Print Page | Close Window
10-Q
GILEAD SCIENCES INC filed this Form 10-Q on 05/10/2017
Entire Document
 
Document


 
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 March 31, 2017
or 
o
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨     (Do not check if a smaller reporting company)
Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 April 28, 2017: 1,306,728,398
 




GILEAD SCIENCES, INC.
INDEX

PART I.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
PART II.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 


We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD®, GILEAD SCIENCES®, AMBISOME®, CAYSTON®, COMPLERA®, DESCOVY®, EMTRIVA®, EPCLUSA®, EVIPLERA®, GENVOYA®, HARVONI®, HEPSERA®, LETAIRIS®, ODEFSEY®, RANEXA®, SOVALDI®, STRIBILD®, TRUVADA®, TYBOST®, VEMLIDY®, VIREAD®, VITEKTA®, VOLIBRIS® and ZYDELIG®. ATRIPLA® is a registered trademark of Bristol-Myers Squibb & Gilead Sciences, LLC. LEXISCAN® is a registered trademark of Astellas U.S. LLC. MACUGEN® is a registered trademark of Eyetech, Inc. SUSTIVA® is a registered trademark of Bristol-Myers Squibb Pharma Company. TAMIFLU® is a registered trademark of 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
(unaudited)
(in millions, except per share amounts)
 
March 31, 2017
 
December 31, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
10,285

 
$
8,229

Short-term marketable securities
3,830

 
3,666

Accounts receivable, net of allowances of $557 at March 31, 2017 and $763 at December 31, 2016
4,034

 
4,514

Inventories
1,474

 
1,587

Prepaid and other current assets
1,801

 
1,592

Total current assets
21,424

 
19,588

Property, plant and equipment, net
2,922

 
2,865

Long-term deferred tax assets
1,208

 
1,259

Long-term marketable securities
19,902

 
20,485

Intangible assets, net
8,761

 
8,971

Goodwill
1,172

 
1,172

Other long-term assets
2,312

 
2,637

Total assets
$
57,701

 
$
56,977

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
944

 
$
1,206

Accrued government and other rebates
4,712

 
5,021

Other accrued liabilities
2,626

 
2,991

Total current liabilities
8,282

 
9,218

Long-term debt, net
26,321

 
26,346

Long-term income taxes payable
1,848

 
1,753

Other long-term obligations
333

 
297

Commitments and contingencies (Note 9)


 


Stockholders’ equity:
 

 
 

Preferred stock, par value $0.001 per share; 5 shares authorized; none outstanding

 

Common stock, par value $0.001 per share; shares authorized of 5,600 at March 31, 2017 and December 31, 2016; shares issued and outstanding of 1,307 at March 31, 2017 and 1,310 at December 31, 2016
1

 
1

Additional paid-in capital
616

 
454

Accumulated other comprehensive income
260

 
278

Retained earnings
19,564

 
18,154

Total Gilead stockholders’ equity
20,441

 
18,887

Noncontrolling interest
476

 
476

Total stockholders’ equity
20,917

 
19,363

Total liabilities and stockholders’ equity
$
57,701

 
$
56,977





See accompanying notes.

2



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Revenues:
 
 
 
 
Product sales
 
$
6,377

 
$
7,681

Royalty, contract and other revenues
 
128

 
113

Total revenues
 
6,505

 
7,794

Costs and expenses:
 
 
 
 
Cost of goods sold
 
957

 
1,193

Research and development expenses
 
931

 
1,265

Selling, general and administrative expenses
 
850

 
685

Total costs and expenses
 
2,738

 
3,143

Income from operations
 
3,767

 
4,651

Interest expense
 
(261
)
 
(230
)
Other income (expense), net
 
111

 
81

Income before provision for income taxes
 
3,617

 
4,502

Provision for income taxes
 
918

 
935

Net income
 
2,699

 
3,567

Net income (loss) attributable to noncontrolling interest
 
(3
)
 
1

Net income attributable to Gilead
 
$
2,702

 
$
3,566

Net income per share attributable to Gilead common stockholders - basic
 
$
2.07

 
$
2.58

Shares used in per share calculation - basic
 
1,308

 
1,383

Net income per share attributable to Gilead common stockholders - diluted
 
$
2.05

 
$
2.53

Shares used in per share calculation - diluted
 
1,320

 
1,412

Cash dividends declared per share
 
$
0.52

 
$
0.43























See accompanying notes.

3



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Net income
 
$
2,699

 
$
3,567

Other comprehensive income (loss):
 
 
 
 
Net foreign currency translation gains (losses), net of tax
 
(76
)
 
2

Available-for-sale securities:
 
 
 
 
Net unrealized gains (losses), net of tax impact of $2 and $30, respectively
 
184

 
(24
)
Reclassifications to net income, net of tax impact of $0 and $0, respectively
 
3

 

Net change
 
187

 
(24
)
Cash flow hedges:
 
 
 
 
Net unrealized losses, net of tax impact of $(7) and $(10), respectively
 
(87
)
 
(150
)
Reclassifications to net income, net of tax impact of $(1) and $(6), respectively
 
(42
)
 
(80
)
Net change
 
(129
)
 
(230
)
Other comprehensive loss
 
(18
)
 
(252
)
Comprehensive income
 
2,681

 
3,315

Comprehensive income (loss) attributable to noncontrolling interest
 
(3
)
 
1

Comprehensive income attributable to Gilead
 
$
2,684

 
$
3,314
































See accompanying notes.

4



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Operating Activities:
 
 
 
 
Net income
 
$
2,699

 
$
3,567

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
49

 
42

Amortization expense
 
245

 
241

Stock-based compensation expense
 
89

 
88

Deferred income taxes
 
58

 
15

In-process research and development impairment
 

 
114

Other
 
39

 
68

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
537

 
(191
)
Inventories
 
(5
)
 
(14
)
Prepaid expenses and other
 
177

 
(126
)
Accounts payable
 
(262
)
 
(239
)
Income taxes payable
 
(24
)
 
205

Accrued liabilities
 
(677
)
 
360

Net cash provided by operating activities
 
2,925

 
4,130

 
 
 
 
 
Investing Activities:
 
 
 
 
Purchases of marketable securities
 
(3,482
)
 
(4,977
)
Proceeds from sales of marketable securities
 
3,173

 
2,959

Proceeds from maturities of marketable securities
 
734

 
443

Other investments
 

 
(357
)
Capital expenditures
 
(118
)
 
(177
)
Net cash provided by (used in) investing activities
 
307

 
(2,109
)
 
 
 
 
 
Financing Activities:
 
 
 
 
Proceeds from convertible note hedges
 

 
95

Proceeds from issuances of common stock
 
96

 
92

Repurchases of common stock
 
(565
)
 
(8,000
)
Repayments of debt and other obligations
 
(30
)
 
(126
)
Payments of dividends
 
(687
)
 
(587
)
Other
 
(58
)
 
(87
)
Net cash used in financing activities
 
(1,244
)
 
(8,613
)
Effect of exchange rate changes on cash and cash equivalents
 
68

 
56

Net change in cash and cash equivalents
 
2,056

 
(6,536
)
Cash and cash equivalents at beginning of period
 
8,229

 
12,851

Cash and cash equivalents at end of period
 
$
10,285

 
$
6,315





See accompanying notes.

