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Illumina Reports Strong Finish to Fourth Quarter and Fiscal Year 2013



  Illumina Reports Strong Finish to Fourth Quarter and Fiscal Year 2013

Business Wire

SAN DIEGO -- January 28, 2014

Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the
fourth quarter and fiscal year 2013.

Fourth quarter 2013 results:

  * Revenue of $387 million, a 25% increase compared to $309 million in the
    fourth quarter of 2012
  * GAAP net income for the quarter of $81 million, or $0.56 per diluted
    share, compared to $72 million, or $0.53 per diluted share, for the fourth
    quarter of 2012
  * Non-GAAP net income for the quarter of $65 million, or $0.45 per diluted
    share, compared to $57 million, or $0.42 per diluted share, for the fourth
    quarter of 2012 (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 $127 million and free cash flow of $100
    million for the quarter

Gross margin in the fourth quarter of 2013 was 66.9% compared to 65.8% in the
prior year period. Excluding the effect of non-cash charges associated with
stock compensation, amortization of acquired intangible assets, legal
contingencies, and inventory revaluation adjustments, non-GAAP gross margin
was 71.4% for the fourth quarter of 2013 compared to 68.5% in the prior year
period.

Research and development (R&D) expenses for the fourth quarter of 2013 were
$76.7 million compared to $56.9 million in the fourth quarter of 2012. R&D
expenses included $10.9 million and $8.0 million of non-cash stock
compensation expense in the fourth quarters of 2013 and 2012, respectively.
Excluding these charges and contingent compensation, R&D expenses as a
percentage of revenue were 17.0% compared to 15.4% in the prior year period.

Selling, general and administrative (SG&A) expenses for the fourth quarter of
2013 were $111.6 million compared to $79.7 million for the fourth quarter of
2012. SG&A expenses included $16.8 million and $14.1 million of non-cash stock
compensation expense in the fourth quarters of 2013 and 2012, respectively.
Excluding these charges, contingent compensation and amortization of acquired
intangible assets, SG&A expenses as a percentage of revenue were 22.2%
compared to 19.9% in the prior year period.

Depreciation and amortization expenses were $27.2 million and capital
expenditures were $27.3 million during the fourth quarter of 2013. The Company
ended the fourth quarter of 2013 with $1.17 billion in cash, cash equivalents
and short-term investments, compared to $1.35 billion as of December 30, 2012.

Fiscal 2013 results:

  * Revenue of $1.42 billion, a 24% increase over the $1.15 billion reported
    in fiscal 2012
  * GAAP net income of $125 million, or $0.90 per diluted share, compared to
    $151 million, or $1.13 per diluted share in fiscal 2012
  * Non-GAAP net income of $250 million, or $1.80 per diluted share, compared
    to $210 million, or $1.59 per diluted share, in fiscal 2012 (see table
    entitled “Itemized Reconciliation Between GAAP and Non-GAAP Net Income”
    for a reconciliation of these GAAP and non-GAAP financial measures)

Gross margin for fiscal 2013 was 64.2% compared to 67.4% in fiscal 2012. Cost
of product sales during 2013 included impairment charges of $25.2 million
related to a decision to discontinue a non-core product line. Excluding the
effect of these charges as well as non-cash charges associated with stock
compensation, amortization of acquired intangible assets, legal contingencies,
and inventory revaluation adjustments, non-GAAP gross margin was 70.1% for
fiscal 2013 compared to 69.7% in fiscal 2012.

R&D expenses for fiscal 2013 were $276.7 million compared to $231.0 million in
fiscal 2012. R&D expenses included $37.4 million and $30.9 million of non-cash
stock compensation expense in fiscal 2013 and 2012, respectively. R&D expenses
for fiscal 2012 included an impairment charge of $21.4 million related to an
in-process research and development asset. Excluding these charges and
contingent compensation, R&D expenses as a percentage of revenue were 16.8%
compared to 15.3% in the prior year.

SG&A expenses for fiscal 2013 were $381.0 million compared to $286.0 million
in fiscal 2012. SG&A expenses included $61.4 million and $55.4 million of
non-cash stock compensation expense in fiscal 2013 and 2012, respectively.
Excluding these charges, contingent compensation, and amortization of acquired
intangible assets, SG&A expenses as a percentage of revenue were 20.8%
compared to 19.5% in the prior year.

