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, 2018~~March 31, 2019



☐	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 GROUP, 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 (§ 232.405 of this chapter) 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth 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	☐
Emerging growth company	☐		~~Emerging growth company~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value	EXPE	The Nasdaq Global Select Market
Expedia Group, Inc. 2.500% Senior Notes due 2022	EXPE22	New York Stock Exchange

The number of shares outstanding of each of the registrant’s classes of common stock as of ~~October 12, 2018~~April 19, 2019 was:



Common stock, $0.0001 par value per share	~~136,174,433~~136,007,689	shares
Class B common stock, $0.0001 par value per share	12,799,999	shares

Expedia Group, Inc.

Form 10-Q

For the Quarter Ended ~~September 30, 2018~~March 31, 2019

Contents




Part I	Financial Information

Item 1	Consolidated Financial Statements

	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	3

	Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 (unaudited) and December 31, ~~2017~~2018	4

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	5

	Consolidated Statements of Stockholders Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	67

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3331

Item 3	Quantitative and Qualitative Disclosures about Market Risk	5046

Item 4	Controls and Procedures	5147

Part II	Other Information

Item 1	Legal Proceedings	5248

Item 1A	Risk Factors	54

~~Item 2~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	5549

Item 6	Exhibits	5650
Signature		5752

Part I. Item 1. Consolidated Financial Statements

EXPEDIA GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share and per share data)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018

Revenue	$	3,276		$	2,966		$	8,664		$	7,741		$	2,609		$	2,508
Costs and expenses:
Cost of revenue ⁽¹⁾	504			459			1,489			1,320			513			487
Selling and marketing ⁽¹⁾	1,501			1,461			4,558			4,174			1,535			1,516
Technology and content⁽¹⁾	404			350			1,200			1,015			429			396
General and administrative ⁽¹⁾	202			141			597			478			191			199
Amortization of intangible assets	71			71			215			204			52			72
Impairment of goodwill	—			—			61			—
Legal reserves, occupancy tax and other	(78		)	(1		)	(74		)	23			10			3
Restructuring and related reorganization charges	—			4			—			16			10			—
Operating income	672			481			618			511
Operating loss													(131		)	(165		)
Other income (expense):
Interest income	34			9			61			25			11			11
Interest expense	(47		)	(44		)	(149		)	(130		)	(41		)	(51		)
Other, net	(47		)	(31		)	(101		)	(65		)	20			36
Total other expense, net	(60		)	(66		)	(189		)	(170		)	(10		)	(4		)
Income before income taxes	612			415			429			341
Loss before income taxes													(141		)	(169		)
Provision for income taxes	(81		)	(66		)	(56		)	(22		)	41			20
Net income	531			349			373			319
Net loss													(100		)	(149		)
Net (income) loss attributable to non-controlling interests	(6		)	3			16			4			(3		)	12
Net income attributable to Expedia Group, Inc.	$	525		$	352		$	389		$	323
Net loss attributable to Expedia Group, Inc.													$	(103	)	$	(137	)

Earnings per share attributable to Expedia Group, Inc. available to common stockholders:
Loss per share attributable to Expedia Group, Inc. available to common stockholders:
Basic	$	3.51		$	2.32		$	2.59		$	2.13		$	(0.69	)	$	(0.91	)
Diluted	3.43			2.23			2.54			2.06			(0.69		)	(0.91		)
Shares used in computing earnings per share (000's):
Shares used in computing loss per share (000's):
Basic	149,482			152,088			150,450			151,406			147,882			151,817
Diluted	153,153			157,760			153,404			156,520			147,882			151,817

Dividends declared per common share	$	0.32		$	0.30		$	0.92		$	0.86

_______


(1) Includes stock-based compensation as follows:
Cost of revenue	$	3	$	2		$	8	$	8	$	3	$	2
Selling and marketing	11		10			34		31		11		11
Technology and content	15		14			46		42		19		15
General and administrative	25		(19		)	66		23		23		22

See accompanying notes.

EXPEDIA GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

Three months ended
September 30, Nine months ended
September 30,
2018 2017 2018 2017
Net income $ 531
$ 349
$ 373
$ 319
Other comprehensive income (loss), net of tax
Currency translation adjustments, net of tax⁽¹⁾
(14 ) 57
(63 ) 181
Unrealized gains on available for sale securities, net of tax⁽²⁾
—
21
—
21
Other comprehensive income (loss), net of tax (14 ) 78
(63 ) 202
Comprehensive income 517
427
310
521
Less: Comprehensive income (loss) attributable to non-controlling interests 3
10
(29 ) 41
Comprehensive income attributable to Expedia Group, Inc. $ 514
$ 417
$ 339
$ 480



	Three months ended March 31,
	2019			2018
Net loss	$	(100	)	$	(149	)
Currency translation adjustments, net of tax⁽¹⁾	(5		)	38
Comprehensive loss	(105		)	(111		)
Less: Comprehensive loss attributable to non-controlling interests	(5		)	(1		)
Comprehensive loss attributable to Expedia Group, Inc.	$	(100	)	$	(110	)


(1)	Currency translation adjustments include tax expense of $1$3 million ~~and~~ ~~$6 million~~ associated with net investment hedges for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and a tax benefit of ~~$9 million and $31~~$5 million for the three ~~and nine~~ months ended ~~September 30, 2017.~~ March 31, 2018.


~~(2)~~	Net of tax charges of $14 million for both of the three and nine months ended September 30, 2017. Net gains (losses) recognized and reclassified during the three and nine months ended September 30, 2017 were immaterial.

See accompanying notes.

EXPEDIA GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except number of shares which are reflected in thousands and par value)



	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,708		$	2,443
Restricted cash and cash equivalents	447			259
Short-term investments	466			28
Accounts receivable, net of allowance of $40 and $34	2,617			2,151
Income taxes receivable	146			24
Prepaid expenses and other current assets	318			292
Total current assets	7,702			5,197
Property and equipment, net	1,828			1,877
Operating lease right-of-use assets	537			—
Long-term investments and other assets	804			778
Deferred income taxes	47			69
Intangible assets, net	1,936			1,992
Goodwill	8,109			8,120
TOTAL ASSETS	$	20,963		$	18,033
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, merchant	$	1,736		$	1,699
Accounts payable, other	1,033			788
Deferred merchant bookings	6,612			4,327
Deferred revenue	533			364
Income taxes payable	25			74
Accrued expenses and other current liabilities	787			808
Total current liabilities	10,726			8,060
Long-term debt	3,704			3,717
Deferred income taxes	66			69
Operating lease liabilities	472			—
Other long-term liabilities	332			506
Redeemable non-controlling interests	29			30
Commitments and contingencies
Stockholders’ equity:
Common stock $.0001 par value	—			—
Authorized shares: 1,600,000
Shares issued: 233,294 and 231,493; Shares outstanding: 135,938 and 134,334
Class B common stock $.0001 par value	—			—
Authorized shares: 400,000
Shares issued and outstanding: 12,800 and 12,800
Additional paid-in capital	9,694			9,549
Treasury stock - Common stock, at cost	(5,767		)	(5,742		)
Shares: 97,356 and 97,159
Retained earnings	373			517
Accumulated other comprehensive income (loss)	(217		)	(220		)
Total Expedia Group, Inc. stockholders’ equity	4,083			4,104
Non-redeemable non-controlling interests	1,551			1,547
Total stockholders’ equity	5,634			5,651
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	20,963		$	18,033

September 30,
2018 December 31,
2017
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,920
$ 2,847
Restricted cash and cash equivalents 186
69
Short-term investments 458
468
Accounts receivable, net of allowance of $35 and $31 2,294
1,866
Income taxes receivable 36
21
Prepaid expenses and other current assets 278
269
Total current assets 6,172
5,540
Property and equipment, net 1,769
1,575
Long-term investments and other assets 717
845
Deferred income taxes 225
18
Intangible assets, net 2,101
2,309
Goodwill 8,157
8,229
TOTAL ASSETS $ 19,141
$ 18,516
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, merchant $ 1,877
$ 1,838
Accounts payable, other 875
698
Deferred merchant bookings 4,795
3,219
Deferred revenue 346
326
Income taxes payable 175
33
Accrued expenses and other current liabilities 695
1,265
Current maturities of long-term debt —
500
Total current liabilities 8,763
7,879
Long-term debt, excluding current maturities 3,727
3,749
Deferred income taxes 250
329
Other long-term liabilities 455
408
Redeemable non-controlling interests 19
22
Commitments and contingencies

Stockholders’ equity:
Common stock $.0001 par value —
—
Authorized shares: 1,600,000
Shares issued: 231,039 and 228,467
Shares outstanding: 136,420 and 138,939
Class B common stock $.0001 par value —
—
Authorized shares: 400,000
Shares issued and outstanding: 12,800 and 12,800
Additional paid-in capital 9,476
9,163
Treasury stock - Common stock, at cost (5,439 ) (4,822 )
Shares: 94,619 and 89,528

Retained earnings 551
331
Accumulated other comprehensive income (loss) (202 ) (149 )
Total Expedia Group, Inc. stockholders’ equity 4,386
4,523
Non-redeemable non-controlling interests 1,541
1,606
Total stockholders’ equity 5,927
6,129
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 19,141
$ 18,516

See accompanying notes.

EXPEDIA GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Nine months ended September 30,						Three months ended March 31,
	2018			2017			2019			2018
Operating activities:
Net income	$	373		$	319
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss							$	(100	)	$	(149	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment, including internal-use software and website development	507			449			176			167
Amortization of stock-based compensation	154			104			56			50
Amortization of intangible assets	215			204			52			72
Impairment of goodwill	61			—
Deferred income taxes	(281		)	(89		)	17			88
Foreign exchange (gain) loss on cash, restricted cash and short-term investments, net	94			(82		)	5			(5		)
Realized gain on foreign currency forwards	(34		)	(1		)	(7		)	(8		)
Loss on minority equity investments, net	100			14
Gain on minority equity investments, net							(22		)	(37		)
Other	27			(24		)	(7		)	(3		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	(416		)	(428		)	(468		)	(345		)
Prepaid expenses and other assets	(12		)	(85		)	(23		)	(57		)
Accounts payable, merchant	42			259			39			(127		)
Accounts payable, other, accrued expenses and other current liabilities	171			298
Accounts payable, other, accrued expenses and other liabilities							146			38
Tax payable/receivable, net	141			(29		)	(169		)	(178		)
Deferred merchant bookings	957			1,018			2,285			2,027
Deferred revenue	21			19			169			143
Net cash provided by operating activities	2,120			1,946			2,149			1,676
Investing activities:
Capital expenditures, including internal-use software and website development	(634		)	(526		)	(274		)	(192		)
Purchases of investments	(1,714		)	(1,713		)	(438		)	(867		)
Sales and maturities of investments	1,692			921			—			317
Acquisitions, net of cash and restricted cash acquired	(40		)	(169		)
Other, net	41			8			6			14
Net cash used in investing activities	(655		)	(1,479		)	(706		)	(728		)
Financing activities:
Payment of long-term debt	(500		)	—
Proceeds from issuance of long-term debt, net of issuance costs	—			992
Purchases of treasury stock	(620		)	(154		)	(25		)	(202		)
Proceeds from issuance of treasury stock	31			—
Payment of dividends to stockholders	(138		)	(130		)	(47		)	(46		)
Proceeds from exercise of equity awards and employee stock purchase plan	138			180			91			20
Changes in controlled subsidiaries, net	(62		)	(4		)
Other, net	(3		)	(23		)	2			(8		)
Net cash provided by (used in) financing activities	(1,154		)	861			21			(236		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	(119		)	142			(11		)	17
Net increase in cash, cash equivalents and restricted cash and cash equivalents	192			1,470			1,453			729
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period	2,917			1,818			2,705			2,917
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	3,109		$	3,288		$	4,158		$	3,646
Supplemental cash flow information
Cash paid for interest	$	196		$	162		$	71		$	86
Income tax payments, net	188			135			105			67

See accompanying notes.

