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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 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)

        Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: Common Stock: None

        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 ý    No o

        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. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The aggregate market value of registrant's common stock held by non-affiliates of the registrant on June 30, 2004 (the last business day of the registrant's most recently completed second fiscal quarter), was approximately $4,307 million.

        Hospira had 157,121,035 shares of common stock outstanding as of February 28, 2005.

INCORPORATION OF DOCUMENTS BY REFERENCE

        Certain sections of the registrant's Proxy Statement to be filed in connection with the 2005 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K where indicated.

HOSPIRA, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

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, including as an independent public company, 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 the risks and uncertainties set forth in this annual report in Item 1 under the caption "Risk Factors." 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.

PART I

Item 1 Business

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, which are together referred to as the "continuum of care."

        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.

        Hospira was incorporated in Delaware on September 16, 2003, as a wholly owned subsidiary of Abbott. As part of a plan to separate its core hospital products business from Abbott, 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 separation from Abbott 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."

        In 2004, Hospira's net sales were $2.65 billion, on which it earned net income of $301.6 million. The United States is the largest market for Hospira's products and accounted for approximately 84% of 2004 sales. Sales outside the United States accounted for the remaining 16% of sales.

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        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 origin of its sales, see Note 7 to the financial statements included in Item 8 of this document.

        Hospira's portfolio of products is composed of five main product lines:

Industry Overview

        The United States is the world's largest market for healthcare products and services. Hospira estimates that in 2004, the U.S. market for its products was more than $9 billion. In the United States, Hospira's products are sold primarily to hospitals and other sites across the continuum of care and are distributed directly or through wholesalers and distributors. Sales to customers outside the United States are generally made through contracts or tender offers, wholesalers and/or distributors.

        Increases in U.S. healthcare expenditures have been attributed to an aging population. In 1970, patients over 65 years of age comprised 20% of hospital discharges and accounted for one-third of the days of care; in 2000, they comprised close to 40% of hospital discharges and accounted for almost half of the days of care. Patients over age 65 are also more likely to require treatment in critical care units. Critical care units represent only 5% to 10% of hospital beds in the United States, but they account for 30% of the total expenditures for healthcare in hospitals. As the baby-boom generation ages, the healthcare system likely will be faced with a major challenge in its efforts to control expenditures.

        In addition to coping with rising costs, hospitals 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 services. These challenges are exacerbated by the decreased availability of trained personnel and reimbursement rates that are decreasing or, at best, are remaining the same. Hospira believes that hospitals, on a global basis, are seeking quality products and services that will enable them to better meet their goals of

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increasing patient safety and the effectiveness of clinical care while decreasing their overall costs and improving productivity. Hospira also believes there is a significant market outside the United States for its products.

Business Strategy

        Hospira believes that the treatment of patients in hospitals or hospital-like settings is a large and growing opportunity. Hospira's strategy is to develop, manufacture and market products that improve the productivity, safety, efficacy and overall cost of patient care by meeting the increasing needs of customers for advanced medication management systems, innovative device technologies and specialty injectable pharmaceutical products. There are two primary components to Hospira's strategy:

        Investing for growth.    Hospira's growth strategy is focused on growing global sales by increasing investment in product development and expanding sales outside the United States.

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Invest in new product development.    Hospira is expanding its portfolio of products to improve the effectiveness of patient care, including innovations in injectable products, drug delivery and medication management. Hospira has been successful in expanding its portfolio of generic injectable pharmaceuticals and plans to continue that expansion by increasing investment in its product development programs. Hospira intends to increase the number of first-to-market generic injectable drugs in its portfolio and to develop innovative drug delivery and/or packaging systems. Hospira may also expand its product offerings through strategic alliances or acquisitions to gain access to innovative technologies or products that are complementary to its existing products, and can be brought to market through its existing sales channels.



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Expand sales outside the United States.    Hospira intends to increase its participation in select markets outside the United States that have increasing demands for acute care products and that represent an opportunity for growth. As Hospira develops its independent international operations, it intends to establish direct commercial infrastructure in markets that have the greatest potential and focus its efforts in those markets. Hospira believes this approach will allow it to maximize its use of resources.

        Improve margins and cash flows.    As Hospira continues to develop as an independent company, it plans to improve its operating margins and cash flow from current levels. Hospira intends to increase its productivity by continuing to improve its manufacturing processes. Hospira also intends to improve its product mix, in part by exiting lower-margin product lines, and increase its operational flexibility and cost efficiencies, including by establishing a low-cost, efficient infrastructure.

Product Offerings

        Hospira's portfolio of products is composed of five main product lines:

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Specialty Injectable Pharmaceuticals;



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Medication Delivery Systems;



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Injectable Pharmaceutical Contract Manufacturing;



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Other; and



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International.

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Specialty Injectable Pharmaceuticals

        The specialty pharmaceutical industry includes manufacturers of generic pharmaceutical products as well as manufacturers whose proprietary products are focused on a specific patient population or therapeutic area. Generic pharmaceutical companies provide lower-cost alternatives to branded pharmaceuticals whose patents have expired. The two largest segments of the generic pharmaceutical market are oral and injectable dose forms.

        Generic injectable pharmaceuticals are sold primarily to hospitals as well as to other customers across the continuum of care. Significantly higher levels of expertise and investment are required for injectable pharmaceutical manufacturing than for oral dose pharmaceutical manufacturing. Hospira believes that, due to the higher level of required investment and expertise, product margins are generally more sustainable, product life cycles tend to be longer compared to oral dose generic pharmaceuticals and there are fewer competitors.

        Hospira has more than 130 generic injectable products in more than 600 dosages and formulations. Hospira's product 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 its products from third-party suppliers.

        Hospira's specialty injectable pharmaceutical product portfolio includes Precedex® (dexmedetomidine HCl), a proprietary sedative that is used most commonly in critical care units. Precedex® is a registered trademark of Orion Corporation and is licensed to Hospira by Orion.

        New generic products developed upon patent expiry of proprietary drugs drive growth in the specialty injectable pharmaceutical market. A number of injectable drugs with a total branded value of over $5 billion (excluding biologics) will be facing patent expiry in the United States by the end of the decade. Hospira intends to invest in its business to increase the number of first-to-market generic injectable drugs in its portfolio and to build its injectable drug portfolio through internal development as well as through strategic relationships with third parties that expand its technology capabilities and its ability to offer innovative products. In July 2004, Hospira launched the generic fluconazole, an anti-fungal, on the date of its patent expiration and initially captured an estimated 40% of the fluconazole injectable market. During 2004, Hospira also launched another generic injectable drug, deferoxamine mesylate, which is used in the treatment of acute iron intoxication.

        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 enhance safety, increase productivity and reduce waste for its customers. 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® II and LifeCare PCA® 3 Infusion Systems, Ansyr® prefilled needleless emergency syringe systems, First Choice® premixes and the ADD-Vantage® System.

        Carpuject®.    The Carpuject® injectable system consists of prefilled cartridges that are loaded into a syringe holder to create a drug delivery system. Carpuject® prefilled cartridges minimize waste and decrease the incidence of dosing errors. The Carpuject® system is compatible with any connection port. The Carpuject® unit-of-use cartridge, tamper-resistant packaging and bar-coded labels enhance tracking and control of opioid analgesics and other controlled medications.

        First Choice®.    First Choice® premixed formulations are ready-to-use medications that are stable in aqueous solution at the concentration required for infusion therapy. These products generally decrease preparation time in the hospital pharmacy and speed delivery of the drug to the patient.

