10-Q 1 q116form10-q.htm 10-Q 10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý    Accelerated filer ¨    Non-accelerated filer ¨     Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨ No ý
Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of April 29, 2016: 1,331,821,506
 




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®, EVIPLERA®, GENVOYA®, HARVONI®, HEPSERA®, LETAIRIS®, ODEFSEY®, RANEXA®, RAPISCAN®, SOVALDI®, STRIBILD®, TRUVADA®, TYBOST®, VIREAD®, VITEKTA®, VOLIBRIS® and ZYDELIG®. ATRIPLA® is a registered trademark belonging to Bristol-Myers Squibb & Gilead Sciences, LLC. LEXISCAN® is a registered trademark belonging to Astellas U.S. LLC. MACUGEN® is a registered trademark belonging to Eyetech, Inc. SUSTIVA® is a registered trademark of Bristol-Myers Squibb Pharma Company. TAMIFLU® is a registered trademark belonging to Hoffmann-La Roche Inc. This report also includes other trademarks, service marks and trade names of other companies.




PART I.
FINANCIAL INFORMATION
Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions, except per share amounts)
 
March 31, 2016
 
December 31, 2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
6,315

 
$
12,851

Short-term marketable securities
2,004

 
1,756

Accounts receivable, net of allowances of $1,277 at March 31, 2016 and $1,032 at December 31, 2015
6,163

 
5,854

Inventories
1,880

 
1,955

Deferred tax assets
830

 
828

Prepaid and other current assets
2,075

 
1,518

Total current assets
19,267

 
24,762

Property, plant and equipment, net
2,431

 
2,276

Long-term portion of prepaid royalties
383

 
400

Long-term deferred tax assets
292

 
324

Long-term marketable securities
13,003

 
11,601

Intangible assets, net
9,923

 
10,247

Goodwill
1,172

 
1,172

Other long-term assets
1,294

 
934

Total assets
$
47,765

 
$
51,716

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
945

 
$
1,178

Accrued government and other rebates
4,766

 
4,118

Other accrued liabilities
2,925

 
3,172

Deferred revenues
529

 
440

Current portion of long-term debt and other obligations, net
1,745

 
982

Total current liabilities
10,910

 
9,890

Long-term debt, net
21,077

 
21,073

Long-term income taxes payable
1,385

 
1,243

Other long-term obligations
374

 
395

Commitments and contingencies (Note 9)


 


Equity component of currently redeemable convertible notes

 
2

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, 2016 and December 31, 2015; shares issued and outstanding of 1,348 at March 31, 2016 and 1,422 at December 31, 2015
1

 
1

Additional paid-in capital
516

 
444

Accumulated other comprehensive income (loss)
(164
)
 
88

Retained earnings
13,045

 
18,001

Total Gilead stockholders’ equity
13,398

 
18,534

Noncontrolling interest
621

 
579

Total stockholders’ equity
14,019

 
19,113

Total liabilities and stockholders’ equity
$
47,765

 
$
51,716


See accompanying notes.

2



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Revenues:
 
 
 
 
Product sales
 
$
7,681

 
$
7,405

Royalty, contract and other revenues
 
113

 
189

Total revenues
 
7,794

 
7,594

Costs and expenses:
 
 
 
 
Cost of goods sold
 
1,193

 
882

Research and development expenses
 
1,265

 
696

Selling, general and administrative expenses
 
685

 
645

Total costs and expenses
 
3,143

 
2,223

Income from operations
 
4,651

 
5,371

Interest expense
 
(230
)
 
(153
)
Other income (expense), net
 
81

 
21

Income before provision for income taxes
 
4,502

 
5,239

Provision for income taxes
 
935

 
907

Net income
 
3,567

 
4,332

Net income (loss) attributable to noncontrolling interest
 
1

 
(1
)
Net income attributable to Gilead
 
$
3,566

 
$
4,333

Net income per share attributable to Gilead common stockholders - basic
 
$
2.58

 
$
2.91

Shares used in per share calculation - basic
 
1,383

 
1,488

Net income per share attributable to Gilead common stockholders - diluted
 
$
2.53

 
$
2.76

Shares used in per share calculation - diluted
 
1,412

 
1,569

Cash dividends declared per share
 
$
0.43

 
$























See accompanying notes.

3



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Net income
 
$
3,567

 
$
4,332

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

 
(10
)
Available-for-sale securities:
 
 
 
 
Net unrealized gain (loss), net of tax impact of $30 and $3
 
(24
)
 
6

Net change
 
(24
)
 
6

Cash flow hedges:
 
 
 
 
Net unrealized gain (loss), net of tax impact of $(10) and $6
 
(150
)
 
383

Reclassifications to net income, net of tax impact of $(6) and $(4)
 
(80
)
 
(141
)
Net change
 
(230
)
 
242

Other comprehensive income (loss)
 
(252
)
 
238

Comprehensive income
 
3,315

 
4,570

Comprehensive income (loss) attributable to noncontrolling interest
 
1

 
(1
)
Comprehensive income attributable to Gilead
 
$
3,314

 
$
4,571

































See accompanying notes.

4



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Operating Activities:
 
 
 
 
Net income
 
$
3,567

 
$
4,332

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
42

 
37

Amortization expense
 
241

 
232

Stock-based compensation expense
 
88

 
92

Excess tax benefits from stock-based compensation
 
(89
)
 
(186
)
Tax benefits from exercise and vesting of stock-based awards
 
87

 
186

Deferred income taxes
 
15

 
(121
)
In-process research and development impairment
 
114

 

Other
 
(19
)
 
(3
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(191
)
 
(348
)
Inventories
 
(14
)
 
(370
)
Prepaid expenses and other assets
 
(126
)
 
52

Accounts payable
 
(239
)
 
58

Income taxes payable
 
205

 
149

Accrued liabilities
 
195

 
1,530

Deferred revenues
 
37

 
61

Net cash provided by operating activities
 
3,913

 
5,701

 
 
 
 
 
Investing Activities:
 
 
 
 
Purchases of marketable securities
 
(4,977
)
 
(2,462
)
Proceeds from sales of marketable securities
 
2,959

 
249

Proceeds from maturities of marketable securities
 
443

 
38

Other investments
 
(357
)
 

Capital expenditures
 
(177
)
 
(124
)
Net cash used in investing activities
 
(2,109
)
 
(2,299
)
 
 
 
 
 
Financing Activities:
 
 
 
 
Proceeds from convertible note hedges
 
95

 
154

Repayments of debt and other obligations
 
(126
)
 
(199
)
Proceeds from issuances of common stock
 
92

 
118

Repurchases of common stock
 
(8,000
)
 
(3,001
)
Payments of dividends
 
(587
)
 

Excess tax benefits from stock-based compensation
 
89

 
186

Contributions from noncontrolling interest
 
41

 
20

Net cash used in financing activities
 
(8,396
)
 
(2,722
)
Effect of exchange rate changes on cash and cash equivalents
 
56

 
(72
)
Net change in cash and cash equivalents
 
(6,536
)
 
608

Cash and cash equivalents at beginning of period
 
12,851

 
10,027

Cash and cash equivalents at end of period
 
$
6,315

 
$
10,635




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 (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, 2016, 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, 2015, 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. 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. As of March 31, 2016, approximately 15% of our cash, cash equivalents and marketable securities were held at one financial institution. We mitigate risk by depositing funds with reputable institutions and by monitoring their risk profiles. To date, losses with respect to our concentrations of risk related to our cash, cash equivalents and marketable securities have been immaterial.
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.
As of March 31, 2016, our accounts receivable in Southern Europe, specifically Greece, Italy, Portugal and Spain, totaled approximately $819 million, of which $237 million were greater than 120 days past due, including $32 million greater than 365 days past due. To date, we have not experienced significant losses with respect to the collection of our accounts receivable. We believe that our allowance for doubtful accounts was adequate at March 31, 2016.

6



Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2015-03 (ASU 2015-03) "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires the presentation of debt issuance costs as a direct deduction from the carrying amount of a recognized debt liability on the balance sheet. We adopted this ASU with retrospective application in the first quarter of 2016. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements. See Note 8, Debt and Credit Facility for further information.
In May 2014, the FASB issued Accounting Standard 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. In March and April 2016, the FASB issued ASU 2016-08 "Revenue From Contracts With Customers: Principal vs. Agent Considerations" and ASU 2016-10 “Revenue From Contracts with Customers: Identifying Performance Obligations and Licensing” to provide supplemental adoption guidance and clarification to ASU 2014-09. We are evaluating the impact of the adoption of these standards on our Condensed Consolidated Financial Statements.
In November 2015, the FASB issued Accounting Standard Update No. 2015-17 (ASU 2015-17) "Balance Sheet Classification of Deferred Taxes." ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. Previous guidance required deferred tax liabilities and assets to be separated into current and noncurrent amounts on the balance sheet. The guidance will become effective for us beginning in the first quarter of 2017 and may be applied either prospectively or retrospectively. Early adoption is permitted. At the time of adoption, we will reclassify current deferred tax amounts on our Consolidated Balance Sheets as noncurrent. We are evaluating the impact of the method of adoption of this standard on our Condensed Consolidated Financial Statements.
In January 2016, the FASB issued Accounting Standard 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. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our Condensed Consolidated Financial Statements.
In February 2016, the FASB issued Accounting Standard 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 on our Condensed Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standard Update No. 2016-09 (ASU 2016-09) "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies several aspects of employee share-based payment accounting, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance will become effective for us beginning in the first quarter of 2017. Early adoption is permitted. 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

7



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 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 in our Condensed Consolidated Balance Sheets. Short-term and long-term debt are reported at their amortized cost in our Condensed Consolidated Balance Sheets. The remaining financial instruments are reported in 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.
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, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
2,128

 
$

 
$

 
$
2,128

 
$
10,161

 
$

 
$

 
$
10,161

Corporate debt securities

 
7,284

 

 
7,284

 

 
5,773

 

 
5,773

U.S. treasury securities
3,987

 

 

 
3,987

 
4,389

 

 

 
4,389

Residential mortgage and asset-backed securities

 
2,233

 

 
2,233

 

 
1,695

 

 
1,695

U.S. government agencies securities

 
775

 

 
775

 

 
707

 

 
707

Certificates of deposit

 
364

 

 
364

 

 
448

 

 
448

Non-U.S. government securities

 
378

 

 
378

 

 
313

 

 
313

Municipal debt securities

 
34

 

 
34

 

 
34

 

 
34

Equity securities
280

 

 

 
280

 

 

 

 

Convertible note hedges (1)

 
792

 

 
792

 

 

 

 

Foreign currency derivative contracts

 
74

 

 
74

 

 
210

 

 
210

Deferred compensation plan
74

 

 

 
74

 
66

 

 

 
66

 
$
6,469

 
$
11,934

 
$

 
$
18,403

 
$
14,616

 
$
9,180

 
$

 
$
23,796

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Conversion spread of convertible senior notes (1)
$

 
$
792

 
$

 
$
792

 
$

 
$

 
$

 
$

Contingent consideration

 

 
33

 
33

 

 

 
59

 
59

Deferred compensation plan
74

 

 

 
74

 
66

 

 

 
66

Foreign currency derivative contracts

 
140

 

 
140

 

 
41

 

 
41

 
$
74

 
$
932

 
$
33

 
$
1,039

 
$
66

 
$
41

 
$
59

 
$
166

_________________________________________
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See Note 4, Derivative Financial Instruments for further information.
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 months time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by Standard & Poor’s, Moody’s Investors Service, Inc. or Fitch, Inc. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency rates, London Interbank Offered Rates (LIBOR) and swap rates. These inputs, where applicable, are at commonly quoted intervals.