EXPEDIA GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share data)

(Unaudited)



	Common stock			Class B common stock			Additional paid-in capital			Treasury stock				Retained earnings (deficit)			Accumulated other comprehensive income (loss)			Non-redeemable non-controlling interest			Total
	Shares	Amount		Shares	Amount					Shares	Amount
Balance as of December 31, 2017	228,467,355	$	—	12,799,999	$	—	$	9,163		89,528,255	$	(4,822	)	$	331		$	(149	)	$	1,606		$	6,129
Net loss (excludes $0 of net income attributable to redeemable non-controlling interest)														(137		)				(12		)	(149		)
Other comprehensive income (loss), net of taxes																	27			11			38
Payment of dividends to stockholders (declared at $0.30 per share)														(46		)							(46		)
Proceeds from exercise of equity instruments and employee stock purchase plans	794,632	—					20																20
Withholding taxes for stock options							(2		)														(2		)
Issuance of common stock in connection with acquisitions	175,040	—					—																—
Treasury stock activity related to vesting of equity instruments										112,948	(12		)										(12		)
Common stock repurchases										1,786,800	(191		)										(191		)
Other changes in ownership of non-controlling interests							(2		)											8			6
Impact of adoption of new accounting guidance														(31		)	(3		)				(34		)
Stock-based compensation expense							49																49
Balance as of March 31, 2018	229,437,027	$	—	12,799,999	$	—	$	9,228		91,428,003	$	(5,025	)	$	117		$	(125	)	$	1,613		$	5,808



	Common stock			Class B common stock			Additional paid-in capital			Treasury stock				Retained earnings (deficit)			Accumulated other comprehensive income (loss)			Non-redeemable non-controlling interest			Total
	Shares	Amount		Shares	Amount		Additional paid-in capital			Shares	Amount			Retained earnings (deficit)			Accumulated other comprehensive income (loss)			Non-redeemable non-controlling interest			Total
Balance as of December 31, 2018	231,492,986	$	—	12,799,999	$	—	$	9,549		97,158,586	$	(5,742	)	$	517		$	(220	)	$	1,547		$	5,651
Net income (loss) (excludes $0 of net loss attributable to redeemable non-controlling interest)														(103		)				3			(100		)
Other comprehensive income (loss), net of taxes																	3			(8		)	(5		)
Payment of dividends to stockholders (declared at $0.32 per share)														(47		)							(47		)
Proceeds from exercise of equity instruments and employee stock purchase plans	1,801,048	—					91																91
Treasury stock activity related to vesting of equity instruments										197,122	(25		)										(25		)
Other changes in ownership of non-controlling interests							(3		)											9			6
Impact of adoption of new accounting guidance														6									6
Stock-based compensation expense							56																56
Other							1																1
Balance as of March 31, 2019	233,294,034	$	—	12,799,999	$	—	$	9,694		97,355,708	$	(5,767	)	$	373		$	(217	)	$	1,551		$	5,634

Notes to Consolidated Financial Statements

~~September 30, 2018~~March 31, 2019

(Unaudited)

Note 1 – Basis of Presentation

Description of Business

Expedia Group, Inc. and its subsidiaries ~~(formerly "Expedia, Inc.")~~ provide travel services to leisure and corporate travelers in the United States and abroad as well as various media and advertising offerings to travel and non-travel advertisers. These travel services are offered through a diversified portfolio of brands including: Brand Expedia®, Hotels.com®, Expedia® Partner Solutions, Vrbo®, Egencia®, trivago®, HomeAway®, ~~VRBO®,~~ Orbitz®, Travelocity®, ~~Wotif~~Hotwire®, ~~lastminute.com.au~~Wotif®, ebookers®, CheapTickets®, ~~Hotwire~~®~~, Classic Vacations~~Expedia Group™ Media Solutions, Expedia Local Expert®, CarRentals.com^TM~~, Expedia Local Expert~~®, Expedia® CruiseShipCenters®, Classic Vacations®, Traveldoo®, VacationRentals.com and SilverRail ~~Technologies, Inc.~~^TM~~, ALICE~~® ~~and Traveldoo~~®. In addition, many of these brands have related international points of sale. In the first quarter of 2019, we renamed the HomeAway segment Vrbo.We refer to Expedia Group, Inc. and its subsidiaries collectively as “Expedia Group,” the “Company,” “us,” “we” and “our” in these consolidated financial statements.

Basis of Presentation

These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. The unaudited consolidated financial statements include Expedia Group, Inc., our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We have eliminated significant intercompany transactions and accounts.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, previously filed with the Securities and Exchange Commission. trivago is a separately listed company on the Nasdaq Global Select Market and, therefore is subject to its own reporting and filing requirements, which could result in possible differences that are not expected to be material to Expedia Group.

Accounting Estimates

We use estimates and assumptions in the preparation of our interim unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our interim unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our interim unaudited consolidated financial statements include revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income and transactional taxes, such as potential settlements related to occupancy and excise taxes; loss contingencies; deferred loyalty rewards; acquisition purchase price allocations; stock-based compensation and accounting for derivative instruments.

Reclassifications

We have reclassified certain amounts related to our prior period results to conform to our current period presentation.

Seasonality

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

selling and marketing costs offset revenue in the first half of the year as we typically increase marketing during the busy booking period for spring, summer and winter holiday travel. As a result on a consolidated basis, revenue and income are typically the lowest in the first quarter and highest in the third quarter. The continued growth of our international operations, advertising business or a change in our product mix, including the growth of ~~HomeAway,~~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, including trivago's recent changing marketplace dynamics.~~trends.

Note 2 – Summary of Significant Accounting Policies

Recently Adopted Accounting Policies

~~Revenue from Contracts with Customers.~~Leases. As of January 1, ~~2018,~~2019, we adopted the Accounting Standards Updates ~~("ASU"~~(“ASU”) amending ~~revenue recognition~~the guidance related to accounting and reporting guidelines for leasing arrangements using the ~~modified retrospective~~optional transition method that allowed for ~~all contracts reflecting~~a cumulative-effect adjustment in the ~~aggregate effect of modifications prior to the date~~period of adoption. Results for reporting periods beginning after January 1, ~~2018~~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 impacted our loyalty program accounting as we are no longer permitted to use the incremental cost method when recording the financial impact of rewards earned in conjunction with our traveler loyalty programs. Instead, we re-value our liability using a relative fair value approach and now record our loyalty liability as a component of deferred merchant bookings. Additionally, due to the new definition of variable consideration, we are required to estimate and record certain variable payments, primarily volume commissions, earlier than previously recorded. Both modifications resulted in cumulative-effect adjustments to opening retained earnings, with an insignificant change to revenue on a go-forward basis. The new guidance also results in insignificant changes in the timing and classification of certain other revenue streams, including the reclassification of air distribution fees from net revenue to cost of revenue. For a comprehensive discussion of our updated revenue recognition policy, refer to the ~~Significant Accounting Policies-Revenue Recognition~~ ~~disclosure below.~~

~~Upon adoption, we recognized a cumulative effect of applying the new revenue guidance as a reduction to the opening balance of retained earnings of $11 million ($8 million net of tax) comprised ofchanges in the accounting for our loyalty program of $49 million ($38 million net of tax) as well as other immaterial adjustments of~~$2 million ($1 million net of tax), partially offset by the impact of estimating variable consideration of $40 million ($31 million net of tax). The impact of the new guidance to our consolidated financial statements was not meaningful as of September 30, 2018 and for the three and nine months ended September 30, 2018.

~~The cumulative effect of the revenue accounting changes made to our consolidated balance sheet as of January 1, 2018 were as follows:~~

Balance at December 31, 2017 Adjustments Balance at January 1, 2018
(in millions)
Current and long-term assets:
   Accounts receivable, net $ 1,866
$ (40 ) $ 1,826
   Prepaid expenses and other current assets 269
(1 ) 268
   Long-term investments and other assets 845
(3 ) 842
Current and long-term liabilities:
   Deferred merchant bookings 3,219
619
3,838
   Accrued expenses and other current liabilities 1,265
(564 ) 701
   Deferred income taxes 329
(3 ) 326
Stockholders' equity:
   Retained earnings 331
(8 ) 323

~~Recognition and Measurement of Financial Instruments.~~ As of January 1, 2018, we adopted the new guidance related to accounting for equity investments and financial liabilities under the fair value option. The most significant impact to the Company of this new guidance was with respect to the requirement that minority equity investments with readily determinable fair values, such as our investment in Despegar.com, Corp ("Despegar"), must be carried at fair value with changes in fair value recorded through net income. Previously, such investment was designated as available for sale and was recorded at fair value with changes in fair value recorded through other comprehensive income (loss). In addition, we elected to prospectively account for minority investments without readily determinable fair values at cost, with observable price changes reflected

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~~Notes to Consolidated Financial Statements – (Continued)~~

through net income. Upon adoption, we reclassified $7 million related to the unrealized loss, net of tax, of Despegar from accumulated other comprehensive income (loss) (“AOCI”) with a corresponding decrease to retained earnings. See ~~Note 3 – Fair Value Measurements~~ ~~for further information on Despegar as well as our minority investments without readily determinable fair values.~~

~~Statement of Cash Flows.~~ As of January 1, 2018, we adopted the new guidance related to the statement of cash flows, which clarified how companies present and classify certain cash receipts and cash payments as well as amended previous guidance to address the classification and presentation of changes in restricted cash in the statement of cash flows. Upon adoption, we retrospectively adjusted the prior periods presented in our consolidated statement of cash flows, which resulted in a slight working capital benefit in prepaid expenses and other assets within operating activities for the nine months ended September 30, 2017. Refer to the ~~Significant Accounting Policies-Restricted Cash and Cash Equivalents~~ section below for a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported in our consolidated balance sheets to the total shown in our consolidated statement of cash flows.

~~Intra-entity Transfers of Assets Other Than Inventory.~~ As of January 1, 2018, we adopted the new guidance amending the accounting for income taxes associated with intra-entity transfers of assets other than inventory. This new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs rather than our historical practice to defer and amortize the tax consequences over a specified period of time. As a result of the adoption, we reduced retained earnings by approximately $26 million, reduced long-term investments and other assets by approximately $31 million and increased deferred tax assets by approximately $5 million related to the unrecognized income tax effects of asset transfers that occurred prior to adoption.

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ In February 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance that allows an entity to elect to reclassify “stranded” tax effects in AOCI to retained earnings to address concerns related to accounting for certain provisions of the Tax Cuts and Jobs Act ("the Tax Act") enacted in December 2017. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted.

We elected to early adopt the new guidance during the first quarter of 2018, which resulted in the reclassification of the income tax effect of the Tax Act from AOCI to retained earnings in order to reflect the tax effects of items within AOCI at the appropriate tax rate. As a result, we reclassified approximately $10 million as an increase in retained earnings and a reduction to AOCI as of January 1, 2018. Our policy is to release income tax effects from AOCI based on the tax effects of amounts reclassified from AOCI to pre-tax income (loss) from continuing operations. Any remaining tax effect in AOCI is released following a portfolio approach.

~~Definition of a Business.~~ As of January 1, 2018, we prospectively adopted the ASU clarifying the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Upon adoption, the standard impacts how we assess future acquisitions (or disposals) of assets or businesses.

~~Non-employee Share-Based Payment Arrangements.~~ In June 2018, the FASB issued new guidance related to accounting for share-based payments with non-employees. The updated guidance substantially aligns the accounting requirements of share-based payment awards to non-employees with those of employees. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted.

We elected to early adopt the new guidance in the second quarter of 2018, which requires us to reflect any adjustments as of January 1, 2018, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the change in the measurement objective and the associated measurement date for all non-employee share-based payment awards to the grant-date fair value. Prior to adoption, non-employee awards were measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever could be more reliably measured. Additionally, the measurement date was previously determined by the earlier of the date at which either (1) a commitment for performance by the non-employee to earn the equity instruments was reached or (2) the non-employee’s performance was complete. Typically, the measurement date was delayed until performance was complete, which led to the non-employee awards being remeasured or “marked to market” each reporting period until they were vested. The adoption of this new guidance did not have a material impact on our consolidated financial statements for the three and nine months ended September 30, 2018.

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~~Notes to Consolidated Financial Statements – (Continued)~~

~~Recent Accounting Policies Not Yet Adopted~~

~~Leases.~~ ~~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 requiresIn addition, new disclosures are required to ~~help~~meet the objective of enabling users of financial ~~statement users~~statements to 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.~~

We ~~will adopt this guidance on January 1, 2019 and expect to elect~~elected certain of the available transition practical expedients, ~~under~~including those that permit us to not reassess 1) whether any expired or existing contracts are or contain leases, 2) the ~~transition guidance. Additionally, we plan to~~lease classification for any expired or exiting leases, and 3) any initial direct costs for any existing leases as of the effective date. We did not elect the ~~optional transition method that allows for~~hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment. The standard had a ~~cumulative-effect adjustment in the period of adoption and do not plan to restate prior periods. We are in the process of evaluating the~~material impact of adopting this new guidance, including implementing changes to our systems and processes in conjunction with our review of existing lease agreements. We currently expect the most significant impact of this new standard will be the recognition of the right-of-use assets and operating lease liabilities on our consolidated balance ~~sheet upon adoption~~sheets, but did not have a material impact on our consolidated statements of operations or statements of cash flows. The most significant impact was the recognition of right-of-use (“ROU”) assets and lease liabilities for ~~real estate~~ operating ~~leases as well as~~leases. Additionally, we removed the ~~related financial statement disclosures.~~assets and liabilities previously recorded pursuant to build-to-suit lease guidance resulting in an increase to retained earnings of approximately $6 million.

Hedge Accounting. ~~In August 2017,~~As of January 1, 2019, we adopted the ~~FASB amended~~new guidance amending the ~~existing~~ accounting guidance for hedge accounting. The ~~amendments require~~new guidance requires expanded hedge accounting for both non-financial and financial risk components and ~~refine~~refines the measurement of hedge results to better reflect an ~~entity's~~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 new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted. The new guidance must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The adoption of this new guidance ~~is not expected to have a material~~had no impact on our consolidated financial statements.

Recent Accounting Policies Not Yet Adopted

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those annual periods. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.

Cloud Computing Arrangements. In August 2018, the FASB issued new guidance on the accounting for implementation costs incurred for a cloud computing arrangement that is a service contract. The update conforms the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting guidance that provides for capitalization of costs incurred to develop or obtain internal-use-software. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.

Fair Value Measurements. In August 2018, the FASB issued new guidance related to the disclosure requirements on fair value measurements, which removes, modifies or adds certain disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements disclosures.

