Notes to Consolidated Financial Statements
NOTE 1 — Organization and Basis of Presentation
Description of Business
Expedia Group, Inc. and its subsidiaries provide travel products and 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 products and 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.com™, Expedia® CruiseShipCenters®, Classic Vacations®, Traveldoo®, VacationRentals.com and SilverRail™. 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
The accompanying 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 record our investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the equity method. We have eliminated significant intercompany transactions and accounts.
We believe that the assumptions underlying our consolidated financial statements are reasonable. However, these consolidated financial statements do not present our future financial position, the results of our future operations and cash flows.
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 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 — Significant Accounting Policies
Consolidation
Our consolidated financial statements include the accounts of Expedia Group, Inc., our wholly-owned subsidiaries, and entities for which we control a majority of the entity’s outstanding common stock. We record non-controlling interest in our consolidated financial statements to recognize the minority ownership interest in our consolidated subsidiaries. Non-controlling interest in the earnings and losses of consolidated subsidiaries represent the share of net income or loss allocated to members or partners in our consolidated entities, which includes the non-controlling interest share of net income or loss from our redeemable and non-redeemable non-controlling interest entities. 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, Inc.
We have eliminated significant intercompany transactions and accounts in our consolidated financial statements.
Accounting Estimates
We use estimates and assumptions in the preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“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 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 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.
Revenue Recognition
We recognize revenue upon transfer of control of our promised services in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
For our primary transaction-based revenue sources, discussed below, we have determined net presentation (that is, the amount billed to a traveler less the amount paid to a supplier) is appropriate for the majority of our revenue transactions as the supplier is primarily responsible for providing the underlying travel services and we do not control the service provided by the supplier to the traveler. We exclude all taxes assessed by a government authority, if any, from the measurement of transaction prices that are imposed on our travel related services or collected by the Company from customers (which are therefore excluded from revenue).
We offer traditional travel services on a stand-alone and package basis generally either through the merchant or the agency business model.
Under the merchant model, we facilitate the booking of hotel rooms, alternative accommodations, airline seats, car rentals and destination services from our travel suppliers and we are the merchant of record for such bookings.
Under the agency model, we pass reservations booked by the traveler to the relevant travel supplier and the travel supplier serves as the merchant of record for such bookings. We receive commissions or ticketing fees from the travel supplier and/or traveler. For certain agency airline, hotel and car transactions, we also receive fees through global distribution systems (“GDS”) that provide the computer systems through which the travel supplier inventory is made available and through which reservations are booked.
Under the advertising model, we offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on trivago and our transaction-based websites.
Our Vrbo business facilitates alternative accommodation bookings, earning per transaction commissions, traveler service fees or a combination, and provides subscription-based listing and other ancillary services to property owners and managers.
The nature of our travel booking service performance obligations vary based on the travel service with differences primarily related to the degree to which we provide post booking services to the traveler and the timing when rights and obligations are triggered in our underlying supplier agreements. We consider both the traveler and travel supplier as our customers.
Refer to NOTE 20 — Segment Information for revenue by business model and service type.
Lodging. Our lodging revenue is comprised of revenue recognized under the merchant, agency and Vrbo business models.
Merchant Hotel. We provide travelers access to book hotel room reservations through our contracts with lodging suppliers, which provide us with rates and availability information for rooms but for which we have no control over the rooms and do not bear inventory risk. Our travelers pay us for merchant hotel transactions prior to departing on their trip, generally when they book the reservation. We record the payment in deferred merchant bookings until the stayed night occurs, at which point we recognize the revenue, net of amounts paid to suppliers, as this is when our performance obligation is satisfied. In certain nonrefundable, nonchangeable transactions where we have no significant post booking services (primarily opaque hotel offerings), we record revenue when the traveler completes the transaction on our website, less a reserve for chargebacks and cancellations based on historical experience. Payments to suppliers are generally due within 30 days of check-in or stay. In certain instances when a supplier invoices us for less than the cost we accrued, we generally reduce our merchant accounts payable and the supplier costs within net revenue six months in arrears, net of an allowance, when we determine it is not probable that we will be required to pay the supplier, based on historical experience. Cancellation fees are collected and
remitted to the supplier, if applicable.
Agency Hotel. We generally record agency revenue from the hotel when the stayed night occurs as we provide post booking services to the traveler and, thus consider the stay as when our performance obligation is satisfied. We record an allowance for cancellations on this revenue based on historical experience.
Vrbo. Vrbo's lodging revenue is generally earned on a pay-per-booking or pay-per-subscription basis. Pay-per-booking arrangements are commission-based where rental property owners and managers bear the inventory risk, have latitude in setting the price and compensate Vrbo for facilitating bookings with travelers. Under pay-per-booking arrangements, each booking is a separate contract as listings are typically cancelable at any time and the related revenue, net of amounts paid to property owners, is recognized at check in, which is the point in time when our service to the traveler is complete. In pay-per-subscription contracts, property owners or managers purchase in advance online advertising services related to the listing of their properties for rent over a fixed term (typically one year). As the performance obligation is the listing service and is provided to the property owner or manager over the life of the listing period, the pay-per-subscription revenue is recognized on a straight-line basis over the listing period. Vrbo also charges a traveler service fee at the time of booking. The service fee charged to travelers provides compensation for Vrbo's services, including but not limited to the use of Vrbo's website and a “Book with Confidence Guarantee” providing travelers with comprehensive payment protection and 24/7 traveler support. The performance obligation is to facilitate the booking of a property and assist travelers up to their check in process and, as such, the traveler service fee revenue is recognized at check-in. Revenue from other ancillary alternative accommodation services or products are recorded either upon delivery or when we provide the service.
Merchant and Agency Air. We record revenue on air transactions when the traveler books the transaction, as we do not provide significant post booking services to the traveler and payments due to and from air carriers are typically due at the time of ticketing. We record a reserve for chargebacks and cancellations at the time of the transaction based on historical experience. In certain transactions, the GDS collects commissions from our suppliers and passes these commissions to us, net of their fees. Therefore, we view payments through the GDS as commissions from suppliers and record these commissions in net revenue. Fees paid to the GDS as compensation for their role in processing transactions are recorded as cost of revenue.
Advertising and Media. We record revenue from click-through fees charged to our travel partners for leads sent to the travel partners’ websites. We record revenue from click-through fees after the traveler makes the click-through to the related travel partners’ websites. We record revenue for advertising placements ratably over the advertising period or upon delivery of advertising impressions, depending on the terms of the contract. Payments from advertisers are generally due within 30 days of invoicing.
Other. Other primarily includes transaction revenue for booking services related to products such as car, cruise and destination services under the agency business model. We generally record the related revenue when the travel occurs, as in most cases we provide post booking services and this is when our performance obligation is complete. Additionally, no rights or obligations are triggered in our supplier agreements until the travel occurs. We record an allowance for cancellations on this revenue based on historical experience. In addition, other also includes travel insurance products primarily under the merchant model, for which revenue is recorded at the time the transaction is booked.
Packages. Packages assembled by travelers through the packaging functionality on our websites generally include a merchant hotel component and some combination of an air, car or destination services component. The individual package components are accounted for as separate performance obligations and recognized in accordance with our revenue recognition policies stated above.
Prepaid Merchant Bookings. We classify payments made to suppliers in advance of our performance obligations as prepaid merchant bookings included within prepaid and other current assets. Prepaid merchant bookings was $226 million as of December 31, 2019 and $26 million as of December 31, 2018.
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, $3.309 billion of which was recognized resulting in $488 million of revenue during the year ended December 31, 2019. At December 31, 2019, the related balance was $4.898 billion.
Travelers enrolled in our internally administered traveler loyalty rewards programs earn points for each eligible booking made which can be redeemed for free or discounted future bookings. Hotels.com Rewards offers travelers one free night at any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia Rewards enables participating travelers to earn points on all hotel, flight, package and activities made on over 40 Brand Expedia websites. Orbitz Rewards allows travelers to earn OrbucksSM, the currency of Orbitz Rewards, on flights, hotels and vacation packages and instantly redeem those Orbucks on future bookings at various hotels worldwide. As travelers accumulate points towards free travel products, we defer the relative standalone selling price of earned points, net of expected breakage, as deferred loyalty rewards within deferred merchant bookings on the consolidated balance sheet. In order to estimate the standalone selling price of the underlying services on which points can be redeemed for all loyalty programs, we use an adjusted market assessment approach and consider the redemption values expected from the traveler. We then estimate the number of rewards that will not
be redeemed based on historical activity in our members' accounts as well as statistical modeling techniques. Revenue is recognized when we have satisfied our performance obligation relating to the points, that is when the travel service purchased with the loyalty award is satisfied. The majority of rewards expected to be redeemed are recognized within one to two years of being earned. At December 31, 2018, $700 million of deferred loyalty rewards was reported within deferred merchant bookings, all of which was recognized as revenue during the year ended December 31, 2019. At December 31, 2019, the related balance was $781 million.
Deferred Revenue. Deferred revenue primarily consists of Vrbo's traveler service fees received on bookings where we are not merchant of record due to the use of a third party payment processor, unearned subscription revenue as well as deferred advertising revenue. At December 31, 2018, $364 million was recorded as deferred revenue, $326 million of which was recognized as revenue during the year ended December 31, 2019. At December 31, 2019, the related balance was $321 million.
Practical Expedients and Exemptions. We have used the portfolio approach to account for our loyalty points as the rewards programs share similar characteristics within each program in relation to the value provided to the traveler and their breakage patterns. Using this portfolio approach is not expected to differ materially from applying the guidance to individual contracts. However, we will continue to assess and refine, if necessary, how a portfolio within each rewards program is defined.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Cash, Restricted Cash, and Cash Equivalents
Our cash and cash equivalents include cash and liquid financial instruments, including money market funds and term deposit investments, with maturities of three months or less when purchased. Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to certain traveler deposits and to a lesser extent collateral for office leases. The following table reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the total amount presented in our consolidated statements of cash flows:
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December 31,
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2019
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2018
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(in millions)
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Cash and cash equivalents
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$
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3,315
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$
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2,443
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Restricted cash and cash equivalents
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779
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|
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259
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Restricted cash included within long-term investments and other assets
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3
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3
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Total cash, cash equivalents and restricted cash and cash equivalents in the consolidated statement of cash flow
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$
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4,097
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$
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2,705
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Short-term and Long-term Investments
We determine the appropriate classification of our investments in marketable securities at the time of purchase and reevaluate such designation at each balance sheet date. Investments, other than minority equity investments, classified as available- for-sale are recorded at fair value with unrealized holding gains and losses recorded, net of tax, as a component of accumulated other comprehensive income ("OCI"). Realized gains and losses from the sale of available for sale investments, if any, are determined on a specific identification basis. Investments with remaining maturities of less than one year are classified within short-term investments. All other investments are classified within long-term investments and other assets.
We record investments using the equity method when we have the ability to exercise significant influence over the investee. As of January 1, 2018, minority equity investments with readily determinable fair values, such as our investment in Despegar.com Corp ("Despegar"), are carried at fair value with changes in fair value recorded through net income. Minority investments without readily determinable fair values are measured using the equity method, or measured at cost with observable price changes reflected through net income. We perform a qualitative assessment on a quarterly basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.
Accounts Receivable
Accounts receivable are generally due within thirty days and are recorded net of an allowance for doubtful accounts. We consider accounts outstanding longer than the contractual payment terms as past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to us, and the condition of the general economy and industry as a whole.
Property and Equipment
We record property and equipment at cost, net of accumulated depreciation and amortization. We also capitalize certain costs incurred related to the development of internal use software. We capitalize costs incurred during the application development stage related to the development of internal use software. We expense costs incurred related to the planning and post-implementation phases of development as incurred.
We compute depreciation using the straight-line method over the estimated useful lives of the assets, which is three to five years for computer equipment, capitalized software development and furniture and other equipment, 15 years for land improvements, and 40 years for buildings, which includes our new corporate headquarters. Land is not depreciated. We amortize leasehold improvement using the straight-line method, over the shorter of the estimated useful life of the improvement or the remaining term of the lease.
We establish assets and liabilities for the present value of estimated future costs to return certain of our leased facilities to their original condition under the authoritative accounting guidance for asset retirement obligations. Such assets are depreciated over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the estimated restoration costs.
Leases
We determine if an arrangement is a lease at inception. Operating leases are primarily for office space and data centers and, as of January 1, 2019 with the adoption of the new guidance for leasing arrangements, are included in operating lease right-of-use ("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.
