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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D. C.  20549

FORM 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to          

Commission File No. 1-31946

HOSPIRA, INC.

(Exact name of registrant as specified in its charter)

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)

Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding l2 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No o

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

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

As of April 23, 2010, Registrant had outstanding 165,884,569 shares of common stock, par value $0.01 per share.

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Hospira, Inc.

Quarterly Report on Form 10-Q

Index

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PART  I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Hospira, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(dollars and shares in millions, except for per share amounts)

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

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Hospira, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in millions)

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

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Hospira, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(dollars in millions)

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

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Hospira, Inc.

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

(dollars and shares in millions)

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

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Hospira, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 — Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting and, therefore, do not include all information and footnote disclosures normally included in audited financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). However, in the opinion of management, all adjustments, consisting of normal recurring adjustments, unless otherwise noted herein, necessary to present fairly the results of operations, financial position and cash flows have been made. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Hospira, Inc. (“Hospira”) Annual Report on Form 10-K for the year ended December 31, 2009. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

Recently Issued and Adoption of New Accounting Standards

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2009-14, Software (Topic 985), “Certain Revenue Arrangements That Include Software Elements” and  No. 2009-13, Revenue Recognition (Topic 605), “Multiple-Deliverable Revenue Arrangements” related to revenue recognition for arrangements with multiple deliverables and arrangements that include software elements. The new ASUs permit prospective or retrospective adoption, and Hospira elected prospective adoption during the first quarter of 2010. Prospective adoption required Hospira to apply the new ASUs to revenue arrangements entered into or materially modified beginning January 1, 2010. Upon adoption of this guidance, the timing of revenue recognition has not significantly changed and the impact to Hospira’s condensed consolidated financial position, results of operations or cash flows was not material.

In March 2010, the FASB ratified the final consensus on Emerging Issues Task Force (“EITF”) 08-9, “Milestone Method of Revenue Recognition” (“EITF 08-9”). EITF 08-9 establishes a revenue recognition method for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. The scope of the milestone method is limited to research and development agreements and is applicable to milestones in multiple-deliverable arrangements involving research and development transactions. The guidance does not preclude the application of any other applicable revenue guidance. The guidance will be effective for financial statements issued for fiscal years beginning after June 15, 2010. Early adoption is permitted. Hospira is currently evaluating the potential impact of EITF 08-9 on the financial statements.

Hospira adopted the provisions of the FASB ASU No. 2010-12, Income Taxes (Topic 740), “Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts” (“ASU No. 2010-12”). On March 30, 2010, the President of the United States (“U.S.”) signed the Health Care and Education Reconciliation Act of 2010, which is a reconciliation bill that amends the Patient Protection and Affordable Act that was signed on March 23, 2010 (collectively, the “Acts”). ASU 2010-12 allows entities to consider the two Acts together for accounting purposes. There was no material impact to Hospira’s condensed consolidated financial position, results of operations or cash flows upon adoption of this guidance.

Hospira adopted the provisions of the FASB ASU No. 2010-09, Subsequent Events (Topic 855), “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU 2010-09 removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. There was no impact to Hospira’s condensed consolidated financial position, results of operations or cash flows upon adoption of this guidance.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820), “Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU 2010-06 requires new disclosures about significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for such transfers and in the reconciliation for Level 3 fair value measurements disclose separately information about purchases, sales, issuances and settlements. Hospira adopted the provisions of ASU No. 2010-06 on January 1, 2010, except for disclosures about purchases, sales, issuances and settlements in the reconciliation for Level 3 fair value measurements. Those disclosures will be effective for financial statements issued for fiscal years beginning after December 15, 2010. There was no impact to Hospira’s condensed consolidated financial position, results of operations or cash flows upon adoption of this guidance.

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Significant Accounting Policies - Revenue Recognition

Hospira’s accounting policy for revenue recognition is included in Note 1 — Summary of Significant Accounting Policies in the Hospira Annual Report on Form 10-K for the year ended December 31, 2009.

Arrangements with Certain Multiple Deliverables

Under the historical accounting principles, Hospira accounted for sales of drug delivery pumps (pumps) and server-based suite of software applications (software), inclusive of certain software related services, under multi-element arrangements as one unit of accounting. Hospira allocated revenue to this deliverable based on vendor-specific objective evidence. The new accounting principles, depending on the functionality of the software associated with the pump, generally require Hospira to account for sales of pumps and software as one or two units of accounting and allow multiple methods of determining the selling price for the purpose of allocating revenue.