5



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 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 accompanying Condensed Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income or loss attributable to noncontrolling interest in our Condensed Consolidated Statements of Income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.
We assess whether we are the primary beneficiary of a variable interest entity (VIE) at the inception of the arrangement and at each reporting date. This assessment is 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 March 31, 2017, the only material VIE was our joint venture with Bristol-Myers Squibb Company (BMS) which is described in Note 7, Collaborative Arrangements.
The accompanying Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.
Significant Accounting Policies, Estimates and Judgments
The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various 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. Estimates are assessed each period and updated to reflect current information. Actual results may differ significantly from these estimates.
Concentrations of Risk
We are subject to credit risk from our portfolio of cash, 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, Europe and Japan. 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 March 31, 2017.
Recently Adopted Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-17 (ASU 2015-17) “Balance Sheet Classification of Deferred Taxes.”  We adopted this standard on a retrospective basis in the first quarter of 2017. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. As a result, our Condensed Consolidated Balance Sheets as of December 31, 2016 was retrospectively adjusted, resulting in a reduction in Total current assets of $857 million and an increase in Long-term deferred tax assets of $857 million. The resulting reclassification of our deferred tax liabilities was not material.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09) “Improvements to Employee Share-Based Payment Accounting.” We adopted this standard in the first quarter of 2017. One aspect of the standard requires that

6



excess tax benefits and deficiencies that arise upon vesting or exercise of share-based awards be recognized in the income statement, on a prospective basis. Under previous guidance, the tax effects were recorded in additional paid-in capital. As a result, we recognized $20 million of excess tax benefits in Provision for income taxes on our Condensed Consolidated Statements of Income for the three months ended March 31, 2017. The resulting impact to the shares used in the calculation of diluted earnings per share for the three months ended March 31, 2017 was not material. Additionally, as allowed by the standard, we elected to continue to estimate potential forfeitures.
Another aspect of ASU 2016-09 amends the presentation of certain share-based payment items on the statement of cash flows, which we adopted on a retrospective basis. As a result, our Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 was adjusted to (a) reclassify $89 million of excess tax benefits from stock-based compensation from Net cash used in financing activities to Net cash provided by operating activities and (b) reclassify $128 million of employee taxes paid to tax authorities when we withheld shares to meet the minimum statutory withholding requirement from changes in Accrued liabilities within Net cash provided by operating activities to Other within Net cash used in financing activities.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers.” The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will become effective for us beginning in the first quarter of 2018. Early adoption is permitted in 2017. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-08 “Revenue from Contracts with Customers: Principal vs. Agent Considerations,” ASU 2016-10 “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing,” ASU 2016-12 “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients” and ASU 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” respectively. We expect to adopt these standards using the modified retrospective approach. The cumulative effect of adopting these standards will be recorded to retained earnings on January 1, 2018. We have completed our initial assessment of the effect of adoption. Based on this assessment, we expect changes in our revenue recognition policy relating to royalty revenues and certain other revenues that are currently recognized on a cash basis or sell through method. Upon adoption of these standards, these revenues will be recognized in the periods in which the sales occur, subject to the constraint on variable consideration. We currently do not expect that adopting these standards will have a material impact on our Condensed Consolidated Financial Statements.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01(ASU 2016-01) “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 changes accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, it clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The guidance will become effective for us beginning in the first quarter of 2018 and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted for certain provisions. We are evaluating the impact of the adoption of this standard on our Condensed Consolidated Financial Statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases.” ASU 2016-02 amends a number of aspects of lease accounting, including requiring lessees to recognize almost all leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. The guidance will become effective for us beginning in the first quarter of 2019 and is required to be adopted using a modified retrospective approach. Early adoption is permitted. We are evaluating the impact of the adoption of this standard, and we anticipate recognition of additional assets and corresponding liabilities related to leases on our Condensed Consolidated Balance Sheets.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning in the first quarter of 2020 and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted beginning in the first quarter of 2019. We are evaluating the impact of the adoption of this standard on our Condensed Consolidated Financial Statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01) “Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance will become effective for us beginning in the first quarter of 2018 and is required to be adopted on a prospective basis. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our Condensed Consolidated Financial Statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04) “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the goodwill impairment test. Under the new guidance, goodwill impairment will be measured by the amount by which the carrying value of a reporting unit exceeds its fair value, without exceeding the carrying

7



amount of goodwill allocated to that reporting unit. This guidance will be effective for us beginning in the first quarter of 2020 and is required to be adopted on a prospective basis. Early adoption is permitted. We currently do not expect that adopting this standard will have a material impact on our Condensed Consolidated Financial Statements.
In February 2017, the FASB issued Accounting Standards Update No. 2017-05 (ASU 2017-05) “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.” ASU 2017-05 clarifies the scope of the derecognition of nonfinancial assets, defines in substance financial assets, adds guidance for partial sales of nonfinancial assets and clarifies the recognition of gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This guidance will become effective for us beginning in the first quarter of 2018 and may be adopted using either a full retrospective or a modified retrospective approach. Early adoption is permitted. We are required to adopt the amendments in this standard at the same time that we adopt the amendments in ASU 2014-09. We are evaluating the impact of the adoption of this standard on our Condensed Consolidated Financial Statements.
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. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
Our financial instruments consist primarily of cash and cash equivalents, marketable securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable securities, foreign currency exchange contracts and equity securities are reported at their respective fair values on our Condensed Consolidated Balance Sheets. Short-term and long-term debt are reported at their amortized costs on our Condensed Consolidated Balance Sheets. The remaining financial instruments are reported on our Condensed Consolidated Balance Sheets at amounts that approximate current fair values. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.

8



The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in millions):
 
March 31, 2017
 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
$

 
$
12,583

 
$

 
$
12,583

 
$

 
$
12,603

 
$

 
$
12,603

U.S. treasury securities
5,164

 

 

 
5,164

 
5,529

 

 

 
5,529

Money market funds
7,795

 

 

 
7,795

 
5,464

 

 

 
5,464

Residential mortgage and asset-backed securities

 
3,522

 

 
3,522

 

 
3,602

 

 
3,602

U.S. government agencies securities

 
1,002

 

 
1,002

 

 
975

 

 
975

Certificates of deposit

 
985

 

 
985

 

 
943

 

 
943

Non-U.S. government securities

 
721

 

 
721

 

 
720

 

 
720

Municipal debt securities

 
22

 

 
22

 

 
27

 

 
27

Equity securities
593

 

 
 
 
593

 
428

 

 

 
428

Foreign currency derivative contracts

 
167

 

 
167

 

 
336

 

 
336

Deferred compensation plan
96

 

 

 
96

 
84

 

 

 
84

Total
$
13,648

 
$
19,002

 
$

 
$
32,650

 
$
11,505

 
$
19,206

 
$

 
$
30,711

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Deferred compensation plan
$
96

 
$

 
$

 
$
96

 
$
84

 
$

 
$

 
$
84

Foreign currency derivative contracts

 
17

 

 
17

 

 
37

 

 
37

Contingent consideration

 

 
25

 
25

 

 

 
25

 
25

Total
$
96

 
$
17

 
$
25

 
$
138

 
$
84

 
$
37

 
$
25

 
$
146

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 Inputs
We estimate the fair values of Level 2 instruments 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 derivative contracts have maturities within an 18-month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by Standard & Poor’s Ratings Services, 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 exchange rates, London Interbank Offered Rates (LIBOR) and swap rates. These inputs, where applicable, are at commonly quoted intervals.
The total estimated fair values of our short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $26.9 billion and $27.0 billion at March 31, 2017 and December 31, 2016, respectively, and the carrying values were $26.3 billion at March 31, 2017 and December 31, 2016.
Level 3 Inputs
As of March 31, 2017 and December 31, 2016, the only assets or liabilities that were measured using Level 3 inputs on a recurring basis were our contingent consideration liabilities, which were immaterial.
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.

