Eli Lilly 2006 Annual Report Download

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Eli Lilly and Company
2006 Annual Report, Notice of 2007 Annual Meeting, and Proxy Statement

Table of contents

  • Page 1
    Eli Lilly and Company 2006 Annual Report, Notice of 2007 Annual Meeting, and Proxy Statement

  • Page 2
    ..., Byetta has become the fourth-mostprescribed branded pharmaceutical used to treat type 2 diabetes, measured by new prescriptions, in its first full year on the market. Corporate Information 108 109 110 111 Board of Directors Senior Management Corporate Information Annual Meeting Admission Ticket

  • Page 3
    ... and development ...Research and development as a percent of net sales...Net income ...Earnings per share-diluted ...Reconciling items:1 Product liability charge, primarily related to Zyprexa ...Asset impairments, restructuring and other special charges...Cumulative effect of a change in accounting...

  • Page 4
    ... The science of drug discovery and development, the needs of our customers, and the systems in which health care is delivered and paid for around the world-all are changing in fundamental ways. Eli Lilly and Company is transforming itself to succeed in the emerging business environment of tomorrow...

  • Page 5
    ... insulin business. Our goal is to make Humalog the preferred mealtime insulin brand. While its image among doctors as measured in marketing surveys is moving in the right direction, we believe we can and must do better. Early in 2007, therefore, we increased our sales-force capacity in diabetes care...

  • Page 6
    ...associated in every study with weight loss. You can see one of the thousands of satisfied Byetta patients on the cover of this report. By the end of 2006, after less than 18 months on the market, Byetta already ranked fourth in new prescriptions among all branded products for type 2 diabetes in the...

  • Page 7
    ... started up our biosynthetic insulin plant in Puerto Rico; opened a pilot manufacturing facility for biotech medicines in Indianapolis; and announced plans to build a new biotech plant in Ireland as well as to expand our Indianapolis parenteral-products operations. Finally, Lilly's returns on assets...

  • Page 8
    ... angina associated with stent procedure (1997) (developed by Centocor and promoted by Lilly, except in Japan) ® 2004 Cymbalta® Alimta® Symbyax® Yentreve 2003 Cialis® Strattera® 2002 2001 1999 1998 1996 Forteo® Xigris® Actos® Evista® Zyprexa® Humalog® 1995 Gemzar® ReoPro® 6

  • Page 9
    ...1 and type 2 diabetes 1983 Humulin® New Drug Application Submitted For Review to the U.S. Food and Drug Administration Arxxant™ (ruboxistaurin) for diabetic retinopathy Select Drug Candidates in Late-Stage Investigation Prasugrel Inhaled insulin Arzoxifene Enzastaurin Olanzapine pamoate for...

  • Page 10
    ... D Plan. This was one way Lilly offered seniors and low-income patients affordable access to drugs. Additionally, the company donated products through six patient assistance programs that last year aided nearly 400,000 people in the United States. LillyCares, which offers free medicines to patients...

  • Page 11
    ... the first online clinical trial registry (www.lillytrials. com); working to improve the industry's good promotional practices and code of ethics; respecting the environment; partnering with world health leaders to combat MDR-TB with the goal of treating 20,000 patients annually by 2010 (www...

  • Page 12
    ...of key products, primarily Cymbalta® and diabetes care products, and continued our commitment to research and development, investing approximately 20 percent of our sales during 2006. Our results also benefited from continued growth in profitability of the Lilly ICOS joint venture as well as cost...

  • Page 13
    ...-time sales benefit as a result of MMA; however, in the long term there is additional risk of increased pricing pressures. While the MMA prohibits the Secretary of Health and Human Services (HHS) from directly negotiating prescription drug prices with manufacturers, legislation was passed in early...

  • Page 14
    ... for a $25 administrative fee per prescription. Medications available via the program include Zyprexa, Forteo®, and Humatrope®. International operations also are generally subject to extensive price and market regulations, and there are many proposals for additional cost-containment measures...

  • Page 15
    ... low-income patients from Medicaid to Medicare. Sales outside the U.S. increased 4 percent, driven primarily by increased demand, offset in part by declining prices. Diabetes care products, composed primarily of Humalog, our insulin analog; Humulin, a biosynthetic human insulin; Actos, an oral agent...

