Eli Lilly and Company Annual Report 2010

FY2010 Annual Report · Eli Lilly and Company

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G e t t i n g T h e r e

Eli Lilly and Company
2010 Annual Report
Notice of 2011 Annual Meeting
Proxy Statement

Getting There

The Lilly Promise

The path to Lilly’s future is a pipeline, and a bridge.

The future of our company depends on bringing to
patients innovative medicines that address unmet medical
needs. We have a robust pipeline of promising molecules.
To reach its future potential, Lilly must ﬁrst bridge a period
we call “Years YZ” when we face a series of major patent
expirations—including expiration of the U.S. patent for
Zyprexa® in late 2011.

We have been preparing for YZ in a number of ways:
Achieving volume-driven revenue growth, along with cost
savings, to deliver consistently solid earnings based on our
currently marketed products. Building growth engines—in
Japan, in key emerging markets, and in our animal health
business—that can deliver new revenues through the YZ
period. And aggressively pursuing business-development
opportunities that strengthen our ﬁnancial and commercial
position.

We believe these efforts will allow us to generate
operating cash ﬂow sufﬁcient to carry out our innovation-
based strategy, reward shareholders, and reach the future—
successfully and independently—with bright prospects for
continued growth.

Our Mission
Lilly makes medicines that help people live longer,
healthier, more active lives.

Our Values
Integrity | Excellence | Respect for People
We promise to operate our business with absolute
integrity and earn the trust of all, set the highest
standards for our performance and for the performance
of our products, and demonstrate caring and respect
for all those who share in our mission and are touched
by our work.

Our Vision
We will make a signiﬁcant contribution to humanity by
improving global health in the 21st century. Starting
with the work of our scientists, we will place improved
outcomes for individual patients at the center of what
we do. We will listen carefully to understand patient
needs and work with health care partners to provide
meaningful beneﬁts for the people who depend on us.

Our Strategy
We will create value for all our stakeholders by accel-
erating the ﬂow of innovative medicines that provide
improved outcomes for individual patients.

Year in Review
1 Financial Highlights
2 Letter to Shareholders
7 Pipeline of Molecules in Clinical Development

Form 10-K
2 Products
17 Results of Operations
34 Consolidated Statements of Operations
35 Consolidated Balance Sheets
36 Consolidated Statements of Cash Flows
37 Consolidated Statements of Comprehensive Income (Loss)
38 Segment Information
39 Selected Quarterly Data
40 Selected Financial Data
42 Notes to Consolidated Financial Statements
73 Management’s Reports
74 Reports of Independent Registered Public Accounting Firm

For more information on Lilly’s commitment to corporate
responsibility, please see the inside back cover of this report.

Proxy Statement
1 Notice of 2011 Annual Meeting and Proxy Statement
2 General Information
6 Board of Directors
10 Highlights of the Company’s Corporate Governance Guidelines
15 Committees of the Board of Directors
16 Membership and Meetings of the Board and Its Committees
17 Directors’ Compensation
19 Directors and Corporate Governance Committee Matters
21 Audit Committee Matters
23 Compensation Committee Matters
25 Compensation Discussion and Analysis
38 Executive Compensation
49 Ownership of Company Stock
51
56 Other Matters
57 Appendix A
60 Appendix B
64 Executive Committee and Senior Leadership
66 Corporate Information
67 Annual Meeting Admission Ticket

Items of Business To Be Acted Upon at the Meeting

2010 Financial Highlights

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)

Year Ended December 31

2010

2009

Change %

Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,076.0

$21,836.0

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,884.2

4,326.5

Research and development as a percent of revenue . . . . . . . . . . . . . .

21.2%

19.8%

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,069.5

$ 4,328.8

Earnings (loss) per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items1: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in-process research and development (IPR&D) . . . . . .
Asset impairments, restructuring, and other special charges. . .
Non-GAAP earnings per share—diluted . . . . . . . . . . . . . . . . . . . . . . . .

Dividends paid per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.58

.03
.13
4.74

1.96

3.94

.05
.42
4.422

1.96

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

694.3

765.0

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,350

40,360

—

(9)

(5)

1 For more information on these reconciling items, see the Financial Results section of the Executive Overview
on page 17 of the Form 10-K.
2 Numbers in the 2009 column do not add due to rounding.

Revenue Grows Across Therapeutic Areas
($ millions, percent growth)

$9,419.0
+5%

Revenue in Neuroscience,
led by Zyprexa and
Cymbalta, increased
5 percent compared
to 2009 and represents
41 percent of our
2010 total revenue.
Endocrinology, led
by Humalog,
Humulin, and Evista,
increased 2 percent
and represents 27 per-
cent of total revenue.
Despite a 16 percent drop
in Gemzar sales due to
patent losses, Oncology
grew by 8 percent and
represents 16 percent of
total revenue. Cardio-
vascular increased by
10 percent and repre-
sents 9 percent of total
revenue.

$6,135.4
+2%

$3,744.5
+8%

$2,171.3
+10%

$1,391.4
+15%

$214.4
+4%

Neuroscience
Endocrinology
Oncology
Cardiovascular
Other Pharmaceutical
Animal Health

Return on Assets and Shareholders’ Equity

Revenue Per Employee Continues to Increase
($ thousands, percent growth)

%
1
1
+

In 2010, we continued our
progress on productivity.
Revenue per employee
increased 11 percent to
$602,000.

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ROA increased from
2009 primarily due to
strong net income
growth in 2010. ROE
also showed strong
results for the second
year in a row also due
to strong net income
growth.

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Return on Assets (ROA)

Return on Shareholders’ Equity (ROE)

Eight Products Exceed $1 Billion in Revenue
($ millions)

To Our Shareholders

This year marks the 135th anniversary of the founding
of Eli Lilly and Company. It also formally marks the
beginning of a period of major patent expirations we call
“Years YZ,” when Zyprexa® goes off patent in late 2011
in the United States. For all intents and purposes, we’re
already managing through the impact of YZ in many of
our markets—including the United States, where generic
versions of our anti-cancer medicine Gemzar® entered the
market last November.

The loss of Zyprexa and other patented products will
hurt our top-line and bottom-line performance. Yet, we’ve
seen this coming and we’re prepared, with a strategy we
believe will create the greatest value for our shareholders,
employees, and society: accelerating the ﬂow of innova-
tive medicines that provide improved outcomes for
individual patients.

We have a robust and exciting pipeline, and we advanced
a number of promising molecules in 2010.

We see strong growth ahead for many
of our current products, and we’re
among the fastest-growing compa-
nies in three important areas that
will provide countercyclical growth
opportunities through the YZ period:
Japan, key emerging markets, and our
Elanco animal health business.

Our ﬁnancial strength and strong
current performance enable us to
continue to pursue business develop-
ment, to make capital investments,
and to maintain the dividend to our
shareholders. In short, Lilly is well
positioned to bridge YZ and emerge
even stronger.

Eight products
and one product
line—Zyprexa,
Cymbalta, Alimta,
Humalog, Cialis,
Gemzar, Humulin,
and Evista, along
with animal
health—exceeded
$1 billion in 2010.
Alimta grew 29 per-
cent primarily due
to continued sales
growth in the U.S.
and Japan.

$5,000

$4,000

$3,000

$2,000

$1,000

In this letter, I want to provide a broad
look at how we’re approaching this
challenge with a focus on sustained growth:

• First, I’ll review how we’re preparing for YZ in the near
term, by continuing to generate strong performance
and taking full advantage of key growth engines.

• Second, I’ll discuss how we’re using business develop-
ment to bolster revenue and cash ﬂow in the medium
term—and, in particular, the investment we’re mak-
ing to reclaim leadership in diabetes.

• And lastly, I’ll highlight important molecules in our
pipeline—the key to our long-term future—and
discuss how we continue to reenergize our innova-
tion engine to resume growth.

Near Term: Operating effectively and accelerating our
growth engines

In 2010, Eli Lilly and Company posted strong ﬁnancial
performance, highlighted by volume-driven revenue
growth of 6 percent. Eight pharmaceutical products—plus
our animal health business—each exceeded $1 billion in
annual revenues. In the 12 months ending September
2010—the most recent period for which we have compa-
rable data from IMS Health—Lilly’s worldwide revenue
growth rate was the second-highest among the top 10
global pharmaceutical companies.

We were able to leverage this revenue growth into
even higher net income growth as we made continued
progress containing costs, even as we sustained our
substantial investment in R&D. Reported net income and
earnings per share increased to $5.070 billion and $4.58,
respectively, compared with full-year 2009 net income
of $4.329 billion and earnings per share of $3.94. On a
non-GAAP basis, which excludes
items totaling $0.16 and $0.48 for
2010 and 2009, respectively, net
income and earnings per share
increased 8 percent and 7 percent, to
$5.241 billion and $4.74, respectively.
Our strong operating performance,
along with prudent management
of working capital, generated some
$6.9 billion of operating cash ﬂow.

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We generated solid volume growth
in our current products in 2010. We
fended off a patent challenge to our
fastest-growing medicine, Alimta®,
and secured a six-month pediatric
extension of U.S. market exclusivity.
We received FDA approval for an-
other important pain indication for
Cymbalta®—chronic musculoskeletal
pain—which will have launched in

the U.S. by the time you read this. We also have important
new indications in development for Alimta, Byetta®,
Cialis®, and Erbitux®.

In addition to maximizing opportunities to drive top-line
revenue growth, we continue to improve productivity.
Through deliberate and determined actions, we are on
track to achieve the headcount and cost-containment
goals we laid out in September 2009. As of December 31,
2010, we had reduced headcount by 3,450—excluding
strategic additions in key emerging markets and Japan
along with business development—or nearly two-thirds

John C. Lechleiter, Ph.D., chairman, president, and chief
executive officer (second from left), meets with scientists
at ImClone Systems’ new state-of-the-art cancer research
facility at the Alexandria Center for Life Science—New York
City. ImClone, a Lilly subsidiary, carries out preclinical
discovery efforts at the site for potential new biotechnology
medicines for patients with cancer. Today, Lilly has 30
potential new cancer medicines under evaluation in a broad
spectrum of tumor types. Seen here with John are Yang Shen,
Ph.D., a senior scientist in antibody technology; Dale Ludwig,
Ph.D., vice president of research—biologics technology; Kyla
Driscoll Carroll, Ph.D., a senior scientist in immunology; and
Nick Loizos, Ph.D., a principal scientist in cell biology.

of our goal of 5,500, and we will also meet or exceed our
goal of reducing our projected 2011 costs by $1 billion.

We’re accelerating sales growth in three critical areas that
made signiﬁcant contributions to our results in 2010:
Japan, key emerging markets, and Elanco.

As reported by IMS Health, Lilly is far and away the
fastest-growing major pharmaceutical company in
Japan—the world’s second-largest pharmaceutical market.
Our revenue growth in Japan has been fueled in part by
the launch of products and indications that were intro-
duced much earlier in the U.S. and Europe. After growing
30 percent in 2009, total revenues in Japan grew 32 per-
cent in 2010. We’re seeing strong growth from Zyprexa
(which maintains exclusivity in Japan until December
2015), Alimta, and Humalog®—and we expect signiﬁcant
new contributions from Cymbalta, Forteo®, and Byetta, all
launched in Japan in 2010.

outpacing overall industry growth. Elanco’s growth was
driven both by our food animal business and by Comfor-
tis®, our oral ﬂea-control product for companion animals,
which has had a strong uptake here in the United States.

In addition, Elanco has built a robust pipeline and is
poised to maintain double-digit growth in the coming
years with launches expected for multiple products
targeting high-value markets such as livestock immune
enhancement, control of parasites in companion animals,
and pain control. We’ve also built a development capabil-
ity in animal health vaccines. And we intend to drive the
growth of the Elanco business via business development,
exempliﬁed by our acquisition of the animal health assets
that Pﬁzer divested in Europe in 2010.

Medium Term: Pursuing business development,
rebuilding in diabetes

Our strategy for the medium term includes continued

Lilly also ranks ﬁrst in the most recent
comparable IMS ﬁgures for pharma-
ceutical revenue growth among the top
10 multinational companies across ﬁve
key emerging markets: China, Turkey,
Korea, Brazil, and Mexico. Total Lilly
revenues in these ﬁve key countries
grew 13 percent in 2010. We remain
focused on driving proﬁtable growth
in our emerging markets business,
which will provide an increasing share
of our growth during the YZ period
and beyond. While we will concentrate
on realizing the signiﬁcant opportuni-
ties we see for our core assets—includ-
ing Cymbalta, Cialis, Humalog, and
Alimta—we will look to supplement
this organic growth with targeted busi-
ness development.

Key Contributors to 2010 Revenue Growth
($ in millions represent growth in revenue,
percent growth)

%
9
2
+

Six products and a product
line—Alimta, Cymbalta,
Cialis, Zyprexa, Humalog,
Humulin, and animal
health—generated
an increase of $1.5 billion
in revenue over 2009.
This growth was driven
primarily by volume
increases.

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use of business development to help
bolster revenues through the trough of
the YZ period and return to growth in
the years beyond.

Our recently completed acquisition
of Avid Radiopharmaceuticals, Inc.,
could yield beneﬁts as early as this
year. Avid’s lead candidate, Amyvid™
(ﬂorbetapir) is a molecular imaging
agent designed to image beta-amyloid
in the brain, the hallmark pathology
of Alzheimer’s disease. Amyvid was
assigned a priority review by the FDA,
and in January 2011 an FDA advisory
committee recommended approval
of the beta-amyloid imaging agent, if
certain conditions are met related to
physician training and re-reading of
existing brain scans.

China is a great example of our
strategy in emerging markets. Lilly is now the No. 10
multinational pharma company in China. Just in the last
two years, we’ve doubled our sales force in China. We’re
increasing our presence in other important ways, as well,
through a growing network of alliances and external
partnerships, venture capital investments, an increasing
number of clinical trials, and a new diabetes research
center in Shanghai.

A third important source of countercyclical growth is
our Elanco animal health business. Elanco revenues grew
10 percent in 2009 and 15 percent in 2010, signiﬁcantly

In March, we entered into a licensing agreement with
Acrux Limited for the commercialization of Axiron®,
a testosterone solution. The FDA approved Axiron in
November, and U.S. launch is planned for the ﬁrst half of
this year. In June—along with our partner, Kowa Pharma-
ceuticals America, Inc.—we launched the cholesterol-
lowering medicine Livalo® in the United States. In July
we acquired Alnara Pharmaceuticals, Inc. Alnara’s lead
product in development is liprotamase, an oral non-
porcine pancreatic enzyme replacement therapy currently
under review by the FDA for the treatment of exocrine
pancreatic insufﬁciency.

These steps and others are designed to bolster near- and
mid-term revenues and cash ﬂow, and they contribute to
our strategy for YZ.

assets, if approved, could generate long revenue streams,
with intellectual property protection into the mid- to
late-2020s.

In a major deal announced in early 2011, Lilly and
Boehringer Ingelheim have entered into a broad world-
wide co-development and co-commercialization agree-
ment in diabetes. This initiative not only promises to
bolster our YZ performance but also plays a key role in
our strategy for re-establishing leadership in diabetes.

Our agreement with Boehringer Ingelheim covers two
late-stage, oral anti-diabetes compounds from Boehringer
Ingelheim: linagliptin, a DPP-4 inhibitor currently under
regulatory review in the U.S., Europe, and Japan; and an
SGLT-2 inhibitor, BI 10773, currently in Phase III clinical
testing.

Long Term: Reenergizing the pipeline and reinventing
R&D

Ultimately, the future of our company depends on bring-
ing to patients innovative medicines—both from our
own labs and from outside our walls—and thus driving
long-term growth. Indeed, we’re bullish about the growth
potential represented by the molecules in our develop-
ment pipeline.

As shown in the pipeline on page 7 of this report, we cur-
rently have 68 molecules in clinical-stage development,
and we have seen signiﬁcant movement in the pipeline
since our last annual report. Speciﬁcally, we advanced:

• 17 new molecules into Phase I clinical testing (includ-

ing one currently in Phase II and one that failed),

The agreement also includes two mid-stage basal analog
insulin compounds from Lilly: a novel basal insulin
analog and our new insulin glargine
product. In addition, the agreement
includes an option for the two com-
panies to collaborate on a third Lilly
compound being studied for treat-
ment of complications of diabetes—
a TGF beta monoclonal antibody,
currently in Phase II for chronic
kidney disease.

Lilly’s fundamental

strategy is predicated

on innovation. We must

maintain our focus on

We believe that the overall value of
these assets will be greater when man-
aged together as a portfolio. We’ll be
able to take advantage of a larger com-
mercial infrastructure, particularly in
primary care, than we could have done
each on our own. This should beneﬁt
Boehringer Ingelheim’s oral products
as well as Lilly’s basal analog insulins,
and may also provide us opportuni-
ties to more effectively promote our
existing injectable diabetes products such as Humalog
and Byetta.

what made this company

great. The science has

never been more promis-

ing, and the need for new

medicines never greater.

• nine molecules into Phase II test-

ing, and

• two molecules into Phase III
testing.

We also acquired ﬁve late-stage
molecules. We terminated development
of 15 molecules and sold one molecule
to a third party.

In addition to the molecules in our
diabetes pipeline, which I described
earlier, we advanced new molecules
and indications to Phase III in other
important therapeutic areas:

In neuroscience, we recently began
Phase III trials of NERI as adjunctive
therapy to SSRIs in patients with major
depressive disorder, based on encourag-
ing results from our Phase II studies,

Importantly, this agreement also creates an innovative,
balanced portfolio that may allow us to offer treatment
options to patients and physicians across the progression
of the disease.

Finally, our agreement with Boehringer Ingelheim
provides Lilly with two potential launches during critical
years in our YZ period—linagliptin could come this year
and the SGLT-2 inhibitor in 2014. In both cases, these

which were presented at medical conferences in late 2010.
In addition, based on an interim review of long-term
safety data and after consultation with the FDA, we made
the decision to begin Phase III trials later this year of our
mGlu2/3 receptor agonist as monotherapy treatment for
schizophrenia.

In oncology, we have had Phase III trials ongoing for some
time for ramucirumab in breast and gastric cancers, and we
recently started trials in liver, colon, and lung cancers. Lilly
and Bristol-Myers Squibb Company have stopped enroll-
ment in a Phase III trial of necitumumab for advanced

nonsquamous non-small cell lung cancer; however,
necitumumab continues to be studied in a separate Phase
III trial for a different type of lung cancer.

In our emerging autoimmune portfolio, we began Phase
III trials of our BAFF antibody for both rheumatoid
arthritis and lupus, and our IL-17 antibody in rheumatoid
arthritis could potentially enter Phase III this year. In
addition, along with our partner, Incyte Pharmaceuticals,
we disclosed promising Phase IIa data in rheumatoid
arthritis for our oral JAK-1/JAK-2 inhibitor.

In 2011, we’ll complete the Phase III DURATION-6 trial
comparing Bydureon™ to liraglutide. We also expect to
present initial results from the Phase III trial in advanced
nonsquamous non-small cell lung cancer of Alimta induc-
tion therapy followed by Alimta maintenance therapy.

We completed enrollment in late 2010 for both Phase III
trials of solanezumab, our antibody being studied for the
treatment of Alzheimer’s disease. The treatment duration
in each trial is 18 months, so we will complete each study
18 months after the last patient was enrolled.

During the year, we experienced pipeline disappoint-
ments, including three potential medicines in Phase III
trials. These setbacks underscore the risks of pharmaceuti-
cal innovation, but also the need to ﬁnd solutions to what
has become an industrywide productivity problem.

That’s why Lilly is determined to adapt our innovation
engine to meet the ever more exacting challenges of phar-
maceutical research. We’re working to build an in-depth
understanding of patients’ needs into the earliest stages of
research. We’re assessing the potential of new molecules
in terms of what’s truly valued by patients, physicians,
and payers. We’re better assessing and managing risk in
the face of ever-increasing expectations. We’re striving
to anticipate the concerns of regulators so that we can
answer their questions in our clinical testing. And we’re
focusing all our energy and creativity on speeding up the
progression of promising molecules and reducing the cost
to bring a new medicine to patients.

In past years, I’ve reported on our efforts on many fronts
to improve the speed and power of R&D at Lilly: build-
ing a network of research capabilities inside and outside
our own walls, creating a Development Center of Excel-
lence, strengthening our biotech infrastructure, applying
tailoring strategies to virtually every molecule in clinical

development, and redesigning our company to create
a clear line of sight from innovation to the customer.
We continue to pursue these goals with a great sense
of urgency, and we remain on track to have at least 10
molecules in Phase III by the end of 2011—with more
coming behind.

Looking to a promising future

To sum up, Lilly enters 2011 with a keen awareness of the
challenges of the YZ period ahead, but also with strate-
gies in the near, middle, and long term to meet those
challenges and to achieve sustained growth.

Lilly’s fundamental strategy is predicated on innovation.
We must maintain our focus on what made this company
great: the discovery and development, the manufacturing
and marketing of new medicines that help address unmet
medical needs and provide value not only for patients,
but for health care professionals and for payers, as well.
We must be as tenacious as the diseases we’re ﬁghting.
The science has never been more promising, and the need
for new medicines never greater.

I recently visited our ImClone labs in New York City,
which opened in September 2010 (see page 3), where I
met with some of our outstanding scientists and toured
the impressive facilities. Visits like this around the com-
pany reafﬁrm my conviction that Lilly has the intellectual
capital, the tools, and the determination—along with the
ﬁnancial strength—to meet this moment and seize the
many opportunities before us. I remain deeply apprecia-
tive of the level of commitment, the level of professional-
ism, and the combined and individual expertise that all
Lilly employees bring to this enterprise.

Our commitment to scientiﬁc excellence and a strong
focus on research have indeed propelled this company
to greatness over nearly 135 years. These same qualities
underpin our hope for future success. We are acting with
urgency, not simply to survive YZ, but to emerge with
even greater strength and the capacity to drive future
growth for the beneﬁt of patients and shareholders.

For the Board of Directors,

John C. Lechleiter
Chairman, President, and Chief Executive Ofﬁcer

Pipeline of Molecules in Clinical Development

Phase I

Phase II

Phase III

Regulatory
Review

FDA
Approved

cancer

erectile
dysfunction

IMC-3G3
cancer

BI 10773
diabetes

depression

cancer

TGF ß antibody
chronic renal
disease

cixutumumab
cancer

BAFF antibody
rheumatoid
arthritis/
lupus

Axiron
testosterone
deﬁciency

ﬂorbetapir
ß-amyloid
imaging

linagliptin
diabetes

bipolar
disorder

cancer

diabetes

enzastaurin
diffuse large
ß-cell lymphoma

Arxxant
diabetic
retinopathy

cancer

depression

elF-4E ASO
cancer

basal
insulin
diabetes

cancer

diabetes

IMC-18F1
cancer

mGlu2/3 pro II
schizophrenia

liprotamase
exocrine
pancreatic
insufﬁciency

GLP-1 Fc
diabetes

necitumumab
non-small cell
lung cancer

nephropathy

cancer

diabetes

osteoporosis

OpRA
alcohol
dependency

NERI
depression

alcohol
dependency

gemcitabine
prodrug
cancer

diabetes

agitation in
Alzheimer’s

JAK-1/JAK-2
rheumatoid
arthritis

ramucirumab
solid tumors

alcohol
dependency

TGF ß inhibitor
cancer

migraine
prevention

CETP inhibitor
atherosclerosis

IL-17 antibody
rheumatoid
arthritis

solanezumab
Alzheimer’s

BACE
inhibitor
Alzheimer’s

cancer

obesity

benign
prostatic
hyperplasia

survivin ASO
cancer

anemia

cancer

obesity

Chk-1 inhibitor
cancer

tasisulam
cancer

bone
healing

cancer

osteoarthritis

Eg5
inhibitor
cancer

IL-1 ß antibody
cardiovascular
disease

Phase I

Phase II

Phase III

pain

diabetes

iGluR5
pain

LY2599506
diabetes

semagacestat
Alzheimer’s

IL-23
antibody
psoriasis

obesity

atherosclerosis

pain

schizophrenia

uterine
ﬁbroids

IMC-EB10
cancer

GLP-1 PEG
diabetes

teplizumab
diabetes

LY2624803
insomnia

CD20
antibody
non-Hodgkins
lymphoma

Information is current as of February 15, 2011. The search for new medicines is risky and uncertain, and there are no guarantees.
Remaining scientiﬁc and regulatory hurdles may cause pipeline compounds to be delayed or to fail to reach the market.

The Lilly Pipeline currently
includes 68 molecules in
clinical development. Since
our 2009 annual report, 17
new molecules advanced into
Phase I testing (including one
currently in Phase II and one
that failed), nine molecules
into Phase II testing, and
two molecules into Phase III
testing. We also acquired
ﬁve late-stage molecules. We
terminated development of
15 molecules and sold one
molecule to a third party.
And we ceased development
of later-stage indications for
two molecules for which work
continues on other indications.
We remain on track to have
at least 10 molecules in
Phase III by the end of 2011.

In addition to our human
pharmaceutical pipeline,
shown here, our animal
health pipeline includes
potential products for high-
value animal health markets
such as livestock immune
enhancement, control of
parasites in companion
animals, and pain control.
We are also building a
substantial development
capability for animal health
vaccines.

(cid:2) New Chemical Entity
(cid:2) New Biotech Entity
Movement since 2009 Annual Report:

Achieved Milestone

Previously in Later Phase

New Molecule

Attrition

Sold to Third Party

Form 10-K

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United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2010

Commission file number 001-06351

Eli Lilly and Company

An Indiana corporation

I.R.S. employer identification no. 35-0470950

Lilly Corporate Center, Indianapolis, Indiana 46285

(317) 276-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange On Which Registered

Common Stock (no par value)
6.57% Notes Due January 1, 2016
7 1⁄ 8% Notes Due June 1, 2025
6.77% Notes Due January 1, 2036

New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í No ‘

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ‘ No Í

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 Í No ‘

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files.
Yes Í No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant’s knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Í

Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘

Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Act: Yes ‘ No Í

Aggregate market value of the common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal
quarter (Common Stock): approximately $34,205,000,000

Number of shares of common stock outstanding as of February 15, 2011: 1,157,664,779

Portions of the Registrant’s Proxy Statement to be filed on or about March 7, 2011 have been incorporated by
reference into Part III of this report.

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Part I

Business

Item 1.
Eli Lilly and Company (the “Company” or “Registrant”) was incorporated in 1901 in Indiana to succeed to the drug
manufacturing business founded in Indianapolis, Indiana, in 1876 by Colonel Eli Lilly. We discover, develop,
manufacture, and sell products in one significant business segment—pharmaceutical products. We also have an
animal health business segment, whose operations are not material to our financial statements.

Our mission is to make medicines that help people live longer, healthier, more active lives. Our strategy is to create
value for all our stakeholders by accelerating the flow of innovative new medicines that provide improved outcomes
for individual patients. Most of the products we sell today were discovered or developed by our own scientists, and
our success depends to a great extent on our ability to continue to discover, develop, and bring to market innovative
new medicines.

We manufacture and distribute our products through facilities in the United States, Puerto Rico, and 17 other
countries. Our products are sold in approximately 125 countries.

Products
Our products include:

Neuroscience products, our largest-selling product group, including:

• Zyprexa®, for the treatment of schizophrenia, acute mixed or manic episodes associated with bipolar I disorder,

and bipolar maintenance

• Zyprexa Relprevv™ (Zypadhera® in the European Union), a long-acting intramuscular injection formulation of

Zyprexa

• Cymbalta®, for the treatment of major depressive disorder, diabetic peripheral neuropathic pain, generalized
anxiety disorder, and in the United States for the management of fibromyalgia and of chronic musculoskeletal
pain due to chronic low back pain or chronic pain due to osteoarthritis

• Strattera®, for the treatment of attention-deficit hyperactivity disorder in children, adolescents, and in the

United States in adults

• Prozac®, for the treatment of major depressive disorder, obsessive-compulsive disorder, bulimia nervosa, and

panic disorder

• Symbyax®, for the treatment of bipolar depression and treatment-resistant depression.

Endocrinology products, including:

• Humalog®, Humalog Mix 75/25®, and Humalog Mix 50/50™, for the treatment of diabetes
• Humulin®, for the treatment of diabetes
• Byetta®, for the treatment of type 2 diabetes
• Actos®, for the treatment of type 2 diabetes
• Evista®, for the prevention and treatment of osteoporosis in postmenopausal women and for the reduction of the
risk of invasive breast cancer in postmenopausal women with osteoporosis and postmenopausal women at high
risk for invasive breast cancer

• Forteo®, for the treatment of osteoporosis in postmenopausal women and men at high risk for fracture and for

glucocorticoid-induced osteoporosis in postmenopausal women and men

• Humatrope®, for the treatment of human growth hormone deficiency and certain pediatric growth conditions
• Axiron®, a topical solution of testosterone, applied by underam applicator, for replacement therapy in men for
certain conditions associated with a deficiency or absence of testosterone (approved in the U.S. in 2010; to be
launched in 2011).

Oncology products, including:

• Alimta®, for the first-line treatment, in combination with another agent, of non-small cell lung cancer for

patients with non-squamous histology; for the second-line treatment of non-small cell lung cancer; and in
combination with another agent, for the treatment of malignant pleural mesothelioma

• Gemzar®, for the treatment of pancreatic cancer; in combination with other agents, for the treatment of

metastatic breast cancer, non-small cell lung cancer, and advanced or recurrent ovarian cancer; and in the
European Union for the treatment of bladder cancer

• Erbitux®, indicated both as a single agent and with another chemotherapy agent for the treatment of certain

types of colorectal cancers; and as a single agent or in combination with radiation therapy for the treatment of
certain types of head and neck cancers.

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Cardiovascular products, including:

• Cialis®, for the treatment of erectile dysfunction
• Effient®, for the reduction of thrombotic cardiovascular events (including stent thrombosis) in patients with

acute coronary syndrome who are managed with an artery-opening procedure known as percutaneous coronary
intervention (PCI), including patients undergoing angioplasty, atherectomy, or stent placement

• ReoPro®, for use as an adjunct to PCI for the prevention of cardiac ischemic complications
• Xigris®, for the treatment of adults with severe sepsis at high risk of death
• Adcirca®, for the treatment of pulmonary arterial hypertension
• Livalo®, a statin medication for use as an adjunct to diet in the treatment of high cholesterol (primary

hyperlipidemia or mixed dyslipidemia), launched in 2010.

Animal health products, including:

• Rumensin®, a cattle feed additive that improves feed efficiency and growth and also controls and prevents

coccidiosis

• Tylan®, an antibiotic used to control certain diseases in cattle, swine, and poultry
• Micotil®, Pulmotil®, and Pulmotil AC, antibiotics used to treat respiratory disease in cattle, swine, and poultry,

respectively

• Paylean® and Optaflexx®, leanness and performance enhancers for swine and cattle, respectively
• Posilac®, a protein supplement to improve milk productivity in dairy cows
• Coban®, Monteban®, and Maxiban®, anticoccidial agents for use in poultry
• Apralan™, an antibiotic used to control enteric infections in calves and swine
• Surmax® (sold as Maxus® in some countries), a performance enhancer for swine and poultry
• Elector®, a parasiticide for use on cattle and premises
• Comfortis®, the first FDA-approved, chewable tablet that kills fleas and prevents flea infestations on dogs
• Reconcile®, for treatment of canine separation anxiety in conjunction with behavior modification training.

Other pharmaceuticals, including:

• Vancocin® HCl, used primarily to treat staphylococcal infections
• CeclorTM, for the treatment of a wide range of bacterial infections.

Marketing
We sell most of our products worldwide. We adapt our marketing methods and product emphasis in various
countries to meet local needs.

Pharmaceuticals—United States
In the United States, we distribute pharmaceutical products principally through independent wholesale distributors,
with some sales directly to pharmacies. In 2010, 2009, and 2008, three wholesale distributors in the United States—
AmerisourceBergen Corporation, McKesson Corporation, and Cardinal Health, Inc.—each accounted for between 12
percent and 17 percent of our worldwide consolidated net sales. No other distributor accounted for more than 10
percent of consolidated net sales in any of those years. We also sell pharmaceutical products directly to the United
States government, but those sales are not material.
We promote our major pharmaceutical products in the United States through sales representatives who call upon
physicians and other health care professionals. We advertise in medical journals, distribute literature and samples
of certain products to physicians, and exhibit at medical meetings. In addition, we advertise certain products directly
to consumers in the United States and we maintain web sites with information about all our major products.
Divisions of our sales force are assigned to therapeutic areas, such as neuroscience, diabetes, and oncology. We
supplement our employee sales force with contract sales organizations as appropriate to leverage our own
resources and the strengths of our partners in various markets.
Large purchasers of pharmaceuticals, such as managed-care groups, government agencies, and long-term care
institutions, account for a significant portion of total pharmaceutical purchases in the United States. We maintain
special business groups to service wholesalers, managed-care organizations, government and long-term care
institutions, hospitals, and certain retail pharmacies. In response to competitive pressures, we have entered into
arrangements with these organizations which provide for discounts or rebates on one or more Lilly products.

Pharmaceuticals—Outside the United States
Outside the United States, we promote our pharmaceutical products primarily through sales representatives. While
the products marketed vary from country to country, neuroscience products constitute the largest single group in
total sales. Distribution patterns vary from country to country. In most countries, we maintain our own sales
organizations, but in some countries we market our products through independent distributors.

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Pharmaceutical Marketing Collaborations
We market certain of our significant products in collaboration with other pharmaceutical companies:

• Cymbalta is co-marketed in Japan by Shionogi & Co. Ltd. and, under an arrangement that ended in 2010, was
co-promoted or co-marketed in most other major countries outside the U.S. by Boehringer Ingelheim GmbH.

• Evista is marketed in major European markets by Daiichi Sankyo Europe GmbH, a subsidiary of Daiichi Sankyo

Co., Ltd. of Japan.

• We co-promote Byetta with Amylin Pharmaceuticals, Inc. in the United States and Puerto Rico, and we have

exclusive marketing rights in other territories.

• Erbitux is marketed in North America by Bristol-Myers Squibb. We co-promote Erbitux in North America.

Outside North America, Erbitux is commercialized by Merck KGaA. We receive royalties from Bristol-Myers
Squibb and Merck KGaA.

• Effient is co-promoted with us by Daiichi Sankyo in the United States, major European markets, Brazil, Mexico,
China and several other Asian countries. Daiichi Sankyo retains sole marketing rights in Japan, and we retain
sole marketing rights in Canada, Australia, Russia, and certain other countries.

Animal Health Products
Our Elanco animal health business unit employs field salespeople throughout the United States. Elanco also has an
extensive sales force outside the United States. Elanco sells its products primarily to wholesale distributors.

Competition
Our pharmaceutical products compete with products manufactured by many other companies in highly competitive
markets throughout the world. Our animal health products compete on a worldwide basis with products of animal
health care companies as well as pharmaceutical, chemical, and other companies that operate animal health
divisions or subsidiaries.

Important competitive factors include safety, effectiveness, and ease of use of our products; price and demonstrated
cost-effectiveness; marketing effectiveness; and research and development of new products and processes. Most
new products that we introduce must compete with other products already on the market or products that are later
developed by competitors. If competitors introduce new products or delivery systems with therapeutic or cost
advantages, our products can be subject to progressive price reductions, decreased volume of sales, or both.
Increasingly, to obtain favorable reimbursement and formulary positioning with government payers, managed care
organizations, and pharmacy benefits managers, we must demonstrate that our products offer not only medical
benefits but also more value as compared with other forms of care.

Manufacturers of generic pharmaceuticals invest far less than we do in research and development and therefore can
price their products much lower than our branded products. Accordingly, when our branded pharmaceutical loses its
market exclusivity, it normally faces intense price competition from generic forms of the product. In many countries
outside the United States, intellectual property protection is weak or nonexistent and we must compete with generic
or counterfeit versions of our products.

We believe our long-term competitive success depends upon discovering and developing (either alone or in
collaboration with others) or acquiring innovative, cost-effective medicines that provide improved outcomes to
individual patients and deliver value to payers, together with our ability to continuously improve the productivity of
our operations in a highly competitive environment. There can be no assurance that our research and development
efforts will result in commercially successful products, and it is possible that our products will become
uncompetitive from time to time as a result of products developed by our competitors.

Patents, Trademarks, and Other Intellectual Property Rights

Overview
Intellectual property protection is critical to our ability to successfully commercialize our life sciences innovations
and invest in the search for new medicines. We own, have applied for, or are licensed under, a large number of
patents in the United States and many other countries relating to products, product uses, formulations, and
manufacturing processes. There is no assurance that the patents we are seeking will be granted or that the patents
we hold would be found valid and enforceable if challenged. Moreover, patents relating to particular products, uses,
formulations, or processes do not preclude other manufacturers from employing alternative processes or marketing
alternative products or formulations that compete with our patented products. In addition, competitors or other third
parties sometimes may assert claims that our activities infringe patents or other intellectual property rights held by
them, or allege a third-party right of ownership in our existing intellectual property.

Outside the United States, the adequacy and effectiveness of intellectual property protection for pharmaceuticals
varies widely. Under the Trade-Related Aspects of Intellectual Property Agreement (TRIPs) administered by the
World Trade Organization (WTO), over 140 countries have now agreed to provide non-discriminatory protection for
most pharmaceutical inventions and to assure that adequate and effective rights are available to all patent owners.
Because of TRIPs transition provisions, dispute resolution mechanisms, and substantive limitations, it is difficult to
assess when and how much, if at all, we will benefit commercially from this protection.

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When a product patent expires, the patent holder often loses effective market exclusivity for the product. This can
result in a severe and rapid decline in sales of the product, particularly in the United States. However, in some cases
the innovator company may achieve exclusivity beyond the expiry of the product patent through manufacturing trade
secrets, later-expiring patents on methods of use or formulations, or data-based exclusivity that may be available
under pharmaceutical regulatory laws.

Some of our current products, including Erbitux, Forteo, ReoPro, and Xigris, and many of the potential products in
our research pipeline, are biological products (“biologics”). Based on the Biologics Price Competition and Innovation
Act (enacted in the U.S. in 2010), the FDA now has the authority to approve similar versions (“biosimilars”) of
innovative biologic products. A competitor seeking approval of a biosimilar must file an application to show its
molecule is highly similar to an approved innovator biologic, address the challenges of biologics manufacturing, and
include a certain amount of safety and efficacy data which FDA will determine on a case-by-case basis. Under the
data protection provisions of this law, FDA cannot approve a biosimilar application until 12 years after initial
marketing approval of the innovator biologic. Regulators in the EU and other countries also have been given the
authority to approve biosimilars. The extent to which a biosimilar, once approved, will be substituted for the
innovator biologic in a way that is similar to traditional generic substitution for non-biologic products is not yet clear,
and will depend on a number of marketplace and regulatory factors that are still developing.

Our Intellectual Property Portfolio
We consider intellectual property protection for certain products, processes, and uses—particularly those products
discussed below—to be important to our operations. For many of our products, in addition to the compound patent
we hold other patents on manufacturing processes, formulations, or uses that may extend exclusivity beyond the
expiration of the product patent.

The most relevant U.S. patent protection or data-based exclusivity for our major patent-protected marketed
products is as follows:

• Alimta is protected by a compound patent (2016), data-based exclusivity for pediatric studies (2017), and a

concomitant nutritional supplement use patent (2022).

• Byetta is protected by a patent covering its use in treating type 2 diabetes (2017).

• Cialis is protected by compound and use patents (2017).

• Cymbalta is protected by a compound patent (2013).

• Effient is protected by a compound patent (2017).

• Evista is protected by patents on the treatment and prevention of osteoporosis (2012 and 2014). Evista for use in

breast cancer risk reduction is protected by orphan drug exclusivity (2014).

• Humalog is protected by a compound patent (2013).

• Strattera is protected by a patent covering its use in treating attention deficit-hyperactivity disorder (2016). The

validity of this patent is currently under appeal at the Court of Appeals for the Federal Circuit.

• Zyprexa is protected by a compound patent (October 2011).

Worldwide, we sell all of our major products under trademarks that we consider in the aggregate to be important to
our operations. Trademark protection varies throughout the world, with protection continuing in some countries as
long as the mark is used, and in other countries as long as it is registered. Registrations are normally for fixed but
renewable terms.

Patent Licenses
Most of our important products were discovered in our own laboratories and are not subject to significant license
agreements. Two of our larger products, Cialis and Alimta, are subject to patent assignments or licenses granted to
us by others.

• The compound patent for Cialis is the subject of a license agreement with Glaxo SmithKline which assigns to us

exclusively all rights in the compound. The agreement calls for royalties of a single-digit percentage of net
sales. The agreement is not subject to termination by Glaxo for any reason other than a material breach by Lilly
of the royalty obligation, after a substantial cure period.

• The compound patent for Alimta is the subject of a license agreement with Princeton University, granting us an
irrevocable exclusive worldwide license to the compound patents for the lives of the patents in the respective
territories. The agreement calls for royalties of a single-digit percentage of net sales. The agreement is not
subject to termination by Princeton for any reason other than a material breach by Lilly of the royalty obligation,
after a substantial cure period. Alimta is also the subject of a worldwide, nonexclusive license to certain
compound and process patents owned by Takeda Pharmaceutical Company Limited. The agreement calls for
royalties of a single-digit percentage of net sales in countries covered by a relevant patent. The agreement is
subject to termination for material default and failure to cure by Lilly and in the event that Lilly becomes
bankrupt or insolvent.

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Patent Challenges
In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as
“Hatch-Waxman,” made a complex set of changes to both patent and new-drug-approval laws. Before Hatch-
Waxman, no drug could be approved without providing the FDA complete safety and efficacy studies, i.e., a complete
New Drug Application (NDA). Hatch-Waxman authorizes the FDA to approve generic versions of innovative
pharmaceuticals (other than biologics) without such information by filing an Abbreviated New Drug Application
(ANDA). In an ANDA, the generic manufacturer must demonstrate only “bioequivalence” between the generic version
and the NDA-approved drug—not safety and efficacy.
Absent a patent challenge, the FDA cannot approve an ANDA until after the innovator’s patents expire. However,
after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA alleging that
one or more of the patents listed in the innovator’s NDA are invalid or not infringed. This allegation is commonly
known as a “Paragraph IV certification.” The innovator must then file suit against the generic manufacturer to
protect its patents. The FDA is then prohibited from approving the generic company’s application for a 30- to
42-month period (which can be shortened or extended by the trial court judge hearing the patent challenge). If one or
more of the NDA-listed patents are challenged, the first filer of a Paragraph IV certification may be entitled to a
180-day period of market exclusivity over all other generic manufacturers.
In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge patents on a
wide array of innovative pharmaceuticals, and we expect this trend to continue. In addition, generic companies have
shown an increasing willingness to launch “at risk,” i.e., after receiving ANDA approval but before final resolution of
their patent challenge. We are currently in litigation with numerous generic manufacturers arising from their
Paragraph IV certifications on Alimta, Cymbalta, Gemzar, and Strattera. For more information on this litigation, see
Item 7, “Management’s Discussion and Analysis—Legal and Regulatory Matters.”
Outside the United States, the legal doctrines and processes by which pharmaceutical patents can be challenged
vary widely. In recent years, we have experienced an increase in patent challenges from generic manufacturers in
many countries outside the United States, and we expect this trend to continue. For more information on significant
patent challenges outside the United States, see Item 7, “Management’s Discussion and Analysis—Legal and
Regulatory Matters.”

Government Regulation

Regulation of Our Operations
Our operations are regulated extensively by numerous national, state, and local agencies. The lengthy process of
laboratory and clinical testing, data analysis, manufacturing development, and regulatory review necessary for
governmental approvals is extremely costly and can significantly delay product introductions. Promotion, marketing,
manufacturing, and distribution of pharmaceutical and animal health products are extensively regulated in all major
world markets. We are required to conduct extensive post-marketing surveillance of the safety of the products we
sell. In addition, our operations are subject to complex federal, state, local, and foreign laws and regulations
concerning the environment, occupational health and safety, and privacy. The laws and regulations affecting the
manufacture and sale of current products and the discovery, development, and introduction of new products will
continue to require substantial scientific and technical effort, time, and expense and significant capital investment.
Of particular importance is the FDA in the United States. Pursuant to the Federal Food, Drug, and Cosmetic Act, the
FDA has jurisdiction over all of our products and administers requirements covering the testing, safety,
effectiveness, manufacturing, quality control, distribution, labeling, marketing, advertising, dissemination of
information, and post-marketing surveillance of our pharmaceutical products. The FDA, along with the U.S.
Department of Agriculture (USDA), also regulates our animal health products. The U.S. Environmental Protection
Agency also regulates some animal health products.
The FDA extensively regulates all aspects of manufacturing quality under its current Good Manufacturing Practices
(cGMP) regulations. We make substantial investments of capital and operating expenses to implement
comprehensive, company-wide quality systems in our manufacturing, product development, and process
development operations to ensure sustained cGMP compliance. However, in the event we fail to adhere to cGMP
requirements in the future, we could be subject to interruptions in production, fines and penalties, and delays in new
product approvals.
Outside the United States, our products and operations are subject to similar regulatory requirements, notably by
the European Medicines Agency (EMA) in the European Union and the Ministry of Health, Labor and Welfare (MHLW)
in Japan. Specific regulatory requirements vary from country to country.
The marketing, promotional, and pricing practices of pharmaceutical manufacturers, as well as the manner in which
manufacturers interact with purchasers and prescribers, are subject to various other federal and state laws,
including the federal anti-kickback statute and the False Claims Act and state laws governing kickbacks, false
claims, unfair trade practices, and consumer protection. These laws are administered by, among others, the
Department of Justice, the Office of Inspector General of the Department of Health and Human Services, the Federal
Trade Commission, the Office of Personnel Management and state attorneys general. Over the past several years,
the FDA, the Department of Justice, and many of these other agencies have increased their enforcement activities
with respect to pharmaceutical companies and increased the inter-agency coordination of enforcement activities.
Over this period, several claims brought by these agencies against Lilly and other companies under these and other
laws have resulted in corporate criminal sanctions and very substantial civil settlements. See Item 3, “Legal

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Proceedings,” and Item 7, “Management’s Discussion and Analysis—Legal and Regulatory Matters,” for information
about currently pending and certain prior marketing and promotional practices investigations involving Lilly,
including information regarding a Corporate Integrity Agreement entered into by Lilly in connection with the
resolution of a U.S. federal marketing practices investigation and certain related state investigations involving
Zyprexa.

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits certain individuals and entities, including U.S. publicly
traded companies, from promising, offering, or giving anything of value to foreign officials with the corrupt intent of
influencing the foreign official for the purpose of helping the company obtain or retain business or gain any improper
advantage. The FCPA also imposes specific recordkeeping and internal controls requirements on U.S. publicly
traded companies. As noted above, outside the U.S., our business is heavily regulated and therefore involves
significant interaction with foreign officials. Additionally, in many countries outside the U.S., the health care
providers who prescribe pharmaceuticals are employed by the government and the purchasers of pharmaceuticals
are government entities; therefore, our payments to these prescribers and purchasers are subject to regulation
under the FCPA. Recently the U.S. Securities and Exchange Commission (SEC) and the Department of Justice have
increased their FCPA enforcement activities with respect to pharmaceutical companies. See Item 3, “Legal
Proceedings,” for information about a currently pending investigation involving our operations in several countries.

It is possible that we could become subject to additional administrative and legal proceedings and actions, which
could include claims for civil penalties (including treble damages under the False Claims Act), criminal sanctions,
and administrative remedies, including exclusion from federal health care programs. It is possible that an adverse
outcome in pending or future actions could have a material adverse impact on our consolidated results of
operations, liquidity, and financial position.

Regulations Affecting Pharmaceutical Pricing, Reimbursement, and Access
In the United States, we are required to provide rebates to state governments on their purchases of our products
under state Medicaid programs and to private payers who provide prescription drug benefits to seniors covered by
Medicare or cover patients in certain types of health care facilities that serve low-income and uninsured patients
(known as 340B facilities). Additional cost containment measures have been adopted or proposed by federal, state,
and local government entities that provide or pay for health care. In most international markets, we operate in an
environment of government-mandated cost containment programs, which may include price controls, reference
pricing, discounts and rebates, restrictions on physician prescription levels, restrictions on reimbursement,
compulsory licenses, health economic assessments, and generic substitution.

The enactment of the “Patient Protection and Affordable Care Act” and “The Health Care and Education
Reconciliation Act of 2010” in March 2010 brings significant changes to U.S. health care. Changes to the rebates for
prescription drugs sold to Medicaid beneficiaries, which increase the minimum statutory rebate for branded drugs
from 15.1 percent to 23.1 percent, were generally effective in the first quarter of 2010. This rebate has been
expanded to managed-Medicaid, a program that provides for the delivery of Medicaid benefits via managed care
organizations, under arrangements between those organizations and state Medicaid agencies. Additionally, a
prescription drug discount program for outpatient drugs in certain types of health care facilities that serve
low-income and uninsured patients (known as 340B facilities) has been expanded. Beginning in 2011, drug
manufacturers will provide a discount of 50 percent of the cost of branded prescription drugs for Medicare Part D
participants who are in the “doughnut hole” (the coverage gap in Medicare prescription drug coverage). The
doughnut hole will be phased out by the federal government between 2011 and 2020. Additionally, beginning in 2011,
an annual fee will be imposed on pharmaceutical manufacturers and importers that sell branded prescription drugs
to specified government programs. See Item 7, “Management’s Discussion and Analysis—Executive Overview—
Legal, Regulatory, and Other Matters,” for more discussion of U.S. health care reform. At the state level, budget
pressures are causing various states to impose cost-control measures such as higher rebates and more restrictive
formularies.

International operations are also generally subject to extensive price and market regulations, and there are many
proposals for additional cost-containment measures, including proposals that would directly or indirectly impose
additional price controls, limit access to or reimbursement for our products, or reduce the value of our intellectual
property protection. Recently, several governments have implemented across the board price cuts of branded
pharmaceuticals in response to national budget pressures.

We cannot predict the extent to which our business may be affected by these or other potential future legislative or
regulatory developments. However, we expect that pressures on pharmaceutical pricing will become more severe.

Research and Development
Our commitment to research and development dates back more than 100 years. Our research and development
activities are responsible for the discovery and development of most of the products we offer today. We invest heavily
in research and development because we believe it is critical to our long-term competitiveness. At the end of 2010,
we employed approximately 7,400 people in pharmaceutical and animal health research and development activities,
including a substantial number of physicians, scientists holding graduate or postgraduate degrees, and highly skilled
technical personnel. Our research and development expenses were $4.88 billion in 2010, $4.33 billion in 2009, and
$3.84 billion in 2008.

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Our pharmaceutical research and development focuses on five therapeutic categories: central nervous system and
related diseases; endocrine diseases, including diabetes, obesity, and musculoskeletal disorders; cancer;
autoimmune diseases and cardiovascular diseases. However, we remain opportunistic, selectively pursuing
promising leads in other therapeutic areas. We are actively engaged in a strong biotechnology research program,
with more than one-third of our clinical stage pipeline currently consisting of biotechnology molecules. In addition to
discovering and developing new molecular entities, we seek to expand the value of existing products through new
uses, formulations and therapeutic approaches that provide additional value to patients. Across all our therapeutic
areas, we are increasingly focusing our efforts on tailored therapeutics, seeking to identify and use advanced
diagnostic tools and other information to identify specific subgroups of patients for whom our medicines—or those of
other companies—will be the best treatment option.

To supplement our internal efforts, we collaborate with others, including educational institutions and research-
based pharmaceutical and biotechnology companies. We use the services of physicians, hospitals, medical schools,
and other research organizations worldwide to conduct clinical trials to establish the safety and effectiveness of our
pharmaceutical products. We actively seek out investments in external research and technologies that hold the
promise to complement and strengthen our own research efforts. These investments can take many forms,
including licensing arrangements, co-development and co-marketing agreements, co-promotion arrangements,
joint ventures, and acquisitions.

Drug development is time-consuming, expensive, and risky. On average, only one out of many thousands of
molecules discovered by researchers proves to be both medically effective and safe enough to become an approved
medicine. The process from discovery to regulatory approval can take 12 to 15 years or longer. Drug candidates can
fail at any stage of the process, and even late-stage drug candidates sometimes fail to receive regulatory approval or
achieve commercial success. Even after approval and launch of a product, we expend considerable resources on
post-marketing surveillance and clinical studies. The following describes the new drug research and development
process in more detail:

Phases of New Drug Development

Discovery Research Phase
The earliest phase of new drug research and development, the discovery phase, can take many years. Scientists
identify, design and synthesize promising molecules, screening tens of thousands of molecules for their effect
on biological “targets” that appear to play an important role in one or more diseases. Targets can be part of the
body, such as a protein, receptor, or gene; or foreign, such as a virus or bacteria. Some targets have been
proven to affect disease processes, but often the target is unproven, and may later prove to be irrelevant to the
disease. Molecules that have the desired effect on the target and meet other design criteria become “lead”
molecules and go on to the next phase of development. The probability of any one such lead molecule
completing the rest of the drug development process and becoming a product is extremely low.

Early Development Phase
The early development phase involves refining lead molecules, understanding how to manufacture them
efficiently, and completing initial testing for safety and efficacy. Safety testing is done first in laboratory tests
and animals, to identify toxicity and other potential safety issues that would preclude use in humans. The first
human tests (often referred to as Phase I) are normally conducted in small groups of healthy volunteers to
assess safety and find the potential dosing range. After a safe dose has been established, the drug is
administered to small populations of sick patients (Phase II) to look for initial signs of efficacy in treating the
targeted disease and to continue to assess safety. In parallel, scientists work to identify safe, effective, and
economical manufacturing processes. Long-term animal studies continue to test for potential safety issues. Of
the molecules that enter the early development phase, typically less than 10 percent move on to the product
phase. The early development phase normally takes several years to complete.

Product Phase
Product phase (Phase III) molecules have already demonstrated safety and, typically, shown initial evidence of
efficacy. As a result, these molecules generally have a higher likelihood of success. The molecules are now
rigorously tested in much larger patient populations to demonstrate efficacy to a predetermined level of
statistical significance and to continue to develop the safety profile. These trials are generally global in nature
and are designed to generate the data necessary to submit the molecule to regulatory agencies for marketing
approval. The new drug is generally compared with existing competitive therapies, placebo, or both. The
resulting data is compiled and submitted to regulatory agencies around the world. Phase III testing varies by
disease state, but can often last from 2 to 4 years.

Submission Phase
Once submitted, the time to final marketing approval can vary from six months to several years, depending on
variables such as the disease state, the strength and complexity of the data presented, the novelty of the target
or compound, and the time required for the agency(ies) to evaluate the submission. There is no guarantee that a
potential medicine will receive marketing approval, or that decisions on marketing approvals or indications will
be consistent across geographic areas.

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We believe our investments in research, both internally and in collaboration with others, have been rewarded by the
number of new molecules and new indications for existing molecules that we have in all stages of development. At
present we have more than 65 drug candidates across all stages of human testing and a larger number of projects in
preclinical development. Among our new investigational molecules in the product phase of development or awaiting
regulatory approval are potential therapies for diabetes, cancers, Alzheimer’s disease, rheumatoid arthritis, lupus,
depression, and pancreatic exocrine insufficiency, as well as an imaging agent for detecting beta-amyloid plaques
(which are associated with Alzheimer’s disease) in the brain. We are studying many other drug candidates in the
earlier stages of development, including molecules targeting cancers, diabetes, obesity, Alzheimer’s disease,
schizophrenia, depression, bipolar disorder, migraine, alcohol dependence, musculoskeletal disorders,
atherosclerosis, anemia, benign prostatic hyperplasia, erectile dysfunction, and renal diseases. We are also
developing new uses, formulations, or delivery methods for many of these molecules as well as several currently
marketed products, including Alimta, Byetta, Cialis, Effient, Erbitux, Forteo, and Humalog.

Raw Materials and Product Supply
Most of the principal materials we use in our manufacturing operations are available from more than one source.
However, we obtain certain raw materials principally from only one source. In addition, Byetta is manufactured by
third-party suppliers to Amylin. In the event one of these suppliers was unable to provide the materials or product,
we generally have sufficient inventory to supply the market until an alternative source of supply can be implemented.
However, in the event of an extended failure of a supplier, it is possible that we could experience an interruption in
supply until we established new sources or, in some cases, implemented alternative processes.
Our primary bulk manufacturing occurs at four owned sites in the United States as well as owned sites in Ireland,
Puerto Rico, and the United Kingdom. Finishing operations, including labeling and packaging, take place at a number
of sites throughout the world. Effective in January 2010, we sold one of our U.S. sites, Tippecanoe Laboratories in
West Lafayette, Indiana, to an affiliate of Evonik Industries AG, and entered into a nine-year supply and services
agreement whereby Evonik will manufacture final and intermediate step active pharmaceutical ingredients for
certain Lilly human and animal health products.
We manage our supply chain (including our own facilities, contracted arrangements, and inventory) in a way that
should allow us to meet all expected product demand while maintaining flexibility to reallocate manufacturing
capacity to improve efficiency and respond to changes in supply and demand. However, pharmaceutical production
processes are complex, highly regulated, and vary widely from product to product. Shifting or adding manufacturing
capacity can be a very lengthy process requiring significant capital expenditures and regulatory approvals.
Accordingly, if we were to experience extended plant shutdowns at one of our own facilities, extended failure of a
contract supplier, or extraordinary unplanned increases in demand, we could experience an interruption in supply of
certain products or product shortages until production could be resumed or expanded.

Quality Assurance
Our success depends in great measure upon customer confidence in the quality of our products and in the integrity
of the data that support their safety and effectiveness. Product quality arises from a total commitment to quality in
all parts of our operations, including research and development, purchasing, facilities planning, manufacturing, and
distribution. We have implemented quality-assurance procedures relating to the quality and integrity of scientific
information and production processes.
Control of production processes involves rigid specifications for ingredients, equipment, facilities, manufacturing
methods, packaging materials, and labeling. We perform tests at various stages of production processes and on the
final product to assure that the product meets all regulatory requirements and our standards. These tests may
involve chemical and physical chemical analyses, microbiological testing, testing in animals, or a combination.
Additional assurance of quality is provided by a corporate quality-assurance group that monitors existing
pharmaceutical and animal health manufacturing procedures and systems in the parent company, subsidiaries and
affiliates, and third-party suppliers.

Executive Officers of the Company
The following table sets forth certain information regarding our executive officers. Except as otherwise noted, all
executive officers have been employed by the Company in executive positions during the last five years.
The term of office for each executive officer expires on the date of the annual meeting of the Board of Directors, to be
held on April 18, 2011, or on the date his or her successor is chosen and qualified. No director or executive officer
has a “family relationship” with any other director or executive officer of the Company, as that term is defined for
purposes of this disclosure requirement. There is no understanding between any executive officer and any other
person pursuant to which the executive officer was selected.

Name

Age

Offices and Business Experience

John C. Lechleiter, Ph.D.

Chairman (since January 2009), President (since October 2005), Chief Executive Officer (since April
2008) and a Director (since October 2005)

Robert A. Armitage

Bryce D. Carmine

Senior Vice President and General Counsel (since January 2003)

Executive Vice President and President, Lilly Bio-Medicines (since November 2009)

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Name

Age

Offices and Business Experience

Enrique A. Conterno

Frank M. Deane, Ph.D.

Stephen F. Fry

Senior Vice President and President, Lilly Diabetes (since November 2009)

President, Manufacturing Operations (since June 2007)

Senior Vice President, Human Resources and Diversity (since February 2011)

John H. Johnson

Senior Vice President and President, Lilly Oncology (since November 2009; resigned January 2011)
Mr. Johnson was chief executive officer and a director of ImClone Systems Inc. from 2007 until its
acquisition by Lilly in November 2008. From 2002 to 2007 he served in various executive positions at
Johnson & Johnson, including Group Chairman of that company’s worldwide biopharmaceuticals unit
from 2005 to 2007. He first joined Johnson & Johnson in 1988. In 2000, Mr. Johnson left J&J to serve
as chief executive officer of Parkstone Medical Information Systems, a start-up company that
developed a hand-held device for doctors to write prescriptions. That company filed for bankruptcy
protection in 2001.

