SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR QUARTER ENDED JUNE 30, 1994
COMMISSION FILE NUMBER 1-6351
---
ELI LILLY AND COMPANY
(Exact name of Registrant as specified in its charter)
INDIANA 35-0470950
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
LILLY CORPORATE CENTER, INDIANAPOLIS, INDIANA 46285
(Address of principal executive offices)
Registrant's telephone number, including area
code (317) 276-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _____
--------
The number of shares of common stock outstanding as of
July 31, 1994:
Class Number of Shares Outstanding
----- ----------------------------
Common 292,100,954
1
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PART I FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
---------------------------------
(Dollars in millions except per-share data)
<CAPTION>
<S> <C> <C> <C> <C>
Net Sales $1,678.5 $1,561.0 $3,315.5 $3,121.0
Cost of Sales 524.5 469.5 1,042.4 916.1
Research & Development 250.6 233.0 477.8 447.2
Marketing & Administrative 428.3 401.8 802.4 792.7
Special Charges 10.0 - 66.0 -
Other Income - Net (40.9) (35.2) (61.8) (56.7)
------ ----- ------ -----
1,172.5 1,069.1 2,326.8 2,099.3
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Income before Income Taxes and
Cumulative Effect of Change
in Accounting Principles 506.0 491.9 988.7 1,021.7
Income Taxes 159.4 145.1 311.4 301.4
----- ----- ----- -----
Income before Cumulative Effect of
Change in Accounting Principles 346.6 346.8 677.3 720.3
Cumulative Effect of Change in
Accounting Principles
(Net of Taxes) - - - (10.9)
------ ------ ------ ------
Net Income $346.6 $346.8 $677.3 $709.4
====== ====== ====== ======
Earnings Per Share:
Before Cumulative Effect of Change
in Accounting Principles $1.20 $1.18 $2.34 $2.45
Net Income 1.20 1.18 2.34 2.42
Dividends Paid Per Share $.625 $.605 $1.25 $1.21
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
June 30, December 31,
1994 1993
-----------------------------
(Millions)
ASSETS
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $706.8 $539.6
Short-term investments 568.6 447.5
Accounts receivable, net of allowances
of $34.9 (1994) and $32.3 (1993) 995.4 950.1
Inventories 1,131.3 1,103.0
Deferred income taxes 293.3 334.0
Other current assets 303.8 322.9
------- -------
TOTAL CURRENT ASSETS 3,999.2 3,697.1
OTHER ASSETS
Prepaid Retirement 309.1 266.0
Investments 257.9 221.7
Goodwill and other intangibles, net of
allowances for amortization of
$304.4 (1994) and $289.9 (1993) 398.1 405.0
Sundry 924.1 833.6
------- -------
1,889.2 1,726.3
PROPERTY AND EQUIPMENT
Land, buildings, equipment, and
construction-in-progress 6,842.4 6,566.5
Less allowances for depreciation 2,553.3 2,366.3
------- -------
4,289.1 4,200.2
------- -------
10,177.5 $9,623.6
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $676.3 $524.8
Accounts payable 208.7 329.6
Employee compensation 228.6 328.6
Dividends payable - 183.3
Other liabilities 1,041.9 1,115.7
Income taxes payable 392.3 446.0
------- -------
TOTAL CURRENT LIABILITIES 2,547.8 2,928.0
LONG-TERM DEBT 1,173.3 835.2
DEFERRED INCOME TAXES 179.2 127.5
RETIREE MEDICAL BENEFIT OBLIGATION 193.8 183.9
OTHER NONCURRENT LIABILITIES 934.1 980.2
SHAREHOLDERS' EQUITY
Common stock 183.0 183.0
Additional paid-in capital 280.5 294.6
Retained earnings 5,000.8 4,500.9
Deferred costs-ESOP (230.1) (242.8)
Currency translation adjustments (66.4) (163.5)
------- -------
5,167.8 4,572.2
Less cost of common stock in treasury 18.5 3.4
------- -------
5,149.3 4,568.8
------- -------
$10,177.5 $9,623.6
========= ========
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Eli Lilly and Company and Subsidiaries
Six Months Ended
June 30,
1994 1993
----------------
(Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $677.3 $709.4
Adjustments to Reconcile Net Income to
Cash Flows from Operating Activities:
Changes in operating assets and liabilities (405.7) (391.0)
Change in deferred taxes 93.6 42.2
Special charges 13.8 -
Other items, net 108.3 125.8
Cumulative effect of accounting change - 10.9
----- -----
NET CASH FLOWS FROM OPERATING ACTIVITIES 487.3 497.3
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property and equipment (251.1) (284.0)
Additions to intangibles and other assets (47.6) (38.7)
Reduction of investments 645.7 387.1
Additions to investments (801.0) (500.6)
------ ------
