Eli Lilly 2004 Annual Report Download - page 39

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FINANCIALS
37
In accordance with documented corporate policies, we limit the amount of credit exposure to any one fi nancial
institution or corporate issuer. We are exposed to credit-related losses in the event of nonperformance by coun-
terparties to fi nancial instruments but do not expect any counterparties to fail to meet their obligations given their
high credit ratings.
Fair Value of Financial Instruments
A summary of our outstanding fi nancial instruments and other investments at December 31 follows:
2004 2003
Carrying Amount Fair Value Carrying Amount Fair Value
Short-term investments
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,099.1 $2,099.1 $ 957.0 $ 957.0
Noncurrent investments
Marketable equity . . . . . . . . . . . . . . . . . . . . . . . . . $ 80.4 $ 80.4 $ 105.5 $ 105.5
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 366.1 366.1 3,173.1 3,173.1
Equity method and other investments . . . . . . . . 114.9 N/A 96.0 N/A
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 561.4 $3,374.6
Long-term debt, including current portion. . . . . . . $4,858.5 $4,868.6 $4,867.5 $4,874.4
We determine fair values based on quoted market values where available or discounted cash fl ow analyses
(principally long-term debt). The fair value of equity method investments is not readily available and disclosure is
not required. The fair value and carrying amount of risk-management instruments in the aggregate were not mate-
rial at December 31, 2004 and 2003. Approximately $2.1 billion of our investments in debt securities mature within
fi ve years.
A summary of the unrealized gains and losses (pretax) of our available-for-sale securities in other compre-
hensive income at December 31 follows:
2004 2003
Unrealized gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43.7 $72.3
Unrealized gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 10.6
The net adjustment to unrealized gains and losses (net of tax) on available-for-sale securities increased (de-
creased) other comprehensive income by ($18.2) million, $45.4 million, and ($45.0) million in 2004, 2003, and 2002,
respectively. Activity related to our available-for-sale investment portfolio was as follows:
2004 2003 2002
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,774.7 $5,303.7 $3,724.2
Realized gross gains on sales . . . . . . . . . . . . . . . . . . . . . . . . . 37.3 72.1 57.0
Realized gross losses on sales . . . . . . . . . . . . . . . . . . . . . . . . 17.6 26.4 35.2
During the years ended December 31, 2004, 2003, and 2002, net losses related to ineffectiveness and net
losses related to the portion of fair value and cash fl ow hedging instruments excluded from the assessment of ef-
fectiveness were not material.
We expect to reclassify an estimated $47.0 million of pretax net losses on cash fl ow hedges of anticipated for-
eign currency transactions and the variability in expected future interest payments on fl oating rate debt from accu-
mulated other comprehensive loss to earnings during 2005. This assumes that short-term interest rates remain
unchanged from the prevailing rates at December 31, 2004.