Annual report pursuant to Section 13 and 15(d)

Lease Accounting

v3.20.4
Lease Accounting
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Lease Accounting

4.

LEASE ACCOUNTING  

Real Estate Leases - The Company conducts a significant part of its theatre operations in leased properties under noncancelable operating and finance leases with base terms generally ranging from 10 to 25 years. In addition to fixed lease payments, some of the leases provide for variable lease payments and some require the payment of taxes, insurance and other costs applicable to the property. Variable lease payments include payments based on a percentage of retail sales or a percentage of retail sales over defined thresholds.  Other variable lease payments include payments adjusted periodically for inflation, changes in attendance or changes in average ticket price. The Company can renew, at its option, many of its leases at defined or then market rental rates for various renewal periods.  Some leases also provide for escalating rent payments throughout the lease term.  The Company also leases certain office and warehouse facilities in the U.S. and in international locations, which generally only include fixed payments.  The Company recognizes fixed lease expense for the operating leases on a straight-line basis over the lease term.  The Company’s real estate lease agreements do not contain any residual value guarantees or restrictive covenants.

 

Equipment Leases - The Company leases certain equipment under operating leases, including trash compactors and various other equipment used in the day-to-day operation of its theatres.  Certain of the leases require fixed lease payments to be made over the duration of the lease term, while others are variable in nature based on usage or sales.  Certain of these leases are month-to-month, while others have noncancelable terms ranging from 5 to 6 years.  The Company’s equipment lease agreements do not contain any residual value guarantees or restrictive covenants.  The Company leased digital projectors through October 2020.  See further discussion of the leased projectors at Note 9.  

Lease Deferrals and Abatements - Upon the temporary closure of theatres in March 2020, the Company began negotiating the deferral of rent and other lease-related payments with its landlords while theatres remained closed.  These discussions and negotiations have remained ongoing as the Company continues to be impacted by the COVID-19 pandemic.  These negotiations resulted in amendments to the leases that involve varying concessions, including the abatement of rent payments during closure, deferral of all or a portion of rent payments to later periods and deferrals of rent payments combined with an early exercise of an existing renewal option or extension of the lease term.  In certain locations, the Company is entitled to rent-free periods while theatres remain closed in accordance with local regulations.  Total payments deferred as of December 31, 2020 were approximately $66,178, $48,366 of which is included in accrued other current liabilities and $17,812 of which is included in other long term liabilities on the consolidated balance sheet.

In April 2020, the FASB staff released guidance indicating that in response to the COVID-19 pandemic, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for

concessions exist in the contract and could elect to apply or not apply the lease modification guidance in ASC Topic 842, Leases to those contracts.  The election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.

The Company elected to not remeasure the lease liabilities and right-of-use assets for those leases where the concessions and deferrals did not result in a significant change in total payments under the lease and where the remaining lease term did not change as a result of the negotiation.   For those leases that were renewed or extended as a result of the negotiation to defer rent payments, the Company recalculated the related lease liability and right-of-use asset based on the new terms.  

 

The following table represents the operating and finance right-of-use assets and lease liabilities as of the periods indicated.

 

 

 

 

As of

 

 

As of

 

Leases

Classification

 

December 31, 2019

 

 

December 31, 2020

 

Assets (1)

 

 

 

 

 

 

 

 

 

Operating lease assets

Operating lease assets

 

$

1,383,080

 

 

$

1,278,191

 

Finance lease assets

Theatre properties and equipment, net of accumulated depreciation (2)

 

 

116,135

 

 

 

99,195

 

Total lease assets

 

 

$

1,499,215

 

 

$

1,377,386

 

 

 

 

 

 

 

 

 

 

 

Liabilities (1)

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Operating

Current portion of operating lease obligations

 

$

217,406

 

 

$

208,593

 

Finance

Current portion of finance lease obligations

 

 

15,432

 

 

 

16,407

 

Noncurrent

 

 

 

 

 

 

 

 

 

Operating

Operating lease obligations, less current portion

 

 

1,223,462

 

 

 

1,138,142

 

Finance

Finance lease obligations, less current portion

 

 

141,017

 

 

 

124,609

 

Total lease liabilities

 

 

$

1,597,317

 

 

$

1,487,751

 

 

(1)

The operating lease right-of-use assets and liabilities recorded on the Company’s consolidated balance sheet generally do not include renewal options that have not yet been exercised.  The Company does not consider a lease renewal as reasonably certain until the necessary notification is provided to the landlord.

(2)

Finance lease assets are net of accumulated amortization of $36,384 and $47,961 as of December 31, 2019 and 2020, respectively.

As of December 31, 2020, the Company had signed lease agreements with total noncancelable lease payments of approximately $190,870 related to theatre leases that had not yet commenced.  The timing of lease commencement is dependent on the completion of construction of the related theatre facility.  Additionally, these amounts are based on estimated square footage and costs to construct each facility and may be subject to adjustment upon final completion of each construction project.  In accordance with ASC Topic 842, fixed minimum lease payments related to these theatres are not included in the right-of-use assets and lease liabilities as of December 31, 2020.  There were no significant noncancelable equipment lease agreements signed, but not yet commenced.  

