"Hospira delivered a solid third quarter, despite difficult year-over-year comparisons from the temporary discontinuation of U.S. oxaliplatin sales and the impact of several divestitures," said Christopher B. Begley, chairman and chief executive officer. "During the quarter, we gained momentum on several of our existing and newly launched specialty pharmaceuticals; we saw continued contributions from Project Fuel, our companywide optimization initiative; and we made good progress on our quality-improvement efforts. We believe the efforts and advancements we are making this year position Hospira for another good year and continued growth going forward."
Third-Quarter 2010 Results
The following table highlights selected financial results for the third quarter of 2010 compared to the same period in 2009:
In $ millions, GAAP Adjusted*
except per Three Months Ended Three Months Ended
share amounts September 30, September 30,
------------------ % ------------------ %
2010 2009 Change 2010 2009 Change
------- ------- ------ ------- ------- ------
Net Sales $949.3 $1,007.5 (5.8)% n/a n/a n/a
Gross Profit
(Net Sales
less Cost of
Products Sold) $367.0 $395.6 (7.2)% $406.4 $418.4 (2.9)%
Income from
Operations $141.7 $161.5 (12.3)% $189.3 $207.2 (8.6)%
Diluted EPS $0.42 $0.71 (40.8)% $0.74 $0.90 (17.8)%
Statistics (as a % of Net Sales)
--------------------------------
Gross Profit
(Net Sales
less Cost of
Products Sold) 38.7% 39.3% 42.8% 41.5%
Income from
Operations 14.9% 16.0% 19.9% 20.6%
Results under U.S. Generally Accepted Accounting Principles (GAAP) include items as detailed in the schedules attached to this press release.
Net sales decreased 5.8 percent to $949 million in the third quarter of 2010, compared to $1.0 billion in the third quarter of 2009. Strong sales in Specialty Injectable Pharmaceuticals, resulting from the U.S. sales of Precedex, meropenem, vancomycin and heparin, were more than offset by the temporary discontinuation of U.S. sales of oxaliplatin pursuant to a litigation settlement and the decline in Medication Management Systems, primarily a result of the company's voluntary hold on shipments of its Symbiq Infusion System to new customers.
Adjusted* income from operations decreased 8.6 percent to $189 million in the third quarter of 2010, compared to $207 million in the third quarter of 2009. Improved manufacturing efficiency from the company's Project Fuel optimization initiatives was more than offset by lower sales volume and associated margins primarily due to the temporary exit from the U.S. oxaliplatin market, charges associated with certain quality and product-related matters, and higher research and development expenses related to new product development programs, including clinical trials.
The effective tax rate on an adjusted basis* in the quarter was 23.8 percent, up from the third-quarter 2009 rate of 19.0 percent. The increase is primarily related to a shift in earnings mix to higher tax jurisdictions relative to the third quarter of 2009.
Cash Flow
Cash flow from operations for the first nine months of 2010 was $235 million, compared to the $541 million generated for the same period in 2009. The decrease primarily reflects the timing of chargeback and rebate payments associated with prior U.S. sales of oxaliplatin, increased inventories, as well as higher U.S. income tax and quality-initiative payments.
Capital expenditures were $142 million for the first nine months of 2010, compared to $119 million for the first nine months of 2009. The increase is primarily associated with investments associated with manufacturing-optimization and information technology-related enhancement initiatives.
2010 Projections
Due to delays in customer purchasing decisions in Medication Management Systems as well as the expectation of lower-than-anticipated sales growth in Other Pharma, the company now projects net sales growth of approximately 2 to 3 percent on a constant-currency basis. On a reported basis, the company expects net sales growth of 3 to 4 percent.
Hospira has narrowed its adjusted* diluted earnings per share projection to the upper range of the previous projection. The company now expects adjusted* diluted earnings per share for full-year 2010 to be between $3.40 and $3.45.
