Edgar Filing: GILEAD SCIENCES INC

GILD 2012.06.30 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File No. 0-19731

GILEAD SCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware	94-3047598
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

333 Lakeside Drive, Foster City, California	94404
(Address of principal executive offices)	(Zip Code)

650-574-3000

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a 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 ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of July 20, 2012: 756,568,507

GILEAD SCIENCES, INC.

INDEX



PART I.	FINANCIAL INFORMATION		2

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011	2

		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2012 and 2011	3

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011	4

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

	Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION		37

	Item 1.	Legal Proceedings	37

	Item 1A.	Risk Factors	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

	Item 3.	Defaults Upon Senior Securities	54

	Item 4.	Mine Safety Disclosures	54

	Item 5.	Other Information	54

	Item 6.	Exhibits	55

SIGNATURES			63

We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD^®, GILEAD SCIENCES^®, TRUVADA^®, VIREAD^®, HEPSERA^®, AMBISOME^®, EMTRIVA^®, COMPLERA^®, EVIPLERA^®, VISTIDE^®, LETAIRIS^®, VOLIBRIS^®, RANEXA^®, CAYSTON^® and RAPISCAN^®. ATRIPLA^® is a registered trademark belonging to Bristol-Myers Squibb & Gilead Sciences, LLC. LEXISCAN^® is a registered trademark belonging to Astellas U.S. LLC. MACUGEN^® is a registered trademark belonging to Valeant Pharmaceuticals International, Inc. SUSTIVA^® is a registered trademark of Bristol-Myers Squibb Pharma Company. TAMIFLU^® is a registered trademark belonging to Hoffmann-La Roche Inc. This report also includes other trademarks, service marks and trade names of other companies.


PART I.	FINANCIAL INFORMATION


ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)



	June 30, 2012		December 31, 2011
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,625,500	$	9,883,777
Short-term marketable securities	82,044		16,491
Accounts receivable, net	1,702,818		1,951,167
Inventories	1,603,401		1,389,983
Deferred tax assets	213,448		208,155
Prepaid taxes	306,256		246,444
Prepaid expenses	83,732		95,922
Other current assets	226,903		126,846
Total current assets	5,844,102		13,918,785
Property, plant and equipment, net	811,799		774,406
Noncurrent portion of prepaid royalties	164,263		174,584
Noncurrent deferred tax assets	116,263		144,015
Long-term marketable securities	564,130		63,704
Intangible assets, net	11,751,191		1,062,864
Goodwill	1,078,919		1,004,102
Other noncurrent assets	171,283		160,674
Total assets	$	20,501,950	$	17,303,134
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,367,353	$	1,206,052
Accrued government rebates	771,827		547,473
Accrued compensation and employee benefits	144,834		173,316
Income taxes payable	11,847		40,583
Other accrued liabilities	624,337		471,129
Deferred revenues	93,660		74,665
Current portion of long-term debt and other obligations, net	1,972,816		1,572
Total current liabilities	4,986,674		2,514,790
Long-term deferred revenues	23,662		31,870
Long-term debt, net	7,126,377		7,605,734
Long-term income taxes payable	126,655		135,655
Other long-term obligations	155,195		147,736
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 5,000 shares authorized; none outstanding	—		—
Common stock, par value $0.001 per share; 2,800,000 shares authorized; 756,153 and 753,106 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	756		753
Additional paid-in capital	5,213,910		4,903,143
Accumulated other comprehensive income	124,377		58,200
Retained earnings	2,663,077		1,776,760
Total Gilead stockholders’ equity	8,002,120		6,738,856
Noncontrolling interest	81,267		128,493
Total stockholders’ equity	8,083,387		6,867,349
Total liabilities and stockholders’ equity	$	20,501,950	$	17,303,134

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except per share amounts)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Revenues:
Product sales	$	2,321,240		$	2,039,588		$	4,529,582		$	3,903,166
Royalty revenues	81,106			94,321			152,211			152,986
Contract and other revenues	2,840			3,344			5,842			7,195
Total revenues	2,405,186			2,137,253			4,687,635			4,063,347
Costs and expenses:
Cost of goods sold	617,345			533,863			1,198,276			1,007,974
Research and development	396,244			282,403			854,455			536,849
Selling, general and administrative	332,505			304,269			775,626			599,837
Total costs and expenses	1,346,094			1,120,535			2,828,357			2,144,660
Income from operations	1,059,092			1,016,718			1,859,278			1,918,687
Interest expense	(88,418		)	(46,107		)	(185,688		)	(87,323		)
Other income (expense), net	(1,075		)	11,978			(35,160		)	25,810
Income before provision for income taxes	969,599			982,589			1,638,430			1,857,174
Provision for income taxes	263,525			240,130			494,825			467,412
Net income	706,074			742,459			1,143,605			1,389,762
Net loss attributable to noncontrolling interest	5,490			3,768			9,915			7,606
Net income attributable to Gilead	$	711,564		$	746,227		$	1,153,520		$	1,397,368
Net income per share attributable to Gilead common stockholders—basic	$	0.94		$	0.95		$	1.52		$	1.77
Shares used in per share calculation—basic	756,951			784,807			756,619			790,430
Net income per share attributable to Gilead common stockholders—diluted	$	0.91		$	0.93		$	1.48		$	1.73
Shares used in per share calculation—diluted	780,506			800,800			779,246			806,462

