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Investments and Fair Value Measurements | 3 Months Ended
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Apr. 03, 2022
Fair Value Disclosures [Abstract] |
Investments and Fair Value Measurements |
3. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Strategic Investments Marketable Equity Securities Our short-term investments consist of marketable equity securities. As of April 3, 2022 and January 2, 2022, the fair value of our marketable equity securities totaled $65 million and $107 million, respectively. Net losses recognized in other expense, net on our marketable equity securities were as follows:
In millions | Q1 2022 |  | Q1 2021 |  |  |  |
Net losses recognized during the period on marketable equity securities | $ | (42) |  |  | $ | (72) |  |  |  |  |
Less: Net losses recognized during the period on marketable equity securities sold during the period | — |  |  | 14 |  |  |  |  |
Net unrealized losses recognized during the period on marketable equity securities still held at the reporting date | $ | (42) |  |  | $ | (58) |  |  |  |  |
Non-Marketable Equity Securities As of April 3, 2022 and January 2, 2022, the aggregate carrying amounts of our non-marketable equity securities without readily determinable fair values, included in other assets, were $41 million and $40 million, respectively. Revenue recognized from transactions with our strategic investees was $30 million and $13 million for Q1 2022 and Q1 2021, 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 $14 million and up to $110 million, respectively, remained callable as of April 3, 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 $183 million and $173 million as of April 3, 2022 and January 2, 2022, respectively. We recorded an unrealized loss of $2 million and an unrealized gain of $33 million in Q1 2022 and Q1 2021, respectively, in other expense, net. Helix Contingent Value Right In conjunction with the deconsolidation of Helix Holdings I, LLC (Helix) in April 2019, we received 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. Changes in the fair value of the contingent value right resulted in unrealized gains of $5 million and $10 million in Q1 2022 and Q1 2021, respectively, which were included in other expense, net. Derivative Assets Related to Terminated Acquisition Pursuant to the Agreement and Plan of Merger (the PacBio Merger Agreement) to acquire Pacific Biosciences of California, Inc. (PacBio) entered into in November 2018 and amended in September 2019 (Amendment No. 1 to the PacBio Merger Agreement) and the subsequent agreement to terminate the PacBio Merger Agreement (the Termination Agreement) entered into in January 2020, we made cash payments to PacBio of $18 million in Q4 2019 and $34 million in Q1 2020, respectively, 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 Q1 2021, which was included in other expense, net. Fair Value Measurements The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis:
| April 3, 2022 |  | January 2, 2022
In millions | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds (cash equivalents) | $ | 775 |  |  | $ | — |  |  | $ | — |  |  | $ | 775 |  |  | $ | 688 |  |  | $ | — |  |  | $ | — |  |  | $ | 688 |
Marketable equity securities | 65 |  |  | — |  |  | — |  |  | 65 |  |  | 107 |  |  | — |  |  | — |  |  | 107 |
Helix contingent value right | — |  |  | — |  |  | 70 |  |  | 70 |  |  | — |  |  | — |  |  | 65 |  |  | 65 |
Deferred compensation plan assets | — |  |  | 57 |  |  | — |  |  | 57 |  |  | — |  |  | 60 |  |  | — |  |  | 60 |
Total assets measured at fair value | $ | 840 |  |  | $ | 57 |  |  | $ | 70 |  |  | $ | 967 |  |  | $ | 795 |  |  | $ | 60 |  |  | $ | 65 |  |  | $ | 920 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liability | $ | — |  |  | $ | — |  |  | $ | 566 |  |  | $ | 566 |  |  | $ | — |  |  | $ | — |  |  | $ | 615 |  |  | $ | 615 |
Deferred compensation plan liability | — |  |  | 54 |  |  | — |  |  | 54 |  |  | — |  |  | 56 |  |  | — |  |  | 56 |
Total liabilities measured at fair value | $ | — |  |  | $ | 54 |  |  | $ | 566 |  |  | $ | 620 |  |  | $ | — |  |  | $ | 56 |  |  | $ | 615 |  |  | $ | 671 |
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. 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. We reassess the fair value of contingent consideration related to acquisitions on a quarterly basis. The contingent value rights issued as part of the GRAIL acquisition entitle the holders to receive future cash payments on a quarterly basis (Covered Revenue Payments) representing a pro rata portion of certain GRAIL-related revenues (Covered Revenues) each year for a 12-year period. As defined in the Contingent Value Rights Agreement, this will reflect a 2.5% payment right to the first $1 billion of revenue each year for 12 years. Revenue above $1 billion each year will be subject to a 9% contingent payment right during this same period. We use a Monte Carlo simulation to estimate the fair value of contingent consideration 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. 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 condensed consolidated statements of income. Changes in the estimated fair value of our contingent consideration liability during Q1 2022 were as follows:
In millions |
Balance as of January 2, 2022 | $ | 615 |
Change in estimated fair value | (49) |
Balance as of April 3, 2022(1) (2) | $ | 566 |
_____________ (1)As of April 3, 2022, $565 million was included in other long-term liabilities, with remaining balance included in accrued liabilities. (2)Covered Revenues for Q4 2021 were $10 million, driven primarily by sales of GRAIL’s Galleri test. Covered Revenue Payments in Q1 2022 were approximately $97,000; however, pursuant to the Contingent Value Rights Agreement, the Covered Revenue Payments were applied to reimburse us for certain expenses

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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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