The reconciliation between the projected 2010 adjusted* diluted earnings per share and GAAP diluted earnings per share follows:
Diluted earnings per share -- adjusted* $3.40 - $3.45
-------------
Estimated charges related to Project Fuel
initiatives (mid-point of an estimated range of
$0.06 to $0.08 per diluted share) ($0.07)
Estimated charges related to facilities optimization
initiatives (mid-point of an estimated range of
$0.04 to $0.06 per diluted share) ($0.05)
Estimated $67 million for the amortization of
intangibles related to the acquisitions of
Mayne Pharma, the specialty injectable business
of Orchid Chemicals & Pharmaceuticals
and Javelin Pharmaceuticals ($0.27)
Acquisition and integration-related charges
associated with the Orchid and Javelin acquisitions ($0.07)
Estimated quality and product-related charges
(mid-point of an estimated range of
$0.18 to $0.24 per diluted share) ($0.21)
Litigation settlement and related charges ($0.05)
Initial research and development milestone charge
associated with a partnered proprietary
pharmaceutical product ($0.10)
Loss on early debt extinguishment ($0.14)
-------------
Diluted earnings per share -- GAAP $2.44 - $2.49
=============
The adjusting items are shown net of tax in aggregate of $95 million, which is calculated for the specified adjustments stated above, based on the statutory tax rate in the various tax jurisdictions in which the items are expected to occur.
The company is maintaining guidance for cash flow from operations to range between $525 million and $575 million. The projected range for depreciation and amortization remains unchanged at $250 million to $260 million, as does the projected range for capital expenditures, at $195 million to $215 million.
*Use of Non-GAAP Financial Measures
Adjusted 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.
Webcast/Complementary Material
Hospira will hold a conference call for investors and media at 8 a.m. Central time on Tuesday, Oct. 26, 2010. A live webcast of the conference call will be available on Hospira's Web site at www.hospirainvestor.com. Listeners should log on approximately 10 minutes in advance to ensure proper setup for receiving the webcast. In addition, complementary information will be available on the presentations page of the Investor Relations Web site at the beginning of the conference call. A replay will be available on the 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. As the world leader in specialty generic injectable pharmaceuticals, Hospira offers one of the broadest portfolios of generic acute-care and oncology injectables, as well as integrated infusion therapy and medication management solutions. Through its products, Hospira helps improve the safety, cost and productivity of patient care. The company is headquartered in Lake Forest, Ill., and has approximately 13,500 employees. Learn more at 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, projections of certain charges and expenses, 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, regulatory, legal, 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 latest Annual Report on Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission, which are incorporated by reference. Hospira undertakes no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments.
Hospira, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(dollars and shares in millions, except for per share amounts)
Three Months Ended
September 30,
-------------- %
2010 2009 Change
------ -------- -------
Net sales $949.3 $1,007.5 (5.8)%
------ --------
Cost of products sold 582.3 611.9 (4.8)%
Restructuring, impairment and (gain)
on disposition of assets, net 1.2 13.8 (91.3)%
Research and development 65.2 57.9 12.6 %
Selling, general and administrative 158.9 162.4 (2.2)%
------ --------
Total operating costs and expenses 807.6 846.0 (4.5)%
------ --------
Income From Operations 141.7 161.5 (12.3)%
Interest expense 26.5 25.1 5.6 %
Other expense, net 34.6 0.1 nm %
------ --------
Income Before Income Taxes 80.6 136.3 (40.9)%
Income tax expense 9.2 20.1 (54.2)%
------ --------
Net Income $71.4 $116.2 (38.6)%
====== ========
Earnings Per Common Share:
Basic $0.43 $0.72 (40.3)%
====== ========
Diluted $0.42 $0.71 (40.8)%
====== ========
Weighted Average Common Shares Outstanding:
Basic 166.9 161.1 3.6 %
====== ========
Diluted 170.0 163.7 3.8 %
====== ========
Adjusted Gross Profit (1)(2) $406.4 $418.4 (2.9)%
Adjusted Income From Operations (1) $189.3 $207.2 (8.6)%
Adjusted Net Income (1) $125.4 $147.4 (14.9)%
Adjusted Diluted Earnings Per Share (1) $0.74 $0.90 (17.8)%
Statistics (as a % of net sales,
except for income tax rate):
GAAP Adjusted (1)
Three Months Ended Three Months Ended
September 30, September 30,
------------------ ------------------
2010 2009 2010 2009
-------- -------- -------- --------
Gross Profit (2) 38.7 % 39.3 % 42.8 % 41.5 %
Income From Operations 14.9 % 16.0 % 19.9 % 20.6 %
Net Income 7.5 % 11.5 % 13.2 % 14.6 %
Income Tax Rate 11.4 % 14.7 % 23.8 % 19.0 %
(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.
