006 Cash Flow From (Used in) Operating Activities: Net (loss) income $(29,356) $80,183 Adjustments to reconcile net income to net cash from operating activities-- Depreciation 41,230 37,137 Amortization of intangibles 9,240 482 Write-off of acquired in-process research and development 84,800 - Stock-based compensation expense 7,154 6,511 Changes in assets and liabilities-- Trade receivables (7,093) (32,815) Inventories 12,869 (50,929) Prepaid expenses and other assets (4,144) (3,109) Trade accounts payable 5,080 46,232 Other liabilities (64,256) 20,452 Other, net (5,698) 26,387 Net Cash From Operating Activities 49,826 130,531 Cash Flow From (Used in) Investing Activities: Acquisitions of property and equipment (51,854) (75,986) Acquisition of Mayne Pharma, net of cash acquired (1,961,285) - Settlements of foreign currency contracts (41,250) - Proceeds from dispositions of product rights 13,771 - Purchase of intangibles and other investments - (12,045) Net Cash (Used in) Investing Activities (2,040,618) (88,031) Cash Flow From (Used in) Financing Activities: Issuance of long-term debt, net of fees paid 3,335,708 - Repayment of long-term debt (1,437,541) (44) Other borrowings, net (391) 9 Payment to Abbott for international assets - (26,129) Common stock repurchased - (224,793) Excess tax benefit from stock-based compensation arrangements 254 2,430 Proceeds from stock options exercised 15,647 16,574 Net Cash From (Used in) Financing Activities 1,913,677 (231,953) Effect of exchange rate changes on cash and cash equivalents 5,290 635 Net change in cash and cash equivalents (71,825) (188,818) Cash and cash equivalents at beginning of period 322,045 520,610 Cash and cash equivalents at end of period $250,220 $331,792 Hospira, Inc. Sales by Product Line (Unaudited) (dollars in thousands) Three Months Ended March 31 2007 2006 % Change U.S. -- Specialty Injectable Pharmaceuticals $205,759 $185,236 11.1 Medication Delivery Systems 212,981 213,026 0.0 Injectable Pharmaceutical Contract Manufacturing 41,226 52,102 (20.9) Sales to Abbott Laboratories 17,151 24,381 (29.7) Mayne Pharma 21,059 - nm Other 70,832 74,449 (4.9) Total U.S. 569,008 549,194 3.6 International -- Sales to Third Parties 106,565 99,293 7.3 Sales to Abbott Laboratories 15,489 15,807 (2.0) Mayne Pharma 91,736 - nm Total International Sales 213,790 115,100 85.7 Consolidated Net Sales $782,798 $664,294 17.8 Hospira, Inc. Segment Information (Unaudited) (dollars in thousands) Three Months Ended March 31 Net Sales Income from Operations 2007 2006 % Change 2007 2006 % Change U.S. $569,008 $549,194 3.6 $43,357 A $114,045 A (62.0) International 213,790 115,100 85.7 (9,891)B 11,914 B (183.0) Total reportable segments $782,798 $664,294 17.8 33,466 125,959 (73.4) Corporate functions (19,091)C (13,958)C 36.8 Income from operations 14,375 112,001 (87.2) Other, net (29,819)D (2,911) nm Income (loss) before income taxes $(15,444) $109,090 (114.2) Included in the reported Income before income taxes above, are the following costs: A -- U.S. Costs related to the planned closures of the $8,360 $8,025 Ashland, OH and North Chicago, IL facilities Acquired in-process research and development 66,300 - -- Mayne Pharma Inventory step-up charge -- Mayne Pharma acquisition 5,172 - Intangible assets amortization -- Mayne 2,180 Pharma acquisition Integration and other acquisition-related costs 4,397 - Non-recurring transition costs - 9,310 Total U.S. $86,409 $17,335 B -- International Acquired in-process research and development 18,500 - -- Mayne Pharma Inventory step-up charge -- Mayne Pharma acquisition 16,236 - Intangible assets amortization -- Mayne 6,248 Pharma acquisition Costs related to the announced closures of the 2,478 8,034 Donegal, Ireland and Montreal, Canada facilities Integration costs -- Mayne Pharma 301 - Non-recurring transition costs - 4,794 Total International $43,763 $12,828 C -- Corporate Integration and other acquisition-related costs 5,931 - Non-recurring transition costs - 1,207 Total Corporate $5,931 $1,207 D -- Other, net Integration and other acquisition-related costs 7,918 - Total Other, net $7,918 $ - Total $144,021 $31,370 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 Shannon Wong, +1-224-212-2003, or Financial Community, Lynn McHugh, +1-224-212-2363, all of Hospira, Inc. Web site: http://www.hospira.com/

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