Eli Lilly 2010 Annual Report Download - page 69

FORM 10-K
Note 8: Borrowings
Long-term debt at December 31 consisted of the following:
2010 2009
3.55 to 7.13 percent notes (due 2012-2037) .............................................. $6,387.4 $6,387.4
Other, including capitalized leases ..................................................... 97.2 105.3
Fair value adjustment ............................................................... 304.1 162.3
6,788.7 6,655.0
Less current portion ................................................................. (18.2) (20.3)
Long-term debt ..................................................................... $6,770.5 $6,634.7
In September 2010, we borrowed $125.0 million of short-term floating-rate debt due in 2011.
In March 2009, we issued $2.40 billion of fixed-rate notes with interest to be paid semi-annually.
The 6.55 percent Employee Stock Ownership Plan (ESOP) debentures are obligations of the ESOP but are shown on
the consolidated balance sheet because we guarantee them. The principal and interest on the debt are funded by
contributions from us and by dividends received on certain shares held by the ESOP. Because of the amortizing
feature of the ESOP debt, bondholders will receive both interest and principal payments each quarter. The balance
was $63.7 million and $72.8 million at December 31, 2010 and 2009, respectively, and is included in Other in the table
above.
The aggregate amounts of maturities on long-term debt for the next five years are as follows: 2011, $18.2 million;
2012, $1.52 billion; 2013, $15.5 million; 2014, $1.01 billion; and 2015, $12.2 million.
At December 31, 2010 and 2009, short-term borrowings included $137.8 million and $7.1 million, respectively, of
notes payable to banks and commercial paper. At December 31, 2010, we have $1.24 billion of unused committed
bank credit facilities, $1.20 billion of which backs our commercial paper program and matures in May, 2011.
Compensating balances and commitment fees are not material, and there are no conditions that are probable of
occurring under which the lines may be withdrawn.
We have converted approximately 70 percent of all fixed-rate debt to floating rates through the use of interest rate
swaps. The weighted-average effective borrowing rates based on debt obligations and interest rates at December 31,
2010 and 2009, including the effects of interest rate swaps for hedged debt obligations, were 2.87 percent and 3.07
percent, respectively.
In 2010, 2009, and 2008, cash payments of interest on borrowings totaled $176.3 million, $205.9 million, and $203.1
million, respectively, net of capitalized interest.
In accordance with the requirements of derivatives and hedging guidance, the portion of our fixed-rate debt
obligations that is hedged is reflected in the consolidated balance sheets as an amount equal to the sum of the
debt’s carrying value plus the fair value adjustment representing changes in fair value of the hedged debt
attributable to movements in market interest rates subsequent to the inception of the hedge.
Note 9: Stock-Based Compensation
Stock-based compensation expense in the amount of $231.0 million, $368.5 million, and $255.3 million was
recognized in 2010, 2009, and 2008, respectively, as well as related tax benefits of $80.8 million, $128.9 million, and
$88.6 million, respectively. Our stock-based compensation expense consists primarily of performance awards (PAs),
shareholder value awards (SVAs), and restricted stock units (RSUs). We recognize the stock-based compensation
expense over the requisite service period of the individual grantees, which generally equals the vesting period. We
provide newly issued shares and treasury stock to satisfy stock option exercises and for the issuance of PA, SVA and
RSU shares. We classify tax benefits resulting from tax deductions in excess of the compensation cost recognized for
exercised stock options as a financing cash flow in the consolidated statements of cash flows.
At December 31, 2010, additional stock-based compensation awards may be granted under the 2002 Lilly Stock Plan
for not more than 82.0 million shares.
Performance Award Program
PAs are granted to officers and management and are payable in shares of our common stock. The number of PA
shares actually issued, if any, varies depending on the achievement of certain pre-established earnings-per-share
targets over a two-year period. In 2009, we granted both a one-year and a two-year award to all global management
as a transition to a two-year performance period for all PAs granted beginning in 2010. PA shares are accounted for
at fair value based upon the closing stock price on the date of grant and fully vest at the end of the measurement
periods. The fair values of PAs granted in 2010 and 2008 were $30.88 and $51.22, respectively. The fair values of PAs
granted in 2009 were $36.17 for the one-year award and $34.12 for the two-year award. The number of shares
ultimately issued for the PA program is dependent upon the earnings achieved during the vesting period. Pursuant to
this plan, approximately 3.8 million shares, 2.8 million shares, and 2.5 million shares were issued in 2010, 2009, and
2008, respectively. Approximately 3.8 million shares are expected to be issued in 2011. As of December 31, 2010, the
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