Leases

12 Months Ended

Sep. 02, 2021

Leases [Abstract]

Leases

Leases

We have finance and operating leases through which we obtain the right to use 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 judgment to determine the discount rate, which we base on interest rates for borrowings with similar terms and collateral issued by entities with credit ratings similar to ours.

Operating lease costs include short-term and variable lease expenses. Short-term, variable leases, and sublease income are not material for the periods presented. The components of lease expense are presented below:

For the year ended	2021		2020
Finance lease cost
Amortization of right-of-use asset	$	69	$	140
Interest on lease liability	20		22
Operating lease cost	108		102
	$	197	$	264

Operating lease expense under the previous ASC 840 lease accounting guidance was $93 million for 2019.

Supplemental cash flow information related to leases was as follows:

For the year ended	2021		2020
Cash flows used for operating activities
Finance leases	$	21	$	24
Operating leases(1)	106		39
Cash flows used for financing activities from financing leases	85		248
Noncash acquisitions of right-of-use assets
Finance leases	395		107
Operating leases	27		11

(1)Includes $48 million of reimbursements received for tenant improvements for 2020.

Supplemental balance sheet information related to leases was as follows:

As of	2021			2020
Finance lease right-of-use assets (included in property, plant, and equipment and assets held for sale)	$	766		$	426
Current operating lease liabilities (included in accounts payable and accrued expenses)	55			54
Weighted-average remaining lease term (in years)
Finance leases	5			5
Operating leases	7			7
Weighted-average discount rate
Finance leases	3.14		%	4.51		%
Operating leases	2.63		%	2.67		%

Maturities of lease liabilities existing as of September 2, 2021 were as follows:

For the year ending	Finance Leases		Operating Leases
2022	$	127	$	68
2023	115		69
2024	89		61
2025	74		50
2026	74		47
2027 and thereafter	454		372
Less imputed interest	(130)		(108)
	$	803	$	559

The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of September 2, 2021, we had such lease liabilities relating to (1) operating lease payment obligations of $147 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 $553 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.

Leases

Leases

We have finance and operating leases through which we obtain the right to use 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 judgment to determine the discount rate, which we base on interest rates for borrowings with similar terms and collateral issued by entities with credit ratings similar to ours.

Operating lease costs include short-term and variable lease expenses. Short-term, variable leases, and sublease income are not material for the periods presented. The components of lease expense are presented below:

For the year ended	2021		2020
Finance lease cost
Amortization of right-of-use asset	$	69	$	140
Interest on lease liability	20		22
Operating lease cost	108		102
	$	197	$	264

Operating lease expense under the previous ASC 840 lease accounting guidance was $93 million for 2019.

Supplemental cash flow information related to leases was as follows:

For the year ended	2021		2020
Cash flows used for operating activities
Finance leases	$	21	$	24
Operating leases(1)	106		39
Cash flows used for financing activities from financing leases	85		248
Noncash acquisitions of right-of-use assets
Finance leases	395		107
Operating leases	27		11

(1)Includes $48 million of reimbursements received for tenant improvements for 2020.

Supplemental balance sheet information related to leases was as follows:

As of	2021			2020
Finance lease right-of-use assets (included in property, plant, and equipment and assets held for sale)	$	766		$	426
Current operating lease liabilities (included in accounts payable and accrued expenses)	55			54
Weighted-average remaining lease term (in years)
Finance leases	5			5
Operating leases	7			7
Weighted-average discount rate
Finance leases	3.14		%	4.51		%
Operating leases	2.63		%	2.67		%

Maturities of lease liabilities existing as of September 2, 2021 were as follows:

For the year ending	Finance Leases		Operating Leases
2022	$	127	$	68
2023	115		69
2024	89		61
2025	74		50
2026	74		47
2027 and thereafter	454		372
Less imputed interest	(130)		(108)
	$	803	$	559

The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of September 2, 2021, we had such lease liabilities relating to (1) operating lease payment obligations of $147 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 $553 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.