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INVESTMENTS AND FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 29, 2024
Fair Value Disclosures [Abstract] |
INVESTMENTS AND FAIR VALUE MEASUREMENTS |
4. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Strategic Investments Marketable Equity Securities Our short-term investments consist of marketable equity securities. As of September 29, 2024 and December 31, 2023, the fair value of our marketable equity securities totaled $70 million and $6 million, respectively. The increase in our marketable equity securities relates to the investment we retained in GRAIL subsequent to the Spin-Off, which was initially recorded as $397 million, representing 14.5% of GRAIL’s net assets disposed of at Spin-Off. Refer to note 2. GRAIL Spin-Off for details. We recorded an unrealized loss of $332 million in YTD 2024, subsequent to the Spin-Off, based on the fair value of our investment in GRAIL as of September 29, 2024. Gains and (losses) recognized in other income (expense), net on marketable equity securities were as follows:
In millions | Q3 2024 |  | Q3 2023 |  | YTD 2024 |  | YTD 2023
Net losses recognized during the period on marketable equity securities | $ | (4) |  |  | $ | — |  |  | $ | (333) |  |  | $ | (2) |
Less: Net losses recognized during the period on marketable equity securities sold during the period | — |  |  | — |  |  | — |  |  | (2) |
Net unrealized losses recognized during the period on marketable equity securities still held at the reporting date | $ | (4) |  |  | $ | — |  |  | $ | (333) |  |  | $ | — |
Non-Marketable Equity Securities As of September 29, 2024 and December 31, 2023, the aggregate carrying amount of non-marketable equity securities, without readily determinable fair values, included in other assets, was $27 million and $28 million, respectively. Venture Funds We invest in three venture capital investment funds (the Funds), which are accounted for as equity-method investments. The aggregate carrying amount of the Funds, included in other assets, was $191 million and $168 million as of September 29, 2024 and December 31, 2023, respectively. We recorded losses of $6 million and $3 million in Q3 2024 and YTD 2024, respectively, and losses of $19 million and $33 million in Q3 2023 and YTD 2023, respectively, in other income (expense), net. Our commitments to the Funds are as follows:
$ in millions | Capital commitments |  | Callable through date |  | Remaining callable as of September 29, 2024(1)
Fund I | $ | 100 |  |  | April 2026 |  | $ | 3 |
Fund II | $ | 150 |  |  | July 2029 |  | $ | 49 |
Fund III | $ | 60 |  |  | December 2034 |  | $ | 47 |
_____________ (1)Fund I also had recallable distributions of approximately $10 million. Revenue recognized from transactions with our strategic investees was $7 million and $13 million for Q3 2024 and YTD 2024, respectively, and $2 million and $68 million for Q3 2023 and YTD 2023, respectively. Fair Value Measurements The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis:
| September 29, 2024 |  | December 31, 2023
In millions | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds (cash equivalents) | $ | 674 |  |  | $ | — |  |  | $ | — |  |  | $ | 674 |  |  | $ | 774 |  |  | $ | — |  |  | $ | — |  |  | $ | 774 |
Marketable equity securities | 70 |  |  | — |  |  | — |  |  | 70 |  |  | 6 |  |  | — |  |  | — |  |  | 6 |
Helix contingent value right | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 68 |  |  | 68 |
Deferred compensation plan assets | — |  |  | 70 |  |  | — |  |  | 70 |  |  | — |  |  | 61 |  |  | — |  |  | 61 |
Total assets measured at fair value | $ | 744 |  |  | $ | 70 |  |  | $ | — |  |  | $ | 814 |  |  | $ | 780 |  |  | $ | 61 |  |  | $ | 68 |  |  | $ | 909 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liabilities | $ | — |  |  | $ | — |  |  | $ | 84 |  |  | $ | 84 |  |  | $ | — |  |  | $ | — |  |  | $ | 387 |  |  | $ | 387 |
Deferred compensation plan liability | — |  |  | 64 |  |  | — |  |  | 64 |  |  | — |  |  | 59 |  |  | — |  |  | 59 |
Total liabilities measured at fair value | $ | — |  |  | $ | 64 |  |  | $ | 84 |  |  | $ | 148 |  |  | $ | — |  |  | $ | 59 |  |  | $ | 387 |  |  | $ | 446 |