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net income	$	706,074		$	742,459		$	1,143,605		$	1,389,762
Other comprehensive income:
Net foreign currency translation gain (loss)	(2,642		)	(4,358		)	2,256			2,836
Available-for-sale securities:
Net unrealized gain (loss), net of tax impact of $(79) and $(5,945) for the three months ended June 30, 2012 and 2011, and $188 and $(6,254) for the six months ended June 30, 2012 and 2011, respectively	134			2,346			(329		)	723
Reclassifications to net income, net of tax impact of $(29) and $(1,774) for the three months ended June 30, 2012 and 2011, and $(547) and $(2,611) for the six months ended June 30, 2012 and 2011, respectively	(50		)	(3,068		)	30,549			(4,565		)
Net change	84			(722		)	30,220			(3,842		)
Cash flow hedges:
Net unrealized gain (loss), net of tax impact of $(4,074) and $2,609 for the three months ended June 30, 2012 and 2011, and $(2,318) and $101 for the six months ended June 30, 2012 and 2011, respectively	107,855			(46,857		)	58,993			(174,194		)
Reclassification to net income, net of tax impact of $(548) and $1,105 for the three months ended June 30, 2012 and 2011, and $(994) and $6 for the six months ended June 30, 2012 and 2011, respectively	(14,511		)	19,840			(25,292		)	11,010
Net change	93,344			(27,017		)	33,701			(163,184		)
Other comprehensive income (loss)	90,786			(32,097		)	66,177			(164,190		)
Comprehensive income	796,860			710,362			1,209,782			1,225,572
Comprehensive loss attributable to noncontrolling interest	5,490			3,768			9,915			7,606
Comprehensive income attributable to Gilead	$	802,350		$	714,130		$	1,219,697		$	1,233,178

See accompanying notes.

GILEAD SCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)

	Six Months Ended
	June 30,
	2012			2011
Operating Activities:
Net income	$	1,143,605		$	1,389,762
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	39,937			36,030
Amortization expense	93,642			119,776
Stock-based compensation expense	97,134			99,595
Excess tax benefits from stock-based compensation	(35,439		)	(20,298		)
Tax benefits from employee stock plans	30,804			17,796
Deferred income taxes	21,966			40,008
Other	1,064			6,150
Changes in operating assets and liabilities:
Accounts receivable, net	180,167			(221,966		)
Inventories	(213,190		)	(114,644		)
Prepaid expenses and other assets	(32,329		)	10,884
Accounts payable	230,614			295,648
Income taxes payable	(102,093		)	51,585
Accrued liabilities	276,944			98,541
Deferred revenues	10,794			(45,070		)
Net cash provided by operating activities	1,743,620			1,763,797
Investing Activities:
Purchases of marketable securities	(607,078		)	(2,714,090		)
Proceeds from sales of marketable securities	63,274			2,225,064
Proceeds from maturities of marketable securities	2,951			348,968
Acquisitions, net of cash acquired	(10,751,636		)	(588,608		)
Purchases of other investments	(25,000		)	—
Capital expenditures	(60,591		)	(41,505		)
Net cash used in investing activities	(11,378,080		)	(770,171		)
Financing Activities:
Proceeds from issuances of senior notes, net of issuance costs	—			987,370
Proceeds from issuances of common stock	201,791			115,912
Proceeds from credit facilities, net of issuance costs	1,146,844			—
Proceeds from term loan, net of issuance costs	997,889			—
Repayments of term loan	(700,000		)	—
Repurchases of common stock	(261,791		)	(1,272,862		)
Repayments of convertible senior notes	—			(649,987		)
Repayments of other long-term obligations	(2,151		)	(1,567		)
Excess tax benefits from stock-based compensation	35,439			20,298
Distributions to noncontrolling interest	(37,310		)	(86,016		)
Net cash provided by (used in) financing activities	1,380,711			(886,852		)
Effect of exchange rate changes on cash	(4,528		)	(108,874		)
Net change in cash and cash equivalents	(8,258,277		)	(2,100		)
Cash and cash equivalents at beginning of period	9,883,777			907,879
Cash and cash equivalents at end of period	$	1,625,500		$	905,779

See accompanying notes.

GILEAD SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of Gilead Sciences, Inc. (Gilead, we or us) believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including critical accounting policies or estimates related to revenue recognition, intangible assets, allowance for doubtful accounts, prepaid royalties, clinical trial accruals, our tax provision and stock-based compensation. We base our estimates on historical experience and on various other market specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

The accompanying Condensed Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and our joint ventures with Bristol-Myers Squibb Company (BMS), for which we are the primary beneficiary. We record a noncontrolling interest in our Condensed Consolidated Financial Statements to reflect BMS’s interest in the joint ventures. All intercompany transactions have been eliminated. The Condensed Consolidated Financial Statements include the results of companies acquired by us from the date of each acquisition for the applicable reporting periods.

The accompanying Condensed Consolidated Financial Statements and related financial information should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2011, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC). Certain amounts within our Condensed Consolidated Financial Statements have been reclassified to conform to the current presentation.

Net Income Per Share Attributable to Gilead Common Stockholders

Basic net income per share attributable to Gilead common stockholders is calculated based on the weighted-average number of shares of our common stock outstanding during the period. Diluted net income per share attributable to Gilead common stockholders is calculated based on the weighted-average number of shares of our common stock outstanding and other dilutive securities outstanding during the period. The potential dilutive shares of our common stock resulting from the assumed exercise of outstanding stock options, performance shares and the assumed exercise of warrants relating to the convertible senior notes due in May 2013 (May 2013 Notes), May 2014 (May 2014 Notes) and May 2016 (May 2016 Notes) (collectively, the Convertible Notes) are determined under the treasury stock method.

Because the principal amount of the Convertible Notes will be settled in cash, only the conversion spread relating to the Convertible Notes is included in our calculation of diluted net income per share attributable to Gilead common stockholders. Our common stock resulting from the assumed settlement of the conversion spread of the Convertible Notes has a dilutive effect when the average market price of our common stock during the period exceeds the conversion prices of $38.10, $45.08 and $45.41 for the May 2013 Notes, May 2014 Notes and May 2016 Notes, respectively.

In 2011, our convertible senior notes due in May 2011 (May 2011 Notes) matured and the related warrants expired. As a result, we have only considered their impact for the period they were outstanding on our net income per share calculations. Our common stock resulting from the assumed settlement of the conversion spread of the May 2011 Notes had a dilutive effect when the average market price of our common stock during the period exceeded the conversion price of $38.75. During the three and six months ended June 30, 2011, the average market price of our common stock exceeded the conversion price of the May 2011 Notes and the dilutive effect is included in the accompanying table. Warrants related to the May 2011 Notes had a dilutive effect when the average market price of our common stock during the period exceeded the warrants’ exercise price of $50.80. The average market price of our common stock during the three and six months ended June 30, 2011 did not exceed the exercise price of the warrants related to the May 2011 Notes; therefore, these warrants did not have a dilutive effect on our net income per share for those periods.

