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") as updated by Part II Item 1A in this Form 10-Q, 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 each report on Form 10-Q for the three month period ended March 31, 2009 and June 30, 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 and in connection with the close of the quarters ended in June and September 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 non-cash, pre-tax impairment charges of $48.3 million and pre-tax inventory charges of $3.1 million in June 2009 and impairment charges of $4.8 million in September 2009. As Hospira continues to consider each Project Fuel 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 September 30,           Nine Months Ended September 30,
(dollars in millions)               2009                  2008                2009                 2008
Cost of products sold        $              9.3      $           3.7    $            21.5     $          11.5
Restructuring and
impairment                                 13.8                  4.5                 79.1                13.8
Research and development                    1.3                    -                  2.6                 0.6
Selling, general and
administrative                              7.8                    -                 22.4                   -
Total pre-tax Project
Fuel and Facilities
Optimization charges         $             32.2      $           8.2    $           125.6     $          25.9

For further details regarding the Restructuring and impairment related impact of these cost-reduction and optimization activities, see Note 4 and Note 5 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 transaction 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 nine months ended September 30, 2008, Hospira incurred $4.8 million and $22.4 million, respectively, of integration expenses reported primarily in Selling, general and administrative.

Certain Regulatory Matters

On August 13, 2009, Hospira received a Warning Letter, dated August 12, 2009, from the United States Food and Drug Administration ("FDA") related to Hospira's corrective action plans with respect to the failure of certain AC power cords manufactured by a third party. The affected power cords are used on certain infusion pumps and related products. Hospira initiated a voluntary recall of the affected power cords in August 2009. Hospira has responded to the Warning Letter and is working closely with the FDA to conclude this matter. Hospira cannot, however, give any assurances as to the expected date of resolution of the matters included in the Warning Letter. While Hospira continues to work to resolve the remaining matters described above, there can be no assurance that additional costs or penalties will not be incurred, and that additional regulatory actions with respect to Hospira will not occur.

Hospira recognized costs related to the voluntary recall of the AC power cords and certain other products during the three months ended September 30, 2009. Hospira has initiated field corrections and other remediation activities with respect to the recalled products. It is possible that additional costs related to these recalls may be required in future periods, based on modifications to the current remediation plans and changes in estimates as a result of ongoing dialogue with the FDA.

Results of operations for the three months ended September 30, 2009 compared to September 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 September 30,
                                                              Percent
                                                             Change vs.
                                    2009           2008      Prior Year
Americas-
Pharmaceuticals
Specialty Injectables           $      449.1    $    341.1         31.7 %
Other Pharma                           126.0         129.8         (2.9 )%
                                       575.1         470.9         22.1 %
Devices
Medication Management Systems          138.1         138.5         (0.3 )%
Other Devices                           90.2          96.3         (6.3 )%
                                       228.3         234.8         (2.8 )%
Total Americas                         803.4         705.7         13.8 %

EMEA-
Pharmaceuticals
Specialty Injectables                   69.6          67.5          3.1 %
Other Pharma                            25.6          41.3        (38.0 )%
                                        95.2         108.8        (12.5 )%
Devices
Medication Management Systems           19.1          19.6         (2.6 )%
Other Devices                           15.3          18.2        (15.9 )%
                                        34.4          37.8         (9.0 )%
Total EMEA                             129.6         146.6        (11.6 )%

APAC-
Pharmaceuticals
Specialty Injectables                   57.0          57.3         (0.5 )%
Other Pharma                             5.8           4.5         28.9 %
                                        62.8          61.8          1.6 %
Devices
Medication Management Systems            5.4           4.8         12.5 %
Other Devices                            6.3           6.6         (4.5 )%
                                        11.7          11.4          2.6 %
Total APAC                              74.5          73.2          1.8 %

Net Sales                       $    1,007.5    $    925.5          8.9 %

Specialty Injectables include generic injectables and proprietary specialty injectables. Other Pharmaceuticals include large volume I.V. solutions, nutritionals and contract manufacturing services. Medication Management Systems include infusion pumps, related software, services and administration sets. Other Devices include gravity administration sets, critical care products (through the disposal transaction date, August 2009) and other miscellaneous device products.

Net sales increased 8.9%, or 10.8% excluding the impact of changes in foreign exchange rates. Specialty Injectable Pharmaceuticals net sales in the Americas segment increased primarily due to the product launch of generic oxaliplatin. 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 13.8%, or 14.6% excluding the impact of changes in foreign exchange rates. Net sales of Specialty Injectable Pharmaceuticals increased primarily due to the product launch of generic oxaliplatin in the United States ("U.S."). Despite the strong generic substitution rates achieved by oxaliplatin since the launch, the sales trend for this product is not expected to continue at this level as the third quarter sales reflect wholesalers' common practice of purchasing quantities of product at launch to assure adequate supply for end customer use. In addition, Specialty Injectable Pharmaceuticals net sales were higher due to other new product introductions and increased volume for Hospira's proprietary sedation drug Precedex®, partially offset by lower anti-infective volumes due to temporary capacity constraints. Other Pharma net sales volume decreased, partially offset by higher large volume I.V. solutions sales associated with Group Purchasing Organizations ("GPO") contract awards. Net sales in Medication Management Systems were slightly higher with volume increases in large volume infusion systems, primarily Plum A+®, and ambulatory systems.