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        ADD-Vantage®.    Not all medications are stable in aqueous solution at the concentration required for infusion therapy. The ADD-Vantage® system is a closed, sterile system that is used to rapidly and efficiently prepare drug solutions from pre-packaged drug powders or concentrates. The ADD-Vantage® system features an inner stopper that keeps the drug and diluent separated until the system is activated to permit the rapid mixing of drug and diluent. The ADD-Vantage® system can be prepared in the hospital pharmacy or at the patient's bedside. Drug vials can be stocked in automated dispensing machines and diluent containers can be stored on the nursing floor so that they will be immediately available to clinicians. This system reduces errors and decreases dispensing time and drug waste.

Wind-down of Berlex Agreement

        Within the United States, Hospira distributes the imaging agents Magnevist® and Ultravist® through a distribution agreement with Berlex, Inc., which will expire during 2005. Magnevist® and Ultravist® are registered trademarks of Berlex, Inc.

        During the fourth quarter of 2004, Hospira received notification from Berlex that it was exercising the "wind-down" clause in its agreement with Hospira to distribute Berlex's imaging agents. The contract contains a provision that enables Berlex to begin shifting distribution of its products from Hospira to another party prior to the expiration of the contract. The parties disagree as to when the wind-down period commenced. Berlex has initiated the alternative dispute resolution provision of the contract to resolve this disagreement. The parties have met and are discussing alternatives to resolve the dispute.

Medication Delivery Systems

        The subgroups of the medication delivery systems market Hospira serves are (1) medication management systems, which include electronic drug delivery pumps and related software, administration sets and accessories, and (2) infusion therapy products that are used to deliver I.V. fluids and medications to patients who are being treated in a hospital or hospital-like setting.

        Hospira believes that the vast majority of patients treated in hospitals receive I.V. fluids or medications during their hospital stay. In addition, patients who are severely ill or have undergone extensive surgical procedures may require treatment with multiple I.V. medications and fluids, either simultaneously or sequentially. For example, coronary artery bypass patients may receive between eight and twelve medications delivered through two or three electronic drug delivery systems to maintain fluid volume and stabilize blood pressure, control pain, prevent infection and regulate heartbeat. Hospira's products are also used in clinics, home healthcare and other sites across the continuum of care where I.V. administration of fluids and medications is required.

        Key product innovations in Hospira's Medication Delivery Systems product line include its next-generation patient-controlled analgesia device, LifeCare PCA® 3 (2003); the Plum A+® Multichannel Infusion Pump (2002); and the Hospira MedNet™ Software for its Plum A+® Infusion System (2003).

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 related software and disposable administration sets that are designed to fit a specific pump model. Worldwide, Hospira estimates that more than 400,000 of its electronic drug delivery pumps are currently in use.

        Electronic drug delivery pumps differ in their method of fluid delivery and their compatibility for use with ambulatory or non-ambulatory patients. Accuracy, precision and reliability are key product

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requirements. Products are differentiated by ease of use, clarity of user interface, system capabilities, weight, cost and service requirements. Electronic drug delivery pumps with enhanced systems capabilities have become a key control point in efforts to improve medication management programs and decrease the incidence of medication errors.

        Hospira's current generation of electronic drug delivery systems includes the products described below.

        Plum A+®.    The Plum A+® Infusion System is a stationary multi-channel pump with software and display features that have been designed to reduce drug administration errors and promote safe and on-time delivery of medications. Launched in 2000, the Plum A+® is a general purpose infusion platform that manages critical medications and complex dosing regimens by enabling clinicians to time and deliver a sequence of programmed volumes of I.V. medication doses through its control of two medication infusion channels for either sequential or concurrent infusion protocols. The Plum A+® calculates drug-appropriate doses, displays key programming information and provides a pre-infusion review of programmed medication infusion parameters for clinician confirmation.

        LifeCare PCA® 3.    The LifeCare PCA® 3 Infusion System for patient-controlled analgesia was introduced in 2003. It utilizes a stationary single-channel pump and incorporates a built-in bar code reader to automatically identify the drug name and drug concentration from the bar code labels on pre-filled drug vials. The LifeCare PCA® 3 Infusion System automatically enters the drug name and concentration into the pump programming sequence, thus reducing the number of manual entry programming steps and the potential for entry errors.

        GemStar®.    The GemStar® Infusion System is an ambulatory, small, lightweight, single-channel pump with advanced software for customized therapy configuration. Its keypad and programming designs have been developed to improve the speed and accuracy of clinician programming and data entry. The GemStar® can be configured by the customer for use in multiple therapy options. These options include PCA and administration of general I.V. solutions and I.V. nutrition. The GemStar® can be pre-programmed by the nurse or pharmacist for use with a standard therapy protocol or for use with a patient-specific protocol.

        Omni-Flow®.    The Omni-Flow® 4000 Plus Medication Management System is a stationary multi-channel pump with advanced software that manages and synchronizes the infusion of drugs through four channels that can be programmed for sequential or concurrent infusion. Its patented multi-drug management capabilities promote the safe and on-time delivery of medication and reduce drug administration errors. The Omni-Flow® System is widely used to administer complex drug therapy protocols, such as those for bone marrow transplantation, oncology and cardiac anesthesiology.

Hospira MedNet™ System

        To increase patient safety and decrease the incidence of medication errors, as well as their associated costs, Hospira is utilizing information technology to develop medication management systems that are focused on ensuring that the right drug is given to the right patient, in the right dose, through the right route of administration, at the right time. Increasingly, software is being developed for these needs. Hospira has increased its investment in medication management systems product development.

        The Institute of Medicine reported in a study published in 1999 that an estimated 98,000 deaths occurred annually due to medical errors in U.S. hospitals and that 7,000 of these deaths were attributable to errors in medication administration. The same study estimated that the associated economic burden of medication administration errors was approximately $77 billion.

        Results from national surveys of hospital leaders indicate an increased need for information technology solutions that address patient safety and reduce errors in medication administration.

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Hospira believes that electronic documentation of care delivery and information technology solutions that improve clinician productivity are of significant interest to hospitals.

        The Hospira MedNet™ System, or "MedNet," 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. MedNet has been designed to be eventually compatible with the majority of Hospira's line of electronic drug delivery pumps. MedNet was launched in December 2003 and Hospira believes it had penetrated approximately 20% of the available market of the Plum A+ installed base by December 2004.

        The drug library in MedNet currently can be customized for up to 12 different clinical care areas, including intensive care units, emergency rooms, anesthesia and pediatrics. Drug listings can be prioritized by each clinical care area according to its standards.

        MedNet allows hospitals to define dose limits for up to 1,200 medications. MedNet offers both "soft" and "hard" dose and rate-setting limits for both primary and secondary infusion. Soft limits allow a clinician to manually override dose limits if the clinician requires delivery of a larger or smaller dose than what is recommended by the clinician's hospital's best practice guidelines. As an added safety feature, MedNet also allows hospitals to set hard limits that clinicians cannot manually override. The limits apply to drugs that are delivered through all programmable infusion channels, including single drug as well as multiple sequenced and concurrent drug infusions.

        Clinician confirmation is required before any medication infusion program can be activated. If a clinician makes a device programming error, the system will provide a warning, signaling that the program is outside the recommended limits of the hospital's best practices and protocols. If the entry is outside of the hard limits, the system will prevent the clinician from activating the device.

        MedNet maintains a history of all alarms and alerts that are generated from clinician programming outside of the best practice limits. It enables hospitals to track trends in their quality assurance programs and assists in their efforts to continuously improve standards of care.

