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EX-31.1 - EXHIBIT 31.1 - Expedia Group, Inc.ex311-q32016.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-37429
 
 
 
EXPEDIA, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-2705720
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
333 108th Avenue NE
Bellevue, WA 98004
(Address of principal executive office) (Zip Code)
(425) 679-7200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes         No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
 (Do not check if a smaller reporting company)
  
Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
The number of shares outstanding of each of the registrant’s classes of common stock as of October 14, 2016 was:
 
Common stock, $0.0001 par value per share
 
137,229,893

shares
 
Class B common stock, $0.0001 par value per share
 
12,799,999

shares
 



Expedia, Inc.
Form 10-Q
For the Quarter Ended September 30, 2016
Contents
 
 
 
 
Part I
 
 
 
 
Item 1
 
 
 
 
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 unaudited
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
Part II
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 6




Part I. Item 1. Consolidated Financial Statements
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Revenue
$
2,580,905

 
$
1,937,753

 
$
6,680,735

 
$
4,973,750

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (1)
416,907

 
328,066

 
1,225,857

 
971,066

Selling and marketing (1)
1,204,521

 
943,289

 
3,398,862

 
2,592,150

Technology and content (1)
301,446

 
202,703

 
910,921

 
579,674

General and administrative (1)
165,829

 
130,168

 
504,395

 
387,959

Amortization of intangible assets
77,080

 
31,400

 
251,260

 
83,322

Legal reserves, occupancy tax and other
22,332

 
(114,550
)
 
28,650

 
(106,511
)
Restructuring and related reorganization charges (1)
6,638

 
71,679

 
46,274

 
82,001

Operating income
386,152

 
344,998

 
314,516

 
384,089

Other income (expense):
 
 
 
 
 
 
 
Interest income
5,827

 
4,165

 
14,349

 
14,403

Interest expense
(43,374
)
 
(33,259
)
 
(130,273
)
 
(89,768
)
Gain on sale of business

 

 

 
508,810

Other, net
(9,050
)
 
26,283

 
(37,118
)
 
114,361

Total other income (expense), net
(46,597
)
 
(2,811
)
 
(153,042
)
 
547,806

Income before income taxes
339,555

 
342,187

 
161,474

 
931,895

Provision for income taxes
(60,627
)
 
(65,950
)
 
14,929

 
(196,261
)
Net income
278,928

 
276,237

 
176,403

 
735,634

Net loss attributable to noncontrolling interests
403

 
6,979

 
25,988

 
41,369

Net income attributable to Expedia, Inc.
$
279,331

 
$
283,216

 
$
202,391

 
$
777,003

 
 
 
 
 
 
 
 
Earnings per share attributable to Expedia, Inc. available to common stockholders:
 
 
 
 
 
 
 
Basic
$
1.86

 
$
2.18

 
$
1.35

 
$
6.03

Diluted
1.81

 
2.12

 
1.31

 
5.86

Shares used in computing earnings per share:
 
 
 
 
 
 
 
Basic
150,239

 
129,989

 
150,281

 
128,822

Diluted
154,236

 
133,417

 
154,332

 
132,602

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.26

 
$
0.24

 
$
0.74

 
$
0.60

_______
(1) Includes stock-based compensation as follows:
 
 
 
 
 
 
 
Cost of revenue
$
3,476

 
$
1,112

 
$
8,768

 
$
3,586

Selling and marketing
4,876

 
10,558

 
37,372

 
23,890

Technology and content
11,556

 
7,062

 
50,997

 
19,405

General and administrative
27,308

 
15,694

 
87,775

 
57,925

Restructuring and related reorganization charges
1,047

 
29,230

 
12,690

 
29,230

See accompanying notes.

2


EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
278,928

 
$
276,237

 
$
176,403

 
$
735,634

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
Currency translation adjustments, net of tax(1)
(4,964
)
 
(27,579
)
 
(14,269
)
 
(139,732
)
Net reclassification of foreign currency translation adjustments into total other income (expense), net

 

 

 
(43,183
)
Unrealized gains (losses) on available for sale securities, net of tax(2)
(153
)
 
31

 
347

 
231

Other comprehensive loss, net of tax
(5,117
)
 
(27,548
)
 
(13,922
)
 
(182,684
)
Comprehensive income
273,811

 
248,689

 
162,481

 
552,950

Less: Comprehensive income (loss) attributable to noncontrolling interests
2,026

 
(6,972
)
 
(17,692
)
 
(78,580
)
Comprehensive income attributable to Expedia, Inc.
$
271,785

 
$
255,661

 
$
180,173

 
$
631,530

 
(1)
Currency translation adjustments include a tax benefits of $2 million and $7 million for the three and nine months ended September 30, 2016 associated with net investment hedges and $1 million and $8 million tax benefit for the three and nine months ended September 30, 2015.
(2)
Net gains (losses) recognized and reclassified during the three and nine months ended September 30, 2016 and 2015 were immaterial.
See accompanying notes.

3


EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,844,475

 
$
1,676,299

Restricted cash and cash equivalents
18,424

 
11,324

Short-term investments
45,681

 
33,739

Accounts receivable, net of allowance of $24,791 and $27,035
1,383,774

 
1,082,406

Income taxes receivable
42,041

 
13,805

Prepaid expenses and other current assets
285,899

 
158,688

Total current assets
3,620,294

 
2,976,261

Property and equipment, net
1,339,621

 
1,064,259

Long-term investments and other assets
558,311

 
642,802

Deferred income taxes
12,721

 
15,458

Intangible assets, net
2,573,640

 
2,793,954

Goodwill
8,027,179

 
7,992,941

TOTAL ASSETS
$
16,131,766

 
$
15,485,675

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable, merchant
$
1,488,108

 
$
1,329,870

Accounts payable, other
653,539

 
485,557

Deferred merchant bookings
3,080,221

 
2,337,037

Deferred revenue
299,291

 
235,809

Income taxes payable
61,224

 
68,019

Accrued expenses and other current liabilities
1,037,055

 
1,469,725

Total current liabilities
6,619,438

 
5,926,017

Long-term debt
3,204,210

 
3,183,140

Deferred income taxes
417,886

 
473,841

Other long-term liabilities
358,640

 
314,432

Commitments and contingencies

 

Redeemable noncontrolling interests
1,578,964

 
658,478

Stockholders’ equity:
 
 
 
Common stock $.0001 par value
22

 
22

Authorized shares: 1,600,000
 
 
 
Shares issued: 223,484 and 220,383
 
 
 
Shares outstanding: 137,155 and 137,459
 
 
 
Class B common stock $.0001 par value
1

 
1

Authorized shares: 400,000
 
 
 
Shares issued and outstanding: 12,800 and 12,800
 
 
 
Additional paid-in capital
8,614,478

 
8,696,508

Treasury stock - Common stock, at cost
(4,421,633
)
 
(4,054,909
)
Shares: 86,329 and 82,924
 
 
 
Retained earnings

 
507,666

Accumulated other comprehensive income (loss)
(307,112
)
 
(284,894
)
Total Expedia, Inc. stockholders’ equity
3,885,756

 
4,864,394

Non-redeemable noncontrolling interests
66,872

 
65,373

Total stockholders’ equity
3,952,628

 
4,929,767

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
16,131,766

 
$
15,485,675

See accompanying notes.

