Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Hospira intends that these forward-looking statements be covered by the safe harbor provisions for forward-looking words such as "may," "will," "should," "anticipate," "estimate," "expect," "plan," "believe," "predict," "potential," "project," "intend," "could," or similar expressions. In particular, statements regarding Hospira's plans, strategies, prospects and expectations regarding its business and industry are forward-looking statements. Investors should be aware that these statements and any other forward-looking statements in this document only reflect Hospira's expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond Hospira's control, and may cause actual results and performance to differ materially from expectations. Important factors that could cause Hospira's actual results to be materially different from its expectations include (i) the risks and uncertainties described in "Item 1A. Risk Factors" in Hospira's Annual Report on Form 10-K for the year ended December 31, 2008 (the "2008 Form 10-K"), and (ii) the factors described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2008 Form 10-K, and the factors described in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the report on Form 10-Q for the three month period ended March 31, 2009, as updated by this Item 2. Accordingly, you should not place undue reliance on the forward-looking statements contained in this report. These forward-looking statements speak only as of the date on which the statements were made. Hospira undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Hospira is a global specialty pharmaceutical and medication delivery company that develops, manufactures and markets products that help improve the safety, cost and productivity of patient care. Hospira's portfolio includes generic acute-care and oncology injectables, as well as integrated infusion therapy and medication management systems. Hospira's broad portfolio of products is used by hospitals and alternate site providers, such as clinics, home healthcare providers and long-term care facilities.

Certain prior year amounts have been reclassified to conform to the current year presentation. Among other changes, during 2009 Hospira reclassified costs that were previously reported in Cost of products sold and Research and development to Restructuring and impairment, a separate operating costs and expenses line item. The reclassifications did not affect net income or shareholders' equity.

Cost-Reduction and Optimization Activities

As part of its strategy to improve margins and cash flows, Hospira has taken a number of actions to reduce operating costs and optimize operations. The costs related to these actions consist primarily of severance and other employee benefits, accelerated depreciation resulting from the decreased useful lives of the buildings and certain equipment, impairments, relocation of production, process optimization implementation other asset charges and exit costs.

Project Fuel

2009 Actions. In March 2009, Hospira announced details of a multi-stage restructuring and optimization plan ("Project Fuel") which will occur over the next two years. Project Fuel includes the following activities: optimizing the product portfolio, evaluating non-strategic assets, and streamlining the organization structure. Hospira expects to incur aggregate charges, over the next two years, related to these actions in the range of $140 million to $160 million on a pre-tax basis, of which approximately $100 million to $110 million are expected to be reported as Restructuring costs and other asset charges. As part of Project Fuel initiatives, in June 2009, Hospira committed to dispose of certain non-strategic businesses and the underlying assets. As a result of these decisions and measurement of the fair value of these businesses, Hospira recognized pre-tax impairment charges of $48.3 million and non-cash, pre-tax inventory charges of $3.1 million. As Hospira continues to consider each initiative, the amount, timing and recognition of charges will be affected by the occurrence of commitments and triggering events as defined under accounting principles generally accepted in the United States ("GAAP"), among other factors.

Facilities Optimization

2008 and 2006 Actions. In April 2008, Hospira announced plans to exit manufacturing operations at its Morgan Hill, California plant over the next two to three years. Hospira is in the process of transferring related operations and production of the primary products to other Hospira facilities, or outsourcing certain product components to third-party suppliers, or ceasing activities entirely. In February 2006, Hospira announced plans to close manufacturing plants in Ashland, Ohio, Montreal, Canada, and North Chicago, Illinois, and completed these plans in 2007, 2008, and in March 2009, respectively.

Restructuring, impairment and optimization costs incurred for these actions collectively were reported in the condensed consolidated statements of income line items included in Item 1 as follows:

                                 Three Months Ended June 30,        Six Months Ended June 30,
(dollars in millions)              2009               2008            2009             2008
Cost of products sold         $          5.2     $          3.4   $        12.2    $         7.8
Restructuring and
impairment                              55.9                6.3            65.3              9.3
Research and development                 0.9                0.2             1.3              0.6
Selling, general and
administrative                           9.2                  -            14.6                -
Total pre-tax Project Fuel
and Facilities Optimization
charges                       $         71.2     $          9.9   $        93.4    $        17.7

For further details regarding the Restructuring and impairment related impact of these cost-reduction and optimization activities, see Note 3 and Note 4 to the condensed consolidated financial statements included in Item 1.

Mayne Pharma Integration

In connection with the integration of Mayne Pharma Limited ("Mayne Pharma") into its operations, Hospira incurred costs for the two-year period after the February 2, 2007 closing. These costs included integration expenses related to the closure of facilities, termination of lease agreements and employee-related benefit arrangements with the remainder related to purchase accounting items and capital projects. Integration was completed by the end of 2008. During the three and six months ended June 30, 2008, Hospira incurred $7.8 million and $17.6 million, respectively, of integration expenses reported primarily in Selling, general and administrative.