  • Page 16
    ... Statements of Income ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions, except per-share data) Year Ended December 31 2006 2005 2004 Net sales ...Cost of sales ...Research and development ...Marketing and administrative ...Acquired in-process research and development (Note 3)...Asset...

  • Page 17
    ... to expense stock options, which had the effect of increasing our research and development and marketing and administrative expenses. We also benefited from an increase in other income-net, due primarily to increased profitability of the Lilly ICOS joint venture, and a decrease in the tax rate in...

  • Page 18
    ... above represent results only in the territories in which we market Cialis exclusively. The remaining sales relate to the joint-venture territories of Lilly ICOS LLC (North America, excluding Puerto Rico, and Europe). Our share of the joint-venture territory sales, net of expenses and income taxes...

  • Page 19
    ... our industry peer group by investing approximately 21 percent of our sales into research and development during 2005. Marketing and administrative expenses increased 5 percent in 2005, to $4.50 billion, due to the adoption of stock option expensing in 2005, and increased incentive compensation and...

  • Page 20
    ...ficient to fund our normal operating needs, including debt service, capital expenditures, costs associated with product liability litigation, dividends, and taxes in 2007. We believe that amounts available through our existing commercial paper program should be adequate to fund maturities of short...

  • Page 21
    ...and Shareholders' Equity Current Liabilities Short-term borrowings and current maturities of long-term debt (Note 6)...Accounts payable ...Employee compensation ...Sales rebates and discounts...Dividends payable ...Income taxes payable (Note 10) ...Other current liabilities (Note 8) ...Total current...

  • Page 22
    ...property and equipment ...Net changes in short-term investments ...Proceeds from sales and maturities of noncurrent investments ...Purchases of noncurrent investments ...Purchases of in-process research and development ...Cash paid for acquisition of Applied Molecular Evolution, net of cash acquired...

  • Page 23
    ... to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. We acquire assets still in development and enter into research and development arrangements with third...

  • Page 24
    ... products. The contractual obligations table is current as of December 31, 2006. The amount of these obligations can be expected to change materially over time as new contracts are initiated and existing contracts are completed, terminated, or modified. APPLICATION OF CRITICAL ACCOUNTING POLICIES...

  • Page 25
    ... the accrual include Medicaid, managed care, Medicare, chargebacks, longterm-care, hospital, discount card programs, and various other government programs. We base these accruals primarily upon our historical rebate/discount payments made to our customer segment groups and the provisions of current...

  • Page 26
    ... many factors, including an evaluation of the discount rates, expected return on plan assets and the health-care-cost trend rates of other companies; our historical assumptions compared with actual results; an analysis of current market conditions and asset allocations (approximately 85 percent...

  • Page 27
    ... of all Cialis operating expenses subsequent to the acquisition and increased marketing and selling expenses in support of Cymbalta, Zyprexa, and the diabetes care franchise, as well as ongoing investment in research and development that will continue to place Lilly among the industry leaders in...

  • Page 28
    ... we entered into with a pharmacy benefit manager covering Axid®, Evista, Humalog, Humulin, Prozac, and Zyprexa. The inquiry includes a review of Lilly's Medicaid best price reporting related to the product sales covered by the rebate agreements. We are cooperating with the U.S. Attorney in...

  • Page 29
    ... professionals, managed care arrangements, and Medicaid best price reporting comply with applicable laws and regulations. Product Liability and Related Litigation We have been named as a defendant in a large number of Zyprexa product liability lawsuits in the United States and have been notified of...

  • Page 30
    ... the drug. These cases have been removed to federal court and are now part of the MDL proceedings in the Eastern District of New York. In these actions, the Department of Health and Hospitals seeks to recover the costs it paid for Zyprexa through Medicaid and other drug-benefit programs, as well as...

  • Page 31
    ... on the location of the customer. The largest category of products is the neurosciences group, which includes Zyprexa, Cymbalta, Strattera, and Prozac. Endocrinology products consist primarily of Humalog, Humulin, Actos, Byetta, Evista, Forteo, and Humatrope. Oncology products consist primarily...

  • Page 32
    ......Common stock closing prices High...Low ...2005 58.25 51.35 Fourth 57.32 54.26 Third 55.27 50.41 Second 58.86 54.98 First Net sales ...Cost of sales ...Operating expenses ...Asset impairments, restructuring, and other special charges...Other income-net ...Income (loss) before income taxes and...

