Eli Lilly 2011 Annual Report Download - page 61

FORM 10-K
Severance
Severance costs listed above, substantially all of which have been paid, are primarily the result of the 2009 initiative
to reorganize global operations, streamline various functions of the business, and reduce total employees, as well as
other previously announced strategic actions to reduce our cost structure and global workforce. Included in the 2009
severance charges is $61.1 million related to the sale of our Tippecanoe Laboratories manufacturing site, which is
further described below.
Asset Impairments and Other Special Charges
For the year ended December 31, 2011, we incurred $149.6 million of asset impairments and other special charges
primarily consisting of $85.0 million for returned product and contractual commitments related to the withdrawal of
Xigris from the market and $56.1 million related to our decision to vacate certain leased premises, a decision that
was as a result of our 2009 initiative to reorganize global operations, streamline various functions of the business,
and reduce total employees.
For the year ended December 31, 2010, we incurred $50.0 million of asset impairments and other special charges
primarily consisting of lease termination costs and asset impairments outside the United States.
In 2009, we recognized non-cash asset impairments and other special charges of $363.7 million primarily due to the
sale of our Tippecanoe Laboratories manufacturing site to an affiliate of Evonik Industries AG (Evonik) in early 2010.
In connection with the sale of the site, we entered into a nine-year supply and services agreement, whereby Evonik
will manufacture final and intermediate step API for certain of our human and animal health products. The fair value
of assets used in determining impairment charges was based on contracted sales prices.
Product Liability and Other Special Charges
In 2009, we incurred other special charges of $230.0 million related to advanced discussions with the attorneys
general for several states, seeking to resolve their Zyprexa-related claims. The charges represented the then-
current probable and estimable exposures in connection with the states’ claims. Refer to Note 15 for additional
information.
Note 6: Financial Instruments
Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-
bearing investments. Wholesale distributors of life-sciences products account for a substantial portion of trade
receivables; collateral is generally not required. The risk associated with this concentration is mitigated by our
ongoing credit-review procedures and insurance. Major financial institutions represent the largest component of our
investments in corporate debt securities. In accordance with documented corporate policies, we limit the amount of
credit exposure to any one financial institution or corporate issuer. We are exposed to credit-related losses in the
event of nonperformance by counterparties to risk-management instruments but do not expect any counterparties to
fail to meet their obligations given their high credit ratings.
At December 31, 2011, we had outstanding foreign currency forward commitments to purchase 494.3 million British
pounds and sell 583.4 million euro, and commitments to purchase 1.61 billion euro and sell 2.11 billion U.S. dollars,
which will all settle within 30 days.
At December 31, 2011, approximately 90 percent of our total debt is at a fixed rate. We have converted approximately
70 percent of our fixed-rate debt to floating rates through the use of interest rate swaps.
The Effect of Risk Management Instruments on the Statement of Operations
The following effects of risk-management instruments were recognized in other—net, expense:
2011 2010 2009
Fair value hedges
Effect from hedged fixed-rate debt ............................................ $ 259.6 $ 149.6 $(369.5)
Effect from interest rate contracts ............................................ (259.6) (149.6) 369.5
Cash flow hedges
Effective portion of losses on interest rate contracts reclassified from accumulated
other comprehensive loss .................................................. 9.0 9.0 10.2
Net losses on foreign currency exchange contracts not designated as hedging
instruments ............................................................... 97.4 12.0 82.6
The effective portion of net gains (losses) on equity contracts in designated cash flow hedging relationships recorded
in other comprehensive income (loss) was $35.6 million, $(35.6) million, and $0.0 million for the years ended
December 31, 2011, 2010, and 2009, respectively. The effective portion of net gains on interest rate contracts in
designated cash flow hedging relationships recorded in other comprehensive income (loss) was $0.0 million,
$0.0 million, and $38.0 million for the years ended December 31, 2011, 2010, and 2009 respectively.
We expect to reclassify $9.0 million of pretax net losses on cash flow hedges of the variability in expected future
interest payments on floating rate debt from accumulated other comprehensive loss to earnings during the next
12 months.
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