Eli Lilly 2006 Annual Report Download - page 47

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FINANCIALS
45
in accounting principle. We have a subsidiary operating in Puerto Rico under a tax incentive grant that begins to
expire at the end of 2007. We have a new tax incentive grant, not yet in effect, that will last for a period of at least
10 years from its inception date.
The American Jobs Creation Act of 2004 (AJCA) created a temporary incentive for U.S. corporations to repa-
triate undistributed income earned abroad by providing an 85 percent dividends received deduction for certain
dividends from controlled foreign corporations in 2005. We recorded a related tax liability of $465.0 million as of
December 31, 2004, and subsequently repatriated $8.00 billion in incentive dividends, as defi ned in the AJCA, dur-
ing 2005. At December 31, 2006, we had an aggregate of $5.7 billion of unremitted earnings of foreign subsidiaries
that have been or are intended to be permanently reinvested for continued use in foreign operations and that, if
distributed, would result in taxes at approximately the U.S. statutory rate.
Cash payments of income taxes totaled $864.0 million, $1.78 billion, and $487.0 million in 2006, 2005, and 2004,
respectively. The higher cash payments of income taxes in 2005 are primarily attributable to the tax liability associ-
ated with the implementation of the AJCA and the resolution of an IRS examination for the years 1998 to 2000.
Following is a reconciliation of the effective income tax rate applicable to income before income taxes and
cumulative effect of a change in accounting principle:
2006 2005 2004
United States federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Add (deduct)
International operations, including Puerto Rico . . . . . . . . . . . . . . . (6.7) (4.8) (19.1)
Additional repatriation due to change in tax law . . . . . . . . . . . . . . . — — 15.8
Non-deductible acquired in-process research and development — — 4.3
(1.4) (1.5) (1.3)
(4.8) (2.4) 3.8
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1% 26.3% 38.5%
Note 11: Earnings Per Share
The following is a reconciliation of the denominators used in computing earnings per share before cumulative ef-
fect of a change in accounting principle:
2006 2005 2004
(Shares in thousands)
Income before cumulative effect of a change in accounting
principle available to common shareholders . . . . . . . . . . . . . . . . . $2,662.7 $2,001.6 $1,810.1
Basic earnings per share
Weighted-average number of common shares outstanding,
1,086,239 1,088,754 1,083,887
Basic earnings per share before cumulative effect of a change
in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.45 $1.84 $1.67
Diluted earnings per share
Weighted-average number of common shares outstanding . . . . . 1,085,337 1,088,115 1,083,677
Stock options and other incremental shares. . . . . . . . . . . . . . . . . . 2,153 4,035 5,259
Weighted-average number of common shares
outstanding—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,087,490 1,092,150 1,088,936
Diluted earnings per share before cumulative effect of a
change in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . $2.45 $1.83 $1.66
General business credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
including incremental shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .