Leases

9 Months Ended

Sep. 30, 2019

Note 6 - Leases

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



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease cost
Finance lease cost:
Amortization of assets	$	39	$	110
Interest of lease liabilities	4		12
Operating lease cost	84		230
Short-term lease cost	4		22
Variable lease cost	26		80
Sublease income	—		(1		)
Total lease cost	$	157	$	453

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



	Nine Months Ended September 30, 2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from financing leases	$	10
Operating cash flows from operating leases	192
Financing cash flows from financing leases	120
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	$	804
Finance lease liabilities	196

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):



	As of September 30, 2019
Operating Leases
Operating lease right-of-use assets	$	1,538
Operating lease liability, current	197
Operating lease liabilities, non-current	1,459
Total operating lease liabilities	$	1,656



	As of September 30, 2019
Finance Leases
Property and equipment, at cost	$	484
Accumulated depreciation	(207		)
Property and equipment, net	$	277
Other current liabilities	$	130
Other long-term liabilities	144
Total finance leases liabilities	$	274



	As of September 30, 2019
Weighted-average remaining lease term
Operating leases	16 years
Finance leases	2 years
Weighted-average discount rate
Operating leases	7.2	%
Finance leases	5.1	%

Maturities of lease liabilities were as follows (in millions):



	As of September 30, 2019
	Operating Leases			Finance Leases
Remainder of 2019	$	58		$	37
2020	226			136
2021	290			98
2022	253			18
2023	186			—
Thereafter	2,284			—
Total undiscounted lease payments	3,297			289
Less: imputed interest	(1,641		)	(15		)
Total lease liabilities	$	1,656		$	274

As of September 30, 2019, the Company had additional operating leases and finance leases, primarily for corporate offices and servers, that have not yet commenced of $550 million and $3 million, respectively. These operating and finance leases will commence between fiscal year 2019 and fiscal year 2022 with lease terms of 2 years to 11 years.

Mission Bay 1 & 2

In 2015, the Company entered into a joint venture (“JV”) agreement with a real estate developer (“JV Partner”) to develop land (“the Land”) in San Francisco to construct the Company’s new headquarters (the “Headquarters”). The Headquarters will consist of two adjacent office buildings totaling approximately 423,000 rentable square feet. In connection with the JV arrangement, the Company had acquired a 49% interest in the JV, the principal asset of which was the Land.

In 2016, the Company and the JV Partner agreed to dissolve the JV and terminate the Company’s commitment to the lease of the Headquarters (together “the real estate transaction”) and the Company retained a 49% indirect interest in the Land (“Indirect Interest”). Under the terms of the real estate transaction, the Company obtained the rights and title to the partially constructed building, will complete the development of the two office buildings and retain a 100% ownership in the buildings. In connection with the real estate transaction, the Company also executed two 75-year land lease agreements (“Land Leases”). As of September 30, 2019, commitments under the Land Leases total $167 million until February 2032. After 2032, the annual rent amount will adjust annually based on the prevailing consumer price index.

The real estate transaction is accounted for as a financing transaction of its 49% Indirect Interest due to the Company’s continuing involvement through a purchase option on the Indirect Interest. As a financing transaction, the cash and deferred sales proceeds received from the real estate transaction are recorded as a financing obligation. As of September 30, 2019, the Company’s Indirect Interest of $65 million is included in property and equipment, net and a corresponding financing obligation of $79 million is included in other long-term liabilities. Future land lease payments of $1.8 billion will be allocated 49% to the financing obligation of the Indirect Interest and 51% to the operating lease of land.

Future minimum payments related to the financing obligations as of September 30, 2019 are summarized below (in millions):



	Future Minimum Payments
Fiscal Year Ending December 31,
Remainder of 2019	$	1
2020	6
2021	6
2022	6
2023	6
Thereafter	833
Total	$	858

Leases