NET CASH USED FOR INVESTING ACTIVITIES (454.0) (436.2)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (361.7) (354.2)
Purchase of common stock and other capital
transactions (29.2) (9.2)
Net additions to short-term borrowings 157.2 119.8
Net additions to long-term debt 342.3 211.3
----- -----
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 108.6 (32.3)
Effect of exchange rate changes on cash 25.3 (13.5)
----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 167.2 15.3
Cash and cash equivalents at January 1 539.6 432.4
----- -----
CASH AND CASH EQUIVALENTS AT JUNE 30 $706.8 $447.7
====== ======
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the requirements of Form 10-Q and therefore
do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flow in
conformity with generally accepted accounting principles. In the opinion of
management, the financial statements reflect all adjustments (consisting only
of normal recurring accruals) that are necessary to a fair statement of the
results for the periods shown.
INVENTORIES
Inventories consisted of the following:
June 30, December 31,
1994 1993
----------------------------
Finished products $314.3 $272.5
Work in process 610.8 667.7
Raw materials and supplies 298.6 271.5
------- -------
1,223.7 1,211.7
Less reduction to LIFO cost 92.4 108.7
------- -------
$1,131.3 $1,103.0
======== ========
CONTINGENCIES
The Company has been named as a defendant in numerous product liability lawsuits
involving primarily two products, diethylstilbestrol and Prozac(R). The Company
has accrued for its estimated exposure, including costs of litigation, with
respect to all current product liability claims. In addition, the Company has
accrued for certain future anticipated product liability claims to the extent
the Company can formulate a reasonable estimate of their costs. The Company's
estimates of these expenses are based primarily on historical claims experience
and data regarding product usage. The Company expects the cash amounts related
to the accruals to be paid out over the next several years. The majority of
costs associated with defending and disposing of these suits are covered by
insurance. The Company's estimate of insurance recoveries is based on existing
deductibles, coverage limits, and the existing and projected future level of
insolvencies among its insurance carriers.
The Company is a party to various patent litigation matters involving
Humatrope(R), Humulin(R), bovine somatotropin, and various products within the
Medical Devices and Diagnostics Division. Based upon historical and industry
data, the Company has accrued for the anticipated cost of resolution of the
claims.
Under the Comprehensive Environmental Response, Compensation, and Liability Act,
commonly known as Superfund, the Company has been designated as one of several
potentially responsible parties with respect to certain sites. Under Superfund,
each responsible party may be jointly and severally liable for the entire amount
of the cleanup. The Company also continues remediation of certain of its own
sites. The Company has accrued for estimated Superfund cleanup costs,
remediation, and certain other environmental matters, taking into account, as
applicable, available information regarding site conditions, potential cleanup
methods, estimated costs, and the extent to which other parties can be expected
to contribute to those costs. The Company has reserved its right to pursue
5
<PAGE>
claims for insurance with respect to certain environmental liabilities.
However, because of uncertainties with respect to the timing and ultimate
realization of those claims, the Company has not recorded any environmental
insurance recoveries.
The product, patent, and environmental liabilities have been reflected in the
Company's consolidated balance sheets at their gross amounts (approximately $492
million at June 30, 1994). Estimated insurance recoverables appear as assets in
the consolidated balance sheets (approximately $168 million at June 30, 1994).
While it is not possible to predict or determine the outcome of the patent,
product liability, or other legal actions brought against the Company, or the
ultimate cost of environmental matters, the Company continues to believe the
costs associated with all such matters will not have a material adverse effect
on its consolidated financial position.
