Strong Q3 and increased Non GAAP earnings expectations

Strong third quarter and increased Non GAAP earnings expectations October 24, 2013 - Shire (LSE: SHP, NASDAQ: SHPG) announces results for thethree months to September 30, 2013. Financial Highlights Q3 2013 Growth(1) Product sales $1,195 million +13% Total revenues $1,237 million +12% Non GAAP operating income $422 million +30% US GAAP operating income $341 million +25% Non GAAP diluted earnings per ADS $1.77 +30% US GAAP diluted earnings per ADS $1.46 +23% Non GAAP cash generation $482 million +36% Non GAAP free cash flow $388 million +49% US GAAP net cash provided by operating activities $434 million +50% (1)Percentages compare to equivalent 2012 period. The Non GAAP financial measures included within this release are explained onpage 24, and are reconciled to the most directly comparable financial measuresprepared in accordance with US GAAP on pages 19 - 23. STRONG RESULTS DEMONSTRATING GOOD PROGRESS - Product sales +13% - with eight of our products delivering double digit growth in the quarter - including VYVANSE® (+21%), LIALDA®/MEZAVANT® (+36%) and FIRAZYR®(+107%) - Non GAAP operating income +30% reflecting strong operating leverage - Non GAAP earnings per ADS +30% - Non GAAP cash generation +36% - Guidance increased to mid-to-high teens Non GAAP earnings growth for the full year in 2013 STRATEGY EXECUTION Focused on growth: excellence in commercial execution and investment in newlyprioritized pipeline 'One Shire' reorganization well underway driving greater efficiencies andresetting cost base to deliver sustainable improved operating leverage Revenue growth and effective cost management underpins increased guidance for2013 Flemming Ornskov, M.D., Chief Executive Officer, commented: "This has been a strong quarter with good growth in revenues, earnings and cashgeneration. We're demonstrating execution of our strategy, which is putting Shire on a pathof sustainable growth. Our focus on commercial excellence is improving productsales and we're excited about the opportunities in our pipeline. We're confident in our prospects for the longer term as we continue to executeon commercial delivery, progress our prioritized pipeline and focus on targetedM&A. The benefits of our 'One Shire' reorganization are already evident in ouryear to date performance, we have a simpler, more efficient business and nowexpect Non GAAP R&D and SG&A spend to be lower than current consensusexpectations for this year and in 2014 and 20151. I am delighted to be increasing our 2013 full year earnings guidance todelivering mid-to-high teens Non GAAP earnings growth and guiding to continuingoperating leverage for 2014 and 20151. This strong performance has beenoverseen by a management team with long term tenure at Shire, supplemented bysome recent new senior appointments." 1 For full guidance, refer to Outlook statement on page 3. FINANCIAL SUMMARY Third Quarter 2013 Unaudited Results Q3 2013 Q3 2012 US GAAP Adjustments Non GAAP US GAAP Adjustments Non GAAP $M $M $M $M $M $M Total revenues 1,237 - 1,237 1,100 - 1,100 Operating income 341 81 422 273 52 325 Diluted earnings per $1.46 $0.31 $1.77 $1.19 $0.17 $1.36ADS Product sales in Q3 2013 grew strongly (up 13% to $1,195 million). On aConstant Exchange Rate ("CER") basis, which is a Non GAAP measure, productsales were up 13%. Eight of our products delivered double digit growth including VYVANSE(up 21% to$299 million), LIALDA/MEZAVANT (up 36% to $142 million), ELAPRASE® (up 17% to$129 million), VPRIV® (up 17% to $88 million), INTUNIV® (up 17% to $81 million)and FIRAZYR (up 107% to $63 million). LIALDA/MEZAVANTsales