Leases (Notes)

6 Months Ended

Mar. 27, 2020

Leases [Abstract]

Leases

Leases

As Lessee

As a lessee, we enter into contracts to access and utilize office space, including those payable to our principal stockholder and portions attributable to the controlling interests in our wholly owned subsidiaries. We determine if a contract contains a lease based on whether we have the right to obtain substantially all of the economic benefits from the use of an identified asset and whether we have the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which we do not own. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized as the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our Incremental Borrowing Rate ("IBR"), because the interest rate implicit in our leases is not readily determinable. The IBR is a hypothetical rate based on our understanding of what our credit rating would be to borrow and resulting interest we would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments are included in our lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.

The lease term of operating leases vary from less than a year to 12 years. We have leases that include one or more options to extend the lease term for up to 8 years as well as options to terminate the lease within one year. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

The components of lease expense were as follows (in thousands):

	Fiscal Quarter Ended	Fiscal Year-To-Date Ended
	March 27, 2020	March 27, 2020
Lease cost
Operating lease cost	5,797	11,153
Variable lease cost	183	577
Total lease cost	5,980	11,730

Supplemental cash flow information related to leases was as follows (in thousands):

	Fiscal Quarter Ended	Fiscal Year-To Date Ended
	March 27, 2020	March 27, 2020
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	5,525	10,766
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	16,044	28,860

Supplemental balance sheet information related to leases was as follows:

	March 27, 2020
Operating Leases
Weighted-average remaining lease term	6.8 years
Weighted-average discount rate	3.2	%

The following table presents the maturity analysis of lease liabilities (in thousands):

	March 27, 2020	September 27, 2019
	Operating Leases	Operating Leases
Remainder of Fiscal 2020	10,920	17,231
Fiscal 2021	15,915	9,329
Fiscal 2022	13,571	7,191
Fiscal 2023	11,571	6,218
Fiscal 2024	9,620	4,499
Thereafter	30,373	12,355
Total undiscounted lease payments	91,970	56,823
Less: imputed interest	(10,134)
Total lease liabilities	81,836

As Lessor

As a lessor, we lease our Dolby Cinema product solution to exhibitors, Dolby Voice equipment to cloud conferencing service providers, and a real estate property. The terms of these leases vary from 4 to 10 years. Lease components consist of fixed payments and/or variable lease payments based on contracted percentages of revenue. Generally, leases do not grant any right to the lessee to purchase the underlying asset at the end of the lease term, with the exception of certain leases of Dolby Voice equipment for which the customer has the option to purchase the equipment at fair value. Dolby Cinema lease arrangements have options to extend the lease term at expiration by increments ranging from 1 to 5 years.

Assets provided under an operating lease are carried at cost within property, plant and equipment and depreciated over the lease term using the straight-line method. Fixed operating lease payments are recognized on a straight-line basis over the lease term to other income for our real estate property and to revenue for all other leases. Variable lease payments received under our Dolby Cinema operating leases are computed as shares of lessees' box office revenues and recognized to revenue in the period that box office sales occur. Lease incentive payments we make to lessees are amortized as a reduction in revenue over the lease term. For the quarter ended March 27, 2020, variable operating lease income was $3.8 million and fixed operating lease income was $0.8 million and for the fiscal year-to-date period ended March 27, 2020, variable operating lease income was $11.1 million and fixed operating lease income was $1.5 million.

If a lease is classified as a sales-type lease, the carrying amount of the asset is derecognized from property, plant and equipment and a net investment in the lease is recorded. The net investment in the lease is measured at commencement date as the sum of the lease receivable and the estimated residual value of the equipment. The unguaranteed residual value of the equipment was determined as the estimated carrying value of the asset at the end of the lease term had the asset been depreciated on a straight-line basis. At March 27, 2020, the unguaranteed residual value of sales-type leases was $0.7 million. Selling profit or loss arising from a sales-type lease is recorded at lease commencement and presented on a gross basis. Over the term of the lease, we recognize interest income on the net investment in the lease and any variable lease payments, which is not material and not included in the net investment in the lease.