nm - Percentage change is not meaningful.
Hospira, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(dollars and shares in millions, except for per share amounts)
Nine Months Ended
September 30,
------------------ %
2010 2009 Change
-------- -------- -------
Net sales $2,925.1 $2,824.1 3.6 %
-------- --------
Cost of products sold 1,758.6 1,762.7 (0.2)%
Restructuring, impairment and (gain)
on disposition of assets, net (3.8) 79.1 (104.8)%
Research and development 197.3 160.8 22.7 %
Selling, general and administrative 507.4 454.2 11.7 %
-------- --------
Total operating costs and expenses 2,459.5 2,456.8 0.1 %
-------- --------
Income From Operations 465.6 367.3 26.8 %
Interest expense 74.1 80.2 (7.6)%
Other expense, net 32.1 14.3 124.5 %
-------- --------
Income Before Income Taxes 359.4 272.8 31.7 %
Income tax expense (benefit) 62.8 (34.4) (282.6)%
-------- --------
Net Income $296.6 $307.2 (3.5)%
======== ========
Earnings Per Common Share:
Basic $1.79 $1.92 (6.8)%
======== ========
Diluted $1.75 $1.89 (7.4)%
======== ========
Weighted Average Common Shares Outstanding:
Basic 165.5 160.4 3.2 %
======== ========
Diluted 169.3 162.3 4.3 %
======== ========
Adjusted Gross Profit (1)(2) $1,277.9 $1,123.8 13.7 %
Adjusted Income From Operations (1) $642.3 $533.8 20.3 %
Adjusted Net Income (1) $429.5 $362.4 18.5 %
Adjusted Diluted Earnings Per Share (1) $2.54 $2.23 13.9 %
Statistics (as a % of net sales,
except for income tax rate):
GAAP Adjusted (1)
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2010 2009 2010 2009
-------- -------- -------- --------
Gross Profit (2) 39.9 % 37.6 % 43.7 % 39.8 %
Income From Operations 15.9 % 13.0 % 22.0 % 18.9 %
Net Income 10.1 % 10.9 % 14.7 % 12.8 %
Income Tax Rate 17.5 % (12.6)% 25.0 % 20.5 %
(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 and shares in millions, except for per share amounts)
Three months ended September 30, 2010 Reconciliation of GAAP to Non-GAAP
Financial Measures:
------------------------------------------------------------------------
Income
Gross From Net Diluted
Profit(1) Operations Income(2) EPS
-------- ---------- -------- -------
GAAP financial measures $367.0 $141.7 $71.4 $0.42
Specified items:
Project Fuel and related
charges (A) 4.4 6.7 3.7 0.02
Facilities Optimization
charges (B) 3.1 3.7 2.4 0.02
Amortization of certain
intangible assets (C) 16.2 16.2 12.2 0.07
Certain quality and product
related charges (D) 15.1 15.1 9.1 0.05
Acquisition and integration-
related charges (E) 0.6 5.9 3.7 0.02
Loss on early debt
extinguishment (F) - - 22.9 0.14
-------- ---------- -------- -------
Adjusted financial measures (3) $406.4 $189.3 $125.4 $0.74
======== ========== ======== =======
GAAP results for the three months ended September 30, 2010 include:
A -- Project Fuel and related charges: $4.4 million reported in Cost of
products sold, $0.6 million reported in Restructuring, impairment and
(gain) on disposition of assets, net and $1.7 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: $3.1 million reported in Cost of
products sold and $0.6 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 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).