        Hospira is committed to market leadership in infusion therapy patient safety and medication management solutions. Hospira is currently developing "intelligent" bedside medication management systems that expand on MedNet. New designs are expected to utilize bar-coding technology to confirm patient identity as coded on a patient's wristband identification tag and record the identity of the clinician. These technology solutions will link the bar-coded information with electronic drug delivery infusion pumps, the patient record, the physician order and data from various other hospital information systems to create medication administration records that can be integrated into the patient record. By centralizing, integrating and continuously updating information from multiple sources, these technology solutions can "close the loop" on medication management and reduce medication administration errors.

        During 2004, Hospira received regulatory clearances from the U.S. Food and Drug Administration for its wireless network versions of MedNet for Plum A+® and MedNet for the LifeCare PCA® patient-controlled analgesia pump. As a result, Hospira can test, and eventually market and sell, these products in the United States. These products are scheduled to launch in the United States in 2005.

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, a synthetic plasma volume expander and solutions for irrigation. All of Hospira's injectable I.V. solutions include unit-of-use bar-code labels that can be used to support medication management efforts. Infusion therapy supplies include catheters, connectors, cannulas and administration sets used to deliver intravenous therapy. Hospira's line of infusion therapy

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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.

        General I.V. Solutions.    Intravenous solutions are used to replace body fluids and electrolytes that have been lost due to illness, injury or surgical procedures as well as to deliver I.V. medications. These fluids are delivered to the patient through administration sets using an electronic drug delivery pump or by gravity flow. Examples of general I.V. solutions are saline and dextrose solutions. Hospira also sells Hextend®, a synthetic plasma volume expander, for use in clinical conditions where fluid replenishment with a general I.V. solution is not sufficient.

        I.V. Nutrition Products.    Hospira's I.V. nutrition products are sold under the brand names Aminosyn®, Liposyn® and First Choice® Micronutrients. These products are used as supplements or to provide complete nutritional support to a patient who is unable to take nourishment from the usual oral route or has a non-functioning gastrointestinal tract due to major surgery, serious burns, chemotherapy treatments, or major gastrointestinal or inflammatory diseases. Intravenous nutritional products can provide the patient's complete requirements for protein and calories on either a temporary or an extended basis.

        Irrigation Products.    Irrigation products are sterile solutions of saline or water used to wash wounds and cleanse surgical sites.

        Needlestick Safety Products.    Protection of healthcare workers from needlestick injury and blood exposure is a key concern of hospitals. According to a 1999 study by the Centers for Disease Control and Prevention, U.S. healthcare workers experienced approximately 600,000 to 800,000 needlestick accidents each year. These exposures can lead to infection with bloodborne bacteria or viruses that cause severe acute or chronic diseases. Annual treatment costs for needlestick injuries have been estimated at approximately $1 billion. The Needlestick Safety and Prevention Act of 2000 requires hospitals to record and evaluate needlestick injuries and to use needleless or protected needle products to help reduce healthcare worker injuries and illnesses caused by needlesticks.

        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's 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

        Hospira provides contract manufacturing services for formulation development, filling and finishing of injectable drugs in North America. 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 customers then sell the finished products under their own labels. One 2 One™ serves numerous customers, including many of the largest global pharmaceutical companies.

        Key criteria that are used by pharmaceutical and biotechnology companies in selecting contract manufacturers include the demonstrated ability to consistently meet regulatory standards, a solid financial profile, technology leadership and an ability to provide access to comprehensive capabilities. One 2 One™ does not manufacture active pharmaceutical ingredients, but can provide a wide range of filling and finishing services, including solutions preparation, sterile filling, lyophilization, terminal sterilization and packaging. Client companies can choose from a variety of delivery systems that includes small- and large-volume parenterals, flexible containers, pre-filled syringes and drug delivery cartridges. One 2 One™ also provides expertise in formulation development, analytical development and regulatory services.

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        Demand for injectable pharmaceutical contract manufacturing services is driven by new drug development. Industry sources have projected that approximately 300 new injectable drugs could be approved in this decade and that manufacturing of more than half of these drugs may be outsourced.

Other

        Other is primarily comprised of 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

        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.

        Transpac®.    Hospira's Transpac® products are disposable pressure-sensing devices that provide accurate and reliable continuous blood pressure readings and show the immediate effect of fluid management and drug administration. Most commonly, these products are used on patients with suspected pulmonary disease or cardiovascular dysfunction.

        Safeset.™    Hospira's Safeset™ Blood Sampling System provides the clinician with a convenient, needleless method to obtain a patient's blood sample and to administer I.V. fluids or drugs in conjunction with blood pressure monitoring devices. Use of the Safeset™ Blood Sampling System protects the clinician from exposure to bloodborne pathogens and reduces the risk of I.V. line contamination.

        Catheters.    Hospira's advanced sensor pulmonary artery catheters are used to measure cardiac output and blood oxygen levels. The Opticath™ family of fiber-optic catheters is used to provide continuous monitoring of mixed venous oxygen saturation, blood pressure and cardiac output. Hospira's fully integrated Q2+™ System includes the new Q2+™ mixed venous oxygen saturation and continuous cardiac output monitor and OptiQ® Disposable Pulmonary Artery Catheter. Other advanced sensor catheter systems include Hospira's Oximetrix® 3 System that provides continuous monitoring of blood oxygen saturation levels and the Q-Vue™ System that provides continuous monitoring of cardiac output.

        Hospira also sells a line of standard hemodynamic monitoring catheters that includes central venous and pulmonary artery catheters, as well as a line of angiography kits that are used in the cardiac catheterization laboratory and suction products that are used to collect fluids in the operating room.

        In February 2005, Hospira entered into a strategic manufacturing, commercialization and development agreement with ICU Medical, Inc. for Hospira's critical care product line. In connection with the transaction, ICU agreed to purchase Hospira's Salt Lake City, Utah manufacturing facility. After the closing, ICU will manufacture the critical care products currently produced at the plant. Hospira will continue to sell the critical care products under its brand, and perform related sales, marketing, customer contracting, customer service and distribution functions. The closing of the transaction is subject to customary conditions and is expected to occur early in the second quarter of 2005. Both parties have implemented a planning process for, and expect to carefully manage, the transition of manufacturing of these products from Hospira to ICU. However, there can be no assurance that the transition of manufacturing will not disrupt the supply of these products on a short-term basis.

International

        Internationally, Hospira's products are similar to those offered in the United States. Hospira is currently working to establish its own business infrastructure to support its international operations. Hospira relies on Abbott to provide various services to support Hospira's international operations for a two-year transition period following the spin-off and has agreed to purchase certain international assets,

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and assume the related liabilities, from Abbott over the transition period as described below under "—Arrangements With Abbott—International Agreements."

        Hospira is assessing its product portfolio and international markets on a country-by-country basis in an effort to determine those countries that provide the greatest potential for Hospira's business. Hospira intends to establish a direct commercial infrastructure in countries that offer the most potential, while offering products through distributors in other countries. Hospira expects to exit certain other countries altogether. Hospira believes that it will commence operations on a stand-alone basis in certain countries beginning in 2005. To support its international operations, Hospira plans to establish international regional hubs in Amsterdam, The Netherlands; Montreal, Canada; and Mexico City, Mexico, in 2005; and Osaka, Japan, in 2006.

