Commitments and Contingencies

Aggregate Future Lease Commitments

The Company leases its office facilities and data centers under operating lease agreements, the longest of which is expected to expire in 2029. The Company’s future minimum payments, which exclude operating expenses, under non-cancelable operating leases for office facilities and data centers having initial terms in excess of one year, and sublease income as of June 30, 2016, are as follows (in thousands):



Year Ending December 31,	Gross Operating Lease Commitments ⁽¹⁾		Sublease Income ⁽²⁾			Net Operating Lease Commitments
Remainder of 2016	$	81,978	$	(9,053	)	$	72,925
2017	179,552		(18,036		)	161,516
2018	209,121		(18,209		)	190,912
2019	208,261		(18,726		)	189,535
2020	199,642		(19,241		)	180,401
Thereafter	1,127,652		(121,185		)	1,006,467
Total minimum lease payments	$	2,006,206	$	(204,450	)	$	1,801,756

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(1)

Subsequent to June 30, 2016, the Company executed an agreement with Google Inc. ("Google"), a subsidiary of Alphabet Inc., to assume Google's leased properties in Sunnyvale, California, in exchange for the Company's leased properties in Mountain View, California. The impact of this transaction on the Company's future net operating lease commitments is not material. Refer to Note 17, Subsequent Events, for additional information regarding this agreement.


(2)	Primarily represents sublease income for several buildings the Company leases in Sunnyvale, California, to be recognized over the next 10 years.

Legal Proceedings

On July 15, 2016 and July 28, 2016, two putative shareholder class action lawsuits, captioned Shahram Badiian v. Hoffman, et al., Case No. 16CV297883, and Law v. Hoffman, et. Al., Case No. 16CV298318, respectively, were filed in the Superior Court of California for Santa Clara County against the Company and the members of the Company's Board, which are referred to as the ‘‘individual defendants,’’ as well as against Microsoft and Liberty Merger Sub Inc., which are referred to as the ‘‘Microsoft defendants.’’ Both complaints generally allege that the individual defendants breached their fiduciary duties to the Company and its stockholders by, among other things, agreeing to the proposed merger with the Microsoft defendants at an unfair price and pursuant to an unfair process. The complaints also allege that the individual defendants breached their fiduciary duties by causing the July 1, 2016 preliminary proxy statement and the July 22, 2016 definitive proxy statement to be filed with the SEC with materially misleading statements and omissions regarding: (i) the process leading up to the proposed merger, (ii) certain data and inputs underlying the financial analyses of Qatalyst Partners, the Company's financial advisor in connection with the proposed merger, and (iii) the Company's management’s and analysts’ financial projections that Qatalyst Partners relied upon in preparing its financial analyses. The complaints further allege that the Microsoft defendants aided and abetted the individual defendants’ breach of their fiduciary duties. The complaints seek to preliminarily and/or permanently enjoin the proposed merger and/or rescind the merger in the event it is consummated, an accounting for damages against all defendants, and an award of attorneys’ and experts’ fees, in addition to other relief. The Company and the individual defendants believe that the plaintiffs' allegations are without merit and intend to defend against them vigorously.

The Company is also subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings. Although occasional adverse decisions or settlements may occur, the Company does not believe that the final disposition of any of these matters will have a material adverse effect on its business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages, and include claims for injunctive relief. Additionally, litigation costs can be significant. Other regulatory matters could result in fines and penalties being assessed against the Company, and it may become subject to periodic audits, which would likely increase its regulatory compliance costs. Adverse results of litigation or regulatory matters could also result in the Company being required to change its business practices, which could negatively impact membership and revenue growth.

The Company records a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Periodically, the Company evaluates developments in its legal matters that could affect the amounts that have been previously accrued, if any, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company's judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, it may be exposed to loss in excess of the amount accrued, and such amounts could be material.

Indemnifications

In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, it may have recourse against third parties for certain payments. In addition, the Company has indemnification agreements with certain of its directors and executive officers that require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers with the Company. The terms of such obligations may vary.