**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D. C.  20549**

**FORM10-Q**
| **(Mark One)**                                                                                                                                                                           |       |                                                                                          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                     |       |                                                                                          |
| **x**                                                                                                                                                                                    | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                                                                                                                                                     |       |                                                                                          |
| **For the quarterly period ended June 30, 2007**                                                                                                                                         |
|                                                                                                                                                                                     |       |                                                                                          |
| **OR**                                                                                                                                                                                   |
|                                                                                                                                                                                     |       |                                                                                          |
| **o**                                                                                                                                                                                    | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                     |       |                                                                                          |
| **For the transition period from               to             ** |
|                                                                                                                                                                                     |       |                                                                                          |
| **Commission File No. 1-31946**                                                                                                                                                          |

 

**HOSPIRA,INC.**

| **A Delaware corporation** |   | I.R.S. Employer  Identification |
|----------------------------|--------|---------------------------------|
|                       |   | No. **20-0504497**              |

 

**275 N. Field Drive**

**LakeForest, Illinois 60045**

Telephone:**  (224) 212-2000**

Indicate by check markwhether the registrant (l) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of l934 during the precedingl2 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.     Yes  x  No o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý    Acceleratedfiler  o                             Non-acceleratedfiler  o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).     Yes  o No  x

As of July 31, 2007, Registrant had outstanding 157,101,142 shares of commonstock, par value $0.01 per share.

 

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Tableof Contents

**Hospira,Inc.**

**QuarterlyReport on Form 10-Q**

**Index**
|           | **Part I – Financial  Information**                                                                                     |   |
|-----------|------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.   | Financial Statements                                                                                                         |   |
|      |                                                                                                                         |   |
|      | Condensed  Consolidated Statements of Income (Unaudited) – Three and Six Months Ended  June 30, 2007 and June 30, 2006  | 3      |
|      |                                                                                                                         |   |
|      | Condensed  Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30,  2007 and June 30, 2006        | 4      |
|      |                                                                                                                         |   |
|      | Condensed  Consolidated Balance Sheets (Unaudited) – June 30, 2007 and December 31, 2006                                | 5      |
|      |                                                                                                                         |   |
|      | Condensed  Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) – Six  Months Ended June 30, 2007 | 6      |
|      |                                                                                                                         |   |
|      | Notes to  Condensed Consolidated Financial Statements (Unaudited)                                                            | 7      |
|      |                                                                                                                         |   |
| Item 2.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                  | 16     |
|      |                                                                                                                         |   |
| Item 3.   | Quantitative  and Qualitative Disclosures about Market Risk                                                                  | 23     |
|      |                                                                                                                         |   |
| Item 4.   | Controls and  Procedures                                                                                                     | 24     |
|      |                                                                                                                         |   |
|      | **Part II – Other  Information**                                                                                        |   |
|      | ** **                                                                                                                   |   |
| Item 1.   | Legal Proceedings                                                                                                            | 25     |
|      |                                                                                                                         |   |
| Item  1A. | Risk  Factors                                                                                                                | 25     |
|      |                                                                                                                         |   |
| Item 2.   | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                 | 25     |
|      |                                                                                                                         |   |
| Item 4.   | Submission of  Matters to a Vote of Security Holders                                                                         | 25     |
|      |                                                                                                                         |   |
| Item  6.  | Exhibits                                                                                                                     | 25     |

 

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**PART I.  FINANCIAL INFORMATION**

**Item1.  Financial Statements**

**Hospira,Inc.**

**Condensed Consolidated Statements of Income**

**(Unaudited)**

***(dollars and shares in thousands,except for per share amounts)***
| ** **                                    | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net sales                                     |       | $                                                  | 869,356    |                                             | $          | 671,101 |   | $ | 1,652,154 |   | $ | 1,335,395 |   |
| Cost of products sold                         |       | 603,118                                            |       | 446,015                                          |       | 1,111,367 |   | 865,513 |   |
| Gross Profit                                  |       | 266,238                                            |       | 225,086                                          |       | 540,787 |   | 469,882 |   |
|                                          |       |                                               |       |                                             |       |   |   |   |   |
| Research and  development                     |       | 52,558                                             |       | 39,055                                           |       | 96,069 |   | 70,056 |   |
| Acquired in-process  research and development |       | —                                             |       | —                                           |       | 84,800 |   | — |   |
| Selling, general and  administrative          |       | 146,035                                            |       | 111,073                                          |       | 277,898 |   | 212,867 |   |
| Income From  Operations                       |       | 67,645                                             |       | 74,958                                           |       | 82,020 |   | 186,959 |   |
|                                          |       |                                               |       |                                             |       |   |   |   |   |
| Interest expense                              |       | 37,344                                             |       | 7,283                                            |       | 67,866 |   | 14,940 |   |
| Other income, net                             |       | (5,173                                             | )          | (3,549                                           | )          | (5,876 | ) | (8,295 | ) |
| Income Before  Income Taxes                   |       | 35,474                                             |       | 71,224                                           |       | 20,030 |   | 180,314 |   |
|                                          |       |                                               |       |                                             |       |   |   |   |   |
| Income tax expense                            |       | 4,796                                              |       | 17,074                                           |       | 18,708 |   | 45,981 |   |
| Net Income                                    |       | $                                                  | 30,678     |                                             | $          | 54,150 |   | $ | 1,322 |   | $ | 134,333 |   |
|                                          |       |                                               |       |                                             |       |   |   |   |   |
| Earnings Per Common  Share:                   |       |                                               |       |                                             |       |   |   |   |   |
| Basic                                         |       | $                                                  | 0.20       |                                             | $          | 0.35 |   | $ | 0.01 |   | $ | 0.85 |   |
| Diluted                                       |       | $                                                  | 0.20       |                                             | $          | 0.34 |   | $ | 0.01 |   | $ | 0.83 |   |
| Weighted Average Common  Shares Outstanding:  |       |                                               |       |                                             |       |   |   |   |   |
| Basic                                         |       | 156,699                                            |       | 156,448                                          |       | 156,393 |   | 158,673 |   |
| Diluted                                       |       | 159,526                                            |       | 159,655                                          |       | 158,982 |   | 162,026 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

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**Hospira,Inc.**

**Condensed Consolidated Statements ofCash Flows**

**(Unaudited)**

***(dollars in thousands)***
| ** **                                                                  | ** ** | **Six Months Ended June 30** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Cash Flow From (Used in) Operating Activities:                              |       |                                             |       |   |   |
|                                                                        |       |                                             |       |   |   |
| Net income                                                                  |       | $                                                | 1,322      |   | $ | 134,333 |   |
| Adjustments to  reconcile net income to net cash from operating activities- |       |                                             |       |   |   |
| Depreciation                                                                |       | 90,084                                           |       | 77,909 |   |
| Amortization of  intangibles                                                |       | 22,901                                           |       | 964 |   |
| Write-off of acquired  in-process research and development                  |       | 84,800                                           |       | — |   |
| Stock-based  compensation expense                                           |       | 23,530                                           |       | 19,584 |   |
| Gain on sale of  facility                                                   |       | —                                           |       | (7,851 | ) |
| Changes in assets and  liabilities-                                         |       |                                             |       |   |   |
| Trade receivables                                                           |       | (40,759                                          | )          | (32,595 | ) |
| Inventories                                                                 |       | 58,023                                           |       | (71,669 | ) |
| Prepaid expenses and  other assets                                          |       | (7,347                                           | )          | (6,017 | ) |
| Trade accounts payable                                                      |       | (5,051                                           | )          | 17,416 |   |
| Other liabilities                                                           |       | (67,362                                          | )          | 114 |   |
| Other, net                                                                  |       | 11,456                                           |       | 47,744 |   |
| Net Cash From Operating  Activities                                         |       | 171,597                                          |       | 179,932 |   |
|                                                                        |       |                                             |       |   |   |
| Cash Flow From (Used in) Investing Activities:                              |       |                                             |       |   |   |
| Acquisitions of  property and equipment                                     |       | (88,522                                          | )          | (139,784 | ) |
| Acquisition of Mayne  Pharma, net of cash acquired                          |       | (1,961,285                                       | )          | — |   |
| Settlements of foreign  currency contracts                                  |       | (55,701                                          | )          | — |   |
| Proceeds from  dispositions of product rights                               |       | 13,771                                           |       | — |   |
| Proceeds from sale of  facility                                             |       | —                                           |       | 11,500 |   |
| Purchases of  intangibles and other investments                             |       | —                                           |       | (12,045 | ) |
| Net Cash (Used in)  Investing Activities                                    |       | (2,091,737                                       | )          | (140,329 | ) |
|                                                                        |       |                                             |       |   |   |
| Cash Flow From (Used in) Financing Activities:                              |       |                                             |       |   |   |
| Issuance of long-term  debt, net of fees paid                               |       | 3,336,198                                        |       | — |   |
| Repayment of long-term  debt                                                |       | (1,575,082                                       | )          | (71 | ) |
| Other borrowings, net                                                       |       | (326                                             | )          | 4,069 |   |
| Payment to Abbott for  international assets                                 |       | —                                           |       | (98,536 | ) |
| Common stock  repurchased                                                   |       | —                                           |       | (250,178 | ) |
| Excess tax benefit from  stock-based compensation arrangements              |       | 583                                              |       | 3,159 |   |
| Proceeds from stock  options exercised                                      |       | 27,538                                           |       | 34,851 |   |
| Net Cash From (Used in)  Financing Activities                               |       | 1,788,911                                        |       | (306,706 | ) |
|                                                                        |       |                                             |       |   |   |
| Effect of exchange rate changes on cash and cash  equivalents               |       | 12,215                                           |       | 2,938 |   |
|                                                                        |       |                                             |       |   |   |
| Net change in cash and cash equivalents                                     |       | (119,014                                         | )          | (264,165 | ) |
| Cash and cash equivalents at beginning of period                            |       | 322,045                                          |       | 520,610 |   |
| Cash and cash equivalents at end of period                                  |       | $                                                | 203,031    |   | $ | 256,445 |   |
|                                                                        |       |                                             |       |   |   |
| Supplemental Cash Flow Information                                          |       |                                             |       |   |   |
|                                                                        |       |                                             |       |   |   |
| Cash paid during the period:                                                |       |                                             |       |   |   |
| Interest                                                                    |       | $                                                | 45,758     |   | $ | 21,376 |   |
| Income taxes,  net                                                          |       | $                                                | 36,100     |   | $ | 14,714 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