Customers, Sales and Distribution

        The United States accounted for approximately 84% of Hospira's 2004 net sales. Hospira's primary customers in the United States include hospitals, integrated delivery networks, alternate site facilities, and medical product and drug wholesalers. A substantial portion of Hospira's products is sold to group purchasing organization, or GPO, member hospitals and through wholesalers and distributors. Hospira has pricing agreements for specified products with the major GPOs in the United States, including AmeriNet, Inc.; Broadlane Healthcare Corporation; Consorta, Inc.; MedAssets Inc.; Novation, LLC; PACT, LLC; and Premier Purchasing Partners, LP. The scope of products included in these agreements varies by GPO. Hospira has configured its U.S. sales and marketing organizations to meet the needs of customers across the continuum of care. Hospira's sales organization includes sales professionals who sell its complete product line, as well as product specialists who detail and promote its medication delivery systems, and sales personnel who market and sell Precedex® (dexmedetomidine HCl). Hospira's business has extensive experience contracting with, marketing to and servicing members of the major group purchasing organizations.

        In the United States, Hospira's products are primarily distributed through a network of five distribution facilities as well as external distributors. The distribution facilities in the United States Hospira operates are located in Atlanta, Georgia; Dallas, Texas; King of Prussia, Pennsylvania; Los Angeles, California; and Pleasant Prairie, Wisconsin.

        Sales in markets outside the United States comprised approximately 16% of 2004 net sales. Hospira's primary customers in markets outside the United States are hospitals and wholesalers that Hospira serves through a direct sales force and a network of distributors. The majority of Hospira's business outside the United States is contract or tender driven. Hospira expects to exit certain countries as a result of its ongoing assessment of its international operations. See "—Product and Service Offerings—International" above.

        Pursuant to arrangements with Abbott made at the time of the spin-off, a significant portion of Hospira's commercial operations outside the United States is being, and will continue to be, performed for Hospira by Abbott under transitional services arrangements. These transitional services generally will be provided by Abbott for varying periods up to two years following the spin-off. While some of Hospira's personnel outside the United States will be former employees of Abbott, Hospira will need to hire additional people to conduct its business outside the United States, and Hospira will need to establish business infrastructure to support its operations. As Hospira establishes its business infrastructure outside the United States, and marketing authorizations for Hospira's products are transferred to Hospira by the applicable regulatory authorities, Abbott will legally transfer the local net assets to Hospira and Hospira will conduct those operations outside the United States. Hospira expects that the legal transfer to it of operations outside the United States will happen on a country-by-country basis, generally over the course of the two years following the spin-off. Please see "—Arrangements with Abbott" for more information about these transitional services arrangements.

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Backlog

        The dollar amount of backlog orders believed to be firm as of December 31, 2004 was $3.1 million, all of which Hospira expects to fill in 2005. The dollar amount of backlog orders believed to be firm as of December 31, 2003 was $9.5 million. Hospira does not believe its backlog represents a material portion of its sales or is a meaningful indication of future sales.

Product Development

        Hospira's development programs are concentrated in the areas of medication delivery systems and generic injectable pharmaceuticals. Hospira also maintains an active development program to support its injectable pharmaceutical contract manufacturing relationships. Hospira primarily engages in programs to bring new products to market, to enhance the effectiveness, ease of use, productivity, safety and reliability of existing products, and to expand the use of Hospira's products in new markets or new applications.

        Hospira operates three product development facilities that are located in Lake County, Illinois, and Morgan Hill and San Diego, California. Hospira is currently constructing a new research and development facility in Lake Forest, Illinois, which is intended to replace a facility currently being leased from Abbott under a transitional arrangement.

        Hospira is actively working to develop new generic injectable pharmaceuticals. As of December 31, 2004, Hospira had 36 new products in its generic injectable pipeline, representing 28 different drug compounds, which is a significant increase over prior years. Hospira has several programs in process, both on its own and with third parties, to capitalize on the opportunities presented by the over $5 billion in injectable drugs (excluding biologics) whose patents expire by 2010.

        Hospira's key programs in the area of medication delivery systems include the development of advanced infusion platforms and software systems. Hospira's medication delivery systems in development have been designed to use bar coding to help prevent medication errors and inadvertent combination of incompatible drugs, thereby improving safety in the acute care setting. Hospira has entered into alliances with several leading information technology companies to further efforts to develop hardware and software systems that "close the loop" on medication management and improve cost efficiencies in patient management. It expects to continue to enter into strategic alliances as part of the "open architecture" platform development.

        Hospira develops and markets PVC-free and DEHP-free infusion therapy product alternatives. The new products made from these alternative materials include sets designed for use on neonatal patients and additional options for use with blood and lipid-containing drugs and solutions.

        Hospira's research and development expenses in 2004 were $119.6 million, and Hospira has spent $316.6 million on research and development over the last three years.

Manufacturing

        Hospira is a global manufacturer operating 12 plants in the Americas and three plants in Europe. Hospira's plant locations within the Americas are: Ashland, Ohio; Austin, Texas; Buffalo, New York; Clayton, North Carolina; La Aurora, Costa Rica; McPherson, Kansas; Montreal, Quebec; Morgan Hill, California; North Chicago, Illinois; Rocky Mount, North Carolina; Salt Lake City, Utah; and San Cristobal, Dominican Republic. In Europe, Hospira operates manufacturing facilities located in Lurganbuoy, Donegal, and Finisklin, Sligo, Ireland, and Liscate, Italy. Hospira's two largest domestic facilities, Rocky Mount and Austin, account for a significant portion of Hospira's manufacturing output. While Hospira has not experienced a significant interruption of manufacturing at those facilities, such an interruption could materially and adversely affect Hospira's ability to manufacture and sell its products.

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        Hospira's manufacturing operations are focused on regulatory compliance, continuous improvement, process standardization and excellence in execution across the organization. Hospira's manufacturing operations are structured around an enterprise management philosophy and methodology that utilizes principles and tools common to a number of quality management programs including Six Sigma Quality, Lean Manufacturing and Total Quality Management.

Raw Materials

        While Hospira produces some raw materials at its manufacturing sites, the majority of raw materials that it uses are sourced externally on a global basis. Hospira procures the active pharmaceutical ingredients in its products from third-party suppliers. Although most of the raw materials Hospira uses are readily available from multiple suppliers, Hospira relies on proprietary components that are available exclusively from ICU Medical. ICU's LifeShield® CLAVE® and MicroCLAVE® connector products are components of administration sets that represented over 10% of Hospira's 2004 sales. In addition, Hospira purchases some of its materials from single suppliers for reasons of quality assurance, sole-source availability, cost effectiveness or constraints resulting from regulatory requirements.

        Hospira uses resins and other petroleum-based materials as raw materials in many of its products. Hospira may experience increased prices for these materials if oil prices continue to rise.

        Hospira works very closely with its suppliers to assure continuity of supply while maintaining excellence in material quality and reliability. Hospira continually evaluates alternate source suppliers, although it does not typically pursue regulatory qualification of alternative sources due to the strength of its existing supplier relationships, the reliability of its current supplier base, and the time and expense associated with the regulatory process. Although a change in suppliers could require significant effort or investment by Hospira in circumstances where the items supplied are integral to the performance of its products or incorporate unique technology, Hospira does not believe that the loss of any existing supply arrangement (other than its supply arrangement with ICU Medical, which continues through 2014) would have a material adverse effect on its business.

Quality Assurance

        Hospira is committed to creating and maintaining the highest standard of regulatory compliance while providing high quality products to its customers. Hospira has developed and implemented quality systems and concepts throughout its organization. Hospira is actively involved in setting quality policies and managing internal and external quality performance. Its quality assurance department provides quality leadership and supervises its quality systems. An active audit program utilizing both internal and external auditors monitors compliance with applicable regulations, standards and internal policies. In addition, Hospira's facilities are subject to periodic inspection by the FDA and other regulatory authorities. In the past, Hospira's business has received notices alleging violations of applicable regulations and standards, and Hospira has developed definitive action plans, implemented remedial programs and modified its practices to address these issues. Hospira's quality system is designed to build in quality and to utilize continuous improvement concepts throughout the product life-cycle.

