þ
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
¨
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Delaware
|
|
33-0804655
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(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
5200 Illumina Way,
San Diego, CA
|
|
92122
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(Address of principal executive offices)
|
|
(Zip Code)
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Large accelerated filer
|
þ
|
|
Accelerated filer
|
¨
|
|
|
|
|
|
Non-accelerated filer
|
¨
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(Do not check if a smaller reporting company)
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Smaller reporting company
|
¨
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|
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|
|
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Emerging growth company
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¨
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Page
|
|
|
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|||||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,560
|
|
|
$
|
1,225
|
|
Short-term investments
|
813
|
|
|
920
|
|
||
Accounts receivable, net
|
400
|
|
|
411
|
|
||
Inventory
|
350
|
|
|
333
|
|
||
Prepaid expenses and other current assets
|
71
|
|
|
91
|
|
||
Total current assets
|
3,194
|
|
|
2,980
|
|
||
Property and equipment, net
|
983
|
|
|
931
|
|
||
Goodwill
|
775
|
|
|
771
|
|
||
Intangible assets, net
|
168
|
|
|
175
|
|
||
Deferred tax assets
|
100
|
|
|
88
|
|
||
Other assets
|
322
|
|
|
312
|
|
||
Total assets
|
$
|
5,542
|
|
|
$
|
5,257
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|||||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
151
|
|
|
$
|
160
|
|
Accrued liabilities
|
388
|
|
|
432
|
|
||
Build-to-suit lease liability
|
21
|
|
|
144
|
|
||
Long-term debt, current portion
|
620
|
|
|
10
|
|
||
Total current liabilities
|
1,180
|
|
|
746
|
|
||
Long-term debt
|
710
|
|
|
1,182
|
|
||
Other long-term liabilities
|
364
|
|
|
360
|
|
||
Redeemable noncontrolling interests
|
215
|
|
|
220
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Common stock
|
2
|
|
|
2
|
|
||
Additional paid-in capital
|
2,897
|
|
|
2,833
|
|
||
Accumulated other comprehensive loss
|
(1
|
)
|
|
(1
|
)
|
||
Retained earnings
|
2,464
|
|
|
2,256
|
|
||
Treasury stock, at cost
|
(2,354
|
)
|
|
(2,341
|
)
|
||
Total Illumina stockholders’ equity
|
3,008
|
|
|
2,749
|
|
||
Noncontrolling interests
|
65
|
|
|
—
|
|
||
Total stockholders’ equity
|
3,073
|
|
|
2,749
|
|
||
Total liabilities and stockholders’ equity
|
$
|
5,542
|
|
|
$
|
5,257
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
Revenue:
|
|
|
|
||||
Product revenue
|
$
|
628
|
|
|
$
|
491
|
|
Service and other revenue
|
154
|
|
|
107
|
|
||
Total revenue
|
782
|
|
|
598
|
|
||
Cost of revenue:
|
|
|
|
||||
Cost of product revenue
|
174
|
|
|
166
|
|
||
Cost of service and other revenue
|
62
|
|
|
53
|
|
||
Amortization of acquired intangible assets
|
8
|
|
|
11
|
|
||
Total cost of revenue
|
244
|
|
|
230
|
|
||
Gross profit
|
538
|
|
|
368
|
|
||
Operating expense:
|
|
|
|
||||
Research and development
|
137
|
|
|
145
|
|
||
Selling, general and administrative
|
183
|
|
|
171
|
|
||
Total operating expense
|
320
|
|
|
316
|
|
||
Income from operations
|
218
|
|
|
52
|
|
||
Other income (expense):
|
|
|
|
||||
Interest income
|
5
|
|
|
4
|
|
||
Interest expense
|
(11
|
)
|
|
(8
|
)
|
||
Other income, net
|
9
|
|
|
455
|
|
||
Total other income, net
|
3
|
|
|
451
|
|
||
Income before income taxes
|
221
|
|
|
503
|
|
||
Provision for income taxes
|
24
|
|
|
155
|
|
||
Consolidated net income
|
197
|
|
|
348
|
|
||