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Notes to Consolidated Financial Statements – (Continued)

Significant Accounting Policies

Below are the significant accounting policies updated during ~~2018~~2019 as a result of the recently adopted accounting policies noted ~~above.~~above as well as certain other accounting policies with interim disclosure requirements. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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

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~~Notes to Consolidated Financial Statements – (Continued)~~

~~prices that are imposed on our travel related services or collected by the Company from customers (which are therefore excluded from revenue).~~

~~The following table disaggregates our revenue by major source:~~

Three months ended Nine months ended
September 30, 2018 September 30, 2018
(in millions)
Business Model:
Merchant $ 1,688
$ 4,554
Agency 876
2,311
Advertising and media 302
858
HomeAway 410
941
Total revenue $ 3,276
$ 8,664
Service Type:
Lodging $ 2,347
$ 5,951
Air 209
674
Advertising and media 302
858
Other⁽¹⁾
418
1,181
Total revenue $ 3,276
$ 8,664


~~(1)~~	~~Other includes car rental, insurance, destination services, cruise and fee revenue related to our corporate travel business, among other revenue streams, none of which are individually material.~~

~~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, 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 HomeAway business facilitates vacation rental bookings and provides 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.

~~Lodging.~~ ~~Our lodging revenue is comprised of revenue recognized under the merchant, agency and HomeAway 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 accrued supplier payable and the supplier costs within net revenue six months in arrears, net of an allowance, when we determine it is not

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~~Notes to Consolidated Financial Statements – (Continued)~~

~~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.

~~HomeAway.~~ HomeAway’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 HomeAway 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. HomeAway also charges a traveler service fee at the time of booking. The service fee charged to travelers provides compensation for HomeAway’s services, including but not limited to the use of HomeAway'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 vacation rental 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.

~~Advertisingand 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.

~~As described in~~ ~~Note 9 – Segment Information~~, our reportable segments are Core Online Travel Agencies (“Core OTA”), trivago, HomeAway and Egencia. 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 HomeAway revenue is 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.

Deferred Merchant Bookings. We classify cash payments received in advance of our performance obligations as deferred merchant bookings. At ~~January 1,~~December 31, 2018, ~~$3.219~~$3.627 billion of cash advance cash payments was reported within deferred merchant bookings, ~~$2.877~~$2.458 billion of which was recognized resulting in ~~$419~~$343 million of revenue during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. At ~~September 30, 2018,~~March 31, 2019, the related balance was ~~$4.100~~$5.896 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 30 Brand Expedia websites. Orbitz Rewards allows travelers to earn Orbucks^SM~~, the currency of Orbitz Rewards, on flights, hotels and vacation packages and~~

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~~Notes to Consolidated Financial Statements – (Continued)~~

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 ~~January 1,~~December 31, 2018, ~~$619~~$700 million of deferred loyalty rewards was reported within deferred merchant bookings, ~~$531~~$167 million of which was recognized within revenue during the three months ended March 31, 2019. At March 31, 2019, the related balance was $716 million.

Deferred Revenue. At December 31, 2018, $364 million was recorded as deferred revenue, $172 million of which was recognized as revenue during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. At ~~September 30, 2018,~~March 31, 2019, the related balance was ~~$695 million.~~

~~Deferred Revenue.~~ Deferred revenue primarily consists of HomeAway'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 January 1, 2018, $326 million was recorded as deferred revenue, $287 million of which was recognized as revenue during the nine months ended September 30, 2018. At September 30, 2018, the related balance was $346$533 million.

Practical Expedients and Exemptions. We have used the portfolio approach to account for our loyalty points as the rewards programs share similar characteristics within each program in relation to the value provided to the traveler and their breakage patterns. Using this portfolio approach is not expected to differ materially from applying the guidance to individual contracts. However, we will continue to assess and refine, if necessary, how a portfolio within each rewards program is defined.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Cash, Restricted Cash and Cash Equivalents

Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to certain traveler deposits and to a lesser extent collateral for office leases. The following table reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the total amount presented in our consolidated statements of cash flows:


	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(in millions)				(in millions)
Cash and cash equivalents	$	2,920	$	2,847	$	3,708	$	2,443
Restricted cash and cash equivalents	186		69		447		259
Restricted cash included within long-term investments and other assets	3		1		3		3
Total cash, cash equivalents and restricted cash and cash equivalents in the consolidated statement of cash flow	$	3,109	$	2,917	$	4,158	$	2,705

Leases

We determine if an arrangement is a lease at inception. Operating leases are primarily for office space and data centers and are included in operating lease ROU assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

For operating leases with a term of one year or less, we have elected to not recognize a lease liability or ROU asset on our consolidated balance sheet. Instead, we recognize the lease payments as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to our consolidated statements of operations and cash flows.

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Notes to Consolidated Financial Statements – (Continued)

We have office space and data center lease agreements with insignificant non-lease components and have elected the practical expedient to combine and account for lease and non-lease components as a single lease component.

Note 3 – Fair Value Measurements

Financial assets ~~and liabilities~~ measured at fair value on a recurring basis as of ~~September 30,~~March 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	$	64	$	64	$	—
Time deposits	1,170		—		1,170
Derivatives:
Foreign currency forward contracts	9		—		9
Investments:
Time deposits	466		—		466
Marketable equity securities	143		143		—
Total assets	$	1,852	$	207	$	1,645

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 $ 39
$ 39
$ —
Time deposits 761
—
761
Derivatives:
Foreign currency forward contracts 23
—
23
Investments:
Time deposits 458
—
458
Marketable equity securities 161
161
—
Total assets $ 1,442
$ 200
$ 1,242

~~Financial assets measured at fair value on a recurring basis as of December 31, 2017 are classified using the fair value hierarchy in the table below:~~


	Total		Level 1		Level 2		Total		Level 1		Level 2
	(In millions)						(In millions)
Assets
Cash equivalents:
Money market funds	$	16	$	16	$	—	$	35	$	35	$	—
Time deposits	552		—		552		624		—		624
Derivatives:
Foreign currency forward contracts	6		—		6		22		—		22
Investments:
Time deposits	469		—		469		28		—		28
Marketable equity securities	263		263		—		119		119		—
Total assets	$	1,306	$	279	$	1,027	$	828	$	154	$	674

We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, our cash and cash equivalents consisted primarily of prime institutional money market funds with maturities of three months or less, time deposits as well as bank account balances.

We also hold time deposit investments with financial institutions. Time deposits with original maturities of less than three months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-term investments.

Our marketable equity securities consist of our investment in Despegar, a publicly traded company, which is included in long-term investments and other assets in our consolidated balance sheets. During the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, we recognized a ~~loss~~gain of approximately ~~$102~~$24 million and $36 million 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.

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~~Notes to Consolidated Financial Statements – (Continued)~~

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

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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, 2018,~~March 31, 2019, we were party to outstanding forward contracts hedging our liability and revenue exposures with a total net notional value of $3$3.4 billion. We had a net forward asset of ~~$23~~$9 million and $6$22 million recorded in prepaid expenses and other current assets as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. We recorded $3$(6) million and ~~$(11)~~$14 million in net gains (losses) from foreign currency forward contracts during the three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017 as well as $51 million and $(2) million in net gains (losses) during the nine months ended September 30, 2018 and~~ ~~2017~~.2018.

Assets Measured at Fair Value on a Non-recurring Basis

Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity method investments, are adjusted to fair value when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. We measure our minority investments that do not have readily determinable fair values at cost less impairment, adjusted by observable price changes with changes recorded within other, net on our consolidated statements of operations.

~~Goodwill.~~ During the nine months ended September 30, 2018, we recognized a goodwill impairment charge of $61 million related to our Core OTA segment, which resulted from sustained under-performance and a less optimistic outlook related to one of our reporting units during the second quarter of 2018. As a result, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill for that reporting unit as of June 30, 2018 in which we compared the fair value of the reporting unit to its carrying value. The fair value was estimated based on a blended analysis of the present value of future discounted cash flows and market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our assumptions were based on the actual historical performance of the reporting unit and took into account a recent weakening of operating results and implied risk premiums based on market prices of our equity and debt as of the assessment date. Our significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the current period. As of September 30, 2018, the applicable reporting unit's remaining goodwill was $25 million.

Minority Investments without Readily Determinable Fair Values. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the carrying values of our minority investments without readily determinable fair values totaled ~~$374~~$474 million and ~~$371~~$476 million. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, we had no material gains or losses recognized related to these minority investments. During the nine months ended September 30, 2017, we recorded $14 million in net losses related to minority investments, which included $6 million in other-than-temporary impairments during the first six months of 2017 as well as a loss recognized on the liquidation of an investment of $9 million during the third quarter of 2017.

Note 4 – Debt

The following table sets forth our outstanding debt:


	September 30, 2018		December 31, 2017			March 31, 2019		December 31, 2018
	(In millions)					(In millions)
7.456% senior notes due 2018	$	—	$	500
5.95% senior notes due 2020	748		748			$	749	$	748
2.5% (€650 million) senior notes due 2022	750		775			725		740
4.5% senior notes due 2024	496		495			496		496
5.0% senior notes due 2026	742		741			743		742
3.8% senior notes due 2028	991		990			991		991
Total debt⁽¹⁾	3,727		4,249
Current maturities of long-term debt	—		(500		)
Long-term debt, excluding current maturities	$	3,727	$	3,749
Long-term debt⁽¹⁾						$	3,704	$	3,717

_______________

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~


(1)	Net of applicable discounts and debt issuance costs.

~~Current Maturities of Long-term Debt~~

~~In August 2018, our $500 million in registered senior unsecured notes that bore interest at 7.456% (the “7.456% Notes”) matured and the balance was repaid.~~

Long-term Debt

Our $750 million in registered senior unsecured notes outstanding at ~~September 30, 2018~~March 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 in registered senior unsecured notes outstanding at ~~September 30, 2018~~March 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.

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 ~~AOCI.~~accumulated other comprehensive income (loss) (“AOCI”). The Euro-denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes also reported in AOCI. Since the notional amount of the recorded Euro-denominated debt is less than the notional amount of our net investment, we do not expect to incur any ineffectiveness on this hedge.

Our $500 million in registered senior unsecured notes outstanding at ~~September 30, 2018~~March 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,

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Notes to Consolidated Financial Statements – (Continued)

2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 4.5% Notes on or after May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest.

Our $750 million in registered senior unsecured notes outstanding at ~~September 30, 2018~~March 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 ~~September 30, 2018~~March 31, 2019 are due in February 2028 and bear interest at 3.8% (the ~~"3.8% Notes"~~“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, beginning February 15, 2018.~~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.

The 5.95%, 2.5%, 4.5%, 5.0% and 3.8% 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 1013 – 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~~$33 million and ~~$75~~$65 million as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~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.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(In millions)				(In millions)
7.456% senior notes due 2018	$	—	$	516
5.95% senior notes due 2020	784		810		$	780	$	778
2.5% (€650 million) senior notes due 2022 ⁽¹⁾	793		828		767		771
4.5% senior notes due 2024	504		528		521		504
5.0% senior notes due 2026	767		807		797		760
3.8% senior notes due 2028	926		969		968		915

_______________


(1)	Approximately 683 million Euro as of ~~September 30, 2018~~March 31, 2019 and ~~690~~674 million Euro as of December 31, ~~2017.~~2018.

Credit Facility

~~As of September 30, 2018,~~ Expedia Group ~~Inc. maintained~~maintains a $2 billion unsecured revolving credit facility with a group of lenders, which is unconditionally guaranteed by certain domestic Expedia Group subsidiaries that are the same as under the Notes and expires in May 2023. As of ~~September 30,~~March 31, 2019 and December 31, 2018, we had no revolving credit facility borrowings outstanding. The facility bears interest based on the Company’s credit ratings, with drawn amounts bearing interest at LIBOR plus 125 basis points and the commitment fee on undrawn amounts at 17.5 basis points as of ~~September 30, 2018.~~March 31, 2019. The facility contains covenants including maximum leverage and minimum interest coverage ratios.

The amount of stand-by letters of credit (“LOC”) issued under the facility reduces the credit amount available. As of ~~September 30,~~March 31, 2019 and December 31, 2018, there ~~were $14~~was $15 million of outstanding stand-by LOCs issued under the ~~facility.~~

The current facility was entered into in May 2018 and replaced our prior $1.5 billion unsecured revolving credit facility that was due to expire in February 2021. As of December 31, 2017, we had no revolving credit facility borrowings outstanding under the prior facility and $14 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 Group, that may be terminated at any time by the lender. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, there were no borrowings outstanding.

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

Note 5 – Leases

We have operating leases for office space and data centers. Our leases have remaining lease terms of one year to 19 years, some of which include options to extend the leases for up to ten years, and some of which include options to terminate the leases within one year.

Operating lease costs were $38 million for the three months ended March 31, 2019.

Supplemental cash flow information related to leases were as follows:



	Three Months Ended March 31, 2019
	(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	39
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	6

Supplemental consolidated balance sheet information related to leases were as follows:



	March 31, 2019
	(in millions)
Operating lease right-of-use assets	$	537

Current lease liabilities included within Accrued expenses and other current liabilities	$	112
Long-term lease liabilities included within Operating lease liabilities	472
Total operating lease liabilities	$	584

Weighted average remaining lease term	8.8 years
Weighted average discount rate	3.8		%

Maturities of lease liabilities are as follows:



	Operating Leases
	(in millions)
Year ending December 31,
2019 (excluding the three months ended March 31, 2019)	$	102
2020	106
2021	89
2022	72
2023	52
2024 and thereafter	278
Total lease payments	699
Less: imputed interest	(115		)
Total	$	584

As of March 31, 2019, we have additional operating lease payments, primarily for corporate offices, that have not yet commenced of approximately $210 million. These operating leases will commence between April 2019 and April 2021 with lease terms of 3 years to 11 years.

