ILLUMINA INC (Form: 10-K, Received: 02/14/2017 06:10:26)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K



þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 1, 2017



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number: 001-35406

Illumina, Inc.

(Exact name of registrant as specified in its charter)



Delaware		33-0804655
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5200 Illumina Way San Diego, California		92122
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (858) 202-4500

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value		The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of February 3, 2017 , there were 146.3 million shares (excluding 42.6 million shares held in treasury) of the registrant’s common stock outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant as of July 3, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter), based on the closing price for the common stock on The NASDAQ Global Select Market on July 1, 2016 (the last trading day before July 3, 2016 ), was $17.9 billion . This amount excludes an aggregate of approximately 19.4 million shares of common stock held by officers and directors and each person known by the registrant to own 10% or more of the outstanding common stock. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, directly or indirectly, to direct or cause the direction of the management or policies of the registrant, or that the registrant is controlled by or under common control with such person.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the 2017 annual meeting of stockholders are incorporated by reference into Items 10 through 14 of Part III of this Report.

ILLUMINA, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED JANUARY 1, 2017

TABLE OF CONTENTS



		Page
PART I
Item 1	Business	4
Item 1A	Risk Factors	11
Item 1B	Unresolved Staff Comments	22
Item 2	Properties	23
Item 3	Legal Proceedings	23
Item 4	Mine Safety Disclosures	23

PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6	Selected Financial Data	26
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8	Financial Statements and Supplementary Data	41
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78
Item 9A	Controls and Procedures	78
Item 9B	Other Information	81

PART III
Item 10	Directors, Executive Officers and Corporate Governance	81
Item 11	Executive Compensation	81
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81
Item 13	Certain Relationships and Related Transactions, and Director Independence	81
Item 14	Principal Accountant Fees and Services	82

PART IV
Item 15	Exhibits and Financial Statement Schedule	82
Signatures		87

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will,” or the negative of these terms, and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:


•	our expectations as to our future financial performance, results of operations, or other operational results or metrics;


•	the benefits that we expect will result from our business activities and certain transactions we have completed, such as product introductions, increased revenue, decreased expenses, and avoided expenses and expenditures;


•	our expectations of the effect on our financial condition of claims, litigation, contingent liabilities, and governmental investigations, proceedings, and regulations;


•	our strategies or expectations for product development, market position, financial results, and reserves; and


•	other expectations, beliefs, plans, strategies, anticipated developments, and other matters that are not historical facts.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:


•	our ability to develop and commercialize our instruments and consumables, to deploy new products, services, and applications, and to expand the markets for our technology platforms;


•	our ability to manufacture robust instrumentation and consumables;


•	our ability to identify and integrate acquired technologies, products, or businesses successfully;


•	our expectations and beliefs regarding prospects and growth for the business and its markets;


•	the assumptions underlying our critical accounting policies and estimates;


•	our assessments and estimates that determine our effective tax rate;


•	our assessments and beliefs regarding the outcome of pending legal proceedings and any liability, that we may incur as a result of those proceedings;


•	uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth in the United States or worldwide; and


•	other factors detailed in our filings with the SEC, including the risks, uncertainties, and assumptions described in Item 1A “Risk Factors” below, or in information disclosed in public conference calls, the date and time of which are released beforehand.

Any forward-looking statement made by us in this annual report on Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation, and do not intend, to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, or to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of any current financial quarter, in each case whether as a result of new information, future developments, or otherwise.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website, www.illumina.com . The information on our website is not incorporated by reference into this report. Such reports are made available as soon as reasonably practicable after filing with, or furnishing to, the SEC. The SEC also maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that electronically file with the SEC. Copies of our annual report on Form 10-K will be made available, free of charge, upon written request.

_______________________________________

Illumina®, 24sure®, BaseSpace®, BeadArray, BlueFish®, BlueFuse®, BlueGnome®, cBot, CSPro®, DASL®, DesignStudio, Epicentre®, ForenSeq, Genetic Energy®, GenomeStudio®, GoldenGate®, HiScan®, HiSeq®, HiSeq X®, Infinium®, iScan®, iSelect®, MiniSeq, MiSeq®, MiSeqDx®, MiSeq FGx, NeoPrep, NextBio®, Nextera®, NextSeq®, NovaSeq, SeqMonitor, TruGenome®, TruSeq®, TruSight®, Understand Your Genome®, UYG®, VeraCode®, verifi®, VeriSeq, the pumpkin orange color, and the Genetic Energy streaming bases design are certain of our trademarks. This report also contains brand names, trademarks, or service marks of companies other than Illumina, and these brand names, trademarks, and service marks are the property of their respective holders.

_______________________________________

Unless the context requires otherwise, references in this annual report on Form 10-K to “Illumina,” the “Company,” “we,” “us,” and “our” refer to Illumina, Inc. and its subsidiaries.

PART I

ITEM 1. Business.

Overview

We are the global leader in sequencing- and array-based solutions for genetic analysis. Our products and services serve customers in a wide range of markets, enabling the adoption of genomic solutions in research and clinical settings. We were incorporated in California in April 1998 and reincorporated in Delaware in July 2000. Our principal executive offices are located at 5200 Illumina Way, San Diego, California 92122. Our telephone number is (858) 202-4500.

Our customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, agrigenomics, commercial molecular diagnostic laboratories, and consumer genomics companies.

Our portfolio of integrated systems, consumables, and analysis tools is designed to accelerate and simplify genetic analysis. This portfolio addresses the range of genomic complexity, price points, and throughput, enabling customers to select the best solution for their research or clinical challenge.

Over the past five years, we have made key acquisitions to provide our customers with more comprehensive sample-to-answer solutions and to enable our goal of becoming a leader in the clinical market. These include:


•	GenoLogics Life Sciences Software Inc., a developer of industry-leading laboratory information management systems, in August 2015;


•	Myraqa, Inc., a regulatory and quality consulting firm specializing in IVDs and companion diagnostics, in July 2014;


•	NextBio, a provider of clinical and genomic informatics, in November 2013;


•	Advanced Liquid Logic Inc., a developer of digital microfluidics and liquid handling solutions, in July 2013;


•	Verinata Health, Inc., a provider of non-invasive tests for the early identification of fetal chromosomal abnormalities, in February 2013; and


•	BlueGnome Ltd., a provider of cytogenetics and in vitro fertilization screening solutions, in September 2012.

We also invest in early-stage companies that are pursuing promising genomics-related technologies. For example, GRAIL, Inc. (GRAIL), formed in January 2016, was created to develop a blood test for early-stage cancer detection, and Helix Holdings I, LLC (Helix) was established in 2015 to enable individuals to explore their genetic information by providing sequencing and services for consumers through third-party partners. GRAIL and Helix are consolidated variable interest entities.

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Genetics Primer

The instruction set for all living cells is encoded in deoxyribonucleic acid, or DNA. The complete set of DNA for any organism is referred to as its genome. DNA contains small regions called genes, which comprise a string of nucleotide bases labeled A, C, G, and T, representing adenine, cytosine, guanine, and thymine, respectively. These nucleotide bases occur in a precise order known as the DNA sequence. When a gene is “expressed,” a partial copy of its DNA sequence called messenger RNA (mRNA) is used as a template to direct the synthesis of a particular protein. Proteins, in turn, direct all cellular function. The illustration below is a simplified gene expression schematic.

Variations among organisms are due, in large part, to differences in their DNA sequences. Changes can result from insertions, deletions, inversions, translocations, or duplications of nucleotide bases. These changes may result in certain genes becoming over-expressed (excessive protein production), under-expressed (reduced protein production), or silenced altogether, sometimes triggering changes in cellular function. These changes can be the result of heredity, but most often they occur at random. The most common form of variation in humans is called a single nucleotide polymorphism (SNP), which is a base change in a single position in a DNA sequence. Another type of variation, copy number variations (CNVs), occur when there are fewer or more copies of certain genes, segments of a gene, or stretches of DNA.

In humans, genetic variation accounts for many of the physical differences we see (e.g., height, hair, eye color, etc.). Genetic variations also can have medical consequences affecting disease susceptibility, including predisposition to complex genetic diseases such as cancer, diabetes, cardiovascular disease, and Alzheimer’s disease. They can affect individual response to certain drug treatments, causing patients to experience adverse side effects, or to respond well or not at all.

Scientists are studying these variations and their consequences in humans, as well as in a broad range of animals, plants, and microorganisms. Such research takes place in government, university, pharmaceutical, biotechnology, and agrigenomics laboratories around the world, where scientists expand our knowledge of the biological functions essential for life. Beginning at the genetic level, Illumina tools are used to elucidate the correlation between gene sequence and biological processes. Life-science research includes the study of the cells, tissues, organs, systems, and other components of living organisms. This research supports the development of new treatments to improve human health. Examples include more tailored clinical treatments, often referred to as precision medicine, as well as advances in agriculture and animal husbandry to meet growing needs for food and energy. Researchers who investigate human, viral, and bacterial genetic variation to understand the mechanisms of disease are enabling the development of more effective diagnostics and therapeutics. They also provide greater insight into genetic variation in plants (e.g., food and biofuel crops) and animals (e.g., livestock and domestic), enabling improvements in crop yields and animal breeding programs.

By empowering genetic analysis and facilitating a deeper understanding of genetic variation and function, our tools advance disease research, drug development, and the creation of molecular diagnostic tests. We believe that this will trigger a fundamental shift in the practice of medicine and health care and that the increased emphasis on preventive and predictive molecular medicine will usher in the era of precision health care.

Our Principal Markets

Our organization is structured to target the markets and customers outlined below.

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Life Sciences

Historically, our core business has been in the life sciences research market. This includes laboratories associated with universities, research centers, and government institutions, along with biotechnology and pharmaceutical companies. Researchers at these institutions use our products and services for basic and translational research across a spectrum of scientific applications, including targeted, exome, and whole-genome sequencing; genetic variation; gene expression; epigenetics; and metagenomics. Next-generation sequencing (NGS) technologies are being adopted due to their declining costs per sample as well as their ability to sequence large sample sizes and generate vast amounts of data. Both private and public funding drive this research, along with global initiatives to characterize genetic variation.

We also serve applied markets including consumer genomics, agrigenomics, forensic genomics, and transplant biology. In consumer genomics, our customers use our technologies to provide personalized genetic data and analysis to individual consumers. In agrigenomics, government and corporate researchers use our products and services to explore the genetic and biological basis for productivity and nutritional constitution in crops and livestock. Researchers can identify natural and novel genomic variation and deploy genome-wide marker-based applications to accelerate breeding and production of healthier and higher-yielding crops and livestock. In forensic genomics, major law enforcement agencies use genomic information to investigate criminal cases, as do military and security intelligence agencies. In transplant diagnostics, we offer a sample-to-answer solution to perform high resolution HLA typing in a single assay, which enables users to determine how closely the tissues of one person match the tissues of another person.

Clinical Genomics

We provide sample-to-answer solutions to our customers in two key areas of translational and clinical genomics: reproductive and genetic health, and oncology.

Illumina provides reproductive-health solutions, including noninvasive prenatal testing (NIPT), preimplantation genetic screening and diagnosis (PGS and PGD), and neonatal and genetic health testing. Our technology enables NIPT for early identification of fetal chromosomal abnormalities by analyzing cell-free DNA in maternal blood. Our PGS solution is used with in vitro fertilization (IVF) to determine, before implantation, whether an embryo has an abnormal number of chromosomes, which is a major cause of IVF failure and miscarriages. In the case of PGD, the technology determines which embryos are free from gene variants associated with genetic diseases.

Cancer is a disease of the genome, and the goal of cancer genomics is to identify genomic changes that transform a normal cell into a cancerous one. Understanding these genomic changes improves diagnostic accuracy, increases understanding of the prognosis, and enables oncologists to target therapies to individuals. Customers in the translational and clinical oncology markets use our products to perform research that may help identify individuals who are genetically predisposed to cancer. Customers also utilize our technology to identify the molecular changes in a tumor so that physicians can tailor treatment based on the genetic variation. We believe that circulating tumor DNA (ctDNA) will become an important clinical tool for managing oncology patients during all stages of tumor progression. Our technology is being used to research the implications of ctDNA in treatment determination, treatment monitoring, minimal residual disease, and asymptomatic screening. For example, we have invested in GRAIL, which was formed to develop a blood-based test for early-stage cancer detection, and has been enabled by our sequencing technology.

To advance genomic-based precision oncology care, we are working with key opinion leaders to set standards for NGS-based assays in routine clinical oncology practice and to define regulatory frameworks for this new testing paradigm.

Our Principal Products and Technologies

Our unique technology platforms support the scale of experimentation necessary for population-scale studies, genome-wide discovery, target selection, and validation studies (see Figure 1 below). Customers use our products to analyze the genome at all levels of complexity, from whole-genome sequencing to targeted panels. A large and dynamic Illumina user community has published tens of thousands of customer-authored scientific papers using our technologies. Through rapid innovation, we are changing the economics of genetic research, enabling projects that were previously considered impossible, and supporting clinical advances towards precision medicine.

Most of our product sales consist of instruments and consumables (which include reagents, flow cells, and microarrays) based on our proprietary technologies. For the fiscal years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , instrument sales comprised 20% , 27% , and 30% , respectively, of total revenues, and consumable sales represented 64% , 58% , and 56% , respectively, of total revenues.

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Figure 1: Illumina Platform Overview:

Sequencing

DNA sequencing is the process of determining the order of nucleotide bases (A, C, G, or T) in a DNA sample. Our portfolio of sequencing platforms represents a family of systems that we believe set the standard for productivity, cost-effectiveness, and accuracy among NGS technologies. Customers use our platforms to perform whole-genome, de novo, exome and RNA sequencing, and targeted resequencing of specific gene regions and genes.

Whole-genome sequencing determines the complete DNA sequence of an organism. In de novo sequencing, the goal is to sequence and analyze a sample without using information from prior sequencing of that species. In targeted resequencing, a portion of the sequence of an organism is compared to a standard or reference sequence from previously sequenced samples to identify genetic variation. Understanding the similarities and differences in DNA sequence between and within species helps us understand the function of the structures encoded in the DNA.

Our DNA sequencing technology is based on our proprietary reversible terminator-based sequencing chemistry, referred to as sequencing by synthesis (SBS) biochemistry. SBS tracks the addition of labeled nucleotides as the DNA chain is copied in a massively parallel fashion. Our SBS sequencing technology provides researchers with a broad range of applications and the ability to sequence even large mammalian genomes in a few days rather than weeks or years.

Our sequencing platforms can generate between 500 megabases (Mb) and 2.0 terabases (Tb) (equivalent to 16 human genomes) of genomic data in a single run, depending on the instrument and application. There are different price points per gigabase (Gb) for each instrument, and for different applications, which range from small-genome, amplicon, and targeted gene-panel sequencing to population-scale whole human genome sequencing. Since we launched our first sequencing system in 2007, our systems have reduced the cost of sequencing by more than a factor of 10,000. In addition, the sequencing time per Gb has dropped by a factor of approximately 3,500.

Our BaseSpace Informatics Suite cloud platform plays a critical role in supporting our sequencing applications. BaseSpace Suite integrates directly with our sequencing instruments, allowing customers to manage their biological sample and sequencing runs, process and analyze the raw genomic data, and derive meaningful results. It facilitates data sharing, provides data-storage solutions and streamlines analysis through a growing number of applications from us and the bioinformatics community. Some components of the BaseSpace Informatics Suite can also be installed for customers on-site.

For the fiscal years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , sequencing revenue comprised 84% , 86% , and 81% , respectively, of total revenues.

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Arrays

Arrays are used for a broad range of DNA and RNA analysis applications, including SNP genotyping, CNV analysis, gene expression analysis, and methylation analysis, and allow for the detection of millions of known genetic markers on a single array.

Our BeadArray technology combines microscopic beads and a substrate in a proprietary manufacturing process to produce arrays that can perform many assays simultaneously. This facilitates large-scale analysis of genetic variation and biological function in a uniquely high-throughput, cost-effective, and flexible manner. Using our BeadArray technology, we achieve high-throughput analysis via a high density of test sites per array and the ability to format arrays in various configurations. Varying the size, shape, and format of the substrate into which the beads self-assemble and creating specific bead types for different applications lets us address multiple markets and market segments. Both our iScan array scanner system and our NextSeq 550 system can be used to image the arrays.

For the fiscal years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , array revenue comprised 16% , 14% , and 19% , respectively, of total revenues.

Consumables

We have developed various library preparation and sequencing kits to simplify workflows and accelerate analysis. Our sequencing applications include whole-genome sequencing kits, which sequence entire genomes of any size and complexity, and targeted resequencing kits, which can sequence exomes, specific genes, RNA or other genomic regions of interest. Our sequencing kits maximize the ability of our customers to characterize the target genome accurately and are sold in various configurations, which address a wide range of applications.

Customers use Illumina array-based genotyping consumables for a wide range of analyses, including diverse species, disease-related mutations, and genetic characteristics associated with cancer. Customers can select from a range of human, animal, and agriculturally relevant genome panels or create their own custom arrays to investigate millions of genetic markers targeting any species.

Our Services

We provide whole-genome sequencing, genotyping, NIPT, and support services. Human whole-genome sequencing services are provided through our CLIA-certified, CAP-accredited laboratory. Using our services, customers can perform whole-genome sequencing projects and microarray projects (including large-scale genotyping studies and whole-genome association studies). We also provide NIPT services through our partner laboratories that direct samples to us on a test send-out basis in our CLIA-certified, CAP-accredited laboratory. In addition, we also offer support services to customers who have purchased our products.

Intellectual Property

We have an extensive intellectual property portfolio. As of February 1, 2017, we own or have exclusive licenses to 671 issued U.S. patents and 572 pending U.S. patent applications, including 31 allowed applications that have not yet issued as patents. Our issued and pending patents cover various aspects of our arrays, assays, oligo synthesis, sequencing technology, instruments, digital microfluidics, software, bioinformatics, and chemical-detection technologies, and have terms that expire between 2017 and 2038. We continue to file new patent applications to protect the full range of our technologies. We have filed or have been granted counterparts for many of these patents and applications in foreign countries.

We protect trade secrets, know-how, copyrights, and trademarks, as well as continuing technological innovation and licensing opportunities to develop and maintain our competitive position. Our success depends in part on obtaining patent protection for our products and processes, preserving trade secrets, patents, copyrights and trademarks, operating without infringing the proprietary rights of third parties, and acquiring licenses for technology or products.

We are party to various exclusive and nonexclusive license agreements and other arrangements with third parties that grant us rights to use key aspects of our sequencing and array technologies, assay methods, chemical detection methods, reagent kits, and scanning equipment. Our exclusive licenses expire with the termination of the underlying patents, which will occur between 2017 and 2032. We have additional nonexclusive license agreements with various third parties for other components of our products. In most cases, the agreements remain in effect over the term of the underlying patents, may be terminated at our request without further obligation, and require that we pay customary royalties.

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Research and Development

Illumina has historically made substantial investments in research and development. Our research and development efforts prioritize continuous innovation coupled with product evolution.

Research and development expenses for fiscal 2016 , 2015 , and 2014 were $504.4 million , $401.5 million , and $388.1 million , respectively. We expect research and development expense to increase during fiscal 2017 to support business growth and continuing expansion in research and product-development efforts.

Marketing and Distribution

We market and distribute our products directly to customers in North America, Europe, Latin America, and the Asia-Pacific region. In each of these areas, dedicated sales, service, and application-support personnel are expanding and supporting their respective customer bases. In addition, we sell through life-science distributors in certain markets within Europe, the Asia-Pacific region, Latin America, the Middle East, and South Africa. We expect to continue increasing our sales and distribution resources during 2017 and beyond as we launch new products and expand our potential customer base.

Manufacturing

We manufacture sequencing and array platforms and reagent kits. In 2016, we continued to increase our manufacturing capacity to meet customer demand. To address increasing product complexity and volume, we continue to automate manufacturing processes to accelerate throughput and improve quality and yield. We are committed to providing medical devices and related services that consistently meet customer and applicable regulatory requirements. We adhere to access and safety standards required by federal, state, and local health ordinances, such as standards for the use, handling, and disposal of hazardous substances. Our key manufacturing and distribution facilities operate under a quality management system certified to ISO 13485.

Raw Materials

Our manufacturing operations require a wide variety of raw materials, electronic and mechanical components, chemical and biochemical materials, and other supplies. Multiple commercial sources provide many of our components and supplies, but there are some raw materials and components that we obtain from single-source suppliers. To manage potential risks arising from single source suppliers, we believe that we could redesign our products using alternative components or for use with alternative reagents, if necessary. In addition, while we attempt to keep our inventory at minimal levels, we purchase incremental inventory as circumstances warrant to protect our supply chain. If the capabilities of our suppliers and component manufacturers are limited or stopped, due to disasters, quality, regulatory, or other reasons, it could negatively impact our ability to manufacture our products.

Competition

Although we believe that our products and services provide significant advantages over products and services currently available from other sources, we expect continued intense competition. Our competitors offer products and services for sequencing, SNP genotyping, gene expression, and molecular diagnostics markets. They include companies such as Agilent Technologies, Inc., BGI, Oxford Nanopore Technologies Limited, Pacific Biosciences of California, Inc., QIAGEN N.V., Roche Holding AG., and Thermo Fisher Scientific, Inc., among others. Some of these companies have or will have substantially greater financial, technical, research, and other resources than we do, along with larger, more established marketing, sales, distribution, and service organizations. In addition, they may have greater name recognition than we do in the markets we address, and in some cases a larger installed base of systems. We expect new competitors to emerge and the intensity of competition to increase. To compete effectively, we must scale our organization and infrastructure appropriately and demonstrate that our products have superior throughput, cost, and accuracy.

Segment and Geographic Information

We are organized into three operating segments for purposes of evaluating our business operations and reviewing our financial results. One segment consists of Illumina’s core operations (Core Illumina). The other two segments relate to the activities of our consolidated variable interest entities (VIEs), GRAIL and Helix. The combined results of operations of our consolidated VIEs became material during the year ended January 1, 2017. As such, we commenced reporting two segments, Core Illumina and Consolidated VIEs, during 2016.

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We currently sell our products to a number of customers outside the United States, including customers in other areas of North America, Latin America, Europe, and the Asia-Pacific region. Shipments to customers outside the United States totaled $1,104.2 million , or 46% of total revenues, during fiscal 2016 , compared to $1,012.4 million , or 46% , and $910.7 million , or 49% , in fiscal 2015 and 2014 , respectively. The U.S. dollar has been determined to be the functional currency of the Company’s international operations due to the primary activities of our foreign subsidiaries. We expect that sales to international customers will continue to be an important and growing source of revenue. See note “12. Segment Information, Geographic Data, and Significant Customers” in Part II, Item 8 of this Form 10-K for further information concerning our foreign and domestic operations.

Backlog

Our backlog was approximately $650 million and $560 million as of January 1, 2017 and January 3, 2016 , respectively. Generally, our backlog consists of orders believed to be firm as of the balance-sheet date. However, we may allow customers to make product substitutions as we launch new products. The timing of shipments depends on several factors, including agreed upon shipping schedules, which may span multiple quarters, and whether the product is catalog or custom. We expect approximately two-thirds of our backlog as of January 1, 2017 , to be shipped within the fiscal year ending December 31, 2017 . Although we generally recognize revenue upon the transfer of title to a customer, some customer agreements or applicable accounting treatments might require us to defer the recognition of revenue beyond title transfer.

Environmental Matters

We are committed to the protection of our employees and the environment. Our operations require the use of hazardous materials that subject us to various federal, state, and local environmental and safety laws and regulations. We believe that we are in material compliance with current applicable laws and regulations. However, we could be held liable for damages and fines should contamination of the environment or individual exposures to hazardous substances occur. In addition, we cannot predict how changes in these laws and regulations, or the development of new laws and regulations, will affect our business operations or the cost of compliance.

Government Regulation

As we expand product lines to address the diagnosis of disease, regulation by governmental authorities in the United States and other countries will become an increasingly significant factor in development, testing, production, and marketing. Products that we develop in the molecular diagnostic markets, depending on their intended use, may be regulated as medical devices by the FDA and comparable agencies in other countries. In the United States, certain of our products may require FDA clearance following a pre-market notification process, also known as a 510(k) clearance, or premarket approval (PMA) from the FDA before marketing. The usually shorter 510(k) clearance process, which we used for the FDA-cleared assays that are run on our FDA-regulated MiSeqDx instrument, generally takes from three to six months after submission, but it can take significantly longer. The longer PMA process is much more costly and uncertain. It generally takes from 9 to 18 months after a complete filing, but it can take significantly longer and typically requires conducting clinical studies, which are not always needed for a 510(k) clearance. All of the products that are currently regulated by the FDA as medical devices are also subject to the FDA Quality System Regulation (QSR). Obtaining the requisite regulatory approvals, including the FDA quality system inspections that are required for PMA approval, can be expensive and may involve considerable delay.

We cannot be certain which of our planned molecular diagnostic products will be subject to the shorter 510(k) clearance process and, in fact, some of our products may need to go through the PMA process. The regulatory approval process for such products may be significantly delayed, may be significantly more expensive than anticipated, and may conclude without such products being approved by the FDA. Without timely regulatory approval, we may not be able to launch or successfully commercialize such products.

Changes to the current regulatory framework, including the imposition of additional or new regulations, could arise at any time during the development or marketing of our products. This may negatively affect our ability to obtain or maintain FDA or comparable regulatory clearance or approval of our products. In addition, the FDA may introduce new requirements that may change the regulatory requirements for either or both Illumina or our customers.

If our products labeled as “For Research Use Only. Not for use in diagnostic procedures,” or RUO, are used, or could be used, for the diagnosis of disease, the regulatory requirements related to marketing, selling, and supporting such products could

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be uncertain. This is true even if such use by our customers occurs without our consent. If the FDA or other regulatory authorities assert that any of our RUO products are subject to regulatory clearance or approval, our business, financial condition, or results of operations could be adversely affected.

Illumina products sold as medical devices in Europe will be regulated under the In Vitro Diagnostics Directive (98/79/EC). This regulation includes requirements for both presentation and review of performance data and quality-system requirements.

Certain of our diagnostic products are currently available through laboratories that are certified under the Clinical Laboratory Improvements Amendments (CLIA) of 1988. These products are commonly called “laboratory developed tests,” or LDTs. For a number of years, the FDA has exercised its regulatory enforcement discretion to not regulate LDTs as medical devices if created and used within a single laboratory. However, the FDA is reexamining this regulatory approach and changes to the agency’s handling of LDTs could impact our business in ways that cannot be predicted at this time. In October 2014, the FDA published two draft guidance documents suggesting an approach for registration and listing of laboratories and assays along with a framework for regulation of LDTs by the FDA based on risk to patients rather than whether the LDTs were made by a conventional manufacturer or a single laboratory. The draft framework guidance includes pre-market review for higher-risk LDTs, including many used to guide treatment decisions, as well as companion diagnostics that have entered the market as LDTs. We cannot predict the nature or extent of the FDA's final guidance or regulation of LDTs, in general, or with respect to our or our customers’ LDTs, in particular.

Certification of CLIA laboratories includes standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management, and quality control procedures. CLIA also mandates that, for high complexity labs such as ours, to operate as a lab, we must have an accreditation by an organization recognized by CLIA such as the College of Pathologists (CAP), which we have obtained and must maintain. If we were to lose our CLIA certification or CAP accreditation, our business, financial condition, or results of operations could be adversely affected. In addition, state laboratory licensing and inspection requirements may also apply to our products, which, in some cases, are more stringent than CLIA requirements.

Employees

As of January 1, 2017 , we had more than 5,500 employees. We consider our employee relations to be positive. Our success will depend in large part upon our ability to attract and retain employees. In addition, we employ a number of temporary and contract employees. We face competition in this regard from other companies, research and academic institutions, government entities, and other organizations.


ITEM 1A.	Risk Factors.

Our business is subject to various risks, including those described below. In addition to the other information included in this Form 10-K, the following issues could adversely affect our operating results or our stock price.

If we do not successfully manage the development, manufacturing, and launch of new products or services, including product transitions, our financial results could be adversely affected.

We face risks associated with launching new products and pre-announcing products and services when the products or services have not been fully developed or tested. In addition, we may experience difficulty in managing or forecasting customer reactions, purchasing decisions, or transition requirements or programs with respect to newly launched products (or products in development), which could adversely affect sales of our existing products. For instance, in January 2017 we announced our NovaSeq 5000 and 6000 instrument systems, which were developed using our new sequencing architecture. If our products and services are not able to deliver the performance or results expected by our target markets or are not delivered on a timely basis, our reputation and credibility may suffer. If we encounter development challenges or discover errors in our products late in our development cycle, we may delay the product launch date. The expenses or losses associated with unsuccessful product development or launch activities or lack of market acceptance of our new products could adversely affect our business, financial condition, or results of operations.

When we introduce or announce new or enhanced products, we face numerous risks relating to product transitions, including the inability to accurately forecast demand (including with respect to our existing products), manage excess and obsolete inventories, address new or higher product cost structures, and manage different sales and support requirements due to the type or complexity of the new or enhanced products. Announcements of currently planned or other new products may cause customers to defer or stop purchasing our products until new products become available. Our failure to effectively manage product transitions or introductions could adversely affect our business, financial condition, or results of operations.

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Our success depends upon the continued emergence and growth of markets for analysis of genetic variation and biological function.

We design our products primarily for applications in the life sciences, diagnostic, agricultural, and pharmaceutical industries. The usefulness of our technologies depends in part upon the availability of genetic data and its usefulness in identifying or treating disease. We are focusing on markets for analysis of genetic variation or biological function, namely sequencing, genotyping, and gene expression profiling. These markets are relatively new and emerging, and they may not develop as quickly as we anticipate, or reach their full potential. Other methods of analysis of genetic variation and biological function may emerge and displace the methods we are developing. Also, researchers may not be able to successfully analyze raw genetic data or be able to convert raw genetic data into medically valuable information. In addition, factors affecting research and development spending generally, such as changes in the regulatory environment affecting life sciences and pharmaceutical companies, and changes in government programs that provide funding to companies and research institutions, could harm our business. If useful genetic data is not available or if our target markets do not develop in a timely manner, demand for our products may grow at a slower rate than we expect.

Our continued growth is dependent on continuously developing and commercializing new products.

Our target markets are characterized by rapid technological change, evolving industry standards, changes in customer needs, existing and emerging competition, strong price competition, and frequent new product introductions. Accordingly, our continued growth depends on developing and commercializing new products and services, including improving our existing products and services, in order to address evolving market requirements on a timely basis. If we fail to innovate or adequately invest in new technologies, our products and services will become dated, and we could lose our competitive position in the markets that we serve as customers purchase new products offered by our competitors. We believe that successfully introducing new products and technologies in our target markets on a timely basis provides a significant competitive advantage because customers make an investment of time in selecting and learning to use a new product and may be reluctant to switch once that selection is made.

To the extent that we fail to introduce new and innovative products, or such products are not accepted in the market or suffer significant delays in development, we may lose market share to our competitors, which will be difficult or impossible to regain. An inability, for technological or other reasons, to successfully develop and introduce new products on a timely basis could reduce our growth rate or otherwise have an adverse effect on our business. In the past, we have experienced, and are likely to experience in the future, delays in the development and introduction of new products. There can be no assurance that we will keep pace with the rapid rate of change in our markets or that our new products will adequately meet the requirements of the marketplace, achieve market acceptance, or compete successfully with competing technologies. Some of the factors affecting market acceptance of new products and services include:


•	availability, quality, and price relative to competing products and services;


•	the functionality and performance of new and existing products and services;


•	the timing of introduction of new products or services relative to competing products and services;


•	scientists’ and customers’ opinions of the utility of new products or services;


•	citation of new products or services in published research;


•	regulatory trends and approvals; and


•	general trends in life sciences research and applied markets.

We may also have to write off excess or obsolete inventory if sales of our products are not consistent with our expectations or the market requirements for our products change due to technical innovations in the marketplace.

We depend on third-party manufacturers and suppliers for some of our products, or sub-assemblies, components, and materials used in our products, and if shipments from these manufacturers or suppliers are delayed or interrupted, or if the quality of the products, components, or materials supplied do not meet our requirements, we may not be able to launch, manufacture, or ship our products in a timely manner, or at all.

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The complex nature of our products requires customized, precision-manufactured sub-assemblies, components, and materials that currently are available from a limited number of sources, and, in the case of some sub-assemblies, components, and materials, from only a single source. If deliveries from these vendors are delayed or interrupted for any reason, or if we are otherwise unable to secure a sufficient supply, we may not be able to obtain these sub-assemblies, components, or materials on a timely basis or in sufficient quantities or qualities, or at all, in order to meet demand for our products. We may need to enter into contractual relationships with manufacturers for commercial-scale production of some of our products, in whole or in part, or develop these capabilities internally, and there can be no assurance that we will be able to do this on a timely basis, in sufficient quantities, or on commercially reasonable terms. In addition, the lead time needed to establish a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand in the event we must switch to a new supplier. The time and effort required to qualify a new supplier could result in additional costs, diversion of resources, or reduced manufacturing yields, any of which would negatively impact our operating results. Accordingly, we may not be able to establish or maintain reliable, high-volume manufacturing at commercially reasonable costs or at all. In addition, the manufacture or shipment of our products may be delayed or interrupted if the quality of the products, sub-assemblies, components, or materials supplied by our vendors does not meet our requirements. Current or future social and environmental regulations or critical issues, such as those relating to the sourcing of conflict minerals from the Democratic Republic of the Congo or the need to eliminate environmentally sensitive materials from our products, could restrict the supply of components and materials used in production or increase our costs. Any delay or interruption to our manufacturing process or in shipping our products could result in lost revenue, which would adversely affect our business, financial condition, or results of operations.

If defects are discovered in our products, we may incur additional unforeseen costs, our products may be subject to recalls, customers may not purchase our products, our reputation may suffer, and ultimately our sales and operating earnings could be negatively impacted.

Our products incorporate complex, precision-manufactured mechanical parts, electrical components, optical components, and fluidics, as well as computer software, any of which may contain errors or failures, especially when first introduced. In the course of conducting our business, we must adequately address quality issues associated with our products and services, including defects in our engineering, design, and manufacturing processes, as well as defects in third-party components included in our products. In addition, new products or enhancements may contain undetected errors or performance problems that, despite testing, are discovered only after commercial shipment. Defects or errors in our products may discourage customers from purchasing our products. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating margins. Identifying the root cause of quality issues, particularly those affecting reagents and third-party components, may be difficult, which increases the time needed to address quality issues as they arise and increases the risk that similar problems could recur. Because our products are designed to be used to perform complex genomic analysis, we expect that our customers will have an increased sensitivity to such defects. If we do not meet applicable regulatory or quality standards, our products may be subject to recall, and, under certain circumstances, we may be required to notify applicable regulatory authorities about a recall. If our products are subject to recall or shipment holds, our reputation, business, financial condition, or results of operations could be adversely affected.

We face intense competition, which could render our products obsolete, result in significant price reductions, or substantially limit the volume of products that we sell.

We compete with life sciences companies that design, manufacture, and market products for analysis of genetic variation and biological function and other applications using a wide range of competing technologies. We anticipate that we will continue to face increased competition as existing companies develop new or improved products and as new companies enter the market with new technologies. One or more of our competitors may render one or more of our technologies obsolete or uneconomical. Some of our competitors have greater financial and personnel resources, broader product lines, a more established customer base, and more experience in research and development than we do. Furthermore, life sciences, clinical genomics, and pharmaceutical companies, which are our potential customers and strategic partners, could also develop competing products. We believe that customers in our markets display a significant amount of loyalty to their initial supplier of a particular product; therefore, it may be difficult to generate sales to potential customers who have purchased products from competitors. To the extent we are unable to be the first to develop or supply new products, our competitive position may suffer.

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The market for molecular diagnostics products is currently limited and highly competitive, with several large companies already having significant market share, intellectual property portfolios, and regulatory expertise. Established diagnostic companies also have an installed base of instruments in several markets, including clinical and reference laboratories, which could deter acceptance of our products. In addition, some of these companies have formed alliances with genomics companies that provide them access to genetic information that may be incorporated into their diagnostic tests.

As we develop, market, or sell diagnostic tests, we may encounter delays in receipt, or limits in the amount, of reimbursement approvals and public health funding, which will impact our ability to grow revenues in the healthcare market.

Physicians and patients may not order diagnostic tests that we develop, market, or sell, such as our verifi prenatal test, unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid and governmental payors outside of the United States, pay a substantial portion of the test price. Third-party payors are often reluctant to reimburse healthcare providers for the use of medical tests that involve new technologies or provide novel diagnostic information. In addition, third-party payors are increasingly limiting reimbursement coverage for medical diagnostic products and, in many instances, are exerting pressure on diagnostic product suppliers to reduce their prices. Reimbursement by a payor may depend on a number of factors, including a payor's determination that tests using our technologies are:


•	not experimental or investigational;


•	medically necessary;


•	appropriate for the specific patient;


•	cost-effective;


•	supported by peer-reviewed publications; and


•	included in clinical practice guidelines.

Since each third-party payor often makes reimbursement decisions on an individual patient basis, obtaining such approvals is a time-consuming and costly process that requires us to provide scientific and clinical data supporting the clinical benefits of each of our products. As a result, there can be no assurance that reimbursement approvals will be obtained. This process can delay the broad market introduction of new products, and could have a negative effect on our results of operations. As a result, third-party reimbursement may not be consistent or financially adequate to cover the cost of diagnostic products that we develop, market, or sell. This could limit our ability to sell our products or cause us to reduce prices, which would adversely affect our results of operations.

Even if our tests are being reimbursed, third party payors may withdraw their coverage policies, cancel their contracts with our customers at any time, review and adjust the rate of reimbursement, require co-payments from patients, or stop paying for our tests, which would reduce our revenues. In addition, insurers, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased their efforts to control the cost, utilization, and delivery of healthcare services. These measures have resulted in reduced payment rates and decreased utilization for the clinical laboratory industry. Reductions in the reimbursement rate of payors may occur in the future. Reductions in the prices at which our tests are reimbursed could have a negative impact on our results of operations.

Litigation, other proceedings, or third party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or services.

Our success depends in part on our non-infringement of the patents or proprietary rights of third parties. Third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization. As we enter new markets or introduce new products, we expect that competitors will likely claim that our products infringe their intellectual property rights as part of a business strategy to impede our successful competition. In addition, third parties may have obtained and may in the future obtain patents allowing them to claim that the use of our technologies infringes these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against any of these claims. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have an adverse impact on our stock price, which may be disproportionate to the actual impact of the ruling itself. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which effectively could block our ability to develop further, commercialize, or sell products or services, and could result in the award of substantial damages against us. In the event of a successful infringement claim against us, we may be required to pay damages and obtain

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one or more licenses from third parties, or be prohibited from selling certain products or services. In addition, we may be unable to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins and earnings per share. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products or services could adversely affect our ability to grow or maintain profitability.

Reduction or delay in research and development budgets and government funding may adversely affect our revenue.

The timing and amount of revenues from customers that rely on government and academic research funding may vary significantly due to factors that can be difficult to forecast, and there remains significant uncertainty concerning government and academic research funding worldwide as governments in the United States and Europe, in particular, focus on reducing fiscal deficits while at the same time confronting uncertain economic growth. Funding for life science research has increased more slowly during the past several years compared to previous years and has declined in some countries. Government funding of research and development is subject to the political process, which is inherently fluid and unpredictable. Other programs, such as defense, entitlement programs, or general efforts to reduce budget deficits could be viewed by governments as a higher priority. These budgetary pressures may result in reduced allocations to government agencies that fund research and development activities, such as the U.S. National Institute of Health, or NIH. Past proposals to reduce budget deficits have included reduced NIH and other research and development allocations. Any shift away from the funding of life sciences research and development or delays surrounding the approval of government budget proposals may cause our customers to delay or forego purchases of our products, which could adversely affect our business, financial condition, or results of operations.

Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.

As part of our strategy to develop and identify new products, services, and technologies, we have made, and may continue to make, acquisitions of technologies, products, or businesses. Acquisitions involve numerous risks and operational, financial, and managerial challenges, including the following, any of which could adversely affect our business, financial condition, or results of operations:


•	difficulties in integrating new operations, technologies, products, and personnel;


•	lack of synergies or the inability to realize expected synergies and cost-savings;


•	difficulties in managing geographically dispersed operations;


•	underperformance of any acquired technology, product, or business relative to our expectations and the price we paid;


•	negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges;


•	the potential loss of key employees, customers, and strategic partners of acquired companies;


•	claims by terminated employees and shareholders of acquired companies or other third parties related to the transaction;


•	the issuance of dilutive securities, assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash;


•	diversion of management’s attention and company resources from existing operations of the business;


•	inconsistencies in standards, controls, procedures, and policies;


•	the impairment of intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies; and


•	assumption of, or exposure to, known or unknown contingent liabilities or liabilities that are difficult to identify or accurately quantify.

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In addition, the successful integration of acquired businesses requires significant efforts and expense across all operational areas, including sales and marketing, research and development, manufacturing, finance, legal, and information technologies. There can be no assurance that any of the acquisitions we make will be successful or will be, or will remain, profitable. Our failure to successfully address the above risks may prevent us from achieving the anticipated benefits from any acquisition in a reasonable time frame, or at all.

If we are unable to increase our manufacturing or service capacity and develop and maintain operation of our manufacturing or service capability, we may not be able to launch or support our products or services in a timely manner, or at all.

We continue to rapidly increase our manufacturing and service capacity to meet the anticipated demand for our products. Although we have significantly increased our manufacturing and service capacity and we believe we have plans in place sufficient to ensure we have adequate capacity to meet our current business plans, there are uncertainties inherent in expanding our manufacturing and service capabilities, and we may not be able to sufficiently increase our capacity in a timely manner. For example, manufacturing and product quality issues may arise as we increase production rates at our manufacturing facilities and launch new products. Also, we may not manufacture the right product mix to meet customer demand, especially as we introduce new products. As a result, we may experience difficulties in meeting customer, collaborator, and internal demand, in which case we could lose customers or be required to delay new product introductions, and demand for our products could decline. Additionally, in the past, we have experienced variations in manufacturing conditions and quality control issues that have temporarily reduced or suspended production of certain products. Due to the intricate nature of manufacturing complex instruments, consumables, and products that contain DNA and enzymes, we may encounter similar or previously unknown manufacturing difficulties in the future that could significantly reduce production yields, impact our ability to launch or sell these products (or to produce them economically), prevent us from achieving expected performance levels, any of which could adversely affect our business, financial condition, or results of operations.

An interruption in our ability to manufacture our products or an inability to obtain key components or raw materials due to a catastrophic disaster or infrastructure could adversely affect our business.

We currently manufacture in a limited number of locations. Our manufacturing facilities are located in San Diego and the San Francisco Bay Area in California; Madison, Wisconsin; and Singapore. These areas are subject to natural disasters such as earthquakes, wildfires, or floods. If a natural disaster were to damage one of our facilities significantly or if other events were to cause our operations to fail, we may be unable to manufacture our products, provide our services, or develop new products. In addition, if the capabilities of our suppliers and component manufacturers are limited or stopped, due to disasters, quality, regulatory, or other reasons, it could negatively impact our ability to manufacture our products.

Many of our manufacturing processes are automated and are controlled by our custom-designed laboratory information management system (LIMS). Additionally, the decoding process in our array manufacturing requires significant network and storage infrastructure. If either our LIMS system or our networks or storage infrastructure were to fail for an extended period of time, it may adversely impact our ability to manufacture our products on a timely basis and could prevent us from achieving our expected shipments in any given period.

We also rely on our technology infrastructure, among other functions, to interact with suppliers; sell our products and services; fulfill orders; bill, collect, and make payments; ship products; provide services and support to customers; fulfill contractual obligations; and otherwise conduct business. Our systems may be vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks, unauthorized access to customer or employee data or company trade secrets, and other attempts to harm our systems. Certain of our systems are not redundant, and our disaster recovery planning is not sufficient for every eventuality. Despite any precautions we may take, such problems could result in, among other consequences, interruptions in our services, which could harm our reputation and financial results.

If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve our goals.

Our future success depends upon the continuing services of members of our senior management team and scientific and engineering personnel. The loss of their services could adversely impact our ability to achieve our business objectives. In addition, the continued growth of our business depends on our ability to hire additional qualified personnel with expertise in molecular biology, chemistry, biological information processing, software, engineering, sales, marketing, and technical support. We compete for qualified management and scientific personnel with other life science and technology companies, universities, and research institutions. Competition for these individuals, particularly in the San Diego and San Francisco areas, is intense,

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and the turnover rate can be high. Moreover, changes in immigration policies, laws and regulations in the United States or other jurisdictions may make it more difficult for us to hire and retain members of management and scientific and engineering personnel. Failure to attract and retain management and scientific and engineering personnel could prevent us from pursuing collaborations or developing our products or technologies. Additionally, integration of acquired companies and businesses can be disruptive, causing key employees of the acquired business to leave. Further, we use share-based compensation, including restricted stock units and performance stock units to attract key personnel, incentivize them to remain with us, and align their interests with those of the Company by building long-term stockholder value. If our stock price decreases, the value of these equity awards decreases and therefore reduces a key employee’s incentive to stay.

Any inability to effectively protect our proprietary technologies could harm our competitive position.

The proprietary positions of companies developing tools for the life sciences, genomics, forensics, agricultural, and pharmaceutical industries, including our proprietary position, generally are uncertain and involve complex legal and factual questions. Our success depends to a large extent on our ability to develop proprietary products and technologies and to obtain patents and maintain adequate protection of our intellectual property in the United States and other countries. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant challenges in establishing and enforcing their proprietary rights outside of the United States. These challenges can be caused by the absence of rules and methods for the establishment and enforcement of intellectual property rights outside of the United States.

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. Any finding that our patents or applications are unenforceable could harm our ability to prevent others from practicing the related technology, and a finding that others have inventorship or ownership rights to our patents and applications could require us to obtain certain rights to practice related technologies, which may not be available on favorable terms, if at all. Furthermore, as issued patents expire, we may lose some competitive advantage as others develop competing products, and, as a result, we may lose revenue.

In addition, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and may therefore fail to provide us with any competitive advantage. We may need to initiate lawsuits to protect or enforce our patents, or litigate against third party claims, which would be expensive, and, if we lose, may cause us to lose some of our intellectual property rights and reduce our ability to compete in the marketplace. Furthermore, these lawsuits may divert the attention of our management and technical personnel. There is also the risk that others may independently develop similar or alternative technologies or design around our patented technologies. In that regard, certain patent applications in the United States may be maintained in secrecy until the patents issue, and publication of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months.

We also rely upon trade secrets and proprietary know-how protection for our confidential and proprietary information, and we have taken security measures to protect this information. These measures, however, may not provide adequate protection for our trade secrets, know-how, or other confidential information.

Our strategic investments and joint ventures may result in losses.

We periodically make strategic investments in various public and private companies with businesses or technologies that may complement our business. In addition, we periodically form companies, such as GRAIL and Helix, that remain consolidated within our financial statements but receive substantial funding from third-party investors who are granted certain control and governance rights. The market values of these strategic investments may fluctuate due to market conditions and other conditions over which we have no control. Other-than-temporary declines in the market price and valuations of the securities that we hold in other companies would require us to record losses related to our investment. This could result in future charges to our earnings. It is uncertain whether or not we will realize any long-term benefits associated with these strategic investments.

In January 2017, we announced that GRAIL has received indications of interest to invest approximately $1 billion for GRAIL’s Series B financing, primarily from undisclosed private and strategic investors. GRAIL intends to raise additional capital in the Series B financing from other investors and has engaged a placement agent in connection with the contemplated additional financing. GRAIL intends to close the Series B prior to the end of March 2017. As of the closing of this transaction, we expect our voting interest to become less than 20 percent and that our remaining interest in GRAIL will be treated as a cost-method investment. In addition, we will no longer have representation on GRAIL’s board of directors. Any failure by GRAIL to close the contemplated financing transactions would have a significant, negative impact on its ability to grow. Such a failure

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could also result in the continued consolidation of GRAIL within our financial statements, which would result in incremental dilution compared to fiscal year 2016.

Security breaches, including with respect to cyber-security, and other disruptions could compromise our information, products, and services and expose us to liability, which could cause our business and reputation to suffer.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information (and that of our customers), and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure maintenance of this information is important to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to cyber-attacks by hackers or breached due to employee error, malfeasance, or other disruptions. As a leader in the field of genetic analysis, we may face cyber-attacks that attempt to penetrate our network security, including our data centers; sabotage or otherwise disable our research, products, and services, including instruments at our customers’ sites; misappropriate our or our customers' and partners' proprietary information, which may include personally identifiable information; or cause interruptions of our internal systems and services. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and damage to our reputation.

Our products, if used for the diagnosis of disease, could be subject to government regulation, and the regulatory approval and maintenance process for such products may be expensive, time-consuming, and uncertain both in timing and in outcome.

Our products are not subject to FDA clearance or approval if they are not intended to be used for the diagnosis, treatment or prevention of disease. However, as we expand our product line to encompass products that are intended to be used for the diagnosis of disease, such as our FDA-regulated MiSeqDx, certain of our products will become subject to regulation by the FDA, or comparable international agencies, including requirements for regulatory clearance or approval of such products before they can be marketed. Such regulatory approval processes or clearances may be expensive, time-consuming, and uncertain, and our failure to obtain or comply with such approvals and clearances could have an adverse effect on our business, financial condition, or operating results. In addition, changes to the current regulatory framework, including the imposition of additional or new regulations, could arise at any time during the development or marketing of our products, which may negatively affect our ability to obtain or maintain FDA or comparable regulatory approval of our products, if required.

Molecular diagnostic products are regulated as medical devices by the FDA and comparable international agencies and may require either clearance from the FDA following the 510(k) pre-market notification process or premarket approval from the FDA, in each case prior to marketing. Obtaining the requisite regulatory approvals can be expensive and may involve considerable delay. If we fail to obtain, or experience significant delays in obtaining, regulatory approvals for molecular diagnostic products that we develop, we may not be able to launch or successfully commercialize such products in a timely manner, or at all.

In addition, if our products labeled as “For Research Use Only. Not for use in diagnostic procedures,” or RUO, are used, or could be used, for the diagnosis of disease, the regulatory requirements related to marketing, selling, and supporting such products could change or be uncertain, even if such use by our customers is without our consent. If the FDA or other regulatory authorities assert that any of our RUO products are subject to regulatory clearance or approval, our business, financial condition, or results of operations could be adversely affected.

If the FDA requires in the future that any of our LDT products be subject to regulatory clearance or approval, our business, financial condition, or results of operations could be adversely affected.

Certain of our diagnostic products are currently available through laboratories that are certified under the Clinical Laboratory Improvements Amendments (CLIA) of 1988. These products are commonly called “laboratory developed tests,” or LDTs. For a number of years, the FDA has exercised its regulatory enforcement discretion to not regulate LDTs as medical devices if created and used within a single laboratory. However, the FDA has been reconsidering its enforcement discretion policy and has commented that regulation of LDTs may be warranted because of the growth in the volume and complexity of testing services utilizing LDTs. In October 2014, the FDA published two draft guidance documents suggesting an approach for registration and listing of laboratories and assays along with a framework for regulation of LDTs by the FDA based on risk to patients rather than whether the LDTs were made by a conventional manufacturer or a single laboratory. The draft framework guidance includes pre-market review for higher-risk LDTs, including many used to guide treatment decisions, as well as companion diagnostics that have entered the market as LDTs. We cannot predict the nature or extent of the FDA's final guidance or regulation of LDTs, in general, or with respect to our LDTs, in particular. If the FDA requires in the future that

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LDT products are subject to regulatory clearance or approval, our business, financial condition, or results of operations could be adversely affected.

If product or service liability lawsuits are successfully brought against us, we may face reduced demand for our products and incur significant liabilities.

Our products and services are used for sensitive applications, and we face an inherent risk of exposure to product or service liability claims if our products or services are alleged to have caused harm, resulted in false negatives or false positives, or do not perform in accordance with specifications. Product liability claims filed against us or against third parties to whom we may have an obligation could be costly and time-consuming to defend and result in substantial damages or reputational risk. We cannot be certain that we would be able to successfully defend any product or service liability lawsuit brought against us. Regardless of merit or eventual outcome, product or service liability claims may result in:


•	decreased demand for our products;


•	injury to our reputation;


•	increased product liability insurance costs;


•	costs of related litigation; and


•	substantial monetary awards to plaintiffs.

Although we carry product and service liability insurance, if we become the subject of a successful product or service liability lawsuit, our insurance may not cover all substantial liabilities, which could have an adverse effect on our business, financial condition, or results of operations.

Doing business internationally creates operational and financial risks for our business.

Conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources. If we fail to coordinate and manage these activities effectively, including the risks noted below, our business, financial condition, or results of operations could be adversely affected. We have sales offices located internationally throughout Europe, the Asia-Pacific region, and Brazil, as well as manufacturing facilities in Singapore. Shipments to customers outside the United States comprised 46% , 46% , and 49% of our total revenue for fiscal years 2016 , 2015 , and 2014 , respectively.

During 2016 , a significant portion of our sales were denominated in foreign currencies while the majority of our purchases of raw materials were denominated in U.S. dollars. Changes in the value of the relevant currencies may affect the cost of certain items required in our operations. Changes in currency exchange rates may also affect the relative prices at which we are able sell products in the same market. Our revenues from international customers may be negatively impacted as increases in the U.S. dollar relative to our international customers local currency could make our products more expensive, impacting our ability to compete. Our costs of materials from international suppliers may increase if, in order to continue doing business with us, they raise their prices as the value of the U.S. dollar decreases relative to their local currency. Foreign policies and actions regarding currency valuation could result in actions by the United States and other countries to offset the effects of such fluctuations. Recent global financial conditions have led to a high level of volatility in foreign currency exchange rates and that level of volatility may continue, which could adversely affect our business, financial condition, or results of operations.

In addition to the foregoing risks, international operations entail the following risks:


•	longer payment cycles and difficulties in collecting accounts receivable outside of the United States;


•	longer sales cycles due to the volume of transactions taking place through public tenders;


•	challenges in staffing and managing foreign operations;


•	tariffs and other trade barriers;


•	unexpected changes in legislative or regulatory requirements of foreign countries into which we sell our products;

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•	difficulties in obtaining export licenses or in overcoming other trade barriers and restrictions resulting in delivery delays; and


•	significant taxes or other burdens of complying with a variety of foreign laws.

Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental officials, anti-competition regulations and sanctions imposed by the U.S. Office of Foreign Assets Control and other similar laws and regulations. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, restrictions on our business conduct and on our ability to offer our products in one or more countries, and could also materially affect our brand, our ability to attract and retain employees, our international operations, our business and our operating results. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.

We are subject to risks related to taxation in multiple jurisdictions.

We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments based on interpretations of existing tax laws or regulations are required in determining the provision for income taxes. Our effective income tax rate could be adversely affected by various factors, including, but not limited to, changes in the mix of earnings in tax jurisdictions with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in existing tax policies, laws, regulations, or rates, changes in the level of non-deductible expenses (including share-based compensation), location of operations, changes in our future levels of research and development spending, mergers and acquisitions, or the result of examinations by various tax authorities. Although we believe our tax estimates are reasonable, if the U.S. Internal Revenue Service or other taxing authority disagrees with the positions taken by the Company on its tax returns, we could have additional tax liability, including interest and penalties. If material, payment of such additional amounts upon final adjudication of any disputes could have a material impact on our results of operations and financial position.

Our operating results may vary significantly from period to period, and we may not be able to sustain operating profitability.

Our revenue is subject to fluctuations due to the timing of sales of high-value products and services, the effects of new product launches and related promotions, the timing and availability of our customers’ funding, the impact of seasonal spending patterns, the timing and size of research projects our customers perform, changes in overall spending levels in the life sciences industry, and other unpredictable factors that may affect customer ordering patterns. Given the difficulty in predicting the timing and magnitude of sales for our products and services, we may experience quarter-to-quarter fluctuations in revenue resulting in the potential for a sequential decline in quarterly revenue. While we anticipate future growth, there is some uncertainty as to the timing of revenue recognition on a quarterly basis. This is because a substantial portion of our quarterly revenue is typically recognized in the last month of a quarter and because the pattern for revenue generation during that month is normally not linear, with a concentration of orders in the final weeks of the quarter. In light of that, our revenue cut-off and recognition procedures, together with our manufacturing and shipping operations, may experience increased pressure and demand during the time period shortly before the end of a fiscal quarter.

A large portion of our expenses are relatively fixed, including expenses for facilities, equipment, and personnel. To meet the anticipated growth in our business, we may incur fixed expenses, such as costs related to facility expansions, before we generate revenue sufficient to fully support such expenses. In addition, we expect operating expenses to continue to increase significantly in absolute dollars, and we expect that our research and development and selling and marketing expenses will increase at a higher rate in the future as a result of the development and launch of new products. Accordingly, our ability to sustain profitability will depend in part on the rate of growth, if any, of our revenue and on the level of our expenses, and if revenue does not grow as anticipated, we may not be able to maintain annual or quarterly profitability. Any significant delays in the commercial launch of our products, unfavorable sales trends in our existing product lines, or impacts from the other factors mentioned above, could adversely affect our future revenue growth or cause a sequential decline in quarterly revenue. In addition, non-cash share-based compensation expense and expenses related to prior and future acquisitions are also likely to continue to adversely affect our future profitability. Due to the possibility of significant fluctuations in our revenue and expenses, particularly from quarter to quarter, we believe that quarterly comparisons of our operating results are not a good indication of our future performance. If our operating results fluctuate or do not meet the expectations of stock market analysts and investors, our stock price could decline.

From time to time, we receive large orders that have a significant effect on our operating results in the period in which the order is recognized as revenue. The timing of such orders is difficult to predict, and the timing of revenue recognition from

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such orders may affect period to period changes in net sales. As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue.

We may not be able to convert our order backlog into revenue.

Our backlog consists of orders believed to be firm as of the balance-sheet date. However, we may allow customers to make product substitutions as we launch new products. We may not receive revenue from some of these orders, and the order backlog we report may not be indicative of our future revenue. Many events can cause an order to be delayed or not completed at all, some of which may be out of our control. If we delay fulfilling customer orders, or if customers reconsider their orders, those customers may seek to cancel or modify their orders with us. Customers may otherwise seek to cancel or delay their orders even if we are prepared to fulfill them. If our orders in backlog do not result in sales, our operating results may suffer.

Disruption of critical information technology systems or material breaches in the security of our systems could have an adverse effect on our operations, business, customer relations, and financial condition.

Information technology systems (IT) help us operate efficiently, interface with customers, maintain financial accuracy and efficiency, and accurately produce our financial statements. IT systems are used extensively in virtually all aspects of our business, including product manufacturing and supply chain, sales forecast, order fulfillment and billing, customer service, logistics, and management of financial reports and data. Our success depends, in part, on the continued and uninterrupted performance of our IT systems. IT systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures, power loss, natural disasters, human acts, computer viruses, computer denial-of-service attacks, unauthorized access to customer or employee data or company trade secrets, and other attempts to harm our systems. Certain of our systems are not redundant, and our disaster recovery planning is not sufficient for every eventuality. Despite any precautions we may take, such problems could result in, among other consequences, disruption of our operations, which could harm our reputation and financial results.

If we do not allocate and effectively manage the resources necessary to build and sustain the proper IT infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. If our data management systems do not effectively collect, store, process, and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired. Any such impairment could adversely affect our reputation, financial condition, results of operations, cash flows, and the timeliness with which we report our internal and external operating results.

As we continuously adjust our work-flow and business practices and add additional functionality to our enterprise resource planning software and other software applications, problems could arise that we have not foreseen, including interruptions in service, loss of data, or reduced functionality. Such problems could adversely impact our ability to provide quotes, take customer orders, and otherwise run our business in a timely manner. In addition, if our new systems fail to provide accurate and increased visibility into pricing and cost structures, it may be difficult to improve or maximize our profit margins. As a result, our results of operations and cash flows could be adversely affected.

Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines, and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment and fair value determinations, inventories, business combinations and intangible asset valuations, and litigation, are highly complex and involve many subjective assumptions, estimates, and judgments. In particular, accounting rules related to companies that we form together with, or that receive substantial funding from, third-party investors such as GRAIL and Helix are highly complex and involve many subjective assumptions, estimates, and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported or expected financial performance or financial condition.

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Ethical, legal, and social concerns related to the use of genetic information could reduce demand for our products or services.

Our products may be used to provide genetic information about humans, agricultural crops, other food sources, and other living organisms. The information obtained from our products could be used in a variety of applications, which may have underlying ethical, legal, and social concerns regarding privacy and the appropriate uses of the resulting information, including preimplantation genetic screening of embryos, prenatal genetic testing, genetic engineering or modification of agricultural products, or testing genetic predisposition for certain medical conditions, particularly for those that have no known cure. Governmental authorities could, for social or other purposes, call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. These and other ethical, legal, and social concerns about genetic testing may limit market acceptance of our technology for certain applications or reduce the potential markets for our technology, either of which could have an adverse effect on our business, financial condition, or results of operations.

Conversion of our outstanding convertible notes may result in losses.

As of January 1, 2017 , we had $632.5 million aggregate principal amount of convertible notes due 2019, and $517.5 million aggregate principal amount of convertible notes due 2021 outstanding. The notes are convertible into cash, and if applicable, shares of our common stock under certain circumstances, including trading price conditions related to our common stock. Upon conversion, we are required to record a gain or loss for the difference between the fair value of the notes to be extinguished and their corresponding net carrying value. The fair value of the notes to be extinguished depends on our current incremental borrowing rate. The net carrying value of our notes has an implicit interest rate of 2.9% with respect to convertible notes due 2019, and 3.5% with respect to convertible notes due 2021. If our incremental borrowing rate at the time of conversion is lower than the implied interest rate of the notes, we will record a loss in our consolidated statement of income during the period in which the notes are converted.

Our Certificate of Incorporation and Bylaws include anti-takeover provisions that may make it difficult for another company to acquire control of us or limit the price investors might be willing to pay for our stock.

Certain provisions of our Certificate of Incorporation and Bylaws could delay the removal of incumbent directors and could make it more difficult to successfully complete a merger, tender offer, or proxy contest involving us. Our Certificate of Incorporation has provisions that give our Board the ability to issue preferred stock and determine the rights and designations of the preferred stock at any time without stockholder approval. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock. In addition, the staggered terms of our board of directors could have the effect of delaying or deferring a change in control.

In addition, certain provisions of the Delaware General Corporation Law (DGCL), including Section 203 of the DGCL, may have the effect of delaying or preventing changes in the control or management of Illumina. Section 203 of the DGCL provides, with certain exceptions, for waiting periods applicable to business combinations with stockholders owning at least 15% and less than 85% of the voting stock (exclusive of stock held by directors, officers, and employee plans) of a company.

The above factors may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in the control or management of Illumina, including transactions in which our stockholders might otherwise receive a premium over the fair market value of our common stock.


ITEM 1B.	Unresolved Staff Comments.

None.

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ITEM 2.	Properties.

The following table summarizes the facilities we lease as of January 1, 2017 , including the location and size of each principal facility, and their designated use. We believe our facilities are adequate for our current and near-term needs, and will be able to locate additional facilities as needed.



Location	Approximate Square Feet	Operation	Lease Expiration Dates
San Diego, CA*	902,000	R&D, Manufacturing, Warehouse, Distribution, and Administrative	2018 – 2031
San Francisco Bay Area, CA*	274,000	R&D, Manufacturing, Warehouse, and Administrative	2018 – 2026
Singapore	211,000	R&D, Manufacturing, Warehouse, Distribution, and Administrative	2018 – 2021
Cambridge, United Kingdom*	105,000	R&D, Manufacturing, and Administrative	2017 – 2024
Eindhoven, the Netherlands	42,000	Distribution and Administrative	2020
Madison, WI	73,000	R&D, Manufacturing, Warehouse, Distribution, and Administrative	2018 – 2019
Other	47,000	Administrative	2017 – 2019

________________

*Excludes approximately 885,000 square feet for which the leases do not commence until 2017 and beyond.


ITEM 3.	Legal Proceedings.

We are involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, we assesses, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, we are currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event that opposing litigants in outstanding litigations or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.


ITEM 4.	Mine Safety Disclosures.

Not applicable.

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PART II


ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock has been quoted on The NASDAQ Global Select Market under the symbol “ILMN” since July 28, 2000. Prior to that time, there was no public market for our common stock. The following table sets forth, for the fiscal periods indicated, the quarterly high and low sales prices per share of our common stock as reported on The NASDAQ Global Select Market.



	2016				2015
	High		Low		High		Low
First Quarter	$	188.25	$	130.37	$	213.33	$	178.52
Second Quarter	$	178.77	$	127.10	$	223.08	$	178.68
Third Quarter	$	182.67	$	132.65	$	242.37	$	170.29
Fourth Quarter	$	186.88	$	119.37	$	196.47	$	130.00

Stock Performance Graph

The graph below compares the cumulative total stockholder returns on our common stock for the last five fiscal years with the cumulative total stockholder returns on the NASDAQ Composite Index, the NASDAQ Biotechnology Index, and the S&P 500 Index for the same period. The graph assumes that $100 was invested on January 1, 2012 in our common stock and in each index and that all dividends were reinvested. No cash dividends have been declared on our common stock. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.

Compare 5-Year Cumulative Total Return among Illumina, NASDAQ Composite Index,

NASDAQ Biotechnology Index, and S&P 500 Index

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Holders

As of February 3, 2017 , we had 184 record holders of our common stock.

Dividends

We have never paid cash dividends and have no present intention to pay cash dividends in the foreseeable future. The indentures for our 0% convertible senior notes due 2019 and 0.5% convertible senior notes due in 2021, which notes are convertible into cash and, in certain circumstances, shares of our common stock, require us to increase the conversion rate applicable to the notes if we pay any cash dividends.

Purchases of Equity Securities by the Issuer

On July 28, 2016, the Company’s Board of Directors authorized a new share repurchase program, which supersedes all prior and available repurchase authorizations, to repurchase $250.0 million of outstanding common stock. The following table summarizes shares repurchased pursuant to this program during the three months ended January 1, 2017 .



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
October 3, 2016 - October 30, 2016	—	—		—	$	236,926,941
October 31, 2016 - November 27, 2016	—	—		—	$	236,926,941
November 28, 2016 - January 1, 2017	1,056,021	$	129.02	1,056,021	$	100,680,660
Total	1,056,021	$	129.02	1,056,021	$	100,680,660

___________

(1) All shares purchased during the three months ended January 1, 2017 , were made in open-market transactions.

Sales of Unregistered Securities

None during the fiscal quarter ended January 1, 2017 .

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ITEM 6.	Selected Financial Data.

The following table sets forth selected historical consolidated financial data for each of our last five fiscal years during the period ended January 1, 2017 . This information should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in in Part II, Item 8 of this Form 10-K.

Statement of Income Data



	Years Ended
	January 1, 2017 (52 weeks)		January 3, 2016 (53 weeks)		December 28, 2014 (52 weeks)		December 29, 2013 (52 weeks)		December 30, 2012 (52 weeks)
	(In thousands, except per share data)
Total revenue	$	2,398,373	$	2,219,762	$	1,861,358	$	1,421,178	$	1,148,516
Income from operations	$	587,032	$	612,841	$	514,711	$	134,107	$	200,752
Consolidated net income	$	428,090	$	457,390	$	353,351	$	125,308	$	151,254
Net income attributable to Illumina stockholders	$	462,649	$	461,559	$	353,351	$	125,308	$	151,254
Net income attributable to Illumina stockholders for earnings per share	$	454,106	$	461,526	$	353,351	$	125,308	$	151,254
Earnings per share attributable to Illumina stockholders:
Basic	$	3.09	$	3.19	$	2.61	$	1.00	$	1.23
Diluted	$	3.07	$	3.10	$	2.37	$	0.90	$	1.13
Shares used in calculating earnings per share:
Basic	146,788		144,826		135,553		125,076		122,999
Diluted	148,040		149,069		148,977		139,936		133,693

Balance Sheet Data



	January 1, 2017		January 3, 2016		December 28, 2014		December 29, 2013		December 30, 2012
	(In thousands)
Cash, cash equivalents and short-term investments	$	1,558,724	$	1,386,220	$	1,338,371	$	1,165,603	$	1,350,204
Total assets	$	4,280,600	$	3,687,747	$	3,339,640	$	3,019,006	$	2,566,085
Long-term debt, less current portion	$	1,047,805	$	1,015,649	$	986,780	$	839,305	$	805,406
Redeemable noncontrolling interest	$	43,940	$	32,546	—		—		—
Total stockholders’ equity	$	2,197,229	$	1,848,553	$	1,462,798	$	1,533,202	$	1,318,581


ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) will help readers understand our results of operations, financial condition, and cash flow. It is provided in addition to the accompanying consolidated financial statements and notes. This MD&A is organized as follows:


•	Business Overview and Outlook . High level discussion of our operating results and significant known trends that affect our business.


•	Results of Operations . Detailed discussion of our revenues and expenses.


•	Liquidity and Capital Resources . Discussion of key aspects of our statements of cash flows, changes in our financial position, and our financial commitments.


•	Off-Balance Sheet Arrangements . We have no off-balance sheet arrangements.

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•	Contractual Obligations. Tabular disclosure of known contractual obligations as of January 1, 2017 .


•	Critical Accounting Policies and Estimates . Discussion of significant changes we believe are important to understanding the assumptions and judgments underlying our financial statements.


•	Recent Accounting Pronouncements.

This MD&A discussion contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements. See “Risk Factors” in Item 1A of this report for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods.

Business Overview and Outlook

Our Company is organized into three operating segments for purposes of evaluating our business operations and reviewing our financial results. One segment consists of Illumina’s core operations (Core Illumina). The other two segments relate to the activities of our consolidated variable interest entities (VIEs), GRAIL and Helix. The combined results of operations of our consolidated VIEs became material during the year ended January 1, 2017. As such, we commenced reporting two segments, Core Illumina and Consolidated VIEs, during 2016. For information on GRAIL and Helix, refer to note “12. Segment Information, Geographic Data, and Significant Customers” in Part II, Item 8 of this Form 10-K.

Our focus on innovation has established us as the global leader in sequencing- and array-based technologies, serving customers in a wide range of markets, enabling the adoption of genomic solutions in research and clinical settings.

Consolidated financial highlights include the following:


•	Net revenue increased 8.0% in 2016 over 2015 due to the growth in sales of our sequencing consumables and services, partially offset by lower shipments of our high-throughput platforms. We expect our revenue to continue to increase in 2017 .

•

Gross profit as a percentage of revenue (gross margin) decreased to 69.5% in 2016 from 69.8% in 2015 . Gross margins in 2016 decreased primarily due to our increased manufacturing capacity, which was partially offset by a greater mix of sequencing consumables. Our gross margin in future periods will depend on several factors, including: market conditions that may impact our pricing power; sales mix changes among consumables, instruments, and services; product mix changes between established products and new products in new markets; excess and obsolete inventories; royalties; our cost structure for manufacturing operations; and product support obligations.


•	Income from operations as a percentage of revenue decreased to 24.5% in 2016 compared to 27.6% in 2015 primarily due to the increase in research and development and selling, general, and administrative expenses as a percentage of revenue. We expect research and development and selling, general and administrative expenses to continue to grow.

•

Our effective tax rate was 23.7% and 21.6% in 2016 and 2015 , respectively. The variance from the U.S. federal statutory tax rate of 35% was primarily attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom, partially offset by the tax impact associated with the investments in our consolidated variable interest entities.

Our future effective tax rate may vary from the U.S. federal statutory tax rate due to the mix of earnings in tax jurisdictions with different statutory tax rates and the other factors discussed in the risk factor “We are subject to risks related to taxation in multiple jurisdictions” in Part I Item 1A “Risk Factors” of this Form 10-K. We may

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also be adversely impacted in the future if the tax court opinion regarding the exclusion of stock compensation from cost-sharing charges is overturned. We anticipate that our effective tax rate will trend lower than the U.S. federal statutory tax rate in the future due to the portion of our earnings that will be subject to lower statutory tax rates.


•	We ended 2016 with cash, cash equivalents, and short-term investments totaling $1.6 billion , of which approximately $749.7 million was held by our foreign subsidiaries. Cash and cash equivalents held by our consolidated VIEs as of January 1, 2017 were $75.9 million .

This overview and outlook provides a high-level discussion of our operating results and significant known trends that affect our business. We believe that an understanding of these trends is important to understanding our financial results for the periods reported herein as well as our future financial performance. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Annual Report on Form 10-K.

Results of Operations

To enhance comparability, the following table sets forth audited consolidated statement of operations data for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , stated as a percentage of total revenue.



	2016		2015		2014
Revenue:
Product revenue	84.7	%	85.2	%	87.0	%
Service and other revenue	15.3		14.8		13.0
Total revenue	100.0		100.0		100.0
Cost of revenue:
Cost of product revenue	22.3		22.1		23.2
Cost of service and other revenue	6.4		6.0		5.0
Amortization of acquired intangible assets	1.8		2.1		2.1
Total cost of revenue	30.5		30.2		30.3
Gross profit	69.5		69.8		69.7
Operating expense:
Research and development	21.0		18.1		20.8
Selling, general and administrative	24.3		23.6		25.1
Legal contingencies	(0.4	)	0.9		(4.0	)
Acquisition related gain, net	—		(0.3	)	(0.1	)
Headquarter relocation	0.1		(0.1	)	0.3
Total operating expense	45.0		42.2		42.1
Income from operations	24.5		27.6		27.6
Other income (expense):
Interest income	0.4		0.2		0.3
Interest expense	(1.4	)	(1.9	)	(2.2	)
Cost-method investment gain, net	—		0.7		0.2
Other expense, net	(0.1	)	(0.3	)	(1.8	)
Total other expense, net	(1.1	)	(1.3	)	(3.5	)
Income before income taxes	23.4		26.3		24.1
Provision for income taxes	5.6		5.7		5.1
Consolidated net income	17.8		20.6		19.0
Add: Net loss attributable to noncontrolling interests	1.5		0.2		—
Net income attributable to Illumina stockholders	19.3	%	20.8	%	19.0	%

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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. Fiscal year 2016 was 52 weeks, fiscal year 2015 was 53 weeks, and fiscal year 2014 was 52 weeks.

Revenue



	2016 - 2015								2015 - 2014
(Dollars in thousands)	2016		2015		Change		% Change		2014		Change		% Change
Product revenue	$	2,031,997	$	1,890,633	$	141,364	7	%	$	1,619,511	$	271,122	17	%
Service and other revenue	366,376		329,129		37,247		11		241,847		87,282		36
Total revenue	$	2,398,373	$	2,219,762	$	178,611	8	%	$	1,861,358	$	358,404	19	%

Product revenue consists primarily of revenue from sales of consumables and instruments. Service and other revenue consists primarily of sequencing and genotyping service revenue as well as instrument service contract revenue. Our consolidated VIEs are in the development stage and have no revenues to date.

2016 Compared to 2015

Revenue increased $178.6 million , or 8% , to $2,398.4 million in 2016 compared to $2,219.8 million in 2015 .

Consumables revenue increased $263.6 million , or 21% , to $1,543.5 million in 2016 compared to $1,279.9 million in 2015 , driven by growth in the sequencing instrument installed base.

Instrument revenue decreased $125.2 million , or 21% , to $469.5 million in 2016 compared to $594.7 million in 2015 , primarily due to lower shipments of our high-throughput platforms.

Service and other revenue increased $37.2 million , or 11% , to $366.4 million in 2016 compared to $329.1 million in 2015 , driven by revenue from genotyping services and instrument service contracts associated with a larger sequencing installed base, partially offset by our NIPT customers shifting to in-house testing on our sequencers.

2015 Compared to 2014

Revenue increased $358.4 million , or 19% , to $2,219.8 million in 2015 compared to $1,861.4 million in 2014 .

Consumables revenue increased $238.9 million , or 23% , to $1,279.9 million in 2015 compared to $1,041.0 million in the prior year, driven by growth in the sequencing instrument installed base.

Instrument revenue increased $32.5 million , or 6% , to $594.7 million in 2015 compared to $562.2 million in the prior year, driven by shipments of HiSeq X and NextSeq systems.

Service and other revenue increased $87.3 million , or 36% , to $329.1 million in 2015 compared to $241.8 million in the prior year, driven by the growth in NIPT service test volumes. Revenue from instrument service contracts also contributed to the increase as our sequencing instrument installed base continues to grow.

Overall, these increases were negatively impacted by the foreign exchange fluctuations in the comparative periods. Absent these fluctuations, revenues would have grown 23% on a constant currency basis from 2014 to 2015.

Gross Margin



	2016 - 2015										2015 - 2014
(Dollars in thousands)	2016			2015			Change		% Change		2014			Change		% Change
Total gross profit	$	1,666,448		$	1,549,290		$	117,158	8	%	$	1,297,710		$	251,580	19	%
Total gross margin	69.5		%	69.8		%					69.7		%

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2016 Compared to 2015

Gross margin decreased to 69.5% in 2016 compared to 69.8% in 2015. Gross margin decreased primarily due to our increased manufacturing capacity, which was partially offset by a greater mix of sequencing consumables.

2015 Compared to 2014

Gross margin increased to 69.8% compared to 69.7% in the prior year. Gross margin increased primarily due to a positive shift in product mix to sequencing consumables. Gross margin in 2014 was favorably impacted by the litigation settlement with Syntrix, which included a reversal of cost of sales of $10.4 million. See detailed discussions on this matter in note “9. Legal Proceedings” in Part II, Item 8 of this Form 10-K.

Operating Expense



	2016 - 2015											2015 - 2014
(Dollars in thousands)	2016			2015			Change			% Change		2014			Change			% Change
Research and development	$	504,415		$	401,527		$	102,888		26	%	$	388,055		$	13,472		3	%
Selling, general and administrative	583,005			524,657			58,348			11		466,283			58,374			13
Legal contingencies	(9,490		)	19,000			(28,490		)	(150	)	(74,338		)	93,338			(126	)
Acquisition related gain, net	—			(6,124		)	6,124			(100	)	(2,639		)	(3,485		)	132
Headquarter relocation	1,486			(2,611		)	4,097			(157	)	5,638			(8,249		)	(146	)
Total operating expense	$	1,079,416		$	936,449		$	142,967		15	%	$	782,999		$	153,450		20	%

2016 Compared to 2015

Research and development (R&D) expense increased by $102.9 million , or 26% , in 2016 from 2015 . Core Illumina R&D expense increased by $59.9 million, or 15%, primarily due to increased headcount and outside services as we continue to invest in the development of new products as well as enhancements to existing products. Our consolidated VIEs contributed $43.0 million to the increase, primarily due to $33.7 million incurred by GRAIL.

Selling, general and administrative (SG&A) expense increased by $58.3 million , or 11% in 2016 from 2015 . Core Illumina SG&A expense increased $35.5 million, or 7%, primarily due to headcount and facilities investment to support the continued growth and scale of our operations, as well as outside services. GRAIL and Helix contributed $13.7 million and $9.1 million to the increase, respectively.

Legal contingencies in 2016 represent a reversal of prior year expense related to the settlement of patent litigation.

2015 Compared to 2014

Research and development expense increased by $13.5 million , or 3% , in 2015 from 2014 , primarily due to increased headcount and related expenses as we continue to invest in the development of our products as well as enhancements to existing products. Research and development expense in 2014 included our litigation settlement and patent pooling agreement with Sequenom, as $48.8 million was recorded to research and development expense for an upfront payment. See detailed discussion on this matter in note “9. Legal Proceedings” to our financial statements in Part II, Item 8 of this Form 10-K.

Selling, general and administrative expense increased by $58.4 million , or 13% , in 2015 from 2014 , primarily driven by increased headcount and consulting services to support our continued growth, investments in scaling our operations, and start-up costs related to Helix.

Legal contingencies in 2015 represent charges related to patent litigation. Legal contingencies in 2014 reflected predominantly the $82.1 million gain from our litigation settlement with Syntrix, offset by other legal contingency charges.

Acquisition related gain, net, in 2015 and 2014 consisted of changes in fair value of contingent consideration. The changes in the fair value of the contingent consideration during the periods were primarily due to changes in the estimated payments and a shorter discounting period.

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Headquarter relocation costs for 2015 include a net gain related to a change in a lease exit liability, partially offset by accretion of interest on such liability.

Other (Expense) Income, Net



	2016 - 2015											2015 - 2014
(Dollars in thousands)	2016			2015			Change			% Change		2014			Change			% Change
Interest income	$	9,799		$	5,024		$	4,775		95	%	$	3,901		$	1,123		29	%
Interest expense	(33,181		)	(42,121		)	8,940			(21	)	(41,728		)	(393		)	1
Cost-method investment gain, net	—			15,601			(15,601		)	(100	)	4,427			11,174			252
Other expense, net	(2,472		)	(8,203		)	5,731			(70	)	(32,553		)	24,350			(75	)
Total other expense, net	$	(25,854	)	$	(29,699	)	$	3,845		(13	)%	$	(65,953	)	$	36,254		(55	)%

2016 Compared to 2015

Interest income increased in 2016 compared to 2015 as a result of higher yields on our investments and higher savings and money market balances. Interest expense consisted primarily of accretion of discount on our convertible senior notes. The decrease in interest expense in 2016 compared to 2015 was due to a lower outstanding principal balance on the 2016 Notes, which matured in March 2016.

Other expense, net , in 2016 is primarily attributable to $1.0 million related to equity method investment losses and $0.9 million in net foreign exchange loss. Other expense, net , in 2015 consisted primarily of $4.3 million in net foreign exchange loss and a $4.1 million loss on extinguishment of debt.

2015 Compared to 2014

Interest income primarily consisted of returns from our investment portfolio. Interest income increased slightly in 2015 compared to 2014 as a result of higher yields and higher investment balances throughout the period. Interest expense consisted primarily of accretion of discount on our convertible senior notes. The increase in interest expense in 2015 compared to 2014 was due to the issuance of our 2019 and 2021 Notes in June 2014, partially offset by the impact from the concurrent repurchase of $600.0 million in principal amount of our 2016 Notes.

Cost-method investment gain, net in 2015 consisted primarily of gains on dispositions of cost-method investments, partially offset by impairment charges on other investments.

Other expense, net , in 2015 consisted primarily of $4.3 million in foreign exchange loss and $4.1 million in loss on extinguishment of our 2016 notes. Other expense, net , in 2014, was negatively impacted by $31.4 million loss on extinguishment of debt recorded as a result of the repurchase of $600.0 million in principal amount of our 2016 Notes.

Provision for Income Taxes



	2016 - 2015											2015 - 2014
(Dollars in thousands)	2016			2015			Change			% Change		2014			Change		% Change
Income before income taxes	$	561,178		$	583,142		$	(21,964	)	(4	)%	$	448,758		$	134,384	30	%
Provision for income taxes	133,088			125,752			7,336			6		95,407			30,345		32
Consolidated net income	$	428,090		$	457,390		$	(29,300	)	(6	)%	$	353,351		$	104,039	29	%
Effective tax rate	23.7		%	21.6		%						21.3		%

2016 Compared to 2015

Our effective tax rate was 23.7% and 21.6% in 2016 and 2015 , respectively. In 2016, the variance from the U.S. federal statutory tax rate of 35% was primarily attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom, partially offset by the tax impact associated with the investments in our consolidated variable interest entities. In 2015, the variance from the U.S. federal statutory tax rate of 35% was primarily attributable to a discrete tax benefit of $24.8 million, related to the exclusion of stock compensation from

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prior period cost-sharing charges as a result of a tax court opinion in which an unrelated third party was successful in challenging such charges. The decrease from the U.S. federal statutory tax rate also resulted from the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom.

2015 Compared to 2014

Our effective tax rate was 21.6% and 21.3% in 2015 and 2014, respectively. In 2015, the variance from the U.S. federal statutory tax rate of 35% was attributable to a discrete tax benefit of $24.8 million, related to the exclusion of stock compensation from prior period cost-sharing charges as a result of a tax court opinion in which an unrelated third party was successful in challenging such charges. In 2015 and 2014, the variance from the U.S. federal statutory tax rate of 35% was also attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as Singapore and the United Kingdom.

Liquidity and Capital Resources

At January 1, 2017 , we had approximately $734.5 million in cash and cash equivalents, of which approximately $444.2 million was held by our foreign subsidiaries. Cash and cash equivalents held by our consolidated VIEs as of January 1, 2017 were $75.9 million . Cash and cash equivalents decreased by $34.3 million from last year, due to the factors described in the “Cash Flow Summary” below. Our primary source of liquidity, other than our holdings of cash, cash equivalents, and investments, has been cash flows from operations. Our ability to generate cash from operations provides us with the financial flexibility we need to meet operating, investing, and financing needs. It is our intention to indefinitely reinvest all current and future foreign earnings in foreign subsidiaries.

Historically, we have liquidated our short-term investments and/or issued debt and equity securities to finance our business needs as a supplement to cash provided by operating activities. As of January 1, 2017 , we had $824.2 million in short-term investments. Short-term investments held by our foreign subsidiaries as of January 1, 2017 were approximately $305.5 million . Our short-term investments include marketable securities consisting of U.S government-sponsored entities, corporate debt securities, and U.S. Treasury securities.

During 2016 , $75.5 million in principal of the 2016 Notes were converted. The 2016 Notes became convertible on April 1, 2014 through, and including, March 11, 2016. All 2016 Notes were converted by March 11, 2016. The convertible senior notes due 2019 and 2021 were not convertible as of January 1, 2017 .

We anticipate that our current cash, cash equivalents, and short-term investments, together with cash provided by operating activities are sufficient to fund our near term capital and operating needs for at least the next 12 months. Operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our primary short-term needs for capital, which are subject to change, include:


•	support of commercialization efforts related to our current and future products, including expansion of our direct sales force and field support resources both in the United States and abroad;


•	acquisitions of equipment and other fixed assets for use in our current and future manufacturing and research and development facilities;


•	the continued advancement of research and development efforts;


•	potential strategic acquisitions and investments;


•	potential early repayment of debt obligations as a result of conversions;


•	the expansion needs of our facilities, including costs of leasing and building out additional facilities; and


•	repurchases of our outstanding common stock.

During 2016, we used $249.3 million to repurchase our outstanding shares under the stock repurchase program authorized by our Board of Directors. As of January 1, 2017 , $100.7 million remains under the authorized program.

Certain noncontrolling Helix investors may require Illumina 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

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has not been completed. The fair value of the redeemable noncontrolling interests related to Helix as of January 1, 2017 , was $42.6 million .

On April 14, 2016, we announced our commitment to invest $100.0 million in a new venture capital investment fund (Venture Fund) established by Nicholas Naclerio, Ph.D., our former Senior Vice President, Corporate and Venture Development. The capital commitment is callable over ten years, and up to $40.0 million can be drawn down during the first year. During 2016 , the Company transferred $3.2 million of its cost-method investments to the Venture Fund and contributed $7.4 million in cash.

We expect that our revenue and the resulting operating income, as well as the status of each of our new product development programs, will significantly impact our cash management decisions.

Our future capital requirements and the adequacy of our available funds will depend on many factors, including:


•	our ability to successfully commercialize and further develop our technologies and create innovative products in our markets;


•	scientific progress in our research and development programs and the magnitude of those programs;


•	competing technological and market developments; and


•	the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.

Cash Flow Summary



(In thousands)	2016			2015			2014
Net cash provided by operating activities	$	687,238		$	659,596		$	501,271
Net cash used in investing activities	(514,539		)	(106,146		)	(406,624		)
Net cash used in financing activities	(204,713		)	(418,762		)	(166,748		)
Effect of exchange rate changes on cash and cash equivalents	(2,240		)	(2,072		)	(3,382		)
Net (decrease) increase in cash and cash equivalents	$	(34,254	)	$	132,616		$	(75,483	)

Operating Activities

Net cash provided by operating activities in 2016 consisted of net income of $428.1 million plus net adjustments of $304.2 million partially offset by net changes in net operating assets and liabilities of $45.0 million . The primary non-cash expenses added back to net income included depreciation and amortization expenses of $140.9 million , share-based compensation of $129.1 million , deferred income taxes of $93.6 million , accretion of debt discount of $29.7 million , and gain on litigation settlement of $(11.5) million . These non-cash add-backs were partially offset by $91.3 million in incremental tax benefit related to share-based compensation. Cash flow impact from changes in net operating assets and liabilities were primarily driven by an increase in inventory and a decrease in accrued liabilities.

Net cash provided by operating activities in 2015 consisted of net income of $457.4 million plus net adjustments of $240.6 million partially offset by net changes in net operating assets and liabilities of $38.4 million . The primary non-cash expenses added back to net income included share-based compensation of $132.6 million , depreciation and amortization expenses of $126.4 million , deferred income taxes of $80.5 million , and accretion of debt discount of $38.5 million . These non-cash add-backs were partially offset by $126.7 million in incremental tax benefit related to share-based compensation, $15.6 million in cost-method investment gain, net and $6.1 million in change in fair value of contingent consideration. Cash flow impact from changes in net operating assets included increases in accounts receivable, inventory, and prepaid expenses and other current assets, partially offset by increases in accounts payable, accrued liabilities, and accrued legal contingencies.

Net cash provided by operating activities in 2014 consisted of net income of $353.4 million plus net adjustments of $204.4 million , partially offset by net changes in net operating assets and liabilities of $56.5 million . The primary non-cash expenses added back to net income included share-based compensation of $152.6 million , depreciation and amortization expenses of $112.6 million , deferred income taxes of $99.8 million , accretion of debt discount of $38.1 million , and loss on extinguishment of debt of $31.4 million . These non-cash add backs were partially offset by $126.5 million in incremental tax benefit related to share-based compensation and $109.4 million in gain on litigation settlement. Cash flow impact from changes in net operating assets included increases in accounts receivable, inventory, other assets, and a decrease in accrued legal contingencies, partially offset by an increase in accrued liabilities.

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Investing Activities

Net cash used in investing activities totaled $514.5 million in 2016 . We purchased $894.4 million of available-for-sale securities and $682.9 million of our available-for-sale securities matured or were sold during the period. We also paid net cash of $17.8 million for acquisitions, $13.8 million for strategic investments, $11.5 million for intangibles, and invested $259.9 million in capital expenditures primarily associated with facilities and the purchase of manufacturing, research and development equipment.

Net cash used in investing activities totaled $106.1 million in 2015 . We purchased $797.0 million of available-for-sale securities and $876.8 million of our available-for-sale securities matured or were sold during the period. We also paid net cash of $36.6 million for acquisitions and invested $142.8 million in capital expenditures primarily associated with machinery and equipment, facilities, and information technology equipment and systems primarily related to our enterprise resource planning system implementation.

Net cash used in investing activities totaled $406.6 million in 2014 . We purchased $791.3 million of available-for-sale securities and $541.9 million of our available-for-sale securities matured or were sold during the period. We also invested $106.0 million in capital expenditures primarily associated with the purchase of manufacturing, research and development equipment, leasehold improvements, and information technology equipment and systems.

Financing Activities

Net cash used in financing activities totaled $204.7 million in 2016 . We used $99.8 million to pay taxes related to net share settlement of equity awards, $29.2 million to pay acquisition related contingent consideration, and $249.3 million to repurchase our common stock. We used $65.9 million to repay financing obligations. We received $91.3 million in incremental tax benefit related to share-based compensation and $47.7 million in proceeds from the issuance of common stock through the exercise of stock options and under our employee stock purchase plan. Contributions from noncontrolling owners were $89.0 million .

Net cash used in financing activities totaled $418.8 million in 2015 . We used $127.2 million to pay taxes related to net share settlement of equity awards and $274.3 million to repurchase our common stock. We used $245.0 million to repay financing obligations. We received $126.7 million in incremental tax benefit related to share-based compensation and $71.8 million in proceeds from the issuance of common stock through the exercise of stock options and under our employee stock purchase plan. Contributions from noncontrolling owners were $32.1 million .

Net cash used in financing activities totaled $166.7 million in 2014 . We received $1,132.4 million in proceeds from the issuance of $1,150.0 million in principal amount of our convertible senior notes due 2019 and 2021, net of issuance costs paid in the period. We used $1,244.7 million to repurchase $600.0 million in principal amount of our 2016 Notes and used $237.2 million to repurchase our common stock. In addition, we paid $30.0 million primarily in conversions of our convertible senior notes due 2014. We received $126.5 million in incremental tax benefit related to share-based compensation and $96.3 million in proceeds from the issuance of common stock through the exercise of stock options and the sale of shares under our employee stock purchase plan.

Off-Balance Sheet Arrangements

We do not participate in any transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. During the fiscal year ended January 1, 2017 , we were not involved in any “off-balance sheet arrangements” within the meaning of the rules of the Securities and Exchange Commission.

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Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding. The following table represents our contractual obligations as of January 1, 2017 , aggregated by type (amounts in thousands):



	Payments Due by Period(1)
			Less Than						More Than
Contractual Obligation	Total		1 Year		1 – 3 Years		3 – 5 Years		5 Years
Debt obligations(2)	$	1,161,644	$	2,588	$	637,675	$	521,381	$	—
Operating leases	661,931		42,759		91,981		91,586		435,605
Build-to-suit leases	376,857		12,244		53,297		56,488		254,828
License agreements	77,225		12,920		41,155		23,150		—
Purchase obligations	22,458		18,503		3,955		—		—
Amounts due under executive deferred compensation plan	29,223		29,223		—		—		—
Contingent consideration payments related to acquisitions	4,139		—		4,139		—		—
Total	$	2,333,477	$	118,237	$	832,202	$	692,605	$	690,433

_______________________________________

(1)

The table excludes $65.0 million of uncertain tax positions, $43.9 million of redeemable noncontrolling interest, and $89.5 million of capital commitments for the Venture Fund as the timing and amounts of the settlement remained uncertain as of January 1, 2017 . See note “10. Income Taxes” and note “2. Balance Sheet Account Details” in Part II, Item 8 of this Form 10-K for further discussions of these items.

