Balance Sheet Account Details

Short-Term Investments

The following is a summary of short-term investments (in millions):



	December 31, 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	$	67	$	—		$	67	$	34	$	—		$	34
Corporate debt securities	423		(2		)	421		478		(2		)	476
U.S. Treasury securities	433		(1		)	432		316		(2		)	314
Total available-for-sale securities	$	923	$	(3	)	$	920	$	828	$	(4	)	$	824

Contractual maturities of available-for-sale debt securities as of December 31, 2017 are as follows (in millions):



	Estimated Fair Value
Due within one year	$	686
After one but within five years	234
Total	$	920

We have the ability, if necessary, to liquidate any of our cash equivalents and short-term investments in order to meet our 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 consolidated balance sheets.

Strategic Investments

As of December 31, 2017 and January 1, 2017, the aggregate carrying amounts of our cost-method investments in non-publicly traded companies were $250 million and $57 million, respectively, included in other assets. Revenue recognized from transactions with such companies were $127 million, $56 million, and $61 million for the years ended December 31, 2017, January 1, 2017, and January 3, 2016, respectively.

Cost-method investments are assessed for impairment quarterly. We determine that it is not practicable to estimate the fair value of the cost-method investments on a regular basis and do 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 years ended December 31, 2017, January 1, 2017, and January 3, 2016.

During the year ended January 3, 2016, we recognized an $18 million gain on the dispositions of cost-method investments.

We invest in a venture capital investment fund (the Fund) with a capital commitment of $100 million that is callable over ten years, of which $83 million remains as of December 31, 2017. Our investment in the Fund is accounted for as an equity method investment. The carrying amounts included in other assets were $16 million and $10 million as of December 31, 2017, and January 1, 2017, respectively.

Accounts Receivable

Accounts receivable, net consist of the following (in millions):



	December 31, 2017			January 1, 2017
Trade accounts receivable, gross	$	414		$	385
Allowance for doubtful accounts	(3		)	(4		)
Total accounts receivable, net	$	411		$	381

Inventory

Inventory consists of the following (in millions):



	December 31, 2017		January 1, 2017
Raw materials	$	93	$	102
Work in process	188		161
Finished goods	52		37
Total inventory	$	333	$	300

Property and Equipment

Property and equipment, net consists of the following (in millions):



	December 31, 2017			January 1, 2017
Leasehold improvements	$	331		$	270
Machinery and equipment	316			274
Computer hardware and software	185			156
Furniture and fixtures	34			24
Building	155			9
Construction in progress	326			307
Total property and equipment, gross	1,347			1,040
Accumulated depreciation	(416		)	(327		)
Total property and equipment, net	$	931		$	713

Property and equipment, net included non-cash expenditures of $117 million, $220 million and $24 million for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively, which were excluded from the consolidated statements of cash flows. Such non-cash expenditures included $79 million, $193 million and $10 million recorded under build-to-suit lease accounting for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively.

Goodwill

Changes to goodwill balance from January 3, 2016 through December 31, 2017 are as follows (in millions):



	Goodwill
Balance as of January 3, 2016	$	753
Acquisitions	23
Balance as of January 1, 2017	776
GRAIL deconsolidation	(5		)
Balance as of December 31, 2017	$	771

In January 2016, we closed two acquisitions consisting of $18 million in upfront cash payments, equity instruments, and certain contingent consideration provisions.

Accrued Liabilities

Accrued liabilities consist of the following (in millions):



	December 31, 2017		January 1, 2017
Accrued compensation expenses	$	177	$	112
Deferred revenue, current portion	130		121
Accrued taxes payable	50		32
Customer deposits	20		20
Other, including warranties (a)	55		57
Total accrued liabilities	$	432	$	342

(a) Changes in reserve for product warranties from December 28, 2014 through December 31, 2017 are as follows (in millions):



	Warranty Reserve
Balance as of December 28, 2014	$	16
Additions charged to cost of revenue	28
Repairs and replacements	(27		)
Balance as of January 3, 2016	17
Additions charged to cost of revenue	21
Repairs and replacements	(25		)
Balance as of January 1, 2017	13
Additions charged to cost of revenue	26
Repairs and replacements	(22		)
Balance as of December 31, 2017	$	17

Investments in Consolidated Variable Interest Entities

Helix Holdings I, LLC

In July 2015, we 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. We 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, we determined that we have (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, we are deemed to be the primary beneficiary of Helix and are required to consolidate Helix.

As contractually committed, we 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 Illumina. 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 us 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 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 December 31, 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 our financial position as of December 31, 2017. Helix has an immaterial impact on our consolidated statements of income and cash flows for the fiscal year ended December 31, 2017.

As of December 31, 2017, the accompanying consolidated balance sheet includes $18 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 Illumina.

GRAIL, Inc.

In January 2016, we 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. We determined that GRAIL was a variable interest entity as the entity lacked sufficient equity to finance its activities without additional support. Additionally, we determined that we 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, we were deemed to be the primary beneficiary of GRAIL and were required to consolidate GRAIL.

In January 2016, GRAIL completed its Series A convertible preferred stock financing, raising $120 million, of which we invested $40 million. Additionally, Illumina and GRAIL executed a long-term supply agreement in which we contributed 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 Illumina. 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 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, we recorded a $10 million deemed dividend, net of tax of $10 million, through equity, which was eliminated in consolidation.

Deconsolidation of GRAIL

On February 28, 2017, GRAIL completed the initial close of its Series B preferred stock financing, raising over $900 million, in which we did not participate. Concurrent with the financing, GRAIL repurchased from Illumina 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, we ceased to have a controlling financial interest in GRAIL and our equity ownership was reduced from 52% to 19%. Additionally, our voting interest was reduced to 13%, and we no longer had representation on GRAIL’s board of directors. As a result, we deconsolidated GRAIL’s financial statements effective February 28, 2017 and account for the remaining retained investment as a cost-method investment. During the three months ended July 2, 2017, we 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 December 31, 2017, we hold $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 February 28, 2017, the date of deconsolidation, are included in the accompanying consolidated statements of income for the year ended December 31, 2017. During this period, we absorbed approximately 50% of GRAIL’s losses based upon our proportional ownership of GRAIL’s common stock.

On February 28, 2017, we recorded a pretax gain of $453 million included in other income (expense), net, of which $159 million relates to the remeasurement of our 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 our 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 our remaining interest in GRAIL at fair value. This fair value measurement of our 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 our 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. We 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 stand-alone basis, and therefore, there was no discount to allocate among the deliverables. As such, none of the deconsolidation gain was allocated to these elements.

Redeemable Noncontrolling Interests

The activity of the redeemable noncontrolling interests from December 28, 2014 through December 31, 2017 is as follows (in millions):



	Redeemable Noncontrolling Interests
Balance as of December 28, 2014	$	—
Cash contributions	57
Amount held in escrow by third party	(24		)
Net loss attributable to noncontrolling interests	(4		)
Adjustment up to the redemption value	4
Balance as of January 3, 2016	33
Cash contributions	9
Vesting of redeemable equity awards	2
Net loss attributable to noncontrolling interests	(21		)
Adjustment up to the redemption value	21
Balance as of January 1, 2017	44
Amount released from escrow	79
Vesting of redeemable equity awards	13
Net loss attributable to noncontrolling interests	(41		)
Adjustment up to the redemption value	136
Deconsolidation of GRAIL	(11		)
Balance as of December 31, 2017	$	220