in Q3 2013 wereparticularly strong, primarily due to growth in US market share. Growth in total product sales was moderated by DERMAGRAFT® (down 29% to $24million), ADDERALL XR® (down 20% to $81 million) and REPLAGAL® (down 11% to$109 million). REPLAGAL product sales continue to be impacted by the return ofcompetition to the Fabry market. Total revenues were up 12% to $1,237 million (Q3 2012: $1,100 million) as thegrowth in product sales was partially offset by lower royalties. On a Non GAAP basis: Operating income was up 30% to $422 million (Q3 2012: $325 million), as totaloperating costs in Q3 2013 increased at a lower rate (up 5%) than totalrevenues (up 12%) demonstrating our focus on delivering efficient growth.Research and Development expenditure was up 2% and Selling, General andAdministrative expenditure was up 1%. On a US GAAP basis: Operating income was up 25% to $341 million (Q3 2012: $273 million), a lowerrate of increase than on a Non GAAP basis as Q3 2013 included higheracquisition and integration costs as compared to Q3 2012 and reorganizationcosts of $14 million not incurred in Q3 2012. Research and Developmentexpenditure was up 2% and Selling, General and Administrative expenditure wasup 1%. Non GAAP diluted earnings per American Depository Share ("ADS") increased 30%to $1.77 (Q3 2012: $1.36) primarily due to higher Non GAAP operating income. On a US GAAP basis, diluted earnings per ADS increased 23% to $1.46 (Q3 2012:$1.19), primarily due to higher US GAAP operating income. Cash generation, a Non GAAP measure, increased by 36% to $482 million (Q3 2012:$355 million) due to both higher cash receipts from product sales and loweroperating expense payments in Q3 2013 as compared to Q3 2012. Cash generationpartially benefited from the timing of some receipts from large distributors inthe US. Free cash flow, also a Non GAAP measure, increased by 49% to $388 million (Q32012: $261 million) primarily due to higher cash generation and lower taxpayments, partially offset by higher capital expenditure payments in Q3 2013 ascompared to Q3 2012. On a US GAAP basis, net cash provided by operating activities was up 50% to$434 million (Q3 2012: $288 million). Net cash, which is a Non GAAP measure, was $577 million at September 30, 2013(December 31, 2012: $373 million). On a US GAAP basis, cash and cash equivalents were $1,686 million at September30, 2013 (December 31, 2012: $1,482 million). STRATEGIC EXECUTION Shire continues to focus on its strategic priorities of growing sales of theexisting portfolio, bringing new innovative treatments to market through both R&D and business development, while driving greater efficiency and increasedoperating leverage. The business has been simplified. Prior to May 2013 Shire had three autonomousdivisions, each with their own R&D, supply chain, technical operations andcommercial infrastructures. These three divisions have been reorganized so theyare now one business, with much reduced overlap. Shire now has greater collaboration and focus in its commercial operations andthis is showing positive results, as evident in the increased product sales.With a single R&D organization now in place, Shire has a more effective processto evaluate holistically all pipeline opportunities as well as businessdevelopment prospects. Our pipeline has been prioritized to focus ondevelopment programs that have the best chance of clinical and commercialsuccess together with early stage research in rare diseases. We believe thatthese measures will ensure Shire is optimally positioned to enable thecontinued development of products that serve unmet patient