9



3.
AVAILABLE-FOR-SALE SECURITIES
Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The following table summarizes our available-for-sale securities (in millions):
 
 
March 31, 2017
 
December 31, 2016
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value 
Corporate debt securities
 
$
12,619

 
$
10

 
$
(46
)
 
$
12,583

 
$
12,657

 
$
7

 
$
(61
)
 
$
12,603

U.S. treasury securities
 
5,190

 
1

 
(27
)
 
5,164

 
5,558

 
1

 
(30
)
 
5,529

Money market funds
 
7,795

 

 

 
7,795

 
5,464

 

 

 
5,464

Residential mortgage and asset-backed securities
 
3,534

 
1

 
(13
)
 
3,522

 
3,613

 
2

 
(13
)
 
3,602

U.S. government agencies securities
 
1,008

 

 
(6
)
 
1,002

 
981

 

 
(6
)
 
975

Certificates of deposit
 
985

 

 

 
985

 
943

 

 

 
943

Non-U.S. government securities
 
726

 

 
(5
)
 
721

 
725

 

 
(5
)
 
720

Municipal debt securities
 
22

 

 

 
22

 
27

 

 

 
27

Equity securities
 
357

 
236

 

 
593

 
357

 
71

 

 
428

Total
 
$
32,236

 
$
248

 
$
(97
)
 
$
32,387

 
$
30,325

 
$
81

 
$
(115
)
 
$
30,291

The following table summarizes the classification of our available-for-sale securities on our Condensed Consolidated Balance Sheets (in millions):
 
 
March 31, 2017
 
December 31, 2016
Cash and cash equivalents
 
$
8,062

 
$
5,712

Short-term marketable securities
 
3,830

 
3,666

Prepaid and other current assets
 
593

 

Long-term marketable securities
 
19,902

 
20,485

Other long-term assets
 

 
428

Total
 
$
32,387

 
$
30,291

Cash and cash equivalents in the table above excludes cash of $2.2 billion and $2.5 billion as of March 31, 2017 and December 31, 2016, respectively.
The following table summarizes our available-for-sale securities by contractual maturity (in millions):
 
 
March 31, 2017
 
 
Amortized Cost
 
Fair Value
Within one year
 
$
11,893

 
$
11,892

After one year through five years
 
19,303

 
19,225

After five years through ten years
 
577

 
571

After ten years
 
106

 
106

Total
 
$
31,879

 
$
31,794


10



The following table summarizes our available-for-sale securities that were in a continuous unrealized loss position but were not deemed to be other-than-temporarily impaired (in millions):
 
 
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
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
(46
)
 
$
7,630

 
$

 
$
77

 
$
(46
)
 
$
7,707

U.S. treasury securities
 
(27
)
 
4,542

 

 

 
(27
)
 
4,542

Residential mortgage and asset-backed securities
 
(13
)
 
2,761

 

 
25

 
(13
)
 
2,786

U.S. government agencies securities
 
(6
)
 
978

 

 

 
(6
)
 
978

Non-U.S. government securities
 
(5
)
 
712

 

 
5

 
(5
)
 
717

Municipal debt securities
 

 
11

 

 

 

 
11

Total
 
$
(97
)
 
$
16,634

 
$

 
$
107

 
$
(97
)
 
$
16,741

 
 
 

 
 

 
 

 
 

 
 

 
 

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
(60
)
 
$
8,685

 
$
(1
)
 
$
155

 
$
(61
)
 
$
8,840

U.S. treasury securities
 
(30
)
 
5,081

 

 

 
(30
)
 
5,081

Residential mortgage and asset-backed securities
 
(13
)
 
2,180

 

 
42

 
(13
)
 
2,222

U.S. government agencies securities
 
(6
)
 
897

 

 

 
(6
)
 
897

Non-U.S. government securities
 
(5
)
 
714

 

 
5

 
(5
)
 
719

Certificates of deposit
 

 
15

 

 

 

 
15

Municipal debt securities
 

 
11

 

 

 

 
11

Total
 
$
(114
)
 
$
17,583

 
$
(1
)
 
$
202

 
$
(115
)
 
$
17,785

We held a total of 2,375 and 2,709 positions as of March 31, 2017 and December 31, 2016, respectively, related to our debt securities that were in an unrealized loss position.
Based on our review of our available-for-sale securities, we believe we had no other-than-temporary impairments on these securities as of March 31, 2017 and December 31, 2016, because we do not intend to sell these securities nor do we believe that we will be required to sell these securities before the recovery of their amortized cost basis. Gross realized gains and gross realized losses were immaterial for the three months ended March 31, 2017 and 2016.
4.
DERIVATIVE FINANCIAL INSTRUMENTS
Our operations in foreign countries expose 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 are the Euro and Yen. In order to manage this risk, we may 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 or 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. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We also seek to 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.
We hedge our exposure to foreign currency exchange rate fluctuations for certain monetary assets and liabilities of our entities 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 regression analysis which calculates the change in cash flow as a result of the hedge instrument. On a quarterly 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, on our Condensed Consolidated

11



Statements of Income. The effective component of our hedge is recorded as an unrealized gain or loss on the hedging instrument in Accumulated other comprehensive income (AOCI) within Stockholders’ equity on our Condensed Consolidated Balance Sheets and the gains or losses are reclassified into product sales when the hedged transactions affect earnings. The majority of gains and losses related to the hedged forecasted transactions reported in AOCI at March 31, 2017 are expected to be reclassified to product sales within 12 months.
The cash flow effects of our derivative contracts for the three months ended March 31, 2017 and 2016 are included within Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows.
We had notional amounts on foreign currency exchange contracts outstanding of $5.1 billion and $6.2 billion at March 31, 2017 and December 31, 2016, respectively.
While all of our derivative contracts allow us the right to offset assets and liabilities, we have presented amounts on a gross basis. Under the International Swap Dealers Association, Inc. master agreements with the respective counterparties of the foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. The following table summarizes the classification and fair values of derivative instruments on our Condensed Consolidated Balance Sheets (in millions):
 
 
March 31, 2017
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Classification
 
Fair Value 
 
Classification
 
Fair Value
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
107

 
Other accrued liabilities
 
$
(7
)
Foreign currency exchange contracts
 
Other long-term assets
 
1

 
Other long-term obligations
 
(3
)
Total derivatives designated as hedges
 
 
 
108

 
 
 
(10
)
Derivatives not designated as hedges:
 
 
 
 

 
 
 
 

Foreign currency exchange contracts
 
Other current assets
 
59

 
Other accrued liabilities
 
(7
)
Total derivatives not designated as hedges
 
 
 
59

 
 
 
(7
)
Total derivatives
 
 
 
$
167

 
 
 
$
(17
)
 
 
December 31, 2016
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
225

 
Other accrued liabilities
 
$
(1
)
Foreign currency exchange contracts
 
Other long-term assets
 
20

 
Other long-term obligations
 

Total derivatives designated as hedges
 
 
 
245

 
 
 
(1
)
Derivatives not designated as hedges:
 
 
 
 

 
 
 
 

Foreign currency exchange contracts
 
Other current assets
 
81

 
Other accrued liabilities
 
(34
)
Foreign currency exchange contracts
 
Other long-term assets
 
10

 
Other long-term obligations
 
(2
)
Total derivatives not designated as hedges
 
 
 
91

 
 
 
(36
)
Total derivatives
 
 
 
$
336

 
 
 
$
(37
)

