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 SEPTEMBER 30, 1995
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 October 31, 1995:
Class Number of Shares Outstanding
----- ----------------------------
Common 275,764,983
<PAGE>
PART I FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
--------------------------------------
(Dollars in millions except per-share data)
<S> <C> <C> <C> <C>
Net Sales $1,631.9 $1,507.3 $4,964.0 $4,163.2
Cost of sales 419.7 451.4 1,391.6 1,219.3
Research & development 260.6 218.8 757.8 598.3
Acquired research - 58.4 - 58.4
Marketing & administrative 444.1 361.1 1,287.6 971.7
Special charges - - - 66.0
Interest expense 75.6 15.3 214.2 50.7
Other income - net (5.4) (24.5) (89.0) (121.3)
------- ------- ------- -------
1,194.6 1,080.5 3,562.2 2,843.1
------- ------- ------- -------
Income from continuing
operations before income 437.3 426.8 1,401.8 1,320.1
taxes
Income taxes 126.8 131.2 406.5 404.6
----- ----- ------- -------
Income from continuing 310.5 295.6 995.3 915.5
operations
Income from discontinued 917.5 23.1 953.0 80.5
operations, net of tax ----- ---- ------ ------
Net Income $1,228.0 $318.7 $1,948.3 $996.0
======= ====== ======== ======
Earnings per share:
Income from continuing $1.08 $1.02 $3.45 $3.16
operations
Income from discontinued
operations 3.21 .08 3.31 .28
---- ---- ---- ----
Net income $4.29 $1.10 $6.76 $3.44
==== ==== ==== ====
Dividends paid per share $.645 $.625 $1.935 $1.875
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE> -2-
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
September 30, December 31,
1995 1994
------------------------
(Millions)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $976.2 $536.9
Short-term investments 78.8 209.8
Accounts receivable, net of allowances of
$50.9 (1995) and $46.6 (1994) 1,537.0 1,550.2
Other receivables 242.3 284.4
Inventories 834.0 968.9
Deferred income taxes 272.2 245.0
Other current assets 170.5 167.1
------- -------
TOTAL CURRENT ASSETS 4,111.0 3,962.3
OTHER ASSETS
Prepaid retirement 482.1 411.9
Investments 536.6 464.1
Goodwill and other intangibles, net of
allowances for amortization of
$325.8 (1995) and $326.2 (1994) 4,027.1 4,411.5
Sundry 930.1 846.1
------- -------
5,975.9 6,133.6
PROPERTY AND EQUIPMENT
Land, buildings, equipment, and
construction-in-progress 6,755.8 7,026.4
Less allowances for depreciation 2,591.6 2,614.9
------- -------
4,164.2 4,411.5
------- -------
$14,251.1 $14,507.4
========= =========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
CURRENT LIABILITIES
<S> <C> <C>
Short-term borrowings $2,581.2 $2,724.4
Accounts payable 776.1 878.2
Employee compensation 289.5 304.6
Dividends payable - 188.8
Other liabilities 967.4 1,065.1
Income taxes payable 701.1 508.4
------- -------
TOTAL CURRENT LIABILITIES 5,315.3 5,669.5
LONG-TERM DEBT 2,117.8 2,125.8
DEFERRED INCOME TAXES 275.2 188.9
RETIREE MEDICAL BENEFIT OBLIGATION 162.0 170.5
OTHER NONCURRENT LIABILITIES 894.7 997.1
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock 183.0 183.0
Additional paid-in capital 408.0 421.7
Retained earnings 6,670.2 5,062.1
Deferred costs-ESOP (207.0) (218.2)
Currency translation adjustments 6.0 (38.0)
------- -------
7,060.2 5,410.6
Less cost of common stock in treasury 1,574.1 55.0
------- -------
5,486.1 5,355.6
------- -------
$14,251.1 $14,507.4
======== =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE> -3-
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
Nine Months Ended
September 30,
1995 1994
----------------
(Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $1,948.3 $996.0
Adjustments to reconcile net income to cash flows
from operating activities:
Net gain on disposition of discontinued (910.0) -
operations
Changes in operating assets and liabilities (473.0) (410.2)
Change in deferred taxes 136.3 127.7
Depreciation and amortization 419.8 311.7
Acquired research - 58.4
Other items, net (63.4) (94.0)
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,058.0 989.6
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property and equipment (393.1) (348.4)
Additions to intangibles and other assets (1.7) (65.3)
Reduction of investments 327.7 938.1
Additions to investments (228.1) (992.8)
Acquisitions -
------ -------
(295.2) (543.3)
NET CASH USED BY INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (559.9) (542.3)
Purchase of common stock and other capital
transactions (49.9) (42.0)
Net additions(reductions) to short-term (236.1) 219.8
borrowings
Net additions to long-term debt 504.5 346.1
------ -----
NET CASH USED BY FINANCING ACTIVITIES (341.4) (18.4)
Effect of exchange rate changes on cash 17.9 32.1
------ ----
NET INCREASE IN CASH AND CASH EQUIVALENTS 439.3 460.0
Cash and cash equivalents at January 1 536.9 539.6
----- -----
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $976.2 $999.6
====== ======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE> -4-
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 flows 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. Certain 1994 amounts have been reclassified to conform
to the 1995 presentation of discontinued operations.
As presented herein, sales include sales of the Company's life-
sciences products and service revenue from PCS Health Systems,
Inc. (PCS).
CONTINGENCIES
The Company has been named as a defendant in numerous product
liability lawsuits involving primarily two products,
diethylstilbestrol and ProzacR. 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 recoverables 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 primarily HumatropeR and Humulin R. 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 asserted its right to coverage for defense costs in
certain environmental proceedings and has reserved its right to
pursue 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 recoverables.
<PAGE> -5-
The Company has been named, along with numerous other U.S.
prescription drug manufacturers, as a defendant in a large number
of related actions brought by retail pharmacies and consumers
alleging violations of federal and state antitrust and pricing
laws. The federal suits include a class action on behalf of
nearly all U.S. retail pharmacies alleging an industry wide
agreement to deny favorable prices to retail pharmacies. Other
related suits, brought by several thousand pharmacies and also by
consumers, involve claims of price discrimination or claims under
other pricing laws. These suits are presently in discovery.
The product, patent, and environmental liabilities have been
reflected in the Company's consolidated balance sheets at their
gross, undiscounted amounts (approximately $345.5 million at
September 30, 1995). Estimated insurance recoverables appear as
assets in the consolidated balance sheets (approximately $136.7
million at September 30, 1995).
While it is not possible to predict or determine the outcome of
the patent, product liability, antitrust, or other legal actions
brought against the Company, or the ultimate cost of
environmental matters, the Company believes the costs associated
with all such matters will not have a material adverse effect on
its consolidated financial position or liquidity but could
possibly be material to the consolidated results of operations in
any one accounting period.
EARNINGS PER SHARE
Earnings per share are calculated based on the weighted average
number of outstanding common shares.
SPECIAL CHARGES
During the first six months of 1994, 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
these products were resumed during 1994.
ACQUISITIONS
In August 1995, the Company announced that it had entered into a
definitive agreement to acquire Integrated Medical Systems, Inc.
(IMS). IMS develops and operates physician-focused medical
communications networks. The acquisition is subject to approval
by the holders of at least two-thirds of the shares of IMS
common and preferred stock. The Company expects the acquisition
to close in December, 1995, at which time the final purchase
price, which is not expected to be material, will be determined.
On September 9, 1994, the Company completed 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.
The purchase price was approximately $80 million, of which $58.4
million was allocated to in-process research and development
projects, based on an independent valuation. The company
determined that the feasibility of the acquired research had not
yet been established and that the technology had no alternative
future use. Accordingly, this acquired research was charged to
expense in 1994.
<PAGE> -6-
DISCONTINUED OPERATIONS
During the quarter, the Company effectively completed its plan
to divest the Medical Devices and Diagnostics (MDD) Division
businesses. In September, the Company distributed its remaining
80 percent interest in Guidant Corporation (Guidant) through a
split off (an exchange offer pursuant to which Lilly
shareholders could exchange some, all or none of their Lilly
shares for Guidant shares) and announced an agreement for the
sale of Hybritech.
Pursuant to the split off, 16,504,298 shares of the Company's
common stock were exchanged for the Guidant shares owned by the
Company resulting in an increase in the Company's treasury
stock. The split off results in a tax-free gain calculated as
the difference between the market and carrying values of the
shares of Guidant common stock held by the Company on the
expiration date of the exchange offer. In addition, three of
the other MDD companies (IVAC Corporation, Pacific Biotech,
Inc., and Physio Control Corporation) have been sold. The sale
of Hybritech is expected to be completed in January, 1996. A
net gain of $910.0 million, including direct expenses of
disposition, was recognized and reported as a component of
income from discontinued operations in the third quarter. As a
result of the disposition, the assets and liabilities of the MDD
businesses, except Hybritech, have been removed from the
Company's balance sheet.