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.
Business Combinations
We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and trade names, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any changes to provisional amounts identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. We assess goodwill and indefinite-lived intangible assets, neither of which is amortized, for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. In the evaluation of goodwill for impairment, we typically perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value. An impairment charge is recorded based on the excess of the reporting unit's carrying amount over its fair value. Periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the goodwill is more likely than not impaired.
We generally base our measurement of fair value of reporting units on a blended analysis of the present value of future discounted cash flows and market valuation approach with the exception of our standalone publicly traded subsidiary, which is based on market valuation. The discounted cash flows model indicates the fair value of the reporting units based on the present
value of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting units.
We believe the weighted use of discounted cash flows and market approach is the best method for determining the fair value of our reporting units because these are the most common valuation methodologies used within the travel and internet industries; and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis.
In addition to measuring the fair value of our reporting units as described above, we consider the combined carrying and fair values of our reporting units in relation to the Company’s total fair value of equity plus debt as of the assessment date. Our equity value assumes our fully diluted market capitalization, using either the stock price on the valuation date or the average stock price over a range of dates around the valuation date, plus an estimated acquisition premium which is based on observable transactions of comparable companies. The debt value is based on the highest value expected to be paid to repurchase the debt, which can be fair value, principal or principal plus a premium depending on the terms of each debt instrument.
In our evaluation of our indefinite-lived intangible assets, we typically first perform a quantitative assessment and an impairment charge is recorded for the excess of the carrying value of indefinite-lived intangible assets over their fair value, if necessary. We base our measurement of fair value of indefinite-lived intangible assets, which primarily consist of trade name and trademarks, using the relief-from-royalty method. This method assumes that the trade name and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. As with goodwill, periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the indefinite-lived intangible asset is more likely than not impaired.
Recoverability of Intangible Assets with Definite Lives and Other Long-Lived Assets
Intangible assets with definite lives and other long-lived assets are carried at cost and are amortized on a straight-line basis over their estimated useful lives of one to twelve years. We review the carrying value of long-lived assets or asset groups, including property and equipment, to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value.
Assets held for sale, to the extent we have any, are reported at the lower of cost or fair value less costs to sell.
Redeemable Non-controlling Interests
We have non-controlling interests in majority owned entities, which were carried at fair value as the non-controlling interests contained certain rights, whereby we could acquire and the minority shareholders could sell to us the additional shares of the company. If the redeemable non-controlling interest is redeemable at an amount other than fair value, we adjust the non-controlling interest to redemption value through earnings each period. In circumstances where the non-controlling interest is redeemable at fair value, changes in fair value of the shares for which the minority holders could sell to us were recorded to the non-controlling interest and as charges or credits to retained earnings (or additional paid-in capital in the absence of retained earnings). Fair value determinations required high levels of judgment (“Level 3” on the fair value hierarchy) and were based on various valuation techniques, including market comparables and discounted cash flow projections.
Income Taxes
We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We
determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense.
We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. All deferred income taxes are classified as long-term on our consolidated balance sheets.
We account for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals or litigation, based on the technical merits of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the tax authority is recognized in the financial statements.
We recognize interest and penalties related to unrecognized tax benefits in the income tax expense line in our consolidated statement of operations. Accrued interest and penalties are included in other long-term liabilities on the consolidated balance sheet.
In relation to tax effects for accumulated OCI, our policy is to release the tax effects of amounts reclassified from accumulated OCI to pre-tax income (loss) from continuing operations. Any remaining tax effect in accumulated OCI is released following a portfolio approach.
The Tax Cuts and Jobs Act ("the Tax Act"), enacted in December 2017, significantly changed U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act created a new requirement that global intangible low-tax income (“GILTI”) earned by our foreign subsidiaries must be included in gross U.S. taxable income, which we account for in the period incurred. For additional information, including the impacts of the Tax Act, see NOTE 11 — Income Taxes in the notes to the consolidated financial statements.
Derivative Instruments
Derivative instruments are carried at fair value on our consolidated balance sheets. The fair values of the derivative financial instruments generally represent the estimated amounts we would expect to receive or pay upon termination of the contracts as of the reporting date.
At December 31, 2019 and 2018, our derivative instruments primarily consisted of foreign currency forward contracts. 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 qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. We do not hold or issue financial instruments for speculative or trading purposes.
In June 2015, we issued Euro 650 million of registered senior unsecured notes that are due in June 2022 and bear interest at 2.5% (the “2.5% Notes”). 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 OCI. 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 accumulated OCI. 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.
Foreign Currency Translation and Transaction Gains and Losses
Certain of our operations outside of the United States use the related local currency as their functional currency. We translate revenue and expense at average rates of exchange during the period. We translate assets and liabilities at the rates of exchange as of the consolidated balance sheet dates and include foreign currency translation gains and losses as a component of accumulated OCI. Due to the nature of our operations and our corporate structure, we also have subsidiaries that have significant transactions in foreign currencies other than their functional currency. We record transaction gains and losses in our consolidated statements of operations related to the recurring remeasurement and settlement of such transactions.
To the extent practicable, we attempt to minimize this exposure by maintaining natural hedges between our current assets and current liabilities of similarly denominated foreign currencies. Additionally, as discussed above, we use foreign currency forward contracts to economically hedge certain merchant revenue exposures and in lieu of holding certain foreign currency cash for the purpose of economically hedging our foreign currency-denominated operating liabilities.
Debt Issuance Costs
We defer costs we incur to issue debt, which are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, and amortize these costs to interest expense over the term of the debt or, in circumstances where the debt can be redeemed at the option of the holders, over the term of the redemption option.
Marketing Promotions
We periodically provide incentive offers to our customers to encourage booking of travel products and services. Generally, our incentive offers are as follows:
Current Discount Offers. These promotions include dollar or percent off discounts to be applied against current purchases. We record the discounts as reduction in revenue at the date we record the corresponding revenue transaction.
Inducement Offers. These promotions include discounts granted at the time of a current purchase to be applied against a future qualifying purchase. We treat inducement offers as a reduction to revenue based on estimated future redemption rates. We allocate the discount amount at the time of the offer between the current performance obligation and the potential future performance obligations based on our expected relative value of the transactions. We estimate our redemption rates using our historical experience for similar inducement offers.
Concession Offers. These promotions include discounts to be applied against a future purchase to maintain customer satisfaction. Upon issuance, we record these concession offers as a reduction to revenue based on estimated future redemption rates. We estimate our redemption rates using our historical experience for concession offers.
Advertising Expense
We incur advertising expense consisting of offline costs, including television and radio advertising, and online advertising expense to promote our brands. We expense the production costs associated with advertisements in the period in which the advertisement first takes place. We expense the costs of communicating the advertisement (e.g., television airtime) as incurred each time the advertisement is shown. For the years ended December 31, 2019, 2018 and 2017, our advertising expense was $3.5 billion, $3.4 billion and $3.3 billion.
Stock-Based Compensation
We measure and amortize the fair value of restricted stock units (“RSUs”) and stock options as follows:
Restricted Stock Units. RSUs are stock awards that are granted to employees entitling the holder to shares of common stock as the award vests, typically over a four-year period, but may accelerate in certain circumstances. During 2019, we started issuing RSUs as our primary form of stock-based compensation, which vest 25% after one year and will then vest quarterly over the following three years. We measure the value of RSUs at fair value based on the number of shares granted and the quoted price of our common stock at the date of grant. We amortize the fair value, net of actual forfeitures, as stock-based compensation expense over the vesting term on a straight-line basis. We record RSUs that may be settled by the holder in cash, rather than shares, as a liability and we remeasure these instruments at fair value at the end of each reporting period. Upon settlement of these awards, our total compensation expense recorded over the vesting period of the awards will equal the settlement amount, which is based on our stock price on the settlement date. Performance-based RSUs vest upon achievement of certain company-based performance conditions and expense is recognized when it is probable the performance condition will be achieved.
Stock Options. Our employee stock options consist of service based awards, some of which also have market-based vesting conditions. We measure the value of stock options issued or modified, including unvested options assumed in acquisitions, on the grant date (or modification or acquisition dates, if applicable) at fair value, using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option pricing models, for awards that contain market-based vesting conditions. The Black-Scholes valuation models incorporate various assumptions including expected volatility, expected term and risk-free interest rates. The expected volatility is based on historical volatility of our common stock and other relevant factors. We base our expected term assumptions on our historical experience and on the terms and conditions of the stock awards granted to employees. We amortize the fair value, net of actual forfeitures, over the remaining explicit vesting term in
the case of service-based awards and the longer of the derived service period or the explicit service period for awards with market conditions on a straight-line basis. In addition, we classify certain employee option awards as liabilities when we deem it not probable that the employees holding the awards will bear the risk and rewards of stock ownership for a reasonable period of time. Such options are revalued at the end of each reporting period and upon settlement our total compensation expense recorded from grant date to settlement date will equal the settlement amount. The majority of our stock options vest over four years.
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive these awards, and subsequent events are not indicative of the reasonableness of our original estimates of fair value.
Earnings Per Share
We compute basic earnings per share by taking net income attributable to Expedia Group, Inc. available to common stockholders divided by the weighted average number of common and Class B common shares outstanding during the period excluding restricted stock and stock held in escrow. Diluted earnings per share include the potential dilution that could occur from stock-based awards and other stock-based commitments using the treasury stock or the as if converted methods, as applicable. For additional information on how we compute earnings per share, see NOTE 14 — Earnings Per Share.
Fair Value Recognition, Measurement and Disclosure
The carrying amounts of cash and cash equivalents and restricted cash and cash equivalents reported on our consolidated balance sheets approximate fair value as we maintain them with various high-quality financial institutions. The accounts receivable are short-term in nature and are generally settled shortly after the sale.
We disclose the fair value of our financial instruments based on the fair value hierarchy using the following three categories:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
Certain Risks and Concentrations
Our business is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines and hotels, dependence on third-party technology providers, exposure to risks associated with online commerce security and payment related fraud. We also rely on global distribution system partners and third-party service providers for certain fulfillment services.
Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of cash and cash equivalents. We maintain some cash and cash equivalents balances with financial institutions that are in excess of Federal Deposit Insurance Corporation insurance limits. Our cash and cash equivalents are primarily composed of term deposits as well as bank (both interest and non-interest bearing) account balances denominated in U.S. dollars, Euros, British pound sterling, Canadian dollar, Australian dollar, Japanese yen and Brazilian real.
Contingent Liabilities
We have a number of regulatory and legal matters outstanding, as discussed further in NOTE 17 — Commitments and Contingencies. Periodically, we review the status of all significant outstanding matters to assess the potential financial exposure. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, we record the estimated loss in our consolidated statements of operations. We provide disclosure in the notes to the consolidated financial statements for loss contingencies that do not meet both of these conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. We base accruals made on the best information available at the time which can be highly subjective. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.
Occupancy and Other Taxes
Some states and localities impose taxes (e.g. transient occupancy, accommodation tax, sales tax, and/or business privilege tax) on the use or occupancy of hotel accommodations or other traveler services. Generally, hotels collect taxes based on the room rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery charge from the customer which we pay to the hotel. We calculate the tax recovery charge by applying the applicable tax rate supplied to us by the hotels to the amount that the hotel has agreed to receive for the rental of the room by the consumer. In most jurisdictions, we do not collect or remit taxes, nor do we pay taxes to the hotel operator on the portion of the customer payment we retain. Some jurisdictions have questioned our practice in this regard. While the applicable tax provisions vary among the jurisdictions, we generally believe that we are not required to collect and remit such taxes. More recently, a limited number of taxing jurisdictions have made similar claims against Vrbo for tax amounts due on the rental amounts charged by owners of alternative accommodations properties or for taxes on Vrbo’s services. Vrbo is an intermediary between a traveler and a party renting a vacation property and we believe is similarly not liable for such taxes. We are engaged in discussions with tax authorities in various jurisdictions to resolve these issues. Some tax authorities have brought lawsuits or have levied assessments asserting that we are required to collect and remit tax. The ultimate resolution in all jurisdictions cannot be determined at this time. We have established a reserve for the potential settlement of issues related to hotel occupancy and other taxes when determined to be probable and estimable. See NOTE 17 — Commitments and Contingencies for further discussion.
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 existing 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 adoption of the standard on January 1, 2019 resulted in the recognition of ROU assets of approximately $565 million and lease liabilities for operating leases of approximately $615 million. 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. The standard did not have a material impact on our consolidated statements of operations or statements of cash flows.