12



The following table summarizes the effect of our foreign currency exchange contracts on our Condensed Consolidated Financial Statements (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Derivatives designated as hedges:
 
 
 
 
Losses recognized in AOCI (effective portion)
 
$
(94
)
 
$
(160
)
Gains reclassified from AOCI into product sales (effective portion)
 
$
43

 
$
86

Gains recognized in Other income (expense), net (ineffective portion and amounts excluded from effectiveness testing)
 
$
13

 
$
14

Derivatives not designated as hedges:
 
 
 
 
Losses recognized in Other income (expense), net
 
$
(135
)
 
$
(151
)
From time to time, we may discontinue cash flow hedges and, as a result, record related amounts in Other income (expense), net, on our Condensed Consolidated Statements of Income. There were no material amounts recorded in Other income (expense), net, for the three months ended March 31, 2017 and 2016 as a result of the discontinuance of cash flow hedges.
As of March 31, 2017 and December 31, 2016, we held one type of financial instrument, derivative contracts related to foreign currency exchange contracts. The following table summarizes the potential effect of offsetting derivatives by type of financial instrument on our Condensed Consolidated Balance Sheets (in millions):
 
 
 
 
 
 
 
 
Gross Amounts Not Offset
on our Condensed
Consolidated Balance Sheets
 
 
Description
 
Gross Amounts
 of Recognized
Assets/Liabilities
 
Gross Amounts
 Offset on our
Condensed
Consolidated
Balance Sheets
 
Amounts of Assets/Liabilities Presented
 on our Condensed Consolidated
Balance Sheets
 
Derivative
Financial
Instruments
 
Cash Collateral
Received/
Pledged
 
Net Amount
 (Legal Offset)
As of March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
167

 
$

 
$
167

 
$
(17
)
 
$

 
$
150

Derivative liabilities
 
(17
)
 

 
(17
)
 
17

 

 

As of December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
336

 
$

 
$
336

 
$
(37
)
 
$

 
$
299

Derivative liabilities
 
(37
)
 

 
(37
)
 
37

 

 

5.
OTHER FINANCIAL INFORMATION
Inventories
Inventories are summarized as follows (in millions):
 
 
March 31, 2017
 
December 31, 2016
Raw materials
 
$
1,470

 
$
1,610

Work in process
 
836

 
626

Finished goods
 
859

 
928

Total
 
$
3,165

 
$
3,164

 
 
 
 
 
Reported as:
 
 
 
 
Inventories
 
$
1,474

 
$
1,587

Other long-term assets
 
1,691

 
1,577

Total
 
$
3,165

 
$
3,164

Amounts reported as other long-term assets primarily consisted of raw materials as of March 31, 2017 and December 31, 2016.
The joint ventures formed by Gilead Sciences, LLC and BMS, which are included on our Condensed Consolidated Financial Statements and described in Note 7, Collaborative Arrangements, held efavirenz active pharmaceutical ingredient in inventory.

13



This efavirenz inventory was purchased from BMS at BMS’s estimated net selling price of efavirenz and totaled $1.1 billion as of March 31, 2017 and December 31, 2016.
Other accrued liabilities
The components of Other accrued liabilities are summarized as follows (in millions):
 
 
March 31, 2017
 
December 31, 2016
Branded prescription drug fee
 
$
548

 
$
481

Deferred revenues
 
245

 
202

Compensation and employee benefits
 
244

 
398

Other accrued expenses
 
1,589

 
1,910

Total
 
$
2,626

 
$
2,991

 
 
 
 
 
6.
INTANGIBLE ASSETS
The following table summarizes our finite-lived intangible assets (in millions):
 
 
March 31, 2017
 
December 31, 2016
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying Amount
Intangible asset - sofosbuvir
 
$
10,720

 
$
2,330

 
$
8,390

 
$
10,720

 
$
2,156

 
$
8,564

Intangible asset - Ranexa
 
688

 
492

 
196

 
688

 
467

 
221

Other
 
455

 
280

 
175

 
455

 
269

 
186

Total
 
$
11,863

 
$
3,102

 
$
8,761

 
$
11,863

 
$
2,892

 
$
8,971

Amortization expense related to finite-lived intangible assets, included primarily in Cost of goods sold on our Condensed Consolidated Statements of Income, totaled $210 million for the three months ended March 31, 2017 and 2016. As of March 31, 2017, the estimated future amortization expense associated with our finite-lived intangible assets is as follows (in millions):
Fiscal Year
 
Amount
2017 (remaining nine months)
 
$
629

2018
 
850

2019
 
739

2020
 
713

2021
 
713

Thereafter
 
5,117

Total
 
$
8,761

7.
COLLABORATIVE ARRANGEMENTS
We enter into collaborative arrangements with third parties for the development and commercialization of certain products. Both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. Selected information related to our collaborative arrangements follows.
Bristol-Myers Squibb Company
North America
In 2004, we entered into a collaboration arrangement with BMS to develop and commercialize a single-tablet regimen containing our Truvada and BMS’s Sustiva (efavirenz) in the United States. This combination was approved for use in the United States in 2006 and is sold under the brand name Atripla. We and BMS structured this collaboration as a joint venture that operates as a limited liability company named Bristol-Myers Squibb & Gilead Sciences, LLC, which we consolidate. We and BMS granted royalty-free sublicenses to the joint venture for the use of our respective company owned technologies and, in return, were granted a license by the joint venture to use any intellectual property that results from the collaboration. In 2006, we and BMS amended the joint venture’s collaboration agreement to allow the joint venture to sell Atripla in Canada. The economic interests of the joint venture held by us and BMS (including a share of revenues and out-of-pocket expenses) are based on the portion of the net selling

14



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 our and BMS’s respective economic interests in the joint venture may vary annually.
We and BMS shared marketing and sales efforts. Starting in the second quarter of 2011, except for a limited number of activities that are jointly managed, the parties no longer coordinate detailing and promotional activities in the United States, and the parties reduced their joint promotional efforts since we launched Complera in August 2011 and Stribild in August 2012. The parties continue to collaborate on activities such as manufacturing, regulatory, compliance and pharmacovigilance. The daily operations of the joint venture are governed by several joint committees formed by both BMS and Gilead. 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. The agreement will continue until terminated by the mutual agreement of the parties. In addition, either party may terminate the other party’s participation in the collaboration within 30 days after the launch of at least one generic version of such other party’s single agent products (or the double agent products). The terminating party then has the right to continue to sell Atripla and become the continuing party, but will be obligated to pay the terminated party certain royalties for a three-year period following the effective date of the termination. The loss of exclusivity in the United States for Sustiva is expected in December 2017.
As of March 31, 2017 and December 31, 2016, 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 were primarily included in Inventories on our Condensed Consolidated Balance Sheets.
Selected financial information for the joint venture was as follows (in millions):
 
 
March 31, 2017
 
December 31, 2016
Total assets
 
$
1,969

 
$
1,918

Cash and cash equivalents
 
101

 
92

Accounts receivable, net
 
166

 
229

Inventories
 
1,679

 
1,579

Total liabilities
 
821

 
772

Accounts payable
 
473

 
434

Other accrued liabilities
 
348

 
338

These asset and liability amounts do not reflect the impact of intercompany eliminations that are included on 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. Similarly, the assets held in the joint venture can be used only to settle obligations of the joint venture.
Europe
In 2007, Gilead Sciences Ireland UC, our wholly-owned subsidiary, and BMS entered into a collaboration agreement which sets forth the terms and conditions under which we and BMS 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 manufacturing, 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. In general, the parties share revenues and out-of-pocket expenses in proportion to the net selling prices of the components of Atripla, Truvada and efavirenz.
Starting in 2012, except for a limited number of activities that are jointly managed, the parties no longer coordinate detailing and promotional activities in the European Territory. We are responsible for accounting, financial reporting and tax reporting for the collaboration. As of March 31, 2017 and December 31, 2016, 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 the European Territory. 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.
The agreement will terminate upon the expiration of the last-to-expire patent which affords market exclusivity to Atripla or one of its components in the European Territory. In addition, since December 31, 2013, either party may terminate the agreement for any reason and such termination will be effective two calendar quarters after notice of termination. The non-terminating party has the right to continue to sell Atripla and become the continuing party, but will be obligated to pay the terminating party certain royalties for a three-year period following the effective date of the termination. In the event the continuing party decides not to