As a consequence of the divestiture plan, the operating results
of the MDD companies have been reflected as "discontinued
operations" in the Company's financial statements and have been
excluded from consolidated sales and expenses reflected therein.
Income from discontinued operations is composed of the following
for the three and nine months ended September 30, 1995 and 1994:
<TABLE>
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from operations, net
of tax ...................... $7.5 $23.1 $43.0 $80.5
Net gain on disposition, net
of tax ..................... 910.0 - 910.0 -
----- ----- ----- -----
Income from discontinued
operations, net of tax ..... $917.5 $23.1 $953.0 $80.5
====== ===== ====== =====
</TABLE>
STOCK SPLIT
On October 16, 1995, the Company's Board of Directors declared a
two-for-one stock split to be effected in the form of a 100
percent stock dividend payable to shareholders of record at the
close of business November 15, 1995. The outstanding and
weighted average number of shares of common stock and per share
data in these financial statements and exhibits have not been
adjusted to reflect the impact of the stock split. The effect
of the stock split would be to reduce the historical per share
data by 50 percent.
<PAGE> -7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
DISCONTINUED OPERATIONS:
The Company effectively completed the divestiture of the Medical
Devices and Diagnostics (MDD) Division businesses during the
quarter by distributing its remaining 80 percent interest in
Guidant Corporation (Guidant) through a split off (an exchange
offer pursuant to which Lilly shareholders could exchange some or
all their Lilly shares for Guidant shares) and entering into an
agreement to sell Hybritech Incorporated.
As a consequence of the divestiture, the operating results of the
MDD companies have been reflected as "discontinued operations" in
the Company's financial statements and have been excluded from
consolidated sales and expenses reflected therein. As a result
of completion of the divestiture, the Company recognized a net
gain in the third quarter (see Notes to Consolidated Condensed
Financial Statements). All assets, liabilities and equity of the
MDD businesses, except Hybritech, have been removed from the
Company's balance sheet.
OPERATING RESULTS OF CONTINUING OPERATIONS:
The Company's sales for the third quarter increased 8 percent
from the third quarter of 1994. Overall, sales inside and
outside the United States increased 6 percent and 12 percent,
respectively. Compared with the third quarter of 1994, volume
increased sales 8 percent and foreign exchange rates contributed
1 percent to the increase. Selling prices decreased sales 1
percent.
The Company's sales for the first nine months of 1995 increased
19 percent when compared with the same period in 1994. Sales in
the United States increased 16 percent, while sales outside the
United States increased 24 percent. Compared with the first nine
months of 1994, volume increased sales 17 percent and foreign
exchange rates contributed 2 percent, while selling prices
remained stable.
Worldwide sales of pharmaceutical products increased 8 percent
and 20 percent for the third quarter and nine months,
respectively, as compared to the same periods of 1994.
Humatrope, Humulin, PermaxR and Prozac were the major
contributors to the third quarter growth. Prozac sales for the
quarter were $580.7 million, an increase of 7 percent. Growth in
Prozac sales for the quarter was achieved despite an unusually
large accumulation of domestic wholesaler inventories that took
place during the third quarter of 1994. The Company expects
continued growth for Prozac sales through 1995, with total sales
for the year currently expected to exceed $2.0 billion.
Pharmaceutical sales for the quarter increased both inside and
outside the United States. International sales growth of 12
percent for the quarter was led by volume increases due to the
Company's continued globalization efforts, particularly in
emerging markets. The international sales growth for the quarter
was led by increased sales of Humulin and Prozac which were up 22
and 23 percent, respectively. Favorable exchange rates also
contributed to international sales growth.
Total U.S. sales in the third quarter increased 6 percent when
service revenue from PCS is included. Excluding service revenue
from PCS, U.S. sales declined 2 percent due to significant
generic competition for cefaclor. U.S. sales of cefaclor were
$18.4 million for the quarter, a decrease of 71 percent from the
third quarter of 1994. Sales of cefaclor outside the United
<PAGE> -8-
States were flat compared with last year, resulting in an overall
decrease of 27 percent in the third quarter.
