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Leases
 6 Months Ended
Mar. 26, 2021
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 consolidated 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. 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 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 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 is incurred.
The lease term of operating leases vary from less than a year to 11 years. We have leases that include one or more options to extend the lease term for up to 9 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 EndedFiscal Year-To-Date Ended
March 26, 2021March 27, 2020March 26, 2021March 27, 2020
Lease cost
Operating lease cost$4,953 $5,797 $9,747 $11,153 
Variable lease cost142 183 233 577 
Total lease cost$5,095 $5,980 $9,980 $11,730 
Supplemental cash flow information related to leases was as follows (in thousands):
Fiscal Quarter EndedFiscal Year-To Date Ended
March 26, 2021March 27, 2020March 26, 2021March 27, 2020
Other information
Cash paid for amounts included in the measurement of operating lease liabilities$5,143 $5,525 $10,064 $10,766 
Right-of-use assets obtained in exchange for operating lease obligations883 16,044 1,719 28,860 
Supplemental balance sheet information related to leases was as follows:
March 26, 2021September 25, 2020
Operating Leases
Weighted-average remaining lease term6.2 years6.5 years
Weighted-average discount rate3.1 %3.1 %
The following table presents the maturity analysis of lease liabilities (in thousands):
March 26, 2021
Operating Leases
Remainder of Fiscal 2021$9,001 
Fiscal 202216,502 
Fiscal 202314,295 
Fiscal 202413,279 
Fiscal 20259,565 
Thereafter23,221 
Total undiscounted lease payments85,863 
Less: imputed interest(9,385)
Total lease liabilities$76,478 
As Lessor
As a lessor, we lease our Dolby Cinema product solution to exhibitors, Dolby Voice equipment to cloud conferencing service providers, and lease or sublease real estate properties. 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, net on the condensed consolidated balance sheets, and depreciated over the useful life of the asset 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 revenue 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. The components of lease income were as follows (in millions):
Fiscal Quarter EndedFiscal Year-To-Date Ended
March 26, 2021March 27, 2020March 26, 2021March 27, 2020
Operating Lease Income
Variable operating lease income$1.3 $3.8 $0.8 $11.1 
Fixed operating lease income1.1 0.8 2.2 1.5 
If a lease is classified as a sales-type lease, the carrying amount of the asset is derecognized from property, plant and equipment, net, 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. The unguaranteed residual value of sales-type leases was $0.8 million and $0.7 million as of March 26, 2021 and September 25, 2020, respectively. 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. We also recognize variable lease payments, if any, which are not material and not included in the net investment in the lease.
The following table presents the maturity analysis of fixed lease payments due to Dolby (in thousands):
March 26, 2021
Operating LeasesSales-Type Leases
Remainder of Fiscal 2021$1,342 $1,610 
Fiscal 20222,690 1,624 
Fiscal 20232,611 1,623 
Fiscal 20241,049 810 
Fiscal 2025394 397 
Thereafter1,704 396 
Total undiscounted cash flows$9,790 6,460 
Less: present value of lease payments (recognized as lease receivables)(5,155)
Difference$1,305 
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 consolidated 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. 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 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 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 is incurred.
The lease term of operating leases vary from less than a year to 11 years. We have leases that include one or more options to extend the lease term for up to 9 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 EndedFiscal Year-To-Date Ended
March 26, 2021March 27, 2020March 26, 2021March 27, 2020
Lease cost
Operating lease cost$4,953 $5,797 $9,747 $11,153 
Variable lease cost142 183 233 577 
Total lease cost$5,095 $5,980 $9,980 $11,730 
Supplemental cash flow information related to leases was as follows (in thousands):
Fiscal Quarter EndedFiscal Year-To Date Ended
March 26, 2021March 27, 2020March 26, 2021March 27, 2020
Other information
Cash paid for amounts included in the measurement of operating lease liabilities$5,143 $5,525 $10,064 $10,766 
Right-of-use assets obtained in exchange for operating lease obligations883 16,044 1,719 28,860 
Supplemental balance sheet information related to leases was as follows:
March 26, 2021September 25, 2020
Operating Leases
Weighted-average remaining lease term6.2 years6.5 years
Weighted-average discount rate3.1 %3.1 %
The following table presents the maturity analysis of lease liabilities (in thousands):
March 26, 2021
Operating Leases
Remainder of Fiscal 2021$9,001 
Fiscal 202216,502 
Fiscal 202314,295 
Fiscal 202413,279 
Fiscal 20259,565 
Thereafter23,221 
Total undiscounted lease payments85,863 
Less: imputed interest(9,385)
Total lease liabilities$76,478 
As Lessor
As a lessor, we lease our Dolby Cinema product solution to exhibitors, Dolby Voice equipment to cloud conferencing service providers, and lease or sublease real estate properties. 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, net on the condensed consolidated balance sheets, and depreciated over the useful life of the asset 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 revenue 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. The components of lease income were as follows (in millions):
Fiscal Quarter EndedFiscal Year-To-Date Ended
March 26, 2021March 27, 2020March 26, 2021March 27, 2020
Operating Lease Income
Variable operating lease income$1.3 $3.8 $0.8 $11.1 
Fixed operating lease income1.1 0.8 2.2 1.5 
If a lease is classified as a sales-type lease, the carrying amount of the asset is derecognized from property, plant and equipment, net, 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. The unguaranteed residual value of sales-type leases was $0.8 million and $0.7 million as of March 26, 2021 and September 25, 2020, respectively. 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. We also recognize variable lease payments, if any, which are not material and not included in the net investment in the lease.
The following table presents the maturity analysis of fixed lease payments due to Dolby (in thousands):
March 26, 2021
Operating LeasesSales-Type Leases
Remainder of Fiscal 2021$1,342 $1,610 
Fiscal 20222,690 1,624 
Fiscal 20232,611 1,623 
Fiscal 20241,049 810 
Fiscal 2025394 397 
Thereafter1,704 396 
Total undiscounted cash flows$9,790 6,460 
Less: present value of lease payments (recognized as lease receivables)(5,155)
Difference$1,305