During the three and six months ended June 30, 2012, the average market price of our common stock exceeded the conversion prices of the May 2013 Notes, May 2014 Notes and May 2016 Notes and the dilutive effects are included in the accompanying table. During the three and six months ended June 30, 2011, the average market price of our common stock exceeded the conversion price of the May 2013 Notes and the dilutive effect is included in the accompanying table. During the three and six months ended June 30, 2011, the average market price of our common stock did not exceed the conversion prices of the May 2014 Notes and May 2016 Notes and therefore, these notes did not have a dilutive effect on our net income per share for those periods.

Warrants relating to the May 2013 Notes, May 2014 Notes and May 2016 Notes have a dilutive effect when the average market price of our common stock during the period exceeds the warrants’ exercise prices of $53.90, $56.76 and $60.10, respectively. The average market prices of our common stock during each of the three and six months ended June 30, 2012 and 2011 did not exceed the warrants’ exercise prices relating to any of the Convertible Notes; therefore, these warrants did not have a dilutive effect on our net income per share for those periods.

Stock options to purchase approximately 9.2 million weighted-average shares of our common stock were outstanding during both the three and six months ended June 30, 2012, but were not included in the computation of diluted net income per share attributable to Gilead common stockholders because their effect was antidilutive. Stock options to purchase approximately 21.6 million and 21.8 million weighted-average shares of our common stock were outstanding during the three and six months ended June 30, 2011, respectively, but were not included in the computation of diluted net income per share attributable to Gilead common stockholders because their effect was antidilutive.

The following table is a reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share attributable to Gilead common stockholders (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Numerator:
Net income attributable to Gilead	$	711,564	$	746,227	$	1,153,520	$	1,397,368
Denominator:
Weighted-average shares of common stock outstanding used in the calculation of basic net income per share attributable to Gilead common stockholders	756,951		784,807		756,619		790,430
Effect of dilutive securities:
Stock options and equivalents	14,386		14,461		14,882		14,817
Conversion spread related to the May 2011 Notes	—		432		—		402
Conversion spread related to the May 2013 Notes	4,029		1,100		3,735		813
Conversion spread related to the May 2014 Notes	2,672		—		2,107		—
Conversion spread related to the May 2016 Notes	2,468		—		1,903		—
Weighted-average shares of common stock outstanding used in the calculation of diluted net income per share attributable to Gilead common stockholders	780,506		800,800		779,246		806,462

Concentrations of Risk

We are subject to credit risk from our portfolio of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. We are not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.

We are also subject to credit risk from our accounts receivable related to our product sales. The majority of our trade accounts receivable arises from product sales in the United States and Europe.

As of June 30, 2012, our accounts receivable in Southern Europe, specifically Greece, Italy, Portugal and Spain, totaled approximately $791.8 million, of which $291.4 million were greater than 120 days past due and $114.6 million were greater than 365 days past due. To date, we have not experienced significant losses with respect to the collection of our accounts receivable. We believe that our allowance for doubtful accounts was adequate at June 30, 2012.

In June 2012, we received payment on $460.6 million in past due accounts receivable from customers based in Spain. Included in this amount were proceeds from a one-time factoring arrangement where we sold receivables with a carrying value of $319.8 million, net of the allowance for doubtful accounts. We received proceeds of $349.7 million and recorded a gain of $29.9 million, resulting primarily from the reversal of the related allowance for doubtful accounts. This gain was recorded as an offset to selling, general and administrative (SG&A) expenses in our Condensed Consolidated Statement of Income. As of June 30, 2012, we had no continuing involvement with the transferred receivables, which were derecognized at the time of the sale.

Recent Accounting Pronouncements

During the three months ended June 30, 2012, there were no new accounting pronouncements issued that are expected to significantly impact our consolidated financial statements or results of operations.


2.	FAIR VALUE MEASUREMENTS

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:


•	Level 1 inputs which include quoted prices in active markets for identical assets or liabilities;

•

Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

•

Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts receivable, foreign currency exchange forward and option contracts, accounts payable, and short-term and long-term debt. Cash and cash equivalents, marketable securities and foreign currency exchange contracts that hedge accounts receivable and forecasted product sales are reported at their respective fair values on our Condensed Consolidated Balance Sheets. The carrying value and fair value of the Convertible Notes were $2.96 billion and $4.06 billion, respectively, as of June 30, 2012. The carrying value and fair value of the Convertible Notes were $2.92 billion and $3.53 billion, respectively, as of December 31, 2011.

In March 2011, we issued senior unsecured notes due in April 2021 (April 2021 Notes) in a registered offering for an aggregate principal amount of $1.00 billion. The carrying value and fair value of the April 2021 Notes were $992.5 million and $1.11 billion, respectively, as of June 30, 2012. The carrying value and fair value of the April 2021 Notes were $992.1 million and $1.06 billion, respectively, as of December 31, 2011. In December 2011, we issued senior unsecured notes due in December 2014 (December 2014 Notes), December 2016 (December 2016 Notes), December 2021 (December 2021 Notes) and December 2041 (December 2041 Notes) in a registered offering for an aggregate principal amount of $3.70 billion. The carrying value and fair value of these notes were $3.69 billion and $4.09 billion, respectively, as of June 30, 2012. The carrying value and fair value of these notes were $3.69 billion and $3.93 billion, respectively, as of December 31, 2011. The fair values of the Convertible Notes and senior unsecured notes were determined using Level 2 inputs based on their quoted market values.

The remaining financial instruments are reported on our Condensed Consolidated Balance Sheets at amounts that approximate current fair values.

