Hospira Reports Third-Quarter 2006 Results

LAKE FOREST, Ill., Nov. 8 /PRNewswire-FirstCall/ -- Hospira, Inc. , a leading global hospital products company, today reported results for the third quarter ended Sept. 30, 2006.

-- Against an unusually strong third quarter in 2005, net sales decreased 1.5 percent to $646.6 million. -- Adjusted* third-quarter diluted earnings per share were $0.45 versus $0.48 last year. Third-quarter 2006 adjusted* diluted earnings per share include $0.04 of stock option expense. -- Third-quarter GAAP diluted earnings per share were $0.35 versus $0.37 for the same period in 2005.

"The third quarter was one of continued progress for Hospira in executing on our long-term growth strategies, with notable advances such as the acquisition announcement of Mayne Pharma," said Christopher B. Begley, chief executive officer, Hospira. "And despite challenging comparisons against an unusually strong third quarter in 2005, we remain on track to achieve our 2006 adjusted* earnings per share estimate. We continue to position Hospira for a strong future by investing for growth and working steadily to improve our operating margins and cash flow over the long term."

Third-quarter Financial Highlights

The following table highlights net sales, net income and diluted earnings per share results for the quarter ended Sept. 30, 2006:

In $ millions, except per share amounts GAAP Adjusted* Three Months Ended Three Months Ended Sept. 30 Sept. 30 2006 2005 % Change 2006 2005 % Change Net Sales $646.6 $656.6 (1.5)% n/a n/a n/a Net Income $55.9 $59.9 (6.5)% $72.9 $78.0 (6.6)% Diluted EPS $0.35 $0.37 (5.4)% $0.45 $0.48 (6.3)%

Affecting year-over-year comparisons was third-quarter 2005's particularly strong performance, which benefited from several factors, including the launch of the generic injectable drug ceftriaxone and a competitor's supply issues.

A schedule detailing sales by product line for the third quarter and first nine months of 2006 and 2005 is attached to this press release.

The primary components of the year-over-year change in net sales for the third quarter are as follows:

-- Unfavorable volume and mix -- (2.9) percentage points, -- Favorable pricing in the U.S. -- 0.7 percentage point, and -- Favorable foreign currency translation -- 0.6 percentage point.

Core net sales*, which exclude sales to Abbott and foreign exchange, declined 2.0 percent in the third quarter.

Significant Events in the Third Quarter -- Announced an agreement to acquire Mayne Pharma, an Australia-based, publicly held specialty injectable pharmaceuticals company, for approximately US$2 billion in cash. The combination would result in the creation of a leading, global, generic injectable pharmaceuticals company, more than doubling Hospira's international presence and significantly accelerating the expansion of the company's generic injectable business. Assuming all necessary regulatory approvals are secured and customary closing conditions met, the transaction is expected to be completed around the end of the year. -- Launched the generic anti-infective drug ciprofloxacin in a flip-top vial format immediately following the patent expiration of the branded version. -- Announced separate agreements with group purchasing organizations (GPOs) Premier and HealthTrust Purchasing Group to provide their member organizations access to Hospira's line of industry-leading pain management pumps. Both agreements are new and national in scope. -- Announced the appointment of Thomas E. Werner to the position of senior vice president, Finance, and chief financial officer. Additional Third-quarter Information

In conjunction with the previous table, the following summarizes the financial results for the quarter ended Sept. 30, 2006:

In $ millions GAAP Adjusted* Three Months Ended Three Months Ended Sept. 30 Sept. 30 2006 2005 % Change 2006 2005 % Change Gross Profit $219.0 $227.6 (3.8)% $237.6 $232.6 2.1% R&D Expense $36.5 $35.5 2.7% $36.2 $35.4 2.4% S,G&A Expense $103.5 $91.5 13.1% $99.6 $84.3 18.1% Income from Operations $79.1 $100.6 (21.4)% $101.8 $113.0 (9.9)% Statistics Gross Margin 33.9% 34.7% 36.7% 35.4% R&D as % of Sales 5.6% 5.4% 5.6% 5.4% S,G&A as % of Sales 16.0% 13.9% 15.4% 12.8% Operating Margin 12.2% 15.3% 15.7% 17.2%

U.S. Generally Accepted Accounting Principles (GAAP) results include the effects of non-recurring transition expenses, manufacturing optimization expenses, and other items as detailed in the schedules attached to this press release.