need and to sustainthe track record of high growth. OUTLOOK We are increasing our guidance to mid-to-high teens Non GAAP earnings growthfor the full year in 2013 (previous guidance: double digit Non GAAP earningsgrowth) as we continue to see operating costs benefit from our reorganizationefforts. We anticipate a similar level of product sales growth in the fourth quarter aswe delivered in the third quarter, and continue to expect full year productsales growth in the mid-to-high single digits. We continue to expect royalties and other revenues to be 35-40% lower than2012. Our Non GAAP gross margin for the full year is expected to remain at a similarlevel to 2012. With investment prioritized behind our promising pipeline and our late stageclinical trials, we now expect Non GAAP R&D to be 5-7% higher for the full yearthan in 2012 (previous guidance: growth in the low double digits). Non GAAP SG&A for the full year is now anticipated to be 5-7% lower than 2012(previous guidance: 2-4% lower). Non GAAP SG&A in the fourth quarter isexpected to be slightly higher than in the third quarter as we provide targetedsupport to our commercial team to invest behind our key products. As a result, we now expect combined Non GAAP R&D and SG&A to be 1-3% lower than2012 (previous guidance: only marginally higher). This translates to a reducedspend of $250 million compared with our guidance forecasts in February 20131. Our core effective tax rate on Non GAAP income is anticipated to remain in therange of 18-20%. Taken together, we are increasing our guidance to reflect our expectation ofdelivering mid-to-high teens Non GAAP earnings growth for the full year in 2013(previous guidance: double digit Non GAAP earnings growth). Looking forward, we anticipate continuing operating leverage in 2014 and 2015,from reduced combined Non GAAP R&D and SG&A. We expect this to be around $250million lower than current consensus in 2014 and $300 million lower thancurrent consensus in 20152. 1 Improvements of approximately $250 million for full year 2013, based on thedifference between initial guidance for full year 2013 of high single digitgrowth in combined Non GAAP R&D and SG&A (guidance provided February 14, 2013)and current guidance expectations of combined Non GAAP R&D and SG&A to be 1-3%lower than 2012. 2 Based on the most recent consensus estimates compiled by Consensus ForecastLtd, as of the date of this release, of combined Non GAAP R&D and SG&A of$2,662 million and $2,683 million for the years ending December 31, 2014 and2015 respectively, available on Shire's website (http://www.shire.com/shireplc/en/investors/forecasts). THIRD QUARTER 2013 AND RECENT PIPELINE DEVELOPMENTS Pipeline ABH001 - for the treatment of Epidermolysis Bullosa - This program has been discontinued as part of the prioritization of Shire's pipeline. OTHER DEVELOPMENTS Decision to discontinue the construction of the new manufacturing facility in San Diego On October 22, 2013 Shire announced that it had decided to discontinue theconstruction of its new manufacturing facility in San Diego. Shire willcontinue to manufacture DERMAGRAFT in its existing facility in La Jolla, andShire's ability to meet expected future demand for DERMAGRAFT is not impactedby this decision. Shire is currently assessing possible disposal opportunitiesin relation to this facility. Share Buy-Back Program In Q4 2012 Shire commenced a share buy-back program, for the purpose ofreturning funds to shareholders, of up to $500 million, through both directpurchases of Ordinary Shares and through the purchase of Ordinary Sharesunderlying American Depositary Receipts. As