Jan M. Lundberg, Ph.D.

Executive Vice President, Science and Technology and President, Lilly Research Laboratories (since
January 2010). From 2002 until he joined Lilly in January 2010, Dr. Lundberg was executive vice
president and head of discovery research at AstraZeneca.

Susan Mahony, Ph.D.

Anne Nobles

Barton R. Peterson

Derica W. Rice

Jeffrey N. Simmons

Jacques Tapiero

Senior Vice President, Human Resources and Diversity (May 2009 – February 2011); Senior Vice
President and President, Lilly Oncology (since February 2011)

Senior Vice President, Enterprise Risk Management (since April 2009) and Chief Ethics and
Compliance Officer (since June 2007)

Senior Vice President, Corporate Affairs and Communications (since June 2009). Mr. Peterson served
as mayor of Indianapolis, Indiana from 2000 to 2007. From 2008 to 2009, he was managing director at
Strategic Capital Partners, LLC and distinguished visiting professor of public policy at Ball State
University.

Executive Vice President, Global Services (since January 2010) and Chief Financial Officer (since May
2006)

Senior Vice President and President, Elanco Animal Health (since January 2008)

Senior Vice President and President, Emerging Markets (since January 2010)

Employees
At the end of 2010, we employed approximately 38,350 people, including approximately 20,700 employees outside the
United States. A substantial number of our employees have long records of continuous service.

Financial Information Relating to Business Segments and Classes of Products
You can find financial information relating to our business segments and classes of products in Item 8 of this Form
10-K, “Segment Information.” That information is incorporated here by reference.

The relative contribution of any particular product to our consolidated net sales changes from year to year. This is
due to several factors, including the introduction of new products by us and by other manufacturers and the
introduction of generic pharmaceuticals upon patent expirations. In addition, margins vary for our different products
due to various factors, including differences in the cost to manufacture and market the products, the value of the
products to the marketplace, and government restrictions on pricing and reimbursement. Our major product sales
are generally not seasonal.

Financial Information Relating to Foreign and Domestic Operations
You can find financial information relating to foreign and domestic operations in Item 8, “Segment Information.” That
information is incorporated here by reference. To date, our overall operations abroad have not been significantly
deterred by local restrictions on the transfer of funds from branches and subsidiaries located abroad, including the
availability of U.S. dollar exchange. We cannot predict what effect these restrictions or the other risks inherent in
foreign operations, including possible nationalization, might have on our future operations or what other restrictions
may be imposed in the future. In addition, changing currency values can either favorably or unfavorably affect our
financial position, liquidity, and results of operations. We mitigate foreign exchange risk through various hedging
techniques including the use of foreign currency contracts.

Available Information on Our Web Site
We make available through our company web site, free of charge, our company filings with the Securities and
Exchange Commission (SEC) as soon as reasonably practicable after we electronically file them with, or furnish
them to, the SEC. These include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, proxy statements, registration statements, and any amendments to those documents. The company
web site link to our SEC filings is http://investor.lilly.com/sec.cfm.

In addition, the Corporate Governance portion of our web site includes our corporate governance guidelines, board
and committee information (including committee charters), and our articles of incorporation and by-laws. The link to
our corporate governance information is http://investor.lilly.com/governance.cfm.

We will provide paper copies of our SEC filings free of charge upon request to the company’s secretary at the
address listed on the front of this Form 10-K.

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Item 1A. Risk Factors; Cautionary Statement Regarding Forward

Looking Statements

In addition to the other information contained in this Form 10-K, the following risk factors should be considered
carefully in evaluating our company. It is possible that our business, financial condition, liquidity, or results of
operations could be materially adversely affected by any of these risks.

We make certain forward-looking statements in this Form 10-K, and company spokespersons may make such
statements in the future. Where possible, we try to identify forward-looking statements by using such words as
“expect,” “plan,” “will,” “estimate,” “forecast,” “project,” “believe,” and “anticipate”. Forward-looking statements do
not relate strictly to historical or current facts. They are likely to address our growth strategy, sales of current and
anticipated products, financial results, our research and development programs, the status of product approvals,
legislative and regulatory developments, and the outcome of contingencies such as litigation and investigations. All
forward-looking statements are based on our expectations at the time we make them. They are subject to risks and
uncertainties, including those summarized below.

• Pharmaceutical research and development is very costly and highly uncertain. There are many difficulties and
uncertainties inherent in pharmaceutical research and development and the introduction of new products.
There is a high rate of failure inherent in new drug discovery and development. To bring a drug from the
discovery phase to market typically takes a decade or more and costs over $1 billion. Failure can occur at any
point in the process, including late in the process after substantial investment. As a result, most funds invested
in research programs will not generate financial returns. New product candidates that appear promising in
development may fail to reach the market or may have only limited commercial success because of efficacy or
safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved uses, difficulty or
excessive costs to manufacture, or infringement of the patents or intellectual property rights of others. Delays
and uncertainties in the FDA approval process and the approval processes in other countries can result in
delays in product launches and lost market opportunity. In recent years, FDA review times have increased
substantially and fewer new drugs are being approved. In addition, it can be very difficult to predict sales growth
rates of new products.

• We face intense competition. We compete with a large number of multinational pharmaceutical companies,

biotechnology companies and generic pharmaceutical companies. To compete successfully, we must continue
to deliver to the market innovative, cost-effective products that meet important medical needs. Our product
sales can be adversely affected by the introduction by competitors of branded products that are perceived as
superior by the marketplace, by generic versions of our branded products, and by generic versions of other
products in the same therapeutic class as our branded products. See Item 1, “Business—Competition,” for
more details.

• Our long-term success depends on intellectual property protection. Our long-term success depends on our

ability to continually discover, develop, and commercialize innovative new pharmaceutical products. Without
strong intellectual property protection, we would be unable to generate the returns necessary to support the
enormous investments in research and development and capital as well as other expenditures required to bring
new drugs to the market.

Intellectual property protection varies throughout the world and is subject to change over time. In the U.S., the
Hatch-Waxman Act provides generic companies powerful incentives to seek to invalidate our patents; as a
result, we expect that our U.S. patents on major products will be routinely challenged, and there can be no
assurance that our patents will be upheld. See Item 1, “Business—Patents, Trademarks, and Other Intellectual
Property Protection,” for more details. We are increasingly facing generic manufacturer challenges to our
patents outside the U.S. as well. In addition, competitors or other third parties may claim that our activities
infringe patents or other intellectual property rights held by them. If successful, such claims could result in our
being unable to market a product in a particular territory or being required to pay damages for past
infringement or royalties on future sales. See Item 1, “Business—Patents, Trademarks, and Other Intellectual
Property Protection,” for more details.

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• We depend on patent-protected products for most of our revenues, cash flows, and earnings, and we will lose

effective intellectual property protection for many of them in the next several years. Eight significant products,
which together comprised 74 percent of our worldwide revenue in 2010, have lost or will lose their most
significant remaining U.S. patent protection and data-based exclusivity, as well as their intellectual property-
based exclusivity in most countries outside the U.S., in the next several years:

Product

Zyprexa

Cymbalta

Alimta

Humalog

Cialis

Gemzar

Evista

Strattera

Worldwide Revenues
(2010)

Percent of Total 2010
Revenues

Loss of Relevant U.S. Exclusivity

$5.03 billion

$3.46 billion

$2.21 billion

$2.05 billion

$1.70 billion

$1.15 billion

$1.02 billion

$576.7 million

October 2011

2013

2017 (compound patent plus data-based
pediatric exclusivity); 2022 (concomitant
nutritional supplement use)

2013

2017

November 2010 (compound); 2013 (use)1

2014

20161

1 The Gemzar use patent has been held invalid by the U.S. Court of Appeals for the Federal Circuit, and we are seeking review of
that decision by the U.S. Supreme Court. The Strattera patent has been held invalid by a U.S. District Court, and we have appealed
that decision; in the meantime, an injunction prevents the launch of generic forms of Strattera. For more information, see Item 7,
“Management’s Discussion and Analysis—Legal and Regulatory Matters.”

Loss of exclusivity, whether by expiration or as a consequence of litigation, typically results in a rapid and severe
decline in sales. See Item 1, “Business—Patents, Trademarks, and Other Intellectual Property Protection,” for
more details.

• Our business is subject to increasing government price controls and other health care cost containment

measures. Government health care cost-containment measures can significantly affect our sales and
profitability. In many countries outside the United States, government agencies strictly control, directly or
indirectly, the prices at which our products are sold. In the United States, we are subject to substantial pricing
pressures from state Medicaid programs and private insurance programs and pharmacy benefit managers,
including those operating under the Medicare Part D pharmaceutical benefit, and implementation of the
recently-enacted U.S. health care reform legislation is increasing these pricing pressures. In addition, many
state legislative proposals would further negatively affect our pricing and/or reimbursement for our products.
We expect pricing pressures from both governments and private payers inside and outside the United States to
become more severe. See Item I, “Business—Regulations Affecting Pharmaceutical Pricing and
Reimbursement,” for more details.

• Pharmaceutical products can develop unexpected safety or efficacy concerns. Unexpected safety or efficacy

concerns can arise with respect to marketed products, leading to product recalls, withdrawals, or declining
sales, as well as costly product liability claims.

• Regulatory compliance problems could be damaging to the company. The marketing, promotional, and pricing
practices of pharmaceutical manufacturers, as well as the manner in which manufacturers interact with
purchasers, prescribers, and patients, are subject to extensive regulation. Many companies, including Lilly, have
been subject to claims related to these practices asserted by federal, state and foreign governmental
authorities, private payers and consumers. These claims have resulted in substantial expense and other
significant consequences to us. It is possible other products could become subject to investigation and that the
outcome of these matters could include criminal charges and fines, penalties, or other monetary or
nonmonetary remedies. In particular, see Item 7, “Management’s Discussion and Analysis—Legal and
Regulatory Matters,” for the discussions of the U.S. sales and marketing practices investigations. In addition,
regulatory issues concerning compliance with current Good Manufacturing Practice (cGMP) regulations for
pharmaceutical products can lead to product recalls and seizures, interruption of production leading to product
shortages, and delays in the approvals of new products pending resolution of the cGMP issues. We are now
operating under a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of
Health and Human Services that requires us to maintain comprehensive compliance programs governing our
research, manufacturing, and sales and marketing of pharmaceuticals. A material failure to comply with the
Agreement could result in severe sanctions to the company. See Item 1, “Business—Regulation of our
Operations,” for more details.

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• We face many product liability claims today, and future claims will be largely self-insured. We are subject to a

substantial number of product liability claims involving primarily Byetta, Zyprexa, diethylstilbestrol (DES), and
thimerosal, and because of the nature of pharmaceutical products, it is possible that we could become subject
to large numbers of product liability claims for these or other products in the future. See Item 7,
“Management’s Discussion and Analysis—Legal and Regulatory Matters,” and Item 3, “Legal Proceedings,” for
more information on our current product liability litigation. Due to a very restrictive market for product liability
insurance, we have been and will continue to be largely self-insured for future product liability losses for
substantially all our currently marketed products. In addition, there is no assurance that we will be able to fully
collect from our insurance carriers on past claims.

• Manufacturing difficulties could lead to product supply problems. Pharmaceutical manufacturing is complex and
highly regulated. Manufacturing difficulties at our facilities or contracted facilities, or the failure or refusal of a
contract manufacturer to supply contracted quantities, could result in product shortages, leading to lost sales.
See Item 1, “Business—Raw Materials and Product Supply,” for more details.

• A prolonged economic downturn could adversely affect our business and operating results. While pharmaceuticals

have not generally been sensitive to overall economic cycles, a prolonged economic downturn coupled with
rising unemployment (and a corresponding increase in the uninsured and underinsured population) could lead
to decreased utilization of drugs, affecting our sales volume. Declining tax revenues attributable to the
downturn are increasing the pressure on governments to reduce health care spending, leading to increasing
government efforts to control drug prices and utilization. In addition, a prolonged economic downturn could
adversely affect our investment portfolio, which could lead to the recognition of losses on our corporate
investments and increased benefit expense related to our pension obligations. Also, if our customers, suppliers
or collaboration partners experience financial difficulties, we could experience slower customer collections,
greater bad debt expense, and performance defaults by suppliers or collaboration partners.

• We face other risks to our business and operating results. Our business is subject to a number of other risks and

uncertainties, including:

— Economic factors over which we have no control, including changes in inflation, interest rates, and foreign

currency exchange rates, can affect our results of operations.

— Changes in tax laws, including laws related to the remittance of foreign earnings or investments in foreign
countries with favorable tax rates, and settlements of federal, state, and foreign tax audits, can affect our
results of operations. In its budget submission to Congress in February 2010, the Obama Administration
proposed changes to the manner in which the U.S. would tax the international income of U.S.-based
companies. Some provisions changing taxation of international income were enacted in August 2010, which
did not have a material effect on results of operations. While it is uncertain how the U.S. Congress may
address U.S. tax policy matters in the future, reform of U.S. taxation, including taxation of international
income, continues to be a topic of discussion for the U.S. Congress and the Administration. A significant
change to the U.S. tax system, including changes to the taxation of international income, could have a
material adverse effect on our results of operations.

— Changes in accounting standards promulgated by the Financial Accounting Standards Board and the

Securities and Exchange Commission can affect our financial statements.

— Our financial statements can also be affected by internal factors, such as changes in business strategies
and the impact of restructurings, asset impairments, technology acquisition and disposition transactions,
and business combinations.

We undertake no duty to update forward-looking statements.

Item 1B. Unresolved Staff Comments
None.

Properties

Item 2.
Our principal domestic and international executive offices are located in Indianapolis. At December 31, 2010, we
owned 12 production and distribution sites in the United States and Puerto Rico. Together with the corporate
administrative offices, these facilities contain an aggregate of approximately 13.4 million square feet of floor area
dedicated to production, distribution, and administration. Major production sites include Indianapolis and Clinton,
Indiana; Carolina, Puerto Rico; and Branchburg, New Jersey.

We own production and distribution sites in 12 countries outside the United States and Puerto Rico, containing an
aggregate of approximately 3.4 million square feet of floor area. Major production sites include facilities in France,
United Kingdom, Spain, Ireland, Italy, Mexico, and Brazil.

Our research and development facilities in the United States consist of approximately 3.5 million square feet and are
located primarily in Indianapolis, with smaller sites in San Diego and New York City. We also have smaller research
and development facilities in the United Kingdom, Canada, and Spain.

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We believe that none of our properties is subject to any encumbrance, easement, or other restriction that would
detract materially from its value or impair its use in the operation of the business. The buildings we own are of
varying ages and in good condition.

Legal Proceedings

Item 3.
We are a party to various currently pending legal actions, government investigations, and environmental
proceedings, and we anticipate that such actions could be brought against us in the future. The most significant of
these matters are described below or, as noted, in Item 7, “Management’s Discussion and Analysis—Legal and
Regulatory Matters.” While it is not possible to determine the outcome of the legal actions, investigations and
proceedings brought against us, we believe that, except as otherwise specifically noted below or in Item 7, the
resolution of all such matters will not have a material adverse effect on our consolidated financial position or
liquidity, but could be material to our consolidated results of operations in any one accounting period.

Legal Proceedings Described in Management’s Discussion and Analysis
See Item 7, “Management’s Discussion and Analysis—Legal and Regulatory Matters,” for information on various
legal proceedings, including but not limited to:

• The U.S. patent litigation involving Alimta, Cymbalta, Evista, Gemzar, and Strattera
• The patent litigation outside the U.S. involving Zyprexa
• The various federal and state investigations relating to our sales, marketing, and promotional practices
• The Zyprexa product liability and related litigation, including claims brought on behalf of state Medicaid

agencies and private healthcare payers

That information is incorporated into this Item by reference.

Other Patent Litigation
Cialis:
In July 2005, Vanderbilt University filed a lawsuit in the U.S. District Court in Delaware against ICOS
Corporation seeking to add three of its scientists as co-inventors on the Cialis compound and method-of-use
patents. In January 2009, the district court judge ruled in our favor, declining to add any of these scientists as an
inventor on either patent. The Court of Appeals for the Federal Circuit affirmed the lower court ruling in April 2010.
In January 2011, the U.S. Supreme Court declined to review this decision and no further appeals are possible.

Other Product Liability Litigation
We are currently a defendant in a variety of product liability lawsuits in the United States involving primarily Zyprexa,
thimerosal, Byetta, and diethylstilbestrol (DES).
We have been named as a defendant in approximately 120 actions in the U.S., involving approximately 140 claimants,
brought in various state courts and federal district courts on behalf of children with autism or other neurological
disorders who received childhood vaccines (manufactured by other companies) that contained thimerosal, a generic
preservative used in certain vaccines in the U.S. beginning in the 1930s. We purchased patents and conducted
research pertaining to thimerosal in the 1920s. We have been named in the suits even though we discontinued
manufacturing the raw material in 1974 and discontinued selling it in the United States to vaccine manufacturers in
1992. The lawsuits typically name the vaccine manufacturers as well as Lilly and other distributors of thimerosal,
and allege that the children’s exposure to thimerosal-containing vaccines caused their autism or other neurological
disorders. We strongly deny any liability in these cases. There is no credible scientific evidence establishing a causal
relationship between thimerosal-containing vaccines and autism or other neurological disorders. In addition, we
believe the majority of the cases should not be prosecuted in the courts in which they have been brought because the
underlying claims are subject to the National Childhood Vaccine Injury Act of 1986. Implemented in 1988, the Act
established a mandatory, federally administered no-fault claims process for individuals who allege that they were
harmed by the administration of childhood vaccines. Under the Act, claims must first be brought before the U.S.
Court of Claims for an award determination under the compensation guidelines established pursuant to the Act.
Claimants who are unsatisfied with their awards under the Act may reject the award and seek traditional judicial
remedies. In March 2010, three special masters of the Court of Claims issued rulings in the three separate test
cases, all concluding that thimerosal-containing vaccines do not cause autism. Petitioners did not seek review of
these decisions and the judgments were entered dismissing the cases in April 2010. All claimants have been notified
that if they intend to pursue their claims they will be required to identify a separate theory consistent with the
requirements of the Act.
We have been named a defendant in approximately 100 Byetta product liability lawsuits involving approximately 335
plaintiffs, primarily seeking to recover damages for pancreatitis experienced by patients prescribed Byetta. We are
aware of approximately 40 additional claimants who have not yet filed suit. The majority of the cases are filed in
California and coordinated in a Los Angeles Superior Court. In June 2009, a lawsuit was filed in Louisiana State Court
(Ralph Jackson v. Eli Lilly and Company, et al.) seeking to assert similar product liability claims on behalf of Louisiana
residents who were prescribed Byetta; however, the plaintiff dropped the class action allegations. We believe these
claims are without merit and are prepared to defend against them vigorously.
In approximately 20 U.S. lawsuits against us involving approximately 100 claimants, plaintiffs seek to recover
damages on behalf of children or grandchildren of women who were prescribed DES during pregnancy in the 1950s

and 1960s. Approximately 65 of these claimants allege that they were indirectly exposed in utero to the medicine and
later developed breast cancer as a consequence. In December 2009, a lawsuit was filed in U.S. District Court in
Washington, D.C. against Lilly and other manufacturers (Michele Fecho, et al v. Eli Lilly and Company, et al) seeking to
assert product liability claims on behalf of a putative class of men and women allegedly exposed to the medicine who
claim to have later developed breast cancer. We believe these claims are without merit and are prepared to defend
against them vigorously.

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Other Marketing Practices Investigations
In November 2008, we received a subpoena from the U.S. Department of Health and Human Services Office of
Inspector General in coordination with the U.S. Attorney for the Western District of New York seeking production of a
wide range of documents and information relating to reimbursement of Alimta. We are cooperating in this
investigation.
In December 2010, we received a civil investigative demand from the Attorney General of Texas seeking production of
a wide range of documents and information related to Actos. We are cooperating in this investigation.
In August 2003, we received notice that the staff of the SEC is conducting an investigation into the compliance by
Polish subsidiaries of certain pharmaceutical companies, including Lilly, with the U.S. Foreign Corrupt Practices Act
of 1977. The staff has issued subpoenas to us requesting production of documents related to the investigation. In
connection with that matter, staffs of the SEC and the Department of Justice (DOJ) have asked us to voluntarily
provide additional information related to certain activities of Lilly affiliates in a number of other countries. The SEC
staff has also issued subpoenas related to activities in these countries. We are cooperating with the SEC and the DOJ
in this investigation.

Employee Litigation
In April 2006, three former employees and one current employee filed a complaint against the company in the U.S.
District Court for the Southern District of Indiana (Welch, et al. v. Eli Lilly and Company, filed April 20, 2006) alleging
racial discrimination. During the litigation, plaintiffs amended their complaint twice, and the lawsuit at one point
involved 145 individual plaintiffs as well as the national and local chapters of the National Association for the
Advancement of Colored People (NAACP). Although the case was originally filed as a putative class action, in
September 2009, plaintiffs withdrew their request for class certification. In September 2010, the court severed the
remaining individual claims and ordered that any plaintiff wishing to continue litigation must file an individual action.
We expect approximately 40 individual claims to be filed. We believe the claims that remain are without merit and
are prepared to defend against them vigorously.
We have also been named as a defendant in a lawsuit filed in the U.S. District Court for the Northern District of New
York (Schaefer-LaRose, et al. v. Eli Lilly and Company, filed November 14, 2006) claiming that our pharmaceutical
sales representatives should have been categorized as “non-exempt” rather than “exempt” employees, and claiming
that the company owes them back wages for overtime worked, as well as penalties, interest, and attorneys’ fees.
Other pharmaceutical industry participants face similar lawsuits. The case was transferred to the U.S. District Court
for the Southern District of Indiana, and in February 2008, the Indianapolis court conditionally certified a nationwide
opt-in collective action under the Fair Labor Standards Act of all current and former employees who served as a Lilly
pharmaceutical sales representative at any time from November 2003 to the present. As of the close of the opt-in
period, fewer than 400 of the over 7,500 potential plaintiffs elected to participate in the lawsuit. In September 2009,
the District Court granted our motion for summary judgment with regard to Ms. Schaefer-LaRose’s claims and
ordered the plaintiffs to demonstrate why the entire collective action should not be decertified within 30 days.
Plaintiffs filed a motion for reconsideration of the summary judgment decision and also opposed decertification, and
in October 2010, the court denied plaintiffs motion for reconsideration but decided not to decertify the collective
action at this time. Plaintiffs have filed an appeal of the summary judgment ruling. We believe this lawsuit is without
merit and are prepared to defend against it vigorously.
We have been named in a lawsuit brought by the Labor Attorney for 15th Region in the Labor Court of Paulinia, State
of Sao Paulo, Brazil, alleging possible harm to employees and former employees caused by exposure to heavy
metals. We have also been named in approximately 50 lawsuits filed in the same court by individual former
employees making similar claims. We have also been named, along with several other companies, in a lawsuit filed
by certain of these individuals in U.S. District Court for the Southern District of Indiana in April 2009, alleging
possible harm caused by exposure to pesticides related to our former agricultural chemical manufacturing facility in
Cosmopolis, Brazil. In November 2010, the case was dismissed with prejudice by the Court. The plaintiffs have filed a
motion to reconsider. We believe these lawsuits are without merit and are prepared to defend against them
vigorously.

Other Matters
In October 2005, the U.S. Attorney’s office for the Eastern District of Pennsylvania advised that it is conducting an
inquiry regarding certain rebate agreements we entered into with a pharmacy benefit manager covering Axid®,
Evista, Humalog, Humulin, Prozac, and Zyprexa. The inquiry includes a review of our Medicaid best price reporting
related to the product sales covered by the rebate agreements. We are cooperating in this matter.
In October 2005, we received a subpoena from the U.S. Attorney’s office for the District of Massachusetts for the
production of documents relating to our business relationship with a long-term care pharmacy organization
concerning Actos, Evista, Humalog, Humulin, and Zyprexa. We are cooperating in this matter.

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Between 2003 and 2005, various municipalities in New York sued us and many other pharmaceutical manufacturers,
claiming in general that as a result of alleged improprieties by the manufacturers in the calculation and reporting of
average wholesale prices for purposes of Medicaid reimbursement, the municipalities overpaid their portion of the
cost of pharmaceuticals. The suits seek monetary and other relief, including civil penalties and treble damages.
Similar suits were filed against us and many other manufacturers by the States of Iowa, Kansas, Louisiana,
Mississippi, Oklahoma, and Utah. These suits are pending either in the U.S. District Court for the District of
Massachusetts or in various state courts. All of these suits are in early stages or discovery is ongoing. We believe
these lawsuits are without merit and are prepared to defend against them vigorously.
In 2004 we, along with several other pharmaceutical companies, were named in a lawsuit in California state court
brought by approximately twenty California pharmacies alleging that pharmaceutical companies prevented
commercial importation of prescription drugs from outside the United States and used Canadian pharmaceutical
prices as an agreed floor for prices in the United States in violation of antitrust laws. The case sought restitution for
alleged overpayments for pharmaceuticals and an injunction against the allegedly violative conduct. Summary
judgment was granted to us and the other defendants and in July 2008, the California Court of Appeals affirmed that
decision. In July 2010, the California Supreme Court overturned the lower court decision and remanded the case to
the state court. We believe the lawsuit has no merit and are prepared to defend against it vigorously.
In June 2009, we received a Civil Investigative Demand from the office of the Attorney General of Texas requesting
documents related to nominal pricing of Axid; we divested the marketing rights for Axid in 2000. We are cooperating
in these matters.
Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as
Superfund, we have been designated as one of several potentially responsible parties with respect to the cleanup of
fewer than 10 sites. Under Superfund, each responsible party may be jointly and severally liable for the entire
amount of the cleanup.
During routine inspections in 2006 and 2007, the U.S. Environmental Protection Agency (EPA) identified potential
gaps in our leak detection and repair program (LDAR). In addition, in 2006 we voluntarily reported to the state and
city environmental agencies that we had exceeded an annual limit for air emissions. In response to these events, we
have implemented numerous corrective actions and enhancements to our LDAR program. We are currently working
with the EPA towards resolution of this matter, which will likely require the payment of a fine. We do not believe the
amount of the fine will be material.
We are also a defendant in other litigation and investigations, including product liability, patent, employment, and
premises liability litigation, of a character we regard as normal to our business.

Item 4.
During the fourth quarter of 2010, no matters were submitted to a vote of security holders.

Submission of Matters to a Vote of Security Holders

Part II

Item 5. Market for the Registrant’s Common Equity, Related

Stockholder Matters, and Issuer Purchases of Equity Securities

You can find information relating to the principal market for our common stock and related stockholder matters at
Item 8 under “Selected Quarterly Data (unaudited)” and “Selected Financial Data (unaudited).” That information is
incorporated here by reference.
The following table summarizes the activity related to repurchases of our equity securities during the fourth quarter
ended December 31, 2010:

Period

Total Number of
Shares Purchased
(in thousands)
(a)

Average Price Paid
per Share
(b)

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
(c)

Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the
Plans or Programs
(dollars in millions)
(d)

October 2010 . . . . . . . . . . . . . . . . .
November 2010 . . . . . . . . . . . . . . .
December 2010 . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . .

11
4
0

$37.14
35.22
0.00

0.0
0.0
0.0

0.0

$419.2
419.2
419.2

The amounts presented in columns (a) and (b) above represent purchases of common stock related to our
stock-based compensation programs. The amounts presented in columns (c) and (d) in the above table represent

activity related to our $3.00 billion share repurchase program announced in March 2000. As of December 31, 2010,
we have purchased $2.58 billion related to this program.

Selected Financial Data

Item 6.
You can find selected financial data for each of our five most recent fiscal years in Item 8 under “Selected Financial
Data (unaudited).” That information is incorporated here by reference.

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Item 7. Management’s Discussion and Analysis of Results of

Operations and Financial Condition

RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW
This section provides an overview of our financial results, recent product and late-stage pipeline developments, and
legal, regulatory, and other matters affecting our company and the pharmaceutical industry.

Financial Results
We achieved revenue growth of 6 percent in 2010, which was primarily driven by the collective growth of Alimta,
Cymbalta, animal health products, insulin products, Cialis, and Zyprexa, offset by the decline in Gemzar revenue.
Cost of sales and marketing, selling, and administrative expenses grew at a slower rate than revenue, while our
investment in research and development grew at a greater rate than revenue and our effective tax rate increased. As
a result of these factors, as well as higher other income in 2010 and the items noted below, net income increased 17
percent to $5.07 billion, and earnings per share increased 16 percent to $4.58 per share, in 2010 as compared to
$4.33 billion, or $3.94 per share, in 2009.

2010
U.S. Health Care Reform

• Due to the enactment of health care reform in the U.S. in March 2010, total revenue decreased by $229.0 million

(pretax), or $.16 per share, in 2010 as a result of higher rebates. We also recorded a one-time non-cash
deferred income tax charge in the first quarter of $85.1 million, or $.08 per share, associated with the
imposition of tax on the prescription drug subsidy of our U.S. retiree health plan.

Acquisitions (Note 3)

• We incurred acquired in-process research and development (IPR&D) charges associated with the in-licensing
arrangement with Acrux Limited (Acrux) of $50.0 million (pretax), which decreased earnings per share by $.03.

Asset Impairments and Related Restructuring and Other Special Charges (Notes 5 and 15)

• We recognized asset impairments, restructuring, and other special charges of $192.0 million (pretax), or $.13

per share, in 2010, primarily related to severance costs from previously announced strategic actions.

2009
Acquisitions (Note 3)

• We incurred acquired IPR&D charges associated with an in-licensing arrangement with Incyte Corporation

(Incyte) of $90.0 million (pretax), which decreased earnings per share by $.05.

Asset Impairments and Related Restructuring and Other Special Charges (Notes 5 and 15)

• We recognized asset impairments, restructuring, and other special charges of $462.7 million (pretax), which

decreased earnings per share by $.29, for asset impairments and restructuring primarily related to the sale of
our Tippecanoe Laboratories manufacturing site.

• We incurred pretax charges of $230.0 million in connection with the claims of several states related to Zyprexa,

which decreased earnings per share by $.13.

Late-Stage Pipeline
Our long-term success depends to a great extent on our ability to continue to discover and develop innovative
pharmaceutical products and acquire or collaborate on compounds currently in development by other biotechnology
or pharmaceutical companies. We currently have more than 65 potential new drugs in human testing and a larger
number of projects in preclinical development.
There are many difficulties and uncertainties inherent in pharmaceutical research and development and the
introduction of new products. There is a high rate of failure inherent in new drug discovery and development. The
process to bring a drug from the discovery phase to regulatory approval can take 12 to 15 years or longer and cost
more than $1 billion. Failure can occur at any point in the process, including late in the process after substantial
investment. As a result, most research programs will not generate financial returns. New product candidates that

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appear promising in development may fail to reach the market or may have only limited commercial success
because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved
uses, difficulty or excessive costs to manufacture, or infringement of the patents or intellectual property rights of
others. Delays and uncertainties in the U.S. Food and Drug Administration (FDA) approval process and the approval
processes in other countries can result in delays in product launches and lost market opportunity. Consequently, it is
very difficult to predict which products will ultimately be approved and the sales growth of those products.

We manage research and development spending across our portfolio of molecules, and a delay in, or termination of,
one project will not by itself necessarily cause a significant change in our total research and development spending.
Due to the risks and uncertainties involved in the research and development process, we cannot reliably estimate
the nature, timing, completion dates, and costs of the efforts necessary to complete the development of our research
and development projects, nor can we reliably estimate the future potential revenue that will be generated from a
successful research and development project. Each project represents only a portion of the overall pipeline and none
are individually material to our consolidated research and development expense. While we do accumulate certain
research and development costs on a project level for internal reporting purposes, we must make significant cost
estimations and allocations, some of which rely on data that is neither reproducible nor validated through accepted
control mechanisms. As a consequence, we do not have sufficiently reliable data to report on total research and
development costs by therapeutic category.

New molecular entities currently in Phase III clinical trial testing include the following:

BAFF antibody—an anti-BAFF antibody for the treatment of rheumatoid arthritis and lupus

BI10773—a SGLT-2 inhibitor for the treatment of diabetes (in collaboration with Boehringer Ingelheim)

Enzastaurin—a small molecule for the treatment of diffuse large B-cell lymphoma

GLP-1 Fc—a glucagon-like peptide 1 analog for the treatment of type 2 diabetes

Necitumumab—a fully human monoclonal antibody being investigated as a treatment for non-small cell lung
cancer

NERI—a potent and highly selective norepinepherine reuptake inhibitor being investigated as a treatment for
major depression

Ramucirumab—a monoclonal antibody being investigated as a treatment for metastatic breast and gastric
cancers

Solanezumab—an amyloid beta (Aß) antibody for the treatment of Alzheimer’s disease

New molecular entities that have been submitted for regulatory review include the following:

Arxxant—a potential treatment for diabetic retinopathy

Florbetapir—a molecular imaging tool under investigation for the detection of beta-amyloid plaque in the brain.
The absence of beta-amyloid plaque in the brain makes a diagnosis of Alzheimer’s disease unlikely.

Linagliptin—a DPP-4 inhibitor for the treatment of diabetes (in collaboration with Boehringer Ingelheim)

Liprotamase—a non-porcine pancreatic enzyme replacement therapy

The following are late-stage pipeline developments that have occurred since January 1, 2010:

• Axiron. We entered into an exclusive worldwide license agreement in the first quarter for the

commercialization of Acrux’s experimental testosterone solution Axiron, which the FDA approved in the fourth
quarter as a replacement therapy in men for certain conditions associated with a deficiency or absence of
testosterone. We, along with our partner Acrux, expect to launch Axiron in the U.S. by mid-2011.

• BI10773 and linagliptin.

In January 2011, we announced a global agreement with Boehringer Ingelheim to

jointly develop and commercialize a portfolio of diabetes compounds currently in mid- and late-stage
development. Included are Boehringer Ingelheim’s two oral diabetes agents, linagliptin and BI10773, as well as
our two basal insulin analogues, LY2605541 and LY2963016, along with an option to co-develop and
co-commercialize Lilly’s anti-TGF-beta monoclonal antibody.

• Bydureon™—U.S.

In October 2010, the FDA issued a complete response letter regarding the New Drug

Application (NDA) for Bydureon. In the complete response letter, the FDA requested a safety study to measure
the potential for heart rhythm disturbances when exenatide is used at higher-than-average doses. Additionally,
the FDA requested the results of the already completed DURATION-5 study to evaluate the efficacy, and the
labeling of the safety and effectiveness, of the commercial formulation of Bydureon. We, along with our partners
Amylin Pharmaceuticals, Inc. (Amylin) and Alkermes, Inc. (Alkermes), plan to submit our reply to the complete
response letter in the second half of 2011. Amylin received written feedback from the FDA indicating approval of
the study design for the required safety study to support the regulatory application. The study is expected to
begin in February. Based on the requirements for additional data, this will likely be considered a Class 2
resubmission requiring a six-month review.

• Bydureon—Europe. We, along with our partners Amylin and Alkermes, submitted Bydureon for review by the

European Medicines Agency in the first quarter of 2010.

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• Cymbalta. The FDA approved Cymbalta for the management of chronic musculoskeletal pain in November
2010. This has been established in studies in patients with chronic low back pain and chronic pain due to
osteoarthritis.

• Florbetapir.

In December 2010, we completed the acquisition of Avid Radiopharmaceuticals, Inc. (Avid), a

company developing novel molecular imaging compounds intended for the detection and monitoring of chronic
human diseases. In addition, the FDA recently assigned priority review designation for Amyvid™ (florbetapir),
Avid’s lead program in development. The Peripheral and Central Nervous System Drugs Advisory Committee of
the FDA held a meeting to discuss Amyvid’s NDA in January 2011. The committee decided that it could not
recommend approval of Amyvid at this time based on the currently available data (13-3), but voted unanimously
(16-0) to recommend approval of Amyvid conditional on a reader training program that demonstrates reader
accuracy and consistency through a re-read of previously acquired scans. The committee supported that
efficacy was established and there were no significant safety concerns.

• Liprotamase.

In July 2010, we completed our acquisition of Alnara Pharmaceuticals, Inc. (Alnara), a

privately-held company developing protein therapeutics for the treatment of metabolic diseases. In January
2011, the FDA Gastrointestinal Drugs Advisory Committee voted to recommend non-approval of liprotamase,
Alnara’s non-porcine pancreatic enzyme replacement therapy, for the treatment of exocrine pancreatic
insufficiency (EPI). During the meeting, the committee had questions about the degree of efficacy of liprotamase
and recommended that additional studies be conducted prior to considering approval of liprotamase for EPI. We
will continue to work with the FDA to address the questions raised in the meeting as the agency moves toward a
final decision on the application.

• Livalo. We, along with our partner, Kowa Pharmaceuticals America Inc., launched Livalo in the U.S. in the

second quarter of 2010. In addition to a proper diet, Livalo is used for the treatment of high cholesterol (primary
hyperlipidemia or mixed dyslipidemia) in adults.

• Necitumumab.

In February 2011, we and Bristol-Myers Squibb Company stopped enrollment in one of the two
global Phase III studies evaluating necitumumab, an investigational anti-cancer agent, as a first-line treatment
for advanced non-small cell lung cancer (NSCLC). The decision to stop enrollment in the Phase III
non-squamous NSCLC INSPIRE trial followed an independent Data Monitoring Committee (DMC)
recommendation that no new or recently enrolled patients continue treatment in the trial because of safety
concerns related to thromboembolism (blood clots) in the experimental arm of the study. The same DMC also
noted that patients who have already received two or more cycles of necitumumab appear to have a lower
ongoing risk for these safety concerns. These patients may choose to remain on the trial, after being informed
of the additional potential risks. Investigators will continue to assess patients after two cycles to determine if
there is a potential benefit from treatment.

• Semagacestat.

In August 2010, we halted development of semagacestat, a gamma secretase inhibitor being

studied as a potential treatment for Alzheimer’s disease, because preliminary results from two ongoing
long-term Phase III studies showed the compound did not slow disease progression and was associated with
worsening of clinical measures of cognition and the ability to perform activities of daily living.

• Tasisulam.

In December 2010, we suspended all current Phase III studies evaluating tasisulam as a

second-line treatment for those with unresectable or metastatic melanoma. Tasisulam, an investigational,
small-molecule anti-cancer compound, continues to be studied in other types of cancers.

• Teplizumab.

In October 2010, we and our partner, MacroGenics, Inc., announced that an independent DMC

completed a planned analysis of one-year safety and efficacy data of the Protégé Phase III clinical trial of
teplizumab, an investigational biologic under development for the treatment of individuals with recent-onset
type 1 diabetes. The DMC concluded that the primary efficacy endpoint of the study was not met. The DMC,
noting that all administration of experimental drug had been completed, commented that appropriate safety
monitoring is warranted. No unanticipated safety issues were identified in the DMC’s review. The companies
have decided to suspend further enrollment and dosing of patients in two other ongoing clinical trials of
teplizumab in type 1 diabetes. In October 2010, we notified MacroGenics of our decision to terminate our
collaboration agreement for the development of teplizumab.

Legal, Regulatory, and Other Matters
The U.S. compound patent for Gemzar expired November 15, 2010. Our method-of-use patent (expiring in 2013) was
held invalid by the U.S. Court of Appeals for the Federal Circuit. We are seeking review by the U.S. Supreme Court,
but generic gemcitabine was introduced to the U.S. market in mid-November 2010, and Gemzar sales are
experiencing a rapid and severe decline.
The U.S. District Court for the District of New Jersey ruled that our method-of-use patent for Strattera, which
expires in 2017, is invalid. Our appeal to the U.S. Court of Appeals for the Federal Circuit was heard in December
2010, and we are awaiting a ruling. The Court of Appeals has granted an injunction that prevents the launch of
generic atomoxetine until a ruling is rendered. Several generic companies have tentative approval to market generic
atomoxetine, and, should the appeal be unsuccessful, we would anticipate a rapid and severe decline in Strattera
sales due to generic competition.
The enactment of the “Patient Protection and Affordable Care Act” and “The Health Care and Education
Reconciliation Act of 2010” in March 2010 brings significant changes to U.S. health care. These changes began to

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affect our financial results in the first quarter of 2010 and will continue to have significant impact on our results in
the future. Changes to the rebates for prescription drugs sold to Medicaid beneficiaries, which increase the
minimum statutory rebate for branded drugs from 15.1 percent to 23.1 percent, were generally effective in the first
quarter of 2010. This rebate has been expanded to managed Medicaid, a program that provides for the delivery of
Medicaid benefits via managed care organizations, under arrangements between those organizations and state
Medicaid agencies. Additionally, a prescription drug discount program for outpatient drugs in certain types of health
care facilities that serve low-income and uninsured patients (known as 340B facilities) has been expanded. Also,
there are changes to the tax treatment of subsidies paid by the government to employers, such as us, who provide
their retirees with a drug benefit at least equivalent to the Medicare Part D drug benefit. Beginning in 2013, the
federal government will tax the subsidy it provides to such employers. While this tax will not take effect for three
more years, accounting rules dictate that we adjust our deferred tax asset through a one-time non-cash charge upon
enactment of the tax law change, which we recorded in the first quarter of 2010. In addition, the federal government
created an expedited regulatory approval pathway in the U.S. for biosimilars or follow-on biologics (copies of
biological compounds). Biologics will have at least 12 years of data-package protection following launch. Congress is
expected to take up patent law reform in 2011; some proposals would strengthen the pharmaceutical business
model while others under consideration might pose some risks.
Beginning in 2011, drug manufacturers will provide a discount of 50 percent of the cost of branded prescription
drugs for Medicare Part D participants who are in the “doughnut hole” (the coverage gap in Medicare prescription
drug coverage). The doughnut hole will be phased out by the federal government between 2011 and 2020.
Additionally, beginning in 2011, a non-tax deductible annual fee will be imposed on pharmaceutical manufacturers
and importers that sell branded prescription drugs to specified government programs. This fee is allocated to
companies based on their prior calendar year market share for branded prescription drug sales into these
government programs. A guidance project is currently under way within the IRS and U.S. Treasury concerning the
implementation of this fee. These costs will be included in marketing, selling, and administrative expense in our
consolidated statement of operations.
The Obama Administration proposed changes to the manner in which the U.S. would tax the international income of
U.S.-based companies. Some provisions changing taxation of international income were enacted in August 2010.
These provisions did not have a material effect on our consolidated results of operations. While it is uncertain how
the U.S. Congress may address U.S. tax policy matters in the future, reform of U.S. taxation, including taxation of
international income, continues to be a topic of discussion for Congress and the Obama Administration. A significant
change to the U.S. tax system, including changes to the taxation of international income, could have a material
adverse effect on our consolidated results of operations. On October 25, 2010, Puerto Rico enacted income and
excise tax legislation affecting our operations. This tax will be included in costs of sales in our consolidated
statement of operations. We believe this tax should be creditable against our U.S. income taxes.
Certain other federal and state health care proposals may continue to be debated, and could place downward
pressure on pharmaceutical industry sales or prices. These proposals include legalizing the importation of
prescription drugs and other cost-control strategies. In addition, the constitutionality of U.S. health care reform is
being challenged. We expect pricing pressures at state levels to become more severe, which could have a material
adverse effect on our consolidated results of operations.
International operations also are generally subject to extensive price and market regulations, and several European
countries have recently required either price decreases or rebate increases in response to economic pressures.
There are proposals for cost-containment measures pending in a number of additional countries, including
proposals that would directly or indirectly impose additional price controls, limit access to or reimbursement for our
products, or reduce the value of our intellectual property protection. Such proposals are expected to increase in both
frequency and impact, given the effect of the downturn in the global economy on local governments.

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OPERATING RESULTS—2010

Revenue
Our worldwide revenue for 2010 increased 6 percent, to $23.08 billion, driven by the collective growth of Alimta,
Cymbalta, animal health products, insulin products, Cialis, and Zyprexa, offset by the decline in Gemzar revenue.
Worldwide sales volume increased 3 percent, while selling prices contributed 2 percent of revenue growth, and the
impact of foreign exchange rates was negligible. Revenue in the U.S. increased 5 percent, to $12.87 billion, due to
higher prices. Revenue outside the U.S. increased 7 percent, to $10.21 billion, due to increased demand, partially
offset by lower prices. In 2010, total revenue was reduced by $229.0 million due to the impact of U.S. health care
reform.
The following table summarizes our revenue activity in 2010 compared with 2009:

Product

Year Ended
December 31, 2010

U.S.1

Outside U.S.

Total2

Year Ended
December 31, 2009
Total

Percent
Change
from 2009

Zyprexa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,495.5
2,772.0
Cymbalta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
957.1
Alimta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,222.4
Humalog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
658.1
Cialis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
775.1
Animal health products . . . . . . . . . . . . . . . . . . . . . . .
723.3
Gemzar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
470.8
Humulin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
681.8
Evista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
499.0
Forteo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
389.8
Strattera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
737.4
Other pharmaceutical products . . . . . . . . . . . . . . . . .

(Dollars in millions)
$ 5,026.4
3,459.2
2,208.6
2,054.2
1,699.4
1,391.4
1,149.4
1,088.9
1,024.4
830.1
576.7
1,933.5

$ 2,530.9
687.2
1,251.5
831.8
1,041.4
616.3
426.1
618.0
342.6
331.0
186.9
1,196.3

Total net product sales . . . . . . . . . . . . . . . . . . . . . .
Collaboration and other revenue3 . . . . . . . . . . . . . . .

12,382.3
483.3

10,060.0
150.4

22,442.2
633.8

$ 4,915.7
3,074.7
1,706.0
1,959.0
1,559.1
1,207.2
1,363.2
1,022.0
1,030.4
816.7
609.4
1,908.1

21,171.5
664.5

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,865.6

$10,210.4

$23,076.0

$21,836.0

2
13
29
5
9
15
(16)
7
(1)
2
(5)
1

6
(5)

1 U.S. revenue includes revenue in Puerto Rico.
2 Numbers may not add due to rounding.
3 Collaboration and other revenue is primarily composed of Erbitux royalties and 50 percent of Byetta’s gross margin in the U.S.

Zyprexa, our top-selling product, is a treatment for schizophrenia, acute mixed or manic episodes associated with
bipolar I disorder, and bipolar maintenance. Zyprexa sales in the U.S. increased 7 percent in 2010, driven by higher
prices, partially offset by lower demand. Sales outside the U.S. decreased 2 percent driven by lower prices and
decreased demand in Europe and Canada, partially offset by the favorable impact of foreign exchange rates and
increased demand in Japan. We will lose effective exclusivity for Zyprexa in the U.S. in October 2011. We will also
lose effective exclusivity in most of Europe in 2011. In the five major European countries, which in the aggregate had
approximately $1.40 billion in sales for 2010, we will lose effective exclusivity in April 2011 (Spain) and September
2011 (France, Germany, Italy, and the United Kingdom). Several manufacturers have received tentative approvals to
market generic olanzapine, and we expect generic olanzapine to be introduced in these markets immediately
following the expiration of the patents. While it is difficult to predict the precise impact on Zyprexa sales, we expect
the introduction of generics to result in a rapid and severe decline in our Zyprexa sales, which will have a material
adverse effect on results of operations and cash flows. In Japan, our second-largest market for Zyprexa, with more
than $400 million of sales in 2010, our patent expires in December 2015.
Sales of Cymbalta, a product for the treatment of major depressive disorder, diabetic peripheral neuropathic pain,
generalized anxiety disorder, and in the United States for the treatment of chronic musculoskeletal pain and the
management of fibromyalgia, increased 9 percent in the U.S., driven primarily by higher prices. Sales outside the
U.S. increased 31 percent, driven primarily by increased demand in Japan, Europe, and Canada.
Sales of Alimta, a treatment for various cancers, increased 17 percent in the U.S., due primarily to increased
demand. Sales outside the U.S. increased 41 percent, due to increased demand. Demand outside the U.S. was
favorably affected by continued strong growth in Japan.
Sales of Humalog, our injectable human insulin analog for the treatment of diabetes, increased 1 percent in the U.S.,
due to higher prices, partially offset by the impact of wholesaler buying patterns. Sales outside the U.S. increased 11
percent, driven by increased demand primarily in Japan and China.
Sales of Cialis, a treatment for erectile dysfunction, increased 6 percent in the U.S., due to higher prices. Sales
outside the U.S. increased 11 percent, due primarily to increased demand and, to a lesser extent, higher prices.

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Sales of Gemzar, a product approved to treat various cancers, decreased 3 percent in the U.S., due to a rapid and
severe decline in sales as a result of generic competition, which began in November 2010, following the expiration of
the compound patent. Sales outside the U.S. decreased 31 percent, due primarily to generic competition in most
major markets. We expect sales to decline in 2011, with severe declines in the U.S.
Sales of Humulin, an injectable human insulin for the treatment of diabetes, increased 17 percent in the U.S., driven
primarily by higher prices and increased demand. Sales outside the U.S. remained essentially flat when compared to
2009, due to lower prices offset by increased demand and the favorable impact of foreign exchange rates.
Sales of Evista, a product for the prevention and treatment of osteoporosis in postmenopausal women and for
reduction of risk of invasive breast cancer in postmenopausal women with osteoporosis and postmenopausal women
at high risk for invasive breast cancer, remained essentially flat in the U.S., due to decreased demand offset by
increased prices. Sales outside the U.S. decreased 2 percent, driven by lower prices and lower demand, partially
offset by a favorable impact of foreign exchange rates.
Sales of Forteo, an injectable treatment for osteoporosis in postmenopausal women and men at high risk for
fracture and for glucocorticoid-induced osteoporosis in postmenopausal women and men, decreased 4 percent in
the U.S., driven by lower demand, partially offset by higher prices. Sales outside the U.S. increased 11 percent, due
to increased demand and, to a lesser extent, higher prices.
Sales of Strattera, a treatment for attention-deficit hyperactivity disorder in children, adolescents, and in the U.S. in
adults, decreased 13 percent in the U.S., due primarily to lower demand, and to a lesser extent, lower net effective
selling prices. Sales outside the U.S. increased 14 percent, driven by increased demand, partially offset by lower
prices. The U.S. District Court for the District of New Jersey ruled that the U.S. method-of-use patent for Strattera,
which expires in 2017, is invalid. We are currently appealing this decision to the U.S. Court of Appeals for the Federal
Circuit. The Court of Appeals has granted an injunction that prevents the launch of generic atomoxetine until a ruling
is rendered. While it is difficult to predict the precise impact on Strattera sales, if our appeal is unsuccessful, we
expect that the introduction of generics would result in a rapid and severe decline in our U.S. Strattera sales.
Worldwide sales of Byetta, an injectable product for the treatment of type 2 diabetes, decreased 11 percent to $710.2
million during 2010 due to competitive pressures in the U.S. and European markets. We report as revenue our 50
percent share of Byetta’s gross margin in the U.S., 100 percent of Byetta sales outside the U.S., and our sales of
Byetta pen delivery devices to Amylin. Our revenues decreased 4 percent to $430.6 million in 2010.
We report as revenue for Erbitux, a product approved to treat various cancers, the net royalties received from our
collaboration partners and our product sales. Our revenues were $386.1 million in 2010, compared with $390.8
million in 2009.
Animal health product sales in the U.S. and outside the U.S. increased 15 percent, due primarily to increased
demand for our companion animal and feed additive products. Sales of Comfortis, a flea medication for dogs,
increased 69 percent in 2010.

Gross Margin, Costs, and Expenses
Gross margin as a percent of total revenue increased by 0.5 percentage points in 2010 to 81.1 percent. This increase
was due to lower manufacturing costs and higher selling prices, partially offset by the negative effect of foreign
exchange rates on international inventories sold.
Marketing, selling, and administrative expenses increased 2 percent in 2010 to $7.05 billion. The increase was driven
by higher marketing and selling expenses outside the U.S., partially offset by lower administrative and litigation
expenses and company-wide cost containment efforts. Investment in research and development increased 13
percent, to $4.88 billion, due primarily to charges related to pipeline molecules, including charges related to
business development activities and termination of clinical trials.
We incurred an IPR&D charge of $50.0 million in 2010, associated with the in-licensing agreement with Acrux,
compared with $90.0 million in 2009 resulting from the in-licensing agreement with Incyte. We recognized asset
impairments, restructuring, and other special charges of $192.0 million in 2010, primarily related to severance and
other related costs from previously announced strategic actions we are taking to reduce our cost structure and
global workforce. In 2009, we recognized charges totaling $692.7 million for asset impairments, restructuring and
other special charges. See Notes 3, 5 and 15 to the consolidated financial statements for additional information.
Other—net, expense improved $224.5 million to a net expense of $5.0 million in 2010, due primarily to net gains on
equity investments, lower net interest expense, damages recovered from generic pharmaceutical companies
following Zyprexa patent litigation in Germany, and an insurance recovery associated with the theft of product at the
company’s Enfield, Connecticut, distribution center.
The effective tax rate was 22.3 percent for the full-year 2010. In 2009, the effective tax rate was 19.2 percent. The
2010 effective tax rate increased due to $85.1 million in additional tax expense in the first quarter related to U.S.
health care reform. The 2009 effective tax rate was reduced due to the tax benefit of asset impairment and
restructuring charges associated with the sale of the Tippecanoe Laboratories manufacturing site.

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OPERATING RESULTS—2009

Financial Results
We achieved revenue growth of 7 percent in 2009, which was primarily driven by the collective growth of Alimta,
Cymbalta, Humalog, and Zyprexa and the inclusion of Erbitux revenue as a result of the ImClone Systems Inc.
(ImClone) acquisition in November 2008. The impact of changes in foreign currencies compared to the U.S. dollar on
international inventories sold during the year decreased our cost of sales in 2009 and increased our cost of sales in
2008, which contributed to an improvement in gross margin. Marketing, selling, and administrative expenses grew at
a slower rate than revenue, while our investment in research and development grew at a greater rate than sales. We
incurred income tax expense of $1.03 billion in 2009, resulting in an effective tax rate of 19.2 percent. Earnings
increased to $4.33 billion, and earnings per share increased to $3.94 per share, in 2009 as compared to a net loss of
$2.07 billion, and a loss per share of $1.89 in 2008. Net income comparisons between 2009 and 2008 are affected by
the impact of several highlighted items. The highlighted items for 2009 are summarized in the Executive Overview.
The 2008 highlighted items are summarized as follows:
Acquisitions (Note 3)

• We recognized charges totaling $4.73 billion (pretax) associated with the acquisition of ImClone, which

decreased earnings per share by $4.46. These amounts include an IPR&D charge of $4.69 billion (pretax). The
remaining net expenses are related to ImClone’s operating results subsequent to the acquisition, incremental
interest costs, and amortization of the intangible asset associated with Erbitux. We also incurred IPR&D
charges of $28.0 million (pretax) associated with the acquisition of SGX Pharmaceuticals, Inc. (SGX), which
decreased earnings per share by $.03.

• We incurred IPR&D charges associated with licensing arrangements with BioMS Medical Corp. (BioMS) and
TransPharma Medical Ltd. totaling $122.0 million (pretax), which decreased earnings per share by $.07.

Asset Impairments and Related Restructuring and Other Special Charges (Notes 5 and 15)

• We recognized asset impairments, restructuring, and other special charges totaling $497.0 million (pretax),
which decreased earnings per share by $.30. A similar charge of $57.1 million (pretax), which decreased
earnings per share by $.04, was included in cost of sales. These charges were primarily associated with the sale
of our Greenfield, Indiana site; the termination of the AIR® Insulin program; and strategic exit activities related
to manufacturing operations.

• We recorded charges of $1.48 billion (pretax) related to the federal and state Zyprexa investigations led by the

U.S. Attorney for the Eastern District of Pennsylvania (EDPA), as well as the resolution of a multi-state
investigation regarding Zyprexa involving 32 states and the District of Columbia, which decreased earnings per
share by $1.20.

Other (Note 13)

• We recognized a discrete income tax benefit of $210.3 million as a result of the resolution of a substantial
portion of the IRS audit of our federal income tax returns for the years 2001 through 2004, which increased
earnings per share by $.19.

Revenue
Our worldwide revenue for 2009 increased 7 percent, to $21.84 billion, driven primarily by growth of Alimta,
Cymbalta, Humalog, and Zyprexa, and the inclusion of Erbitux revenue as a result of the ImClone acquisition.
Worldwide sales volume increased 7 percent, while selling prices contributed 3 percent of revenue growth, partially
offset by the unfavorable impact of foreign exchange rates of 3 percent. Revenue in the U.S. increased 12 percent, to
$12.29 billion, due to higher prices and higher demand. Revenue outside the U.S. increased 1 percent, to $9.54
billion, due to increased demand, partially offset by the negative impact of foreign exchange rates and lower prices.

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The following table summarizes our revenue activity in 2009 compared with 2008:

Product

Year Ended
December 31, 2009

U.S.1

Outside U.S.

Total2

Year Ended
December 31, 2008
Total

Percent
Change
from 2008

Zyprexa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,331.7
2,551.8
Cymbalta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,208.4
Humalog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
815.6
Alimta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
623.3
Cialis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
747.4
Gemzar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
672.2
Animal health products . . . . . . . . . . . . . . . . . . . . . . .
682.2
Evista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
402.4
Humulin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
518.3
Forteo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
445.6
Strattera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
739.9
Other pharmaceutical products . . . . . . . . . . . . . . . . .

(Dollars in millions)
$ 4,915.7
3,074.7
1,959.0
1,706.0
1,559.1
1,363.2
1,207.2
1,030.4
1,022.0
816.7
609.4
1,908.1

$2,583.9
523.0
750.6
890.4
935.8
615.8
535.0
348.1
619.6
298.4
163.7
1,168.4

Total net product sales . . . . . . . . . . . . . . . . . . . .
Collaboration and other revenue3 . . . . . . . . . . . . . . .

11,738.8
555.6

9,432.7
108.9

21,171.5
664.5

$ 4,696.1
2,697.1
1,735.8
1,154.7
1,444.5
1,719.8
1,093.3
1,075.6
1,063.2
778.7
579.5
1,887.5

19,925.8
446.1

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,294.4

$9,541.6

$21,836.0

$20,371.9

5
14
13
48
8
(21)
10
(4)
(4)
5
5
1

6
49

Zyprexa sales in the U.S. increased 6 percent in 2009, due to higher prices, partially offset by reduced demand. Sales
outside the U.S. increased 4 percent driven by increased demand, partially offset by the unfavorable impact of
foreign exchange rates. Demand outside the U.S. was favorably impacted by the withdrawal of generic competition in
Germany in early 2009.

Sales of Cymbalta in 2009 increased 13 percent in the U.S., driven by higher prices and increased demand. Sales
outside the U.S. increased 18 percent, driven by increased demand, partially offset by the unfavorable impact of
foreign exchange rates and lower prices.

Sales of Humalog in 2009 increased 20 percent in the U.S., driven by higher prices, increased demand, and
wholesaler buying patterns. Sales outside the U.S. increased 3 percent, driven by increased demand, partially offset
by the unfavorable impact of foreign exchange rates.

Sales of Alimta increased 45 percent in the U.S., primarily driven by increased demand. Sales outside the U.S.
increased 50 percent, driven by increased demand, partially offset by the unfavorable impact of foreign exchange
rates. Demand outside the U.S. benefited from the addition of the non-small cell lung cancer indication in Japan.

Our sales of Cialis increased 16 percent in the U.S., driven by higher prices, increased demand, and wholesaler
buying patterns. Sales outside the U.S. increased 3 percent, driven by increased demand and, to a lesser extent,
higher prices, partially offset by the unfavorable impact of foreign exchange rates.