The following table presents the maturity analysis of lease payments due to Dolby (in thousands):

	March 27, 2020
	Operating Leases	Sales-Type Leases
Remainder of Fiscal 2020	1,202	4,047
Fiscal 2021	3,100	1,595
Fiscal 2022	3,132	1,595
Fiscal 2023	3,093	1,595
Fiscal 2024	1,600	795
Thereafter	—	790
Total undiscounted cash flows	12,127	10,417
Less: present value of lease payments (recognized as lease receivables)		(8,342)
Difference		2,075

Leases

Leases

As Lessee

As a lessee, we enter into contracts to access and utilize office space, including those payable to our principal stockholder and portions attributable to the controlling interests in our wholly owned subsidiaries. We determine if a contract contains a lease based on whether we have the right to obtain substantially all of the economic benefits from the use of an identified asset and whether we have the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which we do not own. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized as the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our Incremental Borrowing Rate ("IBR"), because the interest rate implicit in our leases is not readily determinable. The IBR is a hypothetical rate based on our understanding of what our credit rating would be to borrow and resulting interest we would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments are included in our lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.

The lease term of operating leases vary from less than a year to 12 years. We have leases that include one or more options to extend the lease term for up to 8 years as well as options to terminate the lease within one year. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

The components of lease expense were as follows (in thousands):

	Fiscal Quarter Ended	Fiscal Year-To-Date Ended
	March 27, 2020	March 27, 2020
Lease cost
Operating lease cost	5,797	11,153
Variable lease cost	183	577
Total lease cost	5,980	11,730

Supplemental cash flow information related to leases was as follows (in thousands):

	Fiscal Quarter Ended	Fiscal Year-To Date Ended
	March 27, 2020	March 27, 2020
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	5,525	10,766
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	16,044	28,860

Supplemental balance sheet information related to leases was as follows:

	March 27, 2020
Operating Leases
Weighted-average remaining lease term	6.8 years
Weighted-average discount rate	3.2	%

The following table presents the maturity analysis of lease liabilities (in thousands):

	March 27, 2020	September 27, 2019
	Operating Leases	Operating Leases
Remainder of Fiscal 2020	10,920	17,231
Fiscal 2021	15,915	9,329
Fiscal 2022	13,571	7,191
Fiscal 2023	11,571	6,218
Fiscal 2024	9,620	4,499
Thereafter	30,373	12,355
Total undiscounted lease payments	91,970	56,823
Less: imputed interest	(10,134)
Total lease liabilities	81,836

As Lessor

As a lessor, we lease our Dolby Cinema product solution to exhibitors, Dolby Voice equipment to cloud conferencing service providers, and a real estate property. The terms of these leases vary from 4 to 10 years. Lease components consist of fixed payments and/or variable lease payments based on contracted percentages of revenue. Generally, leases do not grant any right to the lessee to purchase the underlying asset at the end of the lease term, with the exception of certain leases of Dolby Voice equipment for which the customer has the option to purchase the equipment at fair value. Dolby Cinema lease arrangements have options to extend the lease term at expiration by increments ranging from 1 to 5 years.

Assets provided under an operating lease are carried at cost within property, plant and equipment and depreciated over the lease term using the straight-line method. Fixed operating lease payments are recognized on a straight-line basis over the lease term to other income for our real estate property and to revenue for all other leases. Variable lease payments received under our Dolby Cinema operating leases are computed as shares of lessees' box office revenues and recognized to revenue in the period that box office sales occur. Lease incentive payments we make to lessees are amortized as a reduction in revenue over the lease term. For the quarter ended March 27, 2020, variable operating lease income was $3.8 million and fixed operating lease income was $0.8 million and for the fiscal year-to-date period ended March 27, 2020, variable operating lease income was $11.1 million and fixed operating lease income was $1.5 million.

If a lease is classified as a sales-type lease, the carrying amount of the asset is derecognized from property, plant and equipment and a net investment in the lease is recorded. The net investment in the lease is measured at commencement date as the sum of the lease receivable and the estimated residual value of the equipment. The unguaranteed residual value of the equipment was determined as the estimated carrying value of the asset at the end of the lease term had the asset been depreciated on a straight-line basis. At March 27, 2020, the unguaranteed residual value of sales-type leases was $0.7 million. Selling profit or loss arising from a sales-type lease is recorded at lease commencement and presented on a gross basis. Over the term of the lease, we recognize interest income on the net investment in the lease and any variable lease payments, which is not material and not included in the net investment in the lease.