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**Hospira, Inc.**

**Condensed Consolidated Balance Sheets**

**(Unaudited)**

***(dollars inthousands except for share data)***
| ** **                                                                                                                            | ** ** | **June 30** | ** ** | **December 31** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|----------------------|------------|
| ** **                                                                                                                            | ** ** | **2007**         | ** ** | **2006**             | ** ** |
| **Assets**                                                                                                                            |       |             |       |                 |       |
| Current Assets:                                                                                                                       |       |             |       |                 |       |
| Cash and cash equivalents                                                                                                             |       | $                | 203,031    |                 | $          | 322,045 |   |
| Trade receivables, less allowances of $9,850 in 2007  and $13,688 in 2006                                                             |       | 579,766          |       | 335,334              |       |
| Inventories:                                                                                                                          |       |             |       |                 |       |
| Finished products                                                                                                                     |       | 509,963          |       | 405,781              |       |
| Work in process                                                                                                                       |       | 125,561          |       | 85,849               |       |
| Materials                                                                                                                             |       | 157,419          |       | 135,304              |       |
| Total inventories                                                                                                                     |       | 792,943          |       | 626,934              |       |
| Prepaid expenses, deferred taxes and other  receivables                                                                               |       | 257,974          |       | 238,577              |       |
| Total Current Assets                                                                                                                  |       | 1,833,714        |       | 1,522,890            |       |
| Property and  equipment, at cost                                                                                                      |       | 2,530,110        |       | 2,273,124            |       |
| Less:   accumulated depreciation                                                                                                 |       | 1,286,201        |       | 1,233,693            |       |
| Net Property and Equipment                                                                                                            |       | 1,243,909        |       | 1,039,431            |       |
| Intangible  assets, net of amortization                                                                                               |       | 539,084          |       | 17,103               |       |
| Goodwill                                                                                                                              |       | 1,223,289        |       | 91,857               |       |
| Deferred income  taxes                                                                                                                |       | 68,927           |       | 76,367               |       |
| Investments                                                                                                                           |       | 38,785           |       | 31,341               |       |
| Other assets                                                                                                                          |       | 72,785           |       | 68,598               |       |
| Total Assets                                                                                                                          |       | $                | 5,020,493  |                 | $          | 2,847,587 |   |
| **Liabilities and Shareholders’ Equity**                                                                                         | ** ** | ** **       | ** ** | ** **           | ** ** |
| Current  Liabilities:                                                                                                                 |       |             |       |                 |       |
| Short-term borrowings                                                                                                                 |       | $                | 111,747    |                 | $          | 4,532 |   |
| Trade accounts payable                                                                                                                |       | 190,227          |       | 130,968              |       |
| Salaries payable and other accruals                                                                                                   |       | 503,841          |       | 470,726              |       |
| Total Current Liabilities                                                                                                             |       | 805,815          |       | 606,226              |       |
| Long-term debt                                                                                                                        |       | 2,381,518        |       | 702,044              |       |
| Post-retirement  obligations, deferred income taxes and other long-term liabilities                                                   |       | 360,128          |       | 178,228              |       |
| Commitments and  Contingencies                                                                                                        |       |             |       |                 |       |
| Shareholders’ Equity:                                                                                                            |       |             |       |                 |       |
| Common stock, par value $0.01 - authorized:  400,000,000 shares; issued and outstanding shares: 2007: 156,986,698; 2006:  155,883,712 |       | 1,646            |       | 1,635                |       |
| Preferred stock, par value $0.01 - authorized:  50,000,000 shares; issued and outstanding shares: 0 shares                       |       | —           |       | —               |       |
| Treasury stock, at cost - Shares: 2007 and 2006:  7,584,400                                                                           |       | (299,766         | )          | (299,766             | )          |
| Additional paid-in capital                                                                                                            |       | 1,089,749        |       | 1,033,345            |       |
| Retained earnings                                                                                                                     |       | 680,037          |       | 676,639              |       |
| Accumulated other comprehensive income (loss)                                                                                         |       | 1,366            |       | (50,764              | )          |
| Total Shareholders’ Equity                                                                                                       |       | 1,473,032        |       | 1,361,089            |       |
| Total Liabilities and  Shareholders’ Equity                                                                                      |       | $                | 5,020,493  |                 | $          | 2,847,587 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

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**Hospira, Inc.**

**Condensed Consolidated Statement ofChanges in Shareholders’ Equity**

**(Unaudited)**

***(dollars and shares in thousands)***
| ** **                                                                | ** ** | **Common Stock** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Additional  Paid-in** | ** ** | **Treasury** | ** ** | **Retained** | ** ** | ** **   | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------------|------------|-------------------------|------------|--------------|------------|--------------|------------|--------------|------------|
| ** **                                                                | ** ** | **Shares**            | ** ** | **Amount**                            | ** ** | **Income (Loss)**  | ** ** | **Capital**  | ** ** | **Stock**    | ** ** | **Earnings** | ** ** | **Total** | ** ** |
| **Balances  at December 31, 2006**                                        |       | 155,884               |       | $                                     | 1,635      |                    | $          | (50,764      | )          | $            | 1,033,345  |         | $          | (299,766 | ) | $ | 676,639 |   | $ | 1,361,089 |   |
| Net Income                                                                |       | —                |       | —                                |       | —                  |       | —       |       | —       |       | 1,322        |       | 1,322 |   |
|                                                                      |       |                  |       |                                  |       |                    |       |         |       |         |       |         |       |   |   |
| Other  comprehensive income                                               |       | —                |       | —                                |       | 52,130                  |       | —       |       | —       |       | —       |       | 52,130 |   |
|                                                                      |       |                  |       |                                  |       |                    |       |         |       |         |       |         |       |   |   |
| Adoption of FASB  Interpretation No. 48                                   |       | —                |       | —                                |       | —                  |       | —       |       | —       |       | 2,076        |       | 2,076 |   |
|                                                                      |       |                  |       |                                  |       |                    |       |         |       |         |       |         |       |   |   |
| Changes in  shareholders’ equity related to incentive stock programs |       | 1,103                 |       | 11                                    |       | —                  |       | 56,404       |       | —       |       |         |       | 56,415 |   |
| **Balances at June 30, 2007**                                             |       | 156,987               |       | $                                     | 1,646      |                    | $          | 1,366        |       | $            | 1,089,749  |         | $          | (299,766 | ) | $ | 680,037 |   | $ | 1,473,032 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

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**Hospira, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**June30, 2007**

**(Unaudited)**

**Note 1– Basis of Presentation**

These condensed consolidated financial statements have beenprepared pursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”) and, therefore, do not include all information and footnotedisclosures normally included in audited financial statements. However, in theopinion of management, all adjustments, consisting only of normal recurringadjustments, unless otherwise noted herein, necessary to present fairly theresults of operations, financial position and cash flows have been made. Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto included in Hospira’sAnnual Report on Form 10-K for the year ended December 31, 2006. Theresults of operations for any interim period are not necessarily indicative ofthe results of operations to be expected for the full year.

Hospira became aseparate public company pursuant to a spin-off from Abbott Laboratories (“Abbott”)on April 30, 2004 (the “spin-off date”). In connection with the spin-off,Hospira and Abbott agreed that the legal transfer of certain operations andassets (net of liabilities) outside the United States would occur, and becompleted, within two years after the spin-off. During the transition period, theseoperations and assets were used in the conduct of Hospira’s internationalbusiness and Hospira was subject to the risks and entitled to the benefitsgenerated by such operations and assets. Hospira was dependent on Abbott’sinternational infrastructure until such legal transfers occurred in eachinternational country. These transfers were completed in 2006.

On February 2, 2007, Hospira acquired allthe outstanding ordinary shares of Mayne Pharma Limited (“Mayne Pharma”), anAustralian public company listed on the Australian Stock Exchange. The resultsof operations of Mayne Pharma are included in Hospira’s results for periods onand after that date, which has affected comparability of the financialstatements for the periods presented in this report and will affectcomparability in future periods.

For comparative purposes, Net sales toAbbott Laboratories have been reclassified to Net sales on the CondensedConsolidated Statement of Income for the three and six months ended June 30,2006. The reclassification did not affect net income or shareholders’ equity.

**Note 2 – Recently Issued AccountingStandards**

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities – Including an amendment of FASB Statement No. 115” (“SFASNo. 159”). SFAS No. 159 provides a company with the option to measure selectedfinancial instruments and certain other items at fair value at specifiedelection dates. The election may be applied on an item by item basis, withdisclosure regarding reasons for partial election and additional informationabout items selected for fair value option. SFAS No. 159 is effective forfinancial statements issued for fiscal years beginning after November 15,2007. Hospira is currently evaluating the potential impact of SFAS No. 159 onits financial statements.

In September 2006, the FASB issuedStatement of Financial Accounting Standards No. 157, “Fair ValueMeasurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fairvalue should be based on the assumptions market participants would use whenpricing an asset or liability and establishes a fair value hierarchy thatprioritizes the information used to develop those assumptions. Under thestandard, fair value measurements would be separately disclosed by level withinthe fair value hierarchy. SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007. Hospira iscurrently evaluating the potential impact of SFAS No. 157 on its financialstatements.

In September 2006, the FASB issued Statementof Financial Accounting Standards No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans – an amendment of FASB Statements No.87, 88, 106, and 132(R)” (“SFAS No. 158”). One provision of SFAS No. 158 requiresthe measurement of Hospira’s defined benefit plan’s assets and its obligations todetermine the funded status be made as of the end of the fiscal year. Thisprovision of SFAS No. 158 is effective for fiscal years ending after December15, 2008. Hospira does not anticipate that the impact from the adoptionof this provision of SFAS No. 158 will be significant to its financialstatements.

**Note 3 – Mayne Pharma Acquisition**

On February 2, 2007, Hospira acquired allthe outstanding ordinary shares of Mayne Pharma (including those sharesissuable pursuant to stock options) for $2,055.0 million. The $2,055.0 millionpurchase price includes the cash purchase price and direct

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acquisition costs. Mayne Pharmamanufactures and sells primarily specialty injectable pharmaceuticals. Theresults of operations of Mayne Pharma are included in Hospira’s results forperiods on and after February 2, 2007.

During the second quarter2007, Hospira completed the valuation for both intangible assets and propertyand equipment. The following allocation of the purchase price is subject to furtherrevision, as additional information may become available to modify Hospira’sinitial estimates for certain assets and liabilities. The allocation is asfollows:

*(dollars in thousands)*

| Current assets                                                                      |   | $         | 482,069   |   |
|-------------------------------------------------------------------------------------|--------|-----------|-----------|--------|
| Property and  equipment                                                             |   | 197,786   |      |
| Intangible  assets                                                                  |   | 602,959   |      |
| Goodwill                                                                            |   | 1,084,676 |      |
| Other assets                                                                        |   | 7,200     |      |
| Current  liabilities                                                                |   | (255,421  | )         |
| Long-term debt                                                                      |   | (4,536    | )         |
| Post-retirement  obligations, deferred income taxes and other long-term liabilities |   | (59,700   | )         |
| Total estimated  allocation of purchase price                                       |   | $         | 2,055,033 |   |

 

Of the estimate of $603.0million of acquired intangible assets, $486.6 million relates to developedproduct rights that will be amortized over their estimated useful lives (9 to 12years, average 11 years), including $13.8 million of product rights disposed ofas a result of the acquisition, $31.6 million relates to customer relationshipsthat will be amortized over their estimated useful lives (4 to 12 years,average 10 years) and $84.8 million relates to acquired in-process research anddevelopment that was expensed at the date of acquisition. Of the estimate of $1,084.7million of goodwill, approximately $421.9 million was assigned to the U.S.segment and approximately $662.8 million was assigned to the Internationalsegment. Goodwill is not expected to be deductible for tax purposes.

Hospira has progressedwith its plans for the integration of Mayne Pharma into its operations. AsHospira takes certain actions in connection with the integration that give riseto restructuring charges, such as termination of employees and exiting certainactivities and facilities, certain of those charges are recorded as goodwill aspart of the purchase price allocation. As of June 30, 2007, the impact togoodwill associated with restructuring charges for these activities is $13.2million, net of taxes, and is included in current liabilities. Additionalrestructuring charges that impact goodwill may continue to be incurred during2007 as Hospira completes its integration plan.

