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 March 31, 2018

Commission File Number:file number 0-29630
shirelogobluergba28.jpg
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No o

Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate website,Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232,405(§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 xNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer. smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x                                Accelerated filer o
Non-accelerated filer o    (Do not check if a smaller reporting company)         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, 2017April 25, 2018, the number of outstanding ordinary shares of the Registrant was 908,613,457.913,527,187.


SHIRE PLC

Form 10-Q for the Quarterly Period Ended September 30, 2017March 31, 2018

Table of Contents
 Page
PartPART I: Financial Information
5
Item 1. Financial Statements (Unaudited)
5

Consolidated Balance Sheets as of September 30, 2017March 31, 2018 and December 31, 20162017
5
Consolidated Statements of Operations for the three months ended March 31, 2018 and nine months ended September 30,March 31, 2017 and September 30, 2016
6
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and nine months ended September 30,March 31, 2017 and September 30, 2016
8
Consolidated Statement of Changes in Equity for the ninethree months ended September 30, 2017March 31, 2018
9
Consolidated Statements of Cash Flows for the ninethree months ended September 30,March 31, 2018 and March 31, 2017 and September 30, 2016
10
Notes to the Unaudited Consolidated Financial Statements
1211
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
5344
Item 3. Quantitative and Qualitative Disclosures about Market Risk
6251
Item 4. Controls and Procedures
6251
PartPART II: Other Information
63
Item 1. Legal Proceedings
6351
Item 1A. Risk Factors
6352
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
6352
Item 3. Defaults Upon Senior Securities
6352
Item 4. Mine Safety Disclosures
6352
Item 5. Other Information
6353
Item 6. Exhibits
6354


The “Safe Harbor” Statement Under the Private Securities Litigation Reform Act ofTHE “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, projected revenues, 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 reliantdepends on third party contract manufacturersparties to manufacture other productssupply certain inputs and services critical to provide goodsits operations including certain inputs, services and services. Some of Shire’s products or ingredients are only available from a single approved source for manufacture.critical to its manufacturing processes. 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;
certainthe nature of Shire’sproducing plasma-based 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;
failure to comply with laws and regulations governing the sales and marketing of its products could materially impact Shire’s revenues and profitability;
Shire’s products and product candidates face substantial competition in the product markets in which it operates, including competition from generics;
Shire’s patented products are subject to significant 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’sShire’s revenues, financial condition or results of operations;
inabilityShire may fail to successfully competeobtain, maintain, enforce or defend the intellectual property rights required to conduct its business;
Shire faces intense competition for highly qualified personnel from other companies and organizations;
failure to achieve thesuccessfully execute or attain strategic objectives including expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits at the time anticipated or at all with respect tofrom Shire’s acquisitions including NPS Pharmaceuticals Inc. (“NPS”), Dyax Corp. (“Dyax”) or Baxalta Incorporated (“Baxalta”),and growth strategy 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 could have negative consequences for Shire’s business and increase the risk of non-payment by Shire’s customers;
changes in foreign currency exchange rates and interest rates could have a material adverse effect on Shire’s operating results and liquidity;
Shire is subject to evolving and complex tax laws, which may result in additional liabilities that may adversely impact the availability and costaffect Shire’s financial condition or results of credit and customer purchasing and payment patterns, including the collectability of customer accounts receivable;operations;
failure ofif a marketed product fails to work effectively or if such a product is the cause ofcauses adverse side effects, this 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 faces risks relating to the expected exit of the United Kingdom from the European Union;
Shire incurred substantial additional indebtedness to finance the Baxalta acquisition, which has increased its borrowing costs and may decrease its business flexibility;
Shire's ongoing strategic review of its Neuroscience franchise may distract management and employees and may not lead to improved operating performance or financial results; there can be no guarantee that, once completed,

Shire's strategic review will result in any additional strategic changes beyond those that have already been announced;
the potential uncertainty resulting from the announcement by Takeda Pharmaceutical Company Limited that it is considering making a possible offer for Shire; and

a further list and description of risks, uncertainties and other matters can be found in Shire’sShire'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 Shire’s 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 Companyus or any person acting on itsour 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 doeswe do 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.


Part
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, 2016March 31, 2018 December 31, 2017
ASSETS   
   
Current assets: 
  
 
  
Cash and cash equivalents$209.3
 $528.8
$317.7
 $472.4
Restricted cash34.3
 25.6
35.5
 39.4
Accounts receivable, net2,840.7
 2,616.5
3,140.5
 3,009.8
Inventories3,427.3
 3,562.3
3,340.8
 3,291.5
Prepaid expenses and other current assets779.9
 806.3
1,080.5
 795.3
Total current assets7,291.5
 7,539.5
7,915.0
 7,608.4
Investments199.7
 191.6
271.8
 241.1
Property, plant and equipment ("PP&E"), net6,579.5
 6,469.6
Property, plant and equipment (PP&E), net6,460.1
 6,635.4
Goodwill19,718.4
 17,888.2
19,988.6
 19,831.7
Intangible assets, net33,350.3
 34,697.5
32,864.3
 33,046.1
Deferred tax asset94.6
 96.7
189.2
 188.8
Other non-current assets242.5
 152.3
179.8
 205.4
Total assets$67,476.5
 $67,035.4
$67,868.8
 $67,756.9
LIABILITIES AND EQUITY 
  
 
  
Current liabilities: 
  
 
  
Accounts payable and accrued expenses$3,870.5
 $4,312.4
$3,939.0
 $4,184.5
Short term borrowings and capital leases2,629.2
 3,068.0
1,787.2
 2,788.7
Other current liabilities961.4
 362.9
1,218.4
 908.8
Total current liabilities7,461.1
 7,743.3
6,944.6
 7,882.0
Long term borrowings and capital leases17,956.0
 19,899.8
16,733.7
 16,752.4
Deferred tax liability7,681.7
 8,322.7
4,716.4
 4,748.2
Other non-current liabilities1,723.1
 2,121.6
2,074.1
 2,197.9
Total liabilities34,821.9
 38,087.4
30,468.8
 31,580.5
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
Common stock of 5p par value; 1,500 shares authorized; and 918.9 shares issued and outstanding (2017: 1,500 shares authorized; and 917.1 shares issued and outstanding)81.7
 81.6
Additional paid-in capital25,020.9
 24,740.9
25,156.6
 25,082.2
Treasury stock: 8.4 shares (2016: 9.1 shares)(283.0) (301.9)
Accumulated other comprehensive income/(loss)969.1
 (1,497.6)
Treasury stock: 8.2 shares (2017: 8.4 shares)(279.1) (283.0)
Accumulated other comprehensive income1,846.1
 1,375.0
Retained earnings6,866.1
 5,925.3
10,594.7
 9,920.6
Total equity32,654.6
 28,948.0
37,400.0
 36,176.4
Total liabilities and equity$67,476.5
 $67,035.4
$67,868.8
 $67,756.9
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.


SHIRE PLC
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Unaudited, in millions, except per share amounts)
Three months ended September 30, Nine months ended September 30,Three months ended March 31,
2017 2016 2017 20162018 2017
Revenues:          
Product sales$3,533.8
 $3,315.4
 $10,537.9
 $7,264.8
$3,637.1
 $3,412.3
Royalties and other revenues163.8
 136.7
 477.8
 325.7
128.6
 160.0
Total revenues3,697.6
 3,452.1
 11,015.7
 7,590.5
3,765.7
 3,572.3
Costs and expenses: 
  
       
Cost of sales1,001.4
 1,736.2
 3,437.3
 2,762.9
1,132.4
 1,327.0
Research and development402.8
 511.1
 1,324.5
 1,023.0
405.2
 379.3
Selling, general and administrative859.7
 875.6
 2,647.7
 2,025.8
804.8
 888.9
Amortization of acquired intangible assets482.4
 354.9
 1,280.5
 702.5
484.0
 364.0
Integration and acquisition costs237.0
 284.5
 696.7
 738.6
239.7
 116.0
Reorganization costs5.4
 101.4
 24.5
 115.7
5.3
 5.5
Loss/(gain) on sale of product rights0.3
 (5.7) (0.4) (12.2)
Gain on sale of product rights—
 (5.5)
Total operating expenses2,989.0
 3,858.0
 9,410.8
 7,356.3
3,071.4
 3,075.2
          
Operating income/(loss) from continuing operations708.6
 (405.9) 1,604.9
 234.2
Operating income from continuing operations694.3
 497.1
          
Interest income1.5
 9.3
 5.7
 11.9
2.6
 3.1
Interest expense(141.8) (186.9) (425.4) (318.8)(127.0) (142.3)
Other (expense)/income, net(0.2) (13.7) 6.8
 (16.2)
Other income, net23.2
 4.5
Total other expense, net(140.5) (191.3) (412.9) (323.1)(101.2) (134.7)
          
Income/(loss) from continuing operations before income taxes and equity in (losses)/earnings of equity method investees568.1
 (597.2) 1,192.0
 (88.9)
Income from continuing operations before income taxes and equity in earnings/(losses) of equity method investees593.1
 362.4
Income taxes(13.5) 229.6
 (44.6) 218.4
(43.3) (6.8)
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 taxes551.2
 (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)
Equity in earnings/(losses) of equity method investees, net of taxes0.8
 (0.8)
Income from continuing operations, net of taxes550.6
 354.8
Gain from discontinued operations, net of taxes—
 20.2
Net income$550.6
 $375.0
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.



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
Diluted911.6
 900.2
 912.1
 725.5
 Three months ended March 31,
 2018 2017
Earnings per Ordinary Share – basic   
Earnings from continuing operations  
$0.61
 $0.39
Earnings from discontinued operations—
 0.02
Earnings per Ordinary Share – basic$0.61
 $0.41
    
Earnings per Ordinary Share – diluted   
Earnings from continuing operations  
$0.60
 $0.39
Earnings from discontinued operations—
 0.02
Earnings per Ordinary Share – diluted$0.60
 $0.41
    
Weighted average number of shares:   
Basic  
909.5
 904.1
Diluted912.1
 911.8
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.


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 adjustments744.6
 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)
 Three months ended March 31,
 2018 2017
Net income$550.6
 $375.0
Other comprehensive income: 
  
Foreign currency translation adjustments539.5
 265.5
Pension and other employee benefits (net of tax benefit of $nil and $0.4 million for the three months ended March 31, 2018 and 2017, respectively)(0.5) 7.4
Unrealized (loss)/gain on available-for-sale securities (net of tax expense of $nil and $2.2 million for the three months ended March 31, 2018 and 2017, respectively)(67.9) 2.1
Hedging activities (net of tax benefit of $nil and $2.7 million for the three months ended March 31, 2018 and 2017, respectively)—
 (4.5)
Comprehensive income$1,021.7
 $645.5

The components of Accumulated other comprehensive income/(loss)income as of September 30, 2017March 31, 2018 and December 31, 20162017 are as follows:
September 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
Foreign currency translation adjustments$935.7
 $(1,505.4)$1,819.1
 $1,279.6
Pension and other employee benefits, net of taxes5.8
 (5.2)27.0
 27.5
Unrealized holding gain on available-for-sale securities, net of taxes26.9
 6.6
—
 67.9
Hedging activities, net of taxes0.7
 6.4
Accumulated other comprehensive income/(loss)$969.1
 $(1,497.6)
Accumulated other comprehensive income$1,846.1
 $1,375.0
 

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



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 equityCommon stock number of shares Common stock Additional paid-in capital Treasury stock Accumulated other comprehensive income Retained earnings Total equity
As of January 1, 2017912.2
 $81.3
 $24,740.9
 $(301.9) $(1,497.6) $5,925.3
 $28,948.0
As of January 1, 2018917.1
 $81.6
 $25,082.2
 $(283.0) $1,375.0
 $9,920.6
 $36,176.4
Net income—
 —
 —
 —
 —
 1,166.1
 1,166.1
—
 —
 —
 —
 —
 550.6
 550.6
Other comprehensive income, net of tax—
 —
 —
 —
 2,466.7
 —
 2,466.7
—
 —
 —
 —
 471.1
 —
 471.1
Shares issued under employee benefit plans and other3.7
 0.2
 109.6
 —
 —
 —
 109.8
1.8
 0.1
 33.4
 —
 —
 —
 33.5
Cumulative-effect adjustment from adoption of ASU 2016-09—
 —
 10.7
 —
 —
 28.3
 39.0
Cumulative-effect adjustment from adoption of ASU 2014-09, Revenue from Contracts with Customers—
 —
 —
 —
 —
 52.0
 52.0
Cumulative-effect adjustment from adoption of ASU 2016-01, Financial Instruments - Overall—
 —
 —
 —
 —
 67.9
 67.9
Cumulative-effect adjustment from adoption of ASU 2016-16, Income Taxes—
 —
 —
 —
 —
 7.5
 7.5
Share-based compensation—
 —
 159.7
 —
 —
 —
 159.7
—
 —
 41.0
 —
 —
 —
 41.0
Shares released by employee benefit trust to satisfy exercise of stock options—
 —
 —
 18.9
 —
 (18.9) —
—
 —
 —
 3.9
 —
 (3.9) —
Dividends—
 —
 —
 —
 —
 (234.7) (234.7)
As of September 30, 2017915.9
 $81.5
 $25,020.9
 $(283.0) $969.1
 $6,866.1
 $32,654.6
As of March 31, 2018918.9
 $81.7
 $25,156.6
 $(279.1) $1,846.1
 $10,594.7
 $37,400.0

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.


SHIRE PLC 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Nine months ended September 30,Three months ended March 31,
2017 20162018 2017
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:   
Net income$550.6
 $375.0
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization1,644.0
 877.8
624.2
 486.9
Share based compensation159.7
 269.6
Amortization of deferred financing fees10.9
 121.7
Share-based compensation41.0
 52.7
Expense related to the unwind of inventory fair value adjustments688.7
 1,097.3
33.5
 480.4
Change in deferred taxes(392.4) (546.9)(50.4) (135.5)
Change in fair value of contingent consideration144.3
 (34.8)18.9
 (3.5)
Impairment of PP&E and intangible assets167.6
 98.1
Impairment of PP&E and other137.5
 —
Other, net88.3
 35.3
13.6
 30.0
Changes in operating assets and liabilities:

 

   
Increase in accounts receivable(301.5) (411.2)(291.7) (35.3)
Increase in sales deduction accrual94.0
 108.2
282.6
 17.5
Increase in inventory(245.2) (228.0)(40.2) (151.8)
Decrease/(increase) in prepayments and other assets70.4
 (66.4)
(Decrease)/increase in accounts payable and other liabilities(557.8) 315.2
(Increase)/decrease in prepayments and other assets(136.7) 14.2
Decrease in accounts payable and other liabilities(172.6) (671.5)
Net cash provided by operating activities2,737.1
 1,506.0
1,010.3
 459.1
      
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 investments48.1
 0.6
Movements in restricted cash(8.6) 68.3
Purchases of PP&E(177.8) (212.5)
Other, net34.8
 (1.5)(11.1) 1.2
Net cash used in investing activities(491.2) (17,811.3)(188.9) (211.3)
   
CASH FLOWS FROM FINANCING ACTIVITIES:   
Proceeds from revolving line of credit, long term and short term borrowings423.3
 1,401.9
Repayment of revolving line of credit, long term and short term borrowings(1,439.4) (1,825.7)
Proceeds from issuance of stock for share-based compensation arrangements40.5
 42.1
Other, net(6.5) (20.1)
Net cash used in financing activities(982.1) (401.8)
   
Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash2.1
 2.7
   
Net decrease in cash and cash equivalents and restricted cash(158.6) (151.3)
Cash and cash equivalents and restricted cash at beginning of period511.8
 554.4
Cash and cash equivalents and restricted cash at end of period$353.2
 $403.1
   
Supplemental information:   
Interest paid$152.5
 $108.2
Income taxes paid, net$45.0
 $23.1
   
Cash and cash equivalents reported in the Unaudited Consolidated Balance Sheets$317.7
 $369.0
Restricted cash reported in the Unaudited Consolidated Balance Sheets35.5
 34.1
Cash and cash equivalents and restricted cash at end of period$353.2
 $403.1
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.