The improvement in adjusted* gross margin was attributable primarily to lower manufacturing costs, improvement in manufacturing volumes and product mix, and favorable pricing in the U.S. These factors were partially offset by incremental freight and distribution infrastructure costs, primarily in the International segment.

The increase in adjusted* Research & Development (R&D) expense was primarily due to the inclusion of stock option expense in 2006.

The increase in adjusted* Selling, General and Administrative (S,G&A) expense was driven mainly by higher, ongoing, incremental costs associated with being a stand-alone public company, particularly related to operating the company's independent information technology (IT) system and its international business. The inclusion of stock option expense in 2006 results was also a factor.

The decrease in adjusted* operating margin was attributable to higher S,G&A and R&D expense, which more than offset the improvement to the adjusted* gross margin.

Cash Flow

Cash flow from operations for the first nine months of 2006 was $331.9 million, down from $471.3 million in the same period last year. The decrease in cash flow relates primarily to higher inventory levels.

Capital expenditures were $183.6 million for the first nine months of 2006, compared with $189.5 million for the same period in 2005. The decline in spending to build out the company's independent infrastructure more than offset the capital spending related to its manufacturing optimization initiatives.

2006 Projections

Due to delays in purchasing decisions by customers in Medication Management Systems as well as the expectation of lower-than-previously- projected sales growth in International, the company now projects that core net sales* will grow at a mid-single-digit rate. On a GAAP basis, net sales are expected to grow approximately 1 to 2 percent.

Hospira continues to project that the adjusted* earnings per share for full-year 2006 will be between $1.97 and $2.02, despite the lower growth rate in sales. These projections do not include any charges or other impacts resulting from the company's pending acquisition of Mayne Pharma or other pending transactions. The charges or other impacts could include purchase- accounting charges and integration expenses relating to the transactions, and could include approximately $21 million in additional pre-tax expenses relating to a potential biogenerics collaboration opportunity that could be closed during the fourth quarter.

The reconciliation between the projected adjusted* diluted earnings per share and GAAP-basis earnings per share is:

Diluted earnings per share -- adjusted* (includes $0.17 of stock option expense) $1.97 - $2.02 Estimated non-recurring transition expenses related to becoming an independent, stand-alone company (estimated $0.16 to $0.17 per diluted share for 2006) ($0.16) Estimated charges related to previously announced manufacturing optimization initiatives (mid-point of an estimated $0.24 to $0.28 per diluted share range for 2006) ($0.26) Diluted earnings per share -- GAAP basis $1.55 - $1.60

Cash flow from operations in 2006 is now projected to range between $400 million and $425 million, with capital expenditures estimated in the $220 million to $240 million range. The company expects depreciation and amortization to range between $150 million and $160 million.

*Use of Non-GAAP Financial Measures

As used in this press release, the term "adjusted" refers to operating performance measures that exclude the non-recurring transition expenses in 2006 and 2005 related to becoming an independent, stand-alone company; charges related to the company's manufacturing optimization initiatives; and other items as detailed in the schedules attached to this press release. Reconciliations of these non-GAAP measures to the most comparable GAAP measure are contained in the schedules attached to this press release.

