Gilead Sciences (GILD) 10-Q 10 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Apr. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	GILD
Entity Registrant Name	GILEAD SCIENCES INC
Entity Central Index Key	0000882095
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		889,915,070

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current assets:
Cash and cash equivalents	$936,880	$1,272,958
Short-term marketable securities	715,308	384,017
Accounts receivable, net	1,491,332	1,389,534
Inventories	1,223,945	1,051,771
Deferred tax assets	283,585	295,080
Prepaid taxes	253,403	274,196
Prepaid expenses	79,895	78,111
Other current assets	139,880	66,891
Total current assets	5,124,228	4,812,558
Property, plant and equipment, net	695,601	699,970
Noncurrent portion of prepaid royalties	219,192	226,250
Noncurrent deferred tax assets	81,933	101,498
Long-term marketable securities	2,967,727	2,247,871
Intangible assets	1,509,794	1,524,777
Other noncurrent assets	97,523	85,635
Total assets	10,695,998	9,698,559
Current liabilities:
Accounts payable	949,084	810,544
Accrued government rebates	270,468	248,660
Accrued compensation and employee benefits	111,379	132,481
Income taxes payable	38,490	167,623
Other accrued liabilities	388,902	384,015
Deferred revenues	122,240	122,721
Current portion of other long-term obligations	7,088	5,587
Total current liabilities	1,887,651	1,871,631
Long-term deferred revenues	41,489	43,026
Convertible senior notes, net	1,170,099	1,155,443
Long-term income taxes payable	66,797	87,383
Other long-term obligations	27,290	35,918
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; 901,839 and 899,753 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively	902	900
Additional paid-in capital	4,568,942	4,376,651
Accumulated other comprehensive income (loss)	83,473	(5,758)
Retained earnings	2,688,679	1,995,272
Total Gilead stockholders' equity	7,341,996	6,367,065
Noncontrolling interest	160,676	138,093
Total stockholders' equity	7,502,672	6,505,158
Total liabilities and stockholders' equity	$10,695,998	$9,698,559

1_CONDENSED CONSOLIDATED BALANC

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Share data in Thousands	Mar. 31, 2010	Dec. 31, 2009
Preferred stock, par value	0.001	0.001
Preferred stock, shares authorized	5,000	5,000
Preferred stock, outstanding	0	0
Common stock, par value	0.001	0.001
Common stock, shares authorized	2,800,000	2,800,000
Common stock, shares issued	901,839	899,753
Common stock, shares outstanding	901,839	899,753

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Thousands, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Revenues:
Product sales	$1,788,063	$1,447,580
Royalty revenues	293,681	53,042
Contract and other revenues	4,109	29,838
Total revenues	2,085,853	1,530,460
Costs and expenses:
Cost of goods sold	440,430	329,414
Research and development	218,664	188,779
Selling, general and administrative	265,618	203,951
Total costs and expenses	924,712	722,144
Income from operations	1,161,141	808,316
Interest and other income, net	15,645	4,158
Interest expense	(16,955)	(16,671)
Income before provision for income taxes	1,159,831	795,803
Provision for income taxes	307,737	209,227
Net income	852,094	586,576
Net loss attributable to noncontrolling interest	2,807	2,536
Net income attributable to Gilead	$854,901	$589,112
Net income per share attributable to Gilead common stockholders-basic	0.95	0.65
Shares used in per share calculation-basic	901,606	909,780
Net income per share attributable to Gilead common stockholders-diluted	0.92	0.63
Shares used in per share calculation-diluted	928,368	942,479