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

Note 56 – Stockholders’ Equity

Dividends on our Common Stock

The Executive Committee, acting on behalf of the Board of Directors, declared the following dividends during the periods presented:

Declaration Date
Dividend
Per Share
Record Date
Total Amount
(in millions)
Payment Date
Nine Months Ended September 30, 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
Nine Months Ended September 30, 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



Declaration Date	Dividend Per Share		Record Date	Total Amount (in millions)		Payment Date
Three Months Ended March 31, 2019
February 6, 2019	$	0.32	March 7, 2019	$	47	March 27, 2019
Three Months Ended March 31, 2018
February 7, 2018	0.30		March 8, 2018	46		March 28, 2018

In addition, in ~~October 2018,~~May 2019, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.32 per share of outstanding common stock payable on ~~December 6, 2018~~June 13, 2019 to stockholders of record as of the close of business on ~~November 15, 2018.~~May 23, 2019. Future declarations of dividends are subject to final determination by our Board of Directors.

Stock-based Awards

~~Table~~Stock-based compensation expense relates primarily to expense for stock options and restricted stock units (“RSUs”). As of ~~Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

~~Share Repurchases~~

~~In February 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10~~March 31, 2019, we had stock-based awards outstanding representing approximately 21 million shares of our common ~~stock. In April 2018, the Executive Committee, acting on behalf~~stock, consisting of ~~the Board of Directors, authorized a repurchase of up~~options to ~~an additional 15~~purchase approximately 16 million shares of our common stock. During the nine months ended September 30, 2018, we repurchased, through open market transactions, 5.2 million shares under these authorizations for the total cost of $602 million, excluding transaction costs, representing anstock with a weighted average ~~repurchase~~exercise price of ~~$115.81 per share. As~~$101.79 and weighted average remaining life of ~~September 30, 2018, there were~~4.2 years and approximately ~~14.7~~5 million ~~shares remaining under~~RSUs.

Annual employee stock-based award grants typically occur during the ~~2018 repurchase authorization. There is no fixed termination date for the repurchases. Subsequent to the end of the third~~first quarter of ~~2018,~~each year and generally vest over four years. During 2019, we ~~repurchased an additional 0.3 million shares for a total cost~~started issuing RSUs as our primary form of ~~$33 million, excluding transaction costs, representing an average purchase price of $129.35 per share.~~

~~Other Share Activity~~

stock-based compensation, which vest 25% after one year and will then vest quarterly over the following three years. During the three months ended ~~September 30, 2018,~~March 31, 2019, we ~~issued 269,646 shares of common stock from treasury to Liberty Expedia Holdings, Inc. ("Liberty") at a purchase price per share of $113.32 and an aggregate value of~~granted approximately ~~$31~~3 million ~~pursuant to and in accordance with the preemptive rights as detailed by the Amended and Restated Governance Agreement with Liberty dated as of December 20, 2011, as amended.~~RSUs.

Accumulated Other Comprehensive Loss

The balance ~~for each class~~ of accumulated other comprehensive loss as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017 is as follows:~~

September 30,
2018 December 31,
2017
(In millions)
Foreign currency translation adjustments, net of tax⁽¹⁾
$ (202 ) $ (142 )
Net unrealized loss on available for sale securities, net of tax⁽²⁾
—
(7 )
Accumulated other comprehensive loss $ (202 ) $ (149 )

~~(1)~~

~~Foreign currency translation adjustments, net of tax, include foreign currency transaction losses at September 30,~~2018 was comprised of foreign currency translation adjustments. These translation adjustments include foreign currency transaction losses at March 31, 2019 of $15 million ($20 million before tax) and $27 million ($35 million before tax) at December 31, 2018 ~~of $35 million ($45 million before tax) and $45 million ($71 million before tax) at December 31, 2017~~ associated with our 2.5% Notes. The 2.5% Notes are Euro-denominated debt designated as hedges of certain of our Euro-denominated net assets. See Note 4 – Debt for more information.


~~(2)~~	The net unrealized loss on available for sale securities before tax at December 31, 2017 was $9 million, which was reclassified to retained earnings as of January 1, 2018 upon adoption of the relevant new accounting guidance.

~~Acquisition of Non-redeemable Non-controlling Interest of Air Asia-Expedia~~

During 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.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

Note 67 – Earnings (Loss) Per Share

~~The following table presents our basic and diluted earnings per share:~~

Three months ended
September 30, Nine months ended
September 30,
2018 2017 2018 2017
(In millions, except share and per share data)
Net income attributable to Expedia Group, Inc. $ 525
$ 352
$ 389
$ 323
Earnings per share attributable to Expedia Group, Inc. available to common stockholders:
Basic $ 3.51
$ 2.32
$ 2.59
$ 2.13
Diluted 3.43
2.23
2.54
2.06
Weighted average number of shares outstanding (000's):
Basic 149,482
152,088
150,450
151,406
Dilutive effect of:
Options to purchase common stock 2,866
5,009
2,396
4,564
Other dilutive securities 805
663
558
550
Diluted 153,153
157,760
153,404
156,520

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,~~March 31, 2019 and 2018, approximately 521 million ~~of outstanding stock awards have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive. For the three~~ and ~~nine months ended September 30, 2017, approximately 1~~23 million of outstanding stock awards have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive.

Note 78 – ~~Income Taxes~~Restructuring and Related Reorganization Charges

The Tax Act was enacted in December 2017. The Tax Act significantly changed U.S. tax law by, among other things, lowering U.S. corporate income tax rate from 35% to 21%, implementing a territorial tax system,

In connection with the centralization and ~~imposing a one-time transition tax on deemed repatriation~~migration of cumulative earnings of foreign subsidiaries. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which was subsequently codified in March 2018, to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain ~~income tax effects of the Tax Act~~operational functions and ~~allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In the prior year,~~systems, we recognized ~~a net tax benefit of $14~~$10 million ~~for~~in restructuring and related reorganization charges during the ~~provisional tax effects~~three months ended March 31, 2019. The charges primarily related to ~~the one-time transition tax~~severance and ~~the revaluation~~benefits and were unpaid as of ~~deferred tax balances~~March 31, 2019. Based on current plans, which are subject to change, we expect total reorganization charges in 2019 of up to $25 million. These costs could be higher or lower should we make additional decisions in future periods that impact our reorganization efforts and included these estimates in our consolidated financial statements for the year ended December 31, 2017. We are still in the process of analyzing the effect of the various provisions of the Tax Act. The ultimate effect may materially differ from these provisional amounts due to, amongexclude any possible future acquisition, or other, things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. We expect to complete our analysis within the measurement period in accordance with SAB 118.

While the Tax Act provides for a modified territorial tax system, beginning in 2018, global intangible low-taxed income (“GILTI”) provisions will be applied imposing an incremental tax on low-taxed foreign income. The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Under U.S. GAAP, we are required to make an accounting policy election to either (1) treat taxes due related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factor such amounts into our measurement of our deferred taxes (the “deferred method”). We are continuing to evaluate the GILTI tax rules and have not yet adopted our policy to account for the related impacts. The Tax Act also provides for foreign derived intangible income (“FDII”) to be taxed at a lower effective rate than the U.S. statutory rate by allowing a tax deduction against the income.integrations.

1814

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

Note 9 – Income Taxes

We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items. We have included in the estimated annual effective tax the reduction in the U.S. statutory tax rate, GILTI, and the FDII deduction related to current year operations and have not provided additional GILTI on deferred items.

For the three months ended ~~September 30, 2018,~~March 31, 2019, the effective tax rate was a ~~13.3% expense~~29.2% benefit on a pre-tax ~~income,~~loss, compared to a ~~15.9% expense~~12.0% benefit on pre-tax ~~income~~loss for the three months ended ~~September 30, 2017 with the~~March 31, 2018. The change was primarily driven by the ~~above Tax Act changes, a decrease~~foreign rate differential, an increase in excess tax benefits ~~for stock compensation~~related to share-based payments as well as other ~~discrete~~ tax items.

For the nine months ended September 30, 2018, the effective tax rate was a 13.1% expense on a pre-tax income, compared to a 6.6% expense on pre-tax income for the nine months ended September 30, 2017 with the change primarily driven by the Tax Act, the 2018 goodwill impairment as discussed in ~~Note 3 – Fair Value Measurements, a decrease in excess tax benefits for stock compensation as well as other discrete tax items.~~

We are subject to taxation in the United States and various other state and foreign jurisdictions. We are under examination by the Internal Revenue Service ~~("IRS"~~(“IRS”) for our 2009 through 2013 tax years. 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. During ~~first quarter of~~ 2017, the IRS issued proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2009 to 2010 audit cycle. The proposed adjustments would increase our U.S. taxable income by $105 million, which would result in federal tax ~~expense~~ of approximately $37 million, subject to interest. We do not agree with the ~~proposed adjustments~~position of the IRS and are formally protesting the IRS position.

Note 810 – Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia Group. We also evaluate other potential contingent matters, including value-added tax, excise tax, sales tax, transient occupancy or accommodation tax and similar matters. We do not believe that the aggregate amount of liability that could be reasonably possible with respect to these matters would have a material adverse effect on our financial results; however, litigation is inherently uncertain and the actual losses incurred in the event that our legal proceedings were to result in unfavorable outcomes could have a material adverse effect on our business and financial performance.

Litigation Relating to Occupancy Taxes. ~~Ninety-six~~One hundred one lawsuits have been filed by or against cities, counties and states involving hotel occupancy and other taxes. ~~Ten~~Fourteen 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-five~~forty-six 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-one~~Thirty-two 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~~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 ~~$40~~$54 million and ~~$43~~$46 million as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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.

In addition, we have been audited by the State of Colorado. The state has issued assessments for claimed tax, interest and penalty in the approximate amount of $23 million for the periods December 1, 1999 through December 31, 2005 and January 1, 2009 through December 31, 2011. We do not agree with these assessments and have filed protests.

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.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

Hawaii (General Excise Tax). During 2013, the Expedia Group 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 Group companies $132 million of the original “pay-to-play” amount. 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 Group 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 reached a settlement relating to Orbitz merchant model hotel tax liabilities, and on October 5, 2016, the Expedia Group companies paid the State of Hawaii for the tax years 2012 through 2015. The Expedia Group companies and Orbitz have now resolved all assessments by the State of Hawaii for merchant model hotel taxes through 2015.

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

The ~~Hawaii~~ Department of Taxation also issued final assessments for general excise taxes against ~~the~~certain Expedia Group companies, including Orbitz, dated December 23, 2015 for the time period 2000 to 2014 for hotel and car rental revenue for “agency model” transactions. Those assessments are currently under review in the Hawaii tax ~~courts. The Hawaii tax~~ court, which has scheduled trial on the agency hotel and car rental matters for February 4, 2019. On December 29, 2017, the defendant online travel companies filed a motion for partial summary judgment. On January 10, 2018, the Department of Taxation asked the tax court to staystayed proceedings in the agency hotel and car rental case pending athe decision by the Hawaii Supreme Court in the merchant model car rental case addressed ~~below; the defendants opposed that request. On February 5, 2018, the tax court granted the motion to stay.~~below.

Final assessments by the Hawaii Department of Taxation for general ~~excise~~exercise taxes against ~~the~~certain Expedia Group companies, including Orbitz, relating to merchant car rental transactions during the years 2000 to 2014 are also under ~~review in the Hawaii tax courts.~~review. 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 general excise tax is 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. On April 25, 2017, the court entered a stipulated order and final judgment. On May 15, 2017, the Expedia Group companies paid under protest the full amount claimed due, or approximately $16.7 million, as a condition of appeal. The parties filed notices of cross-appeal from the order. ~~The appeals were transferred to~~On March 4, 2019, the Hawaii Supreme Court ~~which heard argument on the appeals on April 5, 2018. The parties await a ruling. The Hawaii tax court’s decision did not resolve merchant car rental transactions for~~affirmed the tax ~~year 2014, which also remain under review.~~

~~San Francisco (Occupancy Tax). During 2009, Expedia Group companies were required to “pay-to-play”~~court in part and ~~paid $48 million~~reversed in ~~advance of litigation relating to occupancy tax proceedings with~~part, finding that the City of San Francisco and, in May 2014, the Expedia Group 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 in the ~~City of San Diego, California Litigation. The California Court of Appeals lifted the stay and, on May 23, 2018, affirmed the trial court’s holding that the~~defendant online travel companies are not ~~liable~~obligated to ~~remit hotel occupancy taxes~~pay tax on the amount paid by consumers to ~~San Francisco. On July 2, 2018,~~ the ~~City~~car rental company for the rental of ~~San Francisco filed a petition~~the vehicle; instead, for ~~review by~~both package and standalone merchant model car rentals, they need only pay the ~~California Supreme Court, which was denied~~tax on ~~August 29, 2018. On September 13, 2018,~~ the City of San Francisco refunded all pay-to-play payments made by the Expedia Group companies (including Orbitz), along with accumulated interest. The $78 million refund was recorded as a gain within legal reserves, occupancy tax and other in the consolidated statement of operations and the $19 million of accumulated interest to interest income during the three months ended September 30, 2018.amounts they charge for their services.

Other Jurisdictions. We are also in various stages of inquiry or audit with domestic and foreign tax authorities, some of which, including in the City of Los Angeles regarding hotel occupancy taxes and in the United Kingdom regarding the application of value added tax (“VAT”) to our European Union related transactions as discussed below, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.

The ultimate resolution of these contingencies may be greater or less than the pay-to-play payments made and our estimates of additional assessments mentioned above.