The following table summarizes, for assets or liabilities recorded at fair value, the respective fair value and the classification by level of input within the fair value hierarchy defined above (in thousands):



	June 30, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Debt securities:
U.S. treasury securities	$	168,679	$	—	$	—	$	168,679	$	—	$	—	$	—	$	—
Money market funds	1,252,482		—		—		1,252,482		7,455,982		—		—		7,455,982
Certificates of deposit	—		—		—		—		—		1,139,982		—		1,139,982
U.S. government agencies and FDIC guaranteed securities	—		203,568		—		203,568		—		—		—		—
Non-U.S. government securities	—		—		—		—		—		—		24,741		24,741
Municipal debt securities	—		8,074		—		8,074		—		—		—		—
Corporate debt securities	—		193,886		—		193,886		—		404,989		—		404,989
Residential mortgage and asset-backed securities	—		33,295		—		33,295		—		—		—		—
Student loan-backed securities	—		—		43,872		43,872		—		—		46,952		46,952
Total debt securities	1,421,161		438,823		43,872		1,903,856		7,455,982		1,544,971		71,693		9,072,646
Equity securities	—		—		—		—		8,503		—		—		8,503
Derivatives	—		134,464		—		134,464		—		100,475		—		100,475
	$	1,421,161	$	573,287	$	43,872	$	2,038,320	$	7,464,485	$	1,645,446	$	71,693	$	9,181,624
Liabilities:
Contingent consideration	$	—	$	—	$	140,897	$	140,897	$	—	$	—	$	135,591	$	135,591
Derivatives	—		4,090		—		4,090		—		5,710		—		5,710
	$	—	$	4,090	$	140,897	$	144,987	$	—	$	5,710	$	135,591	$	141,301

Level 2 Inputs

We estimate the fair values of our government related debt, corporate debt, residential mortgage and asset-backed securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

Substantially all of our foreign currency derivatives contracts have maturities primarily over an 18 month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by Standard & Poor's, Moody's Investors Service, Inc. or Fitch, Inc. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency rates, London Interbank Offered Rates (LIBOR), and swap rates. These inputs, where applicable, are at commonly quoted intervals.

Level 3 Inputs

Assets measured at fair value using Level 3 inputs at June 30, 2012 were comprised of auction rate securities within our available-for-sale investment portfolio. The following table provides a rollforward of assets measured using Level 3 inputs (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Balance, beginning of period	$	48,168		$	116,823		$	71,693		$	80,365
Total realized and unrealized gains (losses) included in:
Other income (expense), net	83			1,625			(40,013		)	2,871
Other comprehensive income, net	1,155			(7,854		)	34,249			(5,694		)
Sales of marketable securities	(5,534		)	(6,450		)	(22,057		)	(27,280		)
Transfers into Level 3	—			1			—			53,883
Balance, end of period	$	43,872		$	104,145		$	43,872		$	104,145

Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in circumstances that caused the transfer. The underlying assets of our auction rate securities consist of student loans. Although auction rate securities would typically be measured using Level 2 inputs, the failure of auctions and the lack of market activity and liquidity experienced since the beginning of 2008 required that these securities be measured using Level 3 inputs. The fair value of our auction rate securities was determined using a discounted cash flow model that considered projected cash flows for the issuing trusts, underlying collateral and expected yields. Projected cash flows were estimated based on the underlying loan principal, bonds outstanding and payout formulas. The weighted-average life over which the cash flows were projected considered the collateral composition of the securities and related historical and projected prepayments. The underlying student loans have a weighted-average expected life of two to six years. The discount rates used in our discounted cash flow model were based on market conditions for comparable or similar term asset-backed and other fixed income securities, adjusted for an illiquidity discount. This resulted in an annual discount rate of 1.97%. Our auction rate securities reset every seven to 14 days with maturity dates ranging from 2025 through 2040 and have annual interest rates ranging from 0.28% to 0.98%. As of June 30, 2012, our auction rate securities continued to earn interest. Although there continued to be failed auctions as well as lack of market activity and liquidity, we believe we had no other-than-temporary impairments on these securities as of June 30, 2012. We have the ability to hold these securities until the recovery of their amortized cost basis.

In 2010, the Greek government agreed to settle the majority of its aged outstanding accounts receivable with zero-coupon bonds, which were expected to trade at a discount to face value. We estimated the fair value of the Greek zero-coupon bonds using Level 3 inputs due to the then current lack of market activity and liquidity. The discount rates used in our fair value model for these bonds were based on credit default swap rates. In March 2012, the Greek government restructured its sovereign debt which impacted all holders of Greek bonds. As a result, we recorded a $40.1 million loss related to the debt restructuring as part of other income (expense), net on our Condensed Consolidated Statement of Income and exchanged the Greek government-issued bonds for new securities, which we liquidated during the first quarter of 2012.

As of June 30, 2012 and December 31, 2011, our auction rate securities were recorded in long-term marketable securities on our Condensed Consolidated Balance Sheets. As of December 31, 2011, our Greek government-issued bonds were recorded in short-term and long-term marketable securities on our Condensed Consolidated Balance Sheets.

The following table provides a rollforward of our contingent consideration liabilities (in thousands):



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012		2011			2012		2011
Balance, beginning of period	$	138,328	$	11,100		$	135,591	$	11,100
Additions	—		116,008			—		116,008
Changes in valuation	2,569		(418		)	5,306		(418		)
Balance, end of period	$	140,897	$	126,690		$	140,897	$	126,690

The estimated fair value of the contingent consideration liabilities for our acquisitions was based on the present value of the total earnout amount giving consideration to significant inputs such as the probability of technical and regulatory success, the discount rate used and the timeline to achieve each of the milestone events. Significant increases in the probability of success in isolation would result in a significantly higher fair value measurement while significant decreases in the probability of success in isolation would result in a significantly lower fair value measurement. Similarly, significant increases in the discount rate or timeline in isolation would result in a significantly lower fair value measurement while significant decreases in the discount rate or timeline in isolation would result in a significantly higher fair value measurement. We evaluate changes in each of the assumptions used to calculate fair values of our contingent consideration liabilities at the end of each period.


