Leases Leases

12 Months Ended

Sep. 30, 2020

Leases

We lease office space and data centers under operating lease arrangements, which constitute the majority of our lease obligations. We also enter into finance lease agreements from time to time for certain computer equipment. For any lease with a lease term in excess of 12 months, the related lease assets and liabilities are recognized on our consolidated balance sheets as either operating or finance leases at the commencement of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components, and we have elected to combine these components together and account for them as a single lease component for all classes of assets. Leases with a lease term of 12 months or less are not recorded on our consolidated balance sheets. Furthermore, we recognize lease expense for these leases on a straight-line basis over the lease term.

Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We use a collateralized incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of future payments. In calculating the incremental borrowing rates, we consider recent ratings from credit agencies and current lease demographic information. Our operating leases also typically require payment of real estate taxes, common area maintenance, insurance and other operating costs as well as payments that are adjusted based on a consumer price index. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs, and are reduced by lease incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce patterns, including closing certain non-core offices and reducing office space in other locations to better align with anticipated needs. As a result of this initiative, we recorded a net impairment of $28.0 million on operating lease right-of-use assets. Prior to the adoption of ASC 842, these adjustments were described as restructuring expenses - facilities charges. See Note 11 for additional information regarding our restructuring and impairment charges.

The following table presents the lease balances within the accompanying consolidated balance sheet as of September 30, 2020:



	Balance Sheet Location	September 30, 2020
		(In thousands)
Assets
Operating leases	Operating lease right-of-use assets	$	57,656
Finance leases (*)	Property and equipment, net	5,021
Total lease assets		$	62,677
Liabilities
Current:
Operating leases	Other accrued liabilities	$	22,787
Finance leases	Other accrued liabilities	2,186
Non-current:
Operating leases	Operating lease liabilities	73,207
Finance leases	Other liabilities	3,076
Total lease liabilities		$	101,256

(*) Finance leases are recorded net of accumulated depreciation of $1.5 million.

The components of our operating and finance lease expenses were as follows:



	Year Ended September 30, 2020
	(In thousands)
Operating lease cost	$	23,624
Finance lease cost:
Depreciation of lease assets	2,078
Interest on lease liabilities	186
Short-term lease cost	1,171
Variable lease cost	3,264
Total lease cost	$	30,323

The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating and finance leases:



	September 30, 2020
	Operating Leases		Finance Leases
Weighted-average remaining lease term (in months)	63		29
Weighted-average discount rate	3.86	%	2.56	%

Supplemental cash flow information related to our operating and finance leases was as follows:



	Year Ended September 30, 2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow for operating leases	$	18,801
Operating cash outflow for finance leases	186
Financing cash outflow for finance leases	1,716
Lease assets obtained in exchange for new lease liabilities:
Operating leases	11,457
Finance leases	1,387

Future lease payments under our non-cancellable leases as of September 30, 2020 were as follows:



(In thousands)	Operating Leases			Finance Leases
Fiscal 2021	$	26,047		$	2,397
Fiscal 2022	21,925			2,240
Fiscal 2023	17,109			784
Fiscal 2024	14,384			—
Fiscal 2025	9,004			—
Thereafter	17,131			—
Total future undiscounted lease payments	105,600			5,421
Less imputed interest	(9,606		)	(159		)
Total reported lease liability	$	95,994		$	5,262

In accordance with the prior guidance—ASC 840, Leases—our leases were previously designated as either capital or operating. Previously designated capital leases are now considered finance leases under the new guidance, Topic 842. The

designation of operating leases remains substantially unchanged under the new guidance. The future minimum lease payments by fiscal year as determined prior to the adoption of Topic 842 under our previously designated capital and operating leases as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, were as follows:



(In thousands)	Operating Leases		Capital Leases
Fiscal 2020	$	19,842	$	1,935
Fiscal 2021	19,969		1,934
Fiscal 2022	17,677		1,934
Fiscal 2023	16,940		—
Fiscal 2024	14,887		—
Thereafter	24,431		—
Total minimum lease payments	$	113,746	5,803
Less amount representing interest			(379		)
Present value of minimum lease payments			$	5,424

Finance leases