Eli Lilly 2008 Annual Report Download - page 41

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FINANCIALS
39
no alternative future use has been identifi ed. Once the product has obtained regulatory approval, we capitalize the
milestones paid and amortize them over the period benefi ted. Milestones paid prior to regulatory approval of the
product are generally expensed when the event requiring payment of the milestone occurs.
Other—net: Other—net consisted of the following:
2008 2007 2006
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $228.3 $ 228.3 $ 238.1
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (210.7) (215.3) (261.9)
Joint venture income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (11.0) (96.3)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 (124.0) (117.7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.1 $(122.0) $(237.8)
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.
We recognize the tax benefi t from an uncertain tax position only if it is more likely than not that the tax posi-
tion 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. See
Note 11 for further discussion.
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, 2007 and 2006 consolidated
fi nancial statements and accompanying notes to conform with the December 31, 2008 presentation.
Note 2: Implementation of New Financial Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161
applies to all derivative instruments and related hedged items accounted for under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. This Statement requires entities to provide enhanced
disclosures about how and why an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instru-
ments and related hedged items affect an entity’s fi nancial position, results of operations, and cash fl ows. This
Statement is effective for us January 1, 2009.
We adopted the provisions of Emerging Issues Task Force (EITF) Issue No. 07-3 (EITF 07-3), Accounting for
Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development
Activities, on January 1, 2008. Pursuant to EITF 07-3, nonrefundable advance payments for goods or services that
will be used or rendered for future research and development activities should be deferred and capitalized. Such
amounts should be recognized as an expense when the related goods are delivered or services are performed,
or when the goods or services are no longer expected to be received. This Issue is to be applied prospectively for