8



The total estimated fair values of our convertible senior notes and senior unsecured notes, determined using Level 2 inputs based on their quoted market values, were approximately $24.7 billion at March 31, 2016 and $23.7 billion at December 31, 2015, and the carrying values were $22.0 billion at March 31, 2016 and $22.1 billion at December 31, 2015.
Level 3 Inputs
As of March 31, 2016 and December 31, 2015, the only assets or liabilities that were measured using Level 3 inputs were our contingent consideration liabilities, which were immaterial as of March 31, 2016 and December 31, 2015. 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.
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 is a summary of our available-for-sale securities (in millions):
 
 
March 31, 2016
 
December 31, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
2,128

 
$

 
$

 
$
2,128

 
$
10,161

 
$

 
$

 
$
10,161

Corporate debt securities
 
7,261

 
28

 
(5
)
 
7,284

 
5,795

 
1

 
(23
)
 
5,773

U.S. treasury securities
 
3,980

 
8

 
(1
)
 
3,987

 
4,407

 

 
(18
)
 
4,389

Residential mortgage and asset-backed securities
 
2,229

 
5

 
(1
)
 
2,233

 
1,701

 

 
(6
)
 
1,695

U.S. government agencies securities
 
774

 
1

 

 
775

 
709

 

 
(2
)
 
707

Certificates of deposit
 
364

 

 

 
364

 
448

 

 

 
448

Non-U.S. government securities
 
378

 

 

 
378

 
315

 

 
(2
)
 
313

Municipal debt securities
 
34

 

 

 
34

 
34

 

 

 
34

Equity securities
 
357

 

 
(77
)
 
280

 

 

 

 

Total
 
$
17,505

 
$
42

 
$
(84
)
 
$
17,463

 
$
23,570

 
$
1

 
$
(51
)
 
$
23,520

The following table summarizes the classification of the available-for-sale securities in our Condensed Consolidated Balance Sheets (in millions):
 
 
March 31, 2016
 
December 31, 2015
Cash and cash equivalents
 
$
2,176

 
$
10,163

Short-term marketable securities
 
2,004

 
1,756

Long-term marketable securities
 
13,003

 
11,601

Other long-term assets
 
280

 

Total
 
$
17,463

 
$
23,520

Cash and cash equivalents in the table above exclude cash of $4.1 billion as of March 31, 2016 and $2.7 billion as of December 31, 2015.
The following table summarizes our portfolio of available-for-sale debt securities by contractual maturity (in millions):
 
 
March 31, 2016
 
 
Amortized Cost
 
Fair Value
Less than one year
 
$
4,180

 
$
4,180

Greater than one year but less than five years
 
12,750

 
12,785

Greater than five years but less than ten years
 
185

 
185

Greater than ten years
 
33

 
33

Total
 
$
17,148

 
$
17,183


9



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, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
(5
)
 
$
1,834

 
$

 
$
50

 
$
(5
)
 
$
1,884

U.S. treasury securities
 
(1
)
 
1,075

 

 

 
(1
)
 
1,075

Residential mortgage and asset-backed securities
 
(1
)
 
667

 

 
24

 
(1
)
 
691

U.S. government agencies securities
 

 
116

 

 

 

 
116

Non-U.S. government securities
 

 
221

 

 

 

 
221

Equity securities
 
(77
)
 
280

 

 

 
(77
)
 
280

Total
 
$
(84
)
 
$
4,193

 
$

 
$
74

 
$
(84
)
 
$
4,267

 
 
 

 
 

 
 

 
 

 
 

 
 

December 31, 2015
 
 

 
 

 
 

 
 

 
 

 
 

Corporate debt securities
 
$
(23
)
 
$
4,891

 
$

 
$
43

 
$
(23
)
 
$
4,934

U.S. treasury securities
 
(18
)
 
4,342

 

 

 
(18
)
 
4,342

Residential mortgage and asset-backed securities
 
(6
)
 
1,626

 

 
20

 
(6
)
 
1,646

U.S. government agencies securities
 
(2
)
 
707

 

 

 
(2
)
 
707

Non-U.S. government securities
 
(2
)
 
313

 

 

 
(2
)
 
313

Municipal debt securities
 

 
21

 

 

 

 
21

Total
 
$
(51
)
 
$
11,900

 
$

 
$
63

 
$
(51
)
 
$
11,963

We held a total of 1,073 positions as of March 31, 2016 and 2,742 positions as of December 31, 2015 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, 2016 and December 31, 2015, 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, 2016 and 2015.
4.
DERIVATIVE FINANCIAL INSTRUMENTS
Foreign Currency Exposure
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 in 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

