Current Report Filing (8-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 20, 2014

Illumina, Inc.

(Exact name of registrant as specified in its charter)

001-35406

(Commission File Number)





Delaware		33-0804655
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

5200 Illumina Way, San Diego, CA 92122

(Address of principal executive offices) (Zip code)

(858) 202-4500

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Item 2.02 Results of Operations and Financial Condition

Item 9.01 Financial Statements and Exhibits

SIGNATURES

Exhibit Index

Table of Contents

Item 2.02 Results of Operations and Financial Condition.

On October 20, 2014, Illumina, Inc. (the "Company") issued a press release announcing financial results for the third quarter ended September 28, 2014. The full text of the Company’s press release is attached hereto as Exhibit 99.1.

The information furnished pursuant to this Item 2.02 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.

Table of Contents

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press release dated October 20, 2014 announcing Illumina, Inc.’s financial results for the third quarter ended September 28, 2014.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




		ILLUMINA, INC.
Date:	October 20, 2014	By:	/s/ MARC A. STAPLEY
			Marc A. Stapley
			Senior Vice President and Chief Financial Officer

Table of Contents

Exhibit Index



Exhibit Number			Description
99.1			Press release dated October 20, 2014 announcing Illumina, Inc.’s financial results for the third quarter ended September 28, 2014.

Illumina Reports Record Financial Results for Third Quarter of Fiscal Year 2014

Substantially Raises Fiscal Year 2014 Guidance

San Diego -- (BUSINESS WIRE) - October 20, 2014 - Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the third quarter of 2014.

Third quarter 2014 results:


•	Revenue of $481 million, a 35% increase compared to $357 million in the third quarter of 2013


•	GAAP net income for the quarter of $93 million, or $0.63 per diluted share, compared to $31 million, or $0.22 per diluted share, for the third quarter of 2013


•	Non-GAAP net income for the quarter of $114 million, or $0.77 per diluted share, compared to $63 million, or $0.45 per diluted share, for the third quarter of 2013 (see the table entitled “Itemized Reconciliation Between GAAP and Non-GAAP Net Income” for a reconciliation of these GAAP and non-GAAP financial measures)


•	Cash flow from operations of $146 million and free cash flow of $117 million for the quarter

Gross margin in the third quarter of 2014 was 69.5% compared to 58.8% in the prior year period; the prior year period included impairment charges of $25.2 million related to the discontinuation of a non-core product line. Excluding the effect of non-cash charges associated with stock compensation, amortization of acquired intangible assets, legal contingencies, and impairments, non-GAAP gross margin was 73.2% for the third quarter of 2014 compared to 70.2% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2014 were $85.1 million compared to $71.0 million in the prior year period. R&D expenses included $14.6 million and $9.6 million of non-cash stock compensation expense in the third quarters of 2014 and 2013, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 14.6% compared to 17.2% in the prior year period.

Selling, general and administrative (SG&A) expenses for the third quarter of 2014 were $119.9 million compared to $95.6 million in the prior year period. SG&A expenses included $27.2 million and $16.1 million of non-cash stock compensation expense in the third quarters of 2014 and 2013, respectively. Excluding these charges, amortization of acquired intangible assets, and contingent compensation, SG&A expenses as a percentage of revenue were 19.0% compared to 20.6% in the prior year period.

Depreciation and amortization expenses were $26.7 million and capital expenditures were $28.8 million during the third quarter of 2014. The Company ended the third quarter of 2014 with $1.27 billion in cash, cash equivalents and short-term investments, compared to $1.17 billion as of December 29, 2013.

“Illumina experienced tremendous momentum in the third quarter, with strong shipments in HiSeq X, NextSeq and MiSeq, as well as the associated consumables, resulting in record financial results,” stated Jay Flatley, CEO. “With the most extensive sequencing portfolio available, we are well-positioned for continued long-term growth as we develop and address the large and untapped market opportunities ahead of us.”

