HSP

In $ millions,

except per share

amounts

GAAP

Three Months Ended

March 31,

Adjusted*

Three Months Ended

March 31,

2012

2011

%

Change

2012

2011

%

Change

Net Sales

$965.9

$1,002.3

(3.6)%

n/a

n/a

n/a

Gross Profit (Net Sales less

Cost of Products Sold)

$300.0

$399.1

(24.8)%

$357.5

$424.3

(15.7)%

Income from Operations

$46.7

$163.8

(71.5)%

$104.2

$203.4

(48.8)%

Diluted Earnings per Share

$0.24

$0.88

(72.7)%

$0.47

$0.93

(49.5)%

Statistics (as a % of Net Sales)

Gross Profit (Net Sales less

Cost of Products Sold)

31.1%

39.8%

37.0%

42.3%

Income from Operations

4.8%

16.3%

10.8%

20.3%

Diluted earnings per share -- adjusted*

$2.00 - $2.30

Estimated amortization of intangible assets

related to certain acquisitions (mid-point of an

estimated range of $0.28 to $0.32 per diluted share)

                                                                                                    ($0.30)

Estimated charges for certain quality and

product-related matters (mid-point of an

estimated range of $0.50 to $0.62 per diluted share)

($0.56)

Estimated charges related to capacity expansion

(mid-point of an estimated range of $0.09 to $0.11

per diluted share)

($0.10)

Diluted earnings per share -- GAAP

$1.04 - $1.34

Private Securities Litigation Reform Act of 1995 --

A Caution Concerning Forward-Looking Statements

Hospira, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(dollars and shares in millions, except for per share amounts)

Three Months Ended March 31,

% Change

2012

2011

Net sales

$                 965.9

$                1,002.3

(3.6)%

Cost of products sold

665.9

603.2

10.4%

Restructuring, impairment and (gain) on disposition of assets, net

-

13.2

(100.0)%

Research and development

69.1

56.9

21.4%

Selling, general and administrative

184.2

165.2

11.5%

   Total operating costs and expenses

919.2

838.5

9.6%

       Income From Operations

46.7

163.8

(71.5)%

Interest expense

22.2

23.4

(5.1)%

Other expense (income), net

1.4

(2.2)

(163.6)%

       Income Before Income Taxes

23.1

142.6

(83.8)%

Income tax (benefit) expense

(4.0)

9.9

(140.4)%

Equity income from affiliates, net

(13.1)

(17.2)

(23.8)%

       Net Income

$                   40.2

$                   149.9

(73.2)%

Earnings Per Common Share:

   Basic

$                   0.24

$                     0.90

(73.3)%

   Diluted

$                   0.24

$                     0.88

(72.7)%

Weighted Average Common Shares Outstanding:

   Basic

164.6

166.8

(1.3)%

   Diluted

165.8

170.2

(2.6)%

Adjusted Gross Profit (1)(2)

$                 357.5

$                   424.3

(15.7)%

Adjusted Income From Operations (1)

$                 104.2

$                   203.4

(48.8)%

Adjusted Net Income (1)

$                   78.4

$                   157.5

(50.2)%

Adjusted Diluted Earnings Per Share (1)

$                   0.47

$                     0.93

(49.5)%

Statistics (as a % of net sales, except for income tax rate):                     

GAAP Three Months Ended March 31,

Adjusted (1) Three Months Ended March 31,

2012

2011

2012

2011

Gross Profit (2)

31.1%

39.8%

37.0%

                   42.3%

Income From Operations

4.8%

16.3%

10.8%

20.3%

Net Income

4.2%

15.0%

8.1%

15.7%

Income Tax Rate

(17.3)%

6.9%

19.0%

23.0%

(1)

Adjusted financial measures exclude certain specified items as described and reconciled to comparable GAAP financial measures in the Reconciliation of GAAP to Non-GAAP Financial Measures contained in this press release.

(2)

Gross profit is defined as Net sales less Cost of products sold. Adjusted gross profit excludes certain specified items, as indicated in the previous footnote.

Hospira, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(dollars in millions, except for per share amounts)

Three months ended March 31, 2012 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1)

Income From

Operations

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                             

$                    300.0

$                       46.7

$                      40.2

$                       0.24

Specified items:

  Amortization of certain intangible assets (A)

18.7

18.7

13.0

0.08

  Certain quality and product related charges (B)

36.9

36.9

23.9

0.14

  Capacity expansion related charges (C)

1.9

1.9

1.3

0.01

Adjusted financial measures (3)

$                    357.5

$                     104.2

$                      78.4

$                       0.47

GAAP results for the three months ended March 31, 2012 include:

(A)

Amortization of certain intangible assets reported in Cost of products sold resulting from acquisitions including Mayne Pharma Limited ("Mayne Pharma"), Javelin Pharmaceuticals, Inc. ("Javelin Pharma") and a generic injectable business by Hospira Healthcare India Private Limited ("Hospira India").

