| Balance Sheet Account Details | Balance Sheet Account Details Short-Term Investments The following is a summary of short-term investments (in thousands): July 3, 2016 January 3, 2016 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available-for-sale securities: Debt securities in government sponsored entities $ 18,141 $ — $ (28 ) $ 18,113 $ 14,634 $ — $ (8 ) $ 14,626 Corporate debt securities 325,037 793 (76 ) 325,754 422,177 44 (1,127 ) 421,094 U.S. Treasury securities 129,265 462 — 129,727 182,144 3 (417 ) 181,730 Total available-for-sale securities $ 472,443 $ 1,255 $ (104 ) $ 473,594 $ 618,955 $ 47 $ (1,552 ) $ 617,450 Realized gains and losses are determined based on the specific identification method and are reported in interest income. Contractual maturities of available-for-sale debt securities as of July 3, 2016 were as follows (in thousands): Estimated Fair Value Due within one year $ 160,661 After one but within five years 312,933 Total $ 473,594 The Company has the ability, if necessary, to liquidate any of its cash equivalents and short-term investments in order to meet its liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase nonetheless are classified as short-term on the accompanying condensed consolidated balance sheets. Strategic Investments As of July 3, 2016 and January 3, 2016 , the aggregate carrying amounts of the Company’s cost-method investments in non-publicly traded companies included in other assets were $56.9 million and $56.6 million , respectively. Revenue recognized from transactions with such companies was $16.5 million and $29.6 million , respectively, for the three and six months ended July 3, 2016 and $14.1 million and $31.3 million , respectively, for the three and six months ended June 28, 2015 . During the six months ended June 28, 2015 , the Company recognized a gain on a disposition of a cost-method investment of $15.1 million . The Company’s cost-method investments are assessed for impairment quarterly. The Company determines that it is not practicable to estimate the fair value of its cost-method investments on a regular basis and does not reassess the fair value of cost-method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. No material impairment loss was recorded during the three and six months ended July 3, 2016 or June 28, 2015 . On April 14, 2016, the Company announced that it has committed to invest $100.0 million in a new venture capital investment fund (the Fund). The capital commitment is callable over ten years , and up to $40.0 million can be drawn down during the first year. The Company’s investment in the Fund is accounted for as an equity method investment. During the six months ended July 3, 2016 , the Company transferred $3.2 million of its cost-method investments to the Fund and contributed $3.1 million in cash. Inventory Inventory consists of the following (in thousands): July 3, January 3, Raw materials $ 102,413 $ 97,740 Work in process 168,105 138,322 Finished goods 40,846 34,715 Total inventory $ 311,364 $ 270,777 Property and Equipment Property and equipment, net consists of the following (in thousands): July 3, January 3, Leasehold improvements $ 191,384 $ 178,019 Machinery and equipment 250,412 224,158 Computer hardware and software 149,071 136,550 Furniture and fixtures 20,387 18,539 Building 7,670 7,670 Construction in progress 194,237 44,501 Total property and equipment, gross 813,161 609,437 Accumulated depreciation (301,807 ) (266,743 ) Total property and equipment, net $ 511,354 $ 342,694 Property and equipment, net included accrued expenditures of $106.2 million for the six months ended July 3, 2016 , which includes $84.9 million in construction in progress recorded under build-to-suit lease accounting. Accrued capital expenditures were excluded from the condensed consolidated statements of cash flows. Accrued capital expenditures were immaterial for the six months ended June 28, 2015 . Goodwill The Company tests the carrying value of goodwill in accordance with accounting rules on impairment of goodwill, which require the Company to estimate the fair value of the reporting unit annually, or when impairment indicators exist, and compare such amounts to their respective carrying values to determine if an impairment is required. The Company performed its annual assessment for goodwill impairment in the second quarter of 2016, noting no impairment. Changes in the Company’s goodwill balance during the six months ended July 3, 2016 are as follows (in thousands): Goodwill Balance as of January 3, 2016 $ 752,629 Current period acquisitions 23,366 Balance as of July 3, 2016 $ 775,995 In January 2016, the Company closed two acquisitions consisting of $17.8 million in upfront cash payments, equity instruments, and certain contingent consideration provisions. Derivatives The Company is exposed to foreign exchange rate risks in the normal course of business. The Company enters into foreign exchange contracts to manage foreign currency risks related to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. These foreign exchange contracts are carried at fair value in other assets or other liabilities and are not designated as hedging instruments. Changes in the value of the derivative are recognized in other expense, net, along with the remeasurement gain or loss on the foreign currency denominated assets or liabilities. As of July 3, 2016 , the Company had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, and Australian dollar. As of July 