Eli Lilly 2005 Annual Report Download - page 44

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Note 6: Borrowings
Long-term debt at December 31 consisted of the following:
2005 2004
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 extendible notes (due 2007) . . . . . . . . . . . . . . . . . . . . . . 1,500.0 —
Floating rate bonds (due 2008-2037). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939.2 1,424.7
Private placement bonds (due 2007-2008) . . . . . . . . . . . . . . . . . . . . . . 460.7 652.6
8.38 percent eurodollar bonds (due 2005) . . . . . . . . . . . . . . . . . . . . . . — 150.0
6.55 percent ESOP debentures (due 2017) . . . . . . . . . . . . . . . . . . . . . . 92.6 93.6
Other, including capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.0 122.8
SFAS 133 fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.5 116.0
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,484.8 4,858.5
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721.3 366.6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,763.5 $4,491.9
In September 2005, Eli Lilly Services, Inc. (ELSI), our indirect wholly-owned finance subsidiary, issued $1.5 bil-
lion of floating rate notes (4.53 percent at December 31, 2005). The notes mature in September 2008 and pay interest
quarterly at LIBOR plus 5 basis points. The notes may be redeemed at our option beginning in September 2006. In
August 2005, ELSI issued $1.5 billion of 13-month floating rate extendible notes. The maturity date of these notes is
January 1, 2007, but holders of the notes may extend the maturity of the notes, in monthly increments, until Septem-
ber 1, 2010. These notes pay interest at essentially a rate equivalent to LIBOR (4.26 percent at December 31, 2005).
The parent company fully and unconditionally guarantees the ELSI notes.
In August 2004, we issued $1.00 billion of floating rate notes due in 2007. We repaid these notes in August 2005. 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 floating rate bonds that mature
in 2037. The variable interest rate on these bonds is at LIBOR plus our six-month credit spread, adjusted semiannually
(total of 4.64 percent at December 31, 2005). 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 financial institution. Principal and interest are due
semiannually over the five-year terms of each of these notes. In conjunction with these notes, we entered into interest
rate swap agreements with the same financial institution, which converts the fixed rate into a variable rate of interest
at essentially LIBOR over the term of the notes.
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 aggregate amounts of maturities on long-term debt for the next five years are as follows: 2006, $721.3 mil-
lion; 2007, $1.71 billion; 2008, $1.89 billion; 2009, $17.7 million; and 2010, $15.9 million.
At December 31, 2005 and 2004, short-term borrowings included $13.4 million and $1.65 billion, respectively,
of notes payable to banks and commercial paper. At December 31, 2005, unused committed lines of credit totaled
approximately $1.23 billion. Compensating balances and commitment fees are not material, and there are no condi-
tions that are probable of occurring under which the lines may be withdrawn.
We have converted substantially all fixed rate debt to floating rates through the use of interest rate swaps. The
weighted-average effective borrowing rate based on debt obligations and interest rates at December 31, 2005 and 2004,
including the effects of interest rate swaps for hedged debt obligations, were 4.75 percent and 2.7 percent, respectively.
In 2005 and 2003, cash payments of interest on borrowings totaled $32.0 million and $44.7 million, respectively,
net of capitalized interest. 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 accordance with the requirements of SFAS 133, the portion of our fixed-rate debt obligations that is hedged is
reflected 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 inter-
est rates subsequent to the inception of the hedge.