| Organization and Summary of Significant Accounting Policies | Organization and Summary of Significant Accounting Policies Organization and Business We are a provider of sequencing- and array-based solutions, serving customers in the research, clinical and applied markets. Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. Our customers include a broad range of academic, government, pharmaceutical, biotechnology, and other leading institutions around the globe. Basis of Presentation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and include our accounts, our wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously assess whether we are the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the year ended December 30, 2018 , our consolidated VIE, Helix, received additional cash contributions from us and third-party investors in exchange for voting equity interests in Helix. Therefore, we reassessed and concluded that Helix continued to be a variable interest entity and that we remained the primary beneficiary. During the periods presented, we have not provided any other financial or other support to our VIEs that we were not contractually required to provide. The equity method is used to account for investments over which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded within other assets, and the share of net income or losses of equity investments is recognized on a one quarter lag in other income (expense), net. Redeemable Noncontrolling Interests Noncontrolling interests represent the portion of equity (net assets) in Helix, our consolidated but not wholly-owned entity, that is neither directly nor indirectly attributable to us. Noncontrolling interests with embedded contingent redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of stockholders’ equity on the consolidated balance sheets. Fiscal Year Our fiscal year is the 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, September 30, and December 31. The years ended December 30, 2018 , December 31, 2017 , and January 1, 2017 were all 52 weeks. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. Use of Estimates The preparation of the consolidated financial statements requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Accounting Pronouncements Adopted in 2018 In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The new standard is based on the principle that revenue should be recognized in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services. We adopted Topic 606 using the modified retrospective transition method. The cumulative effect of applying the new revenue standard to all incomplete contracts as of January 1, 2018 was not material and, therefore, did not result in an adjustment to retained earnings. There was no material difference to the consolidated financial statements for the year ended December 30, 2018 due to the adoption of Topic 606. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) , which requires equity investments (other than those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income. This standard was effective for us beginning in the first quarter of 2018. Based on our elections, our equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient for estimating fair value are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. This measurement alternative was applied prospectively to such equity securities and did not result in an adjustment to retained earnings. Accounting Pronouncements Adopted in 2017 In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) , which aims to simplify the accounting for share-based payment transactions, including accounting for income taxes, classification on the statement of cash flows, accounting for forfeitures, and classification of awards as either liabilities or equity. This ASU was effective for us beginning in the first quarter of 2017. This new standard increases the volatility of net income by requiring excess tax benefits from share-based payment arrangements to be classified as discrete items within the provision for income taxes, rather than recognizing excess tax benefits in additional paid-in capital. Upon adoption in Q1 2017, we recorded $45 million , net, to retained earnings, primarily related to unrealized tax benefits associated with share-based compensation. As a result of the adoption of this new standard, we made an accounting policy election to recognize forfeitures as they occur and no longer estimate expected forfeitures. In addition, ASU 2016-09 requires that excess income tax benefits from share-based compensation arrangements be classified as cash flow from operations, rather than cash flow from financing activities. We elected to apply the cash flow classification guidance retrospectively and reclassified $91 million from financing activity to operating activity for the year ended January 1, 2017. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The new standard requires lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use assets and disclose key information about leasing arrangements. ASU 2016-02 is effective for us beginning in the first quarter of 2019 and will be adopted using a modified retrospective approach by recognizing a cumulative-effect adjustment to the opening balance of retained earnings on December 31, 2018. We will continue to report financial information for fiscal years ending before December 31, 2018 under the current lease accounting standard. We elected the standard’s package of practical expedients on adoption, which allows us to carry forward our historical assessment of whether existing agreements contain a lease and the classification of our existing lease agreements as either operating or capital leases (referred to as operating and financing leases in the new standard). We did not elect the standard’s available hindsight practical expedient on adoption. The standard also provides practical expedients for ongoing lessee accounting after adoption. We expect to elect the practical expedient to not separate lease and non-lease components for our real-estate leases and will therefore allocate all fixed lease payments, which may include management fees and common-area-maintenance charges, to