3, 2016 and January 3, 2016 , the total notional amounts of outstanding forward contracts in place for foreign currency purchases were $45.8 million and $61.3 million , respectively. Accrued Liabilities Accrued liabilities consist of the following (in thousands): July 3, January 3, Accrued compensation expenses $ 112,824 $ 120,662 Deferred revenue, current portion 110,497 96,654 Accrued taxes payable 40,158 44,159 Customer deposits 8,388 20,901 Acquisition related contingent liability, current portion 6,529 35,000 Other 51,930 69,468 Total accrued liabilities $ 330,326 $ 386,844 Warranties The Company generally provides a one -year warranty on instruments. Additionally, the Company provides a warranty on consumables through the expiration date, which generally ranges from six to twelve months after the manufacture date. At the time revenue is recognized, the Company establishes an accrual for estimated warranty expenses based on historical experience as well as anticipated product performance. The Company periodically reviews its warranty reserve for adequacy and adjusts the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranty expense is recorded as a component of cost of product revenue. Changes in the Company’s reserve for product warranties during the three and six months ended July 3, 2016 and June 28, 2015 are as follows (in thousands): Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, Balance at beginning of period $ 15,820 $ 15,991 $ 16,717 $ 15,616 Additions charged to cost of product revenue 6,672 6,924 13,323 13,821 Repairs and replacements (6,813 ) (6,550 ) (14,361 ) (13,072 ) Balance at end of period $ 15,679 $ 16,365 $ 15,679 $ 16,365 Leases Changes in the Company’s facility exit obligation related to its former headquarters lease during the three and six months ended July 3, 2016 and June 28, 2015 are as follows (in thousands): Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, Balance at beginning of period $ 21,362 $ 36,819 $ 22,160 $ 37,700 Adjustment to facility exit obligation (26 ) 657 21 657 Accretion of interest expense 328 729 663 1,336 Cash payments (1,107 ) (1,528 ) (2,287 ) (3,016 ) Balance at end of period $ 20,557 $ 36,677 $ 20,557 $ 36,677 During the six months ended July 3, 2016 , the Company entered into an agreement to sublease its office building in San Francisco, California. The Company will receive $51.2 million in minimum lease payments during the initial term of approximately eight years . On April 5, 2016, the Company entered into a lease agreement for certain office buildings being constructed in San Diego, California. Minimum lease payments during the initial term of ten years are estimated to be $127.4 million . The Company evaluated its involvement during the construction period, which includes certain indemnification obligations related to the construction. As a result, the Company is considered the owner of the construction project for accounting purposes only under build-to-suit lease accounting. As of July 3, 2016 , the Company recorded $65.0 million in project construction costs incurred by the landlord as construction in progress and a corresponding amount in accounts payable, which were excluded from the consolidated statements of cash flow. Once the landlord completes the construction of each of the buildings, the Company will evaluate the lease in order to determine whether or not it meets the criteria for “sale-leaseback” treatment. Investments in Consolidated Variable Interest Entities GRAIL, Inc. In January 2016, the Company obtained a majority equity ownership interest in GRAIL, Inc. (GRAIL), a company formed with unrelated third party investors to pursue the development and commercialization of a blood test for asymptomatic cancer screening. The Company determined that GRAIL is a variable interest entity as the entity lacks sufficient equity to finance its activities without additional support. Additionally, the Company determined that it has (a) control of the entity’s Board of Directors, which has unilateral power over the activities that most significantly impact the economic performance of GRAIL and (b) the obligation to absorb losses of and the right to receive benefits from GRAIL that are potentially significant to GRAIL. As a result, the Company is deemed to be the primary beneficiary of GRAIL and is required to consolidate GRAIL. On a fully diluted basis, the Company holds a 52% equity ownership interest in GRAIL as of July 3, 2016 . During the three months ended April 3, 2016, GRAIL completed its Series A convertible preferred stock financing, raising $120.0 million , of which the Company invested $40.0 million . Additionally, the Company and GRAIL executed a long-term supply agreement in which the Company contributed certain perpetual licenses, employees, and discounted supply terms in exchange for 112.5 million shares of GRAIL’s Class B Common Stock. Such contributions are recorded at their historical basis as they remain within the control of the Company. The $80.0 million received by GRAIL from unrelated third party investors upon issuance of its Series A convertible preferred stock is classified as noncontrolling interests in stockholders’ equity on the Company’s consolidated balance sheet. During the three months ended July 3, 2016, GRAIL authorized for issuance 97.5 million shares of Series A-1 convertible preferred stock, all of which were issued to Illumina in exchange for 97.5 million shares of Illumina’s Class B Common Stock on June 23, 