COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Operating and Finance Leases

The Company’s operating leases are primarily comprised of office facilities, with the most significant leases relating to corporate headquarters in San Francisco and an office in New York. The Company's leases have remaining lease terms of 1 year to 12 years, some of which include options to extend for 5 year terms, or include options to terminate the leases within 1 year. None of the options to extend the leases have been included in the measurement of the right of use asset or the associated lease liability.

In December 2018, the Company entered into a lease arrangement for 355,762 square feet of office space in Oakland, California for a term of 12 years with options to extend the lease term for two 5 year terms. The lease commencement date is January 15, 2020 with total lease payments over the term of approximately $276 million. Under the terms of this lease, the Company is required to make certain payments during the construction stage of the office space, which the Company will record as a prepaid lease asset. In July 2019, the Company entered into a lease arrangement for 226,258 square feet of office space in St Louis, Missouri, with an affiliate of one of the Company’s co-founders, Mr. Jim McKelvey, who is also a Company stockholder and a member of its board of directors, for a term of 15.5 years with options to extend the lease term for two 5 year terms. The Company also has an option to terminate the lease for up to 50% of the leased space any time between January 1, 2024 and December 31, 2026, as well as an option to terminate the lease for the entire property on January 1, 2034. Termination penalties specified in the lease agreement will apply if the Company exercises any of the options to terminate the lease. The lease commencement date is expected to be in July 2020 with total future minimum lease payments over the term of approximately $42.7 million.

Additionally, the Company has finance leases for data center equipment, with remaining lease terms of approximately 2 years.

The components of lease expense for the year ended December 31, 2019 were as follows (in thousands):


	Year Ended December 31,
	2019
Fixed operating lease costs	$	29,422
Variable operating lease costs	5,737
Short term lease costs	2,512
Sublease income	(3,381)
Finance lease costs
Amortization of finance right-of-use assets	5,029
Interest on finance lease liabilities	—
Total lease costs	$	39,319

Other information related to leases was as follows:


	December 31, 2019
Weighted Average Remaining Lease Term:
Operating leases	4.5 years
Finance leases	0.7 years
Weighted Average Discount Rate:
Operating leases	4	%
Finance leases	—	%

Cash flows related to leases were as follows (in thousands):


	Year Ended December 31,
	2019
Cash flows from operating activities:
Payments for operating lease liabilities	$	33,340
Cash flows from financing activities:
Principal payments on finance lease obligation	$	5,029
Supplemental Cash Flow Data:
Right-of-use assets obtained in exchange for operating lease obligations	$	40,555

Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) and future minimum finance lease payments as of December 31, 2019 are as follows (in thousands):


	Finance		Operating
Year:
2020	$	2,446	$	42,173
2021	—		65,503
2022	—		68,106
2023	—		62,847
2024	—		43,058
Thereafter	—		253,091
Total	$	2,446	$	534,778
Less: amount representing interest	—		13,494
Less: leases executed but not yet commenced	—		383,669
Less: lease incentives and transfer to held for sale	—		1,510
Total	$	2,446	$	136,105

The current portion of the finance lease liability is included within other current liabilities while the non-current portion is included within other non-current liabilities on the consolidated balance sheets. The associated finance lease assets are included in property and equipment, net on the consolidated balance sheets.

The Company recognized total rental expenses for operating leases of $32.5 million, $23.3 million, and $12.9 million during the years ended December 31, 2019, 2018, and 2017, respectively.

Litigation

The Company is currently a party to, and may in the future be involved in, various litigation matters, legal claims, and government investigations.

The Treasurer & Tax Collector of the City and County of San Francisco (Tax Collector) has issued decisions for fiscal years 2014, 2015, 2016, and 2017 that the Tax Collector believes the Company’s primary business activity is financial services rather than information, and accordingly, the Company would be liable for the Gross Receipts Tax and Payroll Expense Tax under the rules for financial services business activities. We are required to pay tax assessments prior to contesting any such assessments. This requirement is commonly referred to as “pay-to-play.” In connection with the tax audits, the Company paid an additional $1.3 million for fiscal years 2014 and 2015 in the first quarter of 2018, and an additional $8.4 million for fiscal years 2016 and 2017 in the fourth quarter of 2019, as assessed by the Tax Collector, even though the

Company strongly disagrees with the Tax Collector’s assessment of the Company’s primary business activity. The Company believes its position has merit and intends to vigorously pursue all available remedies. On September 6, 2019, the Company filed a lawsuit against the Tax Collector and the City and County of San Francisco in San Francisco County Superior Court for a refund of the additional amount of $1.3 million paid for the fiscal years of 2014 and 2015. The Company has filed a petition for redetermination with respect to the fiscal years 2016 and 2017. While the Company believes it has strong arguments, there is no assurance that courts will rule in the Company’s favor. Should the Company not reach a settlement or prevail in its legal challenge against the application of San Francisco’s Gross Receipts Tax to its business, the Company estimates that it could incur losses associated with taxes, interest, and penalties that range from approximately $0 to $63 million in the aggregate for the fiscal years 2016, 2017, 2018 and 2019, over and above the taxes the Company has already paid under the information classification. Additional taxes, interest, and penalties for future periods could be material as well. The Company regularly assesses the likelihood of adverse outcomes resulting from tax disputes such as this and examinations for all open years to determine the necessity and adequacy of any tax reserves. Given the uncertainty of the possible outcome, the Company has not recorded reserves for the exposure related to the dispute with the Tax Collector on San Francisco’s Gross Receipts Tax.

In addition, from time to time, the Company is involved in various other litigation matters and disputes arising in the ordinary course of business. The Company cannot at this time fairly estimate a reasonable range of exposure, if any, of the potential liability with respect to these other matters. While the Company does not believe, at this time, that any ultimate liability resulting from any of these other matters will have a material adverse effect on the Company's results of operations, financial position, or liquidity, the Company cannot give any assurance regarding the ultimate outcome of these other matters, and their resolution could be material to the Company's operating results for any particular period.