Company Quick10K Filing
Quick10K
Illumina
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$285.06 147 $41,904
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-30 Annual: 2018-12-30
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2017-01-01 Annual: 2017-01-01
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2016-01-03 Annual: 2016-01-03
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-28 Annual: 2014-12-28
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-29 Annual: 2013-12-29
8-K 2019-09-25 Enter Agreement, Exhibits
8-K 2019-08-27 Officers
8-K 2019-07-29 Earnings, Exhibits, Earnings, Exhibits
8-K 2019-07-11 Earnings, Exhibits
8-K 2019-06-18 Other Events
8-K 2019-05-29 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits, Earnings, Exhibits
8-K 2019-02-05 Officers
8-K 2019-01-29 Earnings, Exhibits, Earnings, Exhibits
8-K 2019-01-07 Earnings, Exhibits
8-K 2018-10-31 Enter Agreement, Officers, Other Events, Exhibits
8-K 2018-10-23 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-09-28 Other Events, Exhibits
8-K 2018-08-21 Enter Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2018-07-30 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-05-23 Shareholder Vote
8-K 2018-04-24 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-01-30 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-01-08 Earnings, Exhibits
WAT Waters 14,336
PKI Perkinelmer 8,906
BRKR Bruker 6,632
AXDX Accelerate Diagnostics 1,055
FLDM Fluidigm 368
EYPT Eyepoint Pharmaceuticals 152
HTGM HTG Molecular Diagnostics 27
BNGO Bionano Genomics 17
ASTC Astrotech 14
AEMD Aethlon Medical 6
ILMN 2019-06-30
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-3.3 a33amendedrestatedcert.htm
EX-31.1 fy19q2ex311.htm
EX-31.2 fy19q2ex312.htm
EX-32.1 fy19q2ex321.htm
EX-32.2 fy19q2ex322.htm

Illumina Earnings 2019-06-30

ILMN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2019
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, CA 92122
(Address of principal executive offices) (Zip code)
(858) 202-4500
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
ILMN
The NASDAQ Global Select Market
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       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13a of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No   þ

As of July 26, 2019, there were 147 million shares of the registrant’s common stock outstanding.



Table of Contents

ILLUMINA, INC.
INDEX
 
 
Page
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

ILLUMINA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 
 
June 30,
2019
 
December 30,
2018
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
1,943

 
$
1,144

Short-term investments
1,230

 
2,368

Accounts receivable, net
470

 
514

Inventory
420

 
386

Prepaid expenses and other current assets
93

 
78

Total current assets
4,156

 
4,490

Property and equipment, net
854

 
1,075

Operating lease right-of-use assets
558

 

Goodwill
824

 
831

Intangible assets, net
162

 
185

Deferred tax assets, net
69

 
70

Other assets
350

 
308

Total assets
$
6,973

 
$
6,959

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
139

 
$
184

Accrued liabilities
473

 
513

Long-term debt, current portion

 
1,107

Total current liabilities
612

 
1,804

Operating lease liabilities
698

 

Long-term debt
1,120

 
890

Other long-term liabilities
211

 
359

Redeemable noncontrolling interests

 
61

Stockholders’ equity:
 
 
 
Common stock
2

 
2

Additional paid-in capital
3,436

 
3,290

Accumulated other comprehensive income (loss)
5

 
(1
)
Retained earnings
3,594

 
3,083

Treasury stock, at cost
(2,705
)
 
(2,616
)
Total Illumina stockholders’ equity
4,332

 
3,758

Noncontrolling interests

 
87

Total stockholders’ equity
4,332

 
3,845

Total liabilities and stockholders’ equity
$
6,973

 
$
6,959

See accompanying notes to condensed consolidated financial statements.


3

Table of Contents

ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share amounts)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Revenue:
 
 
 
 
 
 
 
Product revenue
$
704

 
$
673

 
$
1,372

 
$
1,301

Service and other revenue
134

 
157

 
312

 
311

Total revenue
838

 
830

 
1,684

 
1,612

Cost of revenue:
 
 
 
 
 
 
 
Cost of product revenue
196

 
181

 
378

 
355

Cost of service and other revenue
59

 
65

 
130

 
127

Amortization of acquired intangible assets
10

 
9

 
19

 
17

Total cost of revenue
265

 
255

 
527

 
499

Gross profit
573

 
575

 
1,157

 
1,113

Operating expense:
 
 
 
 
 
 
 
Research and development
166

 
151

 
335

 
288

Selling, general and administrative
202

 
197

 
412

 
380

Total operating expense
368

 
348

 
747

 
668

Income from operations
205

 
227

 
410

 
445

Other income (expense):
 
 
 
 
 
 
 
Interest income
20

 
11

 
43

 
16

Interest expense
(15
)
 
(11
)
 
(30
)
 
