Eli Lilly 2012 Annual Report Download - page 45

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FINANCIAL CONDITION
As of December 31, 2012, cash and cash equivalents totaled $4.02 billion compared with $5.92 billion at
December 31, 2011. The decrease was driven by net purchases of $3.26 billion in investment securities with
maturities extending beyond one year, dividends paid of $2.19 billion, the maturity and repayment of long-
term debt of $1.50 billion, purchases of property and equipment of $905.4 million, and common stock
repurchases of $721.1 million, partially offset by cash from operations of $5.30 billion, and $1.38 billion in
proceeds from the early payment of Amylin's revenue-sharing obligations and loan.
Capital expenditures of $905.4 million during 2012 were $233.4 million more than in 2011. We expect 2013
capital expenditures to be approximately $900 million as we invest in the long-term growth of our diabetes-
care product portfolio and additional biotechnology capacity while continuing investments to improve the
quality, productivity, and capability of our manufacturing, research, and development facilities.
As of December 31, 2012, total debt was $5.53 billion, a decrease of $1.46 billion compared with $6.99 billion
at December 31, 2011. The decrease is due primarily to the previously mentioned long-term debt maturity and
payment of $1.50 billion. Our current debt ratings from Standard & Poor’s and Moody’s remain AA- and A2,
respectively. Our ratings outlook from both Moody’s and Standard & Poor’s is stable.
Dividends of $1.96 per share were paid in 2012 and 2011. 2012 was the 128th consecutive year in which we
made dividend payments. In the fourth quarter of 2012, effective for the dividend to be paid in the first quarter
of 2013, the quarterly dividend was maintained at $0.49 per share, resulting in an indicated annual rate for
2013 of $1.96 per share.
Both domestically and abroad, we continue to monitor the potential impacts of the economic environment; the
creditworthiness of our wholesalers and other customers, including foreign government-backed agencies and
suppliers; the uncertain impact of recent health care legislation; the federal government's involvement in the
U.S. economy; and various international government funding levels. We continue to focus specifically on the
economic health of the European economy, as heightened economic concerns persist. Currently, we believe
economic conditions in Europe will not have a material impact on our liquidity.
We believe that cash generated from operations, along with available cash and cash equivalents, will be
sufficient to fund our normal operating needs, including dividends, share repurchases, capital expenditures,
and contractual maturities due on debt in 2013. We believe that amounts accessible through existing
commercial paper markets should be adequate to fund short-term borrowings. We currently have
$1.36 billion of unused committed bank credit facilities, $1.20 billion of which backs our commercial paper
program. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" and
Item 1A, “Risk Factors,” may affect our operating results and cash generated from operations.
We depend on patents or other forms of intellectual-property protection for most of our revenues, cash flows,
and earnings. Through 2014, we expect to lose U.S. patent protection for Cymbalta (December 2013) and
Evista (March 2014). The loss of exclusivity for Cymbalta and Evista will likely result in generic competition,
generally causing a rapid and severe decline in revenue from the affected product, and having a material
adverse effect on our results of operations. The U.S. patent for Humalog expires in May 2013. Humalog is
currently protected in Europe only by formulation patents. We do not currently expect the loss of patent
protection for Humalog to result in a rapid and severe decline in revenue. To date, no biosimilar version of
Humalog has been approved in the U.S. or Europe; however, we are aware that other manufacturers have
efforts underway to develop biosimilar forms of Humalog, and it is difficult to predict the likelihood, timing,
and impact of biosimilars entering the market. Our goal is to mitigate the effect of these exclusivity losses on
our operations, liquidity, and financial position through growth in our patent-protected products that do not
lose exclusivity during this period, in the emerging markets, in Japan, and in our animal health business. Our
expected growth in the emerging markets and Japan is attributable to both the growth of these markets and
launches of patent-protected products.
In the normal course of business, our operations are exposed to fluctuations in interest rates and currency
values. These fluctuations can vary the costs of financing, investing, and operating. We address a portion of
these risks through a controlled program of risk management that includes the use of derivative financial
instruments. The objective of controlling these risks is to limit the impact on earnings of fluctuations in
interest and currency exchange rates. All derivative activities are for purposes other than trading.