Sales of Gemzar increased 2 percent in the U.S., due primarily to higher prices. Sales outside the U.S. decreased 37
percent, driven by reduced demand and lower prices as a result of the entry of generic competition in most major
markets, and to a lesser extent, the unfavorable impact of foreign exchange rates.

Sales of Evista decreased 3 percent in the U.S., driven by reduced demand, partially offset by higher prices. Sales
outside the U.S. decreased 7 percent, driven by the outlicensing of Evista in most European markets and, to a lesser
extent, lower prices.

Sales of Humulin increased 6 percent in the U.S., due primarily to higher prices, partially offset by reduced demand.
Sales outside the U.S. decreased 9 percent, driven by the unfavorable impact of foreign exchange rates and, to a
lesser extent, lower prices, partially offset by increased demand.

Sales of Forteo increased 6 percent in the U.S., driven by higher prices, partially offset by reduced demand. Sales
outside the U.S. increased 3 percent, driven by increased demand and prices, partially offset by the unfavorable
impact of foreign exchange rates.

Sales of Strattera increased 2 percent in the U.S., driven by higher prices, partially offset by reduced demand. Sales
outside the U.S. increased 15 percent, driven by increased demand and higher prices, partially offset by the
unfavorable impact of foreign exchange rates.

Worldwide sales of Byetta increased 6 percent to $796.5 million during 2009. Our revenues increased 13 percent to
$448.5 million in 2009.
Erbitux revenues were $390.8 million in 2009, compared with $29.4 million in 2008. We acquired Erbitux as part of
our acquisition of ImClone in November 2008.
Animal health product sales in the U.S. increased 25 percent, primarily driven by the inclusion of Posilac sales
following the acquisition completed October 2008. Sales outside the U.S. decreased 4 percent, driven primarily by the
unfavorable impact of foreign exchange rates.

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Gross Margin, Costs, and Expenses
The 2009 gross margin increased to 80.6 percent of total revenue compared with 78.5 percent for 2008. This increase
was due to the impact of changes in foreign currencies compared to the U.S. dollar on international inventories sold
during the year, which decreased cost of sales in 2009, but increased cost of sales in 2008.
Marketing, selling, and administrative expenses increased 4 percent in 2009 to $6.89 billion. The increase was driven
by the increased marketing and selling expenses outside the U.S., higher incentive compensation, and the impact of
the ImClone acquisition, partially offset by the movement of foreign exchange rates. Investment in research and
development increased 13 percent, to $4.33 billion, due primarily to the ImClone acquisition and increased late-
stage clinical trial costs.
We incurred an IPR&D charge of $90.0 million in 2009, associated with the in-licensing agreement with Incyte,
compared with $4.84 billion in 2008. The 2008 IPR&D charge included $4.69 billion resulting from the acquisition of
ImClone. We recognized asset impairments, restructuring, and other special charges of $692.7 million in 2009,
primarily related to asset impairment charges related to the sale of our Tippecanoe Laboratories manufacturing site
and special charges related to Zyprexa litigation with multiple state attorneys general, compared with $1.97 billion in
2008. The 2008 charges were primarily associated with the resolution of Zyprexa investigations with the U.S. Attorney
for the Eastern District of Pennsylvania and multiple states. See Notes 3, 5, and 15 to the consolidated financial
statements for additional information.
Other—net, expense was a net expense in both years, increasing by $203.4 million, to $229.5 million in 2009,
primarily due to lower interest income and higher interest expense resulting from the ImClone acquisition.
We incurred income tax expense of $1.03 billion in 2009 resulting in an effective tax rate of 19.2 percent. The
effective tax rate for 2009 was reduced due to the tax benefit of asset impairment and restructuring charges
associated with the sale of the Tippecanoe site. We incurred tax expense of $764.3 million in 2008, despite having a
loss before income taxes of $1.31 billion. Our net loss was driven by the $4.69 billion IPR&D charge for ImClone and
the $1.48 billion Zyprexa investigation settlements. The IPR&D charge was not tax deductible, and only a portion of
the Zyprexa investigation settlements was deductible. In addition, we recorded tax expense associated with the
ImClone acquisition, as well as a discrete income tax benefit of $210.3 million for the resolution of a substantial
portion of the 2001-2004 IRS audit. See Note 13 to the consolidated financial statements for additional information.

FINANCIAL CONDITION

As of December 31, 2010, cash, cash equivalents, and short-term investments totaled $6.73 billion compared with
$4.50 billion at December 31, 2009. The increase in cash was driven by cash from operations of $6.86 billion, partially
offset by dividends paid of $2.17 billion, business and product acquisitions of $1.10 billion, and purchases of property
and equipment of $694.3 million.
Capital expenditures of $694.3 million during 2010 were $70.7 million less than in 2009. We expect 2011 capital
expenditures to be between $800 million and $900 million as we invest in the long-term growth of our diabetes care
products, continue to upgrade our manufacturing and research facilities to enhance productivity and quality systems,
and invest in our oncology biotechnology capabilities.
Total debt at December 31, 2010, was $6.93 billion, an increase of $264.4 million from December 31, 2009, which was
due to the $141.8 million increase in the fair value of hedged debt and an increase in short-term debt of $130.7
million. Our current debt ratings from Standard & Poor’s and Moody’s are AA- and A2, respectively. Our Moody’s
long-term debt rating was moved to A2 from A1 in November 2010. Our ratings outlook from both Moody’s and
Standard and Poor’s is stable.
Dividends of $1.96 per share were paid in 2010 and 2009, 2010 was the 126th consecutive year in which we made
dividend payments. In the fourth quarter of 2010, effective for the dividend to be paid in the first quarter of 2011, the
quarterly dividend was maintained at $.49 per share, resulting in an indicated annual rate for 2011 of $1.96 per
share.
As of the fourth quarter of 2010, the U.S. and global economic recoveries proceed but face continued headwinds. U.S.
economic data in the fourth quarter reflected a steady pace of economic recovery, though the rate of recovery has
not been sufficient to materially reduce unemployment. Given persistently high unemployment and little sign of
near-term inflation risk, the U.S. Federal Reserve has maintained its accommodative monetary policy, most recently
through its November 2010 announcement of expanded asset purchases. The Federal Reserve continues its policy
stance of exceptionally low rates for an extended period to stimulate lending and economic growth. High sovereign
debt levels and efforts at fiscal austerity in the U.S. and other developed countries continue to be a concern for many
economists and are predicted to challenge the economic recovery globally. Given this backdrop, both private and
public health care payers are facing heightened fiscal challenges and are taking steps to reduce the costs of care,

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including pressures for increased pharmaceutical discounts and rebates in the U.S., price cuts in government
systems outside the U.S., and efforts to drive greater use of generic drugs globally. We continue to monitor the
potential near-term impact of the economic environment on prescription trends, the creditworthiness of our
wholesalers and other customers and suppliers, the uncertain impact of recent health care legislation, the federal
government’s involvement in the U.S. economy, and various international government funding levels.
We believe that cash generated from operations, along with available cash and cash equivalents, will be sufficient to
fund our normal operating needs, including debt service, capital expenditures, and dividends in 2011. We believe that
amounts accessible through existing commercial paper markets should be adequate to fund short-term borrowings.
Because of the high credit quality of our short- and long-term debt, our access to credit markets has not been
adversely affected. We currently have $1.24 billion of unused committed bank credit facilities, $1.20 billion of which
backs our commercial paper program and matures in May 2011. Various risks and uncertainties, including those
discussed in Item 1A, “Risk Factors,” and the “Financial Expectations for 2011” section, may affect our operating
results and cash generated from operations.
We depend on patents or other forms of intellectual property protection for most of our revenues, cash flows, and
earnings. Through 2014, we expect to lose effective exclusivity for the following key products:

• Zyprexa—October 2011 (U.S.), various dates in 2011 (major Europe)
• Cymbalta—June 2013 (U.S.)
• Humalog—May 2013 (U.S.)
• Evista—March 2014 (U.S.)

Cymbalta could receive an additional six months of exclusivity, based on completion of pediatric studies.
Gemzar has already lost effective exclusivity in the U.S. and major European countries (France, Germany, Italy, Spain
and the United Kingdom), and Humalog has lost exclusivity in major European countries. In addition, we face U.S.
patent litigation over Alimta, Cymbalta, and Strattera, and it is possible we could lose our effective exclusivity for one
or more of these products prior to the expiration of the relevant patents. See the Hatch-Waxman patent litigation
discussion in Note 15 and in the “Legal and Regulatory Matters” section below. Revenue from Alimta, Cymbalta,
Humalog, and Zyprexa contribute materially to our results of operations, liquidity, and financial position. The loss of
exclusivity would likely result in generic competition, generally causing a rapid and severe decline in revenue from
the affected product, which would have a material adverse effect on our results of operations. However, our goal is
to partially mitigate the effect on our operations, liquidity, and financial position through growth in our patent-
protected products that do not lose exclusivity during this period, in emerging markets, in Japan, and in our animal
health business. Our expected growth in the emerging markets and Japan is attributable to both the growth of these
markets and launches of patent-protected products in these markets.
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, 2010 and 2009, 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, 2010 and 2009, respectively, would have no 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 translating the results of
our global operations to the U.S. dollar at exchange rates that have fluctuated from the beginning of the period. We
may use forward contracts and purchased options to manage our foreign currency exposures. Our policy outlines the
minimum and maximum hedge coverage of such exposures. Gains and losses on these derivative positions offset, in
part, the impact of currency fluctuations on the existing assets, liabilities, commitments, and anticipated revenues.
Considering our derivative financial instruments outstanding at December 31, 2010 and 2009, a hypothetical 10
percent change in exchange rates (primarily against the U.S. dollar) as of December 31, 2010 and 2009, respectively,
would have no material impact on earnings, cash flows, or fair values of foreign currency rate risk-sensitive
instruments over a one-year period. These calculations do not reflect the impact of the exchange gains or losses on
the underlying positions that would be offset, in part, by the results of the derivative instruments.

Off-Balance Sheet Arrangements and Contractual Obligations
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have
a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures, or capital resources. We acquire and collaborate on assets still in
development and enter into research and development arrangements with third parties that often require milestone

and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success
of the asset in development. Milestone payments may be required contingent upon the successful achievement of an
important point in the development life cycle of the pharmaceutical product (e.g., approval of the product for
marketing by the appropriate regulatory agency or upon the achievement of certain sales levels). If required by the
arrangement, we may have to make royalty payments based upon a percentage of the sales of the pharmaceutical
product in the event that regulatory approval for marketing is obtained. Because of the contingent nature of these
payments, they are not included in the table of contractual obligations.
Individually, these arrangements are not material in any one annual reporting period. However, if milestones for
multiple products covered by these arrangements would happen to be reached in the same reporting period, the
aggregate charge to expense could be material to the results of operations in any one period. These arrangements
often give us the discretion to unilaterally terminate development of the product, which would allow us to avoid
making the contingent payments; however, we are unlikely to cease development if the compound successfully
achieves milestone objectives. We also note that, from a business perspective, we view these payments as positive
because they signify that the product is successfully moving through development and is now generating or is more
likely to generate cash flows from sales of products.
Our current noncancelable contractual obligations that will require future cash payments are as follows (in millions):

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Payments Due by Period

Total

Less Than
1 Year

1-3
Years

3-5
Years

More Than
5 Years

Long-term debt, including interest payments1
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities reflected on our balance sheet3 . . .
Other4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . $ 9,965.2 $ 205.8 $1,936.7 $1,429.1
8.5
103.2
740.5
238.8
0.0

38.9
572.3
11,806.2
1,252.9
298.3

13.9
108.7
9,206.6
0.0
298.3

13.1
162.6
1,105.7
309.2
0.0

$6,393.6
3.4
197.8
753.4
704.9
0.0

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,933.8 $9,833.3 $3,527.3 $2,520.1

$8,053.1

1 Our long-term debt obligations include both our expected principal and interest obligations and our interest rate swaps. We used
the interest rate forward curve at December 31, 2010, to compute the amount of the contractual obligation for interest on the
variable rate debt instruments and swaps.
2 We have included the following:

• Purchase obligations, consisting primarily of all open purchase orders at our significant operating locations as of

December 31, 2010. Some of these purchase orders may be cancelable; however, for purposes of this disclosure, we have not
distinguished between cancelable and noncancelable purchase obligations.

• Contractual payment obligations with each of our significant vendors, which are noncancelable and are not contingent.

3 We have included long-term liabilities consisting primarily of our nonqualified supplemental pension funding requirements and
deferred compensation liabilities. We excluded long-term liabilities for unrecognized tax benefits of $1.23 billion, as we cannot
reasonably estimate the timing of future cash outflows associated with those liabilities.
4 This category consists of various miscellaneous items expected to be paid in the next year, none of which are individually
material.

The contractual obligations table is current as of December 31, 2010. We expect the amount of these obligations to
change materially over time as new contracts are initiated and existing contracts are completed, terminated, or
modified.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

In preparing our financial statements in accordance with generally accepted accounting principles (GAAP), we must
often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses,
and related disclosures. Some of those judgments can be subjective and complex, and consequently actual results
could differ from those estimates. For any given individual estimate or assumption we make, it is possible that other
people applying reasonable judgment to the same facts and circumstances could develop different estimates. We
believe that, given current facts and circumstances, it is unlikely that applying any such other reasonable judgment
would cause a material adverse effect on our consolidated results of operations, financial position, or liquidity for the
periods presented in this report. Our most critical accounting policies have been discussed with our audit committee
and are described below.

Revenue Recognition and Sales Return, Rebate, and Discount Accruals
We recognize 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. For approximately 85 percent of our sales, this is at the time products are
shipped to the customer, typically a wholesale distributor or a major retail chain. The remaining sales, which are
outside the U.S., are recorded at the point of delivery. Provisions for returns, rebates, and discounts are established
in the same period the related sales are recorded.

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We regularly review the supply levels of our significant products sold to major wholesalers in the U.S. and in major
markets outside the U.S., primarily by reviewing periodic inventory reports supplied by our major wholesalers and
available prescription volume information for our products, or alternative approaches. We attempt to maintain
wholesaler inventory levels at an average of approximately one month or less on a consistent basis across our
product portfolio. Causes of unusual wholesaler buying patterns include actual or anticipated product supply issues,
weather patterns, anticipated changes in the transportation network, redundant holiday stocking, and changes in
wholesaler business operations. In the U.S., the current structure of our arrangements does not provide an incentive
for speculative wholesaler buying and provides us with data on inventory levels at our wholesalers. When we believe
wholesaler purchasing patterns have caused an unusual increase or decrease in the sales of a major product
compared with underlying demand, we disclose this in our product sales discussion if we believe the amount is
material to the product sales trend; however, we are not always able to accurately quantify the amount of stocking or
destocking. Wholesaler stocking and destocking activity historically has not caused any material changes in the rate
of actual product returns.

We establish sales return accruals for anticipated product returns. We record the return amounts as a deduction to
arrive at our net product sales. Once the product is returned, it is destroyed. Consistent with revenue recognition
accounting guidance, when sales occur we estimate a reserve for future product returns related to those sales. This
estimate is primarily based on historical return rates as well as specifically identified anticipated returns due to
known business conditions and product expiry dates. Actual product returns have been less than one percent of our
net sales over the past three years and have not fluctuated significantly as a percent of sales.

We establish sales rebate and discount accruals in the same period as the related sales. The rebate and discount
amounts are recorded as a deduction to arrive at our net product sales. Sales rebates and discounts that require the
use of judgment in the establishment of the accrual include Medicaid, managed care, Medicare, chargebacks, long-
term care, hospital, patient assistance programs, and various other government programs. We base these accruals
primarily upon our historical rebate and discount payments made to our customer segment groups and the
provisions of current rebate and discount contracts.

The largest of our sales rebate and discount amounts are rebates associated with sales covered by Medicaid. In
determining the appropriate accrual amount, we consider our historical Medicaid rebate payments by product as a
percentage of our historical sales as well as any significant changes in sales trends, an evaluation of the current
Medicaid rebate laws and interpretations, the percentage of our products that are sold to Medicaid recipients, and
our product pricing and current rebate and discount contracts. Although we accrue a liability for Medicaid rebates at
the time we record the sale (when the product is shipped), the Medicaid rebate related to that sale is typically paid up
to six months later. Because of this time lag, in any particular period our rebate adjustments may incorporate
revisions of accruals for several periods.

Most of our rebates outside the U.S. are contractual or legislatively mandated and are estimated and recognized in
the same period as the related sales. In some large European countries, government rebates are based on the
anticipated pharmaceutical budget deficit in the country. A best estimate of these rebates, updated as governmental
authorities revise budgeted deficits, is recognized in the same period as the related sale. If our estimates are not
reflective of the actual pharmaceutical budget deficit, we adjust our rebate reserves.

We believe that our accruals for sales returns, rebates, and discounts are reasonable and appropriate based on
current facts and circumstances. U.S. sales returns, federally mandated Medicaid rebate and state pharmaceutical
assistance programs (Medicaid), and Medicare rebates reduced sales by $1.66 billion, $1.20 billion, and $1.03 billion
in 2010, 2009, and 2008, respectively. A 5 percent change in the sales return, Medicaid, and Medicare rebate amounts
we recognized in 2010 would lead to an approximate $85 million effect on our income before income taxes. As of
December 31, 2010, our sales returns, Medicaid, and Medicare rebate liability was $858.3 million.

Our global rebate and discount liabilities are included in sales rebates and discounts on our consolidated balance
sheet. Our global sales return liability is included in other current liabilities and other noncurrent liabilities on our
consolidated balance sheet. Approximately 83 percent and 84 percent of our global sales return, rebate, and
discount liability resulted from sales of our products in the U.S. as of December 31, 2010 and 2009, respectively. The
following represents a roll-forward of our most significant U.S. returns, rebate, and discount liability balances,
including Medicaid (in millions):

2010

2009

Sales return, rebate, and discount liabilities, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 963.6 $ 806.5
2,233.8
(2,076.7)

Reduction of net sales due to sales returns, discounts, and rebates1 . . . . . . . . . . . . . . . . . . . . .
Cash payments of discounts and rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,876.1
(2,684.4)

Sales return, rebate, and discount liabilities, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,155.3 $ 963.6

1 Adjustments of the estimates for these returns, rebates, and discounts to actual results were less than 0.3 percent of net sales
for each of the years presented.

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Product Litigation Liabilities and Other Contingencies
Product litigation liabilities and other contingencies are, by their nature, uncertain and are based upon complex
judgments and probabilities. The factors we consider in developing our product litigation liability reserves and other
contingent liability amounts include the merits and jurisdiction of the litigation, the nature and the number of other
similar current and past litigation cases, the nature of the product and the current assessment of the science subject
to the litigation, and the likelihood of settlement and current state of settlement discussions, if any. In addition, we
accrue for certain product liability claims incurred, but not filed, to the extent we can formulate a reasonable
estimate of their costs. We estimate these expenses based primarily on historical claims experience and data
regarding product usage. We accrue legal defense costs expected to be incurred in connection with significant
product liability contingencies when probable and reasonably estimable.

We also consider the insurance coverage we have to diminish the exposure for periods covered by insurance. In
assessing our insurance coverage, we consider the policy coverage limits and exclusions, the potential for denial of
coverage by the insurance company, the financial condition of the insurers, and the possibility of and length of time
for collection. In the past several years, we have been unable to obtain product liability insurance due to a very
restrictive insurance market. Therefore, for substantially all of our currently marketed products, we have been and
expect that we will continue to be completely self-insured for future product liability losses. In addition, there can be
no assurance that we will be able to fully collect from our insurance carriers in the future.

The litigation accruals and environmental liabilities and the related estimated insurance recoverables have been
reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets.

Pension and Retiree Medical Plan Assumptions
Pension benefit costs include assumptions for the discount rate, retirement age, and expected return on plan assets.
Retiree medical plan costs include assumptions for the discount rate, retirement age, expected return on plan
assets, and health-care-cost trend rates. These assumptions have a significant effect on the amounts reported. In
addition to the analysis below, see Note 14 to the consolidated financial statements for additional information
regarding our retirement benefits.

Annually, we evaluate the discount rate and the expected return on plan assets in our defined benefit pension and
retiree health benefit plans. In evaluating these assumptions, we consider many factors, including an evaluation of
the discount rates, expected return on plan assets, and health-care-cost trend rates of other companies; our
historical assumptions compared with actual results; an analysis of current market conditions and asset allocations
(approximately 80 percent of which are growth investments); and the views of leading financial advisers and
economists. We use an actuarially determined, company-specific yield curve to determine the discount rate. In
evaluating our expected retirement age assumption, we consider the retirement ages of our past employees eligible
for pension and medical benefits together with our expectations of future retirement ages.

If the health-care-cost trend rates were to be increased by one percentage point each future year, the aggregate of
the service cost and interest cost components of the 2010 annual expense would increase by $14.4 million. A
one-percentage-point decrease would lower the aggregate of the 2010 service cost and interest cost by $11.7
million. If the 2010 discount rate for the U.S. defined benefit pension and retiree health benefit plans (U.S. plans)
were to be changed by a quarter percentage point, income before income taxes would change by $28.7 million. If the
2010 expected return on plan assets for U.S. plans were to be changed by a quarter percentage point, income before
income taxes would change by $18.3 million. If our assumption regarding the 2010 expected age of future retirees
for U.S. plans were adjusted by one year, our income before income taxes would be affected by $33.3 million. The
U.S. plans represent approximately 81 percent of the total accumulated postretirement benefit obligation and
approximately 83 percent of total plan assets at December 31, 2010.

Impairment of Indefinite-Lived and Long-Lived Assets
We review the carrying value of long-lived assets (both intangible and tangible) for potential impairment on a
periodic basis and whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. We determine impairment by comparing the projected undiscounted cash flows to be generated by the
asset to its carrying value. If an impairment is identified, a loss is recorded equal to the excess of the asset’s net
book value over its fair value, and the cost basis is adjusted.

Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually and when certain
impairment indicators are present. When required, a comparison of fair value to the carrying amount of assets is
performed to determine the amount of any impairment.

There are several methods that can be used to determine the estimated fair value of the IPR&D acquired in a
business combination, all of which require multiple assumptions. We utilize the “income method,” which applies a
probability weighting that considers the risk of development and commercialization, to the estimated future net cash
flows that are derived from projected sales revenues and estimated costs. These projections are based on factors
such as relevant market size, patent protection, historical pricing of similar products, and expected industry trends.
The estimated future net cash flows are then discounted to the present value using an appropriate discount rate.
This analysis is performed for each project independently.

For IPR&D assets, the risk of failure has been factored into the fair value measure and there can be no certainty that
these assets ultimately will yield a successful product, as discussed previously in the “Late-Stage Pipeline” section.

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The nature of the pharmaceutical business is high-risk and requires that we invest in a large number of projects to
build a successful portfolio of approved products. As such, it is likely that some IPR&D assets will become impaired
at some time in the future.
The estimated future cash flows, based on what we believe to be reasonable and supportable assumptions and
projections, require management’s judgment. Actual results could vary from these estimates.

Income Taxes
We prepare and file tax returns based on our interpretation of tax laws and regulations and record estimates based
on these judgments and interpretations. In the normal course of business, our tax returns are subject to examination
by various taxing authorities, which may result in future tax, interest, and penalty assessments by these authorities.
Inherent uncertainties exist in estimates of many tax positions due to changes in tax law resulting from legislation,
regulation, and/or as concluded through the various jurisdictions’ tax court systems. We recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for
changes in facts and circumstances. For example, adjustments could result from significant amendments to existing
tax law and the issuance of regulations or interpretations by the taxing authorities, new information obtained during
a tax examination, or resolution of an examination. We believe that our estimates for uncertain tax positions are
appropriate and sufficient to pay assessments that may result from examinations of our tax returns. We recognize
both accrued interest and penalties related to unrecognized tax benefits in income tax expense.
We have recorded valuation allowances against certain of our deferred tax assets, primarily those that have been
generated from net operating losses and tax credit carryforwards in certain taxing jurisdictions. In evaluating
whether we would more likely than not recover these deferred tax assets, we have not assumed any future taxable
income or tax planning strategies in the jurisdictions associated with these carryforwards where history does not
support such an assumption. Implementation of tax planning strategies to recover these deferred tax assets or
future income generation in these jurisdictions could lead to the reversal of these valuation allowances and a
reduction of income tax expense.
A 5 percent change in the amount of the uncertain tax positions and the valuation allowance would result in a change
in net income of $53.5 million and $23.7 million, respectively.

FINANCIAL EXPECTATIONS FOR 2011

For the full year of 2011, we expect earnings per share to be in the range of $3.92 to $4.07, which includes the
dilutive impact of the upfront fee and other anticipated expenses related to the collaboration with Boehringer
Ingelheim, but excludes potential restructuring charges primarily related to severance and other related costs from
previously announced strategic actions that we are taking to reduce our cost structure and global workforce. We
expect that total revenue growth will be flat to slightly increasing, which assumes we maintain our patent exclusivity
for U.S. Strattera sales, and also assumes rapid and severe erosion of global Zyprexa sales after patent expirations
in major markets, including the U.S. starting in October 2011, and the continued severe erosion of U.S. Gemzar sales.
We anticipate that the impact of U.S. health care reform will lower 2011 revenue by $400 million to $500 million. We
expect these reductions in revenue to be offset by sales growth of Alimta, Cialis, Cymbalta, Effient, Humalog, and
animal health products.
We anticipate that gross margin as a percent of revenue will decline approximately two percentage points.
Marketing, selling, and administrative expenses are projected to grow in the low- to mid-single digits and include an
estimated $150 million to $200 million in non-tax deductible expense for the mandatory pharmaceutical
manufacturers fee associated with U.S. health care reform, while research and development expense growth is
expected to be relatively flat. Other—net, expense is expected to be a net expense of between $50 million and $150
million. Cash flows are expected to be sufficient to fund capital expenditures of between $800 and $900 million, as
well as anticipated business development activity and our dividend.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995—
A CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we caution investors that
any forward-looking statements or projections made by us, including those above, are based on management’s
belief at the time they are made. However, they are subject to risks and uncertainties. Actual results could differ
materially and will depend on, among other things, the continuing growth of our currently marketed products;
developments with competitive products; the implementation of U.S. health care reform; the timing and scope of
regulatory approvals and the success of our new product launches; asset impairments, restructurings, and
acquisitions of compounds under development resulting in acquired IPR&D charges; foreign exchange rates and
global macroeconomic conditions; changes in effective tax rates; wholesaler inventory changes; other regulatory
developments, litigation, patent disputes, and government investigations; the impact of governmental actions
regarding pricing, importation, and reimbursement for pharmaceuticals; and other factors that may affect our
operations and prospects are discussed earlier in this section and in Item 1A, “Risk Factors.” We undertake no duty
to update these forward-looking statements.

LEGAL AND REGULATORY MATTERS

We are a party to various legal actions and government investigations. The most significant of these are described
below. While it is not possible to determine the outcome of these matters, we believe that, except as specifically
noted below, the resolution of all such matters will not have a material adverse effect on our consolidated financial
position or liquidity, but could possibly be material to our consolidated results of operations in any one accounting
period.

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Patent Litigation
We are engaged in the following U.S. patent litigation matters brought pursuant to procedures set out in the
Hatch-Waxman Act (the Drug Price Competition and Patent Term Restoration Act of 1984):

• Cymbalta: Sixteen generic drug manufacturers have submitted Abbreviated New Drug Applications (ANDAs)
seeking permission to market generic versions of Cymbalta prior to the expiration of our relevant U.S. patents
(the earliest of which expires in 2013). Of these challengers, all allege non-infringement of the patent claims
directed to the commercial formulation, and nine allege invalidity (and some also allege nonenforceability) of
the patent claims directed to the active ingredient duloxetine. Of the nine challengers to the compound patent
claims, one further alleges invalidity of the claims directed to the use of Cymbalta for treating fibromyalgia. In
November 2008 we filed lawsuits in U.S. District Court for the Southern District of Indiana against Actavis
Elizabeth LLC; Aurobindo Pharma Ltd.; Cobalt Laboratories, Inc.; Impax Laboratories, Inc.; Lupin Limited;
Sandoz Inc.; and Wockhardt Limited, seeking rulings that the compound patent claims are valid, infringed, and
enforceable. We filed similar lawsuits in the same court against Sun Pharma Global, Inc. in December 2008 and
against Anchen Pharmaceuticals, Inc. in August 2009. The cases have been consolidated and actions against all
but Wockhardt Limited have been stayed pursuant to stipulations by the defendants to be bound by the outcome
of the litigation through appeal. The Wockhardt Limited trial is scheduled to begin in June 2011.

• Gemzar: Teva Parenteral Medicines, Inc. (Teva); Sun Pharmaceutical Industries Inc. (Sun) and several other
generic companies sought permission to market generic versions of Gemzar prior to the expiration of our
relevant U.S. patents (compound patent expiring in 2010 and method-of-use patent expiring in 2013). We filed
lawsuits in the U.S. District Court for the Southern District of Indiana against Teva (February 2006) and several
other generic companies, seeking rulings that our patents are valid and are being infringed. In November 2007,
Sun filed a declaratory judgment action in the U.S. District Court for the Eastern District of Michigan, seeking
rulings that our method-of-use and compound patents are invalid or unenforceable, or would not be infringed
by the sale of Sun’s generic product. In August 2009, the district court in Michigan granted a motion by Sun for
partial summary judgment, invalidating our method-of-use patent, and the opinion was affirmed by a panel of
the Court of Appeals for the Federal Circuit in July 2010. We are seeking review of this decision by the U.S.
Supreme Court. In March 2010, the district court in Indiana upheld the validity of our compound patent in the
Teva case, but applied collateral estoppel with regard to our method-of-use patent, given the ruling in the Sun
case. Generic gemcitabine was introduced to the U.S. market in mid-November 2010.

• Alimta: Teva; APP Pharmaceuticals, LLC (APP); and Barr Laboratories, Inc. (Barr) each submitted ANDAs
seeking approval to market generic versions of Alimta prior to the expiration of the relevant U.S. patent
(licensed from the Trustees of Princeton University and expiring in 2016), and alleging the patent is invalid. We,
along with Princeton, filed lawsuits in the U.S. District Court for the District of Delaware against Teva, APP, and
Barr seeking rulings that the compound patent is valid and infringed. In November 2010, the district court ruled
from the bench that judgment would be entered in Lilly’s favor, upholding the patent’s validity. Plaintiffs may
appeal this decision once the judgment is entered.

• Evista:

In 2006, Teva Pharmaceuticals USA, Inc. (Teva USA) submitted an ANDA seeking permission to market

a generic version of Evista prior to the expiration of our relevant U.S. patents (expiring in 2012-2017) and
alleging that these patents are invalid, not enforceable, or not infringed. In June 2006, we filed a lawsuit against
Teva USA in the U.S. District Court for the Southern District of Indiana, seeking a ruling that these patents are
valid, enforceable, and being infringed by Teva USA. In September 2009, the court upheld our method-of-use
patents (the last expires in 2014) and the court held that our particle-size patents (expiring 2017) are invalid.
Both rulings were upheld by the appeals court in September 2010, and the period for further appeals has
expired.

• Strattera: Actavis Elizabeth LLC (Actavis), Apotex Inc. (Apotex), Aurobindo Pharma Ltd. (Aurobindo), Mylan

Pharmaceuticals Inc. (Mylan), Sandoz Inc. (Sandoz), Sun Pharmaceutical Industries Limited (Sun Ltd.), and Teva
USA each submitted an ANDA seeking permission to market generic versions of Strattera prior to the expiration
of our relevant U.S. patent (expiring in 2017), and alleging that this patent is invalid. In 2007, we brought a
lawsuit against Actavis, Apotex, Aurobindo, Mylan, Sandoz, Sun Ltd., and Teva USA in the U.S. District Court for
the District of New Jersey. In August 2010, the court ruled that our patent is invalid. Several companies have
received final approval to market generic atomoxetine, but the Court of Appeals for the Federal Circuit granted
an injunction prohibiting the launch of generic atomoxetine until the court renders an opinion. The appeal was
heard by the court in December 2010 and we are waiting for a ruling. Zydus Pharmaceuticals (Zydus) filed an
action in the New Jersey district court in October 2010 seeking a declaratory judgment that it has the right to
launch a generic atomoxetine product, based on the district court ruling. We believe that Zydus is subject to the
injunction issued by the court of appeals.

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We believe each of these Hatch-Waxman challenges is without merit and expect to prevail in this litigation. However,
it is not possible to determine the outcome of this litigation, and accordingly, we can provide no assurance that we
will prevail. An unfavorable outcome in any of these cases could have a material adverse impact on our future
consolidated results of operations, liquidity, and financial position.
We have received challenges to Zyprexa patents in a number of countries outside the U.S.:

• In Canada, several generic pharmaceutical manufacturers have challenged the validity of our Zyprexa patent
(expiring in 2011). In April 2007, the Canadian Federal Court ruled against the first challenger, Apotex Inc.
(Apotex), and that ruling was affirmed on appeal in February 2008. In June 2007, the Canadian Federal Court
held that an invalidity allegation of a second challenger, Novopharm Ltd. (Novopharm), was justified and denied
our request that Novopharm be prohibited from receiving marketing approval for generic olanzapine in Canada.
Novopharm began selling generic olanzapine in Canada in the third quarter of 2007. In September 2009, the
Canadian Federal Court ruled against us in the Novapharm suit, finding our patent invalid. However, in July 2010
the appeals court set aside the decision and remitted the limited issues of utility and sufficiency of disclosure to
the trial court.

• In Germany, the German Federal Supreme Court upheld the validity of our Zyprexa patent (expiring in

2011) in December 2008, reversing an earlier decision of the Federal Patent Court. Following the decision of the
Supreme Court, the generic companies who launched generic olanzapine based on the earlier decision either
agreed to withdraw from the market or were subject to injunction. We have negotiated settlements of the
damages arising from infringement with most of the generic companies.

• We have received challenges in a number of other countries, including Spain, Austria, Australia, Portugal, and
several smaller European countries. In Spain, we have been successful at both the trial and appellate court
levels in defeating the generic manufacturers’ challenges, but additional actions against multiple generic
companies are now pending. In March 2010, the District Court of Hague ruled against us and revoked our
compound patent in the Netherlands. We have appealed this decision. We have also successfully defended
Zyprexa patents in Austria and Portugal.

We are vigorously contesting the various legal challenges to our Zyprexa patents on a country-by-country basis. We
cannot determine the outcome of this litigation. The availability of generic olanzapine in additional markets could
have a material adverse impact on our consolidated results of operations.

Zyprexa Litigation
We were named as a defendant in a large number of Zyprexa product liability lawsuits in the U.S. and notified of
other claims of individuals who have not filed suit. The lawsuits and unfiled claims (together the “claims”) allege a
variety of injuries from the use of Zyprexa, with the majority alleging that the product caused or contributed to
diabetes or high blood-glucose levels. The claims seek substantial compensatory and punitive damages and typically
accuse us of inadequately testing for and warning about side effects of Zyprexa. Many of the claims also allege that
we improperly promoted the drug. Almost all of the federal lawsuits are part of a Multi-District Litigation
(MDL) proceeding before The Honorable Jack Weinstein in the Federal District Court for the Eastern District of
New York (EDNY) (MDL No. 1596).
Since June 2005, we have settled approximately 32,720 claims. The two primary settlements were as follows:

• In 2005, we settled and paid more than 8,000 claims for approximately $700 million.
• In 2007, we settled and paid more than 18,000 claims for approximately $500 million.

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caused or contributed to diabetes or high blood-glucose levels, and that we improperly promoted the drug. We
settled the Zyprexa-related claims of all of these states, incurring pretax charges of $230.0 million in 2009 and
$15.0 million in 2008.
In 2005, two lawsuits were filed in the EDNY purporting to be nationwide class actions on behalf of all consumers and
third-party payors, excluding governmental entities, which have made or will make payments for their members or
insured patients being prescribed Zyprexa. These actions were consolidated into a single lawsuit, brought under
certain state consumer protection statutes, the federal civil RICO statute, and common law theories, seeking a
refund of the cost of Zyprexa, treble damages, punitive damages, and attorneys’ fees. Two additional lawsuits were
filed in the EDNY in 2006 on similar grounds. As with the product liability suits, these lawsuits allege that we
inadequately tested for and warned about side effects of Zyprexa and improperly promoted the drug. In September
2008, Judge Weinstein certified a class consisting of third-party payors, excluding governmental entities and
individual consumers and denied our motion for summary judgment. In September 2010, both decisions were
reversed by the Second Circuit Court of Appeals, which found that the case cannot proceed as a class action and
entered a judgment in our favor on plaintiffs’ overpricing claim. Plaintiffs are seeking review of this decision by the
U.S. Supreme Court. An unfavorable outcome in this case could have a material adverse impact on our consolidated
results of operations, liquidity, and financial position.

Other Product Liability Litigation
We have been named as a defendant in numerous other product liability lawsuits involving primarily
diethylstilbestrol (DES), thimerosal, and Byetta. Approximately a third of these claims are covered by insurance,
subject to deductibles and coverage limits.

Product Liability Insurance
Because of the nature of pharmaceutical products, it is possible that we could become subject to large numbers of
product liability and related claims for other products in the future. In the past several years, we have been unable to
obtain product liability insurance due to a very restrictive insurance market. Therefore, for substantially all of our
currently marketed products, we have been and expect that we will continue to be completely self-insured for future
product liability losses. In addition, there is no assurance that we will be able to fully collect from our insurance
carriers in the future.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
You can find quantitative and qualitative disclosures about market risk (e.g., interest rate risk) in Item 7 at
“Management’s Discussion and Analysis—Financial Condition.” That information is incorporated in this report by
reference.

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Item 8.

Financial Statements and Supplementary Data

Consolidated Statements of Operations

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)

Year Ended December 31

2010

2009

2008

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing, selling, and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in-process research and development (Note 3) . . . . . . . . . . . . . . . . . . . .
Asset impairments, restructuring, and other special charges (Note 5) . . . . . . . . .
Other—net, expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,076.0 $21,836.0 $20,371.9
4,376.7
3,840.9
6,626.4
4,835.4
1,974.0
26.1

4,366.2
4,884.2
7,053.4
50.0
192.0
5.0

4,247.0
4,326.5
6,892.5
90.0
692.7
229.5

Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,525.2
1,455.7

5,357.8
1,029.0

(1,307.6)
764.3

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,069.5 $ 4,328.8 $ (2,071.9)

Earnings (loss) per share—basic and diluted (Note 12) . . . . . . . . . . . . . . . . . . . . . .

4.58 $

3.94 $

(1.89)

16,550.8

16,478.2

21,679.5

See notes to consolidated financial statements.

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Consolidated Balance Sheets

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, shares in thousands)

December 31

2010

2009

Assets
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,993.2 $ 4,462.9
34.7
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,343.3
. . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $100.4 (2010) and $109.9 (2009)
488.5
Other receivables (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,849.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
714.3
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
592.9
Prepaid expenses and other (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,486.5
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

733.8
3,493.8
664.3
2,517.7
828.3
608.9
14,840.0

Other Assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments (Note 6)
Goodwill and other intangibles—net (Note 7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sundry (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,779.5
4,818.8
1,622.4
8,220.7
7,940.7

1,155.8
3,699.8
1,921.4
6,777.0
8,197.4
$31,001.4 $27,460.9

Liabilities and Shareholders’ Equity
Current Liabilities
Short-term borrowings and current maturities of long-term debt (Note 8)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales rebates and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable (Note 13)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . $

156.0 $

1,072.2
851.8
1,372.6
540.0
457.5
2,651.3
7,101.4

27.4
968.1
894.2
1,109.8
538.0
346.7
2,683.9
6,568.1

Other Liabilities
Long-term debt (Note 8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued retirement benefits (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term income taxes payable (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commitments and contingencies (Note 15)

Shareholders’ Equity (Notes 9 and 11)
Common stock—no par value

Authorized shares: 3,200,000
Issued shares: 1,153,154 (2010) and 1,149,916 (2009)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefit trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs—ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less cost of common stock in treasury

2010— 864 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009— 882 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

See notes to consolidated financial statements.

6,770.5
1,887.4
1,234.8
1,594.5
11,487.2

6,634.7
2,334.7
1,088.4
1,309.7
11,367.5

721.3
4,798.5
12,732.6
(3,013.2)
(52.4)
(2,670.1)
(7.5)
12,509.2

718.7
4,635.6
9,830.4
(3,013.2)
(77.4)
(2,471.9)
1.6
9,623.8

96.4
12,412.8

98.5
9,525.3
$31,001.4 $27,460.9

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Consolidated Statements of Cash Flows

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)

Year Ended December 31

2010

2009

2008

Cash Flows from Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,069.5 $ 4,328.8 $(2,071.9)
Adjustments to Reconcile Net Income
To Cash Flows from Operating Activities

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in-process research and development, net of tax . . . . . . . . . . . . . . . . . .
Net marketing investigation charges accrued (paid) (Note 15) . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of acquisitions

Receivables—(increase) decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories—(increase) decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets—(increase) decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities—(decrease)

1,328.2
559.7
231.0
32.5
(112.3)
(66.3)

(319.1)
157.0
340.5
(363.9)

1,297.8
189.9
368.5
58.5
(1,313.6)
362.5

1,122.6
442.6
255.3
4,792.7
1,423.6
406.5

(492.9)
(179.0)
(84.9)
(200.1)

799.1
84.8
1,648.6
(1,608.3)

Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,856.8

4,335.5

7,295.6

Cash Flows from Investing Activities
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of noncurrent investments . . . . . . . . . . . . . . . .
Purchases of noncurrent investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of product rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(694.3)
24.6
(686.5)
584.7
(1,067.2)
(442.4)
(50.0)
(609.4)
(219.3)

(765.0)
17.7
399.1
1,107.8
(432.3)
—
(90.0)

(947.2)
25.7
957.6
1,597.3
(2,412.4)
—
(122.0)
— (6,083.0)
(284.8)

(94.5)

Net Cash (Used for) Provided by Investing Activities . . . . . . . . . . . . . . . . . . . . . . . .

(3,159.8)

142.8

(7,268.8)

Cash Flows from Financing Activities
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,165.3)
123.9
1.2
(1.1)
19.4

(2,152.1)
(5,824.2)
2,400.0
—
42.6

(2,056.7)
5,060.5
0.1
(649.8)
(8.1)

Net Cash (Used for) Provided by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . .

(2,021.9)

(5,533.7)

2,346.0

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . .

(144.8)

21.6

(96.6)

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,530.3
4,462.9

(1,033.8)
5,496.7

2,276.2
3,220.5

Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,993.2 $ 4,462.9 $ 5,496.7

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income (Loss)

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)

Year Ended December 31

2010

2009

2008

Net income (loss)
Other comprehensive income (loss)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,069.5 $4,328.8 $(2,071.9)

Foreign currency translation gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains (losses) on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Defined benefit pension and retiree health benefit plans (Note 14)
Effective portion of cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes related to other comprehensive income (loss) items . . . .

Other comprehensive income (loss) (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(325.1)
80.8
148.9
(26.6)

(122.0)
(76.2)

(198.2)

284.9
289.8
(280.3)
48.2

342.6
(27.7)

(766.1)
(190.6)
(2,941.2)
23.2

(3,874.7)
1,074.7

314.9

(2,800.0)

Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,871.3 $4,643.7 $(4,871.9)

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Segment Information

We operate in one significant business segment—human pharmaceutical products. Operations of the animal health
business segment are not material and share many of the same economic and operating characteristics as human
pharmaceutical products. Therefore, they are included with pharmaceutical products for purposes of segment
reporting.

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)

Revenue—to unaffiliated customers

Year Ended December 31

2010

2009

2008

Neuroscience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Endocrinology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oncology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cardiovascular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Animal health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,419.0 $ 8,976.4 $ 8,371.5
5,890.7
2,903.9
1,882.7
1,093.3
229.8

6,135.4
3,744.5
2,171.3
1,391.4
214.4

6,015.0
3,460.0
1,971.1
1,207.2
206.3

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,076.0 $21,836.0 $20,371.9

Geographic Information
Revenue—to unaffiliated customers1

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,865.6 $12,294.4 $10,930.1
5,333.5
940.7
3,167.6

5,106.4
1,616.6
3,487.4

5,227.2
1,224.8
3,089.6

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,076.0 $21,836.0 $20,371.9

Long-lived assets

$ 5,333.9 $ 5,310.0 $ 5,750.0
2,119.0
99.2
1,653.8

2,250.7
101.2
1,588.4

2,313.3
90.9
1,632.4

Long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,274.2 $ 9,346.6 $ 9,622.0

1 Revenue is attributed to the countries based on the location of the customer.

Our neuroscience group of products includes Zyprexa, Cymbalta, Strattera, and Prozac. Endocrinology products
consist primarily of Humalog, Humulin, Evista, Forteo, Byetta, Humatrope, and Actos. Oncology products consist
primarily of Alimta, Gemzar, and Erbitux. Cardiovascular products consist primarily of Cialis, ReoPro, Effient, and
Xigris. Animal health products include Rumensin, Tylan, Posilac, Paylean, and other products for livestock and
poultry, and Comfortis and other products for companion animals. The other pharmaceuticals category includes
anti-infectives, primarily Vancocin and Ceclor, and other miscellaneous pharmaceutical products and services.

Most of our pharmaceutical products are distributed through wholesalers that serve pharmacies, physicians and
other health care professionals, and hospitals. In 2010, 2009, and 2008, our three largest wholesalers each
accounted for between 12 percent and 17 percent of consolidated total revenue. Further, they each accounted for
between 9 percent and 16 percent of accounts receivable as of December 31, 2010 and 2009. Animal health products
are sold primarily to wholesale distributors.

Our business segments are distinguished by the ultimate end user of the product: humans or animals. Performance
is evaluated based on profit or loss from operations before income taxes. The accounting policies of the individual
segments are substantially the same as those described in the summary of significant accounting policies in Note 1
to the consolidated financial statements. Income before income taxes for the animal health business was
approximately $251 million, $217 million, and $192 million in 2010, 2009, and 2008, respectively.

The assets of the animal health business are intermixed with those of the pharmaceutical products business. Long-
lived assets disclosed above consist of property and equipment and certain sundry assets.

We are exposed to the risk of changes in social, political, and economic conditions inherent in foreign operations,
and our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency
exchange rates.

Selected Quarterly Data (unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)

2010

Fourth

Third

Second

First

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,187.0 $5,654.8 $5,748.7 $5,485.5
1,122.5
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,653.5
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50.0
Acquired in-process research and development . . . . . . . . . . . . . . . . . . . . . . .
26.2
Asset impairments, restructuring, and other special charges . . . . . . . . . . . .
(74.5)
Other—net, expense (income)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,707.8
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,248.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.13
Earnings per share—basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.49
Common stock closing prices

1,232.2
3,426.8
—
79.0
39.4
1,409.6
1,169.6
1.05
.49

1,023.9
2,942.6
—
27.3
18.4
1,736.5
1,348.9
1.22
.49

987.6
2,914.7
—
59.5
21.7
1,671.3
1,302.9
1.18
.49

High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38.06
33.66

37.77
33.12

36.92
32.25

37.41
33.95

2009

Fourth

Third

Second

First

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Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,934.2 $5,562.0 $5,292.8 $5,047.0
816.4
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,476.5
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Acquired in-process research and development . . . . . . . . . . . . . . . . . . . . . . .
—
Asset impairments, restructuring, and other special charges . . . . . . . . . . . .
70.7
Other—net, expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,683.4
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,313.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.20
Earnings per share—basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.49
Dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock closing prices

1,431.3
3,170.0
90.0
37.9
67.8
1,137.2
915.4
.83
.49

1,051.9
2,823.9
—
549.8
66.9
1,069.5
941.8
.86
.49

947.4
2,748.6
—
105.0
24.1
1,467.7
1,158.5
1.06
.49

37.51
32.47

35.15
32.40

35.95
31.88

40.57
27.47

Our common stock is listed on the New York, London, and Swiss stock exchanges.

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Selected Financial Data (unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except revenue per employee
and per-share data)

2010

2009

2008

2007

2006

Operations
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,076.0 $ 21,836.0 $ 20,371.9 $ 18,633.5 $ 15,691.0
3,546.5
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,129.3
Research and development . . . . . . . . . . . . . . . . . . . . .
4,889.8
Marketing, selling, and administrative . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
707.4
3,418.0
Income (loss) before income taxes . . . . . . . . . . . . . . .
755.3
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,662.7
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.0%
Net income as a percent of revenue . . . . . . . . . . . . . .
2.45
Net income (loss) per share—diluted . . . . . . . . . . . . .
1.63
Dividends declared per share . . . . . . . . . . . . . . . . . . .
Weighted-average number of shares outstanding—
diluted (thousands) . . . . . . . . . . . . . . . . . . . . . . . . . .

4,376.7
3,840.9
6,626.4
6,835.51
(1,307.6)
764.3
(2,071.9)
NM
(1.89)
1.90

4,366.2
4,884.2
7,053.4
247.0
6,525.2
1,455.7
5,069.5
22.0%
4.58
1.96

4,248.8
3,486.7
6,095.1
926.1
3,876.8
923.8
2,953.0
15.8%
2.71
1.75

4,247.0
4,326.5
6,892.5
1,012.2
5,357.8
1,029.0
4,328.8
19.8%
3.94
1.96

1,105,813

1,090,750

1,094,499

1,098,367

1,087,490

Financial Position
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,840.0 $ 12,486.5 $ 12,453.3 $ 12,316.1 $ 9,753.6
5,254.0
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,152.3
Property and equipment—net . . . . . . . . . . . . . . . . . . .
22,042.4
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,494.4
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,825.3
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .

7,101.4
7,940.7
31,001.4
6,770.5
12,412.8

5,436.8
8,575.1
26,874.8
4,593.5
13,510.3

13,109.7
8,626.3
29,212.6
4,615.7
6,737.7

6,568.1
8,197.4
27,460.9
6,634.7
9,525.3

Supplementary Data
24.3%
24.8%
Return on shareholders’ equity . . . . . . . . . . . . . . . . . .
11.1%
12.1%
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
947.2 $ 1,082.4 $ 1,077.8
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . $
801.8
1,047.9
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.1%
23.8%
Revenue per employee . . . . . . . . . . . . . . . . . . . . . . . . . $ 602,000 $ 540,000 $ 504,000 $ 459,000 $ 378,000
41,500
Number of employees . . . . . . . . . . . . . . . . . . . . . . . . .
44,800
Number of shareholders of record . . . . . . . . . . . . . . .

46.1%
17.7%
694.3 $

51.0%
15.8%
765.0 $

1,122.6
NM2

(16.3)%
(7.5)%

1,328.2
22.3%

1,297.8
19.2%

38,350
36,700

40,450
39,800

40,600
41,700

40,360
38,400

NM—Not Meaningful

1 The increase reflects the in-process research and development (IPR&D) expense of $4.69 billion associated with the ImClone
acquisition and $1.48 billion associated with the Zyprexa investigation settlements.
2 We incurred tax expense of $764.3 million in 2008, despite having a loss before income taxes of $1.31 billion. Our net loss was
driven by the $4.69 billion acquired IPR&D charge for ImClone and the $1.48 billion Zyprexa investigation settlements. The IPR&D
charge was not tax deductible, and only a portion of the Zyprexa investigation settlements was deductible. In addition, we
recorded tax expense associated with the ImClone acquisition, as well as a discrete income tax benefit of $210.3 million for the
resolution of a substantial portion of the 2001-2004 IRS audit.

PERFORMANCE GRAPH
This graph compares the return on Lilly stock with that of the Standard & Poor’s 500 Stock Index and our peer group
for the years 2006 through 2010. The graph assumes that, on December 31, 2005, a person invested $100 each in
Lilly stock, the S&P 500 Stock Index, and the peer group’s common stock. The graph measures total shareholder
return, which takes into account both stock price and dividends. It assumes that dividends paid by a company are
reinvested in that company’s stock.

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Value of $100 Invested on Last Business Day of 2005
Comparison of Five-Year Cumulative Total Return Among Lilly, S&P 500 Stock Index, and Peer Group1

Lilly

Peer Group

S&P 500

$140.00

$120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$0.00

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10

Lilly

Peer Group

S&P 500

$100.00
$ 94.78
$100.17
$ 78.75
$ 73.92
$ 76.65

$100.00
$112.38
$112.52
$ 96.39
$109.86
$110.03

$100.00
$115.76
$122.11
$ 77.00
$ 97.31
$111.95

1 We constructed the peer group as the industry index for this graph. It comprises the ten companies in the pharmaceutical
industry that we used to benchmark 2010 compensation of executive officers: Abbott Laboratories; Amgen Inc.; AstraZeneca PLC;
Bristol-Myers Squibb Company; GlaxoSmithKline plc; Johnson & Johnson; Merck & Co., Inc.; Novartis AG.; Pfizer Inc.; and
Sanofi-Aventis.

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Notes to Consolidated Financial Statements
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)

Note 1: Summary of Significant Accounting Policies
Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP). The accounts of all wholly-owned and
majority-owned subsidiaries are included in the consolidated financial statements. Where our ownership of
consolidated subsidiaries is less than 100 percent, the noncontrolling shareholders’ interests are reflected in
shareholders’ equity. All intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at
the date of the financial statements and during the reporting period. Actual results could differ from those
estimates. We issued our financial statements by filing with the Securities and Exchange Commission and have
evaluated subsequent events up to the time of the filing.
All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis, that is, based on
the weighted-average number of outstanding common shares plus the effect of dilutive stock options and other
incremental shares.
Cash equivalents: We consider all highly liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents. The cost of these investments approximates fair value.
Inventories: We state all inventories at the lower of cost or market. We use the last-in, first-out (LIFO) method for
the majority of our inventories located in the continental United States, or approximately 45 percent of our total
inventories. Other inventories are valued by the first-in, first-out (FIFO) method. FIFO cost approximates current
replacement cost. Inventories at December 31 consisted of the following:

Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800.8 $ 938.3
1,830.1
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
227.8
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,714.2
220.8

Reduction to LIFO cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,735.8
(218.1)

2,996.2
(146.3)

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,517.7 $2,849.9

2010

2009

Investments: Substantially all of our 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 our debt
securities considered to be other-than-temporary are recognized in earnings. The remaining portion of the
other-than-temporary impairment on our debt securities is then recorded in other comprehensive income (loss). The
entire amount of other-than-temporary impairment on our equity securities is recognized in earnings. We do not
evaluate cost-method investments for impairment unless there is an indicator of impairment. We review 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 we have significant
influence but not a controlling interest are accounted for using the equity method with our share of earnings or
losses reported in other—net, expense. We own no investments that are considered to be trading securities.
Risk-management instruments: Our derivative activities are initiated within the guidelines of documented
corporate risk-management policies and do not create additional risk because gains and losses on derivative
contracts offset losses and gains on the assets, liabilities, and transactions being hedged. As derivative contracts are
initiated, we designate the instruments individually as either a fair value hedge or a cash flow hedge. Management
reviews the correlation and effectiveness of our derivatives on a quarterly basis.
For derivative contracts that are designated and qualify as fair value hedges, the derivative instrument is marked to
market with gains and losses recognized currently in income to offset the respective losses and gains recognized on
the underlying exposure. For derivative contracts that are designated and qualify as cash flow hedges, the effective
portion of gains and losses on these contracts is reported as a component of accumulated other comprehensive
income (loss) and reclassified into earnings in the same period the hedged transaction affects earnings. Hedge
ineffectiveness is immediately recognized in earnings. Derivative contracts that are not designated as hedging
instruments are recorded at fair value with the gain or loss recognized in current earnings during the period of
change.
We may enter into foreign currency forward contracts to reduce the effect of fluctuating currency exchange rates
(principally the euro, the British pound, and the Japanese yen). Foreign currency derivatives used for hedging are put

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in place using the same or like currencies and duration as the underlying exposures. Forward contracts are
principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated
in foreign currencies. These contracts are recorded at fair value with the gain or loss recognized in other—net,
expense. We may enter into foreign currency forward contracts and currency swaps as fair value hedges of firm
commitments. Forward contracts generally have maturities not exceeding 12 months.
In the normal course of business, our operations are exposed to fluctuations in interest rates. 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 of fluctuations in interest rates on earnings. 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 and investment positions and may enter
into interest rate swaps or collars to help maintain that balance. Interest rate swaps or collars that convert our
fixed-rate debt or investments to a floating rate are designated as fair value hedges of the underlying instruments.
Interest rate swaps or collars that convert floating rate debt or investments to a fixed rate are designated as cash
flow hedges. Interest expense on the debt is adjusted to include the payments made or received under the swap
agreements.
We may enter into forward contracts and designate them as cash flow hedges to limit the potential volatility of
earnings and cash flow associated with forecasted sales of available-for-sale securities.
Goodwill and other intangibles: Goodwill results from excess consideration in a business combination over the fair
value of identifiable net assets acquired. Goodwill is not amortized.
Intangible assets with finite lives are capitalized and are amortized over their estimated useful lives, ranging from 5
to 20 years.
The cost of in-process research and development (IPR&D) projects acquired directly in a transaction other than a
business combination are capitalized if they have an alternative future use; otherwise, they are expensed. Beginning
in 2009, the fair values of IPR&D projects acquired in business combinations are capitalized as other intangible
assets; previously, these fair values were expensed. There are several methods that can be used to determine the
estimated fair value of the IPR&D acquired in a business combination. We utilized the “income method,” which
applies a probability weighting that considers the risk of development and commercialization, to the estimated future
net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on
factors such as relevant market size, patent protection, historical pricing of similar products, and expected industry
trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount
rate. This analysis is performed for each project independently. These assets are treated as indefinite-lived
intangible assets until completion or abandonment of the projects, at which time the assets will be amortized over
the remaining useful life or written off, as appropriate. We also capitalize milestone payments incurred at or after
the product has obtained regulatory approval for marketing and amortize those amounts over the remaining
estimated useful life of the underlying asset.
Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually and when certain
impairment indicators are present. When required, a comparison of fair value to the carrying amount of assets is
performed to determine the amount of any impairment. Finite-lived intangible assets are reviewed for impairment
when an indicator of impairment is present.
Property and equipment: Property and equipment is stated on the basis of cost. Provisions for depreciation of
buildings and equipment are computed generally by the straight-line method at rates based on their estimated
useful lives (12 to 50 years for buildings and 3 to 18 years for equipment). We review the carrying value of long-lived
assets for potential impairment on a periodic basis and whenever events or changes in circumstances indicate the
carrying value of an asset may not be recoverable. Impairment is determined by comparing projected undiscounted
cash flows to be generated by the asset to its carrying value. If an impairment is identified, a loss is recorded equal
to the excess of the asset’s net book value over its fair value, and the cost basis is adjusted.
At December 31, property and equipment consisted of the following:

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

207.8 $

6,029.3
7,355.7
893.8

216.8
6,121.9
7,813.0
948.3

Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,486.6
(6,545.9)

15,100.0
(6,902.6)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,940.7 $ 8,197.4

2010

2009

Depreciation expense for 2010, 2009, and 2008 was $749.1 million, $813.5 million, and $731.7 million, respectively.
Interest costs of $26.0 million, $30.2 million, and $48.2 million were capitalized as part of property and equipment in
2010, 2009, and 2008, respectively. Total rental expense for all leases, including contingent rentals (not material),

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amounted to $339.3 million, $337.8 million, and $327.4 million for 2010, 2009, and 2008, respectively. Assets under
capital leases included in property and equipment in the consolidated balance sheets, capital lease obligations
entered into, and future minimum rental commitments are not material.
Litigation and environmental liabilities: Litigation accruals and environmental liabilities and the related estimated
insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated
balance sheets. With respect to the product liability claims currently asserted against us, we have accrued for our
estimated exposures to the extent they are both probable and estimable based on the information available to us. We
accrue for certain product liability claims incurred but not filed to the extent we can formulate a reasonable estimate
of their costs. We estimate these expenses based primarily on historical claims experience and data regarding
product usage. Legal defense costs expected to be incurred in connection with significant product liability loss
contingencies are accrued when probable and reasonably estimable. A portion of the costs associated with
defending and disposing of these suits is covered by insurance. We record receivables for insurance-related
recoveries when it is probable they will be realized. These receivables are classified as a reduction of the litigation
charges on the statement of operations. We estimate insurance recoverables based on existing deductibles,
coverage limits, our assessment of any defenses to coverage that might be raised by the carriers, and the existing
and projected future level of insolvencies among the insurance carriers. However, for substantially all of our
currently marketed products, we are completely self-insured for future product liability losses.
Revenue recognition: We recognize 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. For approximately 85 percent of our sales, this is at the
time products are shipped to the customer, typically a wholesale distributor or a major retail chain. The remaining
sales are recorded at the point of delivery. Provisions for returns, discounts, and rebates are established in the same
period the related sales are recorded.
We also generate income as a result of collaboration agreements. Revenue from co-promotion services is based
upon net sales reported by our co-promotion partners and, if applicable, the number of sales calls we perform.
Initial fees we receive from the partnering of our compounds under development are amortized through the
expected product approval date. Initial fees received from out-licensing agreements that include both the sale of
marketing rights to our commercialized products and a related commitment to supply the products are generally
recognized in net product sales over the term of the supply agreement. We immediately recognize the full amount of
developmental milestone payments due to us upon the achievement of the milestone event if the event is
substantive, objectively determinable, and represents an important point in the development life cycle of the
pharmaceutical product. Milestone payments earned by us are generally recorded in other—net, expense. If the
payment to us is a commercialization payment that is part of a multiple-element collaborative commercialization
arrangement and is a result of the initiation of the commercialization period (e.g., payments triggered by regulatory
approval for marketing or launch of the product), we amortize the payment to income as we perform under the
terms of the arrangement.
Royalty revenue from licensees, which are based on third-party sales of licensed products and technology, are
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.
Following is the composition of revenue:

2010

2009

2008

Net product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,442.2 $21,171.5 $19,925.8
446.1
Collaboration and other revenue (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

633.8

664.5

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,076.0 $21,836.0 $20,371.9

Research and development expenses and acquired research and development: Research and development
expenses include the following:

• Research and development costs, which are expensed as incurred.
• Milestone payments incurred prior to regulatory approval of the product, which are accrued when the event

requiring payment of the milestone occurs.
Acquired IPR&D expense includes the following:

• The initial costs of IPR&D projects acquired directly in asset acquisitions, unless they have an alternative future

use.

