Eli Lilly & Co. (LLY)

Lilly recognizes revenue from sales of products at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership. Provisions for returns, discounts, and rebates are established in the same period the related sales are recognized.

In arrangements involving the delivery of more than one element (e.g., research and development, marketing and selling, manufacturing, and distribution), each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting. Lilly's determination is based on whether the deliverable has "standalone value" to the customer. If a deliverable does not qualify as a separate unit of accounting, it is combined with the other applicable undelivered item(s) within the arrangement and these combined deliverables are treated as a single unit of accounting. The arrangement's consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable.

Initial fees Lilly receives in collaborative and other similar arrangements from the partnering of the compounds under development are generally deferred and amortized into income through the expected product approval date. Initial fees may also be received for out-licensing agreements that include both an out-license of Lilly's marketing rights to commercialized products and a related commitment to supply the products. When Lilly has determined that the marketing rights do not have standalone value, the initial fees received are generally deferred and amortized to income as net product sales over the term of the supply agreement.

Royalty revenue from licensees, which is based on third-party sales of licensed products and technology, is recorded as earned in accordance with the contract terms when third-party sales can be reasonably measured and collection of the funds is reasonably assured. This royalty revenue is included in collaboration and other revenue.

Profit-sharing due from Lilly's collaboration partners, which is based upon gross margins reported to Lilly by the partners, is recognized as collaboration and other revenue as earned.

Developmental milestone payments earned by Lilly are generally recorded in other–net, (income) expense. Lilly immediately recognizes the full amount of developmental milestone payments due to Lilly upon the achievement of the milestone event if the event is objectively determinable and the milestone is substantive in its entirety. A milestone is considered substantive if the consideration earned 1) relates solely to past performance, 2) is commensurate with the enhancement in the pharmaceutical or animal health product's value associated with the achievement of the important event in its development life cycle, and 3) is reasonable relative to all of the deliverables and payment terms within the arrangement. If a milestone payment to Lilly is part of a multiple-element commercialization arrangement and is triggered by the initiation of the commercialization period (e.g., regulatory approval for marketing or launch of the product) or the achievement of a sales-based threshold, Lilly amortizes the payment to income as Lilly performs under the terms of the arrangement.

Source: Eli Lilly & Co., Annual Report

Eli Lilly & Co., Income Statement, Revenues

USD $ in thousands

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Endocrinology
	Oncology
	Cardiovascular
	Neuroscience
	Immunology
	Other human pharmaceutical products
	Human pharmaceutical products
	Animal health products
	Revenue

Source: Eli Lilly & Co. Annual Reports