(2)

Debt obligations include the principal amount of our convertible senior notes due 2019 and 2021, as well as interest payments to be made under the notes. Although these notes mature in 2019 and 2021, respectively, they may be converted into cash and shares of our common stock prior to maturity if certain conditions are met. Any conversion prior to maturity can result in repayments of the principal amounts sooner than the scheduled repayments as indicated in the table. See note “5. Convertible Senior Notes” in Part II, Item 8 of this Form 10-K for further discussion of the terms of the convertible senior notes.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material effect on our consolidated financial statements.

We believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our consolidated financial statements could have been materially different from those presented. Members of our senior management have discussed the development and selection of our critical accounting policies and estimates, and our disclosure regarding them, with the audit committee of our board of directors. Our accounting policies are more fully described in note “1. Organization and Significant Accounting Policies” in Part II, Item 8 of this Form 10-K.

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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. The timing of revenue recognition and the amount of revenue recognized in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our deliverables and obligations. Determination of the appropriate amount of revenue recognized involves significant judgment and estimates.

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all the acceptance criteria have been met. We occasionally offer discounts on newly introduced products to recent customers of existing products. These promotions sometimes involve the trade-in of existing products in exchange for a discount on new products. Where applicable, we defer a portion of revenue on the sales of existing products in recognition of the promotional discounts until the delivery of new products. All revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities.

Revenue from product sales is recognized generally upon transfer of title to the customer, provided that no significant obligations remain and collection of the receivable is reasonably assured. 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 or agreed upon milestones are reached.

In order to assess whether the price is fixed or determinable, we evaluate whether an arrangement is cancellable or subject to future changes in price, deliverables, or other terms. If it is determined that the price is not fixed or determinable, we defer revenue recognition until the price becomes fixed or determinable. We assess collectibility based on a number of factors, including past transaction history with, and the creditworthiness of, the customer. If we determine that collection of a payment is not reasonably assured, revenue recognition is deferred until receipt of payment.

We regularly enter into contracts where revenue is derived from multiple deliverables including products or services. These products or services are generally delivered within a short time frame, approximately three to six months, after the contract execution date. Revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract. A delivered item is considered a separate unit of accounting when the delivered item has value to the customer on a stand-alone basis. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis.

For transactions with multiple deliverables, consideration is allocated at the inception of the contract to all deliverables based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence (VSOE) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence exists, we use best estimate of the selling price for the deliverable.

In order to establish VSOE of selling price, we must regularly sell the product or service on a standalone basis with a substantial majority priced within a relatively narrow range. VSOE of selling price is usually the midpoint of that range. If there are not a sufficient number of standalone sales and VSOE of selling price cannot be determined, then we consider whether third party evidence can be used to establish selling price. Due to the lack of similar products and services sold by other companies within the industry, we have rarely established selling price using third-party evidence. If neither VSOE nor third party evidence of selling price exists, we determine our best estimate of 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 our pricing committee adjusted for applicable discounts. We recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance.

In certain markets, we sell products and provide services to customers through distributors that specialize in life science products. In most sales through distributors, the product is delivered directly to customers. In cases where the product is delivered to a distributor, revenue recognition is deferred until acceptance is received from the distributor, and/or the end-user, if required by the applicable sales contract. The terms of sales transactions through distributors are consistent with the terms of direct sales to customers. These transactions are accounted for in accordance with our revenue recognition policy described herein.

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Investments

We invest in various types of securities, including debt securities in government-sponsored entities, corporate debt securities, and U.S. Treasury securities. As of January 1, 2017 , we had $824.2 million in short-term investments. In accordance with the accounting standard for fair value measurements, we classify our investments as Level 1, 2, or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that we have the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset.

As discussed in note “4. Fair Value Measurements” in Part II, Item 8 of this Form 10-K, a majority of our security holdings have been classified as Level 2. These securities have been initially valued at the transaction price and subsequently valued utilizing a third party service provider who assesses the fair value using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. We perform certain procedures to corroborate the fair value of these holdings, and in the process, we apply judgment and estimates that if changed, could significantly affect our statement of financial positions.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We evaluate the collectibility of our accounts receivable based on a combination of factors. We regularly analyze customer accounts, review the length of time receivables are outstanding, review historical loss rates and assess current economic trends that may impact the level of credit losses in the future. Our allowance for doubtful accounts has generally been adequate to cover our actual credit losses. However, since we cannot reliably predict future changes in the financial stability of our customers, we may need to increase our reserves if the financial conditions of our customers deteriorate.

Inventory Valuation

Inventories are stated at lower of cost or market. We record adjustments to inventory for potentially excess, obsolete, or impaired goods in order to state inventory at net realizable value. We must make assumptions about future demand, market conditions, and the release of new products that will supersede old ones. We regularly review inventory for excess and obsolete products and components, taking into account product life cycles, quality issues, historical experience, and usage forecasts. Our gross inventory totaled $344.5 million and the cumulative adjustment for potentially excess and obsolete inventory was $44.3 million at January 1, 2017 . Historically, our inventory adjustment has been adequate to cover our losses. However, if actual market conditions are less favorable than anticipated, additional inventory adjustments could be required.

Contingencies

Business Combinations

Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. We record the excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill. These valuations require us to make significant estimates and assumptions, especially with

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respect to intangible assets.

In connection with certain of our acquisitions, additional contingent consideration is earned by the sellers upon completion of certain future performance milestones. In these cases, a liability is recorded on the acquisition date for an estimate of the acquisition date fair value of the contingent consideration by applying the income approach utilizing variable inputs such as anticipated future cash flows, risk-free adjusted discount rates, and nonperformance risk. Any change in the fair value of the contingent consideration subsequent to the acquisition date is recognized in acquisition related (gain) expense, net, a component of operating expenses, in our consolidated statements of income. This method requires significant management judgment, including the probability of achieving certain future milestones and discount rates. Future changes in our estimates could result in expenses or gains.

Management typically uses the discounted cash flow method to value our acquired intangible assets. This method requires significant management judgment to forecast future operating results and establish residual growth rates and discount factors. The estimates we use to value and amortize intangible assets are consistent with the plans and estimates that we use to manage our business and are based on available historical information and industry estimates and averages. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.

Intangible Assets and Other Long-Lived Assets — Impairment Assessments

We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. A review of identifiable intangible assets and other long-lived assets is performed when an event occurs indicating the potential for impairment. If indicators of impairment exist, we assess the recoverability of the affected long-lived assets and compare their fair values to the respective carrying amounts.

In order to estimate the fair value of identifiable intangible assets and other long-lived assets, we estimate the present value of future cash flows from those assets. The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.

Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, we may be required to record future impairment charges for purchased intangible assets. Impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet.

Share-Based Compensation

We are required to measure and recognize compensation expense for all share-based payments based on estimated fair value. We estimate the fair value of stock options granted and stock purchases under our employee stock purchase plan using the Black-Scholes-Merton (BSM) option-pricing model. The fair value of our restricted stock units is based on the market price of our common stock on the date of grant.

The determination of fair value of share-based awards requires the use of certain estimates and highly judgmental assumptions that affect the amount of share-based compensation expense recognized in our consolidated statements of income. These include estimates of the expected volatility of our stock price, expected life of an award, expected dividends, the risk-free interest rate, and forecast of our future financial performance, in the case of performance stock units. We determine the volatility of our stock price by equally weighing the historical and implied volatility of our common stock. The historical volatility of our common stock over the most recent period is generally commensurate with the estimated expected life of our stock awards, adjusted for the impact of unusual fluctuations not reasonably expected to recur, and other relevant factors. Implied volatility is calculated from the implied market volatility of exchange-traded call options on our common stock. The expected life of an award is based on historical forfeiture experience, exercise activity, and on the terms and conditions of the stock awards. We determined expected dividend yield to be 0% given we have never declared or paid any cash dividends on our common stock and we currently do not anticipate paying such cash dividends. The risk-free interest rate is based upon

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U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards. We update our forecast of future financial performance periodically, which impacts our estimate of the number of shares to be issued pursuant to the outstanding performance stock units. We amortize the fair value of share-based compensation on a straight-line basis over the requisite service periods of the awards. If any of the assumptions used change significantly, share-based compensation expense may differ materially from what we have recorded in the current period.

Warranties

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. We establish an accrual for estimated warranty expenses based on historical experience as well as anticipated product performance. We periodically review the adequacy of our warranty reserve, and adjust, if necessary, the warranty percentage and accrual based on actual experience and estimated costs to be incurred. If our estimates of warranty obligation change or if actual product performance is below our expectations we may incur additional warranty expense.

Cease-Use Loss upon Exit of Facility

We may, from time to time, relocate or consolidate our office locations and cease to use a facility for which the lease continues beyond the cease-use date. We estimate cease-use loss as the present value of the remaining lease obligation offset by estimated sublease rental receipts during the remaining lease period, adjusted for deferred items and leasehold improvements. In this process, management is required to make significant judgments to estimate the present value of future cash flows from the assumed sublease, including the amount and timing of estimated sublease rental receipts, and the risk-adjusted discount rate. These assumptions are subjective in nature and the actual future cash flows could differ from our estimates, resulting in significant adjustments to the cease-use loss recorded.

Income Taxes

Our provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States and the numerous foreign jurisdictions where we are subject to income tax are required in determining our provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated financial statements and would require an adjustment to the provision for income taxes.

Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies. Based on the available evidence as of January 1, 2017 , we were not able to conclude it is more likely than not certain deferred tax assets will be realized. Therefore, we recorded a valuation allowance of $18.1 million against certain U.S. and foreign deferred tax assets.

We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.

Recent Accounting Pronouncements

For summary of recent accounting pronouncements applicable to our consolidated financial statement see note “1. Organization and Summary of Significant Accounting Policies” in Part II, Item 8, Notes to Consolidated Financial Statements, which is incorporated herein by reference.

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ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Sensitivity

Our investment portfolio is exposed to market risk from changes in interest rates. The fair market value of fixed rate securities may be adversely impacted by fluctuations in interest rates while income earned on floating rate securities may decline as a result of decreases in interest rates. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk, and reinvestment risk. We mitigate default risk by investing in investment grade securities. We have historically maintained a relatively short average maturity for our investment portfolio, and we believe a hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments.

Changes in interest rates may impact gains or losses from the conversion of our outstanding convertible senior notes. In June 2014, we issued $632.5 million aggregate principal amount of 0% convertible senior notes due 2019 (2019 Notes) and $517.5 million aggregate principal amount of 0.5% convertible senior notes due 2021 (2021 Notes). At our election, the notes are convertible into cash, shares of our common stock, or a combination of cash and shares of our common stock under certain circumstances, including trading price conditions related to our common stock. If the trading price of our common stock reaches a price at 130% above the conversion price, the notes will become convertible. Upon conversion, we are required to record a gain or loss for the difference between the fair value of the debt to be extinguished and its corresponding net carrying value. The fair value of the debt to be extinguished depends on our then-current incremental borrowing rate. If our incremental borrowing rate at the time of conversion is higher or lower than the implied interest rate of the notes, we will record a gain or loss in our consolidated statement of income during the period in which the notes are converted. The implicit interest rates for the 2019 and 2021 Notes were 2.9% and 3.5% , respectively. An incremental borrowing rate that is a hypothetical 100 basis points lower than the implicit interest rate upon conversion of $100.0 million aggregate principal amount of each of the 2019 and 2021 Notes would result in losses of approximately $2.5 million and $4.1 million , respectively.

Foreign Currency Exchange Risk

We conduct a portion of our business in currencies other than the company’s U.S. dollar functional currency. These transactions give rise to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. The value of these monetary assets and liabilities are subject to changes in currency exchange rates from the time the transactions are originated until settlement in cash. Our foreign currency exposures are primarily concentrated in the Euro, Yen, and Australian dollar. Both realized and unrealized gains or losses on the value of these monetary assets and liabilities are included in the determination of net income.

We use forward exchange contracts to manage foreign currency risks related to monetary assets and liabilities denominated in currencies other than the U.S. dollar. We only use derivative financial instruments to reduce foreign currency exchange rate risks; we do not hold any derivative financial instruments for trading or speculative purposes. We primarily use forward exchange contracts to hedge foreign currency exposures, and they generally have terms of one month or less. Realized and unrealized gains or losses on the value of financial contracts entered into to hedge the exchange rate exposure of these monetary assets and liabilities are also included in the determination of net income, as they have not been designated for hedge accounting. These contracts, which settle monthly, effectively fix the exchange rate at which these specific monetary assets and liabilities will be settled, so that gains or losses on the forward contracts offset the gains or losses from changes in the value of the underlying monetary assets and liabilities. As of January 1, 2017 , the total notional amount of outstanding forward contracts in place for foreign currency purchases was $68.8 million .

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ITEM 8.	Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page
Report of Independent Registered Public Accounting Firm	42
Consolidated Balance Sheets	43
Consolidated Statements of Income	44
Consolidated Statements of Comprehensive Income	45
Consolidated Statements of Stockholders’ Equity	46
Consolidated Statements of Cash Flows	47
Notes to Consolidated Financial Statements	48

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Illumina, Inc.

We have audited the accompanying consolidated balance sheets of Illumina, Inc. as of January 1, 2017 and January 3, 2016 , and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended January 1, 2017 . Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Illumina, Inc. at January 1, 2017 and January 3, 2016 , and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 1, 2017 , in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Illumina, Inc.’s internal control over financial reporting as of January 1, 2017 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 13, 2017 expressed an unqualified opinion thereon.

/s/ E RNST & Y OUNG LLP

San Diego, California

February 13, 2017

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ILLUMINA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)



	January 1, 2017			January 3, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	734,516		$	768,770
Short-term investments	824,208			617,450
Accounts receivable, net	381,316			385,529
Inventory	300,170			270,777
Prepaid expenses and other current assets	77,881			54,297
Total current assets	2,318,091			2,096,823
Property and equipment, net	713,334			342,694
Goodwill	775,995			752,629
Intangible assets, net	242,652			273,621
Deferred tax assets	123,317			134,515
Other assets	107,211			87,465
Total assets	$	4,280,600		$	3,687,747
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	137,930		$	139,226
Accrued liabilities	342,751			386,844
Build-to-suit lease liability	222,734			9,495
Long-term debt, current portion	1,250			74,929
Total current liabilities	704,665			610,494
Long-term debt	1,047,805			1,015,649
Other long-term liabilities	213,955			180,505
Commitments and contingencies
Redeemable noncontrolling interests	43,940			32,546
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued and outstanding at January 1, 2017 and January 3, 2016	—			—
Common stock, $0.01 par value, 320,000 shares authorized; 188,759 shares issued and 146,196 outstanding at January 1, 2017; 186,663 shares issued and 146,584 outstanding at January 3, 2016	1,887			1,859
Additional paid-in capital	2,733,394			2,497,501
Accumulated other comprehensive (loss) income	(1,037		)	36
Retained earnings	1,485,414			1,022,765
Treasury stock, 42,563 shares and 40,079 shares at cost at January 1, 2017 and January 3, 2016, respectively	(2,022,429		)	(1,673,608		)
Total Illumina stockholders’ equity	2,197,229			1,848,553
Noncontrolling interests	73,006			—
Total stockholders’ equity	2,270,235			1,848,553
Total liabilities and stockholders’ equity	$	4,280,600		$	3,687,747

See accompanying notes to consolidated financial statements.

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ILLUMINA, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Revenue:
Product revenue	$	2,031,997		$	1,890,633		$	1,619,511
Service and other revenue	366,376			329,129			241,847
Total revenue	2,398,373			2,219,762			1,861,358
Cost of revenue:
Cost of product revenue	534,199			490,812			431,920
Cost of service and other revenue	154,762			133,850			92,355
Amortization of acquired intangible assets	42,964			45,810			39,373
Total cost of revenue	731,925			670,472			563,648
Gross profit	1,666,448			1,549,290			1,297,710
Operating expense:
Research and development	504,415			401,527			388,055
Selling, general and administrative	583,005			524,657			466,283
Legal contingencies	(9,490		)	19,000			(74,338		)
Acquisition related gain, net	—			(6,124		)	(2,639		)
Headquarter relocation	1,486			(2,611		)	5,638
Total operating expense	1,079,416			936,449			782,999
Income from operations	587,032			612,841			514,711
Other income (expense):
Interest income	9,799			5,024			3,901
Interest expense	(33,181		)	(42,121		)	(41,728		)
Cost-method investment gain, net	—			15,601			4,427
Other expense, net	(2,472		)	(8,203		)	(32,553		)
Total other expense, net	(25,854		)	(29,699		)	(65,953		)
Income before income taxes	561,178			583,142			448,758
Provision for income taxes	133,088			125,752			95,407
Consolidated net income	428,090			457,390			353,351
Add: Net loss attributable to noncontrolling interests	34,559			4,169			—
Net income attributable to Illumina stockholders	$	462,649		$	461,559		$	353,351
Net income attributable to Illumina stockholders for earnings per share	$	454,106		$	461,526		$	353,351
Earnings per share attributable to Illumina stockholders:
Basic	$	3.09		$	3.19		$	2.61
Diluted	$	3.07		$	3.10		$	2.37
Shares used in computing earnings per common share:
Basic	146,788			144,826			135,553
Diluted	148,040			149,069			148,977

See accompanying notes to consolidated financial statements.

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ILLUMINA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)



	Years Ended
	January 1, 2017			January 3, 2016		December 28, 2014
Consolidated net income	$	428,090		$	457,390	$	353,351
Unrealized (loss) gain on available-for-sale securities, net of deferred tax	(1,073		)	1,116		(2,314		)
Total consolidated comprehensive income	427,017			458,506		351,037
Add: Comprehensive loss attributable to noncontrolling interests	34,559			4,169		—
Comprehensive income attributable to Illumina stockholders	$	461,576		$	462,675	$	351,037

See accompanying notes to consolidated financial statements.

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ILLUMINA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



	Illumina Stockholders
				Additional			Accumulated Other													Total
	Common Stock			Paid-In			Comprehensive			Retained		Treasury Stock					Noncontrolling			Stockholders’
	Shares	Amount		Capital			Income (Loss)			Earnings		Shares		Amount			Interests			Equity
	(in thousands)
Balance as of December 29, 2013	175,205	$	1,753	$	2,562,705		$	1,234		$	207,855	(47,482	)	$	(1,240,345	)	$	—		$	1,533,202
Net income	—	—		—			—			353,351		—		—			—			353,351
Unrealized loss on available-for-sale securities, net of deferred tax	—	—		—			(2,314		)	—		—		—			—			(2,314		)
Issuance of common stock, net of repurchases	6,127	52		96,204			—			—		(2,696	)	(247,221		)	—			(150,965		)
Tax impact from the issuance, repurchase and conversion of convertible notes	—	—		(58,354		)	—			—		—		—			—			(58,354		)
Reclassification of conversion option subject to cash settlement	—	—		282			—			—		—		—			—			282
Share-based compensation	—	—		153,189			—			—		—		—			—			153,189
Net incremental tax benefit related to share-based compensation	—	—		126,477			—			—		—		—			—			126,477
Equity based contingent compensation	—	—		2,621			—			—		—		—			—			2,621
Warrant exercises	—	—		(215,493		)	—			—		12,475		215,493			—			—
Repurchase of convertible notes, net of issuances	—	—		(494,691		)	—			—		—		—			—			(494,691		)
Balance as of December 28, 2014	181,332	1,805		2,172,940			(1,080		)	561,206		(37,703	)	(1,272,073		)	—			1,462,798
Net income	—	—		—			—			461,559		—		—			—			461,559
Unrealized gain on available-for-sale securities, net of deferred tax	—	—		—			1,116			—		—		—			—			1,116
Issuance of common stock, net of repurchases	5,331	54		69,870			—			—		(2,376	)	(401,535		)	—			(331,611		)
Tax impact from the conversion of convertible notes	—	—		373			—			—		—		—			—			373
Share-based compensation	—	—		133,454			—			—		—		—			—			133,454
Net incremental tax benefit related to share-based compensation	—	—		125,451			—			—		—		—			—			125,451
Vesting of redeemable equity awards	—	—		(418		)	—			—		—		—			—			(418		)
Adjustment to the carrying value of redeemable noncontrolling interests	—	—		(4,169		)	—			—		—		—			—			(4,169		)
Balance as of January 3, 2016	186,663	1,859		2,497,501			36			1,022,765		(40,079	)	(1,673,608		)	—			1,848,553
Net income (loss)	—	—		—			—			462,649		—		—			(13,817		)	448,832
Unrealized loss on available-for-sale securities, net of deferred tax	—	—		—			(1,073		)	—		—		—			—			(1,073		)
Issuance of common stock, net of repurchases	2,096	28		47,599			—			—		(2,506	)	(349,167		)	—			(301,540		)
Tax impact from the conversion of convertible notes	—	—		(8		)	—			—		—		—			—			(8		)
Share-based compensation	—	—		128,538			—			—		—		—			—			128,538
Net incremental tax benefit related to share-based compensation	—	—		86,872			—			—		—		—			—			86,872
Adjustment to the carrying value of redeemable noncontrolling interests	—	—		(21,194		)	—			—		—		—			—			(21,194		)
Vesting of redeemable equity awards	—	—		(1,942		)	—			—		—		—			—			(1,942		)
Vesting of non-redeemable equity awards	—	—		(67		)	—			—		—		—			67			—
Issuance of subsidiary shares in business combination	—	—		2,102			—			—		—		—			198			2,300
Issuance of treasury stock	—	—		3,554			—			—		22		346			—			3,900
Contributions from noncontrolling interest owners	—	—		—			—			—		—		—			80,000			80,000
Proceeds from early exercise of equity awards from a subsidiary	—	—		—			—			—		—		—			6,558			6,558
Tax impact of deemed dividend from GRAIL, Inc.	—	—		(9,561		)	—			—		—		—			—			(9,561		)
Balance as of January 1, 2017	188,759	$	1,887	$	2,733,394		$	(1,037	)	$	1,485,414	(42,563	)	$	(2,022,429	)	$	73,006		$	2,270,235

See accompanying notes to consolidated financial statements.

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ILLUMINA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Cash flows from operating activities:
Consolidated net income	$	428,090		$	457,390		$	353,351
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	89,955			72,687			61,905
Amortization of intangible assets	50,960			53,732			50,669
Share-based compensation expense	129,065			132,593			152,551
Accretion of debt discount	29,732			38,517			38,069
Loss on extinguishment of debt	113			4,062			31,360
Incremental tax benefit related to share-based compensation	(91,332		)	(126,659		)	(126,479		)
Deferred income tax expense	93,562			80,504			99,846
Change in fair value of contingent consideration	(1,161		)	(6,124		)	(5,356		)
Cost-method investment gain, net	—			(15,601		)	(4,427		)
Gain on litigation settlement	(11,490		)	—			(109,363		)
Other	14,759			6,937			15,618
Changes in operating assets and liabilities:
Accounts receivable	3,239			(95,913		)	(50,381		)
Inventory	(29,686		)	(80,545		)	(36,542		)
Prepaid expenses and other current assets	(1,204		)	(10,876		)	6,619
Other assets	(6,882		)	(1,418		)	(36,256		)
Accounts payable	(1,969		)	46,296			(2,106		)
Accrued liabilities	(24,250		)	98,791			60,332
Other long-term liabilities	15,737			5,223			1,861
Net cash provided by operating activities	687,238			659,596			501,271
Cash flows from investing activities:
Purchases of available-for-sale securities	(894,369		)	(797,022		)	(791,252		)
Sales of available-for-sale securities	543,252			582,528			391,655
Maturities of available-for-sale securities	139,642			294,224			150,229
Net cash paid for acquisitions	(17,841		)	(36,581		)	(3,285		)
Net purchases of strategic investments	(13,842		)	(6,048		)	(11,755		)
Purchases of property and equipment	(259,891		)	(142,847		)	(105,996		)
Cash paid for intangible assets	(11,490		)	(400		)	(36,220		)
Net cash used in investing activities	(514,539		)	(106,146		)	(406,624		)
Cash flows from financing activities:
Payments on financing obligations	(65,897		)	(244,952		)	(29,991		)
Payments on acquisition related contingent consideration liability	(29,200		)	(2,900		)	—
Proceeds from issuance of debt	5,000			—			1,132,378
Repurchase of convertible notes	—			—			(1,244,721		)
Incremental tax benefit related to share-based compensation	91,332			126,659			126,479
Common stock repurchases	(249,342		)	(274,324		)	(237,183		)
Taxes paid related to net share settlement of equity awards	(99,825		)	(127,212		)	(10,038		)
Proceeds from issuance of common stock	47,661			71,839			96,328
Proceeds from early exercise of equity awards from a subsidiary	6,558			—			—
Contributions from noncontrolling interest owners	89,000			32,128			—
Net cash used in financing activities	(204,713		)	(418,762		)	(166,748		)
Effect of exchange rate changes on cash and cash equivalents	(2,240		)	(2,072		)	(3,382		)
Net (decrease) increase in cash and cash equivalents	(34,254		)	132,616			(75,483		)
Cash and cash equivalents at beginning of year	768,770			636,154			711,637
Cash and cash equivalents at end of year	$	734,516		$	768,770		$	636,154

Supplemental cash flow information:
Cash paid for income taxes	$	59,749		$	16,913		$	17,886

See accompanying notes to consolidated financial statements.

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ILLUMINA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unless the context requires otherwise, references in this report to “Illumina,” “we,” “us,” the “Company,” and “our” refer to Illumina, Inc. and its consolidated subsidiaries.


1.	Organization and Summary of Significant Accounting Policies

Organization and Business

Illumina, Inc. is a provider of sequencing- and array-based solutions, which serves customers in a board range of markets, enabling the adoption of genomic solutions in research and clinical settings. The Company’s customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, agrigenomics, commercial molecular diagnostic laboratories, and consumer genomics companies.

Basis of Presentation

The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles and include the accounts of the Company and its wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

The Company evaluates its ownership, contractual and other interests in entities that are not wholly-owned by the Company to determine if these entities are VIEs, and, if so, whether the Company is the primary beneficiary of the VIE. In determining whether the Company is the primary beneficiary of a VIE and is therefore required to consolidate the VIE, the Company applies a qualitative approach that determines whether it has 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. The Company continuously assesses whether it is the primary beneficiary of a VIE as changes to existing relationships or future transactions may result in the consolidation or deconsolidation, as the case may be. The Company has not provided financial or other support during the periods presented to its VIEs that it was not previously contractually required to provide.

The equity method is used to account for investments in which the Company has 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 expense, net.

Redeemable Noncontrolling Interests

Noncontrolling interests represent the portion of equity (net assets) in a consolidated entity that is not wholly-owned by the Company that is not attributable, directly or indirectly, to the Company. Noncontrolling interests with embedded contingent redemption features, such as put rights, that are not solely within the Company’s control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of stockholders’ equity on the consolidated balance sheets.

Segment Information

The Company is organized into three operating segments for purposes of evaluating its business operations and reviewing its financial results. One segment consists of Illumina’s core operations (Core Illumina). The other two segments relate to the activities of the Company’s consolidated VIEs, GRAIL and Helix. The combined results of operations of the Company’s consolidated VIEs became material during the year ended January 1, 2017. As such, the Company commenced reporting two segments, Core Illumina and Consolidated VIEs, during 2016. Financial information for all periods presented has been classified to reflect these changes to our reportable segments. For further information on the Company’s segments, refer to note “12. Segment Information, Geographic Data, and Significant Customers”.

Fiscal Year

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The Company’s fiscal year is 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 year ended January 1, 2017 was 52 weeks; the year ended January 3, 2016 was 53 weeks; and the year ended December 28, 2014 was 52 weeks.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of 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.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The new standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since its initial release, the FASB has issued several amendments to the standard, which include clarification of accounting guidance related to identification of performance obligations, intellectual property licenses, and principal vs. agent considerations.

ASU 2014-09 and all subsequent amendments (collectively, the “new standards”) will be effective for the Company beginning in the first quarter of 2018 and may be applied using either the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.

The Company formed an implementation team in 2016 to oversee adoption of the new standards. The implementation team has completed its initial assessment of the new standards, including a detailed review of the Company’s contract portfolio and revenue streams, particularly around product revenues, to identify potential differences in accounting as a result of the new standards. It performed an analysis of those differences and formed preliminary conclusions on the expected changes. While the team’s analysis to date suggests the impact of adoption will not have a material impact on the Company’s existing revenue accounting policies or financial statements, there are a number of steps in the team’s project plan that remain to be completed including: finalizing contract reviews, evaluating the impact on the company’s services and other revenue streams, and working through anticipated changes to systems, business processes and controls to support the adoption of the new standards. Assuming the impact is not material, the Company expects to adopt the new standards using the modified retrospective method with an adjustment to beginning retained earnings for the cumulative effect of the change.

In February 2016, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) 2016-02, Leases (Topic 842) . The new standard requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets and eliminates certain real estate-specific provisions. ASU 2016-02 will be effective for the Company beginning in the first quarter of 2019. ASU 2016-02 will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements.

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In March 2016, the Financial Accounting Standards Board issued Accounting Standard Update (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 is effective for the Company beginning in the first quarter of 2017 and the Company will classify excess tax benefits from share-based payment arrangements as a discrete item within the provision for income taxes on the consolidated statement of income, rather than recognizing excess tax benefits on the consolidated statement of stockholders’ equity.

In addition, under the ASU, excess income tax benefits from share-based compensation arrangements are classified as cash flow from operations, rather than cash flow from financing activities. The Company has elected to apply the cash flow classification guidance retrospectively.

If this standard had been adopted in fiscal year 2016, the provision for income taxes would have been reduced by $86.9 million and cash flows from operating activities would have been increased by $91.3 million . Further, the Company had $46.4 million of unrealized excess tax benefits associated with share-based compensation as of January 1, 2017 . These tax benefits will be accounted for as a credit to retained earnings when this ASU becomes effective in the first quarter of 2017.

The actual benefit realized in the future periods is inherently uncertain and will vary based on the timing and value realized for future share-based payment arrangements. Other than these reclassifications, the effect of excess tax benefits on the provision for income taxes, and the adjustment to retained earnings, the Company does not believe the adoption of this ASU will materially impact its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update (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 ASU is effective for the Company beginning in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.

Concentrations of Risk

The Company operates 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 the Company’s operating results. A portion of the Company’s 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 the Company’s future revenues and results of operations.

The Company is also subject to risks related to its financial instruments including its cash and cash equivalents, investments, and accounts receivable. Most of the Company’s cash and cash equivalents as of January 1, 2017 were deposited with U.S. financial institutions, either domestically or with their foreign branches. The Company’s 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 in U.S. government-sponsored entities, U.S. Treasury securities, and money market funds.

The Company requires customized products and components that currently are available from a limited number of sources. The Company sources certain key products and components included in its products from single vendors.

The Company performs a regular review of customer activity and associated credit risks and does not require collateral or enter into netting arrangements. Shipments to customers outside the United States comprised 46% , 46% , and 49% of the Company’s revenue for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively. Customers outside the United States represented 48% of the Company’s gross trade accounts receivable balance as of both January 1, 2017 and January 3, 2016 .

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International sales entail a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection. The Company is 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. The Company has historically not experienced significant credit losses from investments and accounts receivable.

Fair Value Measurements

The Company determines the fair value of its assets and liabilities 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. The Company uses 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, excluding acquisition related contingent consideration 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 the Company’s international operations. The Company re-measures its foreign subsidiaries’ monetary assets and liabilities to the U.S. dollar and records the net gains or losses resulting from re-measurement in other expense, net in the consolidated statements of income.

Acquisitions

The Company measures all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. Contingent purchase considerations to be settled in cash are re-measured to estimated fair value at each reporting period with the change in fair value recorded in acquisition related gain, net, a component of operating expenses. In addition, the Company capitalizes in-process research and development (IPR&D) and either amortizes it over the life of the product upon commercialization, or impairs it if the project is abandoned. Post-acquisition adjustments in deferred tax asset valuation allowances and liabilities for uncertain tax positions are recorded in current period income tax expense.

In January 2016, the Company closed two acquisitions consisting of $17.8 million in upfront cash payments, equity

instruments, and certain contingent consideration provisions.

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 predominantly of debt securities in U.S. government-sponsored entities, corporate debt securities, and U.S. Treasury securities. Management classifies short-term investments as available-for-sale at the time of purchase and evaluates such classification as of each balance sheet date. All short-term investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income, a component of stockholders’ equity. The Company evaluates its 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 Company will sell the securities before the recovery of their cost basis.

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Realized gains, losses, and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in interest income in the consolidated statements of income.

Accounts Receivable

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company reserves specific receivables if collectibility is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves 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 market, 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. Provisions 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. Amortization 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 charged to operations 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.

The estimated useful lives of the major classes of property and equipment are generally as follows:



	Estimated Useful Lives
Building and leasehold improvements	4 to 30 years
Machinery and equipment	3 to 5 years
Computer hardware and software	3 to 7 years
Furniture and fixtures	7 years

In 2015, as a part of the Company’s ongoing effort to upgrade its information systems, the Company implemented a new enterprise resource planning software and applications to manage parts of its business operations. Certain costs incurred in the development of such internal-use software and software applications, including external direct costs of materials and services and applicable compensation costs of employees devoted to specific software development were capitalized as computer software costs. Costs incurred outside of the application development stage were expensed as incurred.

Leases

Leases are reviewed and classified as capital or operating at their inception. Additionally, the Company evaluates whether it is the accounting owner during the construction period when the Company is involved in the construction of leased assets. For operating leases, the Company records rent expense 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. The Company capitalizes leasehold improvements and amortizes the value over the shorter of the lease term or expected useful lives.

Headquarter relocation expenses consisted of expenses such as accelerated depreciation expense, impairment of assets, additional rent expense during the transition period in 2012 when both the new and former headquarter facilities were occupied, moving expenses, cease-use losses, and accretion of interest expense on lease exit liability. The Company completed the

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relocation of its headquarters in 2012 to another facility in San Diego, California and recorded cease-use losses and the corresponding facility exit obligation upon vacating its former headquarters in 2011 and 2012, calculated as the present value of the remaining lease obligation offset by estimated sublease rental receipts during the remaining lease period, adjusted for deferred items and estimated lease incentives. The Company reassesses the facility exit obligation on a quarterly basis and the key assumptions used in the calculation include the amount and timing of estimated sublease rental receipts, and the risk-adjusted discount rate.

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. The change in the carrying value of goodwill during the year ended January 1, 2017 , was due to current year acquisitions. 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 its goodwill impairment review, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company proceeds to perform the two-step test for goodwill impairment. The first step involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to determine the amount of loss, which involves comparing the implied fair value of the goodwill to the carrying value of the goodwill. The Company 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. The Company performed its annual assessment for goodwill impairment in the second quarter of 2016 , noting no impairment.

The Company’s 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.

The Company regularly performs reviews to determine if any event has occurred that may indicate its intangible assets with finite useful lives and other long-lived assets are potentially impaired. If indicators of impairment exist, the Company performs an impairment test 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, the Company estimates the fair value of the assets and records 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 the Company’s stock price and market capitalization compared to its net book value, significant changes in the ability of a particular asset to generate positive cash flows the Company’s strategic business objectives, and the pattern of utilization of a particular asset.

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 derivatives are recognized in other expense, net, along with the re-measurement gain or loss on the foreign currency denominated assets or liabilities.

As of January 1, 2017 , the Company had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, and Australian dollar. As of January 1, 2017 and January 3, 2016 , the total notional amount of outstanding forward contracts in place for foreign currency purchases was $68.8 million and $61.3 million , respectively.

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

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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

The Company’s 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.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all the acceptance criteria have been met. The Company occasionally offers discounts on newly introduced products to recent customers of existing products. These promotions sometimes involve the trade-in of existing products in exchange for a discount on new products. Where applicable, the Company defers a portion of revenue on the sales of existing products in recognition of the promotional discounts until the delivery of new products. All revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities.

In order to assess whether the price is fixed or determinable, the Company evaluates whether an arrangement is cancellable or subject to future changes in price, deliverables, or other terms. If it is determined that the price is not fixed or determinable, the Company defers revenue recognition until the price becomes fixed or determinable. The Company assesses collectibility based on a number of factors, including past transaction history with, and the creditworthiness of, the customer. If the Company determines that collection of a payment is not reasonably assured, revenue recognition is deferred until receipt of payment.

The Company regularly enters into contracts where revenue is derived from multiple deliverables including products or services. These products or services are generally delivered within a short time frame, approximately three to six months, after the contract execution date. Revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract. A delivered item is considered a separate unit of accounting when the delivered item has value to the customer on a stand-alone basis. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis.

For transactions with multiple deliverables, consideration is allocated at the inception of the contract to all deliverables based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence (VSOE) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence exists, the Company uses its best estimate of the selling price for the deliverable.

In order to establish VSOE of selling price, the Company must regularly sell the product or service on a standalone basis with a substantial majority priced within a relatively narrow range. VSOE of selling price is usually the midpoint of that range. If there are not a sufficient number of standalone sales and VSOE of selling price cannot be determined, then the Company considers whether third party evidence can be used to establish selling price. Due to the lack of similar products and services sold by other companies within the industry, the Company has rarely established selling price using third-party evidence. If neither VSOE nor third party evidence of selling price exists, the Company determines its best estimate of 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, the Company relies upon prices set by the Company’s pricing committee adjusted for applicable discounts. The Company recognizes revenue for delivered elements only when it determines there are no uncertainties regarding customer acceptance.

In certain markets, the Company sells products and provides services to customers through distributors that specialize in life science products. In most sales through distributors, the product is delivered directly to customers. In cases where the product is delivered to a distributor, revenue recognition is deferred until acceptance is received from the distributor, and/or the

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end-user, if required by the applicable sales contract. The terms of sales transactions through distributors are consistent with the terms of direct sales to customers. These transactions are accounted for in accordance with the Company’s revenue recognition policy described herein.

Share-Based Compensation

The Company incurs share-based compensation expense related to restricted stock, its Employee Stock Purchase Plan (ESPP), and stock options.

Restricted stock units (RSU), restricted stock awards (RSA), and performance stock units (PSU) are all considered restricted stock. The fair value of restricted stock is determined by the closing market price of the Company’s common stock on the date of grant. The Company recognizes share-based compensation expense based on the fair value on a straight-line basis over the requisite service periods of the awards, taking into consideration estimated forfeitures. PSU represents a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. At each reporting period, the Company reassesses the probability of the achievement of such corporate performance goals and any additional expenses resulting from an adjustment in the estimated shares to be released are treated as a cumulative catch-up in the period of adjustment.

The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of stock purchases under ESPP and stock options granted. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. The Company determines the expected volatility by equally weighing the historical and implied volatility of the Company’s common stock. The historical volatility is generally commensurate with the estimated expected term of the Company’s stock awards, adjusted for the impact of unusual fluctuations and other relevant factors. The implied volatility is calculated from the implied market volatility of exchange-traded call options on the Company’s common stock. The expected term of an award is based on historical forfeiture experience, exercise activity, and on the terms and conditions of the stock awards. The expected dividend yield is determined to be 0% given that the Company has never declared or paid cash dividends on its common stock and does not anticipate paying such cash dividends. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards.

Shipping and Handling Expenses

Shipping and handling expenses are included in cost of product revenue.

Research and Development

Research and development expenses include personnel expenses, contractor fees, license fees, facilities costs, and utilities. Expenditures relating to research and development are expensed in the period incurred.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs were $19.5 million , $18.5 million , and $16.4 million for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively.

Income Taxes

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and credit carryforwards. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date.

Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when the Company believes it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating the ability to recover deferred tax assets within the jurisdiction which they arise the Company considers all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, history of earnings and reliable forecasting,

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projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.

The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense.

Earnings per Share

Basic earnings per share attributable to Illumina stockholders is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to Illumina stockholders is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Per-share earnings of our VIEs are included in the Company’s consolidated basic and diluted earnings per share computations based on the Company’s share of the VIE’s securities.

Potentially dilutive common shares consist of shares issuable under convertible senior notes, equity awards, and warrants. Convertible senior notes have a dilutive impact when the average market price of the Company’s common stock exceeds the applicable conversion price of the respective notes. Potentially dilutive common shares from equity awards and warrants are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of equity awards and warrants; the average amount of unrecognized compensation expense for equity awards; and estimated tax benefits that will be recorded in additional paid-in capital when expenses related to equity awards become deductible. In loss periods, basic net loss per share and diluted net loss per share are identical because the otherwise dilutive potential common shares become anti-dilutive and are therefore excluded.

The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):



	Years Ended
	January 1, 2017	January 3, 2016	December 28, 2014
Weighted average shares outstanding	146,788	144,826	135,553
Effect of potentially dilutive common shares from:
Convertible senior notes	60	1,661	3,489
Equity awards	1,192	2,582	4,340
Warrants	—	—	5,595
Weighted average shares used in calculating diluted earnings per share	148,040	149,069	148,977
Potentially dilutive shares excluded from calculation due to anti-dilutive effect	459	139	124

Accumulated Other Comprehensive (Loss) Income

Comprehensive income is comprised of net income and other comprehensive income. Accumulated other comprehensive (loss) income on the consolidated balance sheets at January 1, 2017 and January 3, 2016 includes accumulated foreign currency translation adjustments and unrealized gains and losses on the Company’s available-for-sale securities.

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The components of accumulated other comprehensive income (loss) are as follows (in thousands):



	January 1, 2017			January 3, 2016
Foreign currency translation adjustments	$	1,289		$	1,289
Unrealized (loss) gain on available-for-sale securities, net of deferred tax	(2,326		)	(1,253		)
Total accumulated other comprehensive (loss) income	$	(1,037	)	$	36


2.	Balance Sheet Account Details

Short-Term Investments

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



	January 1, 2017									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	$	33,862	$	—	$	(162	)	$	33,700	$	14,634	$	—	$	(8	)	$	14,626
Corporate debt securities	478,159		42		(1,959		)	476,242		422,177		44		(1,127		)	421,094
U.S. Treasury securities	315,502		31		(1,267		)	314,266		182,144		3		(417		)	181,730
Total available-for-sale securities	$	827,523	$	73	$	(3,388	)	$	824,208	$	618,955	$	47	$	(1,552	)	$	617,450

Contractual maturities of available-for-sale debt securities as of January 1, 2017 are as follows (in thousands):



	Estimated Fair Value
Due within one year	$	362,143
After one but within five years	462,065
Total	$	824,208

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 Consolidated Balance Sheets.

Strategic Investments

As of January 1, 2017 and January 3, 2016 , the aggregate carrying amounts of the Company’s cost-method investments in non-publicly traded companies were $57.4 million and $56.6 million , respectively, included in other assets. Revenue recognized from transactions with such companies were $55.7 million , $61.0 million , and $39.8 million for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively.

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 losses were recorded during the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 .

During the year ended January 3, 2016 , the Company recognized gains on dispositions of cost-method investments of $18.1 million . During the year ended December 28, 2014 , the Company recorded a gain of $4.4 million associated with additional proceeds received for a cost-method investment sold in a prior period.

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On April 14, 2016, the Company announced that it has committed to invest $100.0 million in 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, and had a balance of $9.7 million as of January 1, 2017 . During the year ended January 1, 2017 , the Company transferred $3.2 million of its cost-method investments to the Fund and contributed $7.4 million in cash.

Accounts Receivable

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



	January 1, 2017			January 3, 2016
Accounts receivable from product and service sales	$	385,164		$	393,106
Other receivables	386			636
Total accounts receivable, gross	385,550			393,742
Allowance for doubtful accounts	(4,234		)	(8,213		)
Total accounts receivable, net	$	381,316		$	385,529

Inventory

Inventory consists of the following (in thousands):



	January 1, 2017		January 3, 2016
Raw materials	$	101,999	$	97,740
Work in process	161,087		138,322
Finished goods	37,084		34,715
Total inventory	$	300,170	$	270,777

Property and Equipment

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



	January 1, 2017			January 3, 2016
Leasehold improvements	$	270,453		$	178,019
Machinery and equipment	274,376			224,158
Computer hardware and software	155,602			136,550
Furniture and fixtures	24,023			18,539
Building	9,015			7,670
Construction in progress	306,678			44,501
Total property and equipment, gross	1,040,147			609,437
Accumulated depreciation	(326,813		)	(266,743		)
Total property and equipment, net	$	713,334		$	342,694

Property and equipment, net included accrued expenditures of $219.5 million , $23.7 million and $14.1 million for the years ended January 1, 2017 , January 3, 2016 and December 28, 2014 , respectively, which were excluded from the consolidated statements of cash flows. For the years ended January 1, 2017 and January 3, 2016 , accrued expenditures includes $193.4 million and $9.5 million , respectively, in construction in progress recorded under build-to-suit lease accounting.

During the years ended January 1, 2017 and January 3, 2016 , $6.1 million and $38.6 million , respectively, of computer software costs were capitalized associated with the Company’s implementation of a new enterprise resource planning software and applications.

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Goodwill

Changes to the Company’s goodwill balance from December 28, 2014 through January 1, 2017 are as follows (in thousands):



	Goodwill
Balance as of December 28, 2014	$	724,904
Current period acquisitions	27,725
Balance as of January 3, 2016	752,629
Current period acquisitions	23,366
Balance as of January 1, 2017	$	775,995

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):



	January 1, 2017		January 3, 2016
Deferred revenue, current portion	$	120,621	$	96,654
Accrued compensation expenses	111,800		120,662
Accrued taxes payable	32,040		44,159
Customer deposits	20,528		20,901
Acquisition related contingent liability	2,768		35,000
Other	54,994		69,468
Total accrued liabilities	$	342,751	$	386,844

Build-to-Suit Lease Liability

The Company evaluates whether it is the accounting owner during the construction period when the Company is involved in the construction of leased assets. As a result, the Company is considered the owner of three construction projects for accounting purposes only under build-to-suit lease accounting due to certain indemnification obligations related to the construction. As of January 1, 2017 and January 3, 2016 , the Company has recorded $222.7 million and $9.5 million , respectively, in project construction costs paid or reimbursed by the landlord as construction in progress and a corresponding build-to-suit lease liability. Once the landlord completes the construction projects, 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 develop a blood test for early-stage cancer detection. 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 January 1, 2017 .

In January 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

In June 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. 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.

Prior to the exchange, the Company absorbed 90% of GRAIL’s losses based upon its proportional ownership of GRAIL’s common stock. Thereafter, the Company absorbed approximately 50% of GRAIL’s losses based upon its proportional ownership of GRAIL’s common stock.

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 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 January 1, 2017 . Additionally, GRAIL has an immaterial impact on the Company’s consolidated statements of income and cash flows for the year ended January 1, 2017 .

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. 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 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 January 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 January 1, 2017 . Helix has an immaterial impact on the Company’s consolidated statements of income and cash flows for the fiscal year ended January 1, 2017 .

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As of January 1, 2017 , the accompanying consolidated balance sheet includes $75.9 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 from December 28, 2014 through January 1, 2017 is as follows (in thousands):



	Redeemable Noncontrolling Interests
Balance as of December 28, 2014	$	—
Cash contributions	56,875
Amount held in escrow by third party	(24,747		)
Vesting of redeemable equity awards	418
Net loss attributable to noncontrolling interests	(4,169		)
Adjustment up to the redemption value	4,169
Balance as of January 3, 2016	32,546
Cash contributions	9,000
Vesting of redeemable equity awards	1,942
Net loss attributable to noncontrolling interests	(20,742		)
Adjustment up to the redemption value	21,194
Balance as of January 1, 2017	$	43,940


3.	Intangible Assets

The Company’s intangible assets, excluding goodwill, include acquired licensed and core technologies, customer relationships, license agreements, and trade name. Amortization for the intangible assets that have finite useful lives is generally recorded on a straight-line basis over their useful lives.