• The fair values of IPR&D projects acquired in business combinations that closed prior to 2009. Beginning in

2009, the fair values of IPR&D projects acquired in business combinations are capitalized as other intangible
assets.

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Other—net, expense: Other—net, expense consisted of the following:

2010

2009

2008

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185.5 $261.3 $ 228.3
(210.7)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.5
Other (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(51.9)
(128.6)

(75.2)
43.4

Other—net, expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

5.0 $229.5 $ 26.1

Other income during 2010 is primarily related to net gains on equity investments, damages recovered from generic
pharmaceutical companies following Zyprexa patent litigation in Germany, and an insurance recovery associated
with the theft of product at our Enfield, Connecticut distribution center.
Income taxes: Deferred taxes are recognized for the future tax effects of temporary differences between financial
and income tax reporting based on enacted tax laws and rates. Federal income taxes are provided on the portion of
the income of foreign subsidiaries that is expected to be remitted to the United States and be taxable.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate resolution.
Earnings per share: We calculate basic earnings per share based on the weighted-average number of outstanding
common shares and incremental shares. We calculate diluted earnings per share based on the weighted-average
number of outstanding common shares plus the effect of dilutive stock options and other incremental shares. See
Note 12 for further discussion.
Stock-based compensation: We recognize the fair value of stock-based compensation as expense over the
requisite service period of the individual grantees, which generally equals the vesting period. Under our policy all
stock-based awards are approved prior to the date of grant. The Compensation Committee of the Board of Directors
approves the value of the award and date of grant. Stock-based compensation that is awarded as part of our annual
equity grant is made on a specific grant date scheduled in advance.
Reclassifications: Certain reclassifications have been made to the December 31, 2009 and 2008 consolidated
financial statements and accompanying notes to conform with the December 31, 2010 presentation.

Implementation of New Financial Accounting Pronouncements

Note 2:
In 2010, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) that applies
to the nondeductible annual fee that will be imposed on pharmaceutical manufacturers and importers that sell
branded prescription drugs to specified government programs as part of U.S. health care reform. This fee is
allocated to companies based on their prior calendar year market share for branded prescription drug sales into
these government programs. This guidance clarifies how pharmaceutical manufacturers should recognize and
classify in their income statements fees mandated by U.S. Health Care Reform. This fee will be recorded as selling,
general and administrative expense in our consolidated results of operations and will be amortized on a straight-line
basis for the year. This guidance is effective for us January 1, 2011 and will not have a material impact on our
consolidated financial position or results of operations.
In 2010, the FASB issued an ASU related to Revenue Recognition that applies to arrangements with milestones
relating to research or development deliverables. This guidance provides criteria that must be met to recognize
consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the
milestone is achieved. This guidance is effective for us January 1, 2011 and is not expected to have a material impact
to our consolidated financial position or results of operations.
In 2009, the FASB issued an ASU related to Revenue Recognition that amends the previous guidance on
arrangements with multiple deliverables. This guidance provides principles and application guidance on whether
multiple deliverables exist, how the arrangements should be separated, and how the consideration should be
allocated. It also clarifies the method to allocate revenue in an arrangement using the estimated selling price. This
guidance is effective for us January 1, 2011, and is not expected to have a material impact to our consolidated
financial position or results of operations.
We adopted the FASB Statement on Transfers and Servicing, an amendment of previous authoritative guidance. The
most significant amendments resulting from this Statement consist of the removal of the concept of a qualifying
special-purpose entity (SPE) from previous authoritative guidance, and the elimination of the exception for qualifying
SPEs from the Consolidation guidance regarding variable interest entities. This Statement was effective for us
January 1, 2010, and had no effect on our consolidated financial position or results of operations.
We adopted the FASB Statement that amended the previous Consolidations guidance regarding variable interest
entities and addressed the effects of eliminating the qualifying SPE concept from the guidance on Transfers and
Servicing. This Statement responded to concerns about the application of certain key provisions of the previous
guidance on Consolidations regarding variable interest entities, including concerns over the transparency of
enterprises’ involvement with variable interest entities. This Statement was effective for us January 1, 2010, and had
no effect on our consolidated financial position or results of operations.

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Note 3: Acquisitions
During 2010 and 2008 we acquired several businesses. These acquisitions were accounted for as business
combinations under the acquisition method of accounting. Under the acquisition method of accounting, the assets
acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our
consolidated financial statements. The determination of estimated fair value required management to make
significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net
assets, where applicable, has been recorded as goodwill. The results of operations of these acquisitions are included
in our consolidated financial statements from the date of acquisition.
Most of these acquisitions included IPR&D, which represented compounds, new indications, or line extensions under
development that had not yet achieved regulatory approval for marketing. As discussed in Note 1, the fair values of
IPR&D assets acquired as part of the acquisition of a business were expensed prior to 2009, but are capitalized as
intangible assets for subsequent acquisitions. Accordingly, we capitalized IPR&D assets acquired in business
combinations totaling $598.0 million in 2010 and expensed $4.71 billion in 2008 upon acquisition because the
products had no alternative future use. The ongoing expenses with respect to each of these products in development
are not material to our total research and development expense currently and are not expected to be material to our
total research and development expense on an annual basis in the future.
Some of these acquisitions included contingent consideration, which is recorded at fair value as a liability as of the
acquisition date for acquisitions that closed after 2008. The fair value of the contingent consideration was
determined by utilizing a probability weighted estimated cash flow stream adjusted for the expected timing of each
payment. Subsequent to the acquisition date, on a quarterly basis we remeasure the contingent consideration at
current fair value with changes recorded in other—net, expense in the statement of operations.
In addition to the acquisitions of businesses, we also acquired several products in development. The acquired IPR&D
related to these products of $50.0 million, $90.0 million, and $122.0 million in 2010, 2009, and 2008, respectively, was
written off by a charge to income immediately upon acquisition because the products had no alternative future use.

2010 Acquisitions of Businesses
In 2010, we completed the acquisitions of Avid Radiopharmaceuticals, Inc. (Avid), Alnara Pharmaceuticals, Inc.
(Alnara), and a group of animal health product lines, all of which have been accounted for as business combinations,
and none of which were material to our consolidated financial statements.

Avid
On December 20, 2010, we acquired all of the outstanding stock of Avid, a company focusing on developing molecular
radiopharmaceutical tracers in positron emission topography (PET) scan imaging with the potential for earlier and
more effective detection, diagnosis, and monitoring of major chronic human diseases, for total purchase
consideration of $346.1 million, which included an upfront payment of $286.3 million and up to $550 million in
additional payments contingent upon potential future regulatory and commercial milestones. The fair value of the
contingent consideration at the acquisition date was $59.8 million. Avid’s lead product under development,
florbetapir, is a PET agent indicated for imaging amyloid plaque pathology in the brain to aid the evaluation of
patients with signs or symptoms of cognitive impairment, including Alzheimer’s disease. The New Drug Application
(NDA) was submitted to the U.S. Food and Drug Administration (FDA) in the third quarter of 2010, and the FDA
assigned priority review designation to the marketing application. In connection with this acquisition, we
preliminarily recorded $334.0 million of acquired IPR&D assets, $132.5 million of goodwill, and $116.9 million of
deferred tax liability.

Alnara
On July 20, 2010, we acquired all of the outstanding stock of Alnara, a privately-held company developing protein
therapeutics for the treatment of metabolic diseases, for total purchase consideration of $291.7 million, which
included an upfront payment of $188.7 million and up to $200 million in additional payments contingent upon
potential future regulatory and commercial milestones. The fair value of the contingent consideration at the
acquisition date was $103.0 million. Alnara’s lead product in development is liprotamase, a non-porcine pancreatic
enzyme replacement therapy. Liprotamase is under review by the FDA for the treatment of exocrine pancreatic
insufficiency. In connection with this acquisition, we preliminarily recorded $264.0 million of acquired IPR&D assets,
$100.5 million of goodwill, and $92.4 million of deferred tax liability.

Animal Health Product Lines
On May 28, 2010, we acquired the European marketing rights to several animal health product lines divested by
Pfizer Inc. as part of its acquisition of Wyeth, Inc., for total purchase consideration of $148.4 million paid in cash.
These products, including vaccines, parasiticides, and feed additives, serve both the production animal and
companion animal markets. We also acquired a manufacturing facility in Sligo, Ireland, currently used in the
production of animal vaccines. In connection with this acquisition, we preliminarily recorded $76.2 million of
developed product technology.
In connection with these 2010 acquisitions, certain estimated fair values are not yet finalized and are subject to
change. We expect to finalize these amounts as soon as possible, but no later than one year from the acquisition
date. Although the final determination may result in asset and liability fair values that are different than the

preliminary estimates of these amounts included herein, it is not expected that those differences will be material to
our financial results. The amortization of the Avid and Alnara acquired IPR&D assets will not be deductible for tax
purposes.

2008 Acquisitions of Businesses

ImClone
On November 24, 2008, we acquired all of the outstanding shares of ImClone Systems Inc. (ImClone), a
biopharmaceutical company focused on advancing oncology care, for a total purchase price of approximately $6.5
billion, which was financed through borrowings. This strategic combination offered both targeted therapies and
oncolytic agents along with a pipeline spanning all phases of clinical development. The combination also expanded
our biotechnology capabilities.
The acquisition was accounted for as a business combination under the purchase method of accounting, resulting in
goodwill of $425.9 million. No portion of this goodwill was or is expected to be deductible for tax purposes.

Allocation of Purchase Price
The purchase price was allocated based on the fair value of assets acquired and liabilities assumed as of the date of
acquisition.

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Fair Value
at November 24,
2008

Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Developed product technology (Erbitux)1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities—net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 982.9
136.2
1,057.9
425.9
338.9
(600.0)
(311.5)
(127.7)
(92.6)
4,690.0

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,500.0

1 This intangible asset is being amortized on a straight-line basis through 2023 in the U.S. and 2018 in the rest of the world.

All of the estimated fair value of the acquired IPR&D was attributable to oncology-related products in development,
including $1.33 billion to line extensions for Erbitux. A significant portion (81 percent) of the remaining value of
acquired IPR&D was attributable to ramucirumab, necitumumab, and cixutumumab. At the time of the acquisition,
ramucirumab was in Phase III clinical testing, while necitumumab and cixutumumab were in Phase II clinical testing.
The charge for acquired IPR&D of $4.69 billion was recorded in the fourth quarter of 2008 and was not deductible for
tax purposes.

Pro Forma Financial Information (unaudited)
The following pro forma financial information presents the combined results of our operations with ImClone as if the
acquisition and the financing for the acquisition had occurred as of the beginning of the year presented. We have
adjusted the historical consolidated financial information to give effect to pro forma events that are directly
attributable to the acquisition. The pro forma financial information is not necessarily indicative of what our
consolidated results of operations actually would have been had we completed the acquisition at the beginning of the
year. In addition, the pro forma financial information does not attempt to project the future results of operations of
our combined company.

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,732.2
Net income1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,356.2
Earnings per share:

Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.15

1 The pro forma financial information above excludes the non-recurring charge incurred for acquired IPR&D of $4.69 billion and
other merger-related costs.

2008

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The pro forma financial information above reflects the following:

• a reduction of the amortization of ImClone’s deferred income of $86.2 million;
• the increase of amortization expense of $78.8 million related to the estimated fair value of identifiable intangible
assets from the purchase price allocation which are being amortized over their estimated useful lives through
2023 in the U.S. and through 2018 in the rest of the world. The change in depreciation expense related to the
change in the estimated fair value of property and equipment from the book value at the time of the acquisition
was not material;

• the adjustment to increase interest expense related to the debt incurred to finance the acquisition and the
adjustment to decrease interest income related to the lost interest income on the cash used to purchase
ImClone by a total of $301.0 million;

• the reduction of ImClone’s income tax expense to provide for income taxes at the statutory tax rate and the
adjustment to income taxes for pro forma adjustments at the statutory tax rate, totaling $139.3 million. This
excludes the acquired IPR&D charge of $4.69 billion, which was not tax deductible;

• certain reclassifications to conform to accounting policies and classifications that are consistent with our

practices (e.g., ImClone’s license fees and milestones were classified as other—net, expense, rather than net
sales).

Other 2008 Acquisitions of Businesses
In addition to the ImClone acquisition noted above, in 2008, we completed the acquisitions of rights to Posilac from
Monsanto Company (Monsanto) and SGX Pharmaceuticals, Inc. (SGX), both of which have been accounted for as
business combinations, and neither of which are material individually or in the aggregate to our consolidated
financial statements.

Posilac
On October 1, 2008, we acquired the worldwide rights to the dairy cow supplement Posilac, as well as the product’s
supporting operations, from Monsanto. The acquisition of Posilac provides us with a product that complements those
of our animal health business. Under the terms of the agreement, we acquired the rights to the Posilac brand, as
well as the product’s U.S. sales force and manufacturing facility, for a $300.0 million upfront payment, transaction
costs, and contingent consideration to Monsanto based on estimated future Posilac sales.

SGX Pharmaceuticals, Inc.
On August 20, 2008, we acquired all of the outstanding common stock of SGX. The acquisition allowed us to integrate
SGX’s structure-guided drug discovery platform into our drug discovery efforts. It also gave us access to FASTTM,
SGX’s fragment-based, protein structure guided drug discovery technology, and to a portfolio of preclinical oncology
compounds focused on a number of kinase targets. Under the terms of the agreement, the outstanding shares of
SGX common stock were redeemed for an aggregate purchase price of $66.8 million.
In connection with the Monsanto and SGX acquisitions, we recorded $210.0 million of identifiable intangible assets,
$167.6 million of inventories, $102.8 million of property and equipment and $133.1 million of liabilities.

Product Acquisitions
In March 2010, we entered into a license agreement with Acrux Limited to acquire the exclusive rights to
commercialize its proprietary testosterone solution with the proposed tradename Axiron. In the fourth quarter of
2010, the product was approved by the FDA for the treatment of testosterone deficiency in men; however, at the time
of the licensing the product had not yet been approved and had no alternative future use. The charge of $50.0 million
for acquired IPR&D related to this arrangement was included as expense in the first quarter of 2010 and is
deductible for tax purposes.
In December 2009, we entered into a licensing and collaboration agreement with Incyte Corporation to acquire rights
to its compound, and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases.
The lead compound was in the development stage (Phase II clinical trials for rheumatoid arthritis) and had no
alternative future use. The charge of $90.0 million for acquired IPR&D related to this arrangement was included in
expense in the fourth quarter of 2009 and is deductible for tax purposes. As part of this agreement, Incyte has the
option to co-develop these compounds and the option to co-promote in the United States.
In June 2008, we entered into a licensing and development agreement with TransPharma Medical Ltd.
(TransPharma) to acquire rights to its product and related drug delivery system for the treatment of osteoporosis.
The charge of $35.0 million for acquired IPR&D related to this arrangement was included as expense in the second
quarter of 2008 and is deductible for tax purposes.
In January 2008, our agreement with BioMS Medical Corp. to acquire the rights to its compound for the treatment of
multiple sclerosis became effective. In the third quarter of 2009, data from the Phase III clinical trials showed there
were no statistically significant differences between dirucotide and placebo on the primary or secondary endpoints of
the study, and ongoing clinical trials and the arrangement were discontinued. The charge of $87.0 million for
acquired IPR&D related to this arrangement was included as expense in the first quarter of 2008 and is deductible
for tax purposes.

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In connection with these arrangements, our partners are generally entitled to future milestones and royalties based
on sales should these products be approved for commercialization.

Note 4: Collaborations
We often enter into collaborative arrangements to develop and commercialize drug candidates. Collaborative
activities might include research and development, marketing and selling (including promotional activities and
physician detailing), manufacturing, and distribution. These collaborations often require milestone and royalty or
profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in
development, as well as expense reimbursements or payments to the third party. Revenues related to products sold
by us pursuant to these arrangements are included in net product sales, while other sources of revenue (e.g.,
royalties and profit share payments) are included in collaboration and other revenue. Operating expenses for costs
incurred pursuant to these arrangements are reported in their respective expense line item, net of any payments
made to or reimbursements received from our collaboration partners. Each collaboration is unique in nature, and
our more significant arrangements are discussed below.

Erbitux
We have several collaborations with respect to Erbitux, a product approved to fight cancer. The most significant
collaborations operate in these geographic territories: the U.S., Japan, and Canada (Bristol-Myers Squibb Company);
and worldwide except the U.S. and Canada (Merck KGaA). The agreements are expected to expire in 2018, upon
which all of the rights with respect to Erbitux in the U.S. and Canada return to us. The following table summarizes
the revenue recognized with respect to Erbitux:

2010

2009

2008

Net product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71.9 $ 92.5 $ 2.7
26.7
Collaboration and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

314.2

298.3

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $386.1 $390.8 $29.4

Bristol-Myers Squibb Company
Pursuant to a commercial agreement with Bristol-Myers Squibb Company and E.R. Squibb (collectively, BMS),
relating to Erbitux, we are co-developing and co-promoting Erbitux in the U.S. and Canada with BMS, exclusively,
and in Japan with BMS and Merck KGaA. The companies have jointly agreed to expand the investment in the ongoing
clinical development plan for Erbitux to further explore its use in additional tumor types. Under this arrangement,
Erbitux research and development and other costs are shared by both companies according to a predetermined
ratio.
Responsibilities associated with clinical and other on-going studies are apportioned between the parties under the
agreement. Collaborative reimbursements received by us for supply of clinical trial materials; for research and
development; and for a portion of marketing, selling, and administrative expenses are recorded as a reduction to the
respective expense line items on the consolidated statement of operations. We receive a distribution fee in the form
of a royalty from BMS, based on a percentage of net sales in the U.S. and Canada, which is recorded in collaboration
and other revenue. Royalty expense paid to third parties, net of any reimbursements received, is recorded as a
reduction of collaboration and other revenue.
We are responsible for the manufacture and supply of all requirements of Erbitux in bulk-form active
pharmaceutical ingredient (API) for clinical and commercial use in the territory, and BMS will purchase all of its
requirements of API for commercial use from us, subject to certain stipulations per the agreement. Sales of Erbitux
to BMS for commercial use are reported in net product sales.

Merck KGaA
A development and license agreement with Merck KGaA (Merck) with respect to Erbitux granted Merck exclusive
rights to market Erbitux outside of the U.S. and Canada, and co-exclusive rights with BMS and us in Japan. Merck
also has rights to manufacture Erbitux for supply in its territory. In 2009, we manufactured and provided a portion of
Merck’s requirements for API, which was included in net product sales. We also receive a royalty on the sales of
Erbitux outside of the U.S. and Canada, which is included in collaboration and other revenue as earned. Collaborative
reimbursements received for supply of product; for research and development; and marketing, selling, and
administrative expenses are recorded as a reduction to the respective expense line items on the consolidated
statement of operations. Royalty expense paid to third parties, net of any royalty reimbursements received, is
recorded as a reduction of collaboration and other revenue.

Necitumumab
In January 2010, we restructured the commercial agreement with BMS described above to allow for the
co-development and co-commercialization of necitumumab, which is currently in Phase III clinical testing for
non-small cell lung cancer. Within this restructured arrangement, we and BMS have agreed to share in the cost of
developing and potentially commercializing necitumumab in the U.S., Canada, and Japan. We maintain exclusive
rights to necitumumab in all other markets. We will fund 45 percent of the development costs for studies that will be

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used only in the U.S., and 72.5 percent for global studies. We will be responsible for the manufacturing of API, and
BMS will be responsible for manufacturing the finished product. We could receive a payment of $250.0 million upon
approval in the U.S. In the U.S. and Canada, BMS will record sales and we will receive 45 percent of the profits for
necitumumab, while we will provide 50 percent of the selling effort. In Japan, we and BMS will share costs and
profits evenly.

Exenatide
We are in a collaborative arrangement with Amylin Pharmaceuticals (Amylin) for the joint development, marketing,
and selling of Byetta (exenatide injection) and other forms of exenatide such as exenatide once weekly (proposed
tradename Bydureon). Byetta is presently approved as an adjunctive therapy to improve glycemic control in patients
with type 2 diabetes who have not achieved adequate glycemic control using metformin, a sulfonylurea, or a
combination of metformin and sulfonylurea; and in the U.S. only, as an adjunctive therapy in patients using a
thiazolidinedione (with or without metformin) and as a monotherapy. Lilly and Amylin are co-promoting Byetta in the
U.S. Amylin is responsible for manufacturing and primarily utilizes third-party contract manufacturers to supply
Byetta. However, we are manufacturing Byetta pen delivery devices for Amylin. We are responsible for development
and commercialization costs outside the U.S.

Under the terms of our arrangement, we report as collaboration and other revenue our 50 percent share of gross
margin on Amylin’s net product sales in the U.S. We report as net product sales 100 percent of sales outside the U.S.
and our sales of Byetta pen delivery devices to Amylin. The following table summarizes the revenue recognized with
respect to Byetta:

2010

2009

2008

Net product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168.1 $147.7 $ 96.7
299.4
Collaboration and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

262.5

300.8

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $430.6 $448.5 $396.1

We pay Amylin a percentage of the gross margin of exenatide sales outside of the U.S., and these costs are recorded
in cost of sales. Under the 50/50 profit-sharing arrangement for the U.S., in addition to recording as revenue our 50
percent share of exenatide’s gross margin, we also record 50 percent of U.S. research and development costs and
marketing and selling costs in the respective line items on the consolidated statements of operations.

A NDA has been submitted to the FDA for Bydureon. In October 2010, we received a complete response letter from
the FDA that requested a safety study to measure the potential for heart rhythm disturbances when exenatide is
used at higher than average doses. Our goal is to submit a reply to the complete response letter in the second half of
2011. Based on the requirements for additional data, this will likely be considered a Class 2 resubmission requiring a
six-month review. We have also submitted Bydureon for review by the European Medicines Agency and we anticipate
action in the first half of 2011.

Amylin is constructing and will operate a manufacturing facility for Bydureon, and we have entered into a supply
agreement in which Amylin will supply Bydureon product to us for sales outside the U.S. The estimated total cost of
the facility is approximately $550 million. In 2008, we paid $125.0 million to Amylin, which we will amortize to cost of
sales over the estimated life of the supply agreement beginning with product launch. We would be required to
reimburse Amylin for a portion of any future impairment of this facility, recognized in accordance with GAAP. A
portion of the $125.0 million payment we made to Amylin would be creditable against any amount we would owe as a
result of impairment. We have also agreed to loan up to $165.0 million to Amylin at an indexed rate. No amounts
have been loaned pursuant to this arrangement. Draws must be made by June 30, 2011, and any borrowings must be
repaid by June 30, 2014. We have also agreed to cooperate with Amylin in the development, manufacturing, and
marketing of Bydureon in a dual-chamber cartridge pen configuration. We will contribute 60 percent of the total
initial capital costs of the project, our portion of which will be approximately $130 million. As of December 31, 2010,
we have contributed approximately $90 million.

Cymbalta

Boehringer Ingelheim
Beginning in 2002, we were in a collaborative arrangement with Boehringer Ingelheim (BI) to jointly develop, market
and promote Cymbalta (duloxetine), a product for the treatment of major depressive disorder, diabetic peripheral
neuropathic pain, generalized anxiety disorder, and fibromyalgia, outside the U.S. and Japan. Pursuant to the terms
of the agreement, we generally shared equally in development, marketing, and selling expenses, and paid BI a
commission on sales in the co-promotion territories. We manufacture the product for all territories.
Reimbursements or payments for the cost sharing of marketing, selling, and administrative expenses were recorded
in the respective expense line items in the consolidated statements of operations. The commission paid to BI was
recorded in marketing, selling, and administrative expenses. In March 2010, the parties agreed to terminate this
agreement, and we re-acquired the exclusive rights to develop and market duloxetine for all indications in countries
outside the U.S. and Japan. In connection with the arrangement, we paid BI approximately $400 million and will also
pay to BI a percentage of our sales of duloxetine in these countries through 2012 as consideration for the rights

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acquired. We record these costs as intangible assets and will amortize to marketing, selling and administrative
expenses using the straight-line method over the life of the original agreement, which is through 2015.

Quintiles
We were in a collaborative arrangement with Quintiles Transnational Corp. (Quintiles) to jointly market and promote
Cymbalta in the U.S. since Cymbalta’s launch in 2004. Pursuant to the terms of the agreement, Quintiles shared in
the costs to co-promote Cymbalta with us and receives a commission based upon net product sales. According to
that agreement, Quintiles’ obligation to promote Cymbalta expired during 2009, and we pay a lower commission for
three years after completion of the promotion efforts specified in that agreement. The commissions paid to Quintiles
are recorded in marketing, selling, and administrative expenses.

Effient
We are in a collaborative arrangement with Daiichi Sankyo Company, Limited (D-S) to develop, market, and promote
Effient, an antiplatelet agent for the treatment of patients with acute coronary syndrome who are being managed
with an artery-opening procedure known as percutaneous coronary intervention. The product was approved for
marketing by the European Commission under the trade name Efient® in February 2009, and the initial sales were
recorded in the first quarter of 2009. The product was also approved for marketing by the FDA under the tradename
Effient in July 2009, and the initial sales in the U.S. were recorded in the third quarter of 2009. Within this
arrangement, we and D-S have agreed to co-promote under the same trademark in certain territories (including the
U.S. and five major European markets), while we have exclusive marketing rights in certain other territories. D-S has
exclusive marketing rights in Japan. Under the agreement, we paid D-S an upfront license fee and milestones
related to successful development and product launch. The parties share approximately 50/50 in the profits, as well
as in the costs of development and marketing in the co-promotion territories. A third party manufactures bulk
product, and we produce the finished product for our exclusive and co-promotion territories. We record product
sales in our exclusive and co-promotion territories. In our exclusive territories, we pay D-S a royalty specific to these
territories. Profit share payments made to D-S are recorded as marketing, selling, and administrative expenses. All
royalties paid to D-S and the third-party manufacturer are recorded in cost of sales. Worldwide Effient sales were
$115.0 million and $27.0 million in 2010 and 2009, respectively.

Diabetes Collaboration
In January 2011, we and BI entered into a global agreement to jointly develop and commercialize a portfolio of
diabetes compounds currently in mid- and late-stage development. Included are BI’s two oral diabetes agents,
linagliptin, for which an NDA has been submitted to the FDA, and BI10773, which is currently in Phase III clinical
testing; our two basal insulin analogues, LY2605541 and LY2963016, both expected to begin Phase III clinical testing
in 2011; and the option to co-develop and co-commercialize our anti-TGF-beta monoclonal antibody, which is
currently in Phase II clinical testing. Under the terms of the agreement, we made an initial one-time payment to BI of
€300.0 million for acquired IPR&D related to this arrangement, which will be included as expense in the first quarter
of 2011 and is deductible for tax purposes. BI will be eligible to receive up to a total of €625.0 million in
success-based regulatory milestones for linagliptin and BI10773. We will be eligible to receive up to a total of $650.0
million in success-based regulatory milestones on our two basal analogue insulins. Should BI elect to opt-in to the
Phase III development and potential commercialization of the anti-TGF-beta monoclonal antibody, we would be
eligible for up to $525.0 million in opt-in and success-based regulatory milestone payments. The companies will
share ongoing development costs equally. Upon successful regulatory approval of any product resulting from the
collaboration, the companies will equally share in the product’s commercialization costs and gross margin. Each
company will also be entitled to potential performance payments on sales of the molecules they contribute to the
collaboration.

TPG-Axon Capital
In 2008, we entered into an agreement with an affiliate of TPG-Axon Capital (TPG) whereby both we and TPG were
obligated to fund the Phase III development of semagacestat and solanezumab, our two lead molecules for the
treatment of mild to moderate Alzheimer’s disease. In the third quarter of 2010, we halted the development of
semagacestat based on preliminary results of Phase III clinical trials which resulted in a charge to research and
development of approximately $80 million. In February 2011, we amended this agreement. Under the amended
agreement, TPG’s remaining obligation to fund solanezumab costs incurred subsequent to 2010 will not be material
and will not extend beyond the first half of 2011. In exchange for their funding, TPG may receive success-based sales
milestones totaling approximately $70.0 million and mid-single digit royalties that are contingent upon the
successful development of solanezumab. The royalties relating to solanezumab would be paid for approximately
eight years after launch of a product. Reimbursements received from TPG for its portion of research and
development costs incurred related to the Alzheimer’s treatments are recorded as a reduction to the research and
development expense line item on the consolidated statements of operations. The reimbursement from TPG has not
been and is not expected to be material in any period.

Summary of Collaboration-Related Commission and Profit Share Payments
The aggregate amount of commissions and profit share payments included in marketing, selling, and administrative
expense pursuant to the collaborations described above was $174.5 million, $319.2 million, and $307.6 million in
2010, 2009, and 2008, respectively.

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Note 5: Asset Impairments, Restructuring, and Other Special Charges
The components of the charges included in asset impairments, restructuring, and other special charges in our
consolidated statements of operations are described below.

2010

2009

2008

Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $142.0 $ 99.0 $ 134.0
363.0
Asset impairments and other special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,477.0
Product liability and other special charges—legal settlement . . . . . . . . . . . . . . . . . . . . . . . .

363.7
230.0

50.0
0.0

Asset impairments, restructuring, and other special charges . . . . . . . . . . . . . . . . . . . . . . . . $192.0 $692.7 $1,974.0

Severance
Severance costs listed above, substantially all of which have been paid, are primarily the result of the 2009 initiative
to reorganize global operations, streamline various functions of the business, and reduce total employees, as well as
other previously announced strategic actions to reduce our cost structure and global workforce. Included in the 2009
severance charges is $61.1 million related to the sale of our Tippecanoe Laboratories manufacturing site which is
further described below. We anticipate additional charges in 2011 relating to these previously announced initiatives
and strategic decisions.

Asset Impairments and Other Special Charges
In 2010, we incurred $50.0 million of asset impairments and other special charges primarily consisting of lease
termination costs and asset impairments outside the United States.
In 2009, we recognized non-cash asset impairments and other special charges of $363.7 million primarily due to the
sale of our Tippecanoe Laboratories manufacturing site to an affiliate of Evonik Industries AG (Evonik) in early 2010.
In connection with the sale of the site, we entered into a nine-year supply and services agreement, whereby Evonik
will manufacture final and intermediate step API for certain of our human and animal health products. The decision
to sell the site was based upon a projected decline in utilization of the site due to several factors, including upcoming
patent expirations on certain medicines made at the site; our strategic decision to purchase, rather than
manufacture, many late-stage chemical intermediates; and the evolution of our pipeline toward more biotechnology
medicines. The fair value of assets used in determining impairment charges was based on contracted sales prices.
In 2008, we recognized non-cash asset impairments and other special charges of $363.0 million primarily due to the
termination of development of our AIR Insulin program and the sale of our Greenfield, Indiana site to Covance Inc.

Product Liability and Other Special Charges
In 2009, we incurred other special charges of $230.0 million related to advanced discussions with the attorneys
general for several states that were not part of the Eastern District of Pennsylvania settlement, seeking to resolve
their Zyprexa-related claims. The charges represent the then-current probable and estimable exposures in
connection with the states’ claims. Refer to Note 15 for additional information.
As discussed further in Note 15, in the third quarter of 2008, we recorded a charge of $1.48 billion related to the
Zyprexa investigations led by the U.S. Attorney for the Eastern District of Pennsylvania, as well as the resolution of a
multi-state investigation regarding Zyprexa involving 32 states and the District of Columbia.

Note 6: Financial Instruments and Investments
Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-
bearing investments. Wholesale distributors of life-sciences products account for a substantial portion of trade
receivables; collateral is generally not required. The risk associated with this concentration is mitigated by our
ongoing credit review procedures and insurance. Major financial institutions represent the largest component of our
investments in corporate debt securities. In accordance with documented corporate policies, we limit the amount of
credit exposure to any one financial institution or corporate issuer. We are exposed to credit-related losses in the
event of nonperformance by counterparties to risk-management instruments but do not expect any counterparties to
fail to meet their obligations given their high credit ratings.
At December 31, 2010, we had outstanding foreign currency forward commitments to purchase 182.0 million British
pounds and sell 214.0 million euro, commitments to purchase 1.42 billion U.S. dollars and sell 1.07 billion euro, and
commitments to buy 920.0 million euro and sell 1.23 billion U.S. dollars, which will all settle within 35 days.
At December 31, 2010, approximately 90 percent of our total debt is at a fixed rate. We have converted approximately
70 percent of our fixed-rate debt to floating rates through the use of interest rate swaps.

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The Effect of Risk-Management Instruments on the Statement of Operations
The following effects of risk-management instruments were recognized in other—net, expense:

Fair value hedges

2010

2009

Effect from hedged fixed-rate debt
Effect from interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149.6 $(369.5)
369.5

(149.6)

Cash flow hedges

Effective portion of losses on interest rate contracts reclassified from accumulated other

comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net losses on foreign currency exchange contracts not designated as hedging instruments . . . . . .

9.0
12.0

10.2
82.6

The effective portion of net losses on equity contracts in designated cash flow hedging relationships recorded in
other comprehensive income (loss) was $35.6 million for the year December 31, 2010. The effective portion of net
gains on interest rate contracts in designated cash flow hedging relationships recorded in other comprehensive
income (loss) was $0.0 and $38.0 million for the years ended December 31, 2010 and 2009, respectively.
We expect to reclassify $11.9 million of pretax net losses on cash flow hedges of the variability in expected future
interest payments on floating rate debt from accumulated other comprehensive loss to earnings during the next 12
months.
During the years ended December 31, 2010, 2009, and 2008, net losses related to ineffectiveness and net losses
related to the portion of our risk-management hedging instruments, fair value and cash flow hedges excluded from
the assessment of effectiveness were not material.

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Fair Value of Financial Instruments
The following tables summarize certain fair value information at December 31 for assets and liabilities measured at
fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments:

Description

Carrying
Amount

Amortized
Cost

Fair Value Measurements Using

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

3.1

30.8

December 31, 2010
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $5,993.2 $5,993.2 $2,138.6

Short-term investments

Commercial paper . . . . . . . . . . . . . . . . . . . . . . . $ 540.8 $ 540.8 $
U.S. government and agencies . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . .

128.9
63.9
0.7

128.9
63.4
0.7

128.9

Short-term investments . . . . . . . . . . . . . . . . . . $ 733.8 $ 734.3

Noncurrent investments

U.S. government and agencies . . . . . . . . . . . . $ 359.2 $ 361.8 $ 359.2
Corporate debt securities . . . . . . . . . . . . . . . . .
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . .
Marketable equity . . . . . . . . . . . . . . . . . . . . . . .
Equity method and other investments(1) . . . . .

367.9
315.5
132.4
6.4
433.7
164.4

368.9
350.7
140.8
8.3
182.6
164.4

433.7

$3,854.6

$ 540.8

63.4
0.7

367.9
315.5
132.4
3.3

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,779.5 $1,577.5

December 31, 2009
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $4,462.9 $4,462.9 $1,826.7

$2,636.2

Short-term investments

U.S. government and agencies . . . . . . . . . . . . $
Corporate debt securities . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . .

18.5 $
15.8
0.4

18.8 $
16.1
0.4

18.5

Short-term investments . . . . . . . . . . . . . . . . . . $

34.7 $

35.3

Noncurrent investments

U.S. government and agencies . . . . . . . . . . . . $
Corporate debt securities . . . . . . . . . . . . . . . . .
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . .
Marketable equity . . . . . . . . . . . . . . . . . . . . . . .
Equity methods and other investments(1)
. . . .

81.3 $

81.7 $

81.3

185.9
240.3
78.7
34.4
378.7
156.5

195.4
310.0
94.1
12.8
184.0
156.5

378.7

15.8
0.4

185.9
240.3
78.7
3.6

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,155.8 $1,034.5

(1) – Fair value not applicable

Fair
Value

$5,993.2

$ 540.8
128.9
63.4
0.7

$ 359.2
367.9
315.5
132.4
6.4
433.7

$4,462.9

18.5
15.8
0.4

81.3
185.9
240.3
78.7
34.4
378.7

Description

Fair Value Measurements Using

Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level 1)

Carrying
Amount

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair
Value

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Long-term debt, including current portion
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(6,788.7)
(6,655.0)
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(7,030.0)
(6,827.8)

Fair Value Measurements Using

Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level 1)

Carrying
Amount

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair
Value

Description

December 31, 2010
Risk-management instruments

Interest rate contracts designated as hedging

instruments
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 278.3

Foreign exchange contracts not designated as hedging

instruments
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity contracts designed as hedging instruments

13.7
(31.6)

Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

(35.6)

December 31, 2009
Risk-management instruments

Interest rate contracts designated as hedging

instruments
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 134.9
(6.2)
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . .

$ 278.3

13.7
(31.6)

(35.6)

13.7
(31.6)

(35.6)

$ 134.9
(6.2)

Foreign exchange contracts not designated as hedging

instruments
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

8.8
(10.7)

The fair value of the contingent consideration liability related to the Avid and Alnara acquisitions (see Note 3), a Level
3 measurement in the fair value hierarchy, was $163.5 million as of December 31, 2010.
We determine fair values based on a market approach using quoted market values, significant other observable
inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. The fair value of equity
method and other investments is not readily available.
Approximately $1.40 billion of our investments in debt securities, measured at fair value, mature within five years.
A summary of the fair value of available-for-sale securities in an unrealized gain or loss position and the amount of
unrealized gains and losses (pretax) in accumulated other comprehensive loss at December 31 follows:

Unrealized gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 262.6 $222.4
61.1
101.7
Unrealized gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
579.8
1,031.8
Fair value of securities in an unrealized gain position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
449.4
758.1
Fair value of securities in an unrealized loss position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment losses on fixed income securities of $12.0 million and $22.4 million were
recognized in the statement of operations for the years ended December 31, 2010 and 2009, respectively. These

2010

2009

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losses primarily relate to credit losses on certain mortgage-backed securities. The amount of credit losses
represents the difference between the present value of cash flows expected to be collected on these securities and
the amortized cost. Factors considered in assessing the credit loss were the position in the capital structure, vintage
and amount of collateral, delinquency rates, current credit support, and geographic concentration.
The securities in an unrealized loss position are comprised of fixed-rate debt securities of varying maturities. The
value of fixed income securities is sensitive to changes to the yield curve and other market conditions which led to a
decline in value during 2008. Approximately 80 percent of the securities in a loss position are investment-grade debt
securities. The majority of these securities first moved into an unrealized loss position during 2008. At this time,
there is no indication of default on interest or principal payments for debt securities other than those for which an
other-than-temporary impairment charge has been recorded. We do not intend to sell and it is not more likely than
not we will be required to sell the securities in a loss position before the market values recover or the underlying
cash flows have been received, and we have concluded that no additional other-than-temporary loss is required to
be charged to earnings as of December 31, 2010.
The net adjustment to unrealized gains and losses (net of tax) on available-for-sale securities increased (decreased)
other comprehensive income (loss) by $53.5 million, $186.6 million, and $(125.8) million in 2010, 2009, and 2008,
respectively. Activity related to our available-for-sale investment portfolio was as follows:

2010

2009

2008

Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $760.3 $1,227.4 $1,876.4
45.7
Realized gross gains on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.7
Realized gross losses on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110.7
4.8

68.9
6.8

Note 7: Goodwill and Other Intangibles
Goodwill at December 31 was as follows:

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,423.9 $1,175.0

2010

2009

Substantially all of our goodwill balance is attributable to the human pharmaceutical business segment. See Note 3
for a further discussion of goodwill resulting from recent business combinations. No impairments occurred with
respect to the carrying value of goodwill in 2010, 2009, or 2008.
The components of other intangible assets at December 31 were as follows:

Description

Finite-lived intangible assets

2010

2009

Carrying
Amount—
Gross

Accumulated
Amortization

Carrying
Amount—
Net

Carrying
Amount—
Gross

Accumulated
Amortization

Carrying
Amount—
Net

Developed product technology . . . . . . . . . . . $3,206.3
575.9
Marketing rights . . . . . . . . . . . . . . . . . . . . . . .
69.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (890.3) $2,316.0 $3,101.2
24.1
68.5

(117.1)
(47.3)

458.8
22.1

$(621.0)
(9.2)
(38.8)

$2,480.2
14.9
29.7

Total finite-lived intangible assets . . . . . . . . . .

3,851.6

(1,054.7)

2,796.9

3,193.8

(669.0)

2,524.8

Indefinite-lived intangible assets

In-process research and development . . . . .

598.0

0.0

598.0

0.0

Total other intangible assets . . . . . . . . . . . . . . . $4,449.6

$(1,054.7) $3,394.9 $3,193.8

$(669.0)

$2,524.8

Developed product technology consists of marketed assets acquired through business combinations and certain
capitalized milestone payments. Marketing rights consists of acquired marketing rights to products in certain
jurisdictions. Other intangibles consist primarily of licensed platform technologies that have alternative future uses
in research and development. IPR&D consists of the acquisition date fair value of intangible assets acquired in
business combinations which have not yet achieved regulatory approval for marketing. See Note 3 for a further
discussion of indefinite-lived intangible assets acquired in recent business combinations.
The remaining weighted-average amortization period for finite-lived intangible assets is approximately 9 years.
Amortization expense for 2010, 2009, and 2008 was $385.7 million, $277.0 million, and $193.4 million, respectively.
The estimated amortization expense for finite-lived intangible assets for each of the five succeeding years
approximates $440 million in 2011, $440 million in 2012, $440 million in 2013, $430 million in 2014, and $390 million
in 2015. Amortization expense is included in either cost of sales or marketing, selling, and administrative depending
on the nature of the intangible asset being amortized.
No impairments occurred with respect to the carrying value of other intangible assets in 2010, 2009, or 2008.

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Note 8: Borrowings
Long-term debt at December 31 consisted of the following:

3.55 to 7.13 percent notes (due 2012-2037) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,387.4 $6,387.4
105.3
Other, including capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162.3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment

97.2
304.1

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,788.7
(18.2)

6,655.0
(20.3)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,770.5 $6,634.7

2010

2009

In September 2010, we borrowed $125.0 million of short-term floating-rate debt due in 2011.
In March 2009, we issued $2.40 billion of fixed-rate notes with interest to be paid semi-annually.
The 6.55 percent Employee Stock Ownership Plan (ESOP) debentures are obligations of the ESOP but are shown on
the consolidated balance sheet because we guarantee them. The principal and interest on the debt are funded by
contributions from us and by dividends received on certain shares held by the ESOP. Because of the amortizing
feature of the ESOP debt, bondholders will receive both interest and principal payments each quarter. The balance
was $63.7 million and $72.8 million at December 31, 2010 and 2009, respectively, and is included in Other in the table
above.
The aggregate amounts of maturities on long-term debt for the next five years are as follows: 2011, $18.2 million;
2012, $1.52 billion; 2013, $15.5 million; 2014, $1.01 billion; and 2015, $12.2 million.
At December 31, 2010 and 2009, short-term borrowings included $137.8 million and $7.1 million, respectively, of
notes payable to banks and commercial paper. At December 31, 2010, we have $1.24 billion of unused committed
bank credit facilities, $1.20 billion of which backs our commercial paper program and matures in May, 2011.
Compensating balances and commitment fees are not material, and there are no conditions that are probable of
occurring under which the lines may be withdrawn.
We have converted approximately 70 percent of all fixed-rate debt to floating rates through the use of interest rate
swaps. The weighted-average effective borrowing rates based on debt obligations and interest rates at December 31,
2010 and 2009, including the effects of interest rate swaps for hedged debt obligations, were 2.87 percent and 3.07
percent, respectively.
In 2010, 2009, and 2008, cash payments of interest on borrowings totaled $176.3 million, $205.9 million, and $203.1
million, respectively, net of capitalized interest.
In accordance with the requirements of derivatives and hedging guidance, the portion of our fixed-rate debt
obligations that is hedged is reflected in the consolidated balance sheets as an amount equal to the sum of the
debt’s carrying value plus the fair value adjustment representing changes in fair value of the hedged debt
attributable to movements in market interest rates subsequent to the inception of the hedge.

Note 9: Stock-Based Compensation
Stock-based compensation expense in the amount of $231.0 million, $368.5 million, and $255.3 million was
recognized in 2010, 2009, and 2008, respectively, as well as related tax benefits of $80.8 million, $128.9 million, and
$88.6 million, respectively. Our stock-based compensation expense consists primarily of performance awards (PAs),
shareholder value awards (SVAs), and restricted stock units (RSUs). We recognize the stock-based compensation
expense over the requisite service period of the individual grantees, which generally equals the vesting period. We
provide newly issued shares and treasury stock to satisfy stock option exercises and for the issuance of PA, SVA and
RSU shares. We classify tax benefits resulting from tax deductions in excess of the compensation cost recognized for
exercised stock options as a financing cash flow in the consolidated statements of cash flows.
At December 31, 2010, additional stock-based compensation awards may be granted under the 2002 Lilly Stock Plan
for not more than 82.0 million shares.

Performance Award Program
PAs are granted to officers and management and are payable in shares of our common stock. The number of PA
shares actually issued, if any, varies depending on the achievement of certain pre-established earnings-per-share
targets over a two-year period. In 2009, we granted both a one-year and a two-year award to all global management
as a transition to a two-year performance period for all PAs granted beginning in 2010. PA shares are accounted for
at fair value based upon the closing stock price on the date of grant and fully vest at the end of the measurement
periods. The fair values of PAs granted in 2010 and 2008 were $30.88 and $51.22, respectively. The fair values of PAs
granted in 2009 were $36.17 for the one-year award and $34.12 for the two-year award. The number of shares
ultimately issued for the PA program is dependent upon the earnings achieved during the vesting period. Pursuant to
this plan, approximately 3.8 million shares, 2.8 million shares, and 2.5 million shares were issued in 2010, 2009, and
2008, respectively. Approximately 3.8 million shares are expected to be issued in 2011. As of December 31, 2010, the

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total remaining unrecognized compensation cost related to nonvested PAs amounted to $31.5 million, which will be
amortized over the weighted-average remaining requisite service period of 12 months.

Shareholder Value Award Program
In 2007, we implemented a SVA program, which replaced our stock option program. SVAs are granted to officers and
management and are payable in shares of common stock at the end of a three-year period. The number of shares
actually issued varies depending on our stock price at the end of the three-year vesting period compared to
pre-established target stock prices. We measure the fair value of the SVA unit on the grant date using a Monte Carlo
simulation model. The Monte Carlo simulation model utilizes multiple input variables that determine the probability
of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected
volatilities utilized in the model are based on implied volatilities from traded options on our stock, historical volatility
of our stock price, and other factors. Similarly, the dividend yield is based on historical experience and our estimate
of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time
of grant. The weighted-average fair values of the SVA units granted during 2010, 2009, and 2008 were $25.97, $33.97,
and $43.46, respectively, determined using the following assumptions:

(Percents)

2010

2009

2008

4.00
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.44 - 1.48
Range of volatilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.00 – 28.69 24.34 - 24.92

4.50
.10 – 1.36

3.00
2.05 -2.29
20.48 - 21.48

A summary of the SVA activity is presented below:

Units
Attributable to SVAs
(in thousands)

Outstanding at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

922
1,282
(301)

1,903
1,416
(559)

2,760
1,987
(365)
(745)

3,637

The maximum number of shares that could ultimately be issued upon vesting of the SVA units outstanding at
December 31, 2010, is 4.9 million. Approximately 0.3 million shares are expected to be issued in 2011. As of
December 31, 2010, the total remaining unrecognized compensation cost related to nonvested SVAs amounted to
$46.3 million, which will be amortized over the weighted-average remaining requisite service period of 20 months.

Restricted Stock Unit
RSUs are granted to certain employees and are payable in shares of our common stock. RSU shares are accounted
for at fair value based upon the closing stock price on the date of grant. The corresponding expense is amortized
over the vesting period, typically three years. The fair values of RSU awards granted in 2010, 2009, and 2008 were
$34.78, $38.12, and $51.22, respectively. The number of shares ultimately issued for the RSU program remains
constant with the exception of forfeitures. Pursuant to this plan, 1.5 million, 0.5 million and 0.4 million shares were
granted in 2010, 2009, and 2008, respectively, and approximately 0.2 million shares were issued in 2010.
Approximately 0.2 million shares are expected to be issued in 2011. As of December 31, 2010, the total remaining
unrecognized compensation cost related to nonvested RSUs amounted to $40.6 million, which will be amortized over
the weighted-average remaining requisite service period of 23 months.

Stock Option Program
Stock options were granted prior to 2007 to officers and management at exercise prices equal to the fair market
value of our stock price at the date of grant. No stock options were granted subsequent to 2007. Options fully vest
three years from the grant date and have a term of 10 years.

Stock option activity during 2010 is summarized below:

Shares of
Common Stock
Attributable to
Options
(in thousands)

Weighted-Average
Exercise
Price of Options

Weighted-Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic
Value

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Outstanding at January 1, 2010 . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . .
Exercisable at December 31, 2010 . . . . . . . . . . . . . . . . .

59,449
(5)
(3,937)

55,507
55,507

$69.36
16.60
74.03

69.04
69.04

2.1
2.1

$1.1
1.1

All options were vested as of December 31, 2010.
The intrinsic value of options exercised during 2010, 2009, and 2008 amounted to $0.1 million, $0.3 million, and $4.8
million, respectively. The total grant date fair value of options vested during 2009, and 2008 amounted to $68.5
million, and $84.1 million, respectively. We received cash of $0.1 million, $0.2 million, and $2.9 million from
exercises of stock options during 2010, 2009, and 2008, respectively. The recognized related tax benefits for all three
years were not material.

Note 10: Other Assets and Other Liabilities
Our other receivables include receivables from our collaboration partners, tax receivables, interest receivable for
our interest rate swaps, and a variety of other items. The increase in other receivables is primarily attributable to an
increase in receivables from our collaboration partners and an increase in tax receivables.
Prepaid expenses and other primarily includes global prepaid operating expenses and deferred tax assets (Note 13).
Our sundry assets primarily include our capitalized computer software, deferred tax assets (Note 13), receivables
from our collaboration partners, and the fair value of our interest rate swaps. The decrease in sundry assets is
primarily attributable to a decrease in deferred tax assets and a decrease in our net capitalized computer software
offset by an increase in the fair value of our interest rate swaps.
Our other current liabilities include product litigation, other taxes payable, deferred tax liabilities (Note 13), deferred
income from our collaboration arrangements, the current portion of our estimated product return liabilities, and a
variety of other items.
Our other noncurrent liabilities include deferred income from our collaboration and out-licensing arrangements,
deferred tax liabilities (Note 13), the fair value of contingent consideration from business combinations (Note 3), the
long-term portion of our estimated product return liabilities, product litigation, and a variety of other items. The
increase in other noncurrent liabilities is primarily due to an increase in contingent consideration offset by a
decrease in deferred income.

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Note 11: Shareholders’ Equity
Changes in certain components of shareholders’ equity were as follows:

Additional
Paid-in
Capital

Retained
Earnings

Balance at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,805.2 $11,806.7
(2,071.9)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share: $1.90 . . . . . . . . . . . . . . . .
(2,079.9)
Retirement of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of stock under employee stock plans-net . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ESOP transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10.9)
(84.9)
255.3
11.9

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share: $1.96 . . . . . . . . . . . . . . . .
Retirement of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of stock under employee stock plans-net . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ESOP transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefit trust contribution . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share: $1.96 . . . . . . . . . . . . . . . .
Retirement of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of stock under employee stock plans-net . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ESOP transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,976.6

(3.3)
(85.0)
368.5
6.9
371.9

4,635.6

(1.0)
(87.6)
231.0
20.5

7,654.9
4,328.8
(2,153.3)

9,830.4
5,069.5
(2,167.3)

Deferred
Costs -
ESOP

$(95.2)

Common Stock in
Treasury

(in thousands) Amount

899

$100.5

(170)
160

(11.1)
9.8

889

99.2

(132)
125

(3.3)
2.6

8.9

(86.3)

8.9

(77.4)

882

98.5

(28)
10

(1.0)
(1.1)

25.0

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . $4,798.5 $12,732.6

$(52.4)

864

$ 96.4

As of December 31, 2010, we have purchased $2.58 billion of our announced $3.0 billion share repurchase program.
No shares were repurchased in 2010, 2009, or 2008.
We have 5 million authorized shares of preferred stock. As of December 31, 2010 and 2009, no preferred stock has
been issued.
We have an employee benefit trust which held 50.0 million and 50.0 million shares of our common stock at
December 31, 2010 and 2009, respectively, to provide a source of funds to assist us in meeting our obligations under
various employee benefit plans. In February 2009, we contributed an additional 10 million shares to the employee
benefit trust, which resulted in a reclassification within equity from additional paid-in capital of $371.9 million and
common stock of $6.3 million to the employee benefit trust of $378.2 million. The funding had no net impact on
shareholders’ equity as we consolidate the employee benefit trust. The cost basis of the shares held in the trust was
$3.01 billion and $3.01 billion at December 31, 2010 and 2009, respectively, and is shown as a reduction in
shareholders’ equity. Any dividend transactions between us and the trust are eliminated. Stock held by the trust is
not considered outstanding in the computation of earnings per share. The assets of the trust were not used to fund
any of our obligations under these employee benefit plans in 2010, 2009, or 2008.
We have an ESOP as a funding vehicle for the existing employee savings plan. The ESOP used the proceeds of a loan
from us to purchase shares of common stock from the treasury. The ESOP issued third-party debt, repayment of
which was guaranteed by us (see Note 8). The proceeds were used to purchase shares of our common stock on the
open market. Shares of common stock held by the ESOP will be allocated to participating employees annually
through 2017 as part of our savings plan contribution. The fair value of shares allocated each period is recognized as
compensation expense.

Note 12: Earnings (Loss) Per Share
Following is a reconciliation of the denominators used in computing earnings (loss) per share:

2010

2009
(Shares in thousands)

2008

Income (loss) available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,069.5 $ 4,328.8 $ (2,071.9)

Basic earnings (loss) per share

Weighted-average number of common shares outstanding, including

incremental shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,105,788

1,098,338

1,094,499

Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

4.58 $

3.94 $

(1.89)

Diluted earnings (loss) per share

Weighted-average number of common shares outstanding . . . . . . . . . . . . . . .
Stock options and other incremental shares . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,099,310
6,503

1,094,623
3,744

1,092,041
2,458

Weighted-average number of common shares outstanding—diluted . . . . . . .

1,105,813

1,098,367

1,094,499

Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

4.58 $

3.94 $

(1.89)

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Note 13:
Following is the composition of income tax expense:

Income Taxes

Current

2010

2009

2008

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 376.2 $

Federal
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

513.9
23.3

913.4

624.4
(55.2)
(26.9)

542.3

45.7 $(207.6)
623.6
(44.6)

772.2
49.2

867.1

371.4

82.5
79.8
(0.4)

161.9

363.0
23.7
6.2

392.9

Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,455.7 $1,029.0 $ 764.3

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Significant components of our deferred tax assets and liabilities as of December 31 are as follows:

2010

2009

Deferred tax assets

Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 890.4 $ 1,153.2
457.8
Tax credit carryforwards and carrybacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
425.8
Tax loss carryforwards and carrybacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
270.6
Intercompany profit in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
253.4
Asset purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.9
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119.6
Sale of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81.1
Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173.6
Asset disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
552.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

503.1
414.0
316.7
275.1
114.6
112.8
106.6
13.0
434.4

Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,180.7
(473.1)

3,533.3
(524.0)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,707.6

3,009.3

Deferred tax liabilities

Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unremitted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(954.9)
(741.8)
(525.6)
(505.2)
(160.9)
(19.1)

(818.4)
(442.9)
(544.4)
(623.8)
0.0
(68.6)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,907.5)

(2,498.1)

Deferred tax assets (liabilities)—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (199.9) $ 511.2

At December 31, 2010, no individually significant items were classified as “Other” deferred tax assets or liabilities.
The deferred tax asset and related valuation allowance amounts for U.S. and state net operating losses and tax
credits shown above have been reduced for differences between financial reporting and tax return filings. At
December 31, 2010, based on filed tax returns we had net operating losses and other carryforwards for international
and U.S. income tax purposes of $858.0 million: $129.2 million will expire within 5 years; $649.5 million will expire
between 5 and 20 years; and $79.3 million of the carryforwards will never expire. The remaining balance of the
deferred tax asset for tax loss carryforwards and carrybacks is related to net operating losses for state income tax
purposes that are substantially reserved.
Based on filed tax returns, we also have tax credit carryforwards and carrybacks of $795.9 million available to
reduce future income taxes; $268.7 million will be carried back; $67.6 million of the tax credit carryforwards will
expire between 10 and 20 years; and $17.8 million of the tax credit carryforwards will never expire. The remaining
portion of the tax credit carryforwards is related to federal tax credits of $94.6 million and state tax credits of $347.2
million, both of which are fully reserved.
Domestic and Puerto Rican companies contributed approximately 45 percent and 39 percent in 2010 and 2009,
respectively, to consolidated income before income taxes and generated the entire consolidated loss before income
taxes in 2008. We have a subsidiary operating in Puerto Rico under a tax incentive grant. The current tax incentive
grant will not expire prior to 2017.
At December 31, 2010, we had an aggregate of $19.90 billion of unremitted earnings of foreign subsidiaries that have
been or are intended to be permanently reinvested for continued use in foreign operations and that, if distributed,
would result in additional income tax expense at approximately the U.S. statutory rate.
Cash payments (refunds) of income taxes totaled $861.0 million, $1.14 billion, and $(52.0) million in 2010, 2009, and
2008, respectively.

