Fair Value Measurement

6 Months Ended

Jun. 30, 2011

15. Fair value measurement

Assets and liabilities that are measured at fair value on a recurring basis

At June 30, 2011 and December 31, 2010 the 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).

	Carrying	Fair value
	value
		Total	Level 1	Level 2	Level 3
At June 30, 2011	$'M	$'M	$'M	$'M	$'M
	____________	____________	___________	___________	___________
Financial assets:
Available-for-sale securities⁽¹⁾	107.5	107.5	107.5	-	-
Contingent consideration receivable ⁽²⁾	53.1	53.1	-	-	53.1
Foreign exchange contracts	1.1	1.1	-	1.1	-

Financial liabilities:
Foreign exchange contracts	4.1	4.1	-	4.1	-
	____________	____________	___________	___________	___________



		Total	Level 1	Level 2	Level 3
At December 31, 2010	$'M	$'M	$'M	$'M	$'M
	____________	____________	___________	___________	___________
Financial assets:
Available-for-sale securities⁽¹⁾	83.9	83.9	83.9	-	-
Contingent consideration receivable ⁽²⁾	61.0	61.0	-	-	61.0
Foreign exchange contracts	3.7	3.7	-	3.7	-

Financial liabilities:
Foreign exchange contracts	2.7	2.7	-	2.7	-
	____________	____________	___________	___________	___________

(1) Available-for-sale securities are included within Investments in the consolidated balance sheet.

(2) Contingent consideration receivable is included within Prepaid expenses and other current assets and Other non-current assets in the consolidated balance sheet.

Certain estimates and judgments were required to develop the fair value amounts. The 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:

Available-for-sale securities – the fair values of available-for-sale securities are estimated based on quoted market prices for those investments.
Contingent consideration receivable – the fair value of the contingent consideration receivable has been estimated using the income approach (using a discounted cash flow method). This discounted cash flow approach uses significant unobservable inputs, such as future sales of the divested product, relevant contractual royalty rates, an appropriate discount rate and assumed weightings applied to scenarios used in deriving a probability weighted fair value.
Foreign exchange contracts – the fair values of the swap and forward foreign exchange contracts have been determined using an income approach based on current market expectations about the future cash flows.

Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The change in the fair value of the Company's contingent consideration receivable, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), is as follows

	Contingent consideration receivable
	2011
	$'M
	____________

Balance at January 1,	61.0
Loss recognized in the income statement due to change in fair value during the period	(3.5)
Reclassification of amounts due from Noven to Other receivables within Other current assets	(9.2)
Foreign exchange translation recorded to other comprehensive income	4.8

Balance at June 30,	53.1

Financial assets and liabilities that are not measured at fair value on a recurring basis

The carrying amounts and estimated fair values as at June 30, 2011 and December 31, 2010 of the Company's financial assets and liabilities which are not measured at fair value on a recurring basis are as follows:

	June 30, 2011		December 31, 2010
	Carrying		Carrying
	amount	Fair value	amount	Fair value
	$’M	$’M	$’M	$’M
	____________	____________	____________	___________

Financial liabilities:
Convertible bonds	1,100.0	1,283.9	1,100.0	1,139.8
Building financing obligation	8.4	9.4	8.4	8.2
	____________	____________	____________	___________

The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:

Convertible bonds – the fair value of Shire's $1,100 million 2.75% convertible bonds due 2014 is determined by reference to the market price of the instrument as the convertible bonds are publicly traded.
Building finance obligations - the fair value of building finance obligations are estimated based on the present value of future cash flows, and an estimate of the residual value of the underlying property at the end of the lease term, associated with these obligations.

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and drawings under the RCF approximate to fair value because of the short-term maturity of these amounts.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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