Case: 1:16-cv-00651 Document #: 106-19 Filed: 05/08/18 Page 1 of 9 PageID #:3247
`Case: 1:16-cv—00651 Document #: 106-19 Filed: 05/08/18 Page 1 of 9 PageID #:3247
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`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 10-K
`፤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
`DECEMBER 31, 2005
`អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934.
`Commission File Number: 1-31946
`HOSPIRA, INC.
`(Exact name of registrant as specified in its charter)
`
`Delaware
`(State or other jurisdiction
`of incorporation or organization)
`
`20-0504497
`(I.R.S. Employer
`Identification No.)
`
`275 North Field Drive
`Lake Forest, Illinois 60045
`(Address of principal executive offices, including zip code)
`
`(224) 212-2000
`(Registrant’s telephone number, including area code)
`
`Securities registered pursuant to Section 12(b) of the Act:
`
`Name of Exchange on which each class is registered
`Title of Class
`New York Stock Exchange
`Common Stock, par value $0.01 per share .
`New York Stock Exchange
`Preferred Stock Purchase Rights . . . . . . . .
`Securities registered pursuant to Section 12(g) of the Act: Common Stock: None
`
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
`Act. Yes ፤ No អ
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
`Act. Yes អ No ፤
`Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
`the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
`required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ፤ No អ
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
`herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
`incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. អ
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
`filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act.
`Large accelerated filer ፤ Accelerated filer អ Non-accelerated filer អ
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
`Act). Yes អ No ፤
`The aggregate market value of registrant’s common stock held by non-affiliates of the registrant on June 30, 2005
`(the last business day of the registrant’s most recently completed second fiscal quarter), was approximately
`$6,228 million.
`Hospira had 162,267,637 shares of common stock outstanding as of February 28, 2006.
`
`INCORPORATION OF DOCUMENTS BY REFERENCE
`
`Certain sections of the registrant’s Proxy Statement to be filed in connection with the 2006 Annual Meeting of
`Shareholders are incorporated by reference into Part III of this Form 10-K where indicated.
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`HOSPIRA, INC.
`ANNUAL REPORT ON FORM 10-K
`TABLE OF CONTENTS
`
`Item 6
`Item 7
`
`PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 1
`Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 2
`Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 3
`Legal Proceedings
`. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 4
`Submissions of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . .
`PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 5
`Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
`Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Management’s Discussion and Analysis of Financial Condition and Results of
`Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 7A Qualitative and Quantitative Disclosures About Market Risk . . . . . . . . . . . . . . . .
`Item 8
`Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 9
`Changes in and Disagreements With Accountants on Accounting and Financial
`Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 10
`Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . .
`Item 11
`Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 12
`Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . .
`Item 13
`Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 14
`Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 15
`Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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`Page
`Number
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`31
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`32
`48
`51
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`FORWARD-LOOKING STATEMENTS
`
`This annual report contains forward-looking statements within the meaning of the federal securities
`laws. Hospira intends that these forward-looking statements be covered by the safe harbor provisions
`for forward-looking statements in the federal securities laws. In some cases, these statements can be
`identified by the use of forward-looking words such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘anticipate,’’
`‘‘estimate,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘believe,’’ ‘‘predict,’’ ‘‘potential,’’ ‘‘project,’’ ‘‘intend,’’ ‘‘could’’ or similar
`expressions. In particular, statements regarding Hospira’s plans, strategies, prospects and expectations
`regarding its business and industry are forward-looking statements. You should be aware that these
`statements and any other forward-looking statements in this document only reflect Hospira’s
`expectations and are not guarantees of performance. These statements involve risks, uncertainties and
`assumptions. Many of these risks, uncertainties and assumptions are beyond Hospira’s control, and may
`cause actual results and performance to differ materially from its expectations. Important factors that
`could cause Hospira’s actual results to be materially different from its expectations include (i) the risks
`and uncertainties described in ‘‘Item 1A. Risk Factors’’ and (ii) the factors described in ‘‘Item 7.
`Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’ Accordingly,
`you should not place undue reliance on the forward-looking statements contained in this annual report.
`These forward-looking statements speak only as of the date on which the statements were made.
`Hospira undertakes no obligation to update or revise publicly any forward-looking statements, whether
`as a result of new information, future events or otherwise.
`
`Item 1. Business
`
`Overview
`
`PART I
`
`Hospira is a global specialty pharmaceutical and medication delivery company that is focused on
`products that improve the productivity, safety and efficacy of patient care in the acute care setting.
`Hospira is a leader in the development, manufacture and marketing of specialty injectable
`pharmaceuticals and medication delivery systems that deliver drugs and intravenous (‘‘I.V.’’) fluids.
`Hospira is also a leading provider of contract manufacturing services to pharmaceutical and
`biotechnology companies for formulation development, filling and finishing of injectable
`pharmaceuticals. Hospira’s broad portfolio of products is used by hospitals and alternate site providers,
`such as clinics, home healthcare providers and long-term care facilities, which are together referred to
`as the ‘‘continuum of care.’’
`In 2005, Hospira’s net sales were $2.63 billion, on which it earned net income of $235.6 million.
`The United States is the largest market for Hospira’s products and accounted for approximately 83% of
`2005 sales. Sales outside the United States accounted for the remaining 17% of sales.
`Hospira has two reportable segments, U.S. and International, through which its products are sold.
`For financial information relating to Hospira’s segments and the geographic areas, see Note 10 to the
`financial statements included in Item 8 of this document. As each reportable segment produces and
`sells similar products and services, unless the context requires otherwise, the disclosure in Items 1 and
`1A relates to both reportable segments.
`
`General Development of Business
`
`Hospira’s business has an approximately 70-year history. Prior to its spin-off from Abbott
`Laboratories on April 30, 2004, Hospira’s business was conducted by Abbott, and for all periods prior
`to the spin-off, references in this annual report to Hospira’s historical assets, liabilities, products,
`businesses or activities are generally intended to refer to the historical assets, liabilities, products,
`businesses or activities of Hospira’s business as it was conducted as a part of Abbott. Under the terms
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`of the spin-off, the legal title to certain assets and operations relating to Hospira’s business outside the
`United States will be transferred from Abbott over the two-year period after the spin-off. Prior to their
`transfer, these operations and net assets are used in the conduct of Hospira’s international business and
`Hospira is subject to the risks and entitled to the benefits generated by the operations and net assets.
`The terms of the spin-off are described in more detail in this Item 1 under ‘‘Arrangements
`with Abbott.’’
`Hospira was incorporated in Delaware on September 16, 2003, as a wholly owned subsidiary of
`Abbott. As part of a plan to spin-off its core hospital products business, Abbott transferred the assets
`and liabilities relating to Hospira’s business to Hospira and, on April 30, 2004, distributed Hospira’s
`common stock to Abbott’s shareholders. On that date, Hospira began operating as an independent
`company, and on May 3, 2004, Hospira’s common stock began trading on the New York Stock
`Exchange under the symbol ‘‘HSP.’’ The transfer of assets and liabilities to Hospira, and distribution of
`Hospira common stock as described above are sometimes referred to in this document as the ‘‘spin-off’’
`and April 30, 2004 is sometimes referred to as the ‘‘spin-off date.’’
`During 2005, Hospira continued its separation from Abbott. By year end, Abbott had transferred
`legal title to the net assets and operations in 36 countries to Hospira. Hospira also launched three of
`four planned international regional headquarters. Hospira progressed on other transition activities,
`having completed over 50% of its transition services agreements with Abbott by the end of 2005, and
`significant work on the establishment of independent information technology systems.
`
`Products
`
`Hospira’s portfolio of products is composed of five main product lines:
`
`Product Line
`Specialty Injectable Pharmaceuticals .
`
`Medication Delivery Systems . . . . . . .