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 borrowings3,261.6
 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 options92.2
 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 equivalents6.2
 (2.2)
    
Net (decrease)/increase in cash and cash equivalents(319.5) 593.1
Cash and cash equivalents at beginning of period528.8
 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.


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”)(U.S. GAAP).

The Consolidated Balance Sheet as of December 31, 20162017 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, 2016,2017, as filed with the SEC on February 22, 2017.20, 2018.

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”)(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.


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. The FASB subsequently issued several additional ASUs amending the guidance and deferred effective date to January 1, 2018. This standard applies to all existing revenue recognition requirements, including most industry-specific guidance. The newcontracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements, and financial instruments. Under this accounting standard, requires a company to recognizean entity recognizes revenue when it transfersits customer obtains control of promised goods or services, to customers in an amount that reflects the consideration thatwhich the companyentity expects to receive in exchange for those goods or services. The Company adopted this new standard also requires additional qualitative and quantitative disclosures.


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 transition method. Under this method, the Company recognized the cumulative-effect of initially applying the standard as an adjustment to the opening balance of retained earnings. As a result, the Company recorded a cumulative-effect adjustment to increase Retained earnings by $52.0 million, net of tax of $15.6 million. The Company is currently evaluatingmodified retrospective transition method was applied only to the potential impact on its financial position and resultscontracts that were not completed as of operationsthe adoption date.


For a complete discussion of accounting for revenue with customers, refer to Note 2, Revenue Recognition, to these Unaudited Consolidated Financial Statements.

Impact of adoption

As a result of adopting this guidance. The Company has identified two primarythe new accounting for revenue streams from contracts with customers on January 1, 2018, the following financial statement line items as part of its initial assessment: 1) product sales and 2) licensing arrangements. Shire isfor the three months ended March 31, 2018 were affected. The following tables provide the amounts as reported in these Unaudited Consolidated Financial Statements and as if the processprevious accounting guidance was in effect.

Unaudited Consolidated Balance Sheets
 As of March 31, 2018
(In millions)As reported Before Adoption of Topic 606 Effect of change
Prepaid expenses and other current assets$1,080.5
 $1,035.8
 $44.7
Other current liabilities1,218.4
 1,229.2
 (10.8)
Other non-current liabilities2,074.1
 2,076.5
 (2.4)
Retained earnings10,594.7
 10,564.5
 30.2

Unaudited Consolidated Statements of evaluating these contracts and is not yet able to estimate the anticipated impact to the Company’s financial statements from the applicationOperations
 Three Months ended March 31, 2018
(In millions, except per share)As reported Before Adoption of Topic 606 Effect of change
Product sales$3,637.1
 $3,642.5
 $(5.4)
Royalties and other revenues128.6
 151.4
 (22.8)
Net income550.6
 572.4
 (21.8)
Net income per share applicable to common shareholders - basic0.61
 0.63
 (0.02)
Net income per share applicable to common shareholders - diluted0.60
 0.63
 (0.03)

Unaudited Consolidated Statements of the new standard.Cash Flows
 Three Months ended March 31, 2018
(In millions)As reported Before Adoption of Topic 606 Effect of change
Net income$550.6
 $572.4
 $(21.8)
Adjustments to reconcile net income to net cash provided by operating activities:     
    Increase in prepayments and other assets(136.7) (92.0) (44.7)
    Decrease in accounts payable and other liabilities(172.6) (159.4) (13.2)

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. ThisThe new standard will bewas 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 issuedadopted ASU No. 2016-02, Leases (Topic 842). The new accounting guidance will require2016-01 in the recognitionfirst quarter 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 using2018. As a modified retrospective approach at the beginningresult of the earliest comparative periodadoption, the Company recorded a cumulative-effect adjustment to Retained earnings of $67.9 million to reclassify unrealized gains from available-for-sale equity securities previously recognized 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.Other comprehensive income.

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 bewas effective for the Company as of January 1, 2018. Early adoption is permitted.The Company adopted ASU No. 2016-15 in the first quarter of 2018. The adoption of this guidance isdid not expected to have a significantmaterial impact on the Company's Consolidated Statementsfinancial position and results of Cash Flows.operations.

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 bewas effective January 1, 2018. The Company adopted ASU No. 2016-18 in the first quarter of 2018 and amended the presentation of its statements of cash flows for the Company as of January 1, 2018.three months ended March 31, 2018 and 2017 accordingly. The adoption of this guidance isdid not expected to have a significantmaterial impact on the Company's Consolidated Statementsfinancial position and results of Cash Flows.operations.

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. ThisThe standard will bewas effective for the Company as of January 1, 2018, with the early adoption permitted.2018. The Company is currently evaluatingadopted the methodnew standard in the first quarter of 2018 using a modified retrospective approach with a cumulative-effect adjustment to opening retained earnings. The adoption and the potentialof this guidance did not have a material impact on itsthe Company's financial position and results of operations of adopting this guidance.

operations.

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 standardIt also requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. ThisThe standard will bewas effective for the Company as of January 1, 2018. The Company does not expectadopted ASU No. 2017-07 in the adoptionfirst quarter of 2018. Adoption of this standard todid not have a material impact on itsthe Company’s 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 bewas effective for the Company as of January 1, 2018. Early adoption is permitted. The adoptionCompany adopted ASU No. 2017-09 in the first quarter of 2018. Adoption of this guidance isstandard did not expected to have a significantmaterial impact on the Company’s financial position and results of operations.

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. The Company adopted ASU No. 2017-04 in the first quarter of 2018. Adoption of this standard did not have a material impact on the Company’s financial position and results of operations.

To be adopted in future periods

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new accounting guidance will require the recognition of all long-term 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 on 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.

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 ofon 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.


2.    Business CombinationsRevenue Recognition

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 shareholders19,353.2
Fair value of partially vested stock options and RSUs assumed508.8
Contingent consideration payable165.0
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.

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 receivable1,069.7
 (96.4) 973.3
Inventories3,893.4
 81.2
 3,974.6
Other current assets576.0
 5.3
 581.3
Total current assets6,122.3
 (9.9) 6,112.4
Property, plant and equipment5,452.7
 (46.5) 5,406.2
Investments128.2
 —
 128.2
Goodwill11,422.4
 1,076.2
 12,498.6
Intangible assets  

  
Currently marketed products21,995.0
 (830.0) 21,165.0
In-Process Research and Development ("IPR&D")730.0
 (570.0) 160.0
Contract based arrangements42.2
 —
 42.2
Other non-current assets155.0
 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 liabilities354.4
 9.0
 363.4
Long term borrowings and capital leases5,424.9
 —
 5,424.9
Deferred tax liability5,445.3
 (315.0) 5,130.3
Other non-current liabilities1,103.6
 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.


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 considerationProduct Revenue, Net

The Company acquired certain contingent obligationssells its products to major pharmaceutical wholesalers, and distributors, and retail pharmacy chains (collectively, its "Customers"). These Customers subsequently resell the Company’s products to healthcare providers and patients. In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. 

Revenues from Product sales are recognized when the Customer obtains control, typically upon delivery. When the terms of the contract include customer acceptance provisions, the Company defers revenue recognition until the customer has accepted the goods, unless the acceptance provision relates only to objective specifications which the Company can determine will be met upon shipment. Customer acceptance provisions include temperature checks, government inspections, and other quality control tests. Shipping and handling and fulfillment costs are accrued for when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Estimates of Variable Consideration

Revenues from Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; Medicare Part D rebates; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distribution service fees; wholesaler chargebacks; and allowances for coupon and patient assistance programs relating to the Company’s sales of its products.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual

results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.
Trade discounts are generally credits granted to wholesalers, specialty pharmacies, and other customers for remitting payment on their purchases within established incentive periods and are classified as contingent considerationa reduction of accounts receivable, offset by revenue in the same period that the related revenue is recognized.
Chargebacks are credits or payments issued to Baxalta’s historical business combinations. Additional consideration is conditionally due uponwholesalers and other distributors who provide products to qualified healthcare providers at prices lower than the achievement of certain milestones relatedlist prices charged to the development, regulatory, first commercial sale andwholesalers or other sales milestones, which could total up to approximately $1.5 billion. The Company may also pay royaltiesdistributors. Reserves are estimated based on certain product sales. The Company estimatedexpected purchases by those qualified healthcare providers. Chargeback reserves are classified as a reduction of accounts receivable in the same period that the related revenue is recognized.
Distribution service fees are credits or payments issued to wholesalers, distributors, and specialty pharmacies for compliance with various contractually-defined inventory management practices or services provided to support patient access to a product. These fees are generally based on a percentage of gross purchases but can also be based on additional services these entities provide. Most of these costs are reflected as a reduction of gross sales; however, to the extent benefit from services can be separately identified and the fair value determined, costs are classified as Selling, general and administrative expenses. Distribution service fees reserves are estimated based on the terms of each individual contract and are classified within accrued expenses.
Medicaid rebates are payments to States under statutory and voluntary reimbursement arrangements. Reserves for these rebates are generally based on an estimate of expected product usage by Medicaid patients and expected rebate rates. Statutory rates are generally based on a percentage of selling price adjusted upwards for price increases in excess of published inflation indices. As a result, rebates generally increase as a percentage of the assumed contingent consideration to be $165.0 million using a probability weighting approach that consideredselling price over the possible outcomes based on assumptions related to the timing and probabilitylife of the product launch date, discount(as prices increase). Medicaid rebate reserves are estimated based on individual product purchase volumes and are classified within accrued expenses.
Managed care rebates are payments to third parties, primarily pharmacy benefit managers, and other health insurance providers. The reserve for these rebates is based on an estimate of customer buying patterns and applicable contractual rebate rates matched to the timing of first payment and probability of success rates and discount adjustmentsbe earned over each period. Managed care rebates reserves are estimated based on the terms of each individual contract and purchase volumes and are classified within accrued expenses.
Incentive rebates are generally credits or payments issued to specialty pharmacies, distributors, or Group Purchasing Organizations for qualified purchases of certain products. Incentive rebate reserves are estimated based on the terms of each individual contract and purchase volumes and are classified within accrued expenses.
Other discounts and allowances include Medicare rebates, coupon, and patient co-pay assistance. Medicare rebates are payments to health insurance providers of Medicare Part D coverage to qualified patients. Reserve estimates are based on customer buying patterns and applicable contractual rebate rates to be earned over each period. Coupon and co-pay assistance programs provide discounts to qualified patients. Reserve estimates are based on expected claim volumes under these programs and estimated cost per claim that the Company expects to pay. Reserves for Medicare and coupon and patient co-pay programs are classified within accrued expenses
Product Returns: The Company typically accepts customer product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Company’s possession; (c) under sales terms that allow for unconditional return (guaranteed sales); or (d) following product recalls or product withdrawals. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product and the related product is destroyed after it is returned. Depending on the product and the Company’s return policy with respect to that product, the Company may either refund the sales price paid by the customer by issuance of a credit, or exchange the returned product with replacement inventory. The Company typically does not provide cash flows. refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including but not limited to:
historical returns experience;
the duration of time taken for products to be returned;

Inventorythe estimated level of inventory in the distribution channel;
product recalls and discontinuances;
the shelf life of products;
the launch of new drugs or new formulations; and
the loss of patent protection, exclusivity or new competition.

The estimated fair valueestimation process for product returns involves, in each case, a number of work-in-processinterrelating assumptions, which vary for each combination of product and finished goods inventory was determined utilizingcustomer. The Company estimates the net realizable value, based on the expected selling priceamount of the inventory, adjusted for incremental costs to complete the manufacturing processits product sales that may be returned by its Customers and for direct selling efforts,records this estimate as well as for a reasonable profit allowance. The estimated fair valuereduction 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 ofrevenue from Product sales in the Company's Unaudited Consolidated Statements of Operations.period the related revenue is recognized.

Retirement plans Royalties and other revenues

The Company assumed pension plansenters into agreements, where it licenses certain rights to its products to customers. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides; and royalties on net sales of licensed products. Each of these payments is recognized as Royalties and other revenues.

As part of the acquisition of Baxalta, including defined benefit and post-retirement benefit plansaccounting for these arrangements, the Company must develop estimates that require judgment to determine the stand-alone selling price for each performance obligation, identified in the U.S.contract. Performance obligations are promises in a contract to transfer a distinct good or service to the customer. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and foreign jurisdictions, which had a net liability balanceprobabilities 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. technical, regulatory and commercial success.

IntegrationLicenses of intellectual property: If the license to the Company’s intellectual property is distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees when the license is transferred to the licensee and acquisition coststhe licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. If the performance obligation is satisfied over time, the Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Measures of progress for revenue recognition vary depending on the nature of the performance obligation.

InMilestone Payments: At the three and nine months ended September 30, 2017,inception of each arrangement that includes milestone payments, the Company expensed $238.1 million and $548.6 million, respectively, relating toevaluates the acquisition and integrationrecognition of Baxalta, which have been recordedmilestone payments. Typically, milestone payments that are not within Integration and acquisition coststhe control of the Company or the licensee, such as regulatory approvals, are included in the Company’s Unaudited Consolidated Statementstransaction price upon achievement of Operations. Refer to Note 4, Integrationthe milestone. Milestone payments included in transaction price are recognized when or as the performance obligations are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and Acquisition Costs, for further information regardingany related constraint, and if necessary, adjusts its estimate of the Company's Integration and acquisition costs for the three and nine months ended September 30, 2017.overall transaction price.

Supplemental disclosureRoyalties: For arrangements that include sales-based royalties, including milestone payments based on the level of pro forma information sales, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the license is transferred.

The following unaudited pro forma financial information presentsCompany receives payments from its customers based on billing schedules established in each contract, which vary across Shire's locations, but generally range between 30 to 90 days. Amounts are recorded as accounts receivable when the combined results of the operations of Shire and Baxalta asCompany’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the acquisition of Baxalta had occurred as of January 1, 2015. The unaudited pro forma financial informationexpectation 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 operations1,461.0
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”).


Dyax was a publicly-traded, Massachusetts-based rare disease biopharmaceutical company primarily focused on the development of plasma kallikrein (“pKal”) inhibitorsthat customer will pay for the treatmentproduct or services in one year or less 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 receivable22.5
Inventories20.2
Other current assets8.1
Total current assets292.0
Property, plant and equipment5.8
Goodwill2,702.1
Intangible assets 
Currently marketed projects135.0
IPR&D4,100.0
Contract based royalty arrangements425.0
Other non-current assets28.6
Total assets$7,688.5
LIABILITIES 
Current liabilities: 
Accounts payable and accrued expenses$30.0
Other current liabilities1.7
Deferred tax liability1,325.4
Other non-current liabilities1.4
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 marketedreceiving those 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. 


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 operations25.9
Per share amounts: 
Net income from continuing operations per share - basic$0.04
Net income from continuing operations per share - diluted$0.04
services.


The unaudited pro forma financial information above reflectsfollowing table presents changes in the following pro forma adjustments:Company’s contract assets and liabilities during the three months ended March 31, 2018:
(In millions)Balance as of January 1, 2018 Increase, net Balance as of March 31, 2018
Contract assets:     
Unbilled receivables$42.7
 $2.0
 $44.7
Contract liabilities:     
Deferred revenue—
 8.3
 8.3

(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.

Contract assets consist of unbilled receivables typically resulting from sales under contracts when revenue recognized exceeds the amount billed to the customer. The adjustments abovecontract assets are stated netincluded in Prepaid expenses and other current assets in these Unaudited Consolidated Balance Sheets. Contract liabilities consist of their tax effects, where applicable.advance payments from customers for future performance obligations. Contract liabilities are included in Other current liabilities in these Unaudited Consolidated Balance Sheets.

3.    Collaborative and Other Licensing Arrangements

The Company is party to certain collaborative orand 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,On January 25, 2018, Shire entered into a licensing agreement with Novimmune S.A. ("Novimmune")AB Biosciences Inc. (AB Biosciences). 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.recombinant immunoglobulin product candidate. Under the terms of the agreement, AB Biosciences will grant Shire will develop, and if approved, commercialize the product. Shire made an initial $5.0exclusive, worldwide license to its intellectual property relating to its pan receptor interacting molecule program. The Company paid $10.0 million upfront license payment. Novimmune will be entitledfee and AB Biosciences is eligible to receive additional potentialcontingent research, development, and commercialization milestone payments up to $335.0$282.5 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 enhancedwell as 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.royalty payments.