The total purchase priceof $2,055.0 million is comprised of $2,042.3 million of cash purchase price and$12.7 million of direct acquisition costs. OnFebruary 1, 2007, Hospira incurred $1,925.0 million of bank debt to finance theMayne Pharma acquisition. The remainder of the purchase price was funded withcash on hand. The bank facilities included a $500.0 million,three-year term loan facility and a $1,425.0 million one-year bridge loanfacility. The bridge loan facility was completely refinanced on March 23, 2007through the issuance of long-term debt securities. See Note 11 for moredetails. In connection with the acquisition, Hospira entered into certainforeign currency forward exchange contracts to limit its exposure from currencymovements of the Australian dollar. Forward contract gains and losses of thisexposure substantially offset the remeasurement of the related asset and bothare included in other income. During the six months ended June 30, 2007,Hospira paid $55.7 million for the settlements relating to these contracts.

Supplemental information on an unaudited pro forma basis for the six monthsended June 30, 2007, and the three and six months ended June 30, 2006, as ifthe Mayne Pharma acquisition had taken place on January 1, 2007 and 2006, is asfollows:

*(dollars in thousands)*
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended June 30** | ** ** |
|-----------------------------|------------|----------------------------------|------------|--------------------------------------------------|------------|
| ** **                  | ** ** | **June 30, 2006**      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Net sales                   |       | $                                | 834,075    |                                             | $          | 1,703,439 |   | $ | 1,639,925 |   |
| Net income  (loss)          |       | $                                | 19,676     |                                             | $          | (15,009 | ) | $ | (27,513 | ) |
| Diluted earnings per  share |       | $                                | 0.12       |                                             | $          | (0.10 | ) | $ | (0.17 | ) |

 

Unaudited pro forma supplemental information is based on accounting estimatesand judgments, which Hospira believes are reasonable. The unaudited pro formasupplemental information also includes purchase accounting adjustments (includinginventory step-up charges, adjustments to depreciation on acquired property andequipment, and a charge for in-process research and development), amortizationcharges from acquired intangible assets, adjustments to interest expense, andrelated tax effects. The unaudited pro forma supplemental information is notnecessarily indicative of the results of operations in future periods or theresults that actually would have been realized had Hospira and Mayne Pharmabeen combined at the beginning of each period presented.

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**Note 4 – Restructuring Costs**

In August 2005, Hospiraannounced plans to close its manufacturing plant in Donegal, Ireland. InFebruary 2006, Hospira further announced plans to close manufacturing plants inAshland, Ohio and Montreal, Canada, and also provided the planned timeline for phasingout production at a leased facility in Abbott Laboratories’ North Chicago,Illinois campus. Hospira expects to incur aggregate restructuring chargesrelated to these actions in the range of $75 million to $95 million on apre-tax basis. The restructuring costs are expected to be incurred through 2009and consist primarily of costs related to severance and certain other employeebenefit costs, additional depreciation resulting from the decreased usefullives of the buildings and certain equipment, and other exit costs.

During the three monthsended June 30, 2007, Hospira recorded pre-tax restructuring charges of $6.0million in cost of products sold. Of the total charges, $2.9 million wasrecorded in the U.S. segment and $3.1 million in the International segment.During the three months ended June 30, 2006, Hospira recorded pre-taxrestructuring charges of $12.4 million in cost of products sold. Of the totalcharges, $4.2 million was recorded in the U.S. segment and $8.2 million in theInternational segment.

During the six monthsended June 30, 2007, Hospira recorded pre-tax restructuring charges of $11.9million in cost of products sold. Of the total charges, $6.6 million wasrecorded in the U.S. segment and $5.3 million in the International segment. Duringthe six months ended June 30, 2006, Hospira recorded pre-tax restructuringcharges of $24.3 million in cost of products sold. Of the total charges, $8.1million was recorded in the U.S. segment and $16.2 million in the Internationalsegment. Hospira has incurred $64.0 million to date for restructuring chargesrelated to these actions. Product transfers from the Donegal, Ireland plant werecompleted in 2006. Hospira expects to complete all product transfers relatingto the Montreal, Canada manufacturing plant and exit the facility at the end of2007. Hospira expects to cease production at the Ashland, Ohio facility by theend of the third quarter 2007. Hospira is currently evaluating the potential dispositionof its Ashland, Ohio manufacturing plant and is planning to take the stepsnecessary to prepare for such disposition, including environmental studies. At June30, 2007, Hospira had $0.6 million recorded for environmental clean-up costsrelated to these actions.

The following summarizesthe restructuring activity for the six months ended June 30, 2007:

*(dollars in thousands)*
| ** **                      | ** ** | **Balance at**           | ** ** | **Costs**    | ** ** | ** **   | ** ** | **Non cash** | ** ** | **Balance at**         | ** ** |
|---------------------------------|------------|-------------------------------|------------|--------------|------------|--------------|------------|-------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **January 1, 2007** | ** ** | **Incurred** | ** ** | **Payments** | ** ** | **Items**         | ** ** | **June 30, 2007** | ** ** |
| Employee-related  benefit costs |       | $                             | 16,473     |         | $          | 6,952        |       | $                 | (5,303     | )                           | $          | — |   | $ | 18,122 |   |
| Accelerated  depreciation       |       | —                        |       | 3,879        |       | —       |       | (3,879            | )          | —                      |       |
| Other                           |       | 1,309                         |       | 1,037        |       | (778         | )          | (52               | )          | 1,516                       |       |
|                            |       | $                             | 17,782     |         | $          | 11,868       |       | $                 | (6,081     | )                           | $          | (3,931 | ) | $ | 19,638 |   |

 

**Note 5 – Stock-Based Compensation**

Costs resulting from share-based payment transactions arerecognized as compensation cost over the vesting period based on the fair valueof the instrument on the date of grant. Stock-based compensation expense of $16.3million and $13.1 million was recognized for the three months ended June 30,2007 and 2006, respectively, primarily resulting from stock option awards. Therelated income tax benefit recognized was $6.2 million and $4.7 million,respectively. Stock-based compensation expense of $23.5 million and $19.6million was recognized for the six months ended June 30, 2007 and 2006,respectively, primarily resulting from stock option awards. The related incometax benefit recognized was $8.8 million and $6.8 million, respectively.

In May 2007, 2.7 million options were granted to certainemployees for the 2007 annual stock option grant. These options were awarded atthe fair market value at the time of grant, generally vest over three years andhave a seven-year term.

The weighted average fair value for the Hospira optionsgranted in the three and six months ended June 30, 2007 was $14.27 and $14.07,respectively. The weighted average fair value for the Hospira options grantedin the three and six months ended June 30, 2006 was $16.40 and $15.97,respectively. The fair value was estimated using the Black-Scholes option-pricingmodel, based on the average market price at the grant date and the weightedaverage assumptions specific to the underlying options. Expected volatilityassumptions are based on a combination of historical volatility of Hospira’sstock and historical volatility of peer companies. Expected life assumptions forthe periods presented are based on the “simplified” method as described in SECStaff Accounting Bulletin No. 107, “Share-Based Payment,” which is the midpointbetween the vesting date and the end of the contractual term. The risk-freeinterest rate was selected based upon yields of U.S. Treasury issues with aterm equal to the expected life of the option being valued. The weightedaverage assumptions utilized for option grants during the periods presented areas follows:

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| ** **                                                           | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Hospira Stock  Options Black-Scholes assumptions (weighted average): |       |                                               |       |                                             |       |   |   |   |   |
| Volatility                                                           |       | 34.0                                               | %          | 31.0                                             | %          | 33.8 | % | 31.0 | % |
| Expected life  (years)                                               |       | 4.5                                                |       | 5.8                                              |       | 4.5 |   | 5.7 |   |
| Risk-free  interest rate                                             |       | 4.7                                                | %          | 5.0                                              | %          | 4.6 | % | 5.0 | % |
| Dividend yield                                                       |       | 0.0                                                | %          | 0.0                                              | %          | 0.0 | % | 0.0 | % |

 

For a more detailed description of Hospira’s stock-basedcompensation plan, see Note 14 to Hospira’s consolidated financialstatements included in Hospira’s Annual Report on Form 10-K for the year endedDecember 31, 2006.

**Note 6 – Income Taxes**

Taxes on income reflectthe estimated annual effective rates, excluding the effect of significantunusual items. The effective tax rates are less than the statutory U.S. federalincome tax rate principally due to the benefit of tax exemptions, of varyingdurations, in several non-U.S. taxing jurisdictions.

Hospira adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes – an interpretation of FASB Statement No. 109” (“FIN 48”) on January 1,2007.  As a result of the implementationof FIN 48, Hospira recognized a $2.1 million decrease in the liability forunrecognized tax benefits.  This decreasein the liability resulted in an increase in the January 1, 2007 balance ofretained earnings of $2.1 million.  The grossamount of unrecognized tax benefits at January 1, 2007 is $113.1 million.  The amount, if recognized, that would affectthe effective tax rate is $104.2 million.

Hospira recognizesinterest and penalties accrued in relation to unrecognized tax benefits inincome tax expense, which is consistent with the reporting in priorperiods.  As of January 1, 2007, Hospirahas recorded liabilities of $1.9 million for the payment of interest andpenalties.

Hospira began operationsas a new taxpayer on May 1, 2004, and the U.S. federal tax returns for 2004 and2005 are currently under examination by the Internal Revenue Service. It is notexpected that the amount of unrecognized tax benefits will significantly changeduring the next 12 months.

**Note 7 – Earnings per Share**

Basic earnings per shareare computed by dividing net income by the number of weighted average commonshares outstanding during the reporting period. Diluted earnings per share are calculated to give effect to allpotentially dilutive common shares that were outstanding during the reportingperiod. The following table shows the effect of stock options on the weightedaverage number of shares outstanding used in calculating diluted earnings pershare:

*(shares in thousands)*
| ** **                                           | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Weighted average  basic common shares outstanding    |       | 156,699                                            |       | 156,448                                          |       | 156,393 |   | 158,673 |   |
|  Assumed exercise of stock options              |       | 2,827                                              |       | 3,207                                            |       | 2,589 |   | 3,353 |   |
| Weighted average  dilutive common shares outstanding |       | 159,526                                            |       | 159,655                                          |       | 158,982 |   | 162,026 |   |

 

The number of outstanding options to purchase Hospirastock for which the exercise price of the options exceeded the average stockprice was 2.7 million and 5.3 million for the three and six months ended June30, 2007, respectively, and 2.7 million for both the three and six months endedJune 30, 2006.  Accordingly, theseoptions are excluded from the diluted earnings per share calculation for theseperiods.

**Note**** 8****– Litigation**

Hospira, Abbott, or insome instances both, are involved in various claims and legal proceedings,including product liability claims and proceedings related to Hospira’sbusiness.

Various state and federalagencies, including the U.S. Department of Justice and various state attorneysgeneral, are investigating a number of pharmaceutical companies, includingAbbott, for allegedly engaging in improper marketing and pricing practices withrespect to certain Medicare and Medicaid reimbursable products, includingpractices relating to average wholesale price (“AWP”).