4


EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine months ended
September 30,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
176,403

 
$
735,634

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment, including internal-use software and website development
344,833

 
240,878

Amortization of stock-based compensation
197,602

 
134,036

Amortization of intangible assets
251,260

 
83,322

Deferred income taxes
(66,050
)
 
(42,628
)
Foreign exchange (gain) loss on cash, cash equivalents and short-term investments, net
(16,508
)
 
75,289

Realized (gain) loss on foreign currency forwards
34,515

 
(39,975
)
Gain on sale of business

 
(508,810
)
Noncontrolling interest basis adjustment

 
(77,400
)
Other
(7,015
)
 
15,237

Changes in operating assets and liabilities, net of effects from acquisitions and disposals:
 
 
 
Accounts receivable
(297,258
)
 
(381,618
)
Prepaid expenses and other assets
(51,995
)
 
27,183

Accounts payable, merchant
158,453

 
202,883

Accounts payable, other, accrued expenses and other current liabilities
91,221

 
233,350

Tax payable/receivable, net
(57,521
)
 
64,897

Deferred merchant bookings
722,768

 
772,787

Deferred revenue
62,970

 
6,461

Net cash provided by operating activities
1,543,678

 
1,541,526

Investing activities:
 
 
 
Capital expenditures, including internal-use software and website development
(567,044
)
 
(625,439
)
Purchases of investments
(20,446
)
 
(512,329
)
Sales and maturities of investments
31,637

 
392,271

Net settlement of foreign currency forwards
(34,515
)
 
39,975

Acquisitions, net of cash acquired
(777
)
 
(1,933,821
)
Proceeds from sale of business, net of cash divested and disposal costs

 
523,882

Other, net
2,222

 
11,665

Net cash used in investing activities
(588,923
)
 
(2,103,796
)
Financing activities:
 
 
 
Payment of HomeAway Convertible Notes
(401,424
)
 

Proceeds from issuance of long-term debt, net of issuance costs
(1,792
)
 
700,454

Purchases of treasury stock
(366,723
)
 
(48,694
)
Proceeds from issuance of treasury stock

 
22,575

Payment of dividends to stockholders
(111,009
)
 
(77,173
)
Proceeds from exercise of equity awards and employee stock purchase plan
103,760

 
83,298

Excess tax benefit on equity awards

 
85,463

Withholding taxes for stock option exercises
(1,282
)
 
(85,033
)
Other, net
(36,827
)
 
43,918

Net cash provided by (used in) financing activities
(815,297
)
 
724,808

Effect of exchange rate changes on cash and cash equivalents
28,718

 
(109,899
)
Net increase in cash and cash equivalents
168,176

 
52,639

Cash and cash equivalents at beginning of period
1,676,299

 
1,402,700

Cash and cash equivalents at end of period
$
1,844,475

 
$
1,455,339

Supplemental cash flow information
 
 
 
Cash paid for interest
$
152,008

 
$
106,444

Income tax payments, net
103,901

 
87,708

See accompanying notes.

5


Notes to Consolidated Financial Statements
September 30, 2016
(Unaudited)
Note 1 – Basis of Presentation
Description of Business
Expedia, 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: Expedia.com®, Hotels.com®, Hotwire.comTM, Travelocity®, Expedia® Affiliate Network, Classic Vacations®, Expedia Local Expert®, Egencia®, Expedia® CruiseShipCenters®, Venere.comTM, trivago®, CarRentals.comTM, Wotif Group, Orbitz Worldwide (“Orbitz”) acquired in September 2015, HomeAway® acquired in December 2015, and eLongTM through its sale on May 22, 2015. In addition, many of these brands have related international points of sale, including those as part of AirAsia-Expedia upon our acquisition of a controlling interest in March 2015. We refer to Expedia, Inc. and its subsidiaries collectively as “Expedia,” the “Company,” “us,” “we” and “our” in these consolidated financial statements.
Basis of Presentation
These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. The unaudited consolidated financial statements include Expedia, Inc., our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We have eliminated significant intercompany transactions and accounts.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015, previously filed with the Securities and Exchange Commission.
Accounting Estimates
We use estimates and assumptions in the preparation of our interim unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our interim unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our interim unaudited consolidated financial statements include revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income and transactional taxes, such as potential settlements related to occupancy and excise taxes; loss contingencies; loyalty program liabilities; redeemable noncontrolling interests; acquisition purchase price allocations; stock-based compensation and accounting for derivative instruments.
Reclassifications
We have reclassified certain amounts related to our prior period results to conform to our current period presentation.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and 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 holiday travel. The number of bookings typically decreases in the fourth quarter. Because revenue for most of our travel products, including merchant and agency hotel, is recognized when the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks or longer. 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, are experienced in the second half of the year as selling and marketing costs offset revenue in the first half of the year as we aggressively market during the busy booking period for summer travel. As a result, revenue and income are typically the lowest in the first quarter and highest in the third quarter. The continued growth of our international

6

Notes to Consolidated Financial Statements – (Continued)
 


operations or a change in our product mix, including the assimilation, growth and shift to more of a transaction-based business model for the vacation rental listing business of HomeAway, may influence the typical trend of the seasonality in the future.
Note 2 – Summary of Significant Accounting Policies
Recently Adopted Accounting Policies
As of January 1, 2016, we adopted the Accounting Standard Update (“ASU”) requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Upon adoption, we retroactively restated deferred issuance costs from current and long-term assets to the respective debt liability. The adoption of this guidance and prior fiscal year reclassifications did not have a material impact on our previously reported consolidated financial statements.
As of January 1, 2016, we prospectively adopted the ASU clarifying the accounting for fees paid by a customer in a cloud computing arrangement. This standard clarified whether a customer should account for a cloud computing arrangement as an acquisition of a software license or as a service arrangement by providing characteristics that a cloud computing arrangement must have in order to be accounted for as a software license acquisition. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for share-based payments. The updated guidance changes how companies account for certain aspects of share-based payments awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption permitted.
We elected to early adopt the new guidance in the second quarter of 2016, which requires us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in capital for all periods in 2016. Additionally, our consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $7 million reduction to retained earnings as of January 1, 2016.
Adoption of the new guidance resulted in the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in capital of $10 million and $27 million for the three and nine months ended September 30, 2016.
Recent Accounting Policies Not Yet Adopted
In May 2014, the FASB issued an ASU amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption prohibited before December 15, 2016. We are in the process of evaluating the impact of the adoption of this new guidance on our consolidated financial statements.
In January 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
In February 2016, the FASB issued new guidance related to accounting and reporting guidelines for leasing arrangements. The new guidance requires 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. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted

7

Notes to Consolidated Financial Statements – (Continued)
 


and should be applied using a modified retrospective approach. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
In August 2016, the FASB issued new guidance related to the statement of cash flows which clarifies how companies present and classify certain cash receipts and cash payments. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Note 3 – Acquisitions and Other Investments
For our acquisition of HomeAway in December 2015, the purchase price allocation remains preliminary and subject to revision while we accumulate all relevant information regarding the fair values of the net assets acquired. The final allocation may include changes to the acquisition date fair value of goodwill and deferred taxes as well as operating assets and liabilities. During the first nine months of 2016, there were no adjustments made to the HomeAway purchase price allocation that materially impacted the consolidated balance sheet or current period earnings.
Orbitz Acquisition. On September 17, 2015, we completed our acquisition of Orbitz Worldwide, Inc., including all of its brands, including Orbitz, ebookers, HotelClub, CheapTickets, Orbitz Partner Network and Orbitz for Business, for a total purchase consideration of $1.8 billion. The acquisition provides Expedia the opportunity to deliver a better customer experience to Orbitz’s loyal customer base and to further enhance the marketing and distribution capabilities we offer to our global supply partners.
The purchase consideration consisted primarily of $1.4 billion in cash, or $12 per share for all shares of Orbitz common stock outstanding as of the purchase date, as well as the settlement of $432 million of pre-existing Orbitz debt at the closing of the acquisition. Purchase consideration also included $17 million for the portion of certain unvested employee restricted stock unit awards of Orbitz attributable to pre-combination services, which were replaced with Expedia awards in conjunction with the acquisition and measured at fair value on the acquisition date. The fair value for the portion of these awards, attributable to post combination services was $49 million, net of estimated forfeitures, of which $34 million was recognized during 2015.
The following summarizes the allocation of the final purchase price for Orbitz, in thousands:
Cash consideration for shares
$
1,362,362

Repayment of Orbitz debt
432,231

Replacement restricted stock units attributable to pre-acquisition service
16,717

Other consideration
2,214

    Total purchase consideration
$
1,813,524

Cash
$
194,515

Accounts receivable, net(1)
150,187

Other current assets
33,727

Long-term assets
114,800

Intangible assets with definite lives(2)
515,003

Intangible assets with indefinite lives(3)
166,800

Goodwill
1,454,335

Current liabilities
(636,169
)
Other long-term liabilities
(54,599
)
Deferred tax liabilities, net
(125,075
)
     Total
$
1,813,524

