Eli Lilly 2005 Annual Report Download - page 43

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FI NA NCI A L S
41
Fair Value of Financial Instruments
A summary of our outstanding financial instruments and other investments at December 31 follows:
2005 2004
Carrying Amount Fair Value Carrying Amount Fair Value
Short-term investments
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,031.0 $2,031.0 $2,099.1 $2,099.1
Noncurrent investments
Marketable equity . . . . . . . . . . . . . . . . . . . . . . . . . $ 118.0 $ 118.0 $ 80.4 $ 80.4
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,076.2 1,076.2 366.1 366.1
Equity method and other investments . . . . . . . . 102.4 N/A 114.9 N/A
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,296.6 $ 561.4
Long-term debt, including current portion . . . . . . . $6,484.8 $6,484.2 $4,858.5 $4,868.6
Risk-management instruments—liabilities . . . . . . . 336.0 336.0 213.4 213.4
We determine fair values based on quoted market values where available or discounted cash flow analyses
(principally long-term debt). The fair value of equity method and other investments is not readily available and dis-
closure is not required. Approximately $2.6 billion of our investments in debt securities mature within five 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:
2005 2004
Unrealized gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52.0 $43.7
Unrealized gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 7.9
The net adjustment to unrealized gains and losses (net of tax) on available-for-sale securities increased (de-
creased) other comprehensive income by ($4.6) million, ($18.2) million, and $45.4 million in 2005, 2004, and 2003,
respectively. Activity related to our available-for-sale investment portfolio was as follows:
2005 2004 2003
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,048.6 $7,774.7 $5,303.7
Realized gross gains on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.6 37.3 72.1
Realized gross losses on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 17.6 26.4
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.1 156.7 143.1
During the years ended December 31, 2005, 2004, and 2003, net losses related to ineffectiveness and net
losses related to the portion of fair value and cash flow hedging instruments excluded from the assessment of ef-
fectiveness were not material.
We expect to reclassify an estimated $4.7 million of pretax net losses on cash flow hedges of anticipated for-
eign currency transactions and the variability in expected future interest payments on floating rate debt from accu-
mulated other comprehensive loss to earnings during 2006. This assumes that short-term interest rates remain
unchanged from the prevailing rates at December 31, 2005.