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. The adoption of this new guidance is not expected to have a material impact 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. The adoption of this new guidance is not expected to have a material impact 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. The adoption of this new guidance is not expected to have a material impact on our consolidated financial statements.
NOTE 3 — Acquisitions and Other Investments
2019 Acquisition Activity
We had nominal acquisition activity during the year ended December 31, 2019. Refer to NOTE 18 – Liberty Expedia Holdings Transaction for details of this transaction completed during 2019.
2018 Acquisition and Other Investment Activity
During 2018, we completed two business combinations. The following summarizes the aggregate purchase price allocation for these acquisitions, in millions:
|
|
|
|
|
Goodwill
|
$
|
31
|
|
Intangibles with definite lives (1)
|
24
|
|
Deferred tax liabilities, net
|
(1
|
)
|
Total (2)
|
$
|
54
|
|
___________________________________
|
|
(1)
|
Acquired intangible assets with definite lives have a weighted average useful life of 2.9 years.
|
|
|
(2)
|
Includes cash acquired of $1 million.
|
The goodwill recorded for the business combinations is not expected to be deductible for tax purposes. The results of operations were immaterial from the transaction close dates through December 31, 2018. Pro forma results have not been presented as such pro forma financial information would not be materially different from historical results.
Other Investments. In December 2018, we made an additional investment of $70 million in Traveloka Holding Limited ("Traveloka"), a Southeast Asian online travel company, for which we made an initial investment during 2017. The initial investment in July 2017 of $350 million expanded our partnership to include deeper cooperation on hotel supply between our two companies. The majority of our investments are accounted for as a minority equity investment and included within long-term investment and other assets on the consolidated balance sheets with a small portion of the initial investment allocated to intangible assets.
2017 Acquisition Activity
During 2017, we completed several business combinations, one of which we made an initial investment in during 2015. The following summarizes the aggregate purchase price allocation for these acquisitions, in millions:
|
|
|
|
|
Goodwill
|
$
|
124
|
|
Intangibles with definite lives (1)
|
76
|
|
Net assets and non-controlling interests acquired (2)
|
15
|
|
Deferred tax liabilities
|
(21
|
)
|
Total (3)
|
$
|
194
|
|
___________________________________
|
|
(1)
|
Acquired intangible assets with definite lives have a weighted average useful life of 3.8 years.
|
|
|
(2)
|
Includes cash and restricted cash acquired of $6 million.
|
|
|
(3)
|
The total purchase price includes noncash consideration of $10 million related to the removal of a minority investment upon our acquisition of a controlling interest as well as $8 million related to replacement stock awards attributable to pre-acquisition service, with the remainder paid in cash during the period.
|
The redeemable non-controlling interest in one of our acquisitions is redeemable at an amount other than fair value requiring that each period we adjust the non-controlling interest to redemption value through earnings. In addition, another of our acquisitions made during the period includes redeemable non-controlling interests, which are redeemable at fair value requiring that each period we adjust the changes in the fair value of the non-controlling interest through retained earnings (or additional paid-in capital if there is no retained earnings). Fair value determinations are based on various valuation techniques, including market comparables and discounted cash flow projections.
Of the goodwill recorded for the business combinations, $12 million is expected to be deductible for tax purposes with the remainder not expected to be deductible. The results of operations were immaterial from the transaction close dates through December 31, 2017. Pro forma results have not been presented as such pro forma financial information would not be materially different from historical results.
NOTE 4 — Fair Value Measurements
Financial assets measured at fair value on a recurring basis as of December 31, 2019 are classified using the fair value hierarchy in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
(In millions)
|
Assets
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
Money market funds
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
—
|
|
Term deposits
|
865
|
|
|
—
|
|
|
865
|
|
U.S. treasury securities
|
10
|
|
|
10
|
|
|
—
|
|
Investments:
|
|
|
|
|
|
Term deposits
|
526
|
|
|
—
|
|
|
526
|
|
Marketable equity securities
|
129
|
|
|
129
|
|
|
—
|
|
Total assets
|
$
|
1,566
|
|
|
$
|
175
|
|
|
$
|
1,391
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
(In millions)
|
Assets
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
Money market funds
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
—
|
|
Term deposits
|
624
|
|
|
—
|
|
|
624
|
|
Derivatives:
|
|
|
|
|
|
Foreign currency forward contracts
|
22
|
|
|
—
|
|
|
22
|
|
Investments:
|
|
|
|
|
|
Term 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.
We hold term deposit investments with financial institutions. Term 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.
As of December 31, 2019 and 2018, our cash and cash equivalents consisted primarily of term deposits with maturities of three months or less and bank account balances.
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 years ended December 31, 2019 and 2018, we recognized a gain of approximately $10 million and a loss of approximately $145 million, respectively, within other, net in our consolidated statements of operations related to the fair value changes of this equity investment. As of December 31,
2017, prior to our adoption of the new guidance for recognition and measurement of financial instruments, the cost basis was $273 million and related gross unrealized loss was $9 million.
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. As of December 31, 2019, we were party to outstanding forward contracts hedging our liability exposures with a total net notional value of $3.2 billion. As of December 31, 2019 and 2018, we had a net forward liability of $8 million recorded in accrued expenses and other current liabilities and a net forward asset of $22 million recorded in prepaid expenses and other current assets. We recorded $(8) million, $47 million and $17 million in net gains (losses) from foreign currency forward contracts in 2019, 2018 and 2017.
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 only when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. As of January 1, 2018, we measure our minority equity 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 2018, we recognized goodwill impairment charges of $86 million related to our Core OTA segment, of which $61 million was recorded during the second quarter of 2018 and $25 million was recorded during the fourth quarter of 2018 as a result of our annual evaluation of impairment of goodwill and intangible assets on October 1, 2018. These impairment charges resulted from sustained under-performance and a less optimistic outlook related to one of our reporting units during the second quarter of 2018 and further deterioration of performance in the fourth quarter of 2018. As a result the under-performance early in the year, 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 estimates for both the interim and annual impairment tests were 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 and continued weakening of operating results and implied risk premiums based on market prices of our equity and debt as of the assessment dates. 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 respective periods. As of December 31, 2018, the applicable reporting unit had no remaining goodwill.
Intangible Assets. During 2018, we recognized an intangible impairment charge of $42 million in conjunction with the annual impairment testing of goodwill and intangible assets on October 1, 2018. The impairment charge was related to an indefinite-lived trade name within our Core OTA segment and resulted from changes in estimated future revenues of the related brand. The asset, classified as Level 3 measurement, was written down to $27 million based on valuation using the relief-from-royalty method, which includes unobservable inputs, including royalty rates and projected revenues. In conjunction with the impairment, we reclassified the remainder to a definite-lived asset to be amortized over eight years.
Minority Investments without Readily Determinable Fair Values. As of December 31, 2019 and 2018, the carrying values of our minority investments without readily determinable fair values totaled $467 million and $476 million. During 2019, we recorded $2 million of losses related to these minority investments. During 2018, we recorded $33 million of gains related to these minority investments, which had recent observable and orderly transactions for similar investments, using an option pricing model that utilizes judgmental inputs such as discounts for lack of marketability and estimated exit event timing. As of December 31, 2019, total cumulative adjustments made to the initial cost basis of these investments included $33 million in unrealized upward adjustments and $2 million in unrealized downward adjustments (including impairment). During 2017, we recorded $14 million in net losses related to certain minority equity investments, which included $6 million in other-than-temporary impairments as well as a loss recognized on the liquidation of an investment of $9 million. As a result of these 2017 impairments and subsequent liquidation, we have no remaining fair value related to these minority equity investments.
NOTE 5 — Property and Equipment, Net
Our property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In millions)
|
Capitalized software development
|
$
|
2,947
|
|
|
$
|
2,643
|
|
Computer equipment
|
643
|
|
|
597
|
|
Furniture and other equipment
|
114
|
|
|
94
|
|
Buildings and leasehold improvements
|
688
|
|
|
435
|
|
Land
|
129
|
|
|
129
|
|
|
4,521
|
|
|
3,898
|
|
Less: accumulated depreciation
|
(2,833
|
)
|
|
(2,552
|
)
|
Projects in progress
|
510
|
|
|
531
|
|
Property and equipment, net
|
$
|
2,198
|
|
|
$
|
1,877
|
|
As of December 31, 2019 and 2018, our recorded capitalized software development costs, net of accumulated amortization, which have been placed in service were $893 million and $829 million. For the years ended December 31, 2019, 2018 and 2017, we recorded amortization of capitalized software development costs of $556 million, $479 million and $398 million, most of which is included in technology and content expenses.
As of December 31, 2018, prior to our adoption of the new accounting guidance for leasing arrangements, property and equipment, net included build-to-suit assets of $152 million primarily within buildings and leasehold improvements with corresponding liabilities recorded in other long-term liabilities and, for the current portion, in accrued expenses and other current liabilities. With the adoption of the new lease accounting guidance, on January 1, 2019, we removed the assets and liabilities previously recorded pursuant to build-to-suit lease guidance.
During 2015, we acquired our future corporate headquarters for $229 million, consisting of multiple office and lab buildings located in Seattle, Washington. The build out of the headquarters has been significant as we converted lab facilities into office space. During the fourth quarter of 2019, we moved into a portion of our corporate headquarters and began depreciating the buildings in use using the straight-line method, over a useful life of 40 years.
As of December 31, 2019, 2018 and 2017, we had $34 million, $55 million and $22 million, respectively, included in accounts payable for the acquisition of property and equipment, which is considered a non-cash investing activity in the consolidated statements of cash flows.
NOTE 6 – Leases
We have operating leases for office space and data centers. Our leases have remaining lease terms of one year to 18 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 $170 million for the year ended December 31, 2019. Under the lease accounting guidance in effect for the years ended December 31, 2018 and 2017, rent expense was $182 million and $168 million, which includes operating lease costs as well as expense for non-lease components such as common area maintenance.
Supplemental cash flow information related to leases were as follows:
|
|
|
|
|
|
Year ended
December 31,
|
|
2019
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows for operating lease payments
|
$
|
152
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
183
|
|
Supplemental consolidated balance sheet information related to leases were as follows:
|
|
|
|
|
|
December 31, 2019
|
|
(in millions)
|
Operating lease right-of-use assets
|
$
|
611
|
|
|
|
Current lease liabilities included within Accrued expenses and other current liabilities
|
$
|
119
|
|
Long-term lease liabilities included within Operating lease liabilities
|
532
|
|
Total operating lease liabilities
|
$
|
651
|
|
|
|
Weighted average remaining lease term
|
8.8 years
|
|
Weighted average discount rate
|
3.5
|
%
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
Operating Leases
|
|
(in millions)
|
Year ending December 31,
|
|
2020
|
$
|
139
|
|
2021
|
121
|
|
2022
|
94
|
|
2023
|
67
|
|
2024
|
53
|
|
2025 and thereafter
|
291
|
|
Total lease payments
|
765
|
|
Less: imputed interest
|
(114
|
)
|
Total
|
$
|
651
|
|
As of December 31, 2019, we have additional operating lease payments, primarily for corporate offices, that have not yet commenced of approximately $116 million. These operating leases will commence between January 2020 and April 2021 with lease terms of 3 years to 11 years.
NOTE 7 — Goodwill and Intangible Assets, Net
The following table presents our goodwill and intangible assets as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In millions)
|
Goodwill
|
$
|
8,127
|
|
|
$
|
8,120
|
|
Intangible assets with indefinite lives
|
1,284
|
|
|
1,400
|
|
Intangible assets with definite lives, net
|
520
|
|
|
592
|
|
|
$
|
9,931
|
|
|
$
|
10,112
|
|
Impairment Assessments. We perform our annual assessment of possible impairment of goodwill and indefinite-lived intangible assets as of October 1, or more frequently if events and circumstances indicate that an impairment may have occurred. As of October 1, 2019, we had no impairments of goodwill or intangible assets with indefinite-lives. As of October 1, 2018, we incurred impairment charges related to intangible assets with indefinite-lives of $42 million and goodwill of $25 million both within our Core OTA segment. In addition, during the second quarter of 2018, we incurred goodwill impairment charge of $61 million within our Core OTA segment.
