13.	STOCKHOLDERS' EQUITY

Stock Repurchase Programs

During 2009, we repurchased and retired 21.8 million shares of our common stock at an average purchase price of $45.69 per share, for an aggregate purchase price of $998.1 million through open market transactions under the $3.00 billion stock repurchase program approved by our Board in October 2007. In 2009, we also received 1.4 million shares of our common stock under the accelerated share repurchase agreement that we completed in March 2009. As of December 31, 2009, we completed stock repurchases under the October 2007 stock repurchase program.

In January 2010, our Board authorized a program for the repurchase of our common stock in an amount of up to $1.00 billion through open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated purchases or other means. We completed this plan in May 2010, at which time our Board authorized a three-year, $5.00 billion stock repurchase program. As of December 31, 2010, we had repurchased $3.02 billion of our common stock under our May 2010 program, and the remaining authorized amount of stock repurchases that may be made under the program was $1.98 billion. In 2010, we spent a total of $4.02 billion to repurchase and retire 109.9 million shares of our common stock, at an average purchase price of $36.57 per share.

In January 2011, our Board authorized a three-year, $5.00 billion stock repurchase program. We initiated purchases under this program in September 2011 upon completion of our May 2010 stock repurchase program. As of December 31, 2011, we had repurchased $403.1 million of our common stock under our January 2011 stock repurchase program and the remaining authorized amount of stock repurchases that may be made under this plan was $4.60 billion. In 2011, we spent a total of $2.38 billion to repurchase and retire 59.9 million shares of our common stock at an average purchase price of $39.80 per share.

We use the par value method of accounting for our stock repurchases. Under the par value method, common stock is first charged with the par value of the shares involved. The excess of the cost of shares acquired over the par value is allocated to APIC based on an estimated average sales price per issued share with the excess amounts charged to retained earnings. As a result of our stock repurchases in 2009, we reduced common stock and APIC by an aggregate of $61.7 million and charged $940.8 million to retained earnings. As a result of our stock repurchases in 2010, we reduced common stock and APIC by an aggregate of $319.8 million and charged $3.71 billion to retained earnings. As a result of our stock repurchases in 2011, we reduced common stock and APIC by an aggregate of $186.2 million and charged $2.21 billion to retained earnings.

Preferred Stock

We have 5,000,000 shares of authorized preferred stock issuable in series. Our Board is authorized to determine the designation, powers, preferences and rights of any such series. We have designated 800,000 shares of Series A Junior Participating Preferred Stock for potential issuance under our November 1994 rights agreement with Computershare Limited, as amended (the Rights Plan). There was no preferred stock outstanding as of December 31, 2011 and 2010.

Rights Plan

In October 1999, October 2003 and May 2006, our Board approved amendments to the Rights Plan. The first amendment provided, among other things, for an increase in the exercise price of a right under the plan from $15 to $100 and an extension of the term of the plan from November 2004 to October 2009. The second amendment provides, among other things, for an increase in the exercise price of a right under the plan from $100 to $400 and an extension of the term of the Rights Plan to October 2013. The third amendment was a clarifying amendment entered into in connection with an increase in the designated number of shares of Series A Junior Participating Preferred Stock for potential issuance under the Rights Plan in May 2006.

2004 Equity Incentive Plan

In May 2004, our stockholders approved and we adopted the Gilead Sciences, Inc. 2004 Equity Incentive Plan (the 2004 Plan), which replaced all of our existing equity plans (Prior Plans). The remaining shares that were available for future grants under the Prior Plans were transferred to the 2004 Plan and additionally, if awards granted under the Prior Plans expire or otherwise terminate without being exercised, the shares of our common stock reserved for such awards are added back to the pool of available shares of common stock under the 2004 Plan. The 2004 Plan is a broad based incentive plan that provides for the grant of equity-based awards, including stock options, restricted stock units, restricted stock awards and performance awards, to employees, directors and consultants. Under the 2004 Plan, we are authorized to issue a maximum of 25,000,000 shares of full-value awards, such as restricted stock, restricted stock units, performance shares, performance units (to the extend settled in common stock) and phantom shares over the term of the Plan. The 2004 Plan authorizes the issuance of a total of 121,594,183 shares of common stock. As of December 31, 2011, 47,406,212 shares remain available for future grant under the 2004 Plan.

