Eli Lilly 2008 Annual Report Download

Download and view the complete annual report

Please find the complete 2008 Eli Lilly annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Table of contents

  • Page 1

  • Page 2
    ... Statements Management's Reports Report of Independent Registered Public Accounting Firm Proxy Statement 68 69 73 77 82 82 83 85 86 88 89 111 113 122 123 Notice of 2009 Annual Meeting and Proxy Statement General Information Board of Directors Highlights of the Company's Corporate Governance...

  • Page 3
    ...600 employees from businesses acquired in 2008. 2 3 +21% +11% +11% $311 $344 $378 +10% $459 Sales Grow Across Therapeutic Areas ($ millions, percent growth) Sales in Neurosciences, led by Zyprexa and Cymbalta, increased 7 percent as compared to 2007 and represent 41 percent of our 2008 net sales...

  • Page 4
    ...complete several strategic business development transactions, including the acquisition of ImClone Systems-the largest acquisition in Lilly history. Transformation is not optional. The economic downturn only added to the challenges facing the pharmaceutical industry-including pressure on pricing and...

  • Page 5
    ... development team, and on April 1, 2007, the HumaPen® Luxura HD™, a reusable insulin pen that doses in half-unit increments from 1 to 30 units, was launched in the United States. Pictured with Dr. Lechleiter are Mark Wiley and his daughter, Paige, who are featured on the cover, as well as members...

  • Page 6
    ... Products Evista, Gemzar, Humalog, and Humulin Zyprexa Other 0 trials in 2009-as well as its state-of-the-art manufacturing facility. As part of our ongoing transformation into a leaner, more ï¬,exible organization, we entered a 10-year service agreement with Covance, a global drug development...

  • Page 7
    ... 2008, Lilly Research Laboratories moved 17 new molecules into clinical testing. As of January 31, 2009, we had 60 molecules in the clinic-double the number at the end of 2006-including a record 23 compounds in Phase II and Phase III. Our pipeline focuses on a number of important unmet medical needs...

  • Page 8
    ..."FACE Diabetes" outreach to African-Americans to help them manage this potentially devastating disease. Our company and our employees continue to give back to the communities in which we have a presence. In 2008, this commitment led us to start the record-setting Lilly Global Day of Service-and more...

  • Page 9
    ... the world's talents. He built an international and diverse leadership team and expanded Lilly's global presence. Today, about half of Lilly's sales come from outside the United States. As new business challenges arose, Sidney sought to transform the company to deliver even greater value. The Lilly...

  • Page 10
    PORTFOLIO AND PIPELINE Innovation at Lilly: The Portfolio and the Pipeline Major Marketed Products1 (Dates indicate the year of first global launch) 2005 Byetta® (exenatide) for type 2 diabetes for use in combination with a thiazolidinedione (2007) (in collaboration with Amylin Pharmaceuticals, ...

  • Page 11
    ... with schizophrenia sufficiently stabilized during acute treatment with oral olanzapine (2009) for treatment of type 1 and type 2 diabetes Humalog® Mix 75/25 (1999) Humalog® Mix 50/50 (1999) for first-line treatment of non-small cell lung cancer for pancreatic cancer (1996) for bladder cancer...

  • Page 12
    ...being medically managed for Alzheimer's disease (gamma secretase inhibitor) for type 1 diabetes (in collaboration with Macrogenics Inc.) Duloxetine Enzastaurin Exenatide IMC-1121B Prasugrel Semagacestat Teplizumab Select Drug Candidates in Mid-Stage Investigation BAFF Antibody Basal Insulin Analog...

  • Page 13
    ... renal disease and solid tumors for solid tumors Information is current as of February 17, 2009. The search for new drugs is risky and uncertain, and there are no guarantees. Remaining scientific and regulatory hurdles may cause pipeline compounds to be delayed or even to fail to reach the market...

  • Page 14
    ... primarily associated with the sale of our Greenfield, Indiana site, the termination of the AIR® Insulin program, and strategic exit activities related to manufacturing operations. • We recorded charges of $1.48 billion (pretax) related to the federal and state Zyprexa investigations led by the...

  • Page 15
    ... of the evolving commercial and clinical potential of the product compared to existing medical therapies. FI N A N C I A L S Business Development • We acquired all of the outstanding shares of ImClone for a total purchase price of approximately $6.5 billion. This strategic combination will offer...