Updates since our last earnings release:


•	Announced the launch of the HiSeq X™ HD v2 Reagent Kit for use on the HiSeq X Ten Sequencing System and the HiSeq® Rapid v2 Reagent Kit for use on the HiSeq 2500 Sequencing System


•	Announced a £78 million deal with Genomics England to sequence 100,000 human genomes


•	Announced the formation of the Actionable Genome Consortium, alongside world-renowned cancer centers, in an effort to recommend standards for applying NGS to cancer tumors


•	Entered into strategic partnerships with AstraZeneca, Janssen, and Sanofi to develop a universal NGS-based oncology test system


•	Announced the selection of Encoded Genomics, Inc., EpiBiome, Inc., and Xcell Biosciences Inc. to the inaugural class of the Illumina Accelerator


•	Launched new BaseSpace® apps developed with AB SCIEX to bring together proteomics and next-generation sequencing capabilities


•	Further strengthened Illumina’s Board of Directors with the appointment of Jeff Huber, Senior Vice President at Google, Inc.

Financial outlook and guidance

The non-GAAP financial guidance discussed below reflects certain pro forma adjustments to assist in analyzing and assessing our core operational performance. Please see our Reconciliation of Non-GAAP Financial Guidance included in this release for a reconciliation of the GAAP and non-GAAP financial measures.

As a result of strong year-to-date results, the Company has increased its full year 2014 guidance to revenue growth of approximately 30% year-over-year and non-GAAP earnings per fully diluted share of $2.63 to $2.65.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Monday, October 20, 2014. Interested parties may listen to the call by dialing 888.713.4205 (passcode: 24983403), or if outside North America by dialing 1.617.213.4862 (passcode: 24983403). Individuals may access the live teleconference in the Investor Relations section of Illumina’s web site under the “Company” tab at www.illumina.com.

A replay of the conference call will be available from 6:00 pm Pacific Time (9:00 pm Eastern Time) on October 20, 2014 through October 27, 2014 by dialing 888.286.8010 (passcode: 59892040), or if outside North America by dialing 1.617.801.6888 (passcode: 59892040).

Statement regarding use of non-GAAP financial measures

The Company reports non-GAAP results for diluted net income per share, net income, gross margins, operating expenses, operating margins, other income, and free cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

The Company’s financial measures under GAAP include substantial charges related to stock compensation expense, legal contingencies, amortization of acquired intangible assets, non-cash interest expense associated with the Company’s convertible debt instruments that may be settled in cash, acquisition related expense, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Per share amounts also include, through the first quarter of 2014, the double dilution associated with the accounting treatment of the Company’s 0.625% convertible senior notes and the corresponding call option overlay. Management believes that presentation of operating results that excludes these items and per share double dilution provides useful supplemental information to investors and facilitates the analysis of the Company’s core operating results and comparison of operating results across reporting periods. Management also believes that this supplemental non-GAAP information is therefore useful to investors in analyzing and assessing the Company’s past and future operating performance.

The Company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.

Use of forward-looking statements

This release contains projections, information about our financial outlook, earnings guidance, and other forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on our expectations as of the date of this release and may differ materially from actual future events or results. Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are (i) our ability to further develop and commercialize our instruments and consumables and to deploy new products, services, and applications, and expand the markets, for our technology platforms; (ii) our ability to manufacture robust instrumentation and consumables; (iii) our ability to successfully identify and integrate acquired technologies, products, or businesses; (iv) our expectations and beliefs regarding future conduct and growth of the business and the markets in which we operate; (v) challenges inherent in developing, manufacturing, and launching new products and services; and (vi) our ability to maintain our revenue levels and profitability during periods of research funding reduction or uncertainty and adverse economic and business conditions, together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand. We undertake no obligation, and do not intend, to update

these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current financial quarter.

About Illumina

Illumina is transforming human health as the global leader in sequencing and array-based technologies. The company serves customers in a broad range of markets, enabling the universal adoption of genomic solutions in research and clinical settings. To learn how Illumina is unlocking the power of the genome, visit www.illumina.com and follow @illumina.

# # #

Illumina, Inc.

