AstraZeneca Annual Report and Form 20-F Information 2008

Financial position, including cash flow and liquidity - 2008

All data in this section is on a reported basis (unless noted otherwise).

Total net assets increased by $1,145 million to $16,060 million. The increase due to Group profit of $6,101 million was offset by dividends of $2,767 million and net share re-purchases of $451 million. Exchange movements arising on consolidation and actuarial losses also reduced net assets during the year.

On 17 March, AstraZeneca paid $2.6 billion to Merck. This payment resulted in AstraZeneca acquiring Merck’s interests in certain AstraZeneca products including Pulmicort, Rhinocort, Symbicort and Toprol-XL and has been included in intangible assets as explained below.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment fell by $1,255 million to $7,043 million primarily due to depreciation and impairments of $1,182 million and exchange movements of $1,131 million offset by additions of $1,113 million.

GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangibles have increased by $846 million to $22,197 million.

The main components within goodwill are the amounts capitalised on acquisition of MedImmune of $8,757 million and on the restructuring of our US joint venture with Merck in 1998. No significant amounts have been capitalised within goodwill in 2008. The total goodwill balance has reduced by $10 million due to exchange rate movements.

Intangible assets have increased by $856 million to $12,323 million. Additions totalled $2,941 million, amortisation was $807 million and impairments totalled $631 million. Exchange reduced intangibles by $603 million.

Additions to intangible assets in 2008 included a payment made to Merck under pre-existing arrangements under which Merck’s interests in our products in the US will be terminated (subject to the exercise of certain options). $994 million of this payment relates to certain specific AstraZeneca products, including Pulmicort, Rhinocort, Symbicort and Toprol-XL. As a result of the payment AstraZeneca no longer has to pay contingent payments on these products to Merck and has obtained the ability to fully exploit these products and to fully exploit other opportunities in the Respiratory therapy area that AstraZeneca was previously prevented from doing by Merck’s interests in these products. The remainder of the payment ($1,656 million) represents payments on account for the product rights that will crystallise if we exercise options in 2010. Further details of this are included in Note 25 to the Financial Statements.

In March, a $257 million intangible asset impairment charge was taken as a result of the entry of generic Ethyol, a product capitalised on the acquisition of MedImmune, into the US market. The settlement of the Pulmicort Respules patent litigation triggered an impairment of $115 million. The remaining impairments arise as a result of the termination of projects in development and a charge for $91 million relating to the reassessment of the licensing income expected to be generated by the HPV cervical cancer vaccine. Reported performance includes impairments in respect of Ethyol, HPV and other projects in development (principally the return of rights to Infinity Pharmaceuticals) which management believe are not part of Core performance. As a result, management has adjusted for impairments totalling $407 million in presenting Core performance.

INVENTORIES

Inventories have decreased by $483 million to $1,636 million due to exchange movements of $298 million along with an underlying reduction in inventory of $185 million.

RECEIVABLES, PAYABLES AND PROVISIONS

Trade and other receivables increased by $593 million to $7,261 million. Exchange rate movements reduced receivables by $429 million. The underlying increase of $1,022 million was driven by increased sales in our Emerging Markets, the extension of major credit terms in the UK and increased insurance recoverables.

Trade and other payables increased by $130 million, or $675 million after removing the impacts of exchange rate movements, primarily due to increases in US managed market accruals. Trade payables include $2,136 million in respect of accruals relating to rebates and reductions in our US market. These are explained and reconciled fully in the Critical Accounting Policies and Estimates section.

Provisions increased by $122 million driven mainly by increases in specific insurance and long-term provisions.

TAX PAYABLE AND RECEIVABLE

Net income tax payable has increased by $667 million to $1,968 million principally due to tax audit provisions and cash tax timing differences. Net deferred tax liabilities have decreased mainly as a result of the impact of actuarial losses suffered in the year, the amortisation and impairment of MedImmune intangibles and exchange benefits.