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These are civilinvestigations that are seeking to identify the practices and determine whetherthose practices violated any laws, including federal and state false claimsacts, or constituted fraud in connection with the Medicare and/or Medicaidreimbursement paid to third parties.  In addition, Abbott is a defendantin a number of purported class actions on behalf of individuals or entities, includinghealthcare insurers and other third-party payors, that allege generally thatAbbott and numerous other pharmaceutical companies reported false or misleadingpricing information in connection with federal, state and private reimbursementfor certain drugs.  Many of the products involved in these investigationsand lawsuits are Hospira products.  Hospira is cooperating with theauthorities in these investigations. There may be additional investigations orlawsuits, or additional claims in the existing investigations or lawsuits,initiated with respect to these matters in the future.  Hospira cannot becertain that it will not be named as a subject or defendant in theseinvestigations or lawsuits. Hospira is a named defendant in two such lawsuits: *The State of Texas ex rel. Ven-A-Care of the FloridaKeys, Inc. v. Abbott Laboratories Inc., Abbott Laboratories and Hospira, Inc,*CaseNo. GV-04-001286, pending in the District Court of Travis County, Texas and *State of Hawaii v. Abbott Laboratories, Inc., et al.*,Case No. 06-1-0720-04, pending in the Circuit Court of the First Circuit,Hawaii. Hospira has been dismissed as a defendant in the case, *United States of America ex rel. Ven-A-Care of theFlorida Keys, Inc. v. Abbott Laboratories, Inc.,* et al Case No. 95-1354,pending in the United States District Court for the Southern District ofFlorida. Abbott will indemnify Hospira for liabilities associated with pendingor future AWP investigations and lawsuits only to the extent that they are ofthe same nature as the lawsuits and investigations that existed against Abbottas of the spin-off date and relate to the sale of Hospira products prior to thespin-off.  Hospira will assume any other losses that may result from theseinvestigations and lawsuits related to Hospira’s products, including any lossesassociated with post-spin-off activities. These investigations and lawsuitscould result in changes to Hospira’s business practices or pricing policies,civil or criminal monetary damages, penalties or fines, imprisonment and/orexclusion of Hospira products from participation in federal and statehealthcare programs, including Medicare, Medicaid and Veterans’ Administrationhealth programs, any of which could have a material adverse effect on itsbusiness, profitability and financial condition.

Hospira has beennamed as a defendant in a lawsuit alleging generally that the spin-off ofHospira from Abbott Laboratories interfered with employee benefits in violationof the Employee Retirement Security Act of 1974 (“ERISA”).  The lawsuitwas filed on November 8, 2004 in the United States District Court for theNorthern District of Illinois, and is captioned:  *Myla Nauman, Jane Roller and Michael Loughery v.Abbott Laboratories and Hospira, Inc.*  On November 18, 2005,the complaint was amended to assert an additional claim against Abbott andHospira for breach of fiduciary duty under ERISA.  Hospira has beendismissed as a defendant with respect to the new fiduciary duty claim.  ByOrder dated December 30, 2005, the Court granted class action status to thelawsuit. As to the sole claim against Hospira in the original complaint,the court certified a class defined as:  “all employees of Abbott who wereparticipants in the Abbott Benefit Plans and whose employment with Abbott was terminatedbetween August 22, 2003 and April 30, 2004, as a result of the spin-off of theHPD/creation of Hospira announced by Abbott on August 22, 2003, and who wereeligible for retirement under the Abbott Benefit Plans on the date of theirterminations.” Hospira denies all material allegations asserted against itin the complaint.

On August 12, 2005,Retractable Technologies, Inc. (“RTI”) filed a lawsuit against AbbottLaboratories, Inc. alleging breach of contract and fraud in connection with aNational Marketing and Distribution Agreement (“Agreement”) between Abbott andRTI signed in May 2000. *RetractableTechnologies, Inc. v. Abbott Laboratories, Inc.*, Case No. 505CV157,pending in U.S. District Court for the Eastern District of Texas. RTI purportedto terminate the contract for breach in 2003. The lawsuit alleges that Abbottmisled RTI and breached the Agreement in connection with Abbott’s marketingefforts. RTI seeks unspecified monetary damages as well as punitive damages.Hospira has conditionally agreed to defend and indemnify Abbott in connectionwith this lawsuit, which involves a contract carried out by Abbott’s formerHospital Products Division. Abbott denies all material allegations in thecomplaint. Abbott intends to pursue claims against RTI for breach of theAgreement in arbitration or in federal court. Hospira is entitled, pursuant toits agreements with Abbott, to any amounts recovered due to RTI’s breach of theAgreement. On February 9, 2007, the court ruled that RTI could not be compelledto arbitrate its claims, but granted Abbott leave to appeal the ruling. Abbotthas appealed the ruling that RTI is not required to arbitrate its claims.

Hospira’s productliability claim exposures are evaluated each reporting period. Hospira’sreserves, which are not significant at June 30, 2007 and 2006, are the bestestimate of loss, as defined by SFAS No. 5, “Accounting for Contingencies.”Based upon information that is currently available, management believes thatthe likelihood of a material loss in excess of recorded amounts is remote.

Additional legalproceedings may occur that may result in a change in the estimated reservesrecorded by Hospira. It is not feasible to predict the outcome of suchproceedings with certainty and there can be no assurance that their ultimatedisposition will not have a material adverse effect on Hospira’s financialposition, cash flows, or results of operations.

**Note 9– Post-Retirement Benefits**

Retirement plans consistof defined benefit (“pension”), defined contribution, and post-retirementmedical and dental plans. The pension and post-retirement medical and dentalplans cover certain employees both in and outside of the United States.

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Net cost (benefit)recognized for the three and six months ended June 30, 2007 and 2006 for themajor pension plans and post-retirement medical and dental benefit plans, is asfollows:

*(dollars in thousands)*
| ** **                                        | ** ** | **Pension Plans**           | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                        | ** ** | **June 30**                 | ** ** | **June 30** | ** ** |
| ** **                                        | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost for  benefits earned during the year |       | $                                | 380        |   | $ | 650 |   | $ | 769 |   | $ | 1,294 |   |
| Interest cost on  projected benefit obligations   |       | 6,148                            |       | 6,117 |   | 12,300 |   | 12,140 |   |
| Expected return  on plans’ assets            |       | (7,086                           | )          | (7,427 | ) | (14,178 | ) | (14,723 | ) |
| Net amortization                                  |       | 1,160                            |       | 754 |   | 2,320 |   | 1,722 |   |
| Curtailment of  benefits(1)                       |       | —                           |       | — |   | — |   | 1,518 |   |
| Net cost                                          |       | $                                | 602        |   | $ | 94 |   | $ | 1,211 |   | $ | 1,951 |   |

 

----

(1)Relates to the planned shutdown of the Ashland, Ohio plant.

*(dollars in thousands)*
| ** **                                        | ** ** | **Medical and Dental Plans** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **Three Months Ended**            | ** ** | **Six Months Ended** | ** ** |
| ** **                                        | ** ** | **June 30**                            | ** ** | **June 30** | ** ** |
| ** **                                        | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost for  benefits earned during the year |       | $                                           | —     |   | $ | 525 |   | $ | — |   | $ | 1,051 |   |
| Interest cost on  projected benefit obligations   |       | 713                                         |       | 843 |   | 1,426 |   | 1,686 |   |
| Net amortization                                  |       | 215                                         |       | 436 |   | 430 |   | 873 |   |
| Net cost                                          |       | $                                           | 928        |   | $ | 1,804 |   | $ | 1,856 |   | $ | 3,610 |   |

 

Hospira’s employeesparticipate in the Hospira 401(k) Retirement Savings Plan. Hospira’scontributions to this defined contribution plan for the three months ended June30, 2007 and 2006 were $8.2 million and $9.0 million, respectively. For the sixmonths ended June 30, 2007 and 2006 contributions were $16.8 million and $17.5million, respectively.

Hospira funds its domesticpension plans according to IRS funding limitations. Based on those limitations,Hospira does not expect to contribute to its U.S. pension plans in 2007.

**Note 10 –Goodwill and Intangible Assets**

Goodwillas of June 30, 2007 totaled $1,223.3 million compared to $91.9 million as ofDecember 31, 2006. The increase of $1,131.4 million, including the effect ofexchange rate changes of $46.9 million, is related to the acquisition of MaynePharma. See Note 3 for more details.

Intangibleassets, primarily product rights, customer relationships and technology, are asfollows:

*(dollars in thousands)*
|                                       | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Cost                                  |       | $                           | 589,755    |                            | $          | 44,873 |   |
| Less:   accumulated amortization |       | (50,671                     | )          | (27,770                         | )          |
| Intangible assets, net                |       | $                           | 539,084    |                            | $          | 17,103 |   |

 

Theincrease of $522.0 million in 2007, including the effect of exchange ratechanges of $41.1 million, is primarily related to the acquisition of MaynePharma. See Note 3 for more details.

Intangibleassets have definite lives and are amortized on a straight-line basis overtheir estimated useful lives (3 to 12 years, average 10 years). Intangibleasset amortization for each of the five succeeding fiscal years is estimated at$31.7 million for the remainder of 2007, $55.9 million for 2008, $55.7 millionfor 2009, $55.7 million for 2010, and $53.0 million for 2011.

**Note 11– Short-term Borrowings and Long-term Debt**

Hospira’s debt consists of the following at June 30, 2007and December 31, 2006:

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*(dollars in thousands)*

|                                                                                                   | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Long-term debt:                                                                                   |       |                        |       |                            |       |
| 4.95% Notes due 2009                                                                              |       | $                           | 300,000    |                            | $          | 300,000 |   |
| Term loan due 2010 (weighted-average floating interest  rate of 5.95% at June 30, 2007)           |       | 257,900                     |       | —                          |       |
| Floating rate notes due 2010 (weighted-average floating  interest rate of 5.83% at June 30, 2007) |       | 375,000                     |       | —                          |       |
| 5.55% Notes due 2012                                                                              |       | 500,000                     |       | —                          |       |
| 5.90% Notes due 2014                                                                              |       | 400,000                     |       | 400,000                         |       |
| 6.05% Notes due 2017                                                                              |       | 550,000                     |       | —                          |       |
| International borrowings due 2008                                                                 |       | —                      |       | 4,914                           |       |
| Other unsecured loans due 2009                                                                    |       | 2,513                       |       | —                          |       |
| Securitized mortgage note due 2015                                                                |       | 5,054                       |       | 4,871                           |       |
| Economic development promissory notes due 2015                                                    |       | 1,735                       |       | 1,320                           |       |
| Fair value of interest rate swap instruments                                                      |       | (8,144                      | )          | (8,181                          | )          |
| Total long-term debt                                                                              |       | 2,384,058                   |       | 702,924                         |       |
| Unamortized debt  discount                                                                        |       | (2,540                      | )          | (880                            | )          |
| Long-term debt                                                                                    |       | 2,381,518                   |       | 702,044                         |       |
| Short-term  borrowings                                                                            |       | 111,747                     |       | 4,532                           |       |
| Total debt                                                                                        |       | $                           | 2,493,265  |                            | $          | 706,576 |   |

 

OnFebruary 1, 2007, Hospira incurred $1,925.0 million of bank debt to finance theMayne Pharma acquisition. The remainder of the purchase price was funded withcash on hand. The bank facilities included a $500.0 million,three-year term loan facility and a $1,425.0 million one-year bridge loanfacility. The bridge loan facility was completely refinanced on March 23, 2007through the issuance of long-term debt securities described below.