Investors:

Rebecca Chambers

858.255.5243

rchambers@illumina.com

Media:

Eric Endicott

858.882.6822

pr@illumina.com



Illumina, Inc.
Condensed Consolidated Balance Sheets
(In thousands)

	September 28, 2014		December 29, 2013
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	829,895	$	711,637
Short-term investments	441,532		453,966
Accounts receivable, net	276,675		238,946
Inventory	199,298		154,099
Deferred tax assets, current portion	101,930		36,076
Prepaid expenses and other current assets	57,624		22,811
Total current assets	1,906,954		1,617,535
Property and equipment, net	247,643		202,666
Goodwill	724,887		723,061
Intangible assets, net	299,345		331,173
Deferred tax assets, long-term portion	39,729		88,480
Other assets	59,648		56,091
Total assets	$	3,278,206	$	3,019,006

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	96,069	$	73,655
Accrued liabilities	304,133		219,120
Accrued legal contingencies	155,080		—
Long-term debt, current portion	301,119		29,288
Total current liabilities	856,401		322,063
Long-term debt	979,836		839,305
Long-term legal contingencies	—		132,933
Other long-term liabilities	167,656		191,221
Conversion option subject to cash settlement	—		282
Stockholders’ equity	1,274,313		1,533,202
Total liabilities and stockholders’ equity	$	3,278,206	$	3,019,006



			Illumina, Inc.
			Condensed Consolidated Statements of Income
			(In thousands, except per share amounts)
			(unaudited)

				Three Months Ended						Nine Months Ended
				September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Revenue:
	Product revenue			$	416,163		$	318,603		$	1,169,182		$	928,270
	Service and other revenue			64,467			38,197			179,797			105,582
		Total revenue		480,630			356,800			1,348,979			1,033,852
Cost of revenue:
	Cost of product revenue (a)			113,103			119,954			338,851			308,082
	Cost of service and other revenue (a)			23,909			17,643			68,598			48,732
	Amortization of acquired intangible assets			9,677			9,263			28,757			24,397
		Total cost of revenue		146,689			146,860			436,206			381,211
			Gross profit	333,941			209,940			912,773			652,641
Operating expense:
	Research and development (a)			85,082			70,957			245,108			200,015
	Selling, general and administrative (a)			119,888			95,617			344,110			269,391
	Legal contingencies			7,705			—			7,705			115,369
	Acquisition related expense (gain), net			903			(3,942		)	(335		)	(5,846		)
	Headquarter relocation			870			518			4,357			(232		)
	Unsolicited tender offer related expense			—			1,326			—			13,621
		Total operating expense		214,448			164,476			600,945			592,318
			Income from operations	119,493			45,464			311,828			60,323
Other expense, net				(7,050		)	(8,317		)	(55,131		)	(21,378		)
			Income before income taxes	112,443			37,147			256,697			38,945
Provision for (benefit from) income taxes				18,954			5,790			56,626			(5,702		)
			Net income	$	93,489		$	31,357		$	200,071		$	44,647
Net income per basic share				$	0.66		$	0.25		$	1.50		$	0.36
Net income per diluted share				$	0.63		$	0.22		$	1.34		$	0.32
Shares used in calculating basic net income per share				141,142			125,465			133,290			124,532
Shares used in calculating diluted net income per share				147,512			140,601			149,084			138,630

(a) Includes total stock-based compensation expense for stock-based awards:

				Three Months Ended						Nine Months Ended
				September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
	Cost of product revenue			$	2,572		$	1,524		$	6,816		$	4,410
	Cost of service and other revenue			311			233			880			544
	Research and development			14,589			9,561			39,043			26,521
	Selling, general and administrative			27,197			16,091			67,350			44,605
		Stock-based compensation expense before taxes		$	44,669		$	27,409		$	114,089		$	76,080



Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

	Three Months Ended						Nine Months Ended
	September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Net cash provided by operating activities (a)	$	145,605		$	83,136		$	360,722		$	259,582
Net cash (used in) provided by investing activities	(44,231		)	(101,295		)	(73,841		)	81,161
Net cash provided by (used in) financing activities (a)	55,495			(75,053		)	(166,950		)	(82,275		)
Effect of exchange rate changes on cash and cash equivalents	(2,195		)	1,437			(1,673		)	(613		)
Net increase (decrease) in cash and cash equivalents	154,674			(91,775		)	118,258			257,855
Cash and cash equivalents, beginning of period	675,221			783,611			711,637			433,981
Cash and cash equivalents, end of period	$	829,895		$	691,836		$	829,895		$	691,836