Stock Options

The 2004 Plan provides for option grants designated as either non-qualified or incentive stock options. Prior to January 1, 2006, we granted both non-qualified and incentive stock options, but all stock options granted after January 1, 2006 have been non-qualified stock options. Under the 2004 Plan, employee stock options granted prior to 2011 generally vest over five years and stock options granted starting in 2011 generally vest over four years. All options are exercisable over a period not to exceed the contractual term of ten years from the date the stock options are issued and are granted at prices not less than the fair market value of our common stock on the grant date. Stock option exercises are settled with common stock from the 2004 Plan's previously authorized and available pool of shares.

In connection with the acquisition of CV Therapeutics, we assumed CV Therapeutics' 1994 Equity Incentive Plan, as amended and restated, Non-Employee Directors' Stock Option Plan, as amended and restated, 2000 Equity Incentive Plan, as amended and restated, 2000 Nonstatutory Incentive Plan, as amended and restated, and 2004 Employee Commencement Incentive Plan, as amended and restated (collectively, the CV Therapeutics Plans). The majority of options that were issued and outstanding under the CV Therapeutics Plans as of April 15, 2009 were converted into options to purchase approximately 1.8 million shares of our common stock and remain subject to their original terms and conditions. There are no shares available for future grant under the CV Therapeutics Plans.

 

In connection with the acquisition of Arresto, we assumed the Arresto 2007 Equity Incentive Plan (the Arresto Plan). The options that were issued and outstanding under the Arresto Plan have been converted into options to purchase our common stock effective January 14, 2011. The number of converted options to purchase our common stock is not significant. There are no shares available for future grant under the Arresto Plan.

The following table summarizes activity under our stock option plans. All option grants presented in the table had exercise prices not less than the fair value of the underlying common stock on the grant date (shares in thousands):

 

		Year Ended December 31,
		2011								2010								2009
		Shares				Weighted- Average Exercise Price				Shares				Weighted- Average Exercise Price				Shares				Weighted- Average Exercise Price
Outstanding, beginning of year			60,251			$	30.32				69,193			$	28.09				76,811			$	24.70
Granted and assumed			2,445			$	38.35				4,836			$	44.27				7,286			$	48.87
Forfeited			(1,523	)		$	43.33				(2,348	)		$	43.16				(2,393	)		$	39.33
Expired			(1,117	)		$	47.83				(759	)		$	53.27				(440	)		$	64.08
Exercised			(9,175	)		$	19.26				(10,671	)		$	17.68				(12,071	)		$	15.56
Outstanding, end of year			50,881			$	31.91				60,251			$	30.32				69,193			$	28.09
Exercisable, end of year			41,418			$	29.22				45,018			$	25.92				47,090			$	22.36
Weighted-average grant date fair value of options granted during the year						$	12.33							$	14.24							$	17.00

The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $194.5 million, $262.3 million and $379.8 million, respectively. The total fair value of stock options that vested during the years ended December 31, 2011, 2010 and 2009 was $96.4 million, $124.6 million and $162.9 million, respectively.

As of December 31, 2011, the number of options outstanding that are expected to vest, net of estimated future option forfeitures was 8,734,108 with a weighted-average exercise price of $43.79 per share, an aggregate intrinsic value of $10.3 million and a weighted-average remaining contractual life of 7.6 years. The aggregate intrinsic value of stock options outstanding and stock options exercisable as of December 31, 2011 were $557.2 million and $545.8 million, respectively. As of December 31, 2011, the weighted-average remaining contractual life for options outstanding and options exercisable were 4.8 and 4.1 years, respectively.