15



sell Atripla, the effective date of the termination will be the date Atripla is withdrawn in each country or the date on which a third party assumes distribution of Atripla, whichever is earlier.
8.
DEBT AND CREDIT FACILITY
Financing Arrangements
The following table summarizes our borrowings under various financing arrangements (in millions):
 
 
 
 
 
 
 
 
Carrying Amount
Type of Borrowing
 
Issue Date
 
Due Date
 
Interest Rate
 
March 31, 2017
 
December 31, 2016
Senior Unsecured
 
September 2015
 
September 2018
 
1.85%
 
$
998

 
$
998

Senior Unsecured
 
March 2014
 
April 2019
 
2.05%
 
499

 
499

Senior Unsecured
 
November 2014
 
February 2020
 
2.35%
 
498

 
498

Senior Unsecured
 
September 2015
 
September 2020
 
2.55%
 
1,992

 
1,991

Senior Unsecured
 
March 2011
 
April 2021
 
4.50%
 
994

 
994

Senior Unsecured
 
December 2011
 
December 2021
 
4.40%
 
1,245

 
1,245

Senior Unsecured
 
September 2016
 
March 2022
 
1.95%
 
497

 
497

Senior Unsecured
 
September 2015
 
September 2022
 
3.25%
 
995

 
995

Senior Unsecured
 
September 2016
 
September 2023
 
2.50%
 
744

 
744

Senior Unsecured
 
March 2014
 
April 2024
 
3.70%
 
1,742

 
1,741

Senior Unsecured
 
November 2014
 
February 2025
 
3.50%
 
1,743

 
1,743

Senior Unsecured
 
September 2015
 
March 2026
 
3.65%
 
2,727

 
2,726

Senior Unsecured
 
September 2016
 
March 2027
 
2.95%
 
1,244

 
1,243

Senior Unsecured
 
September 2015
 
September 2035
 
4.60%
 
989

 
989

Senior Unsecured
 
September 2016
 
September 2036
 
4.00%
 
739

 
739

Senior Unsecured
 
December 2011
 
December 2041
 
5.65%
 
995

 
995

Senior Unsecured
 
March 2014
 
April 2044
 
4.80%
 
1,733

 
1,732

Senior Unsecured
 
November 2014
 
February 2045
 
4.50%
 
1,729

 
1,729

Senior Unsecured
 
September 2015
 
March 2046
 
4.75%
 
2,214

 
2,214

Senior Unsecured
 
September 2016
 
March 2047
 
4.15%
 
1,723

 
1,723

Floating-rate Borrowings
 
May 2016
 
May 2019
 
Variable
 
281

 
311

Total debt, net
 
26,321

 
26,346

Less current portion
 

 

Total long-term debt, net
 
$
26,321

 
$
26,346

We are required to comply with certain covenants under our credit agreement and note indentures governing our senior notes. As of March 31, 2017, we were not in violation of any covenants. Additionally, as of March 31, 2017, there were no amounts outstanding under our revolving credit facility.
9.
COMMITMENTS AND CONTINGENCIES
We are a party to various legal actions. The most significant of these are described below. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss. Unless otherwise noted, it is not possible to determine the outcome of these matters, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss.
We did not recognize any accruals for litigation on our Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016, as we did not believe losses were probable.

16



Litigation Related to Sofosbuvir
In January 2012, we acquired Pharmasset, Inc. (Pharmasset). Through the acquisition, we acquired sofosbuvir, a nucleotide analog that acts to inhibit the replication of the hepatitis C virus (HCV). In December 2013, we received approval from the U.S. Food and Drug Administration (FDA) for sofosbuvir, now known commercially as Sovaldi. In October 2014, we also received approval of the fixed-dose combination of ledipasvir and sofosbuvir, now known commercially as Harvoni. In June 2016, we received approval of the fixed-dose combination of sofosbuvir and velpatasvir, now known commercially as Epclusa. We have received a number of contractual and intellectual property claims regarding sofosbuvir. While we have carefully considered these claims both prior to and following the acquisition and believe they are without merit, we cannot predict the ultimate outcome of such claims or range of loss, except where stated otherwise herein.
We own patents and patent applications that claim sofosbuvir (Sovaldi) as a chemical entity and its metabolites and the fixed-dose combinations of ledipasvir and sofosbuvir (Harvoni) and sofosbuvir and velpatasvir (Epclusa). Third parties may have, or may obtain rights to, patents that allegedly could be used to prevent or attempt to prevent us from commercializing Harvoni, Epclusa or Sovaldi. For example, we are aware of patents and patent applications owned by other parties that have been or may in the future be alleged by such parties to cover the use of Harvoni, Epclusa and Sovaldi. We cannot predict the ultimate outcome of intellectual property claims related to Harvoni, Epclusa or Sovaldi. We have spent, and will continue to spend, significant resources defending against these claims.
If third parties successfully obtain valid and enforceable patents, and successfully prove infringement of those patents by Harvoni, Epclusa and/or Sovaldi, we could be prevented from selling these products unless we were able to obtain a license under such patents. Such a license may not be available on commercially reasonable terms or at all.
Interference Proceedings and Litigation with Idenix Pharmaceuticals, Inc. (Idenix), Universita Degli Studi di Cagliari (UDSG), Centre National de la Recherche Scientifique and L‘Universite Montpellier II
In February 2012, we received notice that the U.S. Patent and Trademark Office (USPTO) had declared Interference No. 105,871 (First Idenix Interference) between our U.S. Patent No. 7,429,572 (the ‘572 patent) and Idenix’s pending U.S. Patent Application No. 12/131,868 to determine who was the first to invent certain nucleoside compounds. In January 2014, the USPTO Patent Trial and Appeal Board (PTAB) determined that Pharmasset and not Idenix was the first to invent the compounds. Idenix has appealed the PTAB’s decisions to the U.S. District Court for the District of Delaware, which has stayed that appeal pending the outcome of the appeal of the interference involving Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent) as described below.
In December 2013, after receiving our request to do so, the USPTO declared Interference No. 105,981 (Second Idenix Interference) between our pending U.S. Patent Application No. 11/854,218 and Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent). The ‘600 patent includes claims directed to methods of treating HCV with nucleoside compounds. In March 2015, the PTAB determined that Pharmasset and not Idenix was the first to invent the claimed methods of treating HCV. Idenix appealed this decision in both the U.S. District Court for the District of Delaware and the U.S. Court of Appeal for the Federal Circuit (CAFC). The CAFC heard oral arguments in September 2016, and we are awaiting its decision. We filed a motion to dismiss the appeal in Delaware, which was granted. Idenix appealed the dismissal to the CAFC, and that court has stayed the appeal relating to the Second Idenix Interference.
We believe that the Idenix claims involved in the First and Second Idenix Interferences, and similar U.S. and foreign patents claiming the same compounds, metabolites and uses thereof, are invalid. As a result, we filed an Impeachment Action in the Federal Court of Canada to invalidate Idenix Canadian Patent No. 2,490,191 (the ‘191 patent), which is the Canadian patent that corresponds to the ‘600 patent. Idenix asserted that the commercialization of Sovaldi in Canada will infringe its ‘191 patent and that our Canadian Patent No. 2,527,657, corresponding to our ‘572 patent, is invalid. In November 2015, the Canadian court held that Idenix’s patent is invalid and that our patent is valid. Idenix appealed the decision to the Canadian Federal Court of Appeal in November 2015. The appeal hearing was held in January 2017 and we are awaiting the decision.
We filed a similar legal action in Norway in the Oslo District Court seeking to invalidate Idenix’s Norwegian patent corresponding to the ‘600 patent. In September 2013, Idenix filed an invalidation action in the Norwegian proceedings against our Norwegian Patent No. 333700, which corresponds to the ‘572 patent. In March 2014, the Norwegian court found all claims in the Idenix Norwegian patent to be invalid and upheld the validity of all claims in our patent. Idenix appealed the decision to the Norwegian Court of Appeal. In April 2016, the Court of Appeal issued its decision invalidating the Idenix patent and upholding our patent. Idenix has not filed a further appeal.
In January 2013, we filed a legal action in the Federal Court of Australia seeking to invalidate Idenix’s Australian patent corresponding to the ‘600 patent. In April 2013, Idenix asserted that the commercialization of Sovaldi in Australia infringes its Australian patent corresponding to the ‘600 patent. In March 2016, the Australian court revoked Idenix’s Australian patent. Idenix has appealed this decision. The appeal hearing was held in November 2016 and we are awaiting the decision.
In March 2014, the European Patent Office (EPO) granted Idenix European Patent No. 1 523 489 (the ‘489 patent), which corresponds to the ‘600 patent. The same day that the ‘489 patent was granted, we filed an opposition with the EPO seeking to