  • Page 33
    ...) ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions, except net sales per employee and per-share data) 2006 2005 2004 2003 2002 Operations Net sales ...Cost of sales ...Research and development ...Marketing and administrative...Other ...Income before income taxes and cumulative effect of...

  • Page 34
    ...making this evaluation include company-specific drivers of the decrease in stock price, status of projects in development, near-term prospects of the issuer, the length of time the value has been depressed, and the financial condition of the industry. We do not evaluate cost-method investments for...

  • Page 35
    ... Forward contracts are principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated in foreign currencies. These contracts are recorded at fair value with the gain or loss recognized in other income. The purchased option contracts are used to hedge...

  • Page 36
    ... substantive, objectively determinable, and represents an important point in the development life cycle of the pharmaceutical product. Milestone payments earned by us are generally recorded in other income-net. Research and development: We recognize as incurred the cost of directly acquiring assets...

  • Page 37
    ... applied the fair value recognition provisions of SFAS 123R to stock-based employee compensation. 2004 FI N A N C I A L S Net income, as reported ...Add: Compensation expense for stock-based performance awards included in reported net income, net of related tax effects...Deduct: Total stock-based...

  • Page 38
    ... common stock of Applied Molecular Evolution, Inc. (AME) in a tax-free merger. Under the terms of the merger agreement, each outstanding share of AME common stock was exchanged for our common stock or a combination of cash and our stock valued at $18. The aggregate purchase price of approximately...

  • Page 39
    ... applies a probability weighting to the estimated future net cash ï¬,ows that are derived from projected sales revenues and estimated costs. These projections were based on factors such as relevant market size, patent protection, historical pricing of similar products, and expected industry trends...

  • Page 40
    in the marketplace, and to leverage prior investments in our product portfolio. These actions affected primarily operations in the manufacturing, research and development, and sales and marketing components and resulted in asset impairments, severance and other related charges. As a result, we ...

  • Page 41
    ...-month credit spread, adjusted semiannually (total of 5.46 percent at December 31, 2006). The interest was to accumulate over the life of the bonds and be payable upon maturity. We had an option to begin periodic interest payments at any time. We exercised this option in November 2006 and paid all...

  • Page 42
    ...the recognition of the fair value of stock-based compensation in net income. Stock-based compensation primarily consists of stock options and performance awards. Stock options are granted to employees at exercise prices equal to the fair market value of our stock at the dates of grant. Options fully...

  • Page 43
    ... our stock price, and other factors. Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The model incorporates exercise and post-vesting...

  • Page 44
    ...-in Capital Retained Earnings Deferred Costs-ESOP Common Stock in Treasury Shares (in thousands) Amount Balance at January 1, 2004...Net income ...Cash dividends declared per share: $1.45 ...Retirement of treasury shares ...Issuance of stock under employee stock plans ...Stock-based compensation...

  • Page 45
    ...trust with 40 million shares of Lilly common stock to provide a source of funds to assist us in meeting our obligations under various employee benefit plans. The funding had no net impact on shareholders' equity as we consolidate the employee benefit trust. The cost basis of the shares held in the...

  • Page 46
    ... portion of the tax credit carryforwards is related to state tax credits that are fully reserved. The reduction in the deferred tax liability for prepaid employee benefits was a result of the adoption of SFAS 158 in 2006 (Note 12). Domestic and Puerto Rican companies contributed approximately 18...

  • Page 47
    ... I A L S United States federal statutory tax rate ...Add (deduct) International operations, including Puerto Rico ...Additional repatriation due to change in tax law ...Non-deductible acquired in-process research and development General business credits ...Sundry ...Effective income tax rate ... 35...

  • Page 48
    ... other comprehensive loss, net of tax. The adjustment to accumulated other comprehensive loss at adoption represents the net unrecognized actuarial losses and unrecognized prior service costs, which were previously netted against the plans' funded status in our consolidated balance sheet pursuant to...

  • Page 49
    ... ned Benefi t Pension Plans 2006 2005 Retiree Health Benefi t Plans 2006 2005 Change in benefit obligation Benefit obligation at beginning of year ...$5,628.4 Service cost ...280.0 Interest cost ...343.5 Actuarial (gain) loss ...64.9 Benefits paid ...(291.2) Reduction in discount rate, foreign...