Goodwill. The following table presents the changes in goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Total
|
|
(In millions)
|
Balance as of January 1, 2018
|
$
|
4,840
|
|
|
$
|
588
|
|
|
$
|
2,656
|
|
|
$
|
145
|
|
|
$
|
8,229
|
|
Additions
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
Impairment charge
|
(86
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(86
|
)
|
Foreign exchange translation and other
|
(13
|
)
|
|
(27
|
)
|
|
(5
|
)
|
|
(9
|
)
|
|
(54
|
)
|
Balance as of December 31, 2018
|
4,741
|
|
|
561
|
|
|
2,682
|
|
|
136
|
|
|
8,120
|
|
Additions
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Foreign exchange translation and other
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(2
|
)
|
|
(14
|
)
|
Balance as of December 31, 2019
|
$
|
4,741
|
|
|
$
|
549
|
|
|
$
|
2,703
|
|
|
$
|
134
|
|
|
$
|
8,127
|
|
Any immaterial change in goodwill amounts resulting from purchase accounting adjustments are presented as "Foreign exchange translation and other" in the above table.
As of December 31, 2019 and 2018, accumulated goodwill impairment losses in total were $2.6 billion for both periods, which was associated with our Core OTA segment.
Indefinite-lived Intangible Assets. Our indefinite-lived intangible assets relate principally to trade names and trademarks acquired in various acquisitions.
Intangible Assets with Definite Lives. The following table presents the components of our intangible assets with definite lives as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
(In millions)
|
Customer relationships
|
$
|
658
|
|
|
$
|
(499
|
)
|
|
$
|
159
|
|
|
$
|
659
|
|
|
$
|
(419
|
)
|
|
$
|
240
|
|
Supplier relationships
|
651
|
|
|
(483
|
)
|
|
168
|
|
|
650
|
|
|
(426
|
)
|
|
224
|
|
Domain names
|
183
|
|
|
(109
|
)
|
|
74
|
|
|
159
|
|
|
(83
|
)
|
|
76
|
|
Technology
|
529
|
|
|
(521
|
)
|
|
8
|
|
|
544
|
|
|
(510
|
)
|
|
34
|
|
Other(1)
|
563
|
|
|
(452
|
)
|
|
111
|
|
|
450
|
|
|
(432
|
)
|
|
18
|
|
Total
|
$
|
2,584
|
|
|
$
|
(2,064
|
)
|
|
$
|
520
|
|
|
$
|
2,462
|
|
|
$
|
(1,870
|
)
|
|
$
|
592
|
|
___________________________________
|
|
(1)
|
During the year ended December 31, 2019, we reclassified an intangible asset valued at $113 million from indefinite-lived to definite lived and began amortizing that asset over seven years after determining no impairment existed.
|
Amortization expense was $198 million, $283 million and $275 million for the years ended December 31, 2019, 2018 and 2017. The estimated future amortization expense related to intangible assets with definite lives as of December 31, 2019, assuming no subsequent impairment of the underlying assets, is as follows, in millions:
|
|
|
|
|
2020
|
$
|
163
|
|
2021
|
117
|
|
2022
|
95
|
|
2023
|
55
|
|
2024
|
50
|
|
2025 and thereafter
|
40
|
|
Total
|
$
|
520
|
|
NOTE 8 — Debt
The following table sets forth our outstanding debt:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In millions)
|
5.95% senior notes due 2020
|
$
|
749
|
|
|
$
|
748
|
|
2.5% (€650 million) senior notes due 2022
|
725
|
|
|
740
|
|
4.5% senior notes due 2024
|
497
|
|
|
496
|
|
5.0% senior notes due 2026
|
743
|
|
|
742
|
|
3.8% senior notes due 2028
|
992
|
|
|
991
|
|
3.25% senior dues due 2030
|
1,232
|
|
|
—
|
|
Total debt(1)
|
4,938
|
|
|
3,717
|
|
Current maturities of long-term debt
|
(749
|
)
|
|
—
|
|
Long-term debt, excluding current maturities
|
$
|
4,189
|
|
|
$
|
3,717
|
|
___________________________________
|
|
(1)
|
Net of discounts and debt issuance costs.
|
Outstanding Debt
Our $750 million in registered senior unsecured notes outstanding at December 31, 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 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 of registered senior unsecured notes outstanding at December 31, 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.
Our $500 million in registered senior unsecured notes outstanding at December 31, 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 December 31, 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 December 31, 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 23 — 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 $76 million and $65 million as of December 31, 2019 and 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):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In millions)
|
5.95% senior notes due 2020
|
$
|
767
|
|
|
$
|
778
|
|
2.5% (€650 million) senior notes due 2022(1)
|
764
|
|
|
771
|
|
4.5% senior notes due 2024
|
536
|
|
|
504
|
|
5.0% senior notes due 2026
|
825
|
|
|
760
|
|
3.8% senior notes due 2028
|
1,021
|
|
|
915
|
|
3.25% senior notes due 2030
|
1,206
|
|
|
—
|
|
___________________________________
|
|
(1)
|
Approximately 682 million Euro as of December 31, 2019 and 674 million Euro as of December 31, 2018.
|
Credit Facility
As of December 31, 2019, Expedia Group, Inc. maintained 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 December 31, 2019 and 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 December 31, 2019. The facility contains covenants including maximum leverage and minimum interest coverage ratios.
The amount of stand-by letters of credit (“LOCs”) issued under the facility reduces the credit amount available. As of December 31, 2019 and 2018, there was $16 million and $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, and may be terminated at any time by the lender. As of December 31, 2019 and 2018, we had no borrowings outstanding under this facility.
NOTE 9 — Employee Benefit Plans
Our U.S. employees are generally eligible to participate in a retirement and savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 50% of their pretax salary, but not
more than statutory limits. We contribute fifty cents for each dollar a participant contributes in this plan, with a maximum contribution of 3% of a participant’s earnings. Our contribution vests with the employee after the employee completes two years of service. Participating employees have the option to invest in our common stock, but there is no requirement for participating employees to invest their contribution or our matching contribution in our common stock. We also have various defined contribution plans for our international employees. Our contributions to these benefit plans were $81 million, $70 million and $60 million for the years ended December 31, 2019, 2018 and 2017.
NOTE 10 — Stock-Based Awards and Other Equity Instruments
Pursuant to the Amended and Restated Expedia Group, Inc. 2005 Stock and Annual Incentive Plan, we may grant restricted stock, restricted stock awards, RSUs, stock options and other stock-based awards to directors, officers, employees and consultants. As of December 31, 2019, we had approximately 7 million shares of common stock reserved for new stock-based awards under the 2005 Stock and Annual Incentive Plan. We issue new shares to satisfy the exercise or release of stock-based awards. During 2019, we started issuing RSUs as our primary form of stock-based compensation, which vest 25% after one year and will then vest quarterly over the following three years. During 2018 and 2017, an equity choice program existed for annual awards that allowed for the choice of stock options or RSUs with certain limitations.
The following table presents a summary of RSU activity:
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted Average
Grant-Date Fair
Value
|
|
(In thousands)
|
|
|
Balance as of January 1, 2017
|
1,349
|
|
|
$
|
114.58
|
|
Granted
|
1,350
|
|
|
123.24
|
|
Vested
|
(492
|
)
|
|
115.29
|
|
Cancelled
|
(266
|
)
|
|
116.26
|
|
Balance as of December 31, 2017
|
1,941
|
|
|
120.19
|
|
Granted
|
1,821
|
|
|
107.37
|
|
Vested
|
(615
|
)
|
|
118.41
|
|
Cancelled
|
(386
|
)
|
|
113.55
|
|
Balance as of December 31, 2018
|
2,761
|
|
|
113.12
|
|
Granted
|
2,937
|
|
|
121.39
|
|
Vested
|
(952
|
)
|
|
114.33
|
|
Cancelled
|
(616
|
)
|
|
117.54
|
|
Balance as of December 31, 2019
|
4,130
|
|
|
117.05
|
|
The total market value of shares vested during the years ended December 31, 2019, 2018 and 2017 was $117 million, $68 million and $65 million.
The following table presents a summary of our stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
(In thousands)
|
|
|
|
(In years)
|
|
(In millions)
|
Balance as of January 1, 2017
|
18,841
|
|
|
$
|
84.07
|
|
|
|
|
|
Granted
|
3,618
|
|
|
124.08
|
|
|
|
|
|
Exercised
|
(3,422
|
)
|
|
62.67
|
|
|
|
|
|
Cancelled
|
(3,384
|
)
|
|
96.86
|
|
|
|
|
|
Balance as of December 31, 2017
|
15,653
|
|
|
95.23
|
|
|
|
|
|
Granted
|
5,342
|
|
|
104.72
|
|
|
|
|
|
Exercised
|
(2,098
|
)
|
|
71.36
|
|
|
|
|
|
Cancelled
|
(1,197
|
)
|
|
107.26
|
|
|
|
|
|
Balance as of December 31, 2018
|
17,700
|
|
|
100.11
|
|
|
|
|
|
Granted
|
31
|
|
|
123.31
|
|
|
|
|
|
Exercised
|
(3,370
|
)
|
|
85.04
|
|
|
|
|
|
Cancelled
|
(1,246
|
)
|
|
111.31
|
|
|
|
|
|
Balance as of December 31, 2019
|
13,115
|
|
|
102.97
|
|
|
3.3
|
|
$
|
112
|
|
Exercisable as of December 31, 2019
|
7,559
|
|
|
98.75
|
|
|
2.5
|
|
94
|
|
Vested and expected to vest after December 31, 2019
|
13,115
|
|
|
102.97
|
|
|
3.3
|
|
112
|
|
The aggregate intrinsic value of outstanding options shown in the stock option activity table above represents the total pretax intrinsic value at December 31, 2019, based on our closing stock price of $108.14 as of the last trading date in 2019. The total intrinsic value of stock options exercised was $145 million, $107 million and $249 million for the years ended December 31, 2019, 2018 and 2017.
Options granted during the year ended December 31, 2019 were immaterial. The fair value of stock options granted during the years ended December 31, 2018 and 2017 were estimated at the date of grant using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models, assuming the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Risk-free interest rate
|
2.47
|
%
|
|
1.58
|
%
|
Expected volatility
|
32.81
|
%
|
|
32.47
|
%
|
Expected life (in years)
|
3.80
|
|
|
3.65
|
|
Dividend yield
|
1.11
|
%
|
|
0.92
|
%
|
Weighted-average estimated fair value of options granted during the year
|
$
|
24.97
|
|
|
$
|
30.17
|
|
In 2019 and 2018, we recognized total stock-based compensation expense of $241 million and $203 million. In 2017, we recognized total stock-based compensation expense of $149 million, which included the reversal of $41 million of previously recognized stock-based compensation as a result of the departure of our former CEO and the related forfeiture of certain of his stock-based awards within general and administrative expense. The total income tax benefit related to stock-based compensation expense was $55 million, $39 million and $38 million for 2019, 2018 and 2017.
Cash received from stock-based award exercises for the years ended December 31, 2019 and 2018 was $284 million and $149 million. Total current income tax benefits during the years ended December 31, 2019 and 2018 associated with the exercise of stock-based awards held by our employees were $60 million and $34 million.
As of December 31, 2019, there was approximately $454 million of unrecognized stock-based compensation expense related to unvested stock-based awards, which is expected to be recognized in expense over a weighted-average period of 2.56 years.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan (“ESPP”), which allows shares of our common stock to be purchased by eligible employees at three-month intervals at 85% of the fair market value of the stock on the last day of each three-month period. Eligible employees are allowed to contribute up to 10% of their base compensation. During 2019, 2018 and 2017,
approximately 171,000, 170,000, and 141,000 shares were purchased under this plan for an average price of $99.41, $101.26 and $112.31 per share. As of December 31, 2019, we have reserved approximately 1 million shares of our common stock for issuance under the ESPP.
NOTE 11 — Income Taxes
The Tax Act, enacted in December 2017, significantly changed U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system, and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.
Effective for tax years beginning after December 31, 2017, the Tax Act provides a foreign-derived intangible income (“FDII”) deduction, which is derived from the taxpayer’s Foreign Derived Deduction Eligible Income ("FDDEI") among other factors. For tax years 2018 to 2025, the allowable deduction is 37.5% of the gross FDII after the taxable income limitation, and 21.875% thereafter. For tax years 2018 to 2025, this equates to a 13.125% effective tax rate on excess returns earned directly by a U.S. corporation from foreign derived sales (including licenses and leases) or services, and 16.406% thereafter. The preferential rate is reflected on the U.S. tax return as a deduction for FDII.