EMEA

Net sales in the EMEA segment decreased (11.6)%, or (5.0)% excluding the impact of changes in foreign exchange rates. Specialty Injectable Pharmaceuticals net sales increased primarily due to new product introductions, including a biogeneric and oncology related products. Net sales in Other Pharma were lower due to a decline in demand from certain contract manufacturing customers and a decline in certain low margin compounding products. Net sales in Medication Management Systems increased due to large volume infusion systems and dedicated administration sets.

APAC

Net sales in the APAC segment increased 1.8%, or 5.2% excluding the impact of changes in foreign exchange rates. Specialty Injectable Pharmaceuticals net sales increased due to higher volume in Hospira's proprietary sedation drug Precedex®, a new oncology product launch, and higher proprietary and differentiated product sales in Australia. Net sales in Medication Management Systems increased due to higher sales volume of ambulatory systems and dedicated administration sets.

Gross Profit



                                                                            Percent
Three months ended September 30 (dollars in millions)    2009      2008     change
Gross profit                                            $ 395.6   $ 333.8      18.5 %
As a percent of net sales                                  39.3 %    36.1 %

Gross profit, Net sales less Cost of products sold, increased $61.8 million, or 18.5%, for the three months ended September 30, 2009, compared with the same period in 2008.

The gross profit increase is primarily the result of higher sales volume and favorable product mix including the U.S. product launch of generic oxaliplatin and manufacturing efficiency gains associated with Project Fuel, partially offset by the impact of certain product recall related costs and changes in foreign exchange.

Restructuring and Impairment



                                                                         Percent
Three months ended September 30 (dollars in millions)    2009    2008    change
Restructuring and impairment                            $ 13.8   $ 4.5     206.7 %
As a percent of net sales                                  1.4 %   0.5 %

Restructuring and impairment charges were $13.8 million for the three months ended September 30, 2009, compared with $4.5 million for the same period in 2008. The increase in Restructuring and impairment was primarily due to restructuring severance costs and non-cash, pre-tax charges of $4.8 million related to impairment of property and equipment associated with non-strategic assets held for sale under Project Fuel initiatives. Restructuring, primarily severance costs, incurred in 2008 was related to Facilities Optimization initiatives.

Research and Development



                                                                          Percent
Three months ended September 30 (dollars in millions)    2009     2008    change
Research and development                                $ 57.9   $ 51.0      13.5 %
As a percent of net sales                                  5.7 %    5.5 %

Research and development expenses increased $6.9 million, or 13.5%, for the three months ended September 30, 2009, compared with the same period in 2008 primarily due to the timing of Hospira's investment in various new product development programs, including biogenerics.

Selling, General and Administrative



                                                                            Percent
Three months ended September 30 (dollars in millions)    2009      2008     change
Selling, general and administrative                     $ 162.4   $ 145.6      11.5 %
As a percent of net sales                                  16.1 %    15.7 %

Selling, general and administrative expenses increased $16.8 million, or 11.5%, for the three months ended September 30, 2009, compared with the same period in 2008. The increase was primarily due to Project Fuel related costs and higher annual compensation incentive provisions, partially offset by cost reductions associated with Project Fuel initiatives.

Interest Expense and Other Expense (Income), Net

Hospira incurred interest expense of $25.1 million for the three months ended September 30, 2009 and $27.6 million in the same period in 2008. The decrease was primarily due to lower interest rates on floating rate notes. Other expense (income), net was $0.1 million for the three months ended September 30, 2009 compared to $(2.4) million for the three months ended September 30, 2008.

Income Tax Expense

The effective tax rate decreased to 14.7% for the three months ended September 30, 2009, compared to 23.9% for the same period in 2008 primarily due to a discrete income tax benefit recognized in 2009 upon the expiration of statutes of limitation on certain unrecognized tax benefits and lower 2009 unrecognized tax benefit accruals. 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 nine months ended September 30, 2009 compared to September 30, 2008

Net Sales

A comparison of product line sales is as follows:

                                 Hospira, Inc.