17



revoke the ‘489 patent. An opposition hearing was held in February 2016, and the EPO ruled in our favor and revoked the ‘489 patent. Idenix has appealed. In March 2014, Idenix also initiated infringement proceedings against us in the United Kingdom (UK), Germany and France alleging that the commercialization of Sovaldi would infringe the UK, German and French counterparts of the ‘489 patent. A trial was held in the UK in October 2014. In December 2014, the High Court of Justice of England and Wales (UK Court) invalidated all challenged claims of the ‘489 patent on multiple grounds. Idenix appealed. In November 2016, the appeals court affirmed the UK Court’s decision invalidating Idenix’s patent. In March 2015, the German court in Düsseldorf determined that the Idenix patent was highly likely to be invalid and stayed the infringement proceedings pending the outcome of the opposition hearing held by the EPO in February 2016. Idenix has not appealed this decision of the German court staying the proceedings. Upon Idenix’s request, the French proceedings have been stayed. Idenix has not been awarded patents corresponding to the ‘600 patent in Japan or China.
In December 2013, Idenix, Universita Degli Studi di Cagliari (UDSG), Centre National de la Recherche Scientifique and L’Université Montpellier II sued us in U.S. District Court for the District of Delaware alleging that the commercialization of sofosbuvir will infringe the ‘600 patent and that an interference exists between the ‘600 patent and our U.S. Patent No. 8,415,322. Also in December 2013, Idenix and UDSG sued us in the U.S. District Court for the District of Massachusetts alleging that the commercialization of sofosbuvir will infringe U.S. Patent Nos. 6,914,054 (the ‘054 patent) and 7,608,597 (the ‘597 patent). In June 2014, the court transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware. Idenix was acquired by Merck & Co. Inc. (Merck) in August 2014.
Prior to trial in December 2016, Idenix committed to give us a covenant not to sue with respect to any claims arising out of the ‘054 patent related to sofosbuvir and withdrew that patent from the trial. In addition, Idenix declined to litigate the ‘600 patent infringement action at trial in light of the appeal currently pending at the CAFC. In January 2017, the District Court stayed Idenix’s infringement claim on the ‘600 patent pending the outcome of the appeal of the interference decision on that patent, described above. A jury trial was held in December 2016 on the remaining ‘597 patent. In December 2016, the jury found that we willfully infringed the asserted claims of the ‘597 patent and awarded Idenix $2.54 billion in past damages. The parties have filed post-trial motions and briefings, and we expect the judge to rule in the third or fourth quarter of 2017. Once the judge has issued these rulings, the case will move to the CAFC.
Although we cannot predict with certainty the ultimate outcome of this litigation, we believe the jury verdict to be in error, and also believe that errors were also made by the court with respect to certain rulings before and during trial. We are confident in the merits of our case and will vigorously pursue this position in post-trial motions and on appeal. We expect that our arguments in the pending post-trial motions and on appeal will focus on one or more of the arguments that we made to the judge and jury, those being (i) when properly construed, Gilead does not infringe the claims of the ‘597 patent, (ii) the patent is invalid for failure to properly describe the claimed invention and (iii) the patent is invalid because it does not enable one of skill in the art to practice the claimed invention.
In assessing whether we should accrue a liability for this litigation on our Condensed Consolidated Financial Statements, we considered various factors, including the legal and factual circumstances of the case, the USPTO’s invalidation of an Idenix patent similar to the ‘597 patent in dispute in this case, the jury’s verdict, the court’s post-trial orders, the current status of the proceedings, applicable law, the views of legal counsel and the likelihood that the jury’s verdict will be upheld on appeal. As a result of this review, we have determined, in accordance with applicable accounting standards, that it is not probable that we will incur a loss as a result of this litigation, and therefore have not recorded a liability for this matter. While we believe a loss is not probable, it is reasonably possible that a loss could occur. If the jury’s verdict is not upheld on appeal, the loss will be zero. If the jury’s verdict is upheld on appeal, our estimated potential loss as of March 31, 2017 would include (i) the $2.54 billion determined by the jury, which represents 10% of our adjusted revenues from sofosbuvir containing products from launch through August 2016, (ii) approximately $269 million, which represents 10% of our adjusted revenues from sofosbuvir containing products from September 2016 through January 25, 2017, (iii) pre- and post-judgment interest, (iv) enhanced damages of up to three times the sum of (i) and (ii) above as a result of the jury’s finding of willfulness, (v) approximately $145 million, which represents going forward royalties yet to be assessed by the court, which we have estimated assuming 14% of our adjusted revenues from sofosbuvir containing products from January 26, 2017 through March 31, 2017 based on post-trial briefings filed by Idenix with the court, and which would be payable based on adjusted revenues from sofosbuvir-containing products for the period from January 26, 2017 through expiry of the Idenix patent in May 2021, and (vi) attorney’s fees. Therefore, we estimate the range of possible loss through March 31, 2017 to be between zero and $8.8 billion. Unless our pending motion to sever and stay consideration of going forward royalties is granted, we expect the judge to rule on the amount of going forward royalties and any enhanced damages in the course of deciding the post-trial motions at a time to be determined by the judge in this case. The court’s determination of enhanced damages, if any, can also be appealed.
If the jury’s verdict is upheld on appeal, the amount we could be required to pay could be material. The timing and magnitude of the amount of any such payment could have a material adverse impact on our results of operations and stock price.