The decrease in U.S. cefaclor sales is primarily due to greater
than expected generic competition. Since May 1995, several
companies have been marketing generic forms of cefaclor capsules
in the United States and quantities of the generic product to
date have been greater than anticipated by the Company. Due to
the uncertainty regarding the quantity of available competitive
generic product, the Company cannot predict whether the same rate
of decline in U.S. cefaclor sales will continue over the next two
quarters which coincide with the flu season when cefaclor
prescriptions are typically at their highest levels. The Company
filed suit in Federal District court in Indianapolis against the
companies marketing the generic product asserting infringement of
certain United States process patents in the manufacture of
cefaclor. On August 4, 1995, the district court denied the
Company's motion for a preliminary injunction against the sale of
the product made by the infringed process. The patents at issue
expire in July 1996. There can be no assurance that the Company
will be successful in this litigation.
Worldwide sales of animal health products increased 7 percent in
the third quarter and 12 percent in the first nine months
compared with the same periods last year. These increases
resulted from increased performance across the entire product
line, primarily in the international markets.
Cost of sales was 25.7 percent of sales for the third quarter and
28 percent of sales for the first nine months, as compared to
29.9 percent and 29.3 percent for the third quarter and nine
months of 1994, respectively. These decreases are primarily
attributable to increased production to meet larger product
demands, productivity improvements, manufacturing cost
reductions, product mix and favorable foreign exchange rates
which were partially offset by the inclusion of PCS.
Total operating expenses increased 10 percent for the third
quarter and 21 percent for the nine months compared to the same
periods in 1994. Research and development grew 19 percent and 27
percent for the third quarter and nine months, respectively, over
the same periods in 1994. The large number of compounds in the
later and most expensive phases of clinical trials, primarily
raloxifene, drove the increase in research and development
expenses for both periods. Acquired research expenses of $58.4
million were recognized in the third quarter of 1994 related to
the Company's acquisition of Sphinx Pharmaceuticals Corporation.
The increase in the marketing and administrative expenses (23
percent for the third quarter and 33 percent for the nine months
compared to the same periods in 1994) was caused primarily by the
inclusion of PCS, the efforts to expand the Company's products
globally, particularly in emerging markets, and increased
compensation accruals resulting from the Company's performance-
based bonus programs. Also, special charges of $66 million were
incurred in the first nine months of 1994 relating to the
Company's voluntary recall of three of its liquid oral
antibiotics. The rate of growth of 1995 operating expenses, as
compared with 1994, would have been greater if these items were
not included in the comparisons.
For the third quarter and first nine months of 1995, interest
expense was $75.6 million and $214.2 million, respectively,
compared to $15.3 million and $50.7 million for the same periods
in 1994. The higher level of interest expense in 1995 reflects
the additional borrowings associated with the purchase of PCS.
Net other income of $5.4 million for the third quarter and $89
million for the nine months was $19.1 million lower and $32.3
million lower than the same periods in 1994, due primarily to
the amortization of goodwill related to PCS acquisition
(approximately $25.0 million per quarter). The goodwill
amortization in the third quarter was partially offset by income
from the sale of the U.S. marketing rights to certain products.
For the nine months, in addition to the above, the higher
goodwill amortization was offset
<PAGE> -9-
in part by non-recurring income received under a development
contract and foreign exchange gains.
The Company's estimated tax rate for both the third quarter and
nine months of 1995 was 29 percent compared to 30.7 percent for
the third quarter and 30.6 percent for the nine months in 1994.
The decline is primarily the result of increased earnings outside
the United States where tax rates are lower, particularly in
Ireland, and the effectiveness of various tax strategies.
For the third quarter of 1995, the growth in sales-related gross
margins and the reduced estimated tax rate was partially offset
by the growth in operating expenses, including PCS and the impact
of the PCS acquisition-related expenses, resulting in a 5 percent
increase in income from continuing operations and 6 percent
increase in earnings per share to $310.5 million and $1.08,
respectively, compared to the same period of 1994. During the
third quarter of 1994, earnings per share from continuing
operations of $1.02 were reduced by 14 cents attributable to the
charge for acquired research resulting from the acquisition of
Sphinx Pharmaceuticals Corporation. For the nine months, income
from continuing operations grew 9 percent to $995.3 million and
earnings per share increased 9 percent to $3.45 over the same
period in 1994 primarily as a result of the strong sales growth,
particularly in the first quarter of 1995.
NET INCOME:
Net income increased $909.3 million and $952.3 million for the
third quarter and nine months of 1995, respectively, compared to
the same periods for 1994. Net income for both periods in 1995
was significantly affected by the net gain of $910.0 million
realized from the Company's divestiture of all its MDD
subsidiaries, including Guidant Corporation.
