Shire plc - FORM 10-Q - October 27, 2017

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - Shire plc	a093017-ex321.htm
EX-31.2 - EXHIBIT 31.2 - Shire plc	a093017-ex312.htm
EX-31.1 - EXHIBIT 31.1 - Shire plc	a093017-ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2017

Commission File Number: 0-29630

SHIRE PLC

(Exact name of registrant as specified in its charter)



Jersey (Channel Islands) (State or other jurisdiction of incorporation or organization)	98-0601486 (I.R.S. Employer Identification No.)

Block 2, Miesian Plaza, 50-58 Baggot Street Lower, Dublin 2, Republic of Ireland (Address of principal executive offices and zip code)	+353 1 609 6000 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of October 23, 2017 the number of outstanding ordinary shares of the Registrant was 908,613,457.

SHIRE PLC

Form 10-Q for the Quarterly Period Ended September 30, 2017

Table of Contents



	Page
Part I: Financial Information	5
Item 1. Financial Statements (Unaudited)	5
Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	5
Consolidated Statements of Operations for the three months and nine months ended September 30, 2017 and September 30, 2016	6
Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2017 and September 30, 2016	8
Consolidated Statement of Changes in Equity for the nine months ended September 30, 2017	9
Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016	10
Notes to the Unaudited Consolidated Financial Statements	12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	53
Item 3. Quantitative and Qualitative Disclosures about Market Risk	62
Item 4. Controls and Procedures	62
Part II: Other Information	63
Item 1. Legal Proceedings	63
Item 1A. Risk Factors	63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3. Defaults Upon Senior Securities	63
Item 4. Mine Safety Disclosures	63
Item 5. Other Information	63
Item 6. Exhibits	63

The “Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

Statements included herein that are not historical facts, including without limitation statements concerning future strategy, plans, objectives, expectations and intentions, the anticipated timing of clinical trials and approvals for, and the commercial potential of, inline or pipeline products, are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, the following:


•	Shire’s products may not be a commercial success;


•	increased pricing pressures and limits on patient access as a result of governmental regulations and market developments may affect Shire’s future revenues, financial condition and results of operations;

•

Shire conducts its own manufacturing operations for certain of its products and is reliant on third party contract manufacturers to manufacture other products and to provide goods and services. Some of Shire’s products or ingredients are only available from a single approved source for manufacture. Any disruption to the supply chain for any of Shire’s products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis for some period of time;

•

the manufacture of Shire’s products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to, among other things, significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches;


•	certain of Shire’s therapies involve lengthy and complex processes, which may prevent Shire from timely responding to market forces and effectively managing its production capacity;


•	Shire has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval;


•	the actions of certain customers could affect Shire’s ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect Shire’s revenues, financial conditions or results of operations;


•	Shire’s products and product candidates face substantial competition in the product markets in which it operates, including competition from generics;


•	adverse outcomes in legal matters, tax audits and other disputes, including Shire’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on the Company’s revenues, financial condition or results of operations;


•	inability to successfully compete for highly qualified personnel from other companies and organizations;

•

failure to achieve the strategic objectives, including expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits at the time anticipated or at all with respect to Shire’s acquisitions, including NPS Pharmaceuticals Inc. (“NPS”), Dyax Corp. (“Dyax”) or Baxalta Incorporated (“Baxalta”), may adversely affect Shire’s financial condition and results of operations;


•	Shire’s growth strategy depends in part upon its ability to expand its product portfolio through external collaborations, which, if unsuccessful, may adversely affect the development and sale of its products;


•	a slowdown of global economic growth, or economic instability of countries in which Shire does business, as well as changes in foreign currency exchange rates and interest rates, that adversely impact the availability and cost of credit and customer purchasing and payment patterns, including the collectability of customer accounts receivable;


•	failure of a marketed product to work effectively or if such a product is the cause of adverse side effects could result in damage to Shire’s reputation, the withdrawal of the product and legal action against Shire;


•	investigations or enforcement action by regulatory authorities or law enforcement agencies relating to Shire’s activities in the highly regulated markets in which it operates may result in significant legal costs and the payment of substantial compensation or fines;


•	Shire is dependent on information technology and its systems and infrastructure face certain risks, including from service disruptions, the loss of sensitive or confidential information, cyber-attacks and other security breaches or data leakages that could have a material adverse effect on Shire’s revenues, financial condition or results of operations;


•	Shire incurred substantial additional indebtedness to finance the Baxalta acquisition, which has increased its borrowing costs and may decrease its business flexibility; and

a further list and description of risks, uncertainties and other matters can be found in Shire’s most recent Annual Report on Form 10-K and in Shire’s subsequent Quarterly Reports on Form 10-Q, in each case including those risks outlined in “ITEM 1A: Risk Factors”, and in subsequent reports on Form 8-K and other Securities and Exchange Commission filings, all of which are available on Shire’s website.

All forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by applicable law, the Company does not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Trademarks

The Company owns or has rights to trademarks, service marks or trade names that are used in connection with the operation of its business. In addition, its names, logos and website names and addresses are owned by the Company or licensed by the Company. The Company also owns or has the rights to copyrights that protect the content of its solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Quarterly Report on Form 10-Q are listed without the ©, ® and ™ symbols, but the Company will assert, to the fullest extent under applicable law, its rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.

This Quarterly Report on Form 10-Q may include trademarks, service marks or trade names of other companies. The Company's use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of the Company by, the trademark, service mark or trade name.

Table of Contents

Part I: Financial Information

Item 1. Financial Statements

SHIRE PLC

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value of shares)



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	209.3		$	528.8
Restricted cash	34.3			25.6
Accounts receivable, net	2,840.7			2,616.5
Inventories	3,427.3			3,562.3
Prepaid expenses and other current assets	779.9			806.3
Total current assets	7,291.5			7,539.5
Investments	199.7			191.6
Property, plant and equipment ("PP&E"), net	6,579.5			6,469.6
Goodwill	19,718.4			17,888.2
Intangible assets, net	33,350.3			34,697.5
Deferred tax asset	94.6			96.7
Other non-current assets	242.5			152.3
Total assets	$	67,476.5		$	67,035.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3,870.5		$	4,312.4
Short term borrowings and capital leases	2,629.2			3,068.0
Other current liabilities	961.4			362.9
Total current liabilities	7,461.1			7,743.3
Long term borrowings and capital leases	17,956.0			19,899.8
Deferred tax liability	7,681.7			8,322.7
Other non-current liabilities	1,723.1			2,121.6
Total liabilities	34,821.9			38,087.4
Commitments and contingencies
Equity:
Common stock of 5p par value; 1,500 shares authorized; and 915.9 shares issued and outstanding (2016: 1,500 shares authorized; and 912.2 shares issued and outstanding)	81.5			81.3
Additional paid-in capital	25,020.9			24,740.9
Treasury stock: 8.4 shares (2016: 9.1 shares)	(283.0		)	(301.9		)
Accumulated other comprehensive income/(loss)	969.1			(1,497.6		)
Retained earnings	6,866.1			5,925.3
Total equity	32,654.6			28,948.0
Total liabilities and equity	$	67,476.5		$	67,035.4

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Revenues:
Product sales	$	3,533.8		$	3,315.4		$	10,537.9		$	7,264.8
Royalties and other revenues	163.8			136.7			477.8			325.7
Total revenues	3,697.6			3,452.1			11,015.7			7,590.5
Costs and expenses:
Cost of sales	1,001.4			1,736.2			3,437.3			2,762.9
Research and development	402.8			511.1			1,324.5			1,023.0
Selling, general and administrative	859.7			875.6			2,647.7			2,025.8
Amortization of acquired intangible assets	482.4			354.9			1,280.5			702.5
Integration and acquisition costs	237.0			284.5			696.7			738.6
Reorganization costs	5.4			101.4			24.5			115.7
Loss/(gain) on sale of product rights	0.3			(5.7		)	(0.4		)	(12.2		)
Total operating expenses	2,989.0			3,858.0			9,410.8			7,356.3

Operating income/(loss) from continuing operations	708.6			(405.9		)	1,604.9			234.2

Interest income	1.5			9.3			5.7			11.9
Interest expense	(141.8		)	(186.9		)	(425.4		)	(318.8		)
Other (expense)/income, net	(0.2		)	(13.7		)	6.8			(16.2		)
Total other expense, net	(140.5		)	(191.3		)	(412.9		)	(323.1		)

Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees	568.1			(597.2		)	1,192.0			(88.9		)
Income taxes	(13.5		)	229.6			(44.6		)	218.4
Equity in (losses)/earnings of equity method investees, net of taxes	(3.4		)	(0.9		)	0.1			(1.9		)
Income/(loss) from continuing operations, net of taxes	551.2			(368.5		)	1,147.5			127.6
(Loss)/gain from discontinued operations, net of taxes	(0.4		)	(18.3		)	18.6			(257.5		)
Net income/(loss)	$	550.8		$	(386.8	)	$	1,166.1		$	(129.9	)

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

CONSOLIDATED STATEMENTS OF OPERATIONS (continued)

(Unaudited, in millions, except per share amounts)



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017		2016
Earnings/(loss) per Ordinary Share – basic
Earnings/(loss) from continuing operations	$	0.61		$	(0.41	)	$	1.27	$	0.18
(Loss)/gain from discontinued operations	(0.00		)	(0.02		)	0.02		(0.36		)
Earnings/(loss) per Ordinary Share – basic	$	0.61		$	(0.43	)	$	1.29	$	(0.18	)

Earnings/(loss) per Ordinary Share – diluted
Earnings/(loss) from continuing operations	$	0.60		$	(0.41	)	$	1.26	$	0.18
(Loss)/earnings from discontinued operations	(0.00		)	(0.02		)	0.02		(0.36		)
Earnings/(loss) per Ordinary Share – diluted	$	0.60		$	(0.43	)	$	1.28	$	(0.18	)

Weighted average number of shares:
Basic	907.2			900.2			905.9		725.5
Diluted	911.6			900.2			912.1		725.5

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in millions)



	Three months ended September 30,					Nine months ended September 30,
	2017		2016			2017			2016
Net income/(loss)	$	550.8	$	(386.8	)	$	1,166.1		$	(129.9	)
Other comprehensive income/(loss):
Foreign currency translation adjustments	744.6		234.3			2,441.1			38.8
Pension and other employee benefits (net of tax expense of $nil and $0.9 for the three and nine months ended September 30, 2017, and $nil for both the three and nine months ended September 30, 2016, respectively)	0.4		—			11.0			—
Unrealized gain on available-for-sale securities (net of tax expense of $5.5 and $7.2 for the three and nine months ended September 30, 2017, and tax expense of $2.4 and $1.0 for the three and nine months ended September 30, 2016, respectively)	23.8		15.1			20.3			10.4
Hedging activities (net of tax benefit of $nil and $3.2 for the three and nine months ended September 30, 2017, and net of tax expense of $1.2 and tax benefit of $0.5 for the three and nine months ended September 30, 2016, respectively)	0.2		2.2			(5.7		)	0.4
Comprehensive income/(loss)	$	1,319.8	$	(135.2	)	$	3,632.8		$	(80.3	)

The components of Accumulated other comprehensive income/(loss) as of September 30, 2017 and December 31, 2016 are as follows:



	September 30, 2017		December 31, 2016
Foreign currency translation adjustments	$	935.7	$	(1,505.4	)
Pension and other employee benefits, net of taxes	5.8		(5.2		)
Unrealized holding gain on available-for-sale securities, net of taxes	26.9		6.6
Hedging activities, net of taxes	0.7		6.4
Accumulated other comprehensive income/(loss)	$	969.1	$	(1,497.6	)

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited, in millions)



	Common stock number of shares	Common stock		Additional paid-in capital		Treasury stock			Accumulated other comprehensive (loss)/income			Retained earnings			Total equity
As of January 1, 2017	912.2	$	81.3	$	24,740.9	$	(301.9	)	$	(1,497.6	)	$	5,925.3		$	28,948.0
Net income	—	—		—		—			—			1,166.1			1,166.1
Other comprehensive income, net of tax	—	—		—		—			2,466.7			—			2,466.7
Shares issued under employee benefit plans and other	3.7	0.2		109.6		—			—			—			109.8
Cumulative-effect adjustment from adoption of ASU 2016-09	—	—		10.7		—			—			28.3			39.0
Share-based compensation	—	—		159.7		—			—			—			159.7
Shares released by employee benefit trust to satisfy exercise of stock options	—	—		—		18.9			—			(18.9		)	—
Dividends	—	—		—		—			—			(234.7		)	(234.7		)
As of September 30, 2017	915.9	$	81.5	$	25,020.9	$	(283.0	)	$	969.1		$	6,866.1		$	32,654.6

Dividends per share

During the nine months ended September 30, 2017, Shire plc declared and paid dividends of $0.257 U.S. per ordinary share (equivalent to $0.771 U.S. per ADS) totaling $234.7 million. During the nine months ended September 30, 2016, Shire plc declared and paid dividends of $0.2216 U.S. per ordinary share (equivalent to $0.6648 U.S. per ADS) totaling $130.2 million.

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)



	Nine months ended September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	1,166.1		$	(129.9	)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization	1,644.0			877.8
Share based compensation	159.7			269.6
Amortization of deferred financing fees	10.9			121.7
Expense related to the unwind of inventory fair value adjustments	688.7			1,097.3
Change in deferred taxes	(392.4		)	(546.9		)
Change in fair value of contingent consideration	144.3			(34.8		)
Impairment of PP&E and intangible assets	167.6			98.1
Other, net	88.3			35.3
Changes in operating assets and liabilities:
Increase in accounts receivable	(301.5		)	(411.2		)
Increase in sales deduction accrual	94.0			108.2
Increase in inventory	(245.2		)	(228.0		)
Decrease/(increase) in prepayments and other assets	70.4			(66.4		)
(Decrease)/increase in accounts payable and other liabilities	(557.8		)	315.2
Net cash provided by operating activities	2,737.1			1,506.0

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of PP&E and long term investments	(565.5		)	(402.5		)
Purchases of businesses, net of cash acquired	—			(17,476.2		)
Proceeds from sale of investments	48.1			0.6
Movements in restricted cash	(8.6		)	68.3
Other, net	34.8			(1.5		)
Net cash used in investing activities	(491.2		)	(17,811.3		)

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited, in millions)



	Nine months ended September 30,
	2017			2016
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, long term and short term borrowings	3,261.6			31,742.3
Repayment of revolving line of credit, long term and short term borrowings	(5,664.5		)	(14,632.9		)
Payment of dividend	(234.7		)	(130.2		)
Debt issuance costs	—			(171.0		)
Proceeds from exercise of options	92.2			137.2
Other, net	(26.2		)	(44.8		)
Net cash (used in)/provided by financing activities	(2,571.6		)	16,900.6

Effect of foreign exchange rate changes on cash and cash equivalents	6.2			(2.2		)

Net (decrease)/increase in cash and cash equivalents	(319.5		)	593.1
Cash and cash equivalents at beginning of period	528.8			135.5
Cash and cash equivalents at end of period	$	209.3		$	728.6

Supplemental information:
	Nine months ended September 30,
	2017			2016
Interest paid	$	434.9		$	223.4
Income taxes paid, net	$	308.0		$	355.8

For stock issued as purchase consideration for the acquisition of Baxalta related to non-cash investing activities, refer to Note 2, Business Combinations, to these Unaudited Consolidated Financial Statements.

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

Table of Contents

SHIRE PLC

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

These interim financial statements of Shire plc and its subsidiaries (collectively “Shire” or the “Company”) are unaudited. They have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

The Consolidated Balance Sheet as of December 31, 2016 was derived from the Audited Consolidated Financial Statements as of that date.

These interim Unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on February 22, 2017.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. However, these interim financial statements include all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to fairly state the results of the interim period and the Company believes that the disclosures are adequate to make the information presented not misleading. Interim results are not necessarily indicative of results to be expected for the full year.

On June 3, 2016, the Company completed its acquisition of Baxalta for $32.4 billion, representing the fair value of purchase consideration. The Company’s Unaudited Consolidated Financial Statements include the results of Baxalta from the date of acquisition. For further details regarding the acquisition, refer to Note 2, Business Combinations, of these Unaudited Consolidated Financial Statements.

Use of Estimates

The preparation of Financial Statements, in conformity with U.S. GAAP and SEC regulations, requires management to make estimates, judgments and assumptions that affect the reported and disclosed amounts of assets, liabilities and equity at the date of the Unaudited Consolidated Financial Statements and reported amounts of revenues and expenses during the period. On an on-going basis, the Company evaluates its estimates, judgments and methodologies. Estimates are based on historical experience, current conditions and on various other assumptions that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amounts of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.

Adopted during the current period

Inventory

In July 2015, the FASB issued new guidance which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this standard as of January 1, 2017, which did not impact the Company's financial position or results of operations.

Table of Contents

Share-Based Payment Accounting

In March 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows and allows a one-time accounting policy election to account for forfeitures as they occur. The new standard was effective January 1, 2017.

