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Investments and Fair Value Measurements | 12 Months Ended
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Jan. 02, 2022
Fair Value Disclosures [Abstract] |
Investments and Fair Value Measurements |
3. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Debt Securities In 2021, we sold all of our available-for-sale debt securities in order to fund the GRAIL acquisition. See note “4. Acquisitions, Goodwill and Intangible Assets” for further details regarding the acquisition. For 2020, our short-term investments included available-for-sale debt securities that consisted of the following:
|  |  | January 3, 2021
In millions |  |  |  |  |  |  |  |  |  |  | Amortized Cost |  | Gross Unrealized Gains |  |  |  |  |  | Estimated Fair Value
Debt securities in government-sponsored entities |  |  |  |  |  |  |  |  |  |  | $ | 10 |  |  | $ | — |  |  |  |  |  |  | $ | 10 |
Corporate debt securities |  |  |  |  |  |  |  |  |  |  | 445 |  |  | — |  |  |  |  |  |  | 445 |
U.S. Treasury securities |  |  |  |  |  |  |  |  |  |  | 830 |  |  | 1 |  |  |  |  |  |  | 831 |
Total |  |  |  |  |  |  |  |  |  |  | $ | 1,285 |  |  | $ | 1 |  |  |  |  |  |  | $ | 1,286 |
Strategic Investments Marketable Equity Securities As of January 2, 2022 and January 3, 2021, the fair value of our marketable equity securities, included in short-term investments, totaled $107 million and $376 million, respectively. The decrease was primarily due to sales of our marketable equity securities in 2021. Gains and losses recognized in other income, net on our marketable equity securities for 2021, 2020, and 2019 were as follows:
In millions | 2021 |  | 2020 |  | 2019
Net (losses) gains recognized during the period on marketable equity securities | $ | (52) |  |  | $ | 270 |  |  | $ | 53 |
Less: Net losses recognized during the period on marketable equity securities sold during the period | 89 |  |  | — |  |  | — |
Net unrealized gains recognized during the period on marketable equity securities still held at the reporting date | $ | 37 |  |  | $ | 270 |  |  | $ | 53 |
Non-Marketable Equity Securities As of January 2, 2022 and January 3, 2021, the aggregate carrying amounts of our non-marketable equity securities without readily determinable fair values, included in other assets, were $40 million and $314 million, respectively. The decrease was due to our acquisition of GRAIL and the reclassification of several of our equity investments, that became marketable in 2021, to short-term investments. On August 18, 2021, we completed our acquisition of GRAIL. Prior to the acquisition, we held an investment in GRAIL for which we had concluded that GRAIL was a VIE for which we were not the primary beneficiary and, therefore, we did not consolidate GRAIL in our consolidated financial statements. The carrying value of our investment was $250 million as of January 3, 2021. During 2020, we made an additional $60 million investment in GRAIL. See note “4. Acquisitions, Goodwill and Intangible Assets” for further details. Revenue recognized from transactions with our strategic investees was $74 million, $62 million, and $71 million in 2021, 2020, and 2019, respectively. Venture Funds We invest in two venture capital investment funds (the Funds) with capital commitments of $100 million, callable through April 2026, and up to $150 million, callable through July 2029, respectively, of which $20 million and up to $118 million, respectively, remained callable as of January 2, 2022. Our investments in the Funds are accounted for as equity-method investments. The aggregate carrying amounts of the Funds, included in other assets, were $173 million and $104 million as of January 2, 2022 and January 3, 2021, respectively. We recorded net unrealized gains of $55 million, $20 million, and $9 million in 2021, 2020, and 2019, respectively, in other income, net. Previously Consolidated Variable Interest Entity In July 2015, we obtained a 50% voting equity ownership interest in Helix Holdings I, LLC (Helix). At that time, we determined that we had unilateral power over one of the activities that most significantly impacts the economic performance of Helix through its contractual arrangements and, as a result, we were deemed to be the primary beneficiary of Helix and were required to consolidate Helix. The operations of Helix are included in the accompanying consolidated statements of income for 2019, up to the date of the deconsolidation, described below. During this period, we absorbed 50% of Helix’s losses. On April 25, 2019, we entered into an agreement to sell our interest in, and relinquish control over, Helix. As part of the agreement, (i) Helix repurchased all of our outstanding equity interests in exchange for a contingent value right with a 7-year term that entitles us to consideration dependent upon the outcome of Helix’s future financing and/or liquidity events, (ii) we ceased having a controlling financial interest in Helix, including unilateral power over one of the activities that most significantly impacts the economic performance of Helix, (iii) we were relieved of any potential obligation to redeem