Hospira allocates revenue to arrangements with multiple deliverables based on their relative selling prices. In such circumstances, Hospira applies a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“ESP”). VSOE generally exists only when Hospira sells the deliverable separately and is the price actually charged by Hospira for that deliverable. Where VSOE and TPE is not available, Hospira’s process for determining ESP includes multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors considered in developing the ESPs for pumps, software and software related services include prices charged by Hospira for similar offerings, historical pricing practices, the market and nature of the deliverable and the relative ESP of certain deliverables compared to the total selling price of the arrangement.

For certain arrangements where the software is not essential to the functionality of the pump, Hospira has identified three primary deliverables. The first deliverable is the pump delivered and recognized at the time of sale, the second deliverable is the related sale of disposable products (sets) recognized as the products are delivered and the third deliverable is the software. Revenue recognition for the third deliverable is further described below in the Software section of Note 1. The allocation of revenue for the first and second deliverable is based on VSOE and for the third deliverable is based on Hospira’s ESPs. 

For other arrangements where the software is essential to the functionality of the pump, Hospira has also identified three primary deliverables. The first deliverable is the pump and software essential to the functionality of the pump delivered and recognized at the time of installation. The second deliverable is the related sale of sets recognized as the products are delivered and the third deliverable is software related services. Revenue recognition for the third deliverable is further described below in the Software section of Note 1. The allocation of revenue for the first deliverable is based on Hospira’s ESP. The allocation of revenue for the second deliverable is based on VSOE and for the third deliverable is based on Hospira’s ESPs.

Software

Hospira accounts for the server-based suite of software applications not essential to the functionality of a pump and related maintenance and implementation services in accordance with industry specific accounting guidance for software and software-related transactions. For such transactions, revenue on arrangements that include multiple elements is allocated to each element based on the relative fair value of each element, and fair value is generally determined by VSOE. If Hospira cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, Hospira defers revenue until all elements are delivered and services have been performed. Perpetual software license revenue and implementation service revenue are generally recognized as obligations are completed or upon customer acceptance. Software subscription license and software maintenance revenue is recognized ratably over the applicable contract period.

Chargebacks

Hospira’s accounting policy for revenue recognition including a description of chargebacks (estimated reimbursements to wholesalers for honoring contracted prices to end customers) is included in Note 1 — Summary of Significant Accounting Policies in the Hospira Annual Report on Form 10-K for the year ended December 31, 2009. Hospira regularly monitors the provision for chargebacks and makes adjustments when it believes the actual chargeback may differ from estimates. The methodology used to estimate and provide for chargebacks was consistent across all periods presented.

Hospira’s generic oxaliplatin sales in the U.S., are subject to chargebacks and contributed to the increase in the chargeback accrual beginning in the third quarter of 2009. Generally, generic product launch sales have a higher degree of end customer price movement, often greater than 80% from the end customer price prior to generic introduction, as additional competitors enter the market. Further, the oxaliplatin litigation discussed in Note 15 has impacted the quantities and types of generic oxaliplatin product available in the market thereby affecting the rate of end customer price movement. Hospira’s total chargeback accrual at December 31, 2009 was $177.0 million and $206.8 million at March 31, 2010. During the quarter ended March 31, 2010, Hospira accrued chargebacks of $266.1 million related to current period sales, paid $208.7 million and released $27.6 million which was a portion of the accrual

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relating to prior year oxaliplatin product sales as the expected rate of price movement was significantly less than typically experienced in prior generic product launches. A five percent variance in the end customer contract prices for generic oxaliplatin sales subject to chargebacks at March 31, 2010 could increase or decrease net sales and income before income taxes by approximately $4.0 million.

Note 2 — Acquisitions

On March 30, 2010, Hospira completed its acquisition of the generic injectable pharmaceutical business of Orchid Chemicals & Pharmaceuticals Ltd. (“Orchid Pharma”) for $381.0 million. The acquisition includes Orchid’s beta-lactam antibiotic formulations manufacturing complex and pharmaceutical research and development facility at Irungattukottai, Chennai, as well as its generic injectable dosage-form product portfolio and pipeline. Approximately $12 million of primarily acquisition related pre-tax charges were recognized, primarily in Selling, general and administrative, during the first quarter of 2010. The results of Orchid Pharma’s operations are included in Hospira’s results for periods on and after March 30, 2010 and are not material to Hospira for the first quarter 2010, exclusive of the acquisition related charges.

