Notes to Consolidated Financial Statements
September 30, 2019
(Unaudited)
Note 1 – Basis of Presentation
Description of Business
Expedia Group, Inc. and its subsidiaries provide travel services to leisure and corporate travelers in the United States and abroad as well as various media and advertising offerings to travel and non-travel advertisers. These travel services are offered through a diversified portfolio of brands including: Brand Expedia®, Hotels.com®, Expedia® Partner Solutions, Vrbo®, Egencia®, trivago®, HomeAway®, Orbitz®, Travelocity®, Hotwire®, Wotif®, ebookers®, CheapTickets®, Expedia Group™ Media Solutions, Expedia Local Expert®, CarRentals.comTM, Expedia® CruiseShipCenters®, Classic Vacations®, Traveldoo®, VacationRentals.com and SilverRailTM. In addition, many of these brands have related international points of sale. In the first quarter of 2019, we renamed the HomeAway segment Vrbo. We refer to Expedia Group, Inc. and its subsidiaries collectively as “Expedia Group,” the “Company,” “us,” “we” and “our” in these consolidated financial statements.
Basis of Presentation
These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. The unaudited consolidated financial statements include Expedia Group, Inc., our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We have eliminated significant intercompany transactions and accounts.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018, previously filed with the Securities and Exchange Commission. trivago is a separately listed company on the Nasdaq Global Select Market and, therefore is subject to its own reporting and filing requirements, which could result in possible differences that are not expected to be material to Expedia Group.
Accounting Estimates
We use estimates and assumptions in the preparation of our interim unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our interim unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our interim unaudited consolidated financial statements include revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income and transactional taxes, such as potential settlements related to occupancy and excise taxes; loss contingencies; deferred loyalty rewards; acquisition purchase price allocations; stock-based compensation and accounting for derivative instruments.
Reclassifications
We have reclassified certain amounts related to our prior period results to conform to our current period presentation.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Because revenue for most of our travel services, including merchant and agency hotel, is recognized as the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks for our hotel business and can be several months or more for our alternative accommodations business. Historically, Vrbo has seen seasonally stronger bookings in the first quarter of the year, with the relevant stays occurring during the peak summer travel months. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs, which we typically realize in closer alignment to booking volumes, and the more stable nature of our fixed costs. Furthermore, operating profits for our primary advertising business, trivago, have typically been experienced in the second half of the year, particularly the fourth quarter, as
Notes to Consolidated Financial Statements – (Continued)
selling and marketing costs offset revenue in the first half of the year as we typically increase marketing during the busy booking period for spring, summer and winter holiday travel. As a result on a consolidated basis, revenue and income are typically the lowest in the first quarter and highest in the third quarter. The continued growth of our international operations, advertising business or a change in our product mix, including the growth of Vrbo, may influence the typical trend of the seasonality in the future, and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends.
Note 2 – Summary of Significant Accounting Policies
Recently Adopted Accounting Policies
Leases. As of January 1, 2019, we adopted the Accounting Standards Updates (“ASU”) amending the guidance related to accounting and reporting guidelines for leasing arrangements using the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption. Results for reporting periods beginning after January 1, 2019 are presented under the new guidance, while prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for those periods.
The new guidance required entities that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases regardless of whether they are classified as finance or operating leases. In addition, new disclosures are required to meet the objective of enabling users of financial statements to better understand the amount, timing and uncertainty of cash flows arising from leases.
We elected certain of the available transition practical expedients, including those that permit us to not reassess 1) whether any expired or existing contracts are or contain leases, 2) the lease classification for any expired or exiting leases, and 3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment. The standard had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated statements of operations or statements of cash flows. The most significant impact was the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases. Additionally, we removed the assets and liabilities previously recorded pursuant to build-to-suit lease guidance resulting in an increase to retained earnings of approximately $6 million.
Hedge Accounting. As of January 1, 2019, we adopted the new guidance amending the accounting guidance for hedge accounting. The new guidance requires expanded hedge accounting for both non-financial and financial risk components and refines the measurement of hedge results to better reflect an entity’s hedging strategies. The new guidance also amends the presentation and disclosure requirements on a prospective basis as well as changes how entities assess hedge effectiveness. The adoption of this new guidance had no impact on our consolidated financial statements.
Recent Accounting Policies Not Yet Adopted
Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those annual periods. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Cloud Computing Arrangements. In August 2018, the FASB issued new guidance on the accounting for implementation costs incurred for a cloud computing arrangement that is a service contract. The update conforms the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting guidance that provides for capitalization of costs incurred to develop or obtain internal-use-software. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Fair Value Measurements. In August 2018, the FASB issued new guidance related to the disclosure requirements on fair value measurements, which removes, modifies or adds certain disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements disclosures.
Notes to Consolidated Financial Statements – (Continued)
Significant Accounting Policies
Below are the significant accounting policies updated during 2019 as a result of the recently adopted accounting policies noted above as well as certain other accounting policies with interim disclosure requirements. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2018.
Revenue
Deferred Merchant Bookings. We classify cash payments received in advance of our performance obligations as deferred merchant bookings. At December 31, 2018, $3.627 billion of cash advance cash payments was reported within deferred merchant bookings, $3.291 billion of which was recognized resulting in $464 million of revenue during the nine months ended September 30, 2019. At September 30, 2019, the related balance was $4.886 billion.
At December 31, 2018, $700 million of deferred loyalty rewards was reported within deferred merchant bookings, $624 million of which was recognized within revenue during the nine months ended September 30, 2019. At September 30, 2019, the related balance was $756 million.
Deferred Revenue. At December 31, 2018, $364 million was recorded as deferred revenue, $312 million of which was recognized as revenue during the nine months ended September 30, 2019. At September 30, 2019, the related balance was $381 million.
Practical Expedients and Exemptions. We have used the portfolio approach to account for our loyalty points as the rewards programs share similar characteristics within each program in relation to the value provided to the traveler and their breakage patterns. Using this portfolio approach is not expected to differ materially from applying the guidance to individual contracts. However, we will continue to assess and refine, if necessary, how a portfolio within each rewards program is defined.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Cash, Restricted Cash and Cash Equivalents
Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to certain traveler deposits and to a lesser extent collateral for office leases. The following table reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the total amount presented in our consolidated statements of cash flows:
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September 30,
2019
|
|
December 31,
2018
|
|
|
(in millions)
|
|
Cash and cash equivalents
|
$
|
3,797
|
|
|
$
|
2,443
|
|
|
Restricted cash and cash equivalents
|
447
|
|
|
259
|
|
|
Restricted cash included within long-term investments and other assets
|
3
|
|
|
3
|
|
|
Total cash, cash equivalents and restricted cash and cash equivalents in the consolidated statement of cash flow
|
$
|
4,247
|
|
|
$
|
2,705
|
|
Leases
We determine if an arrangement is a lease at inception. Operating leases are primarily for office space and data centers and are included in operating lease ROU assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For operating leases with a term of one year or less, we have elected to not recognize a lease liability or ROU asset on our consolidated balance sheet. Instead, we recognize the lease payments as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to our consolidated statements of operations and cash flows.
Notes to Consolidated Financial Statements – (Continued)
We have office space and data center lease agreements with insignificant non-lease components and have elected the practical expedient to combine and account for lease and non-lease components as a single lease component.
Note 3 – Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 are classified using the fair value hierarchy in the table below:
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Total
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Level 1
|
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Level 2
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
Money market funds
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
Time deposits
|
1,028
|
|
|
—
|
|
|
1,028
|
|
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
20
|
|
|
—
|
|
|
20
|
|
|
Investments:
|
|
|
|
|
|
|
Time deposits
|
647
|
|
|
—
|
|
|
647
|
|
|
Marketable equity securities
|
109
|
|
|
109
|
|
|
—
|
|
|
Total assets
|
$
|
1,830
|
|
|
$
|
135
|
|
|
$
|
1,695
|
|
Financial assets measured at fair value on a recurring basis as of December 31, 2018 are classified using the fair value hierarchy in the table below:
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Total
|
|
Level 1
|
|
Level 2
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
Money market funds
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
Time deposits
|
624
|
|
|
—
|
|
|
624
|
|
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
22
|
|
|
—
|
|
|
22
|
|
|
Investments:
|
|
|
|
|
|
|
Time deposits
|
28
|
|
|
—
|
|
|
28
|
|
|
Marketable equity securities
|
119
|
|
|
119
|
|
|
—
|
|
|
Total assets
|
$
|
828
|
|
|
$
|
154
|
|
|
$
|
674
|
|
We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.
As of September 30, 2019 and December 31, 2018, our cash and cash equivalents consisted primarily of prime institutional money market funds with maturities of three months or less, time deposits as well as bank account balances.
We also hold time deposit investments with financial institutions. Time deposits with original maturities of less than three months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-term investments.
Our marketable equity securities consist of our investment in Despegar, a publicly traded company, which is included in long-term investments and other assets in our consolidated balance sheets. During the nine months ended September 30, 2019 and 2018, we recognized a loss of approximately $10 million and $102 million within other, net in our consolidated statements of operations related to the fair value changes of this equity investment.
Derivative instruments are carried at fair value on our consolidated balance sheets. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. Our goal in managing our foreign exchange risk is to reduce, to the extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial position. Our foreign currency forward contracts are typically short-term and, as they do not
Notes to Consolidated Financial Statements – (Continued)
qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. As of September 30, 2019, we were party to outstanding forward contracts hedging our liability and revenue exposures with a total net notional value of $3.9 billion. We had a net forward asset of $20 million recorded in prepaid expenses and other current assets as of September 30, 2019 and $22 million as of December 31, 2018. We recorded $15 million and $3 million in net gains from foreign currency forward contracts during the three months ended September 30, 2019 and 2018 as well as $3 million and $51 million in net gains during the nine months ended September 30, 2019 and 2018.
Assets Measured at Fair Value on a Non-recurring Basis
Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity method investments, are adjusted to fair value when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. We measure our minority investments that do not have readily determinable fair values at cost less impairment, adjusted by observable price changes with changes recorded within other, net on our consolidated statements of operations.
Goodwill. During the nine months ended September 30, 2018, we recognized a goodwill impairment charge of $61 million related to our Core OTA segment, which resulted from sustained under-performance and a less optimistic outlook related to one of our reporting units. As a result, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill for that reporting unit as of June 30, 2018 in which we compared the fair value of the reporting unit to its carrying value. The fair value was estimated based on a blended analysis of the present value of future discounted cash flows and market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our assumptions were based on the actual historical performance of the reporting unit and took into account a recent weakening of operating results and implied risk premiums based on market prices of our equity and debt as of the assessment date. Our significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the nine months ended September 30, 2018. As of December 31, 2018, the applicable reporting unit had no remaining goodwill.
