Eli Lilly 2006 Annual Report Download - page 48

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FINANCIALS
46
Note 12: Retirement Benefi ts
On December 31, 2006, we adopted the recognition and disclosure provisions of SFAS 158. SFAS 158 requires that
we recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefi t
obligation for our defi ned benefi t pension plans and the accumulated postretirement benefi t obligation for our
retiree health benefi t plans) of our defi ned benefi t pension plans and retiree health benefi t plans in the December
31, 2006 balance sheet, with a corresponding adjustment to accumulated 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 the prior accounting rules. The amounts in other comprehensive loss will
be subsequently recognized as net periodic pension cost pursuant to the prior accounting rules for amortizing
such amounts, which were not changed by SFAS 158. Further, actuarial gains and losses that arise in subsequent
periods and are not recognized as net periodic pension cost in the same period will be recognized as a component
of other comprehensive income (loss). Those amounts will be subsequently recognized as a component of net
periodic cost on the same basis as the amounts recognized in accumulated other comprehensive income (loss) at
adoption of SFAS 158.
The incremental effects of adopting the provisions of SFAS 158 on our consolidated balance sheet at December
31, 2006 are presented in the following table. The adoption of SFAS 158 had no effect on our consolidated state-
ment of income for the year ended December 31, 2006, or for any prior period presented, and it will not affect our
operating results in future periods. Had we not been required to adopt SFAS 158 at December 31, 2006, we would
have recognized an additional minimum liability pursuant to the prior accounting rules. The effect of recognizing
Prior to Effect of As Reported at
Adopting Adopting December 31,
SFAS 158 SFAS 158 2006
Prepaid pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,380.8 $(1,289.3) $ 1,091.5
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,341.2 (325.9) 2,015.3
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,570.6 (1,615.2) 21,955.4
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,844.1 12.7 1,856.8
Accrued retirement benefi t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 905.8 681.1 1,586.9
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782.5 (720.3) 62.2
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,001.2 (26.5) 10,974.7
Accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . 200.0 (1,588.7) (1,388.7)
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,569.4 (1,588.7) 10,980.7
the additional minimum liability is included in the table below in the column labeled “Prior to Adopting SFAS 158.”
The following represents our weighted-average assumptions as of December 31:
Defi ned Benefi t Pension Plans Retiree Health Benefi t Plans
(Percents) 2006 2005 2006 2005
Weighted-average assumptions as of December 31
Discount rate for benefi t obligation . . . . . . . . . . . . . . . . . . 5.7 5.8 6.0 6.0
Discount rate for net benefi t costs . . . . . . . . . . . . . . . . . . . 5.8 5.9 6.0 6.0
Rate of compensation increase for benefi t obligation . . . 4.6 4.7 — —
Rate of compensation increase for net benefi t costs . . . . 4.7 5.6 — —
Expected return on plan assets for net benefi t costs . . . 9.0 9.0 9.0 9.0
In evaluating the expected return on plan assets, we have considered our historical assumptions compared
with actual results, an analysis of current market conditions, asset allocations, and the views of leading fi nancial
advisers and economists. Our plan assets in our U.S. defi ned benefi t pension and retiree health plans comprise
approximately 84 percent of our worldwide benefi t plan assets. Including the investment losses due to overall
market conditions in 2001 and 2002, our 10- and 20-year annualized rates of return on our U.S. defi ned benefi t
pension plans and retiree health benefi t plan were approximately 9.4 percent and 10.9 percent, respectively, as of
December 31, 2006. Health-care-cost trend rates were assumed to increase at an annual rate of 8 percent in 2007,
decreasing 1 percent per year to 6 percent in 2009 and thereafter.
We used a measurement date of December 31 to develop the change in benefi t obligation, change in plan as-