2_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating Activities:
Net income	$852,094	$586,576
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	17,478	13,720
Amortization expense	42,628	25,428
Stock-based compensation expenses	46,841	41,045
Excess tax benefits from stock-based compensation	(49,819)	(20,693)
Tax benefits from employee stock plans	51,665	23,604
Deferred income taxes	31,060	11,305
Other non-cash transactions	2,460	39,366
Changes in operating assets and liabilities:
Accounts receivable, net	(163,914)	(89,073)
Inventories	(174,985)	(11,895)
Prepaid expenses and other assets	6,305	(102)
Accounts payable	141,727	(20,999)
Income taxes payable	(149,719)	50,605
Accrued liabilities	18,766	10,002
Deferred revenues	(2,018)	(17,559)
Net cash provided by operating activities	670,569	641,330
Investing Activities:
Purchases of marketable securities	(1,502,775)	(879,439)
Proceeds from sales of marketable securities	273,912	587,427
Proceeds from maturities of marketable securities	171,751	127,694
Capital expenditures	(11,666)	(164,071)
Net cash used in investing activities	(1,068,778)	(328,389)
Financing Activities:
Proceeds from issuances of common stock	103,362	40,947
Repurchases of common stock	(162,520)	(230,065)
Repayments of other long-term obligations	(19)	(36)
Excess tax benefits from stock-based compensation	49,819	20,693
Distributions from noncontrolling interest	25,390	22,720
Net cash provided by (used in) financing activities	16,032	(145,741)
Effect of exchange rate changes on cash	46,099	37,144
Net change in cash and cash equivalents	(336,078)	204,344
Cash and cash equivalents at beginning of period	1,272,958	1,459,302
Cash and cash equivalents at end of period	$936,880	$1,663,646

SUMMARY OF SIGNIFICANT ACCOUNTI

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	3 Months Ended Mar. 31, 2010
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	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 our) 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 and expenses and related disclosures. On an ongoing basis, management evaluates its 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 BMSs interest in the joint ventures. Significant intercompany transactions have been eliminated. The Condensed Consolidated Financial Statements include the operating 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 December31, 2009, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC). Consolidation of Variable Interest Entities On January1, 2010, we adopted amended guidance for the consolidation of variable interest entities. The amended guidance eliminates a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis. Additionally, the amended guidance requires an ongoing reassessment of whether the entity is a primary beneficiary.We adopted the provisions of this guidance on a prospective basis for our joint ventures with BMS, which we consolidate because we are the primary beneficiary.The adoption of this guidance did not ha

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS
	3 Months Ended Mar. 31, 2010
FAIR VALUE MEASUREMENTS	2. FAIR VALUE MEASUREMENTS Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts receivable, foreign currency exchange forward and option contracts, accounts payable and long-term debt. Cash and cash equivalents, marketable securities and foreign currency exchange contracts that hedge accounts receivable and forecasted sales are reported at their respective fair values on our Condensed Consolidated Balance Sheets. The carrying value and fair value of the Notes were $1.17 billion and $1.61 billion, respectively, as of March31, 2010. The carrying value and fair value of the Notes were $1.16 billion and $1.58 billion, respectively, as of December31, 2009. The fair value of the Notes was 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. We determine the fair value of financial and non-financial assets and liabilities using the following 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; 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. 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): March31, 2010 December31, 2009 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Debt securities: U.S. treasury securities $ 760,645 $ $ $ 760,645 $ 289,790 $ $ $ 289,790 U.S. government sponsored entity debt securities 1,166,071 1,166,071 877,638 877,638 Municipal debt securities 336,734 336,734 433,474 433,474 Corporate debt securities 1,082,236 1,082,236 783,282 783,282 Residential mortgage-backed securities 110,771 110,771 112,972 112,972 Student loan-backed securities 104,727 104,727 104,823 104,823 Other debt securities 156,032