EARNINGS PER SHARE
Earnings per share for 1994 are calculated based on the average number of
outstanding common shares. For 1993 earnings per share were calculated on a
fully diluted basis based on the average number of outstanding common shares
and common share equivalents (primarily stock options). The difference in
earnings per share calculated under these methods is not material.
ACCOUNTING CHANGES
During the first quarter of 1994, the Company adopted two new accounting
pronouncements. Effective January 1, 1994, the Company's debt and equity
investments have been accounted for under the provisions of FAS 115,
"Accounting For Certain Investments in Debt and Equity Securities". All
"available-for-sale" securities have been marked to market with unrealized
holding gains and losses reported as a net amount in shareholders' equity.
There was no income statement impact of this accounting change.
Also, beginning in 1994, the Company implemented the provisions of AICPA
Statement of Position 93-6, "Employers' Accounting For Employee Stock
Ownership Plans". The principal impact of the adoption was to reduce the
average shares outstanding for the quarter by 3.3 million which represents
shares owned by the ESOP that have not been allocated to participants'
accounts.
Effective January 1, 1993, the Company elected the early adoption of FAS 112,
"Employers' Accounting for Postemployment Benefits." FAS 112 requires
employers to recognize currently the obligation to provide postemployment
benefits to former or inactive employees and others. Prior to 1993, the
Company expensed these obligations when paid.
SPECIAL CHARGES
During the first six months the company incurred $66 million of pre-tax
charges associated with the March 31 voluntary recall of three of the
Company's liquid oral antibiotics. The recall, which was initiated by the
Company after consultation with the FDA, was made after four instances were
reported of small plastic caps being found in the antibiotics. Shipments of
certain products were resumed during the second quarter.
SUBSEQUENT EVENTS
In July, 1994, the Company announced that it had entered into a definitive
agreement with McKesson Corporation for the Company to purchase PCS Health
Systems, Inc. (PCS), McKesson's pharmacy benefit management business, for $4
billion in cash. The acquisition is subject to federal regulatory clearance,
acceptance of a tender offer by the holders of a majority of the shares of
6
<PAGE>
McKesson common stock, and certain other conditions. Prior to the completion of
the tender offer, McKesson will spin off to its shareholders all of its
businesses other than the pharmacy benefit management business. The Company
plans to finance the acquisition by borrowing $4 billion in short-term and
intermediate-term debt. The pharmacy benefit management business of McKesson,
which is conducted primarily through PCS, had revenues of $173.4 million and net
income of $25.6 million for the fiscal year ended March 31, 1994.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS:
The Company's sales for the second quarter of 1994 increased 8 percent from the
second quarter of 1993. Overall, sales inside and outside the United States
increased 9 percent and 5 percent, respectively. Compared with the second
quarter of 1993, the increase in sales was due primarily to volume which
increased 11 percent, while prices decreased 3 percent and the foreign exchange
rates effect was negligible.
The Company's sales for the first six months of 1994 increased 6 percent when
compared with the same period in 1993. Sales outside the United States
increased 8 percent, while sales in the United States increased 5 percent.
Compared with the first six months of 1993, volume increased 9 percent, while
prices and foreign exchange rates had a 2 percent and 1 percent unfavorable
impact, respectively.
Worldwide sales of pharmaceutical products, led by Prozac, increased 8 percent
in the second quarter compared with the same period last year. Strong worldwide
growth of Prozac more than offset declining anti-infective sales due to global
competitive pressures. Other products contributing to the growth in sales of
worldwide pharmaceutical products were Axid(R), Humatrope, and Humulin. While
pharmaceutical sales increased both inside and outside the United States, the
domestic market was largely responsible for the record performances of
pharmaceutical products worldwide for this quarter. Volume increased 11% in
both the domestic and international markets. Pharmaceutical sales growth in the
U.S. was negatively affected by downward pressure on prices due to higher
federally-mandated Medicaid rebates and increased participation in managed-care
programs, by continued competition in the Company's anti-infectives product line
and the continued decline in sales of Dobutrex(R) due to the expiration of its
U.S. patent. For the first six months, worldwide pharmaceutical sales increased
6 percent.