(1)
Gross accounts receivable was $157 million, of which $7 million was estimated to be uncollectible.
(2)
Acquired definite-lived intangible assets primarily consist of customer relationship assets, developed technology assets and partner relationship assets with estimated useful lives ranging from less than one to ten years with a weighted average life of 6.03 years.
(3)
Acquired indefinite-lived intangible assets primarily consist of trade names and trademarks.
The allocation of the purchase price to goodwill was completed during the third quarter of 2016 with no material adjustments to our preliminary allocation. The goodwill of $1.5 billion was primarily attributable to operating synergies. The

8

Notes to Consolidated Financial Statements – (Continued)
 


goodwill was allocated to the Core Online Travel Agencies ("Core OTA") segment and not expected to be deductible for tax purposes.
Orbitz was consolidated into our financial statements starting on the acquisition date and we recognized a related $19 million in revenue and $86 million in operating losses for the three and nine months ended September 30, 2015. Supplemental information on an unaudited pro forma basis, as if the Orbitz acquisition had been consummated on January 1, 2015, is presented as follows, in thousands:
 
Nine months ended September 30, 2015
Revenue
$
5,643,060

Net income attributable to Expedia, Inc.
848,342

The pro forma results include adjustments primarily related to amortization of acquired intangibles, depreciation of fixed assets, certain accounting policy alignments as well as direct and incremental acquisition related costs reflected in the historical financial statements.
In connection with the merger, Orbitz incurred fees paid to financial advisors totaling approximately $25 million, which were contingent upon closing and were excluded from both Expedia’s consolidated statement of operations and the pre-combination financial statements of Orbitz. In addition, Orbitz offered certain employees a continuity incentive of approximately $30 million for continuing employment through the closing date and beyond. The first half of the incentives were contingent and paid upon the closing of the acquisition and related to services provided in the pre-acquisition period. The second half of the incentive was payable 180 days after the closing (or upon involuntary termination, if applicable) and was expensed to restructuring and related reorganization charges over the applicable service period.
Other than costs mentioned above that were contingent upon closing, acquisition-related costs incurred by Expedia, which included legal, finance, consulting and other professional fees, were expensed as incurred within general and administrative expenses and were approximately $6 million and $16 million for the three and nine months ended September 30, 2015.
Other 2015 Acquisitions. The following summarizes the allocation of the purchase price for other acquisitions during the nine months ended September 30, 2015, including Travelocity and a controlling interest in our former 50/50 joint venture with AirAsia Berhad, in thousands:
Goodwill
$
196,431

Intangible assets with indefinite lives
163,400

Intangible assets with definite lives(1) 
146,126

Net assets and non-controlling interests acquired(2)
(23,366
)
Deferred tax liabilities, net
(7,910
)
Total(3)
$
474,681

(1)
Acquired definite-lived intangible assets primarily consist of customer relationship, reacquired right and supplier relationship assets and have estimated useful lives of between four and ten years with a weighted average life of 5.8 years.
(2)
Includes cash acquired of $41 million.
(3)
The total purchase price includes noncash consideration of $99 million related to an equity method investment, which was consolidated upon our acquisition of a controlling interest, with the remainder paid in cash during the period.
Other Investments. On March 10, 2015, we announced that Expedia and Decolar.com, Inc. (“Decolar”), the Latin American online travel company that operates the Decolar.com and Despegar.com branded websites, have expanded our partnership to include deeper cooperation on hotel supply and a $270 million cost method investment by Expedia in Decolar, which is included within long-term investments and other assets on our consolidated balance sheet.

9

Notes to Consolidated Financial Statements – (Continued)
 


Note 4 – Disposition of Business
On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong, Inc., which was previously a separate reportable segment, for approximately $671 million (or $666 million net of costs to sell and other transaction expenses) to several purchasers, including Ctrip.com International, Ltd. Of the total sales price, approximately $67 million was remitted directly to escrow for estimated tax obligations, and is recorded in prepaid expenses and other current assets on our consolidated balance sheet as of September 30, 2016 and represented a noncash item in our consolidated statement of cash flows for the nine months ended September 30, 2015. As a result of the sale, we recognized a pre-tax gain of $509 million ($395 million after tax) during the second quarter of 2015 included in gain on sale of business in our consolidated statement of operations.

The following table presents the carrying amounts of our eLong business immediately preceding the disposition on May 22, 2015, in thousands:
Total current assets(1)
$
350,196

Total long-term assets
137,709

Total assets divested
$
487,905

Total current liabilities
$
187,296

Total long-term liabilities
5,782

Total liabilities divested
$
193,078

Components of accumulated other comprehensive income divested
45,259

Non-redeemable noncontrolling interest divested
92,550

Net carrying value divested
$
157,018

(1)
Includes cash and cash equivalents of approximately $74 million.
We evaluated the disposition of eLong and determined it did not meet the “major effect” criteria for classification as a discontinued operation largely due to the recency of material impacts to our quarterly consolidated operating and net income at the time of the determination. However, we determined that the disposition did represent an individually significant component of our business. The following table presents certain amounts related to eLong in our consolidated results of operations through its disposal on May 22, 2015:
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2015
 
2015
 
(In thousands)
Operating loss(1)
$

 
$
(85,536
)
Income before taxes(2)

 
438,843

Income before taxes attributable to Expedia, Inc.(2)

 
465,400

Net income attributable to Expedia, Inc.(3)

 
349,183

(1)
Includes stock-based compensation and amortization of intangible assets of approximately $20 million for the nine months ended September 30, 2015, which was included within Corporate & Eliminations in Note 15 – Segment Information.
(2)
The nine months ended September 30, 2015 includes the pre-tax gain of $509 million related to the gain on sale.
(3)
The nine months ended September 30, 2015 includes the after-tax gain of $395 million related to the gain on sale.


10

Notes to Consolidated Financial Statements – (Continued)
 


Note 5 – Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 are classified using the fair value hierarchy in the table below:
 
Total
 
Level 1
 
Level 2
 
(In thousands)
Assets
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market funds
$
226,451

 
$
226,451

 
$

Time deposits
315,600

 

 
315,600

Derivatives:
 
 
 
 
 
Foreign currency forward contracts
558

 

 
558

Investments:
 
 
 
 
 
Time deposits
19,327

 

 
19,327

Corporate debt securities
69,936

 

 
69,936

Total assets
$
631,872

 
$
226,451

 
$
405,421

Financial assets measured at fair value on a recurring basis as of December 31, 2015 are classified using the fair value hierarchy in the table below:
 
Total
 
Level 1
 
Level 2
 
(In thousands)
Assets
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market funds
$
218,340

 
$
218,340

 
$

Time deposits
29,126

 

 
29,126

Derivatives:
 
 
 
 
 
Foreign currency forward contracts
8,045

 

 
8,045

Investments:
 
 
 
 
 
Corporate debt securities
98,403

 

 
98,403

Total assets
$
353,914

 
$
218,340

 
$
135,574

We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.
As of September 30, 2016 and December 31, 2015, our cash and cash equivalents consisted primarily of prime institutional money market funds with maturities of three months or less, time deposits as well as bank account balances.
We invest in investment grade corporate debt securities, all of which are classified as available for sale. As of September 30, 2016, we had $26 million of short-term and $44 million of long-term available for sale investments and the amortized cost basis of the investments approximated their fair value with gross unrealized gains and gross unrealized losses both of less than $1 million. As of December 31, 2015, we had $34 million of short-term and $65 million of long-term available for sale investments and the amortized cost basis of the investments approximated their fair value with both gross unrealized gains and gross unrealized losses of less than $1 million.
We also hold time deposit investments with financial institutions. Time deposits with original maturities of less than three months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-term investments.
Derivative instruments are carried at fair value on our consolidated balance sheets. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. Our goal in managing our foreign exchange risk is to reduce, to the extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial position. Our foreign currency forward contracts are typically short-term and, as they do not

