Leases

Capital Leases

We have master lease agreements with our primary vendors that supply us with servers and computer equipment. Historically, we have financed most equipment purchases through their respective finance companies. The terms vary with each vendor but typically include a term of two to five years and interest rates ranging from 1% to 4%. A majority of these agreements allow us to purchase the equipment at the end of the lease for a nominal amount.

Amounts in property and equipment under these capital leases consisted of:



(In thousands)	December 31, 2012			December 31, 2013
Computers, software and equipment	$	389,720		$	391,833
Less: accumulated depreciation and amortization	(272,708		)	(335,599		)
	$	117,012		$	56,234

Additionally, we have entered into some complex real estate development and lease arrangements with independent real estate developers to design, construct and lease certain real estate projects. While the independent developer legally owns the real estate projects and must finance the overall construction, we have funded certain structural improvements and/or retained obligations related to certain potential construction cost overruns which have triggered an accounting requirement to include construction costs in progress and a related long-term lease finance liability on our balance sheets as though we are the owner of the asset during the construction period. We have reported $6.8 million of costs incurred at December 31, 2013 as work in process and recorded a corresponding long-term lease finance liability. We do not depreciate the cost of the real estate projects or expect to fund this long-term lease finance liability during the construction period.

Upon completion of construction, we will perform a sale-leaseback analysis pursuant to ASC 840, Leases, to determine if we can remove the asset and liability from our consolidated balance sheet. If the asset and corresponding liability can be derecognized, then the lease will be accounted for as an operating lease, and we will recognize rent expense over the lease term. However, certain factors may be considered “continuing involvement” which precludes derecognizing the asset and liability from the consolidated balance sheet when construction is complete. If the sale-leaseback criteria are not met, the asset would be considered to be owned for accounting purposes during the lease term. Accordingly, it would be depreciated and rental payments under the lease would be recorded as a reduction of the lease finance liability and interest expense.

Future capital lease payments under non-cancelable leases as of December 31, 2013 were as follows:



(In thousands)
Year ending:	Amount
2014	$	39,221
2015	17,448
2016	2,242
2017	622
2018	635
Thereafter	3,819
Total minimum capital lease payments	63,987
Less amount representing interest	(1,054		)
Present value of net minimum lease payments	62,933
Less current portion of obligations under capital leases	(37,885		)
Non-current obligations under capital leases	$	25,048

Operating Leases

We lease our data center facilities and certain office space under non-cancelable operating lease agreements. Facility leases generally include renewal options and may require us to pay a portion of the related operating expenses. Certain of these lease agreements have escalating rental payment provisions. We recognize rent expense for such arrangements on a straight-line basis.

Future operating lease payments under non-cancelable leases with an initial term in excess of one year as of December 31, 2013 were as follows:



(In thousands)
Year ending:	Amount
2014	$	67,160
2015	69,306
2016	65,124
2017	64,944
2018	60,172
Thereafter	591,054
Total minimum operating lease payments	$	917,760

Rent expense for the years ended December 31, 2011, 2012 and 2013 was $34.1 million, $46.1 million and $66.0 million, respectively.