  • Page 16
    ... the medication. Approximately 120 claims remain. In the third quarter of 2008, we initiated a strategic review of our Tippecanoe manufacturing facility in Lafayette, Indiana. Options being considered for this site include continuing operations with a revised site mission, exploring opportunities to...

  • Page 17
    ... of Lilly ICOS LLC (North America, excluding Puerto Rico, and Europe). Our share of the joint-venture territory sales for January 2007, net of expenses and income taxes, is reported in other-net in our consolidated statements of operations. Subsequent to the acquisition, all Cialis product sales are...

  • Page 18
    ... Statements of Operations ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions, except per-share data) Year Ended December 31 2008 2007 2006 Net sales ...Cost of sales ...Research and development ...Marketing, selling, and administrative ...Acquired in-process research and development...

  • Page 19
    ... injectable product for the treatment of type 2 diabetes that we market with Amylin, increased 16 percent to $751.4 million during 2008. We report as revenue our 50 percent share of Byetta's gross margin in the U.S., 100 percent of Byetta sales outside the U.S., and our sales of Byetta pen delivery...

  • Page 20
    ...$3,487 18.7% Research and Development Investment Increasing ($ millions, percent of net sales) deductible, and only a portion of the Zyprexa investigation settlements was deductible. In addition, we recorded tax expense associated with the ImClone acquisition, as well as a discrete income tax bene...

  • Page 21
    ... of Lilly ICOS LLC (North America, excluding Puerto Rico, and Europe). Our share of the joint-venture territory sales, net of expenses and income taxes, is reported in other-net in our consolidated statements of operations. Subsequent to the acquisition, all Cialis product sales are reported in...

  • Page 22
    ... to upgrade our manufacturing and research facilities to enhance productivity and quality systems, and invest in the long-term growth of our diabetes care products. Capital Expenditure Management Contributes to Cash Flow ($ millions) Capital expenditures of $947.2 million during 2008 were $135...

  • Page 23
    ... and Equipment, net ...Liabilities and Shareholders' Equity Current Liabilities Short-term borrowings and current maturities of long-term debt (Note 7)...Accounts payable ...Employee compensation ...Sales rebates and discounts...Dividends payable ...Income taxes payable (Note 12) ...Other current...

  • Page 24
    ... ...Stock-based compensation expense ...Acquired in-process research and development, net of tax ...Other, net ...Changes in operating assets and liabilities, net of acquisitions Receivables-(increase) decrease ...Inventories-(increase) decrease...Other assets-(increase) decrease ...Accounts payable...

  • Page 25
    ... be sufficient to fund our normal operating needs, including debt service, capital expenditures, costs associated with litigation and government investigations, and dividends in 2009. We believe that amounts accessible through existing commercial paper markets should be adequate to fund short-term...

  • Page 26
    Net income, ROA, and ROE were affected by strategic decisions to acquire ImClone ($4.73 billion) and in-license molecules and technologies, as described in Note 3, settlement of federal and state investigations related to Zyprexa ($1.48 billion), as well as asset impairments, restructuring, and ...

  • Page 27
    ...periods presented in this report. Our most critical accounting policies have been discussed with our audit committee and are described below. Revenue Recognition and Sales Return, Rebate, and Discount Accruals We recognize revenue from sales of products at the time title of goods passes to the buyer...

  • Page 28
    ...-care, hospital, patient assistance programs, and various other government programs. We base these accruals primarily upon our historical rebate and discount payments made to our customer segment groups and the provisions of current rebate and discount contracts. The largest of our sales rebate and...

  • Page 29
    .... If the 2008 discount rate for the U.S. defined benefit pension and retiree health benefit plans (U.S. plans) were to be changed by a quarter percentage point, income before income taxes would change by approximately $26 million. If the 2008 expected return on plan assets for U.S. plans were to...

  • Page 30
    ... growth of our currently marketed products; developments with competitive products; the timing and scope of regulatory approvals and the success of our new product launches; asset impairments, restructurings, and acquisitions of compounds under development resulting in acquired in-process research...

  • Page 31
    ... District of Indiana. The lawsuit against Teva is currently scheduled for trial beginning March 9, 2009, while no trial date has been set in the lawsuit against Barr. In April 2008, the FDA granted Teva tentative approval of its ANDA, but Teva's ability to market a generic product is subject...

