LEASES

9 Months Ended

Sep. 30, 2019

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 had no financing leases as of September 30, 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 the Company's 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 September 30, 2019, the Company’s weighted-average remaining lease term for all leases was approximately 8.0 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 September 30, 2019, the Company’s weighted-average discount rate was approximately 2.1%.

The Company recognized the following related to leases in its Consolidated Balance Sheet at September 30, 2019 (in millions):



	Classification in Consolidated Balance Sheet	September 30, 2019
Operating lease assets	Operating lease assets	$	610
Lease Liabilities:
Current operating lease liabilities	Accrued expenses and other current liabilities	$	151
Non-current operating lease liabilities	Operating lease liabilities	466
Total operating lease liabilities		$	617

As of September 30, 2019, the operating lease liabilities will mature over the following periods (in millions):



Remainder of 2019	$	35
2020	166
2021	135
2022	88
2023	59
2024	42
Thereafter	160
Total remaining lease payments	$	685
Less: Imputed interest	(68		)
Total operating lease liabilities	$	617

As of September 30, 2019, the Company has entered into leases that have not yet commenced with future lease payments of approximately $32 million which are not reflected in the table above. These leases will commence by 2021 with lease terms of up to 7 years and will be recognized upon lease commencement. In addition, the Company signed an agreement for a future 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 Statements of Operations (in millions):



	Classification in Unaudited Consolidated Statement of Operations	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease expense	General and administrative and Information technology	$	46	$	137
Variable lease expense	General and administrative and Information technology	14		42
Less: Sublease income	General and administrative	—		(1		)
Total lease expense, net of sublease income		$	60	$	178

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



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	137
Operating lease assets obtained in exchange for operating lease liabilities	116

"Operating lease amortization" presented in the operating activities section of the Unaudited Consolidated Statement of Cash Flows reflects the portion of the operating lease expense that amortized the operating lease asset.