Following is a reconciliation of the income tax expense (benefit) applying the U.S. federal statutory rate to income
(loss) before income taxes to reported income tax expense:

2010

2009

2008

Income tax (benefit) at the U.S. federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . $2,283.8 $1,875.2 $ (457.7)
Add (deduct)

International operations, including Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. health care reform tax law change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General business credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government investigation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and non-deductible acquired IPR&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRS audit conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(823.3)
85.1
(83.2)
0.0
0.0
0.0
(6.7)

(741.1)
0.0
(79.4)
0.6
0.0
(54.4)
28.1

(641.3)
0.0
(58.0)
359.3
1,819.4
(210.3)
(47.1)

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,455.7 $1,029.0 $ 764.3

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A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

Beginning balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,351.2 $1,223.2
179.1
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170.4
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(45.1)
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3.3)
Lapses of statutes of limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(178.8)
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.7
Changes related to the impact of foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

186.2
117.0
(30.2)
(7.0)
(0.1)
2.5

Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,619.6 $1,351.2

2010

2009

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $1.07 billion
and $836.8 million at December 31, 2010 and 2009, respectively.

We file income tax returns in the U.S. federal jurisdiction and various state, local, and non-U.S. jurisdictions. We are
no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations in major taxing jurisdictions
for years before 2005. The IRS began its examination of tax years 2005-2007 during the third quarter of 2008. In the
third quarter of 2009, we settled an IRS administrative appeals matter from the 2001-2004 IRS audit. Considering the
status of the 2005-2007 IRS examination at that time and the settlement of the IRS administrative appeals matter
from the 2001-2004 audit, gross unrecognized tax benefits were reduced approximately $190 million in the third
quarter of 2009. Additionally, in the third quarter of 2009, our income tax expense was reduced by $54.4 million, and
a cash payment of $52.8 million was paid, after utilization of applicable tax credit carryovers.

The IRS continues its examination of tax years 2005-2007. In the first quarter of 2010, we began the process of
advancing the examination procedures to tax years 2008-2009 for certain matters currently being examined in the
2005-2007 audit cycle. We believe it is reasonably possible these IRS examinations will be concluded separately as
follows: first, the conclusion of tax years 2005-2006; and second, the conclusion of tax year 2007 along with certain
matters related to tax years 2008-2009. It is reasonably possible that both of these examinations could conclude
within the next 12 months; however, only matters relating to the resolution of 2005-2006 may be reasonably
estimated at this time. As a result, we currently estimate that gross uncertain tax positions may be reduced up to an
estimated $400 million within the next 12 months. Additionally, our consolidated results of operations could benefit
up to $250 million through a reduction in income tax expense, and we anticipate up to $200 million of cash payments
will be due upon resolution of the 2005-2006 tax years. Resolution of the IRS examination of 2007 and certain
matters related to tax years 2008-2009 is still dependent upon a number of factors, including the potential for formal
administrative and legal proceedings. As a result, it is not possible to estimate the range of the reasonably possible
changes in unrecognized tax benefits that could occur within the next 12 months related to these years, nor is it
possible to estimate the total future cash flows related to these unrecognized tax benefits.

The new U.S. health care legislation (both the primary “Patient Protection and Affordable Care Act” and the “Health
Care and Education Reconciliation Act”) eliminated the tax-free nature of the subsidy we receive for sponsoring
retiree drug coverage that is “actuarially equivalent” to Medicare Part D. This provision is effective January 1, 2013.
While this change has a future impact on our net tax deductions related to retiree health benefits, we were required
to record a one-time charge to adjust our deferred tax asset for this change in the law in the quarter of enactment.
Accordingly, we recorded a non-cash charge of $85.1 million in the first quarter of 2010.

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We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. During
the years ended December 31, 2010, 2009, and 2008, we recognized income tax expense (benefits) of $38.3 million,
$(1.9) million, and $(118.0) million, respectively, related to interest and penalties. At December 31, 2010 and 2009,
our accruals for the payment of interest and penalties totaled $221.0 million and $166.7 million, respectively.
Substantially all of the expense (benefit) and accruals relate to interest.

Note 14: Retirement Benefits
We use a measurement date of December 31 to develop the change in benefit obligation, change in plan assets,
funded status, and amounts recognized in the consolidated balance sheets at December 31 for our defined benefit
pension and retiree health benefit plans, which were as follows:

Change in benefit obligation

Defined Benefit
Pension Plans

Retiree Health
Benefit Plans

2010

2009

2010

2009

Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,553.9 $ 6,353.7 $2,032.8 $1,796.3
53.7
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119.6
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162.0
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(94.5)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8.4)
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1
Foreign currency exchange rate changes and other adjustments . . . . .

219.2
431.6
342.2
(387.8)
0.3
(44.4)

242.1
417.5
819.9
(351.7)
0.0
72.4

56.5
121.4
10.0
(98.0)
(64.2)
30.0

Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,115.0

7,553.9

2,088.5

2,032.8

Change in plan assets

Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate changes and other adjustments . . . . .

6,008.5
818.3
563.5
(387.8)
(19.5)

4,796.1
1,033.8
447.6
(351.7)
82.7

1,180.7
152.2
92.8
(98.0)
0.0

905.6
278.9
90.7
(94.5)
0.0

Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,983.0

6,008.5

1,327.7

1,180.7

Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,132.0)
3,796.6
56.1

(1,545.4)
3,804.3
65.1

(760.8)
1,235.3
(261.1)

(852.1)
1,340.5
(234.1)

Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,720.7 $ 2,324.0 $ 213.4 $ 254.3

Amounts recognized in the consolidated balance sheet consisted of

Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued retirement benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss before income taxes . . . . . . . .

0.0 $

58.5 $
(54.7)
(1,135.8)
3,852.7

(56.8)
(1,488.6)
3,869.4

0.0 $
(9.2)
(751.6)
974.2

0.0
(6.0)
(846.1)
1,106.4

Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,720.7 $ 2,324.0 $ 213.4 $ 254.3

The unrecognized net actuarial loss and unrecognized prior service cost (benefit) have not yet been recognized in net
periodic pension costs and are included in accumulated other comprehensive loss at December 31, 2010.
In 2011, we expect to recognize from accumulated other comprehensive loss as components of net periodic benefit
cost, $220.4 million of unrecognized net actuarial loss and $6.3 million of unrecognized prior service benefit related
to our defined benefit pension plans, and $83.3 million of unrecognized net actuarial loss and $40.1 million of
unrecognized prior service benefit related to our retiree health benefit plans. We do not expect any plan assets to be
returned to us in 2011.

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The following represents our weighted-average assumptions as of December 31:

(Percents)

Defined Benefit
Pension Plans

Retiree Health
Benefit Plans

2010

2009

2008

2010

2009

2008

Weighted-average assumptions as of December 31
Discount rate for benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate for net benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase for benefit obligation . . . . . . . . . . . . .
Rate of compensation increase for net benefit costs . . . . . . . . . . . . .
Expected return on plan assets for net benefit costs . . . . . . . . . . . . .

5.6
5.9
3.7
3.7
8.8

5.9
6.7
3.7
4.1
8.8

6.7
6.4
4.1
4.6
9.0

5.8
6.0

6.0
6.9

6.9
6.7

9.0

In evaluating the expected return on plan assets annually we consider numerous factors, including; our historical
assumptions compared with actual results, an analysis of current and future market conditions, our current and
expected asset allocations, historical returns and the views of leading financial advisers and economists for future
asset class returns. As noted, historical returns are just one of several factors considered and are not the starting
point for determining the expected return. Our 20-year annualized rate of return on our U.S. defined benefit pension
plans and retiree health benefit plan was approximately 9.4 percent as of December 31, 2010. Health-care-cost trend
rates are assumed to increase at an annual rate of 7.8 percent in 2011, decreasing by approximately 0.4 percent per
year to an ultimate rate of 5.3 percent by 2018.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as
follows:

Defined benefit pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . $387.8 $398.1 $408.4 $423.8 $436.0

$2,466.5

2011

2012

2013

2014

2015

2016-2020

Retiree health benefit plans-gross . . . . . . . . . . . . . . . . . . . . . . . $119.1 $121.9 $126.1 $131.3 $138.4
(15.5)
Medicare rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13.9)

(15.8)

(12.4)

(10.8)

$ 787.2
(98.3)

Retiree health benefit plans-net . . . . . . . . . . . . . . . . . . . . . . . . . $103.3 $111.1 $113.7 $117.4 $122.9

$ 688.9

The total accumulated benefit obligation for our defined benefit pension plans was $7.23 billion and $6.67 billion at
December 31, 2010 and 2009, respectively. The projected benefit obligation and fair value of the plan assets for the
defined benefit pension plans with projected benefit obligations in excess of plan assets were $7.12 billion and $5.93
billion, respectively, as of December 31, 2010, and $7.55 billion and $6.01 billion, respectively, as of December 31,
2009. The accumulated benefit obligation and fair value of the plan assets for the defined benefit pension plans with
accumulated benefit obligations in excess of plan assets were $1.10 billion and $136.3 million, respectively, as of
December 31, 2010, and $1.01 billion and $107.4 million, respectively, as of December 31, 2009.

Net pension and retiree health benefit expense included the following components:

Components of net periodic benefit cost

Defined Benefit
Pension Plans

Retiree Health
Benefit Plans

2010

2009

2008

2010

2009

2008

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219.2 $ 242.1 $ 260.1 $ 56.5 $ 53.7 $ 62.1
105.7
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(118.4)
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . .
(36.0)
Amortization of prior service cost (benefit) . . . . . . . . . . . . .
62.7
Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

431.6
(638.2)
8.8
163.0

121.4
(122.6)
(37.2)
85.0

119.6
(117.9)
(36.0)
71.8

417.5
(584.9)
8.0
84.5

409.8
(603.0)
8.2
76.6

Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 184.4 $ 167.2 $ 151.7 $ 103.1 $ 91.2 $ 76.1

If the health-care-cost trend rates were to be increased by one percentage point each future year, the December 31,
2010, accumulated postretirement benefit obligation would increase by $182.5 million (8.8 percent) and the
aggregate of the service cost and interest cost components of the 2010 annual expense would increase by $14.4
million (8.1 percent). A one percentage point decrease in these rates would decrease the December 31, 2010,
accumulated postretirement benefit obligation by $164.1 million (7.9 percent) and the aggregate of the 2010 service
cost and interest cost by $11.7 million (6.6 percent).

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The following represents the amounts recognized in other comprehensive income (loss) in 2010:

Defined Benefit
Pension Plans

Retiree Health
Benefit Plans

Actuarial loss (gain) arising during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost (benefit) included in net income . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss included in net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 162.1
0.3
(8.8)
(163.0)
(7.3)

Total other comprehensive gain during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (16.7)

$ (19.6)
(64.2)
37.2
(85.0)
(0.6)

$(132.2)

We have defined contribution savings plans that cover our eligible employees worldwide. The purpose of these
defined contribution plans is generally to provide additional financial security during retirement by providing
employees with an incentive to save. Our contributions to the plan are based on employee contributions and the level
of our match. Expenses under the plans totaled $119.8 million, $127.6 million, and $114.1 million for the years 2010,
2009, and 2008, respectively.
We provide certain other postemployment benefits primarily related to disability benefits and accrue for the related
cost over the service lives of employees. Expenses associated with these benefit plans in 2010, 2009, and 2008 were
not significant.

Benefit Plan Investments
Our benefit plan investment policies are set with specific consideration of return and risk requirements in
relationship to the respective liabilities. U.S. plans represent 83 percent of our global investments. Given the long-
term nature of our U.S. liabilities, the U.S. plans have the flexibility to manage an above average degree of risk in the
asset portfolios. At the investment policy level, there are no specifically prohibited investments. However, within
individual investment manager mandates, restrictions and limitations are contractually set to align with our
investment objectives, ensure risk control, and limit concentrations.
We manage our portfolio to minimize any concentration of risk by allocating funds within asset categories. In
addition, within a category we use different managers with various management objectives to eliminate any
significant concentration of risk.
Our global benefit plans may enter into contractual arrangements (derivatives) to implement the local investment
policy or manage particular portfolio risks. Derivatives are principally used to increase or decrease exposure to a
particular public equity, fixed income, commodity or currency market more rapidly or less expensively than could be
accomplished through the use of the cash markets. The plans utilize both exchange traded and over-the-counter
instruments. The maximum exposure to either a market or counterparty credit loss is limited to the carrying value of
the receivable, and is managed within contractual limits. We expect all of our counterparties to meet their
obligations. The gross values of these derivative receivables and payables are not material to the global asset
portfolio, and their values are reflected within the tables below.
The U.S. defined benefit pension and retiree health benefit plan allocation strategy is currently comprised of
approximately 80 percent growth investments and 20 percent fixed income investments. The growth investment
allocation encompasses U.S. and international public equity securities, hedge funds, and private equity-like
investments. These portfolio allocations are intended to reduce overall risk by providing diversification, while
seeking moderate to high returns over the long term.
Public equity securities are well diversified and invested in U.S. and international small-to-large companies across
various asset managers and styles. The remaining portion of the growth portfolio is invested in private alternative
investments.
Fixed income investments primarily consist of fixed income securities in U.S. Treasuries and Agencies, emerging
market debt obligations, corporate bonds, mortgage-backed securities and commercial mortgage-backed
obligations.
Hedge funds are privately owned institutional investment funds that generally have moderate liquidity. Hedge funds
seek specified levels of absolute return regardless of overall market conditions, and generally have low correlations
to public equity and debt markets. Hedge funds often invest substantially in financial market instruments (stocks,
bonds, commodities, currencies, derivatives, etc.) using a very broad range of trading activities to manage portfolio
risks. Hedge fund strategies focus primarily on security selection and seek to be neutral with respect to market
moves. Common groupings of hedge fund strategies include relative value, tactical, and event driven. Relative value
strategies include arbitrage, when the same asset can simultaneously be bought and sold at different prices,
achieving an immediate profit. Tactical strategies often take long and short positions to reduce or eliminate overall
market risks while seeking a particular investment opportunity. Event strategy opportunities can evolve from specific
company announcements such as mergers and acquisitions, and typically have little correlation to overall market
directional movements. Our hedge fund investments are made through limited partnership interests primarily in
fund of funds structures to ensure diversification across many strategies and many individual managers. Plan
holdings in hedge funds are valued based on net asset values (NAVs) calculated by each fund or general partner, as
applicable, and we have the ability to redeem these investments at NAV.

Private equity-like investment funds typically have low liquidity and are made through long-term partnerships or
joint ventures that invest in pools of capital invested in primarily non-publicly traded entities. Underlying investments
include venture capital (early stage investing), buyout, and special situation investing. Private equity management
firms typically acquire and then reorganize private companies to create increased long term value. Private equity-
like funds usually have a limited life of approximately 10-15 years, and require a minimum investment commitment
from their limited partners. Our private investments are made both directly into funds and through fund of funds
structures to ensure broad diversification of management styles and assets across the portfolio. Plan holdings in
private equity-like investments are valued using the value reported by the partnership, adjusted for known cash
flows and significant events through our reporting date. Values provided by the partnerships are primarily based on
analysis of and judgments about the underlying investments. Inputs to these valuations include underlying NAVs,
discounted cash flow valuations, comparable market valuations, and may also include adjustments for currency,
credit, liquidity and other risks as applicable. The vast majority of these private partnerships provide us with annual
audited financial statements including their compliance with fair valuation procedures consistent with applicable
accounting standards.
Other assets include cash and cash equivalents and mark-to-market value of derivatives.
The cash value of the trust-owned insurance contract is invested in investment grade publicly traded equity and fixed
income securities.
Other than hedge funds and private equity-like investments, which are discussed above, we determine fair values
based on a market approach using quoted market values, significant other observable inputs for identical or
comparable assets or liabilities, or discounted cash flow analyses.
The fair values of our defined benefit pension plan and retiree health plan assets as of December 31, 2010 by asset
category are as follows:

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Asset Category

Defined Benefit Pension Plans
Public equity securities

Fair Value Measurements Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Total

Significant
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 589.4
1,868.3
1,127.8

U.S.
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private alternative investments

Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-like funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,020.3
939.4
437.8

$ 421.4
907.1
77.6

10.0
195.9

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,983.0

$1,612.0

$ 168.0
961.2
1,050.2

778.4

241.9

$3,199.7

Retiree Health Benefit Plans
Public equity securities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

U.S.
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private alternative investments

Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-like funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash value of trust-owned insurance contract
. . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56.0
131.6
84.4

185.2
74.5
761.7
34.3

39.7
67.8

12.6

16.3
63.8
84.4

78.6

761.7
21.7

1,241.9
929.4

$2,171.3

106.6
74.5

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,327.7

$ 120.1

$1,026.5

$ 181.1

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The activity in the Level 3 investments during 2010 was as follows:

Hedge
Funds

Equity-like
Funds

International
Equity

Fixed
Income

Total

Defined Benefit Pension Plans
Beginning balance at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . $1,381.5
Actual return on plan assets, including changes in foreign

$743.6

$ 3.9

$ 3.5

$2,132.5

exchange rates:
Relating to assets still held at the reporting date . . . . . . . . . .
Relating to assets sold during the period . . . . . . . . . . . . . . . .
Purchases, sales and settlements . . . . . . . . . . . . . . . . . . . . . . . .
Transfers in and/or out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . .

106.1
0.0
176.3
(422.0)

70.4
6.0
108.6
0.8

0.1
(0.4)
(3.0)
(0.6)

0.1
(0.1)
(3.5)
0.0

176.7
5.5
278.4
(421.8)

Ending balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . $1,241.9

$929.4

$ 0.0

$2,171.3

Retiree Health Benefit Plans
Beginning balance at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . $ 140.9
Actual return on plan assets, including changes in foreign

$ 63.6

$ 0.4

$ 205.3

5.4
0.0
2.9
(42.6)

4.6
0.6
5.7
0.0

0.0
0.0
(0.4)
0.0

10.0
0.6
7.8
(42.6)

Ending balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . $ 106.6

$ 74.5

$ 0.0

$ 181.1

Substantially all of the Level 3 transfers are associated with assets which can be redeemed at their NAV per share
within a reasonable period of time. This reclassification is in accordance with current accounting guidance.

The fair values of our defined benefit pension plan and retiree health plan assets as of December 31, 2009 by asset
category are as follows:

Asset Category

Defined Benefit Pension Plans
Public equity securities

Fair Value Measurements Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Total

Significant
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,008.5

$1,778.1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 864.7
2,160.2
600.5

U.S.
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private alternative investments

1,381.5
743.6
258.0

Retiree Health Benefit Plans
Public equity securities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

U.S.
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private alternative investments

87.0
154.0
46.9

140.9
63.6
675.7
12.6

$ 354.4
1,105.9
76.0

$ 510.3
1,050.4
521.0

241.8

34.8
85.8

16.2

$2,097.9

52.2
67.8
46.5

12.0

675.7
0.6

3.9
3.5

1,381.5
743.6

$2,132.5

0.4
0.4

140.9
63.6

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,180.7

$ 132.6

$ 842.8

$ 205.3

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The activity in the Level 3 investments during 2009 was as follows:

Hedge
Funds

Equity-like
Funds

International
Equity

Fixed
Income

Total

Defined Benefit Pension Plans
Beginning balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . $1,387.1
Actual return on plan assets, including changes in foreign

$699.6

$ 3.6

$ 6.5

$2,096.8

158.0
0.0
(163.6)
0.0

(41.6)
(22.9)
108.5
0.0

0.7
0.0
(0.4)
0.0

1.1
0.0
1.5
(5.6)

118.2
(22.9)
(54.0)
(5.6)

Ending balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . $1,381.5

$743.6

$ 3.9

$ 3.5

$2,132.5

Retiree Health Benefit Plans
Beginning balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . $ 137.1
Actual return on plan assets, including changes in foreign

$ 64.8

$ 0.4

$ 0.7

$ 203.0

15.2
0.0
(11.4)
0.0

(4.4)
0.0
3.2
0.0

0.1
0.0
(0.1)
0.0

0.1
0.0
0.2
(0.6)

11.0
0.0
(8.1)
(0.6)

Ending balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . $ 140.9

$ 63.6

$ 0.4

$ 205.3

In 2011, we expect to contribute approximately $80 million to our defined benefit pension plans to satisfy minimum
funding requirements for the year. In addition, we expect to contribute approximately $250 million of additional
discretionary funding in the aggregate in 2011 to several of our global defined benefit pension and post-retirement
health benefit plans.

Note 15: Contingencies
We are a party to various legal actions and government investigations. The most significant of these are described
below. While it is not possible to determine the outcome of these matters, we believe that, except as specifically
noted below, the resolution of all such matters will not have a material adverse effect on our consolidated financial
position or liquidity, but could possibly be material to our consolidated results of operations in any one accounting
period.

Patent Litigation
We are engaged in the following U.S. patent litigation matters brought pursuant to procedures set out in the Hatch-
Waxman Act (the Drug Price Competition and Patent Term Restoration Act of 1984):

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the Court of Appeals for the Federal Circuit in July 2010. We are seeking review of this decision by the U.S.
Supreme Court. In March 2010, the district court in Indiana upheld the validity of our compound patent in the
Teva case, but applied collateral estoppel with regard to our method-of-use patent, given the ruling in the Sun
case. Generic gemcitabine was introduced to the U.S. market in mid-November 2010.

• Evista:

In 2006, Teva Pharmaceuticals USA, Inc. (Teva USA) submitted an ANDA seeking permission to market

• Strattera: Actavis Elizabeth LLC (Actavis), Apotex Inc. (Apotex), Aurobindo Pharma Ltd. (Aurobindo), Mylan

We have received challenges to Zyprexa patents in a number of countries outside the U.S.:

• In Germany, the German Federal Supreme Court upheld the validity of our Zyprexa patent (expiring in

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variety of injuries from the use of Zyprexa, with the majority alleging that the product caused or contributed to
diabetes or high blood-glucose levels. The claims seek substantial compensatory and punitive damages and typically
accuse us of inadequately testing for and warning about side effects of Zyprexa. Many of the claims also allege that
we improperly promoted the drug. Almost all of the federal lawsuits are part of a Multi-District Litigation
(MDL) proceeding before The Honorable Jack Weinstein in the Federal District Court for the Eastern District of New
York (EDNY) (MDL No. 1596).
Since June 2005, we have settled approximately 32,720 claims. The two primary settlements were as follows:

• In 2005, we settled and paid more than 8,000 claims for approximately $700 million.
• In 2007, we settled and paid more than 18,000 claims for approximately $500 million.

We are prepared to continue our vigorous defense of Zyprexa in all remaining claims, consisting of approximately 70
lawsuits in the U.S. covering approximately 150 plaintiffs, of which about 50 lawsuits covering about 50 plaintiffs are
part of the MDL. We have a trial scheduled in Texas State court in August 2011.
In January 2009, we reached resolution with the Office of the U.S. Attorney for the Eastern District of Pennsylvania
(EDPA), and the State Medicaid Fraud Control Units of 36 states and the District of Columbia, of an investigation
related to our U.S. marketing and promotional practices with respect to Zyprexa. As part of the resolution, we pled
guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act for the off-label promotion of Zyprexa in
elderly populations as treatment for dementia, including Alzheimer’s dementia, between September 1999 and March
2001. We recorded a charge of $1.42 billion for this matter in the third quarter of 2008 and paid substantially all of
this amount in 2009. As part of the settlement, we have entered into a corporate integrity agreement with the Office
of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS), which requires us to
maintain our compliance program and to undertake a set of defined corporate integrity obligations for five years. The
agreement also provides for an independent third-party review organization to assess and report on the company’s
systems, processes, policies, procedures, and practices.
In October 2008, we reached a settlement with 32 states and the District of Columbia related to a multistate
investigation brought under various state consumer protection laws. While there was no finding that we violated any
provision of the state laws under which the investigations were conducted, we paid $62.0 million and agreed to
undertake certain commitments regarding Zyprexa for a period of six years, through consent decrees filed with the
settling states.
We were served with lawsuits filed by the states of Alaska, Arkansas, Connecticut, Idaho, Louisiana, Minnesota,
Mississippi, Montana, New Mexico, Pennsylvania, South Carolina, Utah, and West Virginia alleging that Zyprexa
caused or contributed to diabetes or high blood-glucose levels, and that we improperly promoted the drug. We
settled the Zyprexa-related claims of all of these states, incurring pretax charges of $230.0 million in 2009 and
$15.0 million in 2008.
In 2005, two lawsuits were filed in the EDNY purporting to be nationwide class actions on behalf of all consumers and
third-party payors, excluding governmental entities, which have made or will make payments for their members or
insured patients being prescribed Zyprexa. These actions were consolidated into a single lawsuit, brought under
certain state consumer protection statutes, the federal civil RICO statute, and common law theories, seeking a
refund of the cost of Zyprexa, treble damages, punitive damages, and attorneys’ fees. Two additional lawsuits were
filed in the EDNY in 2006 on similar grounds. As with the product liability suits, these lawsuits allege that we
inadequately tested for and warned about side effects of Zyprexa and improperly promoted the drug. In September
2008, Judge Weinstein certified a class consisting of third-party payors, excluding governmental entities and
individual consumers and denied our motion for summary judgment. In September 2010, both decisions were
reversed by the Second Circuit Court of Appeals, which found that the case cannot proceed as a class action and
entered a judgment in our favor on plaintiffs’ overpricing claim. Plaintiffs are seeking review of this decision by the
U.S. Supreme Court. An unfavorable outcome in this case could have a material adverse impact on our consolidated
results of operations, liquidity, and financial position.

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Note 16: Other Comprehensive Income (Loss)
The accumulated balances related to each component of other comprehensive income (loss) were as follows:

Foreign
Currency
Translation
Gains (Losses)

Unrealized
Net Gains
on Securities

Defined
Benefit
Pension and
Retiree Health
Benefit Plans

Effective
Portion of
Cash Flow
Hedges

Accumulated
Other
Comprehensive
Loss

Beginning balance at January 1, 2010 . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . .

$ 835.8
(325.1)

Balance at December 31, 2010 . . . . . . . . . . . . . .

$ 510.7

$ 75.4
53.5

$128.9

$(3,264.3)
88.5

$(118.8)
(15.1)

$(2,471.9)
(198.2)

$(3,175.8)

$(133.9)

$(2,670.1)

The amounts above are net of income taxes. The income taxes associated with the unrecognized net actuarial losses
and prior service costs on our defined benefit pension and retiree health benefit plans (Note 14) were an expense of
$60.4 million for 2010. The income taxes associated with the net unrealized gains on securities was an expense of
$27.3 million for 2010. The income taxes related to the other components of comprehensive income (loss) were not
significant, as income taxes were not provided for foreign currency translation.
The unrealized gains (losses) on securities is net of reclassification adjustments of net gains (losses) of $27.6
million, $19.0 million, and $(1.7) million, net of tax, in 2010, 2009, and 2008, respectively, for net realized gains
(losses) on sales of securities included in net income. The effective portion of cash flow hedges is net of
reclassification adjustments of $0.0 and $0.0 for 2010 and 2009, respectively, and $9.6 million in 2008, net of tax, for
realized losses on foreign currency options and $5.8 million, $6.7 million, and $7.9 million, net of tax, in 2010, 2009,
and 2008, respectively, for interest expense on interest rate swaps designated as cash flow hedges.
Generally, the assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange
rate. For those operations, changes in exchange rates generally do not affect cash flows; therefore, resulting
translation adjustments are made in shareholders’ equity rather than in income.

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Management’s Reports
Management’s Report for Financial Statements—Eli Lilly and Company and Subsidiaries
Management of Eli Lilly and Company and subsidiaries is responsible for the accuracy, integrity, and fair
presentation of the financial statements. The statements have been prepared in accordance with generally accepted
accounting principles in the United States and include amounts based on judgments and estimates by management.
In management’s opinion, the consolidated financial statements present fairly our financial position, results of
operations, and cash flows.

In addition to the system of internal accounting controls, we maintain a code of conduct (known as The Red Book) that
applies to all employees worldwide, requiring proper overall business conduct, avoidance of conflicts of interest,
compliance with laws, and confidentiality of proprietary information. The Red Book is reviewed on a periodic basis
with employees worldwide, and all employees are required to report suspected violations. A hotline number is
published in The Red Book to enable employees to report suspected violations anonymously. Employees who report
suspected violations are protected from discrimination or retaliation by the company. In addition to The Red Book, the
CEO, and all financial management must sign a financial code of ethics, which further reinforces their fiduciary
responsibilities.

The consolidated financial statements have been audited by Ernst & Young LLP, an independent registered public
accounting firm. Their responsibility is to examine our consolidated financial statements in accordance with
generally accepted auditing standards of the Public Company Accounting Oversight Board (United States). Ernst &
Young’s opinion with respect to the fairness of the presentation of the statements is included in Item 8 of our annual
report on Form 10-K. Ernst & Young reports directly to the audit committee of the board of directors.

Our audit committee includes five nonemployee members of the board of directors, all of whom are independent
from our company. The committee charter, which is available on our web site, outlines the members’ roles and
responsibilities and is consistent with enacted corporate reform laws and regulations. It is the audit committee’s
responsibility to appoint an independent registered public accounting firm subject to shareholder ratification,
approve both audit and nonaudit services performed by the independent registered public accounting firm, and
review the reports submitted by the firm. The audit committee meets several times during the year with
management, the internal auditors, and the independent public accounting firm to discuss audit activities, internal
controls, and financial reporting matters, including reviews of our externally published financial results. The internal
auditors and the independent registered public accounting firm have full and free access to the committee.

We are dedicated to ensuring that we maintain the high standards of financial accounting and reporting that we have
established. We are committed to providing financial information that is transparent, timely, complete, relevant, and
accurate. Our culture demands integrity and an unyielding commitment to strong internal practices and policies.
Finally, we have the highest confidence in our financial reporting, our underlying system of internal controls, and our
people, who are objective in their responsibilities and operate under a code of conduct and the highest level of
ethical standards.

Management’s Report on Internal Control Over Financial Reporting—Eli Lilly and Company and Subsidiaries
Management of Eli Lilly and Company and subsidiaries is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934. We have global financial policies that govern critical areas, including internal controls, financial
accounting and reporting, fiduciary accountability, and safeguarding of corporate assets. Our internal accounting
control systems are designed to provide reasonable assurance that assets are safeguarded, that transactions are
executed in accordance with management’s authorization and are properly recorded, and that accounting records
are adequate for preparation of financial statements and other financial information. A staff of internal auditors
regularly monitors, on a worldwide basis, the adequacy and effectiveness of internal accounting controls. The
general auditor reports directly to the audit committee of the board of directors.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under this framework, we concluded that our internal control over
financial reporting was effective as of December 31, 2010. However, because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The internal control over financial reporting has been assessed by Ernst & Young LLP as of December 31, 2010.
Their responsibility is to evaluate whether internal control over financial reporting was designed and operating
effectively.

John C. Lechleiter, Ph.D.
Chairman, President, and Chief Executive Officer

Derica W. Rice
Executive Vice President, Global Services and Chief Financial Officer

February 22, 2011

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Eli Lilly and Company
We have audited the accompanying consolidated balance sheets of Eli Lilly and Company and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated statements of operations, cash flows, and comprehensive
income (loss) for each of the three years in the period ended December 31, 2010. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Eli Lilly and Company and subsidiaries at December 31, 2010 and 2009, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Eli Lilly and Company and subsidiaries’ internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 22, 2011 expressed an unqualified opinion
thereon.

Indianapolis, Indiana
February 22, 2011

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Eli Lilly and Company
We have audited Eli Lilly and Company and subsidiaries’ internal control over financial reporting as of December 31,
2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Eli Lilly and Company and subsidiaries’
management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Eli Lilly and Company and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the 2010 consolidated financial statements of Eli Lilly and Company and subsidiaries and our report dated
February 22, 2011 expressed an unqualified opinion thereon.

Indianapolis, Indiana
February 22, 2011

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Item 9.

None.

Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under applicable Security and Exchange Commission (SEC) regulations, management of a reporting company, with
the participation of the principal executive officer and principal financial officer, must periodically evaluate the
company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a
reporting company designed to ensure that information required to be disclosed by the reporting company in its
periodic reports filed with the SEC (such as this Form 10-K) is recorded, processed, summarized, and reported on a
timely basis.

Our management, with the participation of John C. Lechleiter, Ph.D., chairman, president, and chief executive officer,
and Derica W. Rice, executive vice president, global services and chief financial officer, evaluated our disclosure
controls and procedures as of December 31, 2010, and concluded that they are effective.

Internal Control over Financial Reporting
Dr. Lechleiter and Mr. Rice provided a report on behalf of management on our internal control over financial
reporting, in which management concluded that the company’s internal control over financial reporting is effective at
December 31, 2010. In addition, Ernst & Young LLP as of December 31, 2010, the company’s independent registered
public accounting firm, provided an attestation report on the company’s internal control over financial reporting. You
can find the full text of management’s report and Ernst & Young’s attestation report in Item 8, and both reports are
incorporated by reference in this Item.

Changes in Internal Controls
During the fourth quarter of 2010, there were no changes in our internal control over financial reporting that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are
pursuing a multi-year initiative to outsource some accounting transaction-processing activities, migrating to a
consistent enterprise financial system across the organization, and moving certain activities to newly-established
captive shared services centers. In addition, we are in the process of reducing financial human resources at various
locations around the world. None of these initiatives is in response to any identified deficiency or weakness in our
internal control over financial reporting. These initiatives are expected to continue to enhance our internal control
over financial reporting, but in the short-term may increase our risk.

Item 9B. Other Information
Not applicable.

Part III

Item 10. Directors, Executive Officers, and Corporate Governance
Directors and Executive Officers
Information relating to our Board of Directors is found in our Proxy Statement to be dated on or about March 8, 2010
(the “Proxy Statement”) under “Board of Directors” and is incorporated in this report by reference.

Information relating to our executive officers is found at Item 1 of this Form 10-K under “Executive Officers of the
Company.”

Code of Ethics
We have adopted a code of ethics that complies with the applicable SEC and New York Stock Exchange
requirements. The code is set forth in:

• The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees

worldwide and to our Board of Directors; and

• Code of Ethical Conduct for Lilly Financial Management, a supplemental code for our chief executive officer and all

members of financial management that focuses on accounting, financial reporting, internal controls, and
financial stewardship.

Both documents are online on our web site at http://lilly.com/about/compliance/conduct. In the event of any
amendments to, or waivers from, a provision of the code affecting the chief executive officer, chief financial officer,
chief accounting officer, controller, or persons performing similar functions, we intend to post on the above web site
within four business days after the event a description of the amendment or waiver as required under applicable SEC
rules. We will maintain that information on our web site for at least 12 months. Paper copies of these documents are
available free of charge upon request to the company’s secretary at the address on the front of this Form 10-K.

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Corporate Governance
In our proxy statements, we describe the procedures by which shareholders can recommend nominees to our board
of directors. There have been no changes in those procedures since they were last published in our proxy statement
of March 8, 2010.
The board has appointed an audit committee consisting entirely of independent directors in accordance with
applicable SEC and New York Stock Exchange rules for audit committees. The members of the committee are
Michael L. Eskew (chair), Martin S. Feldstein, R. David Hoover, Douglas R. Oberhelman, and Kathi P. Seifert. The
board has determined that Messrs. Eskew, Hoover, and Oberhelman are audit committee financial experts as
defined in the SEC rules.

Item 11. Executive Compensation
Information on director compensation, executive compensation, and compensation committee matters can be found
in the Proxy Statement under “Directors’ Compensation”, “Executive Compensation”, and “Compensation Committee
Interlocks and Insider Participation.” That information is incorporated in this report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and

Management and Related Stockholder Matters

Information relating to ownership of the Company’s common stock by management and by persons known by the
Company to be the beneficial owners of more than five percent of the outstanding shares of common stock is found
in the Proxy Statement under “Ownership of Company Stock.” That information is incorporated in this report by
reference.
Information relating to securities authorized for issuance under the Company’s equity compensation plans is found
in the Proxy Statement under “Executive Compensation.” That information is incorporated in this report by
reference.

Item 13. Certain Relationships and Related Transactions, and Director

Independence

Related Person Transactions
Information relating to a related person transaction and the board’s policies and procedures for approval of related
person transactions can be found in the Proxy Statement under “Highlights of the Company’s Corporate Governance
Guidelines—Review and Approval of Transactions with Related Persons.” That information is incorporated in this
report by reference.

Director Independence
Information relating to director independence can be found in the Proxy Statement under “Highlights of the
Company’s Corporate Governance Guidelines—Independence Determinations” and is incorporated in this report by
reference.

Item 14. Principal Accountant Fees and Services
Information related to the fees and services of our principal independent accountants, Ernst & Young LLP, can be
found in the Proxy Statement under “Services Performed by the Independent Auditor” and “Independent Auditor
Fees.” That information is incorporated in this report by reference.

Item 15. Exhibits and Financial Statement Schedules
(a)1. Financial Statements
The following consolidated financial statements of the Company and its subsidiaries are found at Item 8:

• Consolidated Statements of Operations—Years Ended December 31, 2010, 2009, and 2008

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• Consolidated Balance Sheets—December 31, 2010 and 2009
• Consolidated Statements of Cash Flows—Years Ended December 31, 2010, 2009, and 2008
• Consolidated Statements of Comprehensive Income (Loss)—Years Ended December 31, 2010, 2009, and 2008
• Segment Information
• Notes to Consolidated Financial Statements

(a)2. Financial Statement Schedules
The consolidated financial statement schedules of the Company and its subsidiaries have been omitted because they
are not required, are inapplicable, or are adequately explained in the financial statements.
Financial statements of interests of 50 percent or less, which are accounted for by the equity method, have been
omitted because they do not, considered in the aggregate as a single subsidiary, constitute a significant subsidiary.

(a)3. Exhibits

Agreement and Plan of Merger dated October 6, 2008, among Eli Lilly and Company, Alaska Acquisition
Corporation and ImClone Systems Incorporated

Amended Articles of Incorporation

By-laws, as amended

Form of Indenture with respect to Debt Securities dated as of February 1, 1991, between Eli Lilly and
Company and Citibank, N.A., as Trustee

Agreement dated September 13, 2007 appointing Deutsche Bank Trust Company Americas as Successor
Trustee under the Indenture listed above

Form of Standard Multiple-Series Indenture Provisions dated, and filed with the Securities and Exchange
Commission on, February 1, 1991

Form of Indenture dated March 10, 1998, among The Lilly Savings Plan Master Trust Fund C, as issuer; Eli
Lilly and Company, as guarantor; and The Chase Manhattan Bank, as Trustee, relating to ESOP Amortizing
Debentures due 20171

Form of Fiscal Agency Agreement dated May 30, 2001, between Eli Lilly and Company and Citibank, N.A.,
Fiscal Agent, relating to Resetable Floating Rate Debt Security due 20371

Form of Resetable Floating Rate Debt Security due 20371

1998 Lilly Stock Plan, as amended2

2002 Lilly Stock Plan, as amended2

Form of two-year Performance Award under the 2002 Lilly Stock Plan2

Form of Shareholder Value Award under the 2002 Lilly Stock Plan2

Form of Restricted Stock Unit under the 2002 Lilly Stock Plan2

The Lilly Deferred Compensation Plan, as amended2

The Lilly Directors’ Deferral Plan, as amended2

The Eli Lilly and Company Bonus Plan, as amended2

2007 Change in Control Severance Pay Plan for Select Employees, as amended effective October 20, 20102

2007 Change in Control Severance Pay Plan for Select Employees, as amended effective October 18, 20122

Letter agreement dated September 15, 2004 between the company and Steven M. Paul, M.D. concerning
retirement benefits2

Letter agreement dated November 11, 2009 between the company and Steven M. Paul, M.D. concerning
retirement benefits2

Arrangement regarding retirement benefits for Robert A. Armitage2

Arrangement regarding severance for Dr. Jan Lundberg2

Guilty Plea Agreement in The United States District Court for the Eastern District of Pennsylvania, United
States of America v. Eli Lilly and Company

Settlement Agreement among the company and the United States of America, acting through the United
States Department of Justice, Civil Division, and the United States Attorney’s Office of the Eastern District
of Pennsylvania, the Office of the Inspector General of the Department of Health and Human Services,
TRICARE Management Activity, and the United States Office of Personnel Management, and certain
individual relators

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

(a)3. Exhibits

10.17

Corporate Integrity Agreement between the company and the Office of Inspector General of the
Department of Health and Human Services

31.1

31.2

101

Statement re: Computation of Ratio of Earnings (Loss) to Fixed Charges

List of Subsidiaries

Consent of Independent Registered Public Accounting Firm

Rule 13a-14(a) Certification of John C. Lechleiter, Ph.D., Chairman of the Board, President and Chief
Executive Officer

Rule 13a-14(a) Certification of Derica W. Rice, Executive Vice President, Global Services and Chief
Financial Officer

Section 1350 Certification

Interactive Data File

1 This exhibit is not filed with this report. Copies will be furnished to the Securities and Exchange Commission upon request.
2 Indicates management contract or compensatory plan.

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Signatures
Pursuant to the requirements of Section 13 or 15(d) 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

/s/ John C. Lechleiter

John C. Lechleiter, Ph.D.,
Chairman of the Board, President, and Chief Executive Officer

February 22, 2011

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 22, 2011 by the following persons on behalf of the Registrant and in the capacities indicated.

Signature

Title

/s/ John C. Lechleiter, Ph.D.
JOHN C. LECHLEITER, Ph.D.

Chairman of the Board, President, and Chief Executive Officer,
and a Director (principal executive officer)

/s/ Derica W. Rice

DERICA W. RICE

/s/ Arnold C. Hanish

ARNOLD C. HANISH

/s/ Ralph Alvarez

RALPH ALVAREZ

Executive Vice President, Global Services and Chief Financial
Officer (principal financial officer)

Vice President, Finance and Chief Accounting Officer (principal
accounting officer)

Director

/s/ Sir Winfried Bischoff

Director

SIR WINFRIED BISCHOFF

/s/ Michael L. Eskew

MICHAEL L. ESKEW

Director

/s/ Martin S. Feldstein, Ph.D.

Director

MARTIN S. FELDSTEIN, Ph.D.

/s/ J. Erik Fyrwald

J. ERIK FYRWALD

Director

/s/ Alfred G. Gilman, M.D., Ph.D.

Director

ALFRED G. GILMAN, M.D., Ph.D.

/s/ R. David Hoover

R. DAVID HOOVER

Director

/s/ Karen N. Horn, Ph.D.

Director

KAREN N. HORN, Ph.D.

/s/ Ellen R. Marram

ELLEN R. MARRAM

Director

/s/ Douglas R. Oberhelman

Director

DOUGLAS R. OBERHELMAN

/s/ Franklyn G. Prendergast, M.D., Ph.D.

Director

FRANKLYN G. PRENDERGAST, M.D., Ph.D.

/s/ Kathi P. Seifert

KATHI P. SEIFERT

Director

Notice of 2011 Annual Meeting
Proxy Statement

Notice of 2011 Annual Meeting and Proxy Statement

March 7, 2011

Dear Shareholder:

You are cordially invited to attend our annual meeting of shareholders on Monday, April 18, 2011, at the Lilly Center
Auditorium, Lilly Corporate Center, Indianapolis, Indiana, at 11:00 a.m. EDT.

The notice of meeting and proxy statement that follow describe the business we will consider at the meeting.

Your vote is very important. I urge you to vote by mail, by telephone, or on the Internet to be certain your shares are
represented at the meeting, even if you plan to attend.

Please note our procedures for admission to the meeting described under “What should I do if I want to attend

the annual meeting?” below.

I look forward to seeing you at the meeting.

John C. Lechleiter, Ph.D.
Chairman, President, and Chief Executive Officer

Important notice regarding the availability of proxy materials for the shareholder meeting to be held April 18, 2011:
The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2010.pdf

Notice of Annual Meeting of Shareholders

April 18, 2011

The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center Auditorium, Lilly
Corporate Center, Indianapolis, Indiana, on Monday, April 18, 2011, at 11:00 a.m. EDT for the following purposes:

• to elect four directors of the company to serve three-year terms
• to ratify the appointment by the audit committee of Ernst & Young LLP as principal independent auditor for the

year 2011

• to approve, by non-binding vote, 2010 compensation paid to the company’s named executive officers
• to recommend, by non-binding vote, the frequency of future advisory votes on executive compensation
• to approve amendments to the articles of incorporation to provide for annual election of all directors
• to approve amendments to the articles of incorporation to eliminate all supermajority voting requirements
• to approve the executive officer incentive plan.

Shareholders of record at the close of business on February 15, 2011, will be entitled to vote at the meeting and

at any adjournment of the meeting.

Attendance at the meeting will be limited to shareholders, those holding proxies from shareholders, and invited
guests from the media and financial community. A page at the back of this report contains an admission ticket. If you
plan to attend the meeting, please bring this ticket with you.

This combined proxy statement and annual report to shareholders and the proxy voting card are being mailed on

or about March 7, 2011.

By order of the board of directors,

James B. Lootens
Secretary

March 7, 2011
Indianapolis, Indiana

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General Information

Why did I receive this proxy statement?
The board of directors of Eli Lilly and Company is soliciting proxies to be voted at the annual meeting of shareholders
(the annual meeting) to be held on Monday, April 18, 2011, and at any adjournment of the annual meeting. When the
company asks for your proxy, we must provide you with a proxy statement that contains certain information specified
by law.

What will the shareholders vote on at the annual meeting?
Seven items:

• election of directors
• ratification of the appointment of principal independent auditor
• advisory approval of 2010 compensation paid to named executive officers
• frequency of future advisory votes on executive compensation
• amendments to the company’s articles of incorporation to provide for annual election of all directors
• amendments to the company’s articles of incorporation to eliminate all supermajority voting requirements
• approval of the executive officer incentive plan.

Will there be any other items of business on the agenda?
We do not expect any other items of business because the deadline for shareholder proposals and nominations has
already passed. Nonetheless, if necessary, the accompanying proxy gives discretionary authority to the persons
named on the proxy with respect to any other matters that might be brought before the meeting. Those persons
intend to vote that proxy in accordance with their best judgment.

Who is entitled to vote?
Shareholders as of the close of business on February 15, 2011 (the record date) may vote at the annual meeting. You
have one vote for each share of common stock you held on the record date, including shares:

• held directly in your name as the shareholder of record
• held for you in an account with a broker, bank, or other nominee
• attributed to your account in The Eli Lilly and Company Employee 401(k) Plan (the 401(k) plan).

What constitutes a quorum?
A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the annual meeting.
As of the record date, 1,157,664,779 shares of company common stock were issued and outstanding.

How many votes are required for the approval of each item?
There are differing vote requirements for the various proposals.

• The four nominees for director will be elected if the votes cast for the nominee exceed the votes cast against the

nominee. Abstentions will not count as votes cast either for or against a nominee.

• The following items of business will be approved if the votes cast for the proposal exceed those cast against the

proposal:

—ratification of the appointment of principal independent auditor
—advisory approval of 2010 executive compensation
—approval of the executive officer incentive plan

Abstentions will not be counted either for or against these proposals.

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• The vote on frequency of future advisory votes on executive compensation asks shareholders to express their
preference for one of three choices for future advisory votes on executive compensation—every year, every
other year, or every three years. Abstentions have the same effect as not expressing a preference.

• The proposals to amend the articles of incorporation to provide for annual election of all directors and to

eliminate all supermajority voting requirements require the vote of 80 percent of the outstanding shares. For
these items, abstentions have the same effect as a vote against the proposals.

Broker discretionary voting. If your shares are held by a broker, the broker will ask you how you want your shares to
be voted. If you give the broker instructions, your shares will be voted as you direct. If you do not give instructions,
one of two things can happen, depending on the type of proposal. For the ratification of the auditor and the proposals
on annual election of all directors and elimination of all supermajority voting requirements, the broker may vote your
shares in its discretion. For all other proposals, the broker may not vote your shares at all.

How do I vote by proxy?
If you are a shareholder of record, you may vote your proxy by any one of the following methods:

By mail. Sign and date each proxy card you receive and return it in the prepaid envelope. Sign your name exactly as it
appears on the proxy. If you are signing in a representative capacity (for example, as an attorney-in-fact, executor,
administrator, guardian, trustee, or the officer or agent of a corporation or partnership), please indicate your name
and your title or capacity. If the stock is held in custody for a minor (for example, under the Uniform Transfers to
Minors Act), the custodian should sign, not the minor. If the stock is held in joint ownership, one owner may sign on
behalf of all owners. If you return your signed proxy but do not indicate your voting preferences, we will vote on your
behalf with the board’s recommendations.

If you did not receive a proxy card in the materials you received from the company and you wish to vote by mail

rather than by telephone or on the Internet as discussed below, you may request a paper copy of these materials and
a proxy card by calling 317-433-5112. If you received an e-mail message notifying you of the electronic availability of
these materials, please provide the control number from the e-mail, along with your name and mailing address.

By telephone. Shareholders in the United States, Puerto Rico, and Canada may vote by telephone by following the
instructions on your proxy card or, if you received these materials electronically, by following the instructions in the
e-mail message that notified you of their availability. Voting by telephone has the same effect as voting by mail. If you
vote by telephone, do not return your proxy card. Telephone voting will be available until 11:59 p.m. EDT,
April 17, 2011.

On the Internet. You may vote online at www.proxyvote.com. Follow the instructions on your proxy card or, if you
received these materials electronically, follow the instructions in the e-mail message that notified you of their
availability. Voting on the Internet has the same effect as voting by mail. If you vote on the Internet, do not return your
proxy card. Internet voting will be available until 11:59 p.m. EDT, April 17, 2011.

You have the right to revoke your proxy at any time before the meeting by (i) notifying the company’s secretary in

writing or (ii) delivering a later-dated proxy by telephone, on the Internet, or by mail. If you are a shareholder of
record, you may also revoke your proxy by voting in person at the meeting.

How do I vote shares that are held by my broker?
If you have shares held by a broker or other nominee, you may instruct your broker or other nominee to vote your
shares by following instructions that the broker or nominee provides to you. Most brokers offer voting by mail, by
telephone, and on the Internet.

How do I vote in person?
If you are a shareholder of record, you may vote your shares in person at the meeting. However, we encourage you to
vote by mail, by telephone, or on the Internet even if you plan to attend the meeting.

How do I vote my shares in the 401(k) plan?
You may instruct the plan trustee on how to vote your shares in the 401(k) plan by mail, by telephone, or on the
Internet as described above, except that, if you vote by mail, the card that you use will be a voting instruction card
rather than a proxy card.

How many shares in the 401(k) plan can I vote?
You may vote all the shares allocated to your account on the record date. In addition, unless you decline, your vote
will also apply to a proportionate number of other shares held in the 401(k) plan for which voting directions are not
received. These undirected shares include:

• shares credited to the accounts of participants who do not return their voting instructions (except for a small

number of shares from a prior stock ownership plan, which can be voted only on the directions of the
participants to whose accounts the shares are credited)

• shares held in the plan that are not yet credited to individual participants’ accounts.

All participants are named fiduciaries under the terms of the 401(k) plan and under the Employee Retirement

Income Security Act (ERISA) for the limited purpose of voting shares credited to their accounts and the portion of
undirected shares to which their vote applies. Under ERISA, fiduciaries are required to act prudently in making
voting decisions.

If you do not want to have your vote applied to the undirected shares, you should check the box marked
“I decline.” Otherwise, the trustee will automatically apply your voting preferences to the undirected shares
proportionally with all other participants who elected to have their votes applied in this manner.

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What happens if I do not vote my 401(k) plan shares?
Your shares will be voted by other plan participants who have elected to have their voting preferences applied
proportionally to all shares for which voting instructions are not otherwise received.

What does it mean if I receive more than one proxy card?
It means that you hold shares in more than one account. To ensure that all your shares are voted, sign and return
each card. Alternatively, if you vote by telephone or on the Internet, you will need to vote once for each proxy card
and voting instruction card you receive.

What does it mean if I did not receive a proxy card?
You may have elected to receive your proxy statement electronically, in which case you should have received an
email with directions on how to access the proxy statement and how to vote your shares. If you wish to request a
paper copy of these materials and a proxy card, please call 317-433-5112.

Who tabulates the votes?
The votes are tabulated by an independent inspector of election, IVS Associates, Inc.

What should I do if I want to attend the annual meeting?
All shareholders as of the record date may attend by presenting the admission ticket that appears at the end of this
proxy statement. Please fill it out and bring it with you to the meeting. The meeting will be held at the Lilly Center
Auditorium. Please use the Lilly Center entrance to the south of the fountain at the intersection of Delaware and
McCarty streets. You will need to pass through security, including a metal detector. Present your ticket to an usher
at the meeting.

Parking will be available on a first-come, first-served basis in the garage indicated on the map at the end of this

report. If you have questions about admittance or parking, you may call 317-433-5112.

How do I contact the board of directors?
You may send written communications to one or more members of the board, addressed to:

Lead Director, Board of Directors
Eli Lilly and Company
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, Indiana 46285

All such communications (from shareholders or other interested parties) will be forwarded to the relevant

director(s), except for solicitations or other matters unrelated to the company.

How do I submit a shareholder proposal for the 2012 annual meeting?
The company’s 2012 annual meeting is currently scheduled for April 16, 2012. If a shareholder wishes to have a
proposal considered for inclusion in next year’s proxy statement, he or she must submit the proposal in writing so
that we receive it by November 8, 2011. Proposals should be addressed to the company’s corporate secretary, Lilly
Corporate Center, Indianapolis, Indiana 46285. In addition, the company’s bylaws provide that any shareholder
wishing to propose any other business at the annual meeting must give the company written notice by
November 8, 2011 and no earlier than September 9, 2011. That notice must provide certain other information as
described in the bylaws. Copies of the bylaws are available online at http://investor.lilly.com/governance.cfm or in
paper form upon request to the company’s corporate secretary.

Does the company offer an opportunity to receive future proxy materials electronically?
Yes. If you are a shareholder of record or a member of the 401(k) plan, you may, if you wish, receive future proxy
statements and annual reports online. If you elect this feature, you will receive an e-mail message notifying you
when the materials are available, along with a web address for viewing the materials and instructions for voting by
telephone or on the Internet. If you have more than one account, you may receive separate e-mail notifications for
each account.

You may sign up for electronic delivery in two ways:

• If you vote online as described above, you may sign up for electronic delivery at that time.
• You may sign up at any time by visiting http://investor.lilly.com/services.cfm.

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If you received these materials electronically, you do not need to do anything to continue receiving materials

electronically in the future.

If you hold your shares in a brokerage account, you may also have the opportunity to receive proxy materials

electronically. Please follow the instructions of your broker.

What are the benefits of electronic delivery?
Electronic delivery reduces the company’s printing and mailing costs. It is also a convenient way for you to receive
your proxy materials and makes it easy to vote your shares online. If you have shares in more than one account, it is
an easy way to avoid receiving duplicate copies of proxy materials.

What are the costs of electronic delivery?
The company charges nothing for electronic delivery. You may, of course, incur the usual expenses associated with
Internet access, such as telephone charges or charges from your Internet service provider.

Can I change my mind later?
Yes. You may discontinue electronic delivery at any time. For more information, call 317-433-5112.

What is “householding”?
We have adopted householding, a procedure under which shareholders of record who have the same address and
last name and do not receive proxy materials electronically will receive only one copy of our annual report and proxy
statement unless one or more of these shareholders notifies us that they wish to continue receiving individual
copies. This procedure saves printing and postage costs by reducing duplicative mailings.

Shareholders who participate in householding will continue to receive separate proxy cards. Householding will

not affect dividend check mailings.

Beneficial shareholders can request information about householding from their banks, brokers, or other

holders of record.

What if I want to receive a paper copy of the annual report and proxy statement?
If you wish to receive a paper copy of the 2010 annual report and 2011 proxy statement, or future annual reports and
proxy statements, please call 1-800-542-1061 or write to: Householding Department, 51 Mercedes Way, Edgewood,
New York 11717. We will deliver the requested documents to you promptly upon your request.

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Board of Directors

Directors’ Biographies

Class of 2011
The following four directors’ terms will expire at this year’s annual meeting. Each of these directors has been
nominated and is standing for election to serve a term that will expire in 2014. See “Item. 1 Election of Directors”
below for more information.

Age 61

Director since 2008

Michael L. Eskew
Former Chairman and Chief Executive Officer, United Parcel Service, Inc.
Mr. Eskew served as chairman and chief executive officer of United Parcel Service, Inc., from
January 2002 until December 2007. He continues to serve on the UPS board of directors.
Mr. Eskew began his UPS career in 1972 as an industrial engineering manager and held
various positions of increasing responsibility, including time with UPS’s operations in
Germany and with UPS Airlines. In 1993, Mr. Eskew was named corporate vice president for
industrial engineering. Two years later he became group vice president for engineering. In
1998, he was elected to the UPS board of directors. In 1999, Mr. Eskew was named executive
vice president and a year later was given the additional title of vice chairman. He serves as
chairman of the board of trustees of The Annie E. Casey Foundation. Mr. Eskew also serves on
the boards of 3M Corporation and IBM Corporation.
Board Committees: audit (chair) and compensation

Age 69

Director since 1995

Alfred G. Gilman, M.D., Ph.D.
Chief Scientific Officer, Cancer Prevention and Research Institute of Texas
Dr. Gilman is the chief scientific officer of the Cancer Prevention and Research Institute of
Texas and regental professor of pharmacology emeritus at the University of Texas
Southwestern Medical Center at Dallas. Dr. Gilman was on the faculty of the University of
Virginia School of Medicine from 1971 to 1981 and was named a professor of pharmacology
there in 1977. He previously served as executive vice president for academic affairs and
provost of the University of Texas Southwestern Medical Center at Dallas, dean of the
University of Texas Southwestern Medical School, and professor of pharmacology at the
University of Texas Southwestern Medical Center. He held the Raymond and Ellen Willie
Distinguished Chair of Molecular Neuropharmacology; the Nadine and Tom Craddick
Distinguished Chair in Medical Science; and the Atticus James Gill, M.D., Chair in Medical
Science at the university and was named a regental professor in 1995. He is a director of
Regeneron Pharmaceuticals, Inc. Dr. Gilman was a recipient of the Nobel Prize in Physiology
or Medicine in 1994.
Board Committees: public policy and compliance and science and technology (chair)

Age 67

Karen N. Horn, Ph.D.
Director since 1987
Retired President, Private Client Services, and Managing Director, Marsh, Inc.
Ms. Horn serves as the board’s lead director. She served as president of private client
services and managing director of Marsh, Inc. from 1999 until her retirement in 2003. Prior to
joining Marsh, she was senior managing director and head of international private banking at
Bankers Trust Company; chairman and chief executive officer of Bank One, Cleveland, N.A.;
president of the Federal Reserve Bank of Cleveland; treasurer of Bell Telephone Company of
Pennsylvania; and vice president of First National Bank of Boston. Ms. Horn serves as director
of T. Rowe Price Mutual Funds; Simon Property Group, Inc.; and Norfolk Southern Corporation
and vice chairman of the U.S. Russia Foundation. She previously served on the board of Fannie
Mae and Georgia-Pacific Corporation. Ms. Horn has been senior managing director of Brock
Capital Group since 2004.
Board Committees: compensation (chair) and directors and corporate governance

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Director since 2005

John C. Lechleiter, Ph.D.
Age 57
Chairman, President, and Chief Executive Officer
Dr. Lechleiter is chairman, president, and chief executive officer of Eli Lilly and Company. He
served as president and chief operating officer from 2005 to 2008. He joined Lilly in 1979 as a
senior organic chemist and has held management positions in England and the U.S. He was
named vice president of pharmaceutical product development in 1993 and vice president of
regulatory affairs in 1994. In 1996, he was named vice president for development and
regulatory affairs. Dr. Lechleiter became senior vice president of pharmaceutical products in
1998 and executive vice president for pharmaceutical products and corporate development in
2001. He was named executive vice president for pharmaceutical operations in 2004. He is a
member of the American Chemical Society, Business Roundtable, and Business Council.
Dr. Lechleiter serves on the boards of Pharmaceutical Research and Manufacturers of
America (PhRMA); United Way Worldwide; Xavier University (Cincinnati, Ohio); Life Sciences
Foundation; Central Indiana Corporate Partnership; and the 2012 Indianapolis Super Bowl
Host Committee. He also serves on the board of Nike, Inc.
Board Committees: none

Class of 2012
The following four directors will continue in office until 2012.