11

Notes to Consolidated Financial Statements – (Continued)
 


qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. As of September 30, 2016, we were party to outstanding forward contracts hedging our liability and revenue exposures with a total net notional value of $1.9 billion. We had a net forward asset of $1 million as of September 30, 2016 and a net forward asset of $8 million as of December 31, 2015 recorded in prepaid expenses and other current assets. We recorded $4 million and $32 million in net gains from foreign currency forward contracts during the three months ended September 30, 2016 and 2015 and $44 million in net losses and $47 million in net gains during the nine months ended September 30, 2016 and 2015.
Note 6 – Debt
The following table sets forth our outstanding debt:
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
7.456% senior notes due 2018
$
500,000

 
$
500,000

5.95% senior notes due 2020
746,818

 
746,216

2.5% (€650 million) senior notes due 2022
722,784

 
703,254

4.5% senior notes due 2024
494,303

 
493,797

5.0% senior notes due 2026
740,305

 
739,873

Long-term debt(1)
$
3,204,210

 
$
3,183,140

 
(1)
Net of applicable discounts and debt issuance costs.
Long-term Debt
Our $500 million in registered senior unsecured notes outstanding at September 30, 2016 are due in August 2018 and bear interest at 7.456% (the “7.456% Notes”). Interest is payable semi-annually in February and August of each year. At any time Expedia may redeem the 7.456% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.
Our $750 million in registered senior unsecured notes outstanding at September 30, 2016 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 in registered senior unsecured notes outstanding at September 30, 2016 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, beginning June 3, 2016. 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 on or after March 3, 2022, we may redeem them at a redemption price of 100% of the principal plus accrued and unpaid interest. Subject to certain limited exceptions, all payments of interest and principal for the 2.5% Notes will be made in Euros.
The aggregate principal value of the 2.5% Notes is designated as a hedge of our net investment in certain Euro functional currency subsidiaries. The notes are measured at Euro to U.S. Dollar exchange rates at each balance sheet date and transaction gains or losses due to changes in rates are recorded in accumulated other comprehensive income (loss) (“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.

Our $500 million in registered senior unsecured notes outstanding at September 30, 2016 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.

12

Notes to Consolidated Financial Statements – (Continued)
 


Our $750 million in privately placed senior unsecured notes outstanding at September 30, 2016 are due in February 2026 and bear interest at 5.0% (the “5.0% Notes”). In October 2016, we initiated an offer to exchange the 5.0% Notes for registered notes having substantially the same financial terms and covenants as the original notes. We expect the exchange offer will be complete in November 2016. 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, beginning August 15, 2016. 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. We have also entered into a registrations rights agreement with respect to the 5.0% Notes, under which we have agreed to use commercially reasonable best efforts to file a registration statement to permit the exchange of the 5.0% Notes for registered notes having the same financial terms and covenants as 5.0% Notes, cause such registration statement to become effective and complete the related exchange offer by no later than December 7, 2016. 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 5.0% Notes until such registrations right default is cured.
The 7.456%, 5.95%, 4.5%, 2.5% and 5.0% Notes (collectively the “Notes”) are senior unsecured obligations issued by Expedia and guaranteed by certain domestic Expedia subsidiaries. The Notes rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations of Expedia and the guarantor subsidiaries. For further information, see Note 16 — 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 $24 million and $52 million as of September 30, 2016 and December 31, 2015. The 5.95%, 4.5%, 2.5% and 5.0% 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):
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
7.456% senior notes due 2018
$
550,000

 
$
555,000

5.95% senior notes due 2020
849,000

 
827,000

2.5% (€650 million) senior notes due 2022 (1)
776,000

 
705,000

4.5% senior notes due 2024
528,000

 
487,000

5.0% senior notes due 2026
792,000

 
750,000

 
(1)
Approximately 691 million Euro as of September 30, 2016 and 644 million Euro as of December 31, 2015.
Credit Facility
As of September 30, 2016, Expedia, Inc. maintained a $1.5 billion unsecured revolving credit facility with a group of lenders, which is unconditionally guaranteed by certain domestic Expedia subsidiaries that are the same as under the Notes and expires in February 2021. As of September 30, 2016, 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 137.5 basis points and the commitment fee on undrawn amounts at 17.5 basis points as of September 30, 2016. The facility contains covenants including maximum leverage and minimum interest coverage ratios.
The amount of stand-by letters of credit (“LOC”) issued under the facility reduces the credit amount available. As of September 30, 2016, there was $20 million of outstanding stand-by LOCs issued under the facility.
The current facility was entered into in February 2016 and replaced our prior $1 billion unsecured revolving credit that had a September 2019 expiration date. As of December 31, 2015, we had no revolving credit facility borrowings outstanding under the prior facility and $29 million of outstanding stand-by LOCs issued under that facility.
In addition, one of our international subsidiaries maintains a Euro 50 million uncommitted credit facility, which is guaranteed by Expedia, Inc., that may be terminated at any time by the lender. There were no borrowings outstanding as of September 30, 2016. As of December 31, 2015, we had Euro 20 million in borrowings outstanding included in accrued expenses and other current liabilities on the consolidated balance sheet. Another of our international subsidiaries maintains a $5.6 million uncommitted credit facility, which is guaranteed by Expedia, Inc., that may be terminated at any time by the

13

Notes to Consolidated Financial Statements – (Continued)
 


lender. We had approximately $5 million in borrowings outstanding included in accrued expenses and other current liabilities on the consolidated balance sheet as of both September 30, 2016 and December 31, 2015.
HomeAway Debt Repayment
On December 15, 2015, we completed our acquisition of HomeAway, Inc., including all of its brands. In connection with the acquisition, we assumed approximately $402.5 million of 0.125% Convertible Senior Notes due 2019 (the “Convertible Notes”). However, following the consummation of the HomeAway acquisition, we subsequently delivered a notice to holders of the Convertible Notes, as required per the terms of the Convertible Notes indenture, to which each holder of the Convertible Notes had the right to (i) require the Company to repurchase its Convertible Notes for cash at a price equal to 100% of the principal amount of such notes plus accrued and unpaid interest or (ii) convert its Convertible Notes, at a specified conversion rate into HomeAway common stock (which, following consummation of the HomeAway acquisition, represented the right to receive the transaction consideration) or (iii) allow the Convertible Notes to remain outstanding for the remaining term. As a result, the majority of the Convertible Notes, or $401 million, were repurchased during the first nine months of 2016. As of December 31, 2015, the Convertible Notes outstanding were included in accrued expenses and other current liabilities, and as of September 30, 2016, less than $1 million was included in other long-term liabilities.
Note 7 – Redeemable Noncontrolling Interests
We have noncontrolling interests in majority owned entities, which are carried at fair value as the noncontrolling interests contain certain rights, whereby we may acquire and the minority shareholders may sell to us additional shares of the companies.
A reconciliation of redeemable noncontrolling interest is as follows, in thousands:
 
Nine months ended September 30,
 
2016
Balance, beginning of the period
$
658,478

Net loss attributable to noncontrolling interests
(26,069
)
Fair value adjustments
937,618

Currency translation adjustments
28,680

Other
(19,743
)
Balance, end of period
$
1,578,964

The fair value of the redeemable noncontrolling interest was determined based on a blended analysis of the present value of future discounted cash flows and market value approach (“Level 3” on the fair value hierarchy). Our significant estimates in the discounted cash flow model include our weighted average cost of capital as well as long-term growth and profitability of the business. Our significant estimates in the market value approach include identifying similar companies with comparable business factors and assessing comparable revenue and operating multiples in estimating the fair value of the business.
In connection with the acquisition of our majority ownership interest in trivago in 2013, we entered into a shareholders agreement with trivago’s founders that contains certain put/call rights whereby we may cause the founders to sell to us, and the founders may cause us to acquire from them, up to 50% and 100% of the trivago shares held by them at fair value during two windows. The first window would have closed during the first half of 2016. However, during the second quarter of 2016, we and the founders agreed not to exercise our respective put/call rights during that window and instead to postpone the window while the parties explore the feasibility of an initial public offering of trivago shares. Under the parties’ agreement, the first window will reopen on March 31, 2017 or early if the parties abandon an initial public offering before then. We do not presently anticipate that we would sell any of our trivago shares in any such initial public offering, should it occur, and there are no guarantees an initial public offering will be pursued or be successful. The redeemable noncontrolling interest balance also includes a nominal amount of vested stock options held by other employees of trivago which are puttable and callable to Expedia at fair value in 2018 and 2020 and are not expected to be redeemed for more than fair market value.
In addition to the redeemable noncontrolling interests, there were certain shares held by trivago employees which were originally awarded in the form of stock options pursuant to the trivago employee stock option plan and subsequently exercised by such employees. During the second quarter of 2016, we exercised our call right on these shares and elected to do so at a premium to fair value, which resulted in an incremental stock-based compensation charge of approximately $49 million in the second quarter of 2016 pursuant to liability award treatment. The acquisition of these employee minority interests increased Expedia’s ordinary ownership of trivago by a nominal amount.