of October 22, 2013 Shire had madeon-market repurchases totaling 9,807,835 Ordinary Shares at a cost of $299million (excluding transaction costs). BOARD AND COMMITTEE CHANGES On October 23, 2013 Shire announced that Dominic Blakemore will join the ShireBoard of Directors effective January 1, 2014. On joining the Board, Dominicwill become a member of the Shire Audit, Compliance & Risk Committee. Dominic'scareer experience includes finance and strategy roles with globalcorporations. He is currently Group Finance Director of Compass Group plc. ADDITIONAL INFORMATION The following additional information is included in this press release: Page Overview of Third Quarter 2013 Financial Results 6 Financial Information 10 Non GAAP Reconciliation 19 Notes to Editors 23 Safe Harbor Statement 24 Explanation of Non GAAP Measures 24 Trade Marks 25 For further information please contact: Investor Relations - Eric Rojas [email protected] +1 781 482 0999 - Sarah Elton-Farr [email protected] +44 1256 894 157 Media - Jessica Mann [email protected] +44 1256 894 280 - Gwen Fisher [email protected] +1 484 595 9836 - Jessica Cotrone [email protected] +1 781 482 9538 Dial in details for the live conference call for investors at 14:00 BST / 09:00EDT on October 24, 2013: UK dial in: 0808 237 0030 or 0203139 4830 US dial in: 1 866 928 7517 or 1 718873 9077 International AccessNumbers: http://wpc.1726.planetstream.net/001726/FEL_Events_International_Access_List.pdf Password/Conf ID: 71566006# Live Webcast: http://www.shire.com/shireplc/en/investors The quarterly earnings presentation will be available today at 13:00 BST / 08:00 EDT on: - Shire's IR Briefcase in the iTunes Store - Shire.com Investors section OVERVIEW OF THIRD QUARTER 2013 FINANCIAL RESULTS 1. Product sales For the three months to September 30, 2013 product sales increased by 13% to$1,195 million (Q3 2012: $1,055 million) and represented 97% of total revenues(Q3 2012: 96%). Year on year growth US Exit Non GAAP MarketProduct sales Sales $M Sales CER US Rx(1) Share(1) VYVANSE(2) 299.2 +21% +21% +7% 17% LIALDA/MEZAVANT 141.9 +36% +36% +23% 27% ELAPRASE 129.1 +17% +17% n/a(3) n/a(3) REPLAGAL 108.5 -11% -10% n/a(4) n/a(4) VPRIV 87.8 +17% +17% n/a(3) n/a(3) ADDERALL XR 81.4 -20% -20% -2% 5% INTUNIV 80.8 +17% +17% +8% 4% PENTASA® 70.6 +5% +5% +1% 14% FIRAZYR 62.6 +107% +106% n/a(3) n/a(3) DERMAGRAFT 23.9 -29% -29% n/a(3) n/a(3) OTHER 109.1 +16% +15% n/a n/a Total 1,194.9 +13% +13% Data provided by IMS Health National Prescription Audit ("IMS NPA") relatessolely to US-based prescriptions. Exit market share represents the averagemonthly US market share in the month ended September 30, 2013. Lisdexamfetamine ("LDX") currently marketed as VYVANSE in the US & Canada,VENVANSE® in Latin America and ELVANSE® in certain territories in the EU. IMS NPA Data not available. Not sold in the US in Q3 2013. VYVANSE - ADHD VYVANSE product sales showed strong growth (up 21%) in Q3 2013 compared to Q32012 due to higher prescription demand, which was up 7% in the quarter inaddition to the benefit of price increases taken since Q3 2012. LIALDA/MEZAVANT - Ulcerative Colitis Product sales for LIALDA/MEZAVANT in Q3 2013 were up 36% primarily due tohigher prescription demand (up 23%) and stocking in Q3 2013 compared to aslight destocking in Q3 2012, the benefit of which was partially offset byhigher sales deductions in Q3 2013 as compared to Q3 2012. ELAPRASE - Hunter syndrome ELAPRASE product sales in Q3 2013 were up 17% compared to Q3 2012 drivenprimarily by continued growth in the number of patients and higher utilization.Quarterly sales of ELAPRASE can be volatile due