Age 71

Director since 2002

Martin S. Feldstein, Ph.D.
George F. Baker Professor of Economics, Harvard University
Dr. Feldstein is the George F. Baker Professor of Economics at Harvard University and
president emeritus of the National Bureau of Economic Research. From 1982 through 1984,
he served as chairman of the Council of Economic Advisers and President Ronald Reagan’s
chief economic adviser. Dr. Feldstein served as president and chief executive officer of the
National Bureau of Economic Research from 1977 to 1982 and 1984 to 2008. In 2009, President
Obama appointed him to the President’s Economic Recovery Advisory Board. He is a member
of the American Philosophical Society, a corresponding fellow of the British Academy, a fellow
of the Econometric Society, and a fellow of the National Association for Business Economics.
Dr. Feldstein is a trustee of the Council on Foreign Relations and a member of the Trilateral
Commission, the Group of 30, the American Academy of Arts and Sciences, and the Council of
Academic Advisors of the American Enterprise Institute and past president of the American
Economic Association. He previously served on the boards of American International Group,
Inc. and HCA Inc.
Board Committees: audit, finance, and public policy and compliance (chair)

Age 51

Director since 2005

J. Erik Fyrwald
Chairman, President, and Chief Executive Officer, Nalco Company
Mr. Fyrwald joined Nalco Company (a leading integrated water treatment and process
improvement company) as chairman, president, and chief executive officer in February 2008
following a 27-year career at DuPont. From 2003 to 2008, Mr. Fyrwald served as group vice
president of the agriculture and nutrition division at DuPont. From 2000 until 2003, he was vice
president and general manager of DuPont’s nutrition and health business. In 1999,
Mr. Fyrwald was vice president for corporate strategic planning and business development. At
DuPont, he held a broad variety of assignments in a number of divisions covering many
industries. He has worked in several locations throughout North America and Asia. In addition
to serving as chairman of Nalco’s board of directors, Mr. Fyrwald serves as a director of the
Society of Chemical Industry, the American Chemistry Council, and the Chicago Public
Education Fund, and is a trustee of the Field Museum of Chicago.
Board Committees: public policy and compliance and science and technology

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Age 64

Director since 2002

Ellen R. Marram
President, The Barnegat Group LLC
Ms. Marram is the president of The Barnegat Group LLC, a firm that provides business
advisory services. She was a managing director at North Castle Partners, LLC from 2000 to
2005 and is currently an advisor to the firm. From 1993 to 1998, Ms. Marram was president
and chief executive officer of Tropicana and the Tropicana Beverage Group. From 1988 to
1993, she was president and chief executive officer of the Nabisco Biscuit Company, the
largest operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabisco’s
grocery division; and from 1970 to 1986, she held a series of marketing positions at Nabisco/
Standard Brands, Johnson & Johnson, and Lever Brothers. Ms. Marram is a member of the
board of directors of Ford Motor Company and The New York Times Company, as well as
several private companies. She previously served on the board of Cadbury plc. She also serves
on the boards of Institute for the Future, New York-Presbyterian Hospital, Lincoln Center
Theater, and Families and Work Institute.
Board Committees: compensation and directors and corporate governance (chair)

Age 58

Director since 2008

Douglas R. Oberhelman
Chairman and Chief Executive Officer, Caterpillar Inc.
Mr. Oberhelman has been chairman of the board of Caterpillar Inc. since November 2010 and
chief executive officer since July 2010. He previously served as vice chairman and chief
executive officer-elect of Caterpillar. He joined Caterpillar in 1975 and has held a variety of
positions, including senior finance representative based in South America for Caterpillar
Americas Co; region finance manager and district manager for the company’s North American
commercial division; and managing director and vice general manager for strategic planning
at Caterpillar Japan Ltd. Mr. Oberhelman was elected a vice president in 1995, serving as
Caterpillar’s chief financial officer from 1995 to November 1998. In 1998, he became vice
president with responsibility for the engine products division and he was elected a group
president and member of Caterpillar’s executive office in 2002. Mr. Oberhelman serves on the
boards of Caterpillar, The Nature Conservancy–Illinois Chapter, the National Association of
Manufacturers, the Manufacturing Institute, and the Wetlands America Trust. He previously
served on the board of Ameren Corporation.
Board Committees: audit and finance

Class of 2013
The following five directors will continue in office until 2013.

Age 55

Director since 2009

Ralph Alvarez
Retired President and Chief Operating Officer, McDonald’s Corporation
Mr. Alvarez served as president and chief operating officer of McDonald’s Corporation from
August 2006 until December 2009. Previously, he served as president of McDonald’s North
America, with responsibility for all the McDonald’s restaurants in the U.S. and Canada. Prior
to that, he was president of McDonald’s USA. Mr. Alvarez joined McDonald’s in 1994 and has
held a variety of leadership roles throughout his career, including chief operations officer and
president of the central division, both with McDonald’s USA, and president of McDonald’s
Mexico. Prior to joining McDonald’s, he held leadership positions at Burger King Corporation
and Wendy’s International, Inc. Mr. Alvarez serves on the board of directors of Lowe’s
Companies, Inc. He also serves on the President’s Council, the School of Business
Administration Board of Overseers, and the International Advisory Board of the University of
Miami. He was previously a member of the boards of McDonald’s Corporation and KeyCorp.
Board Committees: finance, public policy and compliance, and science and technology

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Age 69

Director since 2000

Sir Winfried Bischoff
Chairman, Lloyds Banking Group plc
Sir Winfried Bischoff has been chairman of the board of Lloyds Banking Group plc since
September 2009. He served as chairman of Citigroup Inc. from December 2007 until
February 2009 and as interim chief executive officer for a portion of 2007. He served as
chairman of Citigroup Europe from 2000 to 2009. From 1995 to 2000, he was chairman of
Schroders plc. He joined the Schroder Group in 1966 and held a number of positions there,
including chairman of J. Henry Schroder & Co. and group chief executive of Schroders plc. He
is also a director of The McGraw-Hill Companies, Inc. He previously served on the boards of
Citigroup Inc., Prudential plc, Land Securities plc, and Akbank T.A.S.
Board Committees: directors and corporate governance and finance (chair)

Age 65

Director since 2009

R. David Hoover
Chairman, Ball Corporation
Mr. Hoover is chairman of Ball Corporation. Mr. Hoover joined Ball Corporation in 1970 and
has held a variety of leadership roles throughout his career, including vice president and
treasurer; executive vice president and chief financial officer; vice chairman, president, and
chief operating officer; and chairman, president, and chief executive officer. He is a member
of the boards of Ball Corporation; Energizer Holdings, Inc.; and Qwest Communications
International Inc. Mr. Hoover previously served on the board of Irwin Financial Corporation. He
is a member and past chair of the board of trustees of DePauw University and on the Indiana
University Kelley School of Business Dean’s Council. He is also a director of Boulder
Community Hospital and a member of the Colorado Forum.
Board Committees: audit and compensation

Age 66

Director since 1995

Franklyn G. Prendergast, M.D., Ph.D.
Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and
Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School;
and Director, Mayo Clinic Center for Individualized Medicine
Dr. Prendergast is the Edmond and Marion Guggenheim Professor of Biochemistry and
Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics
at Mayo Medical School and the director of the Mayo Clinic Center for Individualized Medicine.
He has held several other teaching positions at the Mayo Medical School since 1975.
Board Committees: public policy and compliance and science and technology

Age 61

Director since 1995

Kathi P. Seifert
Retired Executive Vice President, Kimberly-Clark Corporation
Ms. Seifert served as executive vice president for Kimberly-Clark Corporation until June 2004.
She joined Kimberly-Clark in 1978 and served in several capacities in connection with both the
domestic and international consumer products businesses. Prior to joining Kimberly-Clark,
Ms. Seifert held management positions at Procter & Gamble, Beatrice Foods, and Fort
Howard Paper Company. She is chairman of Katapult, LLC. Ms. Seifert serves on the boards of
Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.; Appleton
Papers Inc.; the U.S. Fund for UNICEF; and the Fox Cities Performing Arts Center.
Board Committees: audit and compensation

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Highlights of the Company’s Corporate Governance Guidelines

The following summary provides highlights of the company’s guidelines established by the board of directors. A
complete copy of the guidelines is available online at http://investor.lilly.com/governance.cfm or in paper form upon
request to the company’s corporate secretary.

I. Role of the Board
The directors are elected by the shareholders to oversee the actions and results of the company’s management.
Their responsibilities include:

• providing general oversight of the business
• approving corporate strategy
• approving major management initiatives
• providing oversight of legal and ethical conduct
• overseeing the company’s management of significant business risks
• selecting, compensating, and evaluating directors
• evaluating board processes and performance
• selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and

compensating other senior executives

• ensuring that a succession plan is in place for all senior executives.

II. Composition of the Board
Mix of Independent Directors and Officer-Directors
There should always be a substantial majority (75 percent or more) of independent directors. The chief executive
officer should be a board member. Other officers may, from time to time, be board members, but no officer other
than the chief executive officer should expect to be elected to the board by virtue of his or her position in the
company.

Selection of Director Candidates
The board selects candidates for board membership and establishes the criteria to be used in identifying potential
candidates. The board delegates the screening process to the directors and corporate governance committee. For
more information on the director nomination process, including the current selection criteria, see “Directors and
Corporate Governance Committee Matters.”

Independence Determinations
The board annually determines and discloses the independence of directors based on a review by the directors and
corporate governance committee. No director is considered independent unless the board has determined that he or
she has no material relationship with the company, either directly or as a partner, significant shareholder, or officer
of an organization that has a material relationship with the company. Material relationships can include commercial,
industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate
the materiality of any such relationship, the board has adopted categorical independence standards consistent with
the New York Stock Exchange (NYSE) listing standards, except that the “look-back period” for determining whether a
director’s prior relationship with the company impairs independence is extended from three to four years.

Specifically, a director is not considered independent if (i) the director or an immediate family member is a

current partner of the company’s independent auditor (currently Ernst & Young LLP); (ii) the director is a current
employee of such firm; (iii) the director has an immediate family member who is a current employee of such firm and
who participates in the firm’s audit, assurance, or tax compliance (but not tax planning) practice; or (iv) the director
or an immediate family member was within the last four years (but is no longer) a partner or employee of such firm
and personally worked on our audit within that time.

In addition, a director is not considered independent if any of the following relationships existed within the

previous four years:

• a director who is an employee of the company, or whose immediate family member is an executive officer of the
company. Temporary service by an independent director as interim chairman or chief executive officer will not
disqualify the director from being independent following completion of that service.

• a director who receives any direct compensation from the company other than the director’s normal director

compensation, or whose immediate family member receives more than $120,000 per year in direct
compensation from the company other than for service as a nonexecutive employee.

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• a director who is employed (or whose immediate family member is employed as an executive officer) by another

company where any Lilly executive officer serves on the compensation committee of that company’s board.
• a director who is employed by, who is a 10 percent shareholder of, or whose immediate family member is an

executive officer of a company that makes payments to or receives payments from Lilly for property or services
that exceed the greater of $1 million or 2 percent of that company’s gross revenue in a single fiscal year.

• a director who is an executive officer of a nonprofit organization that receives grants or contributions from the
company exceeding the greater of $1 million or 2 percent of that organization’s gross revenue in a single fiscal
year.

Members of board committees must meet all applicable independence tests of the NYSE, Securities and

Exchange Commission (SEC), and Internal Revenue Service (IRS).

The directors and corporate governance committee determined that all 12 nonemployee directors listed below

are independent, and that the members of each committee also meet the independence standards referenced above.
The committee recommended this conclusion to the board and explained the basis for its decision, and this
conclusion was adopted by the board. The committee and the board determined that none of the 12 directors has had
during the last four years (i) any of the relationships listed above or (ii) any other material relationship with the
company that would compromise his or her independence. In reaching this conclusion, the directors and corporate
governance committee reviewed directors’ responses to a questionnaire asking about their relationships with the
company and other potential conflicts of interest, as well as information provided by management related to
transactions, relationships, or arrangements between the company and the directors or parties related to the
directors. The table below includes a description of categories or types of transactions, relationships, or
arrangements considered by the board in reaching its determinations. All of these transactions were entered into at
arm’s length in the normal course of business and, to the extent they are commercial relationships, have standard
commercial terms. None of these transactions exceeded the thresholds described above or otherwise compromises
the independence of the named directors.

Name
Mr. Alvarez
Sir Winfried Bischoff
Mr. Eskew
Dr. Feldstein
Mr. Fyrwald
Dr. Gilman
Mr. Hoover
Ms. Horn
Ms. Marram
Mr. Oberhelman
Dr. Prendergast
Ms. Seifert

Independent
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes

Transactions/Relationships/Arrangements
None
None
None
None
Nalco water treatment services—immaterial
None
None
None
None
None
Lilly grants and contributions to Mayo Clinic and Mayo Foundation—immaterial
None

Director Tenure and Retirement Policy
Subject to the company’s charter documents, the following are the board’s expectations for director tenure:

• A company officer-director, including the chief executive officer, will resign from the board at the time he or she

retires or otherwise ceases to be an active employee of the company.

• Nonemployee directors will retire from the board not later than the annual meeting of shareholders that follows

their seventy-second birthday.

• Directors may stand for reelection even though the board’s retirement policy would prevent them from

completing a full three-year term.

• A nonemployee director who retires or changes principal job responsibilities will offer to resign from the board.

The directors and corporate governance committee will assess the situation and recommend to the board
whether to accept the resignation.

Other Board Service
Effective November 1, 2009, no new director may serve on more than three other public company boards, and no
incumbent director may accept new positions on public company boards that would result in service on more than
three other public company boards. The directors and corporate governance committee or the chair of that
committee may approve exceptions to this limit upon a determination that such additional service will not impair the
director’s effectiveness on the board.

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Voting for Directors
In an uncontested election, any nominee for director who fails to receive a majority of the votes cast shall promptly
tender his or her resignation following certification of the shareholder vote. The directors and corporate governance
committee will consider the resignation offer and recommend to the board whether to accept it. The board will act
on the committee’s recommendation within 90 days following certification of the shareholder vote. Board action on
the matter will require the approval of a majority of the independent directors.

The company will disclose the board’s decision on a Form 8-K within four business days after the decision,
including a full explanation of the process by which the decision was reached and, if applicable, the reasons why the
board rejected the director’s resignation. If the resignation is accepted, the directors and corporate governance
committee will recommend to the board whether to fill the vacancy or reduce the size of the board.

Any director who tenders his or her resignation under this provision will not participate in the committee or

board deliberations regarding the resignation offer. If all members of the directors and corporate governance
committee fail to receive a majority of the votes cast at the same election, the independent directors who did receive
a majority of the votes cast will appoint a committee amongst themselves to consider the resignation offers and
recommend to the board whether to accept them.

III. Director Compensation and Equity Ownership
The directors and corporate governance committee annually reviews board compensation. Any recommendations for
changes are made to the board by the committee.

Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion
of director compensation is in the form of company equity. Directors are required to hold company stock valued at
not less than five times their annual cash retainer; new directors are allowed five years to reach this ownership
level.

IV. Key Board Responsibilities
Selection of Chairman and Chief Executive Officer; Succession Planning
The board currently combines the role of chairman of the board with the role of chief executive officer, coupled with
a lead director position to further strengthen the governance structure. The board believes this provides an efficient
and effective leadership model for the company. Combining the chairman and CEO roles fosters clear accountability,
effective decision-making, and alignment on corporate strategy. To assure effective independent oversight, the
board has adopted a number of governance practices, including:

• a strong, independent, clearly-defined lead director role (see below for a full description of the role)
• executive sessions of the independent directors after every regular board meeting
• annual performance evaluations of the chairman and CEO by the independent directors.

However, no single leadership model is right for all companies and at all times. The board recognizes that
depending on the circumstances, other leadership models, such as a separate independent chairman of the board,
might be appropriate. Accordingly, the board periodically reviews its leadership structure.

The lead director recommends to the board an appropriate process by which a new chairman and chief
executive officer will be selected. The board has no required procedure for executing this responsibility because it
believes that the most appropriate process will depend on the circumstances surrounding each such decision.
A key responsibility of the CEO and the board is ensuring that an effective process is in place to provide
continuity of leadership over the long term. Each year, succession-planning reviews are held at every significant
organizational level of the company, culminating in a detailed review of senior leadership talent by the compensation
committee and a summary review by the independent directors as a whole. During this review, the CEO and the
independent directors discuss future candidates for senior leadership positions, succession timing for those
positions, and development plans for the highest-potential candidates. This process ensures continuity of leadership
over the long term, and it forms the basis on which the company makes ongoing leadership assignments. It is a key
success factor in managing the long planning and investment lead times of our business.

In addition, the CEO maintains in place at all times, and reviews with the independent directors, a confidential

plan for the timely and efficient transfer of his or her responsibilities in the event of an emergency or his or her
sudden incapacitation or departure.

Evaluation of Chief Executive Officer
The lead director is responsible for leading the independent directors in executive session to assess the
performance of the chief executive officer at least annually. The results of this assessment are reviewed with the
chief executive officer and considered by the compensation committee in establishing the chief executive officer’s
compensation for the next year.

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Corporate Strategy
Once each year, the board devotes an extended meeting with senior management to discuss the strategic issues and
opportunities facing the company, allowing the board an opportunity to provide direction for the corporate strategic
plan. These strategy sessions also provide the board an opportunity to interact extensively with the company’s senior
leadership team. This assists the board in its succession-management responsibilities.

Throughout the year, significant corporate strategy decisions are brought to the board for approval.

Code of Ethics
The board approves the company’s code of ethics. This code is set out in:

• The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees

worldwide and to our board of directors

• Code of Ethical Conduct for Lilly Financial Management, a supplemental code for our chief executive officer and all
members of financial management that recognizes the unique responsibilities of those individuals in assuring
proper accounting, financial reporting, internal controls, and financial stewardship.

Both documents are available online at http://www.lilly.com/about/compliance/conduct/ or in paper form upon

request to the company’s corporate secretary.

The audit committee and public policy and compliance committee assist in the board’s oversight of compliance

programs with respect to matters covered in the code of ethics.

Risk Oversight
The company has an enterprise risk management program overseen by its chief ethics and compliance officer and
senior vice president of enterprise risk management, who reports directly to the CEO and is a member of the
company’s top leadership committee. Enterprise risks are identified and prioritized by management, and the top
prioritized risks are assigned to a board committee or the full board for oversight. For example, strategic risks are
typically overseen by the full board; financial risks are overseen by the audit or finance committee; compliance and
reputational risks are typically overseen by the public policy and compliance committee; and scientific risks are
overseen by the science and technology committee. Management periodically reports on each such risk to the
relevant committee or the board. The enterprise risk management program as a whole is reviewed annually at a
joint meeting of the audit and public policy and compliance committees, and enterprise risks are also addressed at
the annual board strategy session. Additional review or reporting on enterprise risks is conducted as needed or as
requested by the board or committee. Also, the compensation committee periodically reviews the most important
enterprise risks to ensure that compensation programs do not encourage excessive risk-taking. The board’s role in
the oversight of risk had no effect on the board’s leadership structure.

V. Functioning of the Board
Executive Sessions of Directors
The independent directors meet alone in executive session and in private session with the chief executive officer at
every regularly scheduled board meeting.

Lead Director
The board annually appoints a lead director from among the independent directors (currently Ms. Horn). The board
has no set policy for rotation of the lead director role but believes that periodic rotation is appropriate. The lead
director:

• leads the board’s processes for selecting and evaluating the chief executive officer;
• presides at all meetings of the board at which the chairman is not present, including executive sessions of the

independent directors unless the directors decide that, due to the subject matter of the session, another
independent director should preside;

• serves as a liaison between the chairman and the independent directors;
• approves meeting agendas and schedules and generally approves information sent to the board;
• has the authority to call meetings of the independent directors; and
• has the authority to retain advisors to the independent directors.

Conflicts of Interest
Occasionally a director’s business or personal relationships may give rise to an interest that conflicts, or appears to
conflict, with the interests of the company. Directors must disclose to the company all relationships that create a
conflict or an appearance of a conflict. The board, after consultation with counsel, takes appropriate steps to ensure
that all directors voting on an issue are disinterested. In appropriate cases, the affected director will be excused
from discussions on the issue.

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To avoid any conflict or appearance of a conflict, board decisions on certain matters of corporate governance are

made solely by the independent directors. These include executive compensation and the selection, evaluation, and
removal of the chief executive officer.

Review and Approval of Transactions with Related Persons
The board has adopted a written policy and written procedures for review, approval, and monitoring of transactions
involving the company and related persons (directors and executive officers, their immediate family members, or
shareholders of 5 percent or greater of the company’s outstanding stock). The policy covers any related-person
transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules
(generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect
material interest).

• Policy. Related-person transactions must be approved by the board or by a committee of the board consisting
solely of independent directors, who will approve the transaction only if they determine that it is in the best
interests of the company. In considering the transaction, the board or committee will consider all relevant
factors, including:

—the company’s business rationale for entering into the transaction;
—the alternatives to entering into a related-person transaction;
—whether the transaction is on terms comparable to those available to third parties, or in the case of

employment relationships, to employees generally;

—the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards

imposed to prevent such actual or apparent conflicts; and

—the overall fairness of the transaction to the company.

The board or relevant committee will periodically monitor the transaction to ensure that there are no
changed circumstances that would render it advisable for the company to amend or terminate the transaction.

• Procedures.

—Management or the affected director or executive officer will bring the matter to the attention of the
chairman, the lead director, the chair of the directors and corporate governance committee, or the
secretary.

—The chairman and the lead director shall jointly determine (or, if either is involved in the transaction, the

other shall determine in consultation with the chair of the directors and corporate governance committee)
whether the matter should be considered by the board or by one of its existing committees consisting only
of independent directors.

—If a director is involved in the transaction, he or she will be recused from all discussions and decisions

about the transaction.

—The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified

as promptly as practicable.

—The board or relevant committee will review the transaction annually to determine whether it continues to

be in the company’s best interests.

Dr. John Bamforth, spouse of Dr. Susan Mahony, senior vice president and president, Lilly oncology, has been
employed by the company for over 20 years. In 2010, he was paid approximately $400,000 (including base salary and
cash incentive compensation). In addition, he received grants under the company’s performance-based equity
program with target payouts of approximately 2,900 shares of company stock. Dr. Bamforth also participated in the
company’s benefit programs generally available to U.S. employees. Dr. Bamforth’s compensation was established in
accordance with the company’s compensation practices applicable to employees with equivalent qualifications and
responsibilities and holding similar positions.

Orientation of New Directors; Director Education
A comprehensive orientation process is in place for new directors. In addition, directors receive ongoing continuing
education through educational sessions at meetings, the annual strategy retreat, and periodic communications
between meetings. We hold periodic mandatory training sessions for the audit committee, to which other directors
and executive officers are invited. We also afford directors the opportunity to attend external director education
programs.

Director Access to Management and Independent Advisors
Independent directors have direct access to members of management whenever they deem it necessary. The
independent directors and committees are also free to retain their own independent advisors, at company expense,
whenever they feel it would be desirable to do so. In accordance with NYSE listing standards, the audit,
compensation, and directors and corporate governance committees have sole authority to retain independent
advisors to their respective committees.

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Assessment of Board Processes and Performance
The directors and corporate governance committee annually assesses the performance of the board, its committees,
and board processes based on inputs from all directors. The committee also considers the contributions of individual
directors at least every three years when considering whether to recommend nominating the director to a new
three-year term.

Committees of the Board of Directors

Number, Structure, and Independence
The duties and membership of the six board-appointed committees are described below. Only independent directors
may serve on the committees.

Committee membership and selection of committee chairs are recommended to the board by the directors and
corporate governance committee after consulting the chairman of the board and after considering the backgrounds,
skills, and desires of the board members. The board has no set policy for rotation of committee members or chairs
but annually reviews committee memberships and chair positions, seeking the best blend of continuity and fresh
perspectives on the committees.

Functioning of Committees
Each committee reviews and approves its own charter annually, and the directors and corporate governance
committee reviews and approves all committee charters annually. The chair of each committee determines the
frequency and agenda of committee meetings. In addition, the audit, compensation, and public policy and compliance
committees meet alone in executive session on a regular basis; all other committees meet in executive session as
needed.

All six committee charters are available online at http://investor.lilly.com/governance.cfm.

Audit Committee
The duties of the audit committee are described in the “Audit Committee Report.”

Compensation Committee
The duties of the compensation committee are described on pages 23-24, and the “Compensation Committee
Report” is shown on page 37.

Directors and Corporate Governance Committee
The duties of the directors and corporate governance committee are described in the “Directors and Corporate
Governance Committee Matters” section.

Finance Committee
The finance committee reviews and makes recommendations regarding capital structure and strategies, including
dividends, stock repurchases, capital expenditures, financings and borrowings, and significant business develop-
ment projects.

Public Policy and Compliance Committee

• oversees the processes by which the company conducts its business so that the company will do so in a manner

that complies with laws and regulations and reflects the highest standards of integrity

• reviews and makes recommendations regarding policies, practices, and procedures of the company that relate

to public policy and social, political, and economic issues.

Science and Technology Committee

• reviews and makes recommendations regarding the company’s strategic research goals and objectives
• reviews new developments, technologies, and trends in pharmaceutical research and development
• oversees matters of scientific and medical integrity and risk management.

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Membership and Meetings of the Board and Its Committees

In 2010, each director attended more than 78 percent of the total number of meetings of the board and the
committees on which he or she serves. In addition, all board members are expected to attend the annual meeting of
shareholders, and 11 directors attended in 2010. Current committee membership and the number of meetings of the
board and each committee in 2010 are shown in the table below.

Name

Mr. Alvarez

Sir Winfried Bischoff

Mr. Eskew

Dr. Feldstein

Mr. Fyrwald

Dr. Gilman

Mr. Hoover

Ms. Horn

Dr. Lechleiter

Ms. Marram

Mr. Oberhelman

Dr. Prendergast

Ms. Seifert

Board

Member

Audit

Compensation

Directors and
Corporate
Governance

Finance

Public
Policy and
Compliance

Science and
Technology

Member Member

Member

Chair

Member

Member Member

Member

Chair

Member

Chair

Lead Director

Chair

Member

Chair

Member

Chair

Member

Member Member

Member

Number of 2010 Meetings

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Directors’ Compensation

Director compensation is reviewed and approved annually by the board, on the recommendation of the directors and
corporate governance committee. Directors who are employees receive no additional compensation for serving on
the board or its committees.

Cash Compensation
In 2010, the company provided nonemployee directors the following cash compensation:

• retainer of $80,000 per year (payable monthly)
• $1,000 for each committee meeting attended
• $2,000 to the committee chair for each committee meeting conducted as compensation for the chair’s

preparation time

• retainer of $30,000 per year to the lead director
• reimbursement for customary and usual travel expenses.

In 2011, cash compensation for directors will be revised to eliminate meeting fees, and instead provide an

annual retainer of $100,000 (payable monthly). In addition, certain board roles will receive additional annual
retainers:

• $3,000 for audit committee and science and technology committee members
• $12,000 for committee chairs ($18,000 for audit committee chair and $15,000 for science and technology

committee chair)

• $30,000 for the lead director.

Directors will continue to be reimbursed for customary and usual travel expenses.

Stock Compensation
Stock compensation for nonemployee directors consists of shares of company stock equaling $145,000, deposited
annually in a deferred stock account in the Lilly Directors’ Deferral Plan (as described below), payable after service
on the board has ended.

Lilly Directors’ Deferral Plan
This plan allows nonemployee directors to defer receipt of all or part of their cash compensation until after their
service on the board has ended. Each director can choose to invest the funds in one or both of two accounts:
• Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred cash

compensation in company stock. In addition, the annual award of shares to each director noted above
(4,187 shares in 2010) is credited to this account on a pre-set annual date. Funds in this account are credited as
hypothetical shares of company stock based on the market price of the stock at the time the compensation
would otherwise have been earned. Hypothetical dividends are “reinvested” in additional shares based on the
market price of the stock on the date dividends are paid. Actual shares are issued or transferred after the
director ends his or her service on the board.

• Deferred Compensation Account. Funds in this account earn interest each year at a rate of 120 percent of the
applicable federal long-term rate, compounded monthly, as established the preceding December by the U.S.
Treasury Department under Section 1274(d) of the Internal Revenue Code. The aggregate amount of interest
that accrued in 2010 for the participating directors was $181,203, at a rate of 4.9 percent. The rate for 2011 is
4.2 percent.

Both accounts may be paid in a lump sum or in annual installments for up to 10 years, beginning the second
January following the director’s departure from the board. Amounts in the deferred stock account are paid in shares
of company stock.

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Directors’ Compensation
In 2010, we provided the following compensation to directors who are not employees:

Name

Mr. Alvarez

Sir Winfried Bischoff

Mr. Eskew

Dr. Feldstein

Mr. Fyrwald

Dr. Gilman

Mr. Hoover

Ms. Horn

Ms. Marram

Mr. Oberhelman

Dr. Prendergast

Ms. Seifert

Fees Earned
or Paid in Cash ($) 1

Stock Awards ($) 2

All Other
Compensation and
Payments ($) 3

$98,000

$106,000

$119,000

$115,000

$99,000

$109,000

$99,000

$144,000

$102,000

$96,000

$95,000

$98,000

$145,000

$41,000

$61,784

$9,500

$30,000

$4,700

$45,000

$49,838

$37,511

Total ($) 4

$243,000

$251,000

$264,000

$301,000

$305,784

$263,500

$274,000

$293,700

$292,000

$290,838

$240,000

$280,511

1 In 2010, no director deferred cash compensation into their deferred stock accounts under the Lilly Directors’

Deferral Plan (further described above).

2 Each nonemployee director received an award of stock valued at $145,000 (4,187 shares). This stock award and all

prior stock awards are fully vested in that they are not subject to forfeiture; however, the shares are not issued until
the director ends his or her service on the board, as further described above under “Lilly Directors’ Deferral Plan.”
The column shows the grant date fair value for each director’s stock award. Aggregate outstanding stock awards
are shown in the table on page 49 under “Common Stock Ownership by Directors and Executive Officers” in the
“Directors’ Deferral Plan Shares” column. Aggregate outstanding stock options as of December 31, 2010 are shown
in the table below. Nonemployee directors received no stock options in 2010. The company discontinued granting
stock options to nonemployee directors in 2005. All outstanding stock options are currently under water, meaning
they have no realizable value.

Name

Mr. Alvarez

Sir Winfried Bischoff

Mr. Eskew

Dr. Feldstein

Mr. Fyrwald

Dr. Gilman

Mr. Hoover

Ms. Horn

Ms. Marram

Mr. Oberhelman

Dr. Prendergast

Ms. Seifert

Outstanding Stock Options
(Exercisable)

Weighted Average
Exercise Price

—

11,200

—

8,400

—

11,200

—

11,200

5,600

—

11,200

—

$70.22

—

$68.96

—

$70.22

—

$70.22

$65.48

—

$70.22

3 This column consists of amounts donated by the Eli Lilly and Company Foundation, Inc. under its matching gift

program, which is generally available to U.S. employees as well as the outside directors. Under this program, the
foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of
$90,000 per year for each individual (beginning in 2011, the maximum has been decreased to $30,000). The
foundation matched these donations via payments made directly to the recipient charity.

4 Directors do not participate in a company pension plan or non-equity incentive plan.

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Directors and Corporate Governance Committee Matters

Overview
The directors and corporate governance committee recommends to the board candidates for membership on the
board and board committees and for lead director. The committee also oversees matters of corporate governance,
including board performance, director independence and compensation, and the corporate governance guidelines.
The committee’s charter is available online at http://investor.lilly.com/governance.cfm or in paper form upon
request to the company’s corporate secretary.

All committee members are independent as defined in the NYSE listing requirements.

Director Qualifications
The board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the
quality of the board’s deliberations and decisions. Candidates shall have substantial experience with one or more
publicly-traded national or multinational companies or shall have achieved a high level of distinction in their chosen
fields.

Board membership should reflect diversity in its broadest sense, including persons diverse in geography,

gender, and ethnicity. The board is particularly interested in maintaining a mix that includes the following
backgrounds:

• active or retired chief executive officers and senior executives, particularly those with experience in operations,

finance, accounting, banking, marketing, and sales

• international business
• medicine and science
• government and public policy
• health care system (public or private).

Finally, board members should display the personal attributes necessary to be an effective director:

unquestioned integrity, sound judgment, independence in fact and mindset, ability to operate collaboratively, and
commitment to the company, its shareholders, and other constituencies.

Our board members represent a desirable mix of backgrounds, skills, and experiences, and they all share the

personal attributes of effective directors described above. The board monitors the effectiveness of this approach via
an annual internal board assessment as well as ongoing director succession planning discussions by the directors
and corporate governance committee. Below are some of the specific experiences and skills of our independent
directors:

Ralph Alvarez
Through his senior executive positions at McDonald’s Corporation and other global restaurant businesses,
Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and
strategic planning. His international experience includes a special focus on emerging markets.

Sir Winfried Bischoff
Sir Winfried Bischoff has a distinguished career in banking and finance, including commercial banking, corporate
finance, and investment banking. He has CEO experience both in Europe and the U.S. He is a globalist, with
particular expertise in European matters but with extensive experience overseeing worldwide operations. He has
broad corporate governance experience from his service on public company boards in the U.S., UK, and other
European and Asian countries.

Michael L. Eskew
Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide
operations, strategic planning, and building a strong consumer brand focus. He is an audit committee financial
expert, based on his CEO experience and his service on other U.S. company audit committees. He has extensive
corporate governance experience through his service on the boards of other companies.

Martin S. Feldstein
Dr. Feldstein is a renowned economist, academic, and adviser to U.S. presidents of both political parties. He has
deep economic and public policy expertise, financial acumen, and a global perspective. His background as an
academic brings a diversity of experience and perspective to the board’s deliberations. He has also served on the
boards of several major public companies.

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J. Erik Fyrwald
Mr. Fyrwald has a strong record of operational and strategy leadership in two complex worldwide businesses with a
focus on technology and innovation. An engineer by training, he has extensive senior executive experience at DuPont,
a multinational chemical company, where he led their agriculture and nutrition division, which used chemical and
biotechnology solutions to enhance plant health. For the last three years he has been chairman and CEO of Nalco, a
global technology-based water products and services company.

Alfred G. Gilman
Dr. Gilman is a Nobel Prize winning pharmacologist, researcher, and professor. He has deep expertise in basic
science, including mechanisms of drug action, and experience with pharmaceutical discovery research. As the
former dean of a major medical school, he brings to the board important perspectives of both the academic and
practicing medical communities.

R. David Hoover
Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and
strategy. He is an audit committee financial expert as a result of his experience as CEO and CFO of Ball. He also has
extensive corporate governance experience through his service on other public company boards.

Karen N. Horn
Ms. Horn is a former CEO with extensive experience in various segments of the financial industry, including banking
and financial services. Through her for-profit and her public-private partnership work, she has significant
experience in international economics and finance. Ms. Horn has extensive corporate governance experience
through service on other public company boards in a variety of industries.

John C. Lechleiter
Dr. Lechleiter is our chairman, president, and chief executive officer. Under our corporate governance guidelines,
the CEO is expected to serve on the board of directors. Dr. Lechleiter, a Ph.D. chemist, has over 30 years of
experience with the company in a variety of roles of increasing responsibility in research and development, sales and
marketing, and corporate administration. As a result, he has a deep understanding of pharmaceutical research and
development, sales and marketing, strategy, and operations. He also has significant corporate governance
experience through service on other public company boards.

Ellen R. Marram
Ms. Marram is a former CEO with a strong marketing and consumer brand background. Through her nonprofit and
private company activities, she has a special focus and expertise in wellness and consumer health. Ms. Marram has
extensive corporate governance experience through service on other public company boards in a variety of
industries.

Douglas R. Oberhelman
Mr. Oberhelman has a strong strategic and operational background as a senior executive (and most recently as
chairman and CEO) of Caterpillar, a leading manufacturing company with worldwide operations and a special focus
on emerging markets. He is an audit committee financial expert as a result of his prior experience as CFO of
Caterpillar and as a member and chairman of the audit committee of another U.S. public company.

Franklyn G. Prendergast
Dr. Prendergast is a prominent medical clinician, researcher, and academician. He has extensive experience in
senior-most administration at Mayo Clinic, a major medical institution, and as director of its renowned cancer
center. He has special expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical
doctor, he brings an important practicing physician perspective to the board’s deliberations.

Kathi P. Seifert
Ms. Seifert is a retired senior executive of Kimberly-Clark, a global consumer products company. She has strong
expertise in consumer marketing and brand management, having led sales and marketing for several worldwide
brands, with a special focus on consumer health. She has extensive corporate governance experience through her
other board positions.

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Director Nomination Process
The board delegates the screening process to the directors and corporate governance committee, which receives
direct input from other board members. Potential candidates are identified through recommendations from several
sources, including:

• incumbent directors
• management
• shareholders
• independent executive search firms that may be retained by the committee to assist in locating and screening

candidates meeting the board’s selection criteria.

The committee employs the same process for evaluating all candidates, including those submitted by

shareholders. The committee initially evaluates a candidate based on publicly available information and any
additional information supplied by the party recommending the candidate. If the candidate appears to satisfy the
selection criteria and the committee’s initial evaluation is favorable, the committee, assisted by management or the
search firm, gathers additional data on the candidate’s qualifications, availability, probable level of interest, and any
potential conflicts of interest. If the committee’s subsequent evaluation continues to be favorable, the candidate is
contacted by the chairman of the board and one or more of the independent directors for direct discussions to
determine the mutual levels of interest in pursuing the candidacy. If these discussions are favorable, the committee
makes a final recommendation to the board to nominate the candidate for election by the shareholders (or to select
the candidate to fill a vacancy, as applicable).

Process for Submitting Recommendations and Nominations
A shareholder who wishes to recommend a director candidate for evaluation by the committee pursuant to this
process should forward the candidate’s name and information about the candidate’s qualifications to the chair of the
directors and corporate governance committee, in care of the corporate secretary, at Lilly Corporate Center,
Indianapolis, Indiana 46285. The candidate must meet the selection criteria described above and must be willing and
expressly interested in serving on the board.

Under Section 1.9 of the company’s bylaws, a shareholder who wishes to directly nominate a director candidate

at the 2012 annual meeting (i.e., to propose a candidate for election who is not otherwise nominated by the board
through the recommendation process described above) must give the company written notice by November 8, 2011
and no earlier than September 9, 2011. The notice should be addressed to the corporate secretary at Lilly Corporate
Center, Indianapolis, Indiana 46285. The notice must contain prescribed information about the candidate and about
the shareholder proposing the candidate as described in more detail in Section 1.9 of the bylaws. A copy of the
bylaws is available online at http://investor.lilly.com/governance.cfm. The bylaws will also be provided by mail
without charge upon request to the corporate secretary.

Audit Committee Matters

Audit Committee Membership
All members of the audit committee are independent as defined in the SEC regulations and NYSE listing standards
applicable to audit committee members. The board of directors has determined that Mr. Eskew, Mr. Hoover, and
Mr. Oberhelman are audit committee financial experts, as defined in the rules of the SEC.

Audit Committee Report
The audit committee (“we” or “the committee”) reviews the company’s financial reporting process on behalf of the
board. Management has the primary responsibility for the financial statements and the reporting process, including
the systems of internal controls and disclosure controls. In this context, we have met and held discussions with
management and the independent auditor. Management represented to us that the company’s consolidated financial
statements were prepared in accordance with generally accepted accounting principles (GAAP), and we have
reviewed and discussed the audited financial statements and related disclosures with management and the
independent auditor, including a review of the significant management judgments underlying the financial
statements and disclosures.

The independent auditor reports to us. We have sole authority to appoint and to replace the independent auditor.
We have discussed with the independent auditor matters required to be discussed by Statement on Auditing

Standards No. 61 (Communication with Audit Committees), as amended and as adopted by the Public Company
Accounting Oversight Board (PCAOB) in Rule 3200T, including the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements.

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In addition, we have received the written disclosures and the letter from the independent auditor required by
applicable requirements of the PCAOB regarding communications with the audit committee concerning
independence, and have discussed with the independent auditor the auditor’s independence from the company and
its management. In concluding that the auditor is independent, we determined, among other things, that the
nonaudit services provided by Ernst & Young LLP (as described below) were compatible with its independence.
Consistent with the requirements of the Sarbanes-Oxley Act of 2002, we have adopted policies to avoid
compromising the independence of the independent auditor, such as prior committee approval of nonaudit services
and required audit partner rotation.

We discussed with the company’s internal and independent auditors the overall scope and plans for their
respective audits, including internal control testing under Section 404 of the Sarbanes-Oxley Act. We periodically
meet with the internal and independent auditors, with and without management present, and in private sessions with
members of senior management (such as the chief financial officer and the chief accounting officer) to discuss the
results of their examinations, their evaluations of the company’s internal controls, and the overall quality of the
company’s financial reporting. We also periodically meet in executive session.

In reliance on the reviews and discussions referred to above, we recommended to the board (and the board
subsequently approved the recommendation) that the audited financial statements be included in the company’s
annual report on Form 10-K for the year ended December 31, 2010, for filing with the SEC. We have also appointed
the company’s independent auditor, subject to shareholder ratification, for 2011.

Audit Committee
Michael L. Eskew, Chair
Martin S. Feldstein, Ph.D.
R. David Hoover
Douglas R. Oberhelman
Kathi P. Seifert

Services Performed by the Independent Auditor
The audit committee preapproves all services performed by the independent auditor, in part to assess whether the
provision of such services might impair the auditor’s independence. The committee’s policy and procedures are as
follows:

• The committee approves the annual audit services engagement and, if necessary, any changes in terms,

conditions, and fees resulting from changes in audit scope, company structure, or other matters. Audit services
include internal controls attestation work under Section 404 of the Sarbanes-Oxley Act. The committee may also
preapprove other audit services, which are those services that only the independent auditor reasonably can
provide.

• Audit-related services are assurance and related services that are reasonably related to the performance of the

audit, and that are traditionally performed by the independent auditor. The committee believes that the
provision of these services does not impair the independence of the auditor.

• Tax services. The committee believes that, in appropriate cases, the independent auditor can provide tax

compliance services, tax planning, and tax advice without impairing the auditor’s independence.

• The committee may approve other services to be provided by the independent auditor if (i) the services are
permissible under SEC and PCAOB rules, (ii) the committee believes the provision of the services would not
impair the independence of the auditor, and (iii) management believes that the auditor is the best choice to
provide the services.

• Process. At the beginning of each audit year, management requests prior committee approval of the annual
audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other engagements
known at that time. Management will also present at that time an estimate of all fees for the upcoming audit
year. As specific engagements are identified thereafter, they are brought forward to the committee for approval.
To the extent approvals are required between regularly scheduled committee meetings, preapproval authority
is delegated to the committee chair.

For each engagement, management provides the committee with information about the services and fees,

sufficiently detailed to allow the committee to make an informed judgment about the nature and scope of the
services and the potential for the services to impair the independence of the auditor.

After the end of the audit year, management provides the committee with a summary of the actual fees incurred

for the completed audit year.

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Independent Auditor Fees
The following table shows the fees incurred for services rendered on a worldwide basis by the company’s
independent auditor, in 2010 and 2009. All such services were preapproved by the committee in accordance with the
preapproval policy.

Audit Fees

• Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation
• Reviews of quarterly financial statements
• Other services normally provided by the auditor in connection with statutory and regulatory filings

Audit-Related Fees

• Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements

— 2010 and 2009: primarily related to employee benefit plan and other ancillary audits, and due diligence services on

potential acquisitions

Tax Fees

• 2010 and 2009: primarily related to consulting and compliance services

All Other Fees

• 2010 and 2009: primarily related to compliance services outside the U.S.

Total

Compensation Committee Matters

2010
(millions)

2009
(millions)

$8.7

$8.0

$0.8

$1.1

$0.9

$0.1

$1.2

$0.1

$10.5

$10.4

Scope of Authority
The compensation committee oversees the company’s global compensation philosophy and establishes the
compensation of executive officers. The committee also acts as the oversight committee with respect to the
company’s deferred compensation plans, management stock plans, and other management incentive compensation
programs. The committee may delegate authority to company officers for day-to-day plan administration and
interpretation, including selecting participants, determining award levels within plan parameters, and approving
award documents. However, the committee may not delegate any authority for matters affecting the executive
officers.

The Committee’s Processes and Procedures
The committee’s primary processes for establishing and overseeing executive compensation can be found in the
“Compensation Discussion and Analysis” section under “The Committee’s Processes and Analyses” below.
Additional processes and procedures include:

• Meetings. The committee meets several times each year (10 times in 2010). Committee agendas are approved by
the committee chair in consultation with the committee’s independent compensation consultant. The committee
meets in executive session after each meeting.

• Role of independent consultant. The committee has retained Frederic W. Cook and his firm, Frederic W. Cook &
Co., Inc., as its independent compensation consultant to assist the committee. Mr. Cook reports directly to the
committee, and neither he nor his firm is permitted to perform any services for management. The consultant’s
duties include the following:

—review committee agendas and supporting materials in advance of each meeting and raise questions with

the company’s global compensation group and the committee chair as appropriate

—review the company’s total compensation philosophy, peer group, and target competitive positioning for

reasonableness and appropriateness

—review the company’s executive compensation program and advise the committee of plans or practices that

might be changed in light of evolving best practices

—provide independent analyses and recommendations to the committee on the CEO’s pay
—review draft “Compensation Discussion and Analysis” and related tables for the proxy statement
—proactively advise the committee on best practices for board governance of executive compensation
—undertake special projects at the request of the committee chair.

The consultant interacts directly with members of company management only on matters under the
committee’s oversight and with the knowledge and permission of the committee chair.

• Role of executive officers and management. With the oversight of the CEO and the senior vice president of human

resources, the company’s global compensation group formulates recommendations on compensation
philosophy, plan design, and the specific compensation recommendations for executive officers (other than the
CEO, as noted below). The CEO gives the committee a performance assessment and compensation
recommendation for each of the other executive officers. The committee considers those recommendations

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with the assistance of its compensation consultant. The CEO and the senior vice president of human resources
attend committee meetings but are not present for executive sessions or for any discussion of their own
compensation. (Only nonemployee directors and the committee’s consultant attend executive sessions.)

The CEO normally does not participate in the formulation or discussion of his pay recommendations; how-

ever, as he did last year, Dr. Lechleiter requested that no increases be made to his base salary or incentive
targets for 2011. The CEO has no prior knowledge of the recommendations that the consultant makes to the
committee.

• Risk assessment. With the help of its compensation consultant, in 2010 the committee reviewed the company’s
compensation policies and practices for all employees, including executive officers. The committee concluded
that the company’s compensation programs will not have a material adverse effect on the company, after
reviewing the business risks disclosed in the 2009 Form 10-K in relation to the design of compensation
programs. The committee noted several design features of the company’s cash and equity incentive programs
that reduce the likelihood of inappropriate risk-taking:

—incentive plans include payouts at threshold levels that provide for payouts below target
—incentive payouts are capped at appropriate levels
—different measures are used across multiple incentive plans
—the cost of incentive program payouts is included when determining payout results
—performance objectives are appropriately difficult
—company performance targets and individual incentive payment targets are set using multiple inputs
—the bonus program has a continuum of payout levels for individual performance.

The committee concluded that, for all employees, the company’s compensation programs do not encourage

excessive risk and instead encourage behaviors that support sustainable value creation.

Compensation Committee Interlocks and Insider Participation
None of the compensation committee members:

• has ever been an officer or employee of the company
• is or was a participant in a related-person transaction in 2010 (see “Review and Approval of Transactions with

Related Persons” for a description of our policy on related-person transactions)

• is an executive officer of another entity, at which one of our executive officers serves on the board of directors.

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Compensation Discussion and Analysis

Summary
Executive compensation for 2010 aligned well with the objectives of our compensation philosophy and with our
performance, driven by these factors:

• Strong growth in operating results drove strong annual bonus and performance award (PA)

payouts. Strong operating performance included 6.7 percent revenue growth (adjusted for
the impact of U.S. health care reform) and 12.7 percent non-GAAP earnings per share
(EPS) growth (adjusted for the impact of U.S. health care reform). For the 2009-2010 PA,
the annual compounded EPS growth rate was 14.2 percent. These results exceeded our
targets (based on expected peer group performance) and resulted in above-target cash
bonus and PA payouts for all participants.

Highlights:
• Strong operating results
• Stock price results in no

executive officer SVA payout

• No increase to CEO salary

or incentive targets for 2010
or 2011

• Lagging stock price resulted in no payout of shareholder value
awards (SVAs). Total shareholder return (TSR) for 2008-2010
failed to meet the threshold for the SVA; as a result, awards
granted to executive officers did not pay out.

• Cost-effective equity design maintained for 2010, with emphasis
on long-term performance. In 2010, we continued our two-year
PA program and our three-year SVA program and maintained
a 50/50 mix of PAs and SVAs for all members of senior
management.

• A balanced program fosters employee achievement, retention,
and engagement. We delivered a total compensation package
composed of salary, performance-based cash and equity
incentives, and a competitive employee benefits program.
Together these elements reinforced pay-for-performance,
provided a balanced focus on both long- and short-term
performance, and encouraged employee retention and
engagement.

In addition:

• No increase in CEO target compensation for 2010 or 2011. As he

did last year and in light of the business challenges the
company currently faces, Dr. Lechleiter requested, and the
compensation committee approved, no increases to his 2011
salary or incentive targets.

• The compensation committee reviewed the connection between

compensation and risk. The committee reviewed our
compensation programs and policies for features that may
encourage excessive risk taking and found the overall
program to be sound.

Lilly Performance

Revenue
Growth
2010

Non-GAAP
EPS Growth
2010

Non-GAAP
EPS Growth
2009

3-Year TSR
Growth**

13%*

16%

7%*

Expected
peer group
performance

Lilly 2010
performance

-34%

2010 Incentive Program Payouts

2.00

1.42

1.00

Target

Actual

0.00

Bonus (cash)
2010

PA (stock)
2009-2010

SVA (stock)**
2008-2010

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20%

10%

-10%

-20%

4.00

3.00

2.00

1.00

0.00

*adjusted for U.S. health care reform
**SVA payout based on performance against absolute target set when award is initially granted
using an expected compounded annual rate of total shareholder return (TSR) for large-cap
companies

The Committee’s Processes and Analyses
Linking Business Strategy and Compensation Program Design
At Lilly, we aim to discover, develop, and acquire innovative new therapies—medicines that
make a real difference for patients and deliver clear value for payers. In addition, we must
continually improve productivity in all that we do. To achieve these goals, we must attract,
engage, and retain highly-talented individuals who are committed to the company’s core values
of integrity, excellence, and respect for people. Our compensation and benefits programs are
based on these objectives:

• Reflect individual and company performance. We link all employees’ pay to individual and

Executive Compensation
Philosophy:
• Individual and company

performance
• Long-term focus
• Efficient and egalitarian
• Consideration of both
internal relativity and
competitive pay

company performance.

—As employees assume greater responsibilities, more of their pay is linked to company performance and

shareholder returns through increased participation in equity programs.

—We seek to deliver above-market compensation given top-tier individual and company performance, but

below-market compensation where individual performance falls short of expectations or company
performance lags the industry.

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—Our 2010 incentive programs used a combination of financial metrics (revenue, EPS, and TSR), as

measured against the performance of our peer companies. We design our programs to be simple and
clear, so that employees can understand how their efforts affect their pay.

—We balance the objectives of pay-for-performance and employee retention. Even during downturns in

company performance, the program should continue to motivate and engage successful, high-achieving
employees.

• Foster a long-term focus. In our industry, long-term focus is critical to success and is consistent with our goal of
retaining highly-talented employees as they build their careers. A competitive benefits program aids retention.
As employees progress to higher levels of the organization, a greater portion of compensation is tied to long-
term performance through our equity programs.

• Provide compensation consistent with the level of job responsibility and reflective of the market. We seek internal

pay relativity, meaning that pay differences among jobs should be commensurate with differences in job
responsibility and impact. In addition, the committee compares the company’s programs with a peer group of
global pharmaceutical companies. Pharmaceutical companies’ needs for scientific and sales and marketing
talent are unique to the industry and we must compete with these companies for talent.

• Provide efficient and egalitarian compensation. We seek to deliver superior long-term shareholder returns and to

share value created with employees in a cost-effective manner. While compensation will always reflect
differences in job responsibilities, geographies, and marketplace considerations, the overall structure of
compensation and benefits programs should be broadly similar across the organization.

• Appropriately mitigate risk. The compensation committee reviews the company’s compensation policies and

practices annually and works with management to ensure that program design does not inadvertently create
inappropriate incentives.

Setting Compensation
The compensation committee uses several tools to set compensation targets that meet company objectives. Among
those are:

• Assessment of individual performance. Individual performance has a strong impact on compensation.

—The independent directors, under the direction of the lead director, meet with the CEO at the beginning of

the year to agree upon the CEO’s performance objectives for the year. At the end of the year, the
independent directors meet with the CEO and in executive session to assess the CEO’s performance based
on his achievement of the objectives, contribution to the company’s performance, ethics and integrity, and
other leadership accomplishments. This evaluation is shared with the CEO by the lead director and is used
by the compensation committee in setting the CEO’s compensation for the following year.

—For the other executive officers, the committee receives performance assessments and compensation

recommendations from the CEO and also exercises its judgment based on the board’s interactions with the
executive officers. As with the CEO, an executive officer’s performance assessment is based on his or her
achievement of objectives established between the executive officer and the CEO, contribution to the
company’s performance, ethics and integrity, and other leadership attributes and accomplishments.
• Assessment of company performance. The committee uses company performance measures in two ways:

—In establishing total compensation ranges, the committee uses as a reference the performance of the
company and its peer group with respect to revenue, EPS, return on assets, return on equity, and TSR.

—The committee establishes specific company performance targets that determine payouts under the

company’s cash and equity incentive programs.

• Peer group analysis. The committee reviews peer group data as a market check for compensation decisions, but

does not base compensation targets on peer group data only.

Compensation
Considerations:

• Individual metrics
• Company metrics
• Peer group analysis
• External advisor
• Internal relativity

—Overall competitiveness. The committee uses aggregated market data as a reference point to

ensure that executive compensation is competitive, meaning within the broad middle range of
comparative pay at peer companies when the company achieves the targeted performance
levels. The committee does not target a specific position within the range.

—Individual competitiveness. The committee compares the overall pay of individual executives if
the jobs are sufficiently similar to make the comparison meaningful. The individual’s pay is
driven primarily by individual and company performance and internal relativity; the peer group
data is used as a market check to ensure that individual pay remains within the broad middle
range of peer group pay. The committee does not target a specific position within the range.
The peer group consists of Abbott Laboratories; Amgen Inc.; AstraZeneca plc; Bristol-Myers Squibb Company;
GlaxoSmithKline plc; Hoffmann-La Roche Inc.; Johnson & Johnson; Merck & Co., Inc.; Novartis AG; Pfizer Inc.;
and Sanofi-Aventis (Schering-Plough Corporation and Wyeth are no longer included independently, due to

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industry consolidation). The committee reviews the peer group for appropriateness at least every three years,
and the current peer group was used in both 2009 and 2010 (with the exception of Schering-Plough Corporation
and Wyeth in 2010). The peer companies are direct competitors for our products, operate in a similar business
model, and employ people with the unique skills required to operate an established biopharmaceutical
company. The committee also considers market cap and revenue as measures of size; with the exception of
Johnson & Johnson, all peer companies were between one-half to three times our size with regard to both
measures at the time the peer group was approved in 2008. The committee included Johnson & Johnson,
despite its size, because it competes directly with Lilly for talent at all management levels.

• CEO compensation. To provide further assurance of independence, the compensation recommendation for the
CEO is developed by the committee’s independent consultant with limited support from company staff. The
consultant prepares analyses showing competitive CEO compensation among the peer group for the individual
elements of compensation and total direct compensation. The consultant develops a range of recommendations
for any change in the CEO’s base salary, annual cash incentive target, equity grant value, and equity mix. The
recommendations take into account the peer competitive pay analysis, expected future pay trends, and
importantly, the position of the CEO in relation to other senior company executives and proposed pay actions for
all key employees of the company. The range allows the committee to exercise its discretion based on the CEO’s
individual performance and other factors. The CEO has no prior knowledge of the recommendations and
normally takes no part in the recommendations, committee discussions, or decisions. For 2011, as he did for
2010, Dr. Lechleiter requested that no increases be made to his base salary or incentive targets.

Executive Compensation for 2010
Overview
In setting target compensation for 2010, the committee reviewed 2009 individual and company performance and peer
group data as discussed above, and also considered expected competitive trends in executive pay. That review
showed:

• Company performance. In 2009, the company performed in the upper tier of the peer group in non-GAAP EPS

growth, revenue growth, return on assets, and return on equity and in the lower tier in one-year and five-year
TSR.

• Individual performance. As described above under “Setting Compensation,” base salary increases were driven
largely by individual performance assessments. In assessing the 2009 performance of executive officers, the
independent directors (for the CEO) and the compensation committee (with regard to all executive officers)
considered the company’s and the executive officer’s accomplishment of objectives established at the beginning
of the year and their own subjective assessment of the executive officer’s performance.

—In assessing Dr. Lechleiter’s performance, the independent directors noted that under Dr. Lechleiter’s

leadership in 2009, the company:
• delivered strong pro forma revenue growth (5 percent actual vs. 3 percent expected industry growth)

and pro forma non-GAAP EPS growth (16 percent actual vs. 7 percent expected industry growth)

• held the growth of marketing, selling, and administrative expenses at a rate slower than revenue while

increasing our investment in research and development as a percentage of revenue

• exceeded its targeted product pipeline milestones related to advancing potential medicines through the

development process (100 actual vs. 89 targeted)

• announced and began implementation of sweeping organizational changes designed to speed

development, improve competitiveness in key therapeutic areas and geographies, and reduce its cost
base

• effectively integrated ImClone, the largest acquisition in the company’s history.
The committee also noted Dr. Lechleiter’s successful accomplishment of his objectives to implement the
company’s Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of
Health and Human Services and reinforce ethics and compliance across the company, engage with the new
U.S. administration and Congress on matters of importance to the company, continue to place emphasis on
business development, ensure robust succession management plans for all key roles, and as incoming
chairman, foster continued effectiveness of the board of directors and board processes.

Despite Dr. Lechleiter’s strong performance, the committee agreed with Dr. Lechleiter’s request that

his base salary and incentive plan targets not be increased for 2010.

—Dr. Lundberg began employment with the company in January 2010, and the committee approved his

compensation during the recruiting process.

—Under Mr. Rice’s leadership as chief financial officer, expense reduction efforts contributed to the above-

plan earnings growth noted above, despite below-plan results of the company’s animal health segment. In
addition, the company strengthened its balance sheet through strong operating cash flows, careful

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management of capital expenditures, and the successful refinancing (in a difficult financial market) of the
short-term debt incurred in 2008 to acquire ImClone. Mr. Rice maintained proper internal controls and
financial compliance, drove business transformation efforts, demonstrated his commitment to diversity
and succession management, and took a leadership role in the design of the company’s new global shared
services function.

—Under Mr. Carmine’s leadership of the sales and marketing organization, worldwide revenue growth of

5 percent exceeded plan, as noted above, with all geographic regions contributing to above-plan growth,
although initial Effient® sales were slower than expected. Cost-containment measures led to sales and
marketing expenses growing only 1 percent, slightly below plan. Mr. Carmine reinforced a culture of high
performance with high integrity in the sales and marketing organization and demonstrated strong
leadership in the company’s organizational redesign efforts.