Management believes that the items excluded in the adjusted, non-GAAP financial measures are not necessarily indicative of the company's base business results. Management believes that these non-GAAP financial measures provide useful information to both management and investors in their analysis of the company's ongoing business and operating performance. Management also believes that such presentation, when taken together with results presented on a GAAP basis, enables investors to have more complete information with which to assess the company's results of operations and prospects. The information also allows management and investors to better compare the company's performance on both year-over-year and competitive bases. In addition, management uses this information for operational planning and decision-making purposes, including establishing employee incentive targets.

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.

Webcast

A conference call for investors and media will be held at 8 a.m. Central Time on Wednesday, Nov. 8, 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 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. 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 north of Chicago in Lake Forest, Ill., 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 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, 2005, and subsequent Quarterly Reports on Form 10-Q, filed with the Securities and Exchange Commission. 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 September 30 2006 2005 % Change Net sales $605,264 $613,898 (1.4) Net sales to Abbott Laboratories 41,376 42,672 (3.0) Total Net Sales 646,640 656,570 (1.5) Cost of products sold 427,612 429,008 (0.3) Gross Profit 219,028 227,562 (3.8) Research and development 36,470 35,525 2.7 Selling, general and administrative 103,506 91,483 13.1 Income From Operations 79,052 100,554 (21.4) Interest expense 8,059 6,916 16.5 Other (income), net (4,099) (3,409) nm Income Before Income Taxes 75,092 97,047 (22.6) Income tax expense 19,147 37,192 (48.5) Net Income $55,945 $59,855 (6.5) Earnings Per Common Share: Basic $0.36 $0.38 (5.3) Diluted $0.35 $0.37 (5.4) Weighted Average Common Shares Outstanding: Basic 156,359 160,103 (2.3) Diluted 158,781 162,842 (2.5) Nine Months Ended September 30 2006 2005 % Change Net sales $1,859,273 $1,849,103 0.5 Net sales to Abbott Laboratories 122,762 131,443 (6.6) Total Net Sales 1,982,035 1,980,546 0.1 Cost of products sold 1,293,125 1,316,790 (1.8) Gross Profit 688,910 663,756 3.8 Research and development 106,526 96,767 10.1 Selling, general and administrative 316,373 260,767 21.3 Income From Operations 266,011 306,222 (13.1) Interest expense 22,999 20,942 9.8 Other (income), net (12,394) (8,090) nm Income Before Income Taxes 255,406 293,370 (12.9) Income tax expense 65,128 84,309 (22.8) Net Income $190,278 $209,061 (9.0) Earnings Per Common Share: Basic $1.21 $1.32 (8.3) Diluted $1.18 $1.30 (9.2) Weighted Average Common Shares Outstanding: Basic 157,897 158,643 (0.5) Diluted 161,214 160,797 0.3 Hospira, Inc. Reconciliation of Condensed Consolidated Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Three Months Ended September 30 2006 2005 GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $605,264 $ - $605,264 $613,898 $ - $613,898 Net sales