Leases

9 Months Ended

May 28, 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 gas or other supply or service 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.

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 expense are presented below:

	Quarter ended		Nine months ended
	May 28, 2020		May 28, 2020
Finance leases
Amortization of right-of-use asset	$	29	$	108
Interest on lease liability	6		17
Operating leases	27		75
	$	62	$	200

Other information related to our leases were as follows:

Nine months ended	May 28, 2020
Cash flows used for operating activities
Finance leases	$	18
Operating leases(1)	15
Cash flows used for financing activities
Finance leases	171
Noncash acquisitions of right-of-use assets
Finance leases	81
Operating leases	32

⁽¹⁾Amount is net of $48 million of reimbursements received for tenant improvements.

As of	May 28, 2020
Finance lease right-of-use assets (included in property, plant, and equipment)	$	550
Weighted-average remaining lease term (in years)
Finance leases	4.7
Operating leases	7.1
Weighted-average discount rate
Finance leases	4.64		%
Operating leases	2.67		%

Maturities of lease liabilities existing as of May 28, 2020 were as follows:

For the year ending	Finance Leases		Operating Leases
Remainder of 2020	$	85	$	18
2021	86		69
2022	83		67
2023	58		63
2024	47		54
2025 and thereafter	280		445
Less imputed interest	(110)		(122)
	$	529	$	594

The table above excludes any lease liabilities for leases that have been signed but have not yet commenced. As of May 28, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $150 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 $805 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 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

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 gas or other supply or service 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.

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 expense are presented below:

	Quarter ended		Nine months ended
	May 28, 2020		May 28, 2020
Finance leases
Amortization of right-of-use asset	$	29	$	108
Interest on lease liability	6		17
Operating leases	27		75
	$	62	$	200

Other information related to our leases were as follows:

Nine months ended	May 28, 2020
Cash flows used for operating activities
Finance leases	$	18
Operating leases(1)	15
Cash flows used for financing activities
Finance leases	171
Noncash acquisitions of right-of-use assets
Finance leases	81
Operating leases	32

⁽¹⁾Amount is net of $48 million of reimbursements received for tenant improvements.

As of	May 28, 2020
Finance lease right-of-use assets (included in property, plant, and equipment)	$	550
Weighted-average remaining lease term (in years)
Finance leases	4.7
Operating leases	7.1
Weighted-average discount rate
Finance leases	4.64		%
Operating leases	2.67		%

Maturities of lease liabilities existing as of May 28, 2020 were as follows:

For the year ending	Finance Leases		Operating Leases
Remainder of 2020	$	85	$	18
2021	86		69
2022	83		67
2023	58		63
2024	47		54
2025 and thereafter	280		445
Less imputed interest	(110)		(122)
	$	529	$	594

The table above excludes any lease liabilities for leases that have been signed but have not yet commenced. As of May 28, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $150 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 $805 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 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.