Add: Net loss attributable to noncontrolling interests
|
11
|
|
|
19
|
|
||
Net income attributable to Illumina stockholders
|
$
|
208
|
|
|
$
|
367
|
|
Net income attributable to Illumina stockholders for earnings per share
|
$
|
208
|
|
|
$
|
366
|
|
Earnings per share attributable to Illumina stockholders:
|
|
|
|
||||
Basic
|
$
|
1.42
|
|
|
$
|
2.50
|
|
Diluted
|
$
|
1.41
|
|
|
$
|
2.48
|
|
Shares used in computing earnings per share:
|
|
|
|
||||
Basic
|
147
|
|
|
146
|
|
||
Diluted
|
148
|
|
|
147
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
Total consolidated net income and comprehensive income
|
$
|
197
|
|
|
$
|
348
|
|
Add: Comprehensive loss attributable to noncontrolling interests
|
11
|
|
|
19
|
|
||
Comprehensive income attributable to Illumina stockholders
|
$
|
208
|
|
|
$
|
367
|
|
|
Illumina Stockholders
|
|
|
|
|
||||||||||||||||||||||
|
|
|
Additional
|
|
Accumulated Other
|
|
|
|
|
|
|
|
Total
|
||||||||||||||
|
Common
|
|
Paid-In
|
|
Comprehensive
|
|
Retained
|
|
Treasury
|
|
Noncontrolling
|
|
Stockholders’
|
||||||||||||||
|
Stock
|
|
Capital
|
|
Loss
|
|
Earnings
|
|
Stock
|
|
Interests
|
|
Equity
|
||||||||||||||
Balance as of December 31, 2017
|
$
|
2
|
|
|
$
|
2,833
|
|
|
$
|
(1
|
)
|
|
$
|
2,256
|
|
|
$
|
(2,341
|
)
|
|
$
|
—
|
|
|
$
|
2,749
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
208
|
|
|
—
|
|
|
(1
|
)
|
|
207
|
|
|||||||
Issuance of common stock, net of repurchases
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
8
|
|
|||||||
Share-based compensation
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|||||||
Adjustment to the carrying value of redeemable noncontrolling interests
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||||
Contributions from noncontrolling interest owners
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
61
|
|
|||||||
Issuance of subsidiary shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|||||||
Balance as of April 1, 2018
|
$
|
2
|
|
|
$
|
2,897
|
|
|
$
|
(1
|
)
|
|
$
|
2,464
|
|
|
$
|
(2,354
|
)
|
|
$
|
65
|
|
|
$
|
3,073
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
Cash flows from operating activities:
|
|
|
|
||||
Consolidated net income
|
$
|
197
|
|
|
$
|
348
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Gain on deconsolidation of GRAIL
|
—
|
|
|
(453
|
)
|
||
Depreciation expense
|
30
|
|
|
26
|
|
||
Amortization of intangible assets
|
9
|
|
|
12
|
|
||
Share-based compensation expense
|
48
|
|
|
50
|
|
||
Accretion of debt discount
|
8
|
|
|
7
|
|
||
Deferred income taxes
|
(11
|
)
|
|
86
|
|
||
Impairment of intangible assets
|
—
|
|
|
23
|
|
||
Other
|
(6
|
)
|
|
(2
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
11
|
|
|
16
|
|
||
Inventory
|
(17
|
)
|
|
1
|
|
||
Prepaid expenses and other current assets
|
(2
|
)
|
|
2
|
|
||
Other assets
|
(1
|
)
|
|
(1
|
)
|
||
Accounts payable
|
2
|
|
|
(3
|
)
|
||
Accrued liabilities
|
(18
|
)
|
|
52
|
|
||
Other long-term liabilities
|
5
|
|
|
4
|
|
||
Net cash provided by operating activities
|
255
|
|
|
168
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of available-for-sale securities
|
(598
|
)
|
|
(61
|
)
|
||
Sales of available-for-sale securities
|
288
|
|
|
40
|
|
||
Maturities of available-for-sale securities
|
415
|
|
|
48
|
|
||
Proceeds from sale of GRAIL securities
|
—
|
|
|
278
|
|
||
Deconsolidation of GRAIL cash
|
—
|
|
|
(52
|
)
|
||
Net purchases of strategic investments
|
(3
|
)
|
|
(7
|
)
|
||
Purchases of property and equipment
|
(90
|
)
|
|
(83
|
)
|
||
Net cash provided by investing activities
|
12
|
|
|
163
|
|
||
Cash flows from financing activities:
|
|
|
|
||||
Payments on financing obligations
|
(2
|
)
|
|
(1
|
)
|
||
Common stock repurchases
|
—
|
|
|
(101
|
)
|
||
Taxes paid related to net share settlement of equity awards
