Deferred Proceeds from Property Transaction

6 Months Ended

Jun. 30, 2013

Real Estate [Abstract]

Deferred Proceeds from Property Transaction

15: Deferred Proceeds from Property Transaction

On November 1, 2012, we sold the 294,000 square foot building located at 303 Velocity Way in Foster City, California, which serves as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead Sciences, Inc. (“Gilead”) for $179.7 million. We will continue to use the facility for up to one year for which rent is not required to be paid. We are accounting for this transaction as a financing transaction related to our continued use of the facility and a sublease receivable relative to Gilead’s use of a portion of the facility. Our use of the facility during the rent-free period constitutes a form of continuing involvement that prevents gain recognition. We have recorded interest expense on the financing obligation at our incremental borrowing rate and increased the financing obligation by the same amount, which resulted in total deferred proceeds from property transaction of $182.0 million at June 30, 2013. We have recorded sublease income at an implied market rate from Gilead and recorded a sublease receivable for the same amount. We will vacate the facility during the fourth quarter of 2013. At that date, we will have no continuing involvement with the property and will account for the transaction as a property sale thereby recognizing a gain of approximately $117 million on the sale of the property, which represents the difference between the sales proceeds and the carrying value of the property and related assets as well as any direct incremental costs associated with the sale.

The assets subject to this sale of $63.9 million as of June 30, 2013 include property and equipment, net, of $60.8 million and current assets of $3.1 million. The sold assets include the $56.9 million facility, $2.9 million of related land, and $2.1 million of leasehold and land improvements, net of accumulated depreciation of $1.1 million. The buildings and improvements are subject to depreciation over their normal useful lives until the property is no longer used by us. Current assets include $0.4 million of direct transaction costs, $0.5 million of previously capitalized lease financing and other costs, and an imputed sublease receivable of $2.2 million.

We will incur imputed financing and depreciation expense, net of imputed sublease income, of approximately $1.6 million, which commenced during the fourth quarter of 2012, until we vacate the building during the fourth quarter of 2013 when we will recognize a gain on sale of building and land of approximately $117 million.