4.    Integration and Acquisition Costs

InFor the three and nine months ended September 30, 2017,March 31, 2018, Shire recorded Integration and acquisition costs of $237.0$239.7 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 includedBaxalta Inc. (Baxalta), which was acquired in Integration and acquisition costs relating to the change in fair value of contingent consideration payable.June 2016.

During the second quarter of 2017, Shire enteredThe Company continues its second phase of integration activities. to integrate Baxalta. The costs associated with this phase willintegration are primarily relaterelated to headcount reduction as the Company continues to advance and complete activitiesfacility consolidation 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.its Rare Disease segment. The Company also plans to drivedrove savings through the continued prioritizationre-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$137.5 million of asset impairments, $21.9 million of third-party professional fees, $11.7 million of expenses associated with facility consolidations, and $177.4$5.8 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.March 31, 2018. 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.


The following table summarizes reserve for the type and amount of integration costs recorded asfor certain types of September 30, 2017:activity during the three months ended March 31, 2018:
(In millions)Severance and employee benefits Lease terminations TotalSeverance and employee benefits Lease terminations Total
As of January 1,$74.0
 $—
 $74.0
$72.9
 $56.6
 $129.5
Amount charged to integration costs157.5
 58.3
 215.8
5.0
 3.5
 8.5
Paid/utilized(140.9) (7.5) (148.4)(35.1) (2.5) (37.6)
As of September 30,$90.6
 $50.8
 $141.4
As of March 31,$42.8
 $57.6
 $100.4


For the three and nine months ended September 30, 2016,March 31, 2017, Shire recorded Integrationintegration and acquisition costs of $284.5$116.0 million, and $738.6 million, respectively, primarily related to the acquisition and integration of Dyax and Baxalta. These costs primarily consist of $43.9include $36.9 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$35.2 million and $155.0 million, respectively, of third-party professional fees, and $18.2$24.5 million and a credit of $26.9 million, respectively, of change in fair value of contingent consideration.expenses associated with facility consolidations.

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,March 31, 2017, the Company recorded a loss of $0.4 million (net of immaterial tax benefit) and gain of $18.6$20.2 million (net of tax expense of $10.9$11.6 million), respectively, primarily related to the release of escrow to Shire and legal contingencies related to the divested DERMAGRAFT business and the release of escrow to Shire, respectively.business.

In January 2017, Shire entered into a final settlement agreement with the Department of Justice ("DOJ")(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 beenwas finalized, Shire and Advanced BioHealing Inc.'s ("ABH")(ABH) equity holders entered into a settlement agreement and ABH’s equity holders released the $37.5 million escrow to Shire. Shire released theits 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 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2017.

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, 2017March 31, 2018 of $2,840.7$3,140.5 million (December 31, 2016: $2,616.52017: $3,009.8 million), are stated at the invoiced amount and net of reserve for discounts and doubtful accounts of $243.7$474.8 million (December 31, 2016: $169.62017: $271.5 million).

Reserve for discounts and doubtful accounts:accounts consists of the following:
(In millions)2017 20162018 2017
As of January 1,$169.6
 $55.8
$271.5
 $169.6
Provision charged to operations1,074.1
 569.9
697.2
 295.2
Payments/credits(1,000.0) (498.3)(493.9) (304.5)
As of September 30,$243.7
 $127.4
As of March 31,$474.8
 $160.3
 

Reserve for discounts and doubtful accounts increased for the three months ended March 31, 2018 compared to the corresponding period in 2017, primarily related to the conversion of the invoice pricing methodology.
As of September 30, 2017,March 31, 2018, accounts receivable included $96.2$75.6 million (December 31, 2016: $102.22017: $106.6 million) related to royalties receivable.


7.    Inventories

Inventories are stated at the lower of cost and net realizable value. Inventories comprise:The components of inventories are as follows:
(In millions)September 30, 2017 December 31, 2016
Finished goods$909.0
 $1,380.0
Work-in-progress1,748.8
 1,491.0
Raw materials769.5
 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.
(In millions)March 31, 2018 December 31, 2017
Finished goods$834.4
 $926.1
Work-in-progress1,704.3
 1,574.0
Raw materials802.1
 791.4
 $3,340.8
 $3,291.5


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, 2016March 31, 2018 December 31, 2017
Land$342.6
 $337.9
$305.5
 $332.3
Buildings and leasehold improvements1,981.1
 1,915.4
1,903.9
 1,940.7
Machinery, equipment and other3,000.0
 2,547.2
2,935.4
 3,106.3
Assets under construction2,504.9
 2,632.5
2,597.9
 2,568.2
Total property, plant and equipment at cost7,828.6
 7,433.0
7,742.7
 7,947.5
Less: Accumulated depreciation(1,249.1) (963.4)(1,282.6) (1,312.1)
Property, plant and equipment, net$6,579.5
 $6,469.6
$6,460.1
 $6,635.4

Depreciation expense for the three and nine months ended September 30,March 31, 2018 and 2017 was $119.9$140.2 million and $363.5 million, respectively, and for the three and nine months ended September 30, 2016 was $93.1 million and $175.3$122.9 million, respectively.

During 2017,the three months ended March 31, 2018, the Company determined it would divest certain facilities as part of its integration efforts. TheAs of March 31, 2018, the Company classified $23.9$123.2 million of assets as held for sale, as of September 30, 2017, which iswere reported in Prepaid expenses and other current assets. The $123.2 million of held for sale assets consisted primarily of $23.9 million were primarily property, plant and equipment and iswas net of $43.6$137.5 million of impairment charges recorded on those assets during the third quarter of 2017.three months ended March 31, 2018. 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.


9.    Intangible Assetsassets

The following table summarizes the Company's intangible assets:
(In millions)Currently marketed products IPR&D Other intangible assets TotalCurrently marketed products IPR&D Other intangible assets Total
September 30, 2017 
  
  
  
March 31, 2018       
Gross acquired intangible assets$31,786.3
 $5,113.0
 $840.3
 $37,739.6
$32,274.8
 $5,114.8
 $835.9
 $38,225.5
Accumulated amortization(4,094.0) —
 (295.3) (4,389.3)(5,000.6) —
 (360.6) (5,361.2)
Intangible assets, net$27,692.3

$5,113.0

$545.0

$33,350.3
$27,274.2
 $5,114.8
 $475.3
 $32,864.3
              
December 31, 2016 
  
  
  
December 31, 2017 
  
  
  
Gross acquired intangible assets$31,217.5
 $5,746.6
 $842.2
 $37,806.3
$31,973.5
 $5,113.9
 $835.9
 $37,923.3
Accumulated amortization(2,908.6) —
 (200.2) (3,108.8)(4,549.2) —
 (328.0) (4,877.2)
Intangible assets, net$28,308.9

$5,746.6

$642.0

$34,697.5
$27,424.3

$5,113.9

$507.9

$33,046.1

Other intangible assets are comprised primarily of royalty rights and other contract rights associated with Baxalta, Dyax Corp. (Dyax), and NPS.NPS Pharmaceuticals Inc. 

The changeActivities in the net book value of intangible assets for the ninethree months ended September 30,March 31, 2018 and 2017 and 2016 is shown in the table below:are as follows: 
(In millions)2017 20162018 2017
As of January 1,$34,697.5
 $9,173.3
$33,046.1
 $34,697.5
Acquisitions(1,397.0) 30,377.7
Changes34.9
 (1,685.0)
Amortization charged(1,280.5) (702.5)(484.0) (364.0)
Impairment charges(20.0) (8.9)
Foreign currency translation1,350.3
 31.9
267.3
 185.6
As of September 30,$33,350.3
 $38,871.5
As of March 31,$32,864.3
 $32,834.1
 

The decreaseChanges included in Intangible assets, net during the ninethree months ended September 30,March 31, 2017 relatesrelated to the measurement period adjustments of the acquisition of BaxaltaBaxalta.


10.Goodwill

Beginning January 2018, the Company comprised of two reportable segments: Rare Disease and amortization of intangible assets.Neuroscience. For a more detailed description of measurement period adjustments,information regarding the Company's segments refer to Note 2, Business Combinations,21, Segment Reporting, 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:

(In millions)
Anticipated
future amortization
2017 (remaining three months)$476.5
20181,879.3
20191,656.1
20201,558.1
20211,524.6
20221,509.0

10.Goodwill

The following table provides a roll-forward of the Goodwill balance:balance by segment, for the three months ended March 31, 2018:
(In millions)2017 2016
As of January 1,$17,888.2
 $4,147.8
Acquisitions1,076.2
 10,689.8
Foreign currency translation and other754.0
 13.0
As of September 30,$19,718.4
 $14,850.6
 2018
(In millions)Rare Disease Neuroscience Total
As of January 1,$16,281.8
 $3,549.9
 $19,831.7
Changes(25.8) —
 (25.8)
Foreign currency translation150.0
 32.7
 182.7
March 31,$16,406.0
 $3,582.6
 $19,988.6

The following table provides a roll-forward of the Goodwill balance for the three months ended March 31, 2017:
 2017
(In millions)Rare Disease Neuroscience Total
As of January 1,$14,493.5
 $3,394.7
 $17,888.2
Acquisitions1,213.8
 —
 1,213.8
Foreign currency translation38.7
 8.4
 47.1
As of March 31,$15,746.0
 $3,403.1
 $19,149.1

The increase in Goodwill during the ninethree months ended September 30,March 31, 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, theThe 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 valueFair value
(In millions)Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3
As of September 30, 2017 
  
  
  
As of March 31, 2018 
  
  
  
Financial assets: 
  
  
  
 
  
  
  
Marketable equity securities$69.7
 $69.7
 $—
 $—
$114.1
 $114.1
 $—
 $—
Marketable debt securities16.7
 3.7
 13.0
 —
18.1
 3.9
 14.2
 —
Contingent consideration receivable8.3
 —
 —
 8.3
Derivative instruments17.0
 —
 17.0
 —
17.3
 —
 17.3
 —
Total assets$111.7
 $73.4
 $30.0
 $8.3
$149.5
 $118.0
 $31.5
 $—


             
Financial liabilities:

  
  
  
   
  
  
Joint venture net written option$25.0
 $—
 $—
 $25.0
$32.0
 $—
 $—
 $32.0
Derivative instruments8.8
 —
 8.8
 —
44.3
 —
 44.3
 —
Contingent consideration payable1,186.9
 —
 —
 1,186.9
1,179.6
 —
 —
 1,179.6
Total liabilities$1,220.7
 $—
 $8.8
 $1,211.9
$1,255.9
 $—
 $44.3
 $1,211.6


Fair value
(In millions)Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3
As of December 31, 2016 
  
  
  
As of December 31, 2017 
  
  
  
Financial assets: 
  
  
  
 
  
  
  
Marketable equity securities$65.8
 $65.8
 $—
 $—
$89.7
 $89.7
 $—
 $—
Marketable debt securities15.5
 3.6
 11.9
 —
17.9
 3.8
 14.1
 —
Contingent consideration receivable15.6
 —
 —
 15.6
Derivative instruments18.0
 —
 18.0
 —
17.9
 —
 17.9
 —
Total assets$114.9
 $69.4
 $29.9
 $15.6
$125.5
 $93.5
 $32.0
 $—
              
Financial liabilities:   
  
  
   
  
  
Joint venture net written option$40.0
 $—
 $—
 $40.0
Derivative instruments$8.3
 $—
 $8.3
 $—
14.2
 —
 14.2
 —
Contingent consideration payable1,058.0
 —
 —
 1,058.0
1,168.2
 —
 —
 1,168.2
Total liabilities$1,066.3
 $—
 $8.3
 $1,058.0
$1,222.4
 $—
 $14.2
 $1,208.2

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 thethese Unaudited Consolidated Balance Sheets. Contingent consideration payable is included within Other current liabilities and Other non-current liabilities in thethese 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.
ContingentJoint venture net written option and contingent consideration payable: the fair value of the contingent consideration payable hasvalues have 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,March 31, 2018 and 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

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 earnings144.3
 (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. 
Contingent consideration payable 
  
(In millions)2018 2017
Balance as of January 1,$1,168.2
 $1,058.0
Acquisitions—
 (4.0)
Change in fair value included in earnings18.9
 (3.5)
Other(7.5) 0.7
Balance as of March 31,$1,179.6
 $1,051.2

Of the $1,186.9$1,179.6 million of contingent consideration payable as of September 30, 2017, $633.4March 31, 2018, $700.8 million is recorded within Other current liabilities and $553.5$478.8 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$32.0 million for the net written option based on the estimated fair value of these options as of September 30, 2017March 31, 2018 and the Company re-measures the instrument to fair value through the Unaudited Consolidated Statements of Operations.


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 dateFair value as of the measurement date
As of September 30, 2017  
As of March 31, 2018  
(In millions, except %)
Fair value 
 
Valuation
 technique
 Significant unobservable inputs Range
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%
Contingent consideration payable$1,179.6
 Income approach (probability weighted discounted cash flow) • Cumulative probability of milestones being achieved • 22 to 90%
 
   • Assumed market participant discount rate • 16% 
   • Assumed market participant discount rate • 1.8 to 8.7%
 
   • Periods in which milestones are expected to be achieved • 2018 to 2040
 
   • Forecast quarterly royalties payable on net sales of relevant products • $0.2 to $6.5
million

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 liabilities:Fair value as of the measurement date
As of March 31, 2018       
(In millions, except %)  
Fair value 
 
Valuation
 technique
 Significant unobservable inputs Range
Joint venture net written option$32.0
 Income approach (probability weighted discounted cash flow) • Cash flow scenario probability weighting • 100%
  
   • Assumed market participant discount rate • 14%

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, 2016March 31, 2018 December 31, 2017
(In millions)Carrying amount Fair value Carrying amount Fair valueCarrying amount Fair value Carrying amount Fair value
Financial liabilities: 
  
  
  
 
  
  
  
SAIIDAC notes$12,047.7
 $12,052.8
 $12,039.2
 $11,633.8
$12,053.3
 $11,620.0
 $12,050.2
 $11,913.7
Baxalta notes5,065.2
 5,294.1
 5,063.6
 5,066.5
5,041.9
 5,085.9
 5,057.7
 5,229.9
Capital lease obligation349.1
 349.1
 353.6
 353.6
349.5
 349.5
 349.2
 349.2

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.Sheets. 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.


