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8-K/A - FORM 8-K/A - GILEAD SCIENCES INCd313948d8ka.htm
EX-12.1 - GILEAD SCIENCES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - GILEAD SCIENCES INCd313948dex121.htm
EX-99.3 - CONSENT OF GRANT THORNTON LLP - GILEAD SCIENCES INCd313948dex993.htm

Exhibit 99.2

GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA COMBINED

FINANCIAL STATEMENTS

The unaudited pro forma combined financial statements presented below are based on, and should be read in conjunction with (i) the historical consolidated financial statements for Gilead Sciences, Inc. (“Gilead”) included in its Annual Report on Form 10-K for the year ended December 31, 2011; and (ii) the historical financial statements of Pharmasset, Inc. (“Pharmasset”) included in its Annual Report on Form 10-K for the year ended September 30, 2011. The unaudited pro forma combined balance sheet and statement of income give effect to the acquisition of Pharmasset, as if it had occurred on December 31, 2011 for balance sheet purposes and on January 1, 2011 for income statement purposes.

The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable and (3) with respect to the statement of income, expected to have a continuing impact on the combined results.

The unaudited pro forma combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements, has been presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined company.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA COMBINED

BALANCE SHEET

AS OF DECEMBER 31, 2011

(in thousands)

 

     Historical     Pro Forma
Adjustments
(Note 5)
             
     Gilead      Pharmasset
(Note 2)
        Pro Forma
Combined
 

Assets

           

Current assets:

           

Cash and cash equivalents

   $ 9,883,777       $ 166,455      $ (8,911,014     ( a    $ 1,139,218   

Short-term marketable securities

     16,491         —          —            16,491   

Accounts receivable, net

     1,951,167         —          —            1,951,167   

Inventories

     1,389,983         —          —            1,389,983   

Deferred tax assets

     208,155         —          —            208,155   

Prepaid taxes

     246,444         —          —            246,444   

Prepaid expenses

     95,922         —          —            95,922   

Other current assets

     126,846         3,528        3,854        ( a      134,228   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total current assets

     13,918,785         169,983        (8,907,160       5,181,608   

Property, plant and equipment, net

     774,406         1,983        —            776,389   

Noncurrent portion of prepaid royalties

     174,584         —          —            174,584   

Noncurrent deferred tax assets

     144,015         —          —            144,015   

Long-term marketable securities

     63,704         —          —            63,704   

Intangible assets

     2,066,966         —          10,887,781        ( b      12,954,747   

Other noncurrent assets

     160,674         239        1,413        ( a      162,326   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total assets

   $ 17,303,134       $ 172,205      $ 1,982,034        $ 19,457,373   
  

 

 

    

 

 

   

 

 

     

 

 

 

Liabilities and Stockholders’ Equity

           

Current liabilities:

           

Accounts payable

   $ 1,206,052       $ 5,703      $ —          $ 1,211,755   

Accrued government rebates

     516,045         —          —            516,045   

Accrued compensation and employee benefits

     173,316         —          —            173,316   

Income taxes payable

     40,583         —          —            40,583   

Other accrued liabilities

     502,557         7,495        —            510,052   

Deferred revenues

     74,665         633        (633     ( c      74,665   

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

     1,572         2,470        1,347,530        ( f      1,351,572   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total current liabilities

     2,514,790         16,301        1,346,897          3,877,988   

Long-term deferred revenues

     31,870         1,425        (1,425     ( c      31,870   

Long-term debt, net

     7,605,734         116        799,884        ( f      8,405,734   

Long-term income taxes payable

     135,655         —          —            135,655   

Other long-term obligations

     147,736         91        —            147,827   

Stockholders’ equity:

           

Common stock

     753         76        (76     ( d      753   

Additional paid-in capital

     4,903,143         478,848        (478,848     ( d      4,903,143   

Accumulated other comprehensive income

     58,200         —          —            58,200   

Retained earnings (accumulated deficit)

     1,776,760         (324,652     315,602        ( e      1,767,710   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total controlling interest stockholders’ equity

     6,738,856         154,272        (163,322       6,729,806   

Noncontrolling interest

     128,493         —          —            128,493   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

     6,867,349         154,272        (163,322       6,858,299   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

   $ 17,303,134       $ 172,205      $ 1,982,034        $ 19,457,373   
  

 

 

    

 

 

   

 

 

     

 

 

 

See accompanying Notes to the Unaudited Pro Forma Combined Financial Statements,

which are an integral part of these statements.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA COMBINED

STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2011

(in thousands, except per share amounts)

 

     Historical     Pro Forma
Adjustments
(Note 5)
             
     Gilead     Pharmasset
(Note 2)
        Pro Forma
Combined
 

Revenues:

          