`
`Injectable Pharmaceutical Contract
`Manufacturing . . . . . . . . . . . . . . . .
`
`Other . . . . . . . . . . . . . . . . . . . . . . . .
`
`International
`
`. . . . . . . . . . . . . . . . . .
`
`Description
`• More than 130 injectable generic drugs in more than 600
`dosages and formulations
`• Precedex↧ (dexmedetomidine HCl), a proprietary drug for
`sedation
`• Medication management systems that include electronic
`pumps and sets for I.V. drug delivery, and patient-
`controlled analgesia for pain management
`• Pre-mixed drug solutions and nutritionals for I.V. infusion
`•
`I.V. solutions and supplies
`
`•
`
`• Formulation development, filling and finishing of
`injectable pharmaceuticals on a contract basis for
`pharmaceutical and biotechnology companies
`Sales through alternate site providers, including clinics,
`home healthcare providers and long-term care facilities
`• Hemodynamic monitoring systems used in the intensive
`care setting, critical care units to measure cardiac output
`and blood flow, and brain-function monitoring devices
`Sales of Hospira’s products outside the United States
`
`•
`
`Hospira believes that, in addition to rising costs, healthcare providers in the United States continue
`to confront significant challenges in their efforts to improve patient safety, comply with higher
`regulatory and industry standards for patient and clinician safety, and meet an increased demand for
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`services. Hospira believes that healthcare providers, on a global basis, are seeking quality products and
`services that will enable them to better meet their goals of increasing patient safety and the
`effectiveness of clinical care while decreasing their overall costs and improving productivity. Hospira
`offers products to help healthcare providers achieve these goals.
`
`Specialty Injectable Pharmaceuticals
`Hospira’s specialty injectable pharmaceutical product line primarily consists of generic injectable
`pharmaceuticals, which provide customers with a lower-cost alternative to branded products whose
`patents have expired. Hospira has more than 130 generic injectable products in more than 600 dosages
`and formulations. These drugs’ therapeutic areas include cardiovascular, anesthesia, anti-infectives,
`analgesics, emergency and other. All of Hospira’s generic injectable pharmaceuticals include unit-of-use
`bar-code labels that can be used to support medication management efforts. Hospira procures the
`active pharmaceutical ingredients in these products from third-party suppliers. During 2005, Hospira
`launched three new products in its generic injectable pharmaceutical product line, including the
`anti-infective ceftriaxone in the United States on the day of its patent expiration.
`Hospira believes that novel drug delivery formulations and formats are key points of product
`differentiation for generic injectable pharmaceuticals. Hospira offers a wide variety of drug delivery
`options, and believes that its products assist its customers’ efforts to enhance safety, increase
`productivity and reduce waste. Hospira’s drug delivery formats include standard offerings in ampoules
`and flip-top vials, which clinicians can use with standard syringes. Hospira’s proprietary drug delivery
`options include Carpuject↧ prefilled syringes, patient-controlled analgesia syringes for use with its
`LifeCare PCA↧ drug delivery pumps, Ansyr↧ prefilled needleless emergency syringe systems, First
`Choice↧ ready-to-use premixed formulations and the ADD-Vantage↧ System for preparing drug
`solutions from prepackaged drug powders or concentrates.
`Hospira’s specialty injectable pharmaceutical product portfolio also includes Precedex↧
`(dexmedetomidine HCl), a proprietary sedative that is used in the intensive care setting. Precedex↧ is a
`registered trademark of Orion Corporation and is licensed to Hospira by Orion.
`
`Medication Delivery Systems
`The subgroups of the medication delivery systems market that Hospira serves are (1) medication
`management systems, which include electronic drug delivery pumps, and related administration sets and
`accessories, and (2) infusion therapy solutions and products that are used to deliver I.V. fluids and
`medications to patients.