Results of operations for the three months ended June 30, 2009 compared to June 30, 2008

Net Sales

A comparison of product line sales is as follows:

                                 Hospira, Inc.

                           Net Sales by Product Line

                                  (Unaudited)

                             (dollars in millions)



                                   Three Months Ended June 30,
                                                         Percent
                                                         Change
                                                        vs. Prior
                                   2009        2008       Year
Americas-
Pharmaceuticals
Specialty Injectables           $    368.5   $  299.9        22.9 %
Other Pharma                         139.4      122.7        13.6 %
                                     507.9      422.6        20.2 %
Devices
Medication Management Systems        152.2      161.7        (5.9 )%
Other Devices                         91.6       92.9        (1.4 )%
                                     243.8      254.6        (4.2 )%
Total Americas                       751.7      677.2        11.0 %

EMEA-
Pharmaceuticals
Specialty Injectables                 68.1       78.4       (13.1 )%
Other Pharma                          35.4       42.4       (16.5 )%
                                     103.5      120.8       (14.3 )%
Devices
Medication Management Systems         17.5       19.3        (9.3 )%
Other Devices                         17.4       16.5         5.5 %
                                      34.9       35.8        (2.5 )%
Total EMEA                           138.4      156.6       (11.6 )%

APAC-
Pharmaceuticals
Specialty Injectables                 53.0       52.4         1.1 %
Other Pharma                           2.7        3.5       (22.9 )%
                                      55.7       55.9        (0.4 )%
Devices
Medication Management Systems          4.9        5.0        (2.0 )%
Other Devices                          6.2        6.9       (10.1 )%
                                      11.1       11.9        (6.7 )%
Total APAC                            66.8       67.8        (1.5 )%

Net Sales                       $    956.9   $  901.6         6.1 %

Net sales increased 6.1%, or 11.4% excluding the impact of changes in foreign exchange rates. The following discussion, except as noted, reflects changes from the prior period excluding the impact of changes in foreign exchange rates.

Americas

Net sales in the Americas segment increased 11.0%, or 12.9% excluding the impact of changes in foreign exchange rates. The increase in net sales of Specialty Injectable Pharmaceuticals was due to the timing of wholesaler purchases, which in 2008 included significant wholesale destocking. In addition, Specialty Injectable Pharmaceuticals net sales were higher due to increased volume

from Group Purchasing Organizations ("GPO") contract awards, increased volume for anesthesia products including Hospira's proprietary drug Precedex®, new product introductions, and the impact of competitor supply issues. Other Pharma net sales increased due to higher sales of large volume IV solutions associated with GPO contract awards. Net sales in Medication Management Systems decreased due to lower large volume infusion system sales, which in 2008 included higher volumes, particularly for Symbiq®, due to improvements in the implementation process, offset by increased volume for administration sets.

EMEA

Net sales in the EMEA segment decreased (11.6)%. Excluding the impact of changes in foreign exchange rates EMEA Net sales increased 3.5%. Specialty Injectable Pharmaceuticals net sales increased primarily due to increased sales of a newly launched biogeneric, partially offset by lower volume and price decreases in oncology products. Net sales in Medication Management Systems increased due to higher volume of ambulatory and large volume infusion systems administration sets.

APAC

Net sales in the APAC segment decreased (1.5)%. Excluding the impact of changes in foreign exchange rates APAC Net sales increased 14.6%. Specialty Injectables net sales increased due to higher volume in certain anesthesia, anti-infective, oncology and cardiovascular products. Net sales in Medication Management Systems increased due to higher sales volume of ambulatory and large volume infusion systems and administration sets.

Gross Profit



                                                                       Percent
Three months ended June 30 (dollars in millions)    2009      2008     change
Gross profit                                       $ 346.2   $ 335.2       3.3 %
As a percent of net sales                             36.2 %    37.2 %

Gross profit, Net sales less Cost of products sold, increased $11.0 million, or 3.3%, for the three months ended June 30, 2009, compared with the same period in 2008.

The gross profit increase is primarily the result of higher sales volume, partially offset by the impact of changes in foreign exchange rates as well as changes in product mix. Gross profit as a percentage of Net sales decreased to 36.2% for the three months ended June 30, 2009, from 37.2% for the three months ended June 30, 2008.

Restructuring and impairment

                                                                    Percent
Three months ended June 30 (dollars in millions)    2009    2008    change
Restructuring and impairment                       $ 55.9   $ 6.3     787.3 %
As a percent of net sales                             5.8 %   0.7 %

Restructuring and impairment charges were $55.9 million for the three months ended June 30, 2009, compared with $6.3 million for the same period in 2008. The increase in Restructuring and impairment was primarily due to non-cash, pre-tax charges of $48.3 million related to the impairment of property and equipment, allocated goodwill and intangible asset impairments associated with Project Fuel initiatives. Restructuring, primarily severance costs, incurred for the three months ended June 30, 2008 was related to actions taken at the manufacturing plants located in Ashland, Ohio; Montreal, Canada; North Chicago, Illinois and Morgan Hill, California.

Research and Development



                                                                     Percent
Three months ended June 30 (dollars in millions)    2009     2008    change
Research and development                           $ 52.9   $ 58.0      (8.8 )%
As a percent of net sales                             5.5 %    6.4 %

Research and development ("R&D") expenses decreased $5.1 million, or (8.8)%, for the three months ended June 30, 2009,

compared with the same period in 2008. The decrease was primarily related to the timing of clinical trial spending, the impact of changes in foreign exchange rates and productivity improvements associated with Project Fuel initiatives, partially offset by increased spending on generic injectable and device product development.

Acquired In-Process Research and Development

In the three months ended June 30, 2008, as part of an acquisition purchase price allocation, Hospira expensed $0.5 million to acquired in-process research and development related to pipeline products.

Selling, General and Administrative



                                                                       Percent
Three months ended June 30 (dollars in millions)    2009      2008     change
Selling, general and administrative                $ 146.3   $ 152.7      (4.2 )%
As a percent of net sales                             15.3 %    16.9 %

Selling, general and administrative ("SG&A") expenses decreased $6.4 million, or
(4.2)%, for the three months ended June 30, 2009, compared with the same period in 2008. The decrease was primarily due to the impact of changes in foreign exchange rates and cost reductions associated with Project Fuel initiatives, partially offset by higher sales and marketing support costs in the EMEA segment. In addition, the three months ended June 30, 2009 include process optimization implementation costs incurred under Project Fuel compared to the same period in 2008 which included only expenses related to the Mayne Pharma integration completed by the end of 2008.

Interest Expense and Other Expense (Income), Net

Hospira incurred interest expense of $28.2 million for the three months ended June 30, 2009 and 2008, respectively. The increased expense in Other expense (income), net for the three months ended June 30, 2009 compared to 2008 was primarily due to an other-than-temporary impairment of marketable equity securities charge of $16.6 million recognized in the three months ended June, 30, 2009. See Note 2 to the condensed consolidated financial statements included in Item 1.

Income Tax Expense (Benefit)

The effective tax rate increased to 47.3% for the three months ended June 30, 2009, compared to 22.8% for the same period in 2008 due to the establishment of a valuation allowance on certain deferred tax assets associated with the impairment of certain non-strategic assets, impairment of non-deductible goodwill, as well as the impairment of marketable equity securities without the availability of a statutory tax benefit. Excluding these impairment-related tax treatments, the effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of tax exemptions of varying durations, in certain jurisdictions outside the U.S.

Results of operations for the six months ended June 30, 2009 compared to June 30, 2008

Net Sales

A comparison of product line sales is as follows:

                                 Hospira, Inc.

                           Net Sales by Product Line

                                  (Unaudited)

                             (dollars in millions)



                                     Six Months Ended June 30,
                                                           Percent
                                                           Change
                                                          vs. Prior
                                   2009         2008        Year
Americas-
Pharmaceuticals
Specialty Injectables           $    701.6   $    640.6         9.5 %
Other Pharma                         277.2        244.6        13.3 %
                                     978.8        885.2        10.6 %
Devices
Medication Management Systems        273.6        279.8        (2.2 )%
Other Devices                        184.0        186.4        (1.3 )%
                                     457.6        466.2        (1.8 )%
Total Americas                     1,436.4      1,351.4         6.3 %

EMEA-
Pharmaceuticals
Specialty Injectables                125.7        156.7       (19.8 )%
Other Pharma                          63.1         79.0       (20.1 )%
                                     188.8        235.7       (19.9 )%
Devices
Medication Management Systems         36.6         39.7        (7.8 )%
Other Devices                         34.2         34.0         0.6 %
                                      70.8         73.7        (3.9 )%
Total EMEA                           259.6        309.4       (16.1 )%

APAC-
Pharmaceuticals
Specialty Injectables                 92.0         98.0        (6.1 )%
Other Pharma                           6.3          7.6       (17.1 )%
                                      98.3        105.6        (6.9 )%
Devices
Medication Management Systems          9.6         10.7       (10.3 )%
Other Devices                         12.7         13.2        (3.8 )%
                                      22.3         23.9        (6.7 )%
Total APAC                           120.6        129.5        (6.9 )%

Net Sales                       $  1,816.6   $  1,790.3         1.5 %

Net sales increased 1.5%, or 7.0% excluding the impact of changes in foreign exchange rates. The following discussion, except as noted, reflects changes from the prior period excluding the impact of changes in foreign exchange rates.