Calculation of free cash flow:
Net cash provided by operating activities (a)	$	145,605		$	83,136		$	360,722		$	259,582
Purchases of property and equipment	(28,828		)	(18,930		)	(71,164		)	(51,905		)
Free cash flow (b)	$	116,777		$	64,206		$	289,558		$	207,677

______________________________________________________________________________________________________

(a) Net cash provided by operating activities excludes excess tax benefit related to stock-based compensation of $102.6 million in the first three quarters of 2014, of which $25.3 million was recorded in Q3, and $27.2 million in the first three quarters of 2013, of which $12.4 million was recorded in Q3. Net cash used in financing activities reflects the excess tax benefit as a corresponding in-flow in the respective periods.

(b) Free cash flow, which is a non-GAAP financial measure, is calculated as net cash provided by operating activities reduced by purchases of property and equipment. Free cash flow is useful to management as it is one of the metrics used to evaluate our performance and to compare us with other companies in our industry. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.



Illumina, Inc.
Results of Operations - Non-GAAP
(In thousands, except per share amounts)
(unaudited)

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME PER SHARE:

	Three Months Ended						Nine Months Ended
	September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
GAAP net income per share - diluted	$	0.63		$	0.22		$	1.34		$	0.32
Pro forma impact of weighted average shares (a)	—			0.01			—			0.01
Adjustments to net income:
Legal contingencies (b)	0.09			0.03			0.16			0.93
Amortization of acquired intangible assets	0.08			0.09			0.24			0.23
Non-cash interest expense (c)	0.07			0.07			0.19			0.20
Cost-method investment related gain	(0.03		)	—			(0.03		)	(0.04		)
Acquisition related expense (gain), net (d)	0.01			(0.03		)	—			(0.04		)
Headquarter relocation (e)	0.01			—			0.03			—
Contingent compensation expense (f)	—			0.02			0.03			0.06
Loss on extinguishment of debt	—			—			0.21			—
Unsolicited tender offer related expense	—			0.01			—			0.10
Inventory revaluation adjustment (g)	—			—			—			—
Impairments	—			0.18			—			0.18
Incremental non-GAAP tax expense (h)	(0.09		)	(0.15		)	(0.30		)	(0.60		)
Non-GAAP net income per share - diluted (i)	$	0.77		$	0.45		$	1.87		$	1.35
Shares used in calculating non-GAAP diluted net income per share	147,512			139,573			148,868			137,579

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
GAAP net income	$	93,489		$	31,357		$	200,071		$	44,647
Legal contingencies (b)	12,889			4,299			23,552			127,780
Amortization of acquired intangible assets	11,264			12,853			35,962			31,789
Non-cash interest expense (c)	9,890			9,103			28,055			27,221
Cost-method investment related gain	(4,427		)	—			(4,427		)	(6,113		)
Acquisition related expense (gain), net (d)	903			(3,942		)	(335		)	(5,846		)
Headquarter relocation (e)	870			518			4,357			(232		)
Contingent compensation expense (f)	496			2,444			3,832			8,124
Loss on extinguishment of debt	—			44			31,360			555
Unsolicited tender offer related expense	—			1,326			—			13,621
Inventory revaluation adjustment (g)	—			—			—			458
Impairments	—			25,214			—			25,214
Incremental non-GAAP tax expense (h)	(11,723		)	(20,370		)	(44,159		)	(82,059		)
Non-GAAP net income (i)	$	113,651		$	62,846		$	278,268		$	185,159

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
Weighted average shares used in calculation of GAAP diluted net income per share	147,512			140,601			149,084			138,630
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a)	—			(1,028		)	(216		)	(1,051		)
Weighted average shares used in calculation of non-GAAP diluted net income per share	147,512			139,573			148,868			137,579

______________________________________________________________________________________________________

(a) Pro forma impact of weighted average shares includes the impact of double dilution associated with the accounting treatment of the Company’s outstanding convertible debt and the corresponding call option overlay.

(b) Legal contingencies represent charges recorded based on estimated damages for patent litigations, including a judgment associated with the patent litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina continues to believe that Syntrix’s claims are without merit and are not supported by the law or facts. Accordingly, on December 3, 2013, Illumina filed an appeal to the court challenging the judgment.