Minority Investments without Readily Determinable Fair Values. As of September 30, 2019 and December 31, 2018, the carrying values of our minority investments without readily determinable fair values totaled $467 million and $476 million. During the three and nine months ended September 30, 2019 and 2018, we had no material gains or losses recognized related to these minority investments.
Note 4 – Debt
The following table sets forth our outstanding debt:
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|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(In millions)
|
|
5.95% senior notes due 2020
|
$
|
749
|
|
|
$
|
748
|
|
|
2.5% (€650 million) senior notes due 2022
|
708
|
|
|
740
|
|
|
4.5% senior notes due 2024
|
496
|
|
|
496
|
|
|
5.0% senior notes due 2026
|
743
|
|
|
742
|
|
|
3.8% senior notes due 2028
|
992
|
|
|
991
|
|
|
3.25% senior notes due 2030
|
1,231
|
|
|
—
|
|
|
Long-term debt(1)
|
4,919
|
|
|
3,717
|
|
|
Current maturities of long-term debt
|
(749
|
)
|
|
—
|
|
|
Long-term debt, excluding current maturities
|
$
|
4,170
|
|
|
$
|
3,717
|
|
_______________
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(1)
|
Net of applicable discounts and debt issuance costs.
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Long-term Debt
Our $750 million in registered senior unsecured notes outstanding at September 30, 2019 are due in August 2020 and bear interest at 5.95% (the “5.95% Notes”). The 5.95% Notes were issued at 99.893% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the
Notes to Consolidated Financial Statements – (Continued)
5.95% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.
Our Euro 650 million in registered senior unsecured notes outstanding at September 30, 2019 are due in June 2022 and bear interest at 2.5% (the “2.5% Notes”). The 2.5% Notes were issued at 99.525% of par resulting in a discount, which is being amortized over their life. Interest is payable annually in arrears in June of each year. We may redeem the 2.5% Notes at our option, at whole or in part, at any time or from time to time. If we elect to redeem the 2.5% Notes prior to March 3, 2022, we may redeem them at a specified “make-whole” premium. If we elect to redeem the 2.5% Notes on or after March 3, 2022, we may redeem them at a redemption price of 100% of the principal plus accrued and unpaid interest. Subject to certain limited exceptions, all payments of interest and principal for the 2.5% Notes will be made in Euros.
The aggregate principal value of the 2.5% Notes is designated as a hedge of our net investment in certain Euro functional currency subsidiaries. The notes are measured at Euro to U.S. Dollar exchange rates at each balance sheet date and transaction gains or losses due to changes in rates are recorded in accumulated other comprehensive income (loss) (“AOCI”). The Euro-denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes also reported in AOCI. Since the notional amount of the recorded Euro-denominated debt is less than the notional amount of our net investment, we do not expect to incur any ineffectiveness on this hedge.
Our $500 million in registered senior unsecured notes outstanding at September 30, 2019 are due in August 2024 and bear interest at 4.5% (the “4.5% Notes”). The 4.5% Notes were issued at 99.444% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 4.5% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 4.5% Notes prior to May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 4.5% Notes on or after May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
Our $750 million in registered senior unsecured notes outstanding at September 30, 2019 are due in February 2026 and bear interest at 5.0% (the “5.0% Notes”). The 5.0% Notes were issued at 99.535% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the 5.0% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 5.0% Notes prior to November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 5.0% Notes on or after November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
Our $1 billion in registered senior unsecured notes outstanding at September 30, 2019 are due in February 2028 and bear interest at 3.8% (the “3.8% Notes”). The 3.8% Notes were issued at 99.747% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the 3.8% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 3.8% Notes prior to November 15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 3.8% Notes on or after November 15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
In September 2019, we privately placed $1.25 billion of senior unsecured notes that are due in February 2030 and bear interest at 3.25% (the “3.25% Notes”). The 3.25% Notes were issued at 99.225% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year, beginning February 15, 2020. We may redeem the 3.25% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 3.25% Notes prior to November 15, 2029, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 3.25% Notes on or after November 15, 2029, we may redeem them at a redemption price of 100% of the principal plus accrued interest. We also entered into a registration rights agreement with respect to the 3.25% Notes, under which we agreed to use commercially reasonable best efforts to file a registration statement to permit the exchange of the 3.25% Notes for registered notes having the same financial terms and covenants as the 3.25% Notes, and cause such registration statement to become effective and complete the related exchange offer within 365 days of the issuance of the 3.25% Notes. If we fail to satisfy certain of its obligations under the registration rights agreement, we will be required to pay additional interest of 0.25% per annum to the holders of the 3.25% Notes until such registrations right default is cured.
The 5.95%, 2.5%, 4.5%, 5.0%, 3.8% and 3.25% Notes (collectively the “Notes”) are senior unsecured obligations issued by Expedia Group and guaranteed by certain domestic Expedia Group subsidiaries. The Notes rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations of Expedia Group and the guarantor subsidiaries. For further information, see Note 14 – Guarantor and Non-Guarantor Supplemental Financial Information. In addition, the Notes include covenants that limit our ability to (i) create certain liens, (ii) enter into sale/leaseback transactions and (iii) merge or consolidate with or into another entity or transfer substantially all of our assets. Accrued interest related to the Notes was $25
Notes to Consolidated Financial Statements – (Continued)
million and $65 million as of September 30, 2019 and December 31, 2018. The Notes are redeemable in whole or in part, at the option of the holders thereof, upon the occurrence of certain change of control triggering events at a purchase price in cash equal to 101% of the principal plus accrued and unpaid interest.
The following table sets forth the approximate fair value of our outstanding debt, which is based on quoted market prices in less active markets (Level 2 inputs):
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|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(In millions)
|
|
5.95% senior notes due 2020
|
$
|
774
|
|
|
$
|
778
|
|
|
2.5% (€650 million) senior notes due 2022 (1)
|
753
|
|
|
771
|
|
|
4.5% senior notes due 2024
|
543
|
|
|
504
|
|
|
5.0% senior notes due 2026
|
846
|
|
|
760
|
|
|
3.8% senior notes due 2028
|
1,050
|
|
|
915
|
|
|
3.25% senior notes due 2030
|
1,251
|
|
|
—
|
|
_______________
|
|
|
|
(1)
|
Approximately 688 million Euro as of September 30, 2019 and 674 million Euro as of December 31, 2018.
|
Credit Facility
Expedia Group maintains a $2 billion unsecured revolving credit facility with a group of lenders, which is unconditionally guaranteed by certain domestic Expedia Group subsidiaries that are the same as under the Notes and expires in May 2023. As of September 30, 2019 and December 31, 2018, we had no revolving credit facility borrowings outstanding. The facility bears interest based on the Company’s credit ratings, with drawn amounts bearing interest at LIBOR plus 112.5 basis points and the commitment fee on undrawn amounts at 15 basis points as of September 30, 2019. The facility contains covenants including maximum leverage and minimum interest coverage ratios.
The amount of stand-by letters of credit (“LOC”) issued under the facility reduces the credit amount available. As of September 30, 2019 and December 31, 2018, there was $15 million of outstanding stand-by LOCs issued under the facility.
In addition, one of our international subsidiaries maintains a Euro 50 million uncommitted credit facility, which is guaranteed by Expedia Group, that may be terminated at any time by the lender. As of September 30, 2019 and December 31, 2018, there were no borrowings outstanding.
Note 5 – Leases
We have operating leases for office space and data centers. Our leases have remaining lease terms of one year to 19 years, some of which include options to extend the leases for up to ten years, and some of which include options to terminate the leases within one year.
Operating lease costs were $38 million and $114 million for the three and nine months ended September 30, 2019.
Supplemental cash flow information related to leases were as follows:
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|
|
|
|
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2019
|
|
2019
|
|
|
(in millions)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
40
|
|
|
$
|
113
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
16
|
|
|
43
|
|
Notes to Consolidated Financial Statements – (Continued)
Supplemental consolidated balance sheet information related to leases were as follows:
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
(in millions)
|
|
Operating lease right-of-use assets
|
$
|
495
|
|
|
|
|
|
Current lease liabilities included within Accrued expenses and other current liabilities
|
$
|
101
|
|
|
Long-term lease liabilities included within Operating lease liabilities
|
443
|
|
|
Total operating lease liabilities
|
$
|
544
|
|
|
|
|
|
Weighted average remaining lease term
|
8.8 years
|
|
|
Weighted average discount rate
|
3.8
|
%
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
(in millions)
|
|
Year ending December 31,
|
|
|
2019 (excluding the nine months ended September 30, 2019)
|
$
|
31
|
|
|
2020
|
115
|
|
|
2021
|
96
|
|
|
2022
|
76
|
|
|
2023
|
56
|
|
|
2024 and thereafter
|
274
|
|
|
Total lease payments
|
648
|
|
|
Less: imputed interest
|
(104
|
)
|
|
Total
|
$
|
544
|
|
As of September 30, 2019, we have additional operating lease payments, primarily for corporate offices, that have not yet commenced of approximately $203 million. These operating leases will commence between October 2019 and April 2021 with lease terms of 1 year to 11 years.
Note 6 – Stockholders’ Equity
Dividends on our Common Stock
The Executive Committee, acting on behalf of the Board of Directors, declared the following dividends during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
Dividend
Per Share
|
|
Record Date
|
|
Total Amount
(in millions)
|
|
Payment Date
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
February 6, 2019
|
$
|
0.32
|
|
|
March 7, 2019
|
|
$
|
47
|
|
|
March 27, 2019
|
|
May 1, 2019
|
0.32
|
|
|
May 23, 2019
|
|
48
|
|
|
June 13, 2019
|
|
July 24, 2019
|
0.34
|
|
|
August 22, 2019
|
|
50
|
|
|
September 12, 2019
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
February 7, 2018
|
0.30
|
|
|
March 8, 2018
|
|
46
|
|
|
March 28, 2018
|
|
April 24, 2018
|
0.30
|
|
|
May 24, 2018
|
|
45
|
|
|
June 14, 2018
|
|
July 23, 2018
|
0.32
|
|
|
August 23, 2018
|
|
47
|
|
|
September 13, 2018
|
In addition, in November 2019, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.34 per share of outstanding common stock payable on December 12, 2019 to stockholders of record as of the close of business on November 19, 2019. Future declarations of dividends are subject to final determination by our Board of Directors.
Notes to Consolidated Financial Statements – (Continued)
Treasury Stock
As of September 30, 2019, the Company’s treasury stock was comprised of approximately 116.3 million common stock and 7.3 million Class B shares. As of December 31, 2018, the entire treasury stock balance of 97.2 million shares was common stock.