“The fourth quarter capped off a spectacular year for Illumina with robust
performance across all products and geographies,” stated Jay Flatley, CEO. “We
made significant progress on key R&D programs which allowed us to introduce
new products in early 2014 that will once again redefine the trajectory of
sequencing. We plan to leverage this momentum in 2014 to more broadly enable
the adoption of genomics.”

Updates since our last earnings release:

  * Introduced HiSeq X^TM Ten Sequencing System, enabling ‘factory scale’
    sequencing and announced sales to Macrogen, the Broad Institute, the
    Garvan Institute of Medical Research, and the New York Genome Center
  * Launched NextSeq^TM 500 Sequencing System, a new platform that packs
    high-throughput performance into an affordable desktop sequencer
  * Announced plans to simplify library preparation with NeoPrep^TM, a
    push-button, library-preparation system
  * Launched BaseSpace® OnSite, a simple informatics appliance that enables
    users to securely stream data to a local, private cloud
  * Unveiled new enhancements to the HiSeq® family of instruments, which will
    enable certain HiSeq instruments to produce 1 terabase of sequencing data
  * Announced that Illumina received premarket clearance from the U.S. Food
    and Drug Administration (FDA) for the MiSeqDx^TM system, MiSeqDx Cystic
    Fibrosis 139-Variant Assay, MiSeqDx Cystic Fibrosis Clinical Sequencing
    Assay, and MiSeqDx Universal Kit
  * Acquired NextBio, a leader in analyzing and aggregating complex genomic
    data
  * Entered into multi-year licensing agreements with Quest Diagnostics and
    LabCorp to use Illumina’s NGS technology for clinical laboratory testing
  * Entered into an agreement with Amgen to develop an Oncology Companion
    Diagnostic Test on the FDA-Cleared MiSeqDx NGS Instrument
  * Further strengthened Illumina's management team by appointing Francis
    deSouza to the role of President
  * Additional updates not highlighted above can be found on our investor
    relations webpage: http://investor.illumina.com

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.

For fiscal 2014 the Company is projecting approximately 15% to 17% revenue
growth and non-GAAP earnings per fully diluted share of $2.00 to $2.06. These
projections assume full year non-GAAP gross margin of approximately 70.0%, a
pro forma tax rate of approximately 29.5% and stock compensation expense of
approximately $128 million. Full-year weighted average diluted shares
outstanding, for the measurement of pro forma amounts, is expected to be
approximately 148 million shares assuming a stock price of $114.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time)
on Tuesday, January 28, 2014. Interested parties may listen to the call by
dialing 888.713.4213 (passcode: 72154577), or if outside North America by
dialing 1.617.213.4865 (passcode: 72154577). 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 January 28, 2014 through February 4, 2014 by dialing
888.286.8010 (passcode: 88834345), or if outside North America by dialing
1.617.801.6888 (passcode: 88834345).

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
expense related to acquired intangible assets, non-cash interest expense
associated with the Company’s convertible debt instruments that may be settled
in cash, impairment charges, costs related to the unsolicited tender offer for
the Company’s stock, 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 the double
dilution associated with the accounting treatment of the Company’s 0.625%
convertible senior notes outstanding 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 develop and commercialize further our sequencing, array, and
consumables technologies and to deploy new products and applications, and
expand the markets, for our technology platforms; (ii) our ability to
manufacture robust instrumentation and consumables; (iii) our expectations and
beliefs regarding future conduct and growth of the business and the markets in
which we operate; (iv) challenges inherent in developing, manufacturing, and
launching new products and services; and (v) our ability to maintain our
revenue 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 (www.illumina.com) is a leading developer, manufacturer, and marketer
of life science tools and integrated systems for the analysis of genetic
variation and function. We provide innovative sequencing and array-based
solutions for genotyping, copy number variation analysis, methylation studies,
gene expression profiling, and low-multiplex analysis of DNA, RNA, and
protein. We also provide tools and services that are fueling advances in
consumer genomics and diagnostics. Our technology and products accelerate
genetic analysis research and its applications, paving the way for molecular
medicine and ultimately transforming healthcare.