  • Page 50
    ... is public equity securities that are well diversified and invested in U.S. and international small-to-large companies. The remaining portion of the growth investment classification is represented by other alternative growth investments. Our defined benefit pension plan and retiree health plan...

  • Page 51
    ...), each submitted Abbreviated New Drug Applications (ANDAs) seeking permission to market generic versions of Zyprexa prior to the expiration of our relevant U.S. patent (expiring in 2011) and alleging that this patent was invalid or not enforceable. We filed lawsuits against these companies in the...

  • Page 52
    ... professionals, managed care arrangements, and Medicaid best price reporting comply with applicable laws and regulations. Product Liability and Related Litigation We have been named as a defendant in a large number of Zyprexa product liability lawsuits in the United States and have been notified of...

  • Page 53
    ... the drug. These cases have been removed to federal court and are now part of the MDL proceedings in the Eastern District of New York. In these actions, the Department of Health and Hospitals seeks to recover the costs it paid for Zyprexa through Medicaid and other drug-benefit programs, as well as...

  • Page 54
    ... gains on sales of securities included in net income. The effective portion of cash ï¬,ow hedges is net of reclassification adjustments of $2.3 million, $3.8 million, and $23.1 million, net of tax, in 2006, 2005, and 2004, respectively, for realized losses on foreign currency options and $17...

  • Page 55
    ... and our people, who are objective in their responsibilities and operate under a code of conduct and the highest level of ethical standards. Management's Report on Internal Control Over Financial Reporting-Eli Lilly and Company and Subsidiaries Management of Eli Lilly and Company and subsidiaries is...

  • Page 56
    ... retirement obligations and stock-based compensation. As discussed in Note 12 to the financial statements, in 2006 Eli Lilly and Company and subsidiaries adopted a new accounting pronouncement for defined benefit pension and other postretirement plans. FI N A N C I A L S Indianapolis, Indiana...

  • Page 57
    ... of the Public Company Accounting Oversight Board (United States), the 2006 consolidated financial statements of Eli Lilly and Company and subsidiaries and our report dated February 9, 2007, expressed an unqualified opinion thereon. FI N A N C I A L S Indianapolis, Indiana February 9, 2007...

  • Page 58
    ... invited to attend our annual meeting of shareholders on Monday, April 16, 2007, at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, at 11:00 a.m. EDT. The notice of meeting and proxy statement that follow describe the business we will consider at the meeting. Your vote is...

  • Page 59
    ... • to reapprove performance goals for the company's 2002 Lilly Stock Plan • to consider and vote on a shareholder proposal requesting that the board of directors report on the feasibility of extending the company's animal care and use policy to contract laboratories • to consider and vote on...

  • Page 60
    ... incorporation to allow for annual election of directors • reapproving performance goals for the company's stock plan • a shareholder proposal on extending the company's animal care and use policy to contract laboratories • a shareholder proposal on international outsourcing of animal research...

  • Page 61
    ...5112. Please make sure you give us the control number from the e-mail message that you received notifying you of the electronic availability of these materials, along with your name and mailing address. By telephone. Shareholders in the United States, Puerto Rico, and Canada may vote by telephone by...

  • Page 62
    ...TATE M E NT How do I contact the board of directors? You can send written communications to one or more members of the board, addressed to: Presiding Director, Board of Directors Eli Lilly and Company c/o Corporate Secretary Lilly Corporate Center Indianapolis, Indiana 46285 All such communications...

  • Page 63
    ... address and last name and do not receive proxy materials electronically will receive only one copy of our annual report and proxy statement unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. This procedure saves printing and postage costs...

  • Page 64
    ... boards of Comcast Corporation and International Flavors & Fragrances Inc. He is chairman of the Accountability Advisory Council to the Comptroller General of the United States. He was a member of the National Association of Corporate Directors Blue Ribbon Panel on Corporate Governance and was named...

  • Page 65
    ... products and corporate development in 2001. He was named executive vice president, pharmaceutical operations in 2004. He is a member of the American Chemical Society. In 2004, Dr. Lechleiter was appointed to the Visiting Committee of Harvard Business School and to the Health Policy and Management...