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 in 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

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~~Notes to Consolidated Financial Statements – (Continued)~~

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 ~~Protection Matters.~~Matters. Over the last several years, the online travel industry has become the subject of investigations by various national competition authorities ~~("NCAs"~~(“NCAs”), particularly in Europe. Expedia Group companies are or have been involved in investigations predominately related to whether certain parity clauses in contracts between Expedia Group ~~companies~~entities and accommodation providers, sometimes also referred to as ~~"most~~“most favored ~~nation"~~nation” or ~~"MFN"~~“MFN” provisions, are anti-competitive.

In Europe, investigations or inquiries into contractual parity provisions between hotels and online travel companies, including Expedia Group companies, were initiated in 2012, 2013 and 2014 by NCAs in Austria, Belgium, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Poland, Sweden and Switzerland. While the ultimate outcome of some of these investigations or inquiries remains uncertain, and the Expedia Group companies’ circumstances are distinguishable from other online travel companies subject to similar investigations and inquiries, we note in this context that on April 21, 2015, the French, Italian and Swedish NCAs, working in close cooperation with the European Commission, announced that they had accepted formal commitments offered by Booking.com to resolve and close the investigations against Booking.com in France, Italy and Sweden by Booking.com removing and/or modifying certain rate, conditions and availability parity provisions in its contracts with accommodation providers in France, Italy and Sweden as of July 1, 2015, among other commitments. Booking.com voluntarily extended the geographic scope of these commitments to accommodation providers throughout Europe as of the same date.

With effect from August 1, 2015, Expedia Group companies waived certain rate, conditions and availability parity clauses in agreements with European hotel partners for a period of five years. While the Expedia Group companies maintain that their parity clauses have always been lawful and in compliance with competition law, these waivers were nevertheless implemented as a positive step towards facilitating the closure of the open investigations into such clauses on a harmonized pan-European

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Notes to Consolidated Financial Statements – (Continued)

basis. Following the implementation of the Expedia Group ~~companies'~~companies’ waivers, nearly all NCAs in Europe have announced either the closure of their investigation or inquiries involving Expedia Group companies or a decision not to open an investigation or inquiry involving Expedia Group companies. Below are descriptions of additional rate parity-related matters of note in Europe.

The German Federal Cartel Office ~~("FCO"~~(“FCO”) has required another online travel company, Hotel Reservation Service ~~("HRS"~~(“HRS”), to remove certain clauses from its contracts with hotels. HRS’ appeal of this decision was rejected by the Higher Regional Court Düsseldorf on January 9, 2015. On December 23, 2015, the FCO announced that it had also required Booking.com by way of an infringement decision to remove certain clauses from its contracts with German hotels. Booking.com has appealed the decision and the appeal was heard by the Higher Regional Court Düsseldorf on February 8, 2017. Those proceedings remain ongoing.

The Italian competition ~~authority's~~authority’s case closure decision against Booking.com and Expedia Group companies has subsequently been appealed by two Italian hotel trade associations, i.e. Federalberghi and AICA. These appeals remain at an early stage and no hearing date has been fixed.

On November 6, 2015, the Swiss competition authority announced that it had issued a final decision finding certain parity terms existing in previous versions of agreements between Swiss hotels and each of certain Expedia Group companies, Booking.com and HRS to be prohibited under Swiss law. The decision explicitly notes that the Expedia Group ~~companies~~companies’ current contract terms with Swiss hotels are not subject to this prohibition. The Swiss competition authority imposed no fines or other sanctions against the Expedia Group companies and did not find an abuse of a dominant market position by the Expedia Group companies. The FCO’s case against the Expedia ~~Group’s~~Group companies’ contractual parity provisions with accommodation providers in Germany remains open but is still at a preliminary stage with no formal allegations of wrong-doing having been communicated to the Expedia Group companies to date.

The Directorate General for Competition, Consumer Affairs and Repression of Fraud (the “DGCCRF”), a directorate of the French Ministry of Economy and Finance with authority over unfair trading practices, brought a lawsuit in France against Expedia Group companies objecting to certain parity clauses in contracts between Expedia Group companies and French hotels. In May 2015, the French court ruled that certain of the parity provisions in certain contracts that were the subject of the lawsuit were not in compliance with French commercial law, but imposed no fine and no injunction. The DGCCRF appealed the decision and, on June 21, 2017, the Paris Court of Appeal published a judgment overturning the decision. The court annulled parity clauses contained in the agreements at issue, ordered the Expedia Group companies to amend their contracts, and imposed a fine. The Expedia Group companies have appealed the decision. The appeal will not stay payment of the fine.

Hotelverband Deutschland (“IHA”) e.V. (a German hotel association) brought proceedings before the Cologne regional court against Expedia, Inc., Expedia.com GmbH and Expedia Lodging Partner Services Sàrl. IHA applied for a ‘cease and desist’ order against these companies in relation to the enforcement of certain rate and availability parity clauses contained in contracts with hotels in Germany. On or around February 16, 2017, the court dismissed IHA’s action and declared the claimant

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~~Notes to Consolidated Financial Statements – (Continued)~~

liable for the Expedia Group defendants’ statutory costs. IHA appealed the decision and, on December 4, 2017, the Court of Appeals rejected IHA’s appeal. The Court of Appeals expressly confirmed that Expedia Group’s MFNs are in compliance both with European and German competition law. While IHA had indicated an intention to appeal the decision to the Federal Supreme Court, it has not lodged an appeal within the applicable deadline, with the consequence that the Court of Appeals judgment has now become final.

A working group of 10 European NCAs (Belgium, Czech Republic, Denmark, France, Hungary, Ireland, Italy, Netherlands, Sweden and the United Kingdom) and the European Commission has been established by the European Competition Network (“ECN”) at the end of 2015 to monitor the functioning of the online hotel booking sector, following amendments made by a number of online travel companies (including Booking.com and Expedia Group companies) in relation to certain parity provisions in their contracts with hotels. The working group issued questionnaires to online travel agencies including Expedia Group companies, metasearch sites and hotels in 2016. The underlying results of the ECN monitoring exercise were published on April 6, 2017.

Legislative bodies in France (July 2015), Austria (December 2016) ~~and~~, Italy (August 2017) and Belgium (August 2018) have also adopted new domestic anti-parity clause legislation. Expedia Group believes each of these pieces of legislation violates both EU and national legal principles and therefore, Expedia Group companies have challenged these laws at the European Commission. ~~Moreover, in Belgium, new domestic anti-parity legislation entered into force on August 20, 2018.~~

A motion requesting the Swiss government to take action on narrow price parity has been adopted in the Swiss parliament. The Swiss government is now required to draft legislation implementing the motion. The Company is unable to predict whether and with what content legislation will ultimately be adopted and, if so, when this might be the case. It is not yet clear how any adopted domestic anti-parity clause legislations and/or any possible future legislation in this area may affect Expedia ~~Group's~~Group’s business.

Outside of Europe, a number of NCAs have also opened investigations or inquired about contractual parity provisions in contracts between hotels and online travel companies in their respective territories, including Expedia Group companies. A

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Notes to Consolidated Financial Statements – (Continued)

Brazilian hotel sector association -- Forum de Operadores Hoteleiros do Brasil -- filed a complaint with the Brazilian Administrative Council for Economic Defence (“CADE”) against a number of online travel companies, including Booking.com, Decolar.com and Expedia Group companies, on July 27, 2016 with respect to parity provisions in contracts between hotels and online travel companies. On September 13, 2016, the Expedia Group companies submitted a response to the complaint to CADE. On March 27, 2018, the Expedia Group companies resolved CADE’s concerns based on a settlement implementing waivers substantially similar to those provided to accommodation providers in Europe. In late 2016, Expedia Group companies resolved the concerns of the Australia and New Zealand NCAs based on implementation of the waivers substantially similar to those provided to accommodation providers in Europe (on September 1, 2016 in Australia and on October 28, 2016 in New Zealand). More recently, however, the Australian NCA has reopened its investigation. On and with effect from March 22, 2019, Expedia Group voluntarily and unilaterally waived certain additional rate parity provisions in agreements with Australian hotel partners. Expedia Group companies are in ongoing discussions with a limited number of NCAs in other countries in relation to their contracts with hotels. In April 2019, the Japan Fair Trade Commission (“JFTC”) launched an investigation into certain practices of a number of online travel companies, including Expedia Group companies. Expedia Group is cooperating with the JFTC in this investigation. Expedia Group is currently unable to predict the impact the implementation of the waivers both in Europe and elsewhere will have on Expedia ~~Group's~~Group’s business, on investigations or inquiries by NCAs in other countries, or on industry practice more generally.

In addition, regulatory authorities in Europe (including the UK Competition and Markets Authority, or ~~"CMA"~~“CMA”), Australia, and elsewhere have initiated legal proceedings and/or market studies, ~~and/~~inquiries or ~~inquiries and~~ investigations ~~into~~relating to online marketplaces and how information is presented to consumers using those marketplaces, ~~investigating~~including practices such as search results rankings and algorithms, discount claims, disclosure of charges, and availability and similar messaging.

On June 28, 2018, the CMA announced that it will be requiring hotel booking websites to take action to address concerns identified in the course of its ongoing investigation. After consulting with the CMA, on January 31, 2019, we agreed to offer certain voluntary undertakings with respect to the presentation of information on certain of our UK consumer-facing websites in order to address the CMA’s concerns. On February 4, 2019, the CMA confirmed that, as a result of the undertakings offered, it has closed its investigation without any admission or finding of liability. The undertakings become effective on September 1, 2019. On August 23, 2018, the Australian Competition and Consumer Commission, or “ACCC”, instituted proceedings in the Australian Federal Court against trivago. The ACCC alleged breaches of Australian consumer law relating to trivago’s advertisements in Australia concerning the hotel prices available on trivago’s Australian site and trivago’s strike-through pricing practice. A trial date is set for September 9, 2019 and an appropriate reserve has been accrued in respect of this matter.

We are cooperating with regulators in the investigations described above where applicable, but we are unable to predict what, if any, effect such actions will have on our business, industry practices or online commerce more generally. Other than described above, we have not accrued a reserve in connection with the market studies, investigations, inquiries or legal proceedings described above either because the likelihood of an unfavorable outcome is not probable or the amount of any loss is not estimable.

Note 11 – Related Party Transactions

Mr. Diller is the Chairman and Senior Executive of Expedia Group. Subject to the terms of an Amended and Restated Stockholders Agreement between Liberty Expedia Holdings, Inc. (“Liberty Expedia Holdings”) and Mr. Diller, as amended as of November 4, 2016 (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 Expedia Holdings (the “Diller Proxy”), which proxy as of March 31, 2018 has been assigned by Mr. Diller to Liberty Expedia Holdings as described below.

On November 4, 2016, Qurate Retail, Inc. (f/k/a Liberty Interactive Corporation) (“Qurate”) redeemed a portion of the outstanding shares of its Liberty Ventures common stock in exchange for all of the outstanding shares of Liberty Expedia Holdings, which at that time was a wholly owned subsidiary of Liberty Interactive (the “Liberty Split-Off”). At the time of the Liberty Split-Off, Liberty Expedia Holdings’ assets included all of Liberty Interactive’s interest in Expedia Group. Pursuant to a Transaction Agreement among Mr. Diller, Liberty Interactive, Liberty Expedia Holdings, John C. Malone and Leslie Malone (collectively, the “Malone Group”), dated as of March 24, 2016 and amended and restated effective on September 22, 2016 and as of March 6, 2018 (the “Transaction Agreement”), at the time of the Liberty Split-Off, for a period ending not later than May 4, 2019 (i) Mr. Diller assigned the Diller Proxy to Liberty Expedia Holdings (the “Diller Assignment”) and (ii) the Malone Group granted 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, 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 Group’s Board of Directors, as of March 31, 2018 Mr. Diller indirectly controls Expedia Group until the termination or expiration of the Diller Assignment and Malone Proxy, at which point (and by virtue of the termination of the Diller Assignment), unless the Diller Assignment and Malone Proxy terminate as a result of Mr. Diller’s death or disability, Mr. Diller

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Notes to Consolidated Financial Statements – (Continued)

will have the power to vote directly all shares of Expedia Common Stock and Class B Common Stock beneficially owned by Liberty Expedia Holdings.

On April 15, 2019 and prior to the Company’s entry into the Merger Agreement as described below, Mr. Diller, Liberty Expedia Holdings, Qurate and the Malone Group entered into Amendment No. 2 to Amended and Restated Transaction Agreement, providing for the immediate termination of the Transaction Agreement, which automatically resulted in the termination of the Diller Assignment and the Malone Proxy.

See Note 14 – Subsequent Events for further information.

Note 912 – Segment Information

We have four reportable segments: Core OTA, trivago, ~~HomeAway~~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 ~~HomeAway~~Vrbo segment operates an online marketplace for the ~~vacation rental~~alternative accommodations industry. Our Egencia segment provides managed travel services to corporate customers worldwide.

We determined our operating segments based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our primary operating metric is Adjusted EBITDA. Adjusted EBITDA for our Core OTA and Egencia segments includes allocations of certain expenses, primarily cost of revenue and facilities, and our Core OTA segment includes the total costs of our global supply organizations ~~as well as~~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 ~~hotel~~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. During the first quarter of 2018, we updated our allocations methodology for certain technology costs. While the impact of the update was not significant, we recast the historical information presented to be on a comparable basis.

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 ~~HomeAway~~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. 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, 2018~~March 31, 2019 and ~~2017.~~2018. As a significant portion of our property and equipment is not allocated to our operating segments and depreciation is not included in our segment measure, we do not report the assets by segment as it would not be meaningful. We do not regularly provide such information to our chief operating decision makers.