3.	AVAILABLE-FOR-SALE SECURITIES

The following table is a summary of available-for-sale debt and equity securities included in cash and cash equivalents or marketable securities in our Condensed Consolidated Balance Sheets. During the first quarter of 2012, we liquidated a portion of our investment portfolio to partially fund the acquisition of Pharmasset, Inc. (Pharmasset) which was completed in January 2012. Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
June 30, 2012
Debt securities:
U.S. treasury securities	$	168,598	$	89	$	(8	)	$	168,679
Money market funds	1,252,482		—		—			1,252,482
Certificates of deposit	—		—		—			—
U.S. government agencies securities	203,583		98		(113		)	203,568
Non-U.S. government securities	—		—		—			—
Municipal debt securities	8,089		—		(15		)	8,074
Corporate debt securities	193,944		142		(200		)	193,886
Residential mortgage-backed and asset-backed securities	33,303		18		(26		)	33,295
Student loan-backed securities	46,050		—		(2,178		)	43,872
Total debt securities	1,906,049		347		(2,540		)	1,903,856
Equity securities	—		—		—			—
Total	$	1,906,049	$	347	$	(2,540	)	$	1,903,856
December 31, 2011
Debt securities:
U.S. treasury securities	$	—	$	—	$	—		$	—
Money market funds	7,455,982		—		—			$	7,455,982
Certificates of deposit	1,140,000		—		(18		)	1,139,982
U.S. government agencies securities	—		—		—			—
Non-U.S. government securities	55,246		—		(30,505		)	24,741
Municipal debt securities	—		—		—			—
Corporate debt securities	404,994		—		(5		)	404,989
Residential mortgage-backed and asset-backed securities	—		—		—			—
Student loan-backed securities	51,500		—		(4,548		)	46,952
Total debt securities	9,107,722		—		(35,076		)	9,072,646
Equity securities	1,451		7,052		—			8,503
Total	$	9,109,173	$	7,052	$	(35,076	)	$	9,081,149

The following table summarizes the classification of the available-for-sale debt and equity securities on our Condensed Consolidated Balance Sheets (in thousands):



	June 30, 2012		December 31, 2011
Cash and cash equivalents	$	1,258,457	$	9,000,954
Short-term marketable securities	81,269		16,491
Long-term marketable securities	564,130		63,704
Total	$	1,903,856	$	9,081,149

The following table summarizes our portfolio of available-for-sale debt securities by contractual maturity (in thousands):



	June 30, 2012
	Amortized Cost		Fair Value
Less than one year	$	1,329,324	$	1,329,311
Greater than one year but less than five years	521,927		521,921
Greater than five years but less than ten years	8,748		8,752
Greater than ten years	46,050		43,872
Total	$	1,906,049	$	1,903,856

The following table summarizes the gross realized gains and losses related to sales of marketable securities (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Gross realized gains on sales	$	84		$	5,257		$	10,099		$	8,954
Gross realized losses on sales	$	(5	)	$	(415	)	$	(40,101	)	$	(1,777	)

The cost of securities sold was determined based on the specific identification method.

The following table summarizes our available-for-sale debt securities that were in a continuous unrealized loss position, but were not deemed to be other-than-temporarily impaired (in thousands):



	Less Than 12 Months					12 Months or Greater					Total
	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
June 30, 2012
Debt securities:
U.S. treasury securities	$	(8	)	$	67,658	$	—		$	—	$	(8	)	$	67,658
Certificates of deposit	—			—		—			—		—			—
U.S. government agencies securities	(113		)	127,056		—			—		(113		)	127,056
Non-U.S. government securities	—			—		—			—		—			—
Municipal debt securities	(15		)	8,074		—			—		(15		)	8,074
Corporate debt securities	(200		)	124,410		—			—		(200		)	124,410
Residential mortgage-backed and asset-backed securities	(26		)	19,516		—			—		(26		)	19,516
Student loan-backed securities	—			—		(2,178		)	43,872		(2,178		)	43,872
Total	$	(362	)	$	346,714	$	(2,178	)	$	43,872	$	(2,540	)	$	390,586
December 31, 2011
Debt securities:
U.S. treasury securities	$	—		$	—	$	—		$	—	$	—		$	—
Certificates of deposit	(18		)	1,019,982		—			—		(18		)	1,019,982
U.S. government agencies securities	—			—		—			—		—			—
Non-U.S. government securities	(30,505		)	24,741		—			—		(30,505		)	24,741
Municipal debt securities	—			—		—			—		—			—
Corporate debt securities	(5		)	224,989		—			—		(5		)	224,989
Residential mortgage-backed and asset-backed securities	—			—		—			—		—			—
Student loan-backed securities	—			—		(4,548		)	46,952		(4,548		)	46,952
Total	$	(30,528	)	$	1,269,712	$	(4,548	)	$	46,952	$	(35,076	)	$	1,316,664

As of June 30, 2012 and December 31, 2011, we held a total of 144 and 42 securities, respectively, that were in an unrealized loss position.


4.	DERIVATIVE FINANCIAL INSTRUMENTS

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, the most significant of which is the Euro. In order to manage this risk, we hedge a portion of our foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward and option contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates and, as a result, varies over time. We work only with major banks and closely monitor current market conditions, which limits the risk that counterparties to our contracts may be unable to perform. We also limit our risk of loss by entering into contracts that permit net settlement at maturity. Therefore, our overall risk of loss in the event of a counterparty default is limited to the amount of any unrecognized gains on outstanding contracts (i.e., those contracts that have a positive fair value) at the date of default. We do not enter into derivative contracts for trading purposes, nor do we hedge our net investment in any of our foreign subsidiaries.

We hedge our exposure to foreign currency exchange rate fluctuations for certain monetary assets and liabilities of our foreign subsidiaries that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are not designated as hedges, and as a result, changes in their fair value are recorded in other income (expense), net on our Condensed Consolidated Statements of Income.