(B)

Certain quality and product related charges reported in Cost of products sold primarily include third party oversight and consulting costs, reduced production volume related costs and penalties for failure to supply certain products to customers. These charges are directly associated with Hospira's response to the United States Food and Drug Administration ("FDA") 2010 warning letter and subsequent Form 483 observations and charges related to Hospira's comprehensive device product review and certain device related remediation activities.

(C)

Capacity expansion related charges reported in Cost of products sold include start-up charges related to manufacturing capacity expansion in India.

Three months ended March 31, 2011 Reconciliation of GAAP to Non-GAAP Financial Measures:

Gross Profit (1)

Income From

Operations

Net Income (2)

Diluted EPS

GAAP financial measures                                                                                                             

$                    399.1

$                     163.8

$                    149.9

$                       0.88

Specified items:

  Project Fuel and related charges (A)

5.0

9.6

6.3

0.04

  Facilities Optimization charges (B)

0.8

1.1

0.7

0.01

  Amortization and impairment of certain intangible assets (C)

19.4

21.1

14.5

0.09

  Other restructuring charges (D)

-

7.8

5.8

0.03

  Settlement of IRS tax audit benefit (E)

-

-

(19.7)

(0.12)

Adjusted financial measures (3)

$                    424.3

$                     203.4

$                    157.5

$                       0.93

GAAP results for the three months ended March 31, 2011 include:

(A)

Project Fuel and related charges: $5.0 million reported in Cost of products sold, $3.4 million reported in Restructuring, impairment and (gain) on disposition of assets, net and $1.2 million reported in Selling, general and administrative. Project Fuel initiatives include costs for process optimization implementation, severance and other employee benefits, exit costs, and other asset charges.

(B)

Facilities Optimization charges: $0.8 million reported in Cost of products sold and $0.3 million reported in Restructuring, impairment and (gain) on disposition of assets, net. These charges relate to facilities optimization from the closure or departure from certain manufacturing and research and development ("R&D") facilities and include costs for severance and other employee benefits, accelerated depreciation and relocation of production and R&D operations.

(C)

Amortization and impairment of certain intangible assets: $19.4 million reported in Cost of products sold and $1.7 million reported in Restructuring, impairment and (gain) on disposition of assets, net resulting from acquisitions including Mayne Pharma, Javelin Pharma and a generic injectable business by Hospira India.

(D)

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

(E)

Settlement of IRS tax audit benefit of $19.7 million reported in Income tax expense.  This discrete income tax benefit is related to the completion and effective settlement of U.S. tax return audits.

(1)

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

(2)

Adjusted Net Income is shown net of tax of $19.3 million and $12.3 million exclusive of the 2011 tax audit settlement for the three months ended March 31, 2012 and 2011, respectively, based on the statutory tax rates in the various tax jurisdictions in which the items occurred.

(3)

The Non-GAAP financial measures contained in this press release (including adjusted gross profit, adjusted income from operations, adjusted net income and adjusted diluted Earnings Per Share) adjust for certain specified items. All Non-GAAP financial measures are intended to supplement the applicable GAAP measures and should not be considered in isolation from, or a replacement for, financial measures prepared in accordance with GAAP. Refer to Hospira’s filing on Form 8-K filed on May 1, 2012 for additional information.

Hospira, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(dollars in millions)

March 31,

December 31,

Assets

2012

2011

Current Assets:

Cash and cash equivalents

$             655.9

$              597.5

Trade receivables, less allowances of $17.0 in 2012 and $15.7 in 2011

625.8

639.9

Inventories

1,065.0

1,027.0

Deferred income taxes

167.4

174.4

Prepaid expenses

49.2

45.9

Other receivables

72.7

86.0

       Total Current Assets

2,636.0

2,570.7

Property and equipment, net

1,392.8

1,355.0

Intangible assets, net

341.7

355.8

Goodwill

1,088.9

1,082.9

Deferred income taxes

244.3

232.2

Investments

63.7

48.7

Other assets

141.3

133.8

       Total Assets

$          5,908.7

$           5,779.1

Liabilities and Shareholders' Equity

Current Liabilities:

Short-term borrowings

$               67.2

$                36.6

Trade accounts payable

234.4

241.3

Salaries, wages and commissions

107.6

113.0

Other accrued liabilities

474.8

456.9

       Total Current Liabilities

884.0

847.8

Long-term debt

1,712.0

1,711.9

Deferred income taxes

5.4

5.7

Post-retirement obligations and other long-term liabilities

268.4

275.7

Commitments and Contingencies

Total Shareholders' Equity

3,038.9

2,938.0

Total Liabilities and Shareholders' Equity

$          5,908.7

$           5,779.1

Hospira, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in millions)