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, 2016March 31, 2018 December 31, 2017
Notional amount$1,514.6
 $1,309.1
$2,452.9
 $1,672.3
Maximum duration (in months)3 months
 3 months
3 months
 3 months
Fair value - net asset$7.6
 $6.7
Fair value - net (liability)/asset$(1.7) $11.4


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,March 31, 2018, 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 Company has elected hedge accounting for interest rate swap contracts designated as fair value hedges. 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 ofunderlying Baxalta Notes 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
MaturityJune 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.
(In millions, except maturity)March 31, 2018 December 31, 2017
Notional amount$1,000.0
 $1,000.0
MaturityJune 2020 and June 2025
 June 2020 and June 2025
Fair value - net liability$(25.3) $(7.7)

Summary of Derivatives

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

Company's Unaudited Consolidated Statements of Operations:
(In millions)Gain/(loss) recognized in OCI Income Statement location Gain reclassified from AOCI into incomeGain/(loss) recognized in OCI Location Gain reclassified from AOCI into income
Three months ended September 30,2017 2016   2017 2016
Three months ended March 31,2018 2017   2018 2017
Designated derivative instruments 
  
    
  
 
  
    
  
Cash flow hedges 
  
    
  
Designated cash flow hedges 
  
    
  
Foreign exchange contracts$(0.2) $3.3
 Cost of sales $0.3
 $—
$—
 $(0.6) Cost of sales $—
 $6.6
(In millions)Income Statement location Gain/(loss) recognized in income
Three months ended September 30,  2017 2016
Fair value hedges   
  
Interest rate contracts, netInterest expense $(1.1) $—
Undesignated derivative instruments   
  
Foreign exchange contractsOther income/(expense), net 36.7
 (21.2)
Interest rate swap contractsInterest 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 incomeLocation Gain/(loss) recognized in income
Nine months ended September 30, 2017 2016
Three months ended March 31, 2018 2017
Fair value hedges  
  
  
  
Interest rate contracts, netInterest (expense)/income $(2.5) $2.1
Interest expense $(2.6) $(1.2)
Undesignated derivative instruments  
  
  
  
Foreign exchange contractsOther income/(expense), net 57.4
 (50.0)Other income/(expense), net 8.6
 (15.3)
Interest rate swap contractsInterest expense —
 (1.1)

Summary of Derivatives

The following table presents the classification and estimated fair value of derivative instruments:instruments on the Company's Unaudited Consolidated Balance Sheets:
Asset position Liability positionAsset position Liability position
 Fair value Fair value Fair value Fair value
(In millions)Balance Sheet location September 30, 2017December 31, 2016 Balance Sheet location September 30, 2017December 31, 2016Location March 31, 2018December 31, 2017 Location March 31, 2018December 31, 2017
Designated derivative Instruments   
     
    
     
 
Foreign exchange contractsPrepaid expenses and other current assets $—
$4.3
 Accounts payable and accrued expenses $—
$0.1
Interest rate contractsLong term borrowings 2.4
0.1
 Long term borrowings 1.8
1.3
Long term borrowings $—
$—
 Long term borrowings $25.3
$7.7
  $2.4
$4.4
   $1.8
$1.4
  $—
$—
   $25.3
$7.7
Undesignated derivative instruments   
     
    
     
 
Foreign exchange contractsPrepaid expenses and other current assets $14.6
$13.6
 Accounts payable and accrued expenses $7.0
$6.9
Prepaid expenses and other current assets $17.3
$17.9
 Other current liabilities $19.0
$6.5
Total derivative fair value  $17.0
$18.0
   $8.8
$8.3
  $17.3
$17.9
   $44.3
$14.2
Potential effect of rights to offset (3.7)(1.7) (3.7)(1.7) (6.1)(2.7) (6.1)(2.7)
Net derivative $13.3
$16.3
 $5.1
$6.6
 $11.2
$15.2
 $38.2
$11.5

13.    Borrowings and Capital Leases
(In millions)September 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
Short term borrowings: 
  
 
  
Baxalta notes$748.2
 $—
$749.5
 $748.8
Borrowings under the Revolving Credit Facilities Agreement1,050.0
 450.0
75.0
 810.0
Borrowings under the November 2015 Facilities Agreement799.6
 2,594.8
899.0
 1,196.3
Capital leases7.0
 6.4
7.6
 7.5
Other borrowings24.4
 16.8
56.1
 26.1
$2,629.2
 $3,068.0
$1,787.2
 $2,788.7
      
Long term borrowings:      
SAIIDAC notes$12,047.7
 $12,039.2
$12,053.3
 $12,050.2
Baxalta notes4,317.0
 5,063.6
4,292.4
 4,308.9
Borrowings under the November 2015 Facilities Agreement1,195.6
 2,391.8
Capital leases342.1
 347.2
341.9
 341.7
Other borrowings53.6
 58.0
46.1
 51.6
$17,956.0
 $19,899.8
$16,733.7
 $16,752.4
      
Total borrowings and capital leases$20,585.2
 $22,967.8
$18,520.9
 $19,541.1

For a more detailed description of the Company's financing agreements, refer below and to Note 17, Borrowings and Capital Lease Obligations,Leases, of Shire's 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2017.


SAIIDAC Notes

On September 23, 2016, Shire Acquisitions Investments Ireland Designated Activity Company ("SAIIDAC")(SAIIDAC), a wholly owned subsidiary of Shire plc, issued unsecured senior notes with a total aggregate principal value of $12.1 billion (“SAIIDAC Notes”)(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:March 31, 2018:
(In millions, except %)Aggregate amount Coupon rate Effective interest rate in 2017 Carrying amount as of September 30, 2017Aggregate amount Coupon rate Carrying amount as of March 31, 2018
Fixed-rate notes due 2019$3,300.0
 1.900% 2.05% $3,290.8
$3,300.0
 1.900% $3,293.1
Fixed-rate notes due 20213,300.0
 2.400% 2.53% 3,285.6
3,300.0
 2.400% 3,287.2
Fixed-rate notes due 20232,500.0
 2.875% 2.97% 2,489.2
2,500.0
 2.875% 2,490.0
Fixed-rate notes due 20263,000.0
 3.200% 3.30% 2,982.1
3,000.0
 3.200% 2,983.0
$12,100.0
     $12,047.7
$12,100.0
   $12,053.3

As of September 30, 2017,March 31, 2018, there was $52.3were $46.7 million of debt issuance costs and discountdiscounts 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”)(Baxalta Notes). Below is a summary of the Baxalta Notes as of September 30, 2017:March 31, 2018:
(In millions, except %)Aggregate principal Coupon rate Effective interest rate in 2017 Carrying amount as of September 30, 2017Aggregate principal Coupon rate Carrying amount as of March 31, 2018
Variable-rate notes due 2018$375.0
 LIBOR plus 0.78%
 2.60% $373.3
$375.0
 LIBOR plus 0.78%
 $374.5
Fixed-rate notes due 2018375.0
 2.000% 2.00% 374.9
375.0
 2.000% 375.0
Fixed-rate notes due 20201,000.0
 2.875% 2.80% 1,004.3
1,000.0
 2.875% 997.0
Fixed-rate notes due 2022500.0
 3.600% 3.30% 507.2
500.0
 3.600% 506.4
Fixed-rate notes due 20251,750.0
 4.000% 3.90% 1,774.6
1,750.0
 4.000% 1,758.7
Fixed-rate notes due 20451,000.0
 5.250% 5.20% 1,030.9
1,000.0
 5.250% 1,030.3
Total assumed Senior Notes$5,000.0
  
  
 $5,065.2
$5,000.0
  
 $5,041.9
 

The effective interest rates above exclude the effect of any related interest rate swaps. The book values above include any premiums, discounts, 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”)(RCF) with a number of financial institutions. As of September 30, 2017,March 31, 2018, the Company utilized $1,050.0$75.0 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.


Term Loan Facilities Agreements

November 2015 Facilities Agreement

On November 2, 2015, Shire entered into a $5.6 billion facilities agreement (the “November(November 2015 Facilities Agreement”)Agreement), which is comprised of three amortizing credit facilities. Thefacilities with ultimate maturity on November 2, 2018. As of March 31, 2018, 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.$900.0 million.

Short-term uncommitted lines of credit (“Credit lines”)(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,March 31, 2018, $28.3 million was borrowed under these Credit lines were not utilized.lines.

Capital Lease Obligations

The capital leases are primarily related to office and manufacturing facilities. As of September 30, 2017,March 31, 2018, the total capital lease obligations, including current portions, were $349.1$349.5 million.

14.    Retirement and Other Benefit Programs

The Company sponsors various pension and other post-employment benefit (“OPEB”)(OPEB) plans in the U.S. and other countries. Net periodic benefit cost for the three months ended March 31, 2018 and 2017 is as follows:
 Three months ended March 31,
 2018 2017
(In millions)U.S. pensions International pensions OPEB (U.S.) U.S. pensions International pensions OPEB (U.S.)
Net periodic benefit cost 
  
  
  
  
  
Service cost$—
 $9.5
 $—
 $3.7
 $9.4
 $0.3
Interest cost3.9
 1.3
 0.1
 3.9
 1.2
 0.3
Expected return on plan assets(4.3) (2.0) —
 (4.0) (1.8) —
Amortization of net prior service cost—
 —
 (0.2) —
 —
 —
Amortization of actuarial gain—
 (0.3) —
 —
 —
 —
Net periodic benefit cost$(0.4) $8.5
 $(0.1) $3.6
 $8.8
 $0.6

The components of net periodic benefit cost associated withother than the service cost component are included in the line item Other income/(expense),net in these plans consistedUnaudited Consolidated Statement 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 cost3.9
 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 cost11.7
 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.Operations.


15.    Accumulated Other Comprehensive Income/(Loss)

The changes in accumulatedAccumulated other comprehensive income/(loss) ("AOCI")(AOCI), net of their related tax effects, for the ninethree months ended September 30,March 31, 2018 and 2017 and 2016 are included below:as follows:
(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)/incomeForeign currency translation adjustment Pension and other employee benefits 
Unrealized
holding gain/(loss) on available-for-sale debt securities
 Accumulated other comprehensive income
As of January 1, 2017$(1,505.4) $(5.2) $6.6
 $6.4
 $(1,497.6)
As of January 1, 2018$1,279.6
 $27.5
 $67.9
 $1,375.0
Current period change:       
Other comprehensive income before reclassifications2,441.1
 9.7
 24.7
 0.5
 2,476.0
539.5
 —
 —
 539.5
Amounts reclassified from AOCI—
 1.3
 (4.4) (6.2) (9.3)—
 (0.5) (67.9) (68.4)
Net current period other comprehensive income/(loss)2,441.1
 11.0
 20.3
 (5.7) 2,466.7
539.5
 (0.5) (67.9) 471.1
As of September 30, 2017$935.7
 $5.8
 $26.9
 $0.7
 $969.1
As of March 31, 2018$1,819.1
 $27.0
 $—
 $1,846.1

The Company adopted ASU 2016-01 on January 1, 2018. Upon adoption, the Company reclassified unrealized holding gain on available-for-sale equity securities totaling $67.9 million to Retained earnings. For further information, refer to Note 1, Summary of Significant Accounting Policies, to these Unaudited Consolidated Financial Statements.

(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) $—
 $(183.8)
Net current period other comprehensive income38.8
 —
 10.4
 0.4
 49.6
As of September 30, 2016$(143.3) $—
 $8.7
 $0.4
 $(134.2)
(In millions)Foreign currency translation adjustment Pension and other employee benefits Unrealized holding loss on available-for-sale securities Hedging activities Accumulated other comprehensive loss
As of January 1, 2017$(1,505.4) $(5.2) $6.6
 $6.4
 $(1,497.6)
Current period change:         
Other comprehensive income/(loss) before reclassifications265.5
 7.4
 2.1
 (0.3) 274.7
Amounts reclassified from AOCI—
 —
 —
 (4.2) (4.2)
Net current period other comprehensive income/(loss)265.5
 7.4
 2.1
 (4.5) 270.5
As of March 31, 2017$(1,239.9) $2.2
 $8.7
 $1.9
 $(1,227.1)

ReclassificationsThe following is a summary of the amounts reclassified from AOCI to net income/(loss)the Unaudited Consolidated Statements of Operations during the three and nine months ended September 30, 2017March 31, 2018 and 2016 were not material.2017.

 Three months ended March 31, 
(In millions)2018 2017Location of impact in the Unaudited Consolidated Statements of Operations
Pension and employee benefits    
Amortization of net prior service credit$(0.2) $—
Other (expense)/income, net
Amortization of actuarial gain(0.3) —
Other (expense)/income, net
 (0.5) —
Total before tax
 —
 —
Tax expense
 (0.5) —
Net of tax
Losses on hedging activities    
Foreign exchange contracts—
 6.6
Cost of sales
 —
 6.6
Total before tax
 —
 (2.4)Tax expense
 —
 4.2
Net of tax
     
Total reclassifications for the period$(0.5) $4.2
Total net of tax

16.    Taxation 

For the three and nine months ended September 30, 2017,March 31, 2018, the effective tax rate on income from continuing operations was 7% (2017: 2% (2016: 38%) and 4% (2016: 246%), respectively..

The effective tax rate for the three and nine months endedSeptember 30, 2017 was March 31, 2018 has been affected by certain provisions of the combinedU.S. Tax Cuts and Jobs Act (Tax Act) passed in December 2017, which enacts a U.S. federal tax rate of 21% along with anti-deferral provisions and new limitations on certain deductions required under the Tax Act.  Due to enactment late in the Company’s annual 2017 reporting period, the Company included the provisional amounts in its annual financial statements for the year ended December 31, 2017. The Company continued to assess the impact of the relative quantumTax Act during the three months ended March 31, 2018 and recorded an adjustment of $22.0 million to its provisional estimate related to the remeasurement of deferred tax assets and liabilities. This remeasurement reduced the effective tax rate for the three months ended March 31, 2018 by 3%.

It is expected that additional interpretive guidance will be issued that may change how the Company has computed the provisional amounts for the year ended December 31, 2017. The Company will continue to assess the impact of the profit before tax forTax Act during the measurement period by jurisdictionand will record any adjustments to its provisional estimates as well as significant acquisitionneeded during the remainder of 2018 and integration costs. Additionally, certaincontinues to assert that all amounts recorded and disclosed to date remain provisional.

Certain discrete events occurred during the yearQ1 2017 which contributed to the low effective tax rate, including the recording of a net tax benefit associated with the filing of the US returns and the reversal ofrelated to prior period incomeyear 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")(EPS) for the periods presented:
Three months ended September 30, Nine months ended September 30,Three months ended
March 31,
(In millions)2017 2016 2017 20162018 2017
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)
Income from continuing operations, net of taxes$550.6
 $354.8
Gain from discontinued operations, net of taxes—
 20.2
Numerator for basic and diluted earnings per share$550.8

$(386.8) $1,166.1
 $(129.9)$550.6
 $375.0
          
Weighted average number of shares:          
Basic907.2
 900.2
 905.9
 725.5
909.5
 904.1
Effect of dilutive shares: 
  
     
  
Share-based awards to employees4.4
 —
 6.2
 —
2.6
 7.7
Diluted911.6
 900.2
 912.1
 725.5
912.1
 911.8

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,Three months ended
March 31,
(Number of shares in millions)2017 2016 2017 20162018 2017
Share-based awards to employees16.2
 14.6
 14.8
 9.7
15.9
 7.3

Certain stock options have been excluded from the calculation of diluted EPS for the three and nine months ended September 30,March 31, 2018 and 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.


18.    Share-based Compensation Plans

Total share-based compensation recorded by the Company during the three and nine months ended September 30,March 31, 2018 and 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 development3.2
 14.4
 22.9
 33.4
Selling, general and administrative30.9
 24.9
 94.1
 49.1
Integration and acquisition costs1.8
 26.7
 12.6
 170.7
Total53.3
 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.
 Three months ended March 31,
(In millions)2018 2017
Cost of sales$7.9
 $6.6
Research and development12.8
 10.0
Selling, general and administrative19.5
 31.3
Integration and acquisition costs0.8
 4.8
Total41.0
 52.7
Less tax(7.1) (13.1)
 $33.9
 $39.6

For further details on existing share-based compensation plans, refer to Note 27,23, Share-based Compensation Plans, of Shire's 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2017.


The Company made immaterial equity compensation grantsamended the mix of performance share units to employees duringinclude market condition, based on relative total shareholder return, commencing with the 2018 annual grant.

During the three months ended September 30, 2017. During the nine months ended September 30, 2017,March 31, 2018, the Company made equity compensation grants to employees consisting of 9.010.6 million of stock-settled share appreciation rights (“SARs”)(SARs), 2.22.9 million of restricted stock units (“RSUs”)(RSUs), and 0.60.4 million of performance share units (“PSUs”)(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, lease2032. Lease and rental expense totaled $41.7amounted to $47.6 million and $126.7$42.6 million, (2016: $32.7 millionfor the three months ended March 31, 2018 and $63.0 million, respectively),2017, respectively, which is predominantlypredominately included in Cost of sales and Selling, general and administrativeSG&A expenses in the Company’s Unaudited Consolidated StatementsStatement of Operations.

Letters of credit and guarantees 

As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companies totaling $203.8$223.0 million and $139.7$224.8 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,March 31, 2018, the Company had committed to pay approximately $1,242.1$1,420.6 million (December 31, 2016: $1,037.42017: $1,409.9 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.


Contract manufacturing

As of September 30, 2017,March 31, 2018, the Company had committed to pay approximately $483.9$330.0 million (December 31, 2016: $528.92017: $467.2 million) in respect of contract manufacturing. The Company expects to pay $189.7$227.1 million of these commitments in 2017.2018.

Other purchasing commitments

As of September 30, 2017,March 31, 2018, the Company had committed to pay approximately $1,523.2$1,521.8 million (December 31, 2016: $1,745.42017: $1,692.5 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $682.7$1,169.0 million of these commitments in 2017.2018.