Product sales

   $ 8,102,359      $ —        $ —          $ 8,102,359   

Royalty revenues

     268,827        —          —            268,827   

Contract and other revenues

     14,199        897        —            15,096   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total revenues

     8,385,385        897        —            8,386,282   
  

 

 

   

 

 

   

 

 

     

 

 

 

Costs and expenses:

          

Cost of goods sold

     2,124,410        —          —            2,124,410   

Research and development

     1,229,151        75,850        —            1,305,001   

Selling, general and administrative

     1,241,983        16,651        (28,461     ( g      1,230,173   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total costs and expenses

     4,595,544        92,501        (28,461       4,659,584   
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from operations

     3,789,841        (91,604     28,461          3,726,698   

Interest and other income, net

     66,581        504        (52,476     ( h      14,609   

Interest expense

     (205,418     (1,058     (181,393     ( i      (387,869
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before provision for income taxes

     3,651,004        (92,158     (205,408       3,353,438   

Provision for income taxes

     861,945        (973     (69,278     ( j      791,694   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

     2,789,059        (91,185     (136,130       2,561,744   

Net loss attributable to noncontrolling interest

     14,578        —          —            14,578   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) attributable to controlling interest

   $ 2,803,637      $ (91,185   $ (136,130     $ 2,576,322   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income per share attributable to Gilead common stockholders-basic

   $ 3.62            $ 3.32   
  

 

 

         

 

 

 

Shares used in per share calculation—basic

     774,903              774,903   
  

 

 

         

 

 

 

Net income per share attributable to Gilead common stockholders-diluted

   $ 3.55            $ 3.26   
  

 

 

         

 

 

 

Shares used in per share calculation—diluted

     790,118              790,118   
  

 

 

         

 

 

 

See accompanying Notes to the Unaudited Pro Forma Combined Financial Statements,

which are an integral part of these statements.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

NOTES TO THE UNAUDITED PRO FORMA

COMBINED FINANCIAL STATEMENTS

1. Description of Transaction

On November 21, 2011, Gilead and Pharmasset announced that the companies had signed a definitive agreement under which Gilead would acquire Pharmasset for $137.00 per share in cash through a tender offer (the “Acquisition”). On January 12, 2012, Gilead completed the tender offer for all outstanding shares of common stock of Pharmasset. On January 17, 2012, Pharmasset became a wholly-owned subsidiary of Gilead. Gilead financed the Acquisition with approximately $5.1 billion in cash on hand, $3.7 billion in senior unsecured notes issued in December 2011 and $2.2 billion in bank debt issued in January 2012.

2. Basis of Presentation

The unaudited pro forma combined financial information was prepared using the historical financial statements of Gilead as of, and for the year ended, December 31, 2011 and Pharmasset as of, and for the year ended, September 30, 2011. For ease of reference, no adjustments were made to Pharmasset’s reported information for its different year-end date. Certain reclassifications have been made to the historical financial statements of Pharmasset to conform with Gilead’s presentation, primarily related to the presentation of prepaid assets, other non-current assets and deferred rent.

Under the acquisition method of accounting, the total consideration transferred of $11.0 billion is to be allocated to the net tangible and intangible assets acquired and liabilities assumed of Pharmasset based on their estimated fair values. Management has made a preliminary allocation of the consideration transferred to the tangible and intangible assets acquired and liabilities assumed based on various estimates. The acquisition accounting is dependent upon certain valuations that are currently in progress. Accordingly, the pro forma adjustments included in this document are preliminary, have been made solely for the purpose of providing unaudited pro forma combined financial information and may be revised as additional information becomes available or as additional analyses are performed.

The unaudited pro forma combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Acquisition, the costs to integrate the operations of Gilead and Pharmasset or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

3. Accounting Policies

The unaudited pro forma combined financial statements do not assume any differences in accounting policies. Gilead is not aware of any differences that would have a material impact on the pro forma combined financial statements.

4. Consideration Transferred

A preliminary estimate of the fair value of the assets acquired and the liabilities assumed by Gilead for this Acquisition, reconciled to the total consideration transferred is shown below (in thousands):


Allocation of consideration transferred

  

Tangible assets and liabilities

  

Cash and cash equivalents

   $ 163,869   

Other current assets

     3,528   

Property, plant and equipment, net

     1,983   

Other noncurrent assets

     239   

Accounts payable

     (5,703 )

Other accrued liabilities

     (7,495 )

Other long-term obligations

     (91 )
  

 

 

 

Total net tangible assets

     156,330   
  

 

 

 

Intangible assets

  

Goodwill, IPR&D, and other intangible assets

     10,887,781   
  

 

 

 

Total allocated consideration transferred

   $ 11,044,111   
  

 

 

 

5. Pro Forma Adjustments

For purposes of preparing these unaudited pro forma combined financial statements, we included the following adjustments:

Pro Forma Combined Balance Sheet as of December 31, 2011

 

