Annual report pursuant to Section 13 and 15(d)

Recent Accounting Standards

v3.10.0.1
Recent Accounting Standards
 12 Months Ended
Dec. 29, 2018
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
Recent Accounting Standards [Text Block]
NOTE 3 :
RECENT ACCOUNTING STANDARDS
ACCOUNTING STANDARDS ADOPTED
Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
Standard/Description: This amended standard was issued to provide additional guidance on the presentation of net periodic benefit cost in the income statement and on the components eligible for capitalization in assets. In accordance with the revised standard, we have separated the different components of net periodic benefit cost, presenting service cost components within operating income and other non-service components separately outside of operating income on the income statement. In addition, only service costs are now eligible for inventory capitalization.
Effective Date and Adoption Considerations: Effective in the first quarter of 2018. Changes to the presentation of benefit costs were required to be adopted retrospectively, while changes to the capitalization of service costs into inventories were required to be adopted prospectively. The standard permits, as a practical expedient, use of the amounts disclosed in the Retirement Benefit Plans footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirement.
Effect on Financial Statements or Other Significant Matters: Adoption of the amended standard resulted in the reclassification of non-service net periodic benefit costs from line items within operating income to interest and other, net, of approximately $114 million for the year ended December 30, 2017 ($259 million for the year ended December 31, 2016).
Revenue Recognition - Contracts with Customers
Standard/Description: This standard was issued to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by all companies. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Effective Date and Adoption Considerations: Effective in the first quarter of 2018. This standard was adopted using a modified retrospective approach through a cumulative adjustment to retained earnings for the fiscal year beginning December 31, 2017.
Effect on Financial Statements or Other Significant Matters: Our adoption assessments identified a change in revenue recognition timing on our component sales made to distributors. Under the new standard, we now recognize revenue when we deliver to the distributor rather than deferring recognition until the distributor sells the components.
On the date of initial application, we removed the deferred income and related receivables on component sales made to distributors through a cumulative adjustment to retained earnings. The revenue deferral that was historically recognized in the following period is expected to be primarily offset by the acceleration of revenue recognition in the current period as control of the product transfers to our customer.
Our assessment also identified a change in expense recognition timing related to payments we make to our customers for distinct services they perform as part of cooperative advertising programs, which were previously recorded as operating expenses. We now recognize the expense for cooperative advertising in the period the marketing activities occur. Previously we recognized the expense in the period the customer was entitled to participate in the program, which coincided with the period of sale. On the date of initial adoption, we capitalized the expense of cooperative advertising not performed through a cumulative adjustment to retained earnings.
We have completed our adoption and implemented policies, processes, and controls to support the standard's measurement and disclosure requirements. Refer to the tables below, which summarize the impacts of the changes discussed above to our financial statements recorded as an adjustment to opening balances for the fiscal year beginning December 31, 2017, and also provide comparative reporting of the impacts of adopting the standard.
Financial Instruments - Recognition and Measurement
Standard/Description: Requires changes to the accounting for financial instruments that primarily affect equity securities, financial liabilities measured using the fair value option, and the presentation and disclosure requirements for such instruments.
Effective Date and Adoption Considerations: Effective in the first quarter of 2018. Changes to our marketable equity securities were required to be adopted using a modified retrospective approach through a cumulative effect adjustment to retained earnings for the fiscal year beginning December 31, 2017. Since management has elected to apply the measurement alternative to non-marketable equity securities, changes to these securities were adopted prospectively.
Effect on Financial Statements or Other Significant Matters: Marketable equity securities previously classified as available-for-sale equity investments are now measured and recorded at fair value with changes in fair value recorded through the income statement.
All non-marketable equity securities formerly classified as cost method investments are measured and recorded using the measurement alternative. Equity securities measured and recorded using the measurement alternative are recorded at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. Adjustments resulting from impairments and qualifying observable price changes are recorded in the income statement.
Beginning in the first quarter of 2018, in accordance with the standard, recurring fair value disclosures are no longer provided for equity securities measured using the measurement alternative. In addition, the previous impairment model has been replaced with a simplified qualitative impairment model. No initial adoption adjustment was recorded for these instruments since the standard was required to be applied prospectively for securities measured using the measurement alternative.
We have completed our adoption and implemented policies, processes, and controls to support the standard's measurement and disclosure requirements. Refer to the table below, which summarizes impacts, net of tax, of the changes discussed above to our financial statements. This reflects an adjustment to opening balances for the fiscal year beginning December 31, 2017.
Opening Balance Adjustments
The following table summarizes the effects of adopting Revenue Recognition - Contracts with Customers and Financial Instruments - Recognition and Measurement on our financial statements for the fiscal year beginning December 31, 2017 as an adjustment to the opening balance:
 