The following is a summary of the Company’s finite-lived identifiable intangible assets (in thousands):



	January 1, 2017							January 3, 2016
	Gross Carrying Amount		Accumulated Amortization			Intangibles, Net		Gross Carrying Amount		Accumulated Amortization			Intangibles, Net
Licensed technologies	$	95,021	$	(63,717	)	$	31,304	$	83,956	$	(53,226	)	$	30,730
Core technologies	328,098		(141,961		)	186,137		324,898		(109,706		)	215,192
Customer relationships	33,216		(22,103		)	11,113		34,246		(17,558		)	16,688
License agreements	13,688		(6,271		)	7,417		15,442		(6,289		)	9,153
Trade name	4,779		(3,398		)	1,381		5,379		(3,521		)	1,858
Total finite-lived intangible assets, net	$	474,802	$	(237,450	)	$	237,352	$	463,921	$	(190,300	)	$	273,621

As of January 1, 2017 , the remaining weighted-average amortization period for finite-lived identifiable intangible assets was 6.9 years .

Intangible assets acquired during the year ended January 1, 2017 include licensed technologies, core technologies and an indefinite-lived intangible of $11.5 million , $3.2 million , and $5.3 million , respectively. The weighted-average useful life of the licensed technologies and core technologies is 7.0 years and 5.0 years , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated annual amortization of finite-lived intangible assets for the next five years and thereafter is shown in the following table (in thousands). Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, asset impairments, among other factors.



	Estimated Annual Amortization
2017	$	47,360
2018	37,967
2019	34,532
2020	26,795
2021	22,768
Thereafter	67,930
Total	$	237,352


4.	Fair Value Measurements

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of January 1, 2017 and January 3, 2016 (in thousands):



	January 1, 2017								January 3, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds (cash equivalent)	$	385,455	$	—	$	—	$	385,455	$	391,246	$	—	$	—	$	391,246
Debt securities in government-sponsored entities	—		33,700		—		33,700		—		14,626		—		14,626
Corporate debt securities	—		476,242		—		476,242		—		421,094		—		421,094
U.S. Treasury securities	314,266		—		—		314,266		181,730		—		—		181,730
Deferred compensation plan assets	—		30,859		—		30,859		—		26,245		—		26,245
Total assets measured at fair value	$	699,721	$	540,801	$	—	$	1,240,522	$	572,976	$	461,965	$	—	$	1,034,941
Liabilities:
Acquisition related contingent consideration liabilities	$	—	$	—	$	4,139	$	4,139	$	—	$	—	$	35,000	$	35,000
Deferred compensation liability	—		29,223		—		29,223		—		24,925		—		24,925
Total liabilities measured at fair value	$	—	$	29,223	$	4,139	$	33,362	$	—	$	24,925	$	35,000	$	59,925

The Company holds available-for-sale securities that consist of highly liquid, investment grade debt securities. The Company considers information provided by the Company’s investment accounting and reporting service provider in the measurement of fair value of its debt securities. The investment service provider provides valuation information from an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. The Company’s deferred compensation plan assets consist primarily of investments in life insurance contracts carried at cash surrender value, which reflects the net asset value of the underlying publicly traded mutual funds. The Company performs control procedures to corroborate the fair value of its holdings, including comparing valuations obtained from its investment service provider to valuations reported by the Company’s asset custodians, validation of pricing sources and models, and review of key model inputs if necessary.

As a result of an acquisition completed in January 2016, the Company recorded $5.3 million in contingent consideration liabilities, the majority of which was payable within 12 months after the acquisition date. The Company reassesses the fair value of any contingent consideration liabilities on a quarterly basis using the income approach. Assumptions used to estimate the acquisition date fair value of the contingent consideration include discount rates ranging from 4% to 6% and the probability

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of achieving certain milestones. This fair value measurement of the contingent consideration is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. Significant assumptions used in the measurement include probabilities of achieving the remaining milestones and the discount rates, which depend on the milestone risk profiles. The changes in fair value of the contingent considerations during the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 were due to changes in the estimated payments and discounting periods.

Changes in estimated fair value of contingent consideration liabilities from December 29, 2013 through January 1, 2017 are as follows (in thousands):



	Contingent Consideration Liability (Level 3 Measurement)
Balance as of December 29, 2013	$	49,480
Change in estimated fair value, recorded in acquisition related gain, net	(5,356		)
Balance as of December 28, 2014	44,124
Change in estimated fair value, recorded in acquisition related gain, net	(6,124		)
Cash payments	(3,000		)
Balance as of January 3, 2016	35,000
Additional liability recorded as a result of a current period acquisition	5,300
Change in estimated fair value, recorded in selling, general and administrative expenses	(1,161		)
Cash payments	(35,000		)
Balance as of January 1, 2017	$	4,139


5.	Debt

Convertible Senior Notes

As of January 1, 2017 , the Company had outstanding $632.5 million in principal amount of 0% convertible senior notes due June 15, 2019, and $517.5 million in principal amount of 0.5% convertible senior notes due June 15, 2021.

0% Convertible Senior Notes due 2019 and 0.5% Convertible Senior Notes due 2021

In June 2014, the Company issued $632.5 million aggregate principal amount of 0% convertible senior notes due 2019 (2019 Notes) and $517.5 million aggregate principal amount of 0.5% convertible senior notes due 2021 (2021 Notes) in an offering conducted in accordance with Rule 144A under the Securities Act of 1933, as amended. The Notes were issued at 100% of par value. The net proceeds from the issuance, after deducting the offering expenses payable by the Company, was $1,132.4 million . The Company used the net proceeds plus cash on hand to repurchase a portion of the outstanding 2016 Notes in privately negotiated transactions concurrently with the issuance of the 2019 and 2021 Notes.

Both the 2019 and 2021 Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at the Company's election, based on an initial conversion rate, subject to adjustment, of 3.9318 shares per $1,000 principal amount of the notes (which represents an initial conversion price of approximately $254.34 per share), only in the following circumstances and to the following extent: (1) during the five business-day period after any 10 consecutive trading day period (the measurement period) in which the trading price per 2019 and 2021 Note for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; (2) during any calendar quarter (and only during that quarter) after the calendar quarter ending September 30, 2014, if the last reported sale price of the Company’s common stock for 20 or more trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; (3) upon the occurrence of specified events described in the indenture for the 2019 and 2021 Notes; and (4) at any time on or

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after March 15, 2019 for the 2019 Notes, or March 15, 2021 for the 2021 Notes, through the second scheduled trading day immediately preceding the maturity date.

As noted in the indentures for the 2019 and 2021 Notes, it is the Company's intent and policy to settle conversions through combination settlement, which essentially involves repayment of an amount of cash equal to the “principal portion” and delivery of the “share amount” in excess of the conversion value over the principal portion in shares of common stock. In general, for each $1,000 in principal the “principal portion” of cash upon settlement is defined as the lesser of $1,000 and the conversion value during the 20 -day observation period. The conversion value is the sum of the daily conversion value which is the product of the effective conversion rate divided by 20 days and the daily volume weighted average price (VWAP) of the Company's common stock. The “share amount” is the cumulative “daily share amount” during the observation period, which is calculated by dividing the daily VWAP into the difference between the daily conversion value (i.e., conversion rate x daily VWAP) and $1,000 .

The 2019 Notes carry no coupon interest. The Company pays 0.5% interest per annum on the principal amount of the 2021 Notes, payable semiannually in arrears in cash on June 15 and December 15 of each year, beginning on December 15, 2014. The 2019 and 2021 Notes mature on June 15, 2019 and June 15, 2021, respectively. If a designated event, as defined in the indentures for the 2019 and 2021 Notes, such as acquisition, merger, or liquidation, occurs prior to the maturity date, subject to certain limitations, holders of the notes may require the Company to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

The Company accounts separately for the liability and equity components of the 2019 and 2021 Notes in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated by measuring the fair value of a similar liability that does not have an associated conversion feature. Because the Company has no outstanding non-convertible public debt, the Company determined that market-traded senior, unsecured corporate bonds represent a similar liability to the convertible senior notes without the conversion option. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry as the Company, and with similar maturities to the 2019 and 2021 Notes, the Company estimated the implied interest rates of its 2019 and 2021 Notes to be 2.9% and 3.5% , respectively, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rates were applied to the 2019 and 2021 Notes, which resulted in a fair value of the liability component in aggregate of $971.5 million upon issuance, calculated as the present value of implied future payments based on the $1,150.0 million aggregate principal amount. The $161.2 million difference between the cash proceeds of $1,132.7 million and the estimated fair value of the liability component was recorded in additional paid-in capital as the 2019 and 2021 Notes are not considered redeemable.

As a policy election under applicable guidance related to the calculation of diluted net income per share, the Company elected the combination settlement method as its stated settlement policy and applied the treasury stock method in the calculation of the potential dilutive impact of the 2019 and 2021 Notes. Neither the 2019 nor the 2021 Notes were convertible as of January 1, 2017 , and had no dilutive impact during the year ended January 1, 2017 . If the 2019 and 2021 Notes were converted as of January 1, 2017 , the if-converted value would not exceed the principal amount.

0.25% Convertible Senior Notes due 2016

In 2011, the Company issued $920.0 million aggregate principal amount of 0.25% convertible senior notes due 2016 (2016 Notes) with a maturity date of March 15, 2016. The effective rate of the liability component was estimated to be 4.5% . Based upon meeting the stock trading price conversion requirement during the three months ended March 30, 2014, the 2016 Notes became convertible on April 1, 2014 through, and including, March 11, 2016 . All notes were converted by March 11, 2016.

In conjunction with the issuance of the 2019 and 2021 Notes, the Company used the net proceeds from the issuance plus cash on hand to repurchase $600.0 million in principal amount of the outstanding 2016 Notes in privately negotiated transactions. The aggregate cash used for the repurchase was $1,244.7 million . The repurchase is accounted for as an extinguishment of debt. Extinguishment accounting requires the purchase price to be allocated to the liability and equity components of the repurchased notes based on the fair value of the liability component, and the difference between the fair value and the carrying value of the liability component to be recognized as loss on extinguishment of debt. An interest rate of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

1.2% upon settlement, which was estimated using Level 2 inputs, was applied to measure the fair value of the liability component of the extinguished debt. This calculation resulted in $588.8 million allocated to the debt component and $655.9 million allocated to the equity component. The $31.4 million difference between the $588.8 million fair value of debt component and the carrying value of the repurchased 2016 Notes was recorded as a loss on extinguishment of debt within other expense, net, during the year ended December 28, 2014. The $655.9 million of the repurchase price allocated to the equity component was recorded as a reduction of additional paid-in capital.

As a result of the conversions of the 2016 Notes during the year ended January 1, 2017 , the Company recorded a loss on extinguishment of debt calculated as the difference between the estimated fair value of the debt and the carrying value of the notes as of the settlement date. To measure the fair value of the converted notes as of the settlement date, the applicable interest rate was estimated using Level 2 observable inputs and applied to the converted notes using the same methodology as in the issuance date valuation.

The following table summarizes information about the conversion of the 2016 Notes during the year ended January 1, 2017 (in thousands):



	2016 Notes
Cash paid for principal of notes converted	$	75,543
Conversion value over principal amount paid in shares of common stock	$	63,753
Number of shares of common stock issued upon conversion	409

The following table summarizes information about the equity and liability components of all convertible senior notes outstanding as of the period reported (dollars in thousands). The fair values of the respective notes outstanding were measured based on quoted market prices, and is a Level 2 measurement.



	January 1, 2017			January 3, 2016
Principal amount of convertible notes outstanding	$	1,150,000		$	1,225,547
Unamortized discount of liability component	(105,312		)	(134,969		)
Net carrying amount of liability component	1,044,688			1,090,578
Less: current portion	—			(74,929		)
Long-term debt	$	1,044,688		$	1,015,649
Carrying value of equity component, net of issuance costs	$	161,237		$	213,811
Fair value of outstanding notes	$	1,107,671		$	1,456,451
Weighted average remaining amortization period of discount on the liability component	3.6 years			4.6 years

Other

As of January 1, 2017 , the accompanying consolidated balance sheets include $1.3 million and $3.1 million in current and long-term debt, respectively, related to an outstanding line of credit held by Helix.


6.	Commitments

Leases

The Company leases office and manufacturing facilities under various non-cancellable lease agreements. Facility leases generally provide for periodic rent increases, and many contain escalation clauses and renewal options. Certain leases require the Company to pay property taxes and routine maintenance. The Company is headquartered in San Diego, California and leases facilities in San Diego and the San Francisco Bay Area in California; Madison, Wisconsin; Morrisville, North Carolina; Australia; Brazil; Canada; China; France; Japan; Singapore; the Netherlands; and the United Kingdom.

The Company is deemed to be the owner of several of its leased facilities under construction due to certain indemnification obligations related to the construction. 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.

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Annual future minimum payments of the Company’s leases as of January 1, 2017 were as follows (in thousands):



	Operating Leases		Sublease Income			Net Operating Leases		Build-to-suit Leases
2017	$	42,759	$	(7,042	)	$	35,717	$	12,244
2018	45,214		(9,878		)	35,336		28,760
2019	46,767		(10,175		)	36,592		24,537
2020	46,166		(10,369		)	35,797		27,928
2021	45,420		(10,338		)	35,082		28,560
Thereafter	435,605		(26,360		)	409,245		254,828
Total minimum lease payments	$	661,931	$	(74,162	)	$	587,769	$	376,857

Rent expense was $45.8 million , $38.5 million , and $33.2 million for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively.

The Company recorded facility exit obligations upon vacating its former headquarters in 2011. Changes in the facility exit obligation from December 29, 2013 through January 1, 2017 are as follows (in thousands):



	Facility Exit Obligation
Balance as of December 29, 2013	$	38,218
Adjustment to facility exit obligation	2,555
Accretion of interest expense	2,638
Cash payments	(5,711		)
Balance as of December 28, 2014	37,700
Adjustment to facility exit obligation	(5,303		)
Accretion of interest expense	2,294
Cash payments	(12,531		)
Balance as of January 3, 2016	22,160
Adjustment to facility exit obligation	190
Accretion of interest expense	1,296
Cash payments	(4,723		)
Balance as of January 1, 2017	$	18,923

Licensing Agreements

In the normal course of its business, the Company enters, from time to time, into licensing agreements under which the Company commits to certain minimum royalty payments, some of which are subject to adjustment. Such licensing agreements may be terminated prior to the expiration of underlying intellectual property under certain circumstances. Annual future minimum royalty payments under the Company’s licensing agreements as of January 1, 2017 are as follows (in thousands):



	Minimum Payments
2017	$	12,920
2018	18,055
2019	23,100
2020	23,150
Total minimum royalty payments	$	77,225

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Warranties

Changes in the Company’s reserve for product warranties from December 29, 2013 through January 1, 2017 are as follows (in thousands):



	Warranty Reserve
Balance as of December 29, 2013	$	10,407
Additions charged to cost of revenue	24,150
Repairs and replacements	(18,941		)
Balance as of December 28, 2014	15,616
Additions charged to cost of revenue	27,574
Repairs and replacements	(26,473		)
Balance as of January 3, 2016	16,717
Additions charged to cost of revenue	21,243
Repairs and replacements	(24,721		)
Balance as of January 1, 2017	$	13,239


7.	Share-based Compensation Expense

Share-based compensation expense for all stock awards consists of the following (in thousands):



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Cost of product revenue	$	9,070		$	9,841		$	9,451
Cost of service and other revenue	1,584			1,609			1,204
Research and development	42,295			42,001			50,880
Selling, general and administrative	76,116			79,142			91,016
Share-based compensation expense before taxes	129,065			132,593			152,551
Related income tax benefits	(40,969		)	(38,986		)	(44,194		)
Share-based compensation expense, net of taxes	$	88,096		$	93,607		$	108,357

The assumptions used for the specified reporting periods and the resulting estimates of weighted-average fair value per share for stock purchased under the ESPP are as follows:



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Risk-free interest rate	0.40% - 0.50%			0.07%-0.33%			0.05% - 0.13%
Expected volatility	40% - 44%			29% - 38%			38% - 41%
Expected term	0.5 - 1.0 year			0.5 -1.0 year			0.5 - 1.0 year
Expected dividends	0		%	0		%	0		%
Weighted-average grant-date fair value per share	$	48.29		$	53.92		$	44.64

As of January 1, 2017 , approximately $299.9 million of total unrecognized compensation cost related to restricted stock and ESPP shares issued to date is expected to be recognized over a weighted-average period of approximately 2.7 years .

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8.	Stockholders’ Equity

The 2015 Stock and Incentive Compensation Plan (the 2015 Stock Plan), 2005 Solexa Equity Incentive Plan (the 2005 Solexa Equity Plan), and the New Hire Stock and Incentive Plan allow for the issuance of stock options, restricted stock units and awards, and performance stock units. As of January 1, 2017 , approximately 6.2 million shares remained available for future grants under the 2015 Stock Plan and the 2005 Solexa Equity Plan. There is no set number of shares reserved for issuance under the New Hire Stock and Incentive Plan.

Restricted Stock

The Company issues restricted stock units (RSU), restricted stock awards (RSA), and performance stock units (PSU). The Company grants RSU and PSU pursuant to the 2015 Stock Plan. RSU are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. For grants to new hires prior to July 2011 and for grants to existing employees prior to December 2014, RSU generally vest 15% on the first anniversary of the grant date, 20% on the second anniversary of the grant date, 30% on the third anniversary of the grant date, and 35% on the fourth anniversary of the grant date. For grants to new hires subsequent to July 2011 and for grants to existing employees subsequent to December 2014, RSU generally vest over a four -year period with equal vesting on anniversaries of the grant date. The Company satisfies RSU vesting through the issuance of new shares. The Company issues PSU for which the number of shares issuable at the end of a three -year performance period can reach up to 150% of the shares approved in the award based on the Company’s performance relative to specified earnings per share targets.

The Company also issues RSA that are released based on service related vesting conditions. RSA may be issued from the Company’s treasury stock or granted pursuant to the Company’s 2015 Stock and Incentive Plan.

A summary of the Company’s restricted stock activity and related information from December 29, 2013 through January 1, 2017 is as follows (in thousands, except per share amounts):



	Restricted Stock Awards (RSA)		Restricted Stock Units (RSU)		Performance Stock Units (PSU)(1)		Weighted-Average Grant-Date Fair Value per Share
	Restricted Stock Awards (RSA)		Restricted Stock Units (RSU)		Performance Stock Units (PSU)(1)		RSA		RSU		PSU
Outstanding at December 29, 2013	248		3,628		1,101		$	53.46	$	59.66	$	54.64
Awarded	—		780		968		—		$	172.53	$	104.52
Vested	(140	)	(1,383	)	(753	)	$	47.90	$	55.44	$	49.52
Cancelled	—		(184	)	(59	)	—		$	65.09	$	52.87
Outstanding at December 28, 2014	108		2,841		1,257		$	56.62	$	92.35	$	96.21
Awarded	—		756		194		—		$	184.10	$	183.29
Vested	(87	)	(1,138	)	(741	)	$	58.72	$	75.29	$	60.80
Cancelled	—		(253	)	(127	)	—		$	99.50	$	99.30
Outstanding at January 3, 2016	21		2,206		583		$	47.93	$	131.80	$	169.41
Awarded	22		1,245		172		$	179.00	$	132.47	$	113.56
Vested	(11	)	(928	)	(199	)	$	47.93	$	105.49	$	148.99
Cancelled	—		(230	)	(96	)	—		$	139.74	$	163.05
Outstanding at January 1, 2017	32		2,293		460		$	136.30	$	141.80	$	158.66

______________________________________


(1)	The number of units reflect the estimated number of shares to be issued at the end of the performance period.

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Pre-tax intrinsic values and fair value of vested restricted stock are as follows (in thousands):



	Years Ended
	January 1, 2017		January 3, 2016		December 28, 2014
Pre-tax intrinsic value of outstanding restricted stock:
RSA	$	4,138	$	4,041	$	20,321
RSU	$	293,592	$	423,391	$	534,708
PSU	$	58,838	$	111,958	$	236,606

Fair value of restricted stock vested:
RSA	$	505	$	5,104	$	6,712
RSU	$	97,952	$	85,683	$	76,646
PSU	$	29,668	$	45,014	$	37,313

Stock Options

Stock options granted at the time of hire primarily vest over a four period, with 25% of options vesting on the first anniversary of the grant date and the remaining options vesting monthly over the remaining vesting period. Stock options granted subsequent to hiring primarily vest monthly over a four period. Each grant of options has a maximum term of ten years, measured from the applicable grant date, subject to earlier termination if the optionee’s service ceases. Vesting in all cases is subject to the individual’s continued service through the vesting date. The Company satisfies option exercises through the issuance of new shares.

The Company’s stock option activity under all stock option plans from December 29, 2013 through January 1, 2017 is as follows:



	Options (in thousands)		Weighted- Average Exercise Price
Outstanding at December 29, 2013	5,724		$	32.64
Exercised	(2,478	)	$	29.93
Cancelled	(35	)	$	31.73
Outstanding at December 28, 2014	3,211		$	34.74
Exercised	(1,529	)	$	28.54
Cancelled	(83	)	$	10.31
Outstanding at January 3, 2016	1,599		$	41.95
Exercised	(552	)	$	29.41
Cancelled	(2	)	$	46.35
Outstanding at January 1, 2017	1,045		$	48.56

At January 1, 2017 , outstanding options to purchase 1.0 million shares were exercisable with a weighted-average per share exercise price of $48.56 . The weighted-average remaining life of options outstanding and exercisable is 3.0 years as of January 1, 2017 .

The aggregate intrinsic value of options outstanding and options exercisable as of January 1, 2017 was $83.1 million . Aggregate intrinsic value represents the product of the number of options outstanding multiplied by the difference between the Company’s closing stock price per share on the last trading day of the fiscal period, which was $128.04 as of December 30, 2016 , and the exercise price. Total intrinsic value of options exercised was $70.6 million , $256.1 million , and $330.5 million for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively. Total fair value of options vested was $0.5 million , $4.3 million , and $17.2 million for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively.

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Employee Stock Purchase Plan

A total of 15.5 million shares of the Company’s common stock have been reserved for issuance under its 2000 Employee Stock Purchase Plan, or ESPP. The ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first of the offering period or purchase date, whichever is lower. The initial offering period commenced in July 2000.

Approximately 0.2 million , 0.2 million , and 0.3 million shares were issued under the ESPP during the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively. As of January 1, 2017 and January 3, 2016 , there were approximately 14.3 million and 14.5 million shares available for issuance under the ESPP, respectively.

Warrants

In connection with the offering of the Company’s convertible notes due 2014, the Company sold warrants to purchase 18.3 million shares of common stock to counterparties to the convertible note hedge transactions. The warrants had an exercise price of $31.44 per share, and the proceeds from the sale of such warrants were used by the Company to partially offset the cost of the transactions. In July 2013, the Company settled with a hedging counterparty outstanding warrants to purchase approximately 3.0 million shares of the Company’s common stock for $125.0 million in cash. The remaining warrants were exercised in full during the year ended December 28, 2014.

Share Repurchases

On July 28, 2016, the Company’s Board of Directors authorized a new share repurchase program, which supersedes all prior and available repurchase authorizations, to repurchase $250.0 million of outstanding common stock. During the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , the Company repurchased approximately 1.8 million shares for $249.3 million , 1.7 million shares for $274.3 million , and 1.5 million shares for $237.2 million , respectively. Authorizations to repurchase up to an additional $100.7 million of its common stock remained as of January 1, 2017 .


9.	Legal Proceedings

The Company is involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, the Company assesses, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, the Company is currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event that opposing litigants in outstanding litigations or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

Enzo

On July 1, 2016, the Company entered into a Settlement and License Agreement with Enzo Life Sciences, Inc. (Enzo) that settled all claims in the litigation. Pursuant to the terms of the Settlement and License Agreement, the Company paid Enzo a one-time payment of $21.0 million for release of past damages claimed and a fully paid-up non-exclusive license to U.S. Patent No. 7,064,197. None of the parties made any admission of liability in entering into the Settlement and License Agreement. The Company allocated the $21.0 million settlement on a relative fair value basis, resulting in $11.5 million capitalized as an intangible asset and a corresponding gain recorded in legal contingencies for the value of the license, which will be amortized over a period of 7 years on a straight-line basis, and the remaining $9.5 million related to past damages claimed. The fair value

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of the license and past damages was estimated using a discounted cash flow model, and is considered to be a Level 3 measurement.

Syntrix

On November 24, 2010, Syntrix Biosystems, Inc. (Syntrix) filed suit against the Company in the United States District Court for the Western District of Washington at Tacoma (Case No. C10-5870-BHS) alleging that the Company willfully infringed U.S. Patent No. 6,951,682 by selling its BeadChip array products, and that the Company misappropriated Syntrix’s trade secrets. On January 30, 2013, the Court granted the Company’s motion for summary judgment on Syntrix’s trade secret claims, and dismissed those claims from the case. On March 14, 2013, a jury reached a verdict in favor of Syntrix, finding that Illumina’s BeadChip kits infringe the Syntrix patent. During trial, the Court dismissed Syntrix’s claim that the alleged infringement was willful. On July 1, 2013, the Court entered a Final Amended Judgment for $115.1 million , in accordance with the jury verdict, including supplemental damages and prejudgment interest. In addition, the Court awarded Syntrix an ongoing royalty of 8% for accused sales from March 15, 2013 until the patent expires on September 16, 2019. On December 3, 2013, the Company filed a Notice of Appeal to the Court of Appeals for the Federal Circuit challenging the Final Amended Judgment. On December 16, 2013, Syntrix cross appealed the Court’s dismissal of its trade secret claims and denial of its willfulness claim. For the year ended December 29, 2013, the Company recorded total charges of $132.9 million related to this matter, $114.6 million of which was recorded within operating expenses, with the remainder recorded to cost of sales.

On November 14, 2014, the Company entered into a Settlement and License Agreement with Syntrix and its sole shareholders, John A. Zebala and Amy Zebala, that settled all claims in the litigation. Pursuant to the terms of the Settlement and License Agreement, the Company paid Syntrix a one-time payment of $70.0 million in exchange for a release of past damages claimed and a fully paid-up exclusive license to U.S. Patent No. 6,951,682. None of the parties made any admission of liability in entering into the Settlement and License Agreement. On November 19, 2014, the Court dismissed the litigation with prejudice and vacated the judgment against the Company. The Company allocated the $70.0 million payment on relative fair value basis, resulting in $29.5 million capitalized as an intangible asset for the value of the exclusive license, which is amortized over a period of 4.8 years on a straight-line basis, and the remaining $40.5 million to the release of past damages claimed. The fair value of license and past damages was estimated using a discounted cash flow model, and is considered to be a Level 3 measurement.

The settlement of the litigation resulted in a gain of $109.4 million , of which $27.3 million was recorded as reversal of cost of sales, reflecting a true-up of historical royalty expenses to the effective royalty rate. The remaining gain of $82.1 million was recorded as a legal contingency gain in operating expenses.

Sequenom

On December 2, 2014, the Company and its subsidiary Verinata Health, Inc. entered into a series of agreements with Sequenom, Inc. (Sequenom), its subsidiary Sequenom Center for Molecular Medicine LLC (Sequenom LLC), and Chinese University of Hong Kong (CUHK), and an agreement with the Trustees of Leland Stanford University (Stanford), that, together, (1) settled a patent litigation pending in the United States District Court for the Northern District of California (the District Court) between Verinata and Stanford, on the one hand, and Sequenom, Sequenom LLC, and Isis Innovation Limited (Isis), on the other hand, (2) requested remand of certain claims and counterclaims of Sequenom, Isis, Verinata, and Stanford from the appeal pending in the United States Court of Appeals for the Federal Circuit of a second patent litigation pending in District Court in order to seek to vacate an order related to those claims and dismiss them, and (3) settled an inter partes review related to a United States Patent No. 8,195,415, assigned to Stanford and licensed to Verinata.

As part of the settlement, the Company and Sequenom have entered into a Pooled Patents Agreement and related sublicense agreements whereby (1) Sequenom granted Illumina a worldwide license to patents directed to Non-Invasive Prenatal Testing (NIPT) for Laboratory Developed Testing (LDT) and In-Vitro Diagnostic (IVD) products, which license is exclusive in the LDT field, except with respect to certain patents formerly owned by Isis, in which case it is non-exclusive, and (2) Illumina (and Verinata in some cases) granted a worldwide non-exclusive license to Sequenom under Illumina-owned and in-licensed NIPT-related patents for Sequenom to continue its business related to NIPT LDT (the patents owned or in-licensed by either the Company or Sequenom that fall under the Pooled Patents Agreement are the “Pooled Patents”). The Company also assumed, by novation, amended exclusive patent licenses from CUHK to Sequenom and entered into several new exclusive in-license agreements with CUHK related to CUHK patents directed to NIPT, and granted to Sequenom non-exclusive sublicenses under the Company’s license agreements with CUHK, Stanford, and General Hospital Corporation for Sequenom to practice NIPT LDT. The Company and Sequenom also extended, amended, and restated their current supply agreement under

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which Sequenom purchases from the Company equipment and supplies for NIPT LDT and other clinical fields, and entered into a separate agreement whereby Sequenom transferred to the Company certain clinical samples and data useful in the development of NIPT IVD.

As consideration for the foregoing settlement arrangements, the Company agreed to pay Sequenom an aggregate of $50.0 million , as well as to pay royalties to Sequenom for sales of NIPT IVD products. The Company and Sequenom also agreed to share revenues received for exploitation of the Pooled Patents in NIPT LDT. None of the parties made any admission of liability in entering into these arrangements. The parties filed certain stipulated motions with the Federal Circuit and District Court to vacate and dismiss the associated claims and counterclaims with prejudice, which motions have been granted by the respective courts.

The Company considered whether the elements received represented identifiable benefits that were sufficiently separable from the products it sells to Sequenom, and considered whether the value of these benefits could be reasonably estimated. The Company identified the legal settlement, clinical samples, the IVD and LDT patent rights as elements. The Company used a discounted cash flow analysis to estimate the value of the patent rights, replacement cost to value the samples, and an assumed royalty rate on historical sales for the legal settlement. These fair value estimates are considered Level 3 measurements. The Company determined that the aggregate fair value of the benefits received exceeded the consideration paid and allocated the $50.0 million payment to the various elements on a relative fair value basis. This resulted in $48.8 million allocated to the samples and patent rights transferred to Illumina, which were expensed in research and development expenses due to lack of alternative future use. The remaining $1.2 million was recorded as a legal contingency charge in operating expenses.


10.	Income Taxes

The income before income taxes summarized by region is as follows (in thousands):



	Years Ended
	January 1, 2017		January 3, 2016		December 28, 2014
United States	$	120,147	$	217,674	$	176,974
Foreign	441,031		365,468		271,784
Total income before income taxes	$	561,178	$	583,142	$	448,758

The provision for income taxes consists of the following (in thousands):



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Current:
Federal	$	71,474		$	106,062		$	60,984
State	9,980			18,240			12,381
Foreign	44,942			46,397			41,815
Total current provision	126,396			170,699			115,180
Deferred:
Federal	15,935			(11,534		)	(3,191		)
State	(5,254		)	(31,779		)	(4,974		)
Foreign	(3,989		)	(1,634		)	(11,608		)
Total deferred expense (benefit)	6,692			(44,947		)	(19,773		)
Total tax provision	$	133,088		$	125,752		$	95,407

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The provision for income taxes reconciles to the amount computed by applying the federal statutory rate to income before taxes as follows (in thousands):



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Tax at federal statutory rate	$	196,412		$	204,100		$	157,065
State, net of federal benefit	9,685			8,821			5,023
Research and other credits	(13,650		)	(19,853		)	(16,144		)
Change in valuation allowance	4,677			(3,750		)	(4,212		)
Impact of foreign operations	(85,766		)	(42,356		)	(42,215		)
Cost sharing adjustment	(6,696		)	(24,813		)	—
Investments in consolidated variable interest entities	25,059			1,376			—
Other	3,367			2,227			(4,110		)
Total tax provision	$	133,088		$	125,752		$	95,407

The impact of foreign operations primarily represents the difference between the actual provision for income taxes for our legal entities that operate primarily in jurisdictions that have statutory tax rates lower than the U.S. federal statutory tax rate of 35% . The most significant tax benefits from foreign operations were from the Company’s earnings in Singapore and the United Kingdom, which had statutory tax rates of 17% and 20% , respectively, in the year ended January 1, 2017 . The impact of foreign operations also includes the U.S. foreign tax credit impact of non-U.S. earnings and uncertain tax positions related to foreign items.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	January 1, 2017			January 3, 2016
Deferred tax assets:
Net operating losses	$	20,419		$	35,448
Tax credits	43,245			40,590
Other accruals and reserves	23,805			42,223
Stock compensation	37,536			52,199
Deferred rent	38,310			30,355
Cost sharing adjustment	31,509			24,813
Other amortization	16,396			32,782
Other	37,622			27,727
Total gross deferred tax assets	248,842			286,137
Valuation allowance on deferred tax assets	(18,069		)	(13,392		)
Total deferred tax assets	230,773			272,745
Deferred tax liabilities:
Purchased intangible amortization	(53,159		)	(78,270		)
Convertible debt	(37,261		)	(47,863		)
Property and equipment	(17,422		)	(15,090		)
Other	(482		)	(825		)
Total deferred tax liabilities	(108,324		)	(142,048		)
Net deferred tax assets	$	122,449		$	130,697

A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence. Based on the available evidence as of

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January 1, 2017 , the Company was not able to conclude it is more likely than not certain deferred tax assets will be realized. Therefore, the Company recorded a valuation allowance of $18.1 million against certain deferred tax assets.

As of January 1, 2017 , the Company had net operating loss carryforwards for federal and state tax purposes of $14.4 million and $284.0 million , respectively, which will begin to expire in 2019 and 2017 , respectively, unless utilized prior. The Company also had federal and state tax credit carryforwards of $44.5 million and $90.9 million , respectively, which will begin to expire in 2025 and 2019 , respectively, unless utilized prior.

Pursuant to Section 382 and 383 of the Internal Revenue Code, utilization of the Company’s net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The deferred tax assets as of January 1, 2017 are net of any previous limitations due to Section 382 and 383.

The Company recognizes excess tax benefits associated with share-based compensation to stockholders’ equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company follows the with-and-without approach excluding any indirect effects of the excess tax deductions. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to the Company. During the year ended January 1, 2017 , the Company realized $86.9 million of such excess tax benefits, and accordingly recorded a corresponding credit to additional paid-in capital. As of January 1, 2017 , the Company had $46.4 million of unrealized excess tax benefits associated with share-based compensation. Per ASU 2016-09, these tax benefits will be accounted for as a credit to retained earnings when this ASU becomes effective in the first quarter of 2017.

The Company’s manufacturing operations in Singapore operate under various tax holidays and incentives that begin to expire in 2018. For the year ended January 1, 2017 , these tax holidays and incentives resulted in a $32.1 million decrease to the provision for income taxes and an increase in diluted earnings per share attributable to Illumina stockholders of $0.22 .

It is the Company’s intention to indefinitely reinvest all current and future foreign earnings in order to ensure sufficient working capital to support and expand existing operations outside the United States. Accordingly, residual U.S. income taxes have not been provided on $849.2 million of undistributed earnings of foreign subsidiaries as of January 1, 2017 . In the event the Company was required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences. It is not practicable for the Company to determine the total amount of unrecognized deferred U.S. income tax liability because of the complexities associated with its hypothetical calculation.

The following table summarizes the gross amount of the Company’s uncertain tax positions (in thousands):



	January 1, 2017			January 3, 2016			December 28, 2014
Balance at beginning of year	$	56,142		$	52,088		$	49,046
Increases related to prior year tax positions	—			2,185			426
Decreases related to prior year tax positions	(1,674		)	(1,115		)	(804		)
Increases related to current year tax positions	12,912			10,584			8,756
Decreases related to lapse of statute of limitations	(2,354		)	(7,600		)	(5,336		)
Balance at end of year	$	65,026		$	56,142		$	52,088

Included in the balance of uncertain tax positions as of January 1, 2017 and January 3, 2016 , were $54.6 million and $47.1 million , respectively, of net unrecognized tax benefits that, if recognized, would reduce the Company’s effective income tax rate in future periods.

Any interest and penalties related to uncertain tax positions are reflected in the provision for income taxes. The Company recognized expense of $0.8 million , income of $0.2 million , and expense of $0.7 million during the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , respectively, related to potential interest and penalties on uncertain tax positions. The Company recorded a liability for potential interest and penalties of $5.7 million and $4.5 million as of January 1, 2017 and January 3, 2016 , respectively.

Tax years 1997 to 2015 remain subject to future examination by the major tax jurisdictions in which the Company is subject to tax. Given the uncertainty of potential adjustments from examination as well as the potential expiration of the statute

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of limitations, it is reasonably possible that the balance of unrecognized tax benefits could change significantly over the next 12 months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be determined given the number of matters and the number of years that are potentially subject to examination.


11.	Employee Benefit Plans

Retirement Plan

The Company has a 401(k) savings plan covering substantially all of its employees in the United States. Company contributions to the plan are discretionary. During the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , the Company made matching contributions of $14.3 million , $11.5 million , and $9.5 million , respectively.

Deferred Compensation Plan

The Company adopted the Illumina, Inc. Deferred Compensation Plan (the Plan) that became effective January 1, 2008. The Company’s senior level employees can contribute up to 80% of their base salary and 100% of their variable cash compensation. Members of the board of directors can contribute up to 100% of their director fees and equity awards. The Company has agreed to credit the participants’ contributions with earnings that reflect the performance of certain independent investment funds. On a discretionary basis, the Company may also make employer contributions to participant accounts in any amount determined by the Company. The vesting schedules of employer contributions are at the sole discretion of the Compensation Committee. However, all employer contributions shall become 100% vested upon the occurrence of the participant’s disability, death or retirement or a change in control of the Company. The benefits under this plan are unsecured. Participants are generally eligible to receive payment of their vested benefit at the end of their elected deferral period or after termination of their employment with the Company for any reason or at a later date to comply with the restrictions of Section 409A.

In January 2008, the Company also established a rabbi trust for the benefit of the participants under the Plan. In accordance with authoritative guidance related to consolidation of variable interest entities and accounting for deferred compensation arrangements where amounts earned are held in a rabbi trust and invested, the Company has included the assets of the rabbi trust in its consolidated balance sheet since the trust’s inception. As of January 1, 2017 and January 3, 2016 , the assets of the trust were $30.9 million and $26.2 million , respectively, and liabilities of the Company were $29.2 million and $24.9 million , respectively. The assets and liabilities are classified as other assets and accrued liabilities, respectively, on the Company’s consolidated balance sheets. Changes in the values of the assets held by the rabbi trust are recorded in other expense, net in the consolidated statements of income, and changes in the values of the deferred compensation liabilities are recorded in cost of revenue or operating expenses.


12.	Segment Information, Geographic Data, and Significant Customers

The Company has two reportable segments: Core Illumina and one segment related to the combined activities of the Company’s consolidated VIEs, GRAIL and Helix. The Company reports segment information based on the management approach. This approach designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of the Company’s reportable segments. The CODM allocates resources and assesses the performance of each operating segment using information about its revenues and income (losses) from operations. Based on the information used by the CODM, the Company has determined its reportable segments as follows:

Core Illumina :

Core Illumina’s products and services serve customers in the research, clinical and applied markets, and enable the adoption of a variety of genomic solutions. Core Illumina includes all operations of the Company, excluding the results of its two consolidated VIEs.

Consolidated VIEs:

GRAIL : GRAIL was created to develop a blood test for early-stage cancer detection. GRAIL is currently in the early stages of developing this test and as such, has no revenues to date.

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ILLUMINA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Helix : Helix was established to enable individuals to explore their genetic information by providing affordable sequencing and database services for consumers through third party partners, driving the creation of an ecosystem of consumer applications. The Company has no revenues to date.

Management evaluates the performance of the Company’s operating segments based upon income (loss) from operations. The Company does not allocate expenses between segments. Core Illumina sells products and provides services to GRAIL and Helix in accordance with contractual agreements between the entities.

The following table presents the operating performance of each reportable segment (in thousands):



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Revenues:
Core Illumina	$	2,428,024		$	2,219,762		$	1,861,358
Consolidated VIEs	—			—			—
Elimination of intersegment revenues	(29,651		)	—			—
Consolidated revenues	$	2,398,373		$	2,219,762		$	1,861,358

Depreciation and amortization:
Core Illumina	$	137,585		$	126,342		$	112,574
Consolidated VIEs	4,345			77			—
Total depreciation and amortization	$	141,930		$	126,419		$	112,574

Operating income (loss):
Core Illumina	$	683,790		$	621,215		$	514,711
Consolidated VIEs	(81,114		)	(8,374		)	—
Elimination of intersegment earnings	(15,644		)	—			—
Consolidated operating income	$	587,032		$	612,841		$	514,711

Other income and expense primarily relate to Core Illumina and the Company does not allocate income taxes to its segments.

The following table presents the total assets and capital expenditures of each reportable segment (in thousands):



	Years Ended
	January 1, 2017			January 3, 2016			December 28, 2014
Total assets:
Core Illumina	$	4,167,230		$	3,657,953		$	3,339,640
Consolidated VIEs	179,725			30,447			—
Elimination of intersegment assets	(66,355		)	(653		)	—
Consolidated total assets	$	4,280,600		$	3,687,747		$	3,339,640

Capital expenditures:
Core Illumina	$	238,420		$	141,607		$	105,996
Consolidated VIEs	22,385			1,240			—
Total capital expenditures	$	260,805		$	142,847		$	105,996

As of January 1, 2017 , the Company had gross assets of $13.7 million in Property and Equipment, net related to capital leases held by GRAIL and Helix.

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ILLUMINA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company had revenue in the following regions for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 (in thousands):



	Years Ended
	January 1, 2017		January 3, 2016		December 28, 2014
United States	$	1,294,178	$	1,207,373	$	950,703
Europe	553,217		527,406		466,536
Asia-Pacific	456,380		379,575		342,702
Other markets	94,598		105,408		101,417
Total	$	2,398,373	$	2,219,762	$	1,861,358

Revenues are attributable to geographic areas based on the region of destination.

The majority of our product sales consist of consumables and instruments. For the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , consumable sales represented 64% , 58% , and 56% , respectively, of total revenues and instrument sales comprised 20% , 27% , and 30% , respectively, of total revenues. The Company’s customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, agrigenomics, commercial molecular diagnostic laboratories, and consumer genomics companies. The Company had no customers that provided more than 10% of total revenue in the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 .

Net long-lived assets exclude goodwill and other intangible assets since they are not allocated on a geographic basis. The Company had net long-lived assets consisting of property and equipment in the following regions as of January 1, 2017 and January 3, 2016 (in thousands):



	January 1, 2017		January 3, 2016
United States	$	636,318	$	273,193
Singapore	44,263		30,127
United Kingdom	27,490		33,271
Other countries	5,263		6,103
Total	$	713,334	$	342,694

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ILLUMINA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	Quarterly Financial Information (unaudited)

The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results and cash flows of interim periods. All quarters for fiscal years 2016 and 2015 ended January 1, 2017 and January 3, 2016 were 13 weeks, except for the fourth quarter of fiscal year 2015, which was 14 weeks. Summarized quarterly data for fiscal years 2016 and 2015 are as follows (in thousands, except per share amounts):



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2016
Total revenue	$	571,763	$	600,124	$	607,139	$	619,347
Gross profit	$	397,054	$	423,805	$	426,150	$	419,439
Consolidated net income	$	87,219	$	116,394	$	116,935	$	107,542
Net income attributable to Illumina stockholders	$	89,587	$	120,412	$	128,888	$	123,762
Earnings per share attributable to Illumina stockholders:
Basic	$	0.61	$	0.83	$	0.88	$	0.84
Diluted	$	0.60	$	0.82	$	0.87	$	0.84
2015
Total revenue	$	538,565	$	539,378	$	550,271	$	591,548
Gross profit	$	375,027	$	376,365	$	387,539	$	410,359
Consolidated net income	$	136,658	$	102,247	$	115,621	$	102,864
Net income attributable to Illumina stockholders	$	136,658	$	102,247	$	118,177	$	104,477
Earnings per share attributable to Illumina stockholders:
Basic	$	0.95	$	0.71	$	0.81	$	0.72
Diluted	$	0.92	$	0.69	$	0.79	$	0.70

ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.


ITEM 9A.	Controls and Procedures.

We design our internal controls to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported in conformity with U.S. generally accepted accounting principles. We also maintain internal controls and procedures to ensure that we comply with applicable laws and our established financial policies.

Based on management’s evaluation (under the supervision and with the participation of our chief executive officer (CEO) and chief financial officer (CFO)), as of the end of the period covered by this report, our CEO and CFO concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

During the fourth quarter of 2016 , we continued to monitor and evaluate the operating effectiveness of key controls related to process enhancements arising out of our enterprise resource planning system implementation in 2015. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected or are reasonably likely to materially affect internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Because of its inherent limitations, internal control over financial

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reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of January 1, 2017 . The effectiveness of our internal control over financial reporting as of January 1, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Illumina, Inc.

We have audited Illumina, Inc.’s internal control over financial reporting as of January 1, 2017 , based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Illumina, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Illumina, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 1, 2017 , based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Illumina, Inc. as of January 1, 2017 and January 3, 2016 , and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended January 1, 2017 of Illumina, Inc. and our report dated February 13, 2017 expressed an unqualified opinion thereon.

/s/ E RNST & Y OUNG LLP

San Diego, California

February 13, 2017

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ITEM 9B.	Other Information.

None.

PART III


ITEM 10.	Directors, Executive Officers, and Corporate Governance.

(a) Identification of Directors. Information concerning our directors is incorporated by reference from the section entitled “Proposal One: Election of Directors,” “Information About Directors,” “Director Compensation,” and “Board of Directors and Corporate Governance” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .

(b) Identification of Executive Officers. Information concerning our executive officers is incorporated by reference from the section entitled “Executive Officers” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .

(c) Compliance with Section 16(a) of the Exchange Act. Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .

(d) Information concerning the audit committee financial expert as defined by the SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002 is incorporated by reference from the section entitled “Board of Directors and Corporate Governance” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .

Code of Ethics

We have adopted a code of ethics for our directors, officers, and employees, which is available on our website at www.illumina.com in the Corporate Governance portal of the Investor Relations section under “Company.” A copy of the Code of Ethics is available in print free of charge to any stockholder who requests a copy. Interested parties may address a written request for a printed copy of the Code of Ethics to: Corporate Secretary, Illumina, Inc., 5200 Illumina Way, San Diego, California 92122. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of the Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website. The information on, or that can be accessed from, our website is not incorporated by reference into this report.


ITEM 11.	Executive Compensation.

Information concerning executive compensation is incorporated by reference from the sections entitled “Compensation Discussion and Analysis,” “Director Compensation,” and “Executive Compensation” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .


ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information concerning the security ownership of certain beneficial owners and management and information covering securities authorized for issuance under equity compensation plans is incorporated by reference from the sections entitled “Stock Ownership of Principal Stockholders and Management,” “Executive Compensation,” and “Equity Compensation Plan Information” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .


ITEM 13.	Certain Relationships and Related Transactions, and Director Independence.

Information concerning certain relationships and related transactions, and director independence is incorporated by reference from the sections entitled “Proposal One: Election of Directors,” “Information About Directors,” “Director Compensation,” “Executive Compensation,” and “Certain Relationships and Related Party Transactions” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .

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ITEM 14.	Principal Accountant Fees and Services.

Information concerning principal accountant fees and services is incorporated by reference from the sections entitled “Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm” and “Independent Registered Public Accountants” to be contained in our definitive Proxy Statement with respect to our 2017 Annual Meeting of Stockholders to be filed with the SEC no later than May 1, 2017 .

PART IV


ITEM 15.	Exhibits, Financial Statement Schedules.

1. Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K.

2. Financial Statement Schedule: See “Schedule II — Valuation and Qualifying Accounts and Reserves” in this section of this Form 10-K.

3. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

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SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



	Balance at Beginning of Period		Additions Charged to Expenses/(Reductions from Revenue)(1)	Deductions(2)		Balance at End of Period
	(In thousands)
Year ended January 1, 2017
Allowance for doubtful accounts	$	8,213	2,953	(6,932	)	$	4,234
Year ended January 3, 2016
Allowance for doubtful accounts	$	5,459	3,213	(459	)	$	8,213
Year ended December 28, 2014
Allowance for doubtful accounts	$	3,680	1,870	(91	)	$	5,459

_______________________________________


(1)	Additions to and reductions from allowance for doubtful accounts are recorded to selling, general and administrative expense.


(2)	Deductions for allowance for doubtful accounts are for accounts receivable written off.

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INDEX TO EXHIBITS

Incorporated by Reference

Exhibit

Filing

Filed

Number

Exhibit Description

Form

File Number

Exhibit

Date

Herewith

3.1

Amended and Restated Certificate of Incorporation

8-K

000-30361

3.1

9/23/2008

3.2

Amended and Restated Bylaws

8-K

001-35406

3.2

1/11/2017

4.1

Specimen Common Stock Certificate

S-1/A

333-33922

4.1

7/3/2000

4.2

Indenture related to the 0% Convertible Senior Notes due 2019, dated as of June 11, 2014, between Illumina and The Bank of New York Mellon Trust Company, N.A., as trustee

8-K

001-35406

4.1

6/11/2014

4.3

Indenture related to the 0.5% Convertible Senior Notes due 2021, dated as of June 11, 2014, between Illumina and The Bank of New York Mellon Trust Company, N.A., as trustee

8-K

001-35406

4.2

6/11/2014

4.4

First Supplemental Indenture related to the 0.5% Convertible Senior Notes due 2021, dated as of August 27, 2014, between Illumina and The Bank of New York Mellon Trust Company, N.A., as trustee

10-Q

001-35406

4.1

10/29/2014

+10.1

Form of Indemnification Agreement between Illumina and each of its directors and executive officers

10-Q

000-30361

10.55

7/25/2008

+10.2

Amended and Restated Change in Control Severance Agreement between Illumina and Jay T Flatley, dated October 22, 2008

10-K

000-30361

10.33

2/26/2009

+10.3

Form of Change in Control Severance Agreement between Illumina and each of its executive officers

10-K

000-30361

10.34

2/26/2009

+10.4

2000 Employee Stock Purchase Plan, as amended and restated through February 2, 2012

10-K

001-35406

10.4

2/24/2012

+10.5

2005 Stock and Incentive Plan, as amended and restated through May 29, 2013

S-8

333-190322

4.5

8/2/2013

+10.6

Form of Restricted Stock Unit Agreement for Non-Employee Directors under 2005 Stock and Incentive Plan

10-K

001-35406

10.6

2/24/2012

+10.7

Form of Stock Option Agreement for Non-Employee Directors under 2005 Stock and Incentive Plan

10-K

001-35406

10.7

2/24/2012

+10.8

Form of Restricted Stock Unit Agreement for Employees under 2005 Stock and Incentive Plan

10-K

001-35406

10.8

2/24/2012

+10.9

Form of Stock Option Agreement for Employees under 2005 Stock and Incentive Plan

10-K

001-35406

10.9

2/24/2012

+10.10

New Hire Stock and Incentive Plan, as amended and restated through October 28, 2009

10-K

000-30361

10.7

2/26/2010

10.11

License Agreement, effective as of May 6, 1998, between Tufts University and Illumina

10-Q

000-30361

10.5

5/3/2007

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INDEX TO EXHIBITS — (Continued)

Incorporated by Reference

Exhibit

Filing

Filed

Number

Exhibit Description

Form

File Number

Exhibit

Date

Herewith

+10.12

The Solexa Unapproved Company Share Option Plan

8-K

000-30361

99.3

11/26/2007

+10.13

The Solexa Share Option Plan for Consultants

8-K

000-30361

99.4

11/26/2007

+10.14

Solexa Limited Enterprise Management Incentive Plan

8-K

000-30361

99.5

11/26/2007

+10.15

Amended and Restated Solexa 2005 Equity Incentive Plan

10-K

000-30361

10.25

2/26/2009

+10.16

Amended and Restated Solexa 1992 Stock Option Plan

10-K

000-30361

10.26

2/26/2009

10,170

Amended and Restated Lease between BMR-9885 Towne Centre Drive LLC and Illumina for the 9885 Towne Centre Drive property, dated January 26, 2007

10-Q

000-30361

10.41

5/3/2007

10.18

Lease between BMR-9885 Towne Centre Drive LLC and Illumina for the 9865 Towne Centre Drive property, dated January 26, 2007

10-Q

000-30361

10.42

5/3/2007

10.19

Amended and Restated Lease Agreement, dated March 27, 2012, between ARE-SD Region No. 32, LLC and Illumina

10-Q

001-35406

10.1

5/3/2012

10.20

First Amendment to Amended and Restated Lease Agreement, dated March 27, 2012, between ARE-SD Region No. 32, LLC and Illumina

10-K

001-35406

10.23

2/18/2015

10.21

Second Amendment to Amended and Restated Lease Agreement, dated March 27, 2012, between ARE-SD Region No. 32, LLC and Illumina

10-K

001-35406

10.24

2/18/2015

+10.22

Deferred Compensation Plan, effective December 1, 2007

14D-9

005-60457

99(e)(6)

2/7/2012

10.23

Lease between BMR-Lincoln Centre LP and Illumina, dated December 30, 2014

10-K

001-35406

10.26

2/18/2015

10.24

Pooled Patents Agreement between Illumina and Sequenom, Inc., dated December 2, 2014 (with certain confidential portions omitted)

10-K

001-35406

10.27

2/18/2015

10.25

Agreement for Lease between Granta Park Park Jco 1 Limited and Illumina, dated June 25, 2015

10-Q

001-35406

10.1

7/31/2015

10.26

Third Amendment to Lease between ARE-SD Region No. 32, LLC and Illumina, dated September 2, 2015

10-K

001-35406

10.29

3/2/2016

10.27

First Amendment to Lease between BMR-Lincoln Center LP and Illumina, dated February 23, 2016

10-K

001-35406

10.30

3/2/2016

10.28

Fourth Amendment to Lease between ARE-SD Region No. 32, LLC and Illumina, dated April 14, 2016

10.29

Second Amendment to Lease between BMR-Lincoln Center LP and Illumina dated August 15, 2016

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INDEX TO EXHIBITS — (Continued)

Incorporated by Reference

Exhibit

Filing

Filed

Number

Exhibit Description

Form

File Number

Exhibit

Date

Herewith

10.30

Deed of Variation to the Agreement for Lease between Granta Park Jco 1 Limited and Illumina dated October 24, 2016

10.31

Separation Agreement and General Release of All Claims between Illumina and Christian Henry

21.1

Subsidiaries of Illumina

23.1

Consent of Independent Registered Public Accounting Firm

24.1

Power of Attorney (included on the signature page)

31.1

Certification of Francis A. deSouza pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Sam A. Samad pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Frances A. deSouza pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Sam A. Samad pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

_______________________________________



+		Management contract or corporate plan or arrangement

Supplemental Information

No Annual Report to stockholders or proxy materials has been sent to stockholders as of the date of this report. The Annual Report to stockholders and proxy material will be furnished to our stockholders subsequent to the filing of this Annual Report on Form 10-K and we will furnish such material to the SEC at that time.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 13, 2017 .



	ILLUMINA , I NC.

	By	/s/ F RANCIS A. DE S OUZA
		Francis A. deSouza President and Chief Executive Officer

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February 13, 2017

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Francis A. deSouza and Sam A. Samad, and each or any one of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their, his, or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



/s/ F RANCIS A. DE S OUZA	President, Chief Executive Officer, and Director (Principal Executive Officer)	February 13, 2017
Francis A. deSouza

/s/ S AM A. S AMAD	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 13, 2017
Sam A. Samad

/s/ M ICHEL B OUCHARD	Vice President and Chief Accounting Officer (Principal Accounting Officer)	February 13, 2017
Michel Bouchard

/s/ J AY T. F LATLEY	Executive Chairman of the Board of Directors	February 13, 2017
Jay T. Flatley

/s/ F RANCES A RNOLD	Director	February 13, 2017
Frances Arnold

/s/ A. B LAINE B OWMAN	Director	February 13, 2017
A. Blaine Bowman

/s/ D ANIEL M. B RADBURY	Director	February 13, 2017
Daniel M. Bradbury

/s/ C AROLINE D. D ORSA	Director	February 13, 2017
Caroline D. Dorsa

/s/ K ARIN E ASTHAM	Director	February 13, 2017
Karin Eastham

/s/ R OBERT S. E PSTEIN	Director	February 13, 2017
Robert S. Epstein

/s/ P HILIP W. S CHILLER	Director	February 13, 2017
Philip W. Schiller

/s/ R OY W HITFIELD	Director	February 13, 2017
Roy Whitfield

FOURTH AMENDMENT TO LEASE

THIS FOURTH AMENDMENT TO LEASE (this “ Fourth Amendment ”) is made as of April 14, 2016, by and between ARE-SD REGION NO. 32, LLC , a Delaware limited liability company (“ Landlord ”), and ILLUMINA, INC. , a Delaware corporation (“ Tenant ”).

RECITALS

A. Landlord and Tenant are now parties to that certain Amended and Restated Lease Agreement dated as of March 27, 2012, as amended by that certain First Amendment to Lease dated as of May 23, 2013, as further amended by that certain Amended and Restated Second Amendment to Lease dated as of March 12, 2015 (the “ Second Amendment ”), as further amended by that certain letter agreement dated March 12, 2015, as further amended by that certain Third Amendment to Lease dated as of September 2, 2015, and as further amended by that certain letter agreement dated December 10, 2015 (as amended, the “ Lease ”). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 792,687 rentable square feet (“ Premises ”) located at 5200 Illumina Way, San Diego, California (“ Project ”). The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

B. Tenant desires to construct a parking structure at the Project as more particularly described on Schedule 1 to the P2 Phase 1 Parking Structure Work Letter attached hereto as Exhibit A (the “ P2 Phase 1 Parking Structure ”).

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

Construction of P2 Phase 1 Parking Structure . Tenant shall construct, which construction is being performed at Tenant’s election and for Tenant’s benefit, the P2 Phase 1 Parking Structure, at Tenant’s sole cost and expense, pursuant to the terms of the P2 Phase 1 Parking Structure Work Letter attached to this Fourth Amendment as Exhibit A . Tenant shall complete the P2 Phase 1 Parking Structure in a good and workman like manner and in compliance with all Legal Requirements. Tenant shall use commercially reasonable efforts to cause the P2 Phase 1 Parking Structure Improvements and the Visitor’s Center Tenant Improvements to be Substantially Completed (all as defined in the P2 Phase 1 Parking Structure Work Letter) by the date set forth in the Schedule attached to the P2 Phase 1 Parking Structure Work Letter for the Substantial Completion of the P2 Phase 1 Parking Structure Improvements and the Visitor’s Center Tenant Improvements (as such date may be extended by Force Majeure delays). Tenant’s failure to Substantially Complete the P2 Phase 1 Parking Structure Improvements and the Visitor’s Center Tenant Improvements on or before the date that is 180 days after the date set forth in the Schedule attached to the P2 Phase 1 Parking Structure Work Letter for the Substantial Completion of the P2 Phase 1 Parking Structure Improvements and the Visitor’s Center Tenant Improvements (as such date may be extended by Force Majeure delays) shall constitute a Default by Tenant under the Lease.

The P2 Phase 1 Parking Structure shall be constructed in the location within the Project identified on the site plan attached to this Fourth Amendment as Exhibit B .

P2 Phase 1 Parking Structure Costs . Tenant shall be responsible for all Parking Structure Costs (as defined in the P2 Phase 1 Parking Structure Work Letter) incurred, whether incurred by Landlord or Tenant, in connection with the P2 Phase 1 Parking Structure, including, without limitation, costs incurred in connection with the design, permitting and construction of the P2 Phase 1 Parking Structure (and including, without limitation, the cost of the Visitor’s Center Tenant Improvements).

No Removal or Restoration . Notwithstanding anything to the contrary contained in the Lease, Tenant shall have no obligation or right to remove the P2 Phase 1 Parking Structure, including, without limitation, the Visitor’s Center Tenant Improvements, security equipment serving the P2 Phase 1 Parking Structure, or site work at the Project associated with the construction of the P2 Phase 1 Parking Structure, and Tenant shall be required, at Tenant’s sole cost and expense, to maintain the P2 Phase 1 Parking Structure (including, without limitation, the Visitor’s Center Tenant Improvements and the security equipment serving the P2 Phase 1 Parking Structure) at all times in good condition and repair during the Term.


4.	Parking . Commencing on the Substantial Completion of the P2 Phase 1 Parking Structure Improvements and the Visitor’s Center Tenant Improvements, the second paragraph of Section 10 of the Lease is hereby deleted and replaced with the following:

“Notwithstanding anything to the contrary contained herein, in no event shall Tenant have the right to use more parking spaces at the Project than the maximum number of parking spaces permitted by applicable Legal Requirements. Notwithstanding anything to the contrary contained in this Lease, Tenant may only elect to exercise any of its Extension Rights under Section 40 with respect to less than all of the Buildings, if, as of the commencement date of the applicable Extension Term, (i) there are 4 parking spaces per 1,000 rentable square feet available for each Building with respect to which Tenant does not extend the Term of the Lease and those parking spaces are in reasonably close proximity to the applicable Building, and (ii) there are 4 parking spaces per 1,000 rentable square feet available for each Building with respect to which Tenant has elected to extend the Term of the Lease. Tenant agrees to indemnify, defend, save and hold Landlord harmless from and against any and all Claims (including, without limitation, from any Governmental Authority) at any time(s) (including, without limitation, during the construction of any Building(s) and/or Parking Structure(s), including Building 6 and the P2 Phase 1 Parking Structure) in connection with there not being sufficient parking spaces at the Project as may be required by applicable Legal Requirements.”


5.	Operating Expenses . For the avoidance of any doubt, Tenant shall continue to be required to pay all Operating Expenses with respect to the Project, including any and all Operating Expenses relating the to P2 Phase 1 Parking Structure.

Signage . Subject to Tenant obtaining all applicable governmental approvals, Tenant may install, at Tenant’s sole cost and expense, signage bearing Tenant’s name and logo on the P2 Phase 1 Parking Structure (the “ P2 Phase 1 Signage ”). So long as Tenant is the sole tenant of the Project, Tenant shall continue to have the right to have the P2 Phase 1 Signage on the P2 Phase 1 Parking Structure. Tenant acknowledges and agrees that the P2 Phase 1 Signage, including, without limitation, the size, color and location, shall be subject to Landlord’s signage program at the Project and all applicable Legal Requirements, and shall otherwise be reasonably acceptable to Landlord. Tenant shall be responsible, at Tenant’s sole cost and expense, for the maintenance of the P2 Phase 1 Signage, for the removal of the P2 Phase 1 Signage upon the earlier of (i) the date that Tenant is no longer the sole tenant of the Project, or (ii) at the expiration or earlier termination of the Term of the Lease, and for the repair of all damage (excluding discoloration of the façade of the P2 Phase 1 Parking Structure) resulting from such removal.

Project Development Costs . Tenant acknowledges that Landlord previously entered into an agreement with DGA pursuant to which DGA provided services, for the benefit of Tenant, in connection with the master planning and entitlements for the Project (the “ DGA Contract ”). Tenant approved the DGA Contract and acknowledges and agrees that there are outstanding costs and fees due under the DGA Contract in the amount of $58,570.00 (the “ Outstanding DGA Costs ”). Tenant shall reimburse Landlord for the full amount of the Outstanding DGA Costs on or before the date that is 10 days after the mutual execution and delivery of this Fourth Amendment by the parties.

Notwithstanding anything to the contrary contained herein, immediately following the date of this Fourth Amendment, the DGA Contract shall terminate, Landlord shall have no further obligations under the DGA Contract, and Tenant shall enter into a direct contract with DGA for the remaining master planning and entitlements for the Project (the “ Replacement DGA Contract ”). Landlord and Tenant anticipate that the costs and fees payable under the Replacement DGA Contract and to other vendors, the City of San Diego and other third parties in connection with the master planning and entitlements for the Project will be approximately $562,500.00 (which amount has been approved by Tenant) and Tenant shall be responsible for all such costs. Tenant acknowledges that there is no guaranty that the costs and expenses incurred in connection with the master planning and entitlements for the Project will not exceed such amount, and Tenant shall be responsible for all additional costs and expenses incurred under the Replacement DGA Contract and all additional costs and expenses reasonably approved in advance by Tenant and incurred in connection with the master planning and entitlements for the Project payable to other vendors, the City of San Diego and other third parties. Notwithstanding that Tenant will directly enter the Replacement DGA Contract with DGA and that Tenant will be responsible for all of the Outstanding DGA Costs and all other costs and fees incurred in connection with the master planning and entitlements for the Project pursuant to this Section 7 , Tenant shall have no right or authority to make any decisions regarding the master planning or entitlements for the Project. Tenant acknowledges and agrees that Landlord shall make all decisions regarding the master planning and entitlements for the Project, subject to Tenant’s approval which shall not be unreasonably withheld, conditioned or delayed, and Landlord shall have sole signature authority with respect to all such master planning and entitlements. Neither Landlord nor Tenant shall have any liability to the other if Landlord is not successful in obtaining the desired entitlements for the Project. Landlord shall be named as a third party beneficiary of the Replacement DGA Contract and of any warranties made by DGA under the Replacement DGA Contract. Tenant shall be responsible for paying DGA directly for all costs and fees incurred under the Replacement DGA Contract. Landlord shall have no obligation to bear any portion of the costs and fees incurred under the Replacement DGA Contract or any other costs and fees incurred in connection with the master planning and entitlements for the Project.

Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “ Broker ”) in connection with the transaction reflected in this Fourth Amendment and that no Broker brought about this transaction, other than Cushman & Wakefield. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction. Tenant shall be responsible for all commissions, if any, due to Cushman & Wakefield arising out of the execution of this Fourth Amendment.


9.	Disclosure . For purposes of Section 1938 of the California Civil Code, as of the date of this Amendment, Tenant acknowledges having been advised by Landlord that the Project has not been inspected by a certified access specialist.

10.

OFAC . Landlord and Tenant are currently (a) in compliance with and shall at all times during the Term of the Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “ OFAC Rules ”), (b) not listed on, and shall not during the term of the Lease be listed on, the Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List or the Sectoral Sanctions Identifications List, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.


11.	Miscellaneous .

a. This Fourth Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Fourth Amendment may be amended only by an agreement in writing, signed by the parties hereto.

b. This Fourth Amendment is binding upon and shall inure to the benefit of the parties hereto, and their respective successors and assigns.

c. This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fourth Amendment attached thereto.

d. Except as amended and/or modified by this Fourth Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Fourth Amendment. In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the Lease, the provisions of this Fourth Amendment shall prevail. Whether or not specifically amended by this Fourth Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Fourth Amendment.

e. The parties intend for Tenant to be the owner during the Term of the Lease of the P2 Phase 1 Parking Structure for federal income tax purposes and neither party shall take an inconsistent position on any income tax return.

f. Tenant acknowledges and agrees that Tenant shall not be entitled to any abatement of Rent under the Lease in connection with the construction of the P2 Phase 1 Parking Structure.

[Signatures are on the next page.]

IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amendment as of the day and year first above written.

TENANT:

ILLUMINA, INC. ,

a Delaware corporation

By: /s/ Marc Stapley

Its: CAO

LANDLORD:

ARE-SD REGION NO. 32, LLC ,

a Delaware limited liability company

By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
a Delaware limited partnership, managing member


By:	ARE-QRS CORP.,

a Maryland corporation,

general partner

By: /s/ Gary Dean

Its: Senior Vice President, RE Legal Affairs

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (this " Amendment ") is entered into as of this 15th day of August, 2016 (the “ Amendment Effective Date ”), by and between BMR-LINCOLN CENTRE LP, a Delaware limited partnership (" Landlord "), and ILLUMINA, INC., a Delaware corporation (" Tenant ").

RECITALS

A. WHEREAS, Landlord owns certain real property located at 200-500 and 800 Lincoln Centre Drive, Foster City, California 94044, designated as Parcels 1, 3 and 4 and more particularly depicted and described in Exhibit A-1 attached hereto (“ Parcels 1, 3 and 4 ”), and certain real property located at 600-700 Lincoln Centre Drive, Foster City, California 94044, designated as Parcel 2 and more particularly depicted and described in Exhibit A-1 attached hereto (“ Parcel 2 ”, and together with Parcels 1, 3 and 4, collectively, the “ Property ”);

C. Landlord and Tenant are parties to that certain Lease dated as of December 30, 2014 (the “ Original Lease ”), as amended by that certain First Amendment to Lease dated as of February 23, 2016 (the “ First Amendment ,” and together with the Original Lease, as the same may have been further amended, supplemented or modified from time to time, the " Existing Lease "), whereby Tenant leases certain premises from Landlord comprising certain buildings to be constructed by Landlord, which are referred to in the Existing Lease as Building A, Building B and Building D, as depicted in the site plan attached hereto as Exhibit A (collectively, the " Buildings "), and related landscaping, parking facilities and structures, private drives and other improvements and appurtenances related to or serving the Buildings as reasonably designated by Landlord, together with appurtenant rights of access and parking (collectively, the “ Premises ”), located on Parcels 1, 3 and 4 (together with all improvements thereon, the “ Lease Site ”);

D. WHEREAS, the Existing Lease contains an option (the " Expansion Right ") to expand the Premises to include a building comprising approximately 235,000 square feet of Rentable Area to be constructed by Landlord, which is referred to in the Existing Lease as Building C, as depicted in the site plan attached hereto as Exhibit A (the “ Expansion Space ”), which, if constructed, will be located on Parcel 2 (together with all improvements thereon, the Expansion Site ”);

E. WHEREAS, concurrently herewith, Landlord will enter into an option agreement with Tenant with respect to the Expansion Site (the “ Option Agreement ”), providing that upon the satisfaction of certain contingencies, Landlord will transfer to Landlord’s affiliate, BMR-Lincoln Centre II LP, a Delaware limited partnership (“ Landlord’s Affiliate ”), all of Landlord’s right, title and interest in and to Parcel 2 and grant Tenant an option to lease the Expansion Space and related landscaping, parking facilities and structures, private drives and other improvements and appurtenances related to or serving the Expansion Space, together with appurtenant rights of access and parking, which option, if all contingencies are satisfied, shall be on substantially the same terms and conditions applicable to the Expansion Right in the Existing Lease;

F. WHEREAS, due to an Uncontrollable Delay, the date that the Buildings are estimated to be delivered to Tenant in TI Ready Condition is November 16, 2016;

G. WHEREAS, the parties wish to amend the Existing Lease to remove the Expansion Right, provide for the future potential transfer of the Expansion Site to Landlord’s Affiliate, document the Uncontrollable Delay, amend certain Key Milestone Dates, provide for approval and payment of certain Change Orders associated with the Project and Base Building Work and otherwise amend the Existing Lease as set forth herein; and

H. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the " Lease ." From and after the date hereof, the term "Lease," as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.

2. Deletion of Expansion Right . Article 40 of the Lease is hereby deleted in its entirety.

3. Amendment of Additional Terms Relating to Expansion Right . The following modifications are hereby made to the Existing Lease:

3.1 Exhibits A and A-1 to the Existing Lease are hereby deleted and replaced with Exhibits A and A-1 to this Amendment.

3.2 Subsection 2.4(b) of the Existing Lease is hereby amended and restated in its entirety as follows:

(a) The “ Phase 1 Rent Commencement Date ” is the date that is the earliest of (i) November 16, 2017, (ii) the date that the Tenant Improvements are substantially complete in Buildings A and D, and (iii) the date that Tenant actually commences conducting business operations in Building A, Building B or Building D (and the area which Tenant conducts business in shall be referred to herein as the “ Partial Occupancy Space ”); provided that if the Phase 1 Rent Commencement Date is delayed because of a Tenant Delay (as defined the Work Letter), then the Phase 1 Rent Commencement Date shall be the date that the Phase 1 Rent Commencement Date would have occurred but for such Tenant Delay, and in the event there is a Landlord Delay which actually delays completion of the Tenant Improvements, then the November 16, 2017 date set forth above will be extended by the number of days of such Landlord Delays. Notwithstanding the foregoing, in the event the Phase 1 Rent Commencement Date is triggered by subsection (iii) above, then for the period commencing on the date that Tenant so commences conducting business operations in Building A, Building B or Building D through the date that is the earlier of (x) November 16, 2017, and (y) the date that the Tenant Improvements are substantially complete in Buildings A and D (the “ Partial Occupancy Period ”), Tenant will only be obligated to pay Base Rent for the portion of the Premises in which Tenant actually conducts business operations and will be obligated to pay Early Occupancy Additional Rent (as defined in Section 2.3(c)(iv) of the Lease); provided that upon the expiration of the Partial Occupancy Period, Tenant will commence paying Base Rent and Additional Rent for the entirety of Building A and Building D, and provided, further, that the Term Expiration Date for Building A and Building D will be the date which is fifteen (15) years after the expiration of such Partial Occupancy Period.

3.3 Section 2.3(c)(ii) of the Lease is hereby deleted in its entirety, and Subsections 7.1(a) , 13.3.1(b)(i) and 13.3.2(a) are amended and restated to read “during any Partial Occupancy Period, the combined Rentable Area of any Partial Occupancy Space”.

3.4 The first paragraph of Article 1 and Section 4.2 of the Existing Lease are hereby amended to delete the phrase “(as defined in Section 40.5 below)” wherever it appears. The first sentence of Section 4.3 of the Existing Lease is hereby amended to delete the phrase “which shall be constructed pursuant to Section 40.5 below.”

3.5 Article 6 of the Existing Lease is hereby amended to delete everything after the first three sentences (i.e., commencing from "In the event Tenant exercises the Land Rental Option…" through the end of Article 6) .

3.6 Section 7.1 of the Existing Lease is hereby amended to delete the words “including, without limitation, the Expansion Space” from the parenthetical.

3.7 Notwithstanding anything in Section 10.2 or elsewhere in the Existing Lease, Landlord will have the right to enter into such CC&Rs, reciprocal easement agreements, easements, access agreements or similar agreements as may be necessary or desirable in Landlord's reasonable judgment to satisfy the Option Contingencies (as defined in the Option Agreement) and effectuate the transfer of the Expansion Site to Landlord’s Affiliate and the ongoing operation of the Project and the Property; provided that any such CC&Rs as well as any amendments, restatements, supplements or modifications thereto do not materially modify Tenant's rights or obligations hereunder nor materially increase Tenant's monetary obligations under the Lease. From and after the Amendment Effective Date, so long as Tenant or Tenant's Affiliate occupies at least seventy five percent (75%) of the Rentable Area within the Project, Landlord will not execute and enter into any CC&Rs or reciprocal easement agreements which would have a material adverse impact on Tenant's rights or obligations under the Lease without Tenant's reasonable approval (which approval will be given or withheld within ten (10) business days after request).

3.8 Notwithstanding that the Lease Site and the Expansion Site may be owned by different entities, the entire Project may be operated as a single Project, and any amounts paid by either Landlord or Landlord’s Affiliate in connection with the Project will be treated as if paid by Landlord for purposes of the Taxes, Operating Expenses and Insurance Expenses; provided , however , that in the event that Tenant exercises the option set forth in Section 2 of the Option Agreement (the “ Expansion Option ”) and executes and delivers a lease for the Expansion Site in accordance with the Option Agreement (an “ Expansion Lease ”), then the Expansion Site will be excluded from the “Project” for purposes of calculating the Taxes, Operating Expenses and Insurance Expenses under the Lease (including for purposes of calculating Tenant’s pro rata portion of such amounts), and the Taxes, Operating Expenses and Insurance Expenses shall not include amounts incurred by Landlord’s Affiliate, which will be reimbursed under the Expansion Lease; and provided , further , that in any event, if title to all or any portion of the Expansion Site is transferred to any person or entity that is not an affiliate of Landlord during the Term, then the Expansion Site or applicable portion thereof that is no longer owned by an affiliate of Landlord shall be excluded from the “Project” for all purposes under the Lease. The term “affiliate” as used in the foregoing sentence, shall mean, with respect to Landlord, any other person or entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, Landlord.

3.9 For purposes of calculating Operating Expenses for the Project in accordance with Section 13.3.1 of the Existing Lease, Landlord may, from time to time, modify Landlord’s calculation and allocation procedures for Operating Expenses, so long as such modifications produce Dollar results substantially consistent with Landlord’s then-current practice at the Project or if there is no current practice, which are equitable as reasonably determined by Landlord. So long as the owner of Parcel 2 is Landlord or an affiliate of Landlord, then all Operating Expenses applicable to Parcel 2 will be subject to reallocation in accordance with this Section. In no event shall any reallocation result in Tenant’s aggregate Operating Expenses under this Lease and, if Tenant has exercised the Expansion Option, the Expansion Lease, increasing by more than a de minimus amount. Because the Project consists of multiple buildings, certain Operating Expenses may pertain to a particular building(s) and other Operating Expenses to the Project as a whole. Landlord reserves the right in its reasonable discretion to equitably allocate any such costs applicable to any particular building or the legal parcel upon which such building is located within the Project solely to such building(s) rather than the Project as a whole, and other such costs applicable to the entire Project to each building in the Project. Landlord shall equitably allocate such costs to the buildings in an equitable, reasonable, non-discriminatory manner, and such allocation shall be binding on Tenant . Tenant’s audit rights in Section 13.3.4 of the Existing Lease shall include Tenant’s right to audit Landlord’s allocation of Operating Expenses.

3.10 Section 13.3.2(c) is hereby amended to delete the words “including, without limitation, the Expansion Space” from the parenthetical.

3.11 Section 13.7 is amended to delete the parenthetical in the first sentence referencing Building C.

3.12 Section 26.1 of the Lease is hereby amended to replace the definition of “ Tenant’s Affiliate ” with the following: any person or entity that (a) directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with Tenant, (ii) acquires all or substantially all of the assets of Tenant, (iii) is the resulting entity of a merger or consolidation of Tenant with another entity or (iv) is “Majority Owned” by Tenant, and (b) has a net worth equal to or greater than Two Hundred Million Dollars ($200,000,000) (each, a " Tenant's Affiliate "). For purposes of the foregoing, “ Majority Owned ” means that Tenant owns at least thirty-five percent (35%) of the stock or other ownership interest in such entity.

3.13 Section 28.4(g) is hereby deleted in its entirety.

3.14 All options to extend, rights of first refusal and similar rights contained in the Existing Lease (including the rights contained in Section 37.22 , Article 39 and Article 41 ) and shall apply only to the Lease Site and those Buildings existing on the Lease Site and will no longer apply to the Expansion Site (and will be part of the Expansion Lease), the Expansion Space or any other building(s) constructed on the Expansion Site; provided that for purposes of calculating the Rentable Area leased by Tenant in the Project for Section 37.22 , all of the Rentable Area leased by Tenant in the Project will be included.

3.15 Article 41 is hereby amended to provide that the term "Project" solely for purposes of Article 41 shall include only the Buildings and the Lease Site. Notwithstanding the foregoing, if Building C or the Expansion Site is the subject of an offer to purchase which includes any portion of the Lease Site, Landlord and Landlord’s Affiliate may elect to provide Tenant a single Offer Summary, in which case the ROFR will apply to the combined total of all Property which is the subject of the offer to purchase and the delivery of such Offer Summary will satisfy the obligations of both Landlord and Landlord’s Affiliate as to the ROFR. The reference in Section 41.3(b) to “two hundred forty (240)” is hereby amended to read “two hundred seventy (270).”

3.16 Article 42 of the Existing Lease is hereby amended and restated in its entirety to read as follows: “In the event (i) Tenant and/or any Tenant Affiliate ceases to be the sole occupant of all Buildings in the Project (excluding subleases or other occupancy arrangements which may be entered by Tenant subordinate to Tenant’s leasehold interest), or (ii) the Term with respect to any of the building(s) within the Project expires prior to the Term with respect to any other building(s) within the Project, the terms and conditions of Exhibit G attached hereto will automatically apply, and the Lease will automatically be modified in accordance with the terms and conditions set forth therein, effective as of the date (" Trigger Date ") set forth in Landlord's written notice to Tenant advising Tenant that the Project is anticipated to become a multi-tenant Project. Notwithstanding the foregoing, in the event any Tenant Affiliate ceases to be a Tenant Affiliate or to be controlled by Illumina, Inc., then the Trigger Date shall occur as of the date such party is no longer a Tenant Affiliate or controlled by Illumina, Inc."

3.17 Exhibit G to the Existing Lease is hereby amended to amend and restate the first sentence to read as follows: "Effective as of the Trigger Date as defined in Article 42 , the terms and conditions of this Exhibit G will automatically apply, and the Lease will automatically be modified in accordance with the terms and conditions set forth herein." The term “ Common Area ” as defined in Exhibit G is amended to read as follows: “all portions of the Project as designated by Landlord or Landlord’s Affiliate from time to time for the non-exclusive use of tenants of the Project generally, including, without limitation, driveways, sidewalks, parking areas, landscaped areas, and (to the extent applicable) service corridors, stairways, elevators, public restrooms and public lobbies (but excluding any areas designated by Landlord or Landlord’s Affiliate as being for the use of tenants of the Lease Site or Expansion Site (as applicable) only).” In the event the multi-tenant provisions become effective, Landlord will be responsible only for the portions of the Common Areas located on the Lease Site, and Landlord or Landlord’s Affiliate, as applicable, will be responsible for those portions of the Common Area located on the Expansion Site.

3.18 Section 5.2 of Exhibit G to the Existing Lease is hereby amended and restated in its entirety as follows: Operating Expenses will be reduced by any refund Landlord receives for any costs, goods, services or expenditures previously included in Operating Expenses payable by Tenant. Landlord may, from time to time, modify Landlord’s calculation and allocation procedures for Operating Expenses, Taxes and Insurance Expenses, so long as such modifications produce Dollar results substantially consistent with Landlord’s then-current practice at the Project or if there is no current practice, are equitable as reasonably determined by Landlord. Because the Project consists of multiple buildings, certain Operating Expenses, Taxes or Insurance Expenses may pertain to a particular building(s) or the legal parcel upon which such building(s) are located and other Operating Expenses, Taxes or Insurance Expenses may apply to the Project as a whole. Landlord reserves the right in its reasonable discretion to equitably and reasonably allocate any such costs applicable to any particular building or the legal parcel upon which such building is located within the Project solely to such building rather than the Project as a whole, and other such costs applicable to the Project to each building in the Project (including the Building(s)), with the tenants in each building being responsible for paying their respective proportionate shares of their buildings to the extent required under their leases. Landlord shall allocate such costs to the buildings (including the Building(s)) in an equitable, reasonable, non-discriminatory manner, and such allocation shall be binding on Tenant, subject to Tenant’s audit rights in Section 13.3.4 . In the event that the Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate Operating Expenses that vary depending on the occupancy of the Project to equal Landlord’s reasonable estimate of what such Operating Expenses would have been had the Project been ninety-five percent (95%) occupied during such calendar year; provided , however, that Landlord shall not recover more than one hundred percent (100%) of Operating Expenses.

3.19 The form of Memorandum of Lease attached as Exhibit M to the Existing Lease is hereby replaced in its entirety with Exhibit M attached hereto. Tenant will execute whatever commercially reasonable documents may be required to cause the existing Memorandum of Lease which was recorded in the Official Records of the County of San Mateo on January 8, 2015 as Document Number 2015-001571 to be removed from title to the Property and replaced with the attached Amended and Restated Memorandum of Lease.

3.20 Section 2.1 and Subsection 2.1(a) of the First Amendment are hereby amended and restated in their entirety as follows:

2.1 PS1 Construction . Notwithstanding anything to the contrary set forth in the Existing Lease, except as expressly set forth in this paragraph below, Tenant shall not have any obligation to pay for the construction of Parking Structure 1 which, if constructed, will be in the location labelled “800” on Parcel 4 in the site plan attached hereto as Exhibit A (“ PS1 ”). If Tenant determines that it requires or desires additional parking spaces, then Tenant may deliver written notice to Landlord requesting that Landlord construct PS1 at Tenant's sole cost and expense (a " PS1 Construction Request "). If Tenant delivers to Landlord a PS1 Construction Request, or the City of Foster City notifies Landlord and/or Landlord’s Affiliate that additional parking spaces must be constructed in connection with the Property or any portion thereof, then, after Tenant has exhausted all appeals with the City of Foster City (in the event Tenant protests such requirement from the City of Foster City), Landlord will perform the construction of PS1 in accordance with the plans and specifications included within the Approved Plans, at Tenant's sole cost and expense and in such event, Landlord will provide Tenant with monthly invoices for all costs incurred by Landlord during the construction of PS1, which costs shall constitute Additional Rent under the Lease, and Tenant shall pay such invoices within thirty (30) days after Tenant's receipt hereof. If the Lease terminates due to a default by Tenant, then the amounts owed by Tenant hereunder, without any deduction or offset whatsoever, will be considered part of Landlord’s damages on account of Tenant’s default, as Additional Rent under the Lease. The provisions of this Section shall survive the expiration or earlier termination of the Lease. Without limiting the generality of the foregoing:

i. The phrase " PS1 Trigger Date " is hereby amended to mean and refer to the earlier of (i) the date upon which Tenant delivers a PS1 Construction Request to Landlord, or (ii) the date upon which the City of Foster City notifies Landlord and/or Landlord’s Affiliate that additional parking spaces must be constructed in connection with the Property or any portion thereof (which date shall be subject to extension in the event Tenant protests such requirement from the City of Foster City).

4. Extension Option if Expansion Option Exercised . The parties hereby acknowledge that in the event Tenant exercises the Expansion Option pursuant to the Option Agreement, the Term of Tenant’s Existing Lease of the Premises and the term of Tenant’s lease of the Expansion Space will not expire on the same date. Tenant shall have the option, exercisable by written notice (an " Expansion Extension Notice ") delivered to Landlord within ninety (90) days after the commencement date of Tenant’s lease of the Expansion Space, to extend the Term Expiration Date for the Premises such that the Term of Tenant’s lease of the Premises will expire coterminously with the term of Tenant’s lease of the Expansion Space based solely upon the term of Tenant’s lease of the Expansion Space pursuant to the form of lease attached as Exhibit B to the Option Agreement, without regard to any amendments thereto made after the effective date of the Conveyance Documents (as defined in the Option Agreement). In the event Tenant delivers the Expansion Extension Notice within the time period set forth above, the Term of the Existing Lease as to the Premises shall be automatically extended such that Tenant’s lease of the Premises will expire on the same date as the scheduled expiration date for the Expansion Space, and all terms and conditions of the Existing Lease shall continue to apply during such extended Term, including the bi-annual adjustment of Base Rent set forth in Section 6 of the Lease. Tenant will sign a lease amendment memorializing such extension if requested by Landlord, but such extension will be effective regardless of whether an amendment is entered. Tenant will not have the right to exercise the above option in the event Tenant is in default with respect to Tenant’s obligation to pay any regular installment of Rent (provided that in such event, the time period for exercising such option will be extended through the end of any applicable notice or cure period) or another monetary or material non-monetary Default exists under the Lease or the Option Agreement (or any lease of the Expansion Site entered into by Landlord and Tenant pursuant to the Option Agreement). The rights described in this Section 4 shall be personal to the Tenant originally named in this Amendment (i.e., Illumina, Inc.), may not be transferred to any other entity, and may not be assigned separately from the Lease except in connection with an assignment of Tenant’s entire interest in both the Lease and the Option Agreement to a single Tenant’s Affiliate; provided , however, that the Tenant originally named in this Amendment (i.e., Illumina, Inc.) shall be fully and primarily liable for any extension of the Lease regardless of whether the extension right is exercised by the Tenant originally named in this Amendment (i.e., Illumina, Inc.) or by a Tenant’s Affiliate, and Illumina, Inc. agrees to sign any reasonable document reasonably requested by Landlord to confirm the foregoing continuing liability of Illumina, Inc.

5. Transfer of Expansion Site . Tenant hereby acknowledges that Landlord’s transfer of the Expansion Site to Landlord’s Affiliate does not violate any provision of the Lease, including without limitation Section 11.1 ; provided that such transfer will be effectuated in a manner which does not unreasonably and adversely (in light of the commercially reasonable expectations of a sophisticated landlord and tenant in the context of a lease transaction similar to the Lease) affect Tenant’s beneficial use and occupancy of the Premises, including the Permitted Use and Tenant’s access to the Premises and Tenant’s parking rights thereunder.

6. Extension Due to Uncontrollable Delays .

6.1 Section 4.6 of the Existing Lease is hereby amended and restated in its entirety as follows:

4.6 Schedule/Delays . Landlord will use commercially reasonable efforts to (a) cause each Building to be delivered to Tenant in TI Ready Condition on or before November 16, 2016 (subject to Tenant Delays), (b) meet the “ Key Milestone Dates ” set forth on Exhibit F , as such dates may be extended by Tenant Delays and (c) cause the Substantial Completion Date to occur on or before the Phase 1 Rent Commencement Date (as to Building A and Building D and the parking structure (“ PS2 ”) described on Exhibit A as “Parking Structure 2”) and on or before the Phase 2 Commencement Date (as to Building B); provided, however, except as otherwise expressly provided under Section 4.1 above or under this Section 4.6 below, Tenant agrees that in the event any or all of the deadlines set forth in (a), (b) or (c) above are not reached for any reason, then this Lease shall not be void or voidable and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom. Notwithstanding anything above or in the Lease to the contrary, in the event that Building A, Building D and Building B are not in TI Ready Condition (as defined in the Work Letter) on or before the date which is one hundred twenty (120) days after November 16, 2016 (as such November 16, 2016 date may be extended by Tenant Delays) (“ Outside Date ”), then the sole remedy of Tenant shall be a credit equal to one (1) day of free Base Rent (to be applied commencing on the Phase 1 Rent Commencement Date) for each day beyond the Outside Date that Building A, Building D and Building B are not in TI Ready Condition; provided that if such delay exceeds sixty (60) days, then for each day of delay beyond sixty (60) days, Tenant will receive two (2) days of free Base Rent (to be applied commencing on the day that is sixty-one (61) days following the Phase 1 Rent Commencement Date) for each day of delay beyond sixty (60) days. In the event that Building A, Building D and Building B are not in TI Ready Condition on or before the date (“ Outside Termination Date ”) which is two hundred forty (240) days after November 16, 2016 (as such November 16, 2016 date may be extended by Tenant Delays), then the sole remedy of Tenant shall be the right to deliver a notice to Landlord (the “ Outside Date Termination Notice ” ) electing to terminate this Lease effective upon receipt of the Outside Date Termination Notice by Landlord. The Outside Date Termination Notice must be delivered by Tenant to Landlord, if at all, not earlier than the Outside Termination Date and not later than five (5) business days after the Outside Termination Date. If Tenant delivers the Outside Date Termination Notice, this Lease shall terminate as of the date of such notice, and Landlord will not be obligated to reimburse Tenant for any costs incurred by Tenant in connection with this Lease. In no event shall Uncontrollable Delays apply to extend any of the dates set forth in this Section 4.6 .

6.2 Task Nos. 14, 15 and 16 in Exhibit F of the Existing Lease are hereby amended and restated in their entirety to read as follows:



Task No.	Date	Responsible Party	Milestone Description
14	11/16/2016	Landlord	TI Ready Condition
15	2/16/2017	Landlord	Project and Base Building Work Substantial Completion
16	11/16/2017	Tenant	Tenant Improvement Substantial Completion

6.3 The parties hereby confirm that as of the date of this Amendment, there have been no Tenant Delays, Landlord Delays or Uncontrollable Delays except as addressed in this Amendment, and neither party will claim any Tenant Delays, Landlord Delays or Uncontrollable Delays relating to or arising from any act, omission or circumstance which occurred prior to the date of this Amendment for any purpose relating to the Lease, as amended. Notwithstanding the foregoing, neither party is waiving its rights with respect to acts, omissions or circumstances that may occur in the future, and either party will be entitled to claim that a Tenant Delay, Landlord Delay or Uncontrollable Delay, as applicable, has occurred with respect to acts, omissions or circumstances arising after the date of this Amendment.

7. TCEN Change Orders . Over the course of construction of the Project and Base Building Work for the Premises, various Change Orders have been issued or proposed and the parties wish to document their agreement as to which Change Orders will be implemented, and agree on an allocation of the cost of those Change Orders which the parties have agreed to implement. The Change Orders are listed in the Cumming TCEN Log dated as of July 15, 2016 (the “ Cumming TCEN Log ”), and all reference numbers in Exhibit B and Exhibit C attached hereto refer to the Cumming TCEN Log numbers and incorporate by reference herein all of the supporting documentation which accompanies such TCEN Change Orders, which supporting documentation has previously been provided to Tenant.

7.1 The Change Orders which have been or will be implemented are listed on Exhibit B attached hereto (the “ TCEN Change Orders ”), and Tenant hereby approves of all of the TCEN Change Orders listed on Exhibit B . Those Change Orders listed on Exhibit C attached hereto are not part of the Project and Base Building Work and are not being implemented at this time. Should Tenant make any further changes to the TCEN Change Orders or wish to implement any additional Change Orders, including the Change Orders listed on Exhibit C , such additional scope of work or additional Change Orders will be subject to the terms and conditions of Section 4.4(b) of the Original Lease and Landlord will have no obligation to pay any portion of the cost thereof. All future Change Orders relating to the Project and Base Building Work will be governed by the terms of the Original Lease, including Section 4.4(b) .

