Leases (Notes)

3 Months Ended

Jun. 30, 2019

LEASES

Our leases primarily consist of facility leases for our offices and development studios, data centers, and server equipment, with remaining lease terms up to 10 years. Our lease terms may include options to extend or terminate the lease. When it is reasonably certain that we will exercise that option, we include the renewals or reduced lease terms in our calculation of operating lease liabilities. All of our leases are classified as operating leases.

We determine if an arrangement is or contains a lease at contract inception. The contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In determining if a contract is or contains a lease, we apply judgment whether the contract provides the right to obtain substantially all of the economic benefits, the right to direct, or control the use of the identified asset throughout the period of use.

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of future lease payments over the lease term. In determining the present value of the future lease payments, we use our incremental borrowing rate as none of our leases provide an implicit rate. Our incremental borrowing rate is an assumed rate based on our credit rating, credit history, current economic environment, and the lease term. Operating lease ROU assets are further adjusted for any payments made, incentives received, and initial direct costs incurred prior to the commencement date.

Operating lease ROU assets are amortized on a straight-line basis over the lease term and recognized as lease expense within cost of revenue or operating expenses on our Condensed Consolidated Statements of Operations. Operating lease liabilities decrease by lease payments we make over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Some of our operating leases contain lease and non-lease components. Non-lease components primarily include fixed payments for common area maintenance and utilities. We elected to account for lease and non-lease components as a single lease component. Variable lease and non-lease components are recognized on our Condensed Consolidated Statements of Operations as incurred.

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



	Three Months Ended June 30, 2019
Operating lease costs	$	15
Variable lease costs	9
Short-term lease costs	7
Total lease expense	$	31

Supplemental cash and noncash information related to our operating leases are as follows (in millions):



	Three Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liability	$	13
ROU assets obtained in exchange for new lease obligations	$	4

Weighted average remaining lease term and discount rate are as follows:



	Three Months Ended June 30, 2019
Lease term	5.4 years
Discount rate	3.6	%

Operating lease ROU assets and liabilities recorded on our Condensed Consolidated Balance Sheet as of June 30, 2019, are as follows (in millions):



	Balance at April 1, 2019	Balance as of June 30, 2019	Balance Sheet Classification
Operating lease ROU assets	215	206	Other assets

Operating lease liabilities	50	55	Accrued and other current liabilities
Noncurrent operating lease liabilities	197	185	Other liabilities
Total operating lease liabilities	247	240

Future minimum lease payments under operating leases as of June 30, 2019 were as follows (in millions):



Fiscal Years Ending March 31,
2020 (remaining nine months)	$	46
2021	56
2022	46
2023	37
2024	29
2025	23
Thereafter	28
Total future lease payments	265
Less imputed interest	(25		)
Total operating lease liabilities	$	240

Future minimum lease payments as of March 31, 2019, prior to our adoption of the New Lease Standard, were as follows (in millions):



Fiscal Years Ending March 31,
2020	$	52
2021	54
2022	44
2023	36
2024	28
Thereafter	50
Total future lease payments	$	264

As of June 30, 2019, we do not have any leases that have not yet commenced but that create significant rights and obligations.