certain noncontrolling interests, and (iv) we no longer have representation on Helix’s board of directors. As a result, we deconsolidated Helix’s financial statements effective April 25, 2019 and recorded a gain on deconsolidation in 2019 of $39 million in other income, net. The gain on deconsolidation included (i) the contingent value right received from Helix recorded at a fair value of approximately $30 million, (ii) the derecognition of the carrying amounts of Helix’s assets and liabilities, and (iii) the derecognition of the noncontrolling interests related to Helix. Changes in the fair value of our Helix contingent value right resulted in unrealized gains of $30 million and $7 million in 2021 and 2020, respectively, and an unrealized loss of $1 million in 2019, included in other income, net. Derivative Assets Related to Terminated Acquisition On November 1, 2018, we entered into an Agreement and Plan of Merger (the PacBio Merger Agreement) to acquire Pacific Biosciences of California, Inc. (PacBio) for an all-cash price of approximately $1.2 billion (or $8.00 per share). On January 2, 2020, we entered into an agreement to terminate the PacBio Merger Agreement (the Termination Agreement). Pursuant to the Termination Agreement, we made a cash payment to PacBio of $98 million on January 2, 2020, which represented the Reverse Termination Fee (as defined in the PacBio Merger Agreement). The Reverse Termination Fee was repayable, without interest, if PacBio entered into a definitive agreement providing for, or consummating, a Change of Control Transaction by September 30, 2020 (as defined in the Termination Agreement), and such transaction was consummated by the two-year anniversary of the execution of the definitive agreement for such Change of Control Transaction. PacBio did not enter into a definitive agreement that provided for, or consummated, a Change of Control Transaction by September 30, 2020 (as defined in the Termination Agreement); therefore, the Reverse Termination Fee is no longer repayable. In addition, we made cash payments to PacBio of $18 million in Q4 2019, pursuant to Amendment No. 1 to the PacBio Merger Agreement, and $34 million in Q1 2020, pursuant to the Termination Agreement, collectively referred to as the Continuation Advances. Up to the $52 million of Continuation Advances was repayable, without interest, if, within two years of March 31, 2020, PacBio entered into a Change of Control Transaction or raised at least $100 million in equity or debt financing in a single transaction (with the amount repayable dependent on the amount raised by PacBio). In February 2021, PacBio entered into an investment agreement with SB Northstar LP for the issuance and sale of $900 million in aggregate principal amount of PacBio’s convertible notes. Pursuant to the PacBio Merger Agreement, PacBio repaid to us the $52 million of Continuation Advances and we recorded a gain of $26 million in 2021, which was included in other income, net. The potential repayments of the Continuation Advances and Reverse Termination Fee met the definition of derivative assets and were recorded at fair value. The $92 million difference between the $132 million in cash paid during Q1 2020 for the Continuation Advances and Reverse Termination Fee and the $40 million fair value of these derivative assets on the payment dates was recorded as selling, general and administrative expense in 2020. The $8 million difference between the $18 million in Continuation Advances paid in Q4 2019 and the $10 million fair value of the derivative asset on the payment date was recorded as selling, general, and administrative expense in 2019. Changes in the fair value of the derivative assets were included in other income, net and totaled $25 million in unrealized losses in 2020. Fair Value Measurements The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis:
| January 2, 2022 |  | January 3, 2021
In millions | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds (cash equivalents) | $ | 688 |  |  | $ | — |  |  | $ | — |  |  | $ | 688 |  |  | $ | 1,512 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,512 |
Debt securities in government-sponsored entities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 10 |  |  | — |  |  | 10 |
Corporate debt securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 445 |  |  | — |  |  | 445 |
U.S. Treasury securities | — |  |  | — |  |  | — |  |  | — |  |  | 831 |  |  | — |  |  | — |  |  | 831 |
Marketable equity securities | 107 |  |  | — |  |  | — |  |  | 107 |  |  | 376 |  |  | — |  |  | — |  |  | 376 |
Helix contingent value right | — |  |  | — |  |  | 65 |  |  | 65 |  |  | — |  |  | — |  |  | 35 |  |  | 35 |
Derivative assets related to terminated acquisition | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 26 |  |  | 26 |
Deferred compensation plan assets | — |  |  | 60 |  |  | — |  |  | 60 |  |  | — |  |  | 55 |  |  | — |  |  | 55 |
Total assets measured at fair value | $ | 795 |  |  | $ | 60 |  |  | $ | 65 |  |  | $ | 920 |  |  | $ | 2,719 |  |  | $ | 510 |  |  | $ | 61 |  |  | $ | 3,290 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liabilities | $ | — |  |  | $ | — |  |  | $ | 615 |  |  | $ | 615 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Deferred compensation plan liability | — |  |  | 56 |  |  | — |  |  | 56 |  |  | — |  |  | 51 |  |  | — |  |  | 51 |
