Eli Lilly 2007 Annual Report Download - page 38

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FINANCIALS
36
Other income—net: Other income—net consisted of the following:
2007 2006 2005
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 228.3 $ 238.1 $ 105.2
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (215.3) (261.9) (212.1)
Joint venture income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11.0) (96.3) (11.1)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124.0) (117.7) (196.2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(122.0) $(237.8) $(314.2)
The joint venture income represents our share of the Lilly ICOS LLC joint venture results of operations, net of
income taxes. We acquired the outstanding ownership of the joint venture in January 2007 as a result of our acqui-
sition of ICOS. See Note 3 for further discussion.
Income taxes: Deferred taxes are recognized for the future tax effects of temporary differences between fi nancial
and income tax reporting based on enacted tax laws and rates. Federal income taxes are provided on the portion of
the income of foreign subsidiaries that is expected to be remitted to the United States and be taxable.
Effective January 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (FASB)
Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). Pursuant to FIN 48, we must recognize the
tax benefi t from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefi ts recognized in
the fi nancial statements from such a position are measured based on the largest benefi t that has a greater than
50 percent likelihood of being realized upon ultimate resolution.
Earnings per share: We calculate basic earnings per share based on the weighted-average number of outstanding
common shares and incremental shares. We calculate diluted earnings per share based on the weighted-average
number of outstanding common shares plus the effect of dilutive stock options and other incremental shares.
Stock-based compensation: We recognize the fair value of stock-based compensation as expense over the requi-
site service period of the individual grantees, which generally equals the vesting period. Under our policy all stock-
based awards are approved prior to the date of grant. The Compensation Committee of the Board of Directors
approves the value of the award and date of grant. Stock-based compensation that is awarded as part of our annual
equity grant is made on a specifi c grant date scheduled in advance.
Reclassifi cations: Certain reclassifi cations have been made to the December 31, 2006 and 2005 consolidated
fi nancial statements and accompanying notes to conform with the December 31, 2007 presentation.
Note 2: Implementation of New Financial Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) revised and issued Statement of Financial Ac-
counting Standard (SFAS) No. 141, Business Combinations (SFAS 141(R)). SFAS 141(R) changes how the acquisition
method is applied in accordance with SFAS 141. The primary revisions to this Statement require an acquirer in a
business combination to measure assets acquired, liabilities assumed, and any noncontrolling interest in the ac-
quiree at the acquisition date, at their fair values as of that date, with limited exceptions specifi ed in the Statement.
This Statement also requires the acquirer in a business combination achieved in stages to recognize the identifi -
able assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with the Statement). Assets acquired and liabilities assumed
arising from contractual contingencies as of the acquisition date are to be measured at their acquisition-date fair
values, and assets or liabilities arising from all other contingencies as of the acquisition date are to be measured
at their acquisition-date fair value, only if it is more likely than not that they meet the defi nition of an asset or a li-
ability in FASB Concepts Statement No. 6, Elements of Financial Statements. This Statement signifi cantly amends
other Statements and authoritative guidance, including FASB Interpretation No. 4, Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method, and now requires the capitalization of re-
search and development assets acquired in a business combination at their acquisition-date fair values, separately
from goodwill. SFAS No. 109, Accounting for Income Taxes, was also amended by this Statement to require the ac-
quirer to recognize changes in the amount of its deferred tax benefi ts that are recognizable because of a business