Eli Lilly 2013 Annual Report Download - page 43

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As of December 31, 2013, total debt was $5.21 billion, a decrease of $318.4 million compared with
$5.53 billion at December 31, 2012. The decrease is due primarily to the decrease in fair value of our hedged
debt. We intend to refinance $1.00 billion of debt that is maturing in March 2014. A portion of the interest rate
risk associated with the anticipated refinancing has been hedged through the use of forward-starting interest
rate swaps. See Note 7 to the consolidated financial statements for additional details. We currently have
$1.36 billion of unused committed bank credit facilities, $1.20 billion of which backs our commercial paper
program.
Capital expenditures of $1.01 billion during 2013 were $106.7 million more than in 2012. We expect 2014
capital expenditures to be approximately $1.3 billion 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.
For the 129th consecutive year, we distributed dividend payments to our shareholders. Dividends of $1.96 per
share were paid in both 2013 and 2012. In the fourth quarter of 2013, effective for the dividend to be paid in
the first quarter of 2014, the quarterly dividend was maintained at $0.49 per share, resulting in an indicated
annual rate for 2014 of $1.96 per share.
During 2013, we repurchased the remaining $1.10 billion of shares associated with our $1.50 billion share
repurchase program announced in 2012. In October 2013, we announced a new $5.00 billion share
repurchase program which will be completed over time. We purchased $500.0 million of shares under the
new repurchase program in 2013.
At December 31, 2013, we had an aggregate of $11.61 billion of cash and investments at our foreign
subsidiaries. A significant portion of this amount would be subject to tax payments if such cash and
investments were repatriated to the United States. We record U.S. deferred tax liabilities for certain
unremitted earnings, but when foreign earnings are expected to be indefinitely reinvested outside the U.S., no
accrual for U.S. income taxes is provided. We believe cash provided by operating activities in the U.S. and
planned repatriations of foreign earnings for which tax has been provided should be sufficient to fund our
domestic operating needs, dividends paid to shareholders, share repurchases, and capital expenditures.
Various risks and uncertainties, including those discussed in "Forward-Looking Statements" and "Risk
Factors" may affect our operating results and cash generated from operations.
In December 2013, we lost U.S. patent protection for Cymbalta. In 2014, we will lose U.S. patent protection
for Evista and data package protection for Cymbalta in major European countries. See "Executive Overview—
Legal, Regulatory, and Other Matters" for additional information.
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; and various international government funding
levels.
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.
Our primary interest rate risk exposure results from changes in short-term U.S. dollar interest rates. In an
effort to manage interest rate exposures, we strive to achieve an acceptable balance between fixed and
floating rate debt positions and may enter into interest rate derivatives to help maintain that balance. Based
on our overall interest rate exposure at December 31, 2013 and 2012, including derivatives and other interest
rate risk-sensitive instruments, a hypothetical 10 percent change in interest rates applied to the fair value of
the instruments as of December 31, 2013 and 2012, respectively, would not have a material impact on
earnings, cash flows, or fair values of interest rate risk-sensitive instruments over a one-year period.
Our foreign currency risk exposure results from fluctuating currency exchange rates, primarily the U.S. dollar
against the euro and the Japanese yen, and the British pound against the euro. We face transactional
currency exposures that arise when we enter into transactions, generally on an intercompany basis,
denominated in currencies other than the local currency. We also face currency exposure that arises from