10



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. The effective component of our hedge is recorded as an unrealized gain or loss on the hedging instrument in Accumulated other comprehensive income (loss) (AOCI) within stockholders’ equity. When the hedged forecasted transaction occurs, the hedge is de-designated and the unrealized gains or losses are reclassified into product sales. The majority of gains and losses related to the hedged forecasted transactions reported in AOCI at March 31, 2016 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, 2016 and 2015 are included within Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.
We had notional amounts on foreign currency exchange contracts outstanding of $9.9 billion at March 31, 2016 and $9.1 billion at December 31, 2015.
While all of our derivative contracts allow us the right to offset assets or 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 in our Condensed Consolidated Balance Sheets (in millions):
 
 
March 31, 2016
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Classification
 
Fair Value 
 
Classification
 
Fair Value
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
71

 
Other accrued liabilities
 
$
(121
)
Foreign currency exchange contracts
 
Other long-term assets
 
2

 
Other long-term obligations
 
(18
)
Total derivatives designated as hedges
 
 
 
73

 
 
 
(139
)
Derivatives not designated as hedges:
 
 
 
 

 
 
 
 

Foreign currency exchange contracts
 
Other current assets
 
1

 
Other accrued liabilities
 
(1
)
Total derivatives not designated as hedges
 
 
 
1

 
 
 
(1
)
Total derivatives
 
 
 
$
74

 
 
 
$
(140
)
 
 
December 31, 2015
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
200

 
Other accrued liabilities
 
$
(32
)
Foreign currency exchange contracts
 
Other long-term assets
 
9

 
Other long-term obligations
 
(8
)
Total derivatives designated as hedges
 
 
 
209

 
 
 
(40
)
Derivatives not designated as hedges:
 
 
 
 

 
 
 
 

Foreign currency exchange contracts
 
Other current assets
 
1

 
Other accrued liabilities
 
(1
)
Total derivatives not designated as hedges
 
 
 
1

 
 
 
(1
)
Total derivatives
 
 
 
$
210

 
 
 
$
(41
)

11



The following table summarizes the effect of our foreign currency exchange contracts in our Condensed Consolidated Financial Statements (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Derivatives designated as hedges:
 
 
 
 
Gains (losses) recognized in AOCI (effective portion)
 
$
(160
)
 
$
389

Gains reclassified from AOCI into product sales (effective portion)
 
$
86

 
$
145

Gains recognized in Other income (expense), net (ineffective portion and amounts excluded from effectiveness testing)
 
$
14

 
$
1

Derivatives not designated as hedges:
 
 
 
 
Gains (losses) recognized in Other income (expense), net
 
$
(151
)
 
$
108

From time to time, we may discontinue cash flow hedges and as a result, record related amounts in Other income (expense), net in our Condensed Consolidated Statements of Income. There were no material amounts recorded in Other income (expense), net for the three months ended March 31, 2016 and 2015 as a result of the discontinuance of cash flow hedges.
As of March 31, 2016 and December 31, 2015, 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 in our Condensed Consolidated Balance Sheets (in millions):
 
 
 
 
 
 
 
 
Gross Amounts Not Offset
in the Condensed
Consolidated Balance Sheet
 
 
Description
 
Gross Amounts of Recognized Assets/Liabilities
 
Gross Amounts Offset in the Condensed Consolidated Balance Sheet
 
Amounts of Assets/Liabilities Presented
in the Condensed Consolidated
Balance Sheet
 
Derivative Financial Instruments
 
Cash Collateral Received/Pledged
 
Net Amount (Legal Offset)
As of March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
74

 
$

 
$
74

 
$
(66
)
 
$

 
$
8

Derivative liabilities
 
(140
)
 

 
(140
)
 
66

 

 
(74
)
As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
210

 
$

 
$
210

 
$
(38
)
 
$

 
$
172

Derivative liabilities
 
(41
)
 

 
(41
)
 
38

 

 
(3
)
May 2016 Convertible Senior Notes and Convertible Note Hedges
In March 2016, we exercised our option to elect cash for the settlement of the conversion value in excess of the principal amount (the conversion spread) of our remaining convertible senior notes due in May 2016 (the May 2016 Notes) and for the related convertible note hedges. Until our cash settlement election, the conversion spread of the May 2016 Notes and the convertible note hedges met the applicable criteria for equity classification and were therefore recorded in stockholders’ equity in our Condensed Consolidated Balance Sheets. Upon our cash settlement election, we reclassified $733 million of the fair value of the conversion spread from stockholders’ equity to Current portion of long-term debt and other obligations, net, and reclassified $733 million of the fair value of the convertible note hedges from Stockholders’ equity to Prepaid and other current assets in our Condensed Consolidated Balance Sheets.
At March 31, 2016, we revalued both the conversion spread and the convertible note hedges at $792 million, respectively, and recorded a loss of $59 million on the conversion spread and a gain of $59 million on the convertible note hedges in our Condensed Consolidated Statements of Income. Both the conversion spread and the convertible note hedges associated with our May 2016 Notes will be settled during the second quarter of 2016 when the May 2016 Notes are due.

12



5.
OTHER FINANCIAL INFORMATION
Inventories
Inventories are summarized as follows (in millions):
 
 
March 31, 2016
 
December 31, 2015
Raw materials
 
$
1,239

 
$
1,332

Work in process
 
761

 
542

Finished goods
 
731

 
852

Total
 
$
2,731

 
$
2,726

 
 
 
 
 
Reported as:
 
 
 
 
Inventories
 
$
1,880

 
$
1,955

Other long-term assets
 
851

 
771

Total
 
$
2,731

 
$
2,726

Amounts reported as Other long-term assets primarily consisted of raw materials as of March 31, 2016 and December 31, 2015.
The joint ventures formed by Gilead Sciences, LLC and BMS, which are included in our Condensed Consolidated Financial Statements, held efavirenz active pharmaceutical ingredient in inventory. This efavirenz inventory was purchased from BMS at BMS’s estimated net selling price of efavirenz and totaled $1.3 billion as of March 31, 2016 and December 31, 2015. See Note 7, Collaborative Arrangements for further information.
Prepaid and other current assets
The components of Prepaid and other current assets are summarized as follows (in millions):
 