Under the term loanfacility, before giving effect to any prepayments (which reduce the repaymentamounts on a pro rata basis), Hospira must repay $12.5 million in principal atthe end of each quarter in 2007, $50.0 million at the end of each quarter in2008 and $62.5 million at the end of each quarter in 2009 (with the finalpayment to be made on the maturity date of January 15, 2010). Hospira ispermitted to prepay amounts borrowed under the term loan from time to timewithout penalty. During the six months ended June 30, 2007, Hospira prepaid$125.0 million in principal amount of the term loan, in addition to thescheduled $25.0 million in principal. As a result of the prepayment, the amountdue within one year is $92.1 million, which reflects pro rata reductions ofscheduled principal payments, and is recorded as short-term borrowings. Borrowingsunder the term loan facility and bridge loan facility bear interest at the LIBORplus a margin that is determined based on Hospira’s senior unsecured debtratings from Standard & Poor’s and Moody’s. Based on Hospira’s ratings of BBB (stable outlook) from Standard & Poor’sand Baa3 (negative outlook) from Moody’s, the margin is currently 0.60%.Ratings are not recommendations to buy, sell or hold securities and are subjectto revision or withdrawal at any time by the rating agencies. Each ratingshould be evaluated independently of any other rating.

On March 23, 2007,Hospira issued $375.0 million principal amount of Floating Rate Notes due 2010,$500.0 million principal amount of 5.55% Notes due 2012 and $550.0 millionprincipal amount of 6.05% Notes due 2017 in a registered public offering. TheFloating Rate Notes due 2010 bear interest at three-month LIBOR plus 48 basispoints. All series of notes are due on March 30 of the year of maturity. Thenet proceeds of the notes (after deducting approximately $10.0 million ofunderwriters’ discounts and offering expenses of $5.6 million), together withapproximately $21.5 million of cash on hand, were used to repay the bridge loanfacility and related interest in full.

Hospira has a five-year$375.0 million unsecured revolving credit facility (the “Revolver”), which itentered into on December 16, 2005 and was amended on January 15, 2007 to permitthe Mayne Pharma acquisition and to temporarily increase the maximum leverageratio and lower the minimum interest coverage ratio. This Revolver is availablefor working capital and other requirements. The Revolver allows Hospira to borrow funds at variable interest ratesas short-term cash needs dictate. As of June 30, 2007, Hospira had no amountsoutstanding under the Revolver.

Hospira’s debt instruments contain covenants thatlimit Hospira’s ability to, among other things, sell assets, incur securedindebtedness and liens, incur indebtedness at the subsidiary level and merge orconsolidate with other companies. Hospira’sdebt instruments also include customary events of default, which would permitamounts borrowed to be accelerated and would permit the lenders under therevolving credit agreement to terminate their lending commitments. Adescription of certain covenants is set forth below.

*Change of Control.* The notes issued onMarch 23, 2007 include covenants that require Hospira to offer to repurchasethose notes at 101% of their principal amount if: (1) there is a change ofcontrol of Hospira and (2) Hospira is rated below investment grade by both

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Moody’s and Standard & Poor’sat or within a specified time after the time of announcement of the change ofcontrol transaction. A change of control would constitute an event of defaultunder the term loan agreement and Hospira’s revolving credit agreement.

*Financial Covenants.* Hospira’s term loanfacility and revolving credit facility include requirements to maintain amaximum leverage ratio and a minimum interest coverage ratio. The leverageratio is calculated by dividing Hospira’s debt by its earnings before interest,taxes, depreciation and amortization (excluding certain purchase accountingcharges relating to the Mayne Pharma acquisition, expenses relating to theintegration of Mayne Pharma into Hospira, expenses relating to Hospira’stransition from Abbott Laboratories, expenses relating to Hospira’s manufacturingoptimization activities and certain non-cash gains, expenses and losses,subject in certain cases to agreed-upon maximums) for the twelve months endingon the last day of each quarter. The coverage ratio is calculated by dividingHospira’s earnings before interest, taxes, depreciation and amortization(excluding the items described above) by its consolidated financing expense, ineach case for the twelve months ended on the last day of each quarter. As ofthe end of each calendar quarter during 2007, the ratios will be calculated ona pro forma basis assuming the acquisition of Mayne Pharma and the relatedfinancing transactions had occurred on the first day of the period.

The maximum leverage ratio is4.00 as of June 30, 2007, 3.50 as of September 30, 2007 and 3.25 as of the endof all quarters thereafter. The minimum coverage ratio is 4.50 as of June 30,2007, 4.75 as of September 30, 2007 and 5.00 as of the end of all quartersthereafter.

As of June 30, 2007, Hospira was in compliance withall applicable covenants.

**Note 12 –Comprehensive Income, net of tax**

*(dollars in thousands)*
| ** **                                                 | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Foreign currency  translation gains                        |       | $                                                  | 43,302     |                                             | $          | 6,282 |   | $ | 52,190 |   | $ | 8,237 |   |
| Retirement plan  adjustments                               |       | 692                                                |       | 12,895                                           |       | 1,539 |   | 12,895 |   |
| Unrealized  (losses) gains on marketable equity securities |       | (1,127                                             | )          | (1,309                                           | )          | (423 | ) | 125 |   |
| Unrealized  losses on cash flow hedges                     |       | —                                             |       | —                                           |       | (1,176 | ) | — |   |
| Total other  comprehensive income                          |       | 42,867                                             |       | 17,868                                           |       | 52,130 |   | 21,257 |   |
| Net Income                                                 |       | 30,678                                             |       | 54,150                                           |       | 1,322 |   | 134,333 |   |
| Total Comprehensive  Income                                |       | $                                                  | 73,545     |                                             | $          | 72,018 |   | $ | 53,452 |   | $ | 155,590 |   |

 

*(dollarsin thousands)*
|                                                                          | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Cumulative  foreign currency translation gains                           |       | $                           | 65,100     |                            | $          | 12,910 |   |
| Cumulative  retirement plan adjustments, net of tax                      |       | (67,301                     | )          | (68,840                         | )          |
| Cumulative  unrealized gains on marketable equity securities, net of tax |       | 4,743                       |       | 5,166                           |       |
| Cumulative  unrealized losses on cash flow hedges, net of tax            |       | (1,176                      | )          | —                          |       |
| Accumulated Other  Comprehensive Income (Loss)                           |       | $                           | 1,366      |                            | $          | (50,764 | ) |

 

**Note 13 –Segment Information**

Hospira’s principalbusiness is the development, manufacture and sale of a broad line of hospitalproducts, including specialty injectable pharmaceuticals and medicationdelivery systems, and the provision of injectable pharmaceutical contractmanufacturing services. Hospira has two reportable segments: U.S. andInternational.

Hospira’s underlyingaccounting records are maintained on a legal entity basis for government andpublic reporting requirements. Segment disclosures are on a performance basisconsistent with internal management reporting. For internal managementreporting, intersegment transfers of inventory are recorded at standard costand are not a measure of segment income from operations. The costs of certaincorporate functions that benefit the entire organization are not allocated. Thefollowing segment information has been prepared in accordance with the internalaccounting policies of Hospira, as described above.

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*(dollars in thousands)*

|                             | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|-----------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                  | ** ** | **Net Sales**                                 | ** ** | **Income from Operations**             | ** ** | **Net Sales** | ** ** | **Income from Operations** | ** ** |
| ** **                  | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
|                        |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                        |       | $                                                  | 592,949    |                                             | $          | 557,682 |   | $ | 63,859 |   | $ | 83,070 |   | $ | 1,161,957 |   | $ | 1,106,876 |   | $ | 107,216 |   | $ | 197,115 |   |
|                        |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| International               |       | 276,407                                            |       | 113,419                                          |       | 22,142 |   | 6,700 |   | 490,197 |   | 228,519 |   | 12,251 |   | 18,614 |   |
|                        |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total reportable  segments  |       | $                                                  | 869,356    |                                             | $          | 671,101 |   | 86,001 |   | 89,770 |   | $ | 1,652,154 |   | $ | 1,335,395 |   | 119,467 |   | 215,729 |   |
|                        |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate  functions        |       |                                               |       |                                             |       | (18,356 | ) | (14,812 | ) |   |   |   |   | (37,447 | ) | (28,770 | ) |
| Income from  operations     |       |                                               |       |                                             |       | 67,645 |   | 74,958 |   |   |   |   |   | 82,020 |   | 186,959 |   |
| Other, net                  |       |                                               |       |                                             |       | (32,171 | ) | (3,734 | ) |   |   |   |   | (61,990 | ) | (6,645 | ) |
|                        |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before income  taxes |       |                                               |       |                                             |       | $ | 35,474 |   | $ | 71,224 |   |   |   |   |   | $ | 20,030 |   | $ | 180,314 |   |

 

*(dollars in thousands)*
|                                     | ** ** | **Total Assets** | ** ** |
|-------------------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **June 30**      | ** ** | **December 31** | ** ** |
| ** **                          | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                                |       |                  |       |   |   |
| U.S.                                |       | $                     | 1,848,498  |   | $ | 2,036,486 |   |
|                                |       |                  |       |   |   |
| International                       |       | 1,409,622             |       | 702,141 |   |
|                                |       |                  |       |   |   |
| Total reportable  segments          |       | 3,258,120             |       | 2,738,627 |   |
| Goodwill and net  intangible assets |       | 1,762,373             |       | 108,960 |   |
| Total                               |       | $                     | 5,020,493  |   | $ | 2,847,587 |   |

 

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**Item2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**Forward-LookingStatements**

This report containsforward-looking statements within the meaning of the federal securities laws.Hospira intends that these forward-looking statements be covered by the safeharbor 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’splans, strategies, prospects and expectations regarding its business andindustry are forward-looking statements. Investors should be aware that thesestatements and any other forward-looking statements in this document onlyreflect Hospira’s expectations and are not guarantees of performance. Thesestatements involve risks, uncertainties and assumptions. Many of these risks,uncertainties and assumptions are beyond Hospira’s control, and may causeactual results and performance to differ materially from expectations.Important factors that could cause Hospira’s actual results to be materially differentfrom its expectations include (i) the risks and uncertainties described in “Item1A. Risk Factors” in Hospira’s Annual Report on Form 10-K for the year endedDecember 31, 2006 (the “2006 Form 10-K”), as may be updated by Part II. Item 1A.of this report and (ii) the factors described in “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inthe 2006 Form 10-K, as may be updated by this Item 2. Accordingly, you shouldnot place undue reliance on the forward-looking statements contained in this report.These forward-looking statements speak only as of the date on which thestatements were made. Hospira undertakes no obligation to update or revisepublicly any forward-looking statements, whether as a result of newinformation, future events or otherwise.

**Overview**

Hospira is a globalspecialty pharmaceutical and medication delivery company that develops,manufactures and markets products that help improve the productivity, safetyand efficacy of patient care. In February 2007, Hospira acquired Mayne PharmaLimited (“Mayne Pharma”) to increase its presence in specialty genericinjectable pharmaceuticals. Hospira’s portfolio includes one of the industry’sbroadest lines of generic acute-care and oncology injectables, which helpaddress the high cost of proprietary pharmaceuticals; and integrated solutionsfor medication management and infusion therapy. Hospira’s broad portfolio ofproducts is used by hospitals and alternate site providers, such as clinics,home healthcare providers and long-term care facilities.

Please refer to “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in the2006 Form 10-K. The information in this Item 2 is intended to supplement, andshould be read in conjunction with, the information included in Item 7 of the2006 Form 10-K. The 2006 Form 10-K was filed with the Securities and ExchangeCommission on February 28, 2007.

**MaynePharma Acquisition**

On February 2, 2007,Hospira completed its acquisition of Mayne Pharma for $2,055.0 million. Theresults of operations of Mayne Pharma are included in Hospira’s results forperiods on and after that date, which has affected comparability of thefinancial statements for the periods presented in this report and will affectcomparability in future periods. Hospira financed the acquisition and relatedexpenses through borrowing approximately $1,925.0 million and the remainder wasfunded with cash on hand. The financing arrangements are described below under “Liquidityand Capital Resources.” For the 2007 periods, sales of Mayne Pharma products,which are principally specialty injectable pharmaceutical products, arereported as a separate product line within each of Hospira’s reportablesegments.