our operating lease liabilities and corresponding right-of-use assets. We have finalized the changes to our systems, processes, policies, and controls for lease accounting, including implementation of a third-party software application, to facilitate our adoption of the lease standard effective December 31, 2018. We expect the most significant impacts of adoption to result from the recognition of our operating and build-to-suit lease commitments as lease liabilities with corresponding right-of-use assets, and the derecognition of existing assets and liabilities for our build-to-suit arrangements that do not qualify for sale-leaseback accounting. We currently expect this will result in the net recognition of additional total assets and liabilities of approximately $329 million and $354 million , respectively, and the difference between these amounts will be recorded as a cumulative-effect adjustment to retained earnings upon adoption in the first quarter of 2019. We also expect the classification of a portion of lease expense for our build-to-suit arrangements to change from interest expense to operating expense going forward. During the year ended December 30, 2018, the interest portion of lease expense for our build-to-suit arrangements was $13 million . In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments , which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for us beginning in the first quarter of 2020, with early adoption permitted. We are currently evaluating the expected impact of ASU 2016-13 on our consolidated financial statements. Concentrations of Risk We operate in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities, and other factors could negatively impact our operating results. A portion of our customers consist of university and research institutions that management believes are, to some degree, directly or indirectly supported by the United States Government. A significant change in current research funding, particularly with respect to the U.S. National Institutes of Health, could have an adverse impact on future revenues and results of operations. We are also subject to risks related to our financial instruments, including cash and cash equivalents, investments, and accounts receivable. Most of our cash and cash equivalents as of December 30, 2018 were deposited with U.S. financial institutions, either domestically or with their foreign branches. Our investment policy restricts the amount of credit exposure to any one issuer to 5% of the portfolio or 5% of the total issue size outstanding at the time of purchase and to any one industry sector, as defined by Clearwater Analytics (Industry Sector Report), to 30% of the portfolio at the time of purchase. There is no limit to the percentage of the portfolio that may be maintained in debt securities, U.S. government-sponsored entities, U.S. Treasury securities, and money market funds. We require customized products and components that currently are available from a limited number of sources. We source certain key products and components included in our products from single vendors. We perform regular reviews of customer activity and associated credit risks and do not require collateral or enter into netting arrangements. Shipments to customers outside the United States comprised 47% , 45% , and 46% of total revenue for the years ended December 30, 2018 , December 31, 2017 , and January 1, 2017 , respectively. Customers outside the United States represented 44% and 48% of our gross trade accounts receivable balance as of December 30, 2018 and December 31, 2017 , respectively. International sales entail a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection. We are also subject to general geopolitical risks, such as political, social and economic instability, and changes in diplomatic and trade relations. The risks of international sales are mitigated in part by the extent to which sales are geographically distributed. Historically, we have not experienced significant credit losses from investments and accounts receivable. Fair Value Measurements The fair value of assets and liabilities are based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of financial instruments such as cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate the related fair values due to the short-term maturities of these instruments. Functional Currency The U.S. dollar is the functional currency of our international operations. We re-measure foreign subsidiaries’ monetary assets and liabilities to the U.S. dollar and record the net gains or losses resulting from re-measurement in other income (expense), net in the consolidated statements of income. Acquisitions All assets acquired and liabilities assumed are measured at fair value as of the acquisition date. We record the excess of purchase price over the aggregate value assigned to the net tangible and identifiable intangible assets acquired as goodwill. Acquired intangible assets other than goodwill are amortized over their useful lives. Post-acquisition adjustments in deferred tax asset valuation allowances and liabilities for uncertain tax positions are recorded in current period income tax expense. Cash Equivalents and Short-Term Investments Cash equivalents are comprised of short-term, highly-liquid investments with maturities of 90 days or less at the date of purchase. Short-term investments consist of debt securities in U.S. government-sponsored entities, corporate debt securities, U.S. Treasury securities, and equity securities. We classify short-term debt investments as available-for-sale at the time of purchase and evaluate such classification as of each balance sheet date. All short-term debt investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale debt securities are included in accumulated other comprehensive income (loss), a component of stockholders’ equity. We evaluate our debt investments to assess whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the securities will be sold before the recovery of their cost basis. Realized gains, losses, and declines in value judged to be other than temporary are determined based on the specific identification method and are recorded