We hedge our exposure to foreign currency exchange rate fluctuations for forecasted product sales that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are designated as cash flow hedges and have maturity dates of 18 months or less. Upon executing a hedging contract and quarterly thereafter, we assess prospective hedge effectiveness using a regression analysis which calculates the change in cash flow as a result of the hedge instrument. On a monthly basis, we assess retrospective hedge effectiveness using a dollar offset approach. We exclude time value from our effectiveness testing and recognize changes in the time value of the hedge in other income (expense), net. The effective component of our hedge is recorded as an unrealized gain or loss on the hedging instrument in accumulated other comprehensive income (OCI) within stockholders’ equity. When the hedged forecasted transaction occurs, the hedge is de-designated and the unrealized gains or losses are reclassified into product sales. The majority of gains and losses related to the hedged forecasted transactions reported in accumulated OCI at June 30, 2012 will be reclassified to product sales within 12 months.

We had notional amounts on foreign currency exchange contracts outstanding of $3.32 billion and $4.03 billion at June 30, 2012 and December 31, 2011, respectively.

The following table summarizes information about the fair values of derivative instruments on our Condensed Consolidated Balance Sheets (in thousands):



	June 30, 2012
	Asset Derivatives			Liability Derivatives
	Classification	Fair Value		Classification	Fair Value
Derivatives designated as hedges:
Foreign currency exchange contracts	Other current assets	$	121,257	Other accrued liabilities	$	3,632
Foreign currency exchange contracts	Other noncurrent assets	13,174		Other long-term obligations	432
Total derivatives designated as hedges		134,431			4,064
Derivatives not designated as hedges:
Foreign currency exchange contracts	Other current assets	33		Other accrued liabilities	26
Total derivatives not designated as hedges		33			26
Total derivatives		$	134,464		$	4,090



	December 31, 2011
	Asset Derivatives			Liability Derivatives
	Classification	Fair Value		Classification	Fair Value
Derivatives designated as hedges:
Foreign currency exchange contracts	Other current assets	$	77,066	Other accrued liabilities	$	5,052
Foreign currency exchange contracts	Other noncurrent assets	23,169		Other long-term obligations	620
Total derivatives designated as hedges		100,235			5,672
Derivatives not designated as hedges:
Foreign currency exchange contracts	Other current assets	240		Other accrued liabilities	38
Total derivatives not designated as hedges		240			38
Total derivatives		$	100,475		$	5,710

The following table summarizes the effect of our foreign currency exchange contracts on our Condensed Consolidated Statements of Income (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Derivatives designated as hedges:
Net gains (losses) recognized in OCI (effective portion)	$	112,011		$	(46,608	)	$	63,125		$	(174,107	)
Net gains (losses) reclassified from accumulated OCI into product sales (effective portion)	$	15,059		$	(20,945	)	$	26,286		$	(11,016	)
Net gains (losses) recognized in other income (expense), net (ineffective portion and amounts excluded from effectiveness testing)	$	(3,544	)	$	(4,061	)	$	(6,756	)	$	(3,066	)
Derivatives not designated as hedges:
Net gains (losses) recognized in other income (expense), net	$	93,592		$	(34,344	)	$	66,418		$	(120,190	)

There were no material amounts recorded in other income (expense), net, for the three or six months ended June 30, 2012 and 2011 as a result of the discontinuance of cash flow hedges.


5.	ACQUISITION OF PHARMASSET, INC.

On January 17, 2012, we completed the acquisition of Pharmasset, a publicly-held clinical-stage pharmaceutical company committed to discovering, developing and commercializing novel drugs to treat viral infections. Pharmasset's primary focus was the development of oral therapeutics for the treatment of HCV infection. Pharmasset's lead compound, now known as GS-7977, is a nucleotide analog being evaluated in Phase 2 and Phase 3 clinical studies for the treatment of HCV infection across genotypes. We believe the acquisition of Pharmasset provides us with an opportunity to complement our existing HCV portfolio and helps advance our effort to develop all-oral regimens for the treatment of HCV.

We acquired all of the outstanding shares of common stock of Pharmasset for $137 per share in cash through a tender offer and subsequent merger under the terms of an agreement and plan of merger entered into in November 2011. The aggregate cash payment to acquire all of the outstanding shares of common stock was $11.1 billion. We financed the transaction with approximately $5.2 billion in cash on hand, $3.7 billion in senior unsecured notes issued in December 2011 and $2.2 billion in bank debt issued in January 2012.

The Pharmasset acquisition was accounted for as a business combination. The results of operations of Pharmasset have been included in our Condensed Consolidated Statement of Income since January 13, 2012, the date on which we acquired approximately 88% of the outstanding shares of common stock of Pharmasset, cash consideration was transferred, and as a result, we obtained effective control of Pharmasset. The acquisition was completed on January 17, 2012, at which time Pharmasset became a wholly-owned subsidiary of Gilead and was integrated into our operations. As we do not track earnings results by product candidate or therapeutic area, we do not maintain separate earnings results for the acquired Pharmasset business.

The following table summarizes the components of the cash paid to acquire Pharmasset (in thousands):



Total consideration transferred	$	10,858,372
Stock-based compensation expense	193,937
Total cash paid	$	11,052,309

The $11.1 billion cash payment consisted of a $10.38 billion cash payment to the outstanding common stockholders as well as a $668.3 million cash payment to option holders under the Pharmasset stock option plans. The $10.38 billion cash payment to the outstanding common stockholders and $474.3 million of the cash payment to the option holders under the Pharmasset stock option plans were accounted for as consideration transferred. The remaining $193.9 million of cash payment was accounted for as stock-based compensation expense resulting from the accelerated vesting of Pharmasset employee options immediately prior to the acquisition.

