7817 Annual Report 2009.qxd - Shire

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108 Shire plc Annual Report and Accounts 2009Notes to the consolidated financial statements In millions of US dollars, except where indicated27 SEGMENTAL REPORTING continuedSpecialty2007Pharmaceuticals HGT All Other Total$’M $’M $’M $’MProduct sales 1,844.5 325.7 — 2,170.2Royalties 1.6 — 245.6 247.2Other revenues 9.5 4.3 5.1 18.9Total revenues 1,855.6 330.0 250.7 2,436.3Cost of product sales (1)(2) 263.3 44.3 12.7 320.3Research and development (1)(2) 331.1 213.5 — 544.6Selling, general and administrative (1)(2) 895.5 125.0 190.1 1,210.6In-process R&D charge 1,866.4 — — 1,866.4Gain on sale of product rights (127.8) — — (127.8)Integration and acquisition costs 1.3 — — 1.3Total operating expenses 3,229.8 382.8 202.8 3,815.4Operating (loss)/income (1,374.2) (52.8) 47.9 (1,379.1)Total assets 2,394.5 586.6 1,349.0 4,330.1Long-lived assets (3) 174.8 114.6 79.2 368.6Capital expenditure on long-lived assets (3) 37.3 77.5 27.9 142.7(1) Stock-based compensation of $75.2 million is included in: Cost of product sales ($5.5 million), Research and development ($17.0 million) and Selling, general and administrative ($52.7 million).(2) Depreciation from manufacturing plants ($11.8 million) and amortization of favorable manufacturing contracts ($1.2 million) is included in Cost of product sales; depreciation of research anddevelopment assets ($11.3 million) is included in Research and development; and all other depreciation, amortization and intangible asset impairment charges ($137.1 million) are includedin Selling, general and administrative.(3) Long-lived assets comprise all non-current assets, (excluding goodwill and other intangible assets, deferred tax assets, investments and financial instruments).Geographic informationRevenues (based on the geographic location from which the sale originated):2009 2008 2007Year to December 31, $’M $’M $’MRepublic of Ireland 19.5 17.8 16.2United Kingdom 163.9 160.0 177.0North America 2,141.3 2,299.6 1,798.2Rest of World 683.0 544.8 444.9Total revenues 3,007.7 3,022.2 2,436.3Long-lived assets comprise all non-current assets, (excluding goodwill and other intangible assets, deferred tax assets, investments and financialinstruments) based on the geographic location within which the economic benefits arise:2009 2008Year to December 31, $’M $’MRepublic of Ireland 0.7 1.0United Kingdom 79.5 61.6North America 593.5 468.6Rest of World 6.9 6.6Total 680.6 537.8Material customersIn the periods set out below, certain customers, all within the Specialty Pharmaceuticals operating segment, accounted for greater than 10% of theGroup’s total revenues:2009 2009 2008 2008 2007 2007Year to December 31, $’M % revenue $’M % revenue $’M % revenueCardinal Health Inc. 797.0 27 888.7 29 666.1 27McKesson Corp. 576.3 19 674.3 22 546.0 22Amounts outstanding as at December 31, in respect of these material customers were as follows:2009 2008Year to December 31, $’M $’MCardinal Health Inc. 113.0 72.3McKesson Corp. 82.9 69.6
Shire plc Annual Report and Accounts 2009 10927 SEGMENTAL REPORTING continuedRevenue by productIn the periods set out below, revenues by major product were as follows:SPECIALTY PHARMACEUTICALS2009 2008 2007$’M $’M $’MADDERALL XR 626.5 1,101.7 1,030.9VYVANSE 504.7 318.9 76.5DAYTRANA 71.0 78.7 64.2EQUASYM 22.8 — —INTUNIV 5.4 — —PENTASA 214.8 185.5 176.4LIALDA/MEZAVANT 235.9 140.4 50.5FOSRENOL 184.4 155.4 102.2CALCICHEW 43.7 52.8 54.2CARBATROL 82.4 75.9 72.3REMINYL/REMINYL XL 42.4 34.4 31.2XAGRID 84.8 78.7 66.8Other 19.4 50.1 119.3HUMAN GENETIC THERAPIES2,138.2 2,272.5 1,844.5ELAPRASE 353.1 305.1 181.8REPLAGAL 193.8 176.1 143.9FIRAZYR 6.1 0.5 —VPRIV 2.5 — —555.5 481.7 325.72,693.7 2,754.2 2,170.228 INTEREST EXPENSEInterest expense for the years to December 31, 2009, 2008 and 2007 was $39.8 million, $139.0 million and $70.8 million respectively. Interest expenseprimarily includes interest on Shire’s convertible bond of $33.3 million (2008: $33.3 million; 2007: $18.3 million).Interest expense for the year to December 31, 2008 included $87.3 million (2009: $nil and 2007: $28.0 million) in respect to the TKT appraisal rightslitigation. On November 5, 2008 Shire successfully settled all aspects of this litigation with all parties. Shire paid the same price of $37 per shareoriginally offered to all TKT shareholders at the time of the July 2005 merger, plus interest. The Delaware Chancery Court approved dismissal of thecase and Shire made payment to the dissenting shareholders on November 7, 2008. The settlement represented a total payment of $567.5 million,representing consideration at $37 per share of $419.9 million and an interest cost of $147.6 million.Prior to reaching this settlement, the Group accrued interest based on a reasonable estimate of the amount that may be awarded by the Court tothose former TKT shareholders who requested appraisal. This estimate of interest was based on Shire’s cost of borrowing. Between the close of themerger and November 5, 2008 the Group applied this interest rate on a quarterly compounding basis to the $419.9 million of consideration to calculateits provision for interest.Upon reaching agreement in principle with all the dissenting shareholders, the Group determined that settlement had become the probable mannerthrough which the appraisal rights litigation would be resolved. Under current law, (although not applicable in this case because the merger wasentered into before the relevant amendment to the law became effective) the court presumptively awarded interest in appraisal rights cases at astatutory rate that is five percentage points above the Federal Reserve discount rate (as it varies over the duration of the case). In connection with thesettlement, the Group agreed to an interest rate that approximates to this statutory rate. Based on the settlement, the Group amended the methodof determining its interest provision to reflect this revised manner of resolution and upon reaching settlement with the dissenting shareholders recordedan additional interest expense of $73.0 million in its consolidated financial statements for the year to December 31, 2008.
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