7817 Annual Report 2009.qxd - Shire

Shire plc Annual Report and Accounts 20099920 OTHER LONG-TERM DEBTDuring 2007 and 2009 Shire entered into certain multi-year leases for its HGT business unit at North Reading and Lexington, Massachusetts. As Shireis considered, in substance, the owner of these properties over their construction period, Shire recorded an asset (being the fair value of the buildingelement at inception of the relevant lease) of $7.1 million and $32.7 million in the year to December 31, 2009 and 2007 within Property, Plant andEquipment—Assets under construction and the corresponding building financing obligation is recorded within other long-term debt. The land elementof these leases has been accounted for as an operating lease.Concurrent with entering into a new lease at its Lexington campus, Shire extended the term of certain other existing leases at its Lexington site, suchthat the terms of these existing leases become co-terminus with the expiration of the new Lexington lease. This lease extension has been accountedfor as a substantial modification of the existing building finance obligation, whereby the existing liability ($45.1 million) was de-recognized and a buildingfinancing obligation based on the fair value of the liability under the revised lease terms ($39.4 million) was recorded in its place. This substantialmodification resulted in a non-cash gain of $5.7 million in the year to December 31, 2009 which has been recorded within Other income/(expense), net.21 OTHER NON-CURRENT LIABILITIESDecember December31, 2009 31, 2008$’M$’MIncome taxes payable 170.4 220.4Deferred revenue 20.0 29.5Deferred rent 14.5 16.1Insurance provisions 18.3 18.1Other accrued liabilities 23.9 7.2247.1 291.322 DERIVATIVE INSTRUMENTSTreasury policies and organizationThe Group’s principal treasury operations are co-ordinated by its corporate treasury function. All treasury operations are conducted within a frameworkof policies and procedures approved annually by the Board of Directors. As a matter of policy, the Group does not undertake speculative transactionsthat would increase its currency or interest rate exposure.Interest rate riskThe Group is exposed to interest rate risk on restricted cash, cash and cash equivalents and on foreign exchange contracts on which interest is atfloating rates. This exposure is primarily to US dollar, Euro and Canadian dollar interest rates. As the Group maintains all of its investments and foreignexchange contracts on a short-term basis for liquidity purposes, this risk is not actively managed. In the year to December 31, 2009 the averageinterest rate received on cash and liquid investments was less than 1% per annum. The largest proportion of investments was in US dollar moneymarket and liquidity funds.The Group incurs interest at a fixed rate of 2.75% on Shire plc’s $1,100 million in principal amount convertible bonds due 2014. The building financingobligation of $46.7 million is also subject to a fixed interest rate over the lease term on the amount outstanding.No derivative instruments were entered into during the year to December 31, 2009 to manage interest rate exposure. The Group continues to reviewits interest rate risk and the policies in place to manage the risk.Market risk of investmentsAs at December 31, 2009 the Group has $105.7 million of investments comprising available-for-sale investments in publicly quoted companies($87.0 million), equity-method investments ($14.8 million) and cost method investments in private companies ($3.9 million). The investments in publicquoted companies and equity-method investments, for certain investment funds which contain a mixed portfolio of public and private investments,are exposed to market risk. No financial instruments or derivatives have been employed to hedge this risk.Credit riskFinancial instruments that potentially expose Shire to concentrations of credit risk consist primarily of short-term cash investments, trade accountsreceivable (from product sales and from third-parties from which the Group receives royalties) and derivative contracts. Cash is invested in short-termmoney market instruments, including money market and liquidity funds and bank term deposits. The money market and liquidity funds in which Shireinvests are all triple A rated by both Standard & Poor’s and by Moody’s credit rating agencies.The Group is exposed to the credit risk of the counterparties with which it enters into derivative contracts. The Group aims to limit this exposurethrough a system of internal credit limits which require counterparties to have a long-term credit rating of A/A2 or better from the major rating agencies.The internal credit limits are approved by the Board of Directors and exposure against these limits is monitored by the corporate treasury function.The counterparties to the derivative contracts are major international financial institutions.The Group’s revenues from product sales are mainly governed by agreements with major pharmaceutical wholesalers and relationships with otherpharmaceutical distributors and retail pharmacy chains. For the year to December 31, 2009 there were two customers in the US who accounted for51% of the Group’s product sales. However, such customers typically have significant cash resources and as such the risk from concentration of creditis considered minimal. The Group has taken positive steps to manage any credit risk associated with these transactions and operates clearly definedcredit evaluation procedures.