FINANCIAL CONDITION:
As of September 30, 1995, cash, cash equivalents and short-term
investments totaled $1,055.0 million as compared with $746.7
million at December 31, 1994. Total debt at September 30, 1995,
was $4,699.0 million, a decrease of $151.2 million from December
31, 1994. The decrease in debt was primarily due to the split
off of Guidant which resulted in a decrease in short-term
borrowings. Short-term debt is primarily in the form of
commercial paper.
The Company believes that cash generated from operations will be
sufficient to fund operating needs, including debt service,
capital expenditures, and dividends. The Company declared on
October 16, 1995 that cash dividends to shareholders for the
fourth quarter would be increased from $.645 to $.685 per share
on a pre-split basis. This increase in the cash dividend is
nearly twice the most recent increase, and it marks the second
dividend increase for 1995. The Company believes that amounts
available through existing commercial paper programs should be
adequate to fund maturities of short-term borrowings. The
outstanding commercial paper is also backed up by committed bank
credit facilities. In addition, the Company has the ability, if
needed, to issue an additional $500 million of medium or long-
term notes under a shelf registration filed with the Securities
and Exchange Commission (SEC) in the second quarter of 1995.
Common stock held in treasury increased to $1,574.1 million at
September 30, 1995. The increase of $1,519.1 million from
December 31, 1994 was primarily due to the distribution of the
Company's remaining 80 percent interest in Guidant through the
split off (see Discontinued Operations in Management's Discussion
and Analysis). Pursuant to the split off, 16,504,298 shares of
the Company's common stock were exchanged for Guidant shares
resulting in the increase in the Company's treasury stock.
<PAGE> -10-
PART II OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
Reference is made to the discussion of the antitrust litigation
brought by retail pharmacies against the Company and numerous
other U.S. prescription pharmaceutical manufacturers, contained
in the Company's 1994 Annual Report on Form 10-K under Part I,
Item 3, "Legal Proceedings", as supplemented by Part II, Item 1
of the Company's Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995. The related state court case
filed in New York purports to be a class action on behalf of
consumers in that state. Additional related state court cases
have been filed in Arizona and Colorado on behalf of classes of
consumer plaintiffs in those states. On October 5, 1995 the
Washington consumer class action was dismissed. The plaintiffs
are planning to appeal the dismissal.
The Company and the U.S. Department of Justice reached an
agreement concluding the investigation that was begun in 1992 by
a federal grand jury in Baltimore, Maryland regarding the
Company's compliance with Food and Drug Administration
pharmaceutical manufacturing record keeping and reporting
requirements. The agreement, in the form of a civil consent
decree filed on August 14, 1995, provides principally that the
Company will conduct a retrospective review of its record keeping
and reporting practices with respect to selected products and, if
necessary, update its reports to the FDA accordingly. The
Company has also agreed to adhere to reporting policies that are
in full compliance with FDA guidelines. Finally, the Company
agreed to pay $375,000 to defray the government's cost of
investigation. No fines or penalties were assessed, and no
issues were raised by the government regarding the safety or
efficacy of any Lilly product.
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 Charge
27. Financial Data Schedule
99. Attachment to Form 10-Q: Contingent Payment
Obligation Units
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the third
quarter of 1995.
<PAGE> -11-
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 November 13, 1995
-------------------------
s/Daniel P. Carmichael
----------------------
Daniel P. Carmichael
Secretary and Deputy General Counsel
Date November 13, 1995
--------------------------
s/Arnold C. Hanish
------------------------------
Arnold C. Hanish
Director, Corporate Accounting and
Chief Accounting Officer
<PAGE> -12-
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
27. Financial Data Schedule 16
99. Attachment to Form 10-Q:
Contingent Payment Obligation Units 18
<PAGE> -13-
/TEXT>
EXHIBIT 11. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ON PRIMARY
AND FULLY DILUTED BASES
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
----------------------------------------
(Dollars in millions except per share data)
(Shares in thousands)
<S> <C> <C> <C> <C>
PRIMARY:
Net income $1,228.0 $318.7 $1,948.3 $996.0
Average number of common
shares outstanding 286,537 289,070 288,294 289,247
Add incremental shares:
Stock plans and contingent 4,227 2,086 3,911 2,049
payments
Adjusted average shares 290,764 291,156 292,205 291,296
Primary earnings per share $4.22 $1.09 $6.67 $3.42
FULLY DILUTED:
Net income $1,228.0 $318.7 $1,948.3 $996.0
Average number of common
shares outsanding 286,537 289,070 288,294 289,247
Add incremental shares:
Stock plans and
contingent payments 5,248 2,722 5,942 2,745
Adjusted average shares 291,785 291,792 294,236 291,992
Fully diluted earnings
per share $4.21 $1.09 $6.62 $3.41
</TABLE>
Common stock equivalents are not materially dilutive and, accordingly,
have not been considered in the computation of reported net earnings
per common share.