18



Litigation with Merck
In August 2013, Merck contacted us requesting that we pay royalties on the sales of sofosbuvir and obtain a license to U.S. Patent No. 7,105,499 (the ‘499 patent) and U.S. Patent No. 8,481,712 (the ‘712 patent), which it co-owns with Ionis Pharmaceuticals, Inc. The ‘499 and ‘712 patents cover compounds which do not include, but may relate to, sofosbuvir. We filed a lawsuit in August 2013 in the U.S. District Court for the Northern District of California seeking a declaratory judgment that the Merck patents are invalid and not infringed. During patent prosecution, Merck amended its patent application in an attempt to cover compounds related to sofosbuvir. Initially, in March 2016, a jury determined that we had not established that Merck’s patents are invalid for lack of written description or lack of enablement and awarded Merck $200 million in damages. However, in June 2016, the court ruled in Gilead’s favor on our defense of unclean hands and determined that Merck may not recover any damages from us for the ‘499 and ‘712 patents. The judge has determined that Merck is required to pay our attorney’s fees due to the exceptional nature of this case. The amount of fees owed to us by Merck is yet to be determined by the court.
Merck has filed a notice of appeal to the Court of Appeals for the Federal Circuit regarding the court’s decision on our defense of unclean hands. We appealed the issue relating to the invalidity of Merck’s patent. If the decision on our defense of unclean hands is reversed on appeal and Merck’s patent is upheld, we may be required to pay damages and a royalty on sales of sofosbuvir-containing products following the appeal. In that event, the judge has indicated that she will determine the amount of the royalty, if necessary, at the conclusion of any appeal in this case.
Litigation with the University of Minnesota
The University of Minnesota (the University) has obtained Patent No. 8,815,830 (the ‘830 patent), which purports to broadly cover nucleosides with antiviral and anticancer activity.  In August 2016, the University filed a lawsuit against us in the U.S. District Court for the District of Minnesota, alleging that the commercialization of sofosbuvir-containing products infringes the ‘830 patent.  We believe that the ‘830 patent is invalid and will not be infringed by the continued commercialization of sofosbuvir.
European Patent Claims
In February 2015, several parties filed oppositions in the EPO requesting revocation of our granted European patent covering sofosbuvir that expires in 2028. In October 2016, the EPO upheld the validity of certain claims of our sofosbuvir patent. We have appealed this decision, seeking to restore all of the original claims, and several of the original opposing parties have also appealed, requesting full revocation. The appeal process may take several years.
In April 2017, several parties filed oppositions in the EPO requesting revocation of our granted European patent relating to sofosbuvir that expires in 2024.
In January 2016, several parties filed oppositions in the EPO requesting revocation of our granted European patent covering TAF that expires in 2021.
In March 2016, three parties filed oppositions in the EPO requesting revocation of our granted European patent covering cobicistat that expires in 2027. While we are confident in the strength of our patents, we cannot predict the ultimate outcome of these oppositions.
If we are unsuccessful in defending these oppositions, some or all of our patent claims may be narrowed or revoked and the patent protection for sofosbuvir, TAF and cobicistat in Europe could be substantially shortened or eliminated entirely. If our patents are revoked, and no other European patents are granted covering these compounds, our exclusivity may be based entirely on regulatory exclusivity granted by the European Medicines Agency. Sovaldi has been granted regulatory exclusivity that will prevent generic sofosbuvir from entering the European Union for 10 years following approval of Sovaldi, or January 2024. If we lose patent protection for sofosbuvir prior to 2028, our expected revenues and results of operations could be negatively impacted for the years including and succeeding the year in which such exclusivity is lost, which may cause our stock price to decline.
Litigation with Generic Manufacturers
As part of the approval process for some of our products, FDA granted us a New Chemical Entity (NCE) exclusivity period during which other manufacturers’ applications for approval of generic versions of our product will not be approved. Generic manufacturers may challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the NCE exclusivity period. Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an abbreviated new drug application (ANDA), the application form typically used by manufacturers seeking approval of a generic drug. The sale of generic versions of our products earlier than their patent expiration would have a significant negative effect on our revenues and results of operations. To seek approval for a generic version of a product having NCE status, a generic company may submit its ANDA to FDA four years after the branded product’s approval. For sofosbuvir, this date falls in December 2017. Consequently, it is possible that one or more generics may file an ANDA for Sovaldi in December 2017.

19



Current legal proceedings of significance with generic manufacturers include:
HIV Products
In June 2014, we received notice that Apotex Inc. (Apotex) submitted an ANDS to the Canadian Minister of Health requesting permission to manufacture and market a generic version of Truvada and a separate ANDS requesting permission to manufacture and market a generic version of Viread. In the notice, Apotex alleges that three of the patents associated with Truvada and two of the patents associated with Viread are invalid, unenforceable and/or will not be infringed by Apotex’s manufacture, use or sale of a generic version of Truvada or Viread. In August 2014, we filed lawsuits against Apotex in the Federal Court of Canada seeking orders of prohibition against approval of these ANDS. A hearing in those cases was held in April 2016. In July 2016, the court issued an order prohibiting the Canadian Minister of Health from approving Apotex’s generic version of our Viread product until the expiry of our patents in July 2017. The court declined to prohibit approval of Apotex’s generic version of our Truvada product. The court’s decision did not rule on the validity of the patents. The launch of Apotex’s generic version of our Truvada product would be at risk of infringement of our patents, including patents that we were unable to assert in the present lawsuit, and liability for our damages. Apotex has appealed the court’s decision.
In February 2016, we received notice that Mylan Pharmaceuticals, Inc. (Mylan) submitted an ANDA to FDA requesting permission to manufacture and market a generic version of Tybost (cobicistat). In the notice, Mylan alleges that the patent covering cobicistat is invalid as obvious and that Mylan’s generic product cannot infringe an invalid claim. In March 2016, we filed lawsuits against Mylan in the U.S. District Court for the District of Delaware and U.S. District Court for the Northern District of West Virginia. The trial in Delaware is scheduled for January 2018. The patent in suit that covers Tybost is also listed in the Orange Book for Stribild and Genvoya.
Letairis
In February 2015, we received notice that Watson Laboratories, Inc. (Watson) submitted an ANDA to FDA requesting permission to manufacture and market a generic version of Letairis. In the notice, Watson alleges that one of the patents associated with ambrisentan tablets is invalid, unenforceable and/or will not be infringed by Watson’s manufacture, use or sale of a generic version of Letairis. In April 2015, we filed a lawsuit against Watson in the U.S. District Court for the District of New Jersey for infringement of our patents. In January 2017, we reached an agreement with Watson to settle the litigation.
In June 2015, we received notice that SigmaPharm Laboratories, LLC (SigmaPharm) submitted an ANDA to FDA requesting permission to manufacture and market a generic version of Letairis. In the notice, SigmaPharm alleges that one of the patents associated with ambrisentan tablets is invalid, unenforceable and/or will not be infringed by SigmaPharm’s manufacture, use or sale of a generic version of Letairis. In June 2015, we filed a lawsuit against SigmaPharm in the U.S. District Court for the District of New Jersey for infringement of our patents. In May 2017, we reached an agreement with SigmaPharm to settle the litigation.
We cannot predict the ultimate outcome of these actions, and we may spend significant resources enforcing and defending these patents. If we are unsuccessful in these lawsuits, some or all of our claims in the patents may be narrowed or invalidated and the patent protection for our products could be substantially shortened. Further, if all of the patents covering one or more products are invalidated, FDA or the Canadian Minister of Health could approve the requests to manufacture a generic version of such products in the United States or Canada, respectively, prior to the expiration date of those patents. The sale of generic versions of these products earlier than their patent expiration could have a significant negative effect on our revenues and results of operations.
TAF Litigation
In January 2016, AIDS Healthcare Foundation, Inc. (AHF) filed a complaint with the U.S. District Court for the Northern District of California against Gilead, Japan Tobacco, Inc. and Japan Tobacco International, U.S.A. (together, JT), and Emory University (Emory). In April 2016, AHF amended its complaint to add Janssen and Johnson & Johnson Inc. (J&J) as defendants. AHF claims that U.S. Patent Nos. 7,390,791; 7,800,788; 8,754,065; 8,148,374; and 8,633,219 are invalid. In addition, AHF claims that Gilead, independently and together with JT, Akros, Janssen and J&J, is violating federal and state antitrust and unfair competition laws in the market for sales of TAF by offering TAF as part of a fixed-dose combination product with elvitegravir, cobicistat and emtricitabine (Genvoya), a fixed-dose combination product with elvitegravir and rilpivirine (Odefsey) and in a fixed-dosed combination product with elvitegravir (Descovy). AHF sought a declaratory judgment of invalidity against each of the patents as well as monetary damages. In May 2016, we, JT, Janssen, and J&J‎ filed motions to dismiss all of AHF’s claims, which AHF opposed. In June 2016, a hearing was held on the motions to dismiss. In July 2016, the judge granted our and the other defendants’ motions and dismissed all of AHF’s claims. AHF subsequently appealed the court’s decision dismissing the challenge to the validity of our TAF patents. The appeal hearing is scheduled for June 2017.