 
March 31, 2016
 
December 31, 2015
Convertible note hedges
 
$
792

 
$

Prepaid taxes
 
705

 
773

Other prepaid expenses
 
319

 
240

Other current assets
 
259

 
505

Total prepaid and other current assets
 
$
2,075

 
$
1,518

Other accrued liabilities
The components of Other accrued liabilities are summarized as follows (in millions):
 
 
March 31, 2016
 
December 31, 2015
Accrued royalties
 
$
190

 
$
237

Branded Prescription Drug fee
 
513

 
649

Compensation and employee benefits
 
235

 
380

Income taxes payable
 
51

 
65

Other accrued expenses
 
1,936

 
1,841

Total other accrued liabilities
 
$
2,925

 
$
3,172

6.
INTANGIBLE ASSETS
The following table summarizes the carrying amounts of our Intangible assets, net (in millions):
 
 
March 31, 2016
 
December 31, 2015
Finite-lived intangible assets
 
$
9,605

 
$
9,815

Indefinite-lived intangible assets
 
318

 
432

Total intangible assets
 
$
9,923

 
$
10,247


13



Finite-Lived Intangible Assets
The following table summarizes our finite-lived intangible assets (in millions):
 
 
March 31, 2016
 
December 31, 2015
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Intangible asset - sofosbuvir
 
$
10,720

 
$
1,631

 
$
10,720

 
$
1,456

Intangible asset - Ranexa
 
688

 
388

 
688

 
363

Other
 
455

 
239

 
455

 
229

Total
 
$
11,863

 
$
2,258

 
$
11,863

 
$
2,048

Amortization expense related to finite-lived intangible assets included primarily in Cost of goods sold in our Condensed Consolidated Statements of Income totaled $210 million and $206 million for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, the estimated future amortization expense associated with our finite-lived intangible assets for the remaining nine months of 2016 and each of the five succeeding fiscal years is expected as follows (in millions):
Fiscal Year
 
Amount
2016 (remaining nine months)
 
$
629

2017
 
844

2018
 
849

2019
 
741

2020
 
713

2021 and thereafter
 
5,829

Total
 
$
9,605

Indefinite-Lived Intangible Assets
The following table summarizes our indefinite-lived intangible assets (in-process research and development) (in millions):
 
 
March 31, 2016
 
December 31, 2015
Indefinite-lived intangible asset - momelotinib
 
$
201

 
$
315

Indefinite-lived intangible assets - Other
 
117

 
117

Total
 
$
318

 
$
432


In the first quarter of 2016, the estimated fair value of the intangible asset related to momelotinib declined to $201 million due to changes in the clinical development plans and as a result, we recorded an impairment charge of $114 million within Research and development expenses in our Condensed Consolidated Statements of Income.
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 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 price of Atripla attributable to efavirenz and Truvada. Since the net selling price for

14



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 four primary 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.
As of March 31, 2016 and December 31, 2015, 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 in our Condensed Consolidated Balance Sheets.
Selected financial information for the joint venture was as follows (in millions):
 
 
March 31, 2016
 
December 31, 2015
Total assets
 
$
2,441

 
$
2,464

Cash and cash equivalents
 
132

 
166

Accounts receivable, net
 
251

 
269

Inventories
 
2,056

 
2,027

Total liabilities
 
929

 
1,055

Accounts payable
 
544

 
606

Other accrued liabilities
 
385

 
449

These asset and liability amounts do not reflect the impact of intercompany eliminations that are included in our Condensed Consolidated Balance Sheets. Although we consolidate the joint venture, the legal structure of the joint venture limits the recourse that its creditors will have over our general credit or assets. 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 with BMS 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, 2016 and December 31, 2015, efavirenz purchased from BMS at BMS’s estimated net selling price of efavirenz in the European Territory is included in Inventories in our Condensed Consolidated Balance Sheets.
The parties also formed a limited liability company to hold the marketing authorization for Atripla in 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.

15



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 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.
Galapagos NV
We entered into a license and collaboration agreement with Galapagos NV (Galapagos), a clinical-stage biotechnology company based in Belgium, for the development and commercialization of filgotinib, a JAK1-selective inhibitor being evaluated in phase II trials for inflammatory disease indications.
Upon closing of the license and collaboration agreement in January 2016, we made an upfront license fee payment of $300 million and a $425 million equity investment in Galapagos by subscribing for new shares at a price of €58 per share, including issuance premium. As a result, Gilead received 6.8 million new shares of Galapagos, representing 14.75% of their outstanding share capital. The license fee payment of $300 million and the issuance premium on the equity investment of $68 million were recorded as Research and development expenses in our Condensed Consolidated Statements of Income. The equity investment, net of issuance premium, of $357 million was recorded as an available-for-sale security in Other long-term assets in our Condensed Consolidated Balance Sheets. Galapagos is eligible to receive development and regulatory milestone-based payments of up to $755 million, sales-based milestone payments of up to $600 million, plus tiered royalties on global sales starting at 20%, with the exception of certain co-promotion territories where profits would be shared equally.
Under the terms of the agreement, we have an exclusive, worldwide, royalty-bearing, sublicensable license for filgotinib and products containing filgotinib. Gilead is primarily responsible for development and seeking regulatory approval related to filgotinib. Gilead is responsible for 80% and Galapagos is responsible for 20% of the development costs incurred. Gilead is responsible for the manufacturing and commercialization activities. Galapagos has the option to co-promote filgotinib in certain territories, in which case, we and Galapagos will share profits equally.