Three months ended March 31,

2012

2011

Cash Flow From Operating Activities:

 Net income

$             40.2

$          149.9

 Adjustments to reconcile net income to net cash from operating activities-

   Depreciation

40.8

40.8

   Amortization of intangible assets

21.3

22.2

   Stock-based compensation expense

10.4

13.7

   Undistributed equity income from affiliates

(13.1)

(17.2)

   Deferred income tax and other tax adjustments

(6.4)

(15.1)

   Impairment and other asset charges

1.6

6.8

 Changes in assets and liabilities

   Trade receivables

22.2

(100.8)

   Inventories

(35.3)

(115.1)

   Prepaid expenses and other assets

(10.5)

6.7

   Trade accounts payable

(3.8)

(27.5)

   Other liabilities

18.9

44.0

 Other, net

0.7

(2.3)

     Net Cash Provided by Operating Activities

87.0

6.1

Cash Flow From Investing Activities:

 Capital expenditures (including instruments placed with or leased to customers)

(67.3)

(62.2)

 Purchases of intangibles and other investments

(3.6)

(2.5)

 Proceeds from disposition of businesses and assets

3.1

13.3

   Net Cash Used in Investing Activities

(67.8)

(51.4)

Cash Flow From Financing Activities:

 Other borrowings, net

27.5

0.4

 Excess tax benefit from stock-based compensation arrangements

1.7

4.6

 Proceeds from stock options exercised

3.4

26.8

   Net Cash Provided by Financing Activities

32.6

31.8

Effect of exchange rate changes on cash and cash equivalents

6.6

6.3

Net change in cash and cash equivalents

58.4

(7.2)

Cash and cash equivalents at beginning of period

597.5

604.3

Cash and cash equivalents at end of period

$           655.9

$          597.1

Supplemental Cash Flow Information:

Cash paid (received) during the period-

  Interest

$             31.1

$            31.0

  Income taxes, net of refunds

$              (8.4)

$           (21.0)

Hospira, Inc.

Net Sales by Product Line

(Unaudited)

(dollars in millions)

Three Months Ended March 31,

2012

2011

% Change at

Actual Currency

Rates

% Change at

Constant Currency

Rates (1)

Americas--

  Specialty Injectable Pharmaceuticals

$                 457.7

$                  511.3

(10.5)%

(10.1)%

  Medication Management

213.2

196.0

8.8%

9.1%

  Other Pharma

99.4

101.6

(2.2)%

(2.1)%

Total Americas                                                       

770.3

808.9

(4.8)%

(4.4)%

Europe, Middle East & Africa--

  Specialty Injectable Pharmaceuticals

76.2

68.5

11.2%

15.6%

  Medication Management

30.8

33.8

(8.9)%

(5.3)%

  Other Pharma

20.9

17.7

18.1%

21.5%

Total Europe, Middle East & Africa

127.9

120.0

6.6%

10.6%

Asia Pacific--

  Specialty Injectable Pharmaceuticals

52.5

58.8

(10.7)%

(13.4)%

  Medication Management

12.2

10.4

17.3%

14.4%

  Other Pharma

3.0

4.2

(28.6)%

(31.0)%

Total Asia Pacific

67.7

73.4

(7.8)%

(10.6)%

Net Sales

$                 965.9

$               1,002.3

(3.6)%

(3.1)%

Global--

  Specialty Injectable Pharmaceuticals

$                 586.4

$                  638.6

(8.2)%

(7.6)%

  Medication Management

256.2

240.2

6.7%

7.3%

  Other Pharma

123.3

123.5

(0.2)%

(0.2)%

Net Sales

$                 965.9

$               1,002.3

(3.6)%

(3.1)%

(1)

The Non-GAAP financial measures contained in this press release include comparisons at constant currency rates, which reflect comparative local currency balances at prior period foreign exchange rates. Hospira calculated these percentages by taking current period reported net sales less the respective prior period reported net sales, divided by the prior period reported net sales, all at the respective prior period's foreign exchange rates. This measure provides information on the change in net sales assuming that foreign currency exchange rates have not changed between the prior and the current period. Management believes the use of this measure aids in the understanding of our change in net sales without the impact of foreign currency and provides greater transparency into Hospira's results of operations. Management uses these measures internally to monitor business unit performance and in evaluating management performance. These measures are intended to supplement the applicable GAAP measures and should not be considered in isolation from or a replacement for, financial measures prepared in accordance with GAAP.