The Company adopted ASU 2016-09 in the first quarter of 2017. Before adoption, excess tax benefits or deficiencies from the Company's equity awards were recorded as Additional paid-in capital in its Consolidated Balance Sheets. Upon adoption, the Company recorded any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Operations in the reporting periods in which vesting or settlement occurs.

Amendments related to accounting for excess tax benefits have been adopted prospectively, resulting in recognition of excess tax benefits against Income taxes rather than Additional paid-in capital of $11.5 million for the nine months ended September 30, 2017.

As a result of the adoption, the Company recorded an adjustment to Retained earnings of $39.0 million to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized to Additional paid-in capital.

Excess tax benefits for share-based payments are now included in Net cash provided by operating activities rather than Net cash provided by financing activities. The changes have been applied prospectively in accordance with the ASU and prior periods have not been adjusted.

Upon adoption of ASU 2016-09, the Company elected to account for forfeitures in relation to service conditions as they occur. The change was applied on a modified retrospective basis with a cumulative effect adjustment to Retained earnings of $10.7 million as of January 1, 2017.

Definition of a Business

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides guidance to determine when an integrated set of assets and activities is not a business. The Company adopted this standard prospectively on January 1, 2017.

To be adopted in future periods

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment. This new standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This standard will be effective for the Company as of January 1, 2020, with early adoption permitted for annual goodwill impairment tests performed after January 1, 2017. The Company does not expect the adoption of this standard to have a material impact on its financial position and results of operations.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard also requires additional qualitative and quantitative disclosures.

Table of Contents

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.

The FASB has subsequently issued five additional ASUs amending the guidance in Topic 606, each with the same effective date and transition date of January 1, 2018. This amended guidance has been considered in the Company’s overall assessment of the new standard.

Shire will adopt this standard on January 1, 2018, using the modified retrospective method. The Company is currently evaluating the potential impact on its financial position and results of operations of adopting this guidance. The Company has identified two primary revenue streams from contracts with customers as part of its initial assessment: 1) product sales and 2) licensing arrangements. Shire is in the process of evaluating these contracts and is not yet able to estimate the anticipated impact to the Company’s financial statements from the application of the new standard.

Financial Instrument Accounting

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard amends certain aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity investments with readily determinable fair values be measured at fair value with changes in fair value recognized in the results of operations. This standard will be effective for the Company as of January 1, 2018. The Company is currently evaluating the method of adoption and the potential impact on its financial position and results of operations of adopting this guidance.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new accounting guidance will require the recognition of all lease assets and lease liabilities by lessees and sets forth new disclosure requirements for those lease assets and liabilities. The standard requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements. This standard will be effective for the Company as of January 1, 2019. Early adoption is permitted. The Company is currently evaluating the potential impact on its financial position and results of operations of adopting this guidance.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new standard clarifies certain aspects of the statement of cash flows, and aims to reduce diversity in practice regarding how certain transactions are classified in the statement of cash flows. This standard will be effective for the Company as of January 1, 2018. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company's Consolidated Statements of Cash Flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new guidance is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement. The guidance requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. This standard will be effective for the Company as of January 1, 2018. The adoption of this guidance is not expected to have a significant impact on the Company's Consolidated Statements of Cash Flows.

Income Taxes

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory. This standard removes the current exception in U.S. GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. This standard will be effective for the Company as of January 1, 2018, with the early adoption permitted. The Company is currently evaluating the method of adoption and the potential impact on its financial position and results of operations of adopting this guidance.

Table of Contents

Retirement Benefits Income Statement Presentation

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The standard amends the income statement presentation of the components of net periodic benefit cost for defined benefit pension and other postretirement plans. The standard requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. The standard also requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. This standard will be effective for the Company as of January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its financial position and results of operations.

Share-Based Payment Accounting

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope Modification Accounting. The new standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. This standard will be effective for the Company as of January 1, 2018. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial position and results of operations.

Derivatives and Hedging

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The standard amends its hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements. The new guidance also expands an entity's ability to hedge non-financial and financial risk components and reduces complexity in fair value hedges of interest rate risk. Additionally, it eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This standard will be effective for the Company as of January 1, 2019. Early adoption is permitted. The Company is currently evaluating the method of adoption and the potential impact on its financial position and results of operations of adopting this guidance.

Table of Contents

2. Business Combinations

Acquisition of Baxalta

On June 3, 2016, Shire acquired all of the outstanding common stock of Baxalta for $18.00 per share in cash and 0.1482 Shire American Depository Shares (“ADSs”) per Baxalta share, or if a former Baxalta shareholder properly elected, 0.4446 Shire ordinary shares per Baxalta share.

Baxalta was a global biopharmaceutical company that focused on developing, manufacturing and commercializing therapies for orphan diseases and underserved conditions in hematology, immunology and oncology.

The purchase price consideration for the acquisition of Baxalta was finalized in the second quarter of 2017. The fair value of the purchase price consideration consisted of the following:



(In millions)	Fair value
Cash paid to shareholders	$	12,366.7
Fair value of stock issued to shareholders	19,353.2
Fair value of partially vested stock options and RSUs assumed	508.8
Contingent consideration payable	165.0
Total purchase price consideration	$	32,393.7

The acquisition of Baxalta was accounted for as a business combination using the acquisition method of accounting. Shire issued 305.2 million shares to former Baxalta shareholders at the date of the acquisition. For a more detailed description of the fair value of the partially vested stock options and RSUs assumed, refer to Note 27, Share-based Compensation Plans, of Shire's 2016 Form 10-K.

The assets acquired and the liabilities assumed from Baxalta have been recorded at their fair value as of June 3, 2016, the date of acquisition. The Company’s Unaudited Consolidated Financial Statements included the results of Baxalta from the date of acquisition.

Table of Contents

The purchase price allocation for the acquisition of Baxalta was finalized in the second quarter of 2017. The Company's allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date, including measurement period adjustments, is outlined below.



(In millions)	Preliminary value as of acquisition date (as previously reported as of December 31, 2016)		Measurement period adjustments			Fair value
ASSETS
Current assets:
Cash and cash equivalents	$	583.2	$	—		$	583.2
Accounts receivable	1,069.7		(96.4		)	973.3
Inventories	3,893.4		81.2			3,974.6
Other current assets	576.0		5.3			581.3
Total current assets	6,122.3		(9.9		)	6,112.4
Property, plant and equipment	5,452.7		(46.5		)	5,406.2
Investments	128.2		—			128.2
Goodwill	11,422.4		1,076.2			12,498.6
Intangible assets
Currently marketed products	21,995.0		(830.0		)	21,165.0
In-Process Research and Development ("IPR&D")	730.0		(570.0		)	160.0
Contract based arrangements	42.2		—			42.2
Other non-current assets	155.0		69.7			224.7
Total assets	$	46,047.8	$	(310.5	)	$	45,737.3
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	1,321.9	$	(2.7	)	$	1,319.2
Other current liabilities	354.4		9.0			363.4
Long term borrowings and capital leases	5,424.9		—			5,424.9
Deferred tax liability	5,445.3		(315.0		)	5,130.3
Other non-current liabilities	1,103.6		2.2			1,105.8
Total liabilities	$	13,650.1	$	(306.5	)	$	13,343.6

Fair value of identifiable assets acquired and liabilities assumed	$	32,397.7	$	(4.0	)	$	32,393.7

Consideration
Fair value of purchase consideration	$	32,397.7	$	(4.0	)	$	32,393.7

The measurement period adjustments for Intangible assets reflect changes in the estimated fair value of currently marketed products and IPR&D. Changes are mainly related to finalizing the unit of account judgments and other changes in estimates including Cost of sales allocation and royalty expense. The measurement period adjustments for Inventory primarily reflect refinements in the estimated selling price of inventory. The changes in the estimated fair values primarily are to more accurately reflect market participant assumptions about facts and circumstances existing as of the acquisition date. The measurement period adjustments did not result from intervening events subsequent to the acquisition date.

As a result of measurement period adjustments related to the change in fair value of currently marketed products and inventory, a charge of $85.2 million was recognized in Cost of sales and a benefit of $23.3 million was recognized in Amortization of acquired intangible assets, respectively, in the Company's Unaudited Consolidated Statements of Operations. These adjustments would have been recorded during the year ended December 31, 2016 if these adjustments had been recognized as of the acquisition date.

Table of Contents

Intangible assets

The fair value of the identifiable intangible assets has been estimated using an income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the incremental after tax cash flows an asset would generate over its remaining useful life. The useful lives for currently marketed products were determined based upon the remaining useful economic lives of the assets that are expected to contribute to future cash flows.

Currently marketed products totaling $21,165.0 million relate to intellectual property (“IP”) rights acquired for Baxalta’s currently marketed products. The estimated useful life of the intangible assets related to currently marketed products range from 6 to 23 years (weighted average 21 years), with amortization being recorded on a straight-line basis.

IPR&D intangible assets totaling $160.0 million represent the value assigned to research and development ("R&D") projects acquired. The IPR&D intangible assets are capitalized and accounted for as indefinite-lived intangible assets and will be subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the Company will make a separate determination of the estimated useful life of the IPR&D intangible asset and the related amortization will be recorded as an expense over the estimated useful life.

Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset or product (including net revenues, cost of sales, R&D costs, selling and marketing costs, working capital/asset contributory asset charges and other cash flow assumptions), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream as well as other factors.

The discount rate used to arrive at the present value at the acquisition date of the IPR&D intangible assets was 9.5% to reflect the internal rate of return and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.

Goodwill

Goodwill of $12,498.6 million, which is not deductible for tax purposes, includes the expected synergies that will result from combining the operations of Baxalta with Shire, intangible assets that do not qualify for separate recognition at the time of the acquisition, the value of the assembled workforce, and impacted by establishing a deferred tax liability for the acquired identifiable intangible assets which have no tax basis.

Contingent consideration

The Company acquired certain contingent obligations classified as contingent consideration related to Baxalta’s historical business combinations. Additional consideration is conditionally due upon the achievement of certain milestones related to the development, regulatory, first commercial sale and other sales milestones, which could total up to approximately $1.5 billion. The Company may also pay royalties based on certain product sales. The Company estimated the fair value of the assumed contingent consideration to be $165.0 million using a probability weighting approach that considered the possible outcomes based on assumptions related to the timing and probability of the product launch date, discount rates matched to the timing of first payment and probability of success rates and discount adjustments on the related cash flows.

Inventory

The estimated fair value of work-in-process and finished goods inventory was determined utilizing the net realizable value, based on the expected selling price of the inventory, adjusted for incremental costs to complete the manufacturing process and for direct selling efforts, as well as for a reasonable profit allowance. The estimated fair value of raw material inventory was valued at replacement cost, which is equal to the value a market participant would pay to acquire the inventory.

The fair value adjustment related to inventory is expensed based on the expected product-specific inventory utilization, which is reviewed on a periodic basis and is recorded within Cost of sales in the Company's Unaudited Consolidated Statements of Operations.

Table of Contents

Retirement plans

The Company assumed pension plans as part of the acquisition of Baxalta, including defined benefit and post-retirement benefit plans in the U.S. and foreign jurisdictions, which had a net liability balance of $610.4 million. As of June 3, 2016, the Baxalta defined benefit pension plans had assets with a fair value of $358.5 million.

Integration and acquisition costs

In the three and nine months ended September 30, 2017, the Company expensed $238.1 million and $548.6 million, respectively, relating to the acquisition and integration of Baxalta, which have been recorded within Integration and acquisition costs in the Company’s Unaudited Consolidated Statements of Operations. Refer to Note 4, Integration and Acquisition Costs, for further information regarding the Company's Integration and acquisition costs for the three and nine months ended September 30, 2017.

Supplemental disclosure of pro forma information

The following unaudited pro forma financial information presents the combined results of the operations of Shire and Baxalta as if the acquisition of Baxalta had occurred as of January 1, 2015. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the respective acquisition been completed on January 1, 2015. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.



	Nine months ended September 30,
(In millions, except per share amounts)	2016
Revenues	$	10,193.5
Net income from continuing operations	1,461.0
Per share amounts:
Net income from continuing operations per share - basic	$	2.01
Net income from continuing operations per share - diluted	$	2.01

The unaudited pro forma financial information above reflects the following pro forma adjustments:


(i)	an adjustment to increase net income for the nine months ended September 30, 2016 by $606.6 million to eliminate integration and acquisition related costs incurred by Shire and Baxalta;


(ii)	an adjustment to increase net income for the nine months ended September 30, 2016 by $830.0 million to reflect the expense related to the unwind of inventory fair value adjustments as inventory is sold;


(iii)	an adjustment to increase amortization expense for the nine months ended September 30, 2016 by $306.0 million related to the identifiable intangible assets acquired; and


(iv)	an adjustment to decrease net income for the nine months ended September 30, 2016 by $42.3 million primarily related to the additional interest expense associated with the debt incurred to partially fund the acquisition of Baxalta and the amortization of related deferred debt issuance costs.

The adjustments above are stated net of their tax effects, where applicable.

Acquisition of Dyax

On January 22, 2016, Shire acquired all of the outstanding common stock of Dyax for $37.30 per share in cash. Under the terms of the merger agreement, former Dyax shareholders may receive additional value through a non-tradable contingent value right worth $4.00 per share, payable upon U.S. Food and Drug Administration (“FDA”) approval of SHP643 (formerly DX-2930) in Hereditary Angioedema (“HAE”).

Table of Contents

Dyax was a publicly-traded, Massachusetts-based rare disease biopharmaceutical company primarily focused on the development of plasma kallikrein (“pKal”) inhibitors for the treatment of HAE. Dyax’s most advanced clinical program was SHP643, a Phase 3 program with the potential for improved efficacy and convenience for HAE patients. SHP643 has received Fast Track, Breakthrough Therapy, and Orphan Drug Designations by the FDA and has also received Orphan Drug status in the EU. Dyax’s sole marketed product, KALBITOR, is a pKal inhibitor for the treatment of acute attacks of HAE in patients 12 years of age and older.

The acquisition of Dyax was accounted for as a business combination using the acquisition method. The acquisition-date fair value consideration was $6,330.0 million, comprising cash paid on closing of $5,934.0 million and the fair value of the contingent value right of $396.0 million (maximum payable $646.0 million). The assets acquired and the liabilities assumed from Dyax have been recorded at their fair value as of January 22, 2016, the date of acquisition. The Company’s Unaudited Consolidated Financial Statements include the results of Dyax as of January 22, 2016.

The purchase price allocation for the acquisition of Dyax was finalized in the first quarter of 2017. The allocation of the total purchase price is outlined below.



(In millions)	Fair value
ASSETS
Current assets:
Cash and cash equivalents	$	241.2
Accounts receivable	22.5
Inventories	20.2
Other current assets	8.1
Total current assets	292.0
Property, plant and equipment	5.8
Goodwill	2,702.1
Intangible assets
Currently marketed projects	135.0
IPR&D	4,100.0
Contract based royalty arrangements	425.0
Other non-current assets	28.6
Total assets	$	7,688.5
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	30.0
Other current liabilities	1.7
Deferred tax liability	1,325.4
Other non-current liabilities	1.4
Total liabilities	$	1,358.5

Fair value of identifiable assets acquired and liabilities assumed	$	6,330.0

Consideration
Fair value of purchase consideration	$	6,330.0

Currently marketed products

Currently marketed products totaling $135.0 million relate to intellectual property rights acquired for KALBITOR. The fair value of the currently marketed product has been estimated using an income approach, based on the present value of incremental after tax cash flows attributable to KALBITOR.

The estimated useful life of the KALBITOR intangible asset is 18 years, with amortization being recorded on a straight-line basis.

Table of Contents

IPR&D

The IPR&D asset of $4,100.0 million relates to Dyax’s clinical program SHP643, a Phase 3 program with the potential for improved efficacy and convenience for HAE patients. The IPR&D intangible asset is capitalized and accounted for as indefinite-lived intangible assets and will be subject to impairment testing until completion or abandonment of the projects. The fair value of this IPR&D asset was estimated based on an income approach, using the present value of incremental after tax cash flows expected to be generated by this development project. The estimated cash flows have been probability adjusted to take into account the development stage of completion and the remaining risks and uncertainties surrounding the future development and commercialization.

The estimated probability adjusted after tax cash flows used to estimate the fair value of intangible assets have been discounted at 9%.

Royalty rights

Intangible assets totaling $425.0 million relate to royalty rights arising from licensing agreements of a portfolio of product candidates. This portfolio includes two approved products, marketed by Eli Lilly & Company, and various development-stage products. Multiple product candidates with other pharmaceutical companies are in various stages of clinical development for which the Company is eligible to receive future royalties and/or milestone payments.

The fair value of these royalty rights has been estimated using an income approach, based on the present value of incremental after-tax cash flows attributable to each royalty right.

The estimated useful lives of these royalty rights range from seven to nine years (weighted average eight years), with amortization being recorded on a straight-line basis.

Goodwill

Goodwill of $2,702.1 million, which is not deductible for tax purposes, includes the expected synergies that will result from combining the operations of Dyax with Shire; intangible assets that do not qualify for separate recognition at the time of the acquisition; the value of the assembled workforce; and impacted by establishing a deferred tax liability for the acquired identifiable intangible assets which have no tax basis.