to the timings of large ordersto certain markets which order less frequently. This accounts for the declinein sales from Q2 2013 to Q3 2013. The underlying number of patients beingtreated with ELAPRASE continues to grow. REPLAGAL - Fabry disease REPLAGAL sales were down 11% as compared to Q3 2012 primarily due to lowervolume in Europe due to the return of competition to the Fabry market and thetiming of large orders in Q3 2012 from markets that order less frequently. VPRIV - Gaucher disease VPRIV product sales were up 17% in Q3 2013 compared to Q3 2012 as the number ofpatients on therapy continues to grow. ADDERALL XR - ADHD ADDERALL XR product sales decreased (down 20%) in Q3 2013 primarily due tohigher sales deductions as a percentage of sales in Q3 2013 as compared to Q32012. INTUNIV - ADHD The strong growth in INTUNIV product sales (up 17%) in Q3 2013 was driven by acombination of increased US prescription demand (up 8%) and the effect of priceincreases taken since Q3 2012. The benefit of these increases was partiallyoffset by higher sales deductions in Q3 2013 as compared to Q3 2012. PENTASA - Ulcerative Colitis PENTASA product sales (up 5%) benefited from price increases taken since Q32012 partially offset by higher sales deductions in Q3 2013 as compared to Q32012. FIRAZYR - Hereditary Angioedema FIRAZYR product sales growth (up 107%) was primarily driven by the US market,where the number of new patients on therapy continues to grow strongly. DERMAGRAFT -Diabetic Foot Ulcers DERMAGRAFT product sales were down 29% compared to Q3 2012. 2. Royalties Year on year growth Royalties toProduct Shire $M Royalties CER FOSRENOL® 13.8 -1% -2% 3TC® and ZEFFIX® 10.1 -5% -5% ADDERALL XR 6.2 -45% -45% Other 7.5 +25% +23% Total 37.6 -10% -10% 3. Financial details Cost of product sales Q3 2013 % of Q3 2012 % of product product $M sales $M sales Cost of product sales (US GAAP) 197.1 16% 167.9 16% Depreciation (11.0) (9.4) Cost of product sales (Non GAAP) 186.1 16% 158.5 15% Cost of product sales as a percentage of product sales remained broadlyconstant in Q3 2013 as compared to Q3 2012. Research and Development ("R&D") Q3 2013 % of Q3 2012 % of product product $M sales $M sales R&D (US GAAP) 229.1 19% 224.7 21% Depreciation (6.3) (5.5) R&D (Non GAAP) 222.8 19% 219.2 21% Non GAAP R&D increased by $3.6 million, or 2%1, due to the continued investmentin our R&D pipeline, primarily on non-ADHD programs for LDX, on SHP602(formerly known as SPD602) for iron overload and on development programsacquired through business development in 2013, including Lifitegrast. Thisgrowth was offset by reduced costs in relation to programs which have beendiscontinued following our pipeline prioritization review. US GAAP R&D increased by $4.4 million, or 2%, as compared to Q3 2012. Selling, General and Administrative ("SG&A") 2013 % of 2012 % of product product $M sales $M sales SG&A (US GAAP) 441.1 37% 437.4 41% Intangible asset amortization (44.4) (50.0) Legal and litigation costs (8.5) (4.5) Depreciation (16.5) (14.2) SG&A (Non GAAP) 371.7 31% 368.7 35% Non GAAP SG&A increased by $3.0 million, or 1%, a slower rate than the increasein product sales as we continue to focus on simplifying our business anddelivering efficient growth. US GAAP SG&A increased by $3.7 million, or 1%, as compared to Q3 2013. For the nine months to September 30, 2013 Non GAAP SG&A decreased by $85.1million, or 7%1; US GAAP SG&A decreased by $111.0 million, or 8%. 