LEASE COMMITMENTS

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

LEASE COMMITMENTS

NOTE 18: LEASE COMMITMENTS

Our operating and finance leases at December 31, 2021 and January 1, 2021 primarily consisted of real estate leases for office space, warehouses, manufacturing, research and development facilities, tower space and land and equipment leases.

Operating lease cost was $172 million, $176 million and $88 million for fiscal 2021, fiscal 2020 and the two quarters ended January 3, 2020, respectively. Finance lease costs, including amortization and interest, and other lease expenses, including short-term and equipment lease cost, variable lease cost and sublease income, were not material for fiscal 2021, fiscal 2020 or the two quarters ended January 3, 2020. Rental expense during fiscal 2019 was $73 million.

On November 24, 2020, we completed a sale and leaseback transaction of a parcel of land and manufacturing facility located in Los Angeles, California for $92 million (net cash proceeds of $66 million after $2 million of closing costs and $24 million for a residual value guarantee payment). The lease has a maximum term of sixteen months (including two options to extend the lease by one month). Due to its short term nature relative to the property’s remaining economic life, the lease will be accounted for as an operating lease. We recognized a pre-tax gain on this sale and leaseback transaction of $22 million, which is included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income for fiscal 2020.

As discussed in more detail in Note 10: Intangible Assets in these Notes, during the quarter ended July 2, 2021, we tested the CTS reporting unit for potential impairment of the long-lived assets, including identifiable assets and property, plant and equipment and recorded a $145 million non-cash charge for the impairment of CTS long-lived assets, including $19 million for impairment of ROU assets, which is included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2021.

During fiscal 2020, in conjunction with, and in advance of, the tests of goodwill related to our Commercial Aviation Solutions reporting unit, we recorded a $257 million non-cash impairment charge for long lived assets, including $31 million for impairment of ROU assets. Additionally, in connection with COVID restructuring actions, we recognized $5 million of non-cash impairment charges for ROU assets associated with consolidated facilities. These impairments are included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2020.

Supplemental operating and finance lease balance sheet information at December 31, 2021 and January 1, 2021 is as follows:

(In millions)	December 31, 2021		January 1, 2021
Operating Leases
Operating lease ROU assets	$	769	$	766
Other accrued items	109		116
Operating lease liabilities	768		734
Total operating lease liabilities	$	877	$	850
Finance Leases
Property, plant and equipment	$	163	$	44
Accumulated amortization	(9)		(3)
Property, plant and equipment, net	$	154	$	41
Current portion of long-term debt	$	4	$	2
Long-term debt	157		35
Total finance lease liabilities	$	161	$	37

Other supplemental lease information for fiscal 2021 and 2020 is as follows:

	Fiscal Year Ended
(In millions, except lease term and discount rate)	December 31, 2021			January 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
Net cash provided by operating activities - operating lease payments	$	154		$	171
Net cash provided by operating activities - finance lease interest payments	5			2
Net cash used in financing activities - finance lease obligation payments	3			—
Assets obtained in exchange for new lease obligations
ROU assets obtained with operating leases	$	260		$	103
Property, plant and equipment obtained with finance leases	120			—
Weighted average remaining lease term (in years)
Operating leases	9.8			8.7
Finance leases	23.8			23.8
Weighted average discount rate
Operating leases	3.7		%	3.0		%
Finance leases	3.1		%	4.1		%

Future lease payments under non-cancelable operating and finance leases at December 31, 2021 were as follows:

(In millions)	Operating Leases		Finance Leases
2022	$	134	$	8
2023	126		8
2024	113		8
2025	102		9
2026	81		9
Thereafter	464		190
Total future lease payments required(1)	1,020		232
Less: imputed interest	143		71
Total	$	877	$	161

_______________

(1)Total future lease payments exclude approximately $36 million of future lease payments with lease terms of 1 to 10 years that had not yet commenced as of December 31, 2021.

These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions. We do not consider any individual lease material to our operations.

