7817 Annual Report 2009.qxd - Shire

Shire plc Annual Report and Accounts 200923Property, plant and equipmentProperty, plant and equipment increased by $142.6 million in the year to December 31, 2009 to $676.8 million (2008: $534.2 million). The increaseprincipally resulted from capital investment at the Group’s HGT campus in Lexington in 2009.Accounts payable and accrued expensesAccounts payable and accrued expenses have increased by $220.5 million to $929.1 million (2008: $708.6 million). This increase results from higheraccrued Medicaid and Managed Care rebates on ADDERALL XR subsequent to authorized generic launch, and increases in deferred revenuefollowing deferral of INTUNIV launch shipments.Liquidity and capital resourcesGeneralThe Group’s funding requirements depend on a number of factors, including the timing and number of its development programs; corporate, businessand product acquisitions; the level of resources required for the expansion of manufacturing and marketing capabilities as the product base expands;increases in accounts receivable and inventory which may arise with any increase in product sales; competitive and technological developments; thetiming and cost of obtaining required regulatory approvals for new products; the timing and quantum of milestone payments on collaborative projects;the timing and quantum of tax and dividend payments; the timing and quantum of purchases by the Employee Share Ownership Trust (‘ESOT’)of Shire shares in the market to satisfy option exercises; the timing and quantum of any additional amounts payable to government bodies challengingpreviously settled liabilities, including CMS applying an alternative interpretation of the Medicaid rebate legislation inconsistent with the Group’scalculation of ADDERALL XR Medicaid rebates; and the continuing 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 andtrademarks, to the extent available. The Group intends to defend its intellectual property and as a result may need cash for funding the cost of litigation.The Group finances its activities through cash generated from operating activities; credit facilities; private and public offerings of equity and debtsecurities; and the proceeds of asset or investment disposals.Shire’s balance sheet includes $498.9 million of cash and cash equivalents at December 31, 2009. Shire has no debt maturing in the next two yearsand substantially all of Shire’s debt relates to its $1,100 million 2.75% convertible bond which matures in 2014, although these bonds include a putoption which could require repayment of the bonds in 2012. In addition, Shire has a committed facility until 2012 of $1,200 million, which is currentlyundrawn. The current financial situation affecting the banking system and financial markets, together with the current uncertainty in global economicconditions, has resulted in tighter credit markets and a lower level of liquidity in many financial markets. As a result, the Group may not be able toaccess new equity or debt finance at the same level or cost as it has done previously.Shire 2.75% Convertible Bonds due 2014On May 9, 2007 Shire issued $1,100 million in principal amount of 2.75% convertible bonds due 2014 and convertible into fully paid Ordinary Sharesof Shire plc (the ‘Bonds’). The net proceeds of issuing the Bonds, after deducting the commissions and other direct costs of issue, totaled$1,081.7 million. In connection with the Scheme of Arrangement the Trust Deed was amended and restated in 2008 in order to provide that, followingthe substitution of Shire plc in place of Shire Biopharmaceuticals Holdings (‘Old Shire’) as the principal obligor and issuer of the Convertible Bonds,the Bonds would be convertible into Ordinary Shares of Shire plc.The Bonds were issued at 100% of their principal amount, and unless previously purchased and canceled, redeemed or converted, will be redeemedon May 9, 2014 (the ‘Final Maturity Date’) at their principal amount.The Bonds bear interest at 2.75% per annum, payable semi-annually in arrears on November 9 and May 9. The Bonds constitute direct, unconditional,unsubordinated and unsecured obligations of the Company, and rank pari passu and ratably, without any preference amongst themselves, and equallywith all other existing and future unsecured and unsubordinated obligations of the Company.The Bonds may be redeemed at the option of the Company, (the ‘Call Option’), at their principal amount together with accrued and unpaid interest if:(i) at any time after May 23, 2012 if on no less than 20 dealing days in any period of 30 consecutive dealing days the value of the Company’s OrdinaryShares underlying each Bond in the principal amount of $100,000 would exceed $130,000; or (ii) at any time conversion rights have been exercised,and/or purchases and corresponding cancellations, and/or redemptions effected in respect of 85% or more in principal amount of Bonds originallyissued. The Bonds may also be redeemed at the option of the Bond holder at their principal amount including accrued but unpaid interest on May 9,2012 (the ‘Put Option’), or following the occurrence of a change of control of Shire. The Bonds are repayable in US dollars, but also contain provisionsentitling the Company to settle redemption amounts in Pounds sterling, or in the case of the Final Maturity Date and following exercise of the PutOption, by delivery of the underlying Ordinary Shares and a cash top-up amount.The Bonds are convertible into Ordinary Shares during the conversion period, being the period from June 18, 2007 until the earlier of: (i) the closeof business on the date falling fourteen days prior to the Final Maturity Date; (ii) if the Bonds have been called for redemption by the Company, the closeof business fourteen days before the date fixed for redemption; (iii) the close of business on the day prior to a Bond holder giving notice of redemptionin accordance with the conditions; and (iv) the giving of notice by the trustee that the Bonds are accelerated by reason of the occurrence of an eventof default.Upon conversion, the Bond holder is entitled to receive Ordinary Shares at the conversion price of $33.17 per Ordinary Share (subject to adjustmentas outlined below).The conversion price is subject to adjustment in respect of (i) any dividend or distribution by the Company, (ii) a change of control and (iii) customaryanti-dilution adjustments for, inter alia, share consolidations, share splits, spin-off events, rights issues, bonus issues and reorganizations. The initialconversion price of $33.5879 was adjusted to $33.17 with effect from March 11, 2009 as a result of cumulative dividend payments during the periodfrom October 2007 to April 2009 inclusive The Ordinary Shares issued on conversion will be delivered credited as fully paid, and will rank pari passuin all respects with all fully paid Ordinary Shares in issue on the relevant conversion date.