AVAILABLE-FOR-SALE SECURITIES

AVAILABLE-FOR-SALE SECURITIES
	3 Months Ended Mar. 31, 2010
AVAILABLE-FOR-SALE SECURITIES	3. AVAILABLE-FOR-SALE SECURITIES The following table is a summary of available-for-sale debt and equity securities recorded in cash equivalents or marketable securities in our Condensed Consolidated Balance Sheets. 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 March31, 2010 Debt securities: U.S. treasury securities $ 759,382 $ 1,733 $ (470 ) $ 760,645 U.S. government sponsored entity debt securities 1,159,457 7,438 (824 ) 1,166,071 Municipal debt securities 334,141 2,775 (182 ) 336,734 Corporate debt securities 1,070,824 12,028 (616 ) 1,082,236 Residential mortgage-backed securities 109,434 1,563 (226 ) 110,771 Student loan-backed securities 114,550 (9,823 ) 104,727 Other debt securities 155,474 1,549 (131 ) 156,892 Total debt securities 3,703,262 27,086 (12,272 ) 3,718,076 Equity securities 1,451 1,640 3,091 Total $ 3,704,713 $ 28,726 $ (12,272 ) $ 3,721,167 December31, 2009 Debt securities: U.S. treasury securities $ 289,055 $ 844 $ (109 ) $ 289,790 U.S. government sponsored entity debt securities 870,134 7,940 (436 ) 877,638 Municipal debt securities 429,583 3,986 (95 ) 433,474 Corporate debt securities 773,573 10,739 (1,030 ) 783,282 Residential mortgage-backed securities 111,326 1,741 (95 ) 112,972 Student loan-backed securities 115,400 (10,577 ) 104,823 Other debt securities 74,057 1,181 (102 ) 75,136 Total debt securities 2,663,128 26,431 (12,444 ) 2,677,115 Equity securities 1,451 2,019 3,470 Total $ 2,664,579 $ 28,450 $ (12,444 ) $ 2,680,585 As of March31, 2010 and December31, 2009, other debt securities consisted primarily of foreign government and agency securities as well as other asset-backed securities. The following table summarizes the classification of the available-for-sale debt and equity securities on our Condensed Consolidated Balance Sheets (in thousands): March31, 2010 December31, 2009 Cash and cash equivalents $ 38,132 $ 48,697 Short-term marketable securities 715,308 384,017 Long-term marketable securities 2,967,727 2,247,871 Total $ 3,721,167 $ 2,680,585 The following table summarizes our portfolio of available-for-sale debt securities by contractual maturity (in thousands): March31, 2010 December31, 2009 Amo

DERIVATIVE FINANCIAL INSTRUMENT

DERIVATIVE FINANCIAL INSTRUMENTS
	3 Months Ended Mar. 31, 2010
DERIVATIVE FINANCIAL INSTRUMENTS	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 the risk related to changes in foreign currency exchange rates, we hedge certain of our foreign currency exposures related to outstanding monetary assets and liabilities and forecasted product sales with foreign currency exchange forward contracts and foreign currency exchange option contracts. In general, the market risks of our foreign currency exchange contracts are offset by corresponding gains and losses on the transactions being hedged. Our exposure to credit risk from these contracts is a function of changes in interest and currency exchange rates and, therefore, varies over time. We limit the risk that counterparties to these contracts may be unable to perform by transacting only with major banks, all of which we monitor closely in the context of current market conditions. We also limit risk of loss by entering into contracts that provide for 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 financial contracts for trading purposes. We do not hedge our net investment in any of our foreign subsidiaries. We enter into foreign currency exchange contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain monetary assets and liabilities of our foreign subsidiaries that are denominated in a non-functional currency. As these derivative instruments are not designated as hedges, we record the changes in the fair value of such instruments in interest and other income, net on our Condensed Consolidated Statements of Income. Foreign currency exchange contracts used to hedge forecasted product sales are designated as cash flow hedges. These derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified, all with maturities of 18 months or less. At the inception of a hedging relationship and on a quarterly basis, we assess hedge effectiveness on a prospective basis by performing a regression analysis taking the change in cash flow of the underlying contract and regressing it against the change in cash flow of the hedge instrument. We assess hedge effectiveness on a retrospective basis using a dollar offset approach monthly. We exclude time value from our effectiveness testing and recognize changes in the time value of the hedge in interest and other income, net. The effective component of the hedge is recorded in accumulated OCI or loss within stockholders equity as an unrealized gain or loss on the hedging instrument. When the hedged forecasted transactions occur, the hedges are de-designated and the unrealized gains and losses are reclassified into product sales. The majority of gains and

