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FINANCIALS
40
Note 4: 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 income are described below.
Asset Impairments and Related Restructuring and Other Charges
We incurred asset impairment, restructuring, and other special charges of $67.6 million in the fourth quarter of
2007. These charges were a result of decisions approved by management in the fourth quarter as well as previ-
ously announced strategic decisions. Components of this charge include non-cash charges of $42.5 million for
the write-down of impaired assets, all of which have no future use, and other charges of $25.1 million, primar-
ily related to additional severance and environmental cleanup charges related to previously announced strategic
decisions. The impairment charges are necessary to adjust the carrying value of the assets to fair value. These
restructuring activities were substantially complete at December 31, 2007.
In connection with previously announced strategic decisions, we recorded asset impairment, restructuring,
and other special charges of $123.0 million in the fi rst quarter of 2007. These charges primarily relate to a volun-
tary severance program at one of our U.S. plants and other costs related to this action as well as management
actions taken in the fourth quarter of 2006 as described below. The component of this charge related to the non-
cash asset impairment was $67.6 million, and was necessary to adjust the carrying value of the assets to fair
value. These restructuring activities were substantially complete at December 31, 2007.
In the fourth quarter of 2006, management approved plans to close two research and development facilities
and one production facility outside the U.S. Management also made the decision to stop construction of a planned
insulin manufacturing plant in the U.S. in an effort to increase productivity in research and development opera-
tions and to reduce excess manufacturing capacity. These decisions, as well as other strategic changes, resulted
in non-cash charges of $308.8 million for the write-down of certain impaired assets, substantially all of which
have no future use, and other charges of $141.5 million, primarily related to severance and contract termination
payments. The impairment charges were necessary to adjust the carrying value of the assets to fair value. These
restructuring activities were substantially complete at December 31, 2007.
In December 2005, management approved, as part of our ongoing efforts to increase productivity and reduce
our cost structure, decisions that resulted in non-cash charges of $154.6 million for the write-down of certain im-
paired assets, and other charges of $17.3 million, primarily related to contract termination payments. The impaired
assets, which had no future use, included manufacturing buildings and equipment no longer needed to supply pro-
jected capacity requirements, as well as obsolete research and development equipment. The impairment charges
were necessary to adjust the carrying value of the assets to fair value.
Product Liability and Other Special Charges
As a result of our product liability exposures, the substantial majority of which were related to Zyprexa, we re-
corded net pretax charges of $111.9 million, $494.9 million, and $1.07 billion in 2007, 2006, and 2005, respectively.
These charges, which are net of anticipated insurance recoveries, include the costs of product liability settlements
and related defense costs, reserves for product liability exposures and defense costs regarding known product
liability claims, and expected future claims to the extent we could formulate a reasonable estimate of the probable
number and cost of the claims. See Note 13 for further discussion.