16



8.
DEBT AND CREDIT FACILITY
Financing Arrangements
The following table summarizes the carrying amount of our borrowings under various financing arrangements (in millions):
Type of Borrowing
 
Issue Date
 
Due Date
 
Interest Rate
 
March 31, 2016
 
December 31, 2015 (1)
Convertible Senior
 
July 2010
 
May 2016
 
1.625%
 
$
254

 
$
283

Senior Unsecured
 
December 2011
 
December 2016
 
3.05%
 
699

 
699

Senior Unsecured
 
September 2015
 
September 2018
 
1.85%
 
997

 
997

Senior Unsecured
 
March 2014
 
April 2019
 
2.05%
 
498

 
498

Senior Unsecured
 
November 2014
 
February 2020
 
2.35%
 
498

 
497

Senior Unsecured
 
September 2015
 
September 2020
 
2.55%
 
1,990

 
1,989

Senior Unsecured
 
March 2011
 
April 2021
 
4.50%
 
993

 
992

Senior Unsecured
 
December 2011
 
December 2021
 
4.40%
 
1,244

 
1,244

Senior Unsecured
 
September 2015
 
September 2022
 
3.25%
 
995

 
995

Senior Unsecured
 
March 2014
 
April 2024
 
3.70%
 
1,740

 
1,740

Senior Unsecured
 
November 2014
 
February 2025
 
3.50%
 
1,742

 
1,742

Senior Unsecured
 
September 2015
 
March 2026
 
3.65%
 
2,724

 
2,724

Senior Unsecured
 
September 2015
 
September 2035
 
4.60%
 
988

 
988

Senior Unsecured
 
December 2011
 
December 2041
 
5.65%
 
995

 
995

Senior Unsecured
 
March 2014
 
April 2044
 
4.80%
 
1,732

 
1,732

Senior Unsecured
 
November 2014
 
February 2045
 
4.50%
 
1,728

 
1,728

Senior Unsecured
 
September 2015
 
March 2046
 
4.75%
 
2,213

 
2,212

Total debt, net
 
22,030

 
22,055

Less current portion
 
953

 
982

Total long-term debt, net
 
$
21,077

 
$
21,073

_____________________________
 
 
 
 
 
 
 
 
 
 
(1) 
In connection with our adoption of the ASU relating to the presentation of debt issuance costs during the first quarter of 2016, debt balances at December 31, 2015 have been retrospectively adjusted by $123 million to include unamortized debt issuance costs. Prior to our adoption of the ASU, these unamortized debt issuance costs were included in prepaid and other current assets and other long-term assets in our Condensed Consolidated Balance Sheets.
Convertible Senior Notes
During the three months ended March 31, 2016, a portion of our May 2016 Notes were converted and we repaid $31 million of principal balance related to these notes. We also paid $95 million in cash related to the conversion option value in excess of the principal amount (the conversion spread), and received $95 million in cash from the convertible note hedges related to the May 2016 Notes. The initial conversion rate for the May 2016 Notes was 44.0428 shares per $1,000 principal amount (which represented an initial conversion price of approximately $22.71 per share). The conversion rate for the May 2016 Notes is adjusted in connection with our quarterly cash dividend. As of March 31, 2016, the conversion rate was 44.7828 (which represented a conversion price of approximately $22.33 per share).
In March 2016, we exercised our option to elect cash settlement for both the conversion spread of the remaining May 2016 Notes and our convertible note hedges associated with the May 2016 Notes. See Note 4, Derivative Financial Instruments for further information.
As of March 31, 2016, there were 9 million shares of our common stock underlying our warrants associated with our May 2016 Notes (the 2016 Warrants). The 2016 Warrants expire in 2016 and have a strike price of $28.33 per share. Under the terms of the original agreements, the 2016 Warrants had a strike price of $30.05 per share and are due to expire during the 40 trading-day period commencing August 1, 2016. The strike price of the 2016 Warrants is adjusted in connection with our quarterly cash dividend.
Credit Facility
As of March 31, 2016, there were no amounts outstanding under the revolving credit facility credit agreement.
We are required to comply with certain covenants under the credit agreement and note indentures governing our senior notes. As of March 31, 2016, we were not in violation of any covenants.

17



9.
COMMITMENTS AND CONTINGENCIES
We are a party to various legal actions. The most significant of these are described below. 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.
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 U.S. Food and Drug Administration (FDA) approval of sofosbuvir, now known commercially as Sovaldi. In October 2014, we also received approval of the fixed-dose combination of ledipasvir and sofosbuvir (LDV/SOF), now known commercially as Harvoni. 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.
We own patents and patent applications that claim sofosbuvir (Sovaldi) as a chemical entity and its metabolites and the fixed-dose combination of ledipasvir and sofosbuvir (Harvoni). Third parties may have, or may obtain rights to, patents that allegedly could be used to prevent or attempt to prevent us from commercializing Sovaldi or Harvoni. 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 Sovaldi and Harvoni. We cannot predict the ultimate outcome of intellectual property claims related to Sovaldi or Harvoni. 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 Sovaldi and/or Harvoni, 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)
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 Idenixs pending U.S. Patent Application No. 12/131,868. An interference is a proceeding before the USPTO designed to determine who was the first to invent the subject matter claimed by both parties. In January 2014, the USPTO Patent Trial and Appeal Board (PTAB) determined that Pharmasset and not Idenix was the first to invent the compounds in dispute and accordingly we prevailed in the First Idenix Interference. Idenix has appealed the PTAB’s decisions to the U.S. District Court for the District of Delaware.
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 is related to the Idenix patent application at issue in the First Idenix Interference and includes claims directed to methods of treating HCV with nucleoside compounds. The purpose of the Second Idenix Interference was to determine who was first to invent the claimed methods of treating HCV with compounds similar to those which were involved in the First Idenix Interference. 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). We have filed a motion to dismiss the appeal in Delaware and have responded to the appeal filed in the CAFC. The CAFC has not yet set a hearing date for this appeal. The Delaware 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 the ’572 patent involved in the First Idenix Interference, is invalid. In November 2015, the Canadian court held that Idenix’s patent is invalid and that Gilead’s patent is valid. Idenix appealed the decision to the Canadian Federal Court of Appeal in November 2015.
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 patent, 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 the challenged Gilead 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 the Gilead patent.

