AstraZeneca Annual Report and Form 20-F Information 2008

Financial position, including cash flow and liquidity - 2007

All data in this section is on an actual basis (unless noted otherwise).

The book value of our net assets decreased by $501 million to $14,915 million at the 2007 year end. Dividends of $2,658 million and share re-purchases of $4,170 million exceeded net profit of $5,595 million, whilst net movements through other recognised income and expense (principally exchange and actuarial losses) increased net assets. The overall shape of the balance sheet was changed by the acquisition of MedImmune.

Property, plant and equipment

Property, plant and equipment rose from $7,453 million to $8,298 million at the end of 2007. The increase was due to continued investment across the business of $1,169 million, particularly in R&D, the acquisition of MedImmune ($593 million) and exchange impacts ($350 million), offset by depreciation and impairment of $1,182 million and disposals ($92 million).

Goodwill and intangible assets

Goodwill and intangibles rose from $4,204 million at the beginning of 2007 to $21,351 million at 31 December 2007. The increase is due almost entirely to the acquisition of MedImmune. The goodwill arising on the acquisition of MedImmune amounted to $8,757 million increasing the balance sheet total to $9,884 million; the other major component of the carrying value of goodwill relates to the restructuring in 1998 of our joint venture arrangements with Merck.

Intangibles also increased in 2007, primarily as a result of the MedImmune acquisition, supplemented by other company acquisitions and ongoing in-licensing activities. Intangibles arising from the MedImmune acquisition comprised launched products of $7,478 million (principally the respiratory syncytial virus (RSV) franchise, other products such as FluMist and Ethyol, together with contractual and licensing income) and in development projects amounting to $597 million. In total, intangibles amount to $11,467 million at the 2007 year end and, in addition to those arising from the MedImmune acquisition, include intangibles arising from the restructuring in 1998 of our joint venture arrangements with Merck and the subsequent merger of Astra and Zeneca in 1999 ($1,026 million), the acquisition of Cambridge Antibody Technology in 2006 ($605 million), launched and in development product in-licensing activities ($1,327 million) and software development costs ($434 million).

Inventories

Inventories have decreased by $131 million from $2,250 million at the end of 2006 to $2,119 million. This decrease represents an underlying improvement of $442 million, offset by the acquisition of MedImmune and exchange effects.

Receivables, payables and provisions

Receivables have risen from $5,561 million to $6,668 million as at 31 December 2007, an increase of $1,107 million. Higher sales in 2007, particularly in the US, Europe, China and from the impact of the MedImmune acquisition (whose sales are concentrated in the first and last quarters of the year), insurance recoveries, acquisition and exchange effects were the principal drivers, offset in part by the receipt of the second instalment in respect of the US anaesthetics business disposal in 2006.

Current payables also rose from $6,295 million to $6,968 million at the end of 2007. There was a small net underlying movement in trade creditors, other payables and accruals, with increases in deductions for chargebacks, rebates and returns in the US being offset by decreases in trade payables, particularly to Merck. However, exchange and the acquisition of MedImmune drove the overall balance up.

Provisions increased primarily as a result of the restructuring and synergy programmes undertaken during 2007, rising from $366 million in 2006 to $1,020 million at the end of 2007.

Debt

The acquisition of MedImmune was funded initially through drawing on a $15 billion 364 day loan facility, which was subsequently re-financed with short-term US commercial paper. In the second half of 2007, we undertook a programme of issuing debt on the US and European markets, as follows:

SEPTEMBER 2007

Floating rate	2009	$650m
Fixed 5.4%	2012	$1,750m
Fixed 5.9%	2017	$1,750m
Fixed 6.45%	2037	$2,750m
Fixed 5.125%	2015	€750m

NOVEMBER 2007

Fixed 4.625%	2010	€750m
Fixed 5.75%	2031	£350m

$750 million each of the 2012 and 2017 US dollar fixed rate debt was swapped into floating rates. As at 31 December 2007, we also had commercial paper outstanding amounting to $4,112 million.

Tax payable and receivable

Net income tax payables increased in 2007 due to tax audit provisions, less the settlement of tax on the disposal of the Humira™ royalty stream. Net deferred tax liabilities increased primarily due to the acquisition of MedImmune and the recognition of deferred tax liabilities in respect of intangible assets.

Cash flow

We continued to be a highly cash-generative business. However, the cost of acquisition of MedImmune meant that our funds and debt profile changed in 2007.