Arrangements with Abbott

        In connection with the spin-off, Hospira entered into the Separation and Distribution Agreement as well as a number of other agreements with Abbott. The Separation and Distribution Agreement governed the separation of Hospira's business from Abbott and the distribution of Hospira shares to Abbott's shareholders at the time of the spin-off. The other agreements govern the relationship between Abbott and Hospira and provide for the allocation of responsibility for employee benefits, tax

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and other liabilities and obligations attributable to periods prior to the spin-off. These agreements include:

•

Employee Benefits Agreement;



•

Transition Services Agreement;



•

Information Technology Agreement;



•

International Agreements;



•

Manufacture and Supply Agreements; and



•

Tax Sharing Agreement.

        In addition, Hospira entered into leases and subleases with Abbott for locations that Hospira shares with Abbott. Subleases for space in commercially leased locations have varying terms generally matching the terms of the underlying leases.

        The agreements summarized below are filed or incorporated by reference as exhibits to this annual report, and the summaries of each of these agreements set forth those terms Hospira believes to be material. These summaries are qualified in their entirety by reference to the full text of the agreements.

Separation and Distribution Agreement

        The Separation and Distribution Agreement sets forth the agreements between Hospira and Abbott with respect to the principal corporate transactions that effected the separation of Hospira from Abbott and the distribution of Hospira's shares to Abbott shareholders and other agreements governing the relationship between Abbott and Hospira.

The Separation

        In effecting the separation of Hospira from Abbott, Abbott and its subsidiaries transferred the assets and liabilities of Hospira's business to Hospira. The transfer to Hospira of the United States assets and liabilities and the manufacturing assets and liabilities outside the United States occurred at or prior to the spin-off. Hospira will purchase the non-manufacturing assets and assume the liabilities outside the United States after the spin-off pursuant to the terms of the international agreements described below.

        Except as expressly set forth in the agreement, Hospira assumed, or agreed to assume, and agreed to perform and fulfill all of the liabilities of Hospira's business in accordance with their respective terms. Except as expressly set forth in the agreement, neither Hospira nor Abbott made any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the spin-off, as to any consents or approvals required in connection with the transfers, as to the value or freedom from any security interests of any of the assets transferred, as to the absence of any defenses or right of setoff or freedom from counterclaim with respect to any claim, as to the merchantability or fitness for a particular purpose of any of Hospira's assets, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset transferred.

        All assets were, or will be, transferred on an "as is," "where is" basis, and Hospira agreed to bear the economic and legal risks that any conveyance is insufficient to vest in the transferee good and marketable title, free and clear of any security interest, and that any necessary consents or approvals are not obtained or that requirements of laws or judgments are not satisfied.

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Releases and Indemnification

        Hospira and its affiliates agreed to release and discharge Abbott and its affiliates from all liabilities assumed by Hospira as part of the spin-off, from all acts and events occurring or failing to occur, and all conditions existing, on or before the date of the spin-off relating to Hospira's business, and from all liabilities existing or arising in connection with the implementation of the spin-off, except as expressly set forth in the agreement. Abbott and its affiliates agreed to release and discharge Hospira and its affiliates from all liabilities retained by Abbott as part of the spin-off and from all liabilities existing or arising in connection with the implementation of the spin-off, except as expressly set forth in the agreement.

        Hospira agreed to indemnify, defend and hold harmless Abbott, each of its affiliates and each of their respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:

•

the failure of Hospira or any of its subsidiaries to pay, perform or otherwise promptly discharge any liabilities assumed by Hospira or its subsidiaries as part of the spin-off, in accordance with their respective terms;



•

any breach by Hospira or any of its subsidiaries of the agreement or any of the ancillary agreements; and



•

any untrue statement or alleged untrue statement in the registration statement and information statement relating to the spin-off, or any omission or alleged omission to state a material fact required to be stated in the registration statement and the information statement relating to the spin-off that is necessary to make the statements therein not misleading, except for any statement of a material fact made explicitly in Abbott's name or any omission to state a material fact necessary to make any statement made explicitly in Abbott's name not misleading.

        Abbott agreed to indemnify, defend and hold harmless Hospira, each of its affiliates and each of their respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:

•

the failure of Abbott or any of its subsidiaries, other than Hospira, to pay, perform or otherwise promptly discharge any of their respective liabilities retained by Abbott or its subsidiaries as part of the spin-off, in accordance with their respective terms;



•

any breach by Abbott or any of its subsidiaries, other than Hospira, of the agreement or any of the ancillary agreements; and



•

any untrue statement or alleged untrue statement made explicitly in Abbott's name in the registration statement or the information statement relating to the spin-off of a material fact, or any omission or alleged omission to state a material fact necessary to make any such statement made explicitly in Abbott's name not misleading.

        The Separation and Distribution Agreement also establishes procedures with respect to claims subject to indemnification and related matters.

Proceeding Liabilities

        Except as expressly set forth in the Separation and Distribution Agreement or in any ancillary agreement, Hospira assumed all liabilities of Abbott and its subsidiaries to the extent relating to, arising out of or resulting from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the spin-off to the extent such liabilities relate to, arise out of or result from Hospira's business and assets. The liabilities that Hospira assumed include, among other things, liabilities for any claims or legal proceedings related to products that had been part of Hospira's

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business but were discontinued prior to the spin-off. However, Hospira did not assume certain liabilities of Abbott or its subsidiaries relating to allegations made in pending or future investigations and lawsuits that Hospira's business engaged in improper marketing and pricing practices as described in "Item 3 Legal Proceedings—Marketing and Pricing Cases."

Dispute Resolution

        The Separation and Distribution Agreement contains provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between Hospira and Abbott related to the spin-off. These provisions contemplate that efforts will be made to resolve disputes, controversies and claims by escalation of the matter to senior management or other mutually agreed representatives of Hospira and Abbott. If such efforts are not successful, either Hospira or Abbott may submit the dispute, controversy or claim to binding alternative dispute resolution, subject to the provisions of the agreement.

Further Assurances

        In addition to the actions specifically provided for in the Separation and Distribution Agreement, except as otherwise set forth therein or in any ancillary agreement, both Hospira and Abbott have agreed to use commercially reasonable efforts, prior to, on and after the spin-off date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the agreement and the ancillary agreements.

Employee Benefits Agreement

        Hospira and Abbott entered into an Employee Benefits Agreement to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs and other related matters.

        The Employee Benefits Agreement provides that, as of the spin-off, Hospira generally assumed all employment-related obligations and liabilities for all U.S. employees who transferred employment to Hospira in connection with the spin-off, including salaries and vacation, except as otherwise provided in the agreement. Abbott generally retained responsibility for all employment-related obligations and liabilities for U.S. non-union employees who terminated their employment or retired prior to the spin-off or who otherwise did not transfer employment to Hospira in connection with the spin-off, except as otherwise provided in the agreement. Abbott retained liabilities for post-retirement medical, dental and life insurance benefits for U.S. non-union employees who were retired at the time of the spin-off and for those U.S. non-union employees who were eligible to retire as of the time of the spin-off (commencing on or after their retirement with Hospira), for other medical and dental claims which are incurred by employees of Hospira's business prior to the spin-off, and for certain deferred compensation and supplemental pension obligations, subject in all cases to the terms of the agreement and the applicable Abbott plans. Hospira assumed and is liable for the pension and other benefits of Hospira's current and former union employees at its Ashland, Ohio, site. Hospira's obligations with respect to employees outside the United States will be handled in accordance with the terms of applicable local plans and local law.