|
(13
|
)
|
|
(22
|
)
|
||
Proceeds from issuance of common stock
|
21
|
|
|
22
|
|
||
Contributions from noncontrolling interest owners
|
61
|
|
|
16
|
|
||
Net cash provided by (used in) financing activities
|
67
|
|
|
(86
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
1
|
|
|
1
|
|
||
Net increase in cash and cash equivalents
|
335
|
|
|
246
|
|
||
Cash and cash equivalents at beginning of period
|
1,225
|
|
|
735
|
|
||
Cash and cash equivalents at end of period
|
$
|
1,560
|
|
|
$
|
981
|
|
|
Three Months Ended
|
||||||||||||||||||||||
|
April 1, 2018
|
|
April 2, 2017
|
||||||||||||||||||||
|
Sequencing
|
|
Microarray
|
|
Total
|
|
Sequencing
|
|
Microarray
|
|
Total
|
||||||||||||
Consumables
|
$
|
417
|
|
|
$
|
87
|
|
|
$
|
504
|
|
|
$
|
318
|
|
|
$
|
69
|
|
|
$
|
387
|
|
Instruments
|
112
|
|
|
6
|
|
|
118
|
|
|
95
|
|
|
5
|
|
|
100
|
|
||||||
Other product
|
5
|
|
|
1
|
|
|
6
|
|
|
4
|
|
|
—
|
|
|
4
|
|
||||||
Total product revenue
|
534
|
|
|
94
|
|
|
628
|
|
|
417
|
|
|
74
|
|
|
491
|
|
||||||
Service and other
|
96
|
|
|
58
|
|
|
154
|
|
|
78
|
|
|
29
|
|
|
107
|
|
||||||
Total revenue
|
$
|
630
|
|
|
$
|
152
|
|
|
$
|
782
|
|
|
$
|
495
|
|
|
$
|
103
|
|
|
$
|
598
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
United States
|
$
|
416
|
|
|
$
|
325
|
|
Europe
|
184
|
|
|
126
|
|
||
Greater China (1)
|
78
|
|
|
56
|
|
||
Asia-Pacific (1)
|
70
|
|
|
67
|
|
||
Other markets
|
34
|
|
|
24
|
|
||
Total revenue
|
$
|
782
|
|
|
$
|
598
|
|
|
Three Months Ended
|
||||
|
April 1,
2018 |
|
April 2,
2017 |
||
Weighted average shares outstanding
|
147
|
|
|
146
|
|
Effect of potentially dilutive common shares from:
|
|
|
|
||
Equity awards
|
1
|
|
|
1
|
|
Weighted average shares used in calculating diluted earnings per share
|
148
|
|
|
147
|
|
Potentially dilutive shares excluded from calculation due to anti-dilutive effect
|
—
|
|
|
1
|
|
|
April 1, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
||||||||||||
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities in government sponsored entities
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
67
|
|
|
$
|
—
|
|
|
$
|
67
|
|
Corporate debt securities
|
375
|
|
|
(2
|
)
|
|
373
|
|
|
423
|
|
|
(2
|
)
|
|
421
|
|
||||||
U.S. Treasury securities
|
403
|
|
|
(1
|
)
|
|
402
|
|
|
433
|
|
|
(1
|
)
|
|
432
|
|
||||||
Total available-for-sale debt securities
|
$
|
816
|
|
|
$
|
(3
|
)
|
|
$
|
813
|
|
|
$
|
923
|
|
|
$
|
(3
|
)
|
|
$
|
920
|
|
|
Estimated
Fair Value
|
||
Due within one year
|
$
|
353
|
|
After one but within five years
|
460
|
|
|
Total
|
$
|
813
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
Raw materials
|
$
|
95
|
|
|
$
|
93
|
|
Work in process
|
209
|
|
|
188
|
|
||
Finished goods
|
46
|
|
|
52
|
|
||
Total inventory
|
$
|
350
|
|
|
$
|
333
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
Leasehold improvements
|
$
|
477
|
|
|
$
|
331
|
|
Machinery and equipment
|
331
|
|
|
316
|
|
||
Computer hardware and software
|
207
|
|
|
185
|
|
||
Furniture and fixtures
|
40
|
|
|
34
|
|
||
Buildings
|
269
|
|
|
155
|
|
||
Construction in progress
|
103
|
|
|
326
|
|
||
Total property and equipment, gross
|
1,427
|
|
|
1,347
|
|
||
Accumulated depreciation
|
(444
|
)
|
|
(416
|
)
|
||
Total property and equipment, net
|
$
|
983
|
|
|
$
|
931
|
|
|
Goodwill
|
||
Balance as of December 31, 2018
|
$
|
771
|
|
Current period acquisition
|
4
|
|
|
Balance as of April 1, 2018
|
$
|
775
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
Contract liabilities, current portion
|
$
|
153
|
|
|
$
|
150
|
|
Accrued compensation expenses
|
125
|
|
|
177
|
|
||
Accrued taxes payable
|
59
|
|
|
50
|
|
||
Other
|
51
|
|
|
55
|
|
||
Total accrued liabilities
|
$
|
388
|
|
