ILLUMINA, INC.ILMN

ILLUMINA, INC. Commitments Disclosure

10-KFiled Feb 14, 20173 min read
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.

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



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

Historical Timeline

Fiscal YearFiled
2017Feb 14, 2017Showing above
2016Mar 2, 2016

About Commitments Disclosures

Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.

Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.

Other Available Disclosures

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