(a) The total anticipated cost of the TCEN Change Orders listed on Exhibit B is Ten Million Six Hundred Fifty Thousand and 00/100 Dollars ($10,650,000) (“ TCEN Estimate ”), which TCEN Estimate includes Forty Thousand Three Hundred Sixty-Nine Dollars ($40,369) incurred in the assessment of the feasibility of implementing Change Order 33, which TCEN Change Order 33 is not being implemented but the foregoing costs will be included in the total cost of the TCEN Change Orders. Tenant will be obligated to contribute Four Million and 00/100 Dollars ($4,000,000) toward the cost of the TCEN Change Orders. Tenant has previously paid Five Hundred Fifty-Six Thousand Two Hundred Forty and 00/100 Dollars ($556,240) toward Tenant’s contribution to the TCEN Change Orders and will submit the remaining Three Million Four Hundred Forty-Three Thousand Seven Hundred Sixty and 00/100 Dollars ($3,443,760) owed by Tenant within thirty (30) days after the date of full execution of this Amendment. Landlord will contribute the balance of the cost to implement the TCEN Change Orders based upon the final, actual cost to implement such TCEN Change Orders (which may be higher than the TCEN Estimate). Landlord and Tenant will use commercially reasonable efforts to minimize the actual cost of the TCEN Change Orders, with the goal to cause the actual cost not to exceed the TCEN Estimate. Landlord will be responsible for the implementation of the TCEN Change Orders in accordance with the scope set forth in the supporting documentation in Exhibit B and the back-up documentation referenced in the last sentence of Section 7 above.

(b) In the event that upon completion of the TCEN Change Orders, the final, actual aggregate cost to implement all of the TCEN Change Orders is less than the TCEN Estimate, any cost savings (i.e., the positive difference between the final, actual aggregate cost to implement all of the TCEN Change Orders and the TCEN Estimate) will be divided equally between Landlord and Tenant. For clarity, any such cost savings will be calculated based on the aggregate cost of all TCEN Change Orders (which shall include the Forty Thousand Three Hundred Sixty-Nine Dollars ($40,369) incurred in the assessment of the feasibility of implementing Change Order 33) and will not apply to savings on individual TCEN Change Orders (regardless of any dollar figures set forth in Exhibit B ). Any credit payable to Tenant due to such cost savings will be applied as an additional TI Allowance subject to all terms and conditions of the Lease applicable to the TI Allowance.

7.2 The following changes are hereby made to the Original Lease to reflect that there will not be any rent abatement as to Building B:

(a) Section 2.3(b) of the Original Lease (Base Rent) is hereby amended to delete the words “and subject to the Building B Base Rent Abatement (as defined in Section 5.5 below).”

(b) The first sentence of Section 5.1 of the Original Lease is hereby amended and restated to read as follows “Tenant shall pay to Landlord as Base Rent for (a) Building A and Building D, commencing on the Phase 1 Rent Commencement Date, and (b) Building B, commencing on the Phase 2 Rent Commencement Date (as applicable, the “ Rent Commencement Date ”), the Base Rent set forth in Section 2.3 , subject to the rental adjustments provided in Article 6 hereof.”

(d) The parenthetical at the end of Section 8 of the Original Lease which states “( provided , however, that, for purposes of calculating the Property Management Fee for months one (1) through twelve (12) of the initial Term with respect to Building B, the dollar amount of Base Rent actually abated in connection with the Building B Base Rent Abatement pursuant to Section 5.5 of this Lease shall be deducted from Base Rent for Building B)” is hereby deleted in its entirety.

7.3 The budget for the Project and Base Building Work has been adjusted as construction of the Premises has progressed, and is higher than the original Project Cost Estimate provided in connection with the Original Lease. In connection with such increase, the following changes are made to the Original Lease:

(a) Section 4.5 of the Original Lease is amended and restated in its entirety as follows:

4.5 Budget . Landlord has established a budget for the Total Project Costs (as defined in Exhibit E ) which it believes will be reasonably required to complete construction of the Project and Base Building Work for the Premises, which budget is $173,421,151 (the “ Project Cost Estimate ”) as more particularly set forth on Exhibit D attached hereto, and which Project Cost Estimate does not include the cost to construct PS1. Promptly upon completion of the Project and Base Building Work (except PS1, which shall be excluded from Project Costs for purposes of this Section 4.5 ), Landlord will calculate the actual total of all Project Costs incurred plus the Land Value Contribution to obtain the actual Total Project Costs (the “ Final Budget ”), which Final Budget will be delivered to Tenant for informational purposes only. In the event the Final Budget is less than $163,881,400 (the “ Original Project Cost Estimate ”), the difference shall be an addition to the TI Allowance payable to Tenant pursuant to the Work Letter (the “ Additional TI Allowance ”).

(b) Exhibit D to the Original Lease is hereby amended and replaced in its entirety with Exhibit D attached hereto. Exhibit E to the Original Lease is amended to restate the parenthetical in subsection (ix) to read “(but excluding the cost of tenant improvements in excess of the Base TI Allowance (i.e., costs paid by Tenant toward the tenant improvements will not be included in Project Costs)).”

(c) For clarity, notwithstanding that the Project Cost Estimate has been updated as provided herein, for purposes of calculating whether there is any “Additional TI Allowance” for purposes of the Original Lease, the Original Project Cost Estimate of $163,881,400 will be used. The updated Project Cost Estimate attached to this Amendment is being provided for informational purposes only, and Tenant will not receive any credit for any cost savings between the Original Project Cost Estimate and the updated Project Cost Estimate attached to this Amendment as Exhibit D .

8. Subordination and Lender Consent . Tenant agrees that the form of subordination, non-disturbance and attornment agreement (“ SNDA ”) attached to this Amendment as Exhibit E satisfies the requirements pursuant to Section 27.1 of the Existing Lease with respect to a commercially reasonable SNDA. To the extent any lender consent is required as a condition to Landlord’s entry into this Amendment, Landlord hereby represents that such consent has been obtained, and Landlord hereby agrees to indemnify, defend and hold harmless Tenant for, from and against any Claims incurred by Tenant to the extent arising from Landlord’s breach of the foregoing representation.

9. Ratification of Completion Guaranty . Tenant hereby ratifies and confirms the completion guaranty provided by Tenant to Landlord pursuant to Section 46 of the Existing Lease. Tenant acknowledges and agrees that the Guaranteed Obligations shall not be excused, reduced, modified, discharged or released due to the execution of this Amendment, and the execution and delivery of this Amendment shall not constitute any defense against Tenant’s obligation to perform or satisfy the Guaranteed Obligations.

10. Broker . Tenant represents and warrants that it has not dealt with any broker or agent other than Cushman & Wakefield of San Diego, Inc. in the negotiation for or the obtaining of this Amendment (" Broker "), and agrees to reimburse, indemnify, save, defend (at Landlord's option and with counsel reasonably acceptable to Landlord, at Tenant's sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it. No commission will be payable to the Broker on account of this Amendment.

11. No Default . Tenant represents, warrants and covenants that, to the best of Tenant's knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder. Landlord represents, warrants and covenants that, to the best of Landlord's knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

12. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.

13. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.

14. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.

15. Authority . Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment on behalf of Tenant have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed. Landlord guarantees, warrants and represents that the individual or individuals signing this Amendment on behalf of Landlord have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.

16. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date and year first above written.

LANDLORD:

BMR-LINCOLN CENTRE LP,
a Delaware limited partnership

By: /s/ John Bonanno
Name: John Bonnano
Title: Executive Vice President

TENANT:

ILLUMINA, INC.,
a Delaware corporation

By: /s/ Marc Stapley
Name: Marc Stapley
Title: EVP and Chief Administrative Officer



	1

DATED 24 October 2016

•

GRANTA PARK JCO 1 LIMITED

(2) BIOMED REALTY, L.P

(3) ILLUMINA CAMBRIDGE LIMITED

(4) ILLUMINA, INC.

5 Fleet Place London EC4M 7RD

Tel: +44 (0)20 7203 5000 Ÿ Fax: +44 (0)20 7203 0200 Ÿ DX: 19 London/Chancery Lane

www.charlesrussellspeechlys.com

THIS DEED is made the 24th day of October 2016

BETWEEN:

GRANTA PARK JCO 1 LIMITED incorporated in Jersey with registration number 110676 of Ogier House, The Esplanade, St Heiier, Jersey JE4 9WG (the “ Landlord ”);

BIOMED REALTY, L.P. incorporated under the laws of the State of Maryland, United States of America with registered number M07931959 whose registered office is at c/o The Corporation Trust Incorporated, 351 West Camden Street, Baltimore, Maryland 21201, United States of America (the “ Landlord’s Guarantor ”);

ILLUMINA CAMBRIDGE LIMITED Company registration number 03625145 whose registered office is at Chesterford Research Park, Little Chesterford, Saffron Walden, Essex CB10 1XL (the “ Tenant ”); and

ILLUMINA, INC . incorporated under the laws of the State of Delaware, United States of America with registered number 3228889 whose registered office is c/o The Corporation Trust Company, Corporation Trust Centre, 1209 Orange Street, Wilmington, New Castle, Delaware 19801, United States of America (the “ Guarantor ”).

BACKGROUND:

The Landlord, Landlord’s Guarantor, Tenant and the Guarantor entered into an agreement for lease dated 25 June 2015 (the “ Agreement for Lease ”).

The Parties have agreed that this Deed is both supplemental to the terms of the Agreement for Lease and will vary the terms of the same as set out in this Deed. All other terms and conditions of the Agreement for Lease shall remain in full force and effect.

Words and phrases in this Deed shall have the same meaning as ascribed to them in the Agreement for Lease. The annexures attached hereto form part of and are incorporated into this Deed. In case of any ambiguity or conflict between the provisions of the Agreement for Lease and this Deed, the provisions of this Deed shall prevail.

THE PARTIES HEREBY AGREE:

The parties have agreed that:

irrespective of its date, this Deed shall be in full force and effect on and from the date of this Deed (“ Effective Date ”).

the terms and conditions of the Agreement for Lease shall be deemed to be amended by this Deed (being the “ Deed of Variation ” for the purposes of the Agreement for Lease) as follows:

to incorporate the amendments to the Agreement for Lease shown as struck through or underlined in the Agreement for Lease annexed at Annexure 1 hereto and that the Agreement for Lease shall be read and construed as if such amendments had been incorporated since the Effective Date;

the documents at Annexure 2, Annexure 3, Annexure 4 and Annexure 8 shall be deemed to be annexed to the Agreement for Lease;

the Construction Programme current at the Effective Date is that at Annexure 5;

the Landlord’s Ledger current at the Effective Date is that at Annexure 6;

the Development Ledger current at the Effective Date is that at Annexure 7.

Notwithstanding that the relevant provisions of the Agreement for Lease have not been amended pursuant to clause 2 above, the Parties acknowledge and agree that:

the Planning Phase 1 Consent and the Planning Phase 2 Consent were both achieved before the Planning Long Stop Date;

the Unconditional Date has occurred as the Condition Precedent has been satisfied and the Superior Lease has been granted; and

the Planning Amenity Building Consent was obtained by the Landlord on 4 February 2016 and therefore the Rent Reduction as defined in Schedule 1 paragraph 20.1 of the Agreement for Lease shall start to accrue in respect of any failure of the Landlord to provide the Amenity Building by 5 November 2018.

All claims and potential claims of the Landlord (whether or not made by the Landlord) for Extensions of Time under the Agreement for Lease occurring prior to and including the Effective Date are settled with full, final and binding effect and are included within and form part of the new Works Target Date and new Works Long Stop Date as set out in Annexure 1.

A person who is not a party to this Deed has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Deed but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

Clause 23 of the Agreement for Lease shall apply to any dispute or difference arising under or in connection with this Deed.

This Deed is governed by and shall be construed in accordance with the laws of England and the parties submit to the jurisdiction of the English courts.

Executed as a deed and delivered on the date specified at the beginning of this document.



EXECUTED as a DEED by GRANTA PARK JCO 1 LIMITED a company incorporated in Jersey by BMR LLC as sole shareholder, being a person who in accordance with the laws of that territory is acting under the authority of the company:	) ) ) ) ) )	/s/ Karen A. Sztralcher



EXECUTED as a DEED on behalf of BIOMED REALTY, L.P. a Maryland Limited Partnership by being a person who in accordance with the laws of that territory is acting under the authority of the company:	) ) ) ) ) )	/s/ Karen A. Sztralcher
		Authorised signatory (or signatories)
		Karen A. Sztraclcher
		Name
		Executive Vice President
		Title



EXECUTED as a DEED on behalf of ILLUMINA CAMBRIDGE LIMITED by the signature of a director:	) ) ) ) ) )	/s/ Charles Dadswell
		Director

		Director/Company Secretary



EXECUTED as a DEED by ILLUMINA, INC a company incorporated in Delaware by Marc Stapley being a person who in accordance with the laws of that territory is acting under the authority of the company:	) ) ) ) )	/s/ Marc Stapley
		Director
		/s/ Charles Dadswell
		Director/Company Secretary

AMENDED AGREEMENT FOR LEASE

DATED . 2015 2015


(1)	GRANTA PARK JCO 1 LIMITED


(2)	BIOMED REALTY, L.P.


(3)	ILLUMINA CAMBRIDGE LIMITED


(4)	ILLUMINA, INC.

AGREEMENT FOR LEASE

of the whole of the Array Granta Park, Cambridge

5 Fleet Place London EC4M 7RD

Tel: +44 (0)20 7203 5000 Ÿ Fax: +44 (0)20 7203 0200 Ÿ DX: 19 London/Chancery Lane

www.charlesrussellspeechlys.com

6 New Stret Square London EC4A 3LX

Tel: +44 (0)20 7203 5000 Ÿ Fax: +44 (0)20 7427 6600 Ÿ DX: 54 Chancery Lane

Article I. CONTENTS


1	DEFINITIONS AND INTERPRETATION 1


2	CONDITION PRECEDENT 34 32


3	OBTAINING SATISFACTORY PLANNING CONSENTS 35 33


4	CO-OPERATION OF TENANT 35 34


5	NOTIFICATION OF PLANNING DECISIONS 36 34


6	PLANNING AGREEMENTS 36 35


7	HISTORIC PLANNING PERMISSIONS AND AGREEMENTS 38 36


8	INDEPENDENT SURVEYOR 39 37


9	TERMINATION 40 38


10	THE WORKS 40 38


11	MEASUREMENT OF THE DEMISED PREMISES 40 38


12	GRANT OF THE LEASE AND ISSUE OF THE SIDE LETTER 40 39


13	FORM OF THE LEASE 41 39


14	OPTION TO CALL FOR THE LEASE 42 40


15	LIMITATIONS ON LANDLORD’S LIABILITY 43 41


16	CONFIDENTIALITY 44 42


17	REGISTRATION OF THE AGREEMENT AT LAND REGISTRY 45 43


18	PPD1 BUILDING 45 43


19	REGISTRATIONS 45 43


20	TERMINATION 46 44


21	ACKNOWLEDGEMENT 51 49


22	MATTERS AFFECTING THE DEMISED PREMISES 52 50


23	DISPUTES 53 51


24	NO DEMISE 54 51


25	NON-MERGER 54 52


26	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 54 52


27	GOVERNING LAW 54 52


28	CAPITAL ALLOWANCES 54 52


29	VAT 55 52


30	INTEREST 55 53

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31	CIS 55 53


32	GUARANTEE (TENANT) 56 54


33	GUARANTEE (LANDLORD) 57 55


34	NOTICES 58 56


35	OPINION LETTERS 58 56



SCHEDULE 1	6,159
Part 1 The Works	6,159
Part 2 The Consultants96 Consultant	95
Part 3 Requirements for Practical Completion	9,796
Part 4 Design Sub-Contractor Packages	9,998
Part 5 Relevant Levels of Professional Indemnity Insurance	10,099
Part 6 Project Costs	101,100
SCHEDULE 2 THE LEASE	103,102
SCHEDULE 3 SCHEDULE OF AMENDMENTS TO BUILDING CONTRACT	104,103
SCHEDULE 4	105,104
Part 1 Contractor Collateral Warranty	105,104
Part 2 Design Sub-Contractor Collateral Warranty	106,105
Part 3 Consultant Collateral Warranties	107,106
Part 4 Design Sub-Consultant Collateral Warranties	108,107
SCHEDULE 5 CONSTRUCTION PROGRAMME	109,108
SCHEDULE 6 CORE WORKS OUTLINE SPECIFICATION AND DRAWINGS	110,109
SCHEDULE 7 ENABLING INFRASTRUCTURE WORKS SPECIFICATION	111,110
SCHEDULE 8 LANDLORD’S WORKS SPECIFICATION	112,111
SCHEDULE 9 OPINION LETTERS	113,112
SCHEDULE 10 PRE-CONSTRUCTION SERVICES AGREEMENT	114,113
SCHEDULE 11 SIDE LETTER	115,114
SCHEDULE 12 TENANT’S CONSULTANTS APPROVED TERMS	116,115
SCHEDULE 13 T ENANT ’S DES IG N DE LI VERY PROGRAMME117 NOT USED	116
SCHEDULE 14 LANDLORD’S CONSULTANTS APPROVED TERMS	118,117
SCHEDULE 15 TENANT’S WORKS SPECIFICATION	119,118
SCHEDULE 16 LANDLORD’S LEDGER	120,119
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SCHEDULE 17 PLANS 121 120

SCHEDULE 18 DEED OF COVENANT IN RESPECT OF OBLIGATIONS IN THE DEED OF

GRANT 2013 122 121

SCHEDULE 19 LANDLORD’S LAND REGISTRY CERTIFICATES 123 122

SCHEDULE 20 TENANT’S LAND REGISTRY CERTIFICATE 124 123 SCHEDULE 21 VE SCHEDULE 124

18560750.22

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WKS/102254506.1

THIS AGREEMENT ( “Agreement” ) is made the day of 2015

Article II. BETWEEN:


(1)	GRANTA PARK JCO 1 LIMITED incorporated in Jersey with registration number 110676 of Ogier House, The Esplanade, St Helier, Jersey JE4 9WG (the “ Landlord ”);


(2)	BIOMED REALTY, L.P. incorporated under the laws of the State of Maryland, United States of America with registered number M07931959 whose registered office is at c/o The Corporation Trust Incorporated, 351 West Camden Street, Baltimore, Maryland 21201, United States of America (the “ Landlord’s Guarantor ”);


(3)	ILLUMINA CAMBRIDGE LIMITED Company registration number 03625145 whose registered office is at Chesterford Research Park, Little Chesterford, Saffron Walden,

Essex CB10 1XL (the “ Tenant ”); and


(4)	ILLUMINA, INC. incorporated under the laws of the State of Delaware, United States of America with registered number 3228889 whose registered office is c/o The Corporation Trust Company, Corporation Trust Centre, 1209 Orange Street, Wilmington, New Castle, Delaware 19801, United States of America (the “ Guarantor ”).

Article III. BACKGROUND:

(A) The Landlord owns or will own a long leasehold interest in property at the Array, Granta Park, Cambridge and has agreed to grant the Tenant a lease of the Demised Premises on the terms contained in this Agreement.

(B) GPEL has applied for detailed planning permission for the Phase 1 Development and outline planning permission for the Phase 2 Development and subject to obtaining Satisfactory Planning Consents for those works, the Landlord will construct the Building and complete the Works before the grant of the Lease.

Article IV. AGREEMENT


1	DEFINITIONS AND INTERPRETATION

1.1 In this Agreement and the Schedules the following words and expressions shall have the following meanings:



2006 Agreement :	means the section 106 agreement dated 2 March 2006 entered into by Granta Park Limited, MEPC Limited, South Cambridgeshire District Council and Cambridgeshire County Council as varied ;
Adjudicator:	means an adjudicator as may be nominated by the then- president of the Technology and Construction Solicitors’ Association;
Amenity Building:	means a new two storey amenity building (in the approximate

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;
Array Land:	the property which is to be demised to the Landlord by a head lease made between (1) GPEL and (2) the Landlord which comprises the Demised Premises and other land and which is shown edged red and cross hatched blue on Plan 3 attached at Schedule 17;
Building:	means the building constructed or to be constructed on part of the Demised Premises by the Landlord and being Plots D and E The Array as shown outlined in black and marked “D” and “E” on Plan 4 attached at Schedule 17 for identification purposes only ) ;
Building C:	means the third building for which planning permission has been applied for within the Planning Phase 1 Consent (as shown cross hatched black on Plan 4 attached at Schedule 17 for identification purposes only);
Building Contract:	means each building contract in a Design and Build Joint Contracts Tribunal Form 2011 or such other form as may be agreed between the Parties (acting reasonably) to be entered into as a deed by the Landlord with any Contractor in respect of the Landlord’s Works and/or the Tenant’s Works (as the context requires) PROVIDED THAT such contract shall be amended by a schedule of amendments substantially in the form annexed at Schedule 3 and the Landlord shall seek the Tenant’s written approval (such approval is not to be unreasonably withheld) to: (a) any amendments to such schedule which would materially adversely affect the rights of the Tenant under the Collateral Warranty from the Contractor to be delivered to the Tenant pursuant to paragraph 17 of Schedule 1 Part 1 (including but not limited to the Tenant’s rights in respect of the copyright licence to be granted to the Tenant under such Collateral Warranty); (b) the level of professional indemnity or product liability insurance which the Contractor is to procure each Design Sub-Contractor shall maintain provided that the

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Tenant shall not be deemed to be acting reasonably if the level of insurance which the Tenant requires such Design Sub-Contractor to maintain would require an addition to the Contract Sum (as defined under the Building Contract); (c) the Contract Sum (as defined in the Building Contract) for the Building Contract which incorporates any of the Tenant’s Works; and; (i) in the case of (a) and (b) above the Tenant shall be deemed to have given its approval if it does not confirm in writing its refusal or consent with proper and detailed reasons within five working days of receipt of a request from the Landlord for the Tenant’s approval; (ii) in the case of (a), (b) and (c) above such refusal or consent to be given as soon as reasonably practicable and in any event so as not to cause any delay to the placing (as anticipated by the Construction Programme) of the Building Contract which incorporates any of the Tenant’s Works and should it do so that shall be a Tenant’s Breach; and (iii) the Tenant shall be given a reasonable opportunity to make representations in relation to any other amendments that may be proposed to the schedule of amendments prior to completion of the Building Contract and the Landlord shall have due regard to such representations but shall not be fettered by them (provided always that the Tenant shall not be entitled to comment upon matters relating solely to the Landlord’s Works);
CDM Regulations:	means the Construction (Design and Management) Regulations 2015;
Certificate Date:	means the date identified in the Practical Completion Statement as the date on which Practical Completion was achieved;
CIL:	means any levy or charge made by any appropriate authority pursuant to Section 206 of (and any regulations made

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;
CIL Requirement:	means a requirement to pay CIL pursuant to a grant and implementation of any of the Planning Consents;
Collateral Warranty:	means: (a) in respect of each of the Contractor and each Design Sub-contractor, a collateral warranty substantially in the relevant form comprised in the Pre-Construction Services Agreement and Building Contract and annexed in Schedule 4 Part 1 and Part 2; (b) in respect of each Consultant a collateral warranty substantially in the relevant form annexed to the relevant appointment and annexed in Schedule 4 Part 3 and the Landlord agrees to seek each Consultant’s consent to the inclusion of step-in rights substantially in the form included in the Collateral Warranty from the Contractor; (c) in respect of each of the Design Sub-Consultant Sub- Consultants a collateral warranty substantially in the relevant form annexed to the appointment of the Architect and annexed in Schedule 4 Part 4 in each case with amendments as may be proposed by the relevant warrantor and their insurers and which the Tenant (acting reasonably) may approve;
Commissioning Engineer:	means commissioning engineer experienced in works of a similar nature and complexity to the Work and as the parties (acting reasonably) may agree to jointly appoint as the engineer to carry out the Pre-Practical Completion Testing and/or the Post-Practical Completion Testing on terms proposed by the Landlord (to include a requirement on the Commissioning Engineer to maintain professional indemnity insurance at an appropriate level) and approved by the Tenant (such consent not to be unreasonably withheld and/or delayed) and the Tenant agrees that such appointment shall provide that each of the Landlord and the Tenant shall be responsible for 50% of the fees of the Commissioning Engineer and that the Tenant shall not issue any instruction to the Commissioning Engineer which might delay the carrying out and completion of the Pre-Practical Completion Commissioning and/or the Post-Practical Completion Commissioning and/or Practical Completion save:

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(a) (d) unless it is as a result of any breach by the Landlord of its obligations under this Agreement; or (b) (e) if the Tenant instructs any commissioning or testing which is not included in the Pre-Practical Completion Testing and/or Post-Practical Completion Testing and which is required to be carried out prior to Practical Completion it shall constitute a “ Tenant’s Pre- Commissioning Change ” for the purposes of the definition of an Extension of Time;
Completion Date:	means: (a) (a) the date that is ten working days after the Certificate Date; or (b) (b) in the event the Option is exercised pursuant to clause 14 the date that is ten working days after service of the notice by the Tenant in accordance with clause 14.3;
Condition Precedent:	means the occurrence of the Unconditional Date;
Connecting Access:	means the new road to be constructed which will connect the existing roads on the Estate to the Premises;
Construction Industry Scheme:	means the provisions of Part 3 Ch 3 Finance Act 2004 (the “ FA 2004 ”) and the Income Tax (Construction Industry Scheme) Regulations 2005 (2005/2045) (the “ Regulations ”);
Construction Products:	means the Construction Products Regulations 2013 (SI 2013/1387), the Construction Products Regulation (305/2011/EU), the Construction Products Regulations 1991 (SI 1991/1620) and the Construction Products Directive (89/109/EC);
Construction Programme:	means the programme attached at Schedule 5 as may be updated from time to time and approved by the Tenant (acting reasonably);
Consultants:	means the Architect and the Employer’s Agent ( in each case as defined in Schedule 1 Part 2) and any other consultant engaged by the Landlord (subject to the Tenant’s approval, such approval not to be unreasonably withheld or delayed) in connection with design and/or management of the Works;
Contractor:	means any of the following:

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• Laing O ’Rourk e; • Morgan Sindall; • McLaren means Vinci Construction ; and UK Limited (Company No. 2295904); • Bouygues; or such other or substitute main works contractor experienced in works of a similar nature and complexity as the Works and which may be appointed by the Landlord with the prior written approval of the Tenant, such approval not to be unreasonably withheld and the Tenant shall give its response as soon as reasonably practicable after a request for approval;
Core Works:	means those works relating to the core which are to be carried out and completed under the Building Contract as set out in the Core Works Specification;
Core Works Specification:	means the specification and drawings in sections 3 to 7 (inclusive) and section 11 (as applicable) of the specification annexed at Schedule 6 as will be developed and submitted to the Landlord Tenant in accordance with paragraph 2 10 of Schedule 1 Part 1;
Cost Plan:	means the report prepared by the Employer’s Agent detailing actual and forecast Tenant’s Works Costs as well as the Project Costs;
Deed of Covenant:	means a deed of covenant in the form attached at Schedule 18 in respect of the obligations in the Deed of Easement 2013;
Deed of Grant 2010:	means a deed of grant dated 30 June 2010 made between (1) Granta Park Limited (2) TWI Technology Limited (3) The Welding Institute and (4) Granta Entrance Limited and any subsequent variations or restatements of the same including the proposed Amendment and Restatement to be entered into on or about the date hereof;;;
Deed of Grant 2013:	means a deed of easement dated 23 October 2013 made between (1) Granta Park Estates Limited (formerly TWI Technology Limited) and (2) The Welding Institute (2) and any subsequent variations or restatements of the same;
Default Rate:	means 3% above the base rate from time to time of HSBC Bank plc;

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Defect:	means any defect, shrinkage or other fault appearing in the Works within the Rectification Period and which the Contractor is obliged to make good under the terms of the Building Contract;
Demised Premises:	means the land and any buildings situated thereon from time to time as is shown edged red on Plan 1 attached at Schedule 17 which will be demised to the Tenant by the Lease;
Design Documents:	means the Tenant’s Design Document Documents and the Landlord’s Design Documents;
Design Sub- Consultant Sub- Consultants :	means Buro Happold Limited (Company No. 02049511); means in relation to the initial Building Contract for the Landlord’s Works Feilden + Mawson LLP (Company Number: OC300486), Kershaw Mechanical Services Limited (Company Number: 540706) and MLM Consulting Engineers Limited (Company Number: 3057104), and in relation to the Building Cont r act f or t he r emainder of t he Landlord’s W orks and t he T enant ’s W orks all sub -consultants engaged by the Contractor with material responsibility for design;
Design Sub- Contractor:	each sub-contractor with responsibility for the design packages listed in Schedule 1 Part 44 4 ;
Determining Authority:	means the local planning authority for the area within which the Demised Premises are situated or other authority with statutory authority to determine a Planning Application;
Development Ledger:	means the documentation recording all Tenant’s Works Costs to be properly maintained and updated by the Landlord at the Landlord’s direction and submitted to the Tenant in accordance with paragraph 13 of Schedule 1 Part 1 and each such iteration of the ledger shall identify each Tenant’s Works Costs incurred at the date of the iteration and for the avoidance of doubt each such iteration of the ledger will identify any amounts applied for and where appropriate certified for payment together with copies of any monthly report by the Employer’s Agent relating to the actual and forecast of the costs of the Tenant’s Works Costs and shall identify the aggregate of such costs incurred and/or paid to date which constitute the Tenant’s Works Allowance;
Document Management System:	means the electronic document management system which (at no cost to the Tenant): (a) (f) the Tenant is to be given appropriate access (and

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any necessary instructions and authorisations to enable such access) for the Tenant, the Tenant’s Representative and all those authorised by the Tenant for the purposes relating to the Works; (b) (g) the Landlord will maintain and keep up to date; and (c) (h) the Tenant shall receive automatic electronic notifications via the system of each addition omission or other change to the Design Documents;
EIW Specification:	means the specification for the Enabling Infrastructure Works annexed at Schedule 7;
Enabling Infrastructure Works:	means the works to be carried out by GPEL as set out in the EIW Specification;
Equivalent Space:	means an area equivalent and containing similar building functions including an equivalent lab to office ratio equal to that currently demised to the Tenant under the Gonville Lease and which achieves as a minimum the Illumina requirements for laboratory space as annexed at Schedule 22 and where applicable the Illumina design standards documentation included in Appendices A and B of the “Employer’s Requirements” as defined in the Building Contract to be entered into between the Landlord and Vinci Construction UK Limited on or as soon as reasonably practicable following the date of this Agreement;
Estate:	means Granta Park Cambridge, as more particularly described in the Lease;
Extension of Time:	means in relation to the Works Target Date (and for the purposes of sub-paragraph sub-paragraphs Schedule 1Part 14.2.2(d) and 11.2.1 of Schedule 1 Part 1 only in relation to the Works Long Stop Date) a period of time (as certified by the Employer’s Agent acting impartially in accordance with paragraph 8.5 of Schedule 1 Part 1 or (in the event of a dispute between the Landlord and the Tenant as determined pursuant to clause 23)) as is fair and reasonable having regard to the periods of delay caused to the completion of the Works and which are due to one or a combination of: (a) (i) any circumstances which properly entitle the Contractor to an extension of time under the Building Contract except where the delay is attributable to the fault of the Landlord (including but not limited to);

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(i) any circumstances in connection with any and all Tenant’s Variations; (ii) any instruction issued under the Building Contract in connection with a notice issued by the Tenant’s Representative under sub- paragraph 6.6 of Schedule 1 Part 1; (iii) any and all instructions to expend a provisional sum in respect of the Tenant’s Works as referred to in sub-paragraph 4.3.1 of Schedule 1 Part 1; which do not in any case result from a breach by the Landlord of its obligations under the Building Contract or this Agreement; (b) (j) any Tenant’s Breach; (c) (k) any Tenant’s Variation; (d) (l) any Tenant’s Pre-Commissioning Change (as defined in the definition of Commissioning Engineer); (e) (m) the period between 11 September 2015 and securing a Satisfactory Planning Consent; and/or (f) (n) either of the following and which do not in either case result from a breach by the Landlord of its obligations under the relevant Building Contract and/or this Agreement or any act of prevention of the Landlord, its consultants, contractors, servants or agents: (i) the Insolvency Event of any Contractor and/or any of the Consultants; and/or (ii) any act of prevention on the part of the Tenant; (g) the Contractor for the second stage of the Works not being Vinci Construction UK Limited;
Fee:	means one million five hundred thousand pounds (£1,500,000) (plus VAT);
Gensler:	means Gensler and Associates/International, Ltd (Company No. FC014771) incorporated under the laws of the State of Delaware, United States of America and whose registered office is at Two Harrison Street, Suite 400, San Francisco,

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;
	Gonville Break	means a break clause in the Gonville Lease which may be exercised by the Tenant during the Gonville Break Period;
	Gonville Break Period	means the period from and including 20 July 2018 to and including 19 October 2018;
	Gonville Costs	means the principal rent, service charge, insurance rent and other outgoings payable by the Tenant (or as the case may be the Guarantor) under paragraphs 2 and 3.2.1 of the Gonville Lease;
	Gonville Lease	means a lease dated 1 July 2009 made between Aviva Life & Pensions UK Limited (1) Illumina Cambridge Limited (2) and Illumina, Inc. (3) of the Gonville Premises;
	Gonville Premises	means Building 200, Chesterford Park, Little Chesterford, otherwise known as the Gonville Building more particularly comprised in the Gonville Lease;
	GPEL:	means Granta Park Estates Limited (Company No. 02558329) the freeholder of the Demised Premises;
	GPEL Design Guide:	means the design guide to be provided by GPEL and disclosed to the Tenant and the Landlord (as may be updated from time to time by GPEL);
	Group Company:	means: (a) (a) in respect of the Landlord any company which is a direct or indirect subsidiary of BioMed Realty, L.P. or a company which is a Subsidiary or Holding Company of the Landlord or any Subsidiary of such Holding Company from time to time (and for this purpose “ Subsidiary ” and “ Holding Company ” have the meanings given to them in section 1159 and Schedule 6 of the Companies Act 2006) or a company in which a person has a controlling interest where the same person also holds a controlling interest in the Landlord or the Landlord’s Guarantor and for this purpose a person has a controlling interest if (had that person been a company) the other company and the Landlord would have each been its Subsidiary; (b) (b) in respect of the Tenant any company which is a direct or indirect subsidiary of Illumina Inc. or a company which is a Subsidiary or Holding Company of the Tenant or any Subsidiary of such Holding Company

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from time to time (and for this purpose “ Subsidiary ” and “ Holding Company ” have the meanings given to them in section 1159 and Schedule 6 of the Companies Act 2006) or a company in which a person has a controlling interest where the same person also holds a controlling interest in the Tenant or the Guarantor and for this purpose a person has a controlling interest if (had that person been a company) the other company and the Tenant would have each been its Subsidiary;
Guarantor:	means the party so described at the head of this Agreement;
Historic Planning Agreement:	means any agreement relating to the Demised Premises pursuant to (a) section 106 of the Planning Act (b) section 111 of the Local Government Act 1972 (c) section 38, 184 or 278 Highways Act 1980 (d) section 33 Local Government (Miscellaneous Provisions) Act 1982 (e) section 98 or 104 Water Industry Act 1991 or (f) section 2 of the Local Government Act 2000 granted prior to the Tenant entering into the Lease (other than a Planning Agreement);
Historic Planning Permission:	means any planning permission granted prior to the Tenant entering into the Lease (other than the Planning Consents) which relates to the Demised Premises;
Independent Surveyor:	means the surveyor appointed under clause 8 hereof;
Insolvency Event:	means the relevant person: (a) (o) is struck off the register of companies; or (b) (p) has an application for an administration order made or an administration order is made; or (c) (q) has a notice of intention to appoint an administrator given or the prescribed documents in connection with the appointment of an administrator are filed at court or an administrator is appointed; or (d) (r) has a winding up order made against it or it otherwise enters into a voluntary winding up (other than a voluntary winding up of a solvent company for the purpose of amalgamation or reconstruction); or (e) (s) has a receiver or administrative receiver appointed over all of any of its assets or has an encumbrancer take possession or exercise any power of sale over all

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or any of its assets; or (f) (t) is deemed to be unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986; or (g) (u) without a declaration of solvency, passes a resolution or makes a determination that he be wound up; or (h) (v) is the subject of any analogous arrangement, event or proceedings in any other jurisdiction;
Internal Area:	means the gross internal area (GIA) in square feet of the Building as defined and measured in accordance with the RICS/ISVA Code of Measuring Practice (Sixth Edition);
Landlord:	means the party so described at the head of this Agreement and where the context so admits its successors in title and assigns;
Landlord’s Consultants’ Approved Terms:	means the terms of appointment in the form annexed at Schedule 14;
Landlord’s Design Documents:	means the drawings specifications and other documents showing the detailed design and further development of : (i) the Landlord’s Works Specification for the Landlord’s Works (other than the Core Works, save to the extent that the Core Works are to be or have been designed by the Architect) necessary to develop the design of the Landlord’s Works (other than the Core Works, save to the extent that the Core Works are to be or have been designed by the Architect); and ( ii) t he T enant ’ s Works Specificat ion f or t he T enant’ s Works and the Core Works Specification for the Core Works (save to the extent that the Core Works are to be or have been desig ned by t he Ar chitect f r om t he dat e t hat t he T enant’ s Design Documents form part of the Building Contract (including for the avoidance of doubt any such material produced by the Contractor ;
Landlord’s Executive:	means John Bonanno or such other person as the Landlord may from time to time name and notify the Tenant in writing;
Landlord’s Land Registry Certificates:	means the Land Registry certificates in the agreed forms annexed at Schedule 19;
Landlord’s	means the ledger attached at Schedule 16 recording the Shell Costs to be properly maintained and updated by the Landlord

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Ledger:	at the Landlord’s direction and submitted to the Tenant in accordance with paragraph 13.9 of Schedule 1 Part 1 and each such iteration of the ledger shall identify all Project Costs incurred at the date of the iteration and for the avoidance of doubt each such iteration of the ledger will identify any amounts applied for and where appropriate certified for payment under the Building Contract together with copies of any monthly report by the Employer’s Agent relating to the actual and forecast of the costs of the Project Costs;
Landlord’s Solicitors:	means Charles Russell Speechlys LLP of 6 New Street Square 5 Fleet Place London EC4A 3LX (reference: LAW/FKE/358505);
Landlord’s Unacceptable Condition:	means a condition imposed on any of the Planning Consents and/or a provision or obligation in a Planning Agreement and/or a CIL Requirement which will or in the Landlord’s reasonable opinion is likely (either individually or when considered together) to: (a) (w) prevent the Landlord’s adjoining land (excluding the land subject of the Phase 2 Development and the land on which the Amenity Building is to be sited) from being used for its current use or make it materially more expensive (i.e. by more than 10% of its existing expenses) to continue using it for that use; (b) (x) cause a delay of more than four weeks from the current estimate to the construction and opening of the Phase 1 Development as anticipated in the Construction Programme; (c) (y) prevent or limit the occupation or use of the whole or any part of the Phase 1 Development to any designated person or occupier; (d) (zz) cause the Planning Phase 1 Consent (once implemented) to be for a limited period; (e) (aa) require the construction of the entire Phase 1 Development in a single phase (such that the Building cannot be constructed as a first phase); (f) (bb) require the submission or obtaining of any reserved matters approvals pursuant to the Planning Phase 2 Consent ahead of construction or use of the Enabling Infrastructure Works; (g) (cc) require the Phase 1 Development to be constructed

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other than in accordance with the Specification; or (h) (dd) prevent the entirety of the Phase 1 Development from being used for purposes within Use Class B1(b) in accordance with the Planning Application for the Phase 1 Development or limit, restrict or prevent ancillary uses;
Landlord’s Works:	means those works for the construction of the shell of the Building, the Core Works and the relevant on and off site improvements (including dealing with any issues relating to contaminated land in respect of the Demies Premises), parking spaces, and landscaping and matters ancillary thereto on the Demised Premises set out in the Landlord’s Works Specification and the Core Works Specification;
Landlord’s Works Specification:	means the RIBA Work Stage 2 drawings and Array Multiplex Shell and Site Specification as annexed at Schedule 8, with such variations (if any) and design development as may be carried out under the terms of this Agreement;
Lease:	means the underlease of the Demised Premises to be granted to the Tenant pursuant to clause 12 in the form of the draft comprising Schedule 2 subject only to such minor amendments as are agreed between the parties acting reasonably;
Loss:	means any and all liabilities incurred, any and all damage and/or loss suffered, any and all claims, demands, actions and proceedings made or brought, or for any costs, disbursements and expenses incurred;
Material:	means all drawings, designs, reports, specifications, calculations and other similar documents and written information (including all information stored on any disk, computer or word processing facility) whatsoever obtained or provided in connection with the Works;
Measurement Surveyor:	means such firm as the Landlord may appoint with the Tenant’s prior approval (such approval not to be unreasonably withheld or delayed) from time to time;
Necessary Consents:	means Satisfactory Planning Consents and all consents, licences, permissions, approvals and authorisations necessary to enable the Works to be commenced, carried out, completed and maintained as contemplated by this Agreement;
Notice of Completion of	means the notice issued by the Employer’s Agent under the Building Contract that Defects which have appeared within the

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Making Good:	;
Nursery Lease:	means a lease dated 27 January 2012 and made between (1) Granta Park Limited and (2) Sunhill Daycare (Europe) Limited of part of the Nursery Site;
Nursery Site:	means that portion of the Array Land which is shown cross- hatched green on Plan 5 attached at Schedule 17 part of which is currently subject to the Nursery Lease;
Option:	means the option of the Tenant in accordance with clause 14;
Phase 1 Development:	means the construction of a minimum of 225,000 square feet floor space for use for Use Class B1(b) purposes on the Demised Premises together with parking and landscaping in accordance with the Specification;
Phase 2 Development:	means the erection on the remainder of GPEL’s land (as shown outlined in red on Plan 6 attached at Schedule 17) (but not on the Demised Premises) of research and development buildings (Use Class B1(b) with a combined floor area of up to 34,220 square meters (GEFA) excluding plant) including means of access (with the provision of an internal link road), strategic landscaping and associated infrastructure including parking and including the Enabling Infrastructure Works;
Planning Act:	means the Town and Country Planning Act 1990 as amended;
Planning Agreement:	means an agreement or unilateral undertaking under section 106 of the Planning Act required to obtain the grant of the Planning Consents;
Planning Amenity Building Consent:	means full planning permission for the Amenity Building which is satisfactory to the Landlord in its discretion
Planning Appeal:	means: (a) (a) submission of an appeal to the Secretary of State pursuant to the Planning Act following a Refusal; or (b) (b) reference of a Planning Application to the Secretary of State under section 77 of the Planning Act; or (c) (c) submission of an application under Section 73 of the Planning Act for the grant of permission without complying with an Unacceptable Condition;
Planning	means an application for any of the Planning Consents in accordance with the terms of this Agreement which term shall

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Application:	;
Planning Condition:	means the grant of Satisfactory Planning Consents in respect of the Phase 1 Development and the Phase 2 Development and: (a) (a) the expiry of the Review Period in respect of each such Satisfactory Planning Consent without Proceedings being instituted; or (b) (b) if any Proceedings are instituted during any Review Period those Proceedings being finally disposed of leaving in place extant Satisfactory Planning Consents in respect of the Phase 1 Development and the Phase 2 Development and the expiry of any period during which any further Proceedings can be instituted, without such Proceedings being instituted;
Planning Consent/s:	means the Planning Phase 1 Consent and the Planning Phase 2 Consent (or any one of them as the context so admits);
Planning Long Stop Date:	means 31 December 2015 unless extended in accordance with clause 2.4;
Planning Phase 1 Consent:	means full planning permission for the Phase 1 Development granted pursuant to planning application reference S/1109/15/FL or other Planning Application submitted pursuant to this Agreement;
Planning Phase 2 Consent:	means outline planning permission for the Phase 2 Development including detailed planning permission for the Enabling Infrastructure Works (by way of approval of detailed drawings and not subject to reserved matters) pursuant to planning application reference S/1110/15/OL or other Planning Application submitted pursuant to this Agreement;
Post-Practical Completion Testing:	means the testing and commissioning programme in respect of the Works (but excluding any Tenant’s Variation) which can be carried out only with assumed loadings or once the Building is occupied to be carried out by the Commissioning Engineer as soon as reasonably practicable after the Certificate Date which commissioning and testing the Tenant and the Landlord (acting reasonably) shall agree as soon as reasonably practicable after the date of this Agreement and in any event prior to the date of the Building Contract which incorporates

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;
PPD1 Building:	means the building demised by the PPD Lease;
PPD Lease:	means the lease dated 30 September 2014 and relating to Unit 11 Granta Park Great Abington Cambridge made between (1) Granta Park JCo 1 Limited and (2) Illumina Cambridge Limited;
Practical Completion:	means the Works have achieved practical completion under the Building Contract PROVIDED THAT practical completion shall not be deemed to have been achieved until the conditions referred to in Schedule 1 Part 3 have been complied with to the reasonable satisfaction of the Employer’s Agent and “ Practically Complete ” and “ Practically Completed ” shall be construed accordingly;
Practical Completion Statement:	means the statement to be issued by the Employer’s Agent in accordance with the Building Contract that in its opinion the Works have reached Practical Completion;
Pre-Construction Services Agreement:	means the pre-construction services agreement substantially in the form annexed at Schedule 10 and the Tenant shall be given a reasonable opportunity to make representations in relation to any amendments that may be proposed to such agreement prior to its completion and the Landlord shall have due regard to such representations but shall not be fettered by them (provided always that the Tenant shall not be entitled to comm ent upon m att ers r elating solely t o the Landlord’s Works); in respect of the enabling works and part of the Landlord’s W orks ;
Pre-Construction Services:	means the pre-construction services the Contractor is to perform under the Building Contract entered into following completion of the Contractor’s services under the Pre- Construction Services Agreement, such pre-construction services to be performed in respect of the remainder of the Landlord’s Works and all of the Tenant’s Works such services to be agreed by the Tenant (acting reasonably);
Pre-Practical Completion Testing:	means the testing and commissioning programme in respect of the Works (but excluding any Tenant’s Variation) to be carried out by the Commissioning Engineer prior to Practical Completion which commissioning and testing the Tenant and the Landlord (acting reasonably) shall agree as soon as reasonably practicable after the date of this Agreement and in any event prior to the date of the Building Contract which

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;
President:	means the president for the time being of the Royal Institution of Chartered Surveyors (unless the context otherwise requires);
Proceedings:	means all or any of the following instituted by a Third Party: (a) (ee) an application for judicial review under Part 54 of the Civil Procedure Rules 1998 or successor provision arising from the grant of a Planning Consent; or (b) (ff) an application pursuant to section 288 of the Planning Act arising from the grant of Planning Consent or a Refusal by the Secretary of State; including in the case of both paragraphs ( ee a ) and ( ff b ) any appeals to a higher court following a judgment of a lower court; (a) (gg) proceedings under Part 5 of the Planning and Compulsory Purchase Act 2004 or successor provision for the correction of an error in relation to a Satisfactory Planning Consent; (b) (hh) any reconsideration by the Determining Authority of a Planning Application or the Secretary of State of a Planning Appeal (as the case may be) following a Planning Consent or a Refusal being quashed pursuant to an application within the meaning of paragraph ( ee a ) or ( ff b ) above and the matter being remitted to the Determining Authority or the Secretary of State (as the case may be); an application (within the meaning of paragraph ( ee a ) or ( ff b ) above) arising from the grant of Planning Consent or a Refusal following a reconsideration of a Planning Application by the Determining Authority or a Planning Appeal by the Secretary of State pursuant to paragraph ( hh b ) above or a decision of the Secretary of State to issue a correction notice pursuant to section 57 of the Planning and Compulsory Purchase Act 2004 or successor provision;
Product Guarantees:	means (to the extent that any are available) product guarantees on which the Tenant can rely from the manufacturers of plant and machinery at the Building including, but not limited to roof and wall cladding systems, electrical lobby doors and roller shutter doors together with any other product guarantees obtained by the Landlord in respect