Integration and acquisition costs

Refer to Note 4, Integration and Acquisition Costs, for information regarding the Company's Integration and acquisition costs for the three and nine months ended September 30, 2017.

Supplemental disclosure of pro forma information

The following unaudited pro forma financial information presents the combined results of the operations of Shire and Dyax as if the acquisitions of Dyax had occurred as of January 1, 2015. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the respective acquisition been completed at the date indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.



	Nine months ended September 30,
(In millions, except per share amounts)	2016
Revenues	$	7,596.4
Net income from continuing operations	25.9
Per share amounts:
Net income from continuing operations per share - basic	$	0.04
Net income from continuing operations per share - diluted	$	0.04

Table of Contents

The unaudited pro forma financial information above reflects the following pro forma adjustments:


(i)	an adjustment to increase net income for the nine months ended September 30, 2016 by $108.4 million, respectively, to eliminate acquisition related costs incurred by Shire and Dyax and


(ii)	an adjustment to increase amortization expense for the nine months ended September 30, 2016 by $1.3 million related to the identifiable intangible assets acquired.

The adjustments above are stated net of their tax effects, where applicable.

3. Collaborative and Other Licensing Arrangements

The Company is party to certain collaborative or licensing arrangements. In some of these arrangements, Shire and the licensee are both actively involved in the development and commercialization of the licensed product and have exposure to risks and rewards dependent on its commercial success.

During the third quarter of 2017, Shire entered into a licensing agreement with Novimmune S.A. ("Novimmune"). The license grants Shire exclusive worldwide rights to develop and commercialize a bi-specific antibody in pre-clinical development for the treatment of hemophilia A and hemophilia A patients with inhibitors. Under the terms of the agreement, Shire will develop, and if approved, commercialize the product. Shire made an initial $5.0 million upfront license payment. Novimmune will be entitled to receive additional potential milestone payments up to $335.0 million based on clinical, regulatory and commercial milestones and single-digit royalties.

During the second quarter of 2017, Shire entered into an agreement to license the exclusive worldwide rights to SHP659 (formerly known as P-321) from Parion Sciences ("Parion"). SHP659 is a Phase 2 investigational epithelial sodium channel inhibitor for the potential treatment of dry eye disease in adults. Under the terms of the agreement, Shire will develop, and if approved, commercialize this compound. Shire made an initial $20.0 million upfront license payment, which was included in Research and development expense in the Company's Unaudited Consolidated Statements of Operations. Parion will be entitled to receive additional potential milestone payments up to $515.0 million based on clinical, regulatory and commercial milestones and Parion has the option to co-fund through additional stages of development in exchange for enhanced tiered low double-digit royalties. In addition, Parion has the option to co-fund commercialization activities and participate in the financial outcome from those activities.

4. Integration and Acquisition Costs

In the three and nine months ended September 30, 2017, Shire recorded Integration and acquisition costs of $237.0 million and $696.7 million, respectively, primarily due to the acquisition and integration of Baxalta. In the three and nine months ended September 30, 2017, a credit of $3.4 million and a charge of $144.3 million is included in Integration and acquisition costs relating to the change in fair value of contingent consideration payable.

During the second quarter of 2017, Shire entered its second phase of integration activities. The costs associated with this phase will primarily relate to headcount reduction as the Company continues to advance and complete activities related to exiting transition services agreements ("TSA") with Baxter, integrating legal entities and rationalization of the Company's manufacturing facilities. For further details on existing agreements with Baxter, refer to Note 28, Agreements and Transactions with Baxter, of Shire's 2016 Form 10-K. The Company also plans to drive savings through the continued prioritization of its research and development programs and continued consolidation of its commercial operations. The integration of Baxalta is estimated to be completed by mid to late 2019.

The Baxalta integration and acquisition costs include $60.2 million and $177.4 million, respectively, of employee severance and acceleration of stock compensation, $28.4 million and $114.0 million, respectively, of third-party professional fees and $29.7 million and $71.4 million, respectively, of expenses associated with facility consolidations and $114.1 million and $147.8 million, respectively, of asset impairments for the three and nine months ended September 30, 2017. The Company expects the majority of these expenses, except for certain costs related to facility consolidations, to be paid within 12 months from the date the related expenses were incurred.

Table of Contents

The following table summarizes the type and amount of integration costs recorded as of September 30, 2017:



(In millions)	Severance and employee benefits			Lease terminations			Total
As of January 1,	$	74.0		$	—		$	74.0
Amount charged to integration costs	157.5			58.3			215.8
Paid/utilized	(140.9		)	(7.5		)	(148.4		)
As of September 30,	$	90.6		$	50.8		$	141.4

For the three and nine months ended September 30, 2016, Shire recorded Integration and acquisition costs of $284.5 million and $738.6 million, respectively, primarily related to the acquisition and integration of Dyax and Baxalta. These costs primarily consist of $43.9 million and $56.6 million, respectively, of contract terminations, $6.8 million and $132.4 million, respectively, of acquisition costs including legal, investment banking and other transaction-related fees, $123.9 million and $389.4 million, respectively, of employee severance and acceleration of stock compensation, $65.8 million and $155.0 million, respectively, of third-party professional fees and $18.2 million and a credit of $26.9 million, respectively, of change in fair value of contingent consideration.

5. Results of Discontinued Operations

Following the divestment of the Company’s DERMAGRAFT business in January 2014, the operating results associated with the DERMAGRAFT business have been classified as discontinued operations in the Company’s Unaudited Consolidated Statements of Operations for all periods presented.

For the three and nine months ended September 30, 2017, the Company recorded a loss of $0.4 million (net of immaterial tax benefit) and gain of $18.6 million (net of tax expense of $10.9 million), respectively, primarily related to legal contingencies related to the divested DERMAGRAFT business and the release of escrow to Shire, respectively.

In January 2017, Shire entered into a final settlement agreement with the Department of Justice ("DOJ") in the amount of $350.0 million, plus interest which was accrued in 2016 and paid during the six months ended June 30, 2017.

After the civil settlement with the DOJ had been finalized, Shire and Advanced BioHealing Inc.'s ("ABH") equity holders entered into a settlement agreement and ABH’s equity holders released the $37.5 million escrow to Shire. Shire released the claims against ABH equity holders upon receiving the entire amount held in escrow.

For a more detailed description of the DERMAGRAFT legal proceedings, refer to Note 25, Legal and Other Proceedings, of Shire's 2016 Form 10-K.

For the three and nine months ended September 30, 2016, the Company recorded a loss of $18.3 million and $257.5 million (net of tax benefit of $5.7 million and $101.1 million), respectively, related to costs associated with the divestment.

6. Accounts Receivable, Net

Accounts receivable as of September 30, 2017 of $2,840.7 million (December 31, 2016: $2,616.5 million), are stated at the invoiced amount and net of reserve for discounts and doubtful accounts of $243.7 million (December 31, 2016: $169.6 million).

Reserve for discounts and doubtful accounts:



(In millions)	2017			2016
As of January 1,	$	169.6		$	55.8
Provision charged to operations	1,074.1			569.9
Payments/credits	(1,000.0		)	(498.3		)
As of September 30,	$	243.7		$	127.4

As of September 30, 2017, accounts receivable included $96.2 million (December 31, 2016: $102.2 million) related to royalties receivable.

Table of Contents

7. Inventories

Inventories are stated at the lower of cost and net realizable value. Inventories comprise:



(In millions)	September 30, 2017		December 31, 2016
Finished goods	$	909.0	$	1,380.0
Work-in-progress	1,748.8		1,491.0
Raw materials	769.5		691.3
	$	3,427.3	$	3,562.3

For a more detailed description of inventories acquired, refer to Note 2, Business Combinations, to these Unaudited Consolidated Financial Statements.

8. Property, Plant and Equipment, Net

Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Components of Property, plant and equipment, net are summarized as follows:



(In millions)	September 30, 2017			December 31, 2016
Land	$	342.6		$	337.9
Buildings and leasehold improvements	1,981.1			1,915.4
Machinery, equipment and other	3,000.0			2,547.2
Assets under construction	2,504.9			2,632.5
Total property, plant and equipment at cost	7,828.6			7,433.0
Less: Accumulated depreciation	(1,249.1		)	(963.4		)
Property, plant and equipment, net	$	6,579.5		$	6,469.6

Depreciation expense for the three and nine months ended September 30, 2017 was $119.9 million and $363.5 million, respectively, and for the three and nine months ended September 30, 2016 was $93.1 million and $175.3 million, respectively.

During 2017, the Company determined it would divest certain facilities as part of its integration efforts. The Company classified $23.9 million of assets as held for sale as of September 30, 2017, which is reported in Prepaid expenses and other current assets. The held for sale assets of $23.9 million were primarily property, plant and equipment and is net of $43.6 million of impairment charges recorded on those assets during the third quarter of 2017. The impairment charges were reported in Integration and acquisition costs.

The Company also recorded $25.4 million of impairment charges on assets held for sale during the second quarter of 2017 within Integration and acquisition costs. Certain held for sale assets were divested during the third quarter of 2017 for cash proceeds of $30.0 million.

Table of Contents

9. Intangible Assets

The following table summarizes the Company's intangible assets:



(In millions)	Currently marketed products			IPR&D		Other intangible assets			Total
September 30, 2017
Gross acquired intangible assets	$	31,786.3		$	5,113.0	$	840.3		$	37,739.6
Accumulated amortization	(4,094.0		)	—		(295.3		)	(4,389.3		)
Intangible assets, net	$	27,692.3		$	5,113.0	$	545.0		$	33,350.3

December 31, 2016
Gross acquired intangible assets	$	31,217.5		$	5,746.6	$	842.2		$	37,806.3
Accumulated amortization	(2,908.6		)	—		(200.2		)	(3,108.8		)
Intangible assets, net	$	28,308.9		$	5,746.6	$	642.0		$	34,697.5

Other intangible assets are comprised primarily of royalty rights and other contract rights associated with Baxalta, Dyax and NPS.

The change in the net book value of intangible assets for the nine months ended September 30, 2017 and 2016 is shown in the table below:



(In millions)	2017			2016
As of January 1,	$	34,697.5		$	9,173.3
Acquisitions	(1,397.0		)	30,377.7
Amortization charged	(1,280.5		)	(702.5		)
Impairment charges	(20.0		)	(8.9		)
Foreign currency translation	1,350.3			31.9
As of September 30,	$	33,350.3		$	38,871.5

The decrease in Intangible assets, net during the nine months ended September 30, 2017 relates to the measurement period adjustments of the acquisition of Baxalta and amortization of intangible assets. For a more detailed description of measurement period adjustments, refer to Note 2, Business Combinations, to these Unaudited Consolidated Financial Statements.

In connection with the acquisition of Baxalta, the Company acquired IP rights related to currently marketed products of $21,165.0 million, IPR&D assets of $160.0 million and other contract rights of $42.2 million. For a more detailed description of this acquisition, refer to Note 2, Business Combinations, to these Unaudited Consolidated Financial Statements.

In connection with the acquisition of Dyax on January 22, 2016, the Company acquired IP rights related to currently marketed products of $135.0 million, IPR&D assets of $4,100.0 million and royalty rights of $425.0 million. For a more detailed description of this acquisition, refer to Note 2, Business Combinations, to these Unaudited Consolidated Financial Statements.

The Company reviews its amortized intangible assets for impairment whenever events or circumstances suggest that their carrying value may not be recoverable. Unamortized intangible assets are reviewed for impairment annually or whenever events or circumstances suggest that their carrying value may not be recoverable.

Estimated amortization expense can be affected by various factors including future acquisitions, disposals of product rights, regulatory approval and subsequent amortization of acquired IPR&D projects, foreign exchange movements and the technological advancement and regulatory approval of competitor products. The estimated future amortization of acquired intangible assets for the next five years is expected to be as follows:

Table of Contents



(In millions)	Anticipated future amortization
2017 (remaining three months)	$	476.5
2018	1,879.3
2019	1,656.1
2020	1,558.1
2021	1,524.6
2022	1,509.0

10. Goodwill

The following table provides a roll-forward of the Goodwill balance:



(In millions)	2017		2016
As of January 1,	$	17,888.2	$	4,147.8
Acquisitions	1,076.2		10,689.8
Foreign currency translation and other	754.0		13.0
As of September 30,	$	19,718.4	$	14,850.6

The increase in Goodwill during the nine months ended September 30, 2017 related to the measurement period adjustments of the acquisition of Baxalta. For a more detailed description of measurement period adjustments, refer to Note 2, Business Combinations, to these Unaudited Consolidated Financial Statements.

11. Fair Value Measurement

Assets and liabilities that are measured at fair value on a recurring basis

As of September 30, 2017 and December 31, 2016, the following financial assets and liabilities are measured at fair value on a recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).



	Fair value
(In millions)	Total		Level 1		Level 2		Level 3
As of September 30, 2017
Financial assets:
Marketable equity securities	$	69.7	$	69.7	$	—	$	—
Marketable debt securities	16.7		3.7		13.0		—
Contingent consideration receivable	8.3		—		—		8.3
Derivative instruments	17.0		—		17.0		—
Total assets	$	111.7	$	73.4	$	30.0	$	8.3

Financial liabilities:
Joint venture net written option	$	25.0	$	—	$	—	$	25.0
Derivative instruments	8.8		—		8.8		—
Contingent consideration payable	1,186.9		—		—		1,186.9
Total liabilities	$	1,220.7	$	—	$	8.8	$	1,211.9

Table of Contents



(In millions)	Total		Level 1		Level 2		Level 3
As of December 31, 2016
Financial assets:
Marketable equity securities	$	65.8	$	65.8	$	—	$	—
Marketable debt securities	15.5		3.6		11.9		—
Contingent consideration receivable	15.6		—		—		15.6
Derivative instruments	18.0		—		18.0		—
Total assets	$	114.9	$	69.4	$	29.9	$	15.6

Financial liabilities:
Derivative instruments	$	8.3	$	—	$	8.3	$	—
Contingent consideration payable	1,058.0		—		—		1,058.0
Total liabilities	$	1,066.3	$	—	$	8.3	$	1,058.0

Marketable equity and debt securities are included within Investments in the Unaudited Consolidated Balance Sheets. Contingent consideration receivable is included within Prepaid expenses and other current assets and Other non-current assets in the Unaudited Consolidated Balance Sheets. Contingent consideration payable is included within Other current liabilities and Other non-current liabilities in the Unaudited Consolidated Balance Sheets. For information regarding the Company's derivative arrangements, refer to Note 12, Financial Instruments, to these Unaudited Consolidated Financial Statements.

Certain estimates and judgments were required to develop the fair value amounts. The estimated fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:


•	Marketable equity securities: the fair values of marketable equity securities are estimated based on quoted market prices for those investments.


•	Marketable debt securities: the fair values of debt securities are obtained from pricing services or broker/dealers who either use quoted prices in an active market or proprietary pricing applications, which include observable market information for like or same securities.


•	Contingent consideration receivable: the fair value of the contingent consideration receivable has been estimated using the income approach (using a probability weighted discounted cash flow method).


•	Derivative instruments: the fair values of the swap and forward foreign exchange contracts have been determined using the month-end interest rate and foreign exchange rates, respectively.


•	Contingent consideration payable: the fair value of the contingent consideration payable has been estimated using the income approach (using a probability weighted discounted cash flow method).

There were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and nine months ended September 30, 2017.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The following table provides a roll forward of the fair values of the Company's contingent consideration receivable and payables which include Level 3 measurements:



Contingent consideration receivable
(In millions)	2017			2016
Balance as of January 1,	$	15.6		$	13.8
Change in fair value included in earnings	(2.5		)	3.6
Other	(4.8		)	(1.7		)
Balance as of September 30,	$	8.3		$	15.7

Table of Contents



Contingent consideration payable
(In millions)	2017			2016
Balance as of January 1,	$	1,058.0		$	475.9
Acquisitions	(4.0		)	557.0
Change in fair value included in earnings	144.3			(34.8		)
Other	(11.4		)	(1.4		)
Balance as of September 30,	$	1,186.9		$	996.7

In 2017, the increase in contingent consideration payable was primarily related to the Company's change in fair value of contingent consideration resulting from positive topline data for SHP643. In 2016, the increase in contingent consideration payable was related to the Company’s acquisition of Dyax and Baxalta. Other contingent consideration payable primarily relates to foreign currency adjustments.

Of the $1,186.9 million of contingent consideration payable as of September 30, 2017, $633.4 million is recorded within Other current liabilities and $553.5 million is recorded within Other non-current liabilities in the Company’s Unaudited Consolidated Balance Sheets.

Joint venture net written option

In March 2017, Shire executed option agreements related to a joint venture that provides Shire with a call option on the partner’s investment in joint venture equity and the partner with a put option on its investment in joint venture equity. The Company had a liability of $25.0 million for the net written option based on the estimated fair value of these options as of September 30, 2017 and the Company re-measures the instrument to fair value through the Consolidated Statements of Operations.