RETIREMENT BENEFIT OBLIGATIONS

Net retirement benefit obligations increased by $734 million principally as a result of actuarial losses of $1,232 million offset by exchange benefits of $434 million. Approximately 95% of the Group’s obligations are concentrated in three countries. The following table shows the dollar effect of a 1% change in the discount rate on the obligations in those countries.

	-1%	+1%
UK ($m)	739	(640)
US ($m)	226	(199)
Sweden ($m)	333	(263)

COMMITMENTS AND CONTINGENT LIABILITIES

Contingent liabilities principally relate to litigation including litigation relating to employment, product liability, commercial disputes, infringement of intellectual property rights, the validity of certain patents, anti-trust, securities laws and governmental investigations.

Most of the claims involve highly complex issues. Often, these issues are subject to substantial uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss are difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. In these cases, AstraZeneca discloses information with respect to the nature and facts of the case.

Although there can be no assurance regarding the outcome of any of the legal proceedings, based on management’s current and considered view of each situation, we do not currently expect them to have a materially adverse effect on our financial position. This position could of course change over time.

Assessments as to whether or not to recognise provisions or assets and of the amounts concerned usually involve a series of complex judgements about future events and can rely heavily on estimates and assumptions. AstraZeneca believes that the provisions recorded are adequate based on currently available information and that the insurance recoveries recorded will be received.

However, given the inherent uncertainties involved in assessing the outcomes of these cases and in estimating the amount of the potential losses and the associated insurance recoveries, we could in future periods incur judgements or insurance settlements that could have a material adverse effect on our results in any particular period.

Details of the more significant matters are set out in Note 25 to the Financial Statements.

CASH FLOW

Cash generated from operating activities was $8,742 million in the year, compared with $7,510 million in 2007. The increase of $1,232 million was principally driven by an increase in operating profit before depreciation, amortisation and impairment costs of $1,814 million, a decrease in tax payments of $354 million and lower working capital outflows of $233 million, offset by an increase in interest payments of $355 million and a decrease in non-cash items of $814 million which includes movements on provisions.

Net cash outflows from investing activities were $3,896 million in the year compared with $14,887 million in 2007.

Cash distributions to shareholders were $3,349 million through dividend payments of $2,739 million and share re-purchases of $610 million.

During the year we issued a further €500 million, 5.625% 18-month bond as part of our re-financing programme, the proceeds of which have been used to re-finance maturing commercial paper.

Gross debt (including loans, short-term borrowings and overdrafts) was $11,848 million as at 31 December 2008 (2007: $15,156 million). Of this debt, $993 million is due within one year (2007: $4,280 million) which we currently anticipate repaying from current cash balances of $4,286 million and business cash flows, without the need to re-finance.

Net debt of $7,174 million has decreased by $1,938 million from 31 December 2007.

We continue to believe that, although our future operating cash flows are subject to a number of uncertainties, as specified in the Business Background section, our cash and funding resources will be sufficient to meet our forecasting requirements, including developing and launching new products, externalisation, our ongoing capital programme, our restructuring programme, debt servicing and repayment and shareholder distributions.

Net debt

		2008  $m	2007  $m
Cash and short-term investments		6,044	7,760
Loans and borrowings		(15,156)	(1,223)
Net (debt)/funds brought forward at 1 January		(9,112)	6,537
Earnings before interest, tax, depreciation, amortisation and impairment		11,764	9,950
Movement in working capital		(210)	(443)
Tax paid		(2,209)	(2,563)
Interest paid		(690)	(335)
Other non-cash movements		87	901
Net cash available from operating activities		8,742	7,510
Purchase of intangibles		(2,944)	(549)
Other capital expenditure (net)		(1,057)	(1,076)
Acquisitions		–	(14,891)
Investments		(4,001)	(16,516)
Dividends		(2,739)	(2,641)
Net share re-purchases		(451)	(3,952)
Distributions		(3,190)	(6,593)
Other movements		387	(50)
Net debt carried forward at 31 December		(7,174)	(9,112)
Comprised of:
Cash and short-term investments		4,674	6,044
Loans and borrowings		(11,848)	(15,156)

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