Eli Lilly 2004 Annual Report Download - page 40

FINANCIALS
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Note 6: Borrowings
Long-term debt at December 31 consisted of the following:
2004 2003
4.50 to 7.13 percent notes (due 2012–2036). . . . . . . . . . . . . . . . . . . . . . $1,487.4 $1,487.4
2.90 to 8.38 percent notes (due 2006–2008) . . . . . . . . . . . . . . . . . . . . . 811.4 811.4
Floating rate bonds (due 2007–2037) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,424.7 417.8
Private placement bonds (due 2007–2008). . . . . . . . . . . . . . . . . . . . . . 652.6 810.5
Floating rate capital securities (due 2029) . . . . . . . . . . . . . . . . . . . . . . — 525.0
8.38 percent eurodollar bonds (due 2005) . . . . . . . . . . . . . . . . . . . . . . 150.0 150.0
Resettable coupon capital securities (due 2029) . . . . . . . . . . . . . . . . . — 300.0
6.55 percent ESOP debentures (due 2017) . . . . . . . . . . . . . . . . . . . . . . 93.6 94.6
Other, including capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.8 130.3
SFAS 133 fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.0 140.5
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,858.5 4,867.5
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366.6 179.7
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,491.9 $4,687.8
In August 2004, we issued $1.00 billion of fl oating rate notes due in 2007. The fl oating rate notes pay interest
at the three-month LIBOR rate plus 0.05 percent (2.41 percent at December 31, 2004). We may redeem these notes
in August 2005 for a defi ned redemption price. In March 2003, we issued $300.0 million of 2.9 percent 5-year notes
and $200.0 million of 4.5 percent 15-year notes. In July 2002 and May 2001, we issued $150.0 million and $250.0
million, respectively, of fl oating rate bonds that mature in 2037. The variable interest rate on these bonds is at
LIBOR (2.58 percent at December 31, 2004) and beginning May 15, 2004, adjusts every six months to refl ect our six-
month credit spread. The interest accumulates over the life of the bonds and is payable upon maturity. We have an
option to begin periodic interest payments at any time. At the time of option exercise, we would owe all previously
accrued interest on the bonds. Additionally, in July 2003 and July 2002, respectively, we executed a $330.0 million
and $542.8 million private placement note with a fi nancial institution. Principal and interest are due semiannually
over the fi ve-year terms of each of these notes. In conjunction with these notes, we entered into interest rate swap
agreements with the same fi nancial institution, which converts the fi xed rate into a variable rate of interest at es-
sentially LIBOR over the term of the notes. In March 2002, we issued $500.0 million of 10-year 6.0 percent notes.
The fl oating rate capital securities paid cumulative interest at an annual rate equal to LIBOR plus a predeter-
mined spread, reset quarterly. The rate at December 31, 2003, was 2.37 percent. The resettable coupon capital
securities paid cumulative interest at an annual rate of 7.72 percent. Both the fl oating rate capital securities and
the resettable coupon capital securities were redeemed in 2004. In 2003, we repurchased $257.1 million of fl oating
rate debt securities due in 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 am-
ortizing feature of the ESOP debt, bondholders will receive both interest and principal payments each quarter.
The aggregate amounts of maturities on long-term debt for the next fi ve years are as follows: 2005, $366.6
million; 2006, $720.2 million; 2007, $1.21 billion; 2008, $392.5 million; and 2009, $15.5 million.
At December 31, 2004 and 2003, short-term borrowings included $1.65 billion and $16.8 million, respectively,
of notes payable to banks and commercial paper. At December 31, 2004, unused committed lines of credit totaled
approximately $1.25 billion. Compensating balances and commitment fees are not material, and there are no con-
ditions that are probable of occurring under which the lines may be withdrawn.
We have converted substantially all fi xed rate debt to fl oating rates through the use of interest rate swaps. The
weighted-average effective borrowing rate based on debt obligations and interest rates at December 31, 2004 and
2003, including the effects of interest rate swaps for hedged debt obligations, was 2.7 percent.
In 2004, capitalized interest exceeded cash payments of interest on borrowings, due in large part to certain
debt instruments requiring interest payments only at maturity, as previously noted. In 2003 and 2002, cash pay-
ments of interest on borrowings totaled $44.7 million and $54.6 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 sheet 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.