LEASES

Adoption of ASC Topic 842, Leases

On January 1, 2019, the Company adopted ASC 842, Leases, using a modified retrospective method applied to all contracts as of January 1, 2019. Therefore, for reporting periods beginning after December 31, 2018, the financial statements are prepared in accordance with the current lease standard and the financial statements for all periods prior to January 1, 2019 are presented under the previous lease standard ("ASC 840").

The Company determines if an arrangement is a lease, or contains a lease, when a contract is signed. The Company determines if a lease is an operating or financing lease and records a lease asset and a lease liability upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. The Company has operating leases for office space, data centers and one land lease for Booking.com's headquarters (see Note 13). The Company has no finance leases as of March 31, 2019. For office space, data centers and land, the Company has elected to combine the fixed payments to lease the asset and any fixed non-lease payments (such as maintenance or utility charges) when calculating the lease asset and lease liability.

The Company recognizes lease expense on a straight-line basis over the lease term. Certain of our lease agreements include rent payments which are adjusted periodically for inflation. Any change in payments due to changes in inflation rates are recognized as variable lease expense as they are incurred. Variable lease expense also includes costs for property taxes, insurance and services provided by the lessor which are charged based on usage or performance.

Most leases have one or more options to renew, with renewal terms that can initially extend the lease term for various periods up to 9 years. The exercise of renewal options for office space and data centers is at the Company’s discretion and are included if they are reasonably certain to be exercised. The land lease for Booking.com's headquarters has an initial term which expires in 2065, at which time the lease payments will be adjusted based on the value of the land on the reassessment date. The Company considered the initial term of the land lease to be its expected period of use. As of March 31, 2019, the Company’s weighted-average remaining lease term for all leases was approximately 8.2 years.

When the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as its discount rate to determine the present value of its lease payments. The incremental borrowing rates approximate the rate the Company would pay to borrow in the currency of the lease payments on a collateralized basis for the weighted-average life of the lease. As of March 31, 2019, the Company’s weighted-average discount rate was approximately 2.0%.

The Company recognized the following related to leases in its Unaudited Consolidated Balance Sheet at March 31, 2019 (in millions):



Leases	Classification in Consolidated Balance Sheet	March 31, 2019
Operating lease assets	Operating lease assets	$	635
Lease Liabilities:
Current operating lease liabilities	Accrued expenses and other current liabilities	$	153
Non-current operating lease liabilities	Operating lease liabilities	488
Total operating lease liabilities		$	641

As of March 31, 2019, the operating lease liabilities will mature over the following periods (in millions):



Remainder of 2019	$	123
2020	152
2021	119
2022	73
2023	54
2024	36
Thereafter	154
Total remaining lease payments	$	711
Less: Imputed interest	(70		)
Total operating lease liabilities	$	641

As of March 31, 2019, the Company has entered into leases that have not yet commenced with future lease payments of approximately $7 million which are not reflected in the table above. These operating leases will commence in 2019 with lease terms of up to 5 years and will be recognized upon lease commencement. In addition, the Company signed an agreement for a lease in the city of Manchester in the United Kingdom for the headquarters of Rentalcars.com (see Note 13).

At December 31, 2018, minimum lease payments for operating leases having an initial term in excess of one year under ASC 840 were as follows (in millions):



2019	$	164
2020	142
2021	110
2022	66
2023	52
Thereafter	190
Total minimum lease payments	$	724

The Company recognized the following related to operating leases in its Unaudited Consolidated Statement of Operations (in millions):



Leases	Classification in Unaudited Consolidated Statement of Operations	Three Months Ended March 31, 2019
Lease expense	General and administrative and Information technology	$	45
Variable lease expense	General and administrative and Information technology	13
Less: Sublease income	General and administrative	(1		)
Total lease expense, net of sublease income		$	57

Supplemental cash flow information related to operating leases are as follows (in millions):



Leases	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	47
Operating lease assets obtained in exchange for operating lease liabilities	42