In connection with theacquisition, Hospira recorded $137.9 million of charges relating to purchaseaccounting during the six months ended June 30, 2007, including $84.8 million ofin-process research and development, all of which was recorded in the firstquarter, and $53.1 million of inventory step-up charges, of which $21.4 millionwas expensed in the first quarter and $31.7 million was expensed in the secondquarter. Hospira also recorded $518.2 million of intangible assets inconnection with the acquisition, which will be amortized over their usefullives (which have a weighted-average life of 10 years).

In connection with theintegration of Mayne Pharma into its operations, Hospira expects to incurapproximately $95 to $110 million of cash expenditures for the two-year periodafter the closing, of which $60 million to $75 million will be recorded asexpenses and the remainder relates to purchase accounting items and capitalprojects. These expenses relate to the closure of facilities, terminationof lease agreements and employee-related benefit arrangements during thetwo-year period after the closing. Approximately $13.2 million and $23.7million of integration expenses were recorded during the three and six monthsended June 30, 2007, respectively. In addition to integration expenses, Hospira recordedother acquisition-related expenses of $7.9 million in the first quarter 2007. Forfurther information regarding the acquisition and its financial impact, pleasesee Note 3 to the condensed consolidated financial statements included in thisreport.

**Critical Accounting Policies**

The preparation offinancial statements in accordance with generally accepted accountingprinciples in the United States (GAAP)

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requires management tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses. A summary of Hospira’s significantaccounting policies is included in Note 1 to the company’s consolidatedfinancial statements, which are included in Hospira’s Annual Report on Form10-K for the year ended December 31, 2006. Certain of Hospira’s accountingpolicies are considered critical, as these policies require significant,difficult or complex judgments by management, often employing the use ofestimates about the effects of matters that are inherently uncertain. Suchpolicies are summarized in “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in the 2006 Form 10-K.

**Recently Issued Accounting Standards**

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities – Including an amendment of FASB Statement No. 115”(“SFAS No. 159”). SFAS No. 159 provides a company with the option to measureselected financial instruments and certain other items at fair value atspecified election dates. The election may be applied on an item by item basis,with disclosure regarding reasons for partial election and additionalinformation about items selected for fair value option. SFAS No. 159 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007. Hospira is currently evaluating the potential impact ofSFAS No. 159 on its financial statements.

In September 2006, the FASB issued Statement ofFinancial Accounting Standards No. 157, “Fair Value Measurements” (“SFASNo. 157”). SFAS No. 157 clarifies the principle that fair value should be basedon the assumptions market participants would use when pricing an asset orliability and establishes a fair value hierarchy that prioritizes theinformation used to develop those assumptions. Under the standard, fair valuemeasurements would be separately disclosed by level within the fair valuehierarchy. SFAS No. 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007. Hospira is currently evaluatingthe potential impact of SFAS No. 157 on its financial statements.

In September 2006, the FASB issued Statementof Financial Accounting Standards No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans – an amendment of FASB Statements No.87, 88, 106, and 132(R)” (“SFAS No. 158”). One provision of SFAS No. 158 requiresthe measurement of Hospira’s defined benefit plan’s assets and its obligationsto determine the funded status be made as of the end of the fiscal year. Thisprovision of SFAS No. 158 is effective for fiscal years ending after December15, 2008. Hospira does not anticipate that the impact from the adoptionof this provision of SFAS No. 158 will be significant to its financialstatements.

**Results of operations for the threemonths ended June 30, 2007 compared to June 30, 2006**

*Net Sales*

Net sales increased 29.5%in the second quarter of 2007 compared to the second quarter of 2006. Of thisincrease, 26.7% is related to the acquisition of Mayne Pharma. The remaining 2.8%increase in overall sales is primarily driven by volume/mix of 1.8%, the impactof exchange of 0.6%, and increased price of 0.4% in the United States.

A comparison of product line sales is as follows:

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**Hospira,Inc.**

**Net Salesby Product Line**

**(Unaudited)**

**(dollarsin thousands)**
|                                                   | ** ** | **Three Months Ended June 30** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                        | ** ** | ** **                                         | ** ** | ** ** | ** ** | **Percent** | ** ** |
| ** **                                        | ** ** | ** **                                         | ** ** | ** ** | ** ** | **Change** | ** ** |
| ** **                                        | ** ** | ** **                                         | ** ** | ** ** | ** ** | **vs. Prior** | ** ** |
| ** **                                        | ** ** | **2007**                                           | ** ** | **2006** | ** ** | **Year** | ** ** |
| U.S.—                                        |       |                                               |       |   |   |   |   |
| Specialty  Injectable Pharmaceuticals             |       | $                                                  | 205,639    |   | $ | 207,317 |   | (0.8 | ) |
| Medication  Delivery Systems                      |       | 230,823                                            |       | 214,443 |   | 7.6 |   |
| Injectable  Pharmaceutical Contract Manufacturing |       | 36,888                                             |       | 49,687 |   | (25.8 | ) |
| Sales to Abbott  Laboratories                     |       | 20,036                                             |       | 21,441 |   | (6.6 | ) |
| Mayne Pharma                                      |       | 28,541                                             |       | — |   | nm |   |
| Other                                             |       | 71,022                                             |       | 64,794 |   | 9.6 |   |
|                                              |       |                                               |       |   |   |   |   |
| Total U.S.                                        |       | 592,949                                            |       | 557,682 |   | 6.3 |   |
|                                              |       |                                               |       |   |   |   |   |
| International—                               |       |                                               |       |   |   |   |   |
| Sales to Third  Parties                           |       | 115,268                                            |       | 93,662 |   | 23.1 |   |
| Sales to Abbott  Laboratories                     |       | 10,421                                             |       | 19,757 |   | (47.3 | ) |
| Mayne Pharma                                      |       | 150,718                                            |       | — |   | nm |   |
|                                              |       |                                               |       |   |   |   |   |
| Total  International                              |       | 276,407                                            |       | 113,419 |   | 143.7 |   |
|                                              |       |                                               |       |   |   |   |   |
| Total Net Sales                                   |       | $                                                  | 869,356    |   | $ | 671,101 |   | 29.5 |   |

 

Salesin Specialty Injectable Pharmaceuticals decreased slightly, driven by lowersales in the base product portfolio, partially offset by contributions from newproduct launches in 2006, including ampicillin sulbactam, ondansetron andpropofol, and favorable pricing.

Salesin Medication Delivery Systems increased, driven by growth in both infusiontherapy and medication management systems sales. Growth in infusion therapy productssales was largely due to increased volume from new customer contracts. Medicationmanagement systems sales increased due to higher placements of devices withsafety software and increased revenue from related services.

Salesin Injectable Pharmaceutical Contract Manufacturing were down due to expected lowerdemand from existing customers for certain products, including several productsthat now have generic competition.

The decrease in U.S. Salesto Abbott was primarily due to expected decreased volume to Abbott for severalof its products, partially offset by increased price.

The Other product lineincludes sales of Hospira’s products to alternate site providers such asclinics, home healthcare providers and long-term care facilities, as well assales of critical care devices and brain function monitoring systems. Thegrowth in sales to alternate site healthcare customers more than offset a declinein sales of critical care devices, and the planned exit of certain products manufacturedin Ashland, Ohio. Sales to alternate site healthcare customers increased due tohigher overall sales of specialty injectable pharmaceuticals and medicationdelivery systems.

International Sales to ThirdParties were higher in all regions primarily related to specialty injectablepharmaceuticals and medication management systems, favorable exchange, andincreased sales on third party manufacturing contracts.

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*Gross Profit*

Gross profit increased $41.2million, or 18.3%, for the second quarter ended June 30, 2007, compared withthe same period in 2006. Of this increase, $39.5 million, or 17.6%, is relatedto the Mayne Pharma acquisition.

Gross profit margin decreasedby (2.9)% to 30.6% for the three months ended June 30, 2007, from 33.5% for thethree months ended June 30, 2006. All of the decrease is related to the MaynePharma acquisition, which primarily includes the inventory step-up chargeresulting from purchase accounting of (4.5)%, amortization of the acquiredintangible assets of (1.7)%, lower manufacturing activity of (1.0)%,incremental freight and distribution costs of (0.4)% and other net changes of(0.2)%, partially offset by improvement in volume/product mix of 4.9%.

The margin not related tothe Mayne Pharma acquisition remained unchanged as a result of volume/productmix improvement of 1.7%, favorable price in the U.S. of 0.3%, and other netchanges of 0.3%. The improvements and favorable items described above wereoffset by lower manufacturing activity of (0.6)%, costs associated with theplanned manufacturing plant closures of (1.0)% and an adjustment of $5.1million or (0.7)% related to intercompany profit which should have beeneliminated in the first quarter 2007.

*Research and Development*

Research and development (“R&D”)expenses increased $13.5 million, or 34.6%, for the quarter ended June 30, 2007,compared with the same period in 2006. Of this increase, 26.7% is related tothe acquisition of Mayne Pharma. The remainder of the increase was primarily relatedto higher spending on new product development related to new compounds in Hospira’sgeneric injectable drug pipeline and clinical studies on Hospira’s brandedsedative, Precedex®, partially offset by lower spending in 2007 on medicationdelivery infusion systems as a result of new product launches in 2006. R&Dexpenses increased to 6.0% of net sales for the quarter ended June 30, 2007,compared with 5.8% of net sales for the same period in 2006.

*Selling, General and Administrative*

Selling, general andadministrative (“SG&A”) expenses increased $35.0 million, or 31.5%, for thequarter ended June 30, 2007, compared with the same period in 2006. Of this increase,24.5% is related to the acquisition of Mayne Pharma. The remainder of the increasewas primarily due to additional costs related to the integration of MaynePharma and the elimination of costs in 2007 associated with the implementationof Hospira’s new independent infrastructure as a result of the spin-off. SG&Aexpenses increased to 16.8% of net sales for the quarter ended June 30, 2007,compared with 16.6% of net sales for the same period in 2006.

*Interest Expense and Other (Income),Net*

Interest expense was $37.3million for the quarter ended June 30, 2007, compared to $7.3 million in thesame period in 2006. The increase was primarily due to the issuance of additionaldebt and related costs due to the Mayne Pharma acquisition. Other (income), netwas $(5.2) million for the quarter ended June 30, 2007 compared to $(3.5)million for the quarter ended June 30, 2006. The change was primarily relatedto foreign exchange gains realized in 2007.

*IncomeTax Expense*

The effective tax ratewas 13.5% for the quarter ended June 30, 2007, compared to 24.0% for the sameperiod in 2006. The decrease in the effective tax rate in 2007 compared to2006, was due primarily to increased expenses in higher tax rate jurisdictions inconnection with the Mayne Pharma acquisition, including intangible amortizationexpense, purchase accounting charges, and interest expense. The effective tax ratesare less than the statutory U.S. federal income tax rate principally due to thebenefit of tax exemptions, of varying durations, in certain jurisdictionsoutside the United States.

**Results of operations for the sixmonths ended June 30, 2007 compared to June 30, 2006**

*Net Sales*

Net sales increased 23.7%in the six months ended June 30, 2007 compared to the six months ended June 30,2006. Of this increase, 21.8% is related to the acquisition of Mayne Pharma.The remaining 1.9% increase in overall sales is primarily driven by volume/mixof 1.0%, the impact of exchange of 0.5%, and increased price of 0.4% in theUnited States.