(c) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(d) Acquisition related expense (gain), net consists primarily of net gains from changes in fair value of contingent consideration and transaction related costs.

(e) Headquarter relocation for the first three quarters of 2014 consisted of accretion of interest expense on lease exit liability and changes in estimates of such liability. Headquarter relocation for the first three quarters of 2013 included a Q2 gain on lease exit liability as a result of a change in estimate, offset by accretion of interest expense on such liability.

(f) Contingent compensation expense relates to contingent payments for post-combination services associated with prior period acquisitions.

(g) The Company recorded $0.5 million in cost of goods sold in Q1 2013 for the amortization of inventory revaluation costs in conjunction with the acquisition of Verinata Health, Inc.

(h) Incremental non-GAAP tax expense reflects the tax impact related to the non-GAAP adjustments listed above.

(i) Non-GAAP net income and diluted net income per share exclude the effect of the pro forma adjustments as detailed above. Non-GAAP net income and diluted net income per share are key drivers of our core operating performance and major factors in management’s bonus compensation each year. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance.



Illumina, Inc.
Results of Operations - Non-GAAP (continued)
(Dollars in thousands)
(unaudited)
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:
	Three Months Ended										Nine Months Ended
	September 28, 2014					September 29, 2013					September 28, 2014					September 29, 2013
GAAP gross profit	$	333,941		69.5	%	$	209,940		58.8	%	$	912,773		67.7	%	$	652,641		63.1	%
Stock-based compensation expense	2,883			0.6	%	1,757			0.5	%	7,696			0.6	%	4,954			0.5	%
Amortization of acquired intangible assets	9,677			2.0	%	9,263			2.6	%	28,757			2.0	%	24,397			2.4	%
Legal contingencies (a)	5,184			1.1	%	4,299			1.2	%	15,847			1.2	%	12,411			1.2	%
Impairments	—			—		25,214			7.1	%	—			—		25,214			2.4	%
Inventory revaluation adjustment (b)	—			—		—			—		—			—		458			—
Non-GAAP gross profit (c)	$	351,685		73.2	%	$	250,473		70.2	%	$	965,073		71.5	%	$	720,075		69.6	%

Research and development expense	$	85,082		17.7	%	$	70,957		19.9	%	$	245,108		18.2	%	$	200,015		19.3	%
Stock-based compensation expense	(14,589		)	(3.0	)%	(9,561		)	(2.7	)%	(39,043		)	(2.9	)%	(26,521		)	(2.6	)%
Contingent compensation expense (d)	(496		)	(0.1	)%	(107		)	—		(1,076		)	(0.1	)%	(432		)	—
Non-GAAP research and development expense	$	69,997		14.6	%	$	61,289		17.2	%	$	204,989		15.2	%	$	173,062		16.7	%

Selling, general and administrative expense	$	119,888		24.9	%	$	95,617		26.8	%	$	344,110		25.5	%	$	269,391		26.1	%
Stock-based compensation expense	(27,197		)	(5.7	)%	(16,091		)	(4.5	)%	(67,350		)	(5.0	)%	(44,605		)	(4.3	)%
Amortization of acquired intangible assets	(1,587		)	(0.2	)%	(3,590		)	(1.0	)%	(7,205		)	(0.5	)%	(7,392		)	(0.8	)%
Contingent compensation expense (d)	—			—		(2,337		)	(0.7	)%	(2,756		)	(0.2	)%	(7,692		)	(0.7	)%
Non-GAAP selling, general and administrative expense	$	91,104		19.0	%	$	73,599		20.6	%	$	266,799		19.8	%	$	209,702		20.3	%