(22
)
Other income, net
136

 
5

 
157

 
14

Total other income, net
141

 
5

 
170

 
8

Income before income taxes
346

 
232

 
580

 
453

Provision for income taxes
53

 
32

 
63

 
56

Consolidated net income
293

 
200

 
517

 
397

Add: Net loss attributable to noncontrolling interests
3

 
9

 
12

 
20

Net income attributable to Illumina stockholders
$
296

 
$
209

 
$
529

 
$
417

Earnings per share attributable to Illumina stockholders:
 
 
 
 
 
 
 
Basic
$
2.01

 
$
1.42

 
$
3.60

 
$
2.84

Diluted
$
1.99

 
$
1.41

 
$
3.56

 
$
2.82

Shares used in computing earnings per share:
 
 
 
 
 
 
 
Basic
147

 
147

 
147

 
147

Diluted
149

 
148

 
149

 
148

See accompanying notes to condensed consolidated financial statements.


4

Table of Contents

ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Consolidated net income
$
293

 
$
200

 
$
517

 
$
397

Unrealized gain on available-for-sale debt securities, net of deferred tax
3

 

 
6

 

Total consolidated comprehensive income
296

 
200

 
523

 
397

Add: Comprehensive loss attributable to noncontrolling interests
3

 
9

 
12

 
20

Comprehensive income attributable to Illumina stockholders
$
299

 
$
209

 
$
535

 
$
417

See accompanying notes to condensed consolidated financial statements.


5

Table of Contents

ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
 
Illumina Stockholders
 
 
 
 
 
 
 
 
 
Additional
 
Accumulated Other
 
 
 
 
 
 
 
 
 
Total
 
Common Stock
 
Paid-In
 
Comprehensive
 
Retained
 
Treasury Stock
 
Noncontrolling
 
Stockholders’
 
Shares
 
Amount
 
Capital
 
(Loss) Income
 
Earnings
 
Shares
 
Amount
 
Interests
 
Equity
Balance as of December 31, 2017
191

 
$
2

 
$
2,833

 
$
(1
)
 
$
2,256

 
(44
)
 
$
(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 in business combination

 

 

 

 

 

 

 
5

 
5

Balance as of April 1, 2018
191

 
2

 
2,897

 
(1
)
 
2,464

 
(44
)
 
(2,354
)
 
65

 
3,073

Net income (loss)

 

 

 

 
209

 

 

 
(2
)
 
207

Issuance of common stock, net of repurchases

 

 
1

 

 

 

 
(2
)
 

 
(1
)
Share-based compensation

 

 
50

 

 

 

 

 

 
50

Vesting of redeemable equity awards

 

 
(1
)
 

 

 

 

 

 
(1
)
Adjustment to the carrying value of redeemable noncontrolling interests

 

 
(8
)
 

 

 

 

 

 
(8
)
Contributions from noncontrolling interest owners

 

 

 

 

 

 

 
31

 
31

Balance as of July 1, 2018
191

 
2

 
2,939

 
(1
)
 
2,673

 
(44
)
 
(2,356
)
 
94

 
3,351

Net income (loss)

 

 

 

 
199

 

 

 
(3
)
 
196

Unrealized loss on available-for-sale debt securities, net of deferred tax

 

 

 
(1
)
 

 

 

 

 
(1
)
Issuance of common stock, net of repurchases

 

 
23

 

 

 

 
(106
)
 

 
(83
)
Share-based compensation

 

 
47

 

 

 

 

 

 
47

Vesting of redeemable equity awards

 

 
(1
)
 

 

 

 

 

 
(1
)
Adjustment to the carrying value of redeemable noncontrolling interests

 

 
(8
)
 

 

 

 

 

 
(8
)
Issuance of convertible senior notes, net of tax impact

 

 
93

 

 

 

 

 

 
93

Balance as of September 30, 2018
191

 
2

 
3,093

 
(2
)
 
2,872

 
(44
)
 
(2,462
)
 
91

 
3,594

Net income (loss)

 

 

 

 
210

 

 

 
(4
)
 
206

Unrealized gain on available-for-sale debt securities, net of deferred tax

 

 

 
1

 

 

 

 

 
1

Issuance of common stock, net of repurchases
1

 

 
1

 

 

 
(1
)
 
(154
)
 

 
(153
)
Share-based compensation

 

 
48

 

 

 

 

 

 
48

Adjustment to the carrying value of redeemable noncontrolling interests

 

 
148

 

 

 

 

 

 
148


6

Table of Contents

Cumulative-effect adjustment from adoption of ASU 2016-01

 

 

 

 
1

 

 

 

 
1

Balance as of December 30, 2018
192

 
2

 
3,290

 
(1
)
 
3,083

 
(45
)
 
(2,616
)
 
87

 
3,845

Net income (loss)

 