The following table summarizes the allocation of the consideration transferred to the acquisition date fair values of assets acquired and liabilities assumed (in thousands):



Intangible assets - in-process research and development	$	10,720,000
Cash and cash equivalents	106,737
Other assets acquired (liabilities assumed), net	(43,182		)
Total identifiable net assets	10,783,555
Goodwill	74,817
Total consideration transferred	$	10,858,372

In-Process Research and Development (IPR&D)

The estimated fair value of the acquired IPR&D related to GS-7977 was $10.72 billion, which was determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 12%, which is based on the estimated weighted-average cost of capital for companies with profiles similar to that of Pharmasset. This rate is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value the intangible asset. The projected cash flows from GS-7977 were based on key assumptions such as: the time and resources needed to complete its development considering its stage of development on the acquisition date, the probability of obtaining approval from the U.S. Food and Drug Administration (FDA) and other regulatory agencies, estimates of revenues and operating profits, the life of the potential commercialized product and other associated risks related to the viability of and potential alternative treatments in future target markets. Intangible assets related to IPR&D projects are considered to be indefinite-lived assets until the completion or abandonment of the associated research and development (R&D) efforts.

Goodwill

The $74.8 million of goodwill represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed and is attributable to the synergies expected from combining our R&D operations with Pharmasset's. None of the goodwill is expected to be deductible for income tax purposes.

Stock-Based Compensation Expense

The stock-based compensation expense recognized for the accelerated vesting of employee options immediately prior to the acquisition was reported in our Condensed Consolidated Statement of Income as follows (in thousands):



	Six Months Ended
	June 30, 2012
Research and development expense	$	100,149
Selling, general and administrative expense	93,788
Total stock-based compensation expense	$	193,937

Other Costs

Other costs incurred in connection with the acquisition include (in thousands):



	Six Months Ended		Three Months Ended
	June 30, 2012		December 31, 2011
Transaction costs (e.g. investment advisory, legal and accounting fees)	$	10,166	$	28,461
Bridge financing costs	7,333		23,817
Restructuring costs	11,512		—
Total other costs	$	29,011	$	52,278

The following table summarizes these costs by the line item in the Condensed Consolidated Statement of Income in which these costs were recognized (in thousands).



	Six Months Ended		Three Months Ended
	June 30, 2012		December 31, 2011
Research and development expense	$	7,478	$	—
Selling, general and administrative expense	14,200		28,461
Interest expense	7,333		23,817
Total other costs	$	29,011	$	52,278

Pro Forma Information

The following unaudited pro forma information presents the combined results of operations of Gilead and Pharmasset as if the acquisition of Pharmasset had been completed on January 1, 2011, with adjustments to give effect to pro forma events that are directly attributable to the acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of Gilead and Pharmasset. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Total revenues	$	2,405,186	$	2,137,253	$	4,687,635	$	4,063,347
Net income attributable to Gilead	$	716,432	$	685,262	$	1,300,983	$	1,079,362

The unaudited pro forma consolidated results include non-recurring pro forma adjustments that assume the acquisition occurred on January 1, 2011. Stock-based compensation expenses of $193.9 million incurred during the six months ended June 30, 2012 were included in the net income attributable to Gilead for the six months ended June 30, 2011. Other costs of $17.5 million incurred during the six months ended June 30, 2012 were included in the net income attributable to Gilead for the six months ended June 30, 2011. Of the $17.5 million, $1.1 million was incurred during the three months ended June 30, 2012. Other costs of $52.3 million incurred during the three months ended December 31, 2011 were included in net income attributable to Gilead for the six months ended June 30, 2011.


6.	INVENTORIES

Inventories are summarized as follows (in thousands):



	June 30, 2012		December 31, 2011
Raw materials	$	903,036	$	697,621
Work in process	292,215		466,499
Finished goods	408,150		225,863
Total	$	1,603,401	$	1,389,983

As of June 30, 2012 and December 31, 2011, we held $1.18 billion and $995.7 million of efavirenz in inventory, respectively, which was purchased from BMS at BMS’s estimated net selling price of efavirenz.


7.	INTANGIBLE ASSETS AND GOODWILL

The following table summarizes the carrying amount of our intangible assets and goodwill (in thousands):



	June 30, 2012		December 31, 2011
Indefinite-lived intangible assets	$	10,986,200	$	266,200
Finite-lived intangible assets	764,991		796,664
Total intangible assets	11,751,191		1,062,864
Goodwill	1,078,919		1,004,102
Total intangible assets and goodwill	$	12,830,110	$	2,066,966

Indefinite-Lived Intangible Assets

In January 2012, we acquired $10.72 billion of purchased IPR&D as part of our acquisition of Pharmasset that we have classified as indefinite-lived intangible assets (See Note 5).

As of December 31, 2011, we had indefinite-lived intangible assets of $266.2 million, which consisted of $117.0 million and $149.2 million of purchased IPR&D from our acquisitions of Arresto Biosciences, Inc. and Calistoga Pharmaceuticals, Inc., respectively.

Finite-Lived Intangible Assets

The following table summarizes our finite-lived intangible assets (in thousands):



	June 30, 2012				December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible asset - Ranexa	$	688,400	$	115,109	$	688,400	$	97,099
Intangible asset - Lexiscan	262,800		82,594		262,800		69,723
Other	24,995		13,501		24,995		12,709
Total	$	976,195	$	211,204	$	976,195	$	179,531

Amortization expense related to intangible assets was included in cost of goods sold in our Condensed Consolidated Statements of Income and totaled $15.8 million and $31.7 million for the three and six months ended June 30, 2012, respectively, and $17.4 million and $34.8 million for the three and six months ended June 30, 2011, respectively.