The following table represents the Company’s aggregate lease costs, by lease classification, for the periods indicated.

 

 

 

Year Ended

 

Year Ended

 

Lease Cost

Classification

December 31, 2019

 

December 31, 2020

 

Operating lease costs

 

 

 

 

 

 

 

Equipment (1)

Utilities and other

$

9,172

 

$

3,324

 

Real Estate (2)(3)

Facility lease expense

 

346,222

 

 

275,056

 

Total operating lease costs

 

$

355,394

 

$

278,380

 

 

 

 

 

 

 

 

 

Finance lease costs

 

 

 

 

 

 

 

Depreciation of leased assets

Depreciation and amortization

$

14,734

 

$

14,662

 

Interest on lease liabilities

Interest expense

 

7,786

 

 

7,014

 

Total finance lease costs

 

$

22,520

 

$

21,676

 

(1)

Includes approximately $4,700 and $(465) of short-term lease payments for the years ended December 31, 2019 and 2020, respectively.    The amount for the year ended December 31, 2020 was impacted by i) a decrease in short term lease payments while theatres were closed and ii) rent abatements on leases that were not recalculated in accordance with the FASB guidance discussed above, which resulted in variable rent credits in the amount of the rent abatements

(2)

Includes approximately $68,799 and $7,058 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs for the year ended December 31, 2019 and 2020, respectively.  The amount for the year ended December 31, 2020 was impacted by rent abatements on leases that were not recalculated in accordance with the FASB guidance discussed above, which resulted in variable rent credits in the amount of the rent abatements.

(3)

Approximately $1,614 and $1,445 of lease payments are included in general and administrative expenses primarily related to office leases for the year ended December 31, 2019 and 2020, respectively.  

The following table represents the maturity of lease liabilities, by lease classification, as of December 31, 2020.

 

 

 

Operating

 

Finance

 

 

 

 

Years Ending

 

Leases

 

Leases

 

Total

 

2021 (1)

 

$

268,390

 

$

22,671

 

$

291,061

 

2022 (1)

 

 

250,956

 

 

21,935

 

 

272,891

 

2023

 

 

225,840

 

 

21,246

 

 

247,086

 

2024

 

 

194,197

 

 

20,165

 

 

214,362

 

2025

 

 

166,131

 

 

18,380

 

 

184,511

 

After 2025

 

 

508,104

 

 

70,533

 

 

578,637

 

Total lease payments

 

$

1,613,618

 

$

174,930

 

$

1,788,548

 

Less: Interest

 

 

266,883

 

 

33,914

 

 

300,797

 

Present value of lease liabilities

 

$

1,346,735

 

$

141,016

 

$

1,487,751

 

 

 

(1)

Amounts do not include rent payments deferred under amendments as discussed at Lease Deferrals and Abatements above.  

 

The following table represents the weighted-average remaining lease term and discount rate, disaggregated by lease classification, as of December 31, 2020.

 

 

As of

 

Lease Term and Discount Rate

 

December 31, 2020

 

Weighted-average remaining lease term (years) (1)

 

 

 

 

Operating leases - equipment

 

 

2.5

 

Operating leases - real estate

 

 

7.6

 

Finance leases - equipment

 

 

4.4

 

Finance leases - real estate

 

 

9.2

 

 

 

 

 

 

Weighted-average discount rate (2)

 

 

 

 

Operating leases - equipment

 

 

4.2

%

Operating leases - real estate

 

 

4.9

%

Finance leases - equipment

 

 

4.7

%

Finance leases - real estate

 

 

4.8

%

 

(1)

The lease assets and liabilities recorded on the Company’s consolidated balance sheet generally do not include renewal options that have not yet been executed.  The Company does not consider a lease renewal exercise as reasonably certain until immediately before the necessary notification is provided to the landlord.

 

 

(2)

The discount rate for each lease represents the incremental borrowing rate at which the Company would borrow, on a collateralized basis, over a similar term and at an amount equal to the lease payments in a similar economic environment.

 

The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of right-of-use assets for the periods presented.  

 

 

 

Year Ended

 

 

Year Ended

 

Other Information

 

December 31, 2019

 

 

December 31, 2020

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Cash outflows for operating leases

 

$

281,895

 

 

$

271,787

 

Cash outflows for finance leases - operating activities

 

$

7,576

 

 

$

6,985

 

Cash outflows for finance leases - financing activities

 

$

14,600

 

 

$

15,432

 

Non-cash amount of leased assets obtained in exchange for:

 

 

 

 

 

 

 

 

Operating lease liabilities - real estate

 

$

113,318

 

 

$

132,529

 

Operating lease liabilities - equipment

 

$

795

 

 

$

188

 

Finance lease liabilities

 

$

21,535

 

 

$

 

 

Lessor Arrangements

Under the Company’s Exhibitor Services Agreement (“ESA”) with National CineMedia, LLC (“NCM”), the nonconsecutive periods of use of the theatre screens by NCM qualify as a lease in accordance with ASC Topic 842.  See further discussion in Note 8.

The Company rents its theatre auditoriums for corporate meetings, screenings, education and training sessions and other private events.  These rentals, which are not significant to the Company, are generally one-time events and the related revenue is reflected as other revenue on the consolidated statement of income.