Investment commitments

As of September 30, 2017,March 31, 2018, the Company had outstanding commitments to purchase common stock and interests in companies and partnerships, respectively, for amounts totaling $54.1$54.7 million (December 31, 2016: $76.42017: $48.9 million), which may all be payable in 2017,during 2018, depending on the timing of capital calls. The investment commitments include additional funding to certain variable interest entities ("VIEs")(VIEs) for which Shire is not the primary beneficiary.

Capital commitments

As of September 30, 2017,March 31, 2018, the Company had committed to spend $145.9$405.2 million (December 31, 2016: $100.52017: $328.2 million) on capital projects.


Baxter related tax indemnification

Baxter International Inc. ("Baxter")(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,March 31, 2018, provision for litigation losses, insurance claims, and other disputes totaled $64.1$79.5 million (December 31, 2016: $415.02017: $76.2 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.


MYDAYIS

On October 12, 2017, Shire was notified that Teva Pharmaceuticals USA, Inc. had submitted an abbreviated new drug application (“ANDA”)(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 ZydusTeva Pharmaceuticals USA, Inc., Actavis Laboratories, Inc. and Cadila HealthcareTeva Pharmaceutical Industries Limited doing business as Zydus Cadila. A(collectively the “Teva entities”). No dates for a Markman hearing took place on January 29, 2015 and a Markman ruling was issued on July 28, 2015. Aor 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 hashave been approved and the generic product is now available in the U.S.set.

In February 2012,On March 8, 2018, Shire was notified that Osmotica Pharmaceutical Corporation (“Osmotica”)Impax Laboratories, Inc. (Impax) had submitted an ANDA underto the Hatch-Waxman ActFDA seeking permission to market a generic version of LIALDA.MYDAYIS. Within the requisite 45-day period, Shire filed a lawsuit in the U.S. District Court for the Northern District of GeorgiaDelaware against Osmotica. AImpax. No dates for 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.or trial have been set.

In March 2012,On April 19, 2018, Shire was notified that Watson Laboratories Inc.-FloridaSpecGX LLC (SpecGX) had submitted an ANDA underto the Hatch-Waxman ActFDA seeking permission to market a generic version of LIALDA. WithinMYDAYIS. Shire is currently reviewing the requisite 45-day period,contents of the notification. In the event Shire filedfiles a lawsuit within 45 days of receipt of the letter, a stay of approval of up to thirty months will be 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 rulingeffect with respect 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.SpecGX ANDA.

In April 2012, Shire was notified that Mylan had submitted an ANDA under the Hatch-Waxman Act seeking permissionPetitions to market a generic versioninstitute inter partes reviews (IPRs) against U.S. Patent numbers 8,846,100 and 9,173,857 were filed by KVK Tech. Both of LIALDA. Within the requisite 45-day period, Shire filed a lawsuitthese patents are listed 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 ofas covering MYDAYIS and are among the patents-in-suit in the infringement action brought against the court also entered an injunction prohibiting Mylan from making, using, selling, offering for sale and/or importing their proposed ANDA product beforeTeva entities and Impax as noted above. A decision on whether to institute the expiration of the patent (June 8, 2020) and requiring that the approval date for their ANDA beIPRs is expected on or afterbefore July 10, 2018. If one or both IPRs are instituted, a decision on 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 appealmerits is expected on or before July 7, 2017.


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.2019.

VANCOCIN

On April 6, 2012, ViroPharma Incorporated (“ViroPharma”)(ViroPharma) received a notification that the United States Federal Trade Commission (“FTC”)(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. On March 20, 2018, the court granted the Company’s motion. On April 11, 2018, the FTC filed a Notice of Appeal.

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. During the last quarter of 2017, the State of Sao Paulo filed appeals addressed to the Superior Court of Justice and to the Supreme Court.

21.Segment Reporting

In 2018, the Company announced a change to its internal structure to create two distinct business segments within Shire: a Rare Disease division and a Neuroscience division. The Rare Disease division focuses on treatments for rare diseases and other conditions with high unmet needs, including immunology, hematology, and genetic diseases. The Neuroscience division focuses on treatments of Attention Deficit Hyperactivity Disorder (ADHD) and certain other disorders.

The change was based on the Board's conclusion that the Neuroscience business warrants additional focus and investment and that there was a strong business rationale for creating the two divisions. As a result, the Company now reports its financial performance based on its new segments: Rare Disease and Neuroscience. This is consistent with how the financial information is viewed for the purposes of evaluating performance, allocating resources, and planning and forecasting future periods and how the operations are managed by the Executive Committee, (Shire’s chief operating decision maker). Comparative financial information for 2017 was retrospectively restated herein.

The Executive Committee evaluates segment performance for its two operating segments based on Segment contribution. There are no intersegment sales or intersegment allocations of expenses. Segment contribution for each segment represents Total revenues less Cost of sales, direct selling and marketing expenses, and direct R&D expenses.

The Company does not include the following items in Segment contribution:

• certain unallocated shared functional costs;
• general and administrative expenses;
• amortization and depreciation expense; and
• other items such as asset impairment charges, acquisition and integration costs, restructuring charges, costs related licensing arrangement, and other non-recurring or unusual charges.

The Company’s chief operating decision maker does not receive any asset information by operating segment and, accordingly, the Company does not report asset information by operating segment.



The following table presents Revenues and Segment contribution and a reconciliation to Income from continuing operations before taxes and equity in earnings of equity method investees, respectively, per the consolidated statements of income.
 Three months ended March 31,
(In millions, except %)2018 2017
Revenues:   
Rare Disease$2,828.3
 $2,603.3
Neuroscience937.4
 969.0
Total revenues$3,765.7
 $3,572.3
    
Segment contribution:   
Rare Disease$1,366.6
 $1,339.7
Neuroscience769.9
 792.6
Total Segment contribution$2,136.5
 $2,132.3
Less: reconciling items to operating income from continuing operations   
Unallocated corporate and shared functional costs, including G&A expenses529.5
 555.9
Expense related to the unwind of inventory fair value adjustments33.5
 480.4
One-time employee related costs—
 (4.0)
Costs relating to license arrangements10.0
 —
Amortization of acquired intangible assets484.0
 364.0
Integration and acquisition costs239.7
 116.0
Reorganization costs5.3
 5.5
Gain on sale of product rights—
 (5.5)
Depreciation140.2
 122.9
Operating income from continuing operations694.3
 497.1
Operating margin percentage18.4% 13.9%
Other expense, net(101.2) (134.7)
Income from continuing operations before taxes and equity in earnings/(losses) of equity method investees$593.1
 $362.4


In the periods set out below, U.S. and International sales by franchise were as follows:
 Three months ended
 March 31, 2018 March 31, 2017
(In millions)U.S. Sales International Sales Total Sales U.S. Sales International Sales Total Sales
Product sales by franchise           
IMMUNOGLOBULIN THERAPIES$421.6
 $136.3
 $557.9
 $405.4
 $92.9
 $498.3
HEREDITARY ANGIOEDEMA332.4
 36.4
 368.8
 339.7
 26.4
 366.1
BIO THERAPEUTICS82.5
 116.7
 199.2
 69.7
 108.2
 177.9
Immunology836.5
 289.4
 1,125.9
 814.8
 227.5
 1,042.3
HEMOPHILIA393.1
 349.7
 742.8
 341.5
 308.9
 650.4
INHIBITOR THERAPIES60.6
 149.2
 209.8
 70.7
 149.8
 220.5
Hematology453.7
 498.9
 952.6
 412.2
 458.7
 870.9
REPLAGAL—
 124.2
 124.2
 —
 109.7
 109.7
ELAPRASE41.0
 77.4
 118.4
 38.2
 102.4
 140.6
VPRIV36.7
 53.2
 89.9
 35.5
 44.3
 79.8
Genetic Diseases77.7
 254.8
 332.5
 73.7
 256.4
 330.1
GATTEX/REVESTIVE80.3
 15.9
 96.2
 57.0
 12.0
 69.0
NATPARA/NATPAR43.2
 1.8
 45.0
 29.6
 0.1
 29.7
Other Internal Medicine(1)
0.7
 37.0
 37.7
 0.2
 33.2
 33.4
Internal Medicine124.2
 54.7
 178.9
 86.8
 45.3
 132.1
Oncology43.4
 23.5
 66.9
 42.3
 16.0
 58.3
Ophthalmics61.6
 0.5
 62.1
 38.6
 —
 38.6
Total Rare Disease product sales$1,597.1
 $1,121.8
 $2,718.9
 $1,468.4
 $1,003.9
 $2,472.3
(1) Other Internal Medicine includes AGRYLIN, PLENADREN, and RESOLOR.
VYVANSE$557.2
 $71.6
 $628.8
 $508.5
 $55.2
 $563.7
ADDERALL XR72.1
 3.9
 76.0
 59.3
 5.6
 64.9
PENTASA72.4
 —
 72.4
 69.1
 —
 69.1
LIALDA/MEZAVANT30.5
 31.5
 62.0
 153.1
 22.0
 175.1
MYDAYIS4.5
 —
 4.5
 —
 —
 —
Other Neuroscience(1)
21.2
 53.3
 74.5
 26.4
 40.8
 67.2
Total Neuroscience product sales$757.9
 $160.3
 $918.2
 $816.4
 $123.6
 $940.0
(1) Other Neuroscience includes FOSRENOL, INTUNIV, EQUASYM, BUCCOLAM, and CARBATROL

In the periods set out below, Royalties and other revenues by segment were as follows:
 Three months ended
(In millions)March 31, 2018 March 31, 2017
Rare Disease royalties and other revenues$109.4
 $131.0
Neuroscience royalties and other revenues19.2
 29.0
Royalties and other revenues$128.6
 $160.0


21.22.    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 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2017.

TheDuring the three months ended March 31, 2018, 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$49.1 million (2017: $40.3 million) and $106.5 million, respectively, and during the three and nine months endedSeptember 30, 2016 of approximately $31.0 million and $47.0 million, respectively. The Company reported Selling, general and administrative expensesexpense associated with the transition services agreement with Baxter during the three and nine months ended September 30, 2017 of approximately $9.8$7.6 million and $43.5 million, respectively, and during the three and nine months endedSeptember 30, 2016 of approximately $24.0 million and $32.0 million, respectively.(2017: $18.9 million). Net tax-related indemnification liabilities as of September 30, 2017March 31, 2018, 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 amountsAmounts due from or to Baxter consist of $95.6 millionthe following:
(In millions)March 31, 2018 December 31, 2017
Accounts receivable from Baxter$104.4
 $103.1
Accounts payable to Baxter (current)33.8
 63.2
Accounts payable to Baxter (non-current)59.6
 59.6

Accounts receivable from Baxter are reported in Prepaid expenses and other current assets, $33.6 million reported in Other non-current assets, $60.4 millionand Accounts payable to Baxter (current) and (non-current) are reported in Other current liabilities and $59.6 million reported in Other non-current liabilities.liabilities, respectively, in these Unaudited Consolidated Balance Sheets.

22.Segment Reporting23.    Subsequent Events

Shire operates as one operatingOn April 16, 2018, the Company announced that it has entered into a definitive agreement with Servier S.A.S. (Servier) to sell its Oncology franchise, which is included within the Company's Rare Disease segment, for $2.4 billion. Under the terms of the agreement, Servier has agreed to acquire Shire’s Oncology franchise for a total consideration of $2.4 billion, in cash, upon completion. The transaction covers the transfer of Shire’s Oncology franchise including marketed products and reportable segment engagedIPR&D assets. The transaction is expected to close in the research, development, licensing, manufacturing, marketing, distribution and salesecond or third quarter of innovative specialist medicines to meet significant unmet patient needs.2018.

ForOn April 23, 2018, the Company’s Board received a more detailed descriptionrevised proposal from Takeda Pharmaceutical Company Limited (Takeda) for a potential offer. This proposal represented approximately £49 per Shire ordinary share listed in the UK, equivalent to a value of segment disclosures about products, geographic areasapproximately £46 billion for the total share capital of the company. After careful consideration, the Shire Board has indicated to Takeda that it would be willing to recommend the revised proposal to Shire shareholders, subject to the satisfactory resolution of the other terms of the possible offer, including completion of due diligence by Shire on Takeda. In addition, prior to making any firm offer, Takeda will be: (i) conducting confirmatory due diligence; (ii) seeking agreement on certain other terms of its revised proposal; (iii) seeking final approval from its own Board; and major customers, refer(iv) seeking the unanimous and unconditional recommendation of the Shire Board. In order to Note 22, Segment Reporting, of Shire's 2016 Form 10-K.

Inallow time for these discussions, Shire’s Board has agreed to extend 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 THERAPIES190.7
 181.7
 631.9
 255.7
Hematology916.0
 884.1
 2,751.5
 1,233.7
IMMUNOGLOBULIN THERAPIES605.1
 472.5
 1,613.9
 610.7
BIO THERAPEUTICS196.6
 134.0
 546.7
 185.3
Immunology801.7
 606.5
 2,160.6
 796.0
VYVANSE538.4
 512.6
 1,620.3
 1,539.5
ADDERALL XR106.0
 80.5
 242.3
 281.1
MYDAYIS10.2
 —
 25.9
 —
Other Neuroscience36.5
 23.4
 91.3
 81.2
Neuroscience691.1
 616.5
 1,979.8
 1,901.8
FIRAZYR195.5
 146.3
 461.4
 411.3
ELAPRASE152.9
 146.7
 454.5
 424.3
REPLAGAL117.2
 118.9
 349.0
 340.5
VPRIV89.6
 87.7
 257.3
 259.3
CINRYZE56.9
 165.4
 458.7
 502.6
KALBITOR16.0
 11.1
 48.3
 39.2
Genetic Diseases628.1
 676.1
 2,029.2
 1,977.2
LIALDA/MEZAVANT86.7
 208.6
 469.6
 570.3
GATTEX/REVESTIVE84.9
 58.1
 229.2
 154.3
PENTASA72.1
 85.4
 224.5
 222.3
NATPARA39.1
 23.3
 103.3
 58.8
Other Internal Medicine68.2
 87.3
 227.5
 260.6
Internal Medicine351.0
 462.7
 1,254.1
 1,266.3
Ophthalmics77.4
 14.1
 173.4
 14.1
Oncology68.5
 55.4
 189.3
 75.7
Total Product sales3,533.8
 3,315.4
 10,537.9
 7,264.8
Royalties and other revenues       
SENSIPAR royalties42.8
 38.7
 128.1
 112.2
3TC and ZEFFIX royalties16.1
 16.2
 38.8
 43.3
FOSRENOL royalties14.3
 13.7
 35.0
 34.3
ADDERALL XR royalties7.7
 4.7
 33.6
 15.7
Other Royalties and revenues82.9
 63.4
 242.3
 120.2
Total Royalties and other revenues163.8
 136.7
 477.8
 325.7
Total Revenues$3,697.6
 $3,452.1
 $11,015.7
 $7,590.5

offer period under the UK Takeover code to 5.00 p.m. (London time) on May 8, 2018.

23.24.    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”"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.