  • Page 66
    ...head of global sales and marketing for engineering polymers. In 1998, he was appointed vice president of corporate plans and business development and then vice president of e-commerce. Mr. Fyrwald serves on the boards of the Biotechnology Industry Organization (BIO); CropLife International President...

  • Page 67
    ... boards of IBM Corporation and The McGraw-Hill Companies, Inc. He is also a member of the executive committee of the board of directors of Pharmaceutical Research and Manufacturers of America (PhRMA), a member of the board of overseers of the Columbia Business School, a trustee at the Indianapolis...

  • Page 68
    ..., assurance, or tax compliance (but not tax planning) practice; or (iv) the director or immediate family member was within the last three years (but is no longer) a partner or employee of such firm and personally worked on the listed company's audit within that time. In addition, a director is not...

  • Page 69
    ... audit, compensation, and directors and corporate governance committees must meet all applicable independence tests of the New York Stock Exchange, Securities and Exchange Commission, and Internal Revenue Service. In February 2007, the directors and corporate governance committee reviewed directors...

  • Page 70
    ... the New York Stock Exchange and Securities and Exchange Commission. This code is set out in: • The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our board of directors • the company's Code of Ethical Conduct for Lilly Financial...

  • Page 71
    ... executive officers or their immediate family members, or shareholders owning five percent or greater of the company's outstanding stock). The policy covers any related person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally...

  • Page 72
    ... compensation committees meet alone in executive session on a regular basis; all other committees meet in executive session as needed. All six committee charters are available online at http://investor.lilly.com/board-committees.cfm or in paper form upon request to the company's corporate secretary...

  • Page 73
    ... dividends, stock repurchases, capital expenditures, financings and borrowings, and significant business development projects. Science and Technology Committee • reviews and makes recommendations regarding the company's strategic research goals and objectives • reviews new developments...

  • Page 74
    ... for serving on the board or its committees. In 2006, we provided the following annual compensation to directors who are not employees: Fees Earned or Paid in Cash ($) 1 Stock Awards ($) 2 Stock Option Awards ($) 3 All Other Compensation ($) 4 Total ($) 5 Name Sir Winfried Bischoff Mr. Cook...

  • Page 75
    ... travel expenses. Stock Compensation Stock compensation for directors consists of: • Shares of Lilly stock equaling $145,000, deposited annually in a deferred stock account in the Lilly Directors' Deferral Plan (as described below), payable after service on the board has ended. Lilly Directors...

  • Page 76
    ..., and marketing or sales • international business • medicine and science • government and public policy • information technology. The board delegates the screening process to the directors and corporate governance committee, which receives direct input from other board members. Potential...

  • Page 77
    ..., at Lilly Corporate Center, Indianapolis, Indiana 46285. The candidate must meet the selection criteria described above and must be willing and expressly interested in serving on the board. Under Section 1.9 of the company's bylaws, a shareholder who wishes to directly nominate a director candidate...

  • Page 78
    ... of the annual audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other engagements known at that time. Management will also present at that time an estimate of all fees for the upcoming audit year. As specific engagements are identified thereafter, they...

  • Page 79
    ... committee. • Role of Executive Officers and Management. With the oversight of the CEO, chief operating officer, and the senior vice president of human resources, the company's global compensation group formulates recommendations on matters of compensation philosophy, plan design, and the speci...

  • Page 80
    ... career at Lilly. The company's nationally recognized benefit programs provide a competitive advantage by helping the company attract and retain highly talented employees who are looking for the opportunity to build a career. These programs include a strong retirement program, ï¬,exible health care...

  • Page 81
    ... of management-base salary, a cash incentive bonus award under the Eli Lilly and Company Bonus Plan, equity grants of a performance award (a performance-based stock incentive award under the 2002 Lilly Stock Plan) and stock options, and a benefits package. The committee believes that this program...

  • Page 82
    ...with the company's sales and earnings growth objectives for the current year. Cash incentive bonuses for all management employees worldwide, as well as all non-management employees in the U.S. other than sales representatives, were determined under the Eli Lilly and Company Bonus Plan, a shareholder...