Share Repurchases. In April 2018, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to an additional 15 million shares of our common stock. During the nine months ended September 30, 2019, we repurchased, through open market transactions, 2.3 million shares under these authorizations for the total cost of $300 million, excluding transaction costs, representing an average repurchase price of $130.30 per share. As of September 30, 2019, there were approximately 9.9 million shares remaining under the 2018 repurchase authorization. There is no fixed termination date for the repurchases. Subsequent to the end of the third quarter of 2019, we repurchased an additional 0.9 million shares for a total cost of $118 million, excluding transaction costs, representing an average purchase price of $135.58 per share.
For information related to shares repurchased as part of the Liberty Expedia Holdings transaction, see Note 11 – Liberty Expedia Holdings Transaction and Note 12 – Related Party Transactions.
Accumulated Other Comprehensive Loss
The balance of accumulated other comprehensive loss as of September 30, 2019 and December 31, 2018 was comprised of foreign currency translation adjustments. These translation adjustments include foreign currency transaction losses at September 30, 2019 of $2 million ($2 million before tax) and $27 million ($35 million before tax) at December 31, 2018 associated with our 2.5% Notes. The 2.5% Notes are Euro-denominated debt designated as hedges of certain of our Euro-denominated net assets. See Note 4 – Debt for more information.
Note 7 – Earnings Per Share
The following table presents our basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In millions, except share and per share data)
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
409
|
|
|
$
|
525
|
|
|
$
|
489
|
|
|
$
|
389
|
|
|
Earnings per share attributable to Expedia Group, Inc. available to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
2.77
|
|
|
$
|
3.51
|
|
|
$
|
3.30
|
|
|
$
|
2.59
|
|
|
Diluted
|
2.71
|
|
|
3.43
|
|
|
3.24
|
|
|
2.54
|
|
|
Weighted average number of shares outstanding (000's):
|
|
|
|
|
|
|
|
|
Basic
|
147,232
|
|
|
149,482
|
|
|
148,052
|
|
|
150,450
|
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
2,336
|
|
|
2,866
|
|
|
2,074
|
|
|
2,396
|
|
|
Other dilutive securities
|
1,067
|
|
|
805
|
|
|
786
|
|
|
558
|
|
|
Diluted
|
150,635
|
|
|
153,153
|
|
|
150,912
|
|
|
153,404
|
|
Basic earnings per share is calculated using our weighted-average outstanding common shares. The earnings per share amounts are the same for common stock and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect. For the three and nine months ended September 30, 2019, approximately 2 million of outstanding stock awards have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive. For the three and nine ended September 30, 2018, approximately 5 million of outstanding stock awards have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive.
Notes to Consolidated Financial Statements – (Continued)
Note 8 – Restructuring and Related Reorganization Charges
In connection with the centralization and migration of certain operational functions and systems, we recognized $2 million and $16 million in restructuring and related reorganization charges during the three and nine months ended September 30, 2019. The charges primarily related to severance and benefits and approximately $13 million were unpaid as of September 30, 2019. Based on current plans, which are subject to change, we expect total reorganization charges in 2019 of up to $25 million. These costs could be higher or lower should we make additional decisions in future periods that impact our reorganization efforts and exclude any possible future acquisition, or other, integrations.
Note 9 – Income Taxes
We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items.
For the three months ended September 30, 2019, the effective tax rate was 27.4% expense on pre-tax income, compared to 13.3% expense on pre-tax income for the three months ended September 30, 2018. For the nine months ended September 30, 2019, the effective tax rate was 24.5% expense on pre-tax income, compared to 13.1% expense on pre-tax income for the nine months ended September 30, 2018. The increase in the effective tax rate for both periods was primarily driven by an increase in U.S. federal and state taxable income.
We are subject to taxation in the United States and various other state and foreign jurisdictions. During 2017, the Internal Revenue Service (“IRS”) issued proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2009 to 2010 audit cycle. On July 12, 2019, we settled the audit for an immaterial impact to the consolidated financial statements. In addition, we are under examination by the IRS for our 2011 through 2013 tax years. During the fourth quarter of 2019, the IRS issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2011 to 2013 audit cycle. The proposed adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million subject to interest. We do not agree with the position of the IRS and are formally protesting the IRS position. Subsequent years remain open to examination by the IRS. We do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years.
Note 10 – Commitments and Contingencies
Legal Proceedings
In the ordinary course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia Group. We also evaluate other potential contingent matters, including value-added tax, excise tax, sales tax, transient occupancy or accommodation tax and similar matters. We do not believe that the aggregate amount of liability that could be reasonably possible with respect to these matters would have a material adverse effect on our financial results; however, litigation is inherently uncertain and the actual losses incurred in the event that our legal proceedings were to result in unfavorable outcomes could have a material adverse effect on our business and financial performance.
Litigation Relating to Occupancy Taxes. One hundred one lawsuits have been filed by or against cities, counties and states involving hotel occupancy and other taxes. Eleven lawsuits are currently active. These lawsuits are in various stages and we continue to defend against the claims made in them vigorously. With respect to the principal claims in these matters, we believe that the statutes or ordinances at issue do not apply to us or the services we provide and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes or ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations. To date, forty-seven of these lawsuits have been dismissed. Some of these dismissals have been without prejudice and, generally, allow the governmental entity or entities to seek administrative remedies prior to pursuing further litigation. Thirty-three dismissals were based on a finding that we and the other defendants were not subject to the local tax ordinance or that the local government lacked standing to pursue its claims. As a result of this litigation and other attempts by certain jurisdictions to levy such taxes, we have established a reserve for the potential settlement of issues related to hotel occupancy and other taxes, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $66 million and $46 million as of September 30, 2019 and December 31, 2018, respectively. Our settlement reserve is based on our best estimate of probable losses and the ultimate resolution of these contingencies may be greater or less than the liabilities recorded. An estimate for a reasonably possible loss or range of loss in excess of the amount reserved cannot be made. Changes to the settlement reserve are included within legal reserves, occupancy tax and other in the consolidated statements of operations.
Notes to Consolidated Financial Statements – (Continued)
Pay-to-Play. Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being allowed to contest or litigate the applicability of the ordinances. This prepayment of contested taxes is referred to as “pay-to-play.” Payment of these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we continue to defend our position vigorously. If we prevail in the litigation, for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest. For example, on September 13, 2018, the City of San Francisco refunded all pay-to-play payments previously made by Expedia Group companies, along with accumulated interest. The $78 million refund was recorded as a gain within legal reserves, occupancy tax and other in the consolidated statements of operations and $19 million of accumulated interest to interest income during the three months ended September 30, 2018.
We are in various stages of inquiry or audit with domestic and foreign tax authorities, some of which, including in the City of Los Angeles regarding hotel occupancy taxes and in the United Kingdom regarding the application of value added tax (“VAT”) to our European Union related transactions as discussed below, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.
The ultimate resolution of these contingencies may be greater or less than any pay-to-play payments made.
Matters Relating to International VAT. We are in various stages of inquiry or audit in multiple European Union jurisdictions, including in the United Kingdom, regarding the application of VAT to our European Union related transactions. While we believe we comply with applicable VAT laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional taxes. In certain jurisdictions, including the United Kingdom, we may be required to “pay-to-play” any VAT assessment prior to contesting its validity. While we believe that we will be successful based on the merits of our positions with regard to the United Kingdom and other VAT audits in pay-to-play jurisdictions, it is nevertheless reasonably possible that we could be required to pay any assessed amounts in order to contest or litigate the applicability of any assessments and an estimate for a reasonably possible amount of any such payments cannot be made.
Competition and Consumer Matters. Over the last several years, the online travel industry has become the subject of investigations by various national competition authorities (“NCAs”), particularly in Europe. Expedia Group companies are or have been involved in investigations predominately related to whether certain parity clauses in contracts between Expedia Group entities and accommodation providers, sometimes also referred to as “most favored nation” or “MFN” provisions, are anti-competitive.
In Europe, investigations or inquiries into contractual parity provisions between hotels and online travel companies, including Expedia Group companies, were initiated in 2012, 2013 and 2014 by NCAs in Austria, Belgium, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Poland, Sweden and Switzerland. While the ultimate outcome of some of these investigations or inquiries remains uncertain, and the Expedia Group companies’ circumstances are distinguishable from other online travel companies subject to similar investigations and inquiries, we note in this context that on April 21, 2015, the French, Italian and Swedish NCAs, working in close cooperation with the European Commission, announced that they had accepted formal commitments offered by Booking.com to resolve and close the investigations against Booking.com in France, Italy and Sweden by Booking.com removing and/or modifying certain rate, conditions and availability parity provisions in its contracts with accommodation providers in France, Italy and Sweden as of July 1, 2015, among other commitments. Booking.com voluntarily extended the geographic scope of these commitments to accommodation providers throughout Europe as of the same date.
With effect from August 1, 2015, Expedia Group companies waived certain rate, conditions and availability parity clauses in agreements with European hotel partners for a period of five years. While the Expedia Group companies maintain that their parity clauses have always been lawful and in compliance with competition law, these waivers were nevertheless implemented as a positive step towards facilitating the closure of the open investigations into such clauses on a harmonized pan-European basis. Following the implementation of the Expedia Group companies' waivers, nearly all NCAs in Europe have announced either the closure of their investigation or inquiries involving Expedia Group companies or a decision not to open an investigation or inquiry involving Expedia Group companies. Below are descriptions of additional rate parity-related matters of note in Europe.
The German Federal Cartel Office (“FCO”) has required another online travel company, Hotel Reservation Service (“HRS”), to remove certain clauses from its contracts with hotels. HRS’ appeal of this decision was rejected by the Higher Regional Court Düsseldorf on January 9, 2015. On December 23, 2015, the FCO announced that it had also required Booking.com by way of an infringement decision to remove certain clauses from its contracts with German hotels. Booking.com has appealed the decision and the appeal was heard by the Higher Regional Court Düsseldorf on February 8, 2017. On June 4, 2019, the Higher Regional Court Düsseldorf issued its judgment in this matter and ruled that certain parity clauses are in compliance with applicable German and European competition rules and the FCO’s prohibition order against Booking.com was annulled. The decision is not yet final as the FCO has applied to the German Federal Supreme Court to admit an appeal from the decision.
Notes to Consolidated Financial Statements – (Continued)
The Italian competition authority's case closure decision against Booking.com and Expedia Group companies has subsequently been appealed by two Italian hotel trade associations, i.e. Federalberghi and AICA. These appeals remain at an early stage and no hearing date has been fixed.