Condensed Consolidating Balance Sheet
As of September 30, 2017Shire 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) 
      
  
    
Condensed Consolidating Balance SheetsCondensed Consolidating Balance Sheets
(Unaudited, In millions)
(Unaudited, In millions)
As of March 31, 2018Shire 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
ASSETS 
      
  
    
 
      
  
    
Current assets: 
      
  
    
 
      
  
    
Cash and cash equivalents$—
 $—
 $0.9
 $208.4
 $208.4
 $—
 $209.3
$—
 $—
 $—
 $317.7
 $317.7
 $—
 $317.7
Restricted cash—
 —
 —
 34.3
 34.3
 —
 34.3
—
 —
 —
 35.5
 35.5
 —
 35.5
Accounts receivable, net—
 —
 —
 2,840.7
 2,840.7
 —
 2,840.7
—
 —
 —
 3,140.5
 3,140.5
 —
 3,140.5
Inventories—
 —
 —
 3,427.3
 3,427.3
 —
 3,427.3
—
 —
 —
 3,340.8
 3,340.8
 —
 3,340.8
Prepaid expenses and other current assets—
 1.4
 98.1
 680.4
 681.8
 —
 779.9
—
 1.6
 94.1
 984.8
 986.4
 —
 1,080.5
Intercompany receivables—
 52.5
 —
 4,313.5
 4,366.0
 (4,366.0) —
—
 37.6
 —
 4,510.5
 4,548.1
 (4,548.1) —
Short term intercompany loan receivable—
 1,849.6
 —
 —
 1,849.6
 (1,849.6) —
—
 974.0
 —
 —
 974.0
 (974.0) —
Total current assets—
 1,903.5
 99.0
 11,504.6
 13,408.1
 (6,215.6) 7,291.5
—
 1,013.2
 94.1
 12,329.8
 13,343.0
 (5,522.1) 7,915.0
Investments39,685.8
 —
 36,851.3
 12,604.4
 12,604.4
 (88,941.8) 199.7
44,476.9
 —
 39,557.0
 13,223.5
 13,223.5
 (96,985.6) 271.8
Property, plant and equipment ("PP&E"), net—
 —
 7.1
 6,572.4
 6,572.4
 —
 6,579.5
Property, plant and equipment (PP&E), net—
 —
 5.6
 6,454.5
 6,454.5
 —
 6,460.1
Goodwill—
 —
 —
 19,718.4
 19,718.4
 —
 19,718.4
—
 —
 —
 19,988.6
 19,988.6
 —
 19,988.6
Intangible assets, net—
 —
 —
 33,350.3
 33,350.3
 —
 33,350.3
—
 —
 —
 32,864.3
 32,864.3
 —
 32,864.3
Deferred tax asset—
 —
 294.6
 94.6
 94.6
 (294.6) 94.6
—
 —
 304.1
 189.2
 189.2
 (304.1) 189.2
Long term intercompany loan receivable—
 13,243.3
 1,223.5
 —
 13,243.3
 (14,466.8) —
—
 12,053.3
 1,386.7
 —
 12,053.3
 (13,440.0) —
Other non-current assets—
 3.2
 36.0
 203.3
 206.5
 —
 242.5
—
 2.5
 —
 177.3
 179.8
 —
 179.8
Total assets$39,685.8
 $15,150.0
 $38,511.5
 $84,048.0
 $99,198.0
 $(109,918.8) $67,476.5
$44,476.9
 $13,069.0
 $41,347.5
 $85,227.2
 $98,296.2
 $(116,251.8) $67,868.8
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
$1.0
 $7.5
 $67.0
 $3,863.5
 $3,871.0
 $—
 $3,939.0
Short term borrowings and capital leases—
 1,849.6
 748.2
 31.4
 1,881.0
 —
 2,629.2
—
 974.0
 749.5
 63.7
 1,037.7
 —
 1,787.2
Intercompany payables3,615.2
 —
 750.8
 —
 —
 (4,366.0) —
3,605.5
 —
 942.6
 —
 —
 (4,548.1) —
Short term intercompany loan payable—
 —
 —
 1,849.6
 1,849.6
 (1,849.6) —
—
 —
 —
 974.0
 974.0
 (974.0) —
Other current liabilities575.5
 —
 10.3
 375.6
 375.6
 —
 961.4
578.0
 —
 3.1
 637.3
 637.3
 —
 1,218.4
Total current liabilities4,191.4
 1,857.3
 1,570.3
 6,057.7
 7,915.0
 (6,215.6) 7,461.1
4,184.5
 981.5
 1,762.2
 5,538.5
 6,520.0
 (5,522.1) 6,944.6
Long term borrowings and capital leases—
 13,243.3
 4,317.0
 395.7
 13,639.0
 —
 17,956.0
—
 12,053.3
 4,292.4
 388.0
 12,441.3
 —
 16,733.7
Deferred tax liability—
 —
 —
 7,976.3
 7,976.3
 (294.6) 7,681.7
—
 —
 —
 5,020.5
 5,020.5
 (304.1) 4,716.4
Long term intercompany loan payable2,839.8
 —
 —
 11,627.0
 11,627.0
 (14,466.8) —
2,892.4
 —
 —
 10,547.6
 10,547.6
 (13,440.0) —
Other non-current liabilities—
 —
 62.4
 1,660.7
 1,660.7
 —
 1,723.1
—
 —
 86.9
 1,987.2
 1,987.2
 —
 2,074.1
Total liabilities7,031.2
 15,100.6
 5,949.7
 27,717.4
 42,818.0
 (20,977.0) 34,821.9
7,076.9
 13,034.8
 6,141.5
 23,481.8
 36,516.6
 (19,266.2) 30,468.8
Total equity32,654.6
 49.4
 32,561.8
 56,330.6
 56,380.0
 (88,941.8) 32,654.6
37,400.0
 34.2
 35,206.0
 61,745.4
 61,779.6
 (96,985.6) 37,400.0
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
$44,476.9
 $13,069.0
 $41,347.5
 $85,227.2
 $98,296.2
 $(116,251.8) $67,868.8

Condensed Consolidating Balance Sheet
As of December 31, 2016Shire 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) 
        
  
  
Condensed Consolidating Balance SheetsCondensed Consolidating Balance Sheets
(Unaudited, In millions)
(Unaudited, In millions)
As of December 31, 2017Shire 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
ASSETS 
        
  
  
 
        
  
  
Current assets: 
        
  
  
 
        
  
  
Cash and cash equivalents$—
 $—
 $41.7
 $487.1
 $487.1
 $—
 $528.8
$—
 $—
 $0.5
 $471.9
 $471.9
 $—
 $472.4
Restricted cash—
 —
 —
 25.6
 25.6
 —
 25.6
—
 —
 —
 39.4
 39.4
 —
 39.4
Accounts receivable, net—
 —
 —
 2,616.5
 2,616.5
 —
 2,616.5
—
 —
 —
 3,009.8
 3,009.8
 —
 3,009.8
Inventories—
 —
 —
 3,562.3
 3,562.3
 —
 3,562.3
—
 —
 —
 3,291.5
 3,291.5
 —
 3,291.5
Prepaid expenses and other current assets1.8
 —
 97.1
 707.4
 707.4
 —
 806.3
—
 1.6
 95.2
 698.5
 700.1
 —
 795.3
Intercompany receivables—
 120.5
 —
 5,154.4
 5,274.9
 (5,274.9) —
—
 120.2
 —
 4,682.3
 4,802.5
 (4,802.5) —
Short term intercompany loan receivable—
 2,594.8
 —
 —
 2,594.8
 (2,594.8) —
—
 2,006.3
 —
 —
 2,006.3
 (2,006.3) —
Total current assets1.8
 2,715.3
 138.8
 12,553.3
 15,268.6
 (7,869.7) 7,539.5
—
 2,128.1
 95.7
 12,193.4
 14,321.5
 (6,808.8) 7,608.4
Investments35,656.1
 —
 34,644.2
 12,571.8
 12,571.8
 (82,680.5) 191.6
43,204.3
 —
 38,924.6
 13,059.4
 13,059.4
 (94,947.2) 241.1
Property, plant and equipment ("PP&E"), net—
 —
 27.4
 6,442.2
 6,442.2
 —
 6,469.6
Property, plant and equipment (PP&E), net—
 —
 7.6
 6,627.8
 6,627.8
 —
 6,635.4
Goodwill—
 —
 —
 17,888.2
 17,888.2
 —
 17,888.2
—
 —
 —
 19,831.7
 19,831.7
 —
 19,831.7
Intangible assets, net—
 —
 —
 34,697.5
 34,697.5
 —
 34,697.5
—
 —
 —
 33,046.1
 33,046.1
 —
 33,046.1
Deferred tax asset—
 —
 273.0
 96.7
 96.7
 (273.0) 96.7
—
 —
 304.1
 188.8
 188.8
 (304.1) 188.8
Long term intercompany loan receivable—
 14,431.0
 480.7
 —
 14,431.0
 (14,911.7) —
—
 12,050.2
 1,609.3
 —
 12,050.2
 (13,659.5) —
Other non-current assets3.9
 —
 33.8
 114.6
 114.6
 —
 152.3
—
 2.8
 —
 202.6
 205.4
 —
 205.4
Total assets$35,661.8
 $17,146.3
 $35,597.9
 $84,364.3
 $101,510.6
 $(105,734.9) $67,035.4
$43,204.3
 $14,181.1
 $40,941.3
 $85,149.8
 $99,330.9
 $(115,719.6) $67,756.9
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
$0.2
 $85.9
 $18.1
 $4,080.3
 $4,166.2
 $—
 $4,184.5
Short term borrowings and capital leases450.0
 2,594.8
 —
 23.2
 2,618.0
 —
 3,068.0
—
 2,006.3
 748.8
 33.6
 2,039.9
 —
 2,788.7
Intercompany payables5,247.1
 —
 27.8
 —
 —
 (5,274.9) —
3,585.3
 —
 1,217.2
 —
 —
 (4,802.5) —
Short term intercompany loan payable—
 —
 —
 2,594.8
 2,594.8
 (2,594.8) —
—
 —
 —
 2,006.3
 2,006.3
 (2,006.3) —
Other current liabilities—
 —
 64.6
 298.3
 298.3
 —
 362.9
573.5
 —
 10.7
 324.6
 324.6
 —
 908.8
Total current liabilities5,698.4
 2,680.5
 112.4
 7,121.7
 9,802.2
 (7,869.7) 7,743.3
4,159.0
 2,092.2
 1,994.8
 6,444.8
 8,537.0
 (6,808.8) 7,882.0
Long term borrowings and capital leases—
 14,431.0
 5,063.6
 405.2
 14,836.2
 —
 19,899.8
—
 12,050.2
 4,308.9
 393.3
 12,443.5
 —
 16,752.4
Deferred tax liability—
 —
 —
 8,595.7
 8,595.7
 (273.0) 8,322.7
—
 —
 —
 5,052.3
 5,052.3
 (304.1) 4,748.2
Long term intercompany loan payable610.1
 —
 —
 14,301.6
 14,301.6
 (14,911.7) —
2,868.9
 —
 —
 10,790.6
 10,790.6
 (13,659.5) —
Other non-current liabilities405.3
 —
 61.8
 1,654.5
 1,654.5
 —
 2,121.6
—
 —
 70.0
 2,127.9
 2,127.9
 —
 2,197.9
Total liabilities6,713.8
 17,111.5
 5,237.8
 32,078.7
 49,190.2
 (23,054.4) 38,087.4
7,027.9
 14,142.4
 6,373.7
 24,808.9
 38,951.3
 (20,772.4) 31,580.5
Total equity28,948.0
 34.8
 30,360.1
 52,285.6
 52,320.4
 (82,680.5) 28,948.0
36,176.4
 38.7
 34,567.6
 60,340.9
 60,379.6
 (94,947.2) 36,176.4
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
$43,204.3
 $14,181.1
 $40,941.3
 $85,149.8
 $99,330.9
 $(115,719.6) $67,756.9

Condensed Consolidating Statements of Operations
For the three months ended September 30, 2017Shire 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) 
        
  
  
Condensed Consolidating Statements of OperationsCondensed Consolidating Statements of Operations
(Unaudited, In millions)
(Unaudited, In millions)
Three months ended March 31, 2018Shire 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
Revenues: 
        
  
  
 
        
  
  
Product sales$—
 $—
 $—
 $3,533.8
 $3,533.8
 $—
 $3,533.8
$—
 $—
 $—
 $3,637.1
 $3,637.1
 $—
 $3,637.1
Royalties and other revenues—
 —
 —
 163.8
 163.8
 —
 163.8
—
 —
 —
 128.6
 128.6
 —
 128.6
Total revenues—
 —
 —
 3,697.6
 3,697.6
 —
 3,697.6
—
 —
 —
 3,765.7
 3,765.7
 —
 3,765.7
Costs and expenses:         
  
  
         
  
  
Cost of sales—
 —
 —
 1,001.4
 1,001.4
 —
 1,001.4
—
 —
 —
 1,132.4
 1,132.4
 —
 1,132.4
Research and development—
 —
 —
 402.8
 402.8
 —
 402.8
—
 —
 —
 405.2
 405.2
 —
 405.2
Selling, general and administrative6.1
 —
 4.0
 849.6
 849.6
 —
 859.7
11.9
 —
 2.9
 790.0
 790.0
 —
 804.8
Amortization of acquired intangible assets—
 —
 —
 482.4
 482.4
 —
 482.4
—
 —
 —
 484.0
 484.0
 —
 484.0
Integration and acquisition costs—
 —
 9.2
 227.8
 227.8
 —
 237.0
4.4
 —
 2.1
 233.2
 233.2
 —
 239.7
Reorganization costs—
 —
 —
 5.4
 5.4
 —
 5.4
—
 —
 —
 5.3
 5.3
 —
 5.3
Loss on sale of product rights—
 —
 —
 0.3
 0.3
 —
 0.3
Total operating expenses6.1
 —
 13.2
 2,969.7
 2,969.7
 —
 2,989.0
16.3
 —
 5.0
 3,050.1
 3,050.1
 —
 3,071.4
                          
Operating (loss)/income from continuing operations(6.1) —
 (13.2) 727.9
 727.9
 —
 708.6
Operating income/(loss) from continuing operations(16.3) —
 (5.0) 715.6
 715.6
 —
 694.3
                          
Interest (expense)/income, net(48.0) 3.0
 (23.6) (71.7) (68.7) —
 (140.3)
Interest income/(expense), net(32.3) (4.4) (21.3) (66.4) (70.8) —
 (124.4)
Other income/(expense), net—
 —
 4.4
 (4.6) (4.6) —
 (0.2)(0.6) —
 2.0
 21.8
 21.8
 —
 23.2
Total other (expense)/income, net(48.0) 3.0
 (19.2) (76.3) (73.3) —
 (140.5)
Total other income/(expense), net(32.9) (4.4) (19.3) (44.6) (49.0) —
 (101.2)
                          
(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/(loss) from continuing operations before income taxes and equity in earnings/(losses) of equity method investees(49.2) (4.4) (24.3) 671.0
 666.6
 —
 593.1
Income taxes0.9
 0.6
 (8.9) (6.1) (5.5) —
 (13.5)0.9
 1.1
 4.4
 (49.7) (48.6) —
 (43.3)
Equity in income/(losses) of equity method investees, net of taxes604.0
 —
 (79.8) (3.3) (3.3) (524.3) (3.4)
Equity in earnings/(losses) of equity method investees, net of taxes598.9
 —
 92.6
 0.8
 0.8
 (691.5) 0.8
Income/(loss) from continuing operations, net of taxes550.8
 3.6
 (121.1) 642.2
 645.8
 (524.3) 551.2
550.6
 (3.3) 72.7
 622.1
 618.8
 (691.5) 550.6
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
550.6
 (3.3) 72.7
 622.1
 618.8
 (691.5) 550.6
Comprehensive income/(loss)$1,319.8
 $3.6
 $581.0
 $1,411.2
 $1,414.8
 $(1,995.8) $1,319.8
$1,021.7
 $(3.3) $572.8
 $1,093.2
 $1,089.9
 $(1,662.7) $1,021.7

Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2017Shire 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) 
        
  
  
Condensed Consolidating Statements of OperationsCondensed Consolidating Statements of Operations
(Unaudited, In millions)
(Unaudited, In millions)
Three months ended March 31, 2017Shire plc (Parent Guarantor) SAIIDAC (Subsidiary Issuer) Baxalta Inc. (Subsidiary Issuer) Non-Guarantor Non-Issuer Subsidiaries Non-Guarantor Subsidiaries of Baxalta Notes Eliminations Consolidated
Revenues: 
        
  
  
 
        
  
  
Product sales$—
 $—
 $—
 $10,537.9
 $10,537.9
 $—
 $10,537.9
$—
 $—
 $—
 $3,412.3
 $3,412.3
 $—
 $3,412.3
Royalties and other revenues—
 —
 —
 477.8
 477.8
 —
 477.8
—
 —
 —
 160.0
 160.0
 —
 160.0
Total revenues—
 —
 —
 11,015.7
 11,015.7
 —
 11,015.7
—
 —
 —
 3,572.3
 3,572.3
 —
 3,572.3
Costs and expenses:         
  
  
         
  
  
