Eli Lilly 2012 Annual Report Download - page 61

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49
Notes to Consolidated Financial Statements
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)
Note 1: Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP). The accounts of all wholly-owned and majority-
owned subsidiaries are included in the consolidated financial statements. Where our ownership of
consolidated subsidiaries is less than 100 percent, the noncontrolling shareholders’ interests are reflected in
shareholders’ equity. All intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related
disclosures at the date of the financial statements and during the reporting period. Actual results could differ
from those estimates. We issued our financial statements by filing with the Securities and Exchange
Commission and have evaluated subsequent events up to the time of the filing.
All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis, that is,
based on the weighted-average number of outstanding common shares plus the effect of dilutive stock
options and other incremental shares.
Cash equivalents
We consider all highly liquid investments with a maturity of three months or less from the date of purchase to
be cash equivalents. The cost of these investments approximates fair value.
Inventories
We state all inventories at the lower of cost or market. We use the last-in, first-out (LIFO) method for the
majority of our inventories located in the continental United States, or approximately 40 percent of our total
inventories. Other inventories are valued by the first-in, first-out (FIFO) method. FIFO cost approximates
current replacement cost. Inventories at December 31 consisted of the following:
2012 2011
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 834.4 $ 786.4
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735.8 1,518.2
Raw materials and supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256.1 205.8
2,826.3 2,510.4
Reduction to LIFO cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182.5) (210.6)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,643.8 $ 2,299.8
Investments
Substantially all of our investments in debt and marketable equity securities are classified as available-for-
sale. Investment securities with maturity dates of less than one year from the date of the balance sheet are
classified as short-term. Available-for-sale securities are carried at fair value with the unrealized gains and
losses, net of tax, reported in other comprehensive income (loss). The credit portion of unrealized losses on
our debt securities considered to be other-than-temporary is recognized in earnings. The remaining portion
of the other-than-temporary impairment on our debt securities is then recorded in other comprehensive
income (loss). The entire amount of other-than-temporary impairment on our equity securities is recognized
in earnings. We do not evaluate cost-method investments for impairment unless there is an indicator of
impairment. We review these investments for indicators of impairment on a regular basis. Realized gains and
losses on sales of available-for-sale securities are computed based upon specific identification of the initial
cost adjusted for any other-than-temporary declines in fair value that were recorded in earnings. Investments
in companies over which we have significant influence but not a controlling interest are accounted for using