|
$
|
432
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
Balance at beginning of period
|
$
|
17
|
|
|
$
|
13
|
|
Additions charged to cost of product revenue
|
6
|
|
|
4
|
|
||
Repairs and replacements
|
(7
|
)
|
|
(5
|
)
|
||
Balance at end of period
|
$
|
16
|
|
|
$
|
12
|
|
|
Redeemable Noncontrolling Interests
|
||
Balance as of December 31, 2017
|
$
|
220
|
|
Net loss attributable to noncontrolling interests
|
(10
|
)
|
|
Adjustment up to the redemption value
|
5
|
|
|
Balance as of April 1, 2018
|
$
|
215
|
|
|
April 1, 2018
|
|
December 31, 2017
|
||||||||||||||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Money market funds (cash equivalents)
|
$
|
1,282
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,282
|
|
|
$
|
957
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
957
|
|
Debt securities in government-sponsored entities
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
67
|
|
||||||||
Corporate debt securities
|
—
|
|
|
373
|
|
|
—
|
|
|
373
|
|
|
—
|
|
|
421
|
|
|
—
|
|
|
421
|
|
||||||||
U.S. Treasury securities
|
402
|
|
|
—
|
|
|
—
|
|
|
402
|
|
|
432
|
|
|
—
|
|
|
—
|
|
|
432
|
|
||||||||
Deferred compensation plan assets
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
||||||||
Total assets measured at fair value
|
$
|
1,684
|
|
|
$
|
446
|
|
|
$
|
—
|
|
|
$
|
2,130
|
|
|
$
|
1,389
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
1,912
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Deferred compensation liability
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
Principal amount of 2019 Notes outstanding
|
$
|
633
|
|
|
$
|
633
|
|
Principal amount of 2021 Notes outstanding
|
517
|
|
|
517
|
|
||
Unamortized discount of liability component of convertible senior notes
|
(68
|
)
|
|
(75
|
)
|
||
Net carrying amount of liability component of convertible senior notes
|
1,082
|
|
|
1,075
|
|
||
Obligations under financing leases
|
244
|
|
|
113
|
|
||
Other
|
4
|
|
|
4
|
|
||
Less: current portion
|
(620
|
)
|
|
(10
|
)
|
||
Long-term debt
|
$
|
710
|
|
|
$
|
1,182
|
|
Carrying value of equity component of convertible senior notes, net of debt issuance cost
|
$
|
161
|
|
|
$
|
161
|
|
Fair value of convertible senior notes outstanding (Level 2)
|
$
|
1,333
|
|
|
$
|
1,305
|
|
Weighted-average remaining amortization period of discount on the liability component of convertible senior notes
|
2.6 years
|
|
|
2.8 years
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
Cost of product revenue
|
$
|
4
|
|
|
$
|
3
|
|
Cost of service and other revenue
|
1
|
|
|
—
|
|
||
Research and development
|
15
|
|
|
14
|
|
||
Selling, general and administrative
|
28
|
|
|
33
|
|
||
Share-based compensation expense before taxes
|
48
|
|
|
50
|
|
||
Related income tax benefits
|
(10
|
)
|
|
(11
|
)
|
||
Share-based compensation expense, net of taxes
|
$
|
38
|
|
|
$
|
39
|
|
|
Employee Stock Purchase Rights
|
||
Risk-free interest rate
|
0.83% - 1.89%
|
|
|
Expected volatility
|
28% - 44%
|
|
|
Expected term
|
0.5 - 1.0 year
|
|
|
Expected dividends
|
0
|
%
|
|
Weighted-average fair value per share
|
$
|
55.83
|
|
|
Restricted
Stock Units
(RSU)
|
|
Performance
Stock Units
(PSU)(1)
|
|
Weighted-Average
Grant-Date Fair Value per Share
|
||||||||
|
|
|
RSU
|
|
PSU
|
||||||||
Outstanding at December 31, 2017
|
2,085
|
|
|
542
|
|
|
$
|
172.92
|
|
|
$
|
166.15
|
|
Awarded
|
17
|
|
|
45
|
|
|
$
|
228.79
|
|
|
$
|
164.36
|
|
Vested
|
(61
|
)
|
|
—
|
|
|
$
|
151.01
|
|
|
—
|
|
|
Cancelled
|
(70
|
)
|
|
(15
|
)
|
|
$
|
168.15
|
|
|
$
|
161.84
|
|
Outstanding at April 1, 2018
|
1,971
|
|
|
572
|
|
|
$
|
174.23
|
|
|
$
|
166.12
|
|
(1)
|
The number of units reflect the estimated number of shares to be issued at the end of the performance period.