        In connection with the spin-off, Hospira adopted benefit programs which enabled it to provide transitional benefits for Hospira's U.S. employees through the end of 2004 that were substantially similar to the benefits provided to these employees under most Abbott benefit plans prior to the spin-off. In general, during the transition period, Hospira provided each of its U.S. employees credit for his or her service with Abbott for purposes of determining eligibility to participate, benefits and benefit levels and vesting under plans maintained by Hospira, to the extent the corresponding Abbott plans

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gave credit for such service, except to the extent that the service credit would result in duplication of benefits.

        Hospira's employees who were retirement eligible at the time of the spin-off and who held Abbott stock options were treated, for purposes of the options, as if they retired from Abbott. Abbott stock options held by Hospira's employees who were not retirement eligible at the time of the spin-off were cancelled and, except in certain foreign jurisdictions where applicable law made it inadvisable to do so, Hospira granted conversion options, which had the same intrinsic value and the ratio of the exercise price per share to the market value per share as the related cancelled option. All other terms and conditions of a conversion option, including the vesting schedule, remained substantially the same as those of the related cancelled option. At the time of the spin-off, Hospira awarded conversion options with respect to approximately 7.4 million shares of Hospira common stock, with a weighted average exercise price of $28.36.

        As a result of its evaluation of its benefit programs, Hospira announced a series of benefit plan changes in the second quarter of 2004. These changes included the enhancement of the 401(k) defined contribution plan, the freezing of the U.S. non-union pension plan and the discontinuation of the U.S. non-union post-retirement medical and dental plan. The discontinuation of the U.S. non-union post-retirement medical and dental plan was effective May 1, 2004. Effective December 31, 2004, the U.S. non-union pension plan was frozen. Eligible employees covered by the U.S. non-union pension plan continued to earn benefits based on pay and years of service through December 31, 2004 and will be entitled to all benefits earned through that time when they retire. Beginning January 1, 2005, all U.S. non-union employees are eligible to receive an additional company-matching contribution to the 401(k) plan and employees who were age 40 and above, as of December 31, 2004, are eligible to receive an additional annual company-matching contribution for five years beginning in 2005.

Transition Services Agreements

        Hospira and Abbott entered into Transition Services Agreements prior to the spin-off pursuant to which Hospira and Abbott agreed to provide to the other, on an interim, transitional basis, various services, including treasury administration, employee benefits administration and quality assurance services. The agreed upon charges for such services are generally intended to allow the servicing party to recover all out-of-pocket costs and expenses and a predetermined profit.

        The services generally commenced at the time of the spin-off and will terminate no later than 24 months following the spin-off. The receiving party may terminate the provision of such services upon prior written notice.

        The agreements covered approximately 200 services, of which more than one-third had been terminated as of the end of 2004.

Information Technology Agreement

        Hospira and Abbott entered into an Information Technology Agreement that provides for the separation of various information technology systems and services that Hospira shared with Abbott. The term of the Information Technology Agreement is two years from the spin-off. The Information Technology Agreement includes work schedules to effect the separation of the information technology systems and specifies the parties' responsibilities for associated project costs.

International Agreements

        Hospira and Abbott entered into Transition Marketing and Distribution Service Agreements and an International Commercial Operations Agreement pursuant to which Abbott's subsidiaries act as non-exclusive distributors for Hospira products and perform regulatory, pharmacovigilance,

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promotional, marketing, distribution and selling activities for Hospira products outside the United States. Under these agreements Hospira agreed to purchase the non-manufacturing assets and assume the related liabilities outside the United States from Abbott on a country-by-country basis generally over the course of the two years following the spin-off for an aggregate purchase price equal to the net book value of those assets and liabilities at the time of such purchase. As of December 31, 2004, the net book value of those assets and liabilities was approximately $281 million. Until these assets and liabilities are transferred, Hospira will be subject to the risks and entitled to the benefits generated by these assets and liabilities.

        Hospira believes that it will commence operations on a stand-alone basis in certain countries beginning in 2005. However, the specific timing of the purchase of these operations in a country outside the United States and the commencement of operations in that country will be determined based on the establishment of the business infrastructure to support Hospira's operations in that country and the transfer of the marketing authorizations for Hospira products by the regulatory authorities in that country, some of which factors are outside of Hospira's control.

Manufacture and Supply Agreements

        Hospira and Abbott entered into Manufacture and Supply Agreements prior to the spin-off pertaining to those products, including bulk and finished pharmaceutical products and I.V. solutions, devices and commodities, that each party manufactured and supplied to the other party prior to the spin-off and will continue to manufacture and supply to the other party following the spin-off. The Manufacture and Supply Agreements are generally in effect for two years after the spin-off (subject to extension for up to two years by the purchasing party, in which case pricing would be adjusted for inflation) and include the prices at which the products will be supplied, the ordering procedures to be followed by Hospira and Abbott and any warranties that will be provided by Hospira or Abbott with respect to these products.

Tax Sharing Agreement

        Hospira and Abbott entered into a Tax Sharing Agreement prior to the spin-off which generally governs Abbott's and Hospira's respective rights, responsibilities and obligations after the spin-off with respect to taxes for any tax period ending on or before the spin-off date, as well as tax periods beginning before and ending after the spin-off date. Generally, Abbott is liable for all pre-spin-off U.S. federal income taxes, foreign taxes and certain state taxes attributable to Hospira's business. Hospira generally will be liable for all other taxes attributable to its business. In addition, the Tax Sharing Agreement addresses the allocation of liability for taxes that are incurred as a result of restructuring activities undertaken to effectuate the spin-off. The Tax Sharing Agreement also provides that Hospira is liable for taxes incurred by Abbott that arise as a result of Hospira's taking or failing to take, as the case may be, certain actions that result in the distribution failing to meet the requirements of a tax-free distribution under Section 355 of the Internal Revenue Code.

Competition

        Hospira's industry is highly competitive. Hospira competes with many companies, both public and private, that range from small, highly focused companies to large diversified healthcare manufacturers. Hospira believes that the most effective competitors in its industry are focused on product quality and performance, breadth of product offering, manufacturing efficiency and the ability to develop and deliver cost-effective products that help hospitals provide high quality care in an environment that requires increasing levels of efficiency and productivity.

        Hospira's competitors in medication delivery systems include Baxter International Inc., Becton Dickinson and Company, B. Braun Melsungen AG, Cardinal Healthcare Inc., Fresenius Medical Care

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AG and Terumo Medical Corporation. Competitors in specialty injectable pharmaceuticals include American Pharmaceutical Partners, Inc., Baxter and Teva Pharmaceuticals, as well as divisions of several multinational pharmaceutical companies. Baxter, Cardinal and Patheon, Inc. are significant competitors of Hospira's contract manufacturing business. Edwards Lifesciences Corporation is a significant competitor in critical care monitoring devices. Local manufacturers of specialty injectable pharmaceuticals also compete with Hospira on a country-by-country basis.

Patents, Trademarks and Other Intellectual Property

        When possible, Hospira seeks patent and trademark protection for its products. Hospira owns and is licensed under a substantial number of patents, patent applications, trademarks and trademark applications. However, Hospira does not consider any one or more of these patents, patent applications, trademarks and trademark applications to be material in relation to its business as a whole.

