Eli Lilly 2003 Annual Report Download - page 34

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FINANCIALS
32
trials. As of December 31, 2003, approximately $2.5 million remained related to the original $38.9 million charge.
The remaining cash payments associated with the Affi nitak trials are expected to be made through mid-2004. The
stock and loan impairments and other special charges incurred in the fi rst quarter related to this relationship
totaled $186.8 million and have been included in the asset impairments, restructuring, and other special charges
category in our consolidated statement of income.
As a result of a strategic review of our global manufacturing operations, we recognized asset impairment and
other site charges totaling $121.4 million in the third quarter of 2001. The charges principally consist of impair-
ments of facilities and equipment that were substantially disposed of in 2002, termination of third-party manu-
facturing arrangements, and a plant closure in Taiwan. The impairment charges were necessary to adjust the
carrying value of certain manufacturing assets to fair value. The fair value of the assets was estimated based upon
anticipated future cash fl ows, discounted at a rate commensurate with the risk involved. Approximately $18 million
of this charge was for severance-related costs, which were fully expended during 2002.
Note 5: Financial Instruments and Investments
Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-
bearing investments. Wholesale distributors of life-sciences products and managed care organizations account
for a substantial portion of trade receivables; collateral is generally not required. The risk associated with this
concentration is mitigated by our ongoing credit review procedures. We place substantially all our interest-bearing
investments with major fi nancial institutions, in U.S. government securities, or with top-rated corporate issuers.
In accordance with documented corporate policies, we limit the amount of credit exposure to any one fi nancial
institution. We are exposed to credit-related losses in the event of nonperformance by counterparties to fi nancial
instruments but do not expect any counterparties to fail to meet their obligations given their high credit ratings.
Fair Value of Financial Instruments
A summary of our outstanding fi nancial instruments and other investments at December 31 follows:
2003 2002
Carrying Amount Fair Value Carrying Amount Fair Value
Short-term investments
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 957.0 $ 957.0 $ 1,708.8 $ 1,708.8
Noncurrent investments
Marketable equity . . . . . . . . . . . . . . . . . . . . . . . . . $ 105.5 $ 105.5 $ 85.9 $ 85.9
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,173.1 3,173.1 2,458.6 2,458.6
Equity method and other investments . . . . . . . . 96.0 N/A 605.9 N/A
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,374.6 $ 3,150.4
Long-term debt, including current portion. . . . . . . $4,867.5 $5,107.8 $4,643.6 $4,886.7
We determine fair values based on quoted market values where available or discounted cash fl ow analyses
(principally long-term debt). The fair value of equity method investments is not readily available and disclosure
is not required. The fair value and carrying amount of risk-management instruments in the aggregate were not
material at December 31, 2003 and 2002. Approximately $3.6 billion of our investments in debt securities mature
within fi ve years.
A summary of the unrealized gains and losses (pretax) of our available-for-sale securities in other compre-
hensive income at December 31 follows:
2003 2002
Unrealized gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72.3 $77.4
Unrealized gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6 87.7