GAAP operating profit	$	119,493		24.9	%	$	45,464		12.7	%	$	311,828		23.1	%	$	60,323		5.8	%
Stock-based compensation expense	44,669			9.3	%	27,409			7.7	%	114,089			8.5	%	76,080			7.4	%
Legal contingencies (a)	12,889			2.7	%	4,299			1.2	%	23,552			1.7	%	127,780			12.4	%
Amortization of acquired intangible assets	11,264			2.3	%	12,853			3.6	%	35,962			2.7	%	31,789			3.1	%
Acquisition related expense (gain), net (e)	903			0.2	%	(3,942		)	(1.1	)%	(335		)	—		(5,846		)	(0.6	)%
Headquarter relocation (f)	870			0.2	%	518			0.1	%	4,357			0.3	%	(232		)	—
Contingent compensation expense (d)	496			0.1	%	2,444			0.7	%	3,832			0.3	%	8,124			0.8	%
Unsolicited tender offer related expense	—			—		1,326			0.4	%	—			—		13,621			1.3	%
Inventory revaluation adjustment (b)	—			—		—			—		—			—		458			—
Impairments	—			—		25,214			7.1	%	—			—		25,214			2.4	%
Non-GAAP operating profit (c)	$	190,584		39.7	%	$	115,585		32.4	%	$	493,285		36.6	%	$	337,311		32.6	%

GAAP other expense, net	$	(7,050	)	(1.5	)%	$	(8,317	)	(2.3	)%	$	(55,131	)	(4.1	)%	$	(21,378	)	(2.1	)%



Non-cash interest expense (g)	9,890			2.1	%	9,103		2.6	%	28,055			2.1	%	27,221			2.6	%
Cost-method investment related gain	(4,427		)	(0.9	)%	—		—		(4,427		)	(0.3	)%	(6,113		)	(0.6	)%
Loss on extinguishment of debt	—			—		44		(0.1	)%	31,360			2.3	%	555			0.1	%
Non-GAAP other (expense) income, net (c)	$	(1,587	)	(0.3	)%	$	830	0.2	%	$	(143	)	—		$	285		—

______________________________________________________________________________________________________

(a) Legal contingencies represent charges recorded based on estimated damages for patent litigations, including a judgment associated with the patent litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina continues to believe that Syntrix’s claims are without merit and are not supported by the law or facts. Accordingly, on December 3, 2013, Illumina filed an appeal to the court challenging the judgment.

(b) The Company recorded $0.5 million in cost of goods sold in Q1 2013 for the amortization of inventory revaluation costs in conjunction with the acquisition of Verinata Health, Inc.

(c) Non-GAAP gross profit, included within non-GAAP operating profit, is a key measure of the effectiveness and efficiency of manufacturing processes, product mix and the average selling prices of the Company’s products and services. Non-GAAP operating profit, and non-GAAP other (expense) income, net, exclude the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing past and future core operating performance.

(d) Contingent compensation expense relates to contingent payments for post-combination services associated with prior period acquisitions.

(e) Acquisition related expense (gain), net consists primarily of net gains from changes in fair value of contingent consideration and transaction related costs.

(f) Headquarter relocation for the first three quarters of 2014 consisted of accretion of interest expense on lease exit liability and changes in estimates of such liability. Headquarter relocation for the first three quarters of 2013 included a Q2 gain on lease exit liability as a result of a change in estimate, offset by accretion of interest expense on such liability.

(g) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

Illumina, Inc.

Reconciliation of Non-GAAP Financial Guidance

The Company’s future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect the Company’s financial results are stated above in this press release. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended December 29, 2013, and the Company’s Forms 10-Q for the fiscal quarters ended March 30, 2014 and June 29, 2014. The Company assumes no obligation to update any forward-looking statements or information.



	Fiscal Year 2014
Diluted net income per share
Non-GAAP diluted net income per share	$2.63 - $2.65
Amortization of acquired intangible assets	(0.20)
Non-cash interest expense (a)	(0.16)
Loss on extinguishment of debt	(0.16)
Legal contingencies (b)	(0.12)
Cost-method investment gain (c)	0.02
Contingent compensation expense (d)	(0.02)
Headquarter relocation (e)	(0.02)
GAAP diluted net income per share	$1.97 - $1.99

______________________________________________________________________________________________________

(a) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(c) Cost-method investment gain represents additional sales proceeds received from escrow funds related to a prior year sale of investment.

(d) Contingent compensation expense relates to contingent payments for post-combination services associated with prior period acquisitions.

(e) Headquarter relocation represents accretion of interest expense on lease exit liability and changes in estimates of such liability.

Illumina (NASDAQ:ILMN)
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