—Mr. Armitage successfully mitigated the company’s risks related to several legal matters, including

Zyprexa®-related litigation matters, the defense of the company’s worldwide patents, and the
implementation of the company’s Corporate Integrity Agreement. In addition, Mr. Armitage continued to
provide industry leadership in shaping intellectual property laws and policies to foster pharmaceutical
innovation, supported diversity and succession management initiatives, and demonstrated his commitment
to ethics and integrity.

• Pay relative to peer group. The company’s total compensation to executive officers, in the aggregate, for 2009

was in the broad middle range of the peer group.

The committee determined the following:

• Program elements. The 2010 program consisted of base salary, a cash incentive bonus, and two forms of

performance-based equity grants: PAs and SVAs. Executives also received the company employee benefits
package. This total compensation program balances the mix of cash and equity compensation, the mix of
current and longer-term compensation, the mix of financial and market goals, and the security of foundational
benefits in a way that furthers the compensation objectives discussed above.

• Targets. The company generally maintained pay ranges and a balance of pay elements similar to 2009. The

committee believes this overall program continues to provide cost-effective delivery of total compensation that:
—encourages employee retention and engagement by delivering competitive cash and equity components
—maintains a strong link to company performance and shareholder returns through a balanced equity

incentive program without encouraging excessive risk-taking

—maintains appropriate internal pay relativity
—provides opportunity for total pay within the broad middle range of expected peer-group pay given company

performance comparable to that of our peers.

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The graph below shows the balance of fixed and performance-based target compensation determined by the
committee and actual compensation received for 2010. The target compensation reflects decisions made by the
compensation committee for 2010. This includes the 2010-2011 PA and the 2010-2012 SVA. For comparison
purposes, actual compensation includes compensation earned or paid in 2010, including 2010 base salary and cash
incentive bonus as well as the equity awards that completed their performance periods in 2010—the 2009-2010 PA
and the 2008-2010 SVA.

2010 Target and Actual Compensation (millions)

Lechleiter

Target
Actual

Lundberg

Target

$4.3

$11.1

$12.1

Rice

Carmine

Armitage

Target
Actual

$4.8

$5.2

$4.8

$5.2

$3.5

$3.8

Fixed

Performance based

Base salary

Bonus

SVA

Cash

Long-term equity

Actual base salary and bonus amounts are shown in the Summary Compensation Table. The PA payout for 2009-2010
performance paid out at 200 percent of target, as shown in the Outstanding Equity Awards at December 31, 2010
table. The SVA payout for 2008-2010 performance was zero for all named executive officers. Since Dr. Lundberg
joined the company after these awards were granted, he was not eligible for either payout. The graph above shows
2010 target compensation for Dr. Lundberg and excludes one-time incentive compensation he received upon joining
the company.

Base Salary (thousands)

Base Salary
In setting base salaries for 2010, in addition to the considerations
described above, the committee considered the corporate budget for
salary increases, which was established at 3 percent based on company
performance for 2009, expected performance for 2010, and general
external trends. Mr. Rice’s base salary increase reflects his promotion to
executive vice president and added responsibility for global services.
The objective of the budget is to allow salary increases to retain, motivate,
and reward successful performers while maintaining affordability within
the company’s business plan. Individual pay increases can be more or less than the budget amount depending on
individual performance, but aggregate increases must stay within the budget. The aggregate increases for the
named executive officers and the other executive officers were within this budget. In setting 2010 compensation,
peer group data confirmed that proposed salaries were within the broad middle range of competitive pay.

Dr. Lechleiter

Dr. Lundberg

Mr. Armitage

Mr. Carmine

Mr. Rice

$1,500

Name

$952

$816

$955

$901

$841

$924

$950

2010

2009

—

Percentage
Increase

Cash Incentive Bonuses
The company’s annual cash bonus program aligns employees’ goals with the company’s revenue and earnings
growth objectives for the current year. Cash incentive bonuses for all management employees worldwide, as well as
a substantial number of nonmanagement employees in the U.S., are determined under The Eli Lilly and Company
Bonus Plan (the bonus plan). Under the plan, the company sets bonus targets for all participants at the beginning of
each year. Bonus payouts range from 0 to 200 percent of target depending on the company’s financial results relative
to predetermined performance measures. At the end of the performance period, the committee has discretion to
adjust a bonus payout downward (but not upward) from the amount yielded by the formula.

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• Bonus targets. Consistent with our compensation objectives, as employees assume greater responsibilities,

more of their pay is linked to company performance. Bonus targets (expressed as a percentage of base salary)
were based on job responsibilities, internal relativity, individual performance, and peer group data. For three
named executive officers, the committee maintained the same bonus targets as 2009. Mr. Rice’s bonus target
was increased to reflect his promotion to executive vice president and added responsibility for global services.

Bonus Weighting:
• 25% revenue growth
• 75% non-GAAP EPS growth

Targets slightly above
expected peer
performance:
• 4% revenue growth
• 8% non-GAAP EPS growth

Bonus Targets (as a percentage of base salary)

Name

2009

2010

Dr. Lechleiter

140%

Dr. Lundberg

Mr. Rice

Mr. Carmine

Mr. Armitage

—

80%

90%

80%

90%

80%

• Company performance measures. The committee established 2010 company performance measures with a

25 percent weighting on revenue growth and a 75 percent weighting on growth in non-GAAP EPS (reported EPS
adjusted as described below under “Non-GAAP Results”). This mix of performance measures focuses
employees appropriately on improving both top-line revenue and bottom-line earnings, with special emphasis
on earnings in order to tie rewards directly to productivity improvements. The measures are also effective
motivators because they are easy for employees to track and understand.

In establishing the 2010 target growth rates, the committee considered the expected 2010 performance of our
peer group, based on published investment analyst estimates. The target growth rates of 4 percent for revenue and
8 percent for non-GAAP EPS were slightly above the median expected growth rates for our peer group. These targets
were aligned with our compensation objectives of producing above-target payouts if the company outperformed the
peer group and below-target payouts if company performance lagged the peer group. Payouts were determined by
this formula:

(0.25 x revenue multiple) + (0.75 x EPS multiple) = bonus multiple

Bonus multiple X bonus target X base salary earnings = payout

2010 revenue and EPS multiples are illustrated by this chart:

Revenue Multiple

Revenue Growth

EPS Multiple

EPS Growth

0.0

-6%

0.0

0.5

-1%

0.5

Target

1.0

Revenue Multiple
1.27

1.5

13%

2.0

14%+

2.0

18%+

EPS Multiple
1.47

2010 revenue (adjusted for U.S. health care reform) of $23,305 million represented 6.7 percent growth over 2009
revenue of $21,836 million and resulted in a revenue multiple of 1.27. 2010 non-GAAP EPS (adjusted for U.S. health
care reform) of $4.98 represented growth of 12.7 percent over 2009 non-GAAP EPS of $4.42 and resulted in an EPS
multiple of 1.47.

Together, the revenue multiple and the EPS multiple yielded a bonus multiple of 1.42.

(0.25 x 1.27) + (0.75 x 1.47) = 1.42 bonus multiple

See page 34 for a reconciliation of 2009 and 2010 reported revenue and revenue adjusted for U.S. health care reform,
as well as reported and non-GAAP EPS (adjusted for U.S. health care reform).

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Equity Incentives—Total Equity Program
We employ two forms of equity incentives granted under the 2002 Lilly Stock Plan: performance awards (PAs) and
shareholder value awards (SVAs). These incentives are designed to focus company leaders on long-term
shareholder value. For executive officers, SVAs have a three-year performance period followed by a one-year
holding requirement; PAs have a two-year performance period and pay out in restricted stock units that vest one
year after the performance period. Participants must achieve satisfactory performance throughout the relevant
performance period of the grant in order for either SVA or PA grants to vest. The following chart shows the
performance and holding periods for PA and SVA grants over time:

Performance and Holding Periods for PAs and SVAs
2010

2011

2012

2009

2008

2008 PA

2009 PA
2009-2010 PA

2010-2011 PA

2011-2012 PA

2008-2010 SVA

2009-2011 SVA

2010-2012 SVA

2011-2013 SVA

2013

2014

Performance Period

Restricted Stock Units

Performance Period
Required Holding Period

Target grant values. For 2010, the committee held aggregate grant values flat for the four

continuing named executive officers unchanged, based on internal relativity, individual
performance, and aggregated peer-group data suggesting that the 2009 grant values were in
the broad middle range compared to those of peers. Consistent with the company’s
compensation objectives, individuals at higher levels received a greater proportion of total
compensation in the form of equity. The committee determined that for members of senior
management, a 50/50 split between PAs and SVAs appropriately balances the company
financial performance and shareholder equity return metrics of the two programs. Target
values for 2009 and 2010 equity grants for the named executive officers were as follows:

Equity Compensation:
• Performance metrics of
growth in non-GAAP EPS
and share price are
objective and align with
shareholder interests
• Target grant values set

based on internal relativity,
performance, and peer data

• 2010 target grant values

held flat

Target Grant Values (thousands)

Name

2009-2010 PA

2010-2011 PA

2009-2011 SVA

2010-2012 SVA

Dr. Lechleiter

$3,750

Dr. Lundberg

Mr. Rice

Mr. Carmine

Mr. Armitage

—

$1,500

$1,000

$3,750

$1,250

$1,500

$1,000

$3,750

—

$1,500

$1,000

$3,750

$1,250

$1,500

$1,000

Percentage
Increase (total)

—

Equity Incentives—Performance Awards
PAs provide employees with shares of company stock if certain company performance goals
are achieved. The awards are structured as a schedule of shares of company stock based on
growth in non-GAAP EPS. In 2010, the company granted a two-year award to global
management (approximately 8 percent of our employee population). Possible payouts for the
2010-2011 PA range from 0 to 150 percent of the target depending on non-GAAP EPS growth
over the performance period. In order to reduce potential payout volatility, in 2010 the
committee lowered the maximum payout from 200 to 150 percent and lowered the company
performance required to receive a minimum payout. No dividends are accrued or paid on the
awards during the performance period. At the end of the performance period, the committee
has discretion to adjust an award payout downward (but not upward) from the amount yielded
by the formula.

Performance Awards:
• Target EPS growth

(8%) slightly above expected
peer group performance

• Two-year performance

period

• Payout in restricted stock
• Payout volatility lowered

Company performance measure. For the 2010 grants, the committee established the performance measure as
non-GAAP EPS growth. The committee believes non-GAAP EPS growth is an effective motivator because it is closely
linked to shareholder value, is broadly communicated to the public, is easily understood by employees, and allows
for objective comparisons to peer-group performance. The target growth percentage of 8 percent per year was
slightly above the median expected non-GAAP EPS of companies in our peer group, based on investment analysts’

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published estimates. Accordingly, consistent with our compensation objectives, company performance exceeding the
expected peer-group median would result in above-target payouts, while company performance lagging the
expected peer-group median would result in below-target payouts.

Payouts for 2010-2011 PAs are illustrated by the chart below:

2010-2011 PA

50% payout

Payout Multiple

EPS Growth

Cumulative 2-Year EPS

0.00

-29%

$4.42

0.50

$9.11

0.75

$9.51

Target

1.00

$9.92

1.25

11%

$10.34

1.50

14%+

$10.79

Equity Incentives—Shareholder Value Awards
In 2007, the company replaced its stock option program with the SVA program. SVAs are structured as a schedule
of shares of company stock based on the performance of the company’s stock over a three-year period. No
dividends are accrued or paid on the awards during the performance period. Payouts range from 0 to 140 percent
of the target amount, depending on stock performance over the period. At the end of the performance period, the
committee has discretion to adjust an award payout downward (but not upward) from the amount yielded by the
formula. The SVA program delivers equity compensation that is strongly linked to long-term TSR. It is more cost-
effective than the stock option program it replaced because the SVA program delivers, at a lower cost to the
company, an equity incentive that is equally or more effective in aligning employee interests with long-term
shareholder returns.

Shareholder Value
Awards:
• Three-year performance

period

• Target is determined by

applying an expected three-
year rate of return for
large-cap companies

• Shares earned must be held

one year

Company performance measure. For the 2010 grants, the SVA pays above target if

company stock outperforms an expected compounded annual rate of return for
large-cap companies and below target if company stock underperforms that rate of
return. The expected rate of return was determined considering total return that a
reasonable investor would consider appropriate for investing in a large-cap U.S.
company based on input from external money managers, less the company’s dividend
yield (calculated based on starting price). Executive officers receive no payout if the
stock price, less three years of dividends at the current rate, does not grow over the
three-year performance period—in other words, if total shareholder return for the
three-year period is zero or negative.

The starting price for the 2010-2012 SVAs was $35.92 per share, representing the average of the closing prices
of company stock for all trading days in November and December 2009, and the dividend yield was 5.5 percent. The
ending price to determine payouts will be the average of the closing prices of company stock for all trading days in
November and December 2012.

The 2010-2012 SVA will be paid out to executive officers according to the grid below in early 2013:

2010-2012 SVA
Ending Stock Price

Compounded Annual
Growth Rate
(adjusted for dividends)

Less than $30.05 $30.05-$34.27 $34.28-$38.49 $38.50-$40.99 $41.00-$43.49 $43.50-$45.99 Greater than $45.99

Less than (5.8%)

(5.8%)-(1.6%)

(1.5%)-2.3%

2.3%-4.5%

4.5%-6.6%

6.6% -8.6%

Greater than 8.6%

Percent of Target

40%

60%

80%

100%

120%

140%

Restricted Stock Units
Dr. Lundberg received a one-time restricted stock unit award, granted February 1, 2010, as an incentive to join the
company. One third vested on February 1, 2011, and, provided he remains an employee, one third will vest
February 1, 2012, and the remaining shares will vest February 1, 2013. Restricted stock units accrue dividends
during the restriction period and are paid out in the form of common stock.

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Stock Options
The company stopped granting stock options in 2007. All outstanding stock options are currently under water. The
stock option granted in 2000 expired in 2010, and the named executive officers forfeited the award having realized no
value. These awards (and other expired stock options) were not replaced.

Non-GAAP Results
Consistent with past practice, the committee adjusted the results on which 2010 bonuses and 2009-2010 PAs were
determined to eliminate the distorting effect of certain unusual income or expense items on year-over-year growth
percentages. The adjustments are intended to:

• align award payments with the underlying growth of the core business
• avoid volatile, artificial inflation or deflation of awards due to the unusual items in either the award year or the

previous (comparator) year

• eliminate certain counterproductive short-term incentives—for example, incentives to refrain from acquiring
new technologies, to defer disposing of underutilized assets, or to defer settling legacy legal proceedings to
protect current bonus payments.

To assure the integrity of the adjustments, the committee establishes adjustment guidelines at the beginning of
the year. These guidelines are generally consistent with the company guidelines for reporting non-GAAP earnings to
the investment community, which are reviewed by the audit committee of the board. The adjustments apply equally
to income and expense items. The compensation committee reviews all adjustments and retains downward
discretion—i.e., discretion to reduce compensation below the amounts that are yielded by the adjustment guidelines.
When the committee set company performance targets for 2010, U.S. health care reform legislation had not yet
passed. Given the scope and uncertainty of the legislation, the committee decided not to include the potential impact
of U.S. health care reform when the targets were set, and to adjust results based on the actual impact of U.S. health
care reform for the 2010 incentive bonus and the 2009-2010 and 2010-2011 PAs. In 2011, an adjustment will be made
for U.S. health care reform for the 2010-2011 PA only.

For the 2010 bonus and 2009-2010 PA payout calculations, the committee made these adjustments to EPS:

• For 2010: Eliminated the impact of U.S. health care reform
• For 2008, 2009, and 2010: Eliminated the impact of (i) significant asset impairments and restructuring charges

and (ii) one-time accounting charges for the acquisition of in-process research and development
• For 2008 and 2009: Eliminated the impact of special charges related to the resolution of government

investigations of prior sales and marketing practices of the company

• For 2008: Eliminated the impact of (i) the ImClone Systems Incorporated acquisition, (ii) a one-time benefit to

income resulting from the settlement of a tax audit.

The adjustments were intended to align award payments more closely with underlying business growth trends

and eliminate volatile swings (up or down) caused by the unusual items. This is demonstrated by the 2008, 2009, and
2010 adjustments:

Percent Growth vs. Prior Years

20%

15%

10%

2008

2009

2010

Revenue growth

Adjusted
revenue growth

20%

15%

10%

-5%

-10%

2008

2009

2010

EPS growth

Non-GAAP EPS
growth (adjusted)

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Reconciliations of the adjustments to our reported revenue and earnings per share are below. The shaded

numbers are the growth percentages used to calculate payouts under the compensation programs.

Revenue as reported (millions)

Pro forma ImClone adjustment

Revenue—pro forma adjusted (sales and royalties)

Impact of U.S. health care reform

2010

2009

% Growth
2010 vs. 2009

$23,076.0

$21,836.0

5.7%

—

$229.0

—

Revenue—adjusted (U.S. health care reform)

$23,305.0

$21,836.0

6.7%

16.2%

EPS as reported

Eliminate net impact associated with ImClone acquisition

Eliminate IPR&D charges for acquisitions and in-licensing

transactions

Eliminate asset impairments, restructuring and other special charges

(including product liability charges)

Eliminate benefit from resolution of IRS audit

Non-GAAP EPS

Pro forma ImClone adjustment

EPS—adjusted for ImClone

U.S. health care reform adjustment

EPS—adjusted for U.S. health care reform

NM—Not meaningful
Numbers in the 2009 column do not add due to rounding.

$4.58

—

$0.03

$0.13

—

$4.74

—

$0.24

$4.98

$3.94

—

$0.05

$0.42

—

$4.42

—

$4.42

12.7%

2008

$20,371.9

$360.3

$20,732.2

—

($1.89)

$4.46

$0.10

$1.54

($0.19)

$4.02

($0.20)

$3.82

% Growth
2009 vs. 2008

7.2%

5.3%

15.7%

Equity Incentive Grant Mechanics and Timing
The committee approves target grant values for equity incentives prior to the grant date. On the grant date, those
values are converted to shares based on:

• the closing price of company stock on the grant date
• the same valuation methodology the company uses to determine the accounting expense of the grants under

Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718.

The committee’s procedure for the timing of equity grants assures that grant timing is not being manipulated for

employee gain. The annual equity grant date for all eligible employees is in mid-February. The committee
establishes this date in October. The mid-February grant date timing is driven by these considerations:

• It coincides with the company’s calendar-year-based performance management cycle, allowing supervisors to
deliver the equity awards close in time to performance appraisals, which increases the impact of the awards by
strengthening the link between pay and performance.

• It follows the annual earnings release by approximately two weeks, so that the stock price at that time can
reasonably be expected to fairly represent the market’s collective view of our then-current results and
prospects.

Grants to new hires and other off-cycle grants are effective on the first trading day of the following month.

Employee and Post-Employment Benefits
The company offers core employee benefits coverage to:

• provide our global workforce with a reasonable level of financial support in the event of illness, injury, and

retirement

• enhance productivity and job satisfaction through programs that focus on work/life balance.

The benefits available are the same for all U.S. employees and include medical and dental coverage, disability

insurance, and life insurance.

In addition, the 401(k) plan and The Lilly Retirement Plan (the retirement plan) provide U.S. employees a
reasonable level of retirement income reflecting employees’ careers with the company. To the extent that any
employee’s retirement benefit exceeds IRS limits for amounts that can be paid through a qualified plan, the company
also offers a nonqualified pension plan and a nonqualified savings plan. These plans provide only the difference
between the calculated benefits and the IRS limits, and the formula is the same for all U.S. employees.

The cost of both employee and post-employment benefits is partially borne by the employee, including each

executive officer.

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Perquisites
The company provides very limited perquisites to executive officers. Executive officers generally do not have access
to the corporate aircraft for personal use; however, the aircraft is made available for the personal use of
Dr. Lechleiter when the security and efficiency benefits to the company outweigh the expense. Dr. Lechleiter did not
use the corporate aircraft for personal flights during 2010. Until March 2009, the company aircraft was made
available to other executive officers for the limited purpose of travel to outside board meetings. However, the
company no longer allows this use. Depending on seat availability, family members and personal guests of executive
officers may travel on the company aircraft to accompany executives who are traveling on business. There is no
incremental cost to the company for these trips.

The Lilly Deferred Compensation Plan
Executives may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation Plan
(the deferred compensation plan), which allows executives to save for retirement in a tax-effective way at minimal
cost to the company. Under this unfunded plan, amounts deferred by the executive are credited at an interest rate of
120 percent of the applicable federal long-term rate, as described in more detail following the Nonqualified Deferred
Compensation in 2010 table.

Severance Benefits
Except in the case of a change in control of the company, the company is not obligated to pay severance to named
executive officers upon termination of their employment; any such payments are at the discretion of the committee.
See footnote 4 to the Potential Payments Upon Termination of Employment table for a description of a severance
arrangement for Dr. Lundberg.

The company has adopted a change-in-control severance pay plan for nearly all employees of the company,
including the executive officers. The plan is intended to preserve employee morale and productivity and encourage
retention in the face of the disruptive impact of an actual or rumored change in control. In addition, for executives,
the plan is intended to align executive and shareholder interests by enabling executives to consider corporate
transactions that are in the best interests of the shareholders and other constituents of the company without undue
concern over whether the transactions may jeopardize the executives’ own employment.

Although benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the

plan are comparable for all regular employees:

• Double trigger. Unlike “single trigger” plans that pay out immediately upon a change in
control, the company plan generally requires a “double trigger”—a change in control
followed by an involuntary loss of employment within two years thereafter. This is
consistent with the purpose of the plan, which is to provide employees with financial
protection upon loss of employment. A partial exception is made for outstanding PAs, a
portion of which would be paid out upon a change in control on a pro-rated basis for time
worked based on the forecasted payout level at the time of the change in control. The
committee believes this partial payment is appropriate because of the difficulties in
converting the company EPS targets into an award based on the surviving company’s EPS.
Likewise, if Lilly is not the surviving entity, a portion of outstanding SVAs is paid out on a
pro-rated basis for time worked up to the change in control based on the merger price for
company stock.

Change in Control
Severance:
• All regular employees

covered

• Double trigger
• Two-year cash pay

protection

• 18-month benefit

continuation

• Tax gross-up eliminated
effective October 2012

• Covered terminations. Employees are eligible for payments if, within two years of the change in control, their

employment is terminated (i) without cause by the company or (ii) for good reason by the employee, each as is
defined in the plan. See “Potential Payments Upon Termination or Change in Control” for a more detailed
discussion, including a discussion of what constitutes a change in control.

• Employees who suffer a covered termination receive up to two years of pay and 18 months of benefits

protection. These provisions assure employees a reasonable period of protection of their income and core
employee benefits upon which they depend for financial security.

—Severance payment. Eligible terminated employees would receive a severance payment ranging from

six months’ to two years’ base salary. Executives are all eligible for two years’ base salary plus two times
the then-current year’s target bonus.

—Benefit continuation. Basic employee benefits such as health and life insurance would be continued for up to
18 months following termination of employment. All executives, including named executive officers, are
entitled to 18 months benefit continuation.

• Accelerated vesting of equity awards. Any unvested equity awards at the time of termination of employment would

vest.

• Excise tax. In some circumstances, the payments or other benefits received by the employee in connection with

a change in control could exceed limits established under Section 280G of the Internal Revenue Code. The

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employee would then be subject to an excise tax on top of normal federal income tax. Because of the way the
excise tax is calculated, it can impose a large burden on some employees while similarly compensated
employees will not be subject to the tax. The costs of this excise tax and associated gross-ups would be borne
by the company. (Employees would pay income tax resulting from severance payments.) To avoid triggering the
excise tax, payments that would otherwise be due under the plan that are up to 5 percent over the IRS limit will
be cut back to the limit. Effective October 2012, this tax gross-up will be eliminated.

Share Ownership and Retention Guidelines; Hedging Prohibition
Share ownership and retention guidelines help to foster a focus on long-term growth. The committee has adopted a
guideline requiring the CEO to own company stock valued at least five times his or her annual base salary. Other
executive officers are required to own a fixed number of shares based on their position. The fixed number of shares
eliminates volatility in the share ownership requirements that can occur with sharp movements in share price. Until
the guideline level is reached, the executive officer must retain all existing holdings as well as 50 percent of net
shares resulting from new equity payouts. Our executives have a long history of maintaining extensive holdings in
company stock, and all established executive officers already meet or exceed the guideline. All new executive
officers are on track to meet or exceed the guideline within the next few years. As of February 1, 2011, Dr. Lechleiter
held shares valued at approximately 14 times his salary. The following table shows the required share levels for the
named executive officers:

Executive officers are also required to retain all shares received

from the company equity programs, net of acquisition costs and
taxes, for at least one year, even once share requirements have been
met. For PAs, this requirement is met by paying the award in the
form of restricted stock units. Employees are not permitted to hedge
their economic exposures to company stock through short sales or
derivative transactions.

Name

Revised Share
Requirement

Meets
Requirement

Dr. Lechleiter

five times base salary

Dr. Lundberg

Mr. Rice

Mr. Carmine

Mr. Armitage

55,000

42,000

Yes

Tax Deductibility Cap on Executive Compensation
U.S. federal income tax law prohibits the company from taking a tax deduction for non-performance based
compensation paid in excess of $1,000,000 to named executive officers. However, performance-based compensation
is fully deductible if the programs are approved by shareholders and meet other requirements. Our policy is to
qualify our incentive compensation programs for full corporate deductibility to the extent feasible and consistent
with our overall compensation objectives.

We have taken steps to qualify all incentive awards (bonuses, PAs, and SVAs) for full deductibility as
performance-based compensation. The committee may make payments that are not fully deductible if, in its
judgment, such payments are necessary to achieve the company’s compensation objectives and to protect
shareholder interests. For 2010, the non-deductible compensation was approximately $410,000 for Dr. Lechleiter,
slightly less than the portion of his base salary that exceeded $1,000,000, and approximately $915,000 for
Dr. Lundberg, who received a signing bonus upon his employment with the company as shown in the Summary
Compensation Table.

Executive Compensation Recovery Policy and Other Risk Mitigation Tools
All incentive awards are subject to forfeiture prior to payment upon termination of employment or for disciplinary
reasons. Under the company’s executive officer compensation recovery policy, the company can recover incentive
compensation (cash or equity) that was based on achievement of financial results that were subsequently the subject
of a restatement if the executive officer engaged in intentional misconduct that caused or partially caused the need
for the restatement and the effect of the wrongdoing was to increase the amount of bonus or incentive
compensation. The company can also recover or “claw back” all or a portion of any incentive compensation or
payment in the case of materially inaccurate financial statements or material errors in the performance calculation,
whether or not they result in a restatement and whether or not the executive officer has engaged in wrongful
conduct. Recoveries under this “no-fault” provision cannot extend back more than two years.

The recovery policy applies to any incentive compensation awarded or paid to an employee at a time when he or
she is an executive officer. Subsequent changes in status, including retirement or termination of employment, do not
affect the company’s rights to recover compensation under the policy.

In addition to the executive compensation recovery policy, the committee and management have implemented
compensation-program design features to mitigate the risk of compensation programs encouraging misconduct or
imprudent risk-taking. First, incentive programs are designed using a diversity of meaningful financial metrics
(growth in TSR, measured over three years, net revenue, and EPS, measured over one and two years), thus providing
a balanced approach between short- and long-term performance. The committee reviews incentive programs each

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year against the objectives of the programs, assesses any features that could encourage excessive risk-taking, and
makes changes as necessary. Second, management has implemented effective controls that minimize unintended
and willful reporting errors.

The committee does not believe it is practical to apply a specific claw-back policy to SVAs since it is very difficult

to isolate the amount, if any, by which the stock price might benefit from misstated earnings over a three-year
performance period. In this case, the committee has the authority reduce or withhold payouts.

Compensation Changes for 2011 and 2012
Several changes to the company’s executive compensation program will take effect in 2011 or 2012:

• In light of the business challenges the company faces, Dr. Lechleiter requested that he receive no increase in

base salary or incentive targets in 2011. The committee agreed to maintain his 2010 compensation package for
2011.

• Amendments to the change-in-control severance pay plans to eliminate tax gross-ups are effective

October 2012.

• The following changes have been made to the bonus plan, effective January 2011:

—We added a research metric that measures the output and sustainability of our pipeline portfolio. Specific
measures of pipeline output include product approvals and new molecular entities that enter Phase III
clinical trials during the calendar year. Pipeline sustainability is measured by tracking each project’s
progression toward its next milestone and by an evaluation of pipeline quality.

—Financial performance will be measured against company goals.

• We are asking shareholders to approve a new executive officer incentive plan (see Item 7 below). This plan will

work in conjunction with the existing bonus plan and is not intended to change the annual cash bonus for named
executive officers, but to preserve the tax deductibility of these incentive payments.

Compensation Committee Report
The compensation committee (“we” or “the committee”) evaluates and establishes compensation for executive
officers and oversees the deferred compensation plan, the company’s management stock plans, and other
management incentive, benefit, and perquisite programs. Management has the primary responsibility for the
company’s financial statements and reporting process, including the disclosure of executive compensation. With this
in mind, we have reviewed and discussed with management the “Compensation Discussion and Analysis” found on
pages 25-37 of this proxy statement. The committee is satisfied that the “Compensation Discussion and Analysis”
fairly and completely represents the philosophy, intent, and actions of the committee with regard to executive
compensation. We recommended to the board of directors that the “Compensation Discussion and Analysis” be
included in this proxy statement for filing with the SEC.

Compensation Committee
Karen N. Horn, Ph.D., Chair
Michael L. Eskew
R. David Hoover
Ellen R. Marram
Kathi P. Seifert

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Executive Compensation

Summary Compensation Table

Name and Principal Position

Year

Salary
($)

Bonus
($)

Stock
Awards
($) 3

Option
Awards
($)

John C. Lechleiter, Ph.D. 1
Chairman, President, and Chief
Executive Officer

Jan M. Lundberg, Ph.D. 2
Executive Vice President, Science and
Technology and President, Lilly
Research Laboratories

Derica W. Rice
Executive Vice President, Global
Services and Chief Financial Officer

Bryce D. Carmine
Executive Vice President and President,
Lilly Bio-Medicines

Robert A. Armitage
Senior Vice President and General
Counsel

2010 $1,500,000
2009 $1,483,333
2008 $1,339,125

$0
$8,175,000
$0 $11,250,000
$8,125,000
$0

2010

$946,401 $1,000,000

$6,225,000

2010
2009
2008

$955,000
$892,500
$834,117

$947,083
$916,667
$783,113

$836,817
$811,167
$778,767

$0
$0
$0

$3,270,000
$4,500,000
$3,000,000

$3,270,000
$4,500,000
$3,750,000

$2,180,000
$3,000,000
$2,137,500

$0
$0
$0

Non-Equity
Incentive Plan
Compensation
($) 4

$2,982,000
$3,551,100
$2,709,053

Change
in Pension
Value
($) 5

$3,757,545
$4,553,125
$2,221,597

$1,209,501

$83,150

$1,220,490
$1,220,940
$1,027,632

$1,210,373
$1,410,750
$1,006,135

$950,624
$1,109,676
$959,441

$996,723
$977,741
$455,226

$2,252,560
$1,776,537
$1,158,720

$521,237
$775,287
$536,284

All Other
Compensation
($) 6

Total
Compensation
($)

$90,000
$90,091
$87,107

$87,833

$57,300
$54,838
$86,034

$56,825
$57,001
$53,497

$50,209
$49,902
$53,138

$16,504,545
$20,927,649
$14,481,882

$8,551,885

$6,499,513
$7,646,019
$5,403,009

$7,736,841
$8,660,955
$6,751,465

$4,538,886
$5,746,032
$4,465,130

1 Supplement to the Summary Compensation Table. In 2009, we granted both a one-year and a two-year PA as part of

our transition to a two-year award, which was implemented in response to shareholder feedback. The two grants in
2009 provided the opportunity for participants to receive one and only one PA payout each year—without skipping a
year. In 2010, we returned to our regular grant cycle and granted a single two-year PA. As a result, the amount in
the “Stock Awards” column decreased. The 2010-2011 PA grant values shown in this column are based on the
probable payout outcome anticipated at the time of grant. For purposes of comparison, the supplemental table
below shows target compensation for Dr. Lechleiter (with one rather than two PA grants in 2009), approved by the
compensation committee, given target company performance.

Name

John C. Lechleiter, Ph.D.

Year

2010
2009
2008

Annualized
Salary

$1,500,000
$1,500,000
$1,400,000

Target Stock
Awards

Target Cash
Incentive Bonus

$7,500,000
$7,500,000
$6,500,000

$2,100,000
$2,100,000
$1,960,000

Total

$11,100,000
$11,100,000
$9,860,000

2 The one-time incentive compensation Dr. Lundberg received upon joining the company in January 2010 included a
signing bonus and an award of restricted stock units (further described in the Grants of Plan-Based Awards During
2010 table).

3 This column shows the grant date fair value of awards computed in accordance with stock-based compensation

accounting rules (FASB ASC Topic 718). Values for awards subject to performance conditions (PAs) are computed
based upon the probable outcome of the performance condition as of the grant date. (See the Target Grant Values
table for target grant values for the 2009 and 2010 equity awards.) A discussion of assumptions used in calculating
award values may be found in Note 9 to our 2010 audited financial statements in our Form 10-K.

The table below shows the minimum, target, and maximum payouts for the 2010-2011 PA grant included in this

column of the Summary Compensation Table.

Name

Dr. Lechleiter
Dr. Lundberg
Mr. Rice
Mr. Carmine
Mr. Armitage

Payout Date

Minimum Payout

Target Payout

Maximum Payout

January 2012
January 2012
January 2012
January 2012
January 2012

$0
$0
$0
$0
$0

$3,750,000
$1,250,000
$1,500,000
$1,500,000
$1,000,000

$5,625,000
$1,875,000
$2,250,000
$2,250,000
$1,500,000

T
N
E
M
E
T
A
T
S

Y
X
O
R
P

4 Payments for 2010 performance were made in March 2011 under the bonus plan. All bonuses paid to named

executive officers were part of a non-equity incentive plan, except for Dr. Lundberg’s signing bonus, shown in the
“Bonus” column.

5 The amounts in this column are the change in pension value for each individual, calculated by our actuary. No

named executive officer received preferential or above-market earnings on deferred compensation.

6 The table below shows the components of the “All Other Compensation” column for 2008 through 2010, which

includes the company match for each individual’s savings plan contributions, tax reimbursements, and perquisites.

Name

Dr. Lechleiter

Dr. Lundberg

Mr. Rice

Mr. Carmine

Mr. Armitage

Year

2010
2009
2008

2010

2010
2009
2008

Savings Plan
Match

Tax
Reimbursements 1

Perquisites

Other

Total “All Other
Compensation”

$90,000
$89,000
$80,348

$56,784

$57,300
$53,550
$50,047

$56,825
$55,000
$46,987

$50,209
$48,670
$46,726

$0
$1,091
$6,759

$12,876

$0
$1,288
$6,246

$0
$2,001
$6,510

$0
$1,232
$6,412

$0
$0
$0

$0
$0
$29,741 3

$0
$0
$0

$18,173 2

$0
$0
$0

$90,000
$90,091
$87,107

$87,833

$57,300
$54,838
$86,034

$56,825
$57,001
$53,497

$50,209
$49,902
$53,138

1 These amounts reflect tax reimbursements for expenses for each executive’s spouse to attend certain

company functions involving spouse participation. Beginning in 2010, the company no longer reimburses
executive officers for these taxes. For Mr. Rice, these amounts include taxes on income imputed for use of the
corporate aircraft to attend outside board meetings in 2008 and 2009. For Dr. Lundberg, these amounts include
taxes on income imputed for relocation expenses.

2 Relocation expenses reimbursed under a company policy available to any employee asked to relocate by the

company.

3 This amount includes the incremental cost of Mr. Rice’s use of the corporate aircraft to travel to outside board

meetings in 2008 ($25,839) and Mrs. Nelson-Rice’s expenses to attend certain company functions involving
spouse participation. We calculate the incremental cost to the company of any personal use of the corporate
aircraft based on the cost of fuel, trip-related maintenance, crew travel expenses, on-board catering, landing
fees, trip-related hangar and parking costs, and smaller variable costs, offset by any time-share lease
payments by the executive. Since the company-owned aircraft are used primarily for business travel, we do not
include the fixed costs that do not change based on usage, such as pilots’ salaries, the purchase costs of the
company-owned aircraft, and the cost of maintenance not related to trips. Executive officers are no longer
permitted to use corporate aircraft to attend outside board meetings.

We have no employment agreements with our named executive officers, except a limited severance agreement

with Dr. Lundberg which expires January 4, 2012 and is described in footnote 4 to the Potential Payments Upon
Termination of Employment table.

P
R
O
X
Y

S
T
A
T
E
M
E
N
T

Grants of Plan-Based Awards During 2010
The compensation plans under which the grants in the following table were made are described in the
“Compensation Discussion and Analysis” and include the bonus plan (a non-equity incentive plan) and the 2002 Lilly
Stock Plan (which provides for PAs, SVAs, stock options, restricted stock grants, and stock units).

Name

Award

Dr. Lechleiter

Grant
Date

—

2010-2011 PA 2/8/2010 2
2010-2012 SVA 2/8/2010 3

Dr. Lundberg

—

2010-2011 PA 2/8/2010 2
2010-2012 SVA 2/8/2010 3
Grant upon hire 2/1/2010 4

Mr. Rice

—

2010-2011 PA 2/8/2010 2
2010-2012 SVA 2/8/2010 3

Mr. Carmine

—

2010-2011 PA 2/8/2010 2
2010-2012 SVA 2/8/2010 3

Mr. Armitage

—

2010-2011 PA 2/8/2010 2
2010-2012 SVA 2/8/2010 3

Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards 1

Estimated Possible and Future
Payouts Under Equity
Incentive Plan Awards

Compensation
Committee
Action Date

Threshold
($)

Target
($)

Maximum
($)

Threshold
(# shares)

Target
(# shares)

Maximum
(# shares)

All Other
Stock
Awards:
Number of
Shares of
Stock
or Units

Grant
Date Fair
Value of
Equity
Awards

$52,500

$2,100,000 $4,200,000

$21,294

$851,761 $1,703,523

$21,488

$859,500 $1,719,000

$21,309

$852,375 $1,704,750

$16,736

$669,453 $1,338,907

—
12/14/2009
12/14/2009

—
12/14/2009
12/14/2009
10/22/2009

—
12/14/2009
12/14/2009

60,719
68,058

121,438
170,145

182,157
238,203

$4,425,000
$3,750,000

20,240
22,686

40,479
56,715

60,719
79,401

100,000

24,288
27,223

48,575
68,058

72,863
95,281

24,288
27,223

48,575
68,058

72,863
95,281

16,192
18,149

32,383
45,372

48,575
63,521

$1,475,000
$1,250,000
$3,500,000

$1,770,000
$1,500,000

$1,180,000
$1,000,000

1 These columns show the threshold, target, and maximum payouts for performance under the bonus plan. As

described in the section titled “Cash Incentive Bonuses” in the “Compensation Discussion and Analysis,” bonus
payouts range from 0 to 200 percent of target. The bonus payment for 2010 performance was based on the metrics
described, at 142 percent of target, and is included in the Summary Compensation Table in the column titled
“Non-Equity Incentive Plan Compensation.”

2 This row shows the range of payouts for 2010-2011 PA grants as described in the section titled “Equity Incentives—

Performance Awards” in the “Compensation Discussion and Analysis.” The 2010-2011 PA will pay out in
January 2012 based on cumulative EPS for 2010 and 2011. Payouts will range from 0 to 150 percent of target.

3 This row shows the range of payouts for 2010-2012 SVA grants as described in the section titled “Equity

Incentives—Shareholder Value Awards” in the “Compensation Discussion and Analysis.” The 2010-2012 SVA payout
will be determined in January 2013. SVA payouts range from 0 to 140 percent of target.

4 This row shows a one-time grant of restricted stock units awarded to Dr. Lundberg when he joined the company in

2010.

To receive a payout under the 2010-2011 PA, a participant must remain employed with the company through

December 31, 2011 (except in the case of death, disability, or retirement). In addition, an employee who was an
executive officer at the time of grant will receive payment in restricted share units according to the chart on page 32
of the “Compensation Discussion and Analysis.” SVAs granted in 2010 will pay out at the end of the three-year
performance period according to the grid on page 32 of the “Compensation Discussion and Analysis.” No dividends
accrue on either PAs or SVAs during the performance period. Non-preferential dividends accrue during the PAs’
one-year restriction period and are paid upon vesting.

T
N
E
M
E
T
A
T
S

Y
X
O
R
P

Outstanding Equity Awards at December 31, 2010

Option Awards

Stock Awards

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)

Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units,
or Other Rights
That Have Not
Vested (#)

Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($)

Number of
Shares or
Units of Stock
That Have Not
Vested (#)

170,145 2
121,872 3
121,438 4

$5,961,881
$4,270,395
$4,255,188

219,812 5
207,354 6

$7,702,212
$7,265,684

Award

2010-2012 SVA
2009-2011 SVA
2010-2011 PA
2009-2010 PA
2009 PA

2010-2012 SVA
2010-2011 PA
Grant upon hire

2010-2012 SVA
2009-2011 SVA
2010-2011 PA
2009-2010 PA
2009 PA

100,000 7

$3,504,000

87,924 5
82,942 6

$3,080,857
$2,906,288

56,715 2
40,479 4

68,058 2
48,749 3
48,575 4

$1,987,294
$1,418,384

$2,384,752
$1,708,165
$1,702,068

2010-2012 SVA
2009-2011 SVA
2010-2011 PA
2009-2010 PA
2009 PA

87,924 5
82,942 6

$3,080,857
$2,906,288

68,058 2
48,749 3
48,575 4

$2,384,752
$1,708,165
$1,702,068

2010-2012 SVA
2009-2011 SVA
2010-2011 PA
2009-2010 PA
2009 PA

58,616 5
55,294 6

$2,053,905
$1,937,502

45,372 2
32,499 3
32,383 4

$1,589,835
$1,138,765
$1,134,700

Name

Dr. Lechleiter

Dr. Lundberg

Mr. Rice

Mr. Carmine

Mr. Armitage

Number of
Securities
Underlying
Unexercised
Options (#) 1
Exercisable

Option
Exercise Price
($)

Option
Expiration
Date

140,964
127,811
200,000
120,000
120,000 8
60,000

$56.18
$55.65
$73.11
$57.85
$75.92
$79.28

2/9/2016
2/10/2015
2/14/2014
2/15/2013
2/17/2012
10/4/2011

30,000
27,108
23,077
25,000
11,200
10,000
5,000
12,000

37,651
42,604
55,000
57,000
50,000
23,000
50,600

54,217
53,254
80,000
80,000
23,800
7,000
23,100

$52.54
$56.18
$55.65
$73.11
$57.85
$75.92
$79.28
$73.98

$56.18
$55.65
$73.11
$57.85
$75.92
$79.28
$73.98

4/29/2016
2/9/2016
2/10/2015
2/14/2014
2/15/2013
2/17/2012
10/4/2011
2/18/2011

2/9/2016
2/10/2015
2/14/2014
2/15/2013
2/17/2012
10/4/2011
2/18/2011

1 These options vested as listed in the table below by expiration date.

Expiration Date

Vesting Date

Expiration Date

Vesting Date

04/29/2016

02/09/2016

02/10/2015

02/14/2014

05/01/2009

02/10/2009

02/11/2008

02/19/2007

02/15/2013

02/17/2012

10/04/2011

02/18/2011

02/17/2006

02/18/2005

10/03/2003

02/20/2004

P
R
O
X
Y

S
T
A
T
E
M
E
N
T

2 SVAs granted for the 2010-2012 performance period that will end December 31, 2012. The number of shares

reported in the table reflects the target payout, which will be made if the average closing stock price in November
and December 2012 is between $41.00 and $43.49. Actual payouts may vary from 0 to 140 percent of target. Had the
performance period ended at year-end 2010, the payout would have been 60 percent of target.

3 SVAs granted for the 2009-2011 performance period that will end December 31, 2011. The number of shares

reported in the table reflects the target payout, which will be made if the average closing stock price in November
and December 2011 is between $39.50 and $41.99. Actual payouts may vary from 0 to 140 percent of target. Had the
performance period ended at year-end 2010, the payout would have been 60 percent of target.

4 Target number of PA shares that could pay out in January 2012 for 2010-2011 performance, provided performance

goals are met. Any shares resulting from this award will pay out in the form of restricted stock units, vesting
February 2013. Actual payouts may vary from 0 to 150 percent of target.

5 The 2009-2010 PA paid out at maximum in January 2011 in the form of restricted stock units, vesting February 2012.
6 PA shares paid out in January 2010 for 2009 performance. These shares vested in February 2011.
7 Dr. Lundberg’s restricted stock unit award was granted February 1, 2010; one third vested on February 1, 2011, one

third will vest February 1, 2012, and the remaining shares will vest February 1, 2013.

8 Dr. Lechleiter transferred 118,683 shares of this option to a trust for the benefit of his children, and these shares
vested on April 30, 2002. 50,734 shares of this option are held in trust for the benefit of Dr. Lechleiter’s children,
and the remainder has been transferred back to Dr. Lechleiter.

Options Exercised and Stock Vested in 2010

Name

Dr. Lechleiter

Dr. Lundberg 5

Mr. Rice

Mr. Carmine

Mr. Armitage

Option Awards

Stock Awards

Number of Shares
Acquired on Exercise (#)

Value Realized
on Exercise ($) 1

Number of Shares
Acquired on Vesting (#)

Value Realized
on Vesting ($) 2

111,041 3
0 4

—
—

40,999 3
0 4

51,249 3
0 4

29,213 3
0 4

$3,908,643
$0

—
—

$1,443,165
$0

$1,803,965
$0

$1,028,298
$0

1 All outstanding stock options are currently under water.
2 Amounts reflect the market value of the stock on the day the stock vested.
3 These shares represent PAs issued in January 2009 (as restricted stock units) for company performance in 2008

and were subject to forfeiture until they vested in February 2010.

4 The 2008-2010 SVA did not pay out for any executive officer, because the company’s stock price was below $46.79.
5 These awards were granted prior to Dr. Lundberg joining the company.

Retirement Benefits
We provide retirement income to U.S. employees, including executive officers, through the following plans:

• The 401(k) plan, a defined contribution plan qualified under Sections 401(a) and 401(k) of the Internal Revenue

Code. Participants may elect to contribute a portion of their salary to the plan, and the company provides
matching contributions on employees’ contributions, in the form of company stock, up to 6 percent of base
salary. The employee contributions, company contributions, and earnings thereon are paid out in accordance
with elections made by the participant. See the Summary Compensation Table for information about company
contributions to the named executive officers.

• The retirement plan, a tax-qualified defined benefit plan that provides monthly benefits to retirees. See the

Summary Compensation Table for additional information about the value of these pension benefits.

Sections 401 and 415 of the Internal Revenue Code generally limit the amount of annual pension that can be paid
from a tax-qualified plan ($195,000 in 2010) as well as the amount of annual earnings that can be used to calculate a
pension benefit ($245,000 in 2010). However, since 1975, the company has maintained a nonqualified pension plan
that pays retirees the difference between the amount payable under the retirement plan and the amount they would
have received without the Internal Revenue Code limits. The nonqualified pension plan is unfunded and subject to
forfeiture in the event of bankruptcy.

T
N
E
M
E
T
A
T
S

Y
X
O
R
P

The following table shows benefits that the named executive officers are entitled to under the retirement plan

and the nonqualified pension plan.

Pension Benefits in 2010

Name

Plan

Dr. Lechleiter 2

retirement plan (pre-2010)

retirement plan (post-2009)

nonqualified plan (pre-2010)

nonqualified plan (post-2009)

total

Dr. Lundberg 3

retirement plan (pre-2010)

Mr. Rice

retirement plan (post-2009)

total

retirement plan (pre-2010)

retirement plan (post-2009)

nonqualified plan (pre-2010)

nonqualified plan (post-2009)

total

Mr. Carmine 4

retirement plan (pre-2010)

retirement plan (post-2009)

nonqualified plan (pre-2010)

nonqualified plan (post-2009)

total

Mr. Armitage 5

retirement plan (pre-2010)

retirement plan (post-2009)

nonqualified plan (pre-2010)

nonqualified plan (post-2009)

total

Number of Years of
Credited Service

Present Value of
Accumulated Benefit ($) 1

Payments During Last
Fiscal Year ($)

$1,068,438

$19,358

$16,470,129

$271,987

$17,829,912

$21,526

$61,624

$83,150

$423,793

$10,466

$2,735,937

$62,879

$3,233,075

$1,352,792

$21,648

$8,109,493

$118,498

$9,602,431

$308,455

$27,074

$2,470,280

$164,161

$2,969,970

1 The following standard actuarial assumptions were used to calculate the present value of each individual’s

accumulated pension benefit:

Discount rate:

Mortality (post-retirement decrement only):

5.75 percent

RP 2000CH

Pre-2010 joint and survivor benefit (% of pension):

50% until age 62; 25% thereafter

Post-2009 benefit payment form:

life annuity

2 Dr. Lechleiter is currently eligible for early retirement. Under the old plan formula described below (pre-2010

benefits), he qualifies for approximately 2 percent less than his full retirement benefit. Early retirement benefits
under the new plan formula (post-2009 benefits) are also described below.

3 Dr. Lundberg joined the company in January 2010. He is covered under our retirement plans and has no special

retirement arrangement or enhanced benefits.

4 Mr. Carmine is currently eligible for full retirement benefits under the old plan formula and qualifies for early

retirement under the new plan formula.

5 Mr. Armitage is currently eligible for full retirement benefits under the old plan formula and qualifies for early
retirement under the new plan formula. His additional service credit, described below, applies only to benefits
calculated under the old plan formula and increases the present value of his nonqualified pension benefit by
$296,434.

The retirement plan benefits shown in the table are net present values. The benefits are not payable as a lump

sum; they are generally paid as a monthly annuity for the life of the retiree and, if elected, any qualifying survivor.
The annual benefit under the retirement plan is calculated using years of service and the average of the annual
earnings for the highest five out of the last 10 calendar years of service (final average earnings). Annual earnings
covered by the retirement plan consist of salary and bonus paid in those calendar years. For calendar years prior to
2003, the calculation includes PA payouts.

P
R
O
X
Y

S
T
A
T
E
M
E
N
T

Following amendment of our retirement plan formulae, employees hired on or after February 1, 2008 have

accrued retirement benefits only under the new plan formula. Employees hired before that date have accrued
benefits under both the old and new plan formulae. All eligible employees, including those hired on or after
February 1, 2008, can retire at age 65 with at least five years of service and receive an unreduced benefit. The annual
benefit under the new plan formula is equal to 1.2 percent of final average earnings multiplied by years of service.
Early retirement benefits under this plan formula are reduced 6 percent for each year under age 65. Transition
benefits were afforded to employees with 50 points (age plus service) or more as of December 31, 2009. These
benefits were intended to ease the transition to the new retirement formula for those employees who are closer to
retirement or have been with the company longer. For the transition group, early retirement benefits are reduced
3 percent for each year from age 65 to age 60 and 6 percent for each year under age 60. With the exception of
Dr. Lundberg, all of the named executive officers are in this transition group.

Employees hired prior to February 1, 2008 accrued benefits under both plan formulae. Benefits accrued before

January 1, 2010 under the old plan formula. The amount of the benefit is calculated using actual years of service
through December 31, 2009, while total years of service is used to determine eligibility and early retirement
reductions. The benefit amount is increased (but not decreased) proportionately, based on final average earnings at
termination compared to final average earnings at December 31, 2009. Full retirement benefits are earned by
employees with 90 or more points (the sum of his or her age plus years of service). Employees electing early
retirement receive reduced benefits as described below:

• The benefit for employees with between 80 and 90 points is reduced by 3 percent for each year under 90 points

or age 62.

• The benefit for employees who have less than 80 points, but who reached age 55 and have at least 10 years of
service, is reduced as described above and is further reduced by 6 percent for each year under 80 points or
age 65.

For retirees with spouses, domestic partners, or unmarried dependents, the plan will pay survivor annuity

benefits upon the retiree’s death at 25, 50, or 75 percent of the retiree’s annuity benefit, depending on the
employee’s elections. Election of the higher survivor benefit will result in a lower annuity payment during the
retiree’s life. All U.S. retirees, or their eligible survivors, are entitled to medical insurance under the company’s
plans.

When Mr. Armitage joined the company in 1999, the company agreed to provide him with a retirement benefit
based on his actual years of service and earnings at age 60. Since Mr. Armitage reached age 60 with 8.75 years of
service, for purposes of determining eligibility and calculating his early retirement reduction, he has been treated as
though he has 20 years of service. The additional service credit made him eligible to begin reduced benefits
15 months early, but did not change the timing or amount of his unreduced benefits (shown in the Pension Benefits
in 2010 table). A grant of additional years of service credit to any employee must be approved by the compensation
committee of the board of directors.

Nonqualified Deferred Compensation in 2010

Executive
Contributions in
Last Fiscal Year
($) 1

Registrant
Contributions in
Last Fiscal Year
($) 2

Aggregate
Earnings in
Last Fiscal Year
($)

Aggregate
Withdrawals/
Distributions in
Last Fiscal Year
($)

Aggregate
Balance at Last
Fiscal Year End
($) 3

Name

Plan

Dr. Lechleiter

nonqualified savings

deferred compensation

total

Dr. Lundberg

nonqualified savings

Mr. Rice

deferred compensation

total

nonqualified savings

deferred compensation

total

Mr. Carmine

nonqualified savings

deferred compensation

total

Mr. Armitage

nonqualified savings

$75,300

$887,775

$963,075

$42,084

$42,600

$42,125

$35,509

deferred compensation

total

$1,082,850

$1,118,359

$75,300

—

$75,300

$42,084

—

$42,084

$42,600

—

$42,600

$42,125

—

$42,125

$35,509

—

$35,509

$73,225

$322,795

$396,020

$936

$25,215

$55,826

$75,524

$131,350

$38,269

$277,744

$316,012

$1,221,291

$7,050,888

$8,272,179

$85,889

$420,311

$487,038

$1,613,707

$2,100,745

$540,304

$6,122,082

$6,662,386

1 The amounts in this column are also included in the Summary Compensation Table, in the “Salary” column
(nonqualified savings) or the “Non-Equity Incentive Plan Compensation” column (deferred compensation).

T
N
E
M
E
T
A
T
S

Y
X
O
R
P

2 The amounts in this column are also included in the Summary Compensation Table, in the “All Other

Compensation” column as a portion of the savings plan match.

3 Of the totals in this column, the following amounts have previously been reported in the Summary Compensation

Table for this year and for previous years:

Name

Dr. Lechleiter

Dr. Lundberg

Mr. Rice

Mr. Carmine

Mr. Armitage

2010 ($)

$1,038,375

$84,168

$85,200

$84,250

$1,153,868

Previous Years ($)

$5,382,656

—

$260,304

$994,463

$4,710,559

Total ($)

$6,421,031

$84,168

$345,504

$1,078,713

$5,864,427

The Nonqualified Deferred Compensation in 2010 table above shows information about two company programs:

the nonqualified savings plan and the deferred compensation plan. The nonqualified savings plan is designed to
allow each employee to contribute up to 6 percent of his or her base salary, and receive a company match, beyond
the contribution limits prescribed by the IRS with regard to 401(k) plans. This plan is administered in the same
manner as the 401(k) plan, with the same participation and investment elections. Executive officers and other U.S.
executives may also defer receipt of all or part of their cash compensation under the deferred compensation plan.
Amounts deferred by executives under this plan are credited with interest at 120 percent of the applicable federal
long-term rate as established the preceding December by the U.S. Treasury Department under Section 1274(d) of
the Internal Revenue Code with monthly compounding, which was 4.9 percent for 2010 and is 4.2 percent for 2011.
Participants may elect to receive the funds in a lump sum or in up to 10 annual installments following retirement,
but may not make withdrawals during their employment, except in the event of hardship as approved by the
compensation committee. All deferral elections and associated distribution schedules are irrevocable. Both plans
are unfunded and subject to forfeiture in the event of bankruptcy.

Potential Payments Upon Termination or Change in Control
The following table describes the potential payments and benefits under the company’s compensation and benefit
plans and arrangements to which the named executive officers would be entitled upon termination of employment.
Except for (i) certain terminations following a change in control of the company, as described below, and (ii) certain
pension arrangements described under “Retirement Benefits” above, there are no agreements, arrangements, or
plans that entitle named executive officers to severance, perquisites, or other enhanced benefits upon termination of
their employment (other than Dr. Lundberg’s limited severance benefit described in footnote 4 to the table below).
Any agreement to provide such payments or benefits to a terminating executive officer (other than following a
change in control) would be at the discretion of the compensation committee.

P
R
O
X
Y

S
T
A
T
E
M
E
N
T

Potential Payments Upon Termination of Employment (as of December 31, 2010)

Incremental
Pension
Benefit
(present
value)

Continuation
of Medical /
Welfare
Benefits
(present
value) 1

Acceleration
and
Continuation
of Equity
Awards
(unamortized
expense as of
12/31/10) 2

Excise Tax
Gross-Up 3

Total
Termination
Benefits

$42,078

$11,289,675

$7,333,958

$25,865,712

$3,610,000

$17,100

$3,009,742

$2,343,421

$8,980,262

$33,300

$4,515,864

$3,202,376

$11,380,540

$17,100

$4,515,864

$3,280,292

$11,429,716

$17,100

$3,010,558

$2,294,209

$8,349,107

Cash
Severance
Payment

$7,200,000

$3,610,000

$3,629,000

$3,616,460

$3,027,240

Dr. Lechleiter

‰ Voluntary retirement
‰ Involuntary retirement or termination
‰ Involuntary or good reason termination after

change in control

Dr. Lundberg

‰ Voluntary termination
‰ Involuntary retirement or termination 4
‰ Involuntary or good reason termination after

change in control

Mr. Rice

‰ Voluntary termination
‰ Involuntary retirement or termination
‰ Involuntary or good reason termination after

change in control

Mr. Carmine

‰ Voluntary retirement
‰ Involuntary retirement or termination
‰ Involuntary or good reason termination after

change in control

Mr. Armitage 5

‰ Voluntary retirement
‰ Involuntary retirement or termination
‰ Involuntary or good reason termination after

change in control

1 See “Accrued Pay and Regular Retirement Benefits” and “Change-in-Control Severance Pay Plan—Continuation of

medical and welfare benefits” below.

2 Beginning in 2010, equity grants included an individual performance criteria to vest. As a result, even

retirement-eligible employees have the possibility of forfeiting their grants.
3 Beginning in October 2012, the company will eliminate excise tax gross-ups.
4 Dr. Lundberg is eligible for a severance benefit equal to two times his base salary plus target bonus if he is

involuntarily terminated before January 4, 2012. After this date, there is no guaranteed severance for involuntary
retirement or termination.

5 Mr. Armitage’s incremental pension benefit is described in the “Retirement Benefits” section.

Accrued Pay and Regular Retirement Benefits. The amounts shown in the table above do not include payments and
benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon
termination of employment. These include:

• accrued salary and vacation pay.
• regular pension benefits under the retirement plan and the nonqualified pension plan. See “Retirement

Benefits.”

• welfare benefits provided to all U.S. retirees, including retiree medical and dental insurance. The amounts

shown in the table above as “Continuation of Medical / Welfare Benefits” are explained below.

• distributions of plan balances under the 401(k) plan and the nonqualified savings plan. See the narrative

following the Nonqualified Deferred Compensation in 2010 table for information about these plans.

• the value of accelerated vesting of certain unvested equity grants upon retirement. Under the company’s stock

plans, employees who terminate employment while retirement-eligible receive accelerated vesting of
outstanding PAs and SVAs (which are paid on a reduced basis for time worked during the performance period),
and restricted stock awarded in payment of previous PAs.

