Hospira announces record fourth-quarter and FY 2014 results

Hospira, Inc. (NYSE: HSP), the world's leading provider of injectable drugs and infusion technologies, and a global leader in biosimilars, today reported results for the fourth quarter and full year ended Dec. 31, 2014. For the fourth quarter of 2014, net sales were $1.1 billion, and adjusted* diluted earnings per share were $0.53. (Adjusted* measures exclude certain specified items as described later in this press release and the attached schedules.) On a U.S. Generally Accepted Accounting Principles (GAAP) basis, fourth-quarter 2014 diluted earnings per share were $0.21. For full-year 2014, net sales were $4.5 billion, and adjusted* diluted earnings per share were $2.59. On a GAAP basis, full-year 2014 diluted earnings per share were $1.95.

"Hospira's solid fourth-quarter results contributed to a year of excellent growth for the company," said F. Michael Ball, chief executive officer. "Despite the entry of generic competition in the United States for our proprietary sedative Precedex™, we delivered a very good year for Hospira. Our results speak to the significant progress we made -- as well as the multiple milestones we achieved -- in our key growth areas of generic injectables, biosimilars and devices.

"In addition," Ball continued, "on Feb. 5, 2015, Pfizer and Hospira announced that the two companies have entered into a definitive merger agreement under which Pfizer will acquire Hospira for $90 a share in cash for a total enterprise value of approximately $17 billion. The Pfizer-Hospira combination is an excellent strategic fit, presenting a unique opportunity to leverage the complementary strengths of our robust portfolios and rich pipelines."

The transaction, which is subject to customary closing conditions, including regulatory approvals in several jurisdictions and approval of Hospira's shareholders, is expected to close in the second half of 2015.

Fourth-Quarter 2014 Results
The following table highlights selected financial results for the fourth quarter of 2014 compared to the same period in 2013:

Results under U.S. GAAP include items as detailed in the schedules attached to this press release.

Net sales increased 3.9 percent to $1.1 billion in the fourth quarter of 2014. Excluding the impact of foreign currency fluctuations, net sales increased 6.2 percent. The majority of the increase was due to continued strong U.S. Specialty Injectable Pharmaceuticals (SIP) and Other Pharma sales, driven primarily by favorable pricing, competitive supply issues and continued strength in supply. Offsetting the positive results were the expected decline of Precedex, the oncolytic drug docetaxel and Medication Management sales, which related primarily to the divestiture of the TheraDoc™ clinical surveillance software business.

Adjusted* income from operations decreased 5.7 percent to $121 million in the fourth quarter of 2014, compared to $129 million in the fourth quarter of 2013. Improved adjusted* gross margin performance, driven by the growth in net sales, was more than offset by the year-over-year increase in selling, general and administration (SG&A) and research and development (R&D) expenses. On a GAAP basis, income from operations was $40 million compared to $53 million in the fourth quarter of 2013. The year-over-year change in fourth-quarter GAAP income from operations is primarily related to facility optimization charges in 2014, partially offset by lower quality- and product-related charges.

The effective tax rate on an adjusted* basis in the quarter was 13.1 percent compared to 21.4 percent in the fourth-quarter 2013. The decrease mainly reflects the enactment of the U.S. Tax Increase Prevention Act of 2014 in December 2014, which reinstated the research credit and other expired tax provisions. On a GAAP basis, the fourth-quarter 2014 effective tax rate was a benefit of 55.7 percent, also impacted by the Tax Increase Prevention Act, compared to a benefit of 7.6 percent in the fourth quarter of 2013.

Full-Year 2014 Results
The following table highlights selected financial results for the full-year 2014 compared to the same period in 2013:

Net sales for full-year 2014 were $4.5 billion, an increase of 8.7 percent compared to full-year adjusted* net sales of $4.1 billion in 2013, which exclude the impact of customer sales allowances associated with the company's Device Strategy incurred in the first quarter of 2013. On a constant-currency basis, net sales increased 9.7 percent compared to full-year 2013 adjusted* net sales. Strong U.S. SIP and Other Pharma sales, primarily driven by improved pricing and supply recovery, were the main contributor to the year-over-year increase. On a GAAP basis, net sales for full-year 2014 were $4.5 billion, an increase of 11.5 percent compared to GAAP full-year net sales in 2013, or 12.5 percent on a constant-currency basis. GAAP full-year net sales in 2013 include the impact of the customer sales allowances associated with the company's Device Strategy.

Adjusted* income from operations increased 34.8 percent to $645 million for the full year of 2014, compared to $478 million for the full year of 2013. Improved full-year adjusted* gross margin performance, driven by the growth in net sales, more than offset higher SG&A and R&D expenses. On a GAAP basis, full-year 2014 income from operations was $466 million compared to $17 million in 2013. Full-year 2014 GAAP income reflects divestiture gains as well as a decrease in Device Strategy charges and quality- and product-related charges.

The full-year 2014 effective tax rate on an adjusted* basis was 23.8 percent compared to 15.0 percent in 2013. The increase mainly relates to increased earnings in high-tax-rate jurisdictions and the retroactive reinstatement in the first quarter of 2013 of certain U.S. tax provisions for 2012 and 2013. On a GAAP basis, the 2014 effective tax rate was an expense of 18.5 percent compared to a benefit of 79.8 percent in 2013. The tax rate in full-year 2014 reflects increased earnings. The tax benefit in full-year 2013 mainly reflects the impact of charges associated with the company's Device Strategy.

Cash Flow
Cash flow from operations for full-year 2014 was $661 million, compared to $317 million in 2013. The increase is primarily due to higher net income in 2014.

Capital expenditures were $392 million for full-year 2014 compared to $354 million in 2013. The increase primarily reflects capital spending associated with the company's new facility in Vizag, India, as well as the company's modernization initiatives.

2015 Projections
Given the announcement earlier this month that Pfizer and Hospira have entered into a definitive merger agreement, the company is not providing annual projections.

"Just as 2014 was a year of significant accomplishments for Hospira, we expect 2015 to be another year of achievements and milestones, including the expected formation of the U.S. biosimilars market," said Ball. "We are excited by the opportunity this important development presents to Hospira and the U.S. healthcare system, as well as the prospects in our other growth areas. We remain focused on delivering results that meet the needs of our customers around the world, as well as creating value for our shareholders."

*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 Information
Given the proposed definitive merger agreement, Hospira will not hold conference calls for its quarterly results. The transaction, which is subject to customary closing conditions, including regulatory approvals in several jurisdictions and approval of Hospira's shareholders, is expected to close in the second half of 2015.