Supplemental Balance Sheet Details

3 Months Ended

Mar. 31, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]


6. SUPPLEMENTAL BALANCE SHEET DETAILS

Accounts Receivable


In millions	March 31, 2024		December 31, 2023
Trade accounts receivable, gross	$	644	$	741
Allowance for credit losses	(9)		(7)
Total accounts receivable, net	$	635	$	734

Inventory


In millions	March 31, 2024		December 31, 2023
Raw materials	$	262	$	276
Work in process	405		402
Finished goods	35		30
Inventory, gross	702		708
Inventory reserve	(118)		(121)
Total inventory, net	$	584	$	587

Accrued Liabilities


In millions	March 31, 2024		December 31, 2023
Legal contingencies(1)	$	478	$	484
Contract liabilities, current portion	248		252
Accrued compensation expenses(2)	202		223
Accrued taxes payable	67		79
Operating lease liabilities, current portion	86		86

Liability-classified equity incentive awards	41		55

Other, including warranties(3)	151		146
Total accrued liabilities	$	1,273	$	1,325

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(1)See note “7. Legal Proceedings” for additional details.

(2)Includes employee separation costs related to restructuring activities.

(3)See table below for changes in the reserve for product warranties.

Changes in the reserve for product warranties were as follows:



In millions	Q1 2024		Q1 2023
Balance at beginning of period	$	21	$	18
Additions charged to cost of product revenue	12		9
Repairs and replacements	(13)		(8)
Balance at end of period	$	20	$	19

We generally provide a one-year warranty on instruments. Additionally, we provide 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, 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.

Restructuring

In Q2 2023, we implemented a cost reduction initiative that included workforce reductions, the consolidation of certain facilities and other actions to reduce expenses, all as part of a plan to realign operating expenses while maintaining focus on our innovation roadmap and sustainable long-term growth. In Q1 2024, we recorded restructuring charges primarily consisting of asset impairment charges related to our leased facilities.

A summary of the pre-tax restructuring charges are as follows:


In millions	Q1 2024		Cumulative charges recorded since inception
Employee separation costs	$	4	$	52

Asset impairment charges (1)	32		132
Other costs	—		4
Total restructuring charges (2)	$	36	$	188

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(1)For Q1 2024, charges primarily relate to impairment of right-of-use assets and leasehold improvements for our Foster City campus. Cumulative charges recorded since inception also include impairment of right-of-use assets and leasehold improvements for our i3 campus.

(2)For Q1 2024, $35 million was recorded in SG&A expense and $1 million in R&D expense.

We recorded additional right-of-use asset impairments of $18 million in Q1 2024 related to our campus in Foster City, California and another property in San Diego, California. The impairments, which were recognized in selling, general and administrative expense, were determined by comparing the fair values of the impacted right-of-use assets to the carrying values of the assets as of the impairment measurement date. The fair values of the right-of-use assets were estimated using the discounted future cash flows method, which includes estimates and assumptions for future sublease rental rates that reflect current sublease market conditions, as well as discount rates. The estimates and assumptions used in our assessments represent Level 3 measurements because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. We also recorded $14 million of leasehold improvement impairments related to our Foster City campus in Q1 2024, recognized in selling, general and administrative expense. We continue to evaluate our options with respect to the rest of our campus in Foster City, California and the other property in San Diego, California. As of March 31, 2024, we had remaining assets, consisting primarily of right-of-use assets and leasehold improvements, related to our Foster City campus and the other property in San Diego, California of approximately $142 million.

A summary of the restructuring liability is as follows:


In millions	Employee Separation Costs (1)		Other Costs		Total
Amount recorded in accrued liabilities as of December 31, 2023	$	17	$	1	$	18
Additional expense recorded	4		—		4
Cash payments	(9)		(1)		(10)
Adjustments to accrual	(2)		—		(2)
Amount recorded in accrued liabilities as of March 31, 2024	$	10	$	—	$	10

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(1)It is expected that substantially all of the employee separation related restructuring charges will be paid by the end of Q2 2024.

Derivative Financial Instruments

We are exposed to foreign exchange rate risks in the normal course of business and use derivative financial instruments to partially offset this exposure. We do not use derivative financial instruments for speculative or trading purposes. Foreign exchange contracts are carried at fair value in other current assets, other assets, accrued liabilities, or other long-term liabilities, as appropriate, on the condensed consolidated balance sheets.

We use foreign exchange forward contracts to manage foreign currency risks related to monetary assets and liabilities denominated in currencies other than the U.S. dollar. These derivative financial instruments have terms of one month or less and are not designated as hedging instruments. Changes in fair value of these 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 March 31, 2024, we had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, Australian dollar, Canadian dollar, Singapore dollar, Chinese Yuan Renminbi, and British pound. As of March 31, 2024 and December 31, 2023, the total notional amounts of outstanding forward contracts in place for these foreign currency purchases were $909 million and $926 million, respectively. In July 2023, we entered into forward contracts for a total notional amount of €432 million to hedge the foreign currency exposure for the fine imposed by the European Commission on July 12, 2023.

We also use foreign currency forward contracts to hedge portions of our foreign currency exposure associated with forecasted revenue transactions. These derivative financial instruments have terms up to 24 months and are designated as cash flow hedges. Changes in fair value of our cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) and are reclassified to revenue in the same period the underlying hedged transactions are recorded. We regularly review the effectiveness of our cash flow hedges and consider them to be ineffective if it becomes probable that the forecasted transactions will not occur in the identified period. Changes in fair value of the ineffective portions of our cash flow hedges, if any, are recognized in other income (expense), net. As of March 31, 2024, we had foreign currency forward contracts in place to hedge exposures associated with forecasted revenue transactions denominated in the euro, Japanese yen, Australian dollar, Canadian dollar, and Chinese Yuan Renminbi. As of March 31, 2024 and December 31, 2023, the total notional amounts of outstanding cash flow hedge contracts in place for these foreign currency purchases were $633 million and $628 million, respectively. We reclassified $3 million and $2 million to revenue in Q1 2024 and Q1 2023, respectively. As of March 31, 2024, the fair value of the foreign currency forward contracts was $14 million, recorded in total assets. As of December 31, 2023, the fair value of the foreign currency forward contracts recorded in total assets and total liabilities was $5 million and $9 million, respectively. The estimated gains reported in accumulated other comprehensive income (loss) that are expected to be reclassified into earnings within the next 12 months are $13 million as of March 31, 2024.