RESTRUCTURING

RESTRUCTURING
	3 Months Ended Mar. 31, 2010
RESTRUCTURING	5. RESTRUCTURING In April 2009, we completed the acquisition of CV Therapeutics, Inc. (CV Therapeutics), a publicly-held biopharmaceutical company based in Palo Alto, California, primarily focused on the discovery, development and commercialization of small molecule drugs for the treatment of cardiovascular, metabolic and pulmonary diseases. CV Therapeutics had two marketed products as well as several product candidates in clinical development for the treatment of cardiovascular, metabolic and pulmonary diseases. During the second quarter of 2009, we approved a plan to realize certain synergies between CV Therapeutics and us, re-align our cardiovascular operations and eliminate certain redundancies. The restructuring plan included consolidation and re-alignment of the cardiovascular RD organization, our exit from certain facilities and the termination of certain contractual obligations. As a result of this restructuring plan, we recorded $12.6 million and $2.1 million in selling, general and administrative (SGA) expenses and RD expenses, respectively, during the three months ended March31, 2010, primarily related to lease termination costs. To date, we recorded $38.7 million and $27.8 million in SGA expenses and RD expenses, respectively, primarily related to employee severance, relocation and termination benefits, lease termination costs and other facilities-related expenses. We expect to incur an additional $3.0 million in 2010 bringing the total amount to be incurred in connection with our restructuring plan to be approximately $36.2 million for employee severance, relocation and termination benefits and $33.3 million for facilities-related expenses. The following table summarizes the restructuring liabilities accrued for and changes in those amounts during the period (in thousands): Employee Severanceand Termination Benefits Facilities Related Costs Balance at December31, 2008 $ $ Costs incurred during the period 33,797 9,880 Costs paid or settled during the period (24,108 ) (545 ) Balance at December31, 2009 9,689 9,335 Costs incurred during the period 829 12,243 Costs paid or settled during the period (8,513 ) (1,431 ) Balance at March31, 2010 $ 2,005 $ 20,147

INVENTORIES

INVENTORIES
	3 Months Ended Mar. 31, 2010
INVENTORIES	6. INVENTORIES Inventories are summarized as follows (in thousands): March31, 2010 December31, 2009 Raw materials $ 454,961 $ 333,582 Work in process 336,493 392,042 Finished goods 432,491 326,147 Total $ 1,223,945 $ 1,051,771 As of March31, 2010 and December31, 2009, the joint ventures formed by Gilead and BMS, which are included in our Condensed Consolidated Financial Statements, held $842.4 million and $667.8 million in inventory, respectively, of efavirenz active pharmaceutical ingredient purchased from BMS at BMSs estimated net selling price of efavirenz.

INTANGIBLE ASSETS

INTANGIBLE ASSETS
	3 Months Ended Mar. 31, 2010
INTANGIBLE ASSETS	7. INTANGIBLE ASSETS The following table summarizes the carrying amount of our intangible assets (in thousands): March31, 2010 December31, 2009 Goodwill $ 462,558 $ 462,558 Finite lived intangible assets 908,336 923,319 Indefinite lived intangible assets 138,900 138,900 Total $ 1,509,794 $ 1,524,777 The following table summarizes our finite-lived intangible assets (in thousands): March31, 2010 December31, 2009 GrossCarrying Amount Accumulated Amortization GrossCarrying Amount Accumulated Amortization Intangible asset - Ranexa $ 688,400 $ 30,118 $ 688,400 $ 21,889 Intangible asset - Lexiscan 262,800 24,671 262,800 18,235 Other 22,095 10,170 22,095 9,852 Total $ 973,295 $ 64,959 $ 973,295 $ 49,976 Amortization expense related to intangible assets was $15.0 million for the three months ended March31, 2010, and was recorded primarily in cost of goods sold in our Condensed Consolidated Statements of Income. Amortization expense related to intangible assets was $0.7 million for the three months ended March31, 2009, and was recorded primarily in SGA expenses in our Condensed Consolidated Statements of Income. As of March31, 2010, the estimated future amortization expense associated with our intangible assets for the remaining nine months of 2010 and each of the five succeeding fiscal years are as follows (in thousands): Fiscal Year Amount 2010 (remaining nine months) $ 44,942 2011 73,707 2012 86,627 2013 95,302 2014 99,790 2015 104,216 Total $ 504,584 As of both March31, 2010 and December31, 2009, we had indefinite-lived intangible assets of $138.9 million related to purchased IPRD from our acquisition of CV Therapeutics.