`
`Medication Management Systems. Medication management systems include electronic drug delivery
`pumps and administration sets that are used to deliver I.V. fluids and medications. Hospira’s systems
`consist of a reusable electronic drug delivery pump and disposable administration sets that are designed
`to fit a specific drug delivery pump model. Worldwide, Hospira estimates that more than 400,000 of its
`electronic drug delivery pumps are currently in use. Hospira’s electronic delivery pumps include its
`next-generation patient-controlled analgesia device, the LifeCare PCA↧; the Plum A+↧ infusion pump;
`the Plum A+↧3 (triple-channel) infusion system; the GemStar↧ ambulatory infusion pump; and the
`OmniFlow↧ 4000 Plus multi-channel pump.
`Hospira believes that electronic drug delivery pumps with enhanced systems capabilities have
`become a key contributor in efforts to improve medication management programs and decrease the
`incidence of medication errors. The Hospira MedNet↧ system is used in the Plum A+↧ infusion pump,
`the Plum A+↧3 (triple-channel) infusion system and, as of February 2006, the LifeCare PCA↧ patient-
`controlled analgesia device. It has been designed to provide customers with drug information and
`decision-support capabilities in a framework that can be used to create clinical decision policies and
`safety rule sets for clinicians at the point of care, and to facilitate the development, distribution and
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`documentation of hospital-defined best practices at the patient bedside. The Hospira MedNet↧ system
`has been designed to be compatible eventually with the majority of Hospira’s line of electronic drug
`delivery pumps. The Hospira MedNet↧ system was launched in December 2003, and Hospira believes it
`had penetrated approximately 35% of the available market of the Plum A+↧ installed base by
`December 2005.
`Late in 2005, Hospira launched the wireless network versions of the Hospira MedNet↧ system for
`its Plum A+↧ and Plum A+↧3 electronic delivery pumps. The wireless version of the Hospira
`MedNet↧ system establishes real-time send-and-receive capability and can interface with hospital and
`pharmacy information systems. Hospira continues to work with information technology companies to
`integrate the Hospira MedNet↧ system with other systems.
`
`Infusion Therapy Solutions and Supplies. Hospira offers a broad product line of infusion therapy
`solutions and supplies that includes I.V. solutions for general use, I.V. nutrition products, and solutions
`for the washing and cleansing of wounds or surgical sites. All of Hospira’s injectable I.V. solutions
`include unit-of-use bar-code labels that can be used to support medication management efforts.
`Hospira’s line of infusion therapy supplies includes administration sets used in gravity I.V.
`administration, I.V. catheters and safety devices that are used to facilitate delivery of I.V. fluids and
`medications without the use of needles.
`Hospira offers needlestick safety products and programs to support its customers’ needlestick
`safety initiatives. LifeShield↧ CLAVE↧ and MicroCLAVE↧ connectors are one-piece valves that directly
`connect syringes filled with medications to a patient’s I.V. line without the use of needles. ICU Medical,
`Inc.’s (‘‘ICU’’) CLAVE↧ connectors are a component of administration sets sold by Hospira to its
`customers in the United States and select markets outside the United States.
`
`Injectable Pharmaceutical Contract Manufacturing
`Through its One 2 One↧ manufacturing services group, Hospira provides contract manufacturing
`services for formulation development, filling and finishing of injectable drugs worldwide. Hospira works
`with its customers to develop stable injectable forms of their drugs, and Hospira fills and finishes those
`and other drugs into containers and packaging selected by the customer. The customer then sells the
`finished products under its own label. Hospira’s One 2 One↧ manufacturing services group does not
`manufacture active pharmaceutical ingredients, but offers a wide range of filling and finishing services,
`including solutions preparation, sterile filling, lyophilization, terminal sterilization and packaging, and
`has expertise in formulation development, analytical development and regulatory services. Client
`companies can choose from a variety of delivery systems that include vials, flexible containers, pre-filled
`syringes and proprietary drug delivery systems such as ADD-Vantage↧. One 2 One↧ serves numerous
`customers, including many of the largest global pharmaceutical companies.