  • Page 32
    ... we recorded for this matter in the third quarter of $1.42 billion will be sufficient to cover these payments. Also, as part of the settlement, we have entered into a corporate integrity agreement with the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS...

  • Page 33
    ... from the attorneys general of a number of states under various state consumer protection laws. Most of these requests became part of a multistate investigative effort coordinated by an executive committee of attorneys general. In October 2008, we reached a settlement with 32 states and the District...

  • Page 34
    ... of Pennsylvania state employees, who were prescribed Zyprexa on similar grounds as described in the New York cases. As with the product liability suits, these lawsuits allege that we inadequately tested for and warned about side effects of Zyprexa and improperly promoted the drug. The Pennsylvania...

  • Page 35
    ...718.4 $ 9,659.6 Net sales are attributed to the countries based on the location of the customer. The largest category of products is the neurosciences group, which includes Zyprexa, Cymbalta, Strattera, and Prozac. Endocrinology products consist primarily of Humalog, Humulin, Byetta, Actos, Evista...

  • Page 36
    ... stock exchanges. 1 We incurred tax expense of $764.3 million in 2008, despite having a loss before income taxes of $1.31 billion. Our net loss was driven by the $4.69 billion acquired IPR&D charge for ImClone in the fourth quarter and the $1.48 billion Zyprexa investigation settlements recorded...

  • Page 37
    ... Zyprexa investigation settlements was deductible. In addition, we recorded tax expense associated with the ImClone acquisition, as well as a discrete income tax benefit of $210.3 million for the resolution of the IRS audit. 4 The increase reï¬,ects the in-process research and development expense...

  • Page 38
    ...AND COMPANY AND SUBSIDIARIES (Dollars in millions, except per-share data) Note 1: Summary of Significant Accounting Policies Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with accounting practices generally accepted in the United States...

  • Page 39
    ... in cost of sales. See Note 3 for further discussion of goodwill and other intangibles acquired in 2008 and 2007. Goodwill and other intangible assets at December 31 were as follows: 2008 2007 FI N A N C I A L S Goodwill ...Developed product technology-gross ...Less accumulated amortization...

  • Page 40
    ...returns, discounts, and rebates are established in the same period the related sales are recorded. We also generate income as a result of collaboration agreements. Revenue from co-promotion services is based upon net sales reported by our co-promotion partners and, if applicable, the number of sales...

  • Page 41
    ...the fair value of stock-based compensation as expense over the requisite service period of the individual grantees, which generally equals the vesting period. Under our policy all stockbased awards are approved prior to the date of grant. The Compensation Committee of the Board of Directors approves...

  • Page 42
    ...purchase price over the fair value of the acquired net assets, where applicable, has been recorded as goodwill. The results of operations of these acquisitions are included in our consolidated financial statements from the date of acquisition. Most of these acquisitions included in-process research...

  • Page 43
    ...to income immediately upon acquisition because the products had no alternative future use. ImClone Acquisition On November 24, 2008, we acquired all of the outstanding shares of ImClone Systems Inc. (ImClone), a biopharmaceutical company focused on advancing oncology care, for a total purchase price...

  • Page 44
    ...). The acquisition of Posilac provides us with a product that complements those of our animal health business. Under the terms of the agreement, we acquired the rights to the Posilac brand, as well as the product's U.S. sales force and manufacturing facility, for an aggregate purchase price of...

  • Page 45
    ...), our partner in the Lilly ICOS LLC joint venture for the manufacture and sale of Cialis for the treatment of erectile dysfunction. The acquisition brought the full value of Cialis to us and enabled us to realize operational efficiencies in the further development, marketing, and selling of this...

  • Page 46
    ... We often enter into collaborative arrangements to develop and commercialize drug candidates. Collaborative activities might include research and development, marketing and selling (including promotional activities and physician detailing), manufacturing, and distribution. These collaborations often...

  • Page 47
    ... are reported in net sales. Merck KGaA A development and license agreement between ImClone and Merck KGaA (Merck) with respect to Erbitux granted Merck exclusive rights to market Erbitux outside of North America and co-exclusive rights with BMS in Japan. Merck also has rights to manufacture Erbitux...