D -- Certain quality and product related charges reported in Cost of
products sold primarily include third party oversight and consulting
costs, idle facility costs and penalties for failure to supply
certain product to customers. These charges are directly associated
with Hospira's response to the United States Food and Drug
Administration ("FDA") Warning Letter received in April 2010.
E -- Acquisition and integration-related charges: $0.6 million reported in
Cost of products sold, $1.5 million reported in Research and
development and $3.8 million reported in Selling, general and
administrative. These charges include acquisition and integration
costs resulting from acquisitions including Javelin Pharma and
a generic injectable business by Hospira India.
F -- Loss on early debt extinguishment of $36.8 million reported in Other
expenses, net pre-tax relates to a provision for the early
extinguishment of 5.55% notes originally due March 2012, which was
paid in October 2010.
Three months ended September 30, 2009 Reconciliation of GAAP to Non-GAAP
Financial Measures:
------------------------------------------------------------------------
Income
Gross From Net Diluted
Profit(1) Operations Income(2) EPS
-------- ---------- -------- -------
GAAP financial measures $395.6 $161.5 $116.2 $0.71
Specified items:
Project Fuel and related
charges (A) 7.8 27.4 20.9 0.13
Facilities Optimization
charges (B) 1.5 4.8 3.1 0.02
Amortization of certain
intangible assets (C) 13.5 13.5 7.2 0.04
-------- ---------- -------- -------
Adjusted financial measures (3) $418.4 $207.2 $147.4 $0.90
======== ========== ======== =======
GAAP results for the three months ended September 30, 2009 include:
A -- Project Fuel and related charges: $7.8 million reported in Cost of
products sold, $10.5 million reported in Restructuring, impairment
and (gain) on disposition of assets, net, $1.3 million reported in
Research and development and $7.8 million reported in Selling,
general and administrative. Project Fuel initiatives include costs
for severance and other employee benefits, process optimization
implementation, other asset charges, exit costs and charges
associated with certain non-strategic businesses and underlying
assets committed for disposal and the related inventory, property
and equipment, allocated goodwill and intangible assets.
B -- Facilities Optimization charges: $1.5 million reported in Cost of
products sold and $3.3 million reported in Restructuring and
impairment and (gain) on disposition of assets, net. These charges
relate to facilities optimization from the closure or departure from
certain manufacturing and R&D facilities and include costs for
severance and other employee benefits, accelerated depreciation and
relocation of production and R&D operations.
C -- Amortization of certain intangible assets resulting from the
acquisition of Mayne Pharma reported in Cost of products sold.
(1) Gross profit is defined as Net sales less Cost of products sold.
(2) Specified items are shown net of tax of $29.9 million and $14.5
million for the three months ended September 30, 2010 and 2009,
respectively, based on the statutory tax rate 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 Hospiras filing
on Form 8-K filed on October 26, 2010 for additional information.
Hospira, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
(dollars and shares in millions, except for per share amounts)
Nine months ended September 30, 2010 Reconciliation of GAAP to Non-GAAP
Financial Measures:
-----------------------------------------------------------------------
Income
Gross From Net Diluted
Profit(1) Operations Income(2) EPS
-------- ---------- -------- -------
GAAP financial measures $1,166.5 $465.6 $296.6 $1.75
Specified items:
Project Fuel and related
charges (A) 12.1 16.4 6.5 0.04
Facilities Optimization