Due to the acquisition completion date near the March 31, 2010 quarter-end, the allocation of the purchase price is preliminary, based on the initial accounting of the assets acquired and liabilities assumed at their respective estimated fair values on the acquisition date of March 30, 2010. The allocation of the purchase price for intangibles assets is pending finalization of the valuation for acquired intangibles assets and allocation of goodwill among reporting units.  The final allocation of the purchase price may result in adjustments to the recognized amounts of assets and liabilities, which could be significant. Hospira expects to finalize the preliminary allocation, as soon as possible, but no later than one year from the acquisition date. The preliminary allocation based on management’s best estimate is as follows:

The $88.1 million of acquired intangible assets includes developed product rights and customer relationships that will be amortized over their estimated useful lives (5 to 9 years, weighted average 8 years). The amount allocated to IPR&D is being accounted for as an indefinite-lived intangible asset until completion, regulatory approval or discontinuation. Upon successful completion or regulatory approval of each project, Hospira will make a determination as to the useful life of the intangible asset and begin amortization. Of the $171.0 million of goodwill, approximately $125.8 million was assigned to the Americas segment, $18.1 million was assigned to the EMEA segment, and approximately $27.1 million was assigned to the APAC segment. Goodwill recorded as part of the acquisition includes the expected synergies and other benefits that Hospira believes will result from the combined operations. Goodwill is not expected to be deductible for tax purposes.

On April 19, 2010, Hospira announced the execution of a definitive merger agreement to acquire Javelin Pharmaceuticals, Inc. (“Javelin Pharma”) for $2.20 per share in cash or approximately $145 million. Hospira and Javelin Pharma also entered into a loan facility providing operation-financing support to Javelin Pharma of up to $4.5 million until the acquisition is completed, approximately $8.3 million for Javelin Pharma’s repayment of the principal and accrued interest incurred under a similar financing arrangement with a another party and $4.4 million for Javelin Pharma’s payment of a termination fee and certain stipulated expenses in connection with Javelin Pharma’s termination of its merger agreement with another party. The merger agreement and the tender offer were approved by the Boards of Directors of both companies and the Board of Directors of Javelin Pharma has recommended that Javelin Pharma’s stockholders tender their shares to Hospira pursuant to the tender offer. Hospira’s obligation to consummate the tender offer is conditioned upon the tender of at least a majority of the fully diluted Javelin Pharma shares in the offer and the satisfaction of other customary closing conditions. While Hospira has taken actions and incurred costs associated with the pending transaction that are reflected in Hospira’s financial statements, the pending acquisition of Javelin Pharma will not be reflected in the financial statements until the closing of the transaction. The transaction is expected to be completed in 2010.

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Note 3 — Restructuring Actions and Asset Impairments

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

Project Fuel

2009 Actions.  In March 2009, Hospira announced details of a restructuring and optimization plan, (“Project Fuel”), which will occur over the next two years from the date of the announcement. Project Fuel includes the following activities: optimizing the product portfolio, evaluating non-strategic assets, and streamlining the organizational structure. Hospira expects to incur aggregate restructuring costs and other asset charges related to these actions in the range of $100 million to $110 million on a pre-tax basis. During the three months ended March 31, 2010 and 2009, Hospira incurred, primarily in the Americas segment, pre-tax Restructuring charges of $2.8 million and $4.7 million, respectively. Hospira has, in aggregate to date, incurred restructuring charges related to these actions in the U.S., Canada, and Latin America (“Americas”), Europe Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”) segments pre-tax restructuring costs of $24.6 million, $2.1 million and $3.4 million, respectively. Inventory charges were not material during the three months ended March 31, 2010 and are $16.1 million and $4.6 million, in aggregate to date, related to the Americas and EMEA segments, respectively.

In February 2010, Hospira completed the disposal of a facility in Wasserburg, Germany which primarily performed contract manufacturing in the EMEA segment for $69.3 million, comprised of cash proceeds of $62.6 million and an additional $6.7 million due in twelve months from the close of the transaction. Hospira recognized a gain of $11.4 million included in Restructuring, impairments and (gain) on disposition of assets, net.