The following table summarizes our U.S. and foreign income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
(In millions)
|
U.S.
|
$
|
172
|
|
|
$
|
32
|
|
|
$
|
(45
|
)
|
Foreign
|
603
|
|
|
453
|
|
|
462
|
|
Total
|
$
|
775
|
|
|
$
|
485
|
|
|
$
|
417
|
|
Provision for Income Taxes
The following table summarizes our provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
(In millions)
|
|
|
Current income tax expense:
|
|
|
|
|
|
Federal
|
$
|
76
|
|
|
$
|
186
|
|
|
$
|
12
|
|
State
|
20
|
|
|
42
|
|
|
6
|
|
Foreign
|
198
|
|
|
167
|
|
|
130
|
|
Current income tax expense
|
294
|
|
|
395
|
|
|
148
|
|
Deferred income tax (benefit) expense:
|
|
|
|
|
|
Federal
|
(53
|
)
|
|
(273
|
)
|
|
(94
|
)
|
State
|
(9
|
)
|
|
(25
|
)
|
|
(1
|
)
|
Foreign
|
(29
|
)
|
|
(10
|
)
|
|
(8
|
)
|
Deferred income tax (benefit) expense
|
(91
|
)
|
|
(308
|
)
|
|
(103
|
)
|
Income tax expense
|
$
|
203
|
|
|
$
|
87
|
|
|
$
|
45
|
|
We reduced our current income tax payable by $60 million, $34 million and $100 million for the years ended December 31, 2019, 2018 and 2017 for tax deductions attributable to stock-based compensation.
Deferred Income Taxes
As of December 31, 2019 and 2018, the significant components of our deferred tax assets and deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In millions)
|
Deferred tax assets:
|
|
|
|
Provision for accrued expenses
|
$
|
100
|
|
|
$
|
87
|
|
Deferred loyalty rewards
|
183
|
|
|
166
|
|
Net operating loss and tax credit carryforwards
|
100
|
|
|
123
|
|
Stock-based compensation
|
86
|
|
|
67
|
|
Property and equipment
|
102
|
|
|
55
|
|
Operating lease liabilities
|
136
|
|
|
—
|
|
Other
|
72
|
|
|
68
|
|
Total deferred tax assets
|
779
|
|
|
566
|
|
Less valuation allowance
|
(77
|
)
|
|
(80
|
)
|
Net deferred tax assets
|
$
|
702
|
|
|
$
|
486
|
|
Deferred tax liabilities:
|
|
|
|
Goodwill and intangible assets
|
(485
|
)
|
|
(486
|
)
|
Operating lease ROU assets
|
(128
|
)
|
|
—
|
|
Total deferred tax liabilities
|
$
|
(613
|
)
|
|
$
|
(486
|
)
|
Net deferred tax liability
|
$
|
89
|
|
|
$
|
—
|
|
As of December 31, 2019, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of approximately $77 million, $80 million and $538 million. If not utilized, the federal and state NOLs will expire at various times between 2020 and 2039. Foreign NOLs of $176 million may be carried forward indefinitely, and foreign NOLs of $362 million expire at various times starting from 2020.
As of December 31, 2019, we had a valuation allowance of approximately $77 million related to certain NOL carryforwards for which it is more likely than not the tax benefits will not be realized. The valuation allowance decreased by $3 million from the amount recorded as of December 31, 2018 primarily due to historic pre-acquisition losses that were surrendered during 2019. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits, the majority of previously unremitted earnings have now been subjected to U.S. federal income tax. To the extent that this repatriation resulted in differences between the book and tax carrying values of Expedia Group’s investment in foreign subsidiaries whose offshore earnings are not indefinitely reinvested, or to the extent that future distributions from these subsidiaries will be taxable, a deferred tax liability has been accrued. The amount of undistributed earnings in foreign subsidiaries where the foreign subsidiary has or will invest undistributed earnings indefinitely outside of the United States, and for which future distributions could be taxable, was $85 million as of December 31, 2019. The unrecognized deferred tax liability related to the U.S. federal income tax consequences of these earnings was $18 million as of December 31, 2019.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Income Tax Rate
A reconciliation of amounts computed by applying the federal statutory income tax rate to income before income taxes to total income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
(In millions)
|
|
|
Income tax expense at the federal statutory rate of 21% for 2019 and 2018 and 35% for 2017
|
$
|
163
|
|
|
$
|
102
|
|
|
$
|
146
|
|
Foreign tax rate differential
|
40
|
|
|
(42
|
)
|
|
(82
|
)
|
Federal research and development credit
|
(25
|
)
|
|
(23
|
)
|
|
(16
|
)
|
Excess tax benefits related to stock-based compensation
|
(13
|
)
|
|
(10
|
)
|
|
(60
|
)
|
Unrecognized tax benefits and related interest
|
17
|
|
|
23
|
|
|
27
|
|
Change in valuation allowance
|
(3
|
)
|
|
8
|
|
|
4
|
|
Return to provision true-ups
|
(12
|
)
|
|
(7
|
)
|
|
1
|
|
trivago stock-based compensation
|
7
|
|
|
7
|
|
|
5
|
|
State taxes
|
22
|
|
|
11
|
|
|
3
|
|
Non-deductible goodwill impairment
|
—
|
|
|
16
|
|
|
—
|
|
Tax Act transition tax
|
—
|
|
|
—
|
|
|
144
|
|
U.S. statutory tax rate change
|
—
|
|
|
—
|
|
|
(158
|
)
|
Global intangible low-taxed income
|
—
|
|
|
13
|
|
|
—
|
|
Foreign-derived intangible income
|
(14
|
)
|
|
(38
|
)
|
|
—
|
|
Other, net
|
21
|
|
|
27
|
|
|
31
|
|
Income tax expense
|
$
|
203
|
|
|
$
|
87
|
|
|
$
|
45
|
|
Our effective tax rate for 2019 was higher than the 21% federal statutory income tax rate due to state income taxes, foreign income taxed at higher than the federal statutory tax rate, as well as losses in foreign jurisdictions for which we do not record a tax benefit. Our effective tax rate for 2018 was lower than the 21% federal statutory income tax rate due to earnings in foreign jurisdictions outside of the United States, primarily Switzerland, where the statutory income tax rate is lower as well as excess tax benefits relating to stock-based payments and FDII. Our effective tax rate for 2017 was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions outside of the United States well as excess tax benefits related to stock-based payments.
The increase in our effective tax rate for 2019 compared to 2018 was due to an increase in U.S. federal and state taxable income as a result of an internal reorganization.
Unrecognized Tax Benefits and Interest
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits and interest is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
(In millions)
|
|
|
Balance, beginning of year
|
$
|
293
|
|
|
$
|
261
|
|
|
$
|
220
|
|
Increases to tax positions related to the current year
|
12
|
|
|
24
|
|
|
35
|
|
Increases to tax positions related to prior years
|
5
|
|
|
2
|
|
|
4
|
|
Decreases to tax positions related to prior years
|
—
|
|
|
—
|
|
|
(1
|
)
|
Reductions due to lapsed statute of limitations
|
(2
|
)
|
|
(2
|
)
|
|
(3
|
)
|
Settlements during current year
|
(11
|
)
|
|
—
|
|
|
(1
|
)
|
Interest and penalties
|
8
|
|
|
8
|
|
|
7
|
|
Balance, end of year
|
$
|
305
|
|
|
$
|
293
|
|
|
$
|
261
|
|
As of December 31, 2019, we had $305 million of gross unrecognized tax benefits, $188 million of which, if recognized, would affect the effective tax rate. As of December 31, 2018, we had $293 million of gross unrecognized tax benefits, $180 million of which, if recognized, would affect the effective tax rate. As of December 31, 2017, we had $261 million of gross unrecognized tax benefits, $155 million of which, if recognized, would affect the effective tax rate.
As of December 31, 2019 and 2018, total gross interest and penalties accrued was $37 million and $30 million, respectively. We recognized interest expense in 2019 and 2018 of $8 million in both periods and $7 million in 2017 in connection with our unrecognized tax benefits.
The Company is routinely under audit by federal, state, local and foreign income tax authorities. These audits include questioning the timing and the amount of income and deductions, and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") is currently examining Expedia Group’s U.S. consolidated federal income tax returns for the periods ended December 31, 2011 through December 31, 2013. The Company has consented to an extension of the statute of limitations, until March 31, 2021, related to these tax years. As of December 31, 2019, for the Expedia Group, Inc. & Subsidiaries group, statute of limitations for tax years 2011 through 2018 remain open to examination in the federal jurisdiction and most state jurisdictions. For the HomeAway and Orbitz groups, statutes of limitations for tax years 2001 through 2015 remain open to examination in the federal and most state jurisdictions due to NOL carryforwards.
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 12 — Redeemable Non-controlling Interests
We have non-controlling interests in majority owned entities, which are carried at fair value as the non-controlling interests contained certain rights, whereby we could acquire and the minority shareholders could sell to us the additional shares of the companies. A reconciliation of redeemable non-controlling interest for the years ended December 31, 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
(In millions)
|
Balance, beginning of the period
|
$
|
30
|
|
|
$
|
22
|
|
|
$
|
—
|
|
Acquisition of redeemable non-controlling interest
|
—
|
|
|
—
|
|
|
20
|
|
Purchase of subsidiary shares at fair value
|
(28
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to non-controlling interests
|
(2
|
)
|
|
1
|
|
|
3
|
|
Fair value adjustments
|
14
|
|
|
3
|
|
|
—
|
|
Currency translation adjustments
|
(1
|
)
|
|
(2
|
)
|
|
—
|
|
Other
|
2
|
|
|
6
|
|
|
(1
|
)
|
Balance, end of period
|
$
|
15
|
|
|
$
|
30
|
|
|
$
|
22
|
|
NOTE 13 — Stockholders’ Equity
Common Stock and Class B Common Stock
Our authorized common stock consists of 1.6 billion shares of common stock with par value of $0.0001 per share, and 400 million shares of Class B common stock with par value of $0.0001 per share. Both classes of common stock qualify for and share equally in dividends, if declared by our Board of Directors, and generally vote together on all matters. Common stock is entitled to 1 vote per share and Class B common stock is entitled to 10 votes per share. Holders of common stock, voting as a single, separate class are entitled to elect 25% of the total number of directors. Class B common stockholders may, at any time, convert their shares into common stock, on a one for one share basis. Upon conversion, the Class B common stock is retired and is not available for reissue. In the event of liquidation, dissolution, distribution of assets or winding-up of Expedia Group, Inc., the holders of both classes of common stock have equal rights to receive all the assets of Expedia Group, Inc. after the rights of the holders of the preferred stock, if any, have been satisfied.
Preferred Stock
As of December 31, 2019 and 2018, we have no preferred stock outstanding.
Treasury Stock
As of December 31, 2019, the Company's treasury stock was comprised of approximately 119.6 million common stock and 7.3 million Class B shares. As of December 31, 2018 and 2017, the entire treasury stock balances of 97.2 million and 89.5 million was common stock.
Share Repurchases. During 2019, 2012, 2010, and 2006, our Board of Directors, or the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 20 million outstanding shares of our common stock in each of the respective years, during 2015 authorized a repurchase of up to 10 million shares of our common stock and during 2018 authorized a repurchase of up to 15 million shares of our common stock for a total of 105 million shares. Shares repurchased under the authorized programs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Number of shares repurchased
|
5.6 million
|
|
|
7.7 million
|
|
|
2.3 million
|
|
Average price per share
|
$
|
122.72
|
|
|
$
|
117.02
|
|
|
$
|
127.04
|
|
Total cost of repurchases (in millions)(1)
|
$
|
683
|
|
|
$
|
903
|
|
|
$
|
294
|
|
___________________________________
|
|
(1)
|
Amount excludes transaction costs.
|
As of December 31, 2019, 26.7 million shares remain authorized for repurchase under the 2019 and 2018 authorizations with no fixed termination date for the repurchases. Subsequent to December 31, 2019, we repurchased an additional 3.4 million shares for a total cost of $370 million, excluding transaction costs, representing an average purchase price of $109.88 per share.