to Abbott Laboratories 41,376 - 41,376 42,672 - 42,672 Total Net Sales 646,640 - 646,640 656,570 - 656,570 Cost of products sold 427,612 (18,566)A 409,046 429,008 (5,070)C 423,938 Gross Profit 219,028 18,566 237,594 227,562 5,070 232,632 Research and development 36,470 (262)B 36,208 35,525 (155)B 35,370 Selling, general and administrative 103,506 (3,943)B 99,563 91,483 (7,178)B 84,305 Income From Operations 79,052 22,771 101,823 100,554 12,403 112,957 Interest expense 8,059 - 8,059 6,916 - 6,916 Other (income), net (4,099) - (4,099) (3,409) - (3,409) Income Before Income Taxes 75,092 22,771 97,863 97,047 12,403 109,450 Income tax expense 19,147 5,807 24,954 37,192 (5,787)D 31,405 Net Income $55,945 $16,964 $72,909 $59,855 $18,190 $78,045 Earnings Per Common Share: Basic $0.36 $0.11 $0.47 $0.38 $0.11 $0.49 Diluted $0.35 $0.10 $0.45 $0.37 $0.11 $0.48 Weighted Average Common Shares Outstanding: Basic 156,359 156,359 156,359 160,103 160,103 160,103 Diluted 158,781 158,781 158,781 162,842 162,842 162,842 Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 33.9% 36.7% 34.7% 35.4% R&D 5.6% 5.6% 5.4% 5.4% SG&A 16.0% 15.4% 13.9% 12.8% Income From Operations 12.2% 15.7% 15.3% 17.2% Income Before Income Taxes 11.6% 15.1% 14.8% 16.7% Net Income 8.7% 11.3% 9.1% 11.9% Income tax rate 25.5% 25.5% 38.3% 28.7% % Change vs. Prior Year GAAP Adjusted Net sales (1.4) (1.4) Net sales to Abbott Laboratories (3.0) (3.0) Total Net Sales (1.5) (1.5) Cost of products sold (0.3) (3.5) Gross Profit (3.8) 2.1 Research and development 2.7 2.4 Selling, general and administrative 13.1 18.1 Income From Operations (21.4) (9.9) Interest expense 16.5 16.5 Other (income), net nm nm Income Before Income Taxes (22.6) (10.6) Income tax expense (48.5) (20.5) Net Income (6.5) (6.6) Earnings Per Common Share: Basic (5.3) (4.1) Diluted (5.4) (6.3) Weighted Average Common Shares Outstanding: Basic (2.3) (2.3) Diluted (2.5) (2.5) A -- Includes costs of $18,291 related to the planned closure 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 $275. B -- Non-recurring transition costs. C -- Includes non-recurring charges of $2,278 related to the closure of the Donegal, Ireland, facility as part of Hospira's manufacturing optimization initiatives; and non-recurring transition costs of $2,792. D -- Includes $9,500 one-time tax impact of earnings repatriation related to The American Jobs Creations Act, and the impact of increasing the overall effective tax rate from 24% to 25.5%. Hospira, Inc. Reconciliation of Condensed Consolidated Statements of Income (Unaudited) (dollars and shares in thousands, except per share amounts) Nine Months Ended September 30 2006 2005 GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $1,859,273 $ - $1,859,273 $1,849,103 $ - $1,849,103 Net sales to Abbott Laboratories 122,762 - 122,762 131,443 - 131,443 Total Net Sales 1,982,035 - 1,982,035 1,980,546 - 1,980,546 Cost of products sold 1,293,125 (45,697)A 1,247,428 1,316,790 (23,441)C 1,293,349 Gross Profit 688,910 45,697 734,607 663,756 23,441 687,197 Research and development 106,526 (3,266)B 103,260 96,767 (375)B 96,392 Selling, general and adminis- trative 316,373 (23,144)B 293,229 260,767 (25,315)B 235,452 Income From Operations 266,011 72,107 338,118 306,222 49,131 355,353 Interest expense 22,999 - 22,999 20,942 - 