Eli Lilly 2006 Annual Report Download - page 40

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FINANCIALS
38
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 recognized asset impairment charges
of $486.3 million. We have ceased using these assets, and have disposed of or destroyed substantially all of the
assets. The impairment charges are necessary to adjust the carrying value of the assets to fair value. Other site
charges, including lease termination payments, were $12.2 million. The restructuring and other charges incurred
and expended related to the elimination of positions as a result of these actions totaled $68.5 million, including
$35.1 million of severance charges related to restructuring activities in our overseas affi liates. The severance
charges consisted primarily of voluntary severance expenses.
Product Liability and Other Special Charges
As discussed further in Note 13, we have reached agreements with claimants’ attorneys involved in U.S. Zyprexa
product liability litigation to settle a total of approximately 28,500 claims against us relating to the medication.
Approximately 1,300 claims remain. As a result of our product liability exposures, the substantial majority of which
were related to Zyprexa, we recorded net pretax charges of $494.9 million in 2006 and $1.07 billion in 2005.
The other signifi cant component of our 2004 special charges was a provision for $36.0 million for the resolu-
tion of the previously reported Evista marketing and promotional practices investigation. See Note 13 for additional
discussion.
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.
At December 31, 2006, our investments in debt securities were comprised of 41 percent asset-backed securities,
29 percent corporate securities, and 30 percent U.S. government securities. In accordance with documented cor-
porate policies, we limit the amount of credit exposure to any one fi nancial institution or corporate issuer. 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:
2006 2005
Carrying Amount Fair Value Carrying Amount Fair Value
Short-term investments
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 781.7 $ 781.7 $ 2,031.0 $ 2,031.0
Noncurrent investments
Marketable equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79.4 $ 79.4 $ 118.0 $ 118.0
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 834.1 834.1 1,076.2 1,076.2
Equity method and other investments . . . . . . . . . . . 88.4 N/A 102.4 N/A
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,001.9 $ 1,296.6
Long-term debt, including current portion. . . . . . . . . . $(3,705.2) $(3,682.7) $(6,484.8) $(6,484.2)
Risk-management instruments—assets (liabilities). . 19.7 19.7 (336.0) (336.0)
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 and other investments is not readily available and dis-
closure is not required. Approximately $1.2 billion of our investments in debt securities mature within fi ve years.