18 18560750.22 WKS/102131256.2



;
Prohibited Materials:	means materials which: (a) (a) do not accord with any relevant recommendations contained or referred to in the latest version (at the time the Building Contract is or was entered into) of “Good Practice in the Selection of Construction Materials” sponsored by the British Property Federation and the British Council for Offices; or (b) (b) are not in accordance with British Standards and Codes of Practice, good building practice or having been supplied or placed in the market in breach of the Construction Products Regulations; or (c) (c) are generally known within the UK construction industry to be deleterious at the time of specification or selection or use; or (d) (d) are generally known within the UK construction industry at the relevant time to be injurious to human health and safety or posing a threat to the structural stability, performance or physical integrity of the Works;
Project Costs:	is defined in Schedule 1 Part 6;
Rectification Period:	means the period of 12 months following the Certificate Date;
Refusal:	means any of the following: (a) (a) a refusal by the Determining Authority to grant planning permission pursuant to any Planning Application; (b) (b) a refusal by or on behalf of the Secretary of State to grant planning permission following a Planning Appeal; (c) (c) a refusal by the Determining Authority to vary or remove an Unacceptable Condition pursuant to an application under section 73 or 96A of the Planning Act; (d) (d) a failure by the Determining Authority to determine the Planning Application within the period required under section 78(2) of the Planning Act or any extended period agreed by the Landlord; (e) (e) the grant of a Planning Consent which has been agreed or determined pursuant to this Agreement not to

19 18560750.22 WKS/102131256.2



be a Satisfactory Planning Consent;
Remedial Works:	means those works comprising the making good of Snagging Items and Defects in each case which the Contractor is obliged to carry out under the terms of the Building Contract;
Rent Commencement Date:	means: (a) (a) the date that is six months after the Term Commencement Date; or (b) (b) in the event that the Lease is granted pursuant to clause 14 the date that is six months after the Certificate Date; or in both cases such earlier or later date as is ascertained in accordance with sub-clause 13.3.2 and/or paragraph 8.6 of Schedule 1 Part 1;
Review Period:	means seven weeks following the date of issue of a Planning Consent;
RICS:	means the Royal Institution of Chartered Surveyors;
Satisfactory Planning Consent:	means the grant of a Planning Consent which (together with any associated Planning Agreement and CIL Requirement) are free from: (a) (a) any Landlord’s Unacceptable Condition (unless all Landlord’s Unacceptable Conditions are waived by the Landlord or deemed or determined not to be a Landlord’s Unacceptable Condition in accordance with this Agreement); and (b) (b) any Tenant’s Unacceptable Condition (unless all Tenant’s Unacceptable Conditions are waived by the Tenant or deemed or determined not to be a Tenant’s Unacceptable Condition in accordance with this Agreement);
Secretary of State:	means the Secretary of State for Communities and Local Government or such other minister or office holder who at the relevant time is the person to whom an appeal may be made under s.78(1) Planning Act in respect of the Demised Premises or an inspector appointed by any such person;
Side Letter	means the side letter in the form annexed at Schedule 11;
Snagging Items:	means those snagging items set out in any list which accompanies the Practical Completion Statement or subject to

20 18560750.22 WKS/102131256.2



;
	Specification:	means in respect of the Landlord’s Works, the Landlord’s Works Specification and the Core Works Specification and in respect of the Tenant’s Works the Tenant’s Works Specification;
	Stage 4 Approval Documents:	means the Tenant’s Works Specification, the VE Schedule and the Stage 4 Cost Plan Report;
	Stage 4 Cost Plan Report:	means the report dated 4 October 2016 as against the Cost Plan dated 4 October 2016 number 5 revision 4 and any later revision approved by the Tenant (acting reasonably);
	Stage 4 Submission Date:	means 17 October 2016 or such later date as the parties may agree acting reasonably;
	Standard Conditions:	means the Standard Commercial Property Conditions (Second Edition);
	Superior Lease:	means the lease to be granted by GPEL to the Landlord out of which interest the Lease will be granted;
	Target Area:	means 155,000 square feet being the anticipated Internal Area;
	Tenant:	means the party so described at the head of this Agreement;
	Tenant’s Breach:	means any and all material breaches of the Tenant of its obligations under this Agreement (whether by act or omission) including but not limited to any failure by the Tenant to respond to a request for approval either within the timescale prescribed by this Agreement or where there is no timescale prescribed, as soon as reasonably practicable after receipt of the request for approval or consent (including but not limited to any rights of approval of the Contract Sum (as defined in the Building Contract) for the Building Contract which incorporates any of the Tenant’s Works);
	Tenant’s Consultant:	means Gensler;
	Tenant’s Consultants Approved Terms:	means the terms of appointment, substantially in the form annexed at Schedule 12 and the Tenant shall seek the Landlord’s written approval to: (ii) the services and any amendments to such appointment which would materially adversely affect the rights of the Landlord and/or the Contractor under the collateral warranties from the Tenant’s Consultant to be delivered

21 18560750.22 WKS/102131256.2



to the Landlord and/or the Contractor pursuant to paragraph 2.6 of Schedule 1 Part 1 (including but not limited to the Landlord’s and/or the Contractor’s rights in respect of the copyright licence to be granted to the Landlord and/or the Contractor under such collateral warranties and/or the extent of the Tenant’s Consultant’s liability for design) (such approval is not to be unreasonably withheld); (jj) any amendment which could in any way prevent or impede the Tenant’s compliance with its obligations in paragraph 2.1 of Schedule 1 Part 1 and/or the Landlord’s compliance with its obligations in this Agreement; (kk) any amendment which might be inconsistent with the t erm s of t he Building Contr act f or t he T enant ’s W ork s; and: (i) in the case of (ii), (jj) and (kk) above the Landlord shall be deemed to have given its approval if it does not confirm in writing its refusal or consent with proper and detailed reasons within five working days of receipt of a request from the Tenant for the Landlord’s approval; and (ii) in the case of (ii), (jj) and (kk) above such refusal or consent to be given as soon as reasonably practicable and in any event so as not to cause any delay to the placing of the Tenant’s Consultant’s appointments (as anticipated by the Tenant’s Design Delivery Programme);
Tenant’s Contribution	all sums paid by the Tenant to the Tenant’s Consultants Consultant and all sums paid to the Landlord by the Tenant under paragraph 13 of Schedule 1 Part 1;
Tenant’s Design Delivery Date :	9 February 2016 (or such later date as may be agreed by the parties (acting reasonably) following any amendment to the Tenant’s Design Delivery Programme) being the date the Tenant is to deliver the Tenant’s Design Documents completed to Work Stage 4 in accordance with sub-paragraph 4.2.10 of Schedule 1 Part 1;
Tenant’s Design Delivery	the programme annexed at Schedule 13 as may be amended and updated by the parties acting reasonably but provided always that it shall be reasonable for the Landlord not to agree

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Programme:	any amendment if it will or might delay the carrying out and completion of the Works;
Tenant’s Design Documents:	means the drawings specifications and other documents showing the detailed design and further development of the Tenant’s Works Specification for the Tenant’s Works and the Core Works Specification for the Core Works (save to the extent that the Core Works are to be or have been designed by the Architect) necessary to develop the design of the Tenant’s Works and the Core Works (save to the extent that the Core Works are to be or have been designed by the Architect) up to and including the date where such design forms part of the Building Contract (but not for the avoidance of doubt any such material produced by a Contractor) to be submitted by the Tenant in accordance with paragraph 2 of Schedule 1 Part 1 ;
Tenant’s Executive:	means Leizl Jones or such other person as the Tenant may from time to time name and notify the Landlord in writing;
Tenant’s Land Registry Certificate	means the Land Registry Certificates in agreed form at Schedule 20;
Tenant’s Representative:	means Cushman & Wakefield LLP (registration number OC328588) or such other party as the Tenant may notify to the Landlord from time to time;
Tenant’s Shell Variation Long Stop Date:	means the last date by which the Landlord can require the Contractor to provide an estimate for any Tenant’s Variation to the Landlord’s Works in accordance with sub-paragraph 11.1 of Schedule 1 Part 1, which date shall be advised by the Contractor and approved by the Landlord and Tenant (each acting reasonably) and shall be extended by any extensions of time granted under the Building Contract;
Tenant’s Solicitors:	means Wedlake Bell LLP of 52 Bedford Row 71 Queen Victoria Street , London WC1R 4LR EC4V 4AY (reference: GM/SZE/ILL/4/19);
Tenant’s Unacceptable Condition:	means a condition imposed on a Planning Consent and/or a provision or obligation in a Planning Agreement and/or CIL Requirement which will or in the Tenant’s reasonable opinion is likely (either individually or when considered together) to: (a) (ll) cause a delay of more than 4 weeks from the current estimate to the construction and opening of the Phase 1 Development as anticipated in the Construction

23 18560750.22 WKS/102131256.2

Programme;


(b)	(mm) prevent or limit the occupation or use of the whole or any part of the Phase 1 Development to any designated person or occupier (not including any restriction by reference to Use Class B1(b));


(c)	(nn) cause the Planning Consent for the Phase 1 Development (once implemented) to be for a limited period only;


(d)	(oo) require the construction of the entire Phase 1 Development in a single phase (such that the Building cannot be constructed as a first phase);


(e)	(pp) require the Phase 1 Development to be constructed other than in accordance with the Specification save in respect of deviations from the Specification approved by the Tenant (acting reasonably) during the course of the Planning Application;


(f)	(qq) prevent the entirety of the Phase 1 Development from being used for purposes within Use Class B1(b) or limit, restrict or prevent ancillary uses;


(g)	(rr) restrict the use within the Phase 1 Development for purposes within Use Class B1(b) to less than 225,000 square feet;


(h)	(ss) prevent the provision and use of 600 car parking spaces as part of the Phase 1 Development save where the Landlord agrees to provide the shortfall in a reasonable alternative location (such location to be no further than a 5 minute walk from the Building);


(i)	(tt) prevent restrict or delay reasonable access by vehicles or on foot to the Building for all purposes authorised by the Planning Phase 1 Consent;


(j)	(uu) prevent the use of the Amenity Building by the Tenant for its intended use;

PROVIDED THAT only (a) and (i) above shall apply in the case of a Planning Phase 2 Consent and associated Planning Agreement and CIL Requirement

Article V. Tenant’s Variation:

means a variation to the Landlord’s Works or the Tenant’s Works requested by the Tenant in accordance with paragraph 11 of Schedule 1 Part 1;

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Tenant’s Variation Costs:	means the total additional reasonable and proper costs arising from the implementation of a Tenant’s Variation (as properly certified by the Employer’s Agent acting reasonably) including (but not limited to): (a) (vv) the costs, fees and expenses properly incurred by the Landlord and/or the Landlord in the design, pricing and procurement of the Tenant’s Variation and its integration with the Landlord’s Works and other Tenant’s Works (including the fees of the Consultants and other advisors); (b) (ww) the amounts properly paid to the Contractor in accordance with the Building Contract to design, carry out and complete the Tenant’s Variation under the Building Contract and to integrate it with the Landlord’s Works and other Tenant’s Works, including any claims for loss and expense; (c) (xx) VAT on the above costs fees or expenses which is not capable of being recovered or in respect of which credit cannot be obtained from HMRC; less any Tenant’s Variation Deductions
Tenant’s Variation Deductions:	means any: (a) (yy) savings associated with Tenant’s Variations; and (b) (zzz) savings on professional fees; as a result of the implementation of any Tenant’s Variation and agreed by the Landlord and Tenant or in the absence of agreement properly certified by the Employer’s Agent (acting reasonably);
Tenant’s Works:	means the category A and category B works in the Tenant’s Works Specification which are to be carried out and completed under the Building Contract;
Tenant’s Works Allowance:	means the VAT exclusive sum of one million one hundred thousand pounds (£1,100,000) in relation to the Tenant’s Works as may be increased in accordance with paragraph 13.9 of Schedule 1 Part 1;
Tenant’s Works Costs:	means the total reasonable and proper costs arising from the carrying out of the Tenant’s Works by the Landlord (as properly certified by the Employer’s Agent acting reasonably) being together:

25 18560750.22 WKS/102131256.2



(a) (aaa) the costs, fees and expenses properly incurred by the Landlord under or connection with the performance of its obligations under paragraph 3.2 of Schedule 1 Part 1 (including the fees of the Consultants and other advisors); (b) (bbb) the costs, fees and expenses properly incurred by the Landlord in the design, pricing and procurement of the Tenant’s Works and their integration with the Landlord’s Works (including the fees of the Consultants and other advisors); (c) (ccc) the amounts properly paid to the Contractor in accordance with the Building Contract to design, carry out and complete the Tenant’s Works under the Building Contract and to integrate them with the Landlord’s Works, including any claims for loss and expense and that portion of the Contract Sum (as defined in the Building Contract) as attributable to the Tenant’s Works; (d) (ddd) VAT on the above costs fees or expenses which is not capable of being recovered or in respect of which credit cannot be obtained from HMRC;
Tenant’s Works Specification:	means the specification attached at Schedule 15 for the Tenants Works as will be developed and submitted to the Landlord in accordance with paragraph 2 of Schedule 1 Part 1 ;
Tenant’s Works Variation Long Stop Date:	means the last date by which the Landlord can require the Contractor to provide an estimate for any Tenant’s Variation to the Tenant’s Works in accordance with sub-paragraph 11.1 of Schedule 1 Part 1, which date shall be advised by the Contractor and approved by the Landlord and the Tenant (each acting reasonably) and shall be extended by any extensions of time granted under the Building Contract;
Term Commencement Date:	means the Completion Date;
Termination Balance:	the aggregate of the: (a) (eee) the total value of the Works properly executed at the date of termination, ascertained in accordance with the Building Contract as at the date of termination of this Agreement, together with any amounts due to the Contractor not included in such total value; and

26 18560750.22 WKS/102131256.2



(b) (fff) the total value of all sums paid to the Contractor prior to the date of termination; in each case as valued by the Employer’s Agent and the total sums (including fees and expenses) paid to the Consultants together with any amounts due to the Consultant not included in such total value;
Third Party:		means a person other than (a) GPEL (b) the Landlord (c) the Tenant or (d) anyone acting on GPEL’s the Landlord’s or the Tenant’s direction;
Unacceptable Condition:		means a Landlord’s Unacceptable Condition or a Tenant’s Unacceptable Condition;
Unconditional Date:		means the working day following the later of the date of satisfaction of the Planning Condition and the date of grant of the Superior Lease;
Use Class:		means a use class as set out in the Schedule to the Town and Country Planning (Use Classes) Order 1987 as in force at the date of this Agreement;
VAT:		means value added tax;
VE Schedule:		means the value engineering schedule attached at Schedule 21;
Works:		means the Landlord’s Works and the Tenant’s Works;
Works Cost Estimate:		has the meaning given at paragraph 13.9 of Schedule 1 Part 1;
Works Long Stop Date:		means 1 April 2018 30 January 2019 or such later date as the parties may agree or be ascertained in accordance with paragraph 14.2 of Schedule 1 Part 1 and/or as may be extended in accordance with sub-paragraph sub-paragraphs 8.5 and/or 11.2.1 and/or Schedule 1Part 14.2.2(d) of Schedule 1 Part 1;
Work Stage:		means the relevant work stage in the RIBA Plan of Works 2013;
Works Target Date:		means 1 October 2017 30 November 2018 or such later date as may be extended in accordance with paragraph 8 of Schedule 1 Part 1 and/or sub-paragraph 11.2.1 of Schedule 1 Part 1 by an Extension of Time (whether in respect of sub- paragraph 4.2.2 of Schedule 1 Part 1 or otherwise) and/or such later date as the parties may agree or may be ascertained in accordance with Schedule 1 Part 1 paragraph

27 18560750.22 WKS/102131256.2

14.2; and

1954 Act: means the Landlord and Tenant Act 1954 (as amended).

1.2 References to a “ schedule ”, “ annexure ”, “ part ” or “ clause ” are references respectively to a schedule or Annexure to or a Part or clause of this Agreement.

1.3 References to any statute or statutory section shall include any statutory amendment, modification or re-enactment of it for the time being in force and all subordinate legislation made under it.

1.4 References to “the parties ” mean the Landlord and the Tenant only unless the context otherwise requires that expression to include also the Guarantor.

1.5 References to “ working days ” mean any day from Monday to Friday (inclusive) which is not Christmas Day, Good Friday or a statutory bank holiday.

1.6 Wherever in this Agreement the consent or approval of the Tenant may in specified circumstances be deemed to be granted the relevant consent or approval will not be deemed to have been granted if the Landlord has not provided the Tenant with all information which the Tenant reasonably requests in writing prior to the expiry of the period after which the deeming takes effect and would reasonably and properly be necessary in relation to the relevant consent or approval.


1.7	References to the “ Yearly Rent ”, the “ Insurance Rent ” and the “ Service Charge Rent ” are to the rents reserved by and so described in the Lease.


2	CONDITION PRECEDENT

2.1 Subject to clause 2.2, this Agreement comes into force on the date of this Agreement.

2.2 Clauses 10 to 14 (inclusive), clause 17-19 (inclusive) and clauses 21 22 and 35 are conditional on the satisfaction of the Condition Precedent and the grant of the Superior Lease and shall come into force on the Unconditional Date.

2.3 Save where expressly permitted pursuant to the terms of this Agreement the Landlord and Tenant may only waive the Condition Precedent by agreement in writing.

2.4 If on 31 December 2015 the Planning Phase 1 Consent and the Planning Phase 2 Consent have both been granted but either:


2.4.1	the Review Period has not expired in relation to either the Planning Phase 1 Consent or the Planning Phase 2 Consent; or


2.4.2	it has not been agreed or determined pursuant to the terms of this Agreement whether each of the Planning Phase 1 Consent and the Planning Phase 2 Consent comprise a Satisfactory Planning Consent

THEN the Planning Long Stop Date shall be extended until the later of:

28 18560750.22 WKS/102131256.2


2.4.3	expiry of the Review Period in respect of each of the Planning Phase 1 Consent and the Planning Phase 2 Consent; and


2.4.4	agreement or determination in accordance with clause 8 as to whether each of the Planning Phase 1 Consent and the Planning Phase 2 Consent comprise a Satisfactory Planning Consent

BUT in no circumstances shall the Planning Long Stop Date extend beyond 19 February 2016.


3	OBTAINING SATISFACTORY PLANNING CONSENTS

3.1 The Landlord shall use reasonable endeavours to procure pursuant to its agreement with GPEL that GPEL obtains all Satisfactory Planning Consents as soon as possible but in any event so as to achieve the Unconditional Date prior to the Planning Longstop Date.

3.2 The Landlord shall consult with and keep the Tenant regularly informed of the endeavours being made and proposed to achieve satisfaction of the Planning Condition by the Unconditional Date at all material times including (without limitation but in respect of the Phase 1 Development only):


3.2.1	providing to the Tenant (at the Landlord’s cost) copies (which may be electronic) of all material draft and final documents and reports (including drawings, plans, specifications and design details) and correspondence relating to Planning Applications and Proceedings and draft and final Planning Agreements; and


3.2.2	giving the Tenant where possible at least five working days’ notice of any meetings to be held with any Determining Authority and inviting the Tenant (who may nominate a nominee) to attend and participate in any material meetings with the Determining Authority and shall provide the tenant with a copy of any minutes of any meetings with the Determining Authority.


4	CO-OPERATION OF TENANT

4.1 The Tenant shall not do anything which may prejudice or obstruct the progress of any Planning Application or Proceedings made or pursued pursuant to this Agreement.

4.2 The Tenant shall co-operate with the Landlord and use reasonable endeavours to assist the Landlord (at the Landlord’s cost) in obtaining the Satisfactory Planning Consents if reasonably required by the Landlord or the Determining Authority.

4.3 The Tenant shall not initiate or pursue (or procure any third party to initiate or pursue) Proceedings.

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5	NOTIFICATION OF PLANNING DECISIONS

5.1 On receipt of a Planning Consent or Refusal the Landlord shall immediately supply a copy of the relevant Planning Consent (together with a copy of any associated Planning Agreement and details of CIL Requirement) or Refusal to the Tenant.

5.2 Within eight working days of the receipt of a Planning Consent the Landlord shall serve notice on the Tenant in writing confirming whether or not the relevant Planning Consent (together with any associated Planning Agreement and CIL Requirement) contains a Landlord’s Unacceptable Condition (with reasons) (and if the Landlord fails to serve such notice within the relevant eight working day period the Landlord shall be deemed to have confirmed that the relevant Planning Consent (together with any associated Planning Agreement and CIL Requirement) does not contain any Landlord’s Unacceptable Condition).

5.3 Within eight working days of receipt of a Planning Consent (together with any associated Planning Agreement and CIL Requirement) from the Landlord pursuant to clause 5.1 the Tenant shall serve notice on the Landlord in writing confirming whether or not the Planning Consent (together with any associated Planning Agreement and CIL Requirement) contains a Tenant’s Unacceptable Condition (with reasons) (and if the Tenant fails to serve such notice within the relevant eight working day period the Tenant shall be deemed to have confirmed that the relevant Planning Consent (together with any associated Planning Agreement and CIL Requirement) does not contain any Tenant’s Unacceptable Conditions).

5.4 The Landlord and the Tenant may each waive their right pursuant to this Agreement to treat any matter as an Unacceptable Condition by service of written notice on the other.

5.5 Any dispute pursuant to this clause 5 as to whether a matter is an Unacceptable Condition may be referred by either party to the Independent Surveyor in accordance with clause 8.

5.6 In the event that a party has confirmed pursuant to sub-clauses 6.3.1, 6.3.2 or clause

6.7 that a form of Planning Agreement does not contain an Unacceptable Condition that confirmation shall be binding for the purposes of clause 5.2 or 5.3 in respect of the said Planning Agreement (as the case may be) unless clause 6.8 applies.


6	PLANNING AGREEMENTS

6.1 If a Planning Agreement is required to secure any Satisfactory Planning Consent, the Landlord shall use reasonable endeavours (in consultation with the Tenant who shall act reasonably and promptly) to procure that GPEL negotiate and agree with the Determining Authority the terms of the Planning Agreement free from any Unacceptable Condition as quickly as reasonably possible.

6.2 The Landlord shall keep the Tenant regularly informed as to the progress of the Planning Agreement.

30 18560750.22 WKS/102131256.2

6.3 The Tenant shall enter into a Planning Agreement in respect of the Phase 1 Development if required by the Landlord or Determining Authority in order to obtain a Satisfactory Planning Consent PROVIDED THAT:


6.3.1	the Landlord has first confirmed to the Tenant that the draft Planning Agreement and any draft Planning Phase 1 Consent does not contain any Landlord’s Unacceptable Condition (unless waived by the Landlord or determined not to contain a Landlord’s Unacceptable pursuant to clause 8 and subject to clause 6.8);


6.3.2	the Planning Agreement does not contain any Tenant’s Unacceptable Condition (unless waived by the Tenant or determined not to contain a Tenant’s Unacceptable Condition pursuant to clause 8 and subject to clause 6.8); and


6.3.3	any liabilities on the Tenant (i) are expressed to be dependent on the Tenant taking the Lease of the Demised Premises or the Tenant implementing the Planning Consent and (ii) shall cease on the disposal of the Tenant’s interest in the Demised Premises (save in respect of antecedent breaches).

6.4 Save as specified in clause 6.5 the Landlord shall be liable for performance of the obligations contained in any Planning Agreement in respect of the Planning Phase 1 Consent and discharge of all conditions on the Planning Phase 1 Consent and from completion of the Lease indemnifies and shall keep the Tenant indemnified against all liabilities, proceedings, costs, claims, demands and expenses incurred or arising as a result of any breach pursuant to this clause 6.4.

6.5 The Tenant shall be liable for performance of the obligations contained in a Planning Agreement in respect of a Planning Phase 1 Consent or conditions imposed on a Planning Phase 1 Consent relating to its occupation of the Demised Premises including without limitation requirements in relation to green travel plans associated with its use and occupation of the Demised Premises (whether or not such obligations require discharge prior to commencement or occupation or otherwise) and shall from the date of the Lease indemnify and keep the Landlord indemnified against all liabilities, proceedings, costs, claims, demands and expenses incurred or arising as a result of any breach by the Tenant of its obligations contained in this clause 6.5.

6.6 Any dispute pursuant to this clause 6 as to whether a matter is a Landlord’s or Tenant’s Unacceptable Condition may be referred by either party to an Independent Surveyor in accordance with clause 8.

6.7 Subject to clause 6.8, the Landlord may serve a copy of the final form of any Planning Agreement on the Tenant (stating whether the Planning Agreement if completed in that form contains any Landlord’s Unacceptable Condition with reasons) and within five working days of receipt by the Tenant, the Tenant shall notify the Landlord in writing whether or not the relevant final form of any Planning Agreement contains a Tenant’s Unacceptable Condition (with reasons) (and if the Tenant fails to notify the

31 18560750.22 WKS/102131256.2

Landlord within the relevant five working day period the Tenant shall be deemed to have confirmed that the relevant Planning Agreement does not contain a Tenant’s Unacceptable Condition).

6.8 If confirmation is given pursuant to sub-clause 6.3.1, 6.3.2 or clause 6.7 that a form of Planning Agreement does not contain an Unacceptable Condition but the Determining Authority subsequently grants a Planning Consent subject to conditions other than those anticipated by the parties at the time of such confirmation or the CIL Requirement subsequently changes, the relevant confirmation given by the relevant party shall not be binding for the purposes of clause 5.2 or 5.3 (as the case may be).


7	HISTORIC PLANNING PERMISSIONS AND AGREEMENTS

7.1 The Tenant shall comply with the obligations contained in paragraph 4 of the Second Schedule to the 2006 Agreement for so long as they affect the Demised Premises.

7.2 The Tenant hereby indemnifies and shall keep the Landlord indemnified against all liabilities, proceedings, costs, claims, demands and expenses arising out of any breach by the Tenant in clause 7.1 above.

7.3 The Landlord hereby indemnifies and shall keep the Tenant indemnified against all liabilities, proceedings, costs, claims, demands and expenses (“ Indemnity Claims ”) incurred or arising out of any Historic Planning Permission and any Historic Planning Agreement affecting the Demised Premises PROVIDED THAT:


7.3.1	the Tenant shall promptly notify and keep the Landlord informed of any Indemnity Claims and pay full regard to representations made by the Landlord; and


7.3.2	the Tenant shall not settle any Indemnity Claims without the consent of the Landlord (not to be unreasonably withheld or delayed); and


7.3.3	the indemnity in this clause shall not apply in respect of any Indemnity Claims arising or to the extent that any Indemnity Claim is contributed to by a breach by the Tenant of clause 7.4; and


7.3.4	this indemnity shall not apply to any liabilities incurred by the Tenant arising out of paragraph 4 of the second schedule to the 2006 Agreement.


7.3.5	this indemnity shall not compensate the Tenant for its share of the estate service charge which is attributable to performance by the Landlord or GPEL with the provisions of paragraph 3 of the second schedule to the 2006 Agreement.

7.4 The Tenant shall not undertake or allow to be undertaken any development on the Demised Premises pursuant to any Historic Planning Permission.

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8	INDEPENDENT SURVEYOR

8.1 In the event of any dispute arising between the Landlord and the Tenant about whether a Planning Consent and/or Planning Agreement and/or CIL Requirement contains an Unacceptable Condition the matter may be referred by either party to an Independent Surveyor in accordance with clause 8.2.

8.2 Any matter referred to an Independent Surveyor shall be determined in accordance with the following:


8.2.1	an Independent Surveyor shall be appointed by agreement between the Landlord and the Tenant or, in the absence of agreement, either of them may request the appointment to be made by the President;


8.2.2	the Independent Surveyor must be a Fellow of the RICS, with at least ten years’ post qualification experience including experience in development of the same type as the Phase 1 Development;


8.2.3	if an Independent Surveyor appointed dies or becomes unwilling or incapable of acting, or does not deliver the decision within the time required by this clause, then either the Landlord or the Tenant may apply to the President to discharge the appointed Independent Surveyor and to appoint a replacement Independent Surveyor;


8.2.4	the Independent Surveyor shall act as an expert and shall be required to;


(a)	decide whether or not there is an Unacceptable Condition; and


(b)	prepare a written note of the decision and give a copy of the decision to both the Landlord and the Tenant.


8.2.5	the Landlord and the Tenant shall each be entitled to make written representations to the Independent Surveyor and to make counter representations on the representations of the other;


8.2.6	the Independent Surveyor shall set the timetable for determination of the dispute provided that the decision shall be made within 20 working days of his appointment;


8.2.7	the Independent Surveyor’s written decision shall be final and binding on the parties in the absence of manifest error or fraud;


8.2.8	the costs of the Independent Surveyor shall be borne equally by the Landlord and the Tenant or in such different proportion as the Independent Surveyor shall direct; and


8.2.9	in the event that there is also a dispute between the Landlord and GPEL on any such matter, the parties agree that the same Independent Surveyor may determine both disputes and the above procedure shall be adapted accordingly.

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9	TERMINATION

9.1 If the Unconditional Date has not occurred by the Planning Long Stop Date either the Landlord or the Tenant may at any time after the Planning Long Stop Date (but only before the Unconditional Date) give written notice to the other and to the Guarantor to determine this Agreement.

9.2 Termination will be without prejudice to the rights of each party in respect of any earlier breach of this Agreement or any provisions that expressly survive termination of this Agreement.


10	THE WORKS

The terms of Schedule 1 Part 1 apply.


11	MEASUREMENT OF THE DEMISED PREMISES

11.1 The Landlord will at its own cost appoint the Measurement Surveyor to measure the Internal Area of the Building as soon as reasonably possible after the Landlord notifies Tenant that the Internal Area of the Building is capable of being measured. The Landlord will procure prior to the measurement being carried out that the Measurement Surveyor provides a duty of care letter to the Tenant in the form previously agreed by the Landlord with the Measurement Surveyor with such further amendments as may be requested by the Tenant and agreed by the Measurement Surveyor.

11.2 In measuring such Internal Area the Landlord and the Tenant shall assume that (and the Measurement Surveyor shall be instructed to measure on the basis that) any Tenant’s Works have not been carried out.

11.3 The Landlord will procure that the Tenant shall be entitled to accompany the Landlord and the Measurement Surveyor on any inspection of the Building carried out by the Measurement Surveyor and to make representations to the Measurement Surveyor in connection with the measurement of the Internal Area of the Building. All such representations shall be in writing and shall be copied to each of the parties at the same time as they are submitted to the Measurement Surveyor.

11.4 The parties will not be entitled to dispute the Internal Area of the Building as determined by the Measurement Surveyor save in the case of manifest error.


12	GRANT OF THE LEASE AND ISSUE OF THE SIDE LETTER

12.1 The Landlord agrees to grant and the Tenant agrees to take, the Lease. The Guarantor agrees to enter into the Lease as guarantor.

12.2 The Tenant cannot require the Landlord to grant the Lease to any person other than the Tenant (here meaning Illumina Cambridge Limited, incorporated and registered in England and Wales with company number 03625145, only) or the Guarantor.

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12.3 The grant of the Lease shall be completed at the offices of the Landlord’s Solicitors on the Completion Date when the Landlord shall execute and deliver to the Tenant the Lease and the Tenant and the Guarantor shall execute and deliver to the Landlord a counterpart of the Lease and the Landlord shall deliver a signed Side Letter in duplicate to the Tenant which shall be reissued on the grant of the reversionary lease referred to in paragraph 21.2 of Schedule 1 Part 1.

12.4 The Lease shall be granted subject to the matters set out or referred to in the draft lease which comprises Schedule 2.

12.5 This Agreement shall be deemed to incorporate the Standard Conditions Part 1 so far as they relate to a leasehold property and are not excluded by, varied by or inconsistent with the conditions contained in this Agreement.


13	FORM OF THE LEASE

13.1 The Lease shall be in the form attached at Schedule 2 with such minor amendments as the Landlord may reasonably require and the Tenant reasonably agrees to take account of any Tenant’s Variations including any amendments required to be made to Plan 1 attached to the Lease to reflect the new extent of the Estate Roads (to include the Connecting Access ) .

13.2 The term of the Lease shall be 20 years from and including the Term Commencement Date (save where the Lease is granted pursuant to clause 14).

13.3 Subject to review in accordance with the terms of the Lease, the Yearly Rent payable under the Lease shall be calculated as follows:


13.3.1	for the period from and including the Term Commencement Date to but excluding the Rent Commencement Date the sum of one peppercorn per annum;

for the period from and including the Rent Commencement Date to but excluding the first Review Date the sum of four million one hundred and thirty eight thousand five hundred pounds (£4,138,500) per annum And and such sum shall be inserted in the Lease as the “Yearly Rent”.


13.3.2	if the Certificate Date is not achieved on or before the Works Target Date then the Rent Commencement Date shall be delayed by one additional day for each whole day after the Works Target Date that the Certificate Date is delayed for the first 60 days and by two additional days for each whole day from and including the sixty-first day thereafter until such time as the Certificate Date occurs.

13.4 The Review Dates (as defined in the Lease) shall be the fifth (5 th ) anniversary of the Term Commencement Date and every fifth (5 th ) anniversary thereafter.

13.5 The Estate Service Charge, the insurance rent, the property management fee (specified in sub-paragraph 2.3.5 of the Lease), the Basic Vitality Gym Membership Fee (specified at sub-paragraph 2.3.6 of the Lease)and VAT on such of the same that

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attract VAT shall commence to be payable on the Term Commencement Date and the other rents reserved (as defined in the Lease) shall commence to be payable on the dates set out in the Lease.


14	OPTION TO CALL FOR THE LEASE

14.1 In the event that


14.1.1	BioMed Realty Trust, Inc.’s investment grade corporate credit rating in the Standard & Poor’s Rating Services is downgraded to below a triple “B” minus (BBB-) rating; or


14.1.2	BioMed Realty Trust, Inc. is no longer the sole general partner of the Landlord’s Guarantor;

the Landlord grants the Tenant during the period from the date of this Agreement until the Certificate Date an option to call for the Landlord to grant the Lease to the Tenant (the “ Option ”).

14.2 The Tenant may exercise the Option by serving a notice in accordance with clause 34 on the Landlord.

14.3 If the Option is exercised in accordance with this clause 14:


14.3.1	the Landlord will grant and the Tenant will accept from the Landlord the Lease on the Completion Date;


14.3.2	the term of the Lease shall be 22 years from and including the Term Commencement Date;


14.3.3	the Lease shall include an unconditional Tenant’s right to determine the Lease if the Tenant terminates this Agreement under clause 20.6 and/or 20.7; and


14.3.4	the obligation to pay the rents reserved by clause 2.3 and any sums payable under clause 3.3 of the Lease shall not commence until 10 working days after the Certificate Date save in respect of the obligation to pay the Yearly Rent reserved by clause 2.3.1 of the Lease which shall commence on the Rent Commencement Date.

14.4 In the event the Lease is granted pursuant to this clause 14 from the Completion Date until the Certificate Date the Tenant grants the Landlord a licence to enter the Demised Premises to enable the Landlord to carry out its obligations contained in Schedule 1 to this Agreement.

14.5 Notwithstanding the grant of the Lease pursuant to this clause 14 the terms of this Agreement shall remain in full force and effect.

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15	LIMITATIONS ON LANDLORD’S LIABILITY

15.1 The Landlord’s obligations and duties in respect of the carrying out and completion of the Works and generally in relation to the Demised Premises shall be exclusively limited to the contractual obligations and duties contained in this Agreement.

15.2 Subject to clause 15.3, the obligations of the Landlord contained in this Agreement (other than as set out in clause 12) are personal to the Landlord named in this Agreement and shall not be enforceable against any successor in title to the Landlord’s interest in the Demised Premises or any other person.

15.3 The Landlord shall (subject to paying the Tenant’s reasonable and proper legal fees) be entitled on one occasion only to novate the obligations of the Landlord under this Agreement to any Group Company of the Landlord which at the same time takes an assignment of the Superior Lease or otherwise is granted an interest in the Demised Premises in immediate reversion to the interest to be granted to the Tenant and which is of at least equal covenant strength to the Landlord at the date of this Agreement and subsequently such Group Company shall (subject to paying the Tenant’s reasonable and proper legal fees ) be entitled on one occasion only to novate the obligations of the Group Company as Landlord under this Agreement to any Group Company of the Landlord which at the same time takes an assignment of the Superior Lease or otherwise is granted an interest in the Demised Premises in immediate reversion to the interest to be granted to the Tenant and which is of at least equal covenant strength to the Landlord at the date of this Agreement. The deed of novation shall be in a form reasonably required by the Landlord and approved by the Tenant (such approval not to be unreasonably withheld or delayed).

15.4 From and including the Certificate Date until the date of the issue of the Notice of Completion of Making Good, the sole liability and obligation of the Landlord to the Tenant in respect of its obligations and liabilities under paragraphs 3.1 to 3.3 (inclusive) of Schedule 1 Part 1 shall be limited to the obligations of the Landlord under paragraphs 16.9 and 18 of Schedule 1 Part 1.

15.5 Subject to the Landlord complying with paragraph 17 (Warranties) of Schedule 1 Part 1, the sole liability and obligation of the Landlord to the Tenant in respect of its obligations and liabilities under paragraphs 3.1 to 3.3 (inclusive) of Schedule 1 Part 1 shall cease on the date of the issue of the Notice of Completion of Making Good, except in relation to any claim made against or notified to the Landlord prior to the issue of the Notice of Completion of Making Good and in respect of which the Tenant has provided such particulars and substantiation as is reasonable in the circumstances.

15.6 Notwithstanding any other term of this Agreement, the Landlord shall have no liability to the Tenant in respect of any breach of the Landlord’s obligations under this Agreement for loss of profit, loss of contract, business interruption loss, consequential and/or indirect loss.

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16	CONFIDENTIALITY

16.1 The details of this Agreement shall remain strictly confidential to the parties and no party shall without the prior written consent of the other to the content and form of such announcement (such consent not to be unreasonably withheld or delayed) disclose any information relating to it except:


16.1.1	where disclosure is required by the rules and regulations of The Stock Exchange and/or the United States Securities and Exchange Commission and/or pursuant to an order of the Court a request from a duly authorised government authority or any duty imposed by law on either party;


16.1.2	to any professional or other advisor of such party;


16.1.3	to the extent necessary to enable protection of the Tenant’s interest in the Demised Premises at the Land Registry in accordance with clause 17; and/or


16.1.4	where necessary to comply with any other provisions of this Agreement.

16.2 Subject to clause 16.3, no announcement concerning the transaction contemplated by this Agreement or any ancillary matter shall be made by any party without the prior written approval of the other, such approval not to be unreasonably withheld or delayed.

16.3 The parties (acting reasonably) shall agree the wording of an announcement to the press regarding the transaction as contemplated by this Agreement. In addition, each party may make an announcement concerning the transaction contemplated by this Agreement or any ancillary matter if required by:


16.3.1	law;


16.3.2	existing contractual obligations;


16.3.3	any securities exchange or regulatory or governmental body to which any of the parties is subject or submits, wherever situated, including (without limitation) The Stock Exchange or The Panel on Takeovers and Mergers, whether or not the requirement has the force of law provided that any such announcement shall only be made after consultation with the other parties.

16.4 Notwithstanding clause 16.2, the Landlord and Tenant and the Landlord’s and Tenant’s indirect parent entities shall have the right to disclose the existence of this Agreement, the form of Lease or any term or condition of this Agreement or the Lease (including, the details of any consideration or other part of any consideration), the results of inspections or studies undertaken in connection with this Agreement or the Lease and any other information pertaining to the transactions contemplated by this Agreement, in connection with the Landlord’s/Tenant’s (or the Landlord’s/Tenant’s indirect parent entities) distribution of financial and other information to shareholders and market analysts and brokers in the normal course of the business , or as part of a

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financing or potential financing of all or any part of each of the Works, the Array Land, the Building and/or Building C .


17	REGISTRATION OF THE AGREEMENT AT LAND REGISTRY

17.1 Neither the Landlord nor the Tenant may apply to register this Agreement (or any clause of it) against the Landlord’s title (or any other affected land) by way of an agreed notice in form AN1 or any other form of registration.

17.2 If the Tenant applies to register this Agreement against the Landlord’s title (or any other affected land) by way of a unilateral notice in form UN1:


17.2.1	the Tenant will immediately apply to Land Registry in form UN2 for the removal of such unilateral notice if this Agreement is rescinded by either party;


17.2.2	the Landlord will not apply to Land Registry for the cancellation of such unilateral notice while this Agreement subsists but the Tenant will not object to any such application by the Landlord if this Agreement is rescinded by either party; and


17.2.3	unless obliged to do so by law neither the Tenant nor the Landlord will supply either the original or a copy of this Agreement to Land Registry whether with such application for a unilateral notice or otherwise.


18	PPD1 BUILDING

18.1 The Landlord shall procure that BMR Granta Park Propco Limited shall release the Tenant from all liabilities under clauses 3.4, 3.5 and 3.7 of the PPD Lease on the Completion Date.

18.2 If the Tenant so requests on not less than one month’s written notice the Landlord shall procure that BMR Granta Park Propco Limited will grant to the Tenant a new lease of the PPD Building on the same terms as the PPD Lease (subject to any reasonable amendment that the parties may agree) for a term ending not later than 1 April 2018 the Works Long Stop Date but subject to a Tenant’s monthly rolling break right from 1 October 2017 30 November 2018 .


19	REGISTRATIONS

19.1 In relation to the registration of the Superior Lease the Landlord shall use reasonable endeavours to procure that:


19.1.1	the registered proprietor of title CB263298 applies to the Land Registry as soon as possible after the date of this Agreement to amend the restriction at entry 3 of the proprietorship register of title number CB197761 (official copies dated 19 February 2015) to refer to Paragraph 2, Part 2 of the Schedule;

39 18560750.22 WKS/102131256.2


19.1.2	the Landlord’s Solicitors submit to the Land Registry, within the priority period afforded to it prior to completion of the Superior Lease, an application to register the Superior Lease together with the Landlord’s Land Registry Certificates and the SDLT Certificate relating to the Superior Lease (the “ Application ”);


19.1.3	the Landlord’s Solicitors shall send to the Tenant’s Solicitors a copy of the notification of completion of the Application together with the official copy entries of the Landlord’s title to the Superior Lease within ten Working Days of completion of the same; and


19.1.4	the Landlord’s Solicitors deal with all Land Registry requisitions raised in connection with the Application within any time limit specified by the Land Registry and in any case within the priority period obtained prior to completion, and, to the extent this is not possible, to apply for an extension to such date.

19.2 In relation to registration of the Lease and in order to satisfy the restrictions on title that the parties reasonably expect the Landlord’s title to be subject to, the Landlord shall:


19.2.1	provided that the Tenant provides a signed Deed of Covenant to the Landlord on the Completion Date use reasonable endeavours to procure that the registered proprietor of title number CB263298 or its conveyancer provides to the Tenant as soon as possible thereafter the Tenant’s Land Registry Certificates;


19.2.2	provide such other assistance as is reasonably required by the Tenant (at the cost of the Tenant) to assist with the registration of the Lease.


20	TERMINATION


20.1	Tenant Breach or Insolvency


20.1.1	For the purposes of this clause an event of default occurs if:


(a)	the Tenant does not pay any sums due to the Landlord within 56 days after they become due under this Agreement and fails to make within ten working days of receipt of a written notice issued under clause 34 requiring the Tenant to make payment of the same;


(b)	the Tenant is in substantial breach of any of its other obligations in this Agreement which:


(i)	is not capable of remedy; or


(ii)	if the breach is capable of remedy has not been remedied after receipt of notice from the Landlord (copied to the Guarantor) specifying the particular breach complained of requiring the Tenant to remedy the breach within 20 working

40 18560750.22 WKS/102131256.2

days (or such other period of time as may be agreed between the parties acting reasonably and having regard to the nature of the breach) of receipt of a written notice issued under clause 34 requiring the Tenant to remedy the same; or


(iii)	any event happens which would entitle the Landlord to re- enter upon the Demised Premises (whether or not after notice) if the Lease had actually been granted; or


(c)	the Tenant suffers an Insolvency Event.

20.1.2

On the occurrence of an event of default in relation to the Tenant the Landlord shall in addition to any other rights or remedies it may have, give the Guarantor 28 days’ notice of its intention to terminate this Agreement (which notice shall state the nature of the event of default, the total sums due to the Landlord which the Tenant has not paid to the date of the notice and any other sums which may become due following the issue of such notice (such sums being the “ Outstanding Sums ” for the purposes of sub- clause 20.3.1)) (“ Notice ”) and subject to clause 20.2 may on the expiry of that: (i) 28 day period; or (ii) the applicable time period under sub-clause 20.1.1; whichever is the later (provided it is prior to the grant of Lease) rescind this Agreement with immediate effect by giving notice to the Tenant to that effect.

20.2 Step-in Notice


20.2.1	Should the Guarantor receive a Notice issued under sub-clause 20.1.2, the Guarantor shall within 28 days of such Notice, be obliged to serve a notice on the Landlord which either confirms that the Guarantor will not step-in to this Agreement or, if the Guarantor intends to step into this Agreement, a notice which:


(a)	acknowledges that the Guarantor is assuming all the obligations of the Tenant under this Agreement; and


(b)	undertakes to the Landlord to discharge all payments due to the Landlord under this Agreement and which shall then remain outstanding.

(such notice being a “ Step-In Notice ”).


20.2.2	On service of a Step-In Notice this Agreement shall continue in full force and effect as if no right to determination on the part of the Landlord had arisen and in all respects as if the Agreement had been made between the Landlord and the Guarantor to the exclusion of the Tenant.

20.3 Consequences of Step in


20.3.1	If the Guarantor services a Step-In Notice, on the date of service of the Step-In Notice the Guarantor shall pay to the Landlord the Outstanding

41 18560750.22 WKS/102131256.2

Sums and within five working days of the date of receipt of a Step-In Notice by the Landlord, the Guarantor shall:

(a)

execute and deliver to the Landlord a deed of variation (in a form to be agreed between the parties acting reasonably) varying this Agreement with the sole effect that the Guarantor assumes all obligations of the Tenant under this Agreement (including liability for all Outstanding Sums) and all losses, costs, sums and expenses which the Landlord is obliged to pay the Contractor, Consultants and/or the Commissioning Engineer and any other third parties due to the event of default; and


(b)	if the Landlord so requires, execute a deed of variation (in a form to be agreed between the parties acting reasonably) varying the appointment of the Commissioning Engineer with the sole effect that the Guarantor assumes all obligations of the Tenant under such appointment (including liability for all sums due to the Commissioning Engineer which the Tenant has not paid in full);

and provided the Guarantor has paid to the Landlord the Outstanding Sums due on the date of the service of the Step-In Notice, the Landlord shall be obliged to execute the deed(s) of variation delivered under this sub-clause 20.3.1, but not otherwise.


20.3.2	Any dispute or difference between the parties arising from or connected with this clause 20 shall be referred for determination in accordance with clause 23.

