Eli Lilly & Co. (LLY) | Analysis of Investments

Investment Accounting Policy

Substantially all of Eli Lilly's 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 Eli Lilly's debt securities considered to be other-than-temporary is recognized in earnings. The remaining portion of the other-than-temporary impairment on Eli Lilly's debt securities is then recorded in other comprehensive income (loss). The entire amount of other-than-temporary impairment on Eli Lilly's equity securities is recognized in earnings. Eli Lilly does not evaluate cost-method investments for impairment unless there is an indicator of impairment. Eli Lilly reviews 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 Eli Lilly has significant influence but not a controlling interest are accounted for using the equity method with share of earnings or losses reported in other—net, expense. Eli Lilly owns no investments that are considered to be trading securities.

Source: Eli Lilly & Co., Annual Report

Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Eli Lilly & Co., adjustment to Net Income (loss)

	12 months ended	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Net income (loss) (as reported)
	Add: Net unrealized gains (losses) on securities, net of income taxes
	Net income (loss) (adjusted)

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Eli Lilly & Co., adjusted ratios

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Net Profit Margin
	Reported net profit margin	%	%	%	%	%
	Adjusted net profit margin	%	%	%	%	%
	Return on Equity (ROE)
	Reported ROE	%	%	%	%	%
	Adjusted ROE	%	%	%	%	%
	Return on Assets (ROA)
	Reported ROA	%	%	%	%	%
	Adjusted ROA	%	%	%	%	%

Adjusted Net Profit Margin

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	As Reported
	Net income (loss) (USD $ in thousands)
	Revenue (USD $ in thousands)
	Net profit margin1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (loss) (USD $ in thousands)
	Revenue (USD $ in thousands)
	Adjusted net profit margin2	%	%	%	%	%

2011 Calculations

Adjusted Return On Equity (ROE)

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	As Reported
	Net income (loss) (USD $ in thousands)
	Shareholders’ equity attributable to parent (USD $ in thousands)
	ROE1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (loss) (USD $ in thousands)
	Shareholders’ equity attributable to parent (USD $ in thousands)
	Adjusted ROE2	%	%	%	%	%

2011 Calculations

Adjusted Return On Assets (ROA)

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	As Reported
	Net income (loss) (USD $ in thousands)
	Total assets (USD $ in thousands)
	ROA1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (loss) (USD $ in thousands)
	Total assets (USD $ in thousands)
	Adjusted ROA2	%	%	%	%	%

2011 Calculations