|
|
Options
(in thousands)
|
|
Weighted-Average
Exercise Price
|
|||
Outstanding at December 31, 2017
|
322
|
|
|
$
|
46.93
|
|
Exercised
|
(17
|
)
|
|
$
|
41.91
|
|
Outstanding and exercisable at April 1, 2018
|
305
|
|
|
$
|
47.20
|
|
|
Three Months Ended
|
||||||
|
April 1,
2018 |
|
April 2,
2017 |
||||
Revenue:
|
|
|
|
||||
Core Illumina
|
$
|
783
|
|
|
$
|
598
|
|
Consolidated VIEs
|
3
|
|
|
1
|
|
||
Elimination of intersegment revenue
|
(4
|
)
|
|
(1
|
)
|
||
Consolidated revenue
|
$
|
782
|
|
|
$
|
598
|
|
|
|
|
|
||||
Income (loss) from operations:
|
|
|
|
||||
Core Illumina
|
$
|
238
|
|
|
$
|
84
|
|
Consolidated VIEs
|
(21
|
)
|
|
(34
|
)
|
||
Elimination of intersegment earnings
|
1
|
|
|
2
|
|
||
Consolidated income from operations
|
$
|
218
|
|
|
$
|
52
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
Core Illumina
|
$
|
5,465
|
|
|
$
|
5,223
|
|
Consolidated VIEs
|
155
|
|
|
45
|
|
||
Elimination of intersegment assets
|
(78
|
)
|
|
(11
|
)
|
||
Consolidated total assets
|
$
|
5,542
|
|
|
$
|
5,257
|
|
•
|
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.
|
•
|
Critical Accounting Policies and Estimates
. Discussion of significant changes since our most recent Annual Report on Form 10-K we believe are important to understanding the assumptions and judgments underlying our financial statements.
|
•
|
Recent Accounting Pronouncements
. Summary of recent accounting pronouncements applicable to our condensed consolidated financial statements.
|
•
|
Net revenue
increased
31%
during
Q1 2018
to
$782 million
compared to
$598 million
in
Q1 2017
due to the growth in sales of our sequencing consumables and genotyping services, as well as increased shipments of our NovaSeq instrument, partially offset by lower shipments of our HiSeq instruments. We expect our revenue to continue to increase in 2018.
|
•
|
Gross profit as a percentage of revenue (gross margin) was
68.8%
in
Q1 2018
compared to
61.5%
in
Q1 2017
. The gross margin increase was primarily driven by favorable service margins and an increase in consumables, which generate higher gross margins, as a percentage of revenue. Gross margin also increased due to the impairment of an acquired intangible asset and inventory reserves related to product transitions that were recorded in Q1 2017. 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; excess and obsolete inventories; royalties; our cost structure for manufacturing operations relative to volume; and product support obligations.
|
•
|
Income from operations as a percentage of revenue
increased
to
27.8%
in
Q1 2018
compared to
8.7%
in
Q1 2017
primarily due to increased revenue, improved gross margins, and a decrease in operating expenses as a result of the deconsolidation of GRAIL in Q1 2017. We expect research and development and selling, general and administrative expenses to continue to grow.
