Eli Lilly 2005 Annual Report Download - page 48

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in 2005, 2004, or 2003.
We have an ESOP as a funding vehicle for the existing employee savings plan. The ESOP used the proceeds of a
loan from us to purchase shares of common stock from the treasury. The ESOP issued $200 million of third-party
debt, repayment of which was guaranteed by us (see Note 6). The proceeds were used to purchase shares of our
common stock on the open market. Shares of common stock held by the ESOP will be allocated to participating
employees annually through 2017 as part of our savings plan contribution. The fair value of shares allocated each
period is recognized as compensation expense.
Under a Shareholder Rights Plan adopted in 1998, all shareholders receive, along with each common share
owned, a preferred stock purchase right entitling them to purchase from the company one one-thousandth of
a share of Series B Junior Participating Preferred Stock (the Preferred Stock) at a price of $325. The rights are
exercisable only after the Distribution Date, which is generally the 10th business day after the date of a public
announcement that a person (the Acquiring Person) has acquired ownership of 15 percent or more of our com-
mon stock. We may redeem the rights for $.005 per right, up to and including the Distribution Date. The rights will
expire on July 28, 2008, unless we redeem them earlier.
The rights plan provides that, if an Acquiring Person acquires 15 percent or more of our outstanding common
stock and our redemption right has expired, generally each holder of a right (other than the Acquiring Person) will
have the right to purchase at the exercise price the number of shares of our common stock that have a value of two
times the exercise price.
Alternatively, if, in a transaction not approved by the board of directors, we are acquired in a business combi-
nation transaction or sell 50 percent or more of our assets or earning power after a Distribution Date, generally
each holder of a right (other than the Acquiring Person) will have the right to purchase at the exercise price the
number of shares of common stock of the acquiring company that have a value of two times the exercise price.
At any time after an Acquiring Person has acquired 15 percent or more but less than 50 percent of our
outstanding common stock, the board of directors may exchange the rights (other than those owned by the
Acquiring Person) for our common stock or Preferred Stock at an exchange ratio of one common share (or one
one-thousandth of a share of Preferred Stock) per right.
Note 10: Earnings Per Share
The following is a reconciliation of the denominators used in computing earnings per share before cumulative ef-
fect of a change in accounting principle:
2005 2004 2003
(Shares in thousands)
Income before cumulative effect of a change in accounting
principle available to common shareholders . . . . . . . . . . . . . . . . . $2,001.6 $1,810.1 $2,560.8
Basic earnings per share
Weighted-average number of common shares outstanding,
including incremental shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088,754 1,083,887 1,076,547
Basic earnings per share before cumulative effect of a
change in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . $1.84 $1.67 $2.38
Diluted earnings per share
Weighted-average number of common shares outstanding . . . . . 1,088,115 1,083,677 1,076,547
Stock options and other incremental shares. . . . . . . . . . . . . . . . . . 4,035 5,259 5,683
Weighted-average number of common shares
outstanding—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,092,150 1,088,936 1,082,230
Diluted earnings per share before cumulative effect of
a change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . $1.83 $1.66 $2.37