Eli Lilly 2008 Annual Report Download - page 52

FINANCIALS
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interest rates at LIBOR plus our six-month credit spread, adjusted semiannually (total of 4.10 percent at December 31,
2008). We pay interest monthly on this borrowing program. We expect to refi nance the bonds in 2009 and have clas-
sifi ed 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 because we guarantee them. The principal and interest on the debt are
funded by contributions from us and by dividends received on certain shares held by the ESOP. Because of the
amortizing feature of the ESOP debt, bondholders will receive both interest and principal payments each quarter.
The balance was $81.9 million and $90.6 million at December 31, 2008 and 2007, respectively, and is included in
Other in the table above.
The aggregate amounts of maturities on long-term debt for the next fi ve years are as follows: 2009, $420.4 mil-
lion; 2010, $19.7 million; 2011, $13.1 million; 2012, $510.8 million; and 2013, $11.1 million.
At December 31, 2008 and 2007, short-term borrowings included $5.43 billion and $18.6 million, respectively,
of notes payable to banks and commercial paper. Commercial paper was issued in late 2008 for the acquisition of
ImClone. At December 31, 2008, we have $1.24 billion of unused committed bank credit facilities, $1.20 billion of
which backs our commercial paper program. Additionally, in November 2008, we obtained a one-year short-term
revolving credit facility in the amount of $4.00 billion as back-up, alternative fi nancing. Compensating balances
and commitment fees are not material, and there are no conditions that are probable of occurring under which the
lines may be withdrawn.
We have converted approximately 50 percent of all fi xed-rate debt to fl oating rates through the use of inter-
est rate swaps. The weighted-average effective borrowing rates based on debt obligations and interest rates at
December 31, 2008 and 2007, including the effects of interest rate swaps for hedged debt obligations, were 4.77
percent and 5.47 percent, respectively.
In 2008, 2007, and 2006, cash payments of interest on borrowings totaled $203.1 million, $159.2 million, and
$305.7 million, respectively, net of capitalized interest.
In accordance with the requirements of SFAS 133, the portion of our fi xed-rate debt obligations that is hedged
is refl ected in the consolidated balance sheets as an amount equal to the sum of the debt’s carrying value plus the
fair value adjustment representing changes in fair value of the hedged debt attributable to movements in market
interest rates subsequent to the inception of the hedge.
Note 8: Stock Plans
Stock-based compensation expense in the amount of $255.3 million, $282.0 million, and $359.3 million was rec-
ognized in 2008, 2007, and 2006, respectively, as well as related tax benefi ts of $88.6 million, $96.4 million, and
$115.9 million, respectively. Our stock-based compensation expense consists primarily of performance awards
(PAs), shareholder value awards (SVAs), and stock options. We recognize the stock-based compensation expense
over the requisite service period of the individual grantees, which generally equals the vesting period. We pro-
vide newly issued shares and treasury stock to satisfy stock option exercises and for the issuance of PA and SVA
shares. We classify tax benefi ts resulting from tax deductions in excess of the compensation cost recognized for
exercised stock options as a fi nancing cash fl ow in the consolidated statements of cash fl ows.
At December 31, 2008, additional stock options, PAs, SVAs, or restricted stock grants may be granted under
the 2002 Lilly Stock Plan for not more than 88.0 million shares.
Performance Award Program
Performance awards (PAs) are granted to offi cers and management and are payable in shares of our common stock.
The number of PA shares actually issued, if any, varies depending on the achievement of certain pre-established
earnings-per-share targets over a one-year period. PA shares are accounted for at fair value based upon the closing
stock price on the date of grant and fully vest at the end of the fi scal year of the grant. The fair values of perfor-
mance awards granted in 2008, 2007, and 2006 were $51.22, $54.23, and $56.18, respectively. The number of shares
ultimately issued for the performance award program is dependent upon the earnings achieved during the vest-
ing period. Pursuant to this plan, approximately 2.5 million shares, 2.3 million shares, and 1.7 million shares were
issued in 2008, 2007, and 2006, respectively. Approximately 2.8 million shares are expected to be issued in 2009.
Shareholder Value Award Program
In 2007, we implemented a shareholder value award (SVA) program, which replaced our stock option program.
SVAs are granted to offi cers and management and are payable in shares of common stock at the end of a three-