`
`Other
`Other includes sales of Hospira’s products to alternate site providers such as clinics, home
`healthcare providers and long-term care facilities, as well as sales of critical care devices.
`Critical care devices are used to monitor vital signs as well as specific physiologic functions of key
`organ systems. Hospira provides hemodynamic monitoring systems that are used to monitor cardiac
`function and blood flow in critically ill patients. Hospira’s critical care devices include its Transpac↧
`disposable blood pressure-sensing devices, Safeset↩ Blood Sampling System, and various catheter
`systems. In October 2005, Hospira launched the SEDLine↩ brain-function monitoring system, which is
`used to evaluate the effects of anesthesia and sedation of patients during medical procedures.
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`Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
`
`Overview
`
`Hospira is a global specialty pharmaceutical and medication delivery company that is focused on
`products that improve the productivity, safety and efficacy of patient care in the acute care setting.
`Hospira is a leader in the development, manufacture and marketing of specialty injectable
`pharmaceuticals and medication delivery systems that deliver drugs and intravenous (I.V.) fluids.
`Hospira is also a leading provider of contract manufacturing services to pharmaceutical and
`biotechnology companies for formulation development, filling and finishing of injectable
`pharmaceuticals. Hospira’s broad portfolio of products is used by hospitals and alternate site providers,
`such as clinics, home healthcare providers and long-term care facilities.
`
`Transition from Abbott
`Hospira became a separate public company on April 30, 2004, when it was spun off from Abbott.
`References to the historical assets, liabilities, products, businesses or activities of Hospira prior to the
`spin-off are generally intended to refer to the historical assets, liabilities, products, businesses or
`activities of the business as it was conducted as part of Abbott prior to the spin-off. Hospira’s
`consolidated financial statements for the year ended December 31, 2004 reflect Hospira’s operations as
`a separate, stand-alone entity subsequent to the spin-off, combined with the historical operations of
`Hospira when it operated as part of Abbott prior to the spin-off. The financial information in the
`financial statements included in this annual report does not include all the expenses that would have
`been incurred, nor does it reflect Hospira’s results of operations, financial position and cash flows, had
`Hospira been a stand-alone company for all of the periods presented.
`While Hospira was a part of Abbott, Hospira relied on Abbott’s corporate infrastructure and
`administrative functions. Also as part of Abbott, Hospira was required to compete with Abbott’s other
`major businesses for product development funds and other resources. The level of resources allocated
`to Hospira affected its research and development project funding, manufacturing cost structure, and
`marketing, promotion and selling activities. The spin-off enabled Hospira to focus exclusively on its
`business and use its own resources to invest in opportunities targeted to its own markets. Hospira views
`investment in research and development as an important driver of longer-term sales growth.
`During the 24-month period after the spin-off, Hospira must build its own corporate and
`international infrastructure. Costs relating to these activities have been funded, and are expected to
`continue to be funded, through its operating cash flow. Hospira has incurred increased expenses on an
`ongoing basis, including expenses relating to establishing and operating independent corporate
`functions, operating, maintaining and supporting information technology systems, and operating
`internationally on a stand-alone basis. Hospira has experienced higher costs related to information
`technology support associated with the implementation of SAP as Hospira’s global enterprise resource
`planning (ERP) system. Hospira expects these higher levels of support costs to continue through 2006.
`It has also incurred expenses on a non-recurring, transitional basis, including expenses relating to the
`establishment of new facilities, the build-out of independent information technology systems, and
`product registration and re-labeling. These transitional costs are estimated to total approximately
`$100 million (pre-tax) over the 24-month period subsequent to the spin-off. As of December 31, 2005,
`Hospira had incurred $78.4 million of these costs. The transitional and ongoing costs also contributed
`to the increase in selling, general and administrative expenses from 11.5% of net sales in 2004 to 14.2%
`of net sales in 2005.
`Hospira has incurred costs in connection with the transfer of legal title of assets outside the
`United States from Abbott to Hospira, and will continue to incur these costs through mid-2006.