Sales of medical devices and diagnostics (MDD) products increased 8 percent in
the second quarter and 10% the first six months. Growth for the quarter was led
by IVAC Corporation, Cardiac Pacemakers, Inc. (CPI) and Physio-Control
Corporation. IVAC benefited from sales of its Medsystem III infusion pump,
while CPI's sales growth can be attributed primarily to sales of the Endotak(R)
lead system. Physio-Control's results were attributed to the resumption of
domestic shipments of its Lifepak(R) product line. Sales at other companies
within the MDD division continued to reflect competitive pressures.
Worldwide sales of animal health products increased 4 percent in the second
quarter and 5 percent in the first six months compared with the same periods
last year. The increase in the quarter was due to growth in international sales
that was partially offset by a decline in domestic sales. Strong international
growth can be attributed to Monensin(R) and Tylan(R).
Cost of sales in the second quarter was 31.2 percent of sales, approximately 1
percentage point higher than the second quarter of 1993. During the first six
months, manufacturing costs increased to 31.4 percent of sales compared with
29.4 percent for the same period in 1993. The increase is primarily the result
of reduced annual production requirements designed to reduce levels of certain
in-process inventory. The Company expects this higher level of cost of sales to
continue throughout the year.
Operating expenses for the second quarter reflect an additional special pre-tax
charge of $10 million related to the first-quarter recall of oral antibiotics.
The total charge incurred for the Company's recall for the first six months is
$66 million.
8
<PAGE>
Other operating expenses increased 7 percent in the second quarter and 3 percent
in the first six months compared with the same periods in 1993. The operating
expense savings attributed to the positive effects of the 1993 early-retirement
program and ongoing expense management programs have been offset primarily by
expanded research efforts, in both global clinical trials, reflecting the large
number of compounds entering the final phases of clinical research, and internal
discovery programs. Additionally, marketing expenses increased due to the
start-up of certain new disease-state management programs. Administrative
expenses included, among other things, higher legal fees associated with
certain ongoing litigation.
Other income increased in the second quarter and the first six months compared
with the same periods in 1993, due primarily to higher net interest income from
higher interest rates and reduced foreign exchange losses. The Company's 1994
estimated tax rate was 31.5 percent in the second quarter and first six months
of 1994 compared with a tax rate of 29.5 percent for the same periods in 1993.
The increase in the tax rate was due to the higher statutory rate and reduced
Puerto Rican tax benefit.
For the second quarter, net income was essentially equal to the 1993 level,
while earnings per share increased 2 percent when compared with 1993. Net
income and earnings per share for the first half of 1994 decreased 5 percent and
3 percent respectively from 1993. Net income and earnings per share for the
first six months of 1994 were negatively affected by the recall-related special
charge.
FINANCIAL CONDITION:
As of June 30, 1994, cash, cash equivalents and short-term investments totaled
$1,275.4 million as compared with $987.1 million at December 31, 1993. Total
debt at June 30, 1994, was $1,849.6 million, an increase of $489.6 million from
December 31, 1993.
In April, the Company announced that it had signed a definitive agreement for
the acquisition of Sphinx Pharmaceuticals Corporation, a company engaging in
drug discovery and development by generating combinatorial chemistry libraries
of small molecule compounds and high throughput screening against biological
targets central to human diseases.
Under the terms of the definitive agreement, the aggregate purchase price will
be approximately $80 million. The transaction is subject to the approval of
Sphinx stockholders. A special meeting of Sphinx stockholders is scheduled
during August to vote on the transaction.
Lawsuits have been filed by certain Sphinx stockholders seeking, among other
things, to enjoin Sphinx and Lilly from proceeding with the proposed
transaction. Sphinx believes the acquisition is in the best interests of the
company and its stockholders. Accordingly, Sphinx intends to defend the
lawsuits vigorously and to submit the definitive agreement for approval by
stockholders at the earliest practicable date.
In June the Company announced its intention to form a new company, Guidant
Corporation, that will be publicly owned and will consist of five of its nine
Medical Devices and Diagnostics (MDD) Division businesses and headquarters
staff. The five MDD businesses that will comprise Guidant are Advanced
Cardiovascular Systems, Inc.; Cardiac Pacemakers, Inc.; Devices for Vascular
Intervention, Inc.; Origin Medsystems, Inc.; and Heart Rhythm Technologies, Inc.
