Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Operating Leases and Other Contractual Commitments

For some of our offices and data centers, we have entered into non-cancelable operating lease agreements with various expiration dates. Rent expense associated with office space leases was $42.8 million, $39.7 million and $34.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Payments for data center square footage as well as data center capacity for certain data centers, are primarily included in cost of revenues. These costs were $25.7 million, $22.5 million and $17.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Future minimum payments under our non-cancelable operating leases and other contractual commitments as of December 31, 2018 are presented in the table below (in thousands):



	Operating Leases		Purchase Obligations ⁽¹⁾		Other		Total
Years Ending December 31,
2019	$	55,435	$	55,875	$	813	$	112,123
2020	60,996		47,062		846		108,904
2021	63,348		26,340		862		90,550
2022	67,707		6,573		862		75,142
2023	72,491		1,896		360		74,747
Thereafter	578,874		2,631		—		581,505
Total	$	898,851	$	140,377	$	3,743	$	1,042,971

(1)

Consists of future minimum payments under non-cancelable purchase commitments related to our daily business operations. Not included in the table above are certain purchase commitments related to our future annual Knowledge user conferences and other customer or sales conferences to be held in 2020 and future years. If we had canceled these contractual commitments as of December 31, 2018, we would have been obligated to pay cancellation penalties of approximately $18.5 million in aggregate.

In May 2018, we entered into lease agreements related to the expansion and lease term extension of our existing Santa Clara headquarters office facility through 2035, for approximately 838,523 square feet of office space in aggregate, with three options to renew the lease for additional terms of five years each and a right of first offer to purchase these leased premises. Rent is paid on a monthly basis and will increase incrementally over the term of the lease for total minimum payments of approximately $566.5 million.

In addition to the amounts above, the repayment of our 2022 Notes with an aggregate principal amount of $782.5 million is due on June 1, 2022. Refer to Note 11 for further information regarding our convertible senior notes.

Letter of Credits

As of December 31, 2018, we had letters of credit in the aggregate amount of $22.6 million, primarily in connection with our customer contracts and operating leases.

Legal Proceedings

From time to time, we are party to litigation and other legal proceedings in the ordinary course of business. While the results of any litigation or other legal proceedings are uncertain, management does not believe the ultimate resolution of any pending legal matters is likely to have a material adverse effect on our financial position, results of operations or cash flows, except as discussed below. We accrue for loss contingencies when it is both probable that we will incur the loss and when we can reasonably estimate the amount of the loss or range of loss.

Generally, our subscription agreements require us to defend our customers for third-party intellectual property infringement and other claims. Any adverse determination related to intellectual property claims or other litigation could prevent us from offering our services and adversely affect our financial condition and results of operations.

On February 6, 2014, Hewlett-Packard Company (Hewlett-Packard) filed a lawsuit against us in the U.S. District Court for the Northern District of California. The lawsuit alleged patent infringement and sought damages and an injunction. On or about November 1, 2015, Hewlett Packard Enterprise Company (HPE) separated from Hewlett-Packard as an independent company, and Hewlett-Packard assigned to HPE all right, title, and interest in the eight Hewlett-Packard patents in the lawsuit and HPE was substituted as plaintiff in the litigation. On March 4, 2016, we entered into a confidential settlement agreement resolving the lawsuit with HPE (HPE Settlement). As a result, on March 9, 2016, the lawsuit was dismissed.

BMC Software, Inc. (BMC) filed lawsuits against us in the U.S. District Court for the Eastern District of Texas on September 23, 2014 and February 12, 2016, and in the Dusseldorf (Germany) Regional Court, Patent Division, on March 2, 2016. Each of the lawsuits alleged patent infringement and sought damages and an injunction. On April 8, 2016, we entered into a confidential settlement agreement resolving all the lawsuits with BMC (BMC Settlement). As a result, the second Texas lawsuit was dismissed on April 14, 2016, and each of the initial Texas lawsuit and the German lawsuit was dismissed on April 25, 2016. Pursuant to the terms of the BMC Settlement, we paid BMC a settlement amount and agreed to a covenant not to sue one another for patent infringement for a specified period of time, after which time the agreement provides for certain procedures for resolving future patent disputes for a subsequent period of time.

These settlements are considered multiple element arrangements for accounting purposes. We evaluated the accounting treatment of these settlements by identifying each element of the arrangements, which included amongst other elements, a release of past infringement claims and a covenant not to sue for a specified term of years. The primary benefit we received from the arrangements was the settlement and termination of all existing litigation, the avoidance of future litigation expenses and the avoidance of future management and customer disruptions. We determined that none of the elements of the settlement agreements have identifiable future benefits that would be capitalized as an asset. Accordingly, we recorded charges for aggregate legal settlements of $270.0 million in our consolidated statement of comprehensive loss for the year ended December 31, 2016. The charge covers the fulfillment by us of all financial obligations under both the BMC Settlement and HPE Settlement with no remaining financial obligations under either settlement.