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	Three months ended September 30, 2018																		Three months ended March 31, 2019
	Core OTA			trivago			HomeAway			Egencia			Corporate & Eliminations			Total			Core OTA			trivago			Vrbo			Egencia			Corporate & Eliminations			Total
	(In millions)																		(In millions)
Third-party revenue	$	2,527		$	200		$	410		$	139		$	—		$	3,276		$	2,037		$	152		$	267		$	153		$	—		$	2,609
Intersegment revenue	—			95			—			—			(95		)	—			—			85			—			—			(85		)	—
Revenue	$	2,527		$	295		$	410		$	139		$	(95	)	$	3,276		$	2,037		$	237		$	267		$	153		$	(85	)	$	2,609
Adjusted EBITDA	$	837		$	31		$	209		$	19		$	(184	)	$	912		$	344		$	24		$	(40	)	$	29		$	(181	)	$	176
Depreciation	(88		)	(4		)	(17		)	(12		)	(50		)	(171		)	(92		)	(3		)	(23		)	(13		)	(45		)	(176		)
Amortization of intangible assets	—			—			—			—			(71		)	(71		)	—			—			—			—			(52		)	(52		)
Stock-based compensation	—			—			—			—			(54		)	(54		)	—			—			—			—			(56		)	(56		)
Legal reserves, occupancy tax and other	—			—			—			—			78			78			—			—			—			—			(10		)	(10		)
Restructuring and related reorganization charges																			—			—			—			—			(10		)	(10		)
Realized (gain) loss on revenue hedges	(21		)	—			(1		)	—			—			(22		)	(3		)	—			—			—			—			(3		)
Operating income (loss)	$	728		$	27		$	191		$	7		$	(281	)	672			$	249		$	21		$	(63	)	$	16		$	(354	)	(131		)
Other expense, net																(60		)																(10		)
Income before income taxes																612
Loss before income taxes																																		(141		)
Provision for income taxes																(81		)																41
Net income																531
Net loss																																		(100		)
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests															(6		)	Net income attributable to non-controlling interests															(3		)
Net income attributable to Expedia Group, Inc.																$	525
Net loss attributable to Expedia Group, Inc.																			Net loss attributable to Expedia Group, Inc.															$	(103	)


	Three months ended September 30, 2017																		Three months ended March 31, 2018
	Core OTA			trivago			HomeAway			Egencia			Corporate & Eliminations			Total			Core OTA			trivago			Vrbo			Egencia			Corporate & Eliminations			Total
	(In millions)																		(In millions)
Third-party revenue	$	2,314		$	221		$	305		$	126		$	—		$	2,966		$	1,926		$	197		$	234		$	151		$	—		$	2,508
Intersegment revenue	—			117			—			—			(117		)	—			—			122			—			—			(122		)	—
Revenue	$	2,314		$	338		$	305		$	126		$	(117	)	$	2,966		$	1,926		$	319		$	234		$	151		$	(122	)	$	2,508
Adjusted EBITDA	$	734		$	(8	)	$	126		$	20		$	(163	)	$	709		$	323		$	(28	)	$	(21	)	$	27		$	(177	)	$	124
Depreciation	(79		)	(2		)	(11		)	(11		)	(53		)	(156		)	(83		)	(3		)	(14		)	(11		)	(56		)	(167		)
Amortization of intangible assets	—			—			—			—			(71		)	(71		)	—			—			—			—			(72		)	(72		)
Stock-based compensation	—			—			—			—			(7		)	(7		)	—			—			—			—			(50		)	(50		)
Legal reserves, occupancy tax and other	—			—			—			—			1			1			—			—			—			—			(3		)	(3		)
Restructuring and related reorganization charges	—			—			—			—			(4		)	(4		)
Realized (gain) loss on revenue hedges	9			—			—			—			—			9			3			—			—			—			—			3
Operating income (loss)	$	664		$	(10	)	$	115		$	9		$	(297	)	481			$	243		$	(31	)	$	(35	)	$	16		$	(358	)	(165		)
Other expense, net																(66		)																(4		)
Income before income taxes																415
Loss before income taxes																																		(169		)
Provision for income taxes																(66		)																20
Net income																349
Net loss																																		(149		)
Net loss attributable to non-controlling interests	Net loss attributable to non-controlling interests															3			Net loss attributable to non-controlling interests															12
Net income attributable to Expedia Group, Inc.																$	352
Net loss attributable to Expedia Group, Inc.																			Net loss attributable to Expedia Group, Inc.															$	(137	)

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Revenue by Business Model and Service Type

Nine months ended September 30, 2018
Core OTA trivago HomeAway Egencia Corporate &
Eliminations Total
(In millions)
Third-party revenue $ 6,706
$ 571
$ 941
$ 446
$ —
$ 8,664
Intersegment revenue —
323
—
—
(323 ) —
Revenue $ 6,706
$ 894
$ 941
$ 446
$ (323 ) $ 8,664
Adjusted EBITDA $ 1,721
$ (17 ) $ 266
$ 76
$ (547 ) $ 1,499
Depreciation (256 ) (11 ) (46 ) (35 ) (159 ) (507 )
Amortization of intangible assets —
—
—
—
(215 ) (215 )
Impairment of goodwill —
—
—
—
(61 ) (61 )
Stock-based compensation —
—
—
—
(154 ) (154 )
Legal reserves, occupancy tax and other —
—
—
—
74
74
Realized (gain) loss on revenue hedges (17 ) —
(1 ) —
—
(18 )
Operating income (loss) $ 1,448
$ (28 ) $ 219
$ 41
$ (1,062 ) 618
Other expense, net (189 )
Income before income taxes 429
Provision for income taxes (56 )
Net income 373
Net loss attributable to non-controlling interests 16
Net income attributable to Expedia Group, Inc. $ 389
The following table presents revenue by business model and service type:

Nine months ended September 30, 2017
Core OTA trivago HomeAway Egencia Corporate &
Eliminations Total
(In millions)
Third-party revenue $ 6,022
$ 621
$ 714
$ 384
$ —
$ 7,741
Intersegment revenue —
331
—
—
(331 ) —
Revenue $ 6,022
$ 952
$ 714
$ 384
$ (331 ) $ 7,741
Adjusted EBITDA $ 1,523
$ 14
$ 171
$ 76
$ (474 ) $ 1,310
Depreciation (226 ) (6 ) (27 ) (30 ) (160 ) (449 )
Amortization of intangible assets —
—
—
—
(204 ) (204 )
Stock-based compensation —
—
—
—
(104 ) (104 )
Legal reserves, occupancy tax and other —
—
—
—
(23 ) (23 )
Restructuring and related reorganization charges —
—
—
—
(16 ) (16 )
Realized (gain) loss on revenue hedges (3 ) —
—
—
—
(3 )
Operating income (loss) $ 1,294
$ 8
$ 144
$ 46
$ (981 ) 511
Other expense, net (170 )
Income before income taxes 341
Provision for income taxes (22 )
Net income 319
Net loss attributable to non-controlling interests 4
Net income attributable to Expedia Group, Inc. $ 323



	Three months ended March 31,
	2019		2018
	(in millions)
Business Model:
Merchant	$	1,392	$	1,334
Agency	686		658
Advertising and media	264		282
Vrbo	267		234
Total revenue	$	2,609	$	2,508
Service Type:
Lodging	$	1,725	$	1,612
Air	248		242
Advertising and media	264		282
Other⁽¹⁾	372		372
Total revenue	$	2,609	$	2,508


(1)	Other includes car rental, insurance, destination services, cruise and fee revenue related to our corporate travel business, among other revenue streams, none of which are individually material.

Our Core OTA segment generates revenue from the merchant, agency and advertising and media business models as well as all service types. trivago segment revenue is generated through advertising and media. All Vrbo revenue is included within the lodging service type. Our Egencia segment generates revenue from similar business models and service types to Core OTA applied to the corporate traveler with the majority being agency revenue.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

Note 1013 – Guarantor and Non-Guarantor Supplemental Financial Information

Condensed consolidating financial information of Expedia Group, Inc. (the “Parent”), our subsidiaries that are guarantors of our debt facility and instruments (the “Guarantor Subsidiaries”), and our subsidiaries that are not guarantors of our debt facility and instruments (the “Non-Guarantor Subsidiaries”) is shown below. The debt facility and instruments are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The guarantees are full, unconditional, and joint and several with the exception of certain customary automatic subsidiary release provisions. In this financial information, the Parent and Guarantor Subsidiaries account for investments in their wholly-owned subsidiaries using the equity method.

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three months ended ~~September 30, 2018~~March 31, 2019


	Parent			Guarantor Subsidiaries				Non-Guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(In millions)																(In millions)
Revenue	$	—		$	2,503			$	869		$	(96	)	$	3,276		$	—		$	2,058		$	638		$	(87	)	$	2,609
Costs and expenses:
Cost of revenue	—			362				147			(5		)	504			—			376			143			(6		)	513
Selling and marketing	—			1,096				496			(91		)	1,501			—			1,150			466			(81		)	1,535
Technology and content	—			287				117			—			404			—			294			135			—			429
General and administrative	—			129				73			—			202			—			107			84			—			191
Amortization of intangible assets	—			44				27			—			71			—			30			22			—			52
Legal reserves, occupancy tax and other	—			(78		)		—			—			(78		)	—			11			(1		)	—			10
Restructuring and related reorganization charges																	—			—			10			—			10
Intercompany (income) expense, net	—			239				(239		)	—			—			—			212			(212		)	—			—
Operating income	—			424				248			—			672
Operating loss																	—			(122		)	(9		)	—			(131		)
Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries	560			204				—			(764		)	—
Equity in pre-tax losses of consolidated subsidiaries																	(72		)	(29		)	—			101			—
Other, net	(46		)	(13		)		(1		)	—			(60		)	(40		)	52			(22		)	—			(10		)
Total other income (expense), net	514			191				(1		)	(764		)	(60		)	(112		)	23			(22		)	101			(10		)
Income before income taxes	514			615			��	247			(764		)	612
Loss before income taxes																	(112		)	(99		)	(31		)	101			(141		)
Provision for income taxes	11			(55		)		(37		)	—			(81		)	9			27			5			—			41
Net income	525			560				210			(764		)	531
Net loss																	(103		)	(72		)	(26		)	101			(100		)
Net (income) loss attributable to non-controlling interests	—			1				(7		)	—			(6		)	—			1			(4		)	—			(3		)
Net income attributable to Expedia Group, Inc.	$	525		$	561			$	203		$	(764	)	$	525
Comprehensive income attributable to Expedia Group, Inc.	$	514		$	545			$	186		$	(731	)	$	514
Net loss attributable to Expedia Group, Inc.																	$	(103	)	$	(71	)	$	(30	)	$	101		$	(103	)
Comprehensive loss attributable to Expedia Group, Inc.																	$	(100	)	$	(80	)	$	(38	)	$	118		$	(100	)

2622

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three months ended ~~September 30, 2017~~

Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Consolidated
(In millions)
Revenue $ —
$ 2,227
$ 857
$ (118 ) $ 2,966
Costs and expenses:
Cost of revenue —
348
116
(5 ) 459
Selling and marketing —
1,012
562
(113 ) 1,461
Technology and content —
250
100
—
350
General and administrative —
72
69
—
141
Amortization of intangible assets —
45
26
—
71
Legal reserves, occupancy tax and other —
(1 ) —
—
(1 )
Restructuring and related reorganization charges —
1
3
—
4
Intercompany (income) expense, net —
205
(205 ) —
—
Operating income —
295
186
—
481
Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries 380
162
—
(542 ) —
Other, net (44 ) (32 ) 10
—
(66 )
Total other income (expense), net 336
130
10
(542 ) (66 )
Income before income taxes 336
425
196
(542 ) 415
Provision for income taxes 16
(43 ) (39 ) —
(66 )
Net income 352
382
157
(542 ) 349
Net loss attributable to non-controlling interests —
—
3
—
3
Net income attributable to Expedia Group, Inc. $ 352
$ 382
$ 160
$ (542 ) $ 352
Comprehensive income attributable to Expedia Group, Inc. $ 417
$ 462
$ 261
$ (723 ) $ 417

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~Nine Months Ended September 30,~~March 31, 2018

Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Consolidated
(In millions)
Revenue $ —
$ 6,643
$ 2,348
$ (327 ) $ 8,664
Costs and expenses:
Cost of revenue —
1,094
410
(15 ) 1,489
Selling and marketing —
3,256
1,614
(312 ) 4,558
Technology and content —
847
353
—
1,200
General and administrative —
375
222
—
597
Amortization of intangible assets —
134
81
—
215
Impairment of goodwill —
—
61
—
61
Legal reserves, occupancy tax and other —
(75 ) 1
—
(74 )
Intercompany (income) expense, net —
654
(654 ) —
—
Operating income —
358
260
—
618
Other income (expense):
Equity in pre-tax earnings (loss) of consolidated subsidiaries 501
223
—
(724 ) —
Other, net (146 ) (22 ) (21 ) —
(189 )
Total other income (expense), net 355
201
(21 ) (724 ) (189 )
Income before income taxes 355
559
239
(724 ) 429
Provision for income taxes 34
(54 ) (36 ) —
(56 )
Net income 389
505
203
(724 ) 373
Net loss attributable to non-controlling interests —
2
14
—
16
Net income attributable to Expedia Group, Inc. $ 389
$ 507
$ 217
$ (724 ) $ 389
Comprehensive income attributable to Expedia Group, Inc. $ 339
$ 435
$ 147
$ (582 ) $ 339

