| Balance Sheet Account Details | Balance Sheet Account Details Short-Term Investments The following is a summary of short-term investments (in millions): October 1, 2017 January 1, 2017 Amortized Cost Gross Unrealized Losses Estimated Fair Value Amortized Cost Gross Unrealized Losses Estimated Fair Value Available-for-sale securities: Debt securities in government sponsored entities $ 74 $ — $ 74 $ 34 $ — $ 34 Corporate debt securities 343 (1 ) 342 478 (2 ) 476 U.S. Treasury securities 272 (1 ) 271 316 (2 ) 314 Total available-for-sale securities $ 689 $ (2 ) $ 687 $ 828 $ (4 ) $ 824 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 October 1, 2017 were as follows (in millions): Estimated Fair Value Due within one year $ 421 After one but within five years 266 Total $ 687 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 October 1, 2017 and January 1, 2017 , the aggregate carrying amounts of the Company’s cost-method investments in non-publicly traded companies included in other assets were $250 million and $57 million , respectively. Revenue recognized from transactions with such companies was $38 million and $96 million , respectively, for the three and nine months ended October 1, 2017 and $12 million and $42 million , respectively, for the three and nine months ended October 2, 2016 . 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 unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. No material impairment losses were recorded during the three and nine months ended October 1, 2017 or October 2, 2016 . The Company invests in a venture capital investment fund (the Fund) with a capital commitment of $100 million that is callable over ten years . The Company’s investment in the Fund is accounted for as an equity method investment. The carrying amounts included in other assets were $14 million and $10 million as of October 1, 2017 and January 1, 2017 , respectively. Inventory Inventory consists of the following (in millions): October 1, January 1, Raw materials $ 90 $ 102 Work in process 192 161 Finished goods 45 37 Total inventory $ 327 $ 300 Property and Equipment Property and equipment, net consists of the following (in millions): October 1, January 1, Leasehold improvements $ 320 $ 270 Machinery and equipment 301 274 Computer hardware and software 178 156 Furniture and fixtures 34 24 Building 147 9 Construction in progress 273 307 Total property and equipment, gross 1,253 1,040 Accumulated depreciation (391 ) (327 ) Total property and equipment, net $ 862 $ 713 Property and equipment, net included non-cash expenditures of $94 million and $194 million for the nine months ended October 1, 2017 and October 2, 2016 , respectively, which were excluded from the condensed consolidated statements of cash flows. Such non-cash expenditures included $60 million and $169 million recorded under build-to-suit lease accounting for the nine months ended October 1, 2017 and October 2, 2016 , respectively. Intangible Assets and 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 2017, noting no impairment. Changes to the Company’s goodwill balance during the nine months ended October 1, 2017 are as follows (in millions): Goodwill Balance as of January 1, 2017 $ 776 GRAIL deconsolidation (5 ) Balance as of October 1, 2017 $ 771 The Company regularly performs reviews to determine if any event has occurred that may indicate its identifiable intangible assets are potentially impaired. During the nine months ended October 1, 2017 , the Company performed a recoverability test when the planned use of a finite-lived acquired intangible asset changed, resulting in an impairment charge of $18 million recorded in cost of product revenue. Also during the nine months ended October 1, 2017 , the Company recorded a $5 million impairment charge of in-process research and development as it was determined the project had no future alternative use. 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 derivatives are recognized in other income, net, along with the remeasurement gain or loss on the foreign currency denominated assets or liabilities. As of October 1, 2017 , the Company had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, Australian dollar, and Canadian dollar. As of October 1, 2017 and January 1, 2017 , the total notional amounts of outstanding forward contracts in place for foreign currency purchases were $79 million and $69 million , respectively. Accrued Liabilities Accrued liabilities consist of the following (in millions): October 1, January 1, Accrued compensation expenses $ 138 $ 112 Deferred revenue, current portion 131 121 Accrued taxes payable 41 32 Customer deposits 18 20 Other 53 57 Total accrued liabilities $ 381 $ 342 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 nine months ended October 1, 2017 and October 2, 2016 are as follows (in millions): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Balance at beginning of period $ 14 $ 16 $ 13 $ 17 Additions charged to cost of product revenue 7 4 18 17 Repairs and replacements (5 ) (6 ) (15 ) (20 ) Balance at end of period $ 16 $ 14 $ 16 $ 14 Leases Changes in the Company’s facility exit obligation related to its former headquarters lease during the three and nine months ended October 1, 2017 and October 2, 2016 are as follows (in millions): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Balance at beginning of period $ 18 $ 21 $ 19 $ 22 Accretion of interest expense — — — 1 Cash payments (1 ) (1 ) (2 ) (3 ) Balance at end of period $ 17 $ 20 $ 17 $ 20 On February 22, 2017, the Company entered into a lease agreement for a building under construction in Madison, Wisconsin. Minimum lease payments during the initial 15 -year term are estimated to be $46 million . Investments in Consolidated Variable Interest Entities GRAIL, Inc. In January 2016, the Company obtained a majority equity ownership interest in GRAIL, a company formed with unrelated third party investors to develop a blood test for early-stage cancer detection. The Company determined that GRAIL was a variable interest entity as the entity lacked sufficient equity to finance its activities without additional support. Additionally, the Company determined that it had (a) control