On November 6, 2015, the Swiss competition authority announced that it had issued a final decision finding certain parity terms existing in previous versions of agreements between Swiss hotels and each of certain Expedia Group companies, Booking.com and HRS to be prohibited under Swiss law. The decision explicitly notes that the Expedia Group companies' current contract terms with Swiss hotels are not subject to this prohibition. The Swiss competition authority imposed no fines or other sanctions against the Expedia Group companies and did not find an abuse of a dominant market position by the Expedia Group companies. The FCO’s case against the Expedia Group companies’ contractual parity provisions with accommodation providers in Germany remains open but is still at a preliminary stage with no formal allegations of wrong-doing having been communicated to the Expedia Group companies to date.
The Directorate General for Competition, Consumer Affairs and Repression of Fraud (the “DGCCRF”), a directorate of the French Ministry of Economy and Finance with authority over unfair trading practices, brought a lawsuit in France against Expedia Group companies objecting to certain parity clauses in contracts between Expedia Group companies and French hotels. In May 2015, the French court ruled that certain of the parity provisions in certain contracts that were the subject of the lawsuit were not in compliance with French commercial law, but imposed no fine and no injunction. The DGCCRF appealed the decision and, on June 21, 2017, the Paris Court of Appeal published a judgment overturning the decision. The court annulled parity clauses contained in the agreements at issue, ordered the Expedia Group companies to amend their contracts, and imposed a fine. The Expedia Group companies have appealed the decision. The appeal will not stay payment of the fine.
Hotelverband Deutschland (“IHA”) e.V. (a German hotel association) brought proceedings before the Cologne regional court against Expedia, Inc., Expedia.com GmbH and Expedia Lodging Partner Services Sàrl. IHA applied for a ‘cease and desist’ order against these companies in relation to the enforcement of certain rate and availability parity clauses contained in contracts with hotels in Germany. On or around February 16, 2017, the court dismissed IHA’s action and declared the claimant liable for the Expedia Group defendants’ statutory costs. IHA appealed the decision and, on December 4, 2017, the Court of Appeals rejected IHA’s appeal. The Court of Appeals expressly confirmed that Expedia Group’s MFNs are in compliance both with European and German competition law. While IHA had indicated an intention to appeal the decision to the Federal Supreme Court, it has not lodged an appeal within the applicable deadline, with the consequence that the Court of Appeals judgment has now become final.
A working group of 10 European NCAs (Belgium, Czech Republic, Denmark, France, Hungary, Ireland, Italy, Netherlands, Sweden and the United Kingdom) and the European Commission has been established by the European Competition Network (“ECN”) at the end of 2015 to monitor the functioning of the online hotel booking sector, following amendments made by a number of online travel companies (including Booking.com and Expedia Group companies) in relation to certain parity provisions in their contracts with hotels. The working group issued questionnaires to online travel agencies including Expedia Group companies, metasearch sites and hotels in 2016. The underlying results of the ECN monitoring exercise were published on April 6, 2017.
Legislative bodies in France (July 2015), Austria (December 2016), Italy (August 2017) and Belgium (August 2018) have also adopted new domestic anti-parity clause legislation. Expedia Group believes each of these pieces of legislation violates both EU and national legal principles and therefore, Expedia Group companies have challenged these laws at the European Commission. A motion requesting the Swiss government to take action on narrow price parity has been adopted in the Swiss parliament. The Swiss government is now required to draft legislation implementing the motion. The Company is unable to predict whether and with what content legislation will ultimately be adopted and, if so, when this might be the case. It is not yet clear how any adopted domestic anti-parity clause legislations and/or any possible future legislation in this area may affect Expedia Group's business.
Outside of Europe, a number of NCAs have also opened investigations or inquired about contractual parity provisions in contracts between hotels and online travel companies in their respective territories, including Expedia Group companies. A Brazilian hotel sector association -- Forum de Operadores Hoteleiros do Brasil -- filed a complaint with the Brazilian Administrative Council for Economic Defence (“CADE”) against a number of online travel companies, including Booking.com, Decolar.com and Expedia Group companies, on July 27, 2016 with respect to parity provisions in contracts between hotels and online travel companies. On September 13, 2016, the Expedia Group companies submitted a response to the complaint to CADE. On March 27, 2018, the Expedia Group companies resolved CADE’s concerns based on a settlement implementing waivers substantially similar to those provided to accommodation providers in Europe. In late 2016, Expedia Group companies resolved the concerns of the Australia and New Zealand NCAs based on implementation of the waivers substantially similar to those provided to accommodation providers in Europe (on September 1, 2016 in Australia and on October 28, 2016 in New Zealand). More recently, however, the Australian NCA has reopened its investigation. On and with effect from March 22, 2019, Expedia Group voluntarily and unilaterally waived certain additional rate parity provisions in agreements with Australian hotel partners. Expedia Group companies are in ongoing discussions with a limited number of
Notes to Consolidated Financial Statements – (Continued)
NCAs in other countries in relation to their contracts with hotels. In April 2019, the Japan Fair Trade Commission (“JFTC”) launched an investigation into certain practices of a number of online travel companies, including Expedia Group companies. Expedia Group is cooperating with the JFTC in this investigation. Expedia Group is currently unable to predict the impact the implementation of the waivers both in Europe and elsewhere will have on Expedia Group's business, on investigations or inquiries by NCAs in other countries, or on industry practice more generally.
In addition, regulatory authorities in Europe (including the UK Competition and Markets Authority, or “CMA”), Australia, and elsewhere have initiated legal proceedings and/or undertaken market studies, inquiries or investigations relating to online marketplaces and how information is presented to consumers using those marketplaces, including practices such as search results rankings and algorithms, discount claims, disclosure of charges, and availability and similar messaging.
On June 28, 2018, the CMA announced that it will be requiring hotel booking websites to take action to address concerns identified in the course of its ongoing investigation. After consulting with the CMA, on January 31, 2019, we agreed to offer certain voluntary undertakings with respect to the presentation of information on certain of our UK consumer-facing websites in order to address the CMA’s concerns. On February 4, 2019, the CMA confirmed that, as a result of the undertakings offered, it has closed its investigation without any admission or finding of liability. The undertakings become effective on September 1, 2019. On October 21, 2019, the Italian Competition Authority announced that it had accepted Expedia’s voluntary undertakings with respect to the presentation of information on its Italian website and closed the proceedings against Expedia without any admission or finding of liability. The undertakings became effective on September 1, 2019.
On August 23, 2018, the Australian Competition and Consumer Commission, or "ACCC", instituted proceedings in the Australian Federal Court against trivago. The ACCC alleged breaches of Australian consumer law relating to trivago’s advertisements in Australia concerning the hotel prices available on trivago’s Australian site and trivago’s strike-through pricing practice. A trial took place and the parties await a ruling; an appropriate reserve has been accrued in respect of this matter.
We are cooperating with regulators in the investigations described above where applicable, but we are unable to predict what, if any, effect such actions will have on our business, industry practices or online commerce more generally. Other than described above, we have not accrued a reserve in connection with the market studies, investigations, inquiries or legal proceedings described above either because the likelihood of an unfavorable outcome is not probable, or the amount of any loss is not estimable.
Note 11 – Liberty Expedia Holdings Transaction
On July 26, 2019, Expedia Group acquired all of the outstanding shares of Liberty Expedia Holdings, Inc. (“Liberty Expedia Holdings”) in a transaction in which the outstanding shares of Liberty Expedia Holdings’ Series A common stock and Series B common stock were exchanged for newly issued shares of common stock of Expedia Group with a fair value of $2.9 billion, assumption of $400 million in debt and $15 million of cash. We accounted for the acquired Liberty Expedia Holdings assets and liabilities, except for the Expedia Group shares repurchased, as a business combination. We accounted for the exchanged Expedia Group shares held by Liberty Expedia Holdings as a share repurchase for consideration of $3.2 billion. As a result of this transaction, Expedia Group’s shares outstanding were reduced by approximately 3.1 million shares. The fair value of the assets and liabilities acquired in the business combination was $91 million, which was primarily comprised of $78 million of cash and $10 million of a trade name definite lived intangible asset related to Bodybuilding.com. Bodybuilding.com is primarily an Internet retailer of dietary supplements, sports nutrition products, and other health and wellness products. No goodwill was recorded for the portion of the transaction accounted for as a business combination.
In connection with the Liberty Expedia Holdings transaction, a wholly-owned subsidiary of Expedia Group, Inc. (“Merger LLC”) assumed the obligations of Liberty Expedia Holdings with respect to the $400 million aggregate outstanding principal amount of 1.0% Exchangeable Senior Debentures due 2047 issued by Liberty Expedia Holdings (the “Exchangeable Debentures”) and the indenture governing the Exchangeable Debentures. Also in connection with the Liberty Expedia Holdings transaction, Liberty Expedia Holdings delivered a notice of redemption with respect to the Exchangeable Debentures, pursuant to which Merger LLC would redeem all of the Exchangeable Debentures at a redemption price, in cash, equal to the sum of (i) the adjusted principal amount of such Exchangeable Debentures, (ii) any accrued and unpaid interest on such Exchangeable Debentures to the redemption date, and (iii) any final period distribution on such Exchangeable Debentures (subject to the right of holders of the Exchangeable Debentures to exchange such Exchangeable Debentures for equity of Expedia Group, Inc. or, at Merger LLC’s election, cash or a combination of such equity and cash). On August 26, 2019, Merger LLC redeemed all of the Exchangeable Debentures in exchange for a total payment of approximately $401 million (with no holders of the Exchangeable Debentures electing to exchange).
The purchase price allocation was based on preliminary valuations of the assets acquired and the liabilities assumed and are subject to revision. Bodybuilding.com was consolidated into our financial statements starting on the acquisition date and we have recognized a related $24 million in revenue and $3 million in operating losses for the three and nine months ended
Notes to Consolidated Financial Statements – (Continued)
September 30, 2019, which are included within Corporate and Eliminations in our segment footnote. Pro forma financial information has not been presented as, absent Liberty Expedia Holdings’ goodwill impairment related to Bodybuilding.com during the year ended December 31, 2018, such pro forma information would not be materially different from historical results.
For information related to Liberty Expedia Holdings transaction, see Note 12 – Related Party Transactions.
Note 12 – Related Party Transactions
Mr. Diller is the Chairman and Senior Executive of Expedia Group. Certain relationships between Mr. Diller and the Company in connection with the Liberty Expedia Transaction (as defined below) are described below.
Prior to the closing of the Liberty Expedia Transaction on July 26, 2019, Liberty Expedia Holdings, Inc. (“Liberty Expedia Holdings”) and its subsidiaries held 11,076,672 shares of Expedia Group common stock and 12,799,999 shares of Expedia Group Class B common stock, which shares represented approximately 53% of the total voting power of all shares of Expedia Group common stock and Class B common stock, based on a total of 136,832,712 shares of Expedia Group common stock and 12,799,999 shares of Class B common stock outstanding as of July 12, 2019. Pursuant to an Amended and Restated Stockholders Agreement between Liberty Expedia and Mr. Diller (as amended as of November 4, 2016, the “Stockholders Agreement”), Mr. Diller generally had the right to vote all shares of Expedia Group common stock and Class B common stock held by Liberty Expedia Holdings and its subsidiaries (the “Diller Proxy”). As described below, the Stockholders Agreement, including the Diller Proxy, was terminated on July 26, 2019, upon the closing of the Liberty Expedia Transaction.