  (a) Sources and uses of cash (in thousands):

 

Sources of cash

  

Issuance of bank debt to fund the Acquisition

   $ 2,150,000   
  

 

 

 

Total sources of cash

   $ 2,150,000   
  

 

 

 

Uses of cash

  

Repayment of Pharmasset’s outstanding debt

     (2,586 )

Short-term bank debt issuance costs

     (3,854 )

Long-term bank debt issuance costs

     (1,413 )

Acquisition costs

     (9,050 )

Cash consideration transferred

     (11,044,111 )
  

 

 

 

Total uses of cash

     (11,061,014 )
  

 

 

 

Net cash adjustment

   $ (8,911,014 )
  

 

 

 

 

  (b) Reflects a preliminary estimate of $10.9 billion for the portion of the total consideration to be allocated to intangible assets, primarily in-process research and development and goodwill.

 

  (c) Reflects $2.1 million to reduce the carrying value of deferred revenue to the estimated fair value of Pharmasset’s obligations under Pharmasset’s contract revenue agreements.

 

  (d) Reflects the elimination of Pharmasset’s historical common stock and additional paid in capital as part of the Acquisition.


  (e) Assumes the following changes to accumulated other comprehensive income and retained earnings (accumulated deficit) (in thousands):

 

Elimination of Pharmasset’s accumulated deficit

   $  324,652   

Estimated Acquisition-related costs

     (9,050 )
  

 

 

 

Net change in retained earnings

   $ 315,602   
  

 

 

 

 

  (f) Assumed debt related adjustments (in thousands):

 

Short-term debt adjustments

  

Short-term bank debt issued

   $ 1,350,000   

Repayment of Pharmasset’s outstanding debt

     (2,470 )
  

 

 

 

Total short-term debt adjustments

   $ 1,347,530   
  

 

 

 

Long-term debt adjustments

  

Long-term bank debt issued

   $ 800,000   

Repayment of Pharmasset’s outstanding debt

     (116 )
  

 

 

 

Total long-term debt adjustments

   $ 799,884   
  

 

 

 

Pro Forma Combined Statement of Income for the Year Ended December 31, 2011

 

  (g) Reflects an adjustment to eliminate transaction-related costs included in the historical financial statement of Gilead, which are directly attributable to the Acquisition but which are not expected to have a continuing impact on the combined entity’s results.

 

  (h) Reflects an estimate of forgone interest income on cash and cash equivalents, short-term and long-term marketable securities balances.

 

  (i) Reflects an estimate of the additional interest expense calculated based on $5.9 billion in debt incurred to fund the Acquisition and $63.7 million in debt issuance cost, partially offset by the elimination of Pharmasset’s interest expense incurred on Pharmasset’s outstanding debt which was assumed to be paid off immediately prior to the Acquisition.

The debt instruments issued to fund the Acquisition are a combination of $3.7 billion of fixed rate senior unsecured notes and $2.2 billion of floating rate bank debt. The fixed rate senior unsecured notes were issued in December 2011 and have maturity dates ranging from 3 to 30 years and fixed annual interest rates ranging from 2.40% to 5.65%. The floating rate bank debt was issued in January 2012 and will bear interest at either (i) the Eurodollar Rate plus the Applicable Margin or (ii) the Base Rate plus the Applicable Margin, each as defined in the related credit agreements. The estimated weighted-average interest rate associated with this bank debt is 1.49%. A change of 1/8 of a percent (0.125%) in the interest rates assumed for these floating rate debt instruments would result in a $2.1 million change in pro forma interest expense.

 

  (j) Reflects the estimated tax benefit as a result of the assumed reduction of taxable income resulting primarily from additional interest expense and lower interest income following the Acquisition.

Forward-looking Statements

These unaudited pro forma combined financial statements may be deemed to be forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and similar expressions. Such statements may include, but are not limited to, statements about the benefits of the


Acquisition, including future financial and operating results, Gilead’s plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Gilead does not undertake any obligation to update publicly or revise any forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that expected synergies from the Acquisition will not be realized or will not be realized within the expected time period; disruption from the Acquisition making it more difficult to maintain business and operational relationships; Gilead’s ability to accurately predict future market conditions; dependence on the effectiveness of patents and other protections for innovative products; Gilead’s ability to advance the product pipeline; risks of unfavorable results from clinical trials, including GS-7977; Gilead’s ability to develop an all-oral antiviral regimen for the treatment of hepatitis C (HCV) infected genotype 1 patients or pangenotypic regimen for all HCV patients; the risk of new and changing regulation and health policies in the United States and internationally and the exposure to litigation and/or regulatory actions. Additional factors that could cause results to differ materially from those described in the forward-looking statements in the “Risk Factors” section of Gilead’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (“SEC”) and other subsequent filings with the SEC available at the SEC’s Internet site (http://www.sec.gov).