A comparison of product line sales is as follows:

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**Hospira,Inc.**

**Net Salesby Product Line**

**(Unaudited)**

**(dollarsin thousands)**
|                                                   | ** ** | **Six Months Ended June 30** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | ** **                                       | ** ** | ** ** | ** ** | **Percent** | ** ** |
| ** **                                        | ** ** | ** **                                       | ** ** | ** ** | ** ** | **Change** | ** ** |
| ** **                                        | ** ** | ** **                                       | ** ** | ** ** | ** ** | **vs. Prior** | ** ** |
| ** **                                        | ** ** | **2007**                                         | ** ** | **2006** | ** ** | **Year** | ** ** |
| U.S.—                                        |       |                                             |       |   |   |   |   |
| Specialty  Injectable Pharmaceuticals             |       | $                                                | 411,398    |   | $ | 392,553 |   | 4.8 |   |
| Medication  Delivery Systems                      |       | 443,804                                          |       | 427,469 |   | 3.8 |   |
| Injectable  Pharmaceutical Contract Manufacturing |       | 78,114                                           |       | 101,789 |   | (23.3 | ) |
| Sales to Abbott  Laboratories                     |       | 37,187                                           |       | 45,822 |   | (18.8 | ) |
| Mayne Pharma                                      |       | 49,600                                           |       | — |   | nm |   |
| Other                                             |       | 141,854                                          |       | 139,243 |   | 1.9 |   |
|                                              |       |                                             |       |   |   |   |   |
| Total U.S.                                        |       | 1,161,957                                        |       | 1,106,876 |   | 5.0 |   |
|                                              |       |                                             |       |   |   |   |   |
| International—                               |       |                                             |       |   |   |   |   |
| Sales to Third  Parties                           |       | 221,833                                          |       | 192,955 |   | 15.0 |   |
| Sales to Abbott  Laboratories                     |       | 25,910                                           |       | 35,564 |   | (27.1 | ) |
| Mayne Pharma                                      |       | 242,454                                          |       | — |   | nm |   |
|                                              |       |                                             |       |   |   |   |   |
| Total International                               |       | 490,197                                          |       | 228,519 |   | 114.5 |   |
|                                              |       |                                             |       |   |   |   |   |
| Total Net Sales                                   |       | $                                                | 1,652,154  |   | $ | 1,335,395 |   | 23.7 |   |

 

Salesin Specialty Injectable Pharmaceuticals increased, driven by strength in thebase product portfolio, contributions from new product launches in 2006,including ampicillin sulbactam, ondansetron and propofol, and favorablepricing.

Salesin Medication Delivery Systems increased, driven by growth in both infusiontherapy and medication management systems sales. Growth in infusion therapyproducts sales was largely due to increased volume from new and existingcustomer contracts. Medication management systems sales increased due to higherplacements of devices with safety software and increased revenue from relatedservices.

Salesin Injectable Pharmaceutical Contract Manufacturing were down due to expected lowerdemand from existing customers for certain products, including several productsthat now have generic competition.

The decrease in U.S. Salesto Abbott was primarily due to expected decreased volume to Abbott for severalof its products, partially offset by increased price.

The Other product lineincludes sales of Hospira’s products to alternate site providers such asclinics, home healthcare providers and long-term care facilities, as well assales of critical care devices and brain function monitoring systems. Thegrowth in sales to alternate site healthcare customers more than offset adecline in sales of critical care devices, and the planned exit of certainproducts manufactured in Ashland, Ohio. Sales to alternate site healthcarecustomers increased due to higher overall sales of specialty injectablepharmaceuticals and medication delivery systems, partially offset by decreasedsales of deferoxamine.

International Sales to ThirdParties were higher in all regions primarily related to specialty injectablepharmaceuticals and medication management systems, favorable exchange, andincreased sales on third party manufacturing contracts.

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*Gross Profit*

Gross profit increased $70.9million, or 15.1%, for the six months ended June 30, 2007, compared with thesame period in 2006. Of this increase, $59.8 million, or 12.7%, is related tothe Mayne Pharma acquisition.

Gross profit margindecreased by (2.5)% to 32.7% for the six months ended June 30, 2007, from 35.2%for the six months ended June 30, 2006. Of this decrease, (2.9)% is related tothe Mayne Pharma acquisition, which primarily includes the inventory step-upcharge resulting from purchase accounting of (3.7)% and amortization of theacquired intangible assets of (1.3)%, lower manufacturing activity of (1.1)%,incremental freight and distribution costs of (0.4)% and favorable price in theU.S. of (0.2)%, partially offset by improvement in volume/product mix of 3.8%.

The remaining increase of0.4% not related to the Mayne Pharma acquisition is primarily the result ofvolume/product mix improvement of 1.1% and other net changes of 0.2%.  The improvements partially offset by lowermanufacturing activity of (0.9)%.

*Research and Development*

R&D expensesincreased $26.0 million, or 37.1%, for the six months ended June 30, 2007,compared with the same period in 2006. Of this increase, 26.7% is related tothe acquisition of Mayne Pharma. The remainder of the increase was primarilyrelated to higher spending on new product development related to new compoundsin Hospira’s generic injectable drug pipeline and clinical studies on Hospira’sbranded sedative, Precedex®, partially offset by lower spending in 2007 onmedication delivery infusion systems as a result of new product launches in2006. R&D expenses increased to 5.8% of net sales for the six months endedJune 30, 2007, compared with 5.2% of net sales for the same period in 2006.

*Acquired In-Process Research andDevelopment*

On February 2, 2007, Hospira completed its acquisitionof Mayne Pharma. As part of the purchase price allocation, Hospira allocatedand expensed $84.8 million to acquired in-process research and developmentrelated to Mayne Pharma’s pipeline products.

*Selling, General and Administrative*

SG&A expensesincreased $65.0 million, or 30.6%, for the six months ended June 30, 2007,compared with the same period in 2006. Of this increase, 24.3% is related tothe acquisition of Mayne Pharma. The remainder of the increase was primarilydue to additional costs related to the integration of Mayne Pharma and theelimination of costs in 2007 associated with the implementation of Hospira’snew independent infrastructure as a result of the spin-off. SG&A expensesincreased to 16.8% of net sales for the six months ended June 30, 2007,compared with 15.9% of net sales for the same period in 2006.

*Interest Expense and Other (Income),Net*

Interest expense was $67.9million for the six months ended June 30, 2007, compared to $14.9 million inthe same period in 2006. The increase was primarily due to the issuance ofadditional debt and related costs due to the Mayne Pharma acquisition. Other(income), net was $(5.9) million for the six months ended June 30, 2007compared to $(8.3) million for the six months ended June 30, 2006. The changewas primarily related to $(5.7) million of foreign exchange losses realized in2007 due to the Mayne Pharma acquisition.

*IncomeTax Expense*

The effective tax ratewas 93.4% for the six months ended June 30, 2007, compared to 25.5% for thesame period in 2006. The effective tax rate for 2007 included the impact of asignificant unusual item, the expensing of non-deductible acquired in-processresearch and development. Excluding the effect of this item, the 2007 effectivetax rate was 17.8%. The decrease in the effective tax rate in 2007 compared to2006, excluding the significant unusual item, was due primarily to increasedexpenses in higher tax rate jurisdictions in connection with the Mayne Pharmaacquisition, including intangible amortization expense, purchase accountingcharges, and interest expense. The effective tax rates, excluding the impact ofsignificant unusual items, are less than the statutory U.S. federal income taxrate principally due to the benefit of tax exemptions, of varying durations, incertain jurisdictions outside the United States.

**Liquidityand Capital Resources at June 30, 2007 compared with December 31, 2006**

Net Cash from OperatingActivities continues to be Hospira’s primary source of funds to financeoperating needs and capital expenditures. Other capital resources include cashon hand, borrowing availability under Hospira’s $375.0 million revolving creditfacility and access to capital markets. Beginning with the first quarter of2007, Hospira’s operating cash flows included operating

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cash flows generated byMayne Pharma. During the two-year period after the closing, Hospira expects toincur approximately $95 million to $110 million of cash expenditures relatingto the integration of Mayne Pharma, which will reduce operating cash flows. Inaddition, as a result of the debt incurred during the first quarter of 2007 tofinance the Mayne Pharma acquisition, Hospira must dedicate substantiallygreater cash to service debt obligations (including interest expense andmandatory principal payments on the term loan described below) on an ongoingbasis compared to past periods. Hospira believes that its current capitalresources, including cash and cash equivalents, cash generated from operations,funds available from its revolving credit facility and access to the capitalmarkets will be sufficient to finance its operations, including debt serviceobligations, capital expenditures, product development and Mayne Pharmaintegration expenditures for the foreseeable future.

*Summary of Cash Flows*

Operating activitiesprovided net cash of $171.6 million, primarily driven by net income of $1.3million, non-cash depreciation and amortization charges of $113.0 million, non-cashstock-based compensation expense of $23.5 million, and the write-off ofacquired in-process research and development of $84.8 million, offset by changesin operating assets and liabilities of $51.0 million. The changes in operatingassets and liabilities consist primarily of significant payments made onacquired Mayne Pharma current liabilities, including merger advisory fees;higher trade receivables due to increased sales, including Mayne Pharma;partially offset by decreased inventory from 2006 levels.

Net Cash Used in InvestingActivities of $2,091.7 million includes the acquisition of Mayne Pharma for $1,961.3million, net of cash acquired and capital expenditures of $88.5 million. Inconnection with the acquisition of Mayne Pharma, Hospira entered into certainforeign currency forward exchange contracts to limit its exposure from currencymovements of the Australian dollar. During the six months ended June 30, 2007,Hospira paid $55.7 million for the settlements relating to these contracts. Thesedecreases were partially offset by proceeds from dispositions of certain productrights for $13.8 million.

Net Cash From FinancingActivities of $1,788.9 million consists primarily of Hospira incurring $1,925.0million of bank debt to finance the Mayne Pharma acquisition. The bankfacilities included a $500.0 million, three-year term loan facility and a$1,425.0 million one-year bridge loan facility. The bridge loan facility wascompletely refinanced on March 23, 2007 through the issuance of long-term debtsecurities. During the six months ended June 30, 2007, Hospira prepaid $125.0million in principal amount of the term loan, in addition to the scheduled$25.0 million in principal. In addition, financing activities includes proceedsfrom employee stock option exercises and related tax benefits of $28.1 million.

*Debt and Capital*

OnFebruary 1, 2007, Hospira incurred $1,925.0 million of bank debt to finance theMayne Pharma acquisition. The remainder of the purchase price was funded withcash on hand. The bank facilities included a $500.0 million,three-year term loan facility and a $1,425.0 million one-year bridge loanfacility. The bridge loan facility was completely refinanced on March 23, 2007through the issuance of long-term debt securities described below.

Under the term loanfacility, before giving effect to any prepayments (which reduce the repaymentamounts on a pro rata basis), Hospira must repay $12.5 million in principal atthe end of each quarter in 2007, $50.0 million at the end of each quarter in2008 and $62.5 million at the end of each quarter in 2009 (with the finalpayment to be made on the maturity date of January 15, 2010). Hospira ispermitted to prepay amounts borrowed under the term loan from time to timewithout penalty. During the six months ended June 30, 2007, Hospira prepaid$125.0 million in principal amount of the term loan, in addition to thescheduled $25.0 million in principal. As a result of the prepayment, the amountdue within one year is $92.1 million, which reflects pro rata reductions ofscheduled principal payments, and is recorded as short-term borrowings. Borrowingsunder the term loan facility and bridge loan facility bear interest at the LIBORplus a margin that is determined based on Hospira’s senior unsecured debtratings from Standard & Poor’s and Moody’s. Based on Hospira’s ratings of BBB (stable outlook) from Standard & Poor’sand Baa3 (negative outlook) from Moody’s, the margin is currently 0.60%.Ratings are not recommendations to buy, sell or hold securities and are subjectto revision or withdrawal at any time by the rating agencies. Each ratingshould be evaluated independently of any other rating.