LEASE COMMITMENTS

NOTE 18: LEASE COMMITMENTS

Our operating and finance leases at December 31, 2021 and January 1, 2021 primarily consisted of real estate leases for office space, warehouses, manufacturing, research and development facilities, tower space and land and equipment leases.

Operating lease cost was $172 million, $176 million and $88 million for fiscal 2021, fiscal 2020 and the two quarters ended January 3, 2020, respectively. Finance lease costs, including amortization and interest, and other lease expenses, including short-term and equipment lease cost, variable lease cost and sublease income, were not material for fiscal 2021, fiscal 2020 or the two quarters ended January 3, 2020. Rental expense during fiscal 2019 was $73 million.

On November 24, 2020, we completed a sale and leaseback transaction of a parcel of land and manufacturing facility located in Los Angeles, California for $92 million (net cash proceeds of $66 million after $2 million of closing costs and $24 million for a residual value guarantee payment). The lease has a maximum term of sixteen months (including two options to extend the lease by one month). Due to its short term nature relative to the property’s remaining economic life, the lease will be accounted for as an operating lease. We recognized a pre-tax gain on this sale and leaseback transaction of $22 million, which is included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income for fiscal 2020.

As discussed in more detail in Note 10: Intangible Assets in these Notes, during the quarter ended July 2, 2021, we tested the CTS reporting unit for potential impairment of the long-lived assets, including identifiable assets and property, plant and equipment and recorded a $145 million non-cash charge for the impairment of CTS long-lived assets, including $19 million for impairment of ROU assets, which is included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2021.

During fiscal 2020, in conjunction with, and in advance of, the tests of goodwill related to our Commercial Aviation Solutions reporting unit, we recorded a $257 million non-cash impairment charge for long lived assets, including $31 million for impairment of ROU assets. Additionally, in connection with COVID restructuring actions, we recognized $5 million of non-cash impairment charges for ROU assets associated with consolidated facilities. These impairments are included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2020.

Supplemental operating and finance lease balance sheet information at December 31, 2021 and January 1, 2021 is as follows:

(In millions)	December 31, 2021		January 1, 2021
Operating Leases
Operating lease ROU assets	$	769	$	766
Other accrued items	109		116
Operating lease liabilities	768		734
Total operating lease liabilities	$	877	$	850
Finance Leases
Property, plant and equipment	$	163	$	44
Accumulated amortization	(9)		(3)
Property, plant and equipment, net	$	154	$	41
Current portion of long-term debt	$	4	$	2
Long-term debt	157		35
Total finance lease liabilities	$	161	$	37

Other supplemental lease information for fiscal 2021 and 2020 is as follows:

	Fiscal Year Ended
(In millions, except lease term and discount rate)	December 31, 2021			January 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
Net cash provided by operating activities - operating lease payments	$	154		$	171
Net cash provided by operating activities - finance lease interest payments	5			2
Net cash used in financing activities - finance lease obligation payments	3			—
Assets obtained in exchange for new lease obligations
ROU assets obtained with operating leases	$	260		$	103
Property, plant and equipment obtained with finance leases	120			—
Weighted average remaining lease term (in years)
Operating leases	9.8			8.7
Finance leases	23.8			23.8
Weighted average discount rate
Operating leases	3.7		%	3.0		%
Finance leases	3.1		%	4.1		%

Future lease payments under non-cancelable operating and finance leases at December 31, 2021 were as follows:

(In millions)	Operating Leases		Finance Leases
2022	$	134	$	8
2023	126		8
2024	113		8
2025	102		9
2026	81		9
Thereafter	464		190
Total future lease payments required(1)	1,020		232
Less: imputed interest	143		71
Total	$	877	$	161

_______________

(1)Total future lease payments exclude approximately $36 million of future lease payments with lease terms of 1 to 10 years that had not yet commenced as of December 31, 2021.

These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions. We do not consider any individual lease material to our operations.