~~Table of Contents~~

~~Notes to Consolidated Financial Statements – (Continued)~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~Nine Months Ended September 30, 2017~~


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(In millions)															(In millions)
Revenue	$	—		$	5,874		$	2,202		$	(335	)	$	7,741		$	—		$	1,911		$	721		$	(124	)	$	2,508
Costs and expenses:
Cost of revenue	—			1,018			315			(13		)	1,320			—			366			126			(5		)	487
Selling and marketing	—			2,919			1,577			(322		)	4,174			—			1,048			587			(119		)	1,516
Technology and content	—			737			278			—			1,015			—			280			116			—			396
General and administrative	—			292			186			—			478			—			118			81			—			199
Amortization of intangible assets	—			137			67			—			204			—			45			27			—			72
Legal reserves, occupancy tax and other	—			23			—			—			23			—			3			—			—			3
Restructuring and related reorganization charges	—			5			11			—			16
Intercompany (income) expense, net	—			591			(591		)	—			—			—			184			(184		)	—			—
Operating income	—			152			359			—			511
Operating loss																—			(133		)	(32		)	—			(165		)
Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries	403			331			—			(734		)	—
Equity in pre-tax losses of consolidated subsidiaries																(97		)	(16		)	—			113			—
Other, net	(128		)	(77		)	35			—			(170		)	(52		)	52			(4		)	—			(4		)
Total other income (expense), net	275			254			35			(734		)	(170		)	(149		)	36			(4		)	113			(4		)
Income before income taxes	275			406			394			(734		)	341
Loss before income taxes																(149		)	(97		)	(36		)	113			(169		)
Provision for income taxes	48			9			(79		)	—			(22		)	12			3			5			—			20
Net income	323			415			315			(734		)	319
Net loss																(137		)	(94		)	(31		)	113			(149		)
Net loss attributable to non-controlling interests	—			—			4			—			4			—			1			11			—			12
Net income attributable to Expedia Group, Inc.	$	323		$	415		$	319		$	(734	)	$	323
Comprehensive income attributable to Expedia Group, Inc.	$	480		$	624		$	551		$	(1,175	)	$	480
Net loss attributable to Expedia Group, Inc.																$	(137	)	$	(93	)	$	(20	)	$	113		$	(137	)
Comprehensive income (loss) attributable to Expedia Group, Inc.																$	(110	)	$	(51	)	$	24		$	27		$	(110	)

2923

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Notes to Consolidated Financial Statements – (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

~~September 30, 2018~~March 31, 2019


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated		Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(In millions)											(In millions)
ASSETS
Total current assets	$	392	$	5,990	$	2,411	$	(2,621	)	$	6,172	$	420	$	7,471	$	2,397	$	(2,586	)	$	7,702
Investment in subsidiaries	10,595		3,378		—		(13,973		)	—		10,542		3,398		—		(13,940		)	—
Intangible assets, net	—		1,620		481		—			2,101		—		1,491		445		—			1,936
Goodwill	—		6,390		1,767		—			8,157		—		6,368		1,741		—			8,109
Other assets, net	—		1,757		801		153			2,711		—		2,124		1,121		(29		)	3,216
TOTAL ASSETS	$	10,987	$	19,135	$	5,460	$	(16,441	)	$	19,141	$	10,962	$	20,852	$	5,704	$	(16,555	)	$	20,963
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	1,333	$	8,197	$	1,854	$	(2,621	)	$	8,763	$	1,624	$	9,764	$	1,924	$	(2,586	)	$	10,726
Long-term debt, excluding current maturities	3,727		—		—		—			3,727
Long-term debt												3,704		—		—		—			3,704
Other long-term liabilities	—		273		279		153			705		—		464		435		(29		)	870
Redeemable non-controlling interests	—		8		11		—			19		—		17		12		—			29
Stockholders’ equity	5,927		10,657		3,316		(13,973		)	5,927		5,634		10,607		3,333		(13,940		)	5,634
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,987	$	19,135	$	5,460	$	(16,441	)	$	19,141	$	10,962	$	20,852	$	5,704	$	(16,555	)	$	20,963

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, ~~2017~~2018


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated		Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(In millions)											(In millions)
ASSETS
Total current assets	$	359	$	3,493	$	2,263	$	(575	)	$	5,540	$	402	$	5,261	$	2,137	$	(2,603	)	$	5,197
Investment in subsidiaries	10,265		4,249		—		(14,514		)	—		10,615		3,425		—		(14,040		)	—
Intangible assets, net	—		1,736		573		—			2,309		—		1,520		472		—			1,992
Goodwill	—		6,366		1,863		—			8,229		—		6,366		1,754		—			8,120
Other assets, net	5		1,677		775		(19		)	2,438		—		1,840		913		(29		)	2,724
TOTAL ASSETS	$	10,629	$	17,521	$	5,474	$	(15,108	)	$	18,516	$	11,017	$	18,412	$	5,276	$	(16,672	)	$	18,033
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	751	$	6,798	$	905	$	(575	)	$	7,879	$	1,649	$	7,396	$	1,618	$	(2,603	)	$	8,060
Long-term debt, excluding current maturities	3,749		—		—		—			3,749
Long-term debt												3,717		—		—		—			3,717
Other long-term liabilities	—		494		262		(19		)	737		—		320		284		(29		)	575
Redeemable non-controlling interests	—		9		13		—			22		—		17		13		—			30
Stockholders’ equity	6,129		10,220		4,294		(14,514		)	6,129		5,651		10,679		3,361		(14,040		)	5,651
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,629	$	17,521	$	5,474	$	(15,108	)	$	18,516	$	11,017	$	18,412	$	5,276	$	(16,672	)	$	18,033

3024

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Notes to Consolidated Financial Statements – (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2019


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
	(In millions)												(In millions)
Operating activities:
Net cash provided by operating activities	$	—		$	1,509		$	611		$	2,120		$	—		$	1,866		$	283		$	2,149
Investing activities:
Capital expenditures, including internal-use software and website development	—			(533		)	(101		)	(634		)	—			(260		)	(14		)	(274		)
Purchases of investments	—			(1,714		)	—			(1,714		)	—			(438		)	—			(438		)
Sales and maturities of investments	—			1,618			74			1,692
Acquisitions, net of cash and restricted cash acquired	—			(40		)	—			(40		)
Transfers (to) from related parties	—			(60		)	60			—
Other, net	—			39			2			41			—			6			—			6
Net cash provided by (used in) investing activities	—			(690		)	35			(655		)
Net cash used in investing activities													—			(692		)	(14		)	(706		)
Financing activities:
Payment of long-term debt	(500		)	—			—			(500		)
Purchases of treasury stock	(620		)	—			—			(620		)	(25		)	—			—			(25		)
Payment of dividends to stockholders	(138		)	—			—			(138		)	(47		)	—			—			(47		)
Proceeds from exercise of equity awards and employee stock purchase plan	138			—			—			138			91			—			—			91
Transfers (to) from related parties	1,092			(666		)	(426		)	—			(19		)	135			(116		)	—
Other, net	28			1			(63		)	(34		)	—			2			—			2
Net cash used in financing activities	—			(665		)	(489		)	(1,154		)
Net cash provided by (used in) financing activities													—			137			(116		)	21
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	—			(55		)	(64		)	(119		)	—			(5		)	(6		)	(11		)
Net increase in cash, cash equivalents and restricted cash and cash equivalents	—			99			93			192			—			1,306			147			1,453
Cash, cash equivalents and restricted cash and cash equivalents at beginning of the period	—			1,321			1,596			2,917			—			1,190			1,515			2,705
Cash, cash equivalents and restricted cash and cash equivalents at end of the period	$	—		$	1,420		$	1,689		$	3,109		$	—		$	2,496		$	1,662		$	4,158

3125

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Notes to Consolidated Financial Statements – (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2018


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
	(In millions)												(In millions)
Operating activities:
Net cash provided by operating activities	$	—		$	1,316		$	630		$	1,946		$	—		$	1,418		$	258		$	1,676
Investing activities:
Capital expenditures, including internal-use software and website development	—			(379		)	(147		)	(526		)	—			(151		)	(41		)	(192		)
Purchases of investments	—			(1,157		)	(556		)	(1,713		)	—			(867		)	—			(867		)
Sales and maturities of investments	—			758			163			921			—			273			44			317
Acquisitions, net of cash and restricted cash acquired	—			(168		)	(1		)	(169		)
Transfers (to) from related parties	—			(5		)	5			—			—			(60		)	60			—
Other, net	—			2			6			8			—			11			3			14
Net cash used in investing activities	—			(949		)	(530		)	(1,479		)	—			(794		)	66			(728		)
Financing activities:
Proceeds from issuance of long-term debt, net of issuance costs	992			—			—			992
Purchases of treasury stock	(154		)	—			—			(154		)	(202		)	—			—			(202		)
Payment of dividends to stockholders	(130		)	—			—			(130		)	(46		)	—			—			(46		)
Proceeds from exercise of equity awards and employee stock purchase plan	180			—			—			180			20			—			—			20
Transfers (to) from related parties	(883		)	763			120			—			230			120			(350		)	—
Other, net	(5		)	(13		)	(9		)	(27		)	(2		)	(5		)	(1		)	(8		)
Net cash provided by financing activities	—			750			111			861			—			115			(351		)	(236		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	—			39			103			142			—			(10		)	27			17
Net increase in cash, cash equivalents and restricted cash and cash equivalents	—			1,156			314			1,470			—			729			—			729
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period	—			442			1,376			1,818			—			1,321			1,596			2,917
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	—		$	1,598		$	1,690		$	3,288		$	—		$	2,050		$	1,596		$	3,646

Table of Contents

Notes to Consolidated Financial Statements – (Continued)

Note 14 – Subsequent Events

Merger Agreement

On April 16, 2019, Expedia Group announced that, on April 15, 2019, it entered into an Agreement and Plan of Merger (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 “Proposed Liberty Expedia Transaction”). The Merger Agreement provides for, among other things and subject to the satisfaction or waiver of certain specified conditions set forth therein, (i) the merger of Merger Sub with and into Liberty Expedia Holdings (the “Merger”), with Liberty Expedia Holdings surviving the Merger as a wholly owned subsidiary of Merger LLC, and (ii) immediately following the Merger, the merger of Liberty Expedia Holdings (as the surviving corporation in the Merger) with and into Merger LLC (the “Upstream Merger”, and together with the Merger, the “Combination”), with Merger LLC surviving the Upstream Merger as a wholly owned subsidiary of the Company.

Pursuant to the Merger Agreement, each share of Series A common stock, par value $0.01 per share, of Liberty Expedia Holdings and Series B common stock, par value $0.01 per share, of Liberty Expedia Holdings (together, the “Liberty Expedia Holdings common stock”) issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (except for shares held by Liberty Expedia Holdings as treasury stock or held directly by the Company) will be converted into the right to receive 0.36 of a share of Company common stock plus cash (without interest) in lieu of any fractional shares of Company common stock (the “Merger Consideration”). At the closing of the Combination, former holders of Liberty Expedia Holdings common stock are expected to own in the aggregate shares of Company common stock representing approximately 14% of the total number of outstanding shares of Company common stock and Class B common stock, based on approximately 140 million shares of Company common stock and approximately 5.7 million shares of Class B common stock currently expected to be outstanding at the closing of the Combination.

As of the Effective Time, each then-outstanding stock option with respect to shares of Liberty Expedia Holdings common stock will be cancelled and converted into the right to receive the Merger Consideration in respect of each share subject to such option (after deducting a number of shares sufficient to cover the aggregate option exercise price), less applicable tax withholding. As of the Effective Time, each then-outstanding restricted stock award and restricted stock unit award with respect to shares of Liberty Expedia Holdings common stock will be cancelled and converted into the right to receive the Merger Consideration in respect of each share of Liberty Expedia Holdings common stock subject to such award, less applicable tax withholding.

The closing of the Combination is subject to certain mutual conditions, including (1) the adoption of the Merger Agreement by the holders of at least a majority of the aggregate voting power of the outstanding shares of Liberty Expedia Holdings common stock, voting together as a single class; (2) any required approvals under the HSR Act in respect of the Combination and other transactions contemplated by the Merger Agreement; (3) the absence of any order or law that has the effect of enjoining or otherwise prohibiting the closing of the Combination or any of the other transactions contemplated by the Merger Agreement and related transaction documents; (4) the approval for listing of the shares of Company common stock to be issued as Merger Consideration on the Nasdaq Global Select Market and the effectiveness under the Securities Act, of a registration statement on Form S-4 with respect to such shares; and (5) the delivery of an opinion by Skadden, Arps, Slate, Meagher & Flom LLP to Liberty Expedia Holdings to the effect that the Combination will not impact the tax treatment of the split off of Liberty Expedia Holdings by Qurate on November 4, 2016. The respective obligation of each party to consummate the Combination is also conditioned upon (x) the delivery of an opinion from such party’s tax counsel to the effect that the Combination will qualify as a “reorganization” for U.S. federal income tax purposes and (y) the other party’s representations and warranties being true and correct (subject to certain materiality and material adverse effect qualifications), and the other party having performed in all material respects its obligations under the Merger Agreement. The Company’s obligation to consummate the Combination is further conditioned upon the satisfaction of certain conditions to the completion of the exchange pursuant to the Exchange Agreement as described below. The Combination does not require the approval of the Company’s stockholders.

At the closing of the Combination, 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 is expected to resign from the Expedia Group Board of Directors.

