Leases

12 Months Ended

Sep. 03, 2020

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 SG&A functions. Our finance leases consist primarily of gas or other supply agreements that are deemed to contain 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. Our gas supply arrangements generally are deemed to contain a lease because we have the right to substantially all of the output of the assets used to produce the supply and we have the right to change the quantity and timing of the output of those 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.

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 2020. The components of lease expense are presented below:


For the year ended	2020

Finance lease cost
Amortization of right-of-use asset	$	140
Interest on lease liability	22
Operating lease cost	102
	$	264

Other information related to our leases were as follows:


For the year ended	2020

Cash flows used for operating activities
Finance leases	$	24
Operating leases⁽¹⁾	39
Cash flows used for financing activities from financing leases	248
Noncash acquisitions of right-of-use assets
Finance leases	107
Operating leases	11

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


As of	2020

Finance lease right-of-use asset (included in property, plant, and equipment)⁽¹⁾	$	426
Weighted-average remaining lease term (in years)
Finance leases	5
Operating leases	7
Weighted-average discount rate
Finance leases	4.51		%
Operating leases	2.67		%

⁽¹⁾ As of August 29, 2019, prior to our adoption of ASC 842, property, plant, and equipment included $700 million for finance leases.

Maturities of lease liabilities existing as of September 3, 2020 were as follows:


For the year ending	Finance Leases		Operating Leases

2021	$	90	$	70
2022	90		69
2023	70		65
2024	53		55
2025	38		47
2026 and thereafter	248		401
Less imputed interest	(103)		(120)
	$	486	$	587

The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of September 3, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $148 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 $838 million over a weighted-average period of 15 years for gas supply arrangements deemed to contain 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 our adoption of 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, $53 million for 2024, and $459 million in 2025 and thereafter.

Leases


For the year ended	2020

Finance lease cost
Amortization of right-of-use asset	$	140
Interest on lease liability	22
Operating lease cost	102
	$	264

Other information related to our leases were as follows:


For the year ended	2020

Cash flows used for operating activities
Finance leases	$	24
Operating leases⁽¹⁾	39
Cash flows used for financing activities from financing leases	248
Noncash acquisitions of right-of-use assets
Finance leases	107
Operating leases	11

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


As of	2020

Finance lease right-of-use asset (included in property, plant, and equipment)⁽¹⁾	$	426
Weighted-average remaining lease term (in years)
Finance leases	5
Operating leases	7
Weighted-average discount rate
Finance leases	4.51		%
Operating leases	2.67		%

⁽¹⁾ As of August 29, 2019, prior to our adoption of ASC 842, property, plant, and equipment included $700 million for finance leases.

Maturities of lease liabilities existing as of September 3, 2020 were as follows:


For the year ending	Finance Leases		Operating Leases

2021	$	90	$	70
2022	90		69
2023	70		65
2024	53		55
2025	38		47
2026 and thereafter	248		401
Less imputed interest	(103)		(120)
	$	486	$	587