|
•
|
For U.S. federal purposes the corporate statutory income tax rate was reduced from 35% to 21%, effective for our 2018 tax year. The provisional impact of U.S. Tax Reform is our current best estimate based on a preliminary review of the new law and is subject to revision based on our existing accounting for income taxes policy as further information is gathered, and interpretation and analysis of the tax legislation evolves. The Securities and Exchange Commission has issued rules allowing for a measurement period of up to one year after the enactment date of U.S. Tax Reform to finalize the recording of the related tax impacts. Any future changes to our provisional estimated impact of U.S. Tax Reform will be included as an adjustment to the provision for income taxes.
|
•
|
Cash, cash equivalents, and short-term investments were
$2 billion
as of
April 1, 2018
, of which approximately
$1 billion
was held by our foreign subsidiaries.
|
|
Q1 2018
|
|
Q1 2017
|
||
Revenue:
|
|
|
|
||
Product revenue
|
80.3
|
%
|
|
82.1
|
%
|
Service and other revenue
|
19.7
|
|
|
17.9
|
|
Total revenue
|
100.0
|
|
|
100.0
|
|
Cost of revenue:
|
|
|
|
||
Cost of product revenue
|
22.3
|
|
|
27.8
|
|
Cost of service and other revenue
|
7.9
|
|
|
8.9
|
|
Amortization of acquired intangible assets
|
1.0
|
|
|
1.8
|
|
Total cost of revenue
|
31.2
|
|
|
38.5
|
|
Gross profit
|
68.8
|
|
|
61.5
|
|
Operating expense:
|
|
|
|
||
Research and development
|
17.5
|
|
|
24.2
|
|
Selling, general and administrative
|
23.5
|
|
|
28.6
|
|
Total operating expense
|
41.0
|
|
|
52.8
|
|
Income from operations
|
27.8
|
|
|
8.7
|
|
Other income (expense):
|
|
|
|
||
Interest income
|
0.6
|
|
|
0.7
|
|
Interest expense
|
(1.4
|
)
|
|
(1.3
|
)
|
Other income, net
|
1.2
|
|
|
76.0
|
|
Total other income, net
|
0.4
|
|
|
75.4
|
|
Income before income taxes
|
28.2
|
|
|
84.1
|
|
Provision for income taxes
|
3.0
|
|
|
25.9
|
|
Consolidated net income
|
25.2
|
|
|
58.2
|
|
Add: Net loss attributable to noncontrolling interests
|
1.4
|
|
|
3.2
|
|
Net income attributable to Illumina stockholders
|
26.6
|
%
|
|
61.4
|
%
|
(Dollars in millions)
|
Q1 2018
|
|
Q1 2017
|
|
Change
|
|
% Change
|
|||||||
Consumables
|
$
|
504
|
|
|
$
|
387
|
|
|
$
|
117
|
|
|
30
|
%
|
Instruments
|
118
|
|
|
100
|
|
|
18
|
|
|
18
|
|
|||
Other product
|
6
|
|
|
4
|
|
|
2
|
|
|
50
|
|
|||
Total product revenue
|
628
|
|
|
491
|
|
|
137
|
|
|
28
|
|
|||
Service and other revenue
|
154
|
|
|
107
|
|
|
47
|
|
|
44
|
|
|||
Total revenue
|
$
|
782
|
|
|
$
|
598
|
|
|
$
|
184
|
|
|
31
|
%
|
(Dollars in millions)
|
Q1 2018
|
|
Q1 2017
|
|
Change
|
|
% Change
|
||||||
Gross profit
|
$
|
538
|
|
|
$
|
368
|
|
|
$
|
170
|
|
|
46%
|
Gross margin
|
68.8
|
%
|
|
61.5
|
%
|
|
|
|
|
(Dollars in millions)
|
Q1 2018
|
|
Q1 2017
|
|
Change
|
|
% Change
|
|||||||
Research and development
|
$
|
137
|
|
|
$
|
145
|
|
|
$
|
(8
|
)
|
|
(6
|
)%
|
Selling, general and administrative
|
183
|
|
|
171
|
|
|
12
|
|
|
7
|
|
|||
Total operating expense
|
$
|
320
|
|
|
$
|
316
|
|
|
$
|
4
|
|
|
1
|
%
|
(Dollars in millions)
|
Q1 2018
|
|
Q1 2017
|
|
Change
|
|
% Change
|
|||||||
Interest income
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
1
|
|
|
25
|
%
|
Interest expense
|
(11
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|
38
|
|
|||
Other income, net
|
9
|
|
|
455
|
|
|
(446
|
)
|
|
(98
|
)
|
|||
Total other income, net
|
$
|
3
|
|
|
$
|
451
|
|
|
$
|
(448
|
)
|
|
(99
|
)%
|
(Dollars in millions)
|
Q1 2018
|
|
Q1 2017
|
|
Change
|
|
% Change
|
|||||||
Income before income taxes
|
$
|
221
|
|
|
$
|
503
|
|
|
$
|
(282
|
)
|
|
(56
|
)%
|
Provision for income taxes
|
24
|
|
|
155
|
|
|
(131
|
)
|
|
(85
|
)
|
|||
Consolidated net income
|
$
|
197
|
|
|
$
|
348
|
|
|
$
|
(151
|
)
|
|
(43
|
)%
|
Effective tax rate
|
10.6
|
%
|
|
30.8
|
%
|
|
|
|
|
•
|
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;
|
•
|
the expansion needs of our facilities, including costs of leasing and building out additional facilities;
|
•
|
repurchases of our outstanding common stock; and
|
•
|
the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred in accordance with the Tax Cuts and Jobs Act (U.S. Tax Reform) enacted on December 22, 2017.
|
•
|
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.
|
(In millions)
|
Q1 2018
|
|
Q1 2017
|
||||
Net cash provided by operating activities
|
$
|
255
|
|
|
$
|
168
|
|
Net cash provided by investing activities
|
12
|
|
|
163
|
|
||
Net cash provided by (used in) financing activities
|
67
|
|
|
(86
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
1
|
|
|
1
|
|
||
Net increase in cash and cash equivalents
|
$
|
335
|
|
|
$
|
246
|
|
•
|
our expectations as to our future financial performance, results of operations, or other operational results or metrics;
|
•
|
our expectations regarding the launch of new products or services;
|
•
|
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;
|
•
|
our expectations regarding the integration of any acquired technologies with our existing technology; and
|
•
|
other expectations, beliefs, plans, strategies, anticipated developments, and other matters that are not historical facts.
|
•
|
challenges inherent in developing, manufacturing, and launching new products and services, including expanding manufacturing operations and reliance on third-party suppliers for critical components;
|
•
|
the timing and mix of customer orders among our products and services;
|
•
|
the impact of recently launched or pre-announced products and services on existing products and services;
|
•
|
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;
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•
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uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth in the United States or worldwide; and
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•