1 For the full year guidance, refer to Outlook statement on page 3. Gain on sale of product rights For the three months to September 30, 2013 Shire recorded a gain on sale ofproduct rights of $3.6 million (2012: $5.7 million) following re-measurement ofthe contingent consideration receivable from the divestment of DAYTRANA®. Reorganization costs For the three months to September 30, 2013 Shire recorded reorganization costsof $13.7 million (Q3 2012: $nil) primarily relating to the "One Shire"reorganization as we transition to a new operating structure. Integration and acquisition costs For the three months to September 30, 2013 Shire recorded integration andacquisition costs of $18.4 million primarily related to the change in fairvalue of contingent consideration and the costs of integrating SARcodeBiosciences Inc. ("SARcode") and Premacure AB ("Premacure"). In Q3 2012integration and acquisition costs ($2.7 million) primarily related to theacquisition of FerroKin Biosciences, Inc. ("FerroKin") and the integration ofAdvanced BioHealing Inc. ("ABH"). Interest expense For the three months to September 30, 2013 Shire incurred interest expense of$9.0 million (Q3 2012: $9.2 million), which principally relates to the couponon Shire's $1,100 million 2.75% convertible bonds due May 2014. Taxation The effective rate of tax on Non GAAP income in Q3 2013 was 19% (Q3 2012: 18%),and on a US GAAP basis the effective rate of tax was 16% (Q3 2012: 15%). The effective rate of tax in Q3 2013 on both a Non GAAP and a US GAAP basis ishigher than the same period in 2012 due primarily to adverse changes in profitmix and changes in provisions for uncertain tax positions, partially offset bychanges in estimates of the amount of certain tax liabilities following thefinalisation of various tax returns. FINANCIAL INFORMATION TABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 11 Unaudited US GAAP Consolidated Statements of Income 12 Unaudited US GAAP Consolidated Statements of Cash Flows 14 Selected Notes to the Unaudited US GAAP Financial Statements (1) Earnings per share 16 (2) Analysis of revenues 17 Non GAAP reconciliation 19 Unaudited US GAAP financial position as of September 30, 2013Consolidated Balance Sheets September December 30, 31, 2013 2012 $M $M ASSETS Current assets: Cash and cash equivalents 1,686.1 1,482.2 Restricted cash 16.6 17.1 Accounts receivable, net 1,037.8 824.2 Inventories 480.5 436.9 Deferred tax asset 210.6 229.9 Prepaid expenses and other current assets 282.3 221.8 Total current assets 3,713.9 3,212.1 Non-current assets: Investments 36.7 38.7 Property, plant and equipment ("PP&E"), net 965.1 955.8 Goodwill 621.3 644.5 Other intangible assets, net 2,976.0 2,388.1 Deferred tax asset 40.4 46.5 Other non-current assets 34.5 31.5 Total assets 8,387.9 7,317.2 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued expenses 1,581.6 1,501.5 Convertible bonds 1,100.0 - Other current liabilities 163.2 144.1 Total current liabilities 2,844.8 1,645.6 Non-current liabilities: Convertible bonds - 1,100.0 Deferred tax liability 722.0 520.8 Other non-current liabilities 652.3 241.6 Total liabilities 4,219.1 3,508.0 Equity: Common stock of 5p par value; 1,000 million sharesauthorized; and 562.9 million shares issued and outstanding(2012: 1,000 million shares authorized; and 562.5 millionshares issued and outstanding) 55.8 55.7 Additional paid-in capital 3,045.6 2,981.5 Treasury stock: 14.5 million shares (2012: 10.7 million) (466.6) (310.4) Accumulated other comprehensive income 101.3 86.9 Retained earnings 1,432.7 995.5 Total equity 4,168.8 3,809.2 Total liabilities and equity 8,387.9 7,317.2 Unaudited US GAAP results for the three months and nine months to September 30,2013Consolidated Statements of Income 3 months 3 months 9 months 9 months to to to to