On March 23, 2007, Hospiraissued $375.0 million principal amount of Floating Rate Notes due 2010, $500.0million principal amount of 5.55% Notes due 2012 and $550.0 million principalamount of 6.05% Notes due 2017 in a registered public offering. The FloatingRate Notes due 2010 bear interest at three-month LIBOR plus 48 basis points. Allseries of notes are due on March 30 of the year of maturity. The net proceedsof the notes (after deducting approximately $10.0 million of underwriters’discounts and offering expenses of $5.6 million), together with approximately $21.5million of cash on hand, were used to repay the bridge loan facility and relatedinterest in full.

Hospira has a five-year$375.0 million unsecured revolving credit facility (the “Revolver”), which itentered into on December 16, 2005, and which was amended on January 15, 2007 topermit the Mayne Pharma acquisition and to temporarily increase the maximumleverage ratio and lower the minimum interest coverage ratio. This Revolver isavailable for working capital and other requirements.  The Revolver allows Hospira to borrow fundsat variable interest rates as short-term cash needs dictate. As of June

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30, 2007, Hospira had no amounts outstanding under theRevolver.

Hospira’s debt instruments containcovenants that limit Hospira’s ability to, among other things, sell assets, incursecured indebtedness and liens, incur indebtedness at the subsidiary level andmerge or consolidate with other companies. Hospira’s debt instruments alsoinclude customary events of default, which would permit amounts borrowed to beaccelerated and would permit the lenders under the revolving credit agreementto terminate their lending commitments. A description of certain covenants isset forth below.

*Change of Control.* The notes issued onMarch 23, 2007 include covenants that require Hospira to offer to repurchasethose notes at 101% of their principal amount if: (1) there is a change ofcontrol of Hospira and (2) Hospira is rated below investment grade by bothMoody’s and Standard & Poor’s at or within a specified time after the timeof announcement of the change of control transaction. A change of control wouldconstitute an event of default under the term loan agreement and Hospira’srevolving credit agreement.

*Financial Covenants.* Hospira’s term loanfacility and revolving credit facility include requirements to maintain amaximum leverage ratio and a minimum interest coverage ratio. The leverageratio is calculated by dividing Hospira’s debt by its earnings before interest,taxes, depreciation and amortization (excluding certain purchase accountingcharges relating to the Mayne Pharma acquisition, expenses relating to theintegration of Mayne Pharma into Hospira, expenses relating to Hospira’stransition from Abbott Laboratories, expenses relating to Hospira’smanufacturing optimization activities and certain non-cash gains, expenses andlosses, subject in certain cases to agreed-upon maximums) for the twelve monthsending on the last day of each quarter. The coverage ratio is calculated bydividing Hospira’s earnings before interest, taxes, depreciation andamortization (excluding the items described above) by its consolidatedfinancing expense, in each case for the twelve months ended on the last day ofeach quarter. As of the end of each calendar quarter during 2007, the ratioswill be calculated on a pro forma basis assuming the acquisition of MaynePharma and the related financing transactions had occurred on the first day ofthe period.

The maximum leverage ratio is 4.00as of June 30, 2007, 3.50 as of September 30, 2007 and 3.25 as of the end ofall quarters thereafter. The minimum coverage ratio is 4.50 as of June 30,2007, 4.75 as of September 30, 2007 and 5.00 as of the end of all quartersthereafter.

As of June 30, 2007, Hospira wasin compliance with all applicable covenants.

**Contractual Obligationsand Off-Balance Sheet Arrangements**

The following table summarizes Hospira’s estimated contractualobligations as of June 30, 2007:

*(dollarsin millions)*
| ** **                                                                   | ** ** | **Payment Due by Period** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                   | ** ** | **Total**                                | ** ** | **2007** | ** ** | **2008-2009** | ** ** | **2010-2011** | ** ** | **2012 and  Thereafter** | ** ** |
| Long-term debt  and interest payments                                        |       | $                                        | 3,256.3    |   | $ | 101.4 |   | $ | 893.3 |   | $ | 552.0 |   | $ | 1,709.6 |   |
| Lease  obligations                                                           |       | 200.1                                    |       | 16.5 |   | 53.8 |   | 49.6 |   | 80.2 |   |
| Purchase  commitments (1)                                                    |       | 508.7                                    |       | 464.5 |   | 43.0 |   | 0.8 |   | 0.4 |   |
| Other long-term  liabilities reflected on the consolidated balance sheet (2) |       | 201.2                                    |       | — |   | 151.2 |   | 50.0 |   | — |   |
|                                                                         |       | $                                        | 4,166.3    |   | $ | 582.4 |   | $ | 1,141.3 |   | $ | 652.4 |   | $ | 1,790.2 |   |

 

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(1)          Purchase commitments consist primarily of inventory purchases madein the normal course of business to meet operational requirements. Contractualcapital commitments are also included here, but these commitments representonly a portion of expected capital spending.

(2)          Includes liability of $121.0 million relating to unrecognized taxbenefits, penalties and interest and excludes $152.8 million of other long-termliabilities related primarily to post-retirement benefit obligations.

Hospira has no material exposures to off-balance sheetarrangements, no special purpose entities, and no activities that includenon-exchange-traded contracts accounted for at fair value.

**Item3.  Quantitative and QualitativeDisclosures About Market Risk**

On March 23, 2007,Hospira issued $375.0 million principal amount of Floating Rate Notes due 2010 thatbear interest at a three-month LIBOR plus 48 basis points. A hypothetical onepercentage point increase/(decrease) in interest rates wouldincrease/(decrease) interest expense by $3.8 million. On February 1, 2007, Hospira incurred a $500.0 million,three-year term loan facility bearing interest at LIBOR plus a margin that isdetermined based on Hospira’s senior unsecured debt ratings from Standard &Poor’s and Moody’s. As of June 30, 2007 the outstanding balance on the termloan was $350.0 million. A hypothetical one

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percentage pointincrease/(decrease) in interest rates would increase/(decrease) interestexpense by $3.5 million. Refer to the Liquidity and Capital Resources sectionabove, as well as Note 11 to the condensed consolidated financial statementsincluded in this quarterly report on Form 10-Q, for further information.

There have been no other materialchanges to the information provided in Item 7A. to Hospira’s Annual Report onForm 10-K for the year ended December 31, 2006.

**Item 4.  Controls and Procedures**

*Evaluation of disclosure controlsand procedures.*  The Chairman and Chief Executive Officer,Christopher B. Begley, and Senior Vice President, Finance and Chief FinancialOfficer, Thomas E. Werner, evaluated the effectiveness of Hospira’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities and Exchange Act of 1934) as of the end of the period covered bythis report, and concluded that Hospira’s disclosure controls and procedureswere effective.

*Changes in internal controls.* There was no change in Hospira’sinternal control over financial reporting that has materially affected, or isreasonably likely to materially affect, Hospira’s internal control overfinancial reporting. Hospira is continuing to evaluate the internal controls ofMayne Pharma.

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**PART II.  OTHERINFORMATION**

**Item1.****    LegalProceedings**

The disclosure containedin Note 8 to the condensed consolidated financial statements included in PartI. Item 1 hereof is incorporated herein by reference.

**Item1A.  Risk Factors**

Please refer to Item 1A. in Hospira’s Annual Report onForm 10-K for the year ended December 31, 2006 for a discussion of risks towhich Hospira’s business, financial condition, results of operations and cashflows are subject.

**Item2.****    UnregisteredSales of Equity Securities and Use of Proceeds**

(c)          Issuer Purchases ofEquity Securities

The table below givesinformation on a monthly basis regarding purchases made by Hospira of itscommon stock.
| **Period**              | ** ** | **Total Number  of Shares  Purchased (1)** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number  of Shares  Purchased as  Part of  Publicly  Announced  Plans or  Programs** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares that May  Yet be Purchased  Under the Plans or  Programs (2)** | ** ** |
|-------------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1-April  30, 2007 |       | 23,379                                                    |       | $                                                | 40.81      |                                                                                                                 | —     |                                                                                                                                                                                   | $          | 100,233,606 |   |
| May 1-May 31,  2007     |       | 20,991                                                    |       | $                                                | 40.23      |                                                                                                                 | —     |                                                                                                                                                                                   | $          | 100,233,606 |   |
| June 1-June 30,  2007   |       | 5,441                                                     |       | $                                                | 39.77      |                                                                                                                 | —     |                                                                                                                                                                                   | $          | 100,233,606 |   |
| Total                   |       | 49,811                                                    |       | $                                                | 40.45      |                                                                                                                 | —     |                                                                                                                                                                                   | $          | 100,233,606 |   |

 

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(1)          These shares represent theshares deemed surrendered to Hospira to pay the exercise price and satisfy minimumstatutory tax withholding obligations in connection with the exercise ofemployee stock options.

(2)          In February 2006, Hospira’sboard of directors authorized the repurchase of up to $400.0 million of Hospira’scommon stock in accordance with Rule 10b-18 under the Securities Exchange Actof 1934. The repurchase of shares commenced in early March 2006. As of June 30,2007, Hospira had purchased 7,584,400 shares for $299.8 million in theaggregate under the 2006 board authority, all of which were purchased during2006.

**Item 4.****   ****Submission of Matters to a Vote of Security Holders**

The information required bythis item has been previously reported in the second paragraph (and followingtable) of Item 8.01 of Hospira’s Current Report on Form 8-K filed with theSecurities and Exchange Commission on May 18, 2007.  Such information is incorporated by referenceherein.

**Item 6.****   ****Exhibits**

Alist of exhibits filed herewith or incorporated by reference herein immediatelyprecedes such exhibits and is incorporated herein by reference.

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SIGNATURE

Pursuantto the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|        |   | HOSPIRA, INC. |
|--------|--------|--------------------|
|   |   |               |
|   |   | By                 | /s/ THOMAS E. WERNER |
|   |   |               | Thomas E. Werner, |
|   |   |               | Senior Vice President, Finance and  Chief Financial Officer |
|   |   |               | Date: August 8, 2007 |

 

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EXHIBIT INDEX
| Exhibit No. | ** ** | **Exhibit**                                                                                                                                                                                                                  |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                                                                                   |
| 10.1        |       | Form of Non-Qualified Stock Option Award with  Seven-Year Term (incorporated by reference to Exhibit 10.1 to Hospira’s  Current Report on Form 8-K filed with the Securities and Exchange Commission  on May 18, 2007). |
|        |       |                                                                                                                                                                                                                         |
| 12.1        |       | Statement regarding Computation of Ratios.                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                         |
| 31.1        |       | Certificate of Chief Executive Officer pursuant to  Rule 13a-14(a).                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                         |
| 31.2        |       | Certificate of Chief Financial Officer pursuant to  Rule 13a-14(a).                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                         |
| 32.1        |       | Certificate of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                           |
|        |       |                                                                                                                                                                                                                         |
| 32.2        |       | Certificate of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                           |

 

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