The Expedia Group Board of Directors approved the Merger Agreement and the transactions contemplated thereby following the recommendation of a special committee (the “Expedia Group Special Committee”) consisting solely of independent and disinterested directors, each of whom had been elected by the holders of Company common stock voting together as a class (without the vote of the Class B common stock), to which the Expedia Group Board of Directors had delegated exclusive authority to consider and negotiate the Merger Agreement and the transactions contemplated thereby (including, without limitation, the Exchange Agreement, the Voting Agreement and the New Governance Agreement and the transactions contemplated thereby, as described below).

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Voting Agreement

In connection with the transactions contemplated by the Merger Agreement and following the termination of the Malone Proxy as described below, the Malone Group entered into a voting agreement (the “Voting Agreement”) with the Company on April 15, 2019, pursuant to which the Malone Group has committed, subject to certain conditions, to vote shares of Liberty Expedia Holdings common stock representing approximately 32% of the total voting power of the issued and outstanding shares of Liberty Expedia Holdings common stock as of January 31, 2019, as reported in Liberty Expedia Holdings’ Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 8, 2019, in favor of the Merger Agreement and the transactions contemplated thereby at any meeting of the stockholders of Liberty Expedia Holdings called to vote upon the Merger.

Exchange Agreement

Simultaneously with the entry into the Merger Agreement, Barry 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”) pursuant to which (and agreed by Mr. Diller to be deemed to be in recognition and in lieu of Mr. Diller’s existing rights under the Existing Governance Agreement (as defined below) and the Stockholders Agreement (as defined above)), immediately prior to and conditioned upon the closing of the Combination, Mr. Diller and, if the Family Foundation so elects, the Family Foundation, are expected to exchange with Liberty Expedia Holdings up to approximately 5.7 million shares of Company common stock, for the same number of shares of 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”). Assuming the exchange by Mr. Diller and the Family Foundation of a total of approximately 5.7 million shares of Company common stock for an equal number of shares of Class B common stock, the Original Shares would represent approximately 29% of the total voting power of all shares of Company common stock and Class B common stock, based on approximately 140 million shares of Company common stock and approximately 5.7 million shares of Class B common stock currently expected to be outstanding at the closing of the Combination.

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”), 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 (and agreed by Mr. Diller to be deemed to be in recognition and in lieu of Mr. Diller’s existing rights under the Existing Governance Agreement (as defined below) and the Stockholders Agreement (as defined above)), to (1) exchange with the Company (or its wholly owned subsidiary) an equivalent number of shares of Company common stock for, or (2) purchase from the Company (or its wholly owned subsidiary), at a price per share equal to the average closing price of Company common stock for the five trading days immediately preceding notice of exercise, up to a number of shares of Class B common stock equal to (1) 12,799,999 minus (2) the number of Original Shares (the shares acquired pursuant to the Purchase/Exchange Right, the “Additional Shares”). The Purchase/Exchange Right may be exercised from time to time in whole or in part. Assuming the exercise in full by Mr. Diller of the Purchase/Exchange Right, the Original Shares and Additional Shares would collectively represent approximately 49% of the total voting power of all outstanding shares of Company common stock and Class B common stock, assuming a total of approximately 133 million shares of Company 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 Company common stock acquired in the open market (or otherwise, other than from the Company). If Mr. Diller acquires 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 Company common stock and Class B common stock.

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 Company common stock.

All Additional Shares will be automatically converted into shares of Company 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.

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The automatic conversion features described above negotiated by the Expedia Group Special Committee and agreed to by Mr. Diller under the New Governance Agreement do not exist under the Existing 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 Company common stock. These requirements negotiated by the Expedia Group Special Committee and agreed to by Mr. Diller under the New Governance Agreement do not exist under the Existing Governance Agreement.

At the first annual meeting of the Company’s stockholders following the closing of the Combination and for which a preliminary proxy statement has not yet been filed prior to the Effective Time, the Company intends to propose, and Mr. Diller has agreed to vote in favor of, a proposal to amend its Certificate of Incorporation to reflect the aforementioned transfer restrictions, automatic conversion provisions and change-of-control restrictions reflected in the New Governance Agreement.

Other Agreements

As described above, pursuant to Diller Proxy under the Stockholders Agreement, Mr. Diller generally has the right to vote the shares of Company common stock and Class B common stock held by Liberty Expedia Holdings and its subsidiaries, which shares represent approximately 53% of the total voting power of all shares of Company common stock and Class B common stock, based on a total of 134,390,305 shares of Company common stock and 12,799,999 shares of Class B common stock outstanding as of January 25, 2019, as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 8, 2019. Pursuant to the Diller Assignment (as defined above), Mr. Diller assigned the Diller Proxy (as defined above) to Liberty Expedia Holdings, and, pursuant to the Malone Proxy (as defined above, and, collectively with the “Diller Assignment,” the “Proxy Swap Arrangements”), the Malone Group granted to Mr. Diller a proxy over the shares of Liberty Expedia Holdings common stock owned by it.

On April 15, 2019 and prior to the Company’s entry into the Merger Agreement, Mr. Diller, Liberty Expedia Holdings, Qurate and the Malone Group entered into Amendment No. 2 to Amended and Restated Transaction Agreement, providing for the immediate termination of the Transaction Agreement, which automatically resulted in the termination of the Diller Assignment and the Malone Proxy.

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) will terminate at the closing of the Combination;

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 Amended and Restated Governance Agreement, dated as of December 20, 2011, as amended, among the Company, Liberty Expedia Holdings and Mr. Diller (the “Existing Governance Agreement”), will terminate at the closing of the Combination;

An Assumption and Joinder Agreement to Tax Sharing Agreement by and among the Company, Liberty Expedia Holdings and Qurate, pursuant to which the Company agrees to assume, effective at the closing of the Combination, 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 agrees to assume, effective at the closing of the Combination, certain of Liberty Expedia Holdings’ rights and obligations under the Transaction Agreement which survive 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 agrees to assume, effective at the closing of the Combination, Liberty Expedia Holdings’ rights and obligations under the Reorganization Agreement, dated as of October 26, 2016, by and between Qurate and Liberty Expedia Holdings.

Upon the closing of the Combination, it is expected that the Company will no longer be a controlled company under the Nasdaq Stock Market Listing Rules. Accordingly, following permitted phase-in periods, the Company will be required, among other things, to have to have a majority of independent directors on its Board of Directors, a compensation committee consisting solely of independent directors and a director nominations process whereby directors are selected by a nominations committee consisting solely of independent directors or by a vote of the Board of Directors in which only independent directors participate. Additionally, all additional shares will be automatically converted into shares of Company common stock immediately following the earliest of (a) Mr. Diller’s death or disability, (b) such time as Mr. Diller no longer serves as

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Notes to Consolidated Financial Statements – (Continued)

chairman or senior executive of Expedia Group, 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. Therefore, while it is possible that Mr. Diller may at some point in the future beneficially own more than 50% of the outstanding voting power of the Company, the provisions of the New Governance Agreement provide that following one of the triggers mentioned above, the number of shares of Class B common stock acquired by Mr. Diller in the transaction will not exceed approximately 5.7 million shares of Class B common stock, or approximately 29% of the total voting power of Expedia Group based on approximately 140 million shares of Company common stock and approximately 5.7 million shares of Class B common stock currently expected to be outstanding at the closing of the Combination. Further, as described above, the New Governance Agreement provides that, subject to limited exception, no current or future holder of Original Shares or Additional Shares may participate in, or vote or tender in favor of, any change of control transaction involving at least 50% of the outstanding shares of capital stock of the Company, unless such transaction provides for the same per share consideration and mix of consideration (or election right) and the same participation rights for shares of Class B common stock and shares of Company common stock.

Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, Part I, Item 1A, “Risk Factors,” in the section entitled “Risk Factors” in the Registration Statement on Form S-4 (Registration No. 333-231164) filed by Expedia Group with the Securities and Exchange Commission (“SEC”) on May 1, 2019, as well as those discussed elsewhere in this report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “goal,” “intends,” ~~“plans”~~“likely,” “may,” “plans,” “potential,” “predicts,” “projected,” “seeks,” “should” and ~~“believes,~~“will,” or the negative of these terms or other similar expressions, among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the ~~Securities and Exchange Commission (“SEC”)~~SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Overview

Expedia Group is one of ~~world's~~the world’s largest travel companies. We help knock down the barriers to travel, making it easier, more enjoyable, more attainable and more accessible. We bring the world within reach for customers and partners around the globe. We leverage our platform and technology capabilities across an extensive portfolio of businesses and brands to orchestrate the movement of people and the delivery of travel experiences on both a local and global basis. We make available, on a stand-alone and package basis, travel services provided by numerous lodging properties, airlines, car rental companies, ~~destination service~~activities and experiences providers, cruise lines, vacation rental property owners and managers, and other travel product and service companies. We also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our websites.

~~Our portfolio of brands includes Brand Expedia®, Hotels.com®, Expedia® Partner Solutions, Egencia®, trivago®, HomeAway®, VRBO®~~, Orbitz®, Travelocity®, Wotif®, lastminute.com.au®, ebookers®, CheapTickets®, Hotwire®, Classic Vacations®, Expedia Group™ Media Solutions, CarRentals.com™, Expedia Local Expert®, Expedia® CruiseShipCenters®, SilverRail™, ALICE® and Traveldoo®. In addition, many of these brands have related international points of sale. For additional information about our portfolio of brands, see “Portfolio of Brands” in Part I, Item 1, ~~“Business,”~~“Business”, in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

All percentages within this section are calculated on actual, unrounded numbers.

Trends

The travel industry, including offline agencies, online agencies and other suppliers of travel products and services, has historically been characterized by intense competition, as well as rapid and significant change. Generally, ~~2016~~2017 and ~~2017~~2018 represented years of continuing ~~improvement~~growth for the travel industry. However, political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, sovereign debt issues, natural disasters and macroeconomic concerns are examples of events that contribute to a somewhat uncertain environment, which could have a negative impact on the travel industry in the future.

Online Travel

Increased usage and familiarity with the internet are driving rapid growth in online penetration of travel expenditures. According to Phocuswright, an independent travel, tourism and hospitality research firm, in ~~2018,~~2019, over 45% of U.S. and European leisure and unmanaged corporate travel expenditures are expected to occur online. Online penetration rates in the

emerging markets, such as Asia Pacific and Latin American regions, are lagging behind that of the United States and Europe, and are estimated ~~between~~to be in the range of 35% to ~~40%.~~45% in 2019. These penetration rates increased over the past few years, and are expected to continue growing, which ~~has attracted~~presents an attractive growth opportunity for our business, while also attracting many

competitors to online travel. This competition intensified in recent years, and the industry is expected to remain highly competitive for the foreseeable future. In addition to the growth of online travel agencies, airlines and lodging companies aggressively pursued direct online distribution of their products and services. Competitive entrants such as “metasearch” companies, including Kayak.com (owned by Booking Holdings), trivago (in which Expedia Group owns a majority interest) as well as TripAdvisor, introduced differentiated features, pricing and content compared with the legacy online travel agency companies, as well as various forms of direct or assisted booking tools. In addition, the increasing popularity of the “sharing economy,” accelerated by online penetration, ~~is directly impacting~~has had a direct impact on the travel and lodging industry. ~~Players~~Businesses such as Airbnb, Vrbo (previously HomeAway, ~~(which we~~which Expedia acquired in December 2015) and Booking.com (owned by Booking Holdings) have emerged as the leaders, bringing incremental alternative accommodation and vacation rental inventory to the market. Many other competitors, including vacation rental metasearch players, continue to emerge in this space, which is ~~estimated by Phocuswright to account for approximately $120 billion of annual travel spend and~~ expected to continue to grow as a percentage of the global accommodation market. Furthermore, we see increased interest in the online travel industry from search engine companies as evidenced by recent innovations including direct booking functionality ~~as well as licensing deals~~ and ~~proposed and actual acquisitions~~product enhancements by companies such as Google. Finally, traditional consumer ~~eCommerce~~ecommerce and group buying websites expanded their local offerings into the travel market by adding hotel offers to their websites.

The online travel industry also saw the development of alternative business models and variations in the timing of payment by travelers and to suppliers, which in some cases place pressure on historical business models. In particular, the agency hotel model saw rapid adoption in Europe. Expedia Group ~~distributes~~facilitates both merchant (Expedia Collect) and agency (Hotel Collect) hotel offerings ~~for~~with our hotel supply partners through both agency-only contracts as well as our hybrid ~~Expedia Traveler Preference (ETP)~~ETP program, which offers travelers the choice of whether to pay Expedia Group at the time of booking or pay the hotel at the time of stay.

Intense competition also historically led to aggressive marketing efforts by the travel suppliers and intermediaries, and a meaningful unfavorable impact on our overall marketing efficiencies and operating margins. We manage our ~~selling and~~ marketing spending on a brand basis, making decisions in each applicable market that we think are appropriate based on the relative growth opportunity and the expected returns and the competitive environment. In certain cases, particularly in emerging markets, we are pursuing and expect to continue to pursue long-term growth opportunities for which our marketing efficiency is less favorable than that for our consolidated business, but for which we still believe the opportunity to be attractive. ~~The~~In addition, the crowded online travel environment is now driving certain secondary and tertiary online travel companies to establish marketing agreements with global players in order to leverage distribution and technology capabilities while focusing resources on capturing traveler mind share.

Lodging

Lodging includes hotel accommodations as well as alternative accommodations primarily made available through ~~HomeAway.~~Vrbo. As a percentage of our total worldwide revenue in the first ~~nine months~~quarter of ~~2018,~~2019