Merger Agreement
On April 15, 2019, Expedia Group entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of June 5, 2019, the “Merger Agreement”) with Liberty Expedia Holdings, LEMS I LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Merger LLC”), and LEMS II Inc., a Delaware corporation and a wholly owned subsidiary of Merger LLC (“Merger Sub”) and certain other related agreements (the transactions contemplated by the Merger Agreement and related agreements, the “Liberty Expedia Transaction”). The Merger Agreement provided for, among other things and subject to the satisfaction or waiver of certain specified conditions set forth therein, (i) the merger of Merger Sub with and into Liberty Expedia Holdings (the “Merger”), with Liberty Expedia Holdings surviving the Merger as a wholly owned subsidiary of Merger LLC, and (ii) immediately following the Merger, the merger of Liberty Expedia Holdings (as the surviving corporation in the Merger) with and into Merger LLC (the “Upstream Merger”, and together with the Merger, the “Combination”), with Merger LLC surviving the Upstream Merger as a wholly owned subsidiary of the Company.
On July 26, 2019, the Combination was completed. At the effective time of the Merger (the “Effective Time”), each share of Series A common stock, par value $0.01 per share, of Liberty Expedia Holdings (the “Liberty Expedia Series A common stock”) and each share of Series B common stock, par value $0.01 per share, of Liberty Expedia Holdings (the “Liberty Expedia Series B common stock”) issued and outstanding immediately prior to the Effective Time (except for shares held by Liberty Expedia Holdings as treasury stock or held directly by Expedia Group) was converted into the right to receive a number of shares of Expedia Group common stock such that each holder of record of shares of Liberty Expedia Series A common stock or Liberty Expedia Series B common stock had the right to receive, in the aggregate, a number of shares of Expedia Group common stock equal to the product of the total number of shares of such series of Liberty Expedia Series A common stock and Liberty Expedia Series B common stock held of record by such holder immediately prior to the Merger multiplied by an exchange ratio equal to 0.36, with such product rounded up to the next whole share of Expedia Group common stock. The aggregate consideration payable in the Combination was approximately 20.7 million shares of Expedia Group common stock.
Voting Agreement
In connection with the transactions contemplated by the Merger Agreement, John C. Malone and Leslie Malone (together, the “Malone Group”) entered into a voting agreement (the “Voting Agreement”) with the Company on April 15, 2019, pursuant to which, at the July 26, 2019 meeting of the Liberty Expedia Holdings stockholders at which the Merger was approved, the Malone Group voted shares of Liberty Expedia common stock representing approximately 32% of the total voting power of the issued and outstanding shares of Liberty Expedia Holdings common stock as of April 30, 2019, as reported in Liberty Expedia Holdings’ Definitive Proxy Statement on Schedule 14A filed on June 26, 2019, in favor of the Merger Agreement and the transactions contemplated thereby.
Exchange Agreement
Simultaneously with the entry into the Merger Agreement, Mr. Diller, The Diller Foundation d/b/a The Diller - von Furstenberg Family Foundation (the “Family Foundation”), Liberty Expedia Holdings and the Company entered into an Exchange Agreement (the “Exchange Agreement,” the rights contemplated by which and by the New Governance Agreement (as defined below) were agreed by Mr. Diller to be deemed to be in recognition and in lieu of Mr. Diller’s existing rights under the Former Governance Agreement (as defined below) and the Stockholders Agreement (as defined above)), pursuant to which
Notes to Consolidated Financial Statements – (Continued)
on July 26, 2019, immediately prior to the closing of the Combination, Mr. Diller and the Family Foundation exchanged with Liberty Expedia Holdings 5,523,452 shares of Expedia Group common stock for the same number of shares of Expedia Group Class B common stock held by Liberty Expedia Holdings (the shares of Class B common stock acquired by Mr. Diller and the Family Foundation pursuant to the Exchange Agreement, collectively referred to as the “Original Shares”). The Original Shares represent approximately 28% of the total voting power of all shares of Expedia Group common stock and Class B common stock, based on approximately 140 million shares of Expedia Group common stock and approximately 5.5 million shares of Class B common stock outstanding as of September 30, 2019.
Former Governance Agreement
During 2018 through July 26, 2019, Liberty Expedia Holdings (as assignee of Qurate Retail, Inc. (“Qurate”)) was a party to the Amended and Restated Governance Agreement, dated as of December 20, 2011, as amended, among the Company, Liberty Expedia Holdings and Mr. Diller (the “Former Governance Agreement”), pursuant to which Liberty Expedia Holdings had the right to nominate up to a number of directors equal to 20% of the total number of the directors on the Board (rounded up to the next whole number if the number of directors on the Board were not an even multiple of five) and had certain rights regarding committee participation, so long as Liberty Expedia Holdings satisfied certain stock ownership requirements. The Former Governance Agreement was terminated on July 26, 2019 upon the closing of the Liberty Expedia Transaction, at which time, pursuant to the Merger Agreement, each of the three directors serving on the Expedia Group Board of Directors who were nominated by Liberty Expedia Holdings resigned from the Board.
New Governance Agreement
Simultaneously with the entry into the Merger Agreement, the Company and Mr. Diller entered into a Second Amended and Restated Governance Agreement (the “New Governance Agreement,” the rights contemplated by which and by the Exchange Agreement (as defined above) were agreed by Mr. Diller to be deemed to be in recognition and in lieu of Mr. Diller’s existing rights under the Former Governance Agreement (as defined above) and the Stockholders Agreement (as defined above)), which provides, among other things, that Mr. Diller may exercise a right (the “Purchase/Exchange Right”) during the nine month period following the closing of the Combination, to (1) exchange with the Company (or its wholly owned subsidiary) an equivalent number of shares of Expedia Group common stock for, or (2) purchase from the Company (or its wholly owned subsidiary), at a price per share equal to the average closing price of Expedia Group common stock for the five trading days immediately preceding notice of exercise, up to 7,276,547 shares of Expedia Group Class B common stock (any shares acquired pursuant to the Purchase/Exchange Right, the “Additional Shares”). The Purchase/Exchange Right may be exercised from time to time in whole or in part. Assuming the exercise in full by Mr. Diller of the Purchase/Exchange Right, the Original Shares and Additional Shares would collectively represent approximately 49% of the total voting power of all outstanding shares of Expedia Group common stock and Class B common stock, assuming a total of approximately 133 million shares of Expedia Group common stock and 12,799,999 shares of Class B common stock outstanding immediately following the exercise of the Purchase/Exchange Right. The foregoing assumes that Mr. Diller exercises his right to acquire the Additional Shares solely by exchanging shares of Expedia Group common stock acquired in the open market (or otherwise, other than from the Company). If Mr. Diller were to acquire the Additional Shares through cash purchases directly from the Company (or its wholly owned subsidiary), the Original Shares and Additional Shares would collectively represent approximately 48% of the total voting power of all outstanding shares of Expedia Group common stock and Class B common stock (based on approximately 140 million shares of Expedia Group common stock and 12,799,999 shares of Class B common stock outstanding immediately following the exercise of the Purchase/Exchange Right).
Prior to the transfer of any Additional Shares, a transferee must deliver a proxy granting Mr. Diller sole voting control over such shares and deliver a joinder agreement agreeing to be bound by certain terms of the New Governance Agreement. Subject to limited exceptions, any transferred Additional Shares over which Mr. Diller does not maintain sole voting control will be automatically converted into shares of Expedia Group common stock.
All Additional Shares will be automatically converted into shares of Expedia Group common stock immediately following the earliest of (a) Mr. Diller’s death or disability; (b) such time as Mr. Diller no longer serves as Chairman or Senior Executive of the Company, other than as a result of his removal (other than for “cause” as defined in the New Governance Agreement) or failure to be nominated or elected when he is willing to serve in such position; and (c) aggregate transfers by Mr. Diller (or certain limited permitted transferees of Mr. Diller) of Original Shares exceeding 5% of the outstanding voting power of the Company.
The automatic conversion features described above negotiated by the Expedia Group Special Committee and agreed to by Mr. Diller under the New Governance Agreement did not exist under the Former Governance Agreement.
Additionally, subject to limited exception, no current or future holder of Original Shares or Additional Shares may participate in, or vote in favor of, or tender shares into, any change of control transaction involving at least 50% of the outstanding shares or voting power of capital stock of the Company, unless such transaction provides for the same per share consideration and mix of consideration (or election right) and the same participation rights for shares of Class B common stock
Notes to Consolidated Financial Statements – (Continued)
and shares of Expedia Group common stock. These requirements negotiated by the Expedia Group Special Committee and agreed to by Mr. Diller under the New Governance Agreement did not exist under the Former Governance Agreement.
At the 2019 Annual Meeting of the Company’s stockholders, the Company is proposing, and Mr. Diller has agreed to vote in favor of, a proposal to amend its Certificate of Incorporation to reflect the aforementioned transfer restrictions, automatic conversion provisions and change-of-control restrictions reflected in the New Governance Agreement.
Following the closing of the Liberty Expedia Transaction, the Company ceased to be a controlled company under the Nasdaq Stock Market Listing Rules and is required to comply with all of Nasdaq’s corporate governance requirements on the phase-in schedule described below. On July 26, 2019, the Company received notice from Nasdaq confirming that the Company no longer complies with Nasdaq Marketplace Rule 5605(b)(1), which requires a majority of the Company’s Board of Directors to be composed of “independent directors” (as defined in Nasdaq Marketplace Rule 5605(a)(2)). Within 12 months from ceasing to be a “controlled company,” the Company is required to have a majority of independent directors on the Board of Directors. Additionally, the Compensation Committee is required to be composed of at least two members, one of whom is independent upon ceasing to be a “controlled company,” a majority of whom is independent within 90 days of ceasing to be a “controlled company” and all members of which are independent within one year of ceasing to be a “controlled company.” The Nominating Committee is required to include at least one member who is independent upon ceasing to be a “controlled company” and all members of which must be independent within one year of ceasing to be a “controlled company.” Currently, 6 of the 12 directors on the Board of Directors are independent (as defined in Nasdaq Marketplace Rule 5605(a)(2)). The Compensation Committee currently consists of two members, each of whom is independent and the Nominating Committee currently consists of three members, two of whom are independent. The Company is actively seeking to comply with the majority independent director rule and the independent nominating committee rules, but is currently relying on the twelve-month phase-in periods set forth in Nasdaq’s Marketplace Rule 5615(c)(3).