Dividends on our Common Stock
In 2019, 2018 and 2017, the Executive Committee, acting on behalf of the Board of Directors, declared and paid the following dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend
Per Share
|
|
Record Date
|
|
Total Amount
(in millions)
|
|
Payment Date
|
Year ended December 31, 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
|
|
November 6, 2019
|
|
0.34
|
|
|
November 19, 2019
|
|
50
|
|
|
December 12, 2019
|
Year ended December 31, 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
|
|
October 19, 2018
|
|
0.32
|
|
|
November 15, 2018
|
|
48
|
|
|
December 6, 2018
|
Year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
February 7, 2017
|
|
$
|
0.28
|
|
|
March 9, 2017
|
|
$
|
42
|
|
|
March 30, 2017
|
|
April 26, 2017
|
|
0.28
|
|
|
May 25, 2017
|
|
43
|
|
|
June 15, 2017
|
|
July 26, 2017
|
|
0.30
|
|
|
August 24, 2017
|
|
45
|
|
|
September 14, 2017
|
|
October 25, 2017
|
|
0.30
|
|
|
November 16, 2017
|
|
46
|
|
|
December 7, 2017
|
In addition, in February 2020, 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 March 26, 2020 to the stockholders of record as of the close of business on March 10, 2020. Future declarations of dividends are subject to final determination by our Board of Directors.
Accumulated Other Comprehensive Income (Loss)
The balance of accumulated other comprehensive loss as of December 31, 2019 and 2018 was comprised of foreign currency translation adjustments. These translation adjustments include foreign currency transaction losses at December 31, 2019 and 2018 of $15 million ($19 million before tax) and $27 million ($35 million before tax) 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 2 — Significant Accounting Policies for more information.
Non-redeemable Non-controlling Interests
As of December 31, 2019 and 2018, our ownership interest in trivago was approximately 59.3% and 59.5%.
In August 2018, we purchased the remaining 25% minority equity interest in AAE Travel Pte. Ltd., the joint venture formed by Air Asia and Expedia Group in March 2011. Prior to this transaction, we held a 75% controlling interest in the joint venture since 2015. The cash consideration was approximately $62 million.
NOTE 14 — Earnings Per Share
Basic Earnings Per Share
Basic earnings per share was calculated for the years ended December 31, 2019, 2018 and 2017 using the weighted average number of common and Class B common shares outstanding during the period excluding restricted stock and stock held in escrow.
Diluted Earnings Per Share
For the years ended December 31, 2019, 2018 and 2017, we computed diluted earnings per share using (i) the number of shares of common stock and Class B common stock used in the basic earnings per share calculation as indicated above (ii) if dilutive, the incremental common stock that we would issue upon the assumed exercise of stock options and the vesting of RSUs using the treasury stock method, and (iii) other stock-based commitments.
The following table presents our basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
(In millions, except share and per share data)
|
Net income attributable to Expedia Group, Inc.
|
$
|
565
|
|
|
$
|
406
|
|
|
$
|
378
|
|
Earnings per share attributable to Expedia Group, Inc. available to common stockholders:
|
|
|
|
|
|
Basic
|
$
|
3.84
|
|
|
$
|
2.71
|
|
|
$
|
2.49
|
|
Diluted
|
3.77
|
|
|
2.65
|
|
|
2.42
|
|
Weighted average number of shares outstanding (000's):
|
|
|
|
|
|
Basic
|
147,194
|
|
|
149,961
|
|
|
151,619
|
|
Dilutive effect of:
|
|
|
|
|
|
Options to purchase common stock
|
1,873
|
|
|
2,317
|
|
|
4,218
|
|
Other dilutive securities
|
817
|
|
|
611
|
|
|
548
|
|
Diluted
|
149,884
|
|
|
152,889
|
|
|
156,385
|
|
Outstanding stock awards that have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive were approximately seven million for the year ended December 31, 2019, nine million for 2018, and four million for 2017.
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.
NOTE 15 — Restructuring and Related Reorganization Charges
In connection with the centralization and migration of certain operational functions and systems as well as certain organizational alignment activities, we recognized $24 million and $17 million in restructuring and related reorganization charges during 2019 and 2017. The charges were primarily related to employee severance, benefits and professional fees and approximately $17 million was unpaid as of December 31, 2019. We had no restructuring charges in 2018.
NOTE 16 — Other Income (Expense)
Other, net
The following table presents the components of other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
(In millions)
|
Foreign exchange rate gains (losses), net
|
$
|
(34
|
)
|
|
$
|
3
|
|
|
$
|
(46
|
)
|
Gains (losses) on minority equity investments, net
|
8
|
|
|
(111
|
)
|
|
(14
|
)
|
Other
|
12
|
|
|
(2
|
)
|
|
—
|
|
Total
|
$
|
(14
|
)
|
|
$
|
(110
|
)
|
|
$
|
(60
|
)
|
NOTE 17 — Commitments and Contingencies
Letters of Credit, Purchase Obligations and Guarantees
We have commitments and obligations that include purchase obligations, guarantees and LOCs, which could potentially require our payment in the event of demands by third parties or contingent events. The following table presents these commitments and obligations as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Period
|
|
Total
|
|
Less than
1 year
|
|
1 to 3
years
|
|
3 to 5
years
|
|
More than
5 years
|
|
(In millions)
|
Purchase obligations
|
$
|
487
|
|
|
$
|
339
|
|
|
$
|
133
|
|
|
$
|
15
|
|
|
$
|
—
|
|
Guarantees
|
68
|
|
|
68
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Letters of credit
|
39
|
|
|
22
|
|
|
13
|
|
|
—
|
|
|
4
|
|
|
$
|
594
|
|
|
$
|
429
|
|
|
$
|
146
|
|
|
$
|
15
|
|
|
$
|
4
|
|
Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors. These minimum obligations are less than our projected use for those periods. Payments may be more than the minimum obligations based on actual use.
We have guarantees which consist primarily of bonds relating to tax assessments that we are contesting as well as bonds required by certain foreign countries’ aviation authorities for the potential non-delivery, by us, of packaged travel sold in those countries. The authorities also require that a portion of the total amount of packaged travel sold be bonded. Our guarantees also include certain surety bonds related to various company performance obligations.
Our LOCs consist of stand-by LOCs, underwritten by a group of lenders, which we primarily issue for certain regulatory purposes as well as to certain hotel properties to secure our payment for hotel room transactions. The contractual expiration dates of these LOCs are shown in the table above. There were no material claims made against any stand-by LOCs during the years ended December 31, 2019, 2018 and 2017.
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. Ten 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 $48 million and $46 million as of December 31, 2019 and 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.
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 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.
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. 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, or "ACL," relating to trivago’s advertisements in Australia concerning the hotel prices available on trivago’s Australian site, trivago’s strike-through pricing practice and other aspects of the way offers for accommodation were displayed on trivago's Australian website. The matter went to trial in September 2019 and, on January 20, 2020, the Australian Federal Court issued a judgment finding trivago had engaged in conduct in breach of the ACL. The court will set a date for a separate hearing regarding penalties and other orders. We recorded the estimated probable loss associated with the proceedings as of December 31, 2019. An estimate for the reasonable possible loss or range of loss in excess of the amount reserved cannot be made.
NOTE 18 – 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 merger 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 acquired 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 $96 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 is subject to revision. Bodybuilding.com was consolidated into our financial statements starting on the acquisition date and we have recognized a related $58 million in revenue and $7 million in operating losses for the year ended December 31, 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 the Liberty Expedia Holdings transaction, see NOTE 19 — Related Party Transactions.
NOTE 19 — 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 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, (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), and pursuant to which 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 29% of the total voting power of all shares of Expedia Group common stock and Class B common stock, based on approximately 137 million shares of Expedia Group common stock and approximately 5.5 million shares of Class B common stock outstanding as of December 31, 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 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 and the Stockholders Agreement), 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 acquire up to 7,276,547 shares of Expedia Group Class B common stock by (1) exchange with the Company (or its wholly owned subsidiary) for an equivalent number of shares of Expedia Group common stock, 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 (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 50% of the total voting power of all outstanding shares of Expedia Group common stock and Class B common stock, assuming a total of approximately 130 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 137 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 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's stockholders approved a proposal to amend the Company's certificate of incorporation to reflect the aforementioned transfer restrictions, automatic conversion provisions and change-of-control restrictions reflected in the New Governance Agreement. The amendment was filed with the Secretary of State of Delaware on December 3, 2019, and became effective at 11:59 p.m., Eastern Time, on December 3, 2019.
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 complied 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, 7 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 independent nominating committee rules, but is currently relying on the twelve-month phase-in period 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 and the Company's amended and restated certificate of incorporation provide that following one of the automatic conversion triggers mentioned above, the number of shares of Class B common stock outstanding and acquired by Mr. Diller in the Exchange or pursuant to the Purchase/Exchange Right will not exceed approximately 5.5 million shares of Expedia Group Class B common stock, or approximately 29% of the total voting power of Expedia Group based on approximately 137 million shares of Expedia Group common stock and approximately 5.5 million shares of Expedia Group Class B common stock outstanding as of December 31, 2019. Further, as described above, the New Governance Agreement and the Company's amended and restated certificate of incorporation 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:
A Stockholders Agreement Termination Agreement by and among Mr. Diller, Liberty Expedia Holdings and certain wholly owned subsidiaries of Liberty Expedia Holdings, pursuant to which the Stockholders Agreement, including the Diller Proxy, terminated on July 26, 2019, upon the closing of the Liberty Expedia Transaction;
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 terminated on July 26, 2019, upon the closing of the Liberty Expedia Transaction;
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;
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 Transaction Agreement, dated as of April 15, 2019 (the “Transaction Agreement”), which survived the termination of the Transaction Agreement; and
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 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.
IAC/InterActiveCorp
In addition to serving as our Chairman and Senior Executive, Mr. Diller also serves as Chairman of the Board of Directors and Senior Executive at IAC. The Company and IAC are related parties, insofar as Mr. Diller serves as Chairman and Senior Executive of both Expedia Group and IAC. Each of IAC and Expedia Group has a 50% ownership interest in two aircraft that may be used by both companies. We share equally in fixed and nonrecurring costs for the planes; direct operating costs are pro-rated based on actual usage. In addition, in April 2019, Expedia Group and IAC entered into an agreement to jointly acquire a new corporate aircraft for a total expected cost of approximately $72 million (including purchase and related costs), which will be split evenly between the two companies. In 2019, we paid $23 million (50% of the purchase price and refurbishment costs paid to date) for our interest. The respective share of the balance is due upon delivery of the new aircraft, which is expected to occur in early 2021. As of December 31, 2019 and 2018, the net basis in our ownership interest in the planes was $53 million and $33 million, respectively, recorded in long-term investments and other assets. In 2019, 2018 and 2017, operating and maintenance costs paid directly to the jointly-owned subsidiary for the airplanes were nominal.
