a) discuss the appropriate treatment of restructuring charges, special charges and other unusual items for Eli Lilly
b) make a common size income statement for lilly for Year 6 using the reported amounts. Set sales revenue equal to 100%.
Eli Lilly and Company (Lilly) maintains a leading market position in the ethical (prescription) drug industry. It derives approximately 62 percent of its revenues from within the United States and the remainder from other countries. The exhibit below is Lilly's income statement for Year 5, Year 6 and Year 7. The notes to its financial statements reveal the following information. Eli Lilly and Company Income Statement (amounts in millions) Year 5 Year 6 Year 7 Sales . . . . . . . . .. . . . . . . ...............; $ 5,726 $ 6,167 $ 6,452 Other Income. ......... ............... 151 99 120 Cost of Goods Sold. . . . . (1,718) (1,897) (1,959) Research and Development ....... (767) (925) (954) Selling and Administrative. . .. . . . . . . . . .. (1,473) (1,624) (1,713) Restructuring and Special Charges. . . . . . . (566 (1,173) Interest Expense . . . . . .(40) (72) 71) Income before Income Taxes . . . . . ... $ 1,879 $ 1,182 $ 702 Income Taxes . . . . (564) . (354) (211) Net Income . $ 1,315 828 491 Restructuring and Special Charges. In Year 6 and Year 7, Lilly took actions to en- hance its competitiveness in the changing health-care environment, reduce expenses, and improve efficiencies. It recognized restructuring charges as a direct result of revised strategic actions. Its special charges represent unusual, generally nonrecurring expense items. The principal components of restructuring and special charges appear below amounts in millions): Special Restructuring Charges Year 6 Global Manufacturing Strategy . . . . .. . . . . . . . . .... $218.9 Provision for Redirection-Medical Devices . . . . .. . .161.3 Legal; Environmental, and Asbestos Abatement . . . . $139.4 Research Investment Expenses. . . . . . . . . . . . . . . .... 46.1 Total. . .... . ...... $380.2 $185.5 Special Restructuring Charges Year 7 Work Force Reductions . ... . . . .. .........; $545.4 Manufacturing Consolidations and Closings . . . . . . . 249.9 Revised Distribution Strategies. . . . . . . . ' 71.7 Pharmaceutical Streamlining . . . . . . . . 35.3 Intangibles Write-Downs ... . . . .. . .. .. . . ....... 18.7 $ 56.5 Asset Write-Downs, Legal Accruals, Other : . . ... .. . 2.4 192.8 Total. . . . . . . . $923.4 $249.3 Other Unusual Items. In Year 6 and Year 7, Lilly recognized other charges of $204 million and $30 million, respectively, representing miscellaneous. unusual items covering a variety of other operational matters. These charges are reflected in the applicable operating expense items in the income statement