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• the value of option continuation upon retirement. When an employee terminates prior to retirement, his or her

stock options are terminated 30 days thereafter. However, when a retirement-eligible employee terminates, his
or her options remain in force until the earlier of five years after retirement or the option’s normal expiration
date.

Deferred Compensation. The amounts shown in the table do not include distributions of plan balances under the
deferred compensation plan. Those amounts are shown in the Nonqualified Deferred Compensation in 2010 table.

Death and Disability. A termination of employment due to death or disability does not entitle named executive
officers to any payments or benefits that are not available to salaried employees generally.

Termination for Cause. Except for Dr. Lundberg (as described above), executives receive no severance or medical
benefits and forfeit any unvested equity grants. Mr. Armitage’s pension arrangement is described in the “Retirement
Benefits” section; no other executive officer has an enhanced pension arrangement.

Change-in-Control Severance Pay Plan. As described in the “Compensation Discussion and Analysis” under
“Severance Benefits,” the company maintains a change-in-control severance pay plan (CIC plan) for nearly all
employees, including the named executive officers. The CIC plan defines a change in control very specifically, but
generally the terms include the occurrence of, or entry into, an agreement to do one of the following: (i) acquisition
of 20 percent or more of the company’s stock; (ii) replacement by the shareholders of one half or more of the board
of directors; (iii) consummation of a merger, share exchange, or consolidation of the company; or (iv) liquidation of
the company or sale or disposition of all or substantially all of its assets. The amounts shown in the table for
“involuntary or good reason termination after change in control” are based on the following assumptions and plan
provisions:

• Covered terminations. The table assumes a termination of employment that is eligible for severance under the
terms of the current plan, based on the named executive officer’s compensation, benefits, age, and service
credit at December 31, 2010. Eligible terminations include an involuntary termination for reasons other than for
cause or a voluntary termination by the executive for good reason, within two years following the change in
control.

—A termination of an executive officer by the company is for cause if it is for any of the following reasons:

(i) the employee’s willful and continued refusal to perform, without legal cause, his or her material duties,
resulting in demonstrable economic harm to the company; (ii) any act of fraud, dishonesty, or gross
misconduct resulting in significant economic harm or other significant harm to the business reputation of
the company; or (iii) conviction of or the entering of a plea of guilty or nolo contendere to a felony.

—A termination by the executive officer is for good reason if it results from: (i) a material diminution in the

nature or status of the executive’s position, title, reporting relationship, duties, responsibilities, or
authority, or the assignment to him or her of additional responsibilities that materially increase his or her
workload; (ii) any reduction in the executive’s then-current base salary; (iii) a material reduction in the
executive’s opportunities to earn incentive bonuses below those in effect for the year prior to the change in
control; (iv) a material reduction in the executive’s employee benefits from the benefit levels in effect
immediately prior to the change in control; (v) the failure to grant to the executive stock options, stock
units, performance shares, or similar incentive rights during each 12-month period following the change in
control on the basis of a number of shares or units and all other material terms at least as favorable to the
executive as those rights granted to him or her on an annualized average basis for the three-year period
immediately prior to the change in control; or (vi) relocation of the executive by more than 50 miles.
• Cash severance payment. Represents the CIC plan benefit of two times the employee’s 2010 annual base salary

plus two times the employee’s bonus target for 2010 under the bonus plan.

• Continuation of medical and welfare benefits. Represents the present value of the CIC plan’s guarantee, following

a covered termination, for 18 months of continued coverage equivalent to the company’s current active
employee medical, dental, life, and long-term disability insurance. The same actuarial assumptions were used
to calculate continuation of medical and welfare benefits as were used to calculate incremental pension
benefits, with the addition of actual COBRA rates based on their current benefits elections.

• Acceleration and continuation of equity awards. Under the CIC plan, upon a covered termination, any unvested

equity awards would vest. Payment of SVAs is accelerated in the case of a change in control in which Lilly is not
the surviving entity. The amount in this column represents the previously unamortized expense that would be
recognized in connection with the acceleration of unvested equity grants.

• Excise tax reimbursement. Upon a change in control, employees may be subject to certain excise taxes under

Section 280G of the Internal Revenue Code. The company has agreed to reimburse the affected employees for

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those excise taxes as well as any income and excise taxes payable by the employee as a result of the
reimbursement. The amounts in the table are based on a 280G excise tax rate of 20 percent and a 40 percent
federal, state, and local income tax rate. To reduce the company’s exposure to these reimbursements, the
employee’s severance will be cut back by up to 5 percent if the effect is to avoid triggering the excise tax under
Section 280G. Beginning in October 2012, excise taxes will no longer be reimbursed.

Payments Upon Change in Control Alone. In general, the CIC plan is a “double trigger” plan, meaning payments are
made only if the employee suffers a covered termination of employment within two years following the change in
control. Employees do not receive payments upon a change in control alone, except that upon consummation of a
change in control a partial payment of outstanding PAs would be made, reduced to reflect the portion of the
performance period worked prior to the change in control. Likewise, in the case of a change in control in which Lilly
is not the surviving entity, SVAs will pay out based on the change-in-control stock price and be prorated for the
portion of the three-year performance period elapsed.

Securities Authorized for Issuance Under Equity Compensation Plans
The following table contains information as of December 31, 2010, about our compensation plans under which
shares of company stock have been authorized for issuance.

Plan category

Equity compensation plans approved by security

holders

Equity compensation plans not approved by

security holders 1

Total

(a) Number of securities to be
issued upon exercise of
outstanding options,
warrants, and rights

(b) Weighted-average exercise
price of outstanding options,
warrants, and rights

(c) Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in (a))

49,479,780

5,984,210

55,463,990

$68.19

$76.12

$69.04

82,072,966

1 Represents shares in the Lilly GlobalShares Stock Plan, which permitted the company to grant stock options to
nonmanagement employees worldwide. The plan was administered by the senior vice president responsible for
human resources. The stock options are nonqualified for U.S. tax purposes. The option price cannot be less than
the fair market value at the time of grant. The options shall not exceed 11 years in duration and shall be subject to
vesting schedules established by the plan administrator. There are provisions for early vesting and early
termination of the options in the event of retirement, disability, or death. In the event of stock splits or other
recapitalizations, the administrator may adjust the number of shares available for grant, the number of shares
subject to outstanding grants, and the exercise price of outstanding grants.

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Ownership of Company Stock

Common Stock Ownership by Directors and Executive Officers
The following table sets forth the number of shares of company common stock beneficially owned by the directors,
the named executive officers, and all directors and executive officers as a group, as of February 1, 2011.

The table shows shares held by named executive officers in the 401(k) plan, shares credited to the accounts of

outside directors in the Lilly Directors’ Deferral Plan, and total shares beneficially owned by each individual,
including the shares in these two plans. In addition, the table shows restricted stock units that will be issued as
shares of common stock at the end of the restriction period and shares that may be purchased pursuant to stock
options that are exercisable within 60 days of February 1, 2011. All of the stock options shown are currently under
water.

Name

Ralph Alvarez

Robert A. Armitage

Sir Winfried Bischoff

Bryce D. Carmine

Michael L. Eskew

Martin S. Feldstein, Ph.D.

J. Erik Fyrwald

Alfred G. Gilman, M.D., Ph.D.

R. David Hoover

Karen N. Horn, Ph.D.

John C. Lechleiter, Ph.D.

Jan M. Lundberg, Ph.D.

Ellen R. Marram

Douglas R. Oberhelman

Franklyn G. Prendergast, M.D., Ph.D.

Derica W. Rice

Kathi P. Seifert

401(k) Plan Shares

Directors’ Deferral
Plan Shares 1

Total Shares Owned
Beneficially 2

Restricted Stock
Units 3

Stock Options
Exercisable Within
60 Days of
February 1, 2011

—

3,096

—

6,218

—

16,812

574

—

7,167

—

8,455

—

26,646

—

13,511

24,732

29,988

33,577

10,506

48,527

—

24,732

8,455

40,178

—

35,539

8,455

120,143

28,646

112,725

3,511

25,732

30,088

33,577

11,506

48,527

376,859 4

22,926

25,732

8,455

40,178

132,052

39,072

—

58,616

—

87,924

—

219,812

66,667

—

87,924

—

321,371

11,200

315,855

—

8,400

—

11,200

—

11,200

768,775

—

5,600

—

11,200

143,385

11,200

All directors and executive officers as a group (25 people):

1,349,418 5

1 See the description of the Lilly Directors’ Deferral Plan on page 17.
2 Unless otherwise indicated in a footnote, each person listed in the table possesses sole voting and sole investment
power with respect to their shares. No person listed in the table owns more than 0.10 percent of the outstanding
common stock of the company. All directors and executive officers as a group own 0.32 percent of the outstanding
common stock of the company. The company includes restricted stock units for purposes of determining whether
share ownership guidelines are met.

3 The 2009-2010 PAs paid out in January 2011 in restricted stock units. These shares will vest in February 2012, and
have no voting rights until they vest. Dr. Lundberg’s restricted stock unit award was granted February 1, 2010; one
half of these shares will vest February 1, 2012 and the remaining shares will vest February 1, 2013.

4 The shares shown for Dr. Lechleiter include 11,558 shares that are owned by a family foundation for which he is a
director. Dr. Lechleiter has shared voting power and shared investment power with respect to the shares held by
the foundation.

5 Of the total, 27,124 shares have been pledged.

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Principal Holders of Stock
To the best of the company’s knowledge, the only beneficial owners of more than 5 percent of the outstanding shares
of the company’s common stock are the shareholders listed below:

Name and Address
Lilly Endowment, Inc. (the “Endowment”)
2801 North Meridian Street
Indianapolis, Indiana 46208

PRIMECAP Management Company
225 South Lake Ave., #400
Pasadena, California 91101

BlackRock, Inc.
40 East 52nd Street
New York, New York 10022

Capital World Investors
333 South Hope Street
Los Angeles, California 90071

Number of Shares
Beneficially Owned

135,670,804
(as of 2/7/11)

62,331,633
(as of 12/31/10)

60,655,191
(as of 12/31/10)

59,387,000
(as of 12/31/10)

Percent of Class
11.7%

5.4%

5.3%

5.1%

The Endowment has sole voting and sole investment power with respect to its shares. The board of directors of

the Endowment is composed of Thomas M. Lofton, chairman; N. Clay Robbins, president; Mary K. Lisher;
Otis R. Bowen; William G. Enright; Daniel P. Carmichael; Charles E. Golden; and Eli Lilly II. Each of the directors is,
either directly or indirectly, a shareholder of the company.

PRIMECAP Management Company acts as investment advisor to various clients. It has sole voting power with
respect to 20,848,270 shares (approximately 1.81 percent of shares outstanding) and sole investment power with
respect to all of its shares.

BlackRock, Inc. provides investment management services for various clients. It has sole voting and sole

investment power with respect to its shares.

Capital World Investors is a division of Capital Research and Management Company. It has sole voting power
with respect to 47,837,000 shares (approximately 4.15 percent of shares outstanding) and sole investment power
with respect to all of its shares.

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Items of Business To Be Acted Upon at the Meeting

Item 1. Election of Directors

Under the company’s articles of incorporation, the board is divided into three classes with approximately one-third of
the directors standing for election each year. The term for directors elected this year will expire at the annual
meeting of shareholders held in 2014. Each of the nominees listed below has agreed to serve that term. If any
director is unable to stand for election, the board may, by resolution, provide for a lesser number of directors or
designate a substitute. In the latter event, shares represented by proxy may be voted for a substitute director.

The board recommends that you vote FOR each of the following nominees:

• Michael L. Eskew
• Alfred G. Gilman, M.D., Ph.D.
• Karen N. Horn, Ph.D.
• John C. Lechleiter, Ph.D.

Biographical information about these nominees may be found in the “Directors’ Biographies” section.

Item 2. Proposal to Ratify the Appointment of Principal Independent Auditor

The audit committee has appointed the firm of Ernst & Young LLP as principal independent auditor for the company
for the year 2011. In accordance with the bylaws, this appointment is being submitted to the shareholders for
ratification. Ernst & Young served as the principal independent auditor for the company in 2010. Representatives of
Ernst & Young are expected to be present at the annual meeting and will be available to respond to questions. Those
representatives will have the opportunity to make a statement if they wish to do so.

The board recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal
independent auditor for 2011.

Item 3. Advisory Vote on 2010 Compensation Paid to Named Executive Officers

Our compensation philosophy is designed to attract and retain highly-talented individuals and motivate them to
create long-term shareholder value by achieving top-tier corporate performance while embracing the company’s
values of integrity, excellence, and respect for people. Our programs seek to:

• closely link compensation with company performance and individual performance
• foster a long-term focus
• reflect the market for pharmaceutical talent
• be efficient and egalitarian
• appropriately mitigate risk.

The compensation committee and the board of directors believe that our 2010 executive compensation aligns

well with our philosophy and with corporate performance. We urge shareholders to read the “Compensation
Discussion and Analysis” section of this proxy statement beginning on page 25, for a more detailed discussion of our
executive compensation programs and how they reflect our philosophy and are linked to company performance.

Executive compensation is an important matter for our shareholders. We have a strong record of engagement
with shareholders on compensation matters and have made a number of changes to our programs and disclosures
in response to shareholder input, including several enhancements discussed in the “Compensation Discussion and
Analysis.”

We request shareholder approval, on an advisory basis, of the 2010 compensation of the company’s named

executive officers as disclosed in this proxy statement in the “Compensation Discussion and Analysis,” the
compensation tables, and related narratives. As an advisory vote, this proposal is not binding on the company.
However, the compensation committee values input from shareholders and will consider the outcome of the vote
when making future executive compensation decisions.

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The board recommends that you vote FOR the approval, on an advisory basis, of the 2010 compensation paid to the
named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation
Discussion and Analysis, the compensation tables, and related narratives in this proxy statement.

Item 4. Frequency of Future Advisory Votes on Executive Compensation

In accordance with federal legislation enacted in 2010 requiring advisory shareholder votes on executive
compensation of the type found in Item 3 above, we are required this year to ask shareholders, on an advisory basis,
whether they would prefer advisory compensation votes every year, every two years, or every three years. Your proxy
or voting instruction card allows you to choose the frequency you prefer.

Shareholders should consider the value of having the opportunity every year to voice their opinion on the
company’s executive compensation through an advisory vote, weighing that against the additional burden and
expense to the company and shareholders of preparing and responding to proposals annually, as well as the other
means available to shareholders to provide input on executive compensation.

On balance, we support advisory votes on executive compensation every year. We welcome shareholder input

and anticipate that the value of an annual vote will likely outweigh the burden of preparing annual proposals.

The board is not bound by this advisory shareholder vote; however, it will give significant weight to shareholder

preferences on this matter.

The board recommends that you vote, on an advisory basis, for future shareholder advisory votes on executive
compensation to be held EVERY YEAR.

Item 5. Proposal to Amend the Company’s Articles of Incorporation to Provide for Annual Election of All Directors

The company’s amended articles of incorporation provide that the board of directors is divided into three classes,
with each class elected every three years. On the recommendation of the directors and corporate governance
committee, the board has approved, and recommends that the shareholders approve, amendments to provide for the
annual election of all directors. This proposal was brought before shareholders at each of the last four annual
meetings, and received the vote of more than 74 percent of the outstanding shares at each meeting; however, the
proposal requires the vote of 80 percent of the outstanding shares to pass.

If approved, this proposal would become effective upon the filing of amended and restated articles of
incorporation with the Secretary of State of Indiana, which the company would do promptly after shareholder
approval is obtained. Directors elected prior to the effectiveness of these amendments would stand for election for
one-year terms once their then-current terms expire. This means that directors whose terms expire at the 2012 and
2013 annual meetings of shareholders would be elected for one-year terms, and beginning with the 2014 annual
meeting, all directors would be elected for one-year terms at each annual meeting. In the case of any vacancy on the
board occurring after the 2011 annual meeting created by an increase in the number of directors, the vacancy would
be filled through an interim election by the board with the new director to serve a term ending at the next annual
meeting. Vacancies created by resignation, removal or death would be filled by interim election of the board for a
term until the end of the term of the director being replaced. This proposal would not change the present number of
directors or the board’s authority to change that number and to fill any vacancies or newly created directorships.

Background of Proposal
As part of its ongoing review of corporate governance matters, the board, assisted by the directors and corporate
governance committee, considered the advantages and disadvantages of maintaining the classified board structure
and eliminating the supermajority voting provisions of the articles of incorporation (see Item 6 below). The board
considered the view of some shareholders who believe that classified boards have the effect of reducing the
accountability of directors to shareholders because shareholders are unable to evaluate and elect all directors on an
annual basis. The board gave considerable weight to the approval at the 2006 annual meeting of a shareholder
proposal requesting that the board take all necessary steps to elect the directors annually, and to the favorable votes
of over 74 percent of the outstanding shares for management’s proposals in the preceding four years.

The board also considered benefits of retaining the classified board structure, which has a long history in
corporate law. A classified structure may provide continuity and stability in the management of the business and
affairs of the company because a majority of directors always have prior experience as directors of the company. In
some circumstances classified boards may enhance shareholder value by forcing an entity seeking control of the
company to initiate discussions at arm’s-length with the board of the company, because the entity cannot replace the

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entire board in a single election. The board also considered that even without a classified board (and without the
supermajority voting requirements, which the board also recommends eliminating), the company has defenses that
work together to discourage a would-be acquirer from proceeding with a proposal that undervalues the company
and to assist the board in responding to such proposals. These defenses include other provisions of the company’s
articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.

The board believes it is important to maintain appropriate defenses to inadequate takeover bids, but also
important to retain shareholder confidence by demonstrating that it is accountable and responsive to shareholders.
After balancing these interests, the board has decided to resubmit this proposal to eliminate the classified board
structure.

Text of Amendments
Article 9(b) of the company’s amended articles of incorporation contains the provisions that will be affected if this
proposal is adopted. This article, set forth in Appendix A to this proxy statement, shows the proposed changes with
deletions indicated by strike-outs and additions indicated by underlining. The board has also made conforming
changes to the company’s bylaws, to be effective immediately upon the effectiveness of the amendments to the
articles of incorporation.

Vote Required
The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.

The board recommends that you vote FOR amending the company’s articles of incorporation to provide for annual
election of all directors.

Item 6. Proposal to Amend the Company’s Articles of Incorporation to Eliminate All Supermajority Voting
Requirements

Under the company’s amended articles of incorporation, nearly all matters submitted to a vote of shareholders can
be adopted by a majority of the votes cast. However, our articles require a few fundamental corporate actions to be
approved by the holders of 80 percent of the outstanding shares of common stock (a “supermajority vote”). Those
actions are:

• amending certain provisions of the articles of incorporation that relate to the number and terms of office of

directors:

—the company’s classified board structure, under which directors serve staggered three-year terms
—a provision that the number of directors shall be specified solely by resolution of the board of directors

• removing directors prior to the end of their elected term
• entering into mergers, consolidations, recapitalizations, or certain other business combinations with a “related
person”—a party who has acquired at least 5 percent of the company’s stock (other than the Lilly Endowment or
a company benefit plan) without the prior approval of the board of directors.
• modifying or eliminating any of the above supermajority voting requirements.

Background of Proposal
This proposal is the result of the board’s ongoing review of corporate governance matters. In 2007, 2008, and 2009,
shareholder proposals requesting that the board take action to eliminate the supermajority voting provisions were
supported by a majority of votes cast. In 2010, the board responded by submitting a proposal seeking shareholder
approval to eliminate the provisions. The proposal received the votes of 74 percent of the outstanding shares, falling
short of the required 80 percent.

Assisted by the directors and corporate governance committee, the board considered the advantages and
disadvantages of maintaining the supermajority voting requirements. The board considered that under certain
circumstances, supermajority voting provisions can provide benefits to the company. The provisions can make it
more difficult for one or a few large shareholders to take over or restructure the company without negotiating with
the board. In the event of an unsolicited bid to take over or restructure the company, supermajority voting provisions
may encourage bidders to negotiate with the board and increase the board’s negotiating leverage on behalf of the
shareholders. They can also give the board time to consider alternatives that might provide greater value for all
shareholders.

The board also considered the potential adverse consequences of opposing elimination of the supermajority

voting requirements. While it is important to maintain appropriate defenses against inadequate takeover bids, it is
also important for the board to maintain shareholder confidence by demonstrating that it is responsive and

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accountable to shareholders and committed to strong corporate governance. This requires the board to carefully
balance sometimes competing interests. In this regard, the board gave considerable weight to the fact that for four
consecutive years, a substantial majority of shares voted have supported eliminating the supermajority voting
provisions. Many shareholders believe that supermajority voting provisions impede accountability to shareholders
and contribute to board and management entrenchment. If the board were to oppose eliminating the supermajority
vote, there is a risk that those shareholders would lose confidence in the company’s governance and its board, which
could threaten the company’s leadership stability and ability to carry out its long-term strategies for growth and
success.

The board also considered that even without the supermajority vote (and without the classified board, which the

board also recommends eliminating), the company has defenses that work together to discourage a would-be
acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to
such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as
well as certain provisions of Indiana corporation law.

Therefore, the board believes the balance of interests is best served by recommending to shareholders that the

articles of incorporation be amended to eliminate all supermajority voting provisions.

A shareholder submitted a proposal for the 2011 annual meeting requesting that the company take actions to

eliminate the supermajority vote provisions. The shareholder withdrew the proposal based on the company’s
commitment to submit this management proposal and to take steps to secure its passage. By recommending these
amendments, the board is demonstrating its accountability and willingness to take steps that address shareholder-
expressed concerns.

Text of Amendments
Articles 9(c), 9(d), and 13 of the company’s amended articles of incorporation contain the provisions that will be
affected if this proposal is adopted. These articles, set forth in Appendix A to this proxy statement, show the
proposed changes with deletions indicated by strike-outs and additions indicated by underlining. The board has also
made conforming changes to the company’s bylaws, to be effective immediately upon the effectiveness of the
amendments to the articles of incorporation.

Vote Required
The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.

The board recommends that you vote FOR amending the company’s articles of incorporation to eliminate all
supermajority voting requirements.

Item 7. Approval of Executive Officer Incentive Plan

Under Section 162(m) of the Internal Revenue Code (the code), the company cannot take a federal income tax
deduction for certain compensation paid in excess of $1 million to the chief executive officer and certain other
executive officers. However, performance-based compensation is not counted against this limit if the program under
which it is paid is approved by shareholders and meets other requirements. The annual cash incentive bonuses paid
to our top executives under The Eli Lilly and Company Bonus Plan (the bonus plan) (described in the “Compensation
Discussion and Analysis”) have qualified for this full tax deductibility. In order to provide additional assurance of
continued tax deductibility of future annual incentive bonuses in light of changes to the bonus plan, we are asking
shareholders to approve The Eli Lilly and Company Executive Officer Incentive Plan (EOIP).

The EIOP will work in conjunction with the bonus plan to provide executive officers with annual cash incentives
that align the executives’ goals with important company performance goals while preserving full tax deductibility of
the incentive payments.

Summary of Plan
The primary features of the EOIP are summarized below. This summary is qualified by reference to the full text of
the EOIP which is set forth as Appendix B to this proxy statement.

Eligibility
Executive officers of the company (as determined by the board pursuant to SEC regulations) are eligible to
participate in the EOIP. There are currently 13 executive officers.

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Plan Administration
The EOIP will be administered by the compensation committee of the board (the committee), which is composed of at
least three outside directors as defined under the code.

Determination of Annual Incentive Bonus
The EOIP operates by establishing a maximum annual incentive bonus and granting the committee discretion to
reduce the bonus from the maximum. Under the EOIP, the maximum bonuses are based on Non-GAAP Net Income
(as defined below) for the year. For the chief executive officer, chief operating officer (if any), and executive chairman
(if any), the maximum is 0.3 percent of Non-GAAP Net Income. For other executive officers, the maximum is
0.15 percent of Non-GAAP Net Income. No payments can be made unless the company has positive Non-GAAP Net
Income for the year. The committee has discretion to reduce, but not increase, the annual incentive bonus.

In exercising this discretion, the committee intends generally to award executive officers the lesser of (i) the
bonuses they would have received under the bonus plan or (ii) the EOIP maximum amounts. Each year the committee
will establish target bonuses for the executive officers based on a percentage of salary. At the end of the year, the
committee will reduce the bonuses from the EOIP maximum based on the company’s achievement relative to
performance-based goals set by the committee (currently non-GAAP EPS growth, revenue growth, and progress of
our research and development pipeline) in a manner consistent with the committee’s administration of the bonus
plan. Accordingly, actual payouts under the EOIP are expected to be less than the EOIP maximum amounts. The
committee retains further discretion to reduce the bonuses below the results that would have been yielded under
the bonus plan.

“Non-GAAP Net Income” is the company’s positive consolidated net income as reported in its audited financial

statements, adjusted to exclude the effects during the year of (i) any acquisition occurring during the year,
(ii) material charges or income arising from litigation, (iii) corporate restructuring, asset impairments, or other
special charges, (iv) acquired in-process research and development costs, and (v) cumulative effect of changes to
U.S. generally accepted accounting principles.

Payments
Payments will be made in cash after the end of the year and prior to March 15 of the following year. Prior to payment,
the committee will certify the calculation of positive Non-GAAP Net Income, the EOIP maximums, and any reduction
of bonuses based on the committee’s exercise of discretion.

Amendment of EOIP
The board of directors or the committee may amend or terminate the EOIP at any time. To the extent the board or
committee determines that Section 162(m) requires shareholder approval of an amendment, it shall make such
action contingent on shareholder approval.

New Plan Benefits
No determination has been made as to the amounts payable in the future under the EOIP. If the EOIP had been in
effect in 2010, the following amounts would have been paid. These are equivalent to the payments made under the
bonus plan and are less than the EOIP maximum bonus amounts based on 2010 Non-GAAP Net Income of
$5,240.8 million.

Name

John C. Lechleiter, Ph.D.

Jan M. Lundberg, Ph.D.

Derica W. Rice

Bryce D. Carmine

Robert A. Armitage

Dollar Value

$2,982,000

$1,209,501

$1,220,490

$1,210,373

$950,624

All executive officers as a group (13 people):

$11,858,095

The board recommends that you vote FOR the Executive Officer Incentive Plan.

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Other Matters

Section 16(a) Beneficial Ownership Reporting Compliance
Under SEC rules, our directors and executive officers are required to file with the SEC reports of holdings and
changes in beneficial ownership of company stock. We have reviewed copies of reports provided to the company, as
well as other records and information. Based on that review, we concluded that all reports were timely filed, except
that, due to an administrative error, Mr. Rice incorrectly reported the total number of shares he held at the time he
became an officer. The filing was amended to include these shares promptly after the issue was discovered.

Other Information Regarding the Company’s Proxy Solicitation
We will pay all expenses in connection with our solicitation of proxies. We will pay brokers, nominees, fiduciaries, or
other custodians their reasonable expenses for sending proxy material to and obtaining instructions from persons
for whom they hold stock of the company. We expect to solicit proxies primarily by mail, but directors, officers, and
other employees of the company may also solicit in person or by telephone, fax, or electronic mail. We have retained
Georgeson Inc. to assist in the distribution and solicitation of proxies. Georgeson may solicit proxies by personal
interview, telephone, fax, mail, and electronic mail. We expect that the fee for those services will not exceed $17,500
plus reimbursement of customary out-of-pocket expenses.

By order of the board of directors,

James B. Lootens
Secretary

March 7, 2011

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Appendix A

Proposed Amendments to the Company’s Articles of Incorporation
Proposed changes to the company’s articles of incorporation are shown below related to Items 5 and 6, “Items of
Business To Be Acted Upon at the Meeting.” The changes shown to Article 9(b) will be effective if “Item 5. Proposal to
Amend the Company’s Articles of Incorporation to Provide for Annual Election of All Directors” (pages 52-53)
receives the vote of at least 80 percent of the outstanding shares. The changes to Articles 9(c), 9(d), and 13 will be
effective if “Item 6. Proposal to Amend the Company’s Articles of Incorporation to Eliminate All Supermajority Voting
Requirements” (pages 53-54) receives the vote of at least 80 percent of the outstanding shares. Additions are
indicated by underlining and deletions are indicated by strike-outs.

. . . . .

9. The following provisions are inserted for the management of the business and for the conduct of the affairs of the
Corporation, and it is expressly provided that the same are intended to be in furtherance and not in limitation or
exclusion of the powers conferred by statute:

(a) The number of directors of the Corporation, exclusive of directors who may be elected by the holders of any
one or more series of Preferred Stock pursuant to Article 7(b) (the “Preferred Stock Directors”), shall not be
less than nine, the exact number to be fixed from time to time solely by resolution of the Board of Directors,
acting by not less than a majority of the directors then in office.

(b) The Prior to the 2012 annual meeting of directors, the Board of Directors (exclusive of Preferred Stock
Directors) shall be divided into three classes, with the term of office of one class expiring each year. At the
annual meeting of shareholders in 1985, five directors of the first class shall be elected to hold office for a term
expiring at the 1986 annual meeting, five directors of the second class shall be elected to hold office for a term
expiring at the 1987 annual meeting, and six directors of the third class shall be elected to hold office for a term
expiring at the 1988 annual meeting. Commencing with the annual meeting of shareholders in 19862012, each
class of directors whose term shall then expire shall be elected to hold office for a three one-year term expiring
at the next annual meeting of shareholders. In the case of any vacancy on the Board of Directors, including a
vacancy created by an increase in the number of directors, the vacancy shall be filled by election of the Board of
Directors with the director so elected to serve for the remainder of the term of the director being replaced or, in
the case of an additional director, for the remainder of the term of the class to which the director has been
assigned. until the next annual meeting of shareholders. All directors shall continue in office until the election
and qualification of their respective successors in office. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be so assigned among the classes by a majority of
the directors then in office, though less than a quorum, as to make all classes as nearly equal in number as
possible. No decrease in the number of directors shall have the effect of shortening the term of any incumbent
director. Election of directors need not be by written ballot unless the By-laws so provide.

(c) Any director or directors (exclusive of Preferred Stock Directors) may be removed from office at any time, but
only for cause and only by the affirmative vote of at least 80% of the votes entitled to be cast by holders of all the
outstanding shares a majority of votes cast by the holders of Voting Stock (as defined in Article 13 hereof), voting
together as a single class.

(d) Notwithstanding any other provision of these Amended Articles of Incorporation or of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular
class of Voting Stock required by law or these Amended Articles of Incorporation, the affirmative vote of at least
80% of the votes entitled to be cast by holders of all the outstanding shares of Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Article 9.

. . . . .

13. In addition to all other requirements imposed by law and these Amended Articles and except as otherwise
expressly provided in paragraph (c) of this Article 13, none of the actions or transactions listed in paragraph (a)
below shall be effected by the Corporation, or approved by the Corporation as a shareholder of any majority-owned
subsidiary of the Corporation if, as of the record date for the determination of the shareholders entitled to vote

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thereon, any Related Person (as hereinafter defined) exists, unless the applicable requirements of paragraphs (b),
(c), (d), (e), and (fe) of this Article 13 are satisfied.

(a) The actions or transactions within the scope of this Article 13 are as follows:

(i) any merger or consolidation of the Corporation or any of its subsidiaries into or with such Related Person;
(ii) any sale, lease, exchange, or other disposition of all or any substantial part of the assets of the
Corporation or any of its majority-owned subsidiaries to or with such Related Person;
(iii) the issuance or delivery of any Voting Stock (as hereinafter defined) or of voting securities of any of the
Corporation’s majority-owned subsidiaries to such Related Person in exchange for cash, other assets or
securities, or a combination thereof;
(iv) any voluntary dissolution or liquidation of the Corporation;
(v) any reclassification of securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any of its subsidiaries, or any other
transaction (whether or not with or otherwise involving a Related Person) that has the effect, directly or
indirectly, of increasing the proportionate share of any class or series of capital stock of the Corporation, or
any securities convertible into capital stock of the Corporation or into equity securities of any subsidiary,
that is beneficially owned by any Related Person; or
(vi) any agreement, contract, or other arrangement providing for any one or more of the actions specified in
the foregoing clauses (i) through (v).

(b) The actions and transactions described in paragraph (a) of this Article 13 shall have been authorized by the
affirmative vote of at least 80% of all a majority of the votes entitled to be cast by holders of all the outstanding
shares of Voting Stock, voting together as a single class.

(c) Notwithstanding paragraph (b) of this Article 13, the 80% voting requirement shall not be applicable if any
action or transaction specified in paragraph (a) is approved by the Corporation’s Board of Directors and by a
majority of the Continuing Directors (as hereinafter defined).

(dc) Unless approved by a majority of the Continuing Directors, after becoming a Related Person and prior to
consummation of such action or transaction.:

(i) the Related Person shall not have acquired from the Corporation or any of its subsidiaries any newly
issued or treasury shares of capital stock or any newly issued securities convertible into capital stock of the
Corporation or any of its majority-owned subsidiaries, directly or indirectly (except upon conversion of
convertible securities acquired by it prior to becoming a Related Person or as a result of a pro rata stock
dividend or stock split or other distribution of stock to all shareholders pro rata);
(ii) such Related Person shall not have received the benefit directly or indirectly (except proportionately as a
shareholder) of any loans, advances, guarantees, pledges, or other financial assistance or tax credits
provided by the Corporation or any of its majority-owned subsidiaries, or made any major changes in the
Corporation’s or any of its majority-owned subsidiaries’ businesses or capital structures or reduced the
current rate of dividends payable on the Corporation’s capital stock below the rate in effect immediately
prior to the time such Related Person became a Related Person; and
(iii) such Related Person shall have taken all required actions within its power to ensure that the
Corporation’s Board of Directors included representation by Continuing Directors at least proportionate to
the voting power of the shareholdings of Voting Stock of the Corporation’s Remaining Public Shareholders
(as hereinafter defined), with a Continuing Director to occupy an additional Board position if a fractional
right to a director results and, in any event, with at least one Continuing Director to serve on the Board so
long as there are any Remaining Public Shareholders.

(ed) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended,
whether or not the Corporation is then subject to such requirements, shall be mailed to the shareholders of the
Corporation for the purpose of soliciting shareholder approval of such action or transaction and shall contain at
the front thereof, in a prominent place, any recommendations as to the advisability or inadvisability of the action
or transaction which the Continuing Directors may choose to state and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing
Directors as to the fairness (or not) of the terms of the action or transaction from a financial point of view to the
Remaining Public Shareholders, such investment banking firm to be paid a reasonable fee for its services by the
Corporation. The requirements of this paragraph (ed) shall not apply to any such action or transaction which is
approved by a majority of the Continuing Directors.

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(fe) For the purpose of this Article 13

(i) the term “Related Person” shall mean any other corporation, person, or entity which beneficially owns or
controls, directly or indirectly, 5% or more of the outstanding shares of Voting Stock, and any Affiliate or
Associate (as those terms are defined in the General Rules and Regulations under the Securities Exchange
Act of 1934) of a Related Person; provided, however, that the term Related Person shall not include (a) the
Corporation or any of its subsidiaries, (b) any profit-sharing, employee stock ownership or other employee
benefit plan of the Corporation or any subsidiary of the Corporation or any trustee of or fiduciary with
respect to any such plan when acting in such capacity, or (c) Lilly Endowment, Inc.; and further provided, that
no corporation, person, or entity shall be deemed to be a Related Person solely by reason of being an
Affiliate or Associate of Lilly Endowment, Inc.;
(ii) a Related Person shall be deemed to own or control, directly or indirectly, any outstanding shares of
Voting Stock owned by it or any Affiliate or Associate of record or beneficially, including without limitation
shares

a. which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights,
warrants, or options, or otherwise or
b. which are beneficially owned, directly or indirectly (including shares deemed owned through
application of clause a. above), by any other corporation, person, or other entity with which it or its
Affiliate or Associate has any agreement, arrangement, or understanding for the purpose of acquiring,
holding, voting, or disposing of Voting Stock, or which is its Affiliate (other than the Corporation) or
Associate (other than the Corporation);

(iii) the term “Voting Stock” shall mean all shares of any class of capital stock of the Corporation which are
entitled to vote generally in the election of directors;
(iv) the term “Continuing Director” shall mean a director who is not an Affiliate or Associate or
representative of a Related Person and who was a member of the Board of Directors of the Corporation
immediately prior to the time that any Related Person involved in the proposed action or transaction
became a Related Person or a director who is not an Affiliate or Associate or representative of a Related
Person and who was nominated by a majority of the remaining Continuing Directors; and
(v) the term “Remaining Public Shareholders” shall mean the holders of the Corporation’s capital stock
other than the Related Person.

(gf) A majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the
purposes of this Article 13, on the basis of information then known to the Continuing Directors, whether (i) any
Related Person exists or is an Affiliate or an Associate of another and (ii) any proposed sale, lease, exchange, or
other disposition of part of the assets of the Corporation or any majority-owned subsidiary involves a substantial
part of the assets of the Corporation or any of its subsidiaries. Any such determination by the Continuing
Directors shall be conclusive and binding for all purposes.

(hg) Nothing contained in this Article 13 shall be construed to relieve any Related Person or any Affiliate or
Associate of any Related Person from any fiduciary obligation imposed by law.

(ih) The fact that any action or transaction complies with the provisions of this Article 13 shall not be construed
to waive or satisfy any other requirement of law or these Amended Articles of Incorporation or to impose any
fiduciary duty, obligation, or responsibility on the Board of Directors or any member thereof, to approve such
action or transaction or recommend its adoption or approval to the shareholders of the Corporation, nor shall
such compliance limit, prohibit, or otherwise restrict in any manner the Board of Directors, or any member
thereof, with respect to evaluations of or actions and responses taken with respect to such action or
transaction. The Board of Directors of the Corporation, when evaluating any actions or transactions described in
paragraph (a) of this Article 13, shall, in connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and its shareholders, give due consideration to all relevant factors,
including without limitation the social and economic effects on the employees, customers, suppliers, and other
constituents of the Corporation and its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.

(j) Notwithstanding any other provision of these Amended Articles of Incorporation or of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular
class of Voting Stock required by law or these Amended Articles of Incorporation, the affirmative vote of the
holders of at least 80% of the votes entitled to be cast by holders of all the outstanding shares of Voting Stock,
voting together as a single class, shall be required to alter, amend, or repeal this Article 13.

. . . . .

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Appendix B

The Eli Lilly and Company Executive Officer Incentive Plan

Section 1. Purpose
The purpose of The Eli Lilly and Company Executive Officer Incentive Plan (“Plan”) is to provide an incentive for
covered Executive Officers to use their best efforts to further the business objectives of the Company and thereby
create shareholder value. To achieve this purpose, the Plan provides for a significant annual incentive bonus
component tied directly to the achievement of stated business objectives as part of each covered Executive Officer’s
compensation package.

All payments made pursuant to the Plan are intended to qualify as performance-based compensation under

Section 162(m) of the Internal Revenue Code.

Section 2. Effective Date and Term
The Plan is effective as of January 1, 2011, subject to approval by the affirmative vote of a majority of shares of the
Company’s common stock voting at the annual meeting of shareholders in April, 2011. The Plan shall remain in
effect until it is terminated by the Compensation Committee or the Board.

Section 3. Definitions and Rules of Interpretation
3.1 Definitions. The following words and phrases have the following meanings, when used in the Plan, unless a
different meaning is clearly required by the context.

(a) “Annual Incentive Bonus” means the bonus with respect to a Participant determined pursuant to Section 6.

(b) “Board” means the Board of Directors of Eli Lilly and Company.

(c) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and
regulations thereunder. Any reference to a provision of the Code shall include its successor.

(d) “Committee” or “Compensation Committee” means the Compensation Committee of the Board or the
successor of such committee, which in each case shall consist solely of two or more members who are “outside
directors” within the meaning of Code Section 162(m).

(e) “Company” means Eli Lilly and Company and its subsidiaries.

(f) “Disabled” means, (i) with respect to a Participant eligible to participate in The Lilly Extended Disability Plan,
that the Participant has become eligible for payment under that plan, or (ii) with respect to a Participant who is
not eligible to participate in The Lilly Extended Disability Plan, that the Participant is “disabled” under the
Company-sponsored disability benefit plan or program in which he participates.

(g) “Executive Officer” means, with respect to a Performance Year, any person designated by the Board as an
executive officer within the meaning of Rule 3b-7 under the Securities Exchange Act of 1934, as amended.

(h) “Lilly” means Eli Lilly and Company.

(i) “Non-GAAP Net Income” means, with respect to a Performance Year, the Company’s positive consolidated
net income, as determined in accordance with U.S. GAAP, adjusted to exclude the effects, as shown on the
financial statements filed as part of Form 10-K for the Performance Year, of (i) any acquisition during the
Performance Year, including the amortization expense of intangible assets acquired during the Performance
Year, (ii) material charges or income arising from litigation, (iii) corporate restructuring, asset impairment, or
other special charges, (iv) in-process research and development costs, and (v) cumulative effect of changes to
U.S. GAAP accounting.

(j) “Participant” means, with respect to a Performance Year, an Executive Officer who participates in the Plan for
part or all of the Performance Year.

(k) “Performance Year” means the calendar year for which the Company’s performance determines the amount
of a Participant’s Annual Incentive Bonus. The Performance Year shall be the calendar year preceding the year
of payment.

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(l) “Plan” means The Eli Lilly and Company Executive Officer Incentive Plan, as set forth herein and as hereafter
amended from time to time.

(m) “Retirement” means, (i) with respect to a Participant eligible to participate in The Lilly Retirement Plan
(“Retirement Plan”), cessation of employment with the Company after having (A) reached age 55 with at least
ten years of service, (B) reached age 65 with at least five years of service, or (C) completed at least 80 points, all
as determined under the provisions of the Retirement Plan, as amended from time to time, and (ii) with respect
to a Participant who is not eligible to participate in the Retirement Plan, cessation of employment with the
Company as a retired employee under the applicable retirement benefit plan or program as provided by the
Company or applicable law.

(n) “Retirement Plan” means The Lilly Retirement Plan.

3.2 Rules of Interpretation. For purposes of the Plan, the following rules of interpretation apply:

(a) Masculine pronouns refer both to males and to females.

(b) Reference to a Section of the Code shall be deemed a reference to its successor.

(d) The Plan shall be interpreted in accordance with the internal laws of the State of Indiana, without regard to
conflict of law principles, and applicable federal law.

Section 4. Administration
4.1 Powers of the Committee. The Committee shall administer the Plan. The Committee has the authority to
interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan. The
Committee also has the authority to adopt, amend, and rescind rules consistent with the Plan and Code
Section 162(m).

4.2 Certification of Results. Before any amount is paid under the Plan with respect to a Performance Year, the
Committee shall certify in writing (i) that the performance goal described in Section 6.1 has been met for the
Performance Year, (ii) the calculation of Non-GAAP Net Income for the Performance Year, (iii) any reduction of an
Annual Incentive Bonus pursuant to the Committee’s discretionary authority under Section 6.2.

4.3 Finality of Committee Determinations. Any determination by the Committee of Non-GAAP Net Income and the
level and entitlement to an Annual Incentive Bonus, and any interpretation, rule, or decision adopted by the
Committee under the Plan or in carrying out or administering the Plan, is final and binding for all purposes and upon
all interested persons, their heirs, and personal representatives. The Committee may rely conclusively on
determinations made by Lilly and its auditors to determine Non-GAAP Net Income and related information for
administration of the Plan, whether such information is determined by Lilly, its auditors, or a third-party vendor
engaged to provide such information to Lilly. This Subsection is not intended to limit the Committee’s power, to the
extent it deems proper in its discretion, to take any action permitted under the Plan and Code Section 162(m).

Section 5. Eligibility and Participation
5.1 Commencement of Participation. An individual shall become a Participant on the later of the effective date of the
Plan or upon becoming an Executive Officer.

5.2 Termination of Participation. A Participant shall cease to be such upon ceasing to hold a position designated by
the Board as an Executive Officer position; provided, however, if guidance under Code Section 162(m)(3) would cause
such individual to be a “covered employee” within the meaning of Code Section 162(m)(3) for the Performance Year,
the individual shall continue as a Participant for the remainder of the Performance Year on the same basis as if he
were an Executive Officer on the last day of the Performance Year.

Section 6. Determination of Annual Incentive Bonus
6.1 Performance Goal and Formula for Determining Annual Incentive Award. The amount of a Participant’s Annual
Incentive Bonus, before any reduction pursuant to Section 6.2, shall be based entirely on the Company’s Non-GAAP
Net Income. No Annual Incentive Bonus shall be paid to any Participant for a Performance Year unless the Company

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has positive Non-GAAP Net Income for the Performance Year. The amount of an Executive Officer’s Annual Incentive
Bonus, prior to reduction pursuant to Section 6.2, shall be .3% of Non-GAAP Net Income for the Chief Executive
Officer, Chief Operating Officer, or Executive Chairman, and .15% of Non-GAAP Net Income for all other Participants.
If an individual serves as Chief Executive Officer, Chief Operating Officer and/or Executive Chairman for part of a
Performance Year and as an Executive Officer in another position for part of the same Performance Year, the amount
of the Annual Incentive Bonus shall be pro-rated based on the number of days during the Performance Year served
in each capacity.

6.2 Discretion of Committee to Reduce Award. The Committee shall have the authority, in its sole discretion, to
reduce (but not increase) the amount of any Annual Incentive Bonus. The Committee may establish factors that it will
take into account in determining whether to exercise its discretion pursuant to this Section and may inform each
Participant of such factors; provided, however, the Committee may further reduce an Annual Incentive Bonus at any
time before payment on the basis of such additional factors as it deems relevant.

6.3 Required Employment.

(a) Except as provided in Subsection (b), a Participant must be an employee of the Company on the last day of a
Performance Year to receive payment of an Annual Incentive Bonus for such Performance Year.

(b) A Participant who (i) is treated as an Executive Officer on the last day of a Performance Year pursuant to
Section 5.2 and (ii) who has taken Retirement or died during the Performance Year or who became Disabled
during the Performance Year and remained Disabled through the end of such Performance Year will be
considered to satisfy the requirements of Subsection (a), provided that he did not take Retirement in lieu of
termination of employment because of an immediately terminable offense.

Section 7. Payment of Annual Incentive Bonus
7.1 Timing of Payment. Payment of the Annual Incentive Bonus for a Performance Year, including payments made
with respect to a Retired, Disabled, or deceased Participant, shall be made after the end of the Performance Year
and not later than March 15 of the year following the Performance Year.

7.2 Terminated Employee. Except as provided in Section 6.3(b), if a Participant’s employment with the Company ends
for any reason prior to the last day of the Performance Year, he will not receive an Annual Incentive Bonus for such
Performance Year.

7.3 Deceased Participant. If a Participant dies before payment is made pursuant to Section 7.1, payment of any
amount that would otherwise be paid to the Participant shall be made to his personal representative or beneficiary,
as determined by the Committee.

Section 8. Miscellaneous
8.1 No Vested Right. No Participant or beneficiary of a Participant will have a vested right to an Annual Incentive
Bonus until payment is made to him under Section 7.1.

8.2 No Employment Rights. No provision of the Plan or any action taken by the Company, the Board, or the
Committee will give any person any right to be retained in the employ of the Company. The right and power of the
Company to dismiss or discharge any Participant for any reason or no reason, with or without notice, is specifically
reserved.

8.3 No Adjustments. After the certifications described in Section 4.2 for a Performance Year, no adjustments will be
made to reflect any subsequent change in accounting, the effect of federal, state, or municipal taxes later assessed
or determined, or otherwise.

8.4 Company’s Right of Recovery. Notwithstanding any other provision of the Plan, including Section 8.3, all
payments pursuant to the Plan are subject to the Company’s Executive Compensation Recovery Policy, as in effect
from time to time. In addition, nothing herein shall limit the Company’s power to take such action as it deems
necessary to remedy any misconduct, prevent its recurrence and, if appropriate, based on all relevant facts and
circumstances, punish the wrongdoer in a manner that it deems appropriate.

8.5 Other Representations. Nothing contained in this Plan, and no action taken pursuant to its provisions, will create
or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any employee,
participant, beneficiary, legal representative, or any other person. Although Participants generally have no right to

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any payment from this Plan, to the extent that any Participant acquires a right to receive payments from the
Company under the Plan, such right will be no greater than the right of an unsecured general creditor of the
Company. All payments to be made hereunder will be paid from the general funds of the Company and no special or
separate fund will be established, and no segregation of assets will be made, to assure payment of such amount.

8.6 Tax Withholding. The Company will make such provisions and take such steps as it may deem necessary or
appropriate for the withholding of all federal, state, local, and other taxes required by law to be withheld with respect
to Annual Incentive Bonus payments under the Plan, including, but not limited to, deducting the amount required to
be withheld from the amount of cash otherwise payable under the Plan, or from salary or any other amount then or
thereafter payable to an employee, Participant, beneficiary, or legal representative.

8.7 Effect of Plan on other Company Plans. Nothing contained in this Plan is intended to amend, modify, terminate,
or rescind other benefit or compensation plans established or maintained by the Company. Whether and to what
extent a Participant’s Annual Incentive Bonus is taken into account under any other plan will be determined solely in
accordance with the terms of such plan.

8.8 Notice. Any notice to be given to the Company or Committee pursuant to the provisions of the Plan will be in
writing and directed to Secretary, Eli Lilly and Company, Lilly Corporate Center, Indianapolis, IN 46285.

Section 9. Amendment, Suspension, or Termination
The Board or Committee may amend, suspend, or terminate the Plan, in whole or in part, at any time and without
notice, by written resolution of the Board or Committee, as applicable. To the extent that the Board or Committee
determines that Code Section 162(m) requires shareholder approval of such action, it shall make such action
contingent on approval by the Company’s shareholders.

. . . . .

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Executive Committee

John C.
Lechleiter, Ph.D.
Chairman, President,
and Chief Executive
Officer

Susan
Mahony, Ph.D.
Senior Vice
President, and
President, Lilly
Oncology

Bryce D.
Carmine
Executive Vice
President, and
President, Lilly
Bio-Medicines

Derica W.
Rice
Executive Vice
President, Global
Services, and Chief
Financial Officer

Robert A.
Armitage
Senior Vice
President
and General
Counsel

Stephen F.
Fry
Senior Vice
President,
Human
Resources and
Diversity

Jacques
Tapiero
Senior Vice
President, and
President,
Emerging
Markets

Senior Leadership

E. Paul Ahern, Ph.D.
Senior Vice President, Global API
Manufacturing

Robert B. Brown
Senior Vice President, Marketing, and Chief
Marketing Officer

Robert W. Armstrong, Ph.D.
Vice President, Global External Research
and Development, Lilly Research
Laboratories

Thomas F. Bumol, Ph.D.
Vice President, Biotechnology Discovery
Research, and President, Applied Molecular
Evolution, Lilly Research Laboratories

Alex M. Azar II
Vice President, Managed Healthcare
Services and Puerto Rico, Lilly USA

Newton F. Crenshaw
Vice President, Global Business to Payer,
Bio-Medicines, and Corporate Affairs

Karim Bitar
President, Europe, Australia, and Canada
Operations

Maria Crowe
Senior Vice President, Global Drug Products

Andrew M. Dahlem, Ph.D.
Vice President, Operations, Lilly Research
Laboratories, and Lilly Research Laboratories,
Europe

J. Carmel Egan, Ph.D.
Vice President, Portfolio Project Management,
Lilly Research Laboratories

Timothy J. Garnett, M.D.
Senior Vice President, Development Center of
Excellence, Lilly Research Laboratories, and
Chief Medical Officer

Thomas W. Grein
Senior Vice President, Finance, and Treasurer

Jan M.
Lundberg, Ph.D.
Executive Vice
President, Science
and Technology,
and President, Lilly
Research Laboratories

Enrique A.
Conterno
Senior Vice
President, and
President, Lilly
Diabetes

Jeffrey N.
Simmons
Senior Vice
President, and
President, Elanco
Animal Health

Anne
Nobles
Senior Vice
President, Enterprise
Risk Management,
and Chief Ethics and
Compliance Officer

Barton R.
Peterson
Senior Vice
President, Corporate
Affairs and
Communications

Frank M.
Deane, Ph.D.
President,
Manufacturing
Operations

William F. Heath Jr., Ph.D.
Senior Vice President, Product Research and
Development, Lilly Research Laboratories

Elizabeth G. O’Farrell
Senior Vice President, Finance

James A. Ward
Vice President, Procurement, and Chief
Procurement Officer

Michael C. Heim
Senior Vice President, Information
Technology, and Chief Information Officer

Peter J. Johnson
Vice President, Corporate Strategy

Elizabeth H. Klimes
Vice President, Six Sigma

W. Darin Moody
Vice President, Corporate Engineering and
Continuous Improvement

David A. Ricks
President, Lilly USA

Sharon L. Sullivan
Vice President, Human Resources

J. Anthony Ware, M.D.
Group Vice President, Neuroscience/
Cardiovascular Acute Care/Urology Product
Development, Lilly Bio-Medicines

Thomas R. Verhoeven, Ph.D.
Senior Vice President, Development Center
of Excellence, Lilly Research Laboratories

Andreas F. Witzel, Pharm.D.
Vice President, Manufacturing, Science and
Technology/Supply Chain/Global Packaging

Fionnuala Walsh, Ph.D.
Senior Vice President, Global Quality

Alfonso G. Zulueta
President and General Manager, Lilly Japan

Corporate Information

Annual meeting
The annual meeting of shareholders will be held at
the Lilly Center Auditorium, Lilly Corporate Center,
Indianapolis, Indiana, on Monday, April 18, 2011, at
11:00 a.m. EDT. For more information, see the proxy
statement section of this report.

10-K and 10-Q reports
Paper copies of the company’s annual report to the
Securities and Exchange Commission on Form 10-K and
quarterly reports on Form 10-Q are available upon written
request to:
Eli Lilly and Company
P.O. Box 88665

Indianapolis, Indiana 46208-0665

To access these reports more quickly, you can ﬁnd all of
our SEC ﬁlings online at: http://investor.lilly.com/sec.cfm

Stock listings
Eli Lilly and Company common stock is listed on the New
York, London, and Swiss stock exchanges. NYSE ticker
symbol: LLY. Most newspapers list the stock as “Lilly (Eli)
and Co.”

CEO and CFO certiﬁcations
The company’s chief executive ofﬁcer and chief ﬁnancial
ofﬁcer have provided all certiﬁcations required under
Securities and Exchange Commission regulations with
respect to the ﬁnancial information and disclosures in
this report. The certiﬁcations are available as exhibits to
the company’s Form 10-K and 10-Q reports.

In addition, the company’s chief executive ofﬁcer has
ﬁled with the New York Stock Exchange a certiﬁcation to
the effect that, to the best of his knowledge, the company
is in compliance with all corporate governance listing
standards of the Exchange.

Transfer agent and registrar
Wells Fargo Shareowner Services
Mailing address:
Shareowner Relations Department
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Overnight address:
161 North Concord Exchange
South St. Paul, Minnesota 55075
Telephone: 1-800-833-8699
E-mail: stocktransfer@wellsfargo.com
Internet:
https://wellsfargo.com/contactshareownerservices

Dividend reinvestment and stock purchase plan
Wells Fargo Shareowner Services administers the Share-
owner Service Plus Plan, which allows registered share-
holders to purchase additional shares of Lilly common
stock through the automatic investment of dividends.
The plan also allows registered shareholders and new
investors to purchase shares with cash payments, either
by check or by automatic deductions from checking or
savings accounts. The minimum initial investment for
new investors is $1,000. Subsequent investments must be
at least $50. The maximum cash investment during any
calendar year is $150,000. Please direct inquiries concern-
ing the Shareowner Service Plus Plan to:
Wells Fargo Shareowner Services
Shareowner Relations Department
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Telephone: 1-800-833-8699

Online delivery of proxy materials
Shareholders may elect to receive annual reports and
proxy materials online. This reduces paper mailed to the
shareholder’s home and saves the company
printing and mailing costs. To enroll, go to
http://investor.lilly.com/services.cfm and follow
the directions provided.

Annual Meeting Admission Ticket

Eli Lilly and Company 2011 Annual Meeting of Shareholders
Monday, April 18, 2011
11:00 a.m. EDT

Lilly Center Auditorium
Lilly Corporate Center
Indianapolis, Indiana 46285

The top portion of this page will be required for admission to the meeting.

Please write your name and address in the space provided below and present this ticket when you enter the Lilly
Center.

Doors open at 10:15 a.m.

Name

Address

City, State, and Zip Code

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Detach here

Directions and Parking

From I-70 take Exit 79B; follow signs to McCarty Street. Turn right (east) on McCarty Street; go straight into
Lilly Corporate Center. You will be directed to parking. Be sure to take the admission ticket (the top portion of this
page) with you to the meeting and leave this parking pass on your dashboard.

Take the top portion of this page with you to the meeting.

Detach here

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Eli Lilly and Company
Annual Meeting of Shareholders
April 18, 2011

Complimentary Parking
Lilly Corporate Center

Please place this identiﬁer on the dashboard of your car as you enter Lilly Corporate
Center so it can be clearly seen by security and parking personnel.

Our Responsibility

Lilly believes that we can best carry out our corporate responsibility by achieving our vision as a company: We will
make a signiﬁcant contribution to humanity by improving global health in the 21st century.

Building on the work we do each day to bring new medicines to patients, Lilly is committing not only money but
also scientiﬁc, technical, and business expertise to improve the health of under-served people across the globe—

speciﬁcally, people in low- and middle-income countries who lack the resources to obtain quality
health care.

We complement these efforts with initiatives focused on bettering the communities that are
home to our major operations, with a special emphasis on programs to improve the quality of
education. We also aim to demonstrate our commitment to environmental sustainability in all
aspects of our business.

We’re using our ﬁnancial resources and expertise to create shared value for society and our company where we can
have a lasting impact through our corporate responsibility efforts.

For more information on Lilly’s commitment to corporate responsibility and transparency:
Corporate Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.lilly.com/responsibility
Communication on Progress to the United Nations Global Compact . . . http://www.lilly.com/responsibility/business/
Lilly MDR-TB (Multi-drug Resistant Tuberculosis) Partnership . . . . . . . www.lillymdr-tb.com
Lilly Clinical Trial Registry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.lillytrials.com
Lilly Grant Ofﬁce Registry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.lillygrantofﬁce.com/pages/grant_registry.aspx
Lilly Faculty Registry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.lillyfacultyregistry.com
Lilly Physician Payment Registry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.lillyphysicianpaymentregistry.com
LillyPAC Report of Political Financial Support . . . . . . . . . . . . . . . . . . . . . www.lilly.com/about/public_affairs/

For more information on Lilly and pharmaceutical industry patient-assistance programs:
Partnership for Prescription Assistance (industry program) . . . . . . . . . www.pparx.org
LillyMedicareAnswers (for eligible Medicare recipients). . . . . . . . . . . . . www.lillymedicareanswers.com
Lilly Cares (for eligible low-income uninsured patients) . . . . . . . . . . . . . www.lillycares.com or call toll-free 1-800-545-6962

For perspectives on health care innovation:
LillyPAD, an ofﬁcial blog of Eli Lilly and Company . . . . . . . . . . . . . . . . . . lillypad.lilly.com

Trademarks Used In This Report
Trademarks or service marks owned by Eli Lilly and Company or its subsidiaries or afﬁliates, when ﬁrst used in this report, appear with an
initial capital and are followed by the symbol® or™, as applicable. In subsequent uses of the marks in the report, the symbols are omitted.
Actos® is a trademark of Takeda Chemical Industries, Ltd.
Axid® is a trademark of Reliant Pharmaceuticals, LLC
Bydureon™ and Byetta® are trademarks of Amylin Pharmaceuticals, Inc.
Livalo® is a trademark of Kowa Company Ltd.
Vancocin® is a trademark of ViroPharma Incorporated

YEAR2010AR

Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285 USA
317-276-2000
www.lilly.com