  • Page 48
    ... receives a payment based upon net sales. According to the current agreement, Quintiles' obligation to promote Cymbalta expires in 2009, and we will pay a lower rate on net sales for three years post their promotion efforts. The royalties paid to Quintiles are recorded in marketing, selling, and...

  • Page 49
    ... at December 31, 2007. In the fourth quarter of 2006, management approved plans to close two research and development facilities and one production facility outside the U.S. Management also made the decision to stop construction of a planned insulin manufacturing plant in the U.S. in an effort to...

  • Page 50
    ... for assets and liabilities measured at fair value on a recurring basis, as well as the carrying amount of certain other investments: 2008 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) 2007 FI N A N C I A L S Description Carrying Amount Significant...

  • Page 51
    ... December 31, 2008 were determined using Level 3 inputs. We do not hold securities issued by structured investment vehicles at December 31, 2008. The net adjustment to unrealized gains and losses (net of tax) on available-for-sale securities increased (decreased) other comprehensive income by $(125...

  • Page 52
    ... 2008). We pay interest monthly on this borrowing program. We expect to refinance the bonds in 2009 and have classified them as current at December 31, 2008. The 6.55 percent Employee Stock Ownership Plan (ESOP) debentures are obligations of the ESOP but are shown on the consolidated balance sheet...

  • Page 53
    ... weighted-average remaining requisite service period of 21.6 months. Stock Option Program Stock options were granted in 2006 to officers and management at exercise prices equal to the fair market value of our stock price at the date of grant. No stock options were granted in 2008 or 2007. Options...

  • Page 54
    ... the long-term portion of our estimated product return liabilities, product litigation, and a variety of other items. The increase in other noncurrent liabilities is primarily due to an increase in deferred income attributable to our 2008 acquisitions and other business development arrangements. 52

  • Page 55
    ... of stock under employee stock plans-net ...Stock-based compensation ...ESOP transactions...Balance at December 31, 2006 ...Net income ...Cash dividends declared per share: $1.75 ...Retirement of treasury shares ...Issuance of stock under employee stock plans-net ...Stock-based compensation ...ESOP...

  • Page 56
    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. Note 11: Earnings (Loss) ...

  • Page 57
    ...31 are as follows: 2008 2007 Deferred tax assets Compensation and benefits ...Tax credit carryforwards and carrybacks ...Intercompany profit in inventories ...Tax loss carryforwards and carrybacks ...Contingencies ...Asset purchases ...Debt...Sale of intangibles...Product return reserves ...Other...

  • Page 58
    ...2008 2007 2006 Income tax (benefit) at the U.S. federal statutory tax rate ...Add (deduct) Acquisitions and non-deductible acquired in-process research and development ...International operations, including Puerto Rico ...Government investigation charges ...IRS audit conclusion ...General business...

  • Page 59
    ... balance sheets at December 31 for our defined benefit pension and retiree health benefit plans, which were as follows: Defined Benefi t Pension Plans 2008 2007 Retiree Health Benefi t Plans 2008 2007 Change in benefit obligation Benefit obligation at beginning of year ...Service...

  • Page 60
    .... The following benefit payments, which reï¬,ect expected future service, as appropriate, are expected to be paid as follows: 2009 2010 2011 2012 2013 2014-2018 Defined benefit pension plans ...Retiree health benefit plans-gross ...Medicare rebates ...Retiree health benefit plans-net ... $360...

  • Page 61
    ...out in the HatchWaxman Act (the Drug Price Competition and Patent Term Restoration Act of 1984): • Cymbalta: Sixteen generic drug manufacturers have submitted Abbreviated New Drug Applications (ANDAs) seeking permission to market generic versions of Cymbalta prior to the expiration of our relevant...

  • Page 62
    ...Southern District of Indiana. The lawsuit against Teva is currently scheduled for trial beginning March 9, 2009, while no trial date has been set in the lawsuit against Barr. In April 2008, the FDA granted Teva tentative approval of its ANDA, but Teva's ability to market a generic product is subject...

  • Page 63
    ... we recorded for this matter in the third quarter of $1.42 billion will be sufficient to cover these payments. Also, as part of the settlement, we have entered into a corporate integrity agreement with the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS...

  • Page 64
    ... and report on the company's systems, processes, policies, procedures and practices. In June 2005, we received a subpoena from the Office of the Attorney General, Medicaid Fraud Control Unit, of the State of Florida, seeking production of documents relating to sales of Zyprexa and our marketing and...