Cost of sales—
 —
 —
 3,437.3
 3,437.3
 —
 3,437.3
—
 —
 1.2
 1,325.8
 1,325.8
 —
 1,327.0
Research and development—
 —
 —
 1,324.5
 1,324.5
 —
 1,324.5
—
 —
 —
 379.3
 379.3
 —
 379.3
Selling, general and administrative24.2
 —
 15.3
 2,608.2
 2,608.2
 —
 2,647.7
14.0
 —
 5.7
 869.2
 869.2
 —
 888.9
Amortization of acquired intangible assets—
 —
 —
 1,280.5
 1,280.5
 —
 1,280.5
—
 —
 —
 364.0
 364.0
 —
 364.0
Integration and acquisition costs164.7
 —
 52.3
 479.7
 479.7
 —
 696.7
—
 —
 25.6
 90.4
 90.4
 —
 116.0
Reorganization costs—
 —
 —
 24.5
 24.5
 —
 24.5
—
 —
 —
 5.5
 5.5
 —
 5.5
Gain on sale of product rights—
 —
 —
 (0.4) (0.4) —
 (0.4)—
 —
 —
 (5.5) (5.5) —
 (5.5)
Total operating expenses188.9
 —
 67.6
 9,154.3
 9,154.3
 —
 9,410.8
14.0
 —
 32.5
 3,028.7
 3,028.7
 —
 3,075.2
                          
Operating (loss)/income from continuing operations(188.9) —
 (67.6) 1,861.4
 1,861.4
 —
 1,604.9
Operating income/(loss) from continuing operations(14.0) —
 (32.5) 543.6
 543.6
 —
 497.1
                          
Interest (expense)/income, net(109.1) 14.5
 (66.5) (258.6) (244.1) —
 (419.7)
Interest income/(expense), net(30.3) 5.4
 (21.4) (92.9) (87.5) —
 (139.2)
Other income/(expense), net1.8
 —
 4.3
 0.7
 0.7
 —
 6.8
—
 —
 0.5
 4.0
 4.0
 —
 4.5
Total other (expense)/income, net(107.3) 14.5
 (62.2) (257.9) (243.4) —
 (412.9)
Total other income/(expense), net(30.3) 5.4
 (20.9) (88.9) (83.5) —
 (134.7)
                          
(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/(loss) from continuing operations before income taxes and equity in earnings/(losses) of equity method investees(44.3) 5.4
 (53.4) 454.7
 460.1
 —
 362.4
Income taxes1.7
 (3.6) (45.0) 2.3
 (1.3) —
 (44.6)1.5
 (1.3) (19.9) 12.9
 11.6
 —
 (6.8)
Equity in income/(losses) of equity method investees, net of taxes1,460.6
 —
 (119.7) 0.1
 0.1
 (1,340.9) 0.1
Equity in earnings/(losses) of equity method investees, net of taxes417.8
 —
 (126.8) (0.8) (0.8) (291.0) (0.8)
Income/(loss) from continuing operations, net of taxes1,166.1
 10.9
 (294.5) 1,605.9
 1,616.8
 (1,340.9) 1,147.5
375.0
 4.1
 (200.1) 466.8
 470.9
 (291.0) 354.8
Gain from discontinued operations, net of taxes—
 —
 —
 18.6
 18.6
 —
 18.6
—
 —
 —
 20.2
 20.2
 —
 20.2
Net income/(loss)1,166.1
 10.9
 (294.5) 1,624.5
 1,635.4
 (1,340.9) 1,166.1
375.0
 4.1
 (200.1) 487.0
 491.1
 (291.0) 375.0
Comprehensive income/(loss)$3,632.8
 $10.9
 $2,031.5
 $4,088.2
 $4,099.1
 $(6,130.6) $3,632.8
$645.5
 $4.1
 $48.7
 $754.0
 $758.1
 $(806.8) $645.5


 Condensed Consolidating Statements of Operations
For the three months ended September 30, 2016Shire 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 operations2.5
 —
 (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)

 Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2016Shire 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 administrative33.3
 —
 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 expenses33.3
 —
 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), net0.8
 —
 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 taxes1.9
 (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)


Condensed Consolidating Statements of Cash Flows
(Unaudited, In millions)
Three months ended March 31, 2018Shire 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
CASH FLOWS FROM OPERATING ACTIVITIES: 
        
  
  
Net cash provided by/(used in) operating activities$(4.6) $(0.5) $(5.6) $1,021.0
 $1,020.5
 $—
 $1,010.3
CASH FLOWS FROM INVESTING ACTIVITIES: 
        
  
  
Transactions with subsidiaries—
 (584.7) (233.9) (1,858.4) (2,443.1) 2,677.0
 —
Purchases of PP&E—
 —
 1.9
 (179.7) (179.7) —
 (177.8)
Other, net—
 —
 0.1
 (11.2) (11.2) —
 (11.1)
Net cash provided by/(used in) investing activities—
 (584.7) (231.9) (2,049.3) (2,634.0) 2,677.0
 (188.9)
CASH FLOWS FROM FINANCING ACTIVITIES: 
        
  
  
Proceeds from revolving line of credit, long term and short term borrowings—
 75.0
 —
 348.3
 423.3
 —
 423.3
Repayment of revolving line of credit, long term and short term borrowings—
 (1,110.0) —
 (329.4) (1,439.4) —
 (1,439.4)
Proceeds from intercompany borrowings4.5
 1,620.2
 233.7
 818.6
 2,438.8
 (2,677.0) —
Proceeds from exercise of options0.1
 —
 3.3
 37.1
 37.1
 —
 40.5
Other, net—
 —
 —
 (6.5) (6.5) —
 (6.5)
Net cash provided by/(used in) financing activities4.6
 585.2
 237.0
 868.1
 1,453.3
 (2,677.0) (982.1)
Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash—
 —
 —
 2.1
 2.1
 —
 2.1
Net decrease in cash and cash equivalents and restricted cash—
 —
 (0.5) (158.1) (158.1) —
 (158.6)
Cash and cash equivalents and restricted cash
at beginning of period		—
 —
 0.5
 511.3
 511.3
 —
 511.8
Cash and cash equivalents and restricted cash
at end of period		$—
 $—
 $—
 $353.2
 $353.2
 $—
 $353.2


 Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2017Shire 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 borrowings2,110.0
 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 borrowings1,919.6
 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 options0.2
 —
 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 activities1,442.2
 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
Condensed Consolidating Statements of Cash Flows
(Unaudited, In millions)
Three months ended March 31, 2017Shire 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
CASH FLOWS FROM OPERATING ACTIVITIES: 
        
  
  
Net cash provided/(used in) operating activities$(9.6) $(84.1) $(0.3) $553.1
 $469.0
 $—
 $459.1
CASH FLOWS FROM INVESTING ACTIVITIES: 
        
  
  
Transactions with subsidiaries(760.6) —
 (110.5) (733.2) (733.2) 1,604.3
 —
Purchases of PP&E—
 —
 (2.4) (210.1) (210.1) —
 (212.5)
Other, net0.3
 —
 2.0
 (1.1) (1.1) —
 1.2
Net cash provided by/(used in) investing activities(760.3) —
 (110.9) (944.4) (944.4) 1,604.3
 (211.3)
CASH FLOWS FROM FINANCING ACTIVITIES: 
        
  
  
Proceeds from revolving line of credit, long term and short term borrowings1,400.0
 —
 —
 1.9
 1.9
 —
 1,401.9
Repayment of revolving line of credit, long term and short term borrowings(820.0) (1,000.0) —
 (5.7) (1,005.7) —
 (1,825.7)
Proceeds from intercompany borrowings189.8
 1,084.1
 69.3
 261.1
 1,345.2
 (1,604.3) —
Proceeds from exercise of options0.1
 —
 2.9
 39.1
 39.1
 —
 42.1
Other, net—
 —
 (2.4) (17.7) (17.7) —
 (20.1)
Net cash provided by/(used in) financing activities769.9
 84.1
 69.8
 278.7
 362.8
 (1,604.3) (401.8)
Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash—
 —
 —
 2.7
 2.7
 —
 2.7
Net decrease in cash and cash equivalents and restricted cash—
 —
 (41.4) (109.9) (109.9) —
 (151.3)
Cash and cash equivalents and restricted cash
at beginning of period		—
 —
 41.7
 512.7
 512.7
 —
 554.4
Cash and cash equivalents and restricted cash
at end of period		$—
 $—
 $0.3
 $402.8
 $402.8
 $—
 $403.1


 Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2016Shire 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 borrowings1,655.0
 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 borrowings3,045.3
 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 options0.3
 —
 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 activities2,469.8
 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

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, 2016.2017.

Significant Events in the Three Months Ended September 30, 2017three months ended March 31, 2018 and Recent Developments

Corporate

Sale of Oncology franchise
On April 16, 2018, Shire announced it has entered into a definitive agreement with Servier S.A.S. to sell its Oncology franchise for $2.4 billion.

Formation of Global Commission to End the Diagnostic Odyssey for Children
On February 20, 2018, Shire, Microsoft, and EURORDIS-Rare Diseases Europe announced a strategic initiative to accelerate time to diagnosis for children with rare diseases.

Business Development

Collaboration with NanoMedSyn
On March 26, 2018, Shire and NanoMedSyn announced a collaboration to conduct pre-clinical research to evaluate a potential enzyme replacement therapy using NanoMedSyn's proprietary synthetic derivatives named AMFA.

Products

FIRAZYRVONVENDI for perioperative management of bleeding in adult patients with von Willebrand disease (VWD)
On April 17, 2018, Shire announced that the U.S. Food and Drug Administration (FDA) approved VONVENDI, a recombinant von Willebrand factor treatment for perioperative management of bleeding in adults with VWD. This approval builds on the previously approved on-demand treatment and control of bleeding episodes indication. 

myPKFiT for ADVATE software
On March 5, 2018, Shire announced the U.S. availability of myPKFiT for ADVATE, a free web-based software for healthcare professionals that is the first and only pharmacokinetic dosing software cleared by the FDA for use with certain hemophilia A patients treated with ADVATE.

CINRYZE for pediatric hereditary angioedema (HAE)
On February 15, 2018, Shire announced that the FDA had accepted the CINRYZE (C1 esterase inhibitor [human]) supplemental Biologics License Application to expand the currently approved indication to include children aged 6 years and older with HAE. The filing received priority review designation from the FDA.

Pipeline
Lanadelumab (SHP643) 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,February 23, 2018, Shire announced that the FDA awarded Orphan Drug Designation to SHP654 (also designated as BAX 888), an investigational factor VIII (FVIII) gene therapyhad accepted the Biologics License Application (BLA) and granted priority review for the treatmentlanadelumab with a PDUFA date of hemophilia A. The FDA also granted Shire Investigational New Drug ("IND") status for SHP654.

SHP674 (ONCASPAR) for the treatment of acute lymphoblastic leukemiaAugust 26, 2018.
On October 12, 2017,February 27, 2018, Shire received a positive opinion fromannounced that the Committee for Medicinal Products for Human Use ("CHMP") recommending(CHMP) of the European Medicines Agency (EMA) had granted an accelerated assessment for lanadelumab. On March 29, 2018, Shire announced that the EMA had validated its marketing authorization application (MAA) and also reported that Health Canada had completed screening and accepted the New Drug Submission (NDS) under priority review.
On April 18, 2018, Shire announced that Swissmedic validated the MAA for Lyophilized ONCASPAR for use as a component of antineoplastic combination therapy in acute lymphoblastic leukemia ("ALL") in all ages.lanadelumab.

SHP607
Prucalopride (SHP555) for the treatment of complications of prematuritychronic idiopathic constipation (CIC)
On September 12, 2017,March 5, 2018, Shire announced that the FDA has granted Fast Track designationhad accepted the submission of a New Drug Application (NDA) for SHP607prucalopride, which is being evaluated as a potential once-daily treatment option for the preventionCIC in adults, with a PDUFA date of chronic lung disease in extremely premature infants. SHP607 is currently in Phase 2 clinical development.December 21, 2018.

SHP616Calaspargase Pegol (SHP663) for the treatment of HAEacute lymphoblastic leukemia (ALL)
On September 11, 2017,February 28, 2018, Shire announced positive topline Phase 3 resultsthat the FDA had accepted the BLA 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.Calaspargase Pegol.

Board ChangesCommittee Change

On August 21, 2017,April 25, 2018, Gail Fosler, Non-Executive Director of Shire, was appointed as a member of the Remuneration Committee.

As previously announced, that Jeff Poulton, Chief Financial Officer, will be leavingfollowing the Company. Theconclusion of our Annual General Meeting on April 24, 2018, Anne Minto, Dominic Blakemore, and William Burns have stepped down from 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 onof Directors. Following the Executive Committee and ondeparture of William Burns from the Board of Directors, of Shire plc until the endOlivier Bohuon has been appointed Senior Independent Director of the year.


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.Board.

Results of Operations for the Three and Nine Months Ended September 30,March 31, 2018 and 2017 and 2016

Product sales

Total product sales increased 7% to $3,637.1 million (2017: $3,412.3 million). Rare Disease product sales growth was 10% with revenue increases across all franchises. Neuroscience product sales declined by 2% due to generic competition for LIALDA, offset by an increase in sales for VYVANSE. Product sales during the three months ended March 31, 2018 also reflect a benefit from favorable foreign currency exchange rates.

Rare Disease segment

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 franchise2017 2016 Product sales growth 2017 2016 Product sales growth
HEMOPHILIA$725.3
 $702.4
 3 % $2,119.6
 $978.0
 N/M
INHIBITOR THERAPIES190.7
 181.7
 5 % 631.9
 255.7
 N/M
Hematology916.0
 884.1
 4 % 2,751.5
 1,233.7
 N/M
IMMUNOGLOBULIN THERAPIES605.1
 472.5
 28 % 1,613.9
 610.7
 N/M
BIO THERAPEUTICS196.6
 134.0
 47 % 546.7
 185.3
 N/M
Immunology801.7
 606.5
 32 % 2,160.6
 796.0
 N/M
VYVANSE538.4
 512.6
 5 % 1,620.3
 1,539.5
 5 %
ADDERALL XR106.0
 80.5
 32 % 242.3
 281.1
 (14)%
MYDAYIS10.2
 —
 N/A
 25.9
 —
 N/A
Other Neuroscience36.5
 23.4
 56 % 91.3
 81.2
 12 %
Neuroscience691.1
 616.5
 12 % 1,979.8
 1,901.8
 4 %
FIRAZYR195.5
 146.3
 34 % 461.4
 411.3
 12 %
ELAPRASE152.9
 146.7
 4 % 454.5
 424.3
 7 %
REPLAGAL117.2
 118.9
 (1)% 349.0
 340.5
 2 %
VPRIV89.6
 87.7
 2 % 257.3
 259.3
 (1)%
CINRYZE56.9
 165.4
 (66)% 458.7
 502.6
 (9)%
KALBITOR16.0
 11.1
 44 % 48.3
 39.2
 23 %
Genetic Diseases628.1
 676.1
 (7)% 2,029.2
 1,977.2
 3 %
LIALDA/MEZAVANT86.7
 208.6
 (58)% 469.6
 570.3
 (18)%
GATTEX/REVESTIVE84.9
 58.1
 46 % 229.2
 154.3
 49 %
PENTASA72.1
 85.4
 (16)% 224.5
 222.3
 1 %
NATPARA39.1
 23.3
 68 % 103.3
 58.8
 76 %
Other Internal Medicine68.2
 87.3
 (22)% 227.5
 260.6
 (13)%
Internal Medicine351.0
 462.7
 (24)% 1,254.1
 1,266.3
 (1)%
Ophthalmics77.4
 14.1
 N/M
 173.4
 14.1
 N/M
Oncology68.5
 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 inCompany's Product sales for the threeRare Disease segment:
 Three months ended March 31,
 (In millions, except %)2018 2017 Product sales growth %
Product sales by segment 
  
  
IMMUNOGLOBULIN THERAPIES$557.9
 $498.3
 12 %
HEREDITARY ANGIOEDEMA368.8
 366.1
 1 %
BIO THERAPEUTICS199.2
 177.9
 12 %
Immunology1,125.9
 1,042.3
 8 %
HEMOPHILIA742.8
 650.4
 14 %
INHIBITOR THERAPIES209.8
 220.5
 (5)%
Hematology952.6
 870.9
 9 %
REPLAGAL124.2
 109.7
 13 %
ELAPRASE118.4
 140.6
 (16)%
VPRIV89.9
 79.8
 13 %
Genetic Diseases332.5
 330.1
 1 %
GATTEX/REVESTIVE96.2
 69.0
 39 %
NATPARA/NATPAR45.0
 29.7
 52 %
Other Internal Medicine(1)
37.7
 33.4
 13 %
Internal Medicine178.9
 132.1
 35 %
Oncology66.9
 58.3
 15 %
Ophthalmics62.1
 38.6
 61 %
Total Rare Disease product sales$2,718.9
 $2,472.3
 10 %
(1) Other Internal Medicine includes AGRYLIN, PLENADREN, and nine months ended September 30, 2017, representing 26% of Shire's reported Product sales in each respective period.RESOLOR.