September September September September 30, 30, 30, 30, 2013 2012 2013 2012 $M $M $M $M Revenues: Product sales 1,194.9 1,054.5 3,541.8 3,309.1 Royalties 37.6 41.8 112.4 154.4 Other revenues 4.1 4.1 18.8 16.5 Total revenues 1,236.6 1,100.4 3,673.0 3,480.0 Costs and expenses: Cost of product sales 197.1 167.9 528.7 478.8 R&D(1) 229.1 224.7 713.4 683.6 SG&A(1) 441.1 437.4 1,337.4 1,448.4 Goodwill impairment charge - - 198.9 - Gain on sale of product rights (3.6) (5.7) (14.6) (16.5) Reorganization costs 13.7 - 57.6 - Integration and acquisition costs 18.4 2.7 39.9 15.1 Total operating expenses 895.8 827.0 2,861.3 2,609.4 Operating income 340.8 273.4 811.7 870.6 Interest income 0.4 0.9 1.6 2.3 Interest expense (9.0) (9.2) (27.0) (29.0) Other income/(expense), net 0.6 3.5 (1.9) 3.6 Total other expense, net (8.0) (4.8) (27.3) (23.1) Income before income taxes and equityin (losses)/earnings of equity methodinvestees 332.8 268.6 784.4 847.5 Income taxes (54.3) (41.6) (183.9) (144.6) Equity in (losses)/earnings of equitymethod investees, net of taxes (0.3) 0.2 0.6 0.5 Net income 278.2 227.2 601.1 703.4 R&D includes intangible asset impairment charges of $19.9 million for the ninemonths to September 30, 2013 (2012: $27.0 million). SG&A costs includeamortization and impairment charges of intangible assets relating tointellectual property rights acquired of $44.4 million for the three months toSeptember 30, 2013 (2012: $50.0 million) and $136.1 million for the nine monthsto September 30, 2013 (2012: $146.6 million). Unaudited US GAAP results for the three months and nine months to September 30,2013Consolidated Statements of Income (continued) 3 months to 3 months to 9 months to 9 months to September September September September 30, 30, 30, 30, 2013 2012 2013 2012 Earnings per ordinary share -basic Earnings per Ordinary Share -basic 50.7c 40.9c 109.3c 126.6c Earnings per ADS - basic 152.1c 122.7c 327.9c 379.8c Earnings per Ordinary Share -diluted 48.8c 39.6c 106.2c 122.4c Earnings per ADS - diluted 146.4c 118.8c 318.6c 367.2c Weighted average number ofshares: Millions Millions Millions Millions Basic 548.4 555.9 549.8 555.5 Diluted 585.7 593.1 587.5 594.0 Unaudited US GAAP results for the three months and nine months to September 30,2013Consolidated Statements of Cash Flows 3 months to 9 months to September 30, September 30, 2013 2012 2013 2012 $M $M $M $M CASH FLOWS FROM OPERATING ACTIVITIES: Net income 278.2 227.2 601.1 703.4 Adjustments to reconcile net income to netcash provided by operating activities: Depreciation and amortization 78.2 79.1 229.4 231.5 Share based compensation 18.8 21.6 55.2 65.0 Change in fair value of contingent consideration 14.7 1.2 28.4 3.3 Impairment of intangible assets - - 19.9 27.0 Goodwill impairment charge - - 198.9 - Gain on sale of product rights (3.6) (5.7) (14.6) (16.5) Other, net (2.8) (0.7) 4.4 1.8 Movement in deferred taxes (5.1) (6.3) 16.1 (30.4) Equity in losses/(earnings) of equitymethod investees 0.3 (0.2) (0.6) (0.5) Changes in operating assets andliabilities: Increase in accounts receivable (112.6) (45.4) (215.2) (23.0) Increase in sales deduction accrual 68.7 8.5 108.7 36.1 Decrease/(increase) in inventory 14.0 (14.9) (39.9) (81.9) (Increase)/decrease in prepayments and other assets (4.4) (14.3) (70.9) 17.8 Increase/(decrease) in accounts payable and other liabilities 89.3 38.3 (71.4) 72.7 Returns on investment from joint venture - - 3.2 4.9 Net cash provided by operating activities(A) 433.7 288.4 852.7 1,011.2 CASH FLOWS FROM INVESTING ACTIVITIES: Movements in restricted cash 1.0 (4.5) 0.5 1.7 Purchases of subsidiary undertakings andbusinesses, net