COLLABORATIVE ARRANGEMENTS

COLLABORATIVE ARRANGEMENTS
	3 Months Ended Mar. 31, 2010
COLLABORATIVE ARRANGEMENTS	8. COLLABORATIVE ARRANGEMENTS As a result of entering into strategic collaborations from time to time, we may hold investments in non-public companies. We review our interests inour investee companies for consolidation and/or appropriate disclosure based on applicable guidance. As of March31, 2010, we determined that certain of our investee companies are variable interest entities; 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 December 2004, we entered into a collaboration with BMS in the United States to develop and commercialize a single tablet regimen containing our Truvada and BMSs 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 us 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 BMSs and our respective economic interests in the joint venture may vary annually. We share marketing and sales efforts with BMS and both parties are obligated to provide equivalent sales force efforts for a minimum number of years. 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 July 2006, the joint venture received approval from the FDA to sell Atripla in the United States. In September2006, we and BMS amended the joint ventures collaboration agreement to allow the joint venture to sell Atripla into Canada and in October 2007, the joint venture received approval from Health Canada to sell Atripla in Canada. As of March31, 2010 and December31, 2009, the joint venture held efavirenz active pharmaceutical ingredient which it purchased from BMS at BMSs 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 March31, 2010 and December31, 2009, total assets of the joint venture were $1.46 billion and $1.40 billion, respectively, and consisted primarily of cash and cash equivalents, accounts receivable (including intercompany receivables with Gilead) and inventories. As of both March31, 2010 and December31, 2009, total liabilities of the joint venture were $1.03billion and consisted primarily of accounts payable (including intercompany payables with Gilead) and other accrued expenses. These asset and liability amounts do not reflect the impact of intercompany eliminations that are included in our Condensed Consolidated Balance Sheets. Although we are the primary beneficiary of the joint venture, the legal structur

CREDIT FACILITY

CREDIT FACILITY
	3 Months Ended Mar. 31, 2010
CREDIT FACILITY	9. CREDIT FACILITY Under our amended and restated credit agreement, we, along with our wholly-owned subsidiary, Gilead Biopharmaceutics Ireland Corporation, may borrow up to an aggregate of $1.25 billion in revolving credit loans. The credit agreement also includes a sub-facility for swing-line loans and letters of credit. Loans under the credit agreement bear interest at an interest rate of either LIBOR plus a margin ranging from 20 basis points to 32 basis points or the base rate, as described in the credit agreement. We may reduce the commitments and may prepay loans under the credit agreement in whole or in part at any time without penalty, subject to certain conditions. The credit agreement will terminate and all amounts owing thereunder shall be due and payable in December 2012. As of March31, 2010, we had $4.5 million letters of credit outstanding under the credit agreement and the amount available under the credit agreement was approximately $1.25 billion. We are required to comply with certain covenants under the credit agreement and as of March31, 2010, we were in compliance with all such covenants.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES
	3 Months Ended Mar. 31, 2010
COMMITMENTS AND CONTINGENCIES	10. COMMITMENTS AND CONTINGENCIES Legal Proceedings Since November 2003, we have been defending a class action securities lawsuit purportedly brought on behalf of a class made up of all purchasers of our stock between July14 and October28, 2003. The lawsuit names Gilead and six current and former executives of Gilead as defendants. The lawsuit alleges that the defendants violated federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated by the SEC, by making certain alleged false and misleading statements. On May12, 2006, the United States District Court for the Northern District of California executed orders dismissing in its entirety and with prejudice the fourth consolidated amended complaint. The plaintiffs appealed the dismissal. On August11, 2008, the United States Court of Appeals for the Ninth Circuit reversed the district courts decision and remanded the case to the district court. On February6, 2009, we filed a petition for a writ of certiorari with the Supreme Court of the United States, requesting that the court review the judgment of the court of appeals. In April 2009, the Supreme Court denied the petition. On February13, 2009, we filed a further motion to dismiss the fourth consolidated amended complaint on alternative grounds. On June3, 2009, the district court granted in part and denied in part our motion to dismiss and gave plaintiffs leave to amend the complaint. On July10, 2009, plaintiffs filed a fifth consolidated amended complaint. We filed a motion to dismiss the fifth consolidated amended complaint, which the district court heard on October9, 2009. In an order dated October13, 2009, the court granted in part and denied in part our motion to dismiss. On November16, 2009, we filed an answer to the fifth consolidated amended complaint. In March 2010, we agreed to settle the dispute. Under the terms of the proposed settlement, which will require the district courts approval, the plaintiffs will dismiss the action and release all claims against Gilead and each of the individual defendants. In exchange, we agreed to pay $8.25 million to the class members. The proposed settlement amount will be paid in full by our insurance carriers. Further, Gilead and the individual defendants continue to deny that they committed any act or omission giving rise to any liability and/or violation of law. On August12, 2009, we received a subpoena from the Office of the Inspector General of the U.S. Department of Health and Human Services requesting documents regarding the development, marketing and sales of Ranexa. We have been cooperating and will continue to cooperate with any related governmental inquiry. It is not possible to predict the outcome of this inquiry, and as such, no amounts have been accrued related to the outcome of this inquiry. We are also a party to various other legal actions that arose in the ordinary course of our business. We do not believe that any of these other legal actions will have a material adverse impact on our consolidated business, financial position or results of operations.