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other factors detailed in our filings with the SEC, including the risks, uncertainties, and assumptions described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, or in information disclosed in public conference calls, the date and time of which are released beforehand.
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Exhibit Number
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Description of Document
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Certification of Francis A. deSouza pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Sam A. Samad pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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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.
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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.
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Third Amendment to Lease between BMR-Lincoln Center LP and Illumina, dated January 18, 2018
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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ILLUMINA, INC.
(registrant)
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||
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Date:
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April 25, 2018
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/s/ S
AM
A. S
AMAD
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Sam A. Samad
Senior Vice President and Chief Financial Officer
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1
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I have reviewed this Quarterly Report on Form 10-Q of Illumina, Inc.;
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2
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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;
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3
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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;
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4
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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:
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a)
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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;
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b)
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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;
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c)
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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
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d)
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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
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5
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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):
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a)
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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
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b)
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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.
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By:
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/s/ F
RANCIS
A.
DE
S
OUZA
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Francis A. deSouza
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President and Chief Executive Officer
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1
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I have reviewed this Quarterly Report on Form 10-Q of Illumina, Inc.;
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2
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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;
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3
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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;
|
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|
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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;
|
|
|
|
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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;
|
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c)
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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
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d)
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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
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5
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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):
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a)
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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
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b)
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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.
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By:
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/s/ S
AM
A. S
AMAD
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Sam A. Samad
|
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Senior Vice President and Chief Financial Officer
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ FRANCIS A. DESOUZA
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Francis A. deSouza
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President and Chief Executive Officer
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ S
AM
A. S
AMAD
|
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|
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Sam A. Samad
|
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Senior Vice President and Chief Financial Officer
|