                                                               
  Illumina, Inc.
  Condensed Consolidated Balance Sheets
  (In thousands)
   
                                                 December 29,   December 30,

                                                 2013           2012
  ASSETS                                         (unaudited)
  Current assets:
    Cash and cash equivalents                    $  711,637     $  433,981
    Short-term investments                          453,966        916,223
    Accounts receivable, net                        238,946        214,975
    Inventory                                       154,099        158,718
    Deferred tax assets, current portion            36,076         30,451
    Prepaid expenses and other current assets       22,811         32,700
    Total current assets                            1,617,535      1,787,048
  Property and equipment, net                       202,666        166,167
  Goodwill                                          723,061        369,327
  Intangible assets, net                            331,173        130,196
  Deferred tax assets, long-term portion            88,480         40,183
  Other assets                                      56,091         73,164
    Total assets                                 $  3,019,006   $  2,566,085
                                                                 
  LIABILITIES AND STOCKHOLDERS’ EQUITY
  Current liabilities:
    Accounts payable                             $  73,655      $  65,727
    Accrued liabilities                             219,120        201,877
    Long-term debt, current portion                 29,288         36,967
    Total current liabilities                       322,063        304,571
  Long-term debt                                    839,305        805,406
  Long-term legal contingencies                     132,933        —
  Other long-term liabilities                       191,221        134,369
  Conversion option subject to cash settlement      282            3,158
  Stockholders’ equity                              1,533,202      1,318,581
    Total liabilities and stockholders’ equity   $  3,019,006   $  2,566,085
                                                                 

                                                                  
  Illumina, Inc.
  Condensed Consolidated Statements of Income
  (In thousands, except per share amounts)
  (unaudited)
         
                         Three Months Ended        Years Ended
                         December      December    December 29,    December
                         29,           30,                         30,
                                                   2013
                         2013          2012                        2012
  Revenue:
     Product revenue     $ 336,386     $ 278,933   $ 1,264,656     $ 1,055,826
     Service and other     50,940        30,332      156,522         92,690
     revenue
        Total revenue      387,326       309,265     1,421,178       1,148,516
  Cost of revenue:
     Cost of product       99,795        86,348      407,877         317,283
     revenue (a)
     Cost of service
     and other revenue     19,079        14,791      67,811          43,552
     (a)
     Amortization of
     acquired              9,206         4,479       33,603          14,153
     intangible assets
        Total cost of      128,080       105,618     509,291         374,988
        revenue
           Gross           259,246       203,647     911,887         773,528
           profit
  Operating expense:
     Research and          76,728        56,907      276,743         231,025
     development (a)
     Selling, general
     and                   111,649       79,715      381,040         285,991
     administrative
     (a)
     Acquisition
     related (gain)        (5,771  )     314         (11,617   )     2,774
     expense, net
     Headquarter           2,856         2,883       2,624           26,328
     relocation
     Legal                 —             —           115,369         —
     contingencies
     Unsolicited
     tender offer          —             4,394       13,621          23,136
     related expense
     Restructuring         —             88          —               3,522
        Total
        operating          185,462       144,301     777,780         572,776
        expense
           Income from     73,784        59,346      134,107         200,752
           operations
     Other income, net     46,585        44,557      25,207          21,856
           Income
           before          120,369       103,903     159,314         222,608
           income
           taxes
  Provision for income     39,708        32,000      34,006          71,354
  taxes
           Net income    $ 80,661      $ 71,903    $ 125,308       $ 151,254
  Net income per basic   $ 0.64        $ 0.58      $ 1.00          $ 1.23
  share
  Net income per         $ 0.56        $ 0.53      $ 0.90          $ 1.13
  diluted share
  Shares used in
  calculating basic        126,711       123,211     125,076         122,999
  net income per share
  Shares used in
  calculating diluted      143,854       135,393     139,936         133,693
  net income per share
                                                                    
  (a) Includes total stock-based compensation expense for stock-based awards:
                                                                    
                         Three Months Ended        Years Ended
                         December      December    December 29,    December
                         29,           30,                         30,
                                                   2013
                         2013          2012                        2012
     Cost of product     $ 1,813       $ 1,991     $ 6,223         $ 7,575
     revenue
     Cost of service       233           134         777             461
     and other revenue
     Research and          10,918        8,001       37,439          30,879
     development
     Selling, general
     and                   16,782        14,050      61,387          55,409
     administrative
        Stock-based
        compensation     $ 29,746      $ 24,176    $ 105,826       $ 94,324
        expense before
        taxes
                                                                    

                                                                 
  Illumina, Inc.
  Condensed Consolidated Statements of Cash Flows
  (In thousands)
  (unaudited)
                                                                   
                     Three Months Ended            Years Ended
                     December 29,   December 30,   December 29,   December 30,

                     2013           2012           2013           2012
  Net cash
  provided by        $ 126,839      $  78,876      $  386,421     $ 291,873
  operating
  activities
  Net cash (used
  in) provided by      (150,810 )      18,611         (69,649 )     (150,012 )
  investing
  activities
  Net cash
  provided by
  (used in)            43,556          (6,042  )      (38,719 )     (10,755  )
  financing
  activities
  Effect of
  exchange rate
  changes on cash      216             (553    )      (397    )     (103     )
  and cash
  equivalents
  Net increase in
  cash and cash        19,801          90,892         277,656       131,003
  equivalents
  Cash and cash
  equivalents,         691,836         343,089        433,981       302,978   
  beginning of
  period
  Cash and cash
  equivalents, end   $ 711,637      $  433,981     $  711,637     $ 433,981   
  of period
                                                                   
  Calculation of
  free cash flow
  (a):
  Net cash
  provided by        $ 126,839      $  78,876      $  386,421     $ 291,873
  operating
  activities
  Purchases of
  property and         (27,310  )      (17,101 )      (79,215 )     (68,781  )
  equipment
  Free cash flow     $ 99,529       $  61,775      $  307,206     $ 223,092   

______________________________________________________________________________________________________

(a) 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            Years Ended
                     December 29,   December 30,   December 29,   December 30,

                     2013           2012           2013           2012
  GAAP net income
  per share -        $  0.56        $  0.53        $  0.90        $  1.13
  diluted
  Pro forma impact
  of weighted           0.01           —              0.01           0.02
  average shares
  (a)
  Adjustments to
  net income:
  Cost-method
  investment            (0.39   )      (0.34   )      (0.44   )      (0.35   )
  related gain,
  net (b)
  Amortization of
  acquired              0.09           0.04           0.32           0.12
  intangible
  assets
  Non-cash
  interest expense      0.06           0.07           0.26           0.27
  (c)
  Legal
  contingencies         0.04           —              0.96           0.02
  (d)
  Acquisition
  related (gain)        (0.04   )      —              (0.08   )      0.02
  expense, net (e)
  Contingent
  compensation          0.04           0.03           0.10           0.07
  expense (f)
  Headquarter           0.02           0.02           0.02           0.20
  relocation (g)
  Impairments (h)       —              —              0.18           0.16
  Unsolicited
  tender offer          —              0.03           0.10           0.17
  related expense
  Loss on
  extinguishment        —              —              —              —
  of debt
  Inventory
  revaluation           —              0.01           —              0.01
  adjustment (i)
  Recovery of
  previously            —              (0.04   )      —              (0.05   )
  impaired note
  receivable
  Restructuring         —              —              —              0.03
  Incremental
  non-GAAP tax          0.06           0.07           (0.53   )      (0.23   )
  benefit
  (expense) (j)
  Non-GAAP net
  income per share   $  0.45        $  0.42        $  1.80        $  1.59     
  - diluted (k)
  Shares used in
  calculating
  non-GAAP diluted      142,815        134,348        138,888        132,725  
  net income per
  share
                                                                   
  ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
  GAAP net income    $  80,661      $  71,903      $  125,308     $  151,254
  Cost-method
  investment            (55,244 )      (45,911 )      (61,357 )      (45,911 )
  related gain,
  net (b)
  Amortization of
  acquired              12,896         5,411          44,685         15,541
  intangible
  assets
  Non-cash
  interest expense      9,182          8,950          36,403         35,180
  (c)
  Legal
  contingencies         5,921          —              133,701        3,021
  (d)
  Acquisition
  related (gain)        (5,771  )      314            (11,617 )      2,774
  expense, net (e)
  Contingent
  compensation          5,486          4,347          13,610         9,151
  expense (f)
  Headquarter           2,856          2,883          2,624          26,328
  relocation (g)
  Impairments (h)       —              —              25,214         21,438
  Unsolicited
  tender offer          —              4,394          13,621         23,136
  related expense
  Loss on
  extinguishment        —              —              555            —
  of debt
  Inventory
  revaluation           —              1,458          458            1,458
  adjustment (i)
  Recovery of
  previously            —              (6,000  )      —              (6,000  )
  impaired note
  receivable
  Restructuring         —              88             —              3,522
  Incremental
  non-GAAP tax          8,517          8,963          (73,542 )      (30,464 )
  benefit
  (expense) (j)
  Non-GAAP net       $  64,504      $  56,800      $  249,663     $  210,428  
  income (k)
                                                                   
  ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
  Weighted average
  shares used in
  calculation of        143,854        135,393        139,936        133,693
  GAAP diluted net
  income per share
  Weighted average
  dilutive
  potential common
  shares issuable       (1,039  )      (1,045  )      (1,048  )      (968    )
  of redeemable
  convertible
  senior notes (a)
  Weighted average
  shares used in
  calculation of        142,815        134,348        138,888        132,725  
  non-GAAP diluted
  net income per
  share

______________________________________________________________________________________________________

(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) Cost-method investment related gain, net in 2013 primarily consisted of a
$55.2 million gain from the sale of our minority interest in Oxford Nanopore
Technologies Ltd. during Q4. Cost-method investment related gain, net in 2012
consisted of a $48.6 million gain from the sale of our minority interest in
deCODE Genetics offset by a $2.7 million impairment of another cost-method
investment.

(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) Legal contingencies during fiscal year 2013 primarily represented charges
recorded based on 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.

(e) Acquisition related (gain) expense, net during fiscal year 2013 consisted
primarily of $18.8 million in net gains from changes in fair value of
contingent consideration, of which $7.8 million was recorded in Q4. Such gains
were partially offset by transaction and other acquisition related costs of
$7.2 million, of which $2.0 million was recorded in Q4. Acquisition related
(gain) expense, net in fiscal year 2012 consisted of $2.0 million in net loss
from changes in fair value of contingent consideration, of which $0.3 million
was recorded in Q4, and $0.8 million in transaction costs related to the
acquisition of BlueGnome Ltd. in Q3.

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

(g) Headquarter relocation during fiscal year 2013 and 2012 primarily
consisted of additional cease-use loss recorded due to a delay in the sublease
of our prior headquarters and accretion of interest expense recorded on lease
exit liability during each year. Headquarter relocation in fiscal year 2013
was partially offset by a gain on lease exit liability recorded in Q2 2013 as
a result of the Company entering into a sublease for a portion of its prior
headquarters at a more favorable rate than previously estimated.

(h) Impairment charges of $25.2 million were recorded in fiscal year 2013 due
to a decision to discontinue a non-core product line. The impairment charge in
fiscal year 2012 related to an in-process research and development intangible
asset.

(i) Inventory revaluation adjustments of $0.5 million in 2013 and $1.5 million
in 2012 represented additional cost of goods sold recognized from inventories
revalued upon acquisitions of Verinata Health, Inc. and BlueGnome Ltd.,
respectively.

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

(k) Non-GAAP net income and net income per share exclude the effect of the pro
forma adjustments as detailed above. Non-GAAP diluted net income and 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                                Years Ended
                   December 29,             December 30,             December 29,            December 30,

                   2013                     2012                     2013                    2012
  GAAP gross       $ 259,246     66.9  %    $ 203,647     65.8  %    $ 911,887     64.2 %    $ 773,528     67.4 %
  profit
  Stock-based
  compensation       2,046       0.5   %      2,125       0.7   %      7,000       0.5  %      8,036       0.7  %
  expense
  Amortization
  of acquired        9,206       2.4   %      4,479       1.5   %      33,603      2.4  %      14,153      1.2  %
  intangible
  assets
  Legal
  contingencies      5,921       1.6   %      —           —            18,332      1.2  %      3,021       0.3  %
  (a)
  Impairments        —           —            —           —            25,214      1.8  %      —           —
  (b)
  Inventory
  revaluation        —           —            1,458       0.5   %      458         —           1,458       0.1  %
  adjustment (c)
  Non-GAAP gross   $ 276,419     71.4  %    $ 211,709     68.5  %    $ 996,494     70.1 %    $ 800,196     69.7 %
  profit (d)
                                                                                                            
  Research and
  development      $ 76,728      19.8  %    $ 56,907      18.4  %    $ 276,743     19.5 %    $ 231,025     20.1 %
  expense
  Stock-based
  compensation       (10,918 )   (2.8  )%     (8,001  )   (2.6  )%     (37,439 )   (2.7 )%     (30,879 )   (2.7 )%
  expense
  Contingent
  compensation       (112    )   —            (1,201  )   (0.4  )%     (544    )   —           (3,419  )   (0.2 )%
  expense (e)
  Impairments        —           —            —           —            —           —           (21,438 )   (1.9 )%
  (b)
  Non-GAAP
  research and     $ 65,698      17.0  %    $ 47,705      15.4  %    $ 238,760     16.8 %    $ 175,289     15.3 %
  development
  expense
                                                                                                            
  Selling,
  general and      $ 111,649     28.8  %    $ 79,715      25.8  %    $ 381,040     26.8 %    $ 285,991     24.9 %
  administrative
  expense
  Stock-based
  compensation       (16,782 )   (4.3  )%     (14,050 )   (4.6  )%     (61,387 )   (4.3 )%     (55,409 )   (4.8 )%
  expense
  Contingent
  compensation       (5,374  )   (1.3  )%     (3,146  )   (1.0  )%     (13,066 )   (0.9 )%     (5,732  )   (0.5 )%
  expense (e)
  Amortization
  of acquired        (3,690  )   (1.0  )%     (932    )   (0.3  )%     (11,082 )   (0.8 )%     (1,388  )   (0.1 )%
  intangible
  assets
  Non-GAAP
  selling,
  general and      $ 85,803      22.2  %    $ 61,587      19.9  %    $ 295,505     20.8 %    $ 223,462     19.5 %
  administrative
  expense
                                                                                                            
  GAAP operating   $ 73,784      19.0  %    $ 59,346      19.2  %    $ 134,107     9.4  %    $ 200,752     17.5 %
  profit
  Stock-based
  compensation       29,746      7.7   %      24,176      7.8   %      105,826     7.4  %      94,324      8.2  %
  expense
  Amortization
  of acquired        12,896      3.3   %      5,411       1.7   %      44,685      3.1  %      15,541      1.4  %
  intangible
  assets
  Legal
  contingencies      5,921       1.5   %      —           —            133,701     9.4  %      3,021       0.3  %
  (a)
  Acquisition
  related (gain)     (5,771  )   (1.4  )%     314         0.1   %      (11,617 )   (0.8 )%     2,774       0.2  %
  expense, net
  (f)
  Contingent
  compensation       5,486       1.4   %      4,347       1.4   %      13,610      1.0  %      9,151       0.8  %
  expense (e)
  Headquarter        2,856       0.8   %      2,883       1.0   %      2,624       0.2  %      26,328      2.3  %
  relocation (g)
  Impairments        —           —            —           —            25,214      1.8  %      21,438      1.9  %
  (b)
  Unsolicited
  tender offer       —           —            4,394       1.4   %      13,621      1.0  %      23,136      2.0  %
  related
  expense
  Inventory
  revaluation        —           —            1,458       0.5   %      458         —           1,458       0.1  %
  adjustment (c)
  Restructuring      —           —            88          —            —           —           3,522       0.3  %
  Non-GAAP
  operating        $ 124,918     32.3  %    $ 102,417     33.1  %    $ 462,229     32.5 %    $ 401,445     35.0 %
  profit (d)
                                                                                                            
  GAAP other       $ 46,585      12.0  %    $ 44,557      14.4  %    $ 25,207      1.8  %    $ 21,856      1.9  %
  income, net
  Cost-method
  investment         (55,244 )   (14.3 )%     (45,911 )   (14.8 )%     (61,357 )   (4.3 )%     (45,911 )   (4.1 )%
  related gain,
  net (h)
  Non-cash
  interest           9,182       2.4   %      8,950       2.8   %      36,403      2.6  %      35,180      3.1  %
  expense (i)
  Loss on
  extinguishment     —           —            —           —            555         —           —           —
  of debt
  Recovery of
  previously         —           —            (6,000  )   (1.9  )%     —           —           (6,000  )   (0.5 )%
  impaired note
  receivable
  Non-GAAP other
  income, net      $ 523         0.1   %    $ 1,596       0.5   %    $ 808         0.1  %    $ 5,125       0.4  %
  (d)
                                                                                                            

______________________________________________________________________________________________________

(a) Legal contingencies during fiscal year 2013 primarily represented charges
recorded based on 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) Impairment charges of $25.2 million were recorded in fiscal year 2013 due
to a decision to discontinue a non-core product line. The impairment charge in
fiscal year 2012 related to an in-process research and development intangible
asset.

(c) Inventory revaluation adjustments of $0.5 million in 2013 and $1.5 million
in 2012 represented cost of goods sold recognized from inventories revalued
upon the acquisitions of Verinata Health, Inc. and BlueGnome Ltd.,
respectively.

(d) Non-GAAP gross profit, included within the 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 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.

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

(f) Acquisition related (gain) expense, net during fiscal year 2013 consisted
primarily of $18.8 million in net gains from changes in fair value of
contingent consideration, of which $7.8 million was recorded in Q4. Such gains
were partially offset by transaction and other acquisition related costs of
$7.2 million, of which $2.0 million was recorded in Q4. Acquisition related
(gain) expense, net in fiscal year 2012 consisted of $2.0 million in net loss
from changes in fair value of contingent consideration, of which $0.3 million
was recorded in Q4, and $0.8 million in transaction costs related to the
acquisition of BlueGnome Ltd. in Q3.

(g) Headquarter relocation during fiscal year 2013 and 2012 primarily
consisted of additional cease-use loss recorded due to a delay in the sublease
of our prior headquarters and accretion of interest expense recorded on lease
exit liability during each year. Headquarter relocation in fiscal year 2013
was partially offset by a gain on lease exit liability recorded in Q2 2013 as
a result of the Company entering into a sublease for a portion of its prior
headquarters at a more favorable rate than previously estimated.

(h) Cost-method investment related gain, net in 2013 primarily consisted of a
$55.2 million gain from the sale of our minority interest in Oxford Nanopore
Technologies Ltd. during Q4. Cost-method investment related gain, net in 2012
consisted of a $48.6 million gain from the sale of our minority interest in
deCODE Genetics offset by a $2.7 million impairment of another cost-method
investment.

(i) 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
to be filed with the SEC, and the Company’s Form 10-Q for the fiscal quarters
ended March 31, 2013, June 29, 2013, and September 29, 2013. The Company
assumes no obligation to update any forward-looking statements or information.

                                              
                                                
                                               Fiscal Year 2014
  Gross Margin
  Non-GAAP gross margin                        70.0 %
  Amortization of acquired intangible assets   (2.3)%
  Legal contingencies (a)                      (1.2)%
  Stock-based compensation expense             (0.6)%
  GAAP gross margin                            65.9 %
                                                
  Diluted net income per share
  Non-GAAP diluted net income per share        $2.00 - $2.06
  Amortization of acquired intangible assets   (0.20)
  Non-cash interest expense (b)                (0.16)
  Legal contingencies (a)                      (0.10)
  Contingent compensation expense (c)          (0.02)
  Headquarter relocation (d)                   (0.01)
  Acquisition related expense (e)              (0.01)
  GAAP diluted net income per share            $1.50 - $1.56

______________________________________________________________________________________________________

(a) Legal contingencies represent charges to be recorded based on 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) Non-cash interest expense is calculated in accordance with the
authoritative accounting guidance for convertible debt instruments that may be
settled in cash.

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

(d) Headquarter relocation represents accretion of interest expense on lease
exit liability.

(e) Acquisition related expense represents certain known transaction costs
related to a prior period acquisition.

Contact:

Illumina, Inc.
Investors:
Rebecca Chambers, 858.255.5243
rchambers@illumina.com
or
Media:
Eric Endicott, 858.882.6822
pr@illumina.com
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