14

Notes to Consolidated Financial Statements – (Continued)
 


Our redeemable noncontrolling interest balance related to trivago was $1.6 billion and $654 million as of September 30, 2016 and December 31, 2015, which represents our best estimate of fair value.

Note 8 – Stockholders’ Equity
Dividends on our Common Stock
The Executive Committee, acting on behalf of the Board of Directors, declared the following dividends during the periods presented:
Declaration Date
Dividend
Per Share
 
Record Date
 
Total Amount
(in thousands)
 
Payment Date
Nine months ended September 30, 2016
 
 
February 8, 2016
$
0.24

 
March 10, 2016
 
$
36,174

 
March 30, 2016
April 26, 2016
0.24

 
May 26, 2016
 
35,773

 
June 16, 2016
July 27, 2016
0.26

 
August 25, 2016
 
39,062

 
September 15, 2016
Nine months ended September 30, 2015
 
 
February 4, 2015
$
0.18

 
March 10, 2015
 
$
22,895

 
March 26, 2015
April 29, 2015
0.18

 
May 28, 2015
 
23,096

 
June 18, 2015
July 29, 2015
0.24

 
August 27, 2015
 
31,182

 
September 17, 2015
In addition, in October 2016, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.26 per share of outstanding common stock payable on December 8, 2016 to stockholders of record as of the close of business on November 17, 2016. Future declarations of dividends are subject to final determination by our Board of Directors.
Share Repurchases
In April 2012, 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 February 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized an additional repurchase of up to 10 million shares of our common stock. There is no fixed termination date for the repurchases. During the nine months ended 2016, we repurchased, through open market transactions, 3.2 million shares under this authorization for the total cost of $349 million, excluding transaction costs, representing an average repurchase price of $107.55 per share. As of September 30, 2016, 8.0 million shares remain authorized for repurchase under the 2015 authorization.
Accumulated Other Comprehensive Income (Loss)
The balance for each class of accumulated other comprehensive loss as of September 30, 2016 and December 31, 2015 is as follows:
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
Foreign currency translation adjustments, net of tax(1)
$
(307,332
)
 
$
(284,767
)
Net unrealized gain (loss) on available for sale securities, net of tax
220

 
(127
)
Accumulated other comprehensive loss
$
(307,112
)
 
$
(284,894
)
 
(1)
Foreign currency translation adjustments, net of tax, include foreign currency transaction losses at September 30, 2016 of $13 million ($21 million before tax) and December 31, 2015 of $1 million ($2 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 6 – Debt for more information. The remaining balance in currency translation adjustments excludes income taxes as a result of our current intention to indefinitely reinvest the earnings of our international subsidiaries outside of the United States.


15

Notes to Consolidated Financial Statements – (Continued)
 


Note 9 – Earnings Per Share
The following table presents our basic and diluted earnings per share:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Net income attributable to Expedia, Inc.
$
279,331

 
$
283,216

 
$
202,391

 
$
777,003

Earnings per share attributable to Expedia, Inc. available to common stockholders:
 
 
 
 
 
 
 
Basic
$
1.86

 
$
2.18

 
$
1.35

 
$
6.03

Diluted
1.81

 
2.12

 
1.31

 
5.86

Weighted average number of shares outstanding:

 
 
 
 
 
 
Basic
150,239

 
129,989

 
150,281

 
128,822

Dilutive effect of:
 
 
 
 
 
 
 
Options to purchase common stock
3,745

 
3,287

 
3,815

 
3,656

Other dilutive securities
252

 
141

 
236

 
124

Diluted
154,236

 
133,417

 
154,332

 
132,602

Basic earnings per share is calculated using our weighted-average outstanding common shares. The earnings per share amounts are the same for common stock and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect. For the three and nine months ended September 30, 2016, approximately 9 million of outstanding stock awards have been excluded from the calculations of diluted earnings (loss) per share attributable to common stockholders because their effect would have been antidilutive. For the three and nine months ended September 30, 2015, approximately 7 million of outstanding stock awards were excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive.
Note 10 – Restructuring and Related Reorganization Charges
In connection with the migration of technology platforms and centralization of technology, supply and other operations, primarily related to previously disclosed acquisitions, we recognized $46 million and $82 million in restructuring and related reorganization charges during the nine months ended September 30, 2016 and 2015. Based on current plans, which are subject to change, we expect total 2016 charges of $50 million to $55 million, but these could be higher should we make additional decisions in the fourth quarter and estimates do not include any possible future acquisition integrations.

The following table summarizes the restructuring and related reorganization activity for the nine months ended September 30, 2016:
 
Employee
Severance and
Benefits
 
Stock-based
Compensation
 
Other
 
Total
 
(In thousands)
Accrued liability as of January 1, 2016
$
45,889

 
$

 
$
1,123

 
$
47,012

Charges
30,265

 
12,690

 
3,319

 
46,274

Payments
(54,538
)
 

 
(4,172
)
 
(58,710
)
Non-cash items
5

 
(12,690
)
 
343

 
(12,342
)
Accrued liability as of September 30, 2016
$
21,621

 
$

 
$
613

 
$
22,234


16

Notes to Consolidated Financial Statements – (Continued)
 


Note 11 – Other, net
The following table presents the components of other, net:
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Foreign exchange rate gains (losses), net
$
(5,725
)
 
$
26,158

 
$
(23,444
)
 
$
25,229

Noncontrolling investment basis adjustment

 

 

 
77,400

Other
(3,325
)
 
125

 
(13,674
)
 
11,732

Total
$
(9,050
)
 
$
26,283

 
$
(37,118
)
 
$
114,361

During the nine months ended September 30, 2015, in conjunction with the acquisition of controlling interest of AAE Travel Pte. Ltd., the joint venture formed between Expedia and AirAsia Berhad in 2011, we remeasured our previously held equity interest to fair value, and recognized a gain of $77 million in other, net during the period.
Note 12 – Income Taxes
We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual tax rate in the interim period in which the change occurs, including discrete tax items. Our effective rate was 17.9% and 19.3% for the three months ended September 30, 2016 and 2015, and (9.2)% and 21.1% for the nine months ended September 30, 2016 and 2015.
The effective tax rate for the nine months ended September 30, 2016 is a tax benefit measured against book income due to discrete income tax items including the release of a valuation allowance for net operating losses in the first quarter of 2016, as well as recognition of excess tax benefits related to share-based payments resulting from the adoption of new accounting guidance for share-based payments as of January 1, 2016. The effective tax rate for the nine months ended September 30, 2015 was primarily related to the sale of eLong.

Note 13 – Commitments and Contingencies
Legal Proceedings
In the ordinary course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia. 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. Ninety-five lawsuits have been filed by or against cities, counties and states involving hotel occupancy and other taxes. Twenty-three 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 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 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. Twenty-six dismissals were based on a finding that we and the other defendants were not subject to the local hotel occupancy tax ordinance or that the local government lacked standing to pursue their 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 taxes, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $68 million and $43 million as of September 30, 2016 and December 31, 2015. It is also reasonably possible that amounts paid in connection with these issues could include up to an additional $5 million related to interest payments in one jurisdiction. 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.