The following summarizes the Project Fuel restructuring activity for 2010:

Facilities Optimization

2008 Actions.  In April 2008, Hospira announced a plan to exit manufacturing operations at its Morgan Hill, California plant over the next two to three years from the date of announcement. Hospira expects to incur aggregate restructuring charges through 2011 related to this action in the range of $20 million to $24 million on a pre-tax basis. Hospira is in the process of transferring related operations and production of the primary products to other Hospira facilities, or outsourcing certain product components to third-party suppliers, or ceasing activities entirely. Hospira has incurred $21.4 million, pre-tax, to date for restructuring charges in the Americas segment, primarily employee related, associated with this action. During the three months ended March 31, 2010 and 2009, Hospira incurred in the Americas segment pre-tax restructuring costs of $1.0 million and $3.0 million, respectively.

The following summarizes the Facilities Optimization (Morgan Hill, California) restructuring activity for 2010:

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Note 4 — Collaborative Arrangements

Hospira enters into collaborative arrangements with third parties for product development and commercialization. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. Hospira’s rights and obligations under these collaborative arrangements vary. These collaborations usually involve various activities including research and development, marketing and selling, and distribution. Hospira has numerous collaborative arrangements none of which individually or in the aggregate have had material changes or activity during the three months ended March 31, 2010. For a more detailed description of Hospira’s collaborative arrangements see Note 5 to Hospira’s consolidated financial statements included in Hospira’s Annual Report on Form 10-K for the year ended December 31, 2009.

Note 5 — Fair Value Measures

The following table summarizes the basis used to measure certain assets and liabilities at fair value in the balance sheet:

The fair value of the Level 1 assets is based on quoted market prices of the identical underlying security in an active market. The fair value of the Level 2 assets and liabilities is primarily based on market observable inputs to quoted market prices, benchmark yields and broker/dealer quotes. Level 3 inputs, as applicable, are unobservable inputs which reflect assumptions developed by management to measure assets and liabilities at fair value.

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The carrying values of certain financial instruments, including primarily cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, approximate their estimated fair values due to their short-term nature. The carrying value and estimated aggregate fair value, based primarily on market prices (Level 1), of the senior unsecured notes are as follows:

Note 6 — Financial Instruments and Derivatives

Hospira’s operations are exposed to market risk primarily due to changes in currency exchange rates and interest rates. The objective in managing these risks is to reduce volatility on earnings and cash flows. To reduce the risk, Hospira enters into certain derivative financial instruments, when available on a cost-effective basis, to hedge its underlying economic exposure. For a more detailed description of Hospira’s financial instruments and derivatives see Note 7 to Hospira’s consolidated financial statements included in Hospira’s Annual Report on Form 10-K for the year ended December 31, 2009.

The following table summarizes Hospira’s fair value of outstanding derivatives:

The impact on earnings from derivatives activity was as follows for the three months ended March 31:

Note 7 — Stock-Based Compensation

Hospira’s 2004 Long-Term Stock Incentive Plan, as amended, provides for the grant of shares of stock options, stock appreciation rights, stock awards (restricted stock, restricted stock units, performance shares and performance units), and cash-based awards to employees and non-employee directors. Stock-based compensation expense of $17.3 million and $13.1 million was recognized for the three months ended March 31, 2010 and 2009, respectively. The related income tax benefit recognized was $5.8 million and $4.6 million, respectively.

In February 2010, 1.9 million options were granted to certain employees for the 2010 annual stock option grant. These options were awarded at the fair market value at the time of grant, generally vest over three years, and have a seven-year term.

For 2010, the expected life assumption of the options is based on the expected amount of time that options granted are expected to be outstanding, based on historical and forecasted exercise behavior of employees’ post-vesting forfeitures and exercises. For 2009, the expected life assumption of the options is based on the “simplified” method, which is the midpoint between the vesting date and the end of the contractual term.

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The weighted average fair value using the Black-Scholes option-pricing model, and the corresponding weighted average assumptions for stock option grants for the three months ended March 31, are as follows:

In February 2010, 228,292 performance share awards were granted to key members of management. The performance share awards vest at the end of the three-year performance cycle. The 2010 performance share award is based on a formula that measures performance using relative total shareholder return over the three-year performance cycle compared to an industry peer group. Based on the actual performance at the end of the performance cycle the number of performance share awards earned, which can range between 0% and 200% of the target awards granted, will be satisfied with Hospira common stock.