20,942 Other (income), net (12,394) - (12,394) (8,090) - (8,090) Income Before Income Taxes 255,406 72,107 327,513 293,370 49,131 342,501 Income tax expense 65,128 18,387 83,515 84,309 3,028 D 87,337 Net Income $190,278 $53,720 $243,998 $209,061 $46,103 $255,164 Earnings Per Common Share: Basic $1.21 $0.34 $1.55 $1.32 $0.29 $1.61 Diluted $1.18 $0.33 $1.51 $1.30 $0.29 $1.59 Weighted Average Common Shares Outstanding: Basic 157,897 157,897 157,897 158,643 158,643 158,643 Diluted 161,214 161,214 161,214 160,797 160,797 160,797 Statistics (as a % of Total Net Sales, except for income tax rate) Gross Profit 34.8% 37.1% 33.5% 34.7% R&D 5.4% 5.2% 4.9% 4.9% SG&A 16.0% 14.8% 13.2% 11.9% Income From Operations 13.4% 17.1% 15.5% 17.9% Income Before Income Taxes 12.9% 16.5% 14.8% 17.3% Net Income 9.6% 12.3% 10.6% 12.9% Income tax rate 25.5% 25.5% 28.7% 25.5% % Change vs. Prior Year GAAP Adjusted Net sales 0.5 0.5 Net sales to Abbott Laboratories (6.6) (6.6) Total Net Sales 0.1 0.1 Cost of products sold (1.8) (3.6) Gross Profit 3.8 6.9 Research and development 10.1 7.1 Selling, general and administrative 21.3 24.5 Income From Operations (13.1) (4.9) Interest expense 9.8 9.8 Other (income), net nm nm Income Before Income Taxes (12.9) (4.4) Income tax expense (22.8) (4.4) Net Income (9.0) (4.4) Earnings Per Common Share: Basic (8.3) (3.7) Diluted (9.2) (5.0) Weighted Average Common Shares Outstanding: Basic (0.5) (0.5) Diluted 0.3 0.3 A -- Includes costs of $50,242 related to the planned closure of the Donegal, Ireland; Ashland, OH; Montreal, Canada; and North Chicago, IL, facilities as part of Hospira's manufacturing optimization initiatives; a reduction of the obligation associated with the sale of the Salt Lake City, UT, manufacturing plant to ICU Medical ($1,100); a gain on the sale of the Donegal, Ireland, facility ($7,851); and non-recurring transition costs of $4,406. B -- Non-recurring transition costs. C -- Includes an impairment charge of $2,429 and other charges of $13,404 related to the sale of the Salt Lake City, UT, manufacturing plant to ICU Medical; $2,278 related to the closure of the Donegal, Ireland, facility as part of Hospira's manufacturing optimization initiatives; and non-recurring transition costs of $5,330. D -- Includes $9,500 one-time tax impact of earnings repatriation related to The American Jobs Creations Act. Hospira, Inc. Reconciliation of Earnings Per Share (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 2006 2005 2006 2005 Diluted Earnings Per Common Share - GAAP $0.35 $0.37 $1.18 $1.30 Adjustments: Non-recurring transition costs 0.02 0.04 0.14 0.14 Charges related to manufacturing optimization initiatives 0.08 0.01 0.23 0.01 Gain on sale of Donegal, Ireland facility - - (0.04) - Tax Impact of earnings repatriation related to The American Jobs Creations Act - 0.06 - 0.06 Reduction of obligation related to the 2005 sale of Salt Lake City, UT manufacturing plant - - (0.01) - Obligation related to the sale of Salt Lake City, UT manufacturing plant - - - 0.06 Asset impairment charge related to the sale of Salt Lake City, UT manufacturing plant - - - 0.01 Subtotal of Adjustments 0.10 0.11 0.33 0.29 Diluted Earnings per Common Share - Adjusted $0.45 $0.48 $1.51 $1.59 Adjustment figures may not add to subtotal amounts due to rounding.