STOCK-BASED COMPENSATION EXPENS

STOCK-BASED COMPENSATION EXPENSES
	3 Months Ended Mar. 31, 2010
STOCK-BASED COMPENSATION EXPENSES	11. STOCK-BASED COMPENSATION EXPENSES The following table summarizes the stock-based compensation expenses included in our Condensed Consolidated Statements of Income (in thousands): Three Months Ended March31, 2010 2009 Cost of goods sold $ 2,853 $ 3,254 Research and development expenses 20,069 16,955 Selling, general and administrative expenses 23,919 20,836 Stock-based compensation expenses included in total costs and expenses 46,841 41,045 Income tax effect (12,428 ) (10,757 ) Stock-based compensation expenses included in net income $ 34,413 $ 30,288

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY
	3 Months Ended Mar. 31, 2010
STOCKHOLDERS' EQUITY	12. STOCKHOLDERS EQUITY Stock Repurchase Programs In January 2010, our board of directors (Board) authorized a program for the repurchase of our common stock in an amount of up to $1.00 billion through open market and private block transactions pursuant to Rule 10b5-1 plans or privately negotiated purchases or other means, including accelerated stock repurchase transactions or similar arrangements. This repurchase plan expires in January 2011. During the three months ended March31, 2010, we repurchased and retired 3,435,417 shares of our common stock at an average purchase price of $47.29 per share for an aggregate purchase price of $162.5 million through open market transactions. As of March31, 2010, the remaining authorized amount of stock repurchases that may be made under the $1.00 billion stock repurchase program was $837.5 million. In May 2010, we completed the $1.00 billion stock repurchase program authorized by our Board in January 2010 by repurchasing and retiring 20,701,083 shares of our common stock at an average purchase price of $40.46 per share for an aggregate purchase price of $837.5 million through open market transactions. Under this $1.00billion stock repurchase program, we repurchased and retired an aggregate of 24,136,500 shares of our common stock at an average purchase price of $41.43 per share. We use the par value method of accounting for our stock repurchases. Under the par value method, common stock is first charged with the par value of the shares involved. The excess of the cost of shares acquired over the par value is allocated to additional paid-in capital (APIC) based on an estimated average sales price per issued share with the excess amounts charged to retained earnings. As a result of our stock repurchases during the three months ended March31, 2010, we reduced common stock and APIC by an aggregate of $9.8 million and charged $161.5 million to retained earnings. Comprehensive Income The components of comprehensive income were as follows (in thousands): Three Months Ended March31, 2010 2009 Net income $ 852,094 $ 586,576 Other comprehensive income: Net foreign currency translation loss (9,409 ) (3,466 ) Net unrealized gain on available-for-sale securities, net of related tax effects 854 2,574 Net unrealized gain on cash flow hedges, net of related tax effects 97,786 71,296 Total other comprehensive income 89,231 70,404 Comprehensive income 941,325 656,980 Comprehensive loss attributable to noncontrolling interest 2,807 2,536 Comprehensive income attributable to Gilead $ 944,132 $ 659,516