20.3.3

Should the Guarantor require its appointee to step-in to this Agreement in accordance with this clause 20 in its place, the Landlord shall accept a Step-In Notice issued by the Guarantor’s appointee provided that the appointee is a Qualifying Person (as defined in the Lease) and provided also that the Guarantor has previously paid to the Landlord the Outstanding Sums due on the date of the service of the Step-In Notice and the Guarantor shall continue to act as Guarantor for such appointee entity on the terms set out in this Agreement.

20.4 Landlord’s Breach or Insolvency

If:


20.4.1	the Landlord and the Landlord’s Guarantor each suffers an Insolvency Event; or


20.4.2	the Landlord or, if the Landlord has suffered an Insolvency Event, the Landlord’s Guarantor, without reasonable cause wholly or substantially suspends the carrying out and completion of the Works and fails to procure the recommencement of the carrying out and completion of the Works within 20 working days of receipt of a Notice from the Tenant to do so;

42 18560750.22 WKS/102131256.2

the Tenant may determine this Agreement by giving written 20 working days’ notice to the Landlord.

20.5 Consequences of Termination


20.5.1	If this Agreement is lawfully determined under this clause 20 or under clause 9:


(a)	the Tenant’s interest in and the rights in relation to the Demised Premises will terminate and all fixtures in it may be retained by the Landlord without conferring any right on the Tenant to compensation or allowance but;


(b)	the parties will retain all rights and remedies for breach of this Agreement before the rescission and/or termination;


(c)	the Tenant shall immediately cancel all entries relating to this Agreement registered against the Landlord’s title; and


(d)	clause 16 (Confidentiality) shall remain binding.


20.5.2	If this Agreement is lawfully determined by the Landlord under clause 20.1 (for Tenant’s breach or insolvency), then without prejudice to the Landlord’s rights and remedies as referred to in sub-clause 20.5.1(b) the Tenant shall be liable to the Landlord for all sums the Landlord properly and reasonably incurs in connection with:


(a)	procuring the removal of the relevant parts of the Tenant’s Works and any and all Tenant’s Variations which are reasonably necessary to enable the Landlord to let the Demised Premises to a third party to a shell finish (but excluding any change which such third party may require);


(b)	any claim by the Consultants Consultant and/or Commissioning Engineer for loss of profit and/or loss of opportunity and any other losses the Consultants Consultant and/or Commissioning Engineer may claim in connection with Tenant’s Works not being carried out and completed under the Building Contract;

(c)

any claim by the Contractor under the Building Contract in connection with procuring the removal of the relevant Tenant’s Works and Tenant’s Variations referred to in sub-clause 20.5.2(a) above including but not limited to any loss of profit and/or loss of opportunity and any other losses the Contractor may claim and/or be entitled to in accordance with the Building Contract (and whether such entitlement is determined in accordance with the Building Contract or settled between the Landlord and the Contractor) in connection with Tenant’s Works not being carried out and completed under the Building Contract PROVIDED ALWAYS that in

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the event of any claims being settled between the Landlord and the Contractor the Landlord shall keep the Tenant informed of all relevant negotiations prior to such settlement and where the proposed sum payable to the Contractor in relation to all claims under this sub-clause is in excess of five million pounds (£5,000,000) the Landlord shall seek the Tenant’s prior approval not to be unreasonably withheld to the same, such approval to be provided as soon as reasonably practicable and in any event so as not to cause delay to any such negotiations ) ;

and shall make payment of such sums within ten working days of receipt of a valid VAT invoice in respect of the same which invoice is to be accompanied by copies of all certificates and notices in relation to payment issued under the Building Contract or relevant appointment.


20.5.3	If this Agreement is lawfully determined by the Tenant under:


(a)	clause 9; or


(b)	clause 20.6 (Internal Area); or


(c)	or clause 20.7 ( Works Long Stop Date Option to Terminate ) or


(d)	sub-clause 20.4.1 or 20.4.2 (Landlord’s breach or insolvency);

then without prejudice to the Tenant’s rights and remedies as referred to in sub-clause 20.5.1(b) the Landlord shall be liable to the Tenant for all sums the Tenant has properly incurred in relation to the Works including but not limited to the Tenant’s Consultant’s fees and all sums paid to the Landlord by the Tenant under this Agreement (including the Fee). The Landlord shall make payment of such sums within ten working days of receipt of a valid VAT invoice in respect of the same.

20.6 Internal Area

If the Internal Area is five per cent (5%) or more below the Target Area then the Tenant may determine this Agreement by giving notice to the Landlord within one month of the measurement of the Demised Premises in accordance with clause 11.


20.7	Works Long Stop Date


20.7	Option to Terminate

If Practical Completion has not occurred by the Works Long Stop Date 30 January 2020 then the Tenant may at any time afterwards (but before Practical Completion has been achieved) determine this Agreement on one month’s prior written notice.


20.8	Termination will be without prejudice to the rights of each party in respect of any earlier breach of this Agreement or any provisions that expressly survive termination of this Agreement.

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20.9	All notices are to be given in accordance with clause 34.


21	ACKNOWLEDGEMENT


21.1	GPEL’s freehold title to the Array Land has been deduced to the Tenant’s Solicitors before the date of this Agreement.


21.2	The Tenant acknowledges that the Landlord’s title to the Demised Premises is not registered at the date hereof but has been granted out of GPEL’s title immediately prior to the execution of this Agreement.


21.3	The Tenant is deemed to have full knowledge of the Landlord’s title and is not entitled to raise any objection, enquiry or requisition in relation to it save in respect of anything arising from pre-completion searches and enquiries.


21.4	The Tenant acknowledges that:


21.4.1	it enters into this Agreement on the basis of the replies of the relevant authorities to its enquiries and the legal due diligence that it has carried out;


21.4.2	it has visually inspected the Demised Premises in their current state and has formed its own view as to their suitability for the Tenant’s use and occupation;


21.4.3	GPEL’s and the Landlord’s written replies to formal preliminary enquiries raised through the Landlord’s Solicitors are the only authorised statements by or on behalf of the Landlord made in connection with the proposed lease;


21.5	Save as to the Landlord’s obligation under sub-paragraph 3.2.9 of Schedule 1 Part 1, the Landlord does not warrant or make any representation that upon Practical Completion any or all of the Works will be suitable for the Tenant’s purposes.


21.6	Save as to the Landlord’s obligation under sub-paragraph 3.2.9 of Schedule 1 Part 1, nothing contained or implied in this Agreement shall be or be taken to be and save as aforesaid there is expressly excluded any representation, warranty or undertaking by or on behalf of the Landlord in relation to the Demised Premises’ fitness and/or suitability for the Tenant’s or any other purpose.


21.7	To the extent that the Tenant is placing reliance on any other statement made by or on behalf of the Landlord, whether in answer to formal preliminary enquiries or otherwise, express written notice of the fact, referring to this clause, has been given to the Landlord’s Solicitors and acknowledged by them in writing as being reliable.


21.8	The parties acknowledge that this Agreement constitutes the entire agreement between the parties concerning its subject matter and has set out in it or incorporates all the terms which the parties have expressly agreed so that any agreement or arrangement entered into contemporaneously is collateral to it and is not part of it.

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21.9	The Landlord shall use reasonable endeavours to secure a surrender of the Nursery Lease as soon as practicable after the date hereof and will demolish all buildings situated on the Nursery Site.


22	MATTERS AFFECTING THE DEMISED PREMISES


22.1	The Landlord shall grant the Lease to the Tenant free from encumbrances other than:


22.1.1	any matters, other than financial charges, contained or referred to in the entries or records made in registers maintained by HM Land Registry under: title number CB197761 as at 19 February 2015, 11:14:46; title number CB355946 as at 19 February 2015, 11:13:13; and title number CB194676 as at 10 November 2014, 11:53:07;


22.1.2	the Landlord’s title which is to be registered including the terms of the Superior Lease and anything to which it is subject;


22.1.3	all matters contained or referred to in the Lease;


22.1.4	any matters discoverable by a visual inspection of the Demised Premises before the date of this Agreement;


22.1.5	any matters which the Landlord does not and could not reasonably know about;


22.1.6	any matters, other than financial charges, disclosed or which would have been disclosed by the searches and enquiries that a prudent tenant would have made before entering into this Agreement;


22.1.7	public requirements;


22.1.8	any matters which are, or (where the Lease will not be registered) would be, unregistered interests which override first registration under Schedule 1 to the Land Registration Act 2002; and


22.1.9	any matters disclosed in the replies to enquiries raised by the Tenant’s Solicitors and answered by the Landlord’s Solicitors and by GPEL.


22.2	The Tenant is deemed to have full knowledge of the matters referred to in clause 22.1 and shall not raise any enquiry, objection, requisition or claim in respect of any of them.


22.3	Standard Conditions 3.1.1, 3.1.2, 3.1.3, 3.2.1, 3.3 and 6.6.3 do not apply to this Agreement.


23	DISPUTES


23.1	If there is a dispute or difference between the parties other than as to planning where clause 7 shall apply, or the parties are unable to agree a matter required or contemplated by this Agreement, either party may notify the other that there is a dispute or difference by serving a written notice to that effect on the other party (the

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“ Dispute Notice ”). If a Dispute Notice is served representatives of the Landlord and Tenant having the authority to resolve the dispute or difference shall meet promptly and use reasonable endeavours acting in good faith to resolve the dispute or difference by joint discussion.

23.2

If the dispute or difference is not resolved within five working days of service of any Dispute Notice under clause 23.1 for any reason whatever, including (but not limited to) the failure or refusal of either party to participate in the procedure set out in clause 23.1, the dispute or difference may be referred to the Tenant’s Executive and the Landlord’s Executive (together the “ Panel ”) for unanimous resolution.


23.3	If a dispute or difference is referred to the Panel under clause 23.2, the members of the Panel shall promptly meet (in person or by conference call or equivalent contemporaneous communication) and use reasonable endeavours acting in good faith to unanimously resolve the dispute or difference by discussion.


23.4	Either Party may give notice at any time of its intention to refer the matter as a dispute or difference to an Adjudicator.


23.5	If a dispute or difference arising under or in connection with this Agreement is referred to an Adjudicator in accordance with clause 23.4, the then current rules of the Technology and Construction Solicitors’ Association shall apply.


23.6	Where the appointed Adjudicator dies refuses to act or is unable to act or fails to proceed with reasonable speed to discharge his duties the Parties shall either agree a replacement Adjudicator or, if the Parties cannot so agree, shall ask the President for the time being of the Technology and Construction Solicitors’ Association to select a replacement Adjudicator.


23.7	Any dispute or difference shall be subject to and referred to the non-exclusive jurisdiction of the English Courts and shall be formally determined by legal proceedings which may review and revise any matter and any decision of any adjudicator relating to such dispute. This Agreement shall be governed by and construed in accordance with English law.


24	NO DEMISE

Neither this Agreement nor entry upon the Demised Premises nor payment of any sum by the Tenant pursuant to any of the provisions of this Agreement shall constitute a demise of the Demised Premises or any part of them.


25	NON-MERGER

The provisions of this Agreement shall not merge in the Leases, but shall remain in full force and effect with regard to anything remaining to be done, performed, or observed under this Agreement.

47 18560750.22 WKS/102131256.2


26	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

No term of this Agreement may be enforced solely pursuant to Section 1 of the Contracts (Rights of Third Parties) Act 1999.


27	GOVERNING LAW

This Agreement is governed by and shall be construed in accordance with the laws of England and the parties submit to the jurisdiction of the English courts.


28	CAPITAL ALLOWANCES


28.1	The Landlord and the Tenant agree that:


28.1.1	the Landlord will be solely entitled to claim capital allowances in respect of the Tenant’s Works Allowance; and


28.1.2	the Tenant will be solely entitled to claim capital allowances in respect of the Tenant’s Contribution.

in each case under sections 537 and 538 of Capital Allowances Act 2001.

28.2

The Tenant will not claim and will use all reasonable endeavours to procure that no person (including without limitation its successor in title and assigns) will claim capital allowances on the Tenant’s Works Allowance and will give and procure that its professional advisors will give the Landlord all proper assistance and information that the Landlord might reasonably require in order to claim capital allowances on the Tenant’s Works Allowance.

28.3

The Landlord will not claim and will use all reasonable endeavours to procure that no person (including without limitation its successor in title and assigns) will claim capital allowances on the Tenant’s Contribution and will give and procure that its professional advisors will give the Tenant all proper assistance and information that the Tenant might reasonably require in order to claim capital allowances on the Tenant’s Contribution.


29	VAT


29.1	Any consideration paid or given for taxable supplies for goods or services under or in connection with this Agreement is to be treated as exclusive of VAT. The recipient of any such supply is, in addition to the consideration for the supply, to pay to the supplier an amount equal to any VAT which is chargeable in respect of the supply in question on the later of:


29.1.1	the day on which the consideration for the supply is paid or given; and


29.1.2	production of a proper VAT invoice.


29.2	If any amount paid by either party to the other in respect of VAT pursuant to this Agreement is subsequently found to have been paid in error the recipient of such payment shall:

48 18560750.22 WKS/102131256.2


29.2.1	if it has not yet been included in a VAT accounting period which has closed, repay such amount promptly to the other party; or


29.2.2	if it has been included in a VAT accounting period which has closed, use reasonable endeavours to obtain repayment of it as soon as possible and promptly on receiving any repayment of it shall pay to the other party the amount received.


30	INTEREST

If so required and without prejudice to the Landlord’s other remedies, the Tenant is to pay to the Landlord simple interest judgment at the Default Rate on sums becoming due under this Agreement (whether or not formally demanded) and not paid within five working days of the final date for payment from the final date for payment to the date of payment.


31	CIS


31.1	Each of the Landlord and the Tenant shall comply with the Construction Industry Scheme (insofar as the same applies to any rights or obligations of the parties under this Agreement).

31.2

Where the Tenant is required to make a payment (not being a payment falling within Part 4 of the Regulations) to the Landlord under this Agreement, the Tenant, as contractor, shall verify, in accordance with paragraph 6 of the Regulations, whether the Landlord is registered for gross payment or for payment under deduction or is not registered under Chapter 3 Part 3 of the FA 2004, and shall, once it has so verified, make the payment to the Landlord subject to the following:


31.2.1	if the Landlord is registered for gross payment under section 63(2) of the FA 2004, the Tenant shall make the payment to the Landlord without any deduction;


31.2.2	if the Landlord is not registered under section 63(2) of the FA 2004 for gross payment under section 63(2) of the FA 2004, the Tenant shall make the payment to the Landlord, subject to the deduction of the relevant percentage in accordance with section 61 of the FA 2004 and the Regulations.


31.3	In the event of any conflict between this clause 31 and any other term of this Agreement, the provisions of this clause 31 shall prevail.


32	GUARANTEE (TENANT)


32.1	The Guarantor and the Tenant jointly and severally agree with the Landlord that the Guarantor will join in and execute the counterpart of the Lease.


32.2	In consideration of the Landlord (at the request of the Guarantor) entering into this Agreement with the Tenant and the Guarantor, the Guarantor hereby covenants with the Landlord as a primary obligation:

49 18560750.22 WKS/102131256.2

32.2.1

to indemnify the Landlord against reasonably foreseeable Loss sustained by the Landlord due to the Tenant suffering an Insolvency Event or any breach by the Tenant of this Agreement (including (where applicable) but not limited to all sums identified in sub-clause 20.5.2) (save that the Guarantor shall owe no greater liability and/or no greater duty to the Landlord than the Tenant owes to the Landlord);


32.2.2	(without prejudice to the generality of the foregoing) that if the Tenant fails to accept and execute a counterpart of the Lease in accordance with this Agreement, the Guarantor will if so required by the Landlord accept and execute a counterpart of the Lease as if the Guarantor had been the Tenant; and


32.2.3	the Guarantor shall be released from its covenant as a primary obligation and all of its liabilities under this Agreement on the date the Tenant and the Guarantor executes the Lease under clause 12 of this Agreement or the Certificate Date, whichever is the later.


32.3	The Guarantor’s obligations contained in clause 32.2 shall apply notwithstanding:


32.3.1	any failure or delay of the Landlord in taking steps to enforce compliance with this Agreement by the Tenant or the Guarantor;


32.3.2	any failure of the Landlord to pursue any other remedy before proceeding against the Guarantor;


32.3.3	any time which may be given by the Landlord to the Tenant or the Guarantor;


32.3.4	any variation of the terms of this Agreement; or


32.3.5	any other matter which, but for this provision, would cause the guarantee contained in clause 32.2 to be released, wholly or in part, other than a release executed as a deed by the Landlord.

32.4

If any of the persons comprising the Guarantor (in the case of an individual) dies or becomes bankrupt or enters into any composition with his creditors, or (in the case of a corporation) enters into liquidation or otherwise ceases to exist, the Tenant shall, if the Landlord so requests, procure at the Tenant’s expense that some other person reasonably acceptable to the Landlord executes and delivers to the Landlord a deed in such form as the Landlord’s Solicitors reasonably require by which that other person shall covenant with the Landlord to be bound by provisions identical to those contained in this clause 32. References in this Agreement to the Guarantor shall thereafter be construed for all purposes as including references to that other person.


33	GUARANTEE (LANDLORD)


33.1	In consideration of the Tenant (at the request of the Landlord’s Guarantor) entering into this Agreement with the Landlord and the Landlord’s Guarantor, the Landlord’s Guarantor hereby covenants with the Tenant as a primary obligation:

50 18560750.22 WKS/102131256.2

33.1.1

to guarantee the due and punctual performance by the Landlord of the Landlord’s duties and obligations to the Tenant under this Agreement and to indemnify the Tenant against reasonably foreseeable Loss sustained by the Tenant due to the Landlord suffering an Insolvency Event or to any breach by the Landlord of this Agreement (including (where applicable) but not limited to all sums identified in clause 20.5.3) (save that the Landlord’s Guarantor shall owe no greater liability and/or no greater duty to the Tenant than the Landlord owes to the Tenant);


33.1.2	(without prejudice to the generality of the foregoing) that the Landlord’s Guarantor will procure that the Landlord executes the Lease in accordance with this Agreement; and


33.1.3	the Landlord’s Guarantor shall be released from its covenant as a primary obligation and all of its liabilities under this Agreement on the date the Landlord executes the Lease under clause 12 of this Agreement or the Certificate Date, whichever is the later.


33.2	The Landlord’s Guarantor’s obligations contained in clause 33.1 shall apply notwithstanding:


33.2.1	any failure or delay of the Tenant in taking steps to enforce compliance with this Agreement by the Landlord or the Landlord’s Guarantor;


33.2.2	any failure of the Tenant to pursue any other remedy before proceeding against the Landlord’s Guarantor;


33.2.3	any time which may be given by the Tenant to the Landlord or the Landlord’s Guarantor;


33.2.4	any variation of the terms of this Agreement; or


33.2.5	any other matter which, but for this provision, would cause the guarantee contained in clause 33.1 to be released, wholly or in part, other than a release executed as a deed by the Tenant.

33.3

If any of the persons comprising the Landlord’s Guarantor (in the case of an individual) dies or becomes bankrupt or enters into any composition with his creditors, or (in the case of a corporation) enters into liquidation or otherwise ceases to exist, the Landlord shall, if the Tenant so requests, procure at the Landlord’s expense that some other person reasonably acceptable to the Tenant executes and delivers to the Tenant a deed in such form as the Tenant’s Solicitors reasonably require by which that other person shall covenant with the Tenant to be bound by provisions identical to those contained in this clause 33. References in this Agreement to the Landlord’s Guarantor shall thereafter be construed for all purposes as including references to that other person.

51 18560750.22 WKS/102131256.2


34	NOTICES


34.1	Any demand or notice to be served on any party under this Agreement shall be validly served if sent in writing and by an internationally recognised overnight courier.


34.2	Any demand or notice sent by post will be conclusively treated as having been served 48 hours after posting.


34.3	The provisions for postal service set out in this clause are not to prevent any other effective form of service save that service by email shall not be permitted.


34.4	Notices to:


34.4.1	the Landlord shall be marked for the attention of Real Estate Legal Department, Granta Park JCo 1 Limited, 17190 Bernardo Center Drive, San Diego CA 92128 and shall be copied by email to RealEstate.LegalReview@biomedrealty.com.


34.4.2	the Tenant shall be marked for the attention of Illumina, Inc Attn: General Counsel 5200 Illumina Way, San Diego, CA 92122 and Illumina Cambridge Attn: General Manager at the address written above with a copy to Illumina, Inc Attn: Director of Real Estate 5200 Illumina way, San Diego, CA 92122 and to the Tenant’s Solicitors marked for the attention of Sarah Elliott.


35	OPINION LETTERS


35.1	On the Completion Date:


35.1.1	The Landlord shall provide a dated opinion letter from Ogier (or such other Jersey law firm as it may instruct) in the form given on the date of this Agreement and attached at Schedule 9 in connection with the Lease;


35.1.2	The Tenant shall provide a dated opinion letter from Potter Anderson Corroon (or such other Delaware law firm as it may instruct) in the form given on the date of this Agreement and attached at Schedule 9 in connection with the Lease.


35.2	On the date that the Landlord provides a Collateral Warranty from the Consultants in accordance with paragraph 17.1 of Schedule 1 Part 1 the Landlord shall also provide a dated opinion letter from Ogier (or such other Jersey law firm as it may instruct) in the form given on the date of this Agreement and attached at Schedule 9 in connection with the appointments of the Consultants.


35.3	On the date that the Landlord provides a Collateral Warranty from the Contractor in accordance with paragraph 17.2 of Schedule 1 Part 1 the Landlord shall also provide a dated opinion letter from Ogier (or such other Jersey law firm as it may instruct) in the form given on the date of this Agreement and attached at Schedule 9 in connection with the Building Contract.

52 18560750.22 WKS/102131256.2

Executed as a deed and delivered on the date specified at the beginning of this document.

EXECUTED as a DEED by GRANTA PARK

JCO 1 LIMITED a company incorporated in Jersey by BMR LLC as sole shareholder, being a person who in accordance with the laws of that territory is acting under the authority of the company:

)

.....................................................................

EXECUTED as a DEED on behalf of BIOMED REALTY, L.P. a Maryland Limited Partnership by BioMed Realty Trust, Inc, its General Partner:

)

.....................................................................

Authorised signatory (or signatories)

.....................................................................

Name

.....................................................................

Title

EXECUTED as a DEED by ILLUMINA

CAMBRIDGE LIMITED by the signature of a director and the company secretary or of two directors of the company:

)

.....................................................................

Director

.....................................................................

Director/Company Secretary

53 18560750.22 WKS/102131256.2

EXECUTED as a DEED by ILLUMINA, INC.

a company incorporated in Delaware by

[] being a person who in accordance with the laws of that territory is acting under the authority of the company:

)

.....................................................................

Director

.....................................................................

Director/Company Secretary

SEPARATION AGREEMENT

AND GENERAL RELEASE OF ALL CLAIMS

This Separation Agreement and General Release of All Claims (“Agreement”) is made by and between Illumina, Inc. (“Illumina” or “the Company”) and Christian Henry (“Executive”) collectively (“the Parties”), with respect to the following facts:

A. Executive is employed by the Company as an Executive Vice President and Chief Commercial Officer.

B. Executive’s employment will end effective January 31, 2017 (“Separation Date”).

C. The Company wishes to assist Executive in his transition to other employment and has offered to provide Executive with a severance payment as described below.

THEREFORE, in consideration of the promises and mutual agreements hereinafter set forth, it is agreed by and between the undersigned as follows:

1. Transition Period & Severance.

1.1 Transition Period: Executive is required between October 31, 2016 and the Separation Date to perform professional duties as requested by the Company’s President & CEO or as required to by other Company Executives to support Company’s commercial and business operations during Executive’s transition from the Company. During this period, Executive remains an at-will Executive of the Company which means that he may be terminated with or without cause for any lawful reason.

1.2 In order to establish the terms of Company’s Severance Offer to Executive and to ensure the enforceability of the General Release of All Claims recited in Section 2 below. Executive has twenty-one (21) days from receipt of this Agreement to sign it, indicating his agreement to its terms. If Executive is employed on the Separation Date, he is also required to sign the “Re-Affirmation” of the Release of Claims attached as Exhibit A as a condition of receiving the Severance described below. The Re-Affirmation may not be signed by Executive until on or after the Separation Date. Executive also has twenty-one days from the Separation Date to sign and return the Re-Affirmation. (See also, paragraphs 7.3, 7.4 and 9.)

1.3 Severance: The Company agrees to pay Executive a Severance Payment equivalent to eighteen (18) months of his normal wages, in the gross amount of Eight-Hundred, Ten Thousand USD and Zero Cents ($810,000.00), less all appropriate federal and state tax withholdings, to which Executive is not otherwise entitled ("Severance Payment"). Executive acknowledges and agrees that this Severance Payment constitutes adequate legal consideration for the promises and representations made by him in this Agreement. Subject to the provisions below, the Severance Payment will be made in a lump sum payment within thirty (30) days after all of the following: (1) the Effective Date of this Agreement and the Re-Affirmation (see paragraphs 7.3 & 7.4 and); (2) after signing both this Agreement and the Re-Affirmation, Executive has returned both in a timely manner to Illumina by scanning them to smcgrath@illumina.com or by mailing the original to 5200 Illumina Way, San Diego, CA 92122, Attention: Sue McGrath on or before the deadline stated in paragraph 9, and; (3) pursuant to paragraph 10, Executive has timely returned to Illumina all Company property in his possession, custody or control.

1.4 The Company also agrees to pay for the cost of continued coverage for Executive’s existing medical benefits through the provisions of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for a period of eighteen (18) consecutive months following the termination of his benefits on January 31, 2017 or through July 31, 2018. These sums will be paid directly to Illumina’s carrier provided that the Executive timely and properly completes all required elections to continue coverage under COBRA. Thereafter, Executive may elect to continue such benefits at his own

expense under the provisions of COBRA. For the avoidance of doubt, Illumina is not liable for and will not reimburse Executive for out-of-pocket medical expenses if Executive fails to timely and properly elect continuation of coverage through COBRA.

1.5 Executive will receive twenty-four (24) months of executive physical and services benefits from the LifeWellness Institute or an equivalent vendor contracted by Illumina.

1.6 The Company agrees to provide Executive career counseling services through Lee Hecht Harrison. Executive must begin his use of such services within six months of the Separation Date or the services offered are waived.

1.7 Receipt of Wages & Expenses. With the sole exception of the severance benefits described in paragraph 1.3 - 1.6, above, Executive acknowledges that he has received all compensation, wages, equity, bonuses and expense reimbursements owed to him through the Effective Date of this Agreement, and that he is not entitled to any future payments of any type.

2. General Release.

2.1 Executive unconditionally, irrevocably and absolutely releases and discharges the Company, and any parent and subsidiary corporations, divisions and other affiliated entities of the Company, past and present, as well as the Company’s Executives, officers, directors, agents, attorneys, successors and assigns of the Company (collectively, “Released Parties”), from all claims related in any way to the transactions or occurrences between them to date to the fullest extent permitted by law including, but not limited to, Executive’s employment with the Company, the termination of Executive’s employment, and all other losses, liabilities, claims, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Executive’s employment with the Company. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, any claim for unpaid wages, commissions, bonuses or other employment benefits, as well as alleged violations of the California Labor Code or the federal Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964 and the California Fair Employment and Housing Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as amended, and all claims for attorneys’ fees, costs and expenses. However, this release shall not apply to claims for workers’ compensation benefits, unemployment insurance benefits, or any other claims that cannot lawfully be waived.

2.2 Executive acknowledges that he may discover facts or law different from, or in addition to, the facts or law that he knows or believes to be true with respect to the claims released in this Agreement and agrees, nonetheless, that this Agreement and the release contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.

2.3 Executive declares and represents that he intends this Agreement to be final and complete and not subject to any claim of mistake. Executive executes this release with the full knowledge that this release covers all possible claims against the Released Parties, to the fullest extent permitted by law.

2.4 Executive expressly waives his right to recover any type of personal relief from the Company, including monetary damages or reinstatement, in any administrative action or proceeding, whether state or federal, and whether brought by Executive or on Executive’s behalf by an administrative agency, related in any way to the matters released herein. Nothing in this paragraph is intended to prevent or discourage the Executive from communicating with any state or federal governmental agency.

2.5 Executive declares and represents that as of the Effective Date of this Agreement he is not aware of any violations of any applicable rules, regulations and/or laws by Company or any Executive of Company; or that if he is aware of or is concerned about any such violations, he has reported those to Company.

3. California Civil Code Section 1542 Waiver . Executive expressly acknowledges and agrees that all rights under Section 1542 of the California Civil Code are expressly waived. That section provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Executive understands that he is a “creditor” within the meaning of Section 1542.

4. Representation Concerning Filing of Legal Actions . Executive represents that, as of the date of this Agreement, he has not filed any lawsuits, complaints, petitions, claims or other accusatory pleadings against the Company or any of the other Released Parties in any court. Executive further agrees that, to the fullest extent permitted by law, he will not prosecute in any court, whether state or federal, any claim or demand of any type related to the matters released above, it being the intention of the parties that with the execution of this release, the Released Parties will be absolutely, unconditionally and forever discharged of and from all obligations to or on behalf of Executive related in any way to the matters discharged herein Nothing in this agreement shall prevent the Executive from complying with a lawfully issued subpoena or from communicating with a state or federal governmental agency.

5. No Admissions . By entering into this Agreement, the Released Parties make no admission that they have engaged, or are now engaging, in any unlawful conduct. The parties understand and acknowledge that this Agreement is not an admission of liability and shall not be used or construed as such in any legal or administrative proceeding.

6. Agreement to Cooperate . Executive agrees that he will, in good faith and with due diligence, assist in, facilitate and cooperate with the Company and provide information as to matters which he was personally involved, or has information on, while he was an Executive of the Company and which become the subject of an action, investigation, proceeding, litigation or otherwise. Executive shall make himself available, upon reasonable notice, to be interviewed, give sworn testimony and statements, declarations, trial testimony and other such disclosures. Nothing herein is intended or should be construed as requiring anything other than Executive’s cooperation in providing truthful and accurate information.

7. Older Workers’ Benefit Protection Act . This Agreement is intended to satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. sec. 626(f). The following general provisions, along with the other provisions of this Agreement, are agreed to for this purpose:

7.1 Executive acknowledges and agrees that he has read and understands the terms of this Agreement.

7.2 Executive is advised that he should consult with an attorney before signing this Agreement, and Executive acknowledges that he has obtained and considered any legal advice he deems necessary, such that he is entering into this Agreement freely, knowingly, and voluntarily.

7.3 Executive acknowledges that he has been given at least twenty-one (21) days to consider whether or not to enter into this Agreement. Executive understands that, at his option, Executive may elect not to use the full 21-day period. Similarly, by signing the Re-Affirmation attached as Exhibit A, Executive acknowledges that he was given at lease twenty-one (21) days to consider whether or not to sign the Re-Affirmation. Executive may elect not to use the full 21- day period.

7.4 Neither this Agreement, nor the Re-Affirmation attached as Exhibit A, becomes effective or enforceable until the eighth day after Executive signs each of the two documents. In other words, Executive may revoke his acceptance of this Agreement within seven days after the date he signs it. Thereafter, following the Separation Date, Executive may revoke his acceptance of the Re-Affirmation. For the avoidance of doubt, in order for the severance described in Section 1.3 - 1.6 above to be paid, Executive must sign and not revoke both the Agreement and the Re-Affirmation. Any revocation must be in writing and received by Sue McGrath of Illumina by 5:00 p.m. on the seventh day following signature in order to be effective. If Executive does not revoke acceptance of either this Agreement or the Re-Affirmation within the applicable seven day period, Executive's acceptance of this Agreement shall become binding and enforceable on the eighth day following the applicable document’s signature. (“Effective Date”).

7.5 This Agreement does not waive or release any rights or claims that Executive may have under the Age Discrimination in Employment Act that arise after the execution of this Agreement.

8. Severability . In the event any provision of this Agreement shall be found unenforceable by a court of competent jurisdiction, the provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the Released Parties shall receive the benefits contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

9. Deadline For Signature. In order to receive payment of Severance under this Agreement, Executive must comply with Section 7.4 and must sign and return the Re-Affirmation attached as Exhibit A no later than 21 days from the Separation Date.

10. Return of Company Property. Executive understands and agrees that as a condition of receiving the Severance Payment, all Company property still in Executive’s possession, if any, must be immediately returned to the Company. By signing this Agreement, Executive represents and warrants that Executive has or will have returned such Company Property no later than Executive’s Separation Date, including any Company issued or provided credit cards, computers, vehicles, tangible property and equipment, keys, entry cards, identification badges, telephones, PDAs, and all documents, files, folders, correspondence, memoranda, notes, notebooks, drawings, books, records, plans, forecasts, reports, proposals, agreements, financial information, computer-recorded information, as well as all copies thereof, electronic or otherwise.

11. Nondisclosure and Non-Use of Company Confidential Information . Executive acknowledges and agrees that, by reason of his high-level, sensitive position with the Company, he has been given access to the Company’s most confidential and proprietary documents, materials and information, including those regarding the Company's products, strategic plans and litigation strategies, research, business affairs, and personnel matters, which he acknowledges and agrees are of a highly sensitive and confidential nature and considered trade secrets and/or proprietary to the Company. Such information, documents and materials may include, without limitation, trade secrets, inventions, research, plans, proposals, acquisitions or divestitures, marketing and sales programs, litigation strategies, financial projections, cost summaries, pricing formulas and all concepts or ideas, materials or information related to the products, research, business or sales of the Company or the Company's customers or business partners, as well as the Company’s personnel matters, which has not previously been released

to the public at large by an authorized representative of the Company. Executive represents that he has held all such information confidential and will continue to do so, and that he will not use such confidential or proprietary information and/or documents for any purpose whatsoever. Executive understands that this obligation of confidentiality continues even after the Separation Date. Executive also reaffirms his agreement to all of his obligations under the Proprietary Information and Invention Agreement signed by him at or about his date of hire. The Parties expressly incorporate said agreement into this Settlement Agreement.

11.1. Executive acknowledges and agrees that disclosure and/or use of any such confidential information would cause irreparable harm to the Company, which could not be adequately or reasonably compensated in damages in an action at law. Accordingly, in the event of such disclosure or use (whether actual or threatened), Executive agrees that the Company, in addition to exercising any other rights and remedies available to it under this Agreement or otherwise, is entitled to obtain injunctive relief and other equitable relief from a court of competent jurisdiction restraining Executive from such disclosure and use.

12. Applicable Law . The validity, interpretation and performance of this Agreement shall be construed and interpreted according to the laws of the United States of America and the State of California.

13. Binding on Successors . The parties agree that this Agreement shall be binding on, and inure to the benefit of his or its successors, heirs and/or assigns.

14. Full Defense . This Agreement may be pled as a full and complete defense to, and may be used as a basis for an injunction against, any action, suit or other proceeding that may be prosecuted, instituted or attempted by Executive in breach hereof. Executive agrees that in the event an action or proceeding is instituted by the Released Parties in order to enforce the terms or provisions of this Agreement, the Released Parties shall be entitled to an award of reasonable costs and attorneys’ fees incurred in connection with enforcing this Agreement. The terms of this paragraph shall not apply to an action by Executive to challenge the enforceability of Executive’s waiver of rights under the Age Discrimination in Employment Act.

15. Good Faith . The parties agree to do all things necessary and to execute all further documents necessary and appropriate to carry out and effectuate the terms and purposes of this Agreement.

16. Entire Agreement; Integration . This Agreement contains the entire agreement between the Company and the Executive on the subjects addressed in this Agreement and replaces any other prior agreements or representations, whether oral or written, between them; provided, however, that the Proprietary Information and Invention Agreement executed by Executive remains in full force and effect and is not superseded by this Agreement.

17. Modification . This Agreement may be amended only by a written instrument executed by all parties hereto.

18. Counterparts. This Agreement may be executed in counterparts and shall be binding on all parties when each has signed either an original or copy of this Agreement.

19. Confidentiality . Except where disclosure is required by law, Executive agrees that the terms and conditions of this Agreement shall remain confidential as between the parties and he shall not disclose them to any other person, including but not limited, to any current or former Illumina Executive. Executive also agrees that he will not respond to, participate in, or contribute to any public discussion or other publicity concerning, or in any way relating to, execution of this Agreement or the events (including

any negotiations) leading to its execution. Without limiting the foregoing, the Executive may disclose the terms and conditions of this Agreement to his wife, attorneys and/or financial advisors provided he informs them of this confidentiality provision and they agree to abide by it. A violation of this section 19 shall be a material breach of this Agreement.

20. Non-Disparagement . Neither Executive, nor anyone subject to his direction or control, will make any negative, derogatory or disparaging statements, publications or comments, regarding his employment with the Company or the business reputation or business practices of the Company and/or the Released Parties to any person or entity. This section will in no way prevent Executive from testifying truthfully pursuant to an enforceable subpoena.

21. Section 409(A) of the Internal Revenue Code . Notwithstanding anything herein to the contrary, if Executive is a “Specified Executive,” for purposes of Section 409A of the Internal Revenue Code (“Section 409A”), on the date on which he incurs a Separation from Service, any payment or benefit provided in this Agreement that provides for the “deferral of compensation” within the meaning of Section 409A shall not be paid or provided or commence to be paid or provided on any date prior to the first business day after the date that is six months following Executive’s “Separation from Service” (the “409A Suspension Period”); provided, however, that a payment or benefit delayed pursuant to the preceding clause shall commence earlier in the event of Executive’s death prior to the end of the six-month period. Within 14 calendar days after the end of the 409A Suspension Period, Executive shall be paid a lump sum payment in cash equal to any payments delayed because of the preceding sentence. Thereafter, Executive shall receive any remaining benefits as if there had not been an earlier delay. For purposes of this Agreement, “Separation from Service” shall have the meaning set forth in Section 409A(a)(2)(i)(A) of the Internal Revenue Code and shall be determined in accordance with the default rules under Section 409A. “Specified Executive” shall have the meaning set forth in Section 409A(a)(2)(B)(1) of the Internal Revenue Code, as determined in accordance with the uniform methodology and procedures adopted by the Company and then in effect.

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

Dated: _____________________ By: /s/ Christian Henry

Christian Henry

Dated: _____________________ By: /s/ Francis deSouza

Illumina, Inc.

Francis deSouza, President & CEO

EXHIBIT A

REAFFIRMATION OF RELEASE OF CLAIMS

This Reaffirmation of Release of Claims (“Reaffirmation”) is being executed by Christian Henry (“Executive”), pursuant to the Separation Agreement and General Release of All Claims (“Separation Agreement”) previously signed by Executive and Illumina, Inc. (the “Company”). This Reaffirmation may not be signed by Executive until the Separation Date as defined and referenced in the Separation Agreement .

In consideration for the benefits and payments specified in the Separation Agreement, all of which he is not otherwise entitled to receive, Executive hereby reaffirms his agreement to all of the terms and conditions of that Separation Agreement, including his agreement to release any and all claims, known or unknown, against Released Parties, as that term is defined therein. Specifically, Executive unconditionally, irrevocably and absolutely releases and discharges the Company and any parent and subsidiary corporations, divisions and other affiliated entities of the Company, past and present, as well as its respective past and present Executives, officers, directors, agents, attorneys, successors and assigns (collectively, “Released Parties”), from all claims related in any way to the transactions or occurrences between them to date to the fullest extent permitted by law including, but not limited to, any losses, liabilities, claims, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Executive’s employment with the Company, or the conclusion of Executive’s employment. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, as well as alleged violations of the California Labor Code, Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, all as amended, and all claims for attorneys’ fees, costs and expenses. However, this release shall not apply to claims for workers’ compensation benefits, unemployment insurance benefits, or any other claims that, by statute, cannot lawfully be waived by this Agreement.

3. Executive further represents that, as of the date he signs this Reaffirmation, he is unaware of any unlawful or inappropriate conduct by any Company Executive, and has not filed any lawsuits, complaints, petitions, claims or other accusatory pleadings against the Company or any of the Released Parties in any court of law with any administrative agency, or in any arbitral forum. He further agrees that, to the fullest extent of the law, he will not prosecute in any court, whether state or federal, or any arbitral forum, any claim or demand of any type related to the matters released, it being the intention of the parties that with the execution of this Reaffirmation, the Released Parties will be absolutely, unconditionally and forever discharged of and from all obligations to or on behalf of Executive related in any way to the matters discharged herein. Additionally, Executive expressly waives his right to recover any type of personal relief from the Company, including monetary damages or reinstatement, in any administrative action or proceeding, whether state or federal, and whether brought by his or on his behalf by an administrative agency, related in any way to the matters released herein.

4. Executive expressly acknowledges and agrees that all rights under Section 1542 of the California Civil Code are expressly waived. That section provides:

Executive understands that he is a “creditor” within the meaning of Section 1542

5. This Reaffirmation is also intended to release and discharge any claims of Executive under the Age Discrimination in Employment Act (“ADEA”) based on any transactions or occurrences between the Company and Executive after the execution date of the Separation Agreement. To satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. section 626(f), the parties agree as follows:

a. Executive acknowledges that he has read and understands the terms of this Reaffirmation.

b. Executive is advised to consult with an attorney concerning this Reaffirmation and has received all legal advice he deems necessary concerning this Reaffirmation.

c. Executive shall have twenty-one (21) days to consider whether or not to enter into this Reaffirmation, he has taken as much of this time as necessary to consider whether to enter into this Reaffirmation, and has chosen to enter into this Reaffirmation freely, knowingly and voluntarily.

d. For a seven (7) day period following the execution of this Reaffirmation, Executive may revoke this Agreement by delivering a written revocation to Sue McGrath of Illumina. This Reaffirmation shall not become effective and enforceable until the revocation period has expired. The Severance benefits set forth in Paragraphs 1.3 to 1.6 of the Separation Agreement are expressly conditioned upon Executive signing and not revoking this Reaffirmation.

e. This Agreement shall not apply to any claims for age discrimination that arise after the Effective Date of this Reaffirmation.


6.	Executive acknowledges that he has received all compensation and expense reimbursements owed to him by the Company, including, but not limited to, all salary, bonuses, commissions, equity grants and accrued but unused vacation.

BY SIGNING BELOW, Executive certifies that he has read and understands all of this Reaffirmation, has received any advice or counsel she deems necessary regarding this Reaffirmation, and is entering into this Reaffirmation freely and voluntarily, intending to be bound by its terms.

Dated: 2/2/2017 _____________________ By: /s/ Christian Henry ___________________

Christian Henry

SUBSIDIARIES OF THE COMPANY




Name of Subsidiary	Jurisdiction	Doing Business As

Advanced Liquid Logic Inc.	Delaware	Advanced Liquid Logic Inc.
BlueGnome, Ltd.	United Kingdom	BlueGnome, Ltd.
Epicentre Technologies Corporation	Wisconsin	Epicentre Biotechnologies
GenoLogics Life Science Software Inc.	Canada	GenoLogics Life Science Software Inc.
Illumina Australia Pty. Ltd.	Australia	Illumina Australia Pty. Ltd.
Illumina Brasil Produtos de Biotecnologia Ltda.	Brazil	Illumina Brazil
Illumina Cambridge, Ltd.	United Kingdom	Illumina Cambridge, Ltd.
Illumina Canada, Inc.	Canada	Illumina Canada, Inc.
Illumina France Holding Sarl	France	Illumina France Holding Sarl
Illumina France Sarl	France	Illumina France Sarl
Illumina GmbH	Germany	Illumina GmbH
Illumina Hong Kong Limited	Hong Kong	Illumina Hong Kong Limited
Illumina Iceland ehf	Iceland	Illumina Iceland ehf
Illumina Italy S.r.l.	Italy	Illumina Italy S.r.l.
Illumina K.K. Japan	Japan	Illumina K.K. Japan
Illumina Netherlands B.V.	Netherlands	Illumina Netherlands B.V.
Illumina New Zealand Limited	New Zealand	Illumina New Zealand Limited
Illumina Singapore Pte. Ltd.	Singapore	Illumina Singapore Pte. Ltd
Illumina Trading (Shanghai) Co., Ltd.	China	Illumina Trading (Shanghai) Co., Ltd.
Illumina Switzerland GmbH	Switzerland	Illumina Switzerland GmbH
Illumina Europe Limited	United Kingdom	Illumina Europe Limited
Illumina Denmark ApS	Denmark	Illumina Denmark ApS
Illumina Productos de Espana, S.L.U.	Spain	Illumina Productos de Espana, S.L.U.
Illumina AB	Sweden	Illumina AB
NextBio	California	NextBio
Verinata Health, Inc.	Delaware	Verinata Health, Inc.

**All listed subsidiaries are wholly-owned, direct or indirect, subsidiaries of Illumina, Inc.

**As permitted under Rule 601 of Regulation S-K, we have omitted the names of subsidiaries, which if considered in the aggregate as a single subsidiary, would not constitute a “significant subsidiary” (as defined in Rule 1-02(w) of Regulation S-X) as of the end of the year covered by this report

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:


(1)	Registration Statements (Form S-3 Nos. 333-111496, 333-125100, 333-134012, 333-144953, 333-145408 and 333-168395) of Illumina, Inc.,


(2)	Registration Statement (Form S-4 No. 333-139111) of Illumina, Inc., and


(3)	Registration Statements (Form S-8 Nos. 333-42866, 333-69058, 333-88808, 333-104190, 333-114633, 333-124074, 333-125133, 333-129611, 333-134399, 333-140416, 333-147389, 333-151265, 333-159662, 333-168393, 333-188037, 333-190322 and 333-206215) of Illumina, Inc.;

of our reports dated February 13, 2017 , with respect to the consolidated financial statements and schedule of Illumina, Inc. and the effectiveness of internal control over financial reporting of Illumina, Inc. included in this Annual Report (Form 10-K) of Illumina, Inc. for the fiscal year ended January 1, 2017 .

/s/ Ernst & Young LLP

San Diego, California

February 13, 2017

Exhibit 31.1

CERTIFICATION OF FRANCIS A. DESOUZA PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Francis A. deSouza, certify that:



1	I have reviewed this Annual Report on Form 10-K of Illumina, Inc.;

2	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 13, 2017



	By:		/s/ F RANCIS A. DE S OUZA
			Francis A. deSouza
			President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF SAM A. SAMAD PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sam A. Samad, certify that:



1	I have reviewed this Annual Report on Form 10-K of Illumina, Inc.;

2	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 13, 2017



	By:		/s/ S AM A. S AMAD
			Sam A. Samad
			Senior Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF FRANCIS A. DESOUZA PURSUANT TO 18 U.S.C. SECTION

1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-

OXLEY ACT OF 2002

In connection with the Annual Report of Illumina, Inc. (the “Company”) on Form 10-K for the year ended January 1, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Francis A. deSouza, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 13, 2017



	By:		/s/ FRANCIS A. DESOUZA
			Francis A. deSouza
			President and Chief Executive Officer

This certification accompanying the Report is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities such Section, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before, on or after the date of the Report), irrespective of any general incorporation language contained in such filing.

Exhibit 32.2

CERTIFICATION OF MARC A. STAPLEY PURSUANT TO 18 U.S.C.

SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Illumina, Inc. (the “Company”) on Form 10-K for the year ended January 1, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sam A. Samad, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 13, 2017



	By:		/s/ S AM A. S AMAD
			Sam A. Samad
			Senior Vice President and Chief Financial Officer