AstraZeneca Annual Report and Form 20-F Information 2011

At 31 December 2010, outstanding gross debt (interest-bearing loansand borrowings) was $9,222 million (2009: $11,063 million). Thereduction in gross debt of $1,841 million during 2010 was principallydue to the repayment, on maturity, of euro bonds of euro 500 millionand euro 750 million. The first repayment was the euro 500 million18 month bond issued in July 2008 and maturing in January 2010,and the second was the euro 750 million 3 year bond issued inNovember 2007 and maturing in November 2010. Of the gross debtoutstanding at 31 December 2010, $125 million was due within oneyear (2009: $1,926 million). Strong business cash flows improved netfunds by $3,118 million, resulting in net funds of $3,653 million at31 December 2010.Financial position – 2010All data in this section is on a Reported basis.In 2010, net assets increased by $2,589 million to $23,410 million.The increase in net assets as a result of the Group profit of$8,081 million was offset by dividends of $3,494 million and sharerepurchases of $2,604 million. Shares issued in 2010 increasednet assets by $494 million.Property, plant and equipmentProperty, plant and equipment decreased by $350 million to$6,957 million as at 31 December 2010. Additions of $808 million(2009: $967 million) were offset by depreciation of $1,076 million(2009: $893 million).Goodwill and intangible assetsOur goodwill of $9,871 million (2009: $9,889 million) principally aroseon the acquisition of MedImmune and on the restructuring of ourUS joint venture with Merck in 1998. No goodwill was capitalised in2010; the movement of $18 million in 2010 being due to exchangerate movements.Intangible assets amounted to $12,158 million at 31 December2010 (2009: $12,226 million). Intangible assets additions were$1,791 million in 2010 (2009: $1,003 million), amortisation was$810 million (2009: $729 million) and impairments totalled$833 million (2009: $415 million).Additions to intangible assets in 2010 included $647 million paid toMerck under pre-existing arrangements under which Merck’s interestin our products in the US will be terminated and $548 million fromour acquisition of Novexel (of which $239 million of intangible assetsacquired were subsequently sold to Forest as detailed in Note 22 tothe Financial Statements).Intangible asset impairment charges recorded in 2010 included$445 million following our decision to withdraw our FDA biologicallicense application for motavizumab and $128 million related to ourdecision to discontinue further development of lesogaberan. The 2010impairment balance also included $123 million following reassessmentof the licensing income generated by the HPV cervical cancer vaccineand $126 million written off other products in development.Receivables, payables and provisionsIn 2010, exchange rate movements contributed $119 million of theoverall increase of $138 million in receivables with an increase inthe trade receivables balance being offset by a reduction on otherreceivables mainly due to a reduction in our Seroquel relatedinsurance receivable balance during the year. Trade and otherpayables increased by $103 million.The movement in provisions of $252 million in 2010 included$1,361 million of additional charges recorded in 2010, offset by$1,109 million of cash payments. Included within the $1,361 millionof charges in 2010 was $592 million in respect of the ongoingSeroquel product liability litigation and state attorney generalinvestigations into sales and marketing practices in aggregateand $497 million for our global restructuring initiative. Cash paymentsof $1,109 million included $335 million against our global restructuringinitiative and $709 million related to legal provisions.Tax payable and receivableNet income tax payable in 2010 increased by $1,002 million to$3,855 million, principally due to an increase in accruals for taxcontingencies, cash tax timing differences and exchange ratemovements. Tax receivable largely comprised tax owing to AstraZenecafrom certain governments expected to be received on settlements oftransfer pricing audits and disputes. Net deferred tax liabilities reducedby $285 million in 2010. This movement included a reclassificationfrom deferred tax to current tax of amounts provided in relation totax contingencies for prior periods.Retirement benefit obligationsNet retirement benefit obligations reduced by $882 million in 2010,principally as a result of recognising a gain of $791 million arisingfrom changes made to benefits under certain of the Group’s postretirementbenefits plans, chiefly the Group’s UK pension plan.Financial risk managementFinancial risk management policiesInsuranceOur risk management processes are described in the Managing risksection from page 129. These processes enable us to identify risksthat can be partly or entirely mitigated through the use of insurance.We negotiate best available premium rates with insurance providerson the basis of our extensive risk management procedures. In thecurrent insurance market, the level of cover is decreasing whilepremium rates are increasing. Rather than simply paying higherpremiums for lower cover, we focus our insurance resources on themost critical areas, or where there is a legal requirement, and wherewe can get best value for money. Risks to which we pay particularattention include business interruption, Directors’ and Officers’ liabilityand property damage. Recently, insurance for product liability has notbeen available on commercially acceptable terms and the Group hasnot held product liability insurance since February 2006.TaxationTax risk management forms an integrated part of the Group riskmanagement processes. Our tax strategy is to manage tax risks andtax costs in a manner consistent with shareholders’ best long-terminterests, taking into account both economic and reputational factors.We draw a distinction between tax planning using artificial structuresand optimising tax treatment of business transactions, and we engageonly in the latter.TreasuryThe principal financial risks to which the Group is exposed arethose arising from liquidity, interest rate, foreign currency and credit.The Group has a centralised treasury function to manage theserisks in accordance with Board-approved policies. Specifically,liquidity risk is managed through maintaining access to a numberof sources of funding to meet anticipated funding requirements,including committed bank facilities and cash resources. Interestrate risk is managed through maintaining a debt portfolio that isweighted towards fixed rates of interest. Accordingly, the Group’snet interest charge is not significantly affected by movements infloating rates of interest. We do not currently hedge the impact onearnings and cash flow of changes in exchange rates, with theexception of the currency exposure that arises between the bookingand settlement dates on non-local currency purchases and salesby subsidiaries and the external dividend. Credit risk is managedthrough setting and monitoring credit limits appropriate for theassessed risk of the counterparty.Our capital and risk management objectives and policies aredescribed in further detail in Note 23 to the Financial Statementsfrom page 171 and in the Risk section from page 129.Business ReviewAstraZeneca Annual Report and Form 20-F Information 2011Financial Review 93