17

Notes to Consolidated Financial Statements – (Continued)
 


Pay-to-Play. Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being allowed to contest or litigate the applicability of the ordinances. This prepayment of contested taxes is referred to as “pay-to-play.” Payment of these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we continue to defend our position vigorously. If we prevail in the litigation, for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest.
We are also 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.
The following are significant “pay-to-play” payments made by Expedia companies:
Hawaii (General Excise Tax). During 2013, the Expedia companies were required to “pay-to-play” and paid a total of $171 million in advance of litigation relating to general excise taxes for merchant model hotel reservations in the State of Hawaii. In September 2015, following a ruling by the Hawaii Supreme Court, the State of Hawaii refunded the Expedia companies $132 million of the original “pay-to-play” amount. As we had previously expensed the pay-to-play payments in prior periods, we recognized a gain in legal reserves, occupancy tax and other during the third quarter of 2015 related to this matter. Orbitz also received a similar refund of $22 million from the State of Hawaii in September 2015. The amount paid, net of refunds, by the Expedia companies and Orbitz to the State of Hawaii in satisfaction of past general excise taxes on their services for merchant model hotel reservations was $44 million. The parties recently reached a settlement relating to Orbitz merchant model hotel tax liabilities, and on October 5, 2016, the Expedia companies paid the State of Hawaii for the tax years 2012 through 2015. The Expedia companies and Orbitz have now resolved all assessments by the State of Hawaii for merchant model hotel taxes through 2015.
In addition, final assessments by the Hawaii Department of Taxation for general exercise taxes against the Expedia companies, including Orbitz, relating to car rental transactions during the years 2000 to 2014 are currently under review in the Hawaii tax courts. With respect to merchant model car rental transactions at issue for the tax years 2000 through 2013, the Hawaii tax court held on August 5, 2016 that taxes are due on the online travel companies’ services to facilitate car rentals. The court further ruled that for merchant model car rentals in Hawaii, the online travel companies are required to pay general excise tax on the total amount paid by consumers, with no credit for tax amounts already remitted by car rental companies to the State of Hawaii for tax years 2000 through 2013, thus resulting in a double tax on the amount paid by consumers to car rental companies for the rental of the vehicle. The court, however, ruled that when car rentals are paid for as part of a vacation package, tax is only due once on the amount paid by consumers to the car rental company for the rental of the vehicle. In addition, the court ruled that the online travel companies are required to pay interest and certain penalties on the amounts due. The case is proceeding in the tax court for a calculation of amounts due. Upon completion of the tax court proceeding, the Expedia companies intend to appeal, and will be required to pay the full amount claimed due as a condition of appeal. The Hawaii tax court’s decision did not address final assessments for agency model car rental transactions for the time period 2000 to 2014 or “merchant model” car rental transactions for the tax year 2014, which also remain under review.
San Francisco (Occupancy Tax). During 2009, Expedia companies were required to “pay-to-play” and paid $48 million in advance of litigation relating to occupancy tax proceedings with the city of San Francisco and in May 2014, the Expedia companies paid an additional $25.5 million under protest in order to contest additional assessments for later time periods. In addition, Orbitz in total has paid $4.6 million to the city of San Francisco to contest similar assessments issued against it by the city. On August 6, 2014, the California Court of Appeals stayed this case pending review and decision by the California Supreme Court of the City of San Diego, California Litigation.
Matters Relating to Hotel Booking Practices. The Directorate General for Competition, Consumer Affairs and Repression of Fraud (the “DGCCRF”), a directorate of the French Ministry of Economy and Finance with authority over unfair trading practices, brought a lawsuit in France against Expedia entities objecting to certain parity clauses in contracts between Expedia entities and French hotels. In May 2015, the French court ruled that certain of the parity provisions in certain contracts that were the subject of the lawsuit were not in compliance with French commercial law, but imposed no fine and no injunction. The DGCCRF has appealed the decision.
More recently, Hotelverband Deutschland (IHA) e.V. (a German hotel association) brought proceedings before the Cologne regional court against Expedia, Inc., Expedia.com GmbH and Expedia Lodging Partner Services Sàrl. IHA has applied for a ‘cease and desist’ order against these companies in relation to the enforcement of certain rate and availability parity clauses contained in contracts with hotels in Germany.

18

Notes to Consolidated Financial Statements – (Continued)
 


In addition, a Brazilian hotel sector association - Forum de Operadores Hoteleiros do Brasil - filed a complaint with the Brazilian Administrative Council for Economic Defence (CADE) against a number of online travel companies, including Booking.com, Decolar.com and Expedia, on August 3, 2016 with respect to parity provisions in contracts between hotels and online travel companies. On September 16, 2016, Expedia submitted its statement with CADE concerning the complaint.
A number of competition authorities, such as those in Australia, Austria, Belgium, China, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, New Zealand, Poland, Sweden and Switzerland, have also inquired or initiated investigations into the travel industry and, in particular, in relation to parity provisions in contracts between hotels and online travel companies, including Expedia.
While the ultimate outcomes of these lawsuits, inquiries or investigations are uncertain and our circumstances are distinguishable from those of other online travel agencies subject to similar lawsuits, inquiries or investigations, we note in this context that on April 21, 2015 the competition authorities in France, Italy and Sweden announced a proposed set of commitments offered by Booking.com to resolve the parity clause cases brought by these authorities against it. The German Federal Cartel Office ("FCO") also has required another online travel company, Hotel Reservation Service ("HRS"), to remove certain clauses from its contracts with hotels. HRS appealed this decision, which the Higher Regional Court Düsseldorf rejected on January 9, 2015. On December 23, 2015, the FCO announced that it had also required Booking.com to remove certain clauses from its contracts with German hotels. Booking.com announced that it will appeal this decision. In addition, with effect from August 1, 2015, Expedia waived certain rate, conditions and availability parity clauses in its agreements with its European hotel partners for a period of five years. While Expedia maintains that its parity clauses have always been lawful and in compliance with competition law, Expedia considers that this waiver is a positive step towards facilitating the closure of the open investigations into such clauses on a harmonized pan-European basis.
Following the implementation of Expedia's waivers, the Austrian competition authority announced its intention to close its investigation against Expedia, and the competition authorities in Denmark, United Kingdom, Greece, Norway, Sweden, Poland, Ireland and Italy have announced either the closure of their investigation against Expedia or a decision not to open an investigation against Expedia, in each case having had regard to the changes implemented by Expedia. The Italian competition authority's decision has subsequently been appealed by two Italian hotel trade associations. On November 6, 2015, the Swiss competition authority announced that it had issued a final decision finding certain parity terms existing in previous versions of agreements between Swiss hotels and each of Expedia, Booking.com and HRS to be prohibited under Swiss law. The decision explicitly notes that Expedia's current contract terms with Swiss hotels are not subject to this prohibition. The Swiss competition authority imposed no fines or other sanctions against Expedia and did not find an abuse of a dominant market position by Expedia. In addition, with effect from September 1, 2016, similar waivers to those provided by Expedia in Europe have been extended to Expedia’s agreements with its Australian hotel partners. This was done in consultation with the Australian Competition and Consumer Commission, which has accordingly closed its investigation into the matter without taking any action.
On July 9, 2015, the French National Assembly adopted Article 133 of the Loi Macron ("Article 133") that seeks to define the nature of the relationship between online reservation platforms and French hotels. Article 133 became effective on August 8, 2015. Expedia considers that Article 133 was drafted ambiguously and can be interpreted in a way that violates both EU and French legal principles.  Therefore Expedia has initiated a complaint with the European Commission relating to Article 133. However, following the effective date, Expedia has been in contact with its hotel partners in France regarding the impact of Article 133.
Note 14 – Related Party Transactions
Mr. Diller is the Chairman and Senior Executive of Expedia. Subject to the terms of an Amended and Restated Stockholders Agreement between Liberty Interactive Corporation (“Liberty Interactive”) and Mr. Diller (the “Stockholders Agreement”), Mr. Diller also holds an irrevocable proxy to vote shares of Expedia common stock and Class B common stock beneficially owned by Liberty Interactive (the “Diller Proxy”). By virtue of the Diller Proxy, as well as through shares owned by Mr. Diller directly, Mr. Diller is effectively able to control the outcome of all matters submitted to a vote or for the consent of Expedia’s stockholders (other than with respect to the election by the holders of Expedia common stock of 25% of the members of Expedia’s Board of Directors and matters as to which Delaware law requires a separate class vote).