Reconciliation of Stock Options Expense Impact on Diluted Adjusted Earnings

Per Share (Unaudited)

Had the Company recorded stock option expense during 2005, adjusted diluted EPS would have remained steady for the quarter ended September 30, 2005, and decreased 0.7 percent for the nine months ended September 30, 2005. A reconciliation follows:

Three Months Ended Nine Months Ended September 30 September 30 2006 2005 % Change 2006 2005 % Change Diluted Earnings Per Common Share - Adjusted $0.45 $0.48 (6.3) $1.51 $1.59 (5.0) (2005 Stock Option Expense not included) Pro-forma Options Expense n/a (0.03) n/a (0.07) Diluted Earnings Per Common Share - Adjusted* (2005 Stock Option Expense included) $0.45 $0.45 0.0 $1.51 $1.52 (0.7) * Management believes that the presentation of 2005 results including pro-forma stock option expense assists period-to-period comparability. Hospira, Inc. Condensed Consolidated Balance Sheets (Unaudited) (dollars in thousands) September 30 December 31 2006 2005 Assets Current Assets: Cash and cash equivalents $293,592 $520,610 Net trade receivables 355,679 327,146 Inventories 618,394 510,268 Prepaid expenses, deferred income taxes and other receivables 224,038 203,141 Total Current Assets 1,491,703 1,561,165 Net property and equipment 1,020,938 990,813 Intangible assets, net of amortization 13,480 14,926 Goodwill 89,197 89,197 Deferred income taxes 31,534 17,692 Other assets 122,924 115,389 Total Assets $2,769,776 $2,789,182 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $7,817 $2,579 Trade accounts payable 157,329 129,865 Salaries payable and other accruals 441,182 384,713 Due to Abbott, net - 79,079 Total Current Liabilities 606,328 596,236 Long-term debt 690,401 695,285 Post-retirement obligations, deferred income taxes and other long-term liabilities 155,889 169,794 Commitments and Contingencies - - Total Liabilities 1,452,618 1,461,315 Total Shareholders' Equity 1,317,158 1,327,867 Total Liabilities and Shareholders' Equity $2,769,776 $2,789,182 Hospira, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) Nine Months Ended September 30 2006 2005 Cash Flow From (Used in) Operating Activities: Net income $190,278 $209,061 Adjustments to reconcile net income to net cash from operating activities -- Depreciation 114,731 116,647 Amortization of intangibles 1,446 1,349 Stock-based compensation expense 27,819 - Gain on asset dispositions (7,851) - Changes in assets and liabilities -- Trade receivables (23,979) 398 Inventories (101,637) (7,788) Prepaid expenses and other assets (13,648) (13,527) Trade accounts payable and other liabilities 96,818 165,703 Other, net 47,888 (538) Net Cash From Operating Activities 331,865 471,305 Cash Flow From (Used in) Investing Activities: Acquisitions of property and equipment (183,632) (189,525) Proceeds from asset dispositions 19,283 31,818 Purchase of investments and intangibles (17,438) (30,790) Sales of marketable securities - 72,438 Net Cash (Used in) Investing Activities (181,787) (116,059) Cash Flow From (Used in) Financing Activities: Payment to Abbott for international net assets (124,251) (106,521) Common stock repurchased (299,766) - Issuance of long-term debt, net of fees paid - 1,750 Repayment of long-term debt (111) (84) Other borrowings, net 1,955 3,843 Excess tax benefit from stock-based compensation arrangements 3,373 - Proceeds from stock options exercised 39,576 97,612 Net Cash (Used in) Financing Activities (379,224) (3,400) Effect of exchange rate changes on cash and cash equivalents 2,128 (2,032) Net change in cash and cash equivalents (227,018) 349,814 Cash and cash equivalents at beginning of period 520,610 127,695 Cash and cash equivalents at end of period $293,592 $477,509 Hospira, Inc. (Unaudited) (dollars in thousands) Sales by Product Line Three Months Ended Nine Months Ended September 30 September 30 % % 2006 2005 Change 2006 2005 Change U.S. -- Specialty Injectable Pharmaceuticals $198,362 $205,230 (3.3) $590,915 $630,994 (6.4) Medication Delivery Systems 199,029 206,119 (3.4) 626,498 598,726 4.6 Injectable Pharmaceutical Contract Manufacturing 38,090 43,843 (13.1) 139,879 145,989 (4.2) Sales to Abbott Laboratories 25,038 25,553 (2.0) 70,860 80,537 (12.0) Other 72,506 70,584 2.7 211,749 194,853 8.7 Total U.S. 533,025 551,329 (3.3) 1,639,901 1,651,099 (0.7) International -- Sales to Third Parties 97,277 88,122 10.4 290,232 278,541 4.2 Sales to Abbott Laboratories 16,338 17,119 (4.6) 51,902 50,906 2.0 Total International Sales 113,615 105,241 8.0 342,134 329,447 3.9 Consolidated Net Sales $646,640 $656,570 (1.5) $1,982,035 $1,980,546 0.1 Reconciliation of Consolidated Net Sales to Core Net Sales* Three Months Ended Nine Months Ended September 30 September 30 % % 2006 2005 Change 2006 2005 Change Consolidated Net Sales $646,640 $656,570 (1.5) $1,982,035 $1,980,546 0.1 Less: Sales to Abbott Laboratories (41,376) (42,672) (122,762) (131,443) Berlex imaging agents - 94 - (67,080) Impact of foreign currency (3,800) - (5,000) - Core Net Sales* $601,464 $613,992 (2.0) $1,854,273 $1,782,023 4.1 * Management believes that presentation of the change in core net sales, which excludes Sales to Abbott Laboratories, Berlex imaging agents, and the Impact of foreign currency, is useful to investors in that it provides an additional measure to assess the underlying sales trend of Hospira's ongoing business. Hospira, Inc. Segment Information (Unaudited) (dollars in thousands) Three Months Ended September 30 Net Sales Income from Operations 2006 2005 % Change 2006 2005 % Change U.S. $533,025 $551,329 (3.3) $80,623 A $98,905 A (18.5) International 113,615 105,241 8.0 10,831 B 15,805 B (31.5) Total reportable segments $646,640 $656,570 (1.5) 91,454 114,710 (20.3) Corporate functions (12,402)C (14,156)C (12.4) Income from operations 79,052 100,554 (21.4) Other, net (3,960) (3,507) nm Income before income taxes $75,092 $97,047 (22.6) Included in the reported Income before income taxes above, are the following costs: A -- U.S. Non-recurring transition costs $3,605 $7,493 Costs/(Income) associated with the sale of the Salt Lake City, UT manufacturing plant - - Costs related to the planned closure of the Ashland, OH and North Chicago, IL facilities 9,749 - Total U.S. $13,354 $7,493 B -- International Non-recurring transition costs 663 1,844 Costs related to the planned closure of the Donegal, Ireland and Montreal, Canada facilities 8,542 2,278 Gain on the sale of the Donegal, Ireland facility - - Total International $9,205 $4,122 C -- Corporate Non-recurring transition costs 212 788 Total Corporate $212 $788 Total $22,771 $12,403 Hospira, Inc. Segment Information (Unaudited) (dollars in thousands) Nine Months Ended September 30 Net Sales Income from Operations 2006 2005 % Change 2006 2005 % Change U.S. $1,639,901 $1,651,099 (0.7) $277,738 A $289,731 A (4.1) International 342,134 329,447 3.9 29,445 B 57,997 B (49.2) Total reportable segments $1,982,035 $1,980,546 0.1 307,183 347,728 (11.7) Corporate functions (41,172)C (41,506)C (0.8) Income from operations 266,011 306,222 (13.1) Other, net (10,605) (12,852) nm Income before income taxes $255,406 $293,370 (12.9) Included in the reported Income before income taxes above, are the following costs: A -- U.S. Non-recurring transition costs $19,890 $24,777 Costs/(Income) associated with the sale of the Salt Lake City, UT manufacturing plant (1,100) 15,833 Costs related to the planned closure of the Ashland, OH and North Chicago, IL facilities 25,506 - Total U.S. $44,296 $40,610 B -- International Non-recurring transition costs 8,326 4,247 Costs related to the planned closure of the Donegal, Ireland and Montreal, Canada facilities 24,736 2,278 Gain on the sale of the Donegal, Ireland facility (7,851) - Total International $25,211 $6,525 C -- Corporate Non-recurring transition costs 2,600 1,996 Total Corporate $2,600 $1,996 Total $72,107 $49,131