NOTE 20 — 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. 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 2019, 2018 and 2017. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Corporate &
Eliminations
|
|
Total
|
|
(In millions)
|
Third-party revenue
|
$
|
9,427
|
|
|
$
|
622
|
|
|
$
|
1,340
|
|
|
$
|
620
|
|
|
$
|
58
|
|
|
$
|
12,067
|
|
Intersegment revenue
|
—
|
|
|
316
|
|
|
—
|
|
|
—
|
|
|
(316
|
)
|
|
—
|
|
Revenue
|
$
|
9,427
|
|
|
$
|
938
|
|
|
$
|
1,340
|
|
|
$
|
620
|
|
|
$
|
(258
|
)
|
|
$
|
12,067
|
|
Adjusted EBITDA
|
$
|
2,447
|
|
|
$
|
85
|
|
|
$
|
281
|
|
|
$
|
116
|
|
|
$
|
(795
|
)
|
|
$
|
2,134
|
|
Depreciation
|
(379
|
)
|
|
(11
|
)
|
|
(100
|
)
|
|
(50
|
)
|
|
(172
|
)
|
|
(712
|
)
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(198
|
)
|
|
(198
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(241
|
)
|
|
(241
|
)
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
(34
|
)
|
Restructuring and related reorganization charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
(24
|
)
|
Realized (gain) loss on revenue hedges
|
(21
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
Operating income (loss)
|
$
|
2,047
|
|
|
$
|
74
|
|
|
$
|
180
|
|
|
$
|
66
|
|
|
$
|
(1,464
|
)
|
|
903
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
775
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(203
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
572
|
|
Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
$
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Corporate & Eliminations
|
|
Total
|
|
(In millions)
|
Third-party revenue
|
$
|
8,760
|
|
|
$
|
691
|
|
|
$
|
1,171
|
|
|
$
|
601
|
|
|
$
|
—
|
|
|
$
|
11,223
|
|
Intersegment revenue
|
—
|
|
|
393
|
|
|
—
|
|
|
—
|
|
|
(393
|
)
|
|
—
|
|
Revenue
|
$
|
8,760
|
|
|
$
|
1,084
|
|
|
$
|
1,171
|
|
|
$
|
601
|
|
|
$
|
(393
|
)
|
|
$
|
11,223
|
|
Adjusted EBITDA
|
$
|
2,305
|
|
|
$
|
16
|
|
|
$
|
288
|
|
|
$
|
107
|
|
|
$
|
(746
|
)
|
|
$
|
1,970
|
|
Depreciation
|
(344
|
)
|
|
(15
|
)
|
|
(66
|
)
|
|
(47
|
)
|
|
(204
|
)
|
|
(676
|
)
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(283
|
)
|
|
(283
|
)
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(86
|
)
|
|
(86
|
)
|
Impairment of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42
|
)
|
|
(42
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(203
|
)
|
|
(203
|
)
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
59
|
|
Realized (gain) loss on revenue hedges
|
(24
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
Operating income (loss)
|
$
|
1,937
|
|
|
$
|
1
|
|
|
$
|
221
|
|
|
$
|
60
|
|
|
$
|
(1,505
|
)
|
|
714
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
485
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(87
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
398
|
|
Net loss attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
Core OTA
|
|
trivago
|
|
Vrbo
|
|
Egencia
|
|
Corporate & Eliminations
|
|
Total
|
|
(In millions)
|
Third-party revenue
|
$
|
7,881
|
|
|
$
|
752
|
|
|
$
|
906
|
|
|
$
|
521
|
|
|
$
|
—
|
|
|
$
|
10,060
|
|
Intersegment revenue
|
—
|
|
|
414
|
|
|
—
|
|
|
—
|
|
|
(414
|
)
|
|
—
|
|
Revenue
|
$
|
7,881
|
|
|
$
|
1,166
|
|
|
$
|
906
|
|
|
$
|
521
|
|
|
$
|
(414
|
)
|
|
$
|
10,060
|
|
Adjusted EBITDA
|
$
|
2,057
|
|
|
$
|
5
|
|
|
$
|
202
|
|
|
$
|
95
|
|
|
$
|
(646
|
)
|
|
$
|
1,713
|
|
Depreciation
|
(310
|
)
|
|
(9
|
)
|
|
(40
|
)
|
|
(41
|
)
|
|
(214
|
)
|
|
(614
|
)
|
Amortization of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(275
|
)
|
|
(275
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(149
|
)
|
|
(149
|
)
|
Legal reserves, occupancy tax and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
(25
|
)
|
Restructuring and related reorganization charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
(17
|
)
|
Realized (gain) loss on revenue hedges
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Operating income (loss)
|
$
|
1,739
|
|
|
$
|
(4
|
)
|
|
$
|
162
|
|
|
$
|
54
|
|
|
$
|
(1,326
|
)
|
|
625
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
(208
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
417
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
372
|
|
Net loss attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Net income attributable to Expedia Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
$
|
378
|
|
Revenue by Business Model and Service Type
The following table presents revenue by business model and service type for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017 (1)
|
|
(In millions)
|
Business Model
|
|
|
|
|
|
Merchant
|
$
|
6,459
|
|
|
$
|
5,950
|
|
|
$
|
5,394
|
|
Agency
|
3,165
|
|
|
3,010
|
|
|
2,687
|
|
Advertising and media
|
1,103
|
|
|
1,092
|
|
|
1,073
|
|
Vrbo
|
1,340
|
|
|
1,171
|
|
|
906
|
|
Total revenue
|
$
|
12,067
|
|
|
$
|
11,223
|
|
|
$
|
10,060
|
|
Service Type
|
|
|
|
|
|
Lodging
|
$
|
8,472
|
|
|
$
|
7,712
|
|
|
$
|
6,851
|
|
Air
|
869
|
|
|
881
|
|
|
784
|
|
Advertising and media
|
1,103
|
|
|
1,092
|
|
|
1,073
|
|
Other(2)
|
1,623
|
|
|
1,538
|
|
|
1,352
|
|
Total revenue
|
$
|
12,067
|
|
|
$
|
11,223
|
|
|
$
|
10,060
|
|
___________________________________
|
|
(1)
|
Results for 2019 and 2018 are presented under the new revenue recognition accounting guidance, which we adopted on January 1, 2018 using the modified retrospective method. Therefore, 2017 results have not been adjusted and continued to be reported under the accounting standards in effect for that period.
|
|
|
(2)
|
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 $58 million during the year ended December 31, 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 primarily 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.
Geographic Information
The following table presents revenue by geographic area, the United States and all other countries, based on the geographic location of our websites or points of sale with the exception of trivago, which has all been allocated to Germany, the location of its corporate headquarters, for the years ended December 31, 2019, 2018 and 2017. No sales to an individual country other than the United States accounted for more than 10% of revenue for the presented years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
(In millions)
|
Revenue
|
|
|
|
|
|
United States
|
$
|
6,869
|
|
|
$
|
6,202
|
|
|
$
|
5,542
|
|
All other countries
|
5,198
|
|
|
5,021
|
|
|
4,518
|
|
|
$
|
12,067
|
|
|
$
|
11,223
|
|
|
$
|
10,060
|
|
The following table presents property and equipment, net for the United States and all other countries, as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
|
(In millions)
|
Property and equipment, net
|
|
|
|
United States
|
$
|
2,038
|
|
|
$
|
1,571
|
|
All other countries
|
160
|
|
|
306
|
|
|
$
|
2,198
|
|
|
$
|
1,877
|
|
NOTE 21 — Valuation and Qualifying Accounts
The following table presents the changes in our valuation and qualifying accounts. Other reserves primarily include our accrual of the cost associated with purchases made on our website related to the use of fraudulent credit cards “charged-back” due to payment disputes and cancellation fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance at
Beginning of
Period
|
|
Charges to
Earnings
|
|
Charges to
Other
Accounts(1)
|
|
Deductions
|
|
Balance at End
of Period
|
|
(In millions)
|
2019
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
34
|
|
|
$
|
25
|
|
|
$
|
(3
|
)
|
|
$
|
(15
|
)
|
|
$
|
41
|
|
Other reserves
|
19
|
|
|
|
|
|
|
|
|
19
|
|
2018
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
31
|
|
|
$
|
27
|
|
|
$
|
(8
|
)
|
|
$
|
(16
|
)
|
|
$
|
34
|
|
Other reserves
|
22
|
|
|
|
|
|
|
|
|
19
|
|
2017
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
25
|
|
|
$
|
19
|
|
|
$
|
1
|
|
|
$
|
(14
|
)
|
|
$
|
31
|
|
Other reserves
|
24
|
|
|
|
|
|
|
|
|
22
|
|
___________________________________
|
|
(1)
|
Charges to other accounts primarily relates to amounts acquired through acquisitions, net translation adjustments, and reclassifications.
|
NOTE 22 — Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
(In millions, except per share data)
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
Revenue
|
$
|
2,747
|
|
|
$
|
3,558
|
|
|
$
|
3,153
|
|
|
$
|
2,609
|
|
Operating income (loss)
|
160
|
|
|
609
|
|
|
265
|
|
|
(131
|
)
|
Net income (loss) attributable to Expedia Group, Inc
|
76
|
|
|
409
|
|
|
183
|
|
|
(103
|
)
|
Basic earnings (loss) per share(1)
|
$
|
0.52
|
|
|
$
|
2.77
|
|
|
$
|
1.23
|
|
|
$
|
(0.69
|
)
|
Diluted earnings (loss) per share(1)
|
0.52
|
|
|
2.71
|
|
|
1.21
|
|
|
(0.69
|
)
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
Revenue
|
$
|
2,559
|
|
|
$
|
3,276
|
|
|
$
|
2,880
|
|
|
$
|
2,508
|
|
Operating income (loss)
|
96
|
|
|
672
|
|
|
111
|
|
|
(165
|
)
|
Net income (loss) attributable to Expedia Group, Inc.(2)
|
17
|
|
|
525
|
|
|
1
|
|
|
(137
|
)
|
Basic earnings (loss) per share(1)
|
$
|
0.11
|
|
|
$
|
3.51
|
|
|
$
|
0.01
|
|
|
$
|
(0.91
|
)
|
Diluted earnings (loss) per share(1)
|
0.11
|
|
|
3.43
|
|
|
0.01
|
|
|
(0.91
|
)
|
___________________________________
|
|
(1)
|
Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total computed for the year.
|
|
|
(2)
|
During the fourth quarter of 2018, we recognized a $25 million impairment charge related to goodwill as well as a $42 million impairment charge related to indefinite lived intangible assets.
|
NOTE 23 — 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, 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.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In millions)
|
Revenue
|
$
|
—
|
|
|
$
|
9,463
|
|
|
$
|
2,929
|
|
|
$
|
(325
|
)
|
|
$
|
12,067
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
1,569
|
|
|
616
|
|
|
(22
|
)
|
|
2,163
|
|
Selling and marketing
|
—
|
|
|
4,666
|
|
|
1,772
|
|
|
(303
|
)
|
|
6,135
|
|
Technology and content
|
—
|
|
|
1,247
|
|
|
516
|
|
|
—
|
|
|
1,763
|
|
General and administrative
|
—
|
|
|
557
|
|
|
290
|
|
|
—
|
|
|
847
|
|
Amortization of intangible assets
|
—
|
|
|
117
|
|
|
81
|
|
|
—
|
|
|
198
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
16
|
|
|
18
|
|
|
—
|
|
|
34
|
|
Restructuring and related reorganization charges
|
—
|
|
|
13
|
|
|
11
|
|
|
—
|
|
|
24
|
|
Intercompany (income) expense, net
|
2
|
|
|
856
|
|
|
(858
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
(2
|
)
|
|
422
|
|
|
483
|
|
|
—
|
|
|
903
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
702
|
|
|
372
|
|
|
—
|
|
|
(1,074
|
)
|
|
—
|
|
Other, net
|
(176
|
)
|
|
39
|
|
|
9
|
|
|
—
|
|
|
(128
|
)
|
Total other income (expense), net
|
526
|
|
|
411
|
|
|
9
|
|
|
(1,074
|
)
|
|
(128
|
)
|
Income before income taxes
|
524
|
|
|
833
|
|
|
492
|
|
|
(1,074
|
)
|
|
775
|
|
Provision for income taxes
|
41
|
|
|
(129
|
)
|
|
(115
|
)
|
|
—
|
|
|
(203
|
)
|
Net income
|
565
|
|
|
704
|
|
|
377
|
|
|
(1,074
|
)
|
|
572
|
|
Net (income) loss attributable to non-controlling interests
|
—
|
|
|
3
|
|
|
(10
|
)
|
|
—
|
|
|
(7
|
)
|
Net income attributable to Expedia Group, Inc.