  • Page 65
    ... of Pennsylvania state employees, who were prescribed Zyprexa on similar grounds as described in the New York cases. As with the product liability suits, these lawsuits allege that we inadequately tested for and warned about side effects of Zyprexa and improperly promoted the drug. The Pennsylvania...

  • Page 66
    ... above are net of income taxes. The income taxes associated with the unrecognized net actuarial losses and prior service costs on our defined benefit pension and retiree health benefit plans (Note 13) were a benefit of $1.02 billion for 2008. The income taxes related to the other components...

  • Page 67
    ... system of internal controls, and our people, who are objective in their responsibilities and operate under a code of conduct and the highest level of ethical standards. Management's Report on Internal Control Over Financial Reporting-Eli Lilly and Company and Subsidiaries Management of Eli Lilly...

  • Page 68
    ...Independent Registered Public Accounting Firm Board of Directors and Shareholders Eli Lilly and Company We have audited the accompanying consolidated balance sheets of Eli Lilly and Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, cash...

  • Page 69
    ... of the Public Company Accounting Oversight Board (United States), the 2008 consolidated financial statements of Eli Lilly and Company and subsidiaries and our report dated February 16, 2009, expressed an unqualified opinion thereon. FI N A N C I A L S Indianapolis, Indiana February 16, 2009 67

  • Page 70
    ...2009: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2008.pdf Notice of Annual Meeting of Shareholders April 20, 2009 The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis...

  • Page 71
    General Information Why did I receive this proxy statement? The board of directors of Eli Lilly and Company is soliciting proxies to be voted at the annual meeting of shareholders (the annual meeting) to be held on Monday, April 20, 2009, and at any adjournment of the annual meeting. When the ...

  • Page 72
    ...5112. Please make sure you give us the control number from the e-mail message that you received notifying you of the electronic availability of these materials, along with your name and mailing address. By telephone. Shareholders in the United States, Puerto Rico, and Canada may vote by telephone by...

  • Page 73
    ...-433-5112. How do I contact the board of directors? You may send written communications to one or more members of the board, addressed to: Presiding Director, Board of Directors Eli Lilly and Company c/o Corporate Secretary Lilly Corporate Center Indianapolis, Indiana 46285 All such communications...

  • Page 74
    ...wish to receive a separate copy of the 2008 annual report and 2009 proxy statement, or if you wish to receive separate copies of future annual reports and proxy statements, please call 1-800-542-1061 or write to: Householding Department, 51 Mercedes Way, Edgewood, New York 11717. We will deliver the...

  • Page 75
    ...vice president and general manager of DuPont's Nutrition and Health business. In 1999, Mr. Fyrwald was vice president for corporate strategic planning and business development. At DuPont, Mr. Fyrwald held a broad variety of assignments in a number of divisions covering many industries. He has worked...

  • Page 76
    ... Council to the Comptroller General of the United States and is chairman of the Department of Defense Audit Advisory Committee. He was a member of the National Association of Corporate Directors Blue Ribbon Panel on Corporate Governance and was named the 62nd member of the Accounting Hall of Fame in...

  • Page 77
    ... operations in Germany and with UPS Airlines. In 1993, Mr. Eskew was named corporate vice president for industrial engineering. Two years later he became group vice president for engineering. In 1998, he was elected to the UPS board of directors. In 1999, Mr. Eskew was named executive vice president...

  • Page 78
    ... corporate development in 2001. He was named executive vice president of pharmaceutical operations in 2004. He is a member of the American Chemical Society. Dr. Lechleiter serves as a member of the executive committee of the board of directors of Pharmaceutical Research and Manufacturers of America...

  • Page 79
    ... direct compensation from Lilly other than for service as a nonexecutive employee. • a director who is employed (or whose immediate family member is employed as an executive officer) by another company where any Lilly executive officer serves on the compensation committee of that company's board...

  • Page 80
    ...gross revenues in a single fiscal year. Members of the audit, compensation, and directors and corporate governance committees must meet all applicable independence tests of the New York Stock Exchange, Securities and Exchange Commission, and Internal Revenue Service. In February 2009, the directors...

