Eli Lilly 2003 Annual Report Download - page 20

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FINANCIALS
18
Our current noncancelable contractual obligations that will require future cash payments are as follows (in mil-
lions):
Payments Due by Period
Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years
Long-term debt, including interest payments (1) . . . . $11,759.9 $ 367.6 $1,417.1 $ 894.8 $9,080.4
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . 174.7 26.3 39.8 28.8 79.8
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339.5 82.5 122.6 90.2 44.2
Purchase obligations (2) . . . . . . . . . . . . . . . . . . . . . . . . . 2,528.2 2,243.3 142.3 106.8 35.8
Other long-term liabilities refl ected on our
balance sheet under GAAP (3) . . . . . . . . . . . . . . . . . 458.2 — 81.6 81.6 295.0
Other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210.7 190.7 12.5 7.5 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,471.2 $2,910.4 $1,815.9 $1,209.7 $9,535.2
(1) Our long-term debt obligations include both our expected principal and interest obligations. The rate in effect
at December 31, 2003, was used to compute the amount of the contractual obligation for the variable rate debt
instruments.
(2) We have included the following:
• Purchase obligations, consisting primarily of all open purchase orders at our signifi cant operating locations
as of December 31, 2003. Some of these purchase orders may be cancelable; however, for purposes of this
disclosure, we have not distinguished between cancelable and noncancelable purchase obligations.
• Contractual payment obligations with each of our signifi cant vendors, which are noncancelable and are not
contingent.
(3) We have included our long-term liabilities consisting primarily of our minimum pension funding requirements,
nonqualifi ed supplemental pension funding requirements, and deferred compensation liabilities.
(4) This category comprises primarily cash to be used in the AME acquisition and loan funding requirements to our
collaboration partners. The acquisition of AME requires us to pay 20 percent of the purchase price as cash. The
amount included in the other category represents an estimate of the purchase price that will be paid in cash.
See Note 3 to the consolidated fi nancial statements for additional information regarding the acquisition of AME.
The contractual obligations table above is current as of December 31, 2003. The amount of these obligations
can be expected to change materially over time as new contracts are initiated and existing contracts are terminated
or modifi ed.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
In preparing our fi nancial statements in accordance
with generally accepted accounting principles (GAAP),
we must often make estimates and assumptions that
affect the reported amounts of assets, liabilities,
revenues, expenses, and related disclosures. Some of
those judgments can be subjective and complex, and
consequently actual results could differ from those
estimates. For any given individual estimate or as-
sumption we make, there may also be other estimates
or assumptions that are reasonable; however, we
believe that, given current facts and circumstances,
it is unlikely that applying any such other reasonable
judgment would cause a material adverse effect on our
consolidated results of operations, fi nancial position, or
liquidity for the periods presented in this report.
Our most critical accounting policies are described
below. We have discussed the nature and the inherent
judgment used in the application of our critical account-
ing policies with our audit committee.
Sales Rebate and Discount Accruals
Sales rebate and discount accruals are established in the
same period as the related sales. The rebate/discount
amounts are recorded as a deduction to arrive at our net
sales and are included in other current liabilities. Sales
rebates/discounts that require the use of judgment in the
establishment of the accrual include Medicaid, man-
aged care, long-term-care, hospital, and various other
government programs. We base these accruals primar-
ily upon our historical rebate/discount payments made
to our customer segment groups. We calculate these
rebates/discounts based upon a percent of our sales for
each of our products as defi ned by the statutory rates