Leases

12 Months Ended

Mar. 31, 2023

LEASES

Our leases primarily consist of facility leases for our offices and development studios, data centers, and server equipment, with remaining lease terms of up to 15 years. Our lease terms may include options to extend or terminate the lease. When it is reasonably certain that we will exercise those options, we include them in our measurement of lease payments and lease terms. Substantially 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 right-of-use (“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 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. When we commit to a plan to abandon an operating lease at a future date, the amortization of the operating lease ROU asset and depreciation of the associated leasehold improvements are accelerated based on the revised useful life of the operating lease.

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 Consolidated Statements of Operations as incurred.

The components of lease expenses for the fiscal years ended March 31, 2023, 2022, and 2021 are as follows (in millions):


	Year Ended March 31,
	2023		2022		2021
Operating lease costs	$	138	$	98	$	87
Variable lease costs	22		21		21
Short-term lease costs	7		2		2
Total lease expense	$	167	$	121	$	110

During the fiscal year ended March 31, 2023, we recorded accelerated amortization of certain ROU Assets of $34 million within the operating lease costs and accelerated deprecation of property, plant and equipment for $10 million as part of our 2023 Restructuring Plan. See Note 8 — Restructuring Activities for additional information.

Supplemental cash and noncash information related to our operating leases for the fiscal years ended March 31, 2023, 2022, and 2021 are as follows (in millions):


	Year Ended March 31,
	2023		2022		2021
Cash paid for amounts included in the measurement of lease liability	$	97	$	97	$	85
ROU assets obtained in exchange for new lease obligations	$	97	$	150	$	90

Weighted average remaining lease term and discount rate at March 31, 2023 and 2022 are as follows:


	At March 31, 2023		At March 31, 2022
Lease term	7.5 years		6.8 years
Discount rate	3.3	%	2.5	%

Operating lease ROU assets and liabilities recorded on our Consolidated Balance Sheets as of March 31, 2023 and 2022 are as follows (in millions):


	As of March 31,				Balance Sheet Classification
	2023		2022
Operating lease ROU assets	$	276	$	314	Other assets

Operating lease liabilities	$	66	$	81	Accrued and other current liabilities
Noncurrent operating lease liabilities	277		272		Other liabilities
Total operating lease liabilities	$	343	$	353

Future minimum lease payments under operating leases as of March 31, 2023 were as follows (in millions):


Fiscal Years Ending March 31,
2024	$	73
2025	69
2026	56
2027	41
2028	32
Thereafter	116
Total future lease payments	387
Less imputed interest	(44)
Total operating lease liabilities	$	343

In addition to the amounts included in the table above, as of March 31, 2023, we have entered into an office lease that has not yet commenced with aggregate future lease payments of approximately $98 million. This lease is expected to commence in fiscal year 2024, and will have a lease term of 12 years.