  • Page 81
    ...set out in: • The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our board of directors • the company's Code of Ethical Conduct for Lilly Financial Management, a supplemental code for our chief executive PROX Y S TATE M E NT 79

  • Page 82
    ... company's corporate secretary. The audit committee and public policy and compliance committee assist in the board's oversight of compliance programs with respect to matters covered in the code of ethics. V. Functioning of the Board Executive Session of Directors The independent directors meet alone...

  • Page 83
    ..., the audit and compensation committees meet alone in executive session on a regular basis; all other committees meet in executive session as needed. All six committee charters are available online at http://investor.lilly.com/governance.cfm or in paper form upon request to the company's corporate...

  • Page 84
    ...Taurel 4 Number of 2008 Meetings 1 2 Board Member Member Member Member Member Member Member Presiding Director Chair Member Member Member Member 9 Audit Compensation Finance Member Chair Member Science and Technology Mr. Alvarez's term begins April 1, 2009. Mr. Fisher retired from the board as...

  • Page 85
    ... are "reinvested" in additional shares based on the market price of the stock on the date dividends are paid. All shares in the deferred share accounts are hypothetical and are not issued or transferred until the director ends his or her service on the board. • Deferred Compensation Account. Funds...

  • Page 86
    ... board, as further described above under "Lilly Directors' Deferral Plan." The table shows the expense recognized by the company for each director's stock award. 3 This column includes amounts donated by the Eli Lilly and Company Foundation, Inc. under its matching gift program, which is generally...

  • Page 87
    ..., director compensation, and board performance. The committee's charter is available online at http://investor.lilly.com/governance.cfm or in paper form upon request to the company's corporate secretary. All committee members are independent as defined in the New York Stock Exchange listing...

  • Page 88
    ... to the directors and corporate governance committee, which receives direct input from other board members. Potential candidates are identified by recommendations from several sources, including: • incumbent directors • management • shareholders • an independent executive search firm...

  • Page 89
    ... financial statements be included in the company's annual report on Form 10-K for the year ended December 31, 2008, for filing with the Securities and Exchange Commission. We have also appointed the company's independent auditor, subject to shareholder ratification, for 2009. Audit Committee...

  • Page 90
    ... and permission of the committee chairperson. • Role of Executive Officers and Management. With the oversight of the CEO and the senior vice president of human resources, the company's global compensation group formulates recommendations on matters of compensation philosophy, plan design, and the...

  • Page 91
    ...core values of excellence, integrity, and respect for people. Our compensation and benefit programs are based on these objectives: • Compensation should reï¬,ect individual and company performance. We link all employees' pay Executive Compensation to individual and company performance. Philosophy...

  • Page 92
    ...at Lilly. Our employee benefit programs provide a competitive advantage by helping us attract and retain highly talented employees who are looking for the opportunity to build careers. • Compensation should be efficient. To deliver superior long-term shareholder returns, we must deliver value to...

  • Page 93
    ... market goals, and the security of foundational benefits in a way that furthers the compensation objectives discussed above. • Pay ranges and mix of pay elements. The company generally maintained the same pay ranges and mix of pay elements as in 2007. The committee believes this overall program...

  • Page 94
    ...company's annual cash bonus programs align employees' goals with the company's sales and earnings growth objectives for the current year. Cash incentive bonuses for all management employees worldwide, as well as most nonmanagement employees in the U.S., are determined under the Eli Lilly and Company...

  • Page 95
    ... page 96 for a reconciliation of 2008 reported and pro forma sales and adjusted EPS. Equity Incentives-Total Equity Program In 2008, we employed two forms of equity incentives granted under the 2002 Lilly Stock Plan: performance awards and shareholder value awards. These incentives ensure that our...

  • Page 96
    ... the company's compensation objectives, individuals at ™EZg[dgbVcXZbZig^Xhd[ higher levels received a greater proportion of total pay in the form of equity. The committee \gdli]^cVY_jhiZY:EHVcY determined that a 50/50 split for executives between performance awards and shareholder value...

  • Page 97
    ...time benefit to income resulting from settlement of a tax audit and (ii) special charges related to the resolution of government investigations of prior sales and marketing practices of the company. In addition, to eliminate the distorting effect of the acquisition of ICOS Corporation (completed in...

  • Page 98
    ... growth percentages for the compensation programs. % Growth 2008 vs. 2007 9.4% % Growth 2007 vs. 2006 18.8% 2008 Sales as reported ($ millions) Pro forma ICOS adjustment Pro forma ImClone adjustment Sales-pro forma adjusted EPS as reported Eliminate net impact associated with ImClone acquisition...