The weighted average fair value using the Monte Carlo simulation model, and the corresponding weighted average assumptions for the performance share award grants are as follows:

As of March 31, 2010, there was $71.1 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.8 years.

Note 8 — Post-Retirement Benefits

Retirement plans consist of defined benefit and legislated obligations such as employee severance indemnity plans (“pension plans”), post-retirement medical and dental plans (“medical and dental plans”) and defined contribution plans. Plans cover certain employees both in and outside of the U.S.

Net cost recognized for the pension plans and medical and dental plans for the three months ended March 31, is as follows:

Based on current Federal laws and regulations, Hospira is not required to make any contributions to its U.S. pension plans in 2010. While Hospira’s funding policy requires contributions to our defined benefit plans equal to the amounts necessary to, at a minimum, satisfy the funding requirements as prescribed by Federal laws and regulations, Hospira does make discretionary contributions when management deems it is prudent to do so.

The Acts related to healthcare reform eliminated the future tax deduction for prescription drug costs associated with Hospira’s post-retirement medical and dental plans for which Hospira receives Medicare Part D subsidies. The impact was not material for the three

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months ended March 31, 2010. Hospira continues to evaluate the potential impact of other sections of this legislation on the post-retirement medical and dental and current medical plans, but does not anticipate a significant impact to Hospira.

Certain Hospira employees in the U.S. and Puerto Rico participate in the Hospira 401(k) Retirement Savings Plan. Hospira’s expenses for this defined contribution plan for the three months ended March 31, 2010 and 2009 were $8.4 million and $9.4 million, respectively.

Note 9 — Income Taxes

Taxes on income reflect the estimated annual effective rates, excluding the effect of significant unusual items. The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of tax exemptions, of varying durations, in several non-U.S. taxing jurisdictions. For the three months ended March 31, 2010, the effective tax rate was impacted by the expiration of certain favorable U.S. business tax provisions, partially offset by the tax impact of the gain on the disposal of a facility in Wasserburg, Germany.

Hospira remains open to tax examination for post-May 1, 2004 periods in the major tax-paying jurisdictions of Australia, Ireland, and Italy, for years 2005 forward in Canada, for years 2006 forward for the U.S., and for years 2007 forward for the United Kingdom.

Note 10 — Earnings per Share

Basic earnings per share are computed by dividing net income by the number of weighted average common shares outstanding during the reporting period. Diluted earnings per share are calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The following table shows the effect of stock-based awards on the weighted average number of shares outstanding used in calculating diluted earnings per share for the three months ended March 31:

The number of outstanding options and awards to purchase Hospira stock for which the exercise price of the options exceeded the average stock price was 1.0 million and 12.1 million for the three months ended March 31, 2010 and 2009, respectively. Accordingly, these options are excluded from the diluted earnings per share calculation for these periods.

Note 11 — Inventories

Inventories consist of the following:

Note 12 — Property and equipment, net

Property and equipment, net consists of the following:

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Note 13 — Goodwill and Intangible assets, net

The following summarizes goodwill and intangible assets, net activity:

See Note 2 for more information related to acquisitions. Hospira also acquired other intangible assets, primarily product rights for a cardiovascular product marketed in Japan, during the three months ended March 31, 2010.

Intangible assets have definite lives and are amortized on a straight-line basis over their estimated useful lives (1 to 16 years, weighted average 9 years). Intangible asset amortization expense was $21.5 million and $14.7 million for the three months ended March 31, 2010 and 2009, respectively. Intangible asset amortization is estimated at $56 million for the remainder of 2010, $74 million for 2011, $63 million for 2012, $61 million for 2013, and $60 million for 2014.

Additionally, intangible assets, net consist of the following:

Note 14 — Short-term Borrowings and Long-term Debt

Hospira has a three-year $700.0 million unsecured revolving credit facility expiring in October 2012 in which no amounts are outstanding as of March 31, 2010.

Certain borrowing agreements contain covenants that require compliance with, among other restrictions, a maximum leverage ratio and a minimum interest coverage ratio. As of March 31, 2010, Hospira was in compliance with all applicable covenants.

Note 15 — Litigation

Hospira is involved in various claims and legal proceedings, as well as product liability claims, regulatory matters and proceedings related to Hospira’s business, including in some instances when Hospira operated as part of Abbott Laboratories (“Abbott”).