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. 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 entitled us to consideration dependent upon the outcome of Helix’s future financing and/or liquidity events. We elected the fair value option to measure the contingent value right received from Helix. Changes in the estimated fair value are recognized in other income (expense), net. Historically, we estimated the fair value of the contingent value right using a Monte Carlo simulation. Estimates and assumptions used in the Monte Carlo simulation included probabilities related to the timing and outcome of future financing and/or liquidity events, assumptions regarding collectability and volatility, and an estimated equity value of Helix. These unobservable inputs represented a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. On July 31, 2024, we received cash of $83 million to settle the contingent value right early. Changes in the Helix contingent value right during YTD 2024 were as follows:
In millions |
Balance as of December 31, 2023 (included in other assets) | $ | 68 |
Change in estimated fair value | 15 |
Cash received to settle | (83) |
Balance as of September 29, 2024 | $ | — |
Contingent Consideration Liabilities We reassess the fair value of contingent consideration related to acquisitions on a quarterly basis, with changes in the fair value, subsequent to the acquisition date, recognized in selling, general and administrative expense. 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 (through August 2033). 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. Covered Revenues for the period Q4 2023 through Q2 2024 were $89 million in aggregate and for the period Q4 2022 through Q2 2023 were $65 million in aggregate, driven primarily by sales of GRAIL’s Galleri test. Covered Revenue Payments relating to such periods were $836,000 and $609,000 in YTD 2024 and YTD 2023, respectively. The fair value of our contingent consideration liability related to GRAIL was $82 million and $387 million as of September 29, 2024 and December 31, 2023, respectively, of which $81 million and $385 million, respectively, was included in other long-term liabilities, with the remaining balances included in accrued liabilities. We use a Monte Carlo simulation to estimate the fair value of the GRAIL contingent consideration liability. Estimates and assumptions used in the Monte Carlo simulation include forecasted revenues for GRAIL, a revenue risk premium, a revenue volatility estimate, 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. Subsequent to the Spin-Off of GRAIL, we no longer have access to GRAIL management’s forecasts and therefore must rely on information made public by GRAIL’s management to estimate forecasted revenues through August 2033. In August 2024, GRAIL management publicly announced a corporate restructure, including a reduction in headcount and planned hires and a substantial decrease in certain R&D projects and investments. To estimate the liability as of September 29, 2024, we selected a revenue risk premium of 18%, which was derived from reconciling our forecasted revenues for GRAIL to GRAIL’s market capitalization based on a 60-day trailing average. The significant decrease in the contingent consideration liability from December 31, 2023 was due to the decrease in the forecasted revenues, following revised revenue projections announced by GRAIL in May 2024 and the restructuring announcement in August 2024, and the increase in the revenue risk premium resulting from the lower market capitalization observed at or subsequent to the Spin-Off. The assumptions used in estimating the fair value of the contingent consideration liability related to GRAIL are inherently subject to uncertainty and we note that small changes in these assumptions could have a significant impact on the concluded value. For example, an increase or decrease of 20%, in each year, to the forecasted revenues would have resulted in an increase of $21 million and a decrease of $20 million, respectively, in the liability as of September 29, 2024. Additionally, an increase or decrease of 250 basis points to the selected revenue risk premium would have resulted in a decrease of $15 million and an increase of $16 million, respectively. We expect certain levels of volatility in the GRAIL contingent consideration liability are possible in future quarters. Changes in the estimated fair value of our contingent consideration liabilities during YTD 2024 were as follows:
In millions |
Balance as of December 31, 2023 | $ | 387 |
Acquisition | 2 |
Change in estimated fair value | (304) |
Cash payments | (1) |
Balance as of September 29, 2024 | $ | 84 |

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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/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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