in interest income (expense), net in the consolidated statements of income. Equity investments with readily determinable fair values are classified as current or noncurrent based on the nature of the securities and their availability for use in current operations. All short-term equity investments are recorded at estimated fair value. Unrealized gains and losses for equity securities with readily determinable fair values are recorded in other income (expense), net in the consolidated statements of income. Accounts Receivable Trade accounts receivable are recorded at the net invoice value and are not interest-bearing. Receivables are considered past due based on the contractual payment terms. We reserve specific receivables if collectibility is no longer reasonably assured. We also reserve a percentage of our trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. These reserves are re-evaluated on a regular basis and adjusted as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. Inventory Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out basis. Inventory includes raw materials and finished goods that may be used in the research and development process, and such items are expensed as consumed or expired. Inventory write-downs for slow-moving, excess, and obsolete inventories are estimated based on product life cycles, quality issues, historical experience, and usage forecasts. Property and Equipment Property and equipment are stated at cost, subject to review for impairment, and depreciated over the estimated useful lives of the assets, using the straight-line method. Depreciation of leasehold improvements is recorded over the shorter of the lease term or the estimated useful life of the related assets. Amortization of assets that are recorded under capital leases are included in depreciation expense. Maintenance and repairs are expensed as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expense. Costs incurred to develop internal-use software during the application development stage are recorded as computer software costs, at cost. Costs incurred in the development of such internal-use software, including external direct costs of materials and services and applicable compensation costs of employees devoted to specific software application development, are capitalized. Cost incurred outside of the application development stage are expensed as incurred. The estimated useful lives of the major classes of property and equipment are generally as follows: Estimated Useful Lives Buildings and leasehold improvements 4 to 20 years Machinery and equipment 3 to 5 years Computer hardware and software 3 to 7 years Furniture and fixtures 7 years Leases Leases are reviewed and classified as capital or operating at their inception. When we are involved in the construction of leased assets, we evaluate whether we are the accounting owner during the construction period. For leases where we are the deemed accounting owner during the construction period, we record project construction costs paid or reimbursed by the landlord as construction in progress and a corresponding build-to-suit lease liability. For operating leases, rent expense is recorded on a straight-line basis over the term of the lease, which includes the construction build-out period and lease extension periods, if appropriate. The difference between rent payments and straight-line rent expense is recorded as deferred rent in accrued liabilities and other long-term liabilities. Lease incentives are amortized on a straight-line basis over the lease term as a reduction to rent expense. Goodwill, Intangible Assets and Other Long-Lived Assets Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired in an acquisition. Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment. During the goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair values of our reporting units are less than the carrying amounts, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair values of our reporting units are less than the carrying amounts, then no additional assessment is deemed necessary. Otherwise, we proceed to perform the two-step test for goodwill impairment. The first step involves comparing the estimated fair values of the reporting units with the carrying values, including goodwill. If the carrying amounts of the reporting units exceed the fair values, the second step of the goodwill impairment test is performed to determine the amount of loss, which involves comparing the implied fair values of the goodwill to the carrying values of the goodwill. We may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the first step of the goodwill impairment test. We performed the annual assessment for goodwill impairment in the second quarter of 2018 , noting no impairment. Our identifiable intangible assets are typically comprised of acquired core technologies, licensed technologies, customer relationships, license agreements, and trade names. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives. We perform regular reviews to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value. Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to the net book value, significant changes in the ability of a particular asset to generate positive cash flows for our strategic business objectives, and the pattern of utilization of a particular asset. During the year ended December 31, 2017 , we 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 year ended December 31, 2017 , we recorded a $5 million impairment charge of in-process research and development as the project had no future alternative use. Such impairments were recorded within the Core Illumina reportable segment. See further discussion of our segments in note “10. Segment Information and Geographic Data.” Derivatives We are exposed to foreign exchange rate risks in the normal course of business. We enter 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 current assets or accrued liabilities and are not designated as hedging instruments. Changes in the value of the derivatives are recognized in other income (expense), net, along with the re-measurement gain or loss on the foreign currency denominated assets or