  • Page 99
    ... on work/life balance. The benefits available are the same for all U.S. employees and include medical and dental coverage, disability insurance, and life insurance. In addition, the Lilly 401(k) Plan and the Lilly Retirement Plan provide a reasonable level of retirement income reflecting employees...

  • Page 100
    ... holds shares valued, as of year-end 2008, at seven times his salary. Executive officers are required to retain all shares received from the company equity programs, net of acquisition costs and taxes, for at least one year. In addition, any executive officer who does not meet the stock ownership...

  • Page 101
    ... the deferred compensation plan, the company's management stock plans, and other management incentive, benefit, and perquisite programs. Management has the primary responsibility for the company's financial statements and reporting process, including the disclosure of executive compensation. With...

  • Page 102
    ... expensed. 3 Payments for 2008 performance were made in March 2009 under the Eli Lilly and Company Bonus Plan. 4 The amounts in this column are the change in pension value for each individual. No named executive officer received preferential or above-market earnings on deferred compensation. 5 The...

  • Page 103
    ... Company Bonus Plan, a non-equity incentive plan, and the 2002 Lilly Stock Plan, which provides for performance awards, shareholder value awards, stock options, restricted stock grants, and stock units. All Other Option Awards: Number of Securities Underlying Options 3 Name Mr. Taurel Compensation...

  • Page 104
    ... payouts range from zero to 140 percent of target. The payout for the 2008 shareholder value award will be determined in January 2011. Our performance awards granted in 2008 paid out in January 2009, and the named executive officers received the following shares or restricted share units: Name Mr...

  • Page 105
    ...2/15/2013 2/17/2012 10/4/2011 2/18/2011 10/16/2009 5 5 5 5 Name Mr. Taurel Number of Securities Underlying Unexercised Options (#) 1 Exercisable Number of Securities Underlying Unexercised Options (#) 1 Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units of...

  • Page 106
    ... his retirement after the first year of the threeyear performance period. 4 Shares granted under the company's Shareholder Value Award plan that will vest December 31, 2009. The number of shares reported in the table reï¬,ects the target payout amount, which will be made if the average stock price...

  • Page 107
    ... employees. See the Summary Compensation Table on page 100 for additional information about the value of these pension benefits. Section 415 of the Internal Revenue Code generally places a limit on the amount of annual pension that can be paid from a tax-qualified plan ($185,000 in 2008) as well...

  • Page 108
    ... months early, but did not change the timing or amount of his unreduced benefits (shown in the Pension Benefits in 2008 table on page 105). A grant of additional years of service credit to any employee must be approved by the compensation committee of the board of directors. Upon retirement, Mr...

  • Page 109
    ... Compensation in 2008 table above shows information about two company programs: a nonqualified savings plan and a deferred compensation plan. The nonqualified savings plan is designed to allow each executive to contribute up to six percent of his or her base salary, and receive a company match...

  • Page 110
    ... payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include: • Accrued salary and vacation pay. • Regular pension benefits under the Lilly Retirement Plan and the nonqualified pension plan...

  • Page 111
    ... the executive by more than fifty (50) miles. • Cash severance payment. Represents the CIC Program benefit of two times the 2008 annual base salary plus two times the cash bonus for 2008 under the Eli Lilly and Company Bonus Plan. • Incremental pension benefit. Represents the present value of...

  • Page 112
    ...Revenue Code. The company has agreed to reimburse the affected employees for those excise taxes as well as any income and excise taxes payable by the executive as a result of the reimbursement. The amounts in the table are based on a 280G excise tax rate of 20 percent and a 40 percent federal, state...

  • Page 113
    ... forth the number of shares of company common stock beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group, as of February 3, 2009. The table shows shares held by named executives in the Lilly Employee 401(k) Plan, shares credited...

  • Page 114
    ...,937 (as of 12/31/08) Name and Address Lilly Endowment, Inc. (the "Endowment") 2801 North Meridian Street Indianapolis, Indiana 46208 Capital World Investors 333 South Hope Street Los Angeles, California 90071 Wellington Management Company, LLP 75 State Street Boston, Massachusetts 02109 PRIMECAP...