Hospira has been named as a defendant in a lawsuit alleging generally that the spin-off of Hospira from Abbott resulted in a mass termination of employees so as to interfere with the future attainment of benefits in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”). The lawsuit was filed on November 8, 2004 in the U.S. District Court for the Northern District of Illinois, and is captioned: Myla Nauman, Jane Roller and Michael Loughery v. Abbott Laboratories and Hospira, Inc.  Plaintiffs generally seek reinstatement in Abbott benefit plans, disgorgement of profits and attorneys fees. On November 18, 2005, the complaint was amended to assert an additional claim against Abbott and Hospira for breach of fiduciary duty under ERISA.  Hospira has been dismissed as a defendant with respect to the fiduciary duty claim. By Order dated December 30, 2005, the Court granted class action status to the lawsuit. As to the sole claim against Hospira, the court certified a class defined as: “all employees of Abbott who were participants in the Abbott Benefit Plans and whose employment with Abbott was terminated between August 22, 2003, and April 30, 2004, as a result of the spin-off of the HPD [Hospital Products Division]/creation of Hospira announced by Abbott on August 22, 2003, and who were eligible for retirement under the Abbott Benefit Plans on the date of their terminations.” Hospira denies all material allegations asserted against it in the complaint. Trial of this matter has concluded. On April 22, 2010, the court issued a ruling in favor of Hospira and in favor of Abbott on all counts. In 2008, Hospira received notice from Abbott requesting that Hospira indemnify Abbott for all liabilities that Abbott may incur in connection with this litigation. Hospira denies any obligation to indemnify Abbott for the claims asserted against Abbott in this litigation.

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On August 12, 2005, Retractable Technologies, Inc. (“RTI”) filed a lawsuit against Abbott alleging breach of contract and fraud in connection with a National Marketing and Distribution Agreement (“Agreement”) between Abbott and RTI signed in May 2000. Retractable Technologies, Inc. v. Abbott Laboratories, Inc., Case No. 505CV157 is pending in U.S. District Court for the Eastern District of Texas. RTI purported to terminate the contract for breach in 2003. The lawsuit alleges that Abbott misled RTI and breached the Agreement in connection with Abbott’s marketing efforts. RTI is seeking monetary damages which are alleged to be in excess of $300.0 million as well as punitive damages. Hospira has conditionally agreed to defend and indemnify Abbott in connection with this lawsuit, which involves a contract carried out by Abbott’s former Hospital Products Division. Abbott denies all material allegations in the complaint. Abbott has brought counterclaims against RTI for breach of the Agreement, including failure to pay marketing fees owed to Abbott. Hospira is entitled, pursuant to its agreements with Abbott, to any amounts recovered due to RTI’s breach of the Agreement. The case is proceeding in the U.S. District Court for the Eastern District of Texas.

Hospira is involved in patent litigation in the U.S. and elsewhere concerning Hospira’s attempts to market the generic oncology drug oxaliplatin.  In the U.S., litigation is pending in the U.S. District Court for the District of New Jersey: Sanofi-Aventis, U.S., LLC, et al. v. Sandoz, Inc., et al. (D. N.J. 2007).  In the lawsuit, plaintiffs allege that various generic oxaliplatin products infringe one or more patents held by plaintiffs.  Hospira is currently marketing and selling its oxaliplatin products, and alleges that the single patent plaintiffs have asserted against Hospira is not valid and not infringed by Hospira’s product.  In June 2009, the District Court entered summary judgment of non-infringement in favor of Hospira.  Plaintiffs appealed that decision and, in September 2009, the U.S. Court of Appeals for the Federal Circuit vacated the District Court’s ruling.  Hospira has agreed to settle the U.S. litigation.  Pursuant to the settlement, Hospira expects to exit the U.S. market with its oxaliplatin products by June 30, 2010 and re-launch its products pursuant to a royalty-free license on August 9, 2012.  The settlement is subject to certain other terms and provisions.

Hospira and Abbott are defendants in a number of lawsuits brought by individual plaintiffs alleging that plaintiffs developed Post-arthroscopic Glenohumeral Chondrolysis (“PAGCL”) from the use of certain continuous infusion pain pumps to deliver local anesthetic into the intra-articular joint space following shoulder surgeries.  In each case, Hospira and/or Abbott is alleged, singularly or with other anesthetic medication defendants, to have provided the medication delivered by continuous infusion pain pumps manufactured by other (non-Hospira/non-Abbott) defendants.  The analgesic medications at issue include MarcaineTM (bupivacaine) and lidocaine.  As of March 31, 2010, there are a total of 100 cases, involving 142 plaintiffs, in which Hospira is a party. 53 cases are pending in federal court and 47 cases are pending in state court.  One case is being pursued as a class action lawsuit. Pursuant to its separation agreement with Abbott, Hospira is defending those lawsuits which relate to sales of products prior to Hospira’s spin-off from Abbott.  Hospira denies all material allegations asserted against it in the complaint.  Generally, plaintiffs seek compensatory damages and, in some cases, punitive damages and costs.