2016. As a result of the exchange, Illumina recorded a $9.5 million deemed dividend net of tax of $9.6 million through equity, which was eliminated in consolidation. Additionally, $1.6 million was added to net income attributable to Illumina stockholders for purposes of calculating Illumina’s consolidated earnings per share, which represents the deemed dividend, net of Illumina’s portion of the losses incurred by GRAIL’s common shareholders resulting from the exchange. For the three and six months ended July 3, 2016 , the Company absorbed 90% of GRAIL’s losses based upon its proportional ownership of GRAIL’s common stock. Beginning July 4, 2016, the Company will absorb approximately 50% of GRAIL’s losses based upon its proportional ownership of GRAIL’s common stock subsequent to the exchange. In accordance with GRAIL’s Equity Incentive Plan, the Company may be required to redeem certain vested stock awards in cash at the then approximate fair market value. The fair value of the redeemable noncontrolling interests is considered a Level 3 instrument. Such redemption right is exercisable at the option of the holder of the awards after February 28, 2021, provided that an initial public offering of GRAIL has not been completed. As the redemption provision is outside of the control of the Company, the redeemable noncontrolling interests in GRAIL are classified outside of stockholders’ equity on the accompanying condensed consolidated balance sheets. The balance of the redeemable noncontrolling interests is reported at the greater of its carrying value after receiving its allocation of GRAIL’s profits and losses or its estimated redemption value at each reporting date. The assets and liabilities of GRAIL other than cash and cash equivalents are not significant to the Company’s financial position as of July 3, 2016 and have an immaterial impact on the Company’s condensed consolidated statements of income and cash flows for the three and six months ended July 3, 2016 . Helix Holdings I, LLC In July 2015, the Company obtained a 50% voting equity ownership interest in Helix Holdings I, LLC (Helix), a limited liability company formed with unrelated third party investors to pursue the development and commercialization of a marketplace for consumer genomics. The Company determined that Helix is a variable interest entity as the holder of the at-risk equity investments as a group lack the power to direct the activities of Helix that most significantly impact Helix’s economic performance. Additionally, the Company determined that it has (a) unilateral power over one of the activities that most significantly impacts the economic performance of Helix through its contractual arrangements and no one individual party has unilateral power over the remaining significant activities of Helix and (b) the obligation to absorb losses of and the right to receive benefits from Helix that are potentially significant to Helix. As a result, the Company is deemed to be the primary beneficiary of Helix and is required to consolidate Helix. As contractually committed, the Company contributed certain perpetual licenses, instruments, intangibles, initial laboratory setup, and discounted supply terms in exchange for voting equity interests in Helix. Such contributions are recorded at their historical basis as they remain within the control of the Company. Helix is financed through cash contributions made by the third party investors in exchange for voting equity interests in Helix. Certain noncontrolling Helix investors may require the Company to redeem all noncontrolling interests in cash at the then approximate fair market value. The fair value of the redeemable noncontrolling interests is considered a Level 3 instrument. Such redemption right is exercisable at the option of certain noncontrolling interest holders after January 1, 2021, provided that a bona fide pursuit of the sale of Helix has occurred and an initial public offering of Helix has not been completed. As the contingent redemption is outside of the control of Illumina, the redeemable noncontrolling interests in Helix are classified outside of stockholders’ equity on the consolidated balance sheet. The balance of the redeemable noncontrolling interests is reported at the greater of its carrying value after receiving its allocation of Helix’s profits and losses or its estimated redemption value at each reporting date. As of July 3, 2016 , the noncontrolling shareholders and Illumina each held 50% of Helix’s outstanding voting equity interests. The assets and liabilities of Helix are not significant to the Company’s financial position as of July 3, 2016 . Helix has an immaterial impact on the Company’s condensed consolidated statements of income and cash flows for the three and six months ended July 3, 2016 . As of July 3, 2016 , the accompanying condensed consolidated balance sheet includes $123.6 million of cash and cash equivalents attributable to GRAIL and Helix that will be used to settle their respective obligations and will not be available to settle obligations of the Company. Redeemable Noncontrolling Interests The activity of the redeemable noncontrolling interests during the six months ended July 3, 2016 is as follows (in thousands): Redeemable Noncontrolling Interests Balance as of January 3, 2016 $ 32,546 Vesting of redeemable equity awards 1,031 Net loss attributable to noncontrolling interests (5,270 ) Adjustment up to the redemption value 5,426 Balance as of July 3, 2016 $ 33,733 |