Table of Contents

Quantitative Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

Quantitative information about the Company’s recurring Level 3 fair value measurements is as follows:



Financial assets:	Fair value as of the measurement date
As of September 30, 2017
(In millions, except %)	Fair value		Valuation technique	Significant unobservable inputs	Range
Contingent consideration receivable	$	8.3	Income approach (probability weighted discounted cash flow)	• Probability weightings applied to different sales scenarios	• 10 to 90%
				• Future forecast consideration receivable based on contractual terms with purchaser	• $0 to $20.7 million
				• Assumed market participant discount rate	• 7.4%



Financial liabilities:	Fair value as of the measurement date
As of September 30, 2017
(In millions, except %)	Fair value		Valuation technique	Significant unobservable inputs	Range
Contingent consideration payable	$	1,186.9	Income approach (probability weighted discounted cash flow)	• Cumulative probability of milestones being achieved	• 17 to 90%
				• Assumed market participant discount rate	• 1.8 to 8.9%
				• Periods in which milestones are expected to be achieved	• 2017 to 2040
				• Forecast quarterly royalties payable on net sales of relevant products	• $0.1 to $6.5 million



Financial liabilities:	Fair value as of the measurement date
As of September 30, 2017
(In millions, except %)	Fair value		Valuation technique	Significant unobservable inputs	Range
Joint venture net written option	$	25.0	Income approach (probability weighted discounted cash flow)	• Cash flow scenario probability weighting	• 0 to 65%
				• Assumed market participant discount rate	• 16%

Table of Contents

Contingent consideration payable represents future milestones and royalties the Company may be required to pay in conjunction with various business combinations and license agreements. Contingent consideration receivable represents future royalties the Company may be entitled to receive in conjunction with sales and purchase agreements. The fair value of the Company’s contingent consideration receivable and payable could significantly increase or decrease due to changes in certain assumptions which underpin the fair value measurements. Each set of assumptions is specific to the individual contingent consideration receivable or payable.

Financial assets and liabilities that are disclosed at fair value

The carrying amounts and estimated fair values as of September 30, 2017 and December 31, 2016 of the Company’s financial assets and liabilities that are not measured at fair value on a recurring basis are as follows:



	September 30, 2017				December 31, 2016
(In millions)	Carrying amount		Fair value		Carrying amount		Fair value
Financial liabilities:
SAIIDAC notes	$	12,047.7	$	12,052.8	$	12,039.2	$	11,633.8
Baxalta notes	5,065.2		5,294.1		5,063.6		5,066.5
Capital lease obligation	349.1		349.1		353.6		353.6

The estimated fair values of long-term debt were based upon recent observable market prices and are considered Level 2 in the fair value hierarchy. The estimated fair value of capital lease obligations is based on Level 2 inputs.

The carrying amounts of other financial assets and liabilities approximate their estimated fair value due to their short-term nature, such as liquidity and maturity of these amounts, or because there have been no significant changes since the asset or liability was last re-measured to fair value on a non-recurring basis.

12. Financial Instruments

Foreign Currency Contracts

Due to the global nature of its operations, portions of the Company's revenues and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. The main trading currencies of the Company are the U.S. dollar, Euro, British pound sterling, Swiss franc, Canadian dollar and Japanese yen.

Transactional exposure arises where transactions occur in currencies different to the functional currency of the relevant subsidiary. It is the Company’s policy that these exposures are minimized to the extent practicable by denominating transactions in the subsidiary’s functional currency. Where significant exposures remain, the Company uses foreign exchange contracts (spot, forward and swap contracts) to manage the exposure for balance sheet assets and liabilities that are denominated in currencies different to the functional currency of the relevant subsidiary.

The Company has master netting agreements with a number of counterparties to these foreign exchange contracts and on the occurrence of specified events, the Company has the ability to terminate contracts and settle them with a net payment by one party to the other. The Company has elected to present derivative assets and derivative liabilities on a gross basis in the Unaudited Consolidated Balance Sheet. The Company does not have credit risk related contingent features or collateral linked to the derivatives.

Designated Foreign Currency Derivatives

Certain foreign currency forward contracts were designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts were reported in AOCI. Realized gains and losses for the effective portion of such contracts were recognized in revenue or cost of sales when the sale of product in the currency being hedged was recognized. To the extent ineffective, hedge transaction gains and losses were reported in Other income/(expense), net.

Table of Contents

The Company did not have any designated foreign currency contracts as of September 30, 2017. As of December 31, 2016, the Company had designated foreign currency forward contracts with a total notional value of $78.7 million, a maximum duration of six months; the fair value of these contracts was a net asset of $4.2 million.

Undesignated Foreign Currency Derivatives

The Company uses forward contracts to mitigate the foreign currency risk related to certain balance sheet positions, including intercompany and third-party receivables and payables. The Company has not elected hedge accounting for these derivative instruments as the duration of these contracts is typically three months or less. The changes in fair value of these derivatives are reported in earnings.

The table below presents the notional amount, maximum duration and fair value for the undesignated foreign currency derivatives:



(In millions, except duration)	September 30, 2017		December 31, 2016
Notional amount	$	1,514.6	$	1,309.1
Maximum duration (in months)	3 months		3 months
Fair value - net asset	$	7.6	$	6.7

The Company considers the impact of its and its counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of September 30, 2017, credit risk did not materially change the fair value of the Company’s foreign currency contracts.

Interest Rate Contracts

The Company is exposed to the risk that its earnings and cash flows could be adversely impacted by fluctuations in benchmark interest rates relating to its debt obligations on which interest is set at floating rates. The Company’s policy is to manage this risk to an acceptable level. The Company is principally exposed to interest rate risk on any borrowings under the Company’s various debt facilities and on part of the senior notes assumed in connection with the acquisition of Baxalta. Interest on each of these debt obligations is set at floating rates, to the extent utilized. Shire’s exposure under these facilities is to changes in U.S. dollar interest rates. For further details related to interest rates on the Company’s various debt facilities, refer to Note 13, Borrowings and Capital Leases, to these Unaudited Consolidated Financial Statements.

Designated Interest Rate Derivatives

The effective portion of the changes in the fair value of interest rate swap contracts are recorded as a component of the senior notes assumed in connection with the acquisition of Baxalta with the ineffective portion recorded in Interest expense. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of Interest expense in the Unaudited Consolidated Statements of Operations.

The table below presents the notional amount, maturity and fair value for the designated interest rate derivatives:



(In millions, except maturity)	September 30, 2017		December 31, 2016
Notional amount	$	1,000.0	$	1,000.0
Maturity	June 2020 and June 2025		June 2020 and June 2025
Fair value - net asset/(liability)	$	0.6	$	(1.2	)

For the three and nine months ended September 30, 2017, the Company recognized losses of $1.1 million and $2.5 million, respectively, as ineffectiveness related to these contracts as a component of Interest expense.

Summary of Derivatives

The following tables summarize the income statement locations and gains and losses on the Company’s designated and undesignated derivative instruments:

Table of Contents



(In millions)	Gain/(loss) recognized in OCI					Income Statement location	Gain reclassified from AOCI into income
Three months ended September 30,	2017			2016			2017		2016
Designated derivative instruments
Cash flow hedges
Foreign exchange contracts	$	(0.2	)	$	3.3	Cost of sales	$	0.3	$	—



(In millions)	Income Statement location	Gain/(loss) recognized in income
Three months ended September 30,		2017			2016
Fair value hedges
Interest rate contracts, net	Interest expense	$	(1.1	)	$	—
Undesignated derivative instruments
Foreign exchange contracts	Other income/(expense), net	36.7			(21.2		)
Interest rate swap contracts	Interest income	—			3.5



(In millions)	Loss recognized in OCI						Income Statement location	Gain reclassified from AOCI into income
Nine months ended September 30,	2017			2016				2017		2016
Designated derivative instruments
Cash flow hedges
Foreign exchange contracts	$	(0.9	)	$	(0.1	)	Cost of sales	$	8.6	$	—



(In millions)	Income Statement location	Gain/(loss) recognized in income
Nine months ended September 30,		2017			2016
Fair value hedges
Interest rate contracts, net	Interest (expense)/income	$	(2.5	)	$	2.1
Undesignated derivative instruments
Foreign exchange contracts	Other income/(expense), net	57.4			(50.0		)
Interest rate swap contracts	Interest expense	—			(1.1		)

Table of Contents

Summary of Derivatives

The following table presents the classification and estimated fair value of derivative instruments:



	Asset position							Liability position
		Fair value							Fair value
(In millions)	Balance Sheet location	September 30, 2017			December 31, 2016			Balance Sheet location	September 30, 2017			December 31, 2016
Designated derivative Instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	—		$	4.3		Accounts payable and accrued expenses	$	—		$	0.1
Interest rate contracts	Long term borrowings	2.4			0.1			Long term borrowings	1.8			1.3
		$	2.4		$	4.4			$	1.8		$	1.4
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	14.6		$	13.6		Accounts payable and accrued expenses	$	7.0		$	6.9
Total derivative fair value		$	17.0		$	18.0			$	8.8		$	8.3
Potential effect of rights to offset		(3.7		)	(1.7		)		(3.7		)	(1.7		)
Net derivative		$	13.3		$	16.3			$	5.1		$	6.6

13. Borrowings and Capital Leases



(In millions)	September 30, 2017		December 31, 2016
Short term borrowings:
Baxalta notes	$	748.2	$	—
Borrowings under the Revolving Credit Facilities Agreement	1,050.0		450.0
Borrowings under the November 2015 Facilities Agreement	799.6		2,594.8
Capital leases	7.0		6.4
Other borrowings	24.4		16.8
	$	2,629.2	$	3,068.0

Long term borrowings:
SAIIDAC notes	$	12,047.7	$	12,039.2
Baxalta notes	4,317.0		5,063.6
Borrowings under the November 2015 Facilities Agreement	1,195.6		2,391.8
Capital leases	342.1		347.2
Other borrowings	53.6		58.0
	$	17,956.0	$	19,899.8

Total borrowings and capital leases	$	20,585.2	$	22,967.8

Table of Contents

For a more detailed description of the Company's financing agreements, refer below and to Note 17, Borrowings and Capital Lease Obligations, of Shire's 2016 Form 10-K.

SAIIDAC Notes

On September 23, 2016, Shire Acquisitions Investments Ireland Designated Activity Company ("SAIIDAC"), a wholly owned subsidiary of Shire plc, issued unsecured senior notes with a total aggregate principal value of $12.1 billion (“SAIIDAC Notes”), guaranteed by Shire plc and, as of December 1, 2016, by Baxalta. Below is a summary of the SAIIDAC Notes as of September 30, 2017:



(In millions, except %)	Aggregate amount		Coupon rate		Effective interest rate in 2017		Carrying amount as of September 30, 2017
Fixed-rate notes due 2019	$	3,300.0	1.900	%	2.05	%	$	3,290.8
Fixed-rate notes due 2021	3,300.0		2.400	%	2.53	%	3,285.6
Fixed-rate notes due 2023	2,500.0		2.875	%	2.97	%	2,489.2
Fixed-rate notes due 2026	3,000.0		3.200	%	3.30	%	2,982.1
	$	12,100.0					$	12,047.7

As of September 30, 2017, there was $52.3 million of debt issuance costs and discount recorded as a reduction of the carrying amount of debt. These costs will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. For further details on the SAIIDAC Notes, refer to Note 17, Borrowings and Capital Lease Obligations, of Shire's 2016 Form 10-K.

Baxalta Notes

Shire plc guaranteed senior notes issued by Baxalta with a total aggregate principal amount of $5.0 billion in connection with the acquisition of Baxalta (“Baxalta Notes”). Below is a summary of the Baxalta Notes as of September 30, 2017:



(In millions, except %)	Aggregate principal		Coupon rate		Effective interest rate in 2017		Carrying amount as of September 30, 2017
Variable-rate notes due 2018	$	375.0	LIBOR plus 0.78%		2.60	%	$	373.3
Fixed-rate notes due 2018	375.0		2.000	%	2.00	%	374.9
Fixed-rate notes due 2020	1,000.0		2.875	%	2.80	%	1,004.3
Fixed-rate notes due 2022	500.0		3.600	%	3.30	%	507.2
Fixed-rate notes due 2025	1,750.0		4.000	%	3.90	%	1,774.6
Fixed-rate notes due 2045	1,000.0		5.250	%	5.20	%	1,030.9
Total assumed Senior Notes	$	5,000.0					$	5,065.2

The effective interest rates above exclude the effect of any related interest rate swaps. The book values above include any premiums and adjustments related to hedging instruments. For further details related to the interest rate derivative contracts, please see Note 12, Financial Instruments, to these Unaudited Consolidated Financial Statements.

Revolving Credit Facilities Agreement

On December 12, 2014, Shire entered into a $2.1 billion revolving credit facilities agreement (the “RCF”) with a number of financial institutions. As of September 30, 2017, the Company utilized $1,050.0 million of the RCF. The RCF, which terminates on December 12, 2021, may be used for financing the general corporate purposes of Shire. The RCF incorporates a $250.0 million U.S. dollar and Euro swingline facility operating as a sub-limit thereof.

Table of Contents

Term Loan Facilities Agreements

November 2015 Facilities Agreement

On November 2, 2015, Shire entered into a $5.6 billion facilities agreement (the “November 2015 Facilities Agreement”), which is comprised of three amortizing credit facilities. The total amount outstanding under the November 2015 Facilities Agreement was $2.0 billion as of September 30, 2017. During the nine months ended September 30, 2017, the Company made $0.4 billion of advance repayments under November 2015 Facility A and $2.2 billion of scheduled and advance repayments under November 2015 Facility B. Both November 2015 Facility A and November 2015 Facility B were fully repaid as of September 30, 2017. The Company also made $0.4 billion of advance repayments under November 2015 Facility C; consequently, the amount outstanding under November 2015 Facility C was $2.0 billion as of September 30, 2017 with an ultimate maturity date of November 2, 2018.

Short-term uncommitted lines of credit (“Credit lines”)

Shire has access to various Credit lines from a number of banks which are available to be utilized from time to time to provide short-term cash management flexibility. These Credit lines can be withdrawn by the banks at any time. The Credit lines are not relied upon for core liquidity. As of September 30, 2017, these Credit lines were not utilized.

Capital Lease Obligations

The capital leases are primarily related to office and manufacturing facilities. As of September 30, 2017, the total capital lease obligations, including current portions, were $349.1 million.

14. Retirement and Other Benefit Programs

The Company sponsors various pension and other post-employment benefit (“OPEB”) plans in the U.S. and other countries. The net periodic benefit cost associated with these plans consisted of the following components:



	Three months ended September 30,
	2017								2016
(In millions)	U.S. pensions			International pensions			OPEB (U.S.)		U.S. pensions			International pensions			OPEB (U.S.)
Net periodic benefit cost
Service cost	$	3.7		$	9.4		$	0.4	$	5.5		$	7.9		$	0.4
Interest cost	3.9			1.2			0.3		4.8			1.4			0.2
Expected return on plan assets	(4.0		)	(1.8		)	—		(3.8		)	(1.7		)	—
Amortization of actuarial losses	—			0.4			—		—			—			—
Net periodic benefit cost	$	3.6		$	9.2		$	0.7	$	6.5		$	7.6		$	0.6



	Nine months ended September 30,
	2017								2016
(In millions)	U.S. pensions			International pensions			OPEB (U.S.)		U.S. pensions			International pensions			OPEB (U.S.)
Net periodic benefit cost
Service cost	$	11.1		$	28.2		$	1.2	$	7.4		$	10.5		$	0.5
Interest cost	11.7			3.6			0.9		6.4			1.8			0.3
Expected return on plan assets	(12.0		)	(5.4		)	—		(5.1		)	(2.2		)	—
Amortization of actuarial losses	—			1.3			—		—			—			—
Net periodic benefit cost	$	10.8		$	27.7		$	2.1	$	8.7		$	10.1		$	0.8

The majority of the Company's pension and OPEB plans were assumed with the acquisition of Baxalta on June 3, 2016.

Table of Contents

15. Accumulated Other Comprehensive Income/(Loss)

The changes in accumulated other comprehensive income/(loss) ("AOCI"), net of their related tax effects, for the nine months ended September 30, 2017 and 2016 are included below:



(In millions)	Foreign currency translation adjustment			Pension and other employee benefits			Unrealized holding gain/(loss) on available-for-sale securities			Hedging activities			Accumulated other comprehensive (loss)/income
As of January 1, 2017	$	(1,505.4	)	$	(5.2	)	$	6.6		$	6.4		$	(1,497.6	)
Other comprehensive income before reclassifications	2,441.1			9.7			24.7			0.5			2,476.0
Amounts reclassified from AOCI	—			1.3			(4.4		)	(6.2		)	(9.3		)
Net current period other comprehensive income/(loss)	2,441.1			11.0			20.3			(5.7		)	2,466.7
As of September 30, 2017	$	935.7		$	5.8		$	26.9		$	0.7		$	969.1



(In millions)	Foreign currency translation adjustment			Pension and other employee benefits		Unrealized holding loss on available-for-sale securities			Hedging activities		Accumulated other comprehensive loss
As of January 1, 2016	$	(182.1	)	$	—	$	(1.7	)	$	—	$	(183.8	)
Net current period other comprehensive income	38.8			—		10.4			0.4		49.6
As of September 30, 2016	$	(143.3	)	$	—	$	8.7		$	0.4	$	(134.2	)

Reclassifications from AOCI to net income/(loss) during the three and nine months ended September 30, 2017 and 2016 were not material.