While it is possible that Mr. Diller may at some point in the future beneficially own more than 50% of the outstanding voting power of the Company, the provisions of the New Governance Agreement provide that following one of the automatic conversion triggers mentioned above, the number of shares of Class B common stock acquired by Mr. Diller in connection with the Liberty Expedia Transaction will not exceed approximately 5.5 million shares of Class B common stock, or approximately 28% of the total voting power of Expedia Group based on approximately 140 million shares of Expedia Group common stock and approximately 5.5 million shares of Class B common stock outstanding as of September 30, 2019. Further, as described above, the New Governance Agreement provides that, subject to limited exception, no current or future holder of Original Shares or Additional Shares may participate in, or vote or tender in favor of, any change of control transaction involving at least 50% of the outstanding shares of capital stock of the Company, unless such transaction provides for the same per share consideration and mix of consideration (or election right) and the same participation rights for shares of Expedia Group Class B common stock and shares of Expedia Group common stock.
Other Agreements
Simultaneously with the Company’s entry into the Merger Agreement, certain additional related agreements were entered into, including:
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•
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A Stockholders Agreement Termination Agreement, by and among Mr. Diller, Liberty Expedia Holdings and certain wholly owned subsidiaries of Liberty Expedia Holdings, pursuant to the Stockholders Agreement (as defined above), including the Diller Proxy (as defined above) terminated on July 26, 2019, upon the closing of the Liberty Expedia Transaction;
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•
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A Governance Agreement Termination Agreement, by and among Mr. Diller, the Company, Liberty Expedia Holdings and certain wholly owned subsidiaries of Liberty Expedia Holdings, pursuant to which the Former Governance Agreement (as defined above) terminated on July 26, 2019, upon the closing of the Liberty Expedia Transaction;
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•
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An Assumption and Joinder Agreement to Tax Sharing Agreement by and among the Company, Liberty Expedia Holdings and Qurate, pursuant to which the Company agreed to assume, effective at the closing of the Liberty Expedia Transaction, Liberty Expedia Holdings’ rights and obligations under the Tax Sharing Agreement, dated as of November 4, 2016, by and between Qurate and Liberty Expedia Holdings;
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•
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An Assumption Agreement Concerning Transaction Agreement Obligations by and among the Company, Liberty Expedia Holdings, Qurate and the Malone Group, pursuant to which the Company agreed to assume, effective at the closing of the Liberty Expedia Transaction, certain of Liberty Expedia Holdings’ rights and obligations under the Amended and Restated Transaction Agreement, dated as of September 22, 2016, as amended by the letter agreement dated as of March 6, 2018, as further amended by Amendment No. 2 to the Transaction Agreement dated as of April 15, 2019 (the “Transaction Agreement”), which survive the termination of the Transaction Agreement; and
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•
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An Assumption and Joinder Agreement to Reorganization Agreement by and among the Company, Liberty Expedia Holdings and Qurate, pursuant to which the Company agreed to assume, effective at the closing of the Liberty Expedia
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Notes to Consolidated Financial Statements – (Continued)
Transaction, Liberty Expedia Holdings’ rights and obligations under the Reorganization Agreement, dated as of October 26, 2016, by and between Qurate and Liberty Expedia Holdings.
Note 13 – Segment Information
We have four reportable segments: Core OTA, trivago, Vrbo (previously referred to as our “HomeAway” segment) and Egencia. Our Core OTA segment, which consists of the aggregation of operating segments, provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Expedia Partner Solutions, Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com, CarRentals.com, Classic Vacations and SilverRail Technologies, Inc. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. Our Vrbo segment operates an online marketplace for the alternative accommodations industry. Our Egencia segment provides managed travel services to corporate customers worldwide.
We determined our operating segments based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our primary operating metric is Adjusted EBITDA. Adjusted EBITDA for our Core OTA and Egencia segments includes allocations of certain expenses, primarily cost of revenue and facilities, and our Core OTA segment includes the total costs of our global supply organizations and Core OTA and Vrbo include the realized foreign currency gains or losses related to the forward contracts hedging a component of our net merchant lodging revenue. We base the allocations primarily on transaction volumes and other usage metrics. We do not allocate certain shared expenses such as accounting, human resources, information technology and legal to our reportable segments. We include these expenses in Corporate and Eliminations. Our allocation methodology is periodically evaluated and may change.
Our segment disclosure includes intersegment revenues, which primarily consist of advertising and media services provided by our trivago segment to our Core OTA segment. These intersegment transactions are recorded by each segment at amounts that approximate fair value as if the transactions were between third parties, and therefore, impact segment performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such intersegment transactions is included within Corporate and Eliminations in the table below. In addition, when Vrbo properties are booked through our Core OTA websites and vice versa, the segments split the third-party revenue for management and segment reporting purposes with the majority of the third-party revenue residing with the website marketing the property or room.
Corporate and Eliminations also includes unallocated corporate functions and expenses as well as Bodybuilding.com subsequent to our acquisition on July 26, 2019. In addition, we record amortization of intangible assets and any related impairment, as well as stock-based compensation expense, restructuring and related reorganization charges, legal reserves, occupancy tax and other, and other items excluded from segment operating performance in Corporate and Eliminations. Such amounts are detailed in our segment reconciliation below.
The following tables present our segment information for the three and nine months ended September 30, 2019 and 2018. As a significant portion of our property and equipment is not allocated to our operating segments and depreciation is not included in our segment measure, we do not report the assets by segment as it would not be meaningful. We do not regularly provide such information to our chief operating decision makers.
Notes to Consolidated Financial Statements – (Continued)
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Three months ended September 30, 2019
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Core OTA
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trivago
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Vrbo
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Egencia
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Corporate &
Eliminations
|
|
Total
|
|
|
(In millions)
|
|
Third-party revenue
|
$
|
2,732
|
|
|
$
|
190
|
|
|
$
|
467
|
|
|
$
|
145
|
|
|
$
|
24
|
|
|
$
|
3,558
|
|
|
Intersegment revenue
|
—
|
|
|
89
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|
|
—
|
|
|
—
|
|
|
(89
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)
|
|
—
|
|
|
Revenue
|
$
|
2,732
|
|
|
$
|
279
|
|
|
$
|
467
|
|
|
$
|
145
|
|
|
$
|
(65
|
)
|
|
$
|
3,558
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|
|
Adjusted EBITDA
|
$
|
865
|
|
|
$
|
12
|
|
|
$
|
215
|
|
|
$
|
19
|
|
|
$
|
(199
|
)
|
|
$
|
912
|
|
|
Depreciation
|
(95
|
)
|
|
(3
|
)
|
|
(26
|
)
|
|
(12
|
)
|
|
(42
|
)
|
|
(178
|
)
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
(50
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60
|
)
|
|
(60
|
)
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
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)
|
|
(11
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)
|
|
Restructuring and related reorganization charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
Realized (gain) loss on revenue hedges
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Operating income (loss)
|
$
|
769
|
|
|
$
|
9
|
|
|
$
|
188
|
|
|
$
|
7
|
|
|
$
|
(364
|
)
|
|
609
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|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
407
|
|
|
Net loss attributable to non-controlling interests
|
|
|
|
|
|
|
|
2
|
|
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
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|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Corporate &
Eliminations
|
|
Total
|
|
|
(In millions)
|
|
Third-party revenue
|
$
|
2,527
|
|
|
$
|
200
|
|
|
$
|
410
|
|
|
$
|
139
|
|
|
$
|
—
|
|
|
$
|
3,276
|
|
|
Intersegment revenue
|
—
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
—
|
|
|
Revenue
|
$
|
2,527
|
|
|
$
|
295
|
|
|
$
|
410
|
|
|
$
|
139
|
|
|
$
|
(95
|
)
|
|
$
|
3,276
|
|
|
Adjusted EBITDA
|
$
|
837
|
|
|
$
|
31
|
|
|
$
|
209
|
|
|
$
|
19
|
|
|
$
|
(184
|
)
|
|
$
|
912
|
|
|
Depreciation
|
(88
|
)
|
|
(4
|
)
|
|
(17
|
)
|
|
(12
|
)
|
|
(50
|
)
|
|
(171
|
)
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
(71
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
|
(54
|
)
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
78
|
|
|
Realized (gain) loss on revenue hedges
|
(21
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
Operating income (loss)
|
$
|
728
|
|
|
$
|
27
|
|
|
$
|
191
|
|
|
$
|
7
|
|
|
$
|
(281
|
)
|
|
672
|
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
612
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
531
|
|
|
Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
(6
|
)
|
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
$
|
525
|
|
Notes to Consolidated Financial Statements – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Corporate &
Eliminations
|
|
Total
|
|
|
(In millions)
|
|
Third-party revenue
|
$
|
7,249
|
|
|
$
|
505
|
|
|
$
|
1,081
|
|
|
$
|
461
|
|
|
$
|
24
|
|
|
$
|
9,320
|
|
|
Intersegment revenue
|
—
|
|
|
262
|
|
|
—
|
|
|
—
|
|
|
(262
|
)
|
|
—
|
|
|
Revenue
|
$
|
7,249
|
|
|
$
|
767
|
|
|
$
|
1,081
|
|
|
$
|
461
|
|
|
$
|
(238
|
)
|
|
$
|
9,320
|
|
|
Adjusted EBITDA
|
$
|
1,832
|
|
|
$
|
56
|
|
|
$
|
259
|
|
|
$
|
85
|
|
|
$
|
(576
|
)
|
|
$
|
1,656
|
|
|
Depreciation
|
(281
|
)
|
|
(9
|
)
|
|
(73
|
)
|
|
(38
|
)
|
|
(129
|
)
|
|
(530
|
)
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(154
|
)
|
|
(154
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(175
|
)
|
|
(175
|
)
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
(25
|
)
|
|
Restructuring and related reorganization charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
|
Realized (gain) loss on revenue hedges
|
(12
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
Operating income (loss)
|
$
|
1,539
|
|
|
$
|
47
|
|
|
$
|
185
|
|
|
$
|
47
|
|
|
$
|
(1,075
|
)
|
|
743
|
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
655
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(161
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
494
|
|
|
Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
(5
|
)
|
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
$
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Corporate &
Eliminations
|
|
Total
|
|
|
(In millions)
|
|
Third-party revenue
|
$
|
6,706
|
|
|
$
|
571
|
|
|
$
|
941
|
|
|
$
|
446
|
|
|
$
|
—
|
|
|
$
|
8,664
|
|
|
Intersegment revenue
|
—
|
|
|
323
|
|
|
—
|
|
|
—
|
|
|
(323
|
)
|
|
—
|
|
|
Revenue
|
$
|
6,706
|
|
|
$
|
894
|
|
|
$
|
941
|
|
|
$
|
446
|
|
|
$
|
(323
|
)
|
|
$
|
8,664
|
|
|
Adjusted EBITDA
|
$
|
1,721
|
|
|
$
|
(17
|
)
|
|
$
|
266
|
|
|
$
|
76
|
|
|
$
|
(547
|
)
|
|
$
|
1,499
|
|
|
Depreciation
|
(256
|
)
|
|
(11
|
)
|
|
(46
|
)
|
|
(35
|
)
|
|
(159
|
)
|
|
(507
|
)
|
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(215
|
)
|
|
(215
|
)
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(61
|
)
|
|
(61
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(154
|
)
|
|
(154
|
)
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
74
|
|
|
Realized (gain) loss on revenue hedges
|
(17
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
Operating income (loss)
|
$
|
1,448
|
|
|
$
|
(28
|
)
|
|
$
|
219
|
|
|
$
|
41
|
|
|
$
|
(1,062
|
)
|
|
618
|
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
429
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
373
|
|
|
Net loss attributable to non-controlling interests
|
|
|
|
|
|
|
|
16
|
|
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
$
|
389
|
|
Notes to Consolidated Financial Statements – (Continued)
Revenue by Business Model and Service Type
The following table presents revenue by business model and service type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Business Model:
|
|
|
|
|
|
|
|
|
Merchant
|
$
|
1,863
|
|
|
$
|
1,688
|
|
|
$
|
4,935
|
|
|
$
|
4,554
|
|
|
Agency
|
917
|
|
|
876
|
|
|
2,444
|
|
|
2,311
|
|
|
Advertising and media
|
311
|
|
|
302
|
|
|
860
|
|
|
858
|
|
|
Vrbo
|
467
|
|
|
410
|
|
|
1,081
|
|
|
941
|
|
|
Total revenue
|
$
|
3,558
|
|
|
$
|
3,276
|
|
|
$
|
9,320
|
|
|
$
|
8,664
|
|
|
Service Type:
|
|
|
|
|
|
|
|
|
Lodging
|
$
|
2,599
|
|
|
$
|
2,347
|
|
|
$
|
6,555
|
|
|
$
|
5,951
|
|
|
Air
|
202
|
|
|
209
|
|
|
678
|
|
|
674
|
|
|
Advertising and media
|
311
|
|
|
302
|
|
|
860
|
|
|
858
|
|
|
Other(1)
|
446
|
|
|
418
|
|
|
1,227
|
|
|
1,181
|
|
|
Total revenue
|
$
|
3,558
|
|
|
$
|
3,276
|
|
|
$
|
9,320
|
|
|
$
|
8,664
|
|
|
|
|
|
(1)
|
Other includes car rental, insurance, destination services, cruise and fee revenue related to our corporate travel business, among other revenue streams, none of which are individually material. Other also includes product revenue of $24 million during the three and nine months ended September 30, 2019 related to our acquisition of Bodybuilding.com.