  • Page 115
    ...and beginning with the 2012 annual meeting, all directors would be elected for one-year terms at each annual meeting. In addition, in the case of any vacancy on the board occurring after the 2009 annual meeting, including a vacancy created by an increase in the number of directors, the vacancy would...

  • Page 116
    ...fied structure believe it provides continuity and stability in the management of the business and affairs of a company because a majority of directors always have prior experience as directors of the company. Proponents also assert that classified boards may enhance shareholder value by forcing...

  • Page 117
    ...: growth in net income or earnings per share; growth in sales; return on assets; return on equity; total shareholder return; economic value added; market value added; or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, changes in corporate capitalization...

  • Page 118
    ... Plan, which permits the company to grant stock options to nonmanagement employees worldwide. The plan is administered by the senior vice president responsible for human resources. The stock options are nonqualified for U.S. tax purposes. The option price cannot be less than the fair market value...

  • Page 119
    ... the value of Lilly stock for all shareholders by protecting against short-term, self-interested actions by one or a few large shareholders who would seek to make fundamental changes to the company without the involvement of the board of directors. The board has a fiduciary duty under the law to...

  • Page 120
    .... Like many other Indiana corporations, Lilly has adopted the default provision under Indiana law, which states that unless the articles of incorporation provide otherwise, the bylaws may be amended only by the directors. The board of directors has fiduciary obligations to the company and all its...

  • Page 121
    ...: RESOLVED, that shareholders of Eli Lilly and Company request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers...

  • Page 122
    ... do I contact the board of directors?" on page 71 for instructions on how shareholders can communicate with the compensation committee or board. In addition, company representatives periodically meet with large shareholders and shareholder representatives to discuss governance issues and executive...

  • Page 123
    ... competitively justifiable and defensible pay levels and programs that reï¬,ect evolving best practices. Enacting this resolution would be a distraction and not helpful to a process that is already working well. We should not adopt advisory voting ahead of proposed U.S. legislation that would apply...

  • Page 124
    ... New York; Solomon v. Eli Lilly and Company, et al., filed March 27, 2008, in Marion County Superior Court in Indianapolis, Indiana; Robbins v. Taurel, et al., filed April 9, 2008, in the United States District Court for the Eastern District of New York; City of Taylor General Employees Retirement...

  • Page 125
    ... a three one-year term expiring at the next annual meeting of shareholders. In the case of any vacancy on the Board of Directors occurring after the 2009 annual meeting of shareholders, including a vacancy created by an increase in the number of directors, the vacancy shall be filled by election of...

  • Page 126
    ... President and General Manager, Lilly Japan Vice President, Global Public Policy; Pricing, Reimbursement, and Access; and International Corporate Affairs Maria Crowe Senior Vice President, Human Resources Anne Nobles. Vice President, Drug Product Manufacturing for the Americas Chief Ethics...

  • Page 127
    ...of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; Director, Mayo Clinic Center for Individualized Medicine; and Director Emeritus, Mayo Clinic Cancer Center Kathi P. Seifert Retired Executive Vice President, Kimberly-Clark Corporation Notes 1 2 Effective January 1, 2009...

  • Page 128
    ...to: Eli Lilly and Company P.O. Box 88665 Indianapolis, Indiana 46208-0665 To access these reports more quickly, you can find all of our SEC filings online at: http://investor.lilly.com/sec.cfm Stock listings Wells Fargo Shareowner Services Mailing address: Shareowner Relations Department P.O. Box...

  • Page 129
    ... Admission Ticket Eli Lilly and Company 2009 Annual Meeting of Shareholders Monday, April 20, 2009 11 a.m. EDT Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285 The top portion of this page will be required for admission to the meeting. Please write your name and address in...

  • Page 130
    ...Detach here Detach here Eli Lilly and Company Annual Meeting of Shareholders April 20, 2009 Complimentary Parking Lilly Corporate Center Please place this identifier on the dashboard of your car as you enter Lilly Corporate Center so it can be clearly seen by security and parking personnel. 128

  • Page 131
    ... Zydis® is a trademark of Cardinal Health. All trademarks listed above are trademarks of Eli Lilly and Company unless otherwise noted. For More Information Lilly corporate responsibility ...www.lilly.com/responsibility/ Lilly clinical trials registry ...www.lillytrials.com Lilly Grant Office...

  • Page 132