Total liabilities measured at fair value | $ | — |  |  | $ | 56 |  |  | $ | 615 |  |  | $ | 671 |  |  | $ | — |  |  | $ | 51 |  |  | $ | — |  |  | $ | 51 |
We consider information provided by our investment accounting and reporting service provider in the measurement of fair value of our debt securities. The investment service provider provides valuation information from an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. Our marketable equity securities are measured at fair value based on quoted trade prices in active markets. Our deferred compensation plan assets consist primarily of investments in life insurance contracts carried at cash surrender value, which reflects the net asset value of the underlying publicly traded mutual funds. We perform control procedures to corroborate the fair value of our holdings, including comparing valuations obtained from our investment service provider to valuations reported by our asset custodians, validating pricing sources and models, and reviewing key model inputs, if necessary. We elected the fair value option to measure the contingent value right received from Helix. The fair value of such contingent value right, included in other assets, is derived using a Monte Carlo simulation. Estimates and assumptions used in the Monte Carlo simulation include probabilities related to the timing and outcome of future financing and/or liquidity events, assumptions regarding collectibility and volatility, and an estimated equity value of Helix. The derivative assets related to the terminated acquisition of PacBio were financial instruments measured at fair value, included in other assets. Estimates and assumptions required to value the derivative assets included, but were not limited to, probabilities related to the timing and outcome of future financing and/or liquidity events and an assumption regarding collectibility. The unobservable inputs used to value our Helix contingent value right and the derivative assets related to the terminated acquisition of PacBio represent Level 3 measurements because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. We reassess the fair value of contingent consideration to be settled in cash related to acquisitions on a quarterly basis. We use a Monte Carlo simulation to estimate the fair value of contingent consideration related to the GRAIL acquisition and an income approach to estimate the fair value of contingent consideration related to our other acquisition. See note “4. Acquisitions, Goodwill and Intangible Assets” for details regarding the contingent consideration arrangement related to the GRAIL acquisition. Estimates and assumptions used in the Monte Carlo simulation include forecasted revenues for GRAIL, a revenue risk premium, a revenue volatility, an operational leverage ratio and a counterparty credit spread. Estimates and assumptions used in the income approach include the probability of achieving certain milestones and a discount rate. These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. Changes in the fair value of contingent consideration subsequent to the acquisition date are recognized in selling, general and administrative expense in our consolidated statements of income. Changes in the estimated fair value of contingent consideration liabilities during 2021 were as follows:
In millions |
Balance as of January 3, 2021 | $ | — |
Acquisition of GRAIL | 762 |
Other acquisition | 14 |
Measurement period adjustment | (5) |
Cash payments | (15) |
Exchange of GRAIL contingent value rights | (145) |
Change in estimated fair value | 4 |
Balance as of January 2, 2022 | $ | 615 |
We recorded a measurement period adjustment in Q4 2021 related to the acquisition of GRAIL to reduce the acquisition-date fair value of contingent consideration by $5 million as a result of revised future cash flow estimates. The measurement period adjustment would have resulted in an increase of $7 million to the gain previously recorded in Q3 2021 for the change in the estimated fair value of the contingent consideration liability. The measurement period adjustment has been recorded in our consolidated financial statements as of and for the year ended 2021 and was made to reflect facts and circumstances that existed as of the acquisition date. We recorded a contingent consideration liability of $14 million as a result of an acquisition completed in Q2 2021. The acquisition-date fair value of the contingent consideration was derived using the income approach. Assumptions used to estimate the liability included the probability of achieving certain milestones and a discount rate. We recorded an expense of $1 million in selling, general and administrative expense in 2021 due to the change in estimated fair value of the contingent consideration and made a payment of $15 million in Q4 2021 upon achievement of the milestones.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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