On July 29, the Company sold Physio-Control Corporation to Bain Capital, Inc.
The Company is continuing its efforts to sell the remaining three businesses
within the division.
9
<PAGE>
On June 8, 1994, three of the aforementioned Guidant businesses, Advanced
Cardiovascular Systems, Inc., Cardiac Pacemakers, Inc., and Devices for Vascular
Intervention, Inc. entered into three revolving credit agreements aggregating
$700 million. The proceeds from the bank facility will be used to fund
dividends to Lilly and to purchase certain Lilly MDD assets. On June 16, 1994,
$318 million of the facility was drawn down. Guidant will offer the public up
to 20% of its common stock (thereby reducing Lilly's ownership to 80%) through
an initial public offering planned during the fourth quarter of 1994. It is
expected that by the end of 1994, a portion of the proceeds from the initial
public offering will be used to reduce borrowing under the bank facility.
OTHER MATTERS:
In July, 1994, the Company announced that it had entered into a definitive
agreement with McKesson Corporation for the Company to purchase PCS Health
Systems, Inc., McKesson's pharmacy benefit management business, for $4 billion
in cash. The acquisition is subject to federal regulatory clearance, acceptance
of a tender offer by the holders of a majority of the shares of McKesson common
stock, and certain other conditions. It is anticipated that required approvals
will allow the acquisition to be completed by late September or early October.
Prior to the completion of the tender offer, McKesson will spin off to its
shareholders all of its businesses other than its pharmacy benefit management
business. The Company plans to finance the acquisition by borrowing $4 billion
in short-term and intermediate-term debt. The pharmacy benefit management
business of McKesson, which is conducted primarily through PCS, had revenues of
$173.4 million and net income of $25.6 million for the fiscal year ended March
31, 1994.
Following the announcement of the proposed PCS acquisition, Standard & Poor's
ratings group and Moody's Investors Service, Inc. announced that they had placed
the long-term debt ratings of the Company under review for possible downgrade.
Ratings on the long-term debt are currently AAA from Standard & Poor's and Aa1
from Moody's. The Company's short-term debt ratings of A-1+ and P-1 were
reaffirmed and are not under review.
10
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PART II OTHER INFORMATION
----------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on April 18, 1994. The
following is a summary of the matters voted on at the meeting.
(a) Election of Directors to serve three-year terms ending at the Company's
1997 annual meeting:
Nominee For Withhold Vote
------- --- ------------
Kenneth L. Lay 255,574,614 2,029,588
Stephen A. Stitle 251,305,907 6,298,295
Sidney Taurel 255,661,285 1,942,917
Alva O. Way 254,734,581 2,869,621
Richard D. Wood 194,415,898 63,188,304
(b) Ratification of appointment of Ernst & Young as the Company's principal
independent auditors:
For: 256,249,584
Against: 763,374
Abstain: 591,244
(c) Approval of the Company's 1994 Lilly Stock Plan:
For: 231,224,528
Against: 25,060,323
Abstain: 1,319,351
11
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following documents are filed as exhibits to this
------- Report:
11. Statement re: Computation of Earnings Per Share on
Primary and Fully Diluted Bases
12. Statement re: Computation of Ratio of Earnings to
Fixed Charges
99. Attachment to Form 10-Q: Contingent Payment
Obligation Units
(b)Reports on Form 8-K. During the quarter for which this report is
------------------- filed, the Company filed no reports on
Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELI LILLY AND COMPANY
---------------------
(Registrant)
Date August 11, 1994 s/Daniel P. Carmichael
--------------- ----------------------
Daniel P. Carmichael
Secretary and Deputy General Counsel
Date August 11, 1994 s/Arnold C. Hanish
--------------- ----------------------
Arnold C. Hanish
Director, Corporate Accounting
and Chief Accounting Officer
12
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INDEX TO EXHIBITS
The following documents are filed as a part of this Report:
Exhibit Page
11. Statement re:
Computation of Earnings Per Share