On September 4, 2009, Hospira brought suit against Sandoz International GmbH and Sandoz, Inc. for patent infringement.  The lawsuit, which alleges infringement of U.S. Patents 4,910,214 (expires July 15, 2013) and 6,716,867 (expires March 31, 2019), is pending in the U.S. District Court for the District of New Jersey: Hospira, Inc. and Orion Corp. v. Sandoz International GmbH and Sandoz, Inc. (D. N.J. 2009).  The lawsuit is based on Sandoz’s “Paragraph IV” notice indicating that Sandoz had filed an abbreviated new drug application (“ANDA”) with the FDA for a generic version of Hospira’s PrecedexTM (dexmedetomidine hydrochloride). Hospira seeks a judgment of infringement, injunctive relief and costs.

Hospira is subject to certain regulatory matters. Regulatory matters may lead to voluntary or involuntary product recalls, injunctions to halt manufacture and distribution of products, monetary sanctions and other restrictions on operations.

Hospira’s litigation exposures, including product liability claims and regulatory matters, are evaluated each reporting period. Hospira’s reserves, which are not significant at March 31, 2010 and December 31, 2009, are the best estimate of loss. Based upon information that is currently available, management believes that the likelihood of a material loss in excess of recorded amounts is remote.

Additional legal proceedings may occur that may result in a change in the estimated reserves recorded by Hospira. It is not feasible to predict the outcome of such proceedings with certainty and there can be no assurance that their ultimate disposition will not have a material adverse effect on Hospira’s financial position, cash flows, or results of operations.

Note 16 — Shareholders’ Equity

Common Stock

Hospira is authorized to issue 400.0 million shares of common stock, par value $0.01 per share, and 50.0 million shares of preferred stock, par value $0.01 per share. As of March 31, 2010 and December 31, 2009, 173.3 million and 171.1 million common shares were issued and 165.6 million and 163.5 million common shares were outstanding, respectively.

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Treasury Stock

In February 2006, Hospira’s board of directors authorized the repurchase of up to $400 million of Hospira’s common stock. Hospira has repurchased 7.6 million shares for $299.8 million in the aggregate under the 2006 board authorization, all of which were purchased during 2006. Hospira is considering repurchasing all or some of the remaining authorized amount of $100.2 million in 2010.

Note 17 — Comprehensive Income and Accumulated Other Comprehensive Loss, net of tax

Comprehensive income, net of taxes, for the three months ended March 31, consists of the following:

Accumulated other comprehensive loss, net of taxes, consists of the following:

Note 18 — Segment Information

Hospira conducts operations worldwide and is managed in three reportable segments: Americas, EMEA and APAC. The Americas segment includes the U.S., Canada and Latin America; the EMEA segment includes Europe, the Middle East and Africa; and the APAC segment includes Asia, Japan and Australia. Hospira has five operating segments: U.S., Canada, Latin America, EMEA and APAC. Hospira has aggregated U.S., Canada, and Latin America within the America’s reportable segment. In all segments, Hospira sells a broad line of products, including specialty injectable pharmaceuticals, other pharmaceuticals, medication management systems and other devices. Specialty Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables. Other Pharmaceuticals include large volume intravenous solutions, nutritionals and contract manufacturing services. Medication Management Systems include infusion pumps, related software, services and administration sets. Other Devices include gravity administration sets, critical care products (through August 2009) and other device products.

Hospira’s underlying accounting records are maintained on a legal-entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. For internal management reporting, intersegment transfers of inventory are recorded at standard cost and are not a measure of segment income from operations. The costs of certain corporate functions, stock-based compensation, interest expense, and other income, net that benefit the entire organization are not allocated. The following segment information has been prepared in accordance with the internal accounting policies of Hospira, as described above.

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Reportable segment information:

The table below presents information about Hospira’s reportable segments for the three months ended March 31: