ILLUMINA INC

The 2015 Stock and Incentive Compensation Plan (the 2015 Stock Plan) and the New Hire Stock and Incentive Plan allow for the issuance of stock options, performance stock options, restricted stock units and awards, and performance stock units. In Q2 2023, the Company’s stockholders approved an amended and restated version of the 2015 Stock Plan and increased the maximum number of shares authorized for issuance by 8.0 million shares. As of December 31, 2023, approximately 8.2 million shares remained available for future grants under the 2015 Stock Plan. There is no set number of shares reserved for issuance under the New Hire Stock and Incentive Plan.

Restricted Stock

We issue restricted stock units (RSU) and performance stock units (PSU), both of which are considered restricted stock. We grant restricted stock pursuant to the 2015 Stock Plan and satisfy such grants through the issuance of either new shares or shares from treasury stock. RSU are share awards that, upon vesting, will deliver to the holder shares of our common stock. RSU generally vest over afour-year period with equal vesting annually. We issuetwo different PSU awards. We issue PSU for which the number of shares issuable at the end of athree-year performance period is based on our performance relative to specified earnings per share targets and continued employment through the vesting period (EPS PSU). During 2023, we began to issue PSU with a market condition that vest based on the Company’s relative total shareholder return as compared to a peer group of companies measured over a three-fiscal year performance period and continued employment through the vesting period (rTSR PSU). Depending on the actual performance over the measurement period, an rTSR PSU award recipient could receive up to 175% of the granted award.

Restricted stock activity was as follows:

(1)In connection with the GRAIL acquisition, replacement awards of 59,000 RSU were awarded to GRAIL employees in 2021.

(2)The number of units reflect the estimated number of shares to be issued at the end of the performance period. For rTSR PSU, the number of units reflect the estimated number of shares to be issued based on performance as of the current reporting period. As of December 31, 2023, there were approximately 129,000 rTSR PSU granted. Awarded units are presented net of performance adjustments.

Pre-tax intrinsic value and fair value of vested restricted stock was as follows:

Liability- Classified RSU

In Q1 2023, we granted RSU that were to be settled in cash if stockholder approval to increase our share reserve under the amended and restated 2015 Stock Plan was not obtained. In Q2 2023, the Company’s stockholders approved an amended and restated version of the 2015 Stock Plan and increased the maximum number of shares authorized for issuance. Upon such approval, all RSU previously accounted for as liability-classified awards, approximately 557,000 RSU, were reclassified to stockholders equity and accounted for prospectively as equity awards. There were no RSU liability-classified awards outstanding as of December 31, 2023.

Stock Options

Stock option activity was as follows:

(1)In connection with the GRAIL acquisition, we issued replacement performance stock options to GRAIL employees in 2021. The number of units reflect awards that have been granted and for which it is assumed to be probable that the underlying performance goals will be achieved.

The aggregate intrinsic value of options outstanding as of December 31, 2023 waszero. Aggregate intrinsic value represents the product of the number of options outstanding multiplied by the difference between our closing stock price per share on the last trading day of the fiscal period, which was $139.24 as of December 29, 2023, and the exercise price. Total intrinsic value of options exercised was $1 million, zero, and $1 million in 2023, 2022, and 2021, respectively. The weighted-average remaining life of options outstanding was 5.2 years as of December 31, 2023.

The aggregate intrinsic value of performance stock options outstanding as of December 31, 2023 was $1 million. The total intrinsic value of performance stock options exercised waszero and $6 million in 2023 and 2021, respectively. No performance stock options were exercised in 2022. Outstanding performance stock options, in general, have contractual terms often years from the respective grant dates.

Other Liability-Classified Awards

We grant cash-based equity incentive awards to GRAIL employees. For purposes of valuation and performance measurement of the awards, GRAIL’s stand-alone value calculation, as estimated by GRAIL based on its analysis and on input from independent valuation advisors and analyses, is used. The awards generally have terms offour years and vest infour equal installments on each anniversary of the grant date, subject to continued employment through the vesting period. These awards are accounted for as liability-classified awards.

Cash-based equity incentive award activity was as follows:

We recognized share-based compensation expense of $95 million, $67 million and $11 million in 2023, 2022 and 2021, respectively. As of December 31, 2023, approximately $237 million of total unrecognized compensation cost related to awards issued to date was expected to be recognized over a weighted-average period of approximately 2.5 years.

In connection with the acquisition of GRAIL, we assumed a performance-based award for which vesting is based on GRAIL’s future revenues. The award has an aggregate potential value of up to $78 million and expires, to the extent unvested, in August 2030. As of December 31, 2023, it was not probable that the performance conditions associated with the award will be achieved and, therefore, no share-based compensation expense, or corresponding liability, has been recognized in the consolidated financial statements to-date. We assess the probability of achieving the performance conditions associated with the award on a quarterly basis at each reporting period.

Employee Stock Purchase Plan

A total of 15.5 million shares of our common stock have been reserved for issuance under our 2000 Employee Stock Purchase Plan, or ESPP. The ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower. The initial offering period commenced in July 2000.

Approximately 0.4 million,0.3 million and 0.2 million shares during 2023, 2022 and 2021, respectively, were issued under the ESPP. As of December 31, 2023 and January 1, 2023, there were approximately 12.4 million and 12.8 million shares available for issuance under the ESPP, respectively.

The assumptions used for the specified reporting periods and the resulting estimates of weighted-average fair value per share for stock purchased under the ESPP were as follows:

Share Repurchases

We didnot repurchase any shares during 2023, 2022, or 2021. As of December 31, 2023, authorizations to repurchase approximately $15 million of our common stock remained available under the $750 million share repurchase program authorized by our Board of Directors on February 5, 2020. The repurchases may be completed under a 10b5-1 plan or at management’s discretion.

Share-Based Compensation

Share-based compensation expense, which includes expense for both equity and liability-classified awards, reported in our consolidated statements of operations was as follows:

In connection with the acquisition of GRAIL, we recognized share-based compensation expense of $615 million in 2021 related to the fair value of accelerated equity awards attributable to the post-combination period, of which $167 million was recorded in research and development expense and $448 million in selling, general and administrative expense. We also recognized $2 million, $10 million and $24 million of expense in 2023, 2022 and 2021, respectively, related to the replacement awards.

In February 2021, we modified the metrics and reduced the maximum potential payouts for our performance stock units granted in 2019 and 2020, which vested at the end of thethree-year periods ended January 2, 2022 and January 1, 2023, respectively. The modifications affected 52 employees with units granted in 2019, which resulted in total incremental share-based compensation cost of approximately $41 million, and 72 employees with units granted in 2020, which resulted in total incremental share-based compensation cost of approximately $65 million.

As of December 31, 2023, approximately $496 million of total unrecognized compensation cost related to restricted stock, including RSU and PSU, stock options, including performance stock options, and ESPP shares issued to date was expected to be recognized over a weighted-average period of approximately 2.3 years.