Eli Lilly 2007 Annual Report Download - page 20

FINANCIALS
18
rate for 2008 of $1.88 per share. The year 2007 was the
123rd consecutive year in which we made dividend pay-
ments and the 40th consecutive year in which dividends
have been increased.
We believe that cash generated from operations,
along with available cash and cash equivalents, will be
suffi cient to fund our normal operating needs, includ-
ing debt service, capital expenditures, costs associated
with product liability litigation, dividends, and taxes in
2008. We believe that amounts accessible through ex-
isting commercial paper markets should be adequate to
fund short-term borrowings, if necessary. We currently
have $1.24 billion of unused committed bank credit
facilities, $1.20 billion of which backs our commercial
paper program. Our access to credit markets has not
been adversely affected by the recent illiquidity in the
market. Various risks and uncertainties, including those
discussed in the Financial Expectations for 2008 section,
may affect our operating results and cash gener
ated
from operations.
In the normal course of business, our operations
are exposed to fl uctuations in interest rates and cur-
rency values. These fl uctuations can vary the costs
of fi nancing, investing, and operating. We address a
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interest rates and less capitalized interest due to
the completion in late 2005 of certain manufacturing
facilities.
• Interest income for 2006 increased $49.8 million, to
$261.9 million, due to higher short-term interest rates.
• The Lilly ICOS joint-venture income was $96.3 mil-
lion in 2006 as compared to $11.1 million in 2005.
The increase was due to increased Cialis sales and
decreased selling and marketing expenses.
• Net other miscellaneous income items decreased
$78.5 million, to $117.7 million, primarily as a result
of less income related to the outlicensing of legacy
products and partnered compounds in development.
We incurred tax expense of $755.3 million in 2006,
resulting in an effective tax rate of 22.1 percent, com-
pared with 26.3 percent for 2005. The effective tax
rates for 2006 and 2005 were affected primarily by the
product liability charges of $494.9 million and $1.07 bil-
lion, respectively. The tax benefi t associated with these
charges was less than our effective tax rate, as the tax
benefi t was calculated based upon existing tax laws in
the countries in which we reasonably expect to deduct
the charge. See Note 11 to the consolidated fi nancial
statements for additional information.
FINANCIAL CONDITION
As of December 31, 2007, cash, cash equivalents, and
short-term investments totaled $4.83 billion compared
with $3.89 billion at December 31, 2006. Cash fl ow from
operations in 2007 of $5.15 billion and net proceeds from
the issuance of long-term debt of $1.45 billion exceeded
the total of the net cash paid for corporate acquisitions
of $2.67 billion, dividends paid of $1.85 billion, and pur-
chases of property and equipment of $1.08 billion.
Capital expenditures of $1.08 billion during 2007
were consistent with 2006, due primarily to the man-
agement of capital spending. We expect near-term
capital expenditures to remain approximately the same
as 2007 levels while we invest in our biotech and re-
search and development initiatives, continue to upgrade
our manufacturing facilities to enhance productivity and
quality systems, and invest in the long-term growth of
our diabetes care products.
Total debt as of December 31, 2007 increased $1.29
billion, to $5.01 billion, refl ecting the $2.50 billion of
debt we issued in 2007 to fi nance our acquisition of
ICOS, offset by long-term debt repayment of $1.06 bil-
lion. Our current debt ratings from Standard & Poor’s
and Moody’s remain at AA and Aa3, respectively.
Dividends of $1.70 per share were paid in 2007, an
increase of 6 percent from 2006. In the fourth quarter of
2007, effective for the fi rst-quarter dividend in 2008, the
quarterly dividend was increased to $.47 per share (a
10.6 percent increase), resulting in an indicated annual
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