Eli Lilly 2008 Annual Report Download - page 22

FINANCIALS
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increased 50 percent, driven by increased demand and
the favorable impact of foreign exchange rates.
Our revenues from Actos decreased 46 percent in
the U.S. Sales outside the U.S. increased 30 percent,
driven primarily by increased demand and, to a lesser
extent, the favorable impact of foreign exchange rates.
Worldwide sales of Byetta increased 51 percent
to $650.2 million during 2007. Our revenues increased
51 percent to $330.7 million in 2007.
Animal health product sales in the U.S. increased
18 percent, driven by increased demand, the acquisi-
tion of Ivy Animal Health, and new companion-animal
product launches. Sales outside the U.S. increased
10 percent, driven by the favorable impact of foreign
exchange rates and increased demand.
Gross Margin, Costs, and Expenses
The 2007 gross margin decreased to 77.2 percent
of sales compared with 77.4 percent for 2006. This
decrease was primarily due to the expense resulting
from the amortization of the intangible assets acquired
in the ICOS acquisition, the unfavorable impact of for-
eign exchange rates, and production volumes growing
at a slower rate than sales, offset partially by manufac-
turing expenses growing at a slower rate than sales.
Operating expenses (the aggregate of research and
development and marketing, selling, and administra-
tive expenses) increased 19 percent in 2007. Investment
in research and development increased 11 percent, to
$3.49 billion. In addition to the acquisition of ICOS, this
increase was due to increases in discovery research and
late-stage clinical trial costs. Marketing, selling, and
administrative expenses increased 25 percent in 2007, to
$6.10 billion. This increase was largely due to the impact
of the ICOS acquisition, as well as increased marketing
and selling expenses in support of key products, primar-
ily Cymbalta and the diabetes care products, and the
unfavorable impact of foreign exchange rates.
Acquired IPR&D charges were $745.6 million in
2007 and related to the acquisitions of ICOS, Hypnion,
and Ivy, as well as our licensing arrangements with OSI,
MacroGenics, and Glenmark. We incurred asset impair-
ments, restructuring, and other special charges of
$302.5 million in 2007 as compared to $945.2 million in
2006. See Notes 3, 5 and 14 to the consolidated fi nancial
statements for additional information.
Other—net decreased $115.8 million, to income
of $122.0 million. This line item consists of interest
expense, interest income, the after-tax operating
results
of the Lilly ICOS joint venture, and all other miscella-
neous income and expense items.
• Interest expense for 2007 decreased $9.8 million,
to $228.3 million. This decrease is a result of lower
average debt balances in 2007 compared to 2006.
• Interest income for 2007 decreased $46.6 million, to
$215.3 million, due to lower cash balances in 2007
compared to 2006.
• The Lilly ICOS joint-venture income was $11.0 million
in 2007 as compared to $96.3 million in 2006, due to
the acquisition of ICOS on January 29, 2007.
• Net other miscellaneous income items increased
$6.3 million to $124.0 million.
We incurred tax expense of $923.8 million in
2007, resulting in an effective tax rate of 23.8 percent,
compared with 22.1 percent for 2006. The effective tax
rates for 2007 and 2006 were affected primarily by the
nondeductible ICOS and Hypnion IPR&D charges of
$594.6 million in 2007, and the product liability charges
of $494.9 million in 2006. The tax effect of the product
liability charge was less than our effective tax rate, as
the tax benefi t was calculated based upon existing tax
laws in the countries in which we reasonably expect
to deduct the charge. See Note 12 to the consolidated
fi nancial statements for additional information.
FINANCIAL CONDITION
As of December 31, 2008, cash, cash equivalents, and
short-term investments totaled $5.93 billion compared
with $4.83 billion at December 31, 2007. Cash fl ow from
operations in 2008 of $7.30 billion and net proceeds
from the issuance of debt of $4.41 billion exceeded the
total of the net cash paid for corporate acquisitions of
$6.08 billion, dividends paid of $2.06 billion, purchases
of property and equipment of $947.2 million, and net
purchases of noncurrent investments of $815.1 million.
Capital expenditures of $947.2 million during
2008 were $135.2 million less than in 2007. We
expect 2009 capital expenditures to be approximately
$1.1 billion as we invest in our biotechnology capa-
bilities, continue to upgrade our manufacturing and
research facilities to enhance productivity and qual-
ity systems, and invest in the long-term growth of our
diabetes care products.
0
$500
$1,000
$1,500
$2,000
Capital Expenditure Management Contributes
to Cash Flow
($ millions)
Capital expenditures of $947.2 million during
2008 were $135.2 million less than in 2007.
We expect 2009 capital expenditures to be
approximately $1.1 billion as we invest in our
biotechnology capabilities, continue 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.
04 05 06 07 08
$1,078
$1,298
$947
$1,898
$1,082