Notes to Financial Statements

NOTE 14 — LEASES

We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended June 30,

 

2021

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

2,127

 

 

$

2,043

 

 

$

1,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

$

921

 

 

$

611

 

 

$

370

 

Interest on lease liabilities

 

 

386

 

 

 

336

 

 

 

247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total finance lease cost

 

$

1,307

 

 

$

947

 

 

$

617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information related to leases was as follows:

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended June 30,

 

2021

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2,052

 

 

$

1,829

 

 

$

1,670

 

Operating cash flows from finance leases

 

 

386

 

 

 

336

 

 

 

247

 

Financing cash flows from finance leases

 

 

648

 

 

 

409

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

4,380

 

 

 

3,677

 

 

 

2,303

 

Finance leases

 

 

3,290

 

 

 

3,467

 

 

 

2,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental balance sheet information related to leases was as follows:

 

(In millions, except lease term and discount rate)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

2021

 

 

2020

 

 

 

 

Operating Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

11,088

 

 

$

8,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

1,962

 

 

$

1,616

 

Operating lease liabilities

 

 

9,629

 

 

 

7,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating lease liabilities

 

$

11,591

 

 

$

9,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, at cost

 

$

14,107

 

 

$

10,371

 

Accumulated depreciation

 

 

(2,306

)

 

 

(1,385

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

11,801

 

 

$

8,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

791

 

 

$

540

 

Other long-term liabilities

 

 

11,750

 

 

 

8,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total finance lease liabilities

 

$

12,541

 

 

$

9,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

8 years

 

 

 

8 years

 

Finance leases

 

 

12 years

 

 

 

13 years

 

 

 

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

2.2%

 

 

 

2.7%

 

Finance leases

 

 

3.4%

 

 

 

3.9%

 

 

 

 

 

 

 

 

 

 

 

The following table outlines maturities of our lease liabilities as of June 30, 2021:

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ending June 30,

 

Operating

Leases

 

 

Finance

Leases

 

 

 

 

2022

 

$

2,125

 

 

$

1,179

 

2023

 

 

1,954

 

 

 

1,198

 

2024

 

 

1,751

 

 

 

1,211

 

2025

 

 

1,463

 

 

 

1,537

 

2026

 

 

1,133

 

 

 

1,220

 

Thereafter

 

 

4,111

 

 

 

8,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total lease payments

 

 

12,537

 

 

 

15,201

 

Less imputed interest

 

 

(946

)

 

 

(2,660

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

11,591

 

 

$

12,541

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2021, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $5.4 billion and $7.3 billion, respectively. These operating and finance leases will commence between fiscal year 2022 and fiscal year 2026 with lease terms of 1 year to 15 years.

During fiscal year 2020, we recorded an impairment charge of $161 million to operating lease right-of-use assets due to the closing of our Microsoft Store physical locations.