As of December 31, 2011, there was $163.0 million of unrecognized compensation cost related to stock options, which is expected to be recognized over an estimated weighted-average period of 2.4 years.

Performance Awards

Under the 2004 Plan, we grant performance-based restricted stock units which vest upon the achievement of specified market and performance goals relative to a pre-determined peer group. The actual number of common shares ultimately issued is calculated by multiplying the number of performance units by a payout percentage ranging from 0% to 200%. Performance awards vest only when a committee (or subcommittee) of our Board has determined that we have achieved our specified market and performance goals. In January 2011, 2010 and 2009 we granted 603,400, 412,505 and 426,305 performance-based unit awards (the 2011 performance shares, the 2010 performance shares and the 2009 performance shares, respectively). These awards will vest over a single three-year performance measurement and vesting period for each of the performance share awards.

The fair value of each performance share grant is estimated at the grant date using a Monte Carlo valuation methodology. The weighted-average grant date fair values of the 2011, 2010 and 2009 performance shares were $38.44, $54.25 and $61.89 per share, respectively.

We recognized $24.6 million, $21.3 million and $14.9 million of stock-based compensation expenses in 2011, 2010 and 2009, respectively, related to these performance shares. As of December 31, 2011, there was $26.9 million of unrecognized compensation costs related to performance shares, which is expected to be recognized over an estimated weighted-average period of 1.3 years.

We have also granted performance-based restricted stock units to certain of our employees under the 2004 Plan. The vesting of these awards is subject to the achievement of specified performance goals. The number of these awards issued to date has not been significant.

Restricted Stock Units

We grant restricted stock units (RSUs) to certain employees as part of our annual employee equity compensation review program as well as to new hire employees and to non-employee members of our Board. RSUs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting. Generally, RSUs vest ratably on an annual basis over five years from the date of grant for awards granted prior to 2011. Starting January 1, 2011, RSUs vest over four years from the date of grant.

The fair value of an RSU is equal to the closing price of our common stock on the grant date. The following table summarizes our RSU activities and related information (in thousands, except per share amounts):

 

		Year Ended December 31,
		2011								2010								2009
		Shares				Weighted- Average Grant-Date Fair Value Per Share				Shares				Weighted- Average Grant-Date Fair Value Per Share				Shares				Weighted- Average Grant-Date Fair Value Per Share
Outstanding, beginning of year			2,649			$	42.99				1,251			$	48.25				—			$	—
Granted and assumed			4,215			$	38.79				1,974			$	40.90				1,368			$	48.24
Vested			(587	)		$	43.23				(274	)		$	47.79				(37	)		$	44.54
Forfeited			(454	)		$	41.09				(302	)		$	46.82				(80	)		$	49.84
Outstanding, end of year			5,823			$	40.07				2,649			$	42.99				1,251			$	48.25

The total fair value of RSUs that vested during the years ended December 31, 2011, 2010 and 2009 was $25.4 million, $13.1 million and $1.7 million, respectively. As of December 31, 2011, there was $218.9 million of unrecognized compensation cost related to nonvested RSUs which is expected to be recognized over a weighted-average period of 3.3 years.

Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan, as amended (ESPP), employees can purchase shares of our common stock based on a percentage of their compensation subject to certain limits. The purchase price per share is equal to the lower of 85% of the fair market value of our common stock on the offering date or the purchase date. The ESPP offers a two-year look-back feature as well as an automatic reset feature that provides for an offering period to be reset to a new lower-priced offering if the offering price of the new offering period is less than that of the current offering period. ESPP purchases are settled with common stock from the ESPP's previously authorized and available pool of shares. During 2011, 1,199,739 shares were issued under the ESPP for $35.0 million. A total of 33,280,000 shares of common stock have been reserved for issuance under the ESPP, and there were 5,367,672 shares available for issuance under the ESPP as of December 31, 2011.

As of December 31, 2011, there was $7.3 million of unrecognized compensation cost related to the ESPP, which is expected to be recognized over an estimated weighted-average period of 1.4 years.