The following table presents the maturity analysis of lease payments due to Dolby (in thousands):

	March 27, 2020
	Operating Leases	Sales-Type Leases
Remainder of Fiscal 2020	1,202	4,047
Fiscal 2021	3,100	1,595
Fiscal 2022	3,132	1,595
Fiscal 2023	3,093	1,595
Fiscal 2024	1,600	795
Thereafter	—	790
Total undiscounted cash flows	12,127	10,417
Less: present value of lease payments (recognized as lease receivables)		(8,342)
Difference		2,075

Leases

Leases

As Lessee

As a lessee, we enter into contracts to access and utilize office space, including those payable to our principal stockholder and portions attributable to the controlling interests in our wholly owned subsidiaries. We determine if a contract contains a lease based on whether we have the right to obtain substantially all of the economic benefits from the use of an identified asset and whether we have the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which we do not own. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized as the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our Incremental Borrowing Rate ("IBR"), because the interest rate implicit in our leases is not readily determinable. The IBR is a hypothetical rate based on our understanding of what our credit rating would be to borrow and resulting interest we would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments are included in our lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.

The lease term of operating leases vary from less than a year to 12 years. We have leases that include one or more options to extend the lease term for up to 8 years as well as options to terminate the lease within one year. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

The components of lease expense were as follows (in thousands):

	Fiscal Quarter Ended	Fiscal Year-To-Date Ended
	March 27, 2020	March 27, 2020
Lease cost
Operating lease cost	5,797	11,153
Variable lease cost	183	577
Total lease cost	5,980	11,730

Supplemental cash flow information related to leases was as follows (in thousands):

	Fiscal Quarter Ended	Fiscal Year-To Date Ended
	March 27, 2020	March 27, 2020
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	5,525	10,766
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	16,044	28,860

Supplemental balance sheet information related to leases was as follows:

	March 27, 2020
Operating Leases
Weighted-average remaining lease term	6.8 years
Weighted-average discount rate	3.2	%

The following table presents the maturity analysis of lease liabilities (in thousands):

	March 27, 2020	September 27, 2019
	Operating Leases	Operating Leases
Remainder of Fiscal 2020	10,920	17,231
Fiscal 2021	15,915	9,329
Fiscal 2022	13,571	7,191
Fiscal 2023	11,571	6,218
Fiscal 2024	9,620	4,499
Thereafter	30,373	12,355
Total undiscounted lease payments	91,970	56,823
Less: imputed interest	(10,134)
Total lease liabilities	81,836

As Lessor

As a lessor, we lease our Dolby Cinema product solution to exhibitors, Dolby Voice equipment to cloud conferencing service providers, and a real estate property. The terms of these leases vary from 4 to 10 years. Lease components consist of fixed payments and/or variable lease payments based on contracted percentages of revenue. Generally, leases do not grant any right to the lessee to purchase the underlying asset at the end of the lease term, with the exception of certain leases of Dolby Voice equipment for which the customer has the option to purchase the equipment at fair value. Dolby Cinema lease arrangements have options to extend the lease term at expiration by increments ranging from 1 to 5 years.

Assets provided under an operating lease are carried at cost within property, plant and equipment and depreciated over the lease term using the straight-line method. Fixed operating lease payments are recognized on a straight-line basis over the lease term to other income for our real estate property and to revenue for all other leases. Variable lease payments received under our Dolby Cinema operating leases are computed as shares of lessees' box office revenues and recognized to revenue in the period that box office sales occur. Lease incentive payments we make to lessees are amortized as a reduction in revenue over the lease term. For the quarter ended March 27, 2020, variable operating lease income was $3.8 million and fixed operating lease income was $0.8 million and for the fiscal year-to-date period ended March 27, 2020, variable operating lease income was $11.1 million and fixed operating lease income was $1.5 million.

If a lease is classified as a sales-type lease, the carrying amount of the asset is derecognized from property, plant and equipment and a net investment in the lease is recorded. The net investment in the lease is measured at commencement date as the sum of the lease receivable and the estimated residual value of the equipment. The unguaranteed residual value of the equipment was determined as the estimated carrying value of the asset at the end of the lease term had the asset been depreciated on a straight-line basis. At March 27, 2020, the unguaranteed residual value of sales-type leases was $0.7 million. Selling profit or loss arising from a sales-type lease is recorded at lease commencement and presented on a gross basis. Over the term of the lease, we recognize interest income on the net investment in the lease and any variable lease payments, which is not material and not included in the net investment in the lease.

The following table presents the maturity analysis of lease payments due to Dolby (in thousands):

	March 27, 2020
	Operating Leases	Sales-Type Leases
Remainder of Fiscal 2020	1,202	4,047
Fiscal 2021	3,100	1,595
Fiscal 2022	3,132	1,595
Fiscal 2023	3,093	1,595
Fiscal 2024	1,600	795
Thereafter	—	790
Total undiscounted cash flows	12,127	10,417
Less: present value of lease payments (recognized as lease receivables)		(8,342)
Difference		2,075