                           Net Sales by Product Line

                                  (Unaudited)

                             (dollars in millions)



                                   Nine Months Ended September 30,
                                                            Percent
                                                           Change vs.
                                   2009          2008      Prior Year
Americas-
Pharmaceuticals
Specialty Injectables           $   1,150.7    $   981.7         17.2 %
Other Pharma                          403.2        374.4          7.7 %
                                    1,553.9      1,356.1         14.6 %
Devices
Medication Management Systems         411.7        418.3         (1.6 )%
Other Devices                         274.2        282.7         (3.0 )%
                                      685.9        701.0         (2.2 )%
Total Americas                      2,239.8      2,057.1          8.9 %

EMEA-
Pharmaceuticals
Specialty Injectables                 195.3        224.2        (12.9 )%
Other Pharma                           88.7        120.3        (26.3 )%
                                      284.0        344.5        (17.6 )%
Devices
Medication Management Systems          55.7         59.3         (6.1 )%
Other Devices                          49.5         52.2         (5.2 )%
                                      105.2        111.5         (5.7 )%
Total EMEA                            389.2        456.0        (14.6 )%

APAC-
Pharmaceuticals
Specialty Injectables                 149.0        155.3         (4.1 )%
Other Pharma                           12.1         12.1          0.0 %
                                      161.1        167.4         (3.8 )%
Devices
Medication Management Systems          15.0         15.5         (3.2 )%
Other Devices                          19.0         19.8         (4.0 )%
                                       34.0         35.3         (3.7 )%
Total APAC                            195.1        202.7         (3.7 )%

Net Sales                       $   2,824.1    $ 2,715.8          4.0 %

Specialty Injectables include generic injectables and proprietary specialty injectables. Other Pharmaceuticals include large volume I.V. solutions, nutritionals and contract manufacturing services. Medication Management Systems include infusion pumps, related software, services and administration sets. Other Devices include gravity administration sets, critical care products (through the disposal transaction date, August 2009) and other miscellaneous device products.

Net sales increased 4.0%, or 8.3% excluding the impact of changes in foreign exchange rates. Specialty Injectable Pharmaceuticals net sales in the Americas segment increased primarily due to the product launch of generic oxaliplatin. 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 8.9%, or 10.5% excluding the impact of changes in foreign exchange rates. Net sales of Specialty Injectable Pharmaceuticals increased primarily due to the product launch of generic oxaliplatin in the U.S. Despite the strong generic substitution rates achieved by oxaliplatin since the launch, the sales trend for this product is not expected to continue at this level as the third quarter sales reflect wholesalers' common practice of purchasing quantities of product at launch to assure adequate supply for end customer use. In addition, Specialty Injectable Pharmaceuticals net sales were higher due to other new product introductions and increased volume for Hospira's proprietary sedation drug Precedex®, partially offset by lower anti-infectives volume due to temporary capacity constraints. Other Pharma net sales increased due to higher demand from certain contract manufacturing customers and increased large volume I.V. solutions sales due to GPO contract awards. Net sales in Medication Management Systems were slightly higher with volume increases in ambulatory and large volume infusion systems, primarily Plum A+®, and dedicated administration sets.

EMEA

Net sales in the EMEA segment decreased (14.6)%, or (2.3)% excluding the impact of changes in foreign exchange rates. Specialty Injectable Pharmaceuticals net sales were essentially flat with increases from new product introductions, including a biogeneric and oncology related products, offset by lower sales volume and price declines on certain oncology products. Net sales of Other Pharma were lower due to a decline in demand from certain contract manufacturing customers and a decline in certain low margin compounding products. Net sales in Medication Management Systems increased due to large volume infusion systems and dedicated administration sets.

APAC

Net sales in the APAC segment decreased (3.7)%. Excluding the impact of changes in foreign exchange rates APAC net sales increased 9.1%. Specialty Injectable Pharmaceuticals net sales increased due to higher volume in Hospira's proprietary sedation drug Precedex®, cardiovascular related products, a new oncology product launch, and higher proprietary and differentiated product sales in Australia. Net sales in Medication Management Systems increased due to higher sales volume of ambulatory infusion systems and dedicated administration sets.

Gross Profit



                                                                             Percent
Nine months ended September 30 (dollars in millions)     2009       2008     change
Gross profit                                           $ 1,061.4   $ 986.0       7.6 %
As a percent of net sales                                   37.6 %    36.3 %

Gross profit, Net sales less Cost of products sold, increased $75.4 million, or 7.6%, for the nine months ended September 30, 2009, compared with the same period in 2008.

The gross profit increase is primarily the result of higher sales volume and favorable product mix including the impact of the U.S. product launch of generic oxaliplatin and higher anesthesia related product sales, primarily Precedex®. In addition, higher volume and cost reductions associated with Project Fuel and Facilities Optimization initiatives contributed to manufacturing efficiency gains. These increases were partially offset by the impact of changes in foreign exchange rates, certain product recall related costs, and inventory charges including those associated with the Project Fuel product line complexity reduction initiative.

Restructuring and Impairment



                                                                         Percent
Nine months ended September 30 (dollars in millions)    2009     2008    change
Restructuring and impairment                           $ 79.1   $ 13.8     473.2 %
As a percent of net sales                                 2.8 %    0.5 %

Restructuring and impairment charges were $79.1 million for the nine months ended September 30, 2009, compared with $13.8 million for the same period in 2008. The increase in Restructuring and impairment was primarily due to non-cash, pre-tax charges of $53.1 million related to the impairment of property and equipment, allocated goodwill and intangible asset impairments associated

with non-strategic assets held for sale under Project Fuel initiatives. Restructuring, primarily severance costs, incurred in 2008 was related to Facilities Optimization initiatives.

Research and Development


. . .