Leases

6 Months Ended

Feb. 27, 2020

Leases [Abstract]

Leases

Leases

We have finance and operating leases through which we acquire or utilize equipment and facilities in our manufacturing operations and R&D activities as well as office space and other facilities used in our selling, general, and administrative (“SG&A”) functions.

Our finance leases consist primarily of equipment used in our manufacturing operations and gas or other supply agreements that are deemed to be embedded leases in which we effectively control the underlying gas plants or other assets used to fulfill the supply agreements.

Our operating leases consist primarily of offices, other facilities, and land used in SG&A, R&D, and certain of our manufacturing operations. Certain of our operating leases include one or more options to extend the lease term for periods from one year to 10 years for real estate and one year to 30 years for land.

Certain supply or service agreements require us to exercise significant judgment to determine whether the agreement contains a lease of a right-of-use asset. Our assessment includes determining whether we or the supplier control the assets used to fulfill the supply or service agreement by identifying whether we or the supplier have the right to change the type, quantity, timing, or location of the output of the assets. In determining the lease term, we assess whether we are reasonably certain to exercise options to renew or terminate a lease, and when or whether we would exercise an option to purchase the right-of-use asset. Measuring the present value of the initial lease liability requires exercising judgment to determine the discount rate, which we base on interest rates for similar borrowings issued by entities with credit ratings similar to ours at the time of issuance.

Short-term and variable lease expenses were not significant and are presented within operating lease costs in the table below. Sublease income was not significant in any period presented. The components of lease expenses are presented below:

	Quarter ended		Six months ended
	February 27, 2020		February 27, 2020
Finance lease cost
Amortization of right-of-use asset	$	39	$	79
Interest on lease liability	5		11
Operating lease cost	24		48
	$	68	$	138

Other information related to our leases were as follows:

Six months ended	February 27, 2020
Cash flows used for operating activities
Finance leases	$	12
Operating leases (1)	(10)
Cash flows used for financing activities
Finance leases	129
Noncash acquisitions of right of use assets
Operating leases	24

⁽¹⁾Included $48 million of reimbursements received for tenant improvements.

As of	February 27, 2020
Weighted-average remaining lease term (in years)
Finance leases	4.1
Operating leases	7.2
Weighted-average discount rate
Finance leases	4.95	%
Operating leases	2.67	%

Maturities of lease liabilities existing as of February 27, 2020 were as follows:

For the year ending	Operating Leases		Finance Leases
Remainder of 2020	$	33	$	100
2021	68		109
2022	66		76
2023	62		50
2024	53		40
2025 and thereafter	442		213
Less imputed interest	(126)		(92)
	$	598	$	496

The table above excludes lease liabilities for those leases that have been signed but have not yet commenced. As of February 27, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $157 million for the initial 10-year lease term for a building, which may, at our election, be terminated after 3 years or extended for an additional 10 years, and 2) finance lease obligations of $907 million over a weighted-average period of 15 years for gas supply arrangements deemed to be embedded leases. We will recognize right-of-use assets and associated lease liabilities at the time such assets become available for our use.

As of August 29, 2019, prior to adopting ASC 842, future minimum operating lease commitments with an initial term in excess of one year were $54 million for 2020, $64 million for 2021, $63 million for 2022, $59 million for 2023, and $53 million for 2024 and $459 million in 2025 and thereafter.

Leases

Leases

We have finance and operating leases through which we acquire or utilize equipment and facilities in our manufacturing operations and R&D activities as well as office space and other facilities used in our selling, general, and administrative (“SG&A”) functions.

Our finance leases consist primarily of equipment used in our manufacturing operations and gas or other supply agreements that are deemed to be embedded leases in which we effectively control the underlying gas plants or other assets used to fulfill the supply agreements.

Our operating leases consist primarily of offices, other facilities, and land used in SG&A, R&D, and certain of our manufacturing operations. Certain of our operating leases include one or more options to extend the lease term for periods from one year to 10 years for real estate and one year to 30 years for land.

Certain supply or service agreements require us to exercise significant judgment to determine whether the agreement contains a lease of a right-of-use asset. Our assessment includes determining whether we or the supplier control the assets used to fulfill the supply or service agreement by identifying whether we or the supplier have the right to change the type, quantity, timing, or location of the output of the assets. In determining the lease term, we assess whether we are reasonably certain to exercise options to renew or terminate a lease, and when or whether we would exercise an option to purchase the right-of-use asset. Measuring the present value of the initial lease liability requires exercising judgment to determine the discount rate, which we base on interest rates for similar borrowings issued by entities with credit ratings similar to ours at the time of issuance.

Short-term and variable lease expenses were not significant and are presented within operating lease costs in the table below. Sublease income was not significant in any period presented. The components of lease expenses are presented below:

	Quarter ended		Six months ended
	February 27, 2020		February 27, 2020
Finance lease cost
Amortization of right-of-use asset	$	39	$	79
Interest on lease liability	5		11
Operating lease cost	24		48
	$	68	$	138

Other information related to our leases were as follows:

Six months ended	February 27, 2020
Cash flows used for operating activities
Finance leases	$	12
Operating leases (1)	(10)
Cash flows used for financing activities
Finance leases	129
Noncash acquisitions of right of use assets
Operating leases	24

⁽¹⁾Included $48 million of reimbursements received for tenant improvements.

As of	February 27, 2020
Weighted-average remaining lease term (in years)
Finance leases	4.1
Operating leases	7.2
Weighted-average discount rate
Finance leases	4.95	%
Operating leases	2.67	%

Maturities of lease liabilities existing as of February 27, 2020 were as follows:

For the year ending	Operating Leases		Finance Leases
Remainder of 2020	$	33	$	100
2021	68		109
2022	66		76
2023	62		50
2024	53		40
2025 and thereafter	442		213
Less imputed interest	(126)		(92)
	$	598	$	496

The table above excludes lease liabilities for those leases that have been signed but have not yet commenced. As of February 27, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $157 million for the initial 10-year lease term for a building, which may, at our election, be terminated after 3 years or extended for an additional 10 years, and 2) finance lease obligations of $907 million over a weighted-average period of 15 years for gas supply arrangements deemed to be embedded leases. We will recognize right-of-use assets and associated lease liabilities at the time such assets become available for our use.

As of August 29, 2019, prior to adopting ASC 842, future minimum operating lease commitments with an initial term in excess of one year were $54 million for 2020, $64 million for 2021, $63 million for 2022, $59 million for 2023, and $53 million for 2024 and $459 million in 2025 and thereafter.