|
$
|
565
|
|
|
$
|
707
|
|
|
$
|
367
|
|
|
$
|
(1,074
|
)
|
|
$
|
565
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
568
|
|
|
$
|
696
|
|
|
$
|
359
|
|
|
$
|
(1,055
|
)
|
|
$
|
568
|
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In millions)
|
Revenue
|
$
|
—
|
|
|
$
|
8,650
|
|
|
$
|
2,973
|
|
|
$
|
(400
|
)
|
|
$
|
11,223
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
1,436
|
|
|
550
|
|
|
(21
|
)
|
|
1,965
|
|
Selling and marketing
|
—
|
|
|
4,153
|
|
|
1,993
|
|
|
(379
|
)
|
|
5,767
|
|
Technology and content
|
—
|
|
|
1,143
|
|
|
474
|
|
|
—
|
|
|
1,617
|
|
General and administrative
|
—
|
|
|
515
|
|
|
293
|
|
|
—
|
|
|
808
|
|
Amortization of intangible assets
|
—
|
|
|
174
|
|
|
109
|
|
|
—
|
|
|
283
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
86
|
|
Impairment of intangibles
|
—
|
|
|
42
|
|
|
—
|
|
|
—
|
|
|
42
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
(60
|
)
|
|
1
|
|
|
—
|
|
|
(59
|
)
|
Intercompany (income) expense, net
|
—
|
|
|
808
|
|
|
(808
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
—
|
|
|
439
|
|
|
275
|
|
|
—
|
|
|
714
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
549
|
|
|
209
|
|
|
—
|
|
|
(758
|
)
|
|
—
|
|
Other, net
|
(187
|
)
|
|
(81
|
)
|
|
39
|
|
|
—
|
|
|
(229
|
)
|
Total other income, net
|
362
|
|
|
128
|
|
|
39
|
|
|
(758
|
)
|
|
(229
|
)
|
Income before income taxes
|
362
|
|
|
567
|
|
|
314
|
|
|
(758
|
)
|
|
485
|
|
Provision for income taxes
|
44
|
|
|
(12
|
)
|
|
(119
|
)
|
|
—
|
|
|
(87
|
)
|
Net income
|
406
|
|
|
555
|
|
|
195
|
|
|
(758
|
)
|
|
398
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
2
|
|
|
6
|
|
|
—
|
|
|
8
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
406
|
|
|
$
|
557
|
|
|
$
|
201
|
|
|
$
|
(758
|
)
|
|
$
|
406
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
338
|
|
|
$
|
459
|
|
|
$
|
103
|
|
|
$
|
(562
|
)
|
|
$
|
338
|
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In millions)
|
Revenue
|
$
|
—
|
|
|
$
|
7,662
|
|
|
$
|
2,817
|
|
|
$
|
(419
|
)
|
|
$
|
10,060
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
—
|
|
|
1,343
|
|
|
431
|
|
|
(17
|
)
|
|
1,757
|
|
Selling and marketing
|
—
|
|
|
3,715
|
|
|
1,985
|
|
|
(402
|
)
|
|
5,298
|
|
Technology and content
|
—
|
|
|
991
|
|
|
396
|
|
|
—
|
|
|
1,387
|
|
General and administrative
|
—
|
|
|
409
|
|
|
267
|
|
|
—
|
|
|
676
|
|
Amortization of intangible assets
|
—
|
|
|
182
|
|
|
93
|
|
|
—
|
|
|
275
|
|
Legal reserves, occupancy tax and other
|
—
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
25
|
|
Restructuring and related reorganization charges
|
—
|
|
|
5
|
|
|
12
|
|
|
—
|
|
|
17
|
|
Intercompany (income) expense, net
|
—
|
|
|
695
|
|
|
(695
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
—
|
|
|
297
|
|
|
328
|
|
|
—
|
|
|
625
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity in pre-tax earnings of consolidated subsidiaries
|
493
|
|
|
336
|
|
|
—
|
|
|
(829
|
)
|
|
—
|
|
Other, net
|
(179
|
)
|
|
(60
|
)
|
|
31
|
|
|
—
|
|
|
(208
|
)
|
Total other income (expense), net
|
314
|
|
|
276
|
|
|
31
|
|
|
(829
|
)
|
|
(208
|
)
|
Income before income taxes
|
314
|
|
|
573
|
|
|
359
|
|
|
(829
|
)
|
|
417
|
|
Provision for income taxes
|
64
|
|
|
(67
|
)
|
|
(42
|
)
|
|
—
|
|
|
(45
|
)
|
Net income
|
378
|
|
|
506
|
|
|
317
|
|
|
(829
|
)
|
|
372
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
1
|
|
|
5
|
|
|
—
|
|
|
6
|
|
Net income attributable to Expedia Group, Inc.
|
$
|
378
|
|
|
$
|
507
|
|
|
$
|
322
|
|
|
$
|
(829
|
)
|
|
$
|
378
|
|
Comprehensive income attributable to Expedia Group, Inc.
|
$
|
509
|
|
|
$
|
698
|
|
|
$
|
564
|
|
|
$
|
(1,262
|
)
|
|
$
|
509
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In millions)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
443
|
|
|
$
|
7,416
|
|
|
$
|
2,588
|
|
|
$
|
(2,712
|
)
|
|
$
|
7,735
|
|
Investment in subsidiaries
|
11,345
|
|
|
3,297
|
|
|
—
|
|
|
(14,642
|
)
|
|
—
|
|
Intangible assets, net
|
—
|
|
|
1,414
|
|
|
390
|
|
|
—
|
|
|
1,804
|
|
Goodwill
|
—
|
|
|
6,366
|
|
|
1,761
|
|
|
—
|
|
|
8,127
|
|
Other assets, net
|
—
|
|
|
2,540
|
|
|
1,248
|
|
|
(38
|
)
|
|
3,750
|
|
TOTAL ASSETS
|
$
|
11,788
|
|
|
$
|
21,033
|
|
|
$
|
5,987
|
|
|
$
|
(17,392
|
)
|
|
$
|
21,416
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
2,063
|
|
|
$
|
9,097
|
|
|
$
|
2,266
|
|
|
$
|
(2,712
|
)
|
|
$
|
10,714
|
|
Long-term debt, excluding current maturities
|
4,189
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,189
|
|
Other long-term liabilities
|
—
|
|
|
506
|
|
|
494
|
|
|
(38
|
)
|
|
962
|
|
Redeemable non-controlling interests
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Stockholders’ equity
|
5,536
|
|
|
11,415
|
|
|
3,227
|
|
|
(14,642
|
)
|
|
5,536
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
11,788
|
|
|
$
|
21,033
|
|
|
$
|
5,987
|
|
|
$
|
(17,392
|
)
|
|
$
|
21,416
|
|
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, excluding current maturities
|
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
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidated
|
|
(In millions)
|
Operating activities:
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
2,113
|
|
|
$
|
654
|
|
|
$
|
2,767
|
|
Investing activities:
|
|
|
|
|
|
|
|
Capital expenditures, including internal-use software and website development
|
—
|
|
|
(1,058
|
)
|
|
(102
|
)
|
|
(1,160
|
)
|
Purchases of investments
|
—
|
|
|
(1,280
|
)
|
|
(66
|
)
|
|
(1,346
|
)
|
Sales and maturities of investments
|
—
|
|
|
816
|
|
|
36
|
|
|
852
|
|
Acquisitions, net of cash and restricted cash acquired
|
—
|
|
|
80
|
|
|
—
|
|
|
80
|
|
Transfers (to) from related parties
|
(351
|
)
|
|
296
|
|
|
55
|
|
|
—
|
|
Other, net
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Net cash used in investing activities
|
(351
|
)
|
|
(1,125
|
)
|
|
(77
|
)
|
|
(1,553
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of debt issuance costs
|
1,231
|
|
|
—
|
|
|
—
|
|
|
1,231
|
|
Payment of Liberty Expedia Exchangeable Debentures
|
—
|
|
|
(400
|
)
|
|
—
|
|
|
(400
|
)
|
Purchases of treasury stock
|
(743
|
)
|
|
—
|
|
|
—
|
|
|
(743
|
)
|
Payment of dividends to stockholders
|
(195
|
)
|
|
—
|
|
|
—
|
|
|
(195
|
)
|
Proceeds from exercise of equity awards and employee stock purchase plan
|
301
|
|
|
—
|
|
|
—
|
|
|
301
|
|
Changes in controlled subsidiaries, net
|
—
|
|
|
(17
|
)
|
|
(11
|
)
|
|
(28
|
)
|
Transfers (to) from related parties
|
(242
|
)
|
|
443
|
|
|
(201
|
)
|
|
—
|
|
Other, net
|
(1
|
)
|
|
11
|
|
|
(1
|
)
|
|
9
|
|
Net cash provided by (used in) financing activities
|
351
|
|
|
37
|
|
|
(213
|
)
|
|
175
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
|
—
|
|
|
8
|
|
|
(5
|
)
|
|
3
|
|
Net increase in cash, cash equivalents, and restricted cash and cash equivalents
|
—
|
|
|
1,033
|
|
|
359
|
|
|
1,392
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year
|
—
|
|
|
1,190
|
|
|
1,515
|
|
|
2,705
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at end of year
|
$
|
—
|
|
|
$
|
2,223
|
|
|
$
|
1,874
|
|
|
$
|
4,097
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidated
|
|
(In millions)
|
Operating activities:
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
1,248
|
|
|
$
|
727
|
|
|
$
|
1,975
|
|
Investing activities:
|
|
|
|
|
|
|
|
Capital expenditures, including internal-use software and website development
|
—
|
|
|
(752
|
)
|
|
(126
|
)
|
|
(878
|
)
|
Purchases of investments
|
—
|
|
|
(1,720
|
)
|
|
(83
|
)
|
|
(1,803
|
)
|
Sales and maturities of investments
|
—
|
|
|
2,063
|
|
|
74
|
|
|
2,137
|
|
Acquisitions, net of cash and restricted cash acquired
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
(53
|
)
|
Transfers (to) from related parties
|
—
|
|
|
(86
|
)
|
|
86
|
|
|
—
|
|
Other, net
|
—
|
|
|
35
|
|
|
3
|
|
|
38
|
|
Net cash used in investing activities
|
—
|
|
|
(513
|
)
|
|
(46
|
)
|
|
(559
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
Payment of long-term debt
|
(500
|
)
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
Purchases of treasury stock
|
(923
|
)
|
|
—
|
|
|
—
|
|
|
(923
|
)
|
Proceeds from issuance of treasury stock
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
Payment of dividends to stockholders
|
(186
|
)
|
|
—
|
|
|
—
|
|
|
(186
|
)
|
Proceeds from exercise of equity awards and employee stock purchase plan
|
166
|
|
|
—
|
|
|
—
|
|
|
166
|
|
Changes in controlled subsidiaries, net
|
—
|
|
|
—
|
|
|
(62
|
)
|
|
(62
|
)
|
Transfers (to) from related parties
|
1,415
|
|
|
(785
|
)
|
|
(630
|
)
|
|
—
|
|
Other, net
|
(3
|
)
|
|
(10
|
)
|
|
(2
|
)
|
|
(15
|
)
|
Net cash used in financing activities
|
—
|
|
|
(795
|
)
|
|
(694
|
)
|
|
(1,489
|
)
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
|
—
|
|
|
(71
|
)
|
|
(68
|
)
|
|
(139
|
)
|
Net decrease in cash, cash equivalents, and restricted cash and cash equivalents
|
—
|
|
|
(131
|
)
|
|
(81
|
)
|
|
(212
|
)
|
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year
|
—
|
|
|
1,321
|
|
|
1,596
|
|
|
2,917
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at end of year
|
$
|
—
|
|
|
$
|
1,190
|
|
|
$
|
1,515
|
|
|
$
|
2,705
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidated
|
|
(In millions)
|
Operating activities:
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
1,312
|
|
|
$
|
533
|
|
|
$
|
1,845
|
|
Investing activities:
|
|
|
|
|
|
|
|
Capital expenditures, including internal-use software and website development
|
—
|
|
|
(546
|
)
|
|
(164
|
)
|
|
(710
|
)
|
Purchases of investments
|
—
|
|
|
(1,222
|
)
|
|
(589
|
)
|
|
(1,811
|
)
|
Sales and maturities of investments
|
—
|
|
|
875
|
|
|
221
|
|
|
1,096
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
(168
|
)
|
|
(1
|
)
|
|
(169
|
)
|
Transfers (to) from related parties
|
—
|
|
|
(5
|
)
|
|
5
|
|
|
—
|
|
Other, net
|
—
|
|
|
7
|
|
|
6
|
|
|
13
|
|
Net cash used in investing activities
|
—
|
|
|
(1,059
|
)
|
|
(522
|
)
|
|
(1,581
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of debt issuance costs
|
990
|
|
|
—
|
|
|
—
|
|
|
990
|
|
Purchases of treasury stock
|
(312
|
)
|
|
—
|
|
|
—
|
|
|
(312
|
)
|
Payment of dividends to stockholders
|
(176
|
)
|
|
—
|
|
|
—
|
|
|
(176
|
)
|
Proceeds from exercise of equity awards and employee stock purchase plan
|
228
|
|
|
—
|
|
|
1
|
|
|
229
|
|
Changes in controlled subsidiaries, net
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
Transfers (to) from related parties
|
(725
|
)
|
|
605
|
|
|
120
|
|
|
—
|
|
Other, net
|
(5
|
)
|
|
(15
|
)
|
|
(5
|
)
|
|
(25
|
)
|
Net cash provided by financing activities
|
—
|
|
|
590
|
|
|
98
|
|
|
688
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
|
—
|
|
|
36
|
|
|
111
|
|
|
147
|
|
Net increase in cash, cash equivalents, and restricted cash and cash equivalents
|
—
|
|
|
879
|
|
|
220
|
|
|
1,099
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year
|
—
|
|
|
442
|
|
|
1,376
|
|
|
1,818
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at end of year
|
$
|
—
|
|
|
$
|
1,321
|
|
|
$
|
1,596
|
|
|
$
|
2,917
|
|