Leases

6 Months Ended

Jul. 02, 2022

Note 6. Leases

The Company is party to operating leases for the majority of its manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. Certain of the Company’s real estate leases include variable rental payments which adjust periodically based on inflation. Generally, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s operating lease expense for the three and six months ended July 2, 2022 and July 3, 2021 consisted of the following:


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Cost of goods sold	$	7	$	4	$	10	$	8
Selling, general and administrative		13		10		25	$	22
Total operating lease expense	$	20	$	14	$	35	$	30

Total operating lease expense includes variable lease expense of $5 million and $9 million for the three and six months ended July 2, 2022, respectively. For the three and six months ended July 3, 2021, total operating lease

expense include variable lease expense of $4 million and $8 million, respectively. Total operating lease expense also include offsetting sublease income which is immaterial for the three and six months ended July 2, 2022 and July 3, 2021.

The Company recognized the following related to its operating leases:


	Financial Statement Line Item	As of July 2, 2022		As of December 31, 2021
Operating right-of-use assets	Other assets	$	172	$	141
Operating lease liabilities - current	Accrued liabilities	$	36	$	32
Operating lease liabilities - noncurrent	Other long-term liabilities	$	146	$	120

Future minimum lease payments under non-cancelable leases are as follows:


	As of July 2, 2022
2022 (excluding the six months ended July 2, 2022)	$	22
2023		42
2024		33
2025		28
2026		24
Thereafter		66
Total future minimum lease payments		215
Less: imputed interest		33
Present value of future minimum lease payments	$	182
Weighted-average remaining lease term (years)		6.36
Weighted-average incremental borrowing rate		5.28	%

Supplemental cash flow information related to the Company’s operating leases was as follows:


	Six Months Ended
	July 2, 2022		July 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Cash outflows for operating leases	$	16	$	17
Non-cash activities:
Right of use assets obtained in exchange for new operating lease liabilities	$	56	$	17