Employees

        As of December 31, 2004, Hospira had approximately 14,000 employees and contract staff worldwide. Approximately 9,800 employees were in the United States.

        Hospira has two years remaining on a five-year collective bargaining agreement with the United Steelworkers of America covering approximately 400 union employees at the Ashland, Ohio, manufacturing facility, originally entered into with Abbott prior to the spin-off. In addition, a significant portion of Hospira's employees outside of the United States are members of works councils or trade unions. Hospira believes that it generally has a good relationship with its employees and the works councils and unions that represent them.

Governmental Regulation and Other Matters

Food and Drug Laws

        Most of Hospira's products are subject to regulation by the U.S. Food and Drug Administration, or "FDA," and national and supranational regulatory authorities outside the United States, including Health Canada, Health Products and Foods Branch, and the European Agency for the Evaluation of Medicinal Products for Human Use. Hospira's marketed drugs and devices are subject to regulation with respect to, among other matters, manufacturing, post-marketing studies in humans, advertising and promotional activities and materials, and product labeling.

        All aspects of the manufacturing of regulated products are subject to substantial governmental oversight. Facilities used for the production, packaging, labeling, storage, and distribution of drugs and medical devices must be registered with the FDA and other regulatory authorities. All manufacturing activities for these products must be conducted in compliance with the relevant Good Manufacturing Practices, or GMPs. Hospira's manufacturing facilities are subject to periodic and for-cause inspections to verify compliance with GMPs. New manufacturing facilities or the expansion of existing facilities will require inspection and approval by the FDA and other regulatory authorities before products produced at that site can enter commercial distribution. If the FDA or another regulatory agency finds upon inspection that a manufacturer has failed to comply with GMPs, it may take various enforcement actions, including, but not limited to, issuing a warning letter or similar correspondence, mandating a product recall, seizing violative product, imposing civil penalties, and referring the matter to a law enforcement authority for criminal prosecution. See "Risk Factors—Hospira and its suppliers and customers are subject to various governmental regulations and it could be costly to comply with these regulations and to develop compliant products and processes."

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        Hospira's sales and marketing activities for regulated products, particularly prescription drugs and restricted medical devices, are also highly regulated. Regulatory authorities have the power to mandate the discontinuance of promotional materials, practices and programs if they include information that is beyond the scope of the indications included in the approved or cleared labeling or is not in compliance with specific regulatory requirements.

        Some of Hospira's drug products, which are considered controlled substances, are also subject to additional regulation by the U.S. Drug Enforcement Administration, or DEA, and various state and international authorities. These drugs, which have varying degrees of potential for abuse, require specialized controls for production, storage and distribution to prevent theft and diversion. Violation of controlled substance statutes and regulations may result in substantial civil and criminal penalties.

Healthcare Fraud and Abuse Laws

        As a manufacturer and distributor of prescription drugs and medical products to hospitals and other healthcare providers, Hospira and its customers are subject to the federal anti-kickback statute, which applies to Medicare, Medicaid and other state and federal programs. This statute prohibits the solicitation, offer, payment or receipt of remuneration in return for referrals or the purchase, or in return for recommending or arranging for the referral or purchase, of goods covered by the programs. The anti-kickback law provides a number of exceptions or "safe harbors" for particular types of transactions. Hospira believes that its arrangements with its customers are in material compliance with the anti-kickback statute and relevant safe harbors. While Hospira generally does not file claims for reimbursement from government payors, the federal government has asserted theories of liability against manufacturers under the Federal False Claims Act, which prohibits the submission of false claims to Medicare, Medicaid and other state and federal programs. Hospira believes that its arrangements with and actions in regard to its claims-filing customers are in material compliance with the Federal False Claims Act. Many states have similar fraud and abuse laws, and Hospira believes that it is in material compliance with those laws. If it were determined that Hospira was not in compliance with those laws, however, Hospira could be subject to criminal and/or civil liability, exclusion from participation in Medicare, Medicaid and other state and federal programs, or other material adverse effects.

Environmental Laws

        Hospira's manufacturing operations worldwide are subject to many requirements under environmental laws. In the United States, the U.S. Environmental Protection Agency and similar state agencies administer laws which restrict the emission of pollutants into the air, the discharge of pollutants into bodies of water, and the disposal of hazardous substances. Violations of these laws can result in significant civil and criminal penalties, and incarceration. The failure to obtain a permit for certain activities may be a violation of environmental law and subject the owner and operator to civil and criminal sanctions. Most environmental agencies also have the power to shut down an operation if it is operating in violation of environmental law. U.S. laws also typically allow citizens to bring private enforcement actions in some situations. Outside the United States, the environmental laws and their enforcement vary and they can be more burdensome. For example, in some European countries, there are environmental taxes and laws requiring manufacturers to take back used products at the end of their useful life. This does not currently have a significant impact on Hospira's products, but such laws are expanding rapidly in Europe. Hospira has management systems in place which are intended to minimize the potential for violations of these laws.

        Other environmental laws address the contamination of land and groundwater, and require the clean-up of such contamination. These laws may apply not only to the owner or operator of an on-going business, but also to the owner of land contaminated by a prior owner or operator. In addition, if a parcel is contaminated by the release of a hazardous substance, such as through its

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historic use as a disposal site, any person or company that has contributed to that contamination, whether or not they have a legal interest in the land, may be subject to a requirement to clean up the parcel. Hospira has been involved with a number of sites at which clean-up has been required, some as the sole owner and responsible party, and some as a contributor in conjunction with other parties. The resulting costs tend to be in the form of legal expenses, contributions to the cost of the investigation or clean-up of the contaminated sites, or settlement payments to reimburse the government for past remedial work.

Safety and Health Laws

        In the United States, the Occupational Safety and Health Act sets forth requirements for conditions of the workplace. Hospira's operations are subject to many of these requirements, particularly in connection with Hospira's employees' use of equipment and chemicals at manufacturing sites that pose a potential health or safety hazard. Violation of these laws can result in civil and criminal penalties. In December 2004, Hospira received multiple citations from the Occupational Safety and Health Adminstration, or OSHA, for alleged violations of the workplace safety regulations, including a proposed penalty of $184,500. Hospira has filed a Notice to Contest the alleged violations and is working with OSHA to resolve this matter.

Transportation Laws

        Hospira's operations include transporting materials defined as "hazardous" over land, over sea, and through the air. All these activities are regulated under laws administered by the U.S. Department of Transportation and similar agencies outside the United States. They include complex requirements for packing, labeling and recordkeeping, and the failure to comply can result in civil and criminal sanctions.

Customs Laws

        The import and export of many goods across national borders are heavily regulated, especially in the United States. As the importer and exporter of many shipments each year, Hospira must comply with all customs regulations and pay fees and duties on certain shipments. Failure to comply can result in significant financial penalties and criminal sanctions.

California Proposition 65

        Some state laws regulate the safety of Hospira's products in the marketplace to a greater extent than FDA requirements. For example, under California's Safe Drinking Water and Toxic Enforcement Act of 1986, also known as "Proposition 65," the state has established a list of chemicals considered to be hazardous. If, as a result of the sale in California of a product containing a listed chemical, a person is exposed to the chemical, the seller of that product must provide that person with a warning. Monetary penalties for non-compliance can be substantial, although there are no criminal sanctions.

Risk Factors

        Hospira's business, financial condition, results and operations and cash flows are subject to various risks, including those described below:

Hospira's historical financial information may not be indicative of its future results as an independent company.