  • Page 83
    ... and internal relativity. Consistent with the company's compensation philosophy, individuals at higher levels received a greater proportion of total pay in the form of equity. The values for 2006 grants for the named executives were as follows: Name Current Stock Options Performance Awards PROX...

  • Page 84
    ...84. Equity Incentives-Stock Options Stock options align employee incentives with shareholders because options have value only if the stock price increases over time. The company's 10-year options, granted at the market price on the date of grant, help focus employees on long-term growth. In addition...

  • Page 85
    ... retirement in a tax-effective way at minimal cost to the company. Under this unfunded program, amounts deferred by the executive are credited at an interest rate of 120 percent of the applicable federal long-term rate, as described in more detail following the Non-qualified Deferred Compensation...

  • Page 86
    ... table below. The company has taken steps to qualify compensation under the Eli Lilly and Company Bonus Plan, as well as stock options and performance awards under its management stock plans, for full deductibility as "performancebased compensation." The committee may make payments that are not...

  • Page 87
    ...the company's management stock plans, and other management incentive, benefit and perquisite programs. Management has the primary responsibility for the company's financial statements and reporting process, including the disclosure of executive compensation. With this in mind, we have reviewed and...

  • Page 88
    ... under the Lilly Bonus Plan. The amounts in this column are the change in pension value for each individual. No named executive officer received preferential or above-market earnings on deferred compensation. 5 The table below shows the components of this column, which include the company match for...

  • Page 89
    ... under the 2002 Lilly Stock Plan are described in the Outstanding Equity Awards at Fiscal Year-End Table below. 4 Mr. Rice's stock award and stock option award granted in February 2006 were not approved by the compensation committee because he was not an executive officer at the time they were...

  • Page 90
    ...an executive officer at the time of grant, and Mr. Golden's shares are not restricted because he retired prior to payment. Options are granted at 100 percent of fair market value on the date of grant; they vest after three years and expire after 10 years. We do not pay dividend equivalents on stock...

  • Page 91
    ... employees, including executive officers: • The Lilly Employee 401(k) Plan, a defined contribution plan qualified under sections 401(a) and 401(k) of the Internal Revenue Code. Eligible employees may elect to contribute a portion of their salary to the plan, and the company provides matching...

  • Page 92
    ... on page 85 for information about company contributions to the named executive officers. • The Lilly Retirement Plan (the retirement plan), a tax-qualified defined benefit plan that provides monthly retirement benefits to eligible employees. See the Summary Compensation Table on page 85 for...

  • Page 93
    ... credited. A grant of additional years of service credit to any employee must be approved by the compensation committee of the board of directors. Nonqualified Deferred Compensation in 2006 Named Executive Current Plan Executive Registrant Contributions in Last Contributions in Last 1 Fiscal Year...

  • Page 94
    ... the company's deferred compensation plan. Amounts deferred by executives under this program are credited with interest at 120 percent of the applicable federal long-term rate as established for the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code...

  • Page 95
    ... the change in control; or (vi) relocation of the executive by more than fifty (50) miles. • Cash severance payment. Represents the CIC Program benefit of two times the 2006 annual base salary plus two times cash bonus for 2006 under the Eli Lilly and Company Bonus Plan. • Incremental pension...

  • Page 96
    ...the number of shares of company common stock beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group, as of February 5, 2007. The table shows shares held by named executives in the Lilly Employee 401(k) Plan, shares credited to the ac...

  • Page 97
    ... are the shareholders listed below: Name and Address Number of Shares Beneficially Owned Percent of Class PROX Y S TATE M E NT Lilly Endowment, Inc. (the "Endowment") 2801 North Meridian Street Indianapolis, Indiana 46208 Capital Research and Management Company 333 South Hope Street Los Angeles...

  • Page 98
    ... the company's articles of incorporation, the board is divided into three classes with approximately one-third of the directors standing for election each year. The term for directors elected this year will expire at the annual meeting of shareholders held in 2010. Each of the nominees listed below...

  • Page 99
    ... the directors annually. The board also considered benefits of retaining the classified board structure, which has a long history in corporate law. Proponents of a classified structure believe it provides continuity and stability in the management of the business and affairs of a company because...

  • Page 100
    ... income • corporate or divisional net sales • EVA® (after tax operating profit less the annual total cost of capital) • Market Value Added (MVA-the difference between a company's fair market value, as reï¬,ected primarily in its stock price, and the economic book value of capital employed...