of GRAIL’s board of directors, which had unilateral power over the activities that most significantly impacted the economic performance of GRAIL and (b) the obligation to absorb losses of and the right to receive benefits from GRAIL that were potentially significant to GRAIL. As a result, the Company was deemed to be the primary beneficiary of GRAIL and was required to consolidate GRAIL. In January 2016, GRAIL completed its Series A convertible preferred stock financing, raising $120 million , of which the Company invested $40 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 113 million shares of GRAIL’s Class B common stock. Such contributions were recorded at their historical basis as they remained within the control of the Company. The $80 million received by GRAIL from unrelated third party investors upon issuance of its Series A convertible preferred stock was classified as noncontrolling interests in stockholders’ equity on the Company’s condensed consolidated balance sheet. In June 2016, GRAIL authorized for issuance 98 million shares of Series A-1 convertible preferred stock, all of which were issued to Illumina in exchange for Illumina’s 98 million shares of GRAIL Class B common stock. As a result of the exchange, Illumina recorded a $10 million deemed dividend, net of tax of $10 million , through equity, which was eliminated in consolidation. Deconsolidation of GRAIL, Inc. On February 28, 2017, GRAIL completed the initial close of its Series B preferred stock financing, raising over $900 million , in which the Company did not participate. Concurrent with the financing, GRAIL repurchased from the Company 35 million shares of its Series A preferred stock and approximately 34 million shares of its Series A-1 preferred stock for an aggregate purchase price of $278 million . At this time, the Company ceased to have a controlling financial interest in GRAIL and the Company’s equity ownership was reduced from 52% to 19% . Additionally, the Company’s voting interest was reduced to 13% , and the Company no longer has representation on GRAIL’s board of directors. As a result, the Company deconsolidated GRAIL’s financial statements effective February 28, 2017 and accounts for the remaining retained investment as a cost method investment. During the three months ended July 2, 2017, the Company purchased approximately 3 million Series B preferred shares for $14 million resulting in an ownership of approximately 17% of GRAIL’s outstanding stock and a 12% voting interest. As of October 1, 2017 , the Company holds $185 million in other assets related to this investment, which consists of 5 million Series A preferred shares, and approximately 3 million Series B preferred shares and 78 million Class A common shares of GRAIL. The operations of GRAIL from January 2, 2017 up to the date of deconsolidation are included in the accompanying condensed consolidated statements of income for the nine months ended October 1, 2017 . During this period, the Company absorbed approximately 50% of GRAIL’s losses based upon its proportional ownership of GRAIL’s common stock. On February 28, 2017, the Company recorded a pretax gain of $453 million included in other income, net, of which $159 million relates to the remeasurement of the Company’s retained equity interest to its fair value. The pretax gain on deconsolidation includes (i) the consideration received from GRAIL for its repurchase of a portion of the Company’s ownership interest, (ii) the derecognition of the carrying amounts of GRAIL’s assets and liabilities, (iii) the derecognition of the noncontrolling interest related to GRAIL, and (iv) the recording of the Company’s remaining interest in GRAIL at fair value. This fair value measurement of the Company’s remaining interest was derived using the market approach. Significant estimates and assumptions required for this valuation included, but were not limited to, various Black-Scholes option-pricing model assumptions as of the date of deconsolidation and estimated discounts for lack of marketability related to the equity securities. These unobservable inputs, which represent a Level 3 measurement, are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. In connection with the deconsolidation of GRAIL, the parties amended their long-term supply agreement, including the discounted supply terms. The repurchase and supply arrangements, which were entered into concurrently, contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under the respective authoritative accounting guidance. The Company determined that each of the elements, which include the purchase obligation, the purchase right, and services to be provided in accordance with the long-term supply agreement, were at, or approximated, fair value on a standalone basis, and therefore, there was no discount to allocate among the deliverables. As such, none of the deconsolidation gain was allocated to these elements. 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 holders 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. 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. The fair value of the redeemable noncontrolling interests is considered a Level 3 instrument. 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 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 Helix’s profits and losses or its estimated redemption value at each reporting date. As of October 1, 2017 , 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 October 1, 2017 . Helix has an immaterial impact on the Company’s condensed consolidated statements of income and cash flows for the three and nine months ended October 1, 2017 . As of October 1, 2017 , the accompanying condensed consolidated balance sheet includes $32 million of cash and cash equivalents attributable to 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 nine months ended October 1, 2017 is as follows (in millions): Redeemable Noncontrolling Interests Balance as of January 1, 2017 $ 44 Amount released from escrow 79 Vesting of redeemable equity awards 12 Net loss attributable to noncontrolling interests (30 ) Adjustment up to the redemption value 30 Deconsolidation of GRAIL (11 ) Balance as of October 1, 2017 $ 124 |