 

 

 
233

 

 

 
(2
)
 
231

Unrealized gain on available-for-sale debt securities, net of deferred tax

 

 

 
3

 

 

 

 

 
3

Issuance of common stock, net of repurchases

 

 
27

 

 

 

 
(86
)
 

 
(59
)
Share-based compensation

 

 
51

 

 

 

 

 

 
51

Vesting of redeemable equity awards

 

 
(1
)
 

 

 

 

 

 
(1
)
Adjustment to the carrying value of redeemable noncontrolling interests

 

 
18

 

 

 

 

 

 
18

Cumulative-effect adjustment from adoption of ASU 2016-02, net of deferred tax

 

 

 

 
(18
)
 

 

 

 
(18
)
Balance as of March 31, 2019
192

 
2

 
3,385

 
2

 
3,298

 
(45
)
 
(2,702
)
 
85

 
4,070

Net income (loss)

 

 

 

 
296

 

 

 
(1
)
 
295

Unrealized gain on available-for-sale debt securities, net of deferred tax

 

 

 
3

 

 

 

 

 
3

Issuance of common stock, net of repurchases
1

 

 
3

 

 

 

 
(3
)
 

 

Share-based compensation

 

 
48

 

 

 

 

 

 
48

Adjustment to the carrying value of redeemable noncontrolling interests

 

 
(2
)
 

 

 

 

 

 
(2
)
Deconsolidation of Helix

 

 
2

 

 

 

 

 
(84
)
 
(82
)
Balance as of June 30, 2019
193

 
$
2

 
$
3,436

 
$
5

 
$
3,594

 
(45
)
 
$
(2,705
)
 
$

 
$
4,332


See accompanying notes to condensed consolidated financial statements.

7

Table of Contents

ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
Cash flows from operating activities:
 
 
 
Consolidated net income
$
517

 
$
397

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
76

 
65

Amortization of intangible assets
20

 
19

Share-based compensation expense
99

 
98

Accretion of debt discount
27

 
16

Deferred income taxes
6

 
(22
)
Unrealized gains on marketable equity securities
(104
)
 

Payment of accreted debt discount
(84
)
 

Gains on deconsolidation
(54
)
 

Other
(5
)
 
(6
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
46

 
12

Inventory
(36
)
 
(28
)
Prepaid expenses and other current assets
(11
)
 
1

Operating lease right-of-use assets and liabilities, net
(3
)
 

Other assets
(11
)
 
(5
)
Accounts payable
(43
)
 
1

Accrued liabilities
(87
)
 
17

Other long-term liabilities
(12
)
 
(15
)
Net cash provided by operating activities
341

 
550

Cash flows from investing activities:
 
 
 
Maturities of available-for-sale securities
1,204

 
556

Purchases of available-for-sale securities
(393
)
 
(1,137
)
Sales of available-for-sale securities
386

 
332

Purchases of property and equipment
(103
)
 
(167
)
Deconsolidation of Helix cash
(29
)
 

Proceeds from deconsolidation of GRAIL
15

 

Net purchases of strategic investments
(13
)
 
(9
)
Net cash paid for acquisitions

 
(100
)
Net cash provided by (used in) investing activities
1,067

 
(525
)
Cash flows from financing activities:
 
 
 
Payments on financing obligations
(550
)
 
(2
)
Common stock repurchases
(63
)
 

Taxes paid related to net share settlement of equity awards
(26
)
 
(15
)
Proceeds from issuance of common stock
30

 
22

Contributions from noncontrolling interest owners

 
92

Net cash (used in) provided by financing activities
(609
)
 
97

Effect of exchange rate changes on cash and cash equivalents

 
(3
)
Net increase in cash and cash equivalents
799

 
119

Cash and cash equivalents at beginning of period
1,144

 
1,225

Cash and cash equivalents at end of period
$
1,943

 
$
1,344

Supplemental cash flow information:
 
 
 
Cash paid for operating lease liabilities
$
42

 
$


See accompanying notes to condensed consolidated financial statements.

8

Table of Contents

Illumina, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Unless the context requires otherwise, references in this report toIllumina,” “we,” “us,” the “Company,” and “our” refer to Illumina, Inc. and its consolidated subsidiaries.

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended December 30, 2018, from which the prior year balance sheet information herein was derived. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expense, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have 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. We continuously perform this assessment, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of a VIE. Effective April 25, 2019, we deconsolidated the financial statements of Helix Holdings I, LLC (Helix). See note “2. Balance Sheet Account Details” for further details.

We use the equity method to account for investments through which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded in other assets, and our share of net income or loss is recognized on a one quarter lag in other income, net.

Fiscal Year

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. The three and six months ended June 30, 2019 and July 1, 2018 were both 13 and 26 weeks, respectively.