Table of Contents

16. Taxation

For the three and nine months ended September 30, 2017, the effective tax rate on income from continuing operations was 2% (2016: 38%) and 4% (2016: 246%), respectively.

The effective tax rate for the three and nine months ended September 30, 2017 was affected by the combined impact of the relative quantum of the profit before tax for the period by jurisdiction as well as significant acquisition and integration costs. Additionally, certain discrete events occurred during the year which contributed to the low effective tax rate, including a tax benefit associated with the filing of the US returns and the reversal of prior period income tax reserves.

The effective tax rate for the three and nine months ended September 30, 2016 was affected by the combined impact of the relative quantum of the profit before tax by jurisdiction for the period and of the reversal of deferred tax liabilities from the acquisition of Baxalta (including in higher tax territories such as the U.S.) of inventory and intangible assets amortization as well as significant acquisition and integration costs. Additionally, the impact of certain items that arose from the Baxalta acquisition caused significant variations in the estimated effective rate during 2016. As a result, the Company applied a permitted exception to the general rule by including the actual income tax effect for certain portions of its business discretely when it calculated the provision for income taxes for the three and nine months ended September 30, 2016.

17. Earnings Per Share

The following table reconciles net income and loss and the weighted average ordinary shares outstanding for basic and diluted earnings per share ("EPS") for the periods presented:



	Three months ended September 30,						Nine months ended September 30,
(In millions)	2017			2016			2017		2016
Income/(loss) from continuing operations, net of taxes	$	551.2		$	(368.5	)	$	1,147.5	$	127.6
(Loss)/gain from discontinued operations, net of taxes	(0.4		)	(18.3		)	18.6		(257.5		)
Numerator for basic and diluted earnings per share	$	550.8		$	(386.8	)	$	1,166.1	$	(129.9	)

Weighted average number of shares:
Basic	907.2			900.2			905.9		725.5
Effect of dilutive shares:
Share-based awards to employees	4.4			—			6.2		—
Diluted	911.6			900.2			912.1		725.5

Weighted average number of basic shares excludes shares purchased by the Employee Benefit Trust and those under the shares buy-back program, which are both presented by Shire as treasury stock. Share-based awards to employees are calculated using the treasury method.

The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:



	Three months ended September 30,		Nine months ended September 30,
(Number of shares in millions)	2017	2016	2017	2016
Share-based awards to employees	16.2	14.6	14.8	9.7

Certain stock options have been excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2017 and 2016 because either their exercise prices exceeded Shire’s average share price during the calculation period, the required performance conditions were not satisfied as of the balance sheet date or their inclusion would have been antidilutive.

Table of Contents

18. Share-based Compensation Plans

Total share-based compensation recorded by the Company during the three and nine months ended September 30, 2017 and 2016 by line item is as follows:



	Three months ended September 30,						Nine months ended September 30,
(In millions)	2017			2016			2017			2016
Cost of sales	$	17.4		$	7.9		$	30.1		$	15.5
Research and development	3.2			14.4			22.9			33.4
Selling, general and administrative	30.9			24.9			94.1			49.1
Integration and acquisition costs	1.8			26.7			12.6			170.7
Total	53.3			73.9			159.7			268.7
Less tax	(13.3		)	(26.9		)	(42.9		)	(73.2		)
	$	40.0		$	47.0		$	116.8		$	195.5

The table above includes pre-tax expense related to replacement and other awards held by Baxalta employees. This includes integration related expense during the three and nine months ended September 30, 2017 from the acceleration of unrecognized expense associated with certain employee terminations.

For further details on existing share-based compensation plans, refer to Note 27, Share-based Compensation Plans, of Shire's 2016 Form 10-K.

The Company made immaterial equity compensation grants to employees during the three months ended September 30, 2017. During the nine months ended September 30, 2017, the Company made equity compensation grants to employees consisting of 9.0 million of stock-settled share appreciation rights (“SARs”), 2.2 million of restricted stock units (“RSUs”) and 0.6 million of performance share units (“PSUs”) equivalent in ordinary shares.

19. Commitments and Contingencies

Leases

The Company leases land, facilities, motor vehicles and certain equipment under operating leases expiring through 2039. For the three and nine months ended September 30, 2017, lease and rental expense totaled $41.7 million and $126.7 million (2016: $32.7 million and $63.0 million, respectively), which is predominantly included in Cost of sales and Selling, general and administrative expenses in the Company’s Unaudited Consolidated Statements of Operations.

Letters of credit and guarantees

As of September 30, 2017 and December 31, 2016, the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companies totaling $203.8 million and $139.7 million (being the contractual amounts), respectively, providing security for the Company’s performance of various obligations. These obligations are primarily in respect of the recoverability of insurance claims, lease obligations and supply commitments.

Commitments

Clinical testing

As of September 30, 2017, the Company had committed to pay approximately $1,242.1 million (December 31, 2016: $1,037.4 million) to contract vendors for administering and executing clinical trials. The timing of these payments is dependent upon actual services performed by the organizations as determined by patient enrollment levels and related activities.

Table of Contents

Contract manufacturing

As of September 30, 2017, the Company had committed to pay approximately $483.9 million (December 31, 2016: $528.9 million) in respect of contract manufacturing. The Company expects to pay $189.7 million of these commitments in 2017.

Other purchasing commitments

As of September 30, 2017, the Company had committed to pay approximately $1,523.2 million (December 31, 2016: $1,745.4 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $682.7 million of these commitments in 2017.

Investment commitments

As of September 30, 2017, the Company had outstanding commitments to purchase common stock and interests in companies and partnerships, respectively, for amounts totaling $54.1 million (December 31, 2016: $76.4 million) which may all be payable in 2017, depending on the timing of capital calls. The investment commitments include additional funding to certain variable interest entities ("VIEs") for which Shire is not the primary beneficiary.

Capital commitments

As of September 30, 2017, the Company had committed to spend $145.9 million (December 31, 2016: $100.5 million) on capital projects.

Baxter related tax indemnification

Baxter International Inc. ("Baxter") and Baxalta entered into a tax matters agreement, effective on the date of Baxalta’s separation from Baxter, which employs a direct tracing approach, or where direct tracing approach is not feasible, an allocation methodology, to determine which company is liable for pre-separation income tax items for U.S. federal, state and foreign jurisdictions. With respect to tax liabilities that are directly traceable or allocated to Baxalta but for which Baxalta was not the primary obligor, Baxalta recorded a tax indemnification amount that would be due to Baxter upon Baxter discharging the associated tax liability to the taxing authority. As of September 30, 2017, the amount of the net tax indemnification amount was $25.5 million.

20. Legal and Other Proceedings

The Company expenses legal costs when incurred.

The Company recognizes loss contingency provisions for probable losses when management is able to reasonably estimate the loss. When the estimated loss lies within a range, the Company records a loss contingency provision based on its best estimate of the probable loss. If no particular amount within that range is a better estimate than any other amount, the minimum amount is recorded. Estimates of losses may be developed before the ultimate loss is known, and are therefore refined each accounting period as additional information becomes known. An outcome that deviates from the Company’s estimate may result in an additional expense or release in a future accounting period. As of September 30, 2017, provision for litigation losses, insurance claims and other disputes totaled $64.1 million (December 31, 2016: $415.0 million).

The Company’s principal pending legal and other proceedings are disclosed below. The outcomes of these proceedings are not always predictable and can be affected by various factors. For those legal and other proceedings for which it is considered at least reasonably possible that a loss has been incurred, the Company discloses the possible loss or range of possible loss in excess of the recorded loss contingency provision, if any, where such excess is both material and estimable.

Table of Contents

MYDAYIS

On October 12, 2017, Shire was notified that Teva Pharmaceuticals USA, Inc. had submitted an abbreviated new drug application (“ANDA”) to the FDA seeking permission to market a generic version of MYDAYIS. Shire is currently evaluating the notice letter. In the event Shire files a lawsuit within the requisite 45-day period under the Hatch-Waxman Act, there will be a stay of approval of the ANDA for up to 30 months.

LIALDA

In May 2010, Shire was notified that Zydus Pharmaceuticals USA, Inc. (“Zydus”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45-day period, Shire filed a lawsuit in the U.S. District Court for the District of Delaware against Zydus and Cadila Healthcare Limited, doing business as Zydus Cadila. A Markman hearing took place on January 29, 2015 and a Markman ruling was issued on July 28, 2015. A trial took place between March 28, 2016 and April 1, 2016. On September 16, 2016 the court issued its ruling finding that the proposed generic product would not infringe the asserted claims. Shire appealed the ruling to the Court of Appeals for the Federal Circuit ("CAFC"). On May 9, 2017, the CAFC affirmed the ruling of the district court. Zydus’ ANDA has been approved and the generic product is now available in the U.S.

In February 2012, Shire was notified that Osmotica Pharmaceutical Corporation (“Osmotica”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45-day period, Shire filed a lawsuit in the U.S. District Court for the Northern District of Georgia against Osmotica. A Markman hearing took place on August 22, 2013 and a Markman ruling was issued on September 25, 2014. The court issued an Order on February 27, 2015 in which all dates in the scheduling order were stayed. Osmotica’s ANDA was withdrawn as of March 31, 2017 and the case was dismissed.

In March 2012, Shire was notified that Watson Laboratories Inc.-Florida had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45-day period, Shire filed a lawsuit in the U.S. District Court for the Southern District of Florida against Watson Laboratories Inc.-Florida and Watson Pharmaceuticals, Inc., Watson Pharma, Inc. and Watson Laboratories, Inc. (collectively, “Watson”) were subsequently added as defendants. A trial took place in April 2013 and on May 9, 2013 the trial court issued a decision finding that the proposed generic product infringes the patent-in-suit and that the patent is not invalid. Watson appealed the trial court’s ruling to the CAFC and a hearing took place on December 2, 2013. The ruling of the CAFC was issued on March 28, 2014 overruling the trial court on the interpretation of two claim terms and remanding the case for further proceedings. Shire petitioned the Supreme Court for a writ of certiorari which was granted on January 26, 2015. The Supreme Court also vacated the CAFC decision and remanded the case to the CAFC for further consideration in light of the Supreme Court’s recent decision in Teva v. Sandoz. On June 3, 2015, the CAFC reaffirmed their previous decision to reverse the District Court’s claims construction and remanded the case to the U.S. District Court for the Southern District of Florida. A trial was held on January 25-27, 2016. A ruling was issued on March 28, 2016 upholding the validity of the patent and finding that Watson’s proposed ANDA product infringes the patent-in-suit. Watson appealed the ruling to the CAFC and oral argument took place on October 5, 2016. The CAFC issued a ruling on February 10, 2017 reversing the trial court’s ruling of infringement and remanding the case to the lower court for entry of a ruling of non-infringement. On May 18, 2017, the lower court entered judgment of non-infringement.

In April 2012, Shire was notified that Mylan had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45-day period, Shire filed a lawsuit in the U.S. District Court for the Middle District of Florida against Mylan. A Markman hearing took place on December 22, 2014. A Markman ruling was issued on March 23, 2015. Following a four-day bench trial in September 2016 in the U.S. District Court for the Middle District of Florida, the court handed down a ruling that Mylan’s proposed generic version of LIALDA infringes claims 1 and 3 of the Orange Book listed patent for LIALDA. In connection with this finding of infringement, the court also entered an injunction prohibiting Mylan from making, using, selling, offering for sale and/or importing their proposed ANDA product before the expiration of the patent (June 8, 2020) and requiring that the approval date for their ANDA be on or after the expiration of the patent. On June 14, 2017, the U.S. District Court for the Middle District of Florida granted Mylan's Motion for Reconsideration and entered judgment of non-infringement. Shire filed an appeal on July 7, 2017.

Table of Contents

In March 2015, Shire was notified that Amneal had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the U.S. District Court for the District of New Jersey against Amneal, Amneal Pharmaceuticals of New York, LLC and Amneal Pharmaceuticals Co. India Pvt. Ltd. A Markman hearing took place on July 25, 2016. A Markman ruling was issued on August 2, 2016. No trial date has been set.

In September 2015, Shire was notified that Lupin Ltd. had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the U.S. District Court for the District of Maryland against Lupin Ltd., Lupin Pharmaceuticals Inc., Lupin Inc. and Lupin Atlantis Holdings SA. A Markman hearing originally scheduled to take place on November 10, 2016, was cancelled and has not yet been rescheduled. No trial date has been set.

VANCOCIN

On April 6, 2012, ViroPharma Incorporated (“ViroPharma”) received a notification that the United States Federal Trade Commission (“FTC”) was conducting an investigation into whether ViroPharma had engaged in unfair methods of competition with respect to VANCOCIN which Shire acquired in January 2014. Following the divestiture of VANCOCIN in August 2014, Shire retained certain liabilities including any potential liabilities related to the VANCOCIN citizen petition.

On August 3, 2012, and September 8, 2014, ViroPharma and Shire respectively received Civil Investigative Demands from the FTC requesting additional information related to this matter. Shire has fully cooperated with the FTC’s investigation.

On February 7, 2017, the FTC filed a Complaint against Shire alleging that ViroPharma engaged in conduct in violation of U.S. antitrust laws arising from a citizen petition ViroPharma filed in 2006 related to Food & Drug Administration’s policy for evaluating bioequivalence for generic versions of VANCOCIN. The complaint seeks equitable relief, including an injunction and disgorgement. The Company filed a motion to dismiss on April 10, 2017.

At this time, Shire is unable to predict the outcome or duration of this case.

ELAPRASE

On September 24, 2014, Shire’s Brazilian affiliate, Shire Farmaceutica Brasil Ltda, was served with a lawsuit brought by the State of Sao Paulo and in which the Brazilian Public Attorney’s office has intervened alleging that Shire is obligated to provide certain medical care including ELAPRASE for an indefinite period at no cost to patients who participated in ELAPRASE clinical trials in Brazil, and seeking recoupment to the Brazilian government for amounts paid on behalf of these patients to date, and moral damages associated with these claims.

On May 6, 2016, the trial court judge ruled on the case and dismissed all the claims under the class action, which was appealed. On February 20, 2017, the Court of Appeals in Sao Paulo issued the final decision on merit in favor of Shire and dismissed all the claims under the class action. On July 12, 2017, the Public Prosecutor filed an appeal addressed to the Supreme Court.

Table of Contents

21. Agreements and Transactions with Baxter

In connection with Baxalta’s separation from Baxter on July 1, 2015, Baxalta and Baxter entered into several separation-related agreements that provided a framework for Baxalta’s relationship with Baxter after the separation. These agreements, among others, included a manufacturing and supply agreement, a transition services agreement and a tax matters agreement. For further details on existing agreements with Baxter, refer to Note 28, Agreements and Transactions with Baxter, of Shire's 2016 Form 10-K.

The Company reported revenues associated with the manufacturing and supply agreement with Baxter during the three and nine months ended September 30, 2017 of approximately $35.8 million and $106.5 million, respectively, and during the three and nine months ended September 30, 2016 of approximately $31.0 million and $47.0 million, respectively. The Company reported Selling, general and administrative expenses associated with the transition services agreement with Baxter during the three and nine months ended September 30, 2017 of approximately $9.8 million and $43.5 million, respectively, and during the three and nine months ended September 30, 2016 of approximately $24.0 million and $32.0 million, respectively. Net tax-related indemnification liabilities as of September 30, 2017 associated with the tax matters agreement with Baxter are discussed in Note 19, Commitments and Contingencies, of these Unaudited Consolidated Financial Statements.

As of September 30, 2017, the Company had total amounts due from or to Baxter of $95.6 million reported in Prepaid expenses and other current assets, $33.6 million reported in Other non-current assets, $60.4 million reported in Other current liabilities and $59.6 million reported in Other non-current liabilities.

22. Segment Reporting

Shire operates as one operating and reportable segment engaged in the research, development, licensing, manufacturing, marketing, distribution and sale of innovative specialist medicines to meet significant unmet patient needs.

For a more detailed description of segment disclosures about products, geographic areas and major customers, refer to Note 22, Segment Reporting, of Shire's 2016 Form 10-K.