`Hospira views the ability to operate independently outside the United States as a longer-term
`opportunity to increase its sales and profitability. Under transition arrangements with Abbott, described
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`under ‘‘Item 1. Business—Arrangements with Abbott,’’ the legal transfer of certain operations and
`assets (net of liabilities) outside the United States that are legally owned by Abbott, but used by
`Hospira in its business, are required to be completed over the two-year transition period. In connection
`with those transfers, Hospira is obligated to pay Abbott the net book value of such net assets at the
`time of transfer. As of December 31, 2005, the net book value of the net assets remaining to be
`transferred was $130.5 million. Pending the legal transfer to Hospira, these operations and assets are
`being used in the conduct of Hospira’s international business and Hospira is subject to the risks and
`entitled to the benefits generated by the operations and assets.
`Hospira and Abbott entered into various manufacture and supply agreements prior to the spin-off
`under which Hospira sells certain products that it manufactured and supplied to Abbott prior to the
`spin-off. These agreements have an initial two-year term (scheduled to expire in April 2006) and may
`be extended by Abbott for an additional two-year term under substantially similar contractual
`provisions. Some of these agreements will be terminated at the end of the initial two-year period, and
`Hospira expects its sales to Abbott to decline substantially during 2006.
`Hospira’s transition activities involve risks and uncertainties, including the risk of incurring higher
`than estimated transition-related and ongoing costs associated with operating independently, difficulties
`relating to implementing information technology systems and risks related to transitioning the
`international operations. See ‘‘Item 1A. Risk Factors—Risks Related to Hospira’s Transition from
`Abbott and the Spin-Off.’’
`
`Cost Reduction Activities
`As part of its strategy to improve margins and cash flows, Hospira has taken a number of actions
`in an effort to reduce operating costs and optimize its manufacturing capabilities and capacity.
`Expenditures relating to these activities are not included in the transition activities discussed above.
`In May 2005, in order to reduce its costs to produce critical care products, Hospira completed a
`strategic manufacturing, commercialization and development agreement with ICU and sold its Salt
`Lake City manufacturing facility and related equipment and inventory to ICU. In connection with these
`transactions, during 2005, Hospira recorded an impairment charge of $2.4 million and a loss of
`$13.4 million, which is Hospira’s best estimate of the cost of certain obligations that Hospira is required
`to reimburse to ICU over a 24-month period after closing. Both the impairment and the loss related to
`obligations assumed were recorded in cost of products sold. For further details regarding the financial
`impact of these transactions, see Note 2 to the consolidated financial statements included in Item 8.
`In August 2005, Hospira announced plans to close its medical device manufacturing plant in
`Donegal, Ireland by mid-2007. Products produced at the Donegal plant are expected to move to
`Hospira facilities primarily in Costa Rica and the Dominican Republic, which have available
`manufacturing capacity to absorb the transfers. Hospira expects to incur $30 million to $40 million of
`pre-tax charges relating to the plant closure. During 2005, Hospira incurred $8.5 million of these
`charges, which is reported in cost of products sold. The costs consist primarily of severance and other
`employee benefit costs, additional depreciation resulting from the decreased useful lives of the building
`and certain equipment, and other exit costs. Hospira expects to generate cost savings relating to this
`activity beginning in 2007. For further details regarding the financial impact of this plant closure, see
`Note 4 to the consolidated financial statements included in Item 8.
`In February 2006, Hospira announced plans to close its plants in Ashland, Ohio and Montreal,
`Canada over 18 to 28 months, respectively, and also provided a timeline for phasing out production at
`a facility in Abbott Laboratories’ North Chicago, Illinois campus, where it has leased space from its
`former parent company since the spin-off in April 2004. Hospira intends to transition out of this facility
`in advance of the lease’s expiration in 2014, with a majority of the product transfers occurring over the
`next four years. Hospira will transfer production of the primary products from these facilities to other
`
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`FK-DEXMED0196425
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