Accounting Standards

12 Months Ended

Jan. 03, 2020

Accounting Changes and Error Corrections [Abstract]

Note 2—Accounting Standards

Accounting Standards Updates Adopted

ASU 2016-02, ASU 2018-10, ASU 2018-11, ASU 2018-20, and ASU 2019-01, Leases (Topic 842)

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 ("ASC 842") and subsequent updates, which supersedes the lease guidance under Leases (Topic 840) and requires an entity to recognize a right-of-use ("ROU") asset and corresponding lease obligation on the balance sheet, classified as financing or operating, as appropriate. The update is effective for public companies for annual and interim reporting periods beginning after December 15, 2018, and should be adopted under the modified retrospective approach.

Effective December 29, 2018, the Company adopted the requirements of ASC 842 using the modified retrospective approach. Comparative information for the prior fiscal year has not been retrospectively adjusted.

As a result of the adoption of the new standard, the Company recorded $433 million and $486 million of ROU assets and lease liabilities, respectively, primarily due to its operating leases, on the Company's consolidated balance sheets. The standard did not have a material impact on the consolidated statements of income and consolidated statements of cash flows. The Company also recorded a $48 million increase in retained earnings due to the cumulative effect of recognizing the gain, net of taxes, related to the sale of the San Diego properties (see "Note 12—Property, Plant and Equipment").

The Company has elected to adopt certain practical expedients provided under ASC 842, including the options to not apply lease recognition for short-term leases, reassess whether expired or existing contracts contain leases, reassess lease classification for expired or existing leases, reassess initial direct costs, and combine lease and non-lease components in revenue arrangements when (i) the timing and pattern of revenue recognition for the components are the same and (ii) the lease component if accounted for separately, would be classified as an operating lease. The Company did not elect the hindsight practical expedient to determine the lease term for existing leases and in assessing impairment for the ROU assets. The Company also applies a single discount rate to a portfolio of leased assets with similar durations.

The cumulative effect of the changes made to the Company's consolidated balance sheet for the adoption of ASU 2016-02 was as follows:



	Balance at December 28, 2018		Adjustments due to ASU 2016-02			Balance at December 29, 2018
	(in millions)
Assets - non-current:
Property, plant and equipment, net	$	237	$	1		$	238
Operating lease right-of-use assets, net	—		418			418

Liabilities - current:
Accounts payable and accrued liabilities	$	1,491	$	132		$	1,623
Long-term debt, current portion	72		8			80

Liabilities - non-current:
Long-term debt, net of current portion	$	3,052	$	(72	)	$	2,980
Operating lease liabilities	—		320			320
Deferred tax liabilities	170		17			187
Other long-term liabilities	178		(34		)	144

Equity:
Retained earnings	$	372	$	48		$	420

ASU 2018-13 Fair Value Measurement (Topic 820)

In August 2018, the FASB issued ASU 2018-13 "Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" to improve the effectiveness of disclosures in the notes to the financial statements. During the quarter ended January 3, 2020, the Company early adopted the provisions related to disclosure requirements that were removed from Topic 820, including the valuation processes for Level 3 fair value measurements.

Accounting Standards Updates Issued But Not Yet Adopted

ASU 2016-13, ASU 2018-19, ASU 2019-05, and ASU 2019-11 Financial Instruments – Credit Losses (Topic 326)

In June 2016, the FASB issued ASU 2016-13 and subsequent updates, which eliminates the requirement that a credit loss on a financial instrument be "probable" prior to recognition. Instead, a valuation allowance will be recorded to reflect an entity's current estimate of all expected credit losses, based on both historical and forecasted information related to an instrument. The update is effective for public companies for annual and interim reporting periods beginning after December 15, 2019, and should be adopted using a modified retrospective approach, which applies a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. A prospective approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date and loans and debt securities acquired with deteriorated credit quality. Early adoption is permitted.

The Company expects the impacts that this standard update will have on certain financial assets, including trade receivables, note receivables and receivables on sales-type leases and processes to be immaterial.