of cash acquired - - (227.8) (97.0) Purchases of non-current investments (3.1) (7.4) (9.9) (12.1) Purchases of PP&E (45.3) (27.2) (110.3) (91.6) Purchases of intangible assets - - - (43.5) Proceeds received on sale of product rights 4.7 3.3 15.0 13.7 Other, net 1.0 0.1 11.5 13.2 Net cash used in investing activities(B) (41.7) (35.7) (321.0) (215.6) Unaudited US GAAP results for the three months and nine months to September 30,2013Consolidated Statements of Cash Flows (continued) 3 months to 9 months to September 30, September 30, 2013 2012 2013 2012 $M $M $M $M CASH FLOWS FROM FINANCING ACTIVITIES: Payments to acquire shares under theshare buy-back program (12.8) - (190.5) - Payment of dividend - - (79.2) (70.7) Payments to acquire shares by theEmployee Benefit Trust ("EBT") - (40.2) (50.3) (50.9) Excess tax benefit associated withexercise of stock options 3.4 3.5 9.5 38.6 Contingent consideration payments (2.5) (3.0) (11.3) (3.0) Other, net 1.7 (0.3) (5.5) (2.6) Net cash used in financing activities(C) (10.2) (40.0) (327.3) (88.6) Effect of foreign exchange rate changeson cash and cash equivalents (D) 2.4 (3.5) (0.5) (5.1) Net increase in cash and cashequivalents(A) +(B) +(C) +(D) 384.2 209.2 203.9 701.9 Cash and cash equivalents at beginningof period 1,301.9 1,112.7 1,482.2 620.0 Cash and cash equivalents at end ofperiod 1,686.1 1,321.9 1,686.1 1,321.9 Unaudited US GAAP results for the three months and nine months to September 30,2013 Selected Notes to the Financial Statements (1) Earnings Per Share ("EPS") 3 months to 3 months to 9 months to 9 months to September September September September 30, 30, 30, 30, 2013 2012 2013 2012 $M $M $M $M Numerator for basic EPS 278.2 227.2 601.1 703.4 Interest on convertible bonds,net of tax 7.6 7.5 22.7 23.7 Numerator for diluted EPS 285.8 234.7 623.8 727.1 Weighted average number ofshares: Millions Millions Millions Millions Basic(1) 548.4 555.9 549.8 555.5 Effect of dilutive shares: Share based awards to employees(2) 3.5 3.7 3.9 5.0 Convertible bonds 2.75% due 2014(3) 33.8 33.5 33.8 33.5 Diluted 585.7 593.1 587.5 594.0 Excludes shares purchased by the EBT and under the share buy-back program andpresented by Shire as treasury stock. Calculated using the treasury stock method. Calculated using the "if converted" method. The share equivalents not included in the calculation of the diluted weightedaverage number of shares are shown below: 3 months to 3 months to 9 months to 9 months to September September September September 30, 30, 30, 30, 2013 2012 2013 2012 Millions Millions Millions Millions Share based awards toemployees(1) 0.5 6.6 4.5 4.9 Certain stock options have been excluded from the calculation of diluted EPSbecause (a) their exercise prices exceeded Shire's average share price duringthe calculation period or (b) the required performance conditions were notsatisfied as at the balance sheet date. Unaudited US GAAP results for the three months to September 30, 2013 Selected Notes to the Financial Statements (2) Analysis of revenues 3 months to September 30, 2013 2012 2013 2013 % % of total $M $M change revenue Net product sales: VYVANSE 299.2 247.1 21% 24% LIALDA/MEZAVANT 141.9 104.4 36% 11% ELAPRASE 129.1 110.5 17% 10% REPLAGAL 108.5 121.7 -11% 9% VPRIV 87.8 74.9 17% 7% ADDERALL XR 81.4 102.2 -20% 7% INTUNIV 80.8 69.0 17% 7% PENTASA 70.6 67.0 5% 6% FIRAZYR 62.6 30.3 107% 5% FOSRENOL 51.9 38.1 36% 4% XAGRID® 24.2 22.0 10% 2% DERMAGRAFT 23.9 33.7 -29% 2% Other product sales 33.0 33.6 -2% 3% Total product sales 1,194.9 1,054.5 13% 97% Royalties: FOSRENOL 13.8 14.0 -1% 1% 3TC and ZEFFIX 10.1 10.6 -5% 1% ADDERALL XR 6.2 11.2 -45%