 
 
 
Adjustments from
 
 
 
 

(In Millions)
 
Balance as of Dec 30, 2017
 
Revenue Standard
 
Financial Instruments Update
 
Other1
 
Opening Balance as of Dec 31, 2017
Assets:
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
 
$
5,607

 
$
(530
)
 
$
—

 
$
—

 
$
5,077

Inventories
 
$
6,983

 
$
47

 
$
—

 
$
—

 
$
7,030

Other current assets
 
$
2,908

 
$
64

 
$
—

 
$
(8
)
 
$
2,964

Equity investments
 
$
—

 
$
—

 
$
8,579

 
$
—

 
$
8,579

Marketable equity securities
 
$
4,192

 
$
—

 
$
(4,192
)
 
$
—

 
$
—

Other long-term assets
 
$
7,602

 
$
—

 
$
(4,387
)
 
$
(43
)
 
$
3,172

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deferred income
 
$
1,656

 
$
(1,356
)
 
$
—

 
$
—

 
$
300

Other accrued liabilities
 
$
7,535

 
$
81

 
$
—

 
$
—

 
$
7,616

Long-term deferred tax liabilities
 
$
3,046

 
$
191

 
$
—

 
$
(20
)
 
$
3,217

 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
$
862

 
$
—

 
$
(1,745
)
 
$
(45
)
 
$
(928
)
Retained earnings
 
$
42,083

 
$
665

 
$
1,745

 
$
14

 
$
44,507


1 
Includes adjustments from the adoption of "Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory" and "Income Statement—Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
The following table summarizes the impacts of adopting the new revenue standard on our consolidated statements of income and balance sheets:
 
 
For the fiscal year ended December 29, 2018
(In Millions)
 
As reported
 
Adjustments
 
Without new revenue standard
 
 
 
 
 
 
 
Net revenue
 
$
70,848

 
$
(616
)
 
$
70,232

Cost of sales
 
27,111

 
(206
)
 
26,905

Gross margin
 
43,737

 
(410
)
 
43,327

Marketing, general and administrative
 
6,750

 
(70
)
 
6,680

Operating income
 
23,316

 
(340
)
 
22,976

Income before taxes
 
23,317

 
(340
)
 
22,977

Provision for taxes
 
2,264

 
(64
)
 
2,200

Net income
 
$
21,053

 
$
(276
)
 
$
20,777

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Accounts receivable
 
$
6,722

 
$
216

 
$
6,938

Inventories
 
$
7,253

 
$
62

 
$
7,315

Other current assets
 
$
3,162

 
$
4

 
$
3,166

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Deferred income
 
$
—

 
$
1,846

 
$
1,846

Other accrued liabilities
 
$
7,919

 
$
(514
)
 
$
7,405

Deferred income taxes
 
$
1,665

 
$
(109
)
 
$
1,556

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Retained earnings
 
$
50,172

 
$
(941
)
 
$
49,231


ACCOUNTING STANDARDS NOT YET ADOPTED
Leases
Standard/Description: This new lease accounting standard requires that we recognize operating leased assets and corresponding liabilities on the balance sheet and provide enhanced disclosure of lease activity.
Effective Date and Adoption Considerations: Effective in the first quarter of 2019. The standard requires a modified retrospective adoption. We can choose to apply the provisions at the beginning of the earliest comparative period presented in the financial statements or at the beginning of the period of adoption. We have elected to apply the guidance at the beginning of the period of adoption. Our leased assets and corresponding liabilities will exclude non-lease components.
Effect on Financial Statements or Other Significant Matters: We expect to record right-of-use leased assets and corresponding liabilities of approximately $625 million at the beginning of first quarter 2019.
Cloud Computing Implementation Costs
Standard/Description: The standard requires implementation costs incurred in cloud computing (i.e., hosting) arrangements that are service contracts to be assessed under existing guidance to determine which costs to capitalize as assets or expense as incurred.
Effective Date and Adoption Considerations: Effective in the first quarter of 2020. The standard requires adoption either retrospectively or prospectively.
Effect on Financial Statements or Other Significant Matters: We have not yet determined the impact of this standard on our financial statements.