|
Our Core OTA segment generates revenue from the merchant, agency and advertising and media business models as well as all service types. trivago segment revenue is generated through advertising and media. All Vrbo revenue is included within the lodging service type. Our Egencia segment generates revenue from similar business models and service types to Core OTA applied to the corporate traveler with the majority being agency revenue.
Note 14 – Guarantor and Non-Guarantor Supplemental Financial Information
Condensed consolidating financial information of Expedia Group, Inc. (the “Parent”), our subsidiaries that are guarantors of our debt facility and instruments (the “Guarantor Subsidiaries”), and our subsidiaries that are not guarantors of our debt facility and instruments (the “Non-Guarantor Subsidiaries”) is shown below. The debt facility and instruments are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The guarantees are full, unconditional, and joint and several with the exception of certain customary automatic subsidiary release provisions. In this financial information, the Parent and Guarantor Subsidiaries account for investments in their wholly-owned subsidiaries using the equity method.
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(In millions)
|
|
Revenue
|
$
|
—
|
|
|
$
|
2,733
|
|
|
$
|
916
|
|
|
$
|
(91
|
)
|
|
$
|
3,558
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
408
|
|
|
166
|
|
|
(5
|
)
|
|
569
|
|
|
Selling and marketing
|
—
|
|
|
1,258
|
|
|
488
|
|
|
(86
|
)
|
|
1,660
|
|
|
Technology and content
|
—
|
|
|
309
|
|
|
131
|
|
|
—
|
|
|
440
|
|
|
General and administrative
|
—
|
|
|
140
|
|
|
77
|
|
|
—
|
|
|
217
|
|
|
Amortization of intangible assets
|
—
|
|
|
30
|
|
|
20
|
|
|
—
|
|
|
50
|
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
3
|
|
|
8
|
|
|
—
|
|
|
11
|
|
|
Restructuring and related reorganization charges
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Intercompany (income) expense, net
|
—
|
|
|
250
|
|
|
(250
|
)
|
|
—
|
|
|
—
|
|
|
Operating income
|
—
|
|
|
335
|
|
|
274
|
|
|
—
|
|
|
609
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
439
|
|
|
170
|
|
|
—
|
|
|
(609
|
)
|
|
—
|
|
|
Other, net
|
(40
|
)
|
|
46
|
|
|
(54
|
)
|
|
—
|
|
|
(48
|
)
|
|
Total other income (expense), net
|
399
|
|
|
216
|
|
|
(54
|
)
|
|
(609
|
)
|
|
(48
|
)
|
|
Income before income taxes
|
399
|
|
|
551
|
|
|
220
|
|
|
(609
|
)
|
|
561
|
|
|
Provision for income taxes
|
10
|
|
|
(111
|
)
|
|
(53
|
)
|
|
—
|
|
|
(154
|
)
|
|
Net income
|
409
|
|
|
440
|
|
|
167
|
|
|
(609
|
)
|
|
407
|
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
409
|
|
|
$
|
441
|
|
|
$
|
168
|
|
|
$
|
(609
|
)
|
|
$
|
409
|
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
367
|
|
|
$
|
376
|
|
|
$
|
105
|
|
|
$
|
(481
|
)
|
|
$
|
367
|
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(In millions)
|
|
Revenue
|
$
|
—
|
|
|
$
|
2,503
|
|
|
$
|
869
|
|
|
$
|
(96
|
)
|
|
$
|
3,276
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
362
|
|
|
147
|
|
|
(5
|
)
|
|
504
|
|
|
Selling and marketing
|
—
|
|
|
1,096
|
|
|
496
|
|
|
(91
|
)
|
|
1,501
|
|
|
Technology and content
|
—
|
|
|
287
|
|
|
117
|
|
|
—
|
|
|
404
|
|
|
General and administrative
|
—
|
|
|
129
|
|
|
73
|
|
|
—
|
|
|
202
|
|
|
Amortization of intangible assets
|
—
|
|
|
44
|
|
|
27
|
|
|
—
|
|
|
71
|
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
(78
|
)
|
|
—
|
|
|
—
|
|
|
(78
|
)
|
|
Intercompany (income) expense, net
|
—
|
|
|
239
|
|
|
(239
|
)
|
|
—
|
|
|
—
|
|
|
Operating income
|
—
|
|
|
424
|
|
|
248
|
|
|
—
|
|
|
672
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
560
|
|
|
204
|
|
|
—
|
|
|
(764
|
)
|
|
—
|
|
|
Other, net
|
(46
|
)
|
|
(13
|
)
|
|
(1
|
)
|
|
—
|
|
|
(60
|
)
|
|
Total other income (expense), net
|
514
|
|
|
191
|
|
|
(1
|
)
|
|
(764
|
)
|
|
(60
|
)
|
|
Income before income taxes
|
514
|
|
|
615
|
|
|
247
|
|
|
(764
|
)
|
|
612
|
|
|
Provision for income taxes
|
11
|
|
|
(55
|
)
|
|
(37
|
)
|
|
—
|
|
|
(81
|
)
|
|
Net income
|
525
|
|
|
560
|
|
|
210
|
|
|
(764
|
)
|
|
531
|
|
|
Net (income) loss attributable to non-controlling interests
|
—
|
|
|
1
|
|
|
(7
|
)
|
|
—
|
|
|
(6
|
)
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
525
|
|
|
$
|
561
|
|
|
$
|
203
|
|
|
$
|
(764
|
)
|
|
$
|
525
|
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
514
|
|
|
$
|
545
|
|
|
$
|
186
|
|
|
$
|
(731
|
)
|
|
$
|
514
|
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(In millions)
|
|
Revenue
|
$
|
—
|
|
|
$
|
7,274
|
|
|
$
|
2,313
|
|
|
$
|
(267
|
)
|
|
$
|
9,320
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
1,162
|
|
|
459
|
|
|
(17
|
)
|
|
1,604
|
|
|
Selling and marketing
|
—
|
|
|
3,675
|
|
|
1,427
|
|
|
(250
|
)
|
|
4,852
|
|
|
Technology and content
|
—
|
|
|
914
|
|
|
390
|
|
|
—
|
|
|
1,304
|
|
|
General and administrative
|
—
|
|
|
400
|
|
|
222
|
|
|
—
|
|
|
622
|
|
|
Amortization of intangible assets
|
—
|
|
|
92
|
|
|
62
|
|
|
—
|
|
|
154
|
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
17
|
|
|
8
|
|
|
—
|
|
|
25
|
|
|
Restructuring and related reorganization charges
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
Intercompany (income) expense, net
|
—
|
|
|
661
|
|
|
(661
|
)
|
|
—
|
|
|
—
|
|
|
Operating income
|
—
|
|
|
353
|
|
|
390
|
|
|
—
|
|
|
743
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
582
|
|
|
257
|
|
|
—
|
|
|
(839
|
)
|
|
—
|
|
|
Other, net
|
(122
|
)
|
|
84
|
|
|
(50
|
)
|
|
—
|
|
|
(88
|
)
|
|
Total other income (expense), net
|
460
|
|
|
341
|
|
|
(50
|
)
|
|
(839
|
)
|
|
(88
|
)
|
|
Income before income taxes
|
460
|
|
|
694
|
|
|
340
|
|
|
(839
|
)
|
|
655
|
|
|
Provision for income taxes
|
29
|
|
|
(109
|
)
|
|
(81
|
)
|
|
—
|
|
|
(161
|
)
|
|
Net income
|
489
|
|
|
585
|
|
|
259
|
|
|
(839
|
)
|
|
494
|
|
|
Net (income) loss attributable to non-controlling interests
|
—
|
|
|
2
|
|
|
(7
|
)
|
|
—
|
|
|
(5
|
)
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
489
|
|
|
$
|
587
|
|
|
$
|
252
|
|
|
$
|
(839
|
)
|
|
$
|
489
|
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
451
|
|
|
$
|
522
|
|
|
$
|
189
|
|
|
$
|
(711
|
)
|
|
$
|
451
|
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(In millions)
|
|
Revenue
|
$
|
—
|
|
|
$
|
6,643
|
|
|
$
|
2,348
|
|
|
$
|
(327
|
)
|
|
$
|
8,664
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
1,094
|
|
|
410
|
|
|
(15
|
)
|
|
1,489
|
|
|
Selling and marketing
|
—
|
|
|
3,256
|
|
|
1,614
|
|
|
(312
|
)
|
|
4,558
|
|
|
Technology and content
|
—
|
|
|
847
|
|
|
353
|
|
|
—
|
|
|
1,200
|
|
|
General and administrative
|
—
|
|
|
375
|
|
|
222
|
|
|
—
|
|
|
597
|
|
|
Amortization of intangible assets
|
—
|
|
|
134
|
|
|
81
|
|
|
—
|
|
|
215
|
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
61
|
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
(75
|
)
|
|
1
|
|
|
—
|
|
|
(74
|
)
|
|
Intercompany (income) expense, net
|
—
|
|
|
654
|
|
|
(654
|
)
|
|
—
|
|
|
—
|
|
|
Operating income
|
—
|
|
|
358
|
|
|
260
|
|
|
—
|
|
|
618
