Eli Lilly 2007 Annual Report Download - page 23

FINANCIALS
21
Consolidated Statements of Comprehensive Income
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions) Year Ended December 31 2007 2006 2005
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,953.0 $2,662.7 $1,979.6
Other comprehensive income (loss)
Foreign currency translation gains (losses) . . . . . . . . . . . . . . . . . . 756.6 542.4 (533.4)
Net unrealized gains (losses) on securities. . . . . . . . . . . . . . . . . . . (11.4) (3.2) 0.3
Minimum pension liability adjustment (Note 12) . . . . . . . . . . . . . . . — (18.8) (87.8)
Defi ned benefi t pension and retiree health benefi t
plans (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 943.8 — —
Effective portion of cash fl ow hedges. . . . . . . . . . . . . . . . . . . . . . . . (0.1) 143.3 (81.7)
Other comprehensive income (loss) before income taxes . . . . . . . . . 1,688.9 663.7 (702.6)
Provision for income taxes related to other comprehensive
income (loss) items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (287.0) (43.1) 63.4
Other comprehensive income (loss) (Note 14) . . . . . . . . . . . . . . . . . . . 1,401.9 620.6 (639.2)
Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,354.9 $3,283.3 $1,340.4
See notes to consolidated fi nancial statements.
portion of these risks through a controlled program of
risk management that includes the use of derivative
fi nancial instruments. The objective of controlling these
risks is to limit the impact on earnings of fl uctuations
in interest and currency exchange rates. All derivative
activities are for purposes other than trading.
Our primary interest rate risk exposure results
from changes in short-term U.S. dollar interest rates.
In an effort to manage interest rate exposures, we
strive to achieve an acceptable balance between fi xed
and fl oating rate debt positions and may enter into
interest rate derivatives to help maintain that balance.
Based on our overall interest rate exposure at Decem-
ber 31, 2007 and 2006, including derivatives and other
interest rate risk-sensitive instruments, a hypothetical
10 percent change in interest rates applied to the fair
value of the instruments as of December 31, 2007 and
2006, respectively, would have no material impact on
earnings, cash fl ows, or fair values of interest rate risk-
sensitive instruments over a one-year period.
Our foreign currency risk exposure results from
fl uctuating currency exchange rates, primarily the U.S.
dollar against the euro and the Japanese yen, and the
British pound against the euro. We face transactional
currency exposures that arise when we enter into
transactions, generally on an intercompany basis, de-
nominated in currencies other than the local currency.
We also face currency exposure that arises from trans-
lating the results of our global operations to the U.S.
dollar at exchange rates that have fl uctuated from the
beginning of the period. We use forward contracts and
purchased options to manage our foreign currency ex-
posures. Our policy outlines the minimum and maximum
hedge coverage of such exposures. Gains and losses on
these derivative positions offset, in part, the impact of
currency fl uctuations on the existing assets, liabilities,
commitments, and anticipated revenues. Consider-
ing our derivative fi nancial instruments outstanding at
December 31, 2007 and 2006, a hypothetical 10 percent
change in exchange rates (primarily against the U.S.
dollar) as of December 31, 2007 and 2006, respectively,
would have no material impact on earnings, cash fl ows,
or fair values of foreign currency rate risk-sensitive
instruments over a one-year period. These calculations
do not refl ect the impact of the exchange gains or losses
on the underlying positions that would be offset, in part,
by the results of the derivative instruments.
Off-Balance Sheet Arrangements and Contractual
Obligations
We have no off-balance sheet arrangements that have
a material current effect or that are reasonably likely to
have a material future effect on our fi nancial condition,
changes in fi nancial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or
capital resources. We acquire and partner assets still in
development and enter into research and development
arrangements with third parties that often require mile-
stone and royalty payments to the third party contingent
upon the occurrence of certain future events linked to
the success of the asset in development. Milestone pay-
ments may be required contingent upon the successful
achievement of an important point in the development
life cycle of the pharmaceutical product (e.g., approval
of the product for marketing by the appropriate regula-
tory agency or upon the achievement of certain sales