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 HematologyImmunology
Immunology product sales during the nine months ended September 30, 2017,increased by $83.6 million, or 8%, compared to the corresponding period in 2016, was driven primarily by the inclusion of Baxalta revenues following the acquisition on June 3, 2016.


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 immunoglobulin2017. Immunoglobulin therapies and bio therapeutics products. U.S. product sales benefited fromeach reported growth of 12%. Immunoglobulin therapies growth was primarily driven by continued growth in demand and stocking for GAMMAGARD liquidsubcutaneous products, international markets, and increased demand forin the subcutaneous portfolio. InternationalU.S., partially offset by U.S. destocking compared to the prior year. HAE product sales were up 1% with FIRAZYR growth offset by a decline in CINRYZE. FIRAZYR results benefited from stocking during the current quarter compared to slight destocking in the prior year. FIRAZYR also benefited from price increases and, to a lesser extent, higher demand. CINRYZE’s year-over-year decline resulted from destocking in the quarter as well as an impact on demand from a competitor launch. Bio therapeutics growth was primarily due the timing of large ordersdriven by demand and improved underlying performance in all regions during the three months ended September 30, 2017.favorable foreign currency exchange.

ImmunologyHematology
Hematology product sales increased during the nine months ended September 30, 2017,by $81.7 million, or 9%, compared to the corresponding period in 2016, was2017 with growth in both the U.S. and international markets driven primarily by ADYNOVATE. The U.S. market growth included an increase in demand as well as stocking. The international markets growth included the inclusion of Baxalta revenues following the acquisition on June 3, 2016.benefits from favorable foreign currency exchange.

NeuroscienceGenetic Diseases

NeuroscienceGenetic Diseases 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%$332.5 million, or 1%, 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, growth2017, driven by increased sales for REPLAGAL and VPRIV in the Company's international markets, partially offset by destocking.

MYDAYIS, whichdecreased sales of ELAPRASE that was made available to patients on August 28, 2017, contributed $10.2 million and $25.9 millionimpacted by timing 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.

Duringlarge shipments in the three months ended September 30, 2017, CINRYZE sales decreased 66% dueMarch 31, 2018 compared 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.March 31, 2017.

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 offsetincreased to $178.9 million, or 35%, driven by growth from GATTEX/REVESTIVE and NATPARA.

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

During the three months ended September 30, 2017, GATTEX/REVESTIVE39% and NATPARA sales increased 46% and 68%52%, respectively, primarily due to an increase in the numbers of patients on therapy.therapy, and to a lesser extent, the benefit of price increases.

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 NATPARAOncology
Oncology product sales increased 49% and 76%to $66.9 million, or 15%, respectively, due to an increasewith growth driven by increased demand in the numberinternational markets and the benefit of patients on therapy.a price increase.

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$62.1 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%27% prescription growth since the second quarter of 2017.

Oncology

Oncology product sales increased 24% duringcompared to 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.March 31, 2017.

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 revenuesNeuroscience segment

The following table provides an analysis of Shire’s income from royalties and other revenues:the Company's Product sales for the Neuroscience segment:
 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 royalties16.1
 16.2
 (1)% 38.8
 43.3
 (10)%
FOSRENOL royalties14.3
 13.7
 4 % 35.0
 34.3
 2 %
ADDERALL XR royalties7.7
 4.7
 64 % 33.6
 15.7
 114 %
Other royalties and revenues82.9
 63.4
 31 % 242.3
 120.2
 102 %
Total Royalties and other revenues$163.8
 $136.7
 20 % $477.8
 $325.7
 47 %
 Three months ended March 31,
(In millions, except %)2018 2017 Product sales growth %
Product sales by segment 
  
  
VYVANSE$628.8
 $563.7
 12 %
ADDERALL XR76.0
 64.9
 17 %
PENTASA72.4
 69.1
 5 %
LIALDA/MEZAVANT62.0
 175.1
 (65)%
MYDAYIS4.5
 —
 N/A
Other Neuroscience(1)
74.5
 67.2
 11 %
Total Neuroscience product sales$918.2
 $940.0
 (2)%
(1) Other Neuroscience includes FOSRENOL, INTUNIV, EQUASYM, BUCCOLAM, and CARBATROL.


Neuroscience
Neuroscience product sales, which now include PENTASA and LIALDA/MEZAVANT, decreased $21.8 million, or 2% to $918.2 million. VYVANSE product sales increased 12% primarily due to a price increase, stocking, and growth in the international markets. LIALDA/MEZAVANT sales decreased due to generic competition, which began in the second half of 2017.

Royalties and other revenues
 Three months ended
(In millions)March 31, 2018 March 31, 2017
Rare Disease royalties and other revenues$109.4
 $131.0
Neuroscience royalties and other revenues19.2
 29.0
Royalties and other revenues$128.6
 $160.0

Royalties and other revenues increaseddecreased 20% and 47% during the three and nine months ended September 30, 2017, respectively, primarily due to an increase inthe reclassification of ADDERALL XR from royalty streams acquired with Dyaxrevenue to product sales and other accounting changes as required under the new revenue accounting standard and lower SENSIPAR royalties and the inclusion of contract manufacturing revenue acquired with Baxalta following the acquisition on June 3, 2016.royalties.

Segment Contribution
 Three months ended March 31,
(In millions, except %)2018 2017
Segment contribution:   
Rare Disease$1,366.6
 $1,339.7
Rare Disease contribution margin percentage48% 51%
Neuroscience769.9
 792.6
Neuroscience contribution margin percentage82% 82%
Total Segment contribution$2,136.5
 $2,132.3

Rare Disease contribution margin was approximately 48% (2017: 51%), a slight decline from the prior year due to lower gross margins on sales, partially offset by lower selling and marketing costs.

Neuroscience contribution margin was flat at 82% (2017: 82%), as the decline in sales due to LIALDA was offset by lower costs.

Cost of sales

Cost of sales decreased by $194.6 million to $1,001.4$1,132.4 million for the three months ended September 30, 2017 (27%March 31, 2018 (30% of Total revenues), from $1,736.2 compared to $1,327.0 million in the corresponding period in 2016 (50%2017 (37% of Total revenues), primarily due to lower expense related to the unwind of inventory fair value adjustments.

For the three months ended March 31, 2018, Cost of product sales included depreciation totaling $72.7 million (2017: $72.1 million).
R&D

R&D expense increased by $25.9 million, or 7%, to $3,437.3$405.2 million for the ninethree months ended September 30, 2017 (31%March 31, 2018 (11% of Total revenues), from $2,762.9 compared to $379.3 million in the corresponding period in 2016 (36%2017 (11% of Total revenues), primarily due to continued investment in late stage programs and upfront payments associated with license arrangements. R&D as a percentage of total revenues remained consistent with the impact of the unwind of inventory fair value adjustments and increased depreciation following the acquisition of Baxalta on June 3, 2016.three months ended March 31, 2017.

ForR&D expense for the three and nine months ended September 30, 2017, Cost of salesMarch 31, 2018 included depreciation of $70.1$10.7 million and $209.2 million, respectively (2016: $54.5 million and $85.2 million, respectively)(2017: $13.4 million).


Research and developmentSG&A

Research and development expensesSG&A expense decreased by $84.1 million, or 9%, to $402.8$804.8 million for the three months ended September 30, 2017 (11%March 31, 2018 (21% of Total revenues), from $511.1 compared to $888.9 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 ofon-going cost reduction initiatives and operating synergies, from the acquisition of Baxalta and lower XIIDRAas well as a reduction in 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.costs.

For the three and nine months ended September 30, 2017, Selling, general and administrative expensesMarch 31, 2018, SG&A expense included depreciation of $39.0$56.8 million and $117.3 million, respectively (2016: $29.6 million and $69.4 million, respectively)(2017: $37.4 million).

Amortization of acquired intangible assets

For the period three and nine months ended September 30, 2017,March 31, 2018, Shire recorded Amortization of acquired intangible assets of $482.4$484.0 million and $1,280.5 million, respectively, compared to $354.9$364.0 million and $702.5 million, respectively, in the corresponding periodsperiod in 2016,2017. The increase of $120.0 million was primarily related to intangible assets acquired with Baxalta and the acceleration of CINRYZE amortization following positivewith the expected launch of SHP643, Phase 3 results.subject to regulatory approval.

Integration and acquisition costs

For the three and nine months ended September 30,March 31, 2018, Shire recorded Integration and acquisition costs of $239.7 million, primarily related to an impairment of a manufacturing facility, as well as third party professional fees, and other expenses primarily related to the integration of Baxalta.

For the three months ended March 31, 2017, Shire recorded Integration and acquisition costs of $237.0$116.0 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,primarily 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, ofDyax acquisitions. Costs included employee severance, and acceleration of stock compensation, $28.4 million and $114.0 million, respectively, of third-party professional fees, contract terminations, and $29.7other transaction-related fees.
Other expense, net

Other expense, net decreased by $33.5 million and $71.4to $101.2 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.


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.

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,March 31, 2018 compared to $101.4$134.7 million and $115.7 million, respectively, in the corresponding periodsperiod in 2016,2017, primarily relateddue to officean unrealized gain in publicly traded equity securities 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 thelower interest expense incurred on borrowings used to fund the acquisitionsresulting from debt paydown, inclusive 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.a fair value adjustment for a joint venture net written option.
 
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 theon U.S. GAAP income in three and nine months ended September 30, 2017March 31, 2018 was 7% (2017: 2%).

The effective rate in three months ended March 31, 2018 on U.S. GAAP income from continuing operations has been affected by the combined impactcertain provisions of the relative quantumU.S. Tax Cuts and Jobs Act (Tax Act) passed in December 2017, which enacts a U.S. federal tax rate of 21% along with anti-deferral provisions and new limitations on certain deductions required under the profit before tax for the period by jurisdiction as well as significant acquisition and integration costs.Tax Act. Additionally, certain discrete events occurred during the year which contributed tothree months ended March 31, 2018, including the low effective tax rate, includingrecording of a net tax benefit associated with the filing of the U.S. returns and the reversal of prior periodfor income tax reserves.

The effective taxreserves, which impacted the rate favorably 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.quarter.

Discontinued operations

TheThere was no gain or loss from discontinued operations for the three months ended September 30, 2017 was $0.4 million, net of taxes and theMarch 31, 2018. The gain from discontinued operations for the nine months ended September 30, 2017 was $18.6 million, net of taxes. The loss during the three months ended September 30,March 31, 2017 was related to the divested DERMAGRAFT business and the gain during the nine months ended September 30, 2017 was$20.2 million, net of tax benefit of $11.6 million, 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.


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$317.7 million of Cash and cash equivalents as of September 30, 2017.March 31, 2018.

Shire has a revolving credit facility ("RCF")(RCF) of $2,100.0 million, which matures in 2021, $1,050.0$75.0 million of which was utilized as of September 30, 2017.March 31, 2018. 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 billionMarch 31, 2018, $900.0 million 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.2018.

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,March 31, 2018, $28.3 million was borrowed under these lines of credit were not utilized.Credit lines.

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.


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, 2016March 31, 2018 December 31, 2017
Cash and cash equivalents$209.3
 $528.8
$317.7
 $472.4
      
Long term borrowings (excluding capital leases)(17,613.9) (19,552.6)(16,391.8) (16,410.7)
Short term borrowings (excluding capital leases)(2,622.2) (3,061.6)(1,779.6) (2,781.2)
Capital leases(349.1) (353.6)(349.5) (349.2)
Total debt$(20,585.2) $(22,967.8)$(18,520.9) $(19,541.1)
Net debt$(20,375.9) $(22,439.0)$(18,203.2) $(19,068.7)

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$551.2 million, or 82%120%, to $2,737.1$1,010.3 million (2016: $1,506.0(2017: $459.1 million) during the ninethree months ended September 30, 2017,March 31, 2018, primarily due to increased cash receiptsgenerated from higher sales, partially offset bybusiness operations and a favorable comparison period as the Q1 2017 period included a payment of $351.6$346 million associated with the settlement of the DERMAGRAFT litigation.

Net cash used in investing activities was $491.2$188.9 million during the ninethree months ended September 30, 2017, principally relatingMarch 31, 2018, primarily related to cash paid for purchases of $177.8 million of PP&E and long term investments.due to continued investments in manufacturing operations. 

Net cash used in financing activities was $2,571.6$982.1 million during the ninethree months ended September 30, 2017. This includes $3,000.0 millionMarch 31, 2018, principally due to net repayments of scheduled and advance repayments under the November 2015 Facilities Agreement; $2,660.0 million repayments underand the RCF and a dividend payment of $234.7$1,035 million, which was partially offset by $3,260.0 million of borrowings under the RCF and $92.2 million of cash proceeds from the exerciseissuance of options.stock for share-based compensation arrangements of $40.5 million.

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 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2017.

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.


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 2016Annual Report on Form 10-K 2017 for the year ended December 31, 2017, 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.March 31, 2018.


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, 2016.2017.

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, 2017March 31, 2018, 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”)(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, 2017March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


PartPART 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 noBelow, we are providing, in supplemental form, the material changes from theto our risk factors set forththat occurred during the period ended March 31, 2018. Our risk factors disclosed in PART I, ITEM 1A: Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017, provide additional disclosure to this supplemental risk.

The announcement by Takeda Pharmaceutical Company Limited (Takeda) that it is in discussions with Shire regarding a possible offer for the Company may distract our management and employees, resulting in substantial legal and other advisory expenses, and lead to uncertainty that may adversely affect our business and financial results creating increased volatility and price fluctuations in our stock price.

Takeda and Shire have publicly announced that they are in discussions regarding a possible offer for the Company by Takeda. In a press release dated April 24, 2018, Shire announced that Takeda has made further a revised proposal for the Company consisting of 0.839 new Takeda shares and US$30.33 in cash for each Shire ordinary share, and that the Board of Shire has indicated to Takeda that it would be willing to recommend the revised proposal to Shire shareholders, subject to satisfactory resolution of the other terms of the revised proposal. Takeda is required to announce a firm intention to make an offer or announce that it does not intend to make an offer for the Company pursuant to the City Code on Takeovers and Mergers (the “City Code”) by 5.00pm on May 8, 2018. This deadline may be further extended with the consent of the Panel on Takeovers and Mergers. There can be no certainty that any firm offer for the Company will be made by Takeda nor as to the terms on which any such firm offer might be made. In addition, if any such firm offer is made there can be no certainty as to whether the proposed transaction will be consummated nor as to the terms on which any such transaction will be consummated.  

Takeda’s public announcements in relation to its consideration of a potential offer for Shire, together with Shire’s subsequent announcements as required by the City Code, have created and may continue to create uncertainty about the effect of any potential offer or acquisition, and whether and when any such acquisition will be completed, among our customers, suppliers, and other business partners. In addition, the review, consideration, and response to Takeda’s acquisition proposals have required and may continue to require the expenditure of significant time and resources by us and may be a significant distraction for our management and employees. The potential uncertainty resulting from the public announcements made by Takeda due to these or other factors may undermine our business and have a material adverse effect on our results of operations, and may cause increased volatility and wide price fluctuations in our stock price.

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.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


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, 2017April 26, 2018
/s/ Dr. Flemming Ornskov
Dr. Flemming Ornskov
Chief Executive Officer
  
Date: April 26, 2018/s/ Thomas Dittrich
Thomas Dittrich
Chief Financial Officer
  
Date: October 27, 2017
/s/ Jeffrey Poulton
Jeffrey Poulton
Chief Financial Officer



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