Table of Contents

In the periods set out below, Revenues by franchise were as follows:



	Three months ended September 30,				Nine months ended September 30,
(In millions)	2017		2016		2017		2016
Product sales by franchise
HEMOPHILIA	$	725.3	$	702.4	$	2,119.6	$	978.0
INHIBITOR THERAPIES	190.7		181.7		631.9		255.7
Hematology	916.0		884.1		2,751.5		1,233.7
IMMUNOGLOBULIN THERAPIES	605.1		472.5		1,613.9		610.7
BIO THERAPEUTICS	196.6		134.0		546.7		185.3
Immunology	801.7		606.5		2,160.6		796.0
VYVANSE	538.4		512.6		1,620.3		1,539.5
ADDERALL XR	106.0		80.5		242.3		281.1
MYDAYIS	10.2		—		25.9		—
Other Neuroscience	36.5		23.4		91.3		81.2
Neuroscience	691.1		616.5		1,979.8		1,901.8
FIRAZYR	195.5		146.3		461.4		411.3
ELAPRASE	152.9		146.7		454.5		424.3
REPLAGAL	117.2		118.9		349.0		340.5
VPRIV	89.6		87.7		257.3		259.3
CINRYZE	56.9		165.4		458.7		502.6
KALBITOR	16.0		11.1		48.3		39.2
Genetic Diseases	628.1		676.1		2,029.2		1,977.2
LIALDA/MEZAVANT	86.7		208.6		469.6		570.3
GATTEX/REVESTIVE	84.9		58.1		229.2		154.3
PENTASA	72.1		85.4		224.5		222.3
NATPARA	39.1		23.3		103.3		58.8
Other Internal Medicine	68.2		87.3		227.5		260.6
Internal Medicine	351.0		462.7		1,254.1		1,266.3
Ophthalmics	77.4		14.1		173.4		14.1
Oncology	68.5		55.4		189.3		75.7
Total Product sales	3,533.8		3,315.4		10,537.9		7,264.8
Royalties and other revenues
SENSIPAR royalties	42.8		38.7		128.1		112.2
3TC and ZEFFIX royalties	16.1		16.2		38.8		43.3
FOSRENOL royalties	14.3		13.7		35.0		34.3
ADDERALL XR royalties	7.7		4.7		33.6		15.7
Other Royalties and revenues	82.9		63.4		242.3		120.2
Total Royalties and other revenues	163.8		136.7		477.8		325.7
Total Revenues	$	3,697.6	$	3,452.1	$	11,015.7	$	7,590.5

Table of Contents

23. Guarantor Financial Information

On June 3, 2016, Shire plc provided full and unconditional, joint and several guarantees of the floating rate senior notes due 2018, 2.0% senior notes due 2018, 2.875% senior notes due 2020, 3.6% senior notes due 2022, 4.0% senior notes due 2025 and 5.25% senior notes due 2045 (collectively, “Baxalta Notes”), of Baxalta Inc., a 100% owned subsidiary of the Company. Amounts related to Baxalta Inc. and its subsidiaries are included in the condensed consolidating financial information for periods subsequent to June 3, 2016, the date of Baxalta Inc.'s acquisition.

On September 23, 2016, Shire plc provided full and unconditional, joint and several guarantees of the 1.90% senior notes due 2019, 2.40% senior notes due 2021, 2.875% senior notes due 2023 and 3.20% senior notes due 2026, of SAIIDAC (collectively "SAIIDAC Notes"), a 100% owned subsidiary of the Company.

On December 1, 2016, Baxalta Inc., a wholly-owned subsidiary of Shire plc, became a guarantor to the SAIIDAC Notes. Accordingly, both Baxalta Inc. and Shire plc are now co-guarantors of the SAIIDAC Notes.

In accordance with the requirements of SEC Regulation S-X Rule 3-10 “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered”, the following tables present Unaudited Condensed Consolidating Financial Statements of the two separate guarantee structures of the Baxalta Notes and SAIIDAC Notes, for:


•	Shire plc - Parent Guarantor;


•	SAIIDAC Subsidiary Issuer - issuer subsidiary of the SAIIDAC Notes; (a)


•	Baxalta Inc. - issuer subsidiary of the Baxalta Notes and guarantor subsidiary of the SAIIDAC Notes; (b)


•	Non-Guarantor Non-Issuer Subsidiaries - presents all other subsidiaries of the Parent Guarantor on a combined basis, none of which guarantee the Baxalta Notes or SAIIDAC Notes; (c)


•	Non-Guarantor Subsidiaries of Baxalta Notes - presents combined Non-Guarantor Non-Issuer Subsidiaries, including SAIIDAC, under the guarantee structure where Baxalta Inc. is the subsidiary issuer (a+c); and


•	Eliminations - primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions.

The Unaudited Condensed Consolidating Financial Statements present investments in subsidiaries using the equity method of accounting.

Table of Contents



	Condensed Consolidating Balance Sheet
As of September 30, 2017	Shire plc (Parent Guarantor)		SAIIDAC (SAIIDAC Notes Subsidiary Issuer)		Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)		Non-Guarantor Non-Issuer Subsidiaries		Non-Guarantor Subsidiaries of Baxalta Notes		Eliminations			Consolidated
(In millions)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	—	$	0.9	$	208.4	$	208.4	$	—		$	209.3
Restricted cash	—		—		—		34.3		34.3		—			34.3
Accounts receivable, net	—		—		—		2,840.7		2,840.7		—			2,840.7
Inventories	—		—		—		3,427.3		3,427.3		—			3,427.3
Prepaid expenses and other current assets	—		1.4		98.1		680.4		681.8		—			779.9
Intercompany receivables	—		52.5		—		4,313.5		4,366.0		(4,366.0		)	—
Short term intercompany loan receivable	—		1,849.6		—		—		1,849.6		(1,849.6		)	—
Total current assets	—		1,903.5		99.0		11,504.6		13,408.1		(6,215.6		)	7,291.5
Investments	39,685.8		—		36,851.3		12,604.4		12,604.4		(88,941.8		)	199.7
Property, plant and equipment ("PP&E"), net	—		—		7.1		6,572.4		6,572.4		—			6,579.5
Goodwill	—		—		—		19,718.4		19,718.4		—			19,718.4
Intangible assets, net	—		—		—		33,350.3		33,350.3		—			33,350.3
Deferred tax asset	—		—		294.6		94.6		94.6		(294.6		)	94.6
Long term intercompany loan receivable	—		13,243.3		1,223.5		—		13,243.3		(14,466.8		)	—
Other non-current assets	—		3.2		36.0		203.3		206.5		—			242.5
Total assets	$	39,685.8	$	15,150.0	$	38,511.5	$	84,048.0	$	99,198.0	$	(109,918.8	)	$	67,476.5
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	0.7	$	7.7	$	61.0	$	3,801.1	$	3,808.8	$	—		$	3,870.5
Short term borrowings and capital leases	—		1,849.6		748.2		31.4		1,881.0		—			2,629.2
Intercompany payables	3,615.2		—		750.8		—		—		(4,366.0		)	—
Short term intercompany loan payable	—		—		—		1,849.6		1,849.6		(1,849.6		)	—
Other current liabilities	575.5		—		10.3		375.6		375.6		—			961.4
Total current liabilities	4,191.4		1,857.3		1,570.3		6,057.7		7,915.0		(6,215.6		)	7,461.1
Long term borrowings and capital leases	—		13,243.3		4,317.0		395.7		13,639.0		—			17,956.0
Deferred tax liability	—		—		—		7,976.3		7,976.3		(294.6		)	7,681.7
Long term intercompany loan payable	2,839.8		—		—		11,627.0		11,627.0		(14,466.8		)	—
Other non-current liabilities	—		—		62.4		1,660.7		1,660.7		—			1,723.1
Total liabilities	7,031.2		15,100.6		5,949.7		27,717.4		42,818.0		(20,977.0		)	34,821.9
Total equity	32,654.6		49.4		32,561.8		56,330.6		56,380.0		(88,941.8		)	32,654.6
Total liabilities and equity	$	39,685.8	$	15,150.0	$	38,511.5	$	84,048.0	$	99,198.0	$	(109,918.8	)	$	67,476.5

Table of Contents



	Condensed Consolidating Balance Sheet
As of December 31, 2016	Shire plc (Parent Guarantor)		SAIIDAC (SAIIDAC Notes Subsidiary Issuer)		Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)		Non-Guarantor Non-Issuer Subsidiaries		Non-Guarantor Subsidiaries of Baxalta Notes		Eliminations			Consolidated
(In millions)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	—	$	41.7	$	487.1	$	487.1	$	—		$	528.8
Restricted cash	—		—		—		25.6		25.6		—			25.6
Accounts receivable, net	—		—		—		2,616.5		2,616.5		—			2,616.5
Inventories	—		—		—		3,562.3		3,562.3		—			3,562.3
Prepaid expenses and other current assets	1.8		—		97.1		707.4		707.4		—			806.3
Intercompany receivables	—		120.5		—		5,154.4		5,274.9		(5,274.9		)	—
Short term intercompany loan receivable	—		2,594.8		—		—		2,594.8		(2,594.8		)	—
Total current assets	1.8		2,715.3		138.8		12,553.3		15,268.6		(7,869.7		)	7,539.5
Investments	35,656.1		—		34,644.2		12,571.8		12,571.8		(82,680.5		)	191.6
Property, plant and equipment ("PP&E"), net	—		—		27.4		6,442.2		6,442.2		—			6,469.6
Goodwill	—		—		—		17,888.2		17,888.2		—			17,888.2
Intangible assets, net	—		—		—		34,697.5		34,697.5		—			34,697.5
Deferred tax asset	—		—		273.0		96.7		96.7		(273.0		)	96.7
Long term intercompany loan receivable	—		14,431.0		480.7		—		14,431.0		(14,911.7		)	—
Other non-current assets	3.9		—		33.8		114.6		114.6		—			152.3
Total assets	$	35,661.8	$	17,146.3	$	35,597.9	$	84,364.3	$	101,510.6	$	(105,734.9	)	$	67,035.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1.3	$	85.7	$	20.0	$	4,205.4	$	4,291.1	$	—		$	4,312.4
Short term borrowings and capital leases	450.0		2,594.8		—		23.2		2,618.0		—			3,068.0
Intercompany payables	5,247.1		—		27.8		—		—		(5,274.9		)	—
Short term intercompany loan payable	—		—		—		2,594.8		2,594.8		(2,594.8		)	—
Other current liabilities	—		—		64.6		298.3		298.3		—			362.9
Total current liabilities	5,698.4		2,680.5		112.4		7,121.7		9,802.2		(7,869.7		)	7,743.3
Long term borrowings and capital leases	—		14,431.0		5,063.6		405.2		14,836.2		—			19,899.8
Deferred tax liability	—		—		—		8,595.7		8,595.7		(273.0		)	8,322.7
Long term intercompany loan payable	610.1		—		—		14,301.6		14,301.6		(14,911.7		)	—
Other non-current liabilities	405.3		—		61.8		1,654.5		1,654.5		—			2,121.6
Total liabilities	6,713.8		17,111.5		5,237.8		32,078.7		49,190.2		(23,054.4		)	38,087.4
Total equity	28,948.0		34.8		30,360.1		52,285.6		52,320.4		(82,680.5		)	28,948.0
Total liabilities and equity	$	35,661.8	$	17,146.3	$	35,597.9	$	84,364.3	$	101,510.6	$	(105,734.9	)	$	67,035.4

Table of Contents



	Condensed Consolidating Statements of Operations
For the three months ended September 30, 2017	Shire plc (Parent Guarantor)			SAIIDAC (SAIIDAC Notes Subsidiary Issuer)		Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)			Non-Guarantor Non-Issuer Subsidiaries			Non-Guarantor Subsidiaries of Baxalta Notes			Eliminations			Consolidated
(In millions)
Revenues:
Product sales	$	—		$	—	$	—		$	3,533.8		$	3,533.8		$	—		$	3,533.8
Royalties and other revenues	—			—		—			163.8			163.8			—			163.8
Total revenues	—			—		—			3,697.6			3,697.6			—			3,697.6
Costs and expenses:
Cost of sales	—			—		—			1,001.4			1,001.4			—			1,001.4
Research and development	—			—		—			402.8			402.8			—			402.8
Selling, general and administrative	6.1			—		4.0			849.6			849.6			—			859.7
Amortization of acquired intangible assets	—			—		—			482.4			482.4			—			482.4
Integration and acquisition costs	—			—		9.2			227.8			227.8			—			237.0
Reorganization costs	—			—		—			5.4			5.4			—			5.4
Loss on sale of product rights	—			—		—			0.3			0.3			—			0.3
Total operating expenses	6.1			—		13.2			2,969.7			2,969.7			—			2,989.0

Operating (loss)/income from continuing operations	(6.1		)	—		(13.2		)	727.9			727.9			—			708.6

Interest (expense)/income, net	(48.0		)	3.0		(23.6		)	(71.7		)	(68.7		)	—			(140.3		)
Other income/(expense), net	—			—		4.4			(4.6		)	(4.6		)	—			(0.2		)
Total other (expense)/income, net	(48.0		)	3.0		(19.2		)	(76.3		)	(73.3		)	—			(140.5		)

(Loss)/income from continuing operations before income taxes and equity in income/(losses) of equity method investees	(54.1		)	3.0		(32.4		)	651.6			654.6			—			568.1
Income taxes	0.9			0.6		(8.9		)	(6.1		)	(5.5		)	—			(13.5		)
Equity in income/(losses) of equity method investees, net of taxes	604.0			—		(79.8		)	(3.3		)	(3.3		)	(524.3		)	(3.4		)
Income/(loss) from continuing operations, net of taxes	550.8			3.6		(121.1		)	642.2			645.8			(524.3		)	551.2
Loss from discontinued operations, net of taxes	—			—		—			(0.4		)	(0.4		)	—			(0.4		)
Net income/(loss)	550.8			3.6		(121.1		)	641.8			645.4			(524.3		)	550.8
Comprehensive income/(loss)	$	1,319.8		$	3.6	$	581.0		$	1,411.2		$	1,414.8		$	(1,995.8	)	$	1,319.8

Table of Contents



	Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2017	Shire plc (Parent Guarantor)			SAIIDAC (SAIIDAC Notes Subsidiary Issuer)			Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)			Non-Guarantor Non-Issuer Subsidiaries			Non-Guarantor Subsidiaries of Baxalta Notes			Eliminations			Consolidated
(In millions)
Revenues:
Product sales	$	—		$	—		$	—		$	10,537.9		$	10,537.9		$	—		$	10,537.9
Royalties and other revenues	—			—			—			477.8			477.8			—			477.8
Total revenues	—			—			—			11,015.7			11,015.7			—			11,015.7
Costs and expenses:
Cost of sales	—			—			—			3,437.3			3,437.3			—			3,437.3
Research and development	—			—			—			1,324.5			1,324.5			—			1,324.5
Selling, general and administrative	24.2			—			15.3			2,608.2			2,608.2			—			2,647.7
Amortization of acquired intangible assets	—			—			—			1,280.5			1,280.5			—			1,280.5
Integration and acquisition costs	164.7			—			52.3			479.7			479.7			—			696.7
Reorganization costs	—			—			—			24.5			24.5			—			24.5
Gain on sale of product rights	—			—			—			(0.4		)	(0.4		)	—			(0.4		)
Total operating expenses	188.9			—			67.6			9,154.3			9,154.3			—			9,410.8

Operating (loss)/income from continuing operations	(188.9		)	—			(67.6		)	1,861.4			1,861.4			—			1,604.9

Interest (expense)/income, net	(109.1		)	14.5			(66.5		)	(258.6		)	(244.1		)	—			(419.7		)
Other income/(expense), net	1.8			—			4.3			0.7			0.7			—			6.8
Total other (expense)/income, net	(107.3		)	14.5			(62.2		)	(257.9		)	(243.4		)	—			(412.9		)

(Loss)/income from continuing operations before income taxes and equity in income/(losses) of equity method investees	(296.2		)	14.5			(129.8		)	1,603.5			1,618.0			—			1,192.0
Income taxes	1.7			(3.6		)	(45.0		)	2.3			(1.3		)	—			(44.6		)
Equity in income/(losses) of equity method investees, net of taxes	1,460.6			—			(119.7		)	0.1			0.1			(1,340.9		)	0.1
Income/(loss) from continuing operations, net of taxes	1,166.1			10.9			(294.5		)	1,605.9			1,616.8			(1,340.9		)	1,147.5
Gain from discontinued operations, net of taxes	—			—			—			18.6			18.6			—			18.6
Net income/(loss)	1,166.1			10.9			(294.5		)	1,624.5			1,635.4			(1,340.9		)	1,166.1
Comprehensive income/(loss)	$	3,632.8		$	10.9		$	2,031.5		$	4,088.2		$	4,099.1		$	(6,130.6	)	$	3,632.8

Table of Contents



	Condensed Consolidating Statements of Operations
For the three months ended September 30, 2016	Shire plc (Parent Guarantor)			SAIIDAC (SAIIDAC Notes Subsidiary Issuer)			Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)			Non-Guarantor Non-Issuer Subsidiaries			Non-Guarantor Subsidiaries of Baxalta Notes			Eliminations		Consolidated
(In millions)
Revenues:
Product sales	$	—		$	—		$	—		$	3,315.4		$	3,315.4		$	—	$	3,315.4
Royalties and other revenues	—			—			—			136.7			136.7			—		136.7
Total revenues	—			—			—			3,452.1			3,452.1			—		3,452.1
Costs and expenses:
Cost of sales	—			—			—			1,736.2			1,736.2			—		1,736.2
Research and development	—			—			—			511.1			511.1			—		511.1
Selling, general and administrative	(2.5		)	—			10.8			867.3			867.3			—		875.6
Amortization of acquired intangible assets	—			—			—			354.9			354.9			—		354.9
Integration and acquisition costs				—			50.0			234.5			234.5			—		284.5
Reorganization costs	—			—			—			101.4			101.4			—		101.4
Gain on sale of product rights	—			—			—			(5.7		)	(5.7		)	—		(5.7		)
Total operating expenses	(2.5		)	—			60.8			3,799.7			3,799.7			—		3,858.0