20



Department of Justice Investigations
In June 2011, we received a subpoena from the U.S. Attorney’s Office for the Northern District of California requesting documents related to the manufacture, and related quality and distribution practices, of Complera, Atripla, Truvada, Viread, Emtriva, Hepsera and Letairis. We cooperated with the government’s inquiry. In April 2014, the U.S. Department of Justice informed us that, following an investigation, it declined to intervene in a False Claims Act lawsuit filed by two former employees. In April 2014, the former employees served a First Amended Complaint. In January 2015, the federal district court issued an order granting in its entirety, without prejudice, our motion to dismiss the First Amended Complaint. In February 2015, the plaintiffs filed a Second Amended Complaint and in June 2015, the federal district court issued an order granting our motion to dismiss the Second Amended Complaint. In July 2015, the plaintiffs filed a notice of appeal in the U.S. Court of Appeals for Ninth Circuit.
In February 2016, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to our support of 501(c)(3) organizations that provide financial assistance to patients, and for our HCV products, documents concerning our provision of financial assistance to patients. Other companies have disclosed similar inquiries. We are cooperating with this inquiry.
Other Matters
We are a party to various legal actions that arose in the ordinary course of our business. We do not believe that these other legal actions will have a material adverse impact on our consolidated business, financial position or results of operations.
10.
STOCKHOLDERS’ EQUITY
The following table summarizes the changes in stockholders’ equity (in millions):
 
 
Gilead StockholdersEquity 
 
Noncontrolling
Interest
 
Total Stockholders’ Equity 
 
Common Stock 
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Shares
 
Amount
Balance at December 31, 2016
 
1,310

 
$
1

 
$
454

 
$
278

 
$
18,154

 
$
476

 
$
19,363

Net income (loss)
 

 

 

 

 
2,702

 
(3
)
 
2,699

Other comprehensive loss, net of tax
 

 

 

 
(18
)
 

 

 
(18
)
Change in noncontrolling interest
 

 

 

 

 

 
3

 
3

Issuances under employee stock purchase plan
 
1

 

 
47

 

 

 

 
47

Issuances under equity incentive plans
 
5

 

 
46

 

 

 

 
46

Stock-based compensation
 

 

 
89

 

 

 

 
89

Repurchases of common stock
 
(9
)
 

 
(20
)
 

 
(607
)
 

 
(627
)
Dividends declared
 

 

 

 

 
(685
)
 

 
(685
)
Balance at March 31, 2017
 
1,307

 
$
1

 
$
616

 
$
260

 
$
19,564

 
$
476

 
$
20,917

Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in AOCI by component, net of tax (in millions):
 
 
Foreign Currency Translation
 
Unrealized Gains and Losses on Available-for-Sale Securities
 
Unrealized Gains and Losses on Cash Flow Hedges
 
Total
Balance at December 31, 2016
 
$
132

 
$
(16
)
 
$
162

 
$
278

Other comprehensive income (loss) before reclassifications
 
(76
)
 
184

 
(87
)
 
21

Amounts reclassified from AOCI
 

 
3

 
(42
)
 
(39
)
Net current period other comprehensive income (loss)
 
(76
)
 
187

 
(129
)
 
(18
)
Balance at March 31, 2017
 
$
56

 
$
171

 
$
33

 
$
260

The amounts reclassified for gains (losses) on cash flow hedges are recorded as part of Product sales on our Condensed Consolidated Statements of Income. See Note 4, Derivative Financial Instruments for additional information. Amounts reclassified for gains (losses) on available-for-sale securities are recorded as part of Other income (expense), net, on our Condensed Consolidated Statements of Income.

21



Stock Repurchase Program
In February 2016, our Board of Directors authorized a $12.0 billion stock repurchase program (2016 Program) under which repurchases may be made in the open market or in privately negotiated transactions. We started repurchases under the 2016 Program in April 2016.
During the first quarter of 2017, we repurchased and retired 8 million shares of our common stock for $565 million through open market transactions under the 2016 Program. As of March 31, 2017, the remaining authorized repurchase amount under the 2016 Program was $8.4 billion.
11.
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 and equivalents, the assumed conversion of our outstanding convertible senior notes and the assumed exercise of the warrants related to our outstanding convertible senior notes were determined under the treasury stock method. Both the convertible senior notes and the associated warrants were settled in 2016.
We have excluded stock options and equivalents of approximately 9 million and 4 million weighted-average shares of our common stock that were outstanding for the three months ended March 31, 2017 and 2016, respectively, from the computation of diluted net income per share attributable to Gilead common stockholders because their effect was antidilutive.
The following table summarizes the calculation of basic and diluted net income per share attributable to Gilead common stockholders (in millions, except per share amounts):
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Net income attributable to Gilead
 
$
2,702

 
$
3,566

Shares used in per share calculation - basic
 
1,308

 
1,383

Effect of dilutive securities:
 
 
 
 
Stock options and equivalents
 
12

 
16

Conversion spread related to the convertible senior notes
 

 
7

Warrants related to the convertible senior notes
 

 
6

Shares used in per share calculation - diluted
 
1,320

 
1,412

Net income per share attributable to Gilead common stockholders - basic
 
$
2.07

 
$
2.58

Net income per share attributable to Gilead common stockholders - diluted
 
$
2.05

 
$
2.53


22



12.
SEGMENT INFORMATION
We have one operating segment, which primarily focuses on the discovery, development and commercialization of innovative medicines in areas of unmet medical need. Therefore, our results of operations are reported on a consolidated basis consistent with internal management reporting reviewed by our chief operating decision maker, our Chief Executive Officer. Total product sales on an individual product basis are summarized in the following table (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2017
 
2016
Antiviral products:
 
 
 
 
Harvoni
 
$
1,371

 
$
3,017

Epclusa
 
892

 

Genvoya
 
769

 
158

Truvada
 
714

 
898

Atripla
 
452

 
675

Sovaldi
 
313

 
1,277

Stribild
 
309

 
477

Viread
 
260

 
272

Complera/Eviplera
 
253

 
381

Descovy
 
251

 

Odefsey
 
227

 
11

Other antiviral
 
30

 
17

Total antiviral products
 
5,841

 
7,183

Other products:
 
 
 
 
Letairis