on Primary and Fully Diluted Bases 14
12. Statement re:
Computation of Ratio of Earnings
to Fixed Charges 15
99. Attachment to Form 10-Q:
Contingent Payment Obligation Units 16
13
<PAGE>
EXHIBIT 11. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ON PRIMARY
AND FULLY DILUTED BASES
(Unaudited)
Eli Lilly and Company and Subsidiaries
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
------------------------------
(Dollars in millions except per-share data)
(Shares in thousands)
PRIMARY:
Net income $346.6 $346.8 $677.3 $ 709.4
Average number of common shares
outstanding 289,259 292,686 289,336 292,687
Add incremental shares:
Stock plans and contingent
payments 2,352 853 2,030 896
Adjusted average shares 291,611 293,539 291,366 293,583
Primary earnings per share $1.19 $1.18 $2.32 $2.42
FULLY DILUTED:
Net income $346.6 $346.8 $677.3 $709.4
Average number of common shares
outstanding 289,259 292,686 289,336 292,687
Add incremental shares:
Stock plans and contingent
payments 2,840 860 2,593 898
Adjusted average shares 292,099 293,546 291,929 293,585
Fully diluted earnings per share $1.19 $1.18 $2.32 $2.42
14
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EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Eli Lilly and Company and Subsidiaries
Six Months
Ended June 30, Years Ended December 31,
------------- ------------------------------------
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
Consolidated
Pretax Income before
Accounting Changes $988.7 $701.9 $1,182.3 $1,879.2 $1,599.0 $1,329.9
Interest 47.8 96.7 109.1 88.9 93.8 57.1
Less Interest Capitalized
during the Period (12.1) (25.5) (37.4 ) (49.1) (27.4) (15.8)
----- ----- ----- ----- ---- -----
Earnings $1,024.4 $773.1 $1,254.0 $1,919.0 $1,665.4 $1,371.2
======== ====== ======== ======= ======= ========
Fixed Charges:
Interest Expense $ 47.8 $ 96.7 $ 109.1 $ 88.9 $ 93.8 $ 57.1
======= ===== ======= ====== ======= ======
Ratio of Earnings to
Fixed Charges 21.4 8.0 11.5 21.6 17.8 24.0
==== === ==== ==== ==== ====
15
<PAGE>
EXHIBIT 99. ATTACHMENT TO FORM 10-Q: CONTINGENT PAYMENT OBLIGATION UNITS
In connection with the acquisition of Hybritech Incorporated by the Company
on March 18, 1986, the Company issued Contingent Payment Obligation Units
(CPUs). The following information is provided relative to the CPUs.
Hybritech Sales and Gross Profits (Unaudited)
- ---------------------------------------------
SECOND QUARTER FIRST HALF
-------------- ----------
1994* 1993* 1992* 1994* 1993* 1992*
---------------------- --------------------
(Millions) (Millions)
Sales $32.7 $40.1 $44.3 $65.1 $80.3 $91.2
Gross profits $17.0 $22.5 $25.1 $32.2 $44.2 $53.5
* Includes results of Pacific Biotech, Inc., another subsidiary of Eli Lilly
and Company.
Sales for the second quarter were $32.7 million compared with $40.1 million
during the same period in 1993, a decrease of 18 percent. Sales declines
were experienced in both domestic and international markets as the Company's
prostate cancer test, Tandem(R) Prostate Specific Antigen (PSA) continues to
experience increased competition.
Gross profits for the second quarter were $17.0 million compared with $22.5
million in the same period last year.
Computation of Contingent Payment Obligation Unit Payment
- ---------------------------------------------------------
CPU holders are entitled to receive cash payments based upon the annual sales
and gross profits of Hybritech over the period ending December 31, 1995 if
certain performance criteria are achieved. The total amount payable for each
year will equal the sum of 6 percent of Hybritech's sales and 20 percent of
Hybritech's gross profits for that year, less a deductible amount. Sales is
defined in the Indenture governing the CPUs to include net sales of products
and royalties but to exclude contract revenues. Gross profits are the excess
of sales over costs of products sold and do not represent the net income of
Hybritech. The deductible amount was $11 million for 1986 and increases by
35 percent in each subsequent year. The deductible for 1994 is $121.4
million. The total amount payable, if any, is then divided by 12,933,894 to
determine the payment per CPU. The maximum payment that may be made on each
CPU if the criteria are achieved cannot, however, exceed $22. No payments
have been made to date.
16
<PAGE>