During the fall of 2015, Liberty Interactive announced its plan to spin-off to certain of its stockholders all of the shares of Liberty Interactive’s wholly owned subsidiary, Liberty Expedia Holdings, Inc. (“Liberty Expedia Holdings”), whose assets at the time of the spin-off would include all of Liberty Interactive’s interest in Expedia. On March 24, 2016, Mr. Diller entered into a Transaction Agreement with Liberty Interactive, Liberty Expedia Holdings, John C. Malone and Leslie Malone, which the parties amended and restated effective as of September 22, 2016 (the “Transaction Agreement”) to reflect, among other things, that the separation of Liberty Expedia Holdings would be effected by way of a redemption of outstanding shares of

19

Notes to Consolidated Financial Statements – (Continued)
 


capital stock of Liberty Interactive (the “Liberty Split-Off”). The parties agreed in the Transaction Agreement, among other things, that at the time of the Liberty Split-Off and subject to its completion, for a period of up to eighteen months (i) Mr. Diller will assign the Diller Proxy to Liberty Expedia Holdings and (ii) Mr. and Mrs. Malone will grant Mr. Diller an irrevocable proxy to vote all shares of Liberty Expedia Holdings Series A common stock and Series B common stock beneficially owned by them upon completion of the Liberty Split-Off or thereafter (the “Malone Proxy”), in each case, subject to certain limitations. As a result, if the Liberty Split-Off is completed and these proxy arrangements become effective, during the period the proxy arrangements are in effect, by virtue of the voting power associated with the Malone Proxy, the governance structure at Liberty Expedia Holdings and Mr. Diller’s continuing position as Chairman of Expedia’s Board of Directors, Mr. Diller will indirectly continue to control Expedia until the termination or expiration of the proxy arrangements, at which point (and by virtue of the termination of his assignment of the Diller Proxy), unless the proxy arrangements terminated as a result of Mr. Diller’s death or disability, Mr. Diller will again have the power to vote directly all shares of Expedia Common Stock and Class B Common Stock beneficially owned by Liberty Expedia Holdings.
In connection with the Liberty Split-Off, on March 24, 2016, Liberty Interactive and Liberty Expedia Holdings entered into a Reimbursement Agreement with Expedia pursuant to which Liberty Interactive and Liberty Expedia Holdings agreed to reimburse Expedia for certain costs and expenses resulting from the Liberty Split-Off and the above-described proxy arrangements that may be incurred by Expedia with respect to Expedia’s $1.5 billion unsecured revolving credit facility and Expedia’s senior unsecured notes maturing in 2018 and in 2020 (as amended and restated as of September 22, 2016, the “Reimbursement Agreement”). The reimbursement obligations of Liberty Interactive and Liberty Expedia Holdings are capped at $45 million, subject to certain limited exceptions, and conditioned on Expedia acting in all material respects consistent with our existing financial policies, which were previously provided to Liberty Interactive. Prior to the completion of the Liberty Split-Off, the Reimbursement Agreement will terminate upon the termination of the Transaction Agreement. Following the completion of the Liberty Split-Off, the Reimbursement Agreement will terminate upon the earliest to occur of:
 
Mr. Diller’s death, disability or in the event Mr. Diller ceases to be chairman of Expedia,
failure of certain reimbursement triggers to occur prior to the sixtieth day following the completion of the Liberty Split-Off (as such period may be extended in certain limited circumstances), and
the date as of which Liberty Expedia Holdings and Liberty Interactive have paid all amounts due to Expedia pursuant to the terms of the Reimbursement Agreement.
The Reimbursement Agreement constitutes Expedia’s sole and exclusive remedy with respect to any claim arising out of any potential change of control under any contract, debt instrument, agreement or other similar instrument resulting, directly or indirectly, from the Liberty Split-Off or the proxy arrangements.
On September 30, 2016, Expedia received consents from the holders of more than a majority of the aggregate principal amount of its 5.95% Notes and entered into a supplemental indenture to amend the indenture governing its 5.95% Notes to conform the definition of “Permitted Holders” to the definition employed in Expedia’s 2.5% Notes, 4.5% Notes and 5.0% Notes, including by specifying that “Permitted Holders” include certain entities succeeding to the interest of Liberty Interactive in Expedia. Liberty Interactive reimbursed Expedia approximately $4 million for the cost of the consent solicitation pursuant to the terms of the Reimbursement Agreement.
Note 15 – Segment Information
We have four reportable segments: Core Online Travel Companies (“Core OTA”), trivago, Egencia and HomeAway. In addition, eLong was a reportable segment through its disposal on May 22, 2015. 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, Orbitz.com, Expedia Affiliate Network, Hotwire.com, Travelocity, Venere, Wotif Group, CarRentals.com, and Classic Vacations. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. Our Egencia segment, which also includes Orbitz for Business, provides managed travel services to corporate customers worldwide. Our HomeAway segment, created by our acquisition of HomeAway on December 15, 2015, operates an online marketplace for the vacation rental industry.

We determined our operating segments based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our primary operating metric is adjusted EBITDA. Adjusted EBITDA for our Core OTA and Egencia segments includes allocations of certain expenses, primarily cost of revenue and facilities, and our Core OTA segment includes the total costs of our global supply organizations as well as the realized foreign currency gains or losses related to the forward contracts hedging a component of our net merchant hotel revenue. We base the allocations

20

Notes to Consolidated Financial Statements – (Continued)
 


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.
Corporate and Eliminations also includes unallocated corporate functions and expenses. In addition, we record amortization of intangible assets and any related impairment, as well as stock-based compensation expense, restructuring and related reorganization charges, legal reserves, occupancy tax and other, and other items excluded from segment operating performance in Corporate and Eliminations. Such amounts are detailed in our segment reconciliation below.
The following tables present our segment information for the three and nine months ended September 30, 2016 and September 30, 2015. 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.
 
 
Three months ended September 30, 2016
 
Core OTA
 
trivago
 
Egencia
 
HomeAway(1)
 
Corporate &
Eliminations
 
Total
 
(In thousands)
Third-party revenue
$
2,083,393

 
$
175,953

 
$
111,762

 
$
209,797

 
$

 
$
2,580,905

Intersegment revenue

 
100,520

 

 

 
(100,520
)
 

Revenue
$
2,083,393

 
$
276,473

 
$
111,762

 
$
209,797

 
$
(100,520
)
 
$
2,580,905

Adjusted EBITDA
$
713,849

 
$
5,725

 
$
18,155

 
$
77,342

 
$
(148,383
)
 
$
666,688

Depreciation
(65,251
)
 
(2,622
)
 
(8,342
)
 
(4,954
)
 
(42,386
)
 
(123,555
)
Amortization of intangible assets

 

 

 

 
(77,080
)
 
(77,080
)
Stock-based compensation

 

 

 

 
(48,263
)
 
(48,263
)
Legal reserves, occupancy tax and other

 

 

 

 
(22,332
)
 
(22,332
)
Restructuring and related reorganization charges

 

 

 

 
(5,591
)
 
(5,591
)
Realized (gain) loss on revenue hedges
(3,715
)
 

 

 

 

 
(3,715
)
Operating income (loss)
$
644,883

 
$
3,103

 
$
9,813

 
$
72,388

 
$
(344,035
)
 
386,152

Other expense, net
 
 
 
 
 
 
 
 
 
 
(46,597
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
339,555

Provision for income taxes
 
 
 
 
 
 
 
 
 
 
(60,627
)
Net income
 
 
 
 
 
 
 
 
 
 
278,928

Net loss attributable to noncontrolling interests
 
 
 
 
 
 
 
403

Net income attributable to Expedia, Inc.
 
