Leases

9 Months Ended

Sep. 24, 2020

Leases

Leases

6. Leases

The Company determines if an arrangement is a lease at inception. The Company evaluates each lease for classification as either a finance lease or an operating lease according to accounting guidance ASU No. 2016-02, Leases (Topic 842). The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. The Company leases real estate and equipment with lease terms of one year to 45 years, some of which include options to extend and/or terminate the lease.

The majority of the Company’s lease agreements include fixed rental payments. For those leases with variable payments based on increases in an index subsequent to lease commencement, such payments are recognized as variable lease expense as they occur. Variable lease payments that do not depend on an index or rate, including those that depend on the Company’s performance or use of the underlying asset, are also expensed as incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Total lease cost consists of the following:

		13 Weeks		39 Weeks
		Ended		Ended
Lease Cost	Classification	September 24, 2020		September 24, 2020
				(in thousands)
Finance lease costs:
Amortization of finance lease assets	Depreciation and amortization	$	707	$	2,137
Interest on lease liabilities	Interest expense		263		794
		$	970	$	2,931
Operating lease costs:
Operating lease costs	Rent expense	$	6,357	$	19,236
Variable lease cost	Rent expense		124		371
Short-term lease cost	Rent expense		113		269
		$	6,594	$	19,876

Additional information related to leases is as follows:

	39 Weeks
	Ended
Other Information	September 24, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	1,389
Operating cash flows from finance leases		794
Operating cash flows from operating leases		11,376
Right of use assets obtained in exchange for new lease obligations:
Finance lease liabilities		1,364
Operating lease liabilities		9,644

	September 24, 2020
	(in thousands)
Finance leases:
Property and equipment – gross	$	75,291
Accumulated depreciation and amortization		(54,817)
Property and equipment - net	$	20,474

Remaining lease terms and discount rates are as follows:

Lease Term and Discount Rate	September 24, 2020
Weighted-average remaining lease terms:
Finance leases	9	years
Operating leases	15	years
Weighted-average discount rates:
Finance leases	4.58	%
Operating leases	4.54	%

As of September 24, 2020, the Company had a build-to-suit lease arrangement in which the Company is responsible for the construction of a new leased theatre and for paying construction costs during development. Construction costs will be reimbursed by the landlord up to an agreed upon amount. During construction, the Company is deemed to not have control of the assets or the leased premises and has recorded the development expenditures in other assets on the consolidated balance sheet. The project is currently on hold due to the COVID-19 pandemic.

Due to the COVID-19 pandemic, the Company temporarily closed all of its theatres on March 17, 2020 and had temporarily closed all of its company-owned hotels by April 8, 2020. At that time, the Company began actively working with landlords to discuss changes to the timing of lease payments and contract terms of leases due to the pandemic. The lease terms were negotiated on a lease-by-lease basis with individual landlords. In conjunction with these lease discussions, the Company obtained lease concessions for the majority of its leases. Substantially all of the lease concessions were for the deferral of lease payments into future periods. This resulted in the total payments required by the modified contract being substantially the same as or less than the total payments required by the original contract. In accordance with FASB Staff Q&A – Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic issued in April 2020, the Company has made the policy election to account for these lease concessions as if they were made under the enforceable rights included in the original agreement and are thus outside of the modification framework. The Company has elected to account for these concessions as if no changes to the lease contract were made and has continued to recognize rent expense during the deferral period. Deferred rent payments of approximately $7,783,000 for the Company’s operating leases have been included in the total operating lease obligations as of September 24, 2020, of which approximately $1,226,000 is included in long-term operating lease obligations.