Reclassifications

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

Significant Accounting Policies

During the three and six months ended June 30, 2019, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018, except as described below.


9

Table of Contents

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements. We adopted Topic 842 on its effective date in the first quarter of 2019 using a modified retrospective approach by recognizing a cumulative-effect adjustment to retained earnings as of December 31, 2018. We elected the available package of practical expedients upon adoption, which allowed us to carry forward our historical assessment of whether existing agreements contained a lease and the classification of our existing operating leases. We continue to report our financial position as of December 30, 2018 under the former lease accounting standard (Topic 840) in our condensed consolidated balance sheet.
The following table summarizes the impact of Topic 842 on our condensed consolidated balance sheet upon adoption on December 31, 2018 (in millions):
 
December 31, 2018
(unaudited)
 
Pre-adoption
 
Adoption Impact
 
Post-adoption
ASSETS
 
 
 
 
 
Prepaid expenses and other current assets
$
78

 
$
(8
)
 
$
70

Property and equipment, net
1,075

 
(241
)
 
834

Operating lease right-of-use assets

 
579

 
579

Deferred tax assets, net
70

 
6

 
76

Total assets
$
1,223

 
$
336

 
$
1,559

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Accrued liabilities
$
513

 
$
36

 
$
549

Operating lease liabilities

 
722

 
722

Long-term debt
1,107

 
(269
)
 
838

Other long-term liabilities
359

 
(135
)
 
224

Retained earnings
3,083

 
(18
)
 
3,065

Total liabilities and stockholders’ equity
$
5,062

 
$
336

 
$
5,398


 
The adoption impact summarized above was primarily due to the recognition of operating lease liabilities with corresponding right-of-use assets based on the present value of our remaining minimum lease payments, and the derecognition of existing fixed assets and financing obligations related to build-to-suit leasing arrangements that, under Topic 840, did not qualify for sale-leaseback accounting. The difference between these amounts, net of deferred tax, was recorded as a cumulative-effect adjustment to retained earnings.

Accounting Pronouncements Pending Adoption

In June 2016, the FASB issued 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. We expect to adopt the standard on its effective date in the first quarter of 2020 using a modified retrospective approach.  We currently do not expect the adoption to have a material impact on our consolidated financial statements.

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.

We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the

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performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service.

Revenue from product sales is recognized generally upon delivery to the end customer, which is when control of the product is deemed to be transferred. Invoicing typically occurs upon shipment; and payment is typically due within 60 days from invoice. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. 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.

Revenue is recorded net of discounts, distributor commissions, and sales taxes collected on behalf of governmental authorities. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less.

We regularly enter into contracts with multiple performance obligations. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. Most performance obligations are generally satisfied within a short time frame, approximately three to six months after the contract execution date. As of June 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,146 million, of which approximately 67% is expected to be converted to revenue in the next twelve months, approximately 13% in the following twelve months, and the remainder thereafter.

The contract price is allocated to each performance obligation in proportion to its standalone selling price. We determine our best estimate of standalone 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 management, adjusted for applicable discounts.

Contract liabilities, which consist of deferred revenue and customer deposits, as of June 30, 2019 and December 30, 2018 were $201 million and $206 million, respectively, of which the short-term portions of $167 million and $175 million, respectively, were recorded in accrued liabilities and the remaining long-term portions were recorded in other long-term liabilities. Revenue recorded during the three and six months ended June 30, 2019 included $42 million and $106 million of previously deferred revenue that was included in contract liabilities as of December 30, 2018. Contract assets as of June 30, 2019 and December 30, 2018 were not material.

In certain markets, products and services are sold to customers through distributors. In most sales through distributors, the product is delivered directly to customers by us. The terms of sales transactions through distributors are consistent with the terms of direct sales to customers.

The following table represents revenue by source (in millions):
 
Three Months Ended
 
June 30,
2019
 
July 1,
2018
 
Sequencing
 
Microarray
 
Total
 
Sequencing
 
Microarray
 
Total
Consumables
$
497

 
$
74

 
$
571

 
$
460

 
$
85

 
$
545

Instruments
129

 
4

 
133

 
124

 
4

 
128

Total product revenue
626

 
78

 
704

 
584

 
89

 
673

Service and other revenue
102

 
32

 
134

 
106

 
51

 
157

Total revenue
$
728

 
$
110

 
$
838

 
$
690

 
$
140

 
$
830




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Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
Sequencing
 
Microarray
 
Total
 
Sequencing
 
Microarray
 
Total
Consumables
$
978

 
$
149

 
$
1,127

 
$
882

 
$
173

 
$
1,055

Instruments
234

 
11

 
245

 
237

 
9

 
246

Total product revenue
1,212

 
160

 
1,372

 
1,119

 
182

 
1,301

Service and other revenue
215

 
97

 
312

 
202

 
109

 
311