Leases

3 Months Ended

Mar. 31, 2019

Adoption of the New Lease Standard

On January 1, 2019, we adopted the New Lease Standard using the Effective Date Method applied to all lease contracts existing as of January 1, 2019. Under the Effective Date Method, results for reporting periods beginning on or after January 1, 2019 are presented under the New Lease Standard. We elected the package of practical expedients that permits us to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. Prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies.

The impact of adoption primarily relates to the recognition of ROU operating lease assets and operating lease liabilities on our unaudited consolidated statement of financial position for all operating leases with a term greater than twelve months. The accounting for our finance leases remained substantially unchanged. The following table provides the impact of adoption of the New Lease Standard on our unaudited consolidated statement of financial position as of January 1, 2019:



Location on Statement of Financial Position	January 1, 2019
	(in millions)
Property and equipment, net⁽¹⁾	$	(81	)
Operating lease assets, net^{(1) (2) (3)}	839
Total Assets	$	758

Operating lease liabilities^{(2) (3)}	$	191
Operating lease liabilities, noncurrent^{(2) (3)}	670
Accrued expenses and other liabilities⁽³⁾	(10		)
Other noncurrent liabilities⁽³⁾	(95		)
Total Liabilities	$	756

Retained earnings⁽⁴⁾	$	2


(1)	Reflects the reclassification of leasehold land and a built-to-suit lease asset from "Property and equipment, net" to "Operating lease assets, net".


(2)	Represents the recognition of operating lease assets and liabilities (current and noncurrent), as defined by the New Lease Standard, including the liability for a built-to-suit lease that was previously accounted for as a capital lease under the former lease guidance.


(3)	Represents the reclassification of deferred rent from "Accrued expenses and other liabilities" and "Other noncurrent liabilities" to "Operating lease assets, net" and the reclassification of built-to-suit lease liabilities from "Accrued expenses and other liabilities" and "Other noncurrent liabilities" to "Operating lease liabilities" and "Operating lease liabilities, noncurrent".


(4)	Represents the net impact of the derecognition of a built-to-suit lease under the former lease guidance and the re-establishment of that lease as an operating lease under the New Lease Standard.

The adoption of the New Lease Standard did not materially impact our unaudited consolidated statement of operations or our unaudited statement of cash flows.

Leases

Our lease asset classes primarily consist of operating leases for office space, data centers and equipment. At inception of a contract, we determine whether a contract contains a lease, and if a lease is identified, whether it is an operating or finance lease. In determining whether a contract contains a lease we consider whether (1) we have the right to obtain substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) we have the right to direct how and for what purpose the asset is used throughout the term of the contract and (3) we have the right to operate the asset throughout the term of the contract without the lessor having the right to change the terms of the contract. Some of our lease agreements contain both lease and non-lease components that we account for as a single lease component for all our lease asset classes.

Our ROU lease assets represent our right to use an underlying asset for the lease term and may include any advance lease payments made and any initial direct costs, and exclude lease incentives. Our ROU lease liabilities represent our obligation to make lease payments arising from the contractual terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement of the lease and are calculated using the present value of lease payments over the lease term. Typically, our lease agreements do not provide sufficient detail to arrive at an implicit interest rate. Therefore, we use our estimated country-specific incremental borrowing rate based on information available at the commencement date of the lease to calculate the present value of the lease payments. In estimating our country-specific incremental borrowing rates, we consider market rates of comparable collateralized borrowings for similar terms. Our lease terms may include the option to extend or terminate the lease before the end of the contractual lease term. Our ROU lease assets and lease liabilities include these options when it is reasonably certain that they will be exercised.

The following table provides information on the components of our operating and finance leases included in our unaudited consolidated statement of financial position:



Leases	Location on Statement of Financial Position	March 31, 2019
Assets		(in millions)
ROU operating lease assets	Operating lease assets, net	$	809
ROU finance lease assets	Property and equipment, net	21
	Total	$	830

Liabilities
Current
Operating lease	Operating lease liabilities	$	184
Finance lease	Accrued expenses and other current liabilities	13
Noncurrent
Operating lease	Operating lease liabilities, noncurrent	651
Finance lease	Other noncurrent liabilities	17
	Total	$	865

Our operating lease cost was $63 million for the three months ended March 31, 2019 and included $4 million of variable lease cost. A portion of our real estate leases is subject to annual changes in the Consumer Price Index ("CPI"). The changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments was incurred. Other variable lease costs primarily relate to adjustments for common area maintenance, utilities and property tax. These variable costs are recognized in the period in which the obligation for those payments was incurred. Our short term lease rental expense was $4 million for the three months ended March 31, 2019. Lease interest expense related to our finance leases was immaterial for the three months ended March 31, 2019.

The following table provides information on the weighted average remaining lease term and weighted average discount rate for our operating leases:



Operating Lease Term and Discount Rate	March 31, 2019

Weighted average remaining lease term	5.8 years
Weighted-average discount rate	5.8	%

The following table provides supplemental cash flow information related to our operating leases:



	Three Months Ended March 31, 2019
	(in millions)
Cash paid for amounts included in the measurement of operating lease liabilities	$	53
ROU assets obtained in exchange for operating lease liabilities	16

Cash paid for amounts included in the measurement of finance lease liabilities was immaterial for the three months ended March 31, 2019. Additionally, ROU assets obtained in exchange for finance lease liabilities was immaterial for the three months ended March 31, 2019.

The following table provides the schedule of maturities of our operating lease liabilities, under the New Lease Standard, as of March 31, 2019:



	March 31, 2019
	(in millions)
2019- remainder of year	$	171
2020	209
2021	166
2022	126
2023	95
2024	62
Thereafter	154
Total lease payments	983
Interest	(148		)
Total lease liabilities	$	835

The following table provides the schedule of our future minimum payments on our operating leases, as of December 31, 2018, which were accounted for in accordance with our historic accounting policies.



	December 31, 2018
	(in millions)
2019	$	226
2020	197
2021	157
2022	121
2023	90
Thereafter	197
Total lease payments	$	988

As of March 31, 2019, we had $29 million of additional operating leases that had yet to commence and therefore are not included in our unaudited statement of financial position. These leases are primarily related to real estate and will commence in various months in 2019 with lease terms of 1 year to 6 years.