18



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 Australia court revoked Idenix’s Australian patent. We expect that Idenix will appeal this 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 revoke the ’489 patent. An opposition hearing was held in February 2016, and the EPO ruled in our favor and revoked the ’489 patent. 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 to determine the issues of infringement and validity of the Idenix UK patent. 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. The appeal hearing is scheduled for July 2016. 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; however, in March 2016, Idenix requested that the French litigation be reactivated.
Idenix has not been awarded patents corresponding to the ’600 patent in Japan or China. In the event such patents are issued, we expect to challenge them in proceedings similar to those we invoked in other countries.
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 and 7,608,597. In June 2014, the court transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware. The Delaware district court has set trial dates in October 2016 and December 2016 for resolution of these issues. A decision by the district court may be appealed by either party to the CAFC.
Idenix was acquired by Merck & Co. Inc. (Merck) in August 2014, and Merck continues to pursue the Idenix claims described herein.
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 Nos. 7,105,499 and 8,481,712, which it co-owns with Isis Pharmaceuticals, Inc. Merck’s U.S. Patent Nos. 7,105,499 and 8,481,712 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. In March 2016, a jury in the case rendered a verdict that we had not established that Merck’s patents are invalid for lack of written description or lack of enablement. The court also ruled that Merck’s patents are infringed by our commercialization of sofosbuvir-containing products. The jury awarded Merck $200 million in damages for sales of our sofosbuvir-containing products from launch through December 2015. As a result, we accrued a $200 million litigation reserve, which was recorded in Cost of goods sold in our Condensed Consolidated Statements of Income during the first quarter of 2016.
We are currently waiting for the court’s decision on our equitable defenses and our request for judgment as a matter of law. If the jury’s verdict stands, we may be required to pay a royalty on sales of sofosbuvir-containing products following the verdict. The judge has indicated that she will determine the amount of the royalty, if necessary, at the conclusion of any appeal in this case. It may take several months for the court to rule on these defenses before the case is ready for appeal. Either party may appeal a District Court decision to the Court of Appeals for the Federal Circuit.
Litigation with AbbVie, Inc. (AbbVie)
AbbVie has obtained U.S. Patent Nos. 8,466,159, 8,492,386, 8,680,106, 8,685,984, and 8,809,265 (AbbVie Patents) which purport to cover the use of a combination of LDV/SOF (or Harvoni) for the treatment of HCV. We are aware that AbbVie has pending patent applications in the United States and granted and pending applications in other countries. We own published and pending patent applications directed to the use of combinations for the treatment of HCV, and, specifically, to the combination of LDV/SOF. Certain of our applications were filed before the AbbVie Patents. For this reason and others, we believe the AbbVie Patents are invalid.

19



Accordingly, in December 2013, we filed a lawsuit in the U.S. District Court for the District of Delaware seeking declaratory judgment that the AbbVie Patents are invalid and unenforceable, as well as other relief. We believe that Abbott Laboratories, Inc. and AbbVie conspired to eliminate competition in the HCV market by falsely representing to the USPTO that they, and not Gilead, invented methods of treating HCV using a combination of LDV/SOF. In February and March 2014, AbbVie responded to our lawsuit by also filing two lawsuits in the U.S. District Court for the District of Delaware alleging that our fixed-dose combination of LDV/SOF will infringe its patents. All of those lawsuits have been consolidated into a single action. In the United States, either party may appeal a decision by the District Court to the CAFC. The AbbVie Patents have not blocked or delayed the commercialization of our combination product in the United States, Canada, or Europe. We do not expect any other foreign patents to block or delay the commercialization around the world. The court has set a trial date of September 12, 2016 for this lawsuit.
Additionally, AbbVie has obtained U.S. Patent No. 9,034,832 which purports to cover a solid oral dosage form containing ledipasvir. Accordingly, in May 2015, we filed a lawsuit in the U.S. District Court for the District of Delaware seeking declaratory judgment that AbbVie’s patent is invalid, as well as other relief. We do not expect AbbVie’s patent to block the commercialization of our combination product. The court has set a trial date of July 31, 2017.
In August 2015, we filed an impeachment action against AbbVie seeking a declaration that AbbVie’s Canadian Patent No. 2,811,250 (’250 Patent), which purports to cover the use of a combination of LDV/SOF for the treatment of HCV, is invalid. On the same day, AbbVie filed an infringement action against us asserting that commercialization of Harvoni in Canada will infringe its ’250 Patent. The impeachment action has been stayed and we have counterclaimed for invalidity in the infringement proceeding. A trial date has not been set.
Additionally, AbbVie has obtained Canadian Patent No. 2,857,339 which purports to cover a solid composition that contains ledipasvir. In November 2015, AbbVie filed an infringement action against us asserting that commercialization of Harvoni in Canada infringes its ’339 Patent. We have filed a counterclaim asserting the invalidity of AbbVie’s patent. A trial date has not been set.
In November 2015, AbbVie filed a lawsuit against us in the Regional Court Düsseldorf for infringement of two quasi-patents, known as “utility models.” Utility models are unexamined IP rights and are not the same as standard patents. One utility model, DE 20 2012 013 117, purports to cover the use of a combination of direct-acting antivirals which includes at least an HCV polymerase inhibitor and an HCV NS5A inhibitor in the treatment of HCV; the other utility model, DE 21 2012 000 197, purports to cover a solid dispersion that includes ledipasvir. A trial date has not been set.
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 January 2016, several parties filed oppositions in the EPO requesting revocation of our granted European patent covering tenofovir alafenamide (TAF) that expires in 2021. In March 2016, two 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 exclusivity for Sovaldi prior to 2028, our expected revenues and results of operation 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.