Americas

Net sales in the Americas segment increased 6.3%, or 8.4% excluding the impact of changes in foreign exchange rates. The increase in net sales of Specialty Injectable Pharmaceuticals was due to increased volume from GPO contract awards, increased volume for

anesthesia products including Hospira's proprietary drug Precedex® and the impact of competitor supply issues. Other Pharma net sales increased due to higher demand from certain contract manufacturing customers and increased large volume IV solutions sales due to GPO contract awards. Net sales in Medication Management Systems were slightly higher with volume increases in dedicated administration sets and higher Symbiq® sales.

EMEA

Net sales in the EMEA segment decreased (16.1)%, or (1.1)% excluding the impact of changes in foreign exchange rates. Specialty Injectable Pharmaceuticals net sales decreased primarily due to price decreases and lower volume in oncology products, partially offset by increased sales of a newly launched biogeneric. Net sales of Other Pharma were lower due to declines in demand from certain contract manufacturing customers. Net sales in Medication Management Systems increased due to higher sales volume of ambulatory and large volume infusion systems administration sets. Net sales in Other Devices increased due to higher volume in gravity administration sets.

APAC

Net sales in the APAC segment decreased (6.9)%. Excluding the impact of changes in foreign exchange rates APAC Net sales increased 11.4%. Specialty Injectables net sales increased due to higher demand in certain anesthesia, anti-infective, oncology, and cardiovascular products. Net sales in Other Pharma and Other Devices increased due to higher volume. Net sales in Medication Management Systems increased due to higher sales volume of ambulatory infusion systems and large volume infusion systems administration sets.

Gross Profit



                                                                     Percent
Six months ended June 30 (dollars in millions)    2009      2008     change
Gross profit                                     $ 665.8   $ 652.2       2.1 %
As a percent of net sales                           36.7 %    36.4 %

Gross profit, Net sales less Cost of products sold, increased $13.6 million, or 2.1%, for the six months ended June 30, 2009, compared with the same period in 2008.

The gross profit increase is primarily the result of higher sales volume and improved manufacturing performance. These increases were partially offset by the impact of changes in foreign exchange rates. Gross profit as a percentage of Net sales increased to 36.7% for the six months ended June 30, 2009, from 36.4% for the six months ended June 30, 2008.

Restructuring and impairment

                                                                  Percent
Six months ended June 30 (dollars in millions)    2009    2008    change
Restructuring and impairment                     $ 65.3   $ 9.3     602.2 %
As a percent of net sales                           3.6 %   0.5 %

Restructuring and impairment charges were $65.3 million for the six months ended June 30, 2009, compared with $9.3 million for the same period in 2008. The increase in Restructuring and impairment was primarily due to non-cash, pre-tax charges of $48.3 million related to the impairment of property and equipment, allocated goodwill and intangible asset impairments associated with Project Fuel initiatives. Restructuring, primarily severance costs, incurred for the six months ended June 30, 2008 was related to actions taken at the manufacturing plants located in Ashland, Ohio; Montreal, Canada; North Chicago, Illinois and Morgan Hill, California.

Research and Development



                                                                     Percent
Six months ended June 30 (dollars in millions)    2009      2008     change
Research and development                         $ 102.9   $ 107.9      (4.6 )%
As a percent of net sales                            5.7 %     6.0 %

Research and development ("R&D") expenses decreased $5.0 million, or (4.6)%, for the six months ended June 30, 2009, compared with the same period in 2008. The decrease was primarily related to the timing of clinical trial spending and the impact of changes in foreign exchange rates partially offset by increased spending on device product development.

Acquired In-Process Research and Development

In the six months ended June 30, 2008, as part of an acquisition purchase price allocation, Hospira expensed $0.5 million to acquired in-process research and development related to pipeline products.

Selling, General and Administrative



                                                                     Percent
Six months ended June 30 (dollars in millions)    2009      2008     change
Selling, general and administrative              $ 291.8   $ 305.1      (4.4 )%
As a percent of net sales                           16.1 %    17.0 %

Selling, general and administrative ("SG&A") expenses decreased $13.3 million, or (4.4)%, for the six months ended June 30, 2009, compared with the same period in 2008. The decrease was primarily due to the impact of changes in foreign exchange rates and cost reductions associated with Project Fuel initiatives, partially offset by higher sales and marketing support costs in the EMEA segment. In addition, the six months ended June 30, 2009 include process optimization implementation costs incurred under Project Fuel compared to the same period in 2008 which only included expenses related to the Mayne Pharma integration which was completed by the end of 2008.

Interest Expense and Other Expense (Income), Net . . .