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
501
|
|
|
223
|
|
|
—
|
|
|
(724
|
)
|
|
—
|
|
|
Other, net
|
(146
|
)
|
|
(22
|
)
|
|
(21
|
)
|
|
—
|
|
|
(189
|
)
|
|
Total other income (expense), net
|
355
|
|
|
201
|
|
|
(21
|
)
|
|
(724
|
)
|
|
(189
|
)
|
|
Income before income taxes
|
355
|
|
|
559
|
|
|
239
|
|
|
(724
|
)
|
|
429
|
|
|
Provision for income taxes
|
34
|
|
|
(54
|
)
|
|
(36
|
)
|
|
—
|
|
|
(56
|
)
|
|
Net income
|
389
|
|
|
505
|
|
|
203
|
|
|
(724
|
)
|
|
373
|
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
2
|
|
|
14
|
|
|
—
|
|
|
16
|
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
389
|
|
|
$
|
507
|
|
|
$
|
217
|
|
|
$
|
(724
|
)
|
|
$
|
389
|
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
339
|
|
|
$
|
435
|
|
|
$
|
147
|
|
|
$
|
(582
|
)
|
|
$
|
339
|
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(In millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
431
|
|
|
$
|
6,685
|
|
|
$
|
2,581
|
|
|
$
|
(1,728
|
)
|
|
$
|
7,969
|
|
|
Investment in subsidiaries
|
10,795
|
|
|
3,041
|
|
|
—
|
|
|
(13,836
|
)
|
|
—
|
|
|
Intangible assets, net
|
—
|
|
|
1,438
|
|
|
405
|
|
|
—
|
|
|
1,843
|
|
|
Goodwill
|
—
|
|
|
6,367
|
|
|
1,737
|
|
|
—
|
|
|
8,104
|
|
|
Other assets, net
|
—
|
|
|
2,379
|
|
|
1,120
|
|
|
(34
|
)
|
|
3,465
|
|
|
TOTAL ASSETS
|
$
|
11,226
|
|
|
$
|
19,910
|
|
|
$
|
5,843
|
|
|
$
|
(15,598
|
)
|
|
$
|
21,381
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
1,317
|
|
|
$
|
8,537
|
|
|
$
|
2,456
|
|
|
$
|
(1,728
|
)
|
|
$
|
10,582
|
|
|
Long-term debt
|
4,170
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,170
|
|
|
Other long-term liabilities
|
—
|
|
|
477
|
|
|
414
|
|
|
(34
|
)
|
|
857
|
|
|
Redeemable non-controlling interests
|
—
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
Stockholders’ equity
|
5,739
|
|
|
10,863
|
|
|
2,973
|
|
|
(13,836
|
)
|
|
5,739
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
11,226
|
|
|
$
|
19,910
|
|
|
$
|
5,843
|
|
|
$
|
(15,598
|
)
|
|
$
|
21,381
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(In millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
402
|
|
|
$
|
5,261
|
|
|
$
|
2,137
|
|
|
$
|
(2,603
|
)
|
|
$
|
5,197
|
|
|
Investment in subsidiaries
|
10,615
|
|
|
3,425
|
|
|
—
|
|
|
(14,040
|
)
|
|
—
|
|
|
Intangible assets, net
|
—
|
|
|
1,520
|
|
|
472
|
|
|
—
|
|
|
1,992
|
|
|
Goodwill
|
—
|
|
|
6,366
|
|
|
1,754
|
|
|
—
|
|
|
8,120
|
|
|
Other assets, net
|
—
|
|
|
1,840
|
|
|
913
|
|
|
(29
|
)
|
|
2,724
|
|
|
TOTAL ASSETS
|
$
|
11,017
|
|
|
$
|
18,412
|
|
|
$
|
5,276
|
|
|
$
|
(16,672
|
)
|
|
$
|
18,033
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
1,649
|
|
|
$
|
7,396
|
|
|
$
|
1,618
|
|
|
$
|
(2,603
|
)
|
|
$
|
8,060
|
|
|
Long-term debt
|
3,717
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,717
|
|
|
Other long-term liabilities
|
—
|
|
|
320
|
|
|
284
|
|
|
(29
|
)
|
|
575
|
|
|
Redeemable non-controlling interests
|
—
|
|
|
17
|
|
|
13
|
|
|
—
|
|
|
30
|
|
|
Stockholders’ equity
|
5,651
|
|
|
10,679
|
|
|
3,361
|
|
|
(14,040
|
)
|
|
5,651
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
11,017
|
|
|
$
|
18,412
|
|
|
$
|
5,276
|
|
|
$
|
(16,672
|
)
|
|
$
|
18,033
|
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidated
|
|
|
(In millions)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
1,952
|
|
|
$
|
474
|
|
|
$
|
2,426
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures, including internal-use software and website development
|
—
|
|
|
(800
|
)
|
|
(64
|
)
|
|
(864
|
)
|
|
Purchases of investments
|
—
|
|
|
(1,217
|
)
|
|
(66
|
)
|
|
(1,283
|
)
|
|
Sales and maturities of investments
|
—
|
|
|
622
|
|
|
13
|
|
|
635
|
|
|
Acquisitions, net of cash and restricted cash acquired
|
—
|
|
|
80
|
|
|
—
|
|
|
80
|
|
|
Other, net
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Net cash used in investing activities
|
—
|
|
|
(1,312
|
)
|
|
(117
|
)
|
|
(1,429
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of issuance costs
|
1,235
|
|
|
—
|
|
|
—
|
|
|
1,235
|
|
|
Payment of Liberty Expedia Exchangeable Debentures
|
—
|
|
|
(400
|
)
|
|
—
|
|
|
(400
|
)
|
|
Purchases of treasury stock
|
(352
|
)
|
|
—
|
|
|
—
|
|
|
(352
|
)
|
|
Payment of dividends to stockholders
|
(145
|
)
|
|
—
|
|
|
—
|
|
|
(145
|
)
|
|
Proceeds from exercise of equity awards and employee stock purchase plan
|
277
|
|
|
—
|
|
|
—
|
|
|
277
|
|
|
Transfers (to) from related parties
|
(1,013
|
)
|
|
1,039
|
|
|
(26
|
)
|
|
—
|
|
|
Other, net
|
(2
|
)
|
|
6
|
|
|
(12
|
)
|
|
(8
|
)
|
|
Net cash provided by (used in) financing activities
|
—
|
|
|
645
|
|
|
(38
|
)
|
|
607
|
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
|
—
|
|
|
(16
|
)
|
|
(46
|
)
|
|
(62
|
)
|
|
Net increase in cash, cash equivalents and restricted cash and cash equivalents
|
—
|
|
|
1,269
|
|
|
273
|
|
|
1,542
|
|
|
Cash, cash equivalents and restricted cash and cash equivalents at beginning of the period
|
—
|
|
|
1,190
|
|
|
1,515
|
|
|
2,705
|
|
|
Cash, cash equivalents and restricted cash and cash equivalents at end of the period
|
$
|
—
|
|
|
$
|
2,459
|
|
|
$
|
1,788
|
|
|
$
|
4,247
|
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidated
|
|
|
(In millions)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
1,509
|
|
|
$
|
611
|
|
|
$
|
2,120
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures, including internal-use software and website development
|
—
|
|
|
(533
|
)
|
|
(101
|
)
|
|
(634
|
)
|
|
Purchases of investments
|
—
|
|
|
(1,714
|
)
|
|
—
|
|
|
(1,714
|
)
|
|
Sales and maturities of investments
|
—
|
|
|
1,618
|
|
|
74
|
|
|
1,692
|
|
|
Acquisitions, net of cash and restricted cash acquired
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
(40
|
)
|
|
Transfers (to) from related parties
|
—
|
|
|
(60
|
)
|
|
60
|
|
|
—
|
|
|
Other, net
|
—
|
|
|
39
|
|
|
2
|
|
|
41
|
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(690
|
)
|
|
35
|
|
|
(655
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Payment of long-term debt
|
(500
|
)
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
|
Purchases of treasury stock
|
(620
|
)
|
|
—
|
|
|
—
|
|
|
(620
|
)
|
|
Payment of dividends to stockholders
|
(138
|
)
|
|
—
|
|
|
—
|
|
|
(138
|
)
|
|
Proceeds from exercise of equity awards and employee stock purchase plan
|
138
|
|
|
—
|
|
|
—
|
|
|
138
|
|
|
Transfers (to) from related parties
|
1,092
|
|
|
(666
|
)
|
|
(426
|
)
|
|
—
|
|
|
Other, net
|
28
|
|
|
1
|
|
|
(63
|
)
|
|
(34
|
)
|
|
Net cash used in financing activities
|
—
|
|
|
(665
|
)
|
|
(489
|
)
|
|
(1,154
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
|
—
|
|
|
(55
|
)
|
|
(64
|
)
|
|
(119
|
)
|
|
Net increase in cash, cash equivalents and restricted cash and cash equivalents
|
—
|
|
|
99
|
|
|
93
|
|
|
192
|
|
|
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period
|
—
|
|
|
1,321
|
|
|
1,596
|
|
|
2,917
|
|
|
Cash, cash equivalents and restricted cash and cash equivalents at end of period
|
$
|
—
|
|
|
$
|
1,420
|
|
|
$
|
1,689
|
|
|
$
|
3,109
|
|