        Hospira became an independent company as a result of the spin-off from Abbott on April 30, 2004. The historical financial information included in this annual report does not reflect what Hospira's results of operations, financial position and cash flows would have been had Hospira been an

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independent company during the entire periods presented or, to a greater extent than is generally the case, what Hospira's results of operations, financial position and cash flows will be in the future. This is primarily a result of the three factors described below:

•

for all periods prior to the spin-off, Hospira's historical financial information reflects allocations for services historically provided by Abbott, and Hospira expects these allocations to be different from the costs it will incur for these services after that time as an independent company;



•

for all periods prior to the spin-off, Hospira's historical financial information does not reflect the debt Hospira incurred in connection with the spin-off (and its subsequent refinancing) and Hospira's obligations to purchase from Abbott certain operations and assets, and assume the corresponding liabilities, of Hospira's business outside the United States after the spin-off; and



•

for all periods prior to the spin-off, the historical financial information does not reflect any increased costs associated with being an independent company, including changes that Hospira expects will occur in the cost structure, personnel needs, financing and operations of Hospira's business as a result of the spin-off and from reduced economies of scale.

        For additional information about the past financial performance of Hospira's business and the basis of presentation of the historical combined financial statements, please see "Item 6 Selected Financial Data," "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8 Financial Statements" included elsewhere in this annual report.

Hospira has limited history operating as an independent company, and may experience increased costs operating as an independent company that could decrease its overall profitability.

        Prior to the spin-off, Hospira's business was operated by Abbott, and Abbott performed many important corporate functions for Hospira's operations, including information technology support, finance and tax administration, and international administration, distribution and sales functions. Following the spin-off, some of these functions will be provided by Abbott for Hospira on a transitional basis as described above in "—Arrangements with Abbott." At such point in time as Hospira begins to operate these functions independently, if it does not have in place its own adequate systems and business functions, or outsource them from other providers, it may not be able to operate its business effectively or at comparable costs and its profitability may decline.

        Hospira will need to replicate certain facilities, systems, infrastructure and personnel. Hospira will also need to make significant investments to develop its ability to operate without access to Abbott's existing operational and administrative infrastructure. These initiatives will be costly to implement, are expected to lead to increased costs in the near term and may cause Hospira's profitability to decline. Hospira will need to continue to attract and retain talented personnel in order to effectively establish its stand-alone operations. Failure to do so could materially and adversely affect Hospira's business. As an independent company, Hospira must comply with the requirements of the Sarbanes-Oxley Act of 2002, including, beginning with its 2005 annual report, the requirement to assess its internal control over financial reporting. Complying with these requirements may be costly and time-consuming, may reveal weaknesses in Hospira's internal control over financial reporting that may be costly to remedy and that may need to be publicly disclosed, and may divert the time and attention of Hospira's management.

        In addition, prior to the spin-off, Hospira's business took advantage of Abbott's size and purchasing power in procuring goods, services and technology, including raw materials, office supplies and equipment, travel and computer software licenses. As a separate, independent company, Hospira may be unable to obtain goods, services and technology at prices and on terms as favorable as those obtained prior to the spin-off, which could decrease its overall profitability. As a separate, independent

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company, Hospira may also not be as successful in negotiating favorable tax treatments and credits with governmental entities.

Hospira may not successfully transition its operations outside the United States.

        Hospira entered into various arrangements with Abbott prior to the spin-off, pursuant to which Abbott would assist in the marketing and sale of Hospira's products outside the United States. Hospira expects these arrangements will continue in each market in which Hospira's products are sold outside of the United States until the earlier of two years after the spin-off or such time as Hospira has established sufficient infrastructure to conduct operations or obtained an independent distributor for a particular market and succeeded in transferring the regulatory authorizations for its products.

        Although Hospira will attempt to minimize any disruption to its ability to successfully market and sell its products in markets outside the United States, Hospira's ability to supply those markets, and its relationships with customers in those markets, may be disrupted by the transition of Hospira's business in those markets. Further, if Hospira fails to establish sufficient infrastructure to conduct operations, obtain an independent distributor or obtain registrations for its products in markets in which Hospira plans to sell its products outside of the United States prior to the expiration or termination of these transition arrangements, Hospira may be unable to sell its products in those markets. Some of these factors are beyond Hospira's control. These risks could have a material adverse effect on Hospira's ability to distribute and sell its products in markets outside the United States and on Hospira's profitability.

Hospira faces significant competition and may not be able to compete effectively.

        The healthcare industry is highly competitive. Hospira competes with many companies ranging from small start-up enterprises to multinational companies that are larger than Hospira is and have access to greater financial, marketing, technical and other resources than Hospira does. Hospira's present or future products could be rendered obsolete or uneconomical by technological advances by competitors or by the introduction of competing products by one or more of its competitors. Also, most of Hospira's products are not protected by patents or other proprietary rights and are therefore subject to generic competition. In the absence of patent protection, the introduction of competing products is limited primarily by market considerations and the need to obtain necessary regulatory approvals. For example, Hospira's Corlopam® (fenoldopam mesylate) product is no longer protected by any patent and a generic version of this drug was approved by the FDA on December 1, 2003. Accordingly, Hospira's sales of Corlopam® decreased significantly in 2004.

        Hospira's failure to compete effectively could cause it to lose market share to its competitors and/or have a material adverse effect on its sales and profitability.

Hospira is subject to the cost-containment efforts of hospital buying groups, wholesalers, distributors, third-party payors and government organizations.

        Many existing and potential customers for Hospira's products have combined to form group purchasing organizations, or GPOs, and integrated delivery networks, or IDNs, in an effort to lower costs. GPOs and IDNs negotiate pricing arrangements with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO's or IDN's affiliated hospitals and other members. Failure to negotiate advantageous pricing and purchasing arrangements could cause Hospira to lose market share to its competitors and/or have a material adverse effect on its sales and profitability.

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        Wholesalers of Hospira's products have also recently begun seeking to negotiate additional fees in an effort to offset their costs. Some drug wholesalers have announced their intentions to implement a fee-for-service model for the distribution of pharmaceutical products. Hospira is evaluating the potential impact of this possible change on the drug wholesale business model. If these fees are successfully implemented, Hospira could experience increased costs, which may be material.

        Hospira's products and services are sold to hospitals and alternate site providers, such as clinics, home healthcare providers and long-term care facilities, all of which receive reimbursement for the healthcare services provided to their patients from third-party payors, such as government programs, private insurance plans and managed care programs. These third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products and services. Levels of reimbursement, if any, may be decreased in the future, and future legislation, regulation or reimbursement policies of third-party payors may otherwise adversely affect the demand for and price levels of Hospira's products, which could have a material adverse effect on its sales and profitability.

        In markets outside the United States, Hospira's business has experienced downward pressure on product pricing as a result of the concentrated buying power of governments as principal customers and the use of bid and tender sales methods whereby Hospira is required to submit a bid for the sale of its products. Hospira's failure to offer acceptable prices to these customers could have a material adverse effect on its sales and profitability in these markets.

If Hospira is unable to maintain its GPO pricing agreements, sales of its products could decline.

        Currently, a small number of GPOs influence a majority of sales to Hospira's hospital customers. GPOs negotiate pricing agreements with providers of medical products and these negotiated prices are made available to members of GPOs. If Hospira does not have a pricing agreement with a GPO, it may become more difficult to sell its products to the GPO's members.

        Hospira has pricing agreements with the major GPOs in the United States, including AmeriNet, Inc.; Broadlane Healthcare Corporation; Consorta, Inc.; MedAssets Inc.; Novation, LLC; PACT, LLC; and Premier Purchasing Partners, LP. It will be important for Hospira to continue to maintain pricing arrangements with major GPOs. I