As of June 30, 2012, the estimated future amortization expense associated with our intangible assets for the remaining six months of 2012 and each of the five succeeding fiscal years are as follows (in thousands):



Fiscal Year	Amount
2012 (remaining six months)	$	31,673
2013	64,283
2014	66,735
2015	73,261
2016	100,048
2017	132,786
Total	$	468,786

Goodwill

The following table summarizes the changes in the carrying amount of goodwill (in thousands):



Balance at December 31, 2011	$	1,004,102
Goodwill resulting from the acquisition of Pharmasset	74,817
Balance at June 30, 2012	$	1,078,919


8.	COLLABORATIVE ARRANGEMENTS

From time to time, as a result of entering into strategic collaborations, we may hold investments in non-public companies. We review our interests in investee companies for consolidation and/or appropriate disclosure based on applicable guidance. For variable interest entities (VIEs), we may be required to consolidate an entity if the contractual terms of the arrangement essentially provide us with control over the entity, even if we do not have a majority voting interest. We assess whether we are the primary beneficiary of a VIE based on our power to direct the activities of the VIE that most significantly impact the VIE's economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As of June 30, 2012, we determined that certain of our investee companies are VIEs; however, other than with respect to our joint ventures with BMS, we are not the primary beneficiary and therefore do not consolidate these investees.

Bristol-Myers Squibb Company

North America

In 2004, we entered into a collaboration arrangement with BMS in the United States to develop and commercialize a single tablet regimen containing our Truvada and BMS's Sustiva (efavirenz), which we sell as Atripla. The collaboration is structured as a joint venture and operates as a limited liability company named Bristol-Myers Squibb & Gilead Sciences, LLC, which we consolidate. The ownership interests of the joint venture and thus the sharing of product revenue and costs reflect the respective economic interests of BMS and Gilead and are based on the proportions of the net selling price of Atripla attributable to efavirenz and Truvada. Since the net selling price for Truvada may change over time relative to the net selling price of efavirenz, both BMS's and our respective economic interests in the joint venture may vary annually.

We and BMS share marketing and sales efforts, with both parties providing equivalent sales force efforts at levels agreed to annually by BMS and Gilead. Since the second quarter of 2011, except for a limited number of activities that will be jointly managed, the parties no longer coordinate detailing and promotional activities in the United States and the parties have begun to reduce their joint promotional efforts in Canada as we launched Complera and anticipate the launch of Quad. The parties will continue to collaborate on activities such as manufacturing, regulatory, compliance and pharmacovigilance. We are responsible for accounting, financial reporting, tax reporting, manufacturing and product distribution for the joint venture. Both parties provide their respective bulk active pharmaceutical ingredients to the joint venture at their approximate market values. In 2006, we and BMS amended the joint venture's collaboration agreement to allow the joint venture to sell Atripla into Canada. As of June 30, 2012 and December 31, 2011, the joint venture held efavirenz active pharmaceutical ingredient which it purchased from BMS at BMS's estimated net selling price of efavirenz in the U.S. market. These amounts are included in inventories on our Condensed Consolidated Balance Sheets. As of June 30, 2012, total assets held by the joint venture were $1.74 billion and consisted primarily of cash and cash equivalents of $196.4 million, accounts receivable of $248.1 million and inventories of $1.26 billion; total liabilities were $1.52 billion and consisted primarily of accounts payable of $615.6 million and other accrued expenses of $338.8 million. As of December 31, 2011, total assets held by the joint venture were $1.62 billion and consisted primarily of cash and cash equivalents of $156.9 million, accounts receivable of $235.6 million and inventories of $1.19 billion; total liabilities were $1.27 billion and consisted primarily of accounts payable of $561.1 million and other accrued expenses of $232.9 million. These asset and liability amounts do not reflect the impact of intercompany eliminations that are included in our Condensed Consolidated Balance Sheets. Although we consolidate the joint venture, the legal structure of the joint venture limits the recourse that its creditors will have over our general credit or assets.

Europe

In 2007, Gilead Sciences Limited, a wholly-owned subsidiary in Ireland, and BMS entered into a collaboration arrangement to commercialize and distribute Atripla in the European Union, Iceland, Liechtenstein, Norway and Switzerland (collectively, the European Territory). The parties formed a limited liability company, which we consolidate, to manufacture Atripla for distribution in the European Territory using efavirenz that it purchases from BMS at BMS's estimated net selling price of efavirenz in the European Territory. We are responsible for product distribution, inventory management and warehousing. Through our local subsidiaries, we have primary responsibility for order fulfillment, collection of receivables, customer relations and handling of sales returns in all the territories where we and BMS promote Atripla. Revenue and cost sharing is based on the relative ratio of the respective net selling prices of the components of Atripla, Truvada and efavirenz.

Starting in 2012, except for a limited number of activities that will be jointly managed, the parties no longer coordinate detailing and promotional activities in the region. We are also responsible for accounting, financial reporting and tax reporting for the collaboration. As of June 30, 2012 and December 31, 2011, efavirenz purchased from BMS at BMS's estimated net selling price of efavirenz in the European Territory is included in inventories on our Condensed Consolidated Balance Sheets.

The parties also formed a limited liability company to hold the marketing authorization for Atripla in Europe. We have primary responsibility for regulatory activities. In the major market countries, both parties have agreed to independently continue to use commercially reasonable efforts to promote Atripla.

9.LONG-TERM OBLIGATIONS

Financing Arrangements

The following table summarizes the carrying amount of our borrowings under various financing arrangements (in thousands):

Carrying Value as of

Type of Borrowing

Description

Issue Date

Due Date

Interest Rate

June 30,
2012

December 31,
2011

Convertible Senior

May 2013 Notes

April 2006

May 2013

0.625%

622,763

607,036

Convertible Senior

May 2014 Notes

July 2010

May 2014

1.00%

1,195,745

1,181,525

Convertible Senior

May 2016 Notes

July 2010

May 2016

1.625%

1,144,866

1,132,293

Senior Unsecured

April 2021 Notes

March 2011

April 2021

4.50%

992,495

992,066

Senior Unsecured

December 2014 Notes

December 2011

December 2014

2.40%

749,236

749,078

Senior Unsecured

December 2016 Notes

December 2011

December 2016

3.05%

698,979

698,864

Senior Unsecured

December 2021 Notes

December 2011

December 2021

4.40%

1,247,284

1,247,138

Senior Unsecured

December 2041 Notes

December 2011

December 2041

5.65%

997,772

997,734

Term Loan Facility

Term Loan

January 2012

January 2015

Variable

300,000