SEGMENT INFORMATION

SEGMENT INFORMATION
	3 Months Ended Mar. 31, 2010
SEGMENT INFORMATION	13. SEGMENT INFORMATION We operate in one business segment, which primarily focuses on the development and commercialization of human therapeutics for life threatening diseases. All products are included in one segment because our major products, Atripla, Truvada, Viread and AmBisome, which together accounted for substantially all of our total product sales for the three months ended March31, 2010 and 2009, have similar economic and other characteristics, including the nature of the products and production processes, type of customers, distribution methods and regulatory environment. Product sales consisted of the following (in thousands): Three Months Ended March31, 2010 2009 Antiviral products: Atripla $ 692,872 $ 509,883 Truvada 657,799 590,353 Viread 180,686 160,605 Hepsera 58,124 72,714 Emtriva 7,156 7,234 Total antiviral products 1,596,637 1,340,789 AmBisome 77,049 64,271 Letairis 55,499 39,580 Ranexa 51,243 Other 7,635 2,940 Total product sales $ 1,788,063 $ 1,447,580 The following table summarizes total revenues from external customers and collaboration partners by geographic region (in thousands). Product sales and product related contract revenues are attributed to countries based on ship-to location. Royalty and non-product related contract revenues are attributed to countries based on the location of the collaboration partner. Three Months Ended March31, 2010 2009 United States $ 1,012,484 $ 803,160 Outside of the United States: Switzerland 261,245 44,710 France 124,717 93,528 Spain 124,320 98,071 United Kingdom 118,170 98,652 Italy 96,260 79,886 Germany 70,012 77,208 Other European countries 159,713 141,123 Other countries 118,932 94,122 Total revenues outside of the United States 1,073,369 727,300 Total revenues $ 2,085,853 $ 1,530,460 The following table summarizes revenues from each of our customers who individually accounted for 10% or more of our total revenues (as a % of total revenues): ThreeMonthsEnded March31, 2010 2009 Cardinal Health, Inc. 16 % 21 % McKesson Corp. 13 % 14 % AmerisourceBergen Corp. 12 % 11 %

INCOME TAXES

INCOME TAXES
	3 Months Ended Mar. 31, 2010
INCOME TAXES	14. INCOME TAXES Our income tax rate of 26.5% for the three months ended March31, 2010 differed from the U.S. federal statutory rate of 35% due primarily to certain operating earnings from non-U.S subsidiaries that are considered indefinitely invested outside the United States, partially offset by state taxes. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be permanently reinvested. As of March31, 2010, we believe it is reasonably possible that our unrecognized tax benefits will decrease by approximately $5.0 million in the next 12 months as we expect to have clarification from the IRS and other tax authorities around some of our uncertain tax positions. With respect to the remaining unrecognized tax benefits, we are currently unable to make a reasonable estimate as to the period of cash settlement, if any, with the respective tax authorities. We file federal, state and foreign income tax returns in many jurisdictions in the United States and abroad. For federal income tax purposes, the statute of limitations is open for 2003 and onwards. For certain acquired entities, the statute of limitations is open for all years from inception due to our utilization of their net operating losses and credits carried over from prior years. For California income tax purposes, the statute of limitations remains open for all years. Our income tax returns are audited by federal, state and foreign tax authorities. We are currently under examination by the Internal Revenue Service for the 2005, 2006 and 2007 tax years and by various state and foreign jurisdictions. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our taxfiling positions. We record liabilities related to uncertain tax positions in accordance with the income tax guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We do not believe any such uncertain tax positions currently pending will have a material adverse effect on our Condensed Consolidated Financial Statements, although an adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period.

SUBSEQUENT EVENT

SUBSEQUENT EVENT
	3 Months Ended Mar. 31, 2010
SUBSEQUENT EVENT	15. SUBSEQUENT EVENT In May 2010, we completed the $1.00 billion stock repurchase program authorized by our Board in January 2010 by repurchasing and retiring 20,701,083 shares of our common stock at an average purchase price of $40.46 per share for an aggregate purchase price of $837.5 million through open market transactions. Under this $1.00billion stock repurchase program, we repurchased and retired an aggregate of 24,136,500 shares of our common stock at an average purchase price of $41.43 per share.