Operating income/(loss) from continuing operations	2.5			—			(60.8		)	(347.6		)	(347.6		)	—		(405.9		)

Interest (expense)/income, net	(23.2		)	61.7			(26.1		)	(190.0		)	(128.3		)	—		(177.6		)
Other (expense)/income, net	(0.1		)	—			(0.1		)	(13.5		)	(13.5		)	—		(13.7		)
Total other (expense)/income, net	(23.3		)	61.7			(26.2		)	(203.5		)	(141.8		)	—		(191.3		)

(Loss)/income from continuing operations before income taxes and equity in (losses)/income of equity method investees	(20.8		)	61.7			(87.0		)	(551.1		)	(489.4		)	—		(597.2		)
Income taxes	—			(15.4		)	18.9			226.1			210.7			—		229.6
Equity in (losses)/income of equity method investees, net of taxes	(366.0		)	—			(505.0		)	(0.9		)	(0.9		)	871.0		(0.9		)
(Loss)/income from continuing operations, net of taxes	(386.8		)	46.3			(573.1		)	(325.9		)	(279.6		)	871.0		(368.5		)
Loss from discontinued operations, net of taxes	—			—			—			(18.3		)	(18.3		)	—		(18.3		)
Net (loss)/income	(386.8		)	46.3			(573.1		)	(344.2		)	(297.9		)	871.0		(386.8		)
Comprehensive (loss)/income	$	(135.2	)	$	46.3		$	(333.4	)	$	(583.9	)	$	(537.6	)	$	871.0	$	(135.2	)

Table of Contents



	Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2016	Shire plc (Parent Guarantor)			SAIIDAC (SAIIDAC Notes Subsidiary Issuer)			Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)			Non-Guarantor Non-Issuer Subsidiaries			Non-Guarantor Subsidiaries of Baxalta Notes			Eliminations		Consolidated
(In millions)
Revenues:
Product sales	$	—		$	—		$	—		$	7,264.8		$	7,264.8		$	—	$	7,264.8
Royalties and other revenues	—			—			—			325.7			325.7			—		325.7
Total revenues	—			—			—			7,590.5			7,590.5			—		7,590.5
Costs and expenses:
Cost of sales	—			—			—			2,762.9			2,762.9			—		2,762.9
Research and development	—			—			0.4			1,022.6			1,022.6			—		1,023.0
Selling, general and administrative	33.3			—			19.4			1,973.1			1,973.1			—		2,025.8
Amortization of acquired intangible assets	—			—			—			702.5			702.5			—		702.5
Integration and acquisition costs	—			—			259.7			478.9			478.9			—		738.6
Reorganization costs	—			—			—			115.7			115.7			—		115.7
Gain on sale of product rights	—			—			—			(12.2		)	(12.2		)	—		(12.2		)
Total operating expenses	33.3			—			279.5			7,043.5			7,043.5			—		7,356.3

Operating (loss)/income from continuing operations	(33.3		)	—			(279.5		)	547.0			547.0			—		234.2

Interest (expense)/income, net	(67.7		)	41.5			(32.4		)	(248.3		)	(206.8		)	—		(306.9		)
Other income/(expense), net	0.8			—			7.6			(24.6		)	(24.6		)	—		(16.2		)
Total other (expense)/income, net	(66.9		)	41.5			(24.8		)	(272.9		)	(231.4		)	—		(323.1		)

(Loss)/income from continuing operations before income taxes and equity in income/(losses) of equity method investees	(100.2		)	41.5			(304.3		)	274.1			315.6			—		(88.9		)
Income taxes	1.9			(10.3		)	77.7			149.1			138.8			—		218.4
Equity in (losses)/income of equity method investees, net of taxes	(31.6		)	—			(635.9		)	(1.9		)	(1.9		)	667.5		(1.9		)
(Loss)/income from continuing operations, net of taxes	(129.9		)	31.2			(862.5		)	421.3			452.5			667.5		127.6
Loss from discontinued operations, net of taxes	—			—			—			(257.5		)	(257.5		)	—		(257.5		)
Net (loss)/income	(129.9		)	31.2			(862.5		)	163.8			195.0			667.5		(129.9		)
Comprehensive (loss)/income	$	(80.3	)	$	31.2		$	(809.0	)	$	(278.0	)	$	(246.8	)	$	1,055.8	$	(80.3	)

Table of Contents



	Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2017	Shire plc (Parent Guarantor)			SAIIDAC (SAIIDAC Notes Subsidiary Issuer)			Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)			Non-Guarantor Non-Issuer Subsidiaries			Non-Guarantor Subsidiaries of Baxalta Notes			Eliminations			Consolidated
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided/(used in) by operating activities	$	(102.9	)	$	(62.9	)	$	0.6		$	2,902.3		$	2,839.4		$	—		$	2,737.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Transactions with subsidiaries	(1,339.3		)	(262.9		)	(659.3		)	(4,209.1		)	(4,472.0		)	6,470.6			—
Purchases of PP&E and non-current investments	—			—			—			(565.5		)	(565.5		)	—			(565.5		)
(Payment)/proceeds from sale of investments	—			—			(9.8		)	57.9			57.9			—			48.1
Movements in restricted cash	—			—			—			(8.6		)	(8.6		)	—			(8.6		)
Other, net	—			—			—			34.8			34.8			—			34.8
Net cash (used in)/provided by investing activities	(1,339.3		)	(262.9		)	(669.1		)	(4,690.5		)	(4,953.4		)	6,470.6			(491.2		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, long term and short term borrowings	2,110.0			1,150.0			—			1.6			1,151.6			—			3,261.6
Repayment of revolving line of credit, long term and short term borrowings	(2,560.0		)	(3,100.0		)	—			(4.5		)	(3,104.5		)	—			(5,664.5		)
Proceeds from/to intercompany borrowings	1,919.6			2,275.8			623.9			1,651.3			3,927.1			(6,470.6		)	—
Payment of dividend	(27.6		)	—			—			(207.1		)	(207.1		)	—			(234.7		)
Proceeds from exercise of options	0.2			—			4.6			87.4			87.4			—			92.2
Other, net	—			—			(0.8		)	(25.4		)	(25.4		)	—			(26.2		)
Net cash provided by/(used in) financing activities	1,442.2			325.8			627.7			1,503.3			1,829.1			(6,470.6		)	(2,571.6		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			—			6.2			6.2			—			6.2
Net decrease in cash and cash equivalents	—			—			(40.8		)	(278.7		)	(278.7		)	—			(319.5		)
Cash and cash equivalents at beginning of period	—			—			41.7			487.1			487.1			—			528.8
Cash and cash equivalents at end of period	$	—		$	—		$	0.9		$	208.4		$	208.4		$	—		$	209.3

Table of Contents



	Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2016	Shire plc (Parent Guarantor)			SAIIDAC (SAIIDAC Notes Subsidiary Issuer)			Baxalta Inc. (Baxalta Notes Subsidiary Issuer and SAIIDAC Notes Subsidiary Guarantor)			Non-Guarantor Non-Issuer Subsidiaries			Non-Guarantor Subsidiaries of Baxalta Notes			Eliminations			Consolidated
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in)/provided by operating activities	$	(79.8	)	$	182.3		$	(51.8	)	$	1,455.3		$	1,637.6		$	—		$	1,506.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Transactions with subsidiaries	(2,390.0		)	(18,172.0		)	—			(2,863.7		)	(21,035.7		)	23,425.7			—
Purchases of subsidiary undertakings and businesses, net of cash acquired	—			—			—			(17,476.2		)	(17,476.2		)	—			(17,476.2		)
Purchases of PP&E and non-current investments	—			—			(6.0		)	(396.5		)	(396.5		)	—			(402.5		)
Proceeds from disposal of non-current investments	—			—			—			0.6			0.6			—			0.6
Movements in restricted cash	—			—			—			68.3			68.3			—			68.3
Other, net	—			—			—			(1.5		)	(1.5		)	—			(1.5		)
Net cash (used in)/provided by investing activities	(2,390.0		)	(18,172.0		)	(6.0		)	(20,669.0		)	(38,841.0		)	23,425.7			(17,811.3		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, long term and short term borrowings	1,655.0			30,079.9			—			7.4			30,087.3			—			31,742.3
Repayment of revolving line of credit, long term and short term borrowings	(2,215.8		)	(12,409.2		)	—			(7.9		)	(12,417.1		)	—			(14,632.9		)
Proceeds from intercompany borrowings	3,045.3			490.0			308.4			19,582.0			20,072.0			(23,425.7		)	—
Payment of dividend	(15.0		)	—			—			(115.2		)	(115.2		)	—			(130.2		)
Debt issuance costs	—			(171.0		)	—			—			(171.0		)	—			(171.0		)
Proceeds from exercise of options	0.3			—			126.2			10.7			10.7			—			137.2
Other, net	—			—			(68.2		)	23.4			23.4			—			(44.8		)
Net cash provided by/(used in) financing activities	2,469.8			17,989.7			366.4			19,500.4			37,490.1			(23,425.7		)	16,900.6
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			—			(2.2		)	(2.2		)	—			(2.2		)
Net increase in cash and cash equivalents	—			—			308.6			284.5			284.5			—			593.1
Cash and cash equivalents at beginning of period	—			—			—			135.5			135.5			—			135.5
Cash and cash equivalents at end of period	$	—		$	—		$	308.6		$	420.0		$	420.0		$	—		$	728.6

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Shire’s Unaudited Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the Company's Audited Consolidated Financial Statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2016.

Significant Events in the Three Months Ended September 30, 2017 and Recent Developments

Products

FIRAZYR for the treatment of HAE in Europe


•	On October 26, 2017, Shire announced that the European Commission ("EC") approved a label extension for FIRAZYR, broadening its use to the treatment of acute attacks of HAE in adolescents and children aged two years and older.

INTUNIV for the treatment of attention deficit hyperactivity disorder ("ADHD") in Japan


•	On September 20, 2017, Shire and its partner in Japan, Shionogi & Co., Ltd, announced positive topline results for a Phase 3 study evaluating INTUNIV in adult patients with ADHD in Japan.

MYDAYIS for the treatment of ADHD


•	On August 28, 2017, Shire announced that MYDAYIS was available by prescription in the United States. The FDA approved MYDAYIS on June 20, 2017 for patients 13 years and older with ADHD.

Lifitegrast for the treatment of dry eye disease ("DED") in Europe


•	On August 15, 2017, Shire announced that the Marketing Authorization Application for lifitegrast, submitted on August 7, 2017, was validated by the UK as the Reference Member State involved in the Decentralized Procedure.

Pipeline

SHP654 for the treatment of hemophilia A


•	On October 25, 2017, Shire announced that the FDA awarded Orphan Drug Designation to SHP654 (also designated as BAX 888), an investigational factor VIII (FVIII) gene therapy for the treatment of hemophilia A. The FDA also granted Shire Investigational New Drug ("IND") status for SHP654.

SHP674 (ONCASPAR) for the treatment of acute lymphoblastic leukemia


•	On October 12, 2017, Shire received a positive opinion from the Committee for Medicinal Products for Human Use ("CHMP") recommending marketing authorization for Lyophilized ONCASPAR for use as a component of antineoplastic combination therapy in acute lymphoblastic leukemia ("ALL") in all ages.

SHP607 for the treatment of complications of prematurity


•	On September 12, 2017, Shire announced that the FDA has granted Fast Track designation for SHP607 for the prevention of chronic lung disease in extremely premature infants. SHP607 is currently in Phase 2 clinical development.

SHP616 for the treatment of HAE


•	On September 11, 2017, Shire announced positive topline Phase 3 results for the SAHARA study that evaluated the efficacy and safety of subcutaneously administered C1 esterase inhibitor [human] Liquid for Injection in patients 12 years of age or older with symptomatic HAE.

Board Changes

On August 21, 2017, Shire announced that Jeff Poulton, Chief Financial Officer, will be leaving the Company. The Board has commenced a formal search for a successor and Jeff will continue to serve in his current role as this search progresses. During this transition period, Jeff will remain on the Executive Committee and on the Board of Directors of Shire plc until the end of the year.

Table of Contents

In addition, and following the announcement that Dominic Blakemore will be appointed Group Chief Executive of Compass Group PLC on April 1, 2018, the Board has approved the appointment of Sara Mathew as Chair of the Audit Compliance & Risk Committee to take place with immediate effect. Dominic Blakemore will remain a member of the Audit Compliance & Risk Committee.

Results of Operations for the Three and Nine Months Ended September 30, 2017 and 2016

Product sales

The following table provides an analysis of the Company’s Product sales:



(In millions, except %)	Three months ended September 30,						Nine months ended September 30,
Product sales by franchise	2017		2016		Product sales growth		2017		2016		Product sales growth
HEMOPHILIA	$	725.3	$	702.4	3	%	$	2,119.6	$	978.0	N/M
INHIBITOR THERAPIES	190.7		181.7		5	%	631.9		255.7		N/M
Hematology	916.0		884.1		4	%	2,751.5		1,233.7		N/M
IMMUNOGLOBULIN THERAPIES	605.1		472.5		28	%	1,613.9		610.7		N/M
BIO THERAPEUTICS	196.6		134.0		47	%	546.7		185.3		N/M
Immunology	801.7		606.5		32	%	2,160.6		796.0		N/M
VYVANSE	538.4		512.6		5	%	1,620.3		1,539.5		5	%
ADDERALL XR	106.0		80.5		32	%	242.3		281.1		(14	)%
MYDAYIS	10.2		—		N/A		25.9		—		N/A
Other Neuroscience	36.5		23.4		56	%	91.3		81.2		12	%
Neuroscience	691.1		616.5		12	%	1,979.8		1,901.8		4	%
FIRAZYR	195.5		146.3		34	%	461.4		411.3		12	%
ELAPRASE	152.9		146.7		4	%	454.5		424.3		7	%
REPLAGAL	117.2		118.9		(1	)%	349.0		340.5		2	%
VPRIV	89.6		87.7		2	%	257.3		259.3		(1	)%
CINRYZE	56.9		165.4		(66	)%	458.7		502.6		(9	)%
KALBITOR	16.0		11.1		44	%	48.3		39.2		23	%
Genetic Diseases	628.1		676.1		(7	)%	2,029.2		1,977.2		3	%
LIALDA/MEZAVANT	86.7		208.6		(58	)%	469.6		570.3		(18	)%
GATTEX/REVESTIVE	84.9		58.1		46	%	229.2		154.3		49	%
PENTASA	72.1		85.4		(16	)%	224.5		222.3		1	%
NATPARA	39.1		23.3		68	%	103.3		58.8		76	%
Other Internal Medicine	68.2		87.3		(22	)%	227.5		260.6		(13	)%
Internal Medicine	351.0		462.7		(24	)%	1,254.1		1,266.3		(1	)%
Ophthalmics	77.4		14.1		N/M		173.4		14.1		N/M
Oncology	68.5		55.4		24	%	189.3		75.7		N/M
Total Product sales	$	3,533.8	$	3,315.4	7	%	$	10,537.9	$	7,264.8	45	%

N/M: Consolidated results include Baxalta sales as of June 3, 2016, the date of acquisition; therefore, Product sales growth as a percentage is not meaningful.

Hematology

Hematology product sales, totaling $916.0 million and $2,751.5 million, respectively, are included in Product sales for the three and nine months ended September 30, 2017, representing 26% of Shire's reported Product sales in each respective period.

Growth across the franchise during the three months ended September 30, 2017 was driven by underlying demand in the Company's international markets, which also benefited from the timing of large orders. The increase in Hematology product sales during the nine months ended September 30, 2017, compared to the corresponding period in 2016, was driven primarily by the inclusion of Baxalta revenues following the acquisition on June 3, 2016.

Table of Contents

Immunology

Immunology product sales, totaling $801.7 million and $2,160.6 million, respectively, are included in Product sales for the three and nine months ended September 30, 2017, representing 23% and 21% of Shire's reported Product sales, respectively.

During the three months ended September 30, 2017, Immunology product sales increased 32%, with growth from both the immunoglobulin therapies and bio therapeutics products. U.S. product sales benefited from growth in demand and stocking for GAMMAGARD liquid and increased demand for the subcutaneous portfolio. International growth was primarily due the timing of large orders and improved underlying performance in all regions during the three months ended September 30, 2017.

Immunology product sales increased during the nine months ended September 30, 2017, compared to the corresponding period in 2016, was driven primarily by the inclusion of Baxalta revenues following the acquisition on June 3, 2016.

Neuroscience

Neuroscience product sales increased 12% and 4% during the three and nine months ended September 30, 2017, respectively, primarily driven by VYVANSE.