 
 
 
 
 
 
 
 
$
279,331


21

Notes to Consolidated Financial Statements – (Continued)
 


 
Three months ended September 30, 2015
 
Core OTA
 
trivago
 
Egencia
 
eLong(2)
 
Corporate &
Eliminations
 
Total
 
(In thousands)
Third-party revenue
$
1,739,363

 
$
104,162

 
$
94,228

 
$

 
$

 
$
1,937,753

Intersegment revenue

 
71,439

 

 

 
(71,439
)
 

Revenue
$
1,739,363

 
$
175,601

 
$
94,228

 
$

 
$
(71,439
)
 
$
1,937,753

Adjusted EBITDA
$
589,433

 
$
(9,496
)
 
$
14,140

 
$

 
$
(125,023
)
 
$
469,054

Depreciation
(48,269
)
 
(574
)
 
(6,086
)
 

 
(32,227
)
 
(87,156
)
Amortization of intangible assets

 

 

 

 
(31,400
)
 
(31,400
)
Stock-based compensation

 

 

 

 
(63,656
)
 
(63,656
)
Legal reserves, occupancy tax and other

 

 

 

 
114,550

 
114,550

Restructuring and related reorganization charges

 

 

 

 
(42,449
)
 
(42,449
)
Realized (gain) loss on revenue hedges
(13,945
)
 

 

 

 

 
(13,945
)
Operating income (loss)
$
527,219

 
$
(10,070
)
 
$
8,054

 
$

 
$
(180,205
)
 
344,998

Other expense, net
 
 
 
 
 
 
 
 
 
 
(2,811
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
342,187

Provision for income taxes
 
 
 
 
 
 
 
 
 
 
(65,950
)
Net income
 
 
 
 
 
 
 
 
 
 
276,237

Net loss attributable to noncontrolling interests
 
 
 
 
 
 
 
6,979

Net income attributable to Expedia, Inc.
 
 
 
 
 
 
 
 
 
$
283,216


 
Nine months ended September 30, 2016
 
Core OTA
 
trivago
 
Egencia
 
HomeAway(1)
 
Corporate &
Eliminations
 
Total
 
(In thousands)
Third-party revenue
$
5,388,178

 
$
422,852

 
$
346,117

 
$
523,588

 
$

 
$
6,680,735

Intersegment revenue

 
230,314

 

 

 
(230,314
)
 

Revenue
$
5,388,178

 
$
653,166

 
$
346,117

 
$
523,588

 
$
(230,314
)
 
$
6,680,735

Adjusted EBITDA
$
1,434,424

 
$
20,466

 
$
59,986

 
$
132,926

 
$
(473,665
)
 
$
1,174,137

Depreciation
(186,308
)
 
(5,593
)
 
(23,267
)
 
(12,721
)
 
(116,944
)
 
(344,833
)
Amortization of intangible assets

 

 

 

 
(251,260
)
 
(251,260
)
Stock-based compensation

 

 

 

 
(197,602
)
 
(197,602
)
Legal reserves, occupancy tax and other

 

 

 

 
(28,650
)
 
(28,650
)
Restructuring and related reorganization charges

 

 

 

 
(33,584
)
 
(33,584
)
Realized (gain) loss on revenue hedges
(3,692
)
 

 

 

 

 
(3,692
)
Operating income (loss)
$
1,244,424

 
$
14,873

 
$
36,719

 
$
120,205

 
$
(1,101,705
)
 
314,516

Other expense, net
 
 
 
 
 
 
 
 
 
 
(153,042
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
161,474

Provision for income taxes
 
 
 
 
 
 
 
 
 
 
14,929

Net income
 
 
 
 
 
 
 
 
 
 
176,403

Net loss attributable to noncontrolling interests
 
 
 
 
 
 
 
25,988

Net income attributable to Expedia, Inc.
 
 
 
 
 
 
 
 
 
$
202,391



22

Notes to Consolidated Financial Statements – (Continued)
 


 
Nine months ended September 30, 2015
 
Core OTA
 
trivago
 
Egencia
 
eLong(2)
 
Corporate &
Eliminations
 
Total
 
(In thousands)
Third-party revenue
$
4,372,224

 
$
266,287

 
$
293,496

 
$
41,743

 
$

 
$
4,973,750

Intersegment revenue

 
170,984

 

 

 
(170,984
)
 

Revenue
$
4,372,224

 
$
437,271

 
$
293,496

 
$
41,743

 
$
(170,984
)
 
$
4,973,750

Adjusted EBITDA
$
1,193,228

 
$
(13,421
)
 
$
57,637

 
$
(62,167
)
 
$
(352,111
)
 
$
823,166

Depreciation
(134,527
)
 
(1,461
)
 
(17,874
)
 
(3,263
)
 
(83,753
)
 
(240,878
)
Amortization of intangible assets

 

 

 

 
(83,322
)
 
(83,322
)
Stock-based compensation

 

 

 

 
(134,036
)
 
(134,036
)
Legal reserves, occupancy tax and other

 

 

 

 
106,511

 
106,511

Restructuring and related reorganization charges

 

 

 

 
(52,771
)
 
(52,771
)
Realized (gain) loss on revenue hedges
(34,581
)
 

 

 

 

 
(34,581
)
Operating income (loss)
$
1,024,120

 
$
(14,882
)
 
$
39,763

 
$
(65,430
)
 
$
(599,482
)
 
384,089

Other income, net
 
 
 
 
 
 
 
 
 
 
547,806

Income before income taxes
 
 
 
 
 
 
 
 
 
 
931,895

Provision for income taxes
 
 
 
 
 
 
 
 
 
 
(196,261
)
Net income
 
 
 
 
 
 
 
 
 
 
735,634

Net loss attributable to noncontrolling interests
 
 
 
 
 
 
 
41,369

Net income attributable to Expedia, Inc.
 
 
 
 
 
 
 
 
 
$
777,003

 
(1)
Includes results since our acquisition of HomeAway on December 15, 2015.
(2)
Includes results of eLong through its disposal on May 22, 2015.
Note 16 – Guarantor and Non-Guarantor Supplemental Financial Information
Condensed consolidating financial information of Expedia, Inc. (the “Parent”), our subsidiaries that are guarantors of our debt facility and instruments (the “Guarantor Subsidiaries”), and our subsidiaries that are not guarantors of our debt facility and instruments (the “Non-Guarantor Subsidiaries”) is shown below. The debt facility and instruments are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The guarantees are full, unconditional, and joint and several with the exception of certain customary automatic subsidiary release provisions. In this financial information, the Parent and Guarantor Subsidiaries account for investments in their wholly-owned subsidiaries using the equity method.


23

Notes to Consolidated Financial Statements – (Continued)
 



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2016
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Revenue
$

 
$
1,989,806

 
$
696,558

 
$
(105,459
)
 
$
2,580,905

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue

 
333,872

 
86,609

 
(3,574
)
 
416,907

Selling and marketing

 
848,930

 
457,559

 
(101,968
)
 
1,204,521

Technology and content

 
220,809

 
80,567

 
70

 
301,446

General and administrative

 
117,924

 
47,892

 
13

 
165,829

Amortization of intangible assets

 
54,169

 
22,911

 

 
77,080

Legal reserves, occupancy tax and other

 
22,332

 

 

 
22,332

Restructuring and related reorganization charges

 
4,358

 
2,280

 

 
6,638

Intercompany (income) expense, net

 
128,787

 
(128,787
)
 

 

Operating income

 
258,625

 
127,527

 

 
386,152

Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in pre-tax earnings of consolidated subsidiaries
305,307

 
115,361

 

 
(420,668
)
 

Other, net
(41,199
)
 
(18,905
)
 
13,507

 

 
(46,597
)
Total other income, net
264,108

 
96,456

 
13,507

 
(420,668
)
 
(46,597
)
Income before income taxes
264,108

 
355,081

 
141,034

 
(420,668
)
 
339,555

Provision for income taxes
15,223

 
(47,643
)
 
(28,207
)