<PAGE> -14-
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS FROM
CONTINUING OPERATIONS TO FIXED CHARGES
(Unaudited)
Eli Lilly and Company and Subsidiaries
(Dollars in Millions)
<TABLE>
Nine Months
Ended
September 30, Years Ended December 31
------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
Consolidated
Pretax Income from
Continuing
Operations $1,401.8 $1,698.6 $662.8 $1,193.5 $1,626.3 $1,418.1
before Accounting
Changes
Interest from
Continuing 243.6 129.2 96.1 108.4 87.1 94.7
Operations
Less Interest
Capitalized
during
the Period from
Continuing (29.4) (25.4) (25.5) (35.2) (48.1) (27.3)
Operations ----- ----- ------ ----- ----- -----
Earnings $1,61.0 $1,802.4 $733.4 $1,266.7 $1,665.3 $1,485.5
====== ======== ====== ======== ======== ========
Fixed Charges:
Interest Expense $243.6 $129.2 $ 96.1 $ 108.4 $ 87.1 $ 94.7
from ====== ====== ====== ======= ======= ========
Continuing
Operations
Ratio of Earnings
to
Fixed Charges 6.6 14.0 7.6 11.7 19.1 15.7
==== ==== === ==== ==== ====
</TABLE>
<PAGE> -15-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 976,205
<SECURITIES> 78,756
<RECEIVABLES> 1,587,861
<ALLOWANCES> 50,910
<INVENTORY> 834,044
<CURRENT-ASSETS> 4,110,951
<PP&E> 6,755,729
<DEPRECIATION> 2,591,545
<TOTAL-ASSETS> 14,251,079
<CURRENT-LIABILITIES> 5,315,253
<BONDS> 2,117,819
<COMMON> 183,005
0
0
<OTHER-SE> 5,303,045
<TOTAL-LIABILITY-AND-EQUITY> 14,251,079
<SALES> 4,778,474
<TOTAL-REVENUES> 4,963,954
<CGS> 1,276,545
<TOTAL-COSTS> 1,391,573
<OTHER-EXPENSES> 2,045,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214,190
<INCOME-PRETAX> 1,401,846
<INCOME-TAX> 406,535
<INCOME-CONTINUING> 995,310
<DISCONTINUED> 953,023
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,948,333
<EPS-PRIMARY> 6.67
<EPS-DILUTED> 6.62
</TABLE>
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)
---------------------------------------------
<TABLE>
THIRD QUARTER NINE MONTHS
------------- -----------
1995 1994* 1993* 1995 1994* 1993*
-------------------- ----------------------
(Millions) (Millions)
<S> <C> <C> <C> <C> <C> <C>
Sales $24.6 $29.8 $33.5 $74.9 $94.9 $113.9
Gross profits $13.2 $14.7 $16.2 $40.2 $46.8 $ 60.4
</TABLE>
*Includes Pacific Biotech, Inc., another subsidiary of Eli Lilly
and Company.
Sales for the third quarter were $24.6 million compared with
$29.8 million during the same period in 1994, a decrease of 17
percent. Sales declines were experienced in the Company's
largest selling product, the prostate cancer test, TandemR
Prostate Specific Antigen (PSA), which continues to experience
increased competition.
Gross profits for the third quarter were $13.2 million compared
with $14.7 million in the same period last year.
In addition, the previously announced sale of Pacific Biotech
Inc. in January, 1995 contributed to the decline in sales and
gross profits.
The Company signed a definitive agreement in September 1995 to
sell Hybritech to Beckman Instruments, Inc. This action follows
the Company's announcement in January 1994 that it would divest
Hybritech as part of its plan to separate its medical devices
and diagnostics businesses from its core pharmaceutical
business. The transaction is expected to close January 2, 1996,
and will have no effect on the CPU's which will expire without
payment.
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 are 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 1995 is $163.8 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.