20



Current legal proceedings of significance with some of our generic manufacturers include:
HIV Products
In November 2011, December 2011 and August 2012, we received notices that Teva Pharmaceuticals (Teva) submitted an abbreviated new drug submission (ANDS) to the Canadian Minister of Health requesting permission to manufacture and market generic versions of Truvada, Atripla and Viread. In the notices, Teva alleges that the patents associated with Truvada, Atripla and Viread are invalid, unenforceable and/or will not be infringed by Teva’s manufacture, use or sale of generic versions of those products. We filed lawsuits against Teva in the Federal Court of Canada seeking an order of prohibition against approval of these applications.
In December 2013, the court issued an order prohibiting the Canadian Minister of Health from approving Teva’s generic versions of our Viread, Truvada and Atripla products until expiry of our patents in July 2017. Teva has appealed that decision. The court’s decision did not rule on the validity of the patents and accordingly the only issue on appeal is whether the Canadian Minister of Health should be prohibited from approving Teva’s products. The appeal will be heard by the Canadian Federal Court of Appeal after the trial in the Impeachment Action filed by Teva in August 2012 seeking invalidation of our Canadian patents associated with Viread. The court will determine the validity of the patents in the pending Impeachment Action. A trial in the Impeachment Action is scheduled for November 2016. If Teva is successful in invalidating our patents, Teva may be able to launch generic versions of our Viread, Truvada and Atripla products in Canada prior to the expiry of our patents.
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 ANDSs. A hearing in those cases was held in April 2016. We expect a decision from the court prior to July 31, 2016.
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 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.
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 would 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., Japan Tobacco International, U.S.A. (together, Japan Tobacco), and Emory University (Emory). In April 2016, AHF amended its complaint to add Akros Pharma, Inc. (Akros), Janssen Sciences Ireland UC (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 under 35 U.S.C. §§ 101 et seq. In addition, AHF claims that Gilead, independently and together with Japan Tobacco, 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 seeks a declaratory judgment of invalidity against each of the patents as well as monetary damages.

21



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 United States 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.
Massachusetts Attorney General Investigation
In January 2016, we received a letter from the Massachusetts Attorney General that their office is considering whether our pricing of Sovaldi and Harvoni may constitute an unfair trade practice in violation of Massachusetts law. In February 2016, the Massachusetts Attorney General’s office served us with a Civil Investigative Demand requesting that we produce documents related to our HCV products. 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 Stockholders’ Equity 
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
 
Common Stock 
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
 
Shares
 
Amount
 
 
Balance at December 31, 2015
 
1,422

 
$
1

 
$
444

 
$
88

 
$
18,001

 
$
579

 
$
19,113

Net income
 

 

 

 

 
3,566

 
1

 
3,567

Other comprehensive loss, net of tax
 

 

 

 
(252
)
 

 

 
(252
)
Change in noncontrolling interest
 

 

 

 

 

 
41

 
41

Issuances under employee stock purchase plan
 
1

 

 
48

 

 

 

 
48

Issuances under equity incentive plans
 
6

 

 
40

 

 

 

 
40

Stock-based compensation
 

 

 
88

 

 

 

 
88

Tax benefits from employee stock plans
 

 

 
87

 

 

 

 
87

Repurchases of common stock
 
(81
)
 

 
(193
)
 

 
(7,935
)
 

 
(8,128
)
Convertible senior notes settlement
 

 

 
(95
)
 

 

 

 
(95
)
Convertible notes hedge settlement
 

 

 
95

 

 

 

 
95

Dividends declared
 

 

 

 

 
(587
)
 

 
(587
)
Reclassification of conversion spread of senior convertible notes
 

 

 
(733
)
 

 

 

 
(733
)
Reclassification of convertible notes hedges
 

 

 
733

 

 

 

 
733

Reclassification to equity component of currently redeemable convertible senior notes
 

 

 
2

 

 

 

 
2

Balance at March 31, 2016
 
1,348

 
$
1

 
$
516

 
$
(164
)
 
$
13,045

 
$
621

 
$
14,019


22



Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in AOCI by component, net of tax (in millions):
 
 
Foreign Currency Items
 
Unrealized Gains and Losses on Available-for-Sale Securities
 
Unrealized Gains and Losses on Cash Flow Hedges
 
Total
Balance at December 31, 2015
 
$
(45
)
 
$
(16
)
 
$
149

 
$
88

Other comprehensive income (loss) before reclassifications
 
2

 
(24
)
 
(150
)
 
(172
)
Amounts reclassified from AOCI
 

 

 
(80
)
 
(80
)
Net current period other comprehensive income (loss)
 
2