liabilities. As of December 30, 2018 , we had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, Australian dollar, and Canadian dollar. As of December 30, 2018 , and December 31, 2017 , the total notional amounts of outstanding forward contracts in place for foreign currency purchases was $122 million and $88 million , respectively. Warranties We generally provide a one -year warranty on instruments. Additionally, a warranty on consumables is provided through the expiration date, which generally ranges from six to twelve months after the manufacture date. At the time revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust 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. Revenue Recognition Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of instruments and consumables used in genetic analysis. Service and other revenue primarily consists of revenue generated from genotyping and sequencing services and instrument service contracts. We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Revenue from product sales is recognized generally upon delivery to the end customer, which is when control of the product is deemed to be transferred. Invoicing typically occurs upon shipment and payment is typically due within 60 days from invoice. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term. Revenue from genotyping and sequencing services is recognized when earned, which is generally at the time the genotyping or sequencing analysis data is made available to the customer. Revenue is recorded net of discounts, distributor commissions, and sales taxes collected on behalf of governmental authorities. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less. We regularly enter into contracts with multiple performance obligations. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. Most performance obligations are generally satisfied within a short time frame, approximately three to six months, after the contract execution date. As of December 30, 2018 , the aggregate amount of the transaction price allocated to remaining performance obligations was $909 million , of which approximately 80% is expected to be converted to revenue through 2019, with the remainder thereafter. The contract price is allocated to each performance obligation in proportion to its standalone selling price. We determine our best estimate of standalone selling price using average selling prices over a rolling 12 -month period coupled with an assessment of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, we rely upon prices set by management, adjusted for applicable discounts. Contract liabilities, which consist of deferred revenue and customer deposits, as of December 30, 2018 and December 31, 2017 were $206 million and $181 million , respectively, of which the short-term portions of $175 million and $150 million , respectively, were recorded in accrued liabilities and the remaining long-term portions were recorded in other long-term liabilities. Revenue recorded during the year ended December 30, 2018 included $146 million of previously deferred revenue that was included in contract liabilities as of December 31, 2017 . Contract assets as of December 30, 2018 and December 31, 2017 were not material. In certain markets, products and services are sold to customers through distributors. In most sales through distributors, the product is delivered directly to customers by us. The terms of sales transactions through distributors are consistent with the terms of direct sales to customers. The following table represents revenue by source (in millions): Years Ended December 30, December 31, January 1, Sequencing Microarray Total Sequencing Microarray Total Sequencing Microarray Total Consumables $ 1,806 $ 350 $ 2,156 $ 1,468 $ 285 $ 1,753 $ 1,271 $ 272 $ 1,543 Instruments 532 37 569 484 31 515 450 19 469 Other product 21 3 24 19 2 21 18 2 20 Total product revenue 2,359 390 2,749 1,971 318 2,289 1,739 293 2,032 Service and other revenue 416 168 584 322 141 463 277 89 366 Total revenue $ 2,775 $ 558 $ 3,333 $ 2,293 $ 459 $ 2,752 $ 2,016 $ 382 $ 2,398 Revenue related to our Consolidated VIEs is included in sequencing service and other revenue. The majority of our revenue consists of sales of consumables and instruments. We also perform various services for our customers. For the years ended December 30, 2018 , December 31, 2017 , and January 1, 2017 , consumable sales represented 65% , 64% , and 64% , respectively, of total revenue; instrument sales represented 17% , 19% , and 20% , respectively, of total revenue; and services represented 18% , 17% , and 15% , respectively, of total revenue. Our customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, commercial molecular diagnostic laboratories, and consumer genomics companies. We had no customers that provided more than 10% of total revenue in the years ended December 30, 2018 , December 31, 2017 , and January 1, 2017 . The following table represents revenue by geographic area, based on region of destination (in millions): Years Ended December 30, December 31, January 1, Americas (1) $ 1,864 $ 1,585 $ 1,367 Europe, Middle East, and Africa 851 653 575 Greater China (2) 365 292 — Asia-Pacific 253 222 456 Total revenue $ 3,333 $ 2,752 $ 2,398 ____________________________________ (1) Revenue for the Americas region included United States revenue of $1,779 million , $1,511 million , and $ 1,294 million for the years ended December 30, 2018 , December 31, 2017 , and January 1, 2017, respectively. (2) Revenue for the Greater China region, which includes China, Taiwan, and Hong Kong, is included in the Asia-Pacific region for the year ended January 1, 2017. Share-Based Compensation Share-based compensation expense is incurred related to restricted stock and Employee Stock Purchase Plan (ESPP). Restricted stock units (RSU) and performance stock units (PSU) are both considered restricted stock. The fair value of restricted stock is determined by the closing market price of our common stock on the date of grant. Share-based compensation expense is recognized based on the fair value on a straight-line basis over the requisite service periods of the awards. PSU represents a right to rece |