During the three months ended September 30, 2017, VYVANSE sales increased 5%, primarily due to the benefit of a price increase taken since the third quarter of 2016, increased demand resulting from U.S. ADHD market growth and improved performance in the Company's international markets. ADDERALL XR sales increased 32% during the three months ended September 30, 2017, primarily due to stocking in the third quarter of 2017 compared to destocking in the corresponding period in 2016.

During the nine months ended September 30, 2017, VYVANSE sales increased 5%, compared to the corresponding period during 2016, primarily due to year-over-year prescription growth in the U.S., the benefit of a price increase, growth in the Company's international markets, partially offset by destocking.

MYDAYIS, which was made available to patients on August 28, 2017, contributed $10.2 million and $25.9 million of product sales during the three and nine months ended September 30, 2017, respectively.

Genetic Diseases

Genetic Diseases product sales decreased 7% and increased 3% during the three and nine months ended September 30, 2017, respectively, primarily due to the impact of a CINRYZE supply constraint, which was offset by FIRAZYR and ELAPRASE growth.

During the three months ended September 30, 2017, CINRYZE sales decreased 66% due to supply constraints caused by a manufacturing interruption experienced during the quarter. The issue has been addressed and production has resumed. Approximately $100.0 million of product was shipped to customers in October. The Company continues its efforts to stabilize the manufacturing of CINRYZE; however, supply constraints may continue until a second source of production is secured. Subject to FDA approval, the Company expects to add CINRYZE in-house production capabilities during the first quarter of 2018. FIRAZYR sales increased 34% during three months ended September 30, 2017, due to increased patient demand and stocking, in part due to the CINRYZE supply constraints.

During the nine months ended September 30, 2017, CINRYZE sales decreased 9% due to supply constraints, partially offset by an increase in number of patients. ELAPRASE and FIRAZYR sales increased during the nine months ended September 30, 2017, due to an increase in the number of patients on therapy.

Internal Medicine

Internal Medicine product sales decreased 24% and 1% during the three and nine months ended September 30, 2017, as the impact of LIALDA generic competition was partially offset by growth from GATTEX/REVESTIVE and NATPARA.

During the three months ended September 30, 2017, LIALDA/MEZAVANT sales decreased 58% due to the impact of generic competition. An authorized generic was launched during the three months ended September 30, 2017.

Table of Contents

During the three months ended September 30, 2017, GATTEX/REVESTIVE and NATPARA sales increased 46% and 68%, respectively, primarily due to an increase in the numbers of patients on therapy.

During the nine months ended September 30, 2017, LIALDA/MEZAVANT sales decreased 18% due to the impact of generic competition. During the nine months ended September 30, 2017, GATTEX/REVESTIVE and NATPARA sales increased 49% and 76%, respectively, due to an increase in the number of patients on therapy.

Ophthalmics

Ophthalmics product sales relate to XIIDRA, which was made available to patients starting on August 29, 2016. XIIDRA contributed $77.4 million and $173.4 million of product sales during the three and nine months ended September 30, 2017, respectively, due to an increase in the number of patients on therapy with 9% prescription growth since the second quarter of 2017.

Oncology

Oncology product sales increased 24% during the three months ended September 30, 2017, driven by product sales of ONCASPAR and ONIVYDE, the latter of which was approved in the EU on October 18, 2016.

The increase in Oncology product sales during the nine months ended September 30, 2017, compared to the corresponding period in 2016, was driven primarily due to the inclusion of Baxalta revenues following the acquisition on June 3, 2016.

Royalties and other revenues

The following table provides an analysis of Shire’s income from royalties and other revenues:



	Three months ended September 30,						Nine months ended September 30,
(In millions, except %)	2017		2016		Change %		2017		2016		Change %
SENSIPAR royalties	$	42.8	$	38.7	11	%	$	128.1	$	112.2	14	%
3TC and ZEFFIX royalties	16.1		16.2		(1	)%	38.8		43.3		(10	)%
FOSRENOL royalties	14.3		13.7		4	%	35.0		34.3		2	%
ADDERALL XR royalties	7.7		4.7		64	%	33.6		15.7		114	%
Other royalties and revenues	82.9		63.4		31	%	242.3		120.2		102	%
Total Royalties and other revenues	$	163.8	$	136.7	20	%	$	477.8	$	325.7	47	%

Royalties and other revenues increased 20% and 47% during the three and nine months ended September 30, 2017, respectively, primarily due to an increase in royalty streams acquired with Dyax and SENSIPAR royalties and the inclusion of contract manufacturing revenue acquired with Baxalta following the acquisition on June 3, 2016.

Cost of sales

Cost of sales decreased to $1,001.4 million for the three months ended September 30, 2017 (27% of Total revenues), from $1,736.2 million in the corresponding period in 2016 (50% of Total revenues), primarily due to lower expense related to the unwind of inventory fair value adjustments.

Cost of sales increased to $3,437.3 million for the nine months ended September 30, 2017 (31% of Total revenues), from $2,762.9 million in the corresponding period in 2016 (36% of Total revenues), primarily due to the impact of the unwind of inventory fair value adjustments and increased depreciation following the acquisition of Baxalta on June 3, 2016.

For the three and nine months ended September 30, 2017, Cost of sales included depreciation of $70.1 million and $209.2 million, respectively (2016: $54.5 million and $85.2 million, respectively).

Table of Contents

Research and development

Research and development expenses decreased to $402.8 million for the three months ended September 30, 2017 (11% of Total revenues), from $511.1 million in the corresponding period in 2016 (15% of Total revenues), primarily due to lower milestone and upfront payments associated with license arrangements.

Research and development expenses increased to $1,324.5 million for the nine months ended September 30, 2017 (12% of Total revenues), from $1,023.0 million in the corresponding period in 2016 (13% of Total revenues), primarily due to the inclusion of Baxalta costs.

For the three and nine months ended September 30, 2017, Research and development included depreciation of $10.8 million and $37.0 million, respectively (2016: $9.0 million and $20.7 million, respectively).

Selling, general and administrative

Selling, general and administrative expenses decreased to $859.7 million for the three months ended September 30, 2017 (23% of Total revenues), from $875.6 million in the corresponding period in 2016 (25% of Total revenues), primarily due to the realization of synergies from the acquisition of Baxalta and lower XIIDRA marketing expense, which was partially offset by MYDAYIS launch costs and increased depreciation expense.

Selling, general and administrative expenses increased to $2,647.7 million for the nine months ended September 30, 2017 (24% of Total revenues), from $2,025.8 million in the corresponding period in 2016 (27% of Total revenues), primarily due to the inclusion of Baxalta costs and XIIDRA marketing expense, partially offset by the realization of synergies from the acquisition of Baxalta.

For the three and nine months ended September 30, 2017, Selling, general and administrative expenses included depreciation of $39.0 million and $117.3 million, respectively (2016: $29.6 million and $69.4 million, respectively).

Amortization of acquired intangible assets

For the period three and nine months ended September 30, 2017, Shire recorded Amortization of acquired intangible assets of $482.4 million and $1,280.5 million, respectively, compared to $354.9 million and $702.5 million, respectively, in the corresponding periods in 2016, primarily related to intangible assets acquired with Baxalta and the acceleration of CINRYZE amortization following positive SHP643 Phase 3 results.

Integration and acquisition costs

For the three and nine months ended September 30, 2017, Shire recorded Integration and acquisition costs of $237.0 million and $696.7 million, respectively, compared to $284.5 million and $738.6 million, respectively, in the corresponding periods in 2016.

In the three and nine months ended September 30, 2017, Integration and acquisition costs included a credit of $3.4 million and a charge of $144.3 million, respectively, relating to the change in fair value of contingent consideration payable. The Baxalta Integration and acquisition costs include $60.2 million and $177.4 million, respectively, of employee severance and acceleration of stock compensation, $28.4 million and $114.0 million, respectively, of third-party professional fees and $29.7 million and $71.4 million, respectively, of expenses associated with facility consolidations and $114.1 million and $147.8 million, respectively, of asset impairments for the three and nine months ended September 30, 2017.

Table of Contents

Reorganization costs

For the three and nine months ended September 30, 2017, Shire recorded Reorganization costs of $5.4 million and $24.5 million, respectively, compared to $101.4 million and $115.7 million, respectively, in the corresponding periods in 2016, primarily related to office and manufacturing facility closures.

Total other expense, net

For the three and nine months ended September 30, 2017, Shire recorded Total other expense, net of $140.5 million and $412.9 million, respectively, compared to $191.3 million and $323.1 million, respectively, in the corresponding periods in 2016, primarily related to the interest expense incurred on borrowings used to fund the acquisitions of Dyax and Baxalta and the amortization of one-time upfront arrangement fees incurred on borrowings associated with the acquisition of Baxalta and Dyax in 2016.

Taxation

The effective tax rate on income from continuing operations for the three and nine months ended September 30, 2017 was 2% and 4%, respectively, compared to 38% and 246%, respectively, in the corresponding periods in 2016.

The effective tax rate for the three and nine months ended September 30, 2017 was affected by the combined impact of the relative quantum of the profit before tax for the period by jurisdiction as well as significant acquisition and integration costs. Additionally, certain discrete events occurred during the year which contributed to the low effective tax rate, including a tax benefit associated with the filing of the U.S. returns and the reversal of prior period income tax reserves.

Discontinued operations

The loss from discontinued operations for the three months ended September 30, 2017 was $0.4 million, net of taxes and the gain for the nine months ended September 30, 2017 was $18.6 million, net of taxes. The loss during the three months ended September 30, 2017 was related to the divested DERMAGRAFT business and the gain during the nine months ended September 30, 2017 was primarily due to the return of funds previously held in escrow related to the acquisition of the DERMAGRAFT business.

The loss from discontinued operations for the three and nine months ended September 30, 2016 was $18.3 million and $257.5 million, respectively, net of tax, primarily due to legal contingencies, including a proposed legal settlement to resolve the previously disclosed Department of Justice investigation associated with the divested DERMAGRAFT business.

Table of Contents

Liquidity and Capital Resources

General

The Company’s funding requirements depend on a number of factors, including the timing and extent of its development programs; corporate, business and product acquisitions; the level of resources required for the expansion of certain manufacturing and marketing capabilities as the product base expands; increases in accounts receivable and inventory which may arise with any increase in product sales; technological developments; the timing and cost of obtaining required regulatory approvals for new products; the timing and quantum of milestone payments on business combinations, in-licenses and collaborative projects; the timing and quantum of tax and dividend payments; the timing and quantum of purchases by the Employee Benefit Trust of Shire shares in the market to satisfy awards granted under Shire’s employee share plans and the amount of cash generated from sales of Shire’s products and royalty receipts.

An important part of Shire’s business strategy is to protect its products and technologies through the use of patents, proprietary technologies and trademarks, to the extent available. The Company intends to defend its intellectual property and as a result may need cash for funding the cost of litigation.

The Company finances its activities through cash generated from operating activities, credit facilities, private and public offerings of equity and debt securities and the proceeds of asset or investment disposals.

Shire’s Consolidated Balance Sheets include $209.3 million of Cash and cash equivalents as of September 30, 2017.

Shire has a revolving credit facility ("RCF") of $2,100.0 million, which matures in 2021, $1,050.0 million of which was utilized as of September 30, 2017. The RCF incorporates a $250.0 million U.S. dollar and Euro swingline facility operating as a sub-limit thereof.

In connection with the acquisition of Dyax, Shire entered into a $5.6 billion amortizing term loan facility in November 2015. As of September 30, 2017, $2.0 billion of this term loan facility was outstanding. The facility matures in different tranches through November 2018 and $0.8 billion is due within the next twelve months.

In connection with the acquisition of Baxalta, Shire assumed $5.0 billion of unsecured senior notes previously issued by Baxalta, of which $750.0 million is due within the next twelve months and issued $12.1 billion of unsecured senior notes in September 2016, of which none are due for repayment in the next twelve months.

The details of these financing arrangements are included in Note 13, Borrowings and Capital Leases, to these Unaudited Consolidated Financial Statements.

In addition, Shire also has access to certain short-term uncommitted lines of credit which are available to utilize from time to time to provide short-term cash management flexibility. As of September 30, 2017, these lines of credit were not utilized.

The Company may also engage in financing activities from time to time, including accessing the debt or equity capital markets.

Financing

Shire anticipates that its operating cash flow together with available cash, cash equivalents and the RCF will be sufficient to meet its anticipated future operating expenses, capital expenditures, tax and interest payments, lease obligations, repayment of borrowings and milestone payments as they become due over the next twelve months.

If the Company decides to acquire other businesses, it expects to fund these acquisitions from cash resources, the RCF and through new borrowings (including issuances of debt securities) or the issuance of new equity, if necessary.

Table of Contents

Sources and uses of cash

The following table provides an analysis of the Company’s gross and net debt position (excluding restricted cash), as of September 30, 2017 and December 31, 2016:



(In millions)	September 30, 2017			December 31, 2016
Cash and cash equivalents	$	209.3		$	528.8

Long term borrowings (excluding capital leases)	(17,613.9		)	(19,552.6		)
Short term borrowings (excluding capital leases)	(2,622.2		)	(3,061.6		)
Capital leases	(349.1		)	(353.6		)
Total debt	$	(20,585.2	)	$	(22,967.8	)
Net debt	$	(20,375.9	)	$	(22,439.0	)


•	Net debt is a non-GAAP measure. Net debt represents U.S. GAAP Cash and cash equivalents less U.S. GAAP short and long term borrowings and capital leases. The Company believes that Net debt is a useful measure as it indicates the level of borrowings after taking account of the Cash and cash equivalents that could be utilized to pay down the outstanding borrowings.

•

Substantially all of the Company’s Cash and cash equivalents are held by foreign subsidiaries (i.e., those subsidiaries incorporated outside of Jersey, Channel Islands, the jurisdiction of incorporation of Shire plc). The amount of Cash and cash equivalents held by foreign subsidiaries has not had, and is not expected to have, a material impact on the Company’s liquidity and capital resources.

Cash flow activity

Net cash provided by operating activities increased by $1,231.1 million, or 82%, to $2,737.1 million (2016: $1,506.0 million) during the nine months ended September 30, 2017, primarily due to increased cash receipts from higher sales, partially offset by a payment of $351.6 million associated with the settlement of the DERMAGRAFT litigation.

Net cash used in investing activities was $491.2 million during the nine months ended September 30, 2017, principally relating to cash paid for purchases of PP&E and long term investments.

Net cash used in financing activities was $2,571.6 million during the nine months ended September 30, 2017. This includes $3,000.0 million of scheduled and advance repayments under the November 2015 Facilities Agreement; $2,660.0 million repayments under the RCF and a dividend payment of $234.7 million, which was partially offset by $3,260.0 million of borrowings under the RCF and $92.2 million of cash proceeds from the exercise of options.

Obligations and commitments

There were no material changes to the Company’s contractual obligations previously disclosed in ITEM 7: Management’s Discussion and Analysis of Financial Condition and Results of Operation of Shire's 2016 Form 10-K.

Recent Accounting Pronouncements

A description of recently issued accounting standards is included under the heading “New Accounting Pronouncements” in Note 1, Summary of Significant Accounting Policies.

Table of Contents

Critical Accounting Estimates

The preparation of Consolidated Financial Statements, in conformity with U.S. GAAP and SEC regulations, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates, including those related to the valuation of intangible assets (including goodwill), sales deductions, income taxes (including provisions for uncertain tax positions and the realization of deferred tax assets), provisions for litigation and legal proceedings, contingent consideration receivable from divestments of products or businesses and contingent consideration payable in respect of business combinations and asset purchases and pension costs. Estimates are based on historical experience, current conditions and on various other assumptions that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amounts of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, of Shire's 2016 Form 10-K, describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. There have been no significant changes in the Company's critical accounting policies during the three and nine months ended September 30, 2017.

Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Company's assessment of its sensitivity to market risk since its presentation set forth in PART II, ITEM 7A: Quantitative and Qualitative Disclosures about Market Risk in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that the Company file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

As of September 30, 2017 the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures, including those with respect to the Income Access Share (“IAS”) Trust. The Company’s management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding management’s control objectives. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, including those with respect to the IAS Trust, are effective at the reasonable level of assurance to ensure that information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

Part II: Other Information

Item 1. Legal Proceedings

The information required by this Item is incorporated herein by reference to Note 20, Legal and Other Proceedings, to these Unaudited Consolidated Financial Statements included in Part I: Item 1. Financial Statements of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes from the risk factors set forth PART I, ITEM 1A: Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


31.1	Certification of the Chief Executive Officer pursuant to Rule 13a - 14 under The Exchange Act.*


31.2	Certification of the Chief Financial Officer pursuant to Rule 13a - 14 under The Exchange Act.*


32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.*

101.INS XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema Document*

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF XBRL Taxonomy Definition Linkbase Document*

101.LAB XBRL Taxonomy Extension Label Linkbase Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

*Filed herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: October 27, 2017	/s/ Dr. Flemming Ornskov Dr. Flemming Ornskov Chief Executive Officer



Date: October 27, 2017	/s/ Jeffrey Poulton Jeffrey Poulton Chief Financial Officer

Attached files

Stock widget

Investing forum

Shire plc Reports

Also read