  • Page 101
    ... executive officers as a group received payouts for performance awards totaling 321,468 shares and all other employees received performance awards, restricted stock grants, and restricted stock units totaling 2,357,195 shares. Securities Authorized for Issuance Under Equity Compensation Plans The...

  • Page 102
    ...Represents shares in the Lilly GlobalShares Stock Plan, which permits the company to grant stock options to nonmanagement employees worldwide. The plan is administered by the senior vice president responsible for human resources. The stock options are nonqualified for U.S. tax purposes. The option...

  • Page 103
    ...includes a detailed, comprehensive review of research animal programs such as animal care and use policies and procedures, animal environment, housing and management, veterinary medical care, and physical plant operations. Globally, Lilly complies with local, state, and national laws and regulations...

  • Page 104
    ... ultimately change the way in which directors interact with management." An independent board structure will also help the board address complex policy issues facing our company, foremost among them the crisis in access to pharmaceutical products. Millions of Americans and others around the world...

  • Page 105
    ...access to health care through patient assistance programs. In 2006 alone, we distributed products with a retail value of more than $300 million free of charge through these programs. The board recommends that you vote AGAINST this proposal. Item 8. Shareholder Proposal Regarding Amending the Company...

  • Page 106
    ...stock issuance. Like many other Indiana corporations, Lilly has adopted the default provision under Indiana law, which states that unless the articles of incorporation provide otherwise, the bylaws may be amended only by the directors. The board of directors has fiduciary obligations to the company...

  • Page 107
    ...few large shareholders, as well as to help ensure that important corporate governance rules are not changed without the clear consensus of a substantial majority of stockholders that such change is prudent and in the best interests of the company. The board has a fiduciary duty under the law to act...

  • Page 108
    ... copies of reports provided to the company, as well as other records and information. Based on that review, we concluded that all reports were timely filed except that, due to administrative error, Dr. John Lechleiter was late in reporting a sale of stock under his 10b5-1 trading plan, Mr. Gino...

  • Page 109
    ... Article 7(b) (the "Preferred Stock Directors"), shall not be less than nine, the exact number to be fixed from time to time solely by resolution of the Board of Directors, acting by not less than a majority of the directors then in office. (b) The Prior to the 2008 annual meeting of shareholders...

  • Page 110
    ...Ph.D. Retired President, Private Client Services, and Managing Director, Marsh, Inc. Alfred G. Gilman, M.D., Ph.D. Executive Vice President for Academic Affairs and Provost, The University of Texas Southwestern Medical Center; Dean, The University of Texas Southwestern Medical School; and Regental...

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    ... President, Lilly Research Laboratories Anthony J. Murphy, Ph.D.*†Vice President, Global Parenteral Operations, Engineering, and Environmental Health and Safety Newton F. Crenshaw Vice President, Human Resources, Global Compensation, and HR Services Jacques Tapiero Senior Vice President, Human...

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    ... to: Eli Lilly and Company P.O. Box 88665 Indianapolis, Indiana 46208-0665 To access these reports more quickly, you can find all of our SEC filings online at: http://investor.lilly.com/edgar. cfm Stock listings Wells Fargo Shareowner Services Mailing address: Shareowner Relations Department...

  • Page 113
    ... Admission Ticket Eli Lilly and Company 2007 Annual Meeting of Shareholders Monday, April 16, 2007 11 a.m. EDT Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285 The top portion of this page will be required for admission to the meeting. Please write your name and address in...

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    ...Detach here Detach here Eli Lilly and Company Annual Meeting of Shareholders April 16, 2007 Complimentary Parking Lilly Corporate Center Please place this identifier on the dashboard of your car as you enter Lilly Corporate Center so it can be clearly seen by security and parking personnel. 112

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    ...-drug resistant tuberculosis initiative ...www.lillymdr-tb.com Medicare prescription drug coverage ...www.lillymedicareanswers.com Pharmaceutical industry patient assistance programs ...www.pparx.org Lilly Cares...www.lillycares.com or call toll-free 1-800-545-6962 © 2007 Eli Lilly and Company...

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    Eli Lilly and Company Lilly Corporate Center Indianapolis, Indiana 46285 USA www.lilly.com