Cash generated from operating activities was $7,510 million in 2007, only slightly down on 2006 ($7,693 million). The small decrease in operating profit was compensated for by an increase in non-cash items ($638 million principally from unspent restructuring costs) and depreciation, amortisation and impairment ($511 million). These compensating effects were offset by an increase in working capital requirements of $551 million and additional tax and interest payments ($394 million and $265 million respectively).

Net cash outflows from investing activities were $14,887 million in 2007 compared to $272 million in 2006. Excluding the higher returns from movements in short term investments and fixed deposits and net disposals of non-current asset investments ($1,280 million in 2007 compared to $1,171 million in 2006), interest received and dividends paid by subsidiaries, cash outflow from investing activities was $16,516 million in 2007, compared to $1,791 million in 2006. This increase in outflow was due primarily to the acquisition of MedImmune, Inc.; other acquisitions included Arrow Therapeutics Limited, Atlantis Components Inc. and Denics International Co. Ltd. Investment in intangible assets was at broadly similar levels to 2006, and there were significantly higher payments for property, plant and equipment through increased investment in facilities, particularly in research and development.

Cash returns in 2007 to shareholders were $6,811 million (through share re-purchases of $4,170 million and dividend payments of $2,641 million), compared to $6,367 million in 2006. After taking into account proceeds from the issue of share capital of $218 million (2006: $985 million), net share re-purchases rose from $3,162 million to $3,952 million in 2007.

Net funds of $6,537 million at the beginning of 2007 had become net debt of $9,112 million by the end of 2007.

Investments, divestments and capital expenditure

The major investment in 2007 was the acquisition of MedImmune.

On the acquisition of MedImmune, the purchase price for outstanding shares of $13.9 billion was allocated between intangible assets of $8.1 billion (including assets in respect of Synagis and motavizumab RSV franchise, FluMist, Ethyol and products in development), goodwill of $8.8 billion and net liabilities of $3.0 billion. This allocation, based on strict accounting requirements, does not allow for the separate recognition of valuable elements such as buyer specific synergies, potential additional indications for identified products or the premium attributable to a well established, highly regarded business in the innovative biologics market. Such elements are instead subsumed within goodwill, which is not amortised. This balance between goodwill and intangible assets results in an amortisation charge of approximately $435 million per annum. Further details of this acquisition are included in Note 22 to the Financial Statements.

The other major company and product acquisitions in 2007 reflected our ongoing commitment to strengthening the product pipeline.

In 2007, we completed the acquisition of Arrow Therapeutics Limited at a net cost of $143 million, strengthening our portfolio of promising anti-infective treatments and providing a technology platform in an area of research that complements our capabilities in anti-bacterials. We paid $34 million to acquire the paediatric asthma business of Verus Pharmaceuticals, Inc. which includes the North American rights to Captisol™-enabled budesonide solution and a proprietary albuterol formulation.

In the area of product acquisitions in 2007, we capitalised $100 million in respect of the collaboration disclosed with Bristol-Myers Squibb (BMS) in respect of saxagliptin and dapagliflozin. A global licensing and research collaboration with Palatin Technologies Inc. to discover, develop and commercialise small molecule compounds that target melanocortin receptors for the treatment of obesity and related indications was entered into, with a $10 million capitalised upfront payment. We have also entered a three-year research and development collaboration with Silence Therapeutics plc to discover and develop proprietary siRNA molecules primarily in the respiratory field but with the option to extend into other disease areas. The initial access fee of $5 million was capitalised as an intangible asset and the $10 million equity investment was capitalised as a non-current asset investment.

In respect of ongoing collaborations, we have made further milestone payments of $20 million in 2007 in relation to the agreement with Protherics (upon the successful scale-up of the manufacturing process under the development and commercialisation agreement) and $30 million under the agreement with POZEN (in relation to the execution of the revised agreement and recognition of successful proof of concept). We have also paid $48 million for the last in a series of sales-based milestone payments in relation to Zomig.

Astra Tech acquired Atlantis Components, Inc., with its specialist CAD/CAM technology used to design and manufacture customised dental implant abutments, for $71 million and Denics International Co. Ltd, its Japanese distributor for $5 million. Intangible assets of $121 million have been recognised (with associated deferred tax liability of $48 million).

In October 2007, we decided, by mutual agreement, to end our collaboration with NPS Pharmaceuticals, Inc. to discover and develop drugs targeting metabotropic glutamate receptors (mGluRs). We have agreed to pay $30 million to acquire NPS’s assets relating to the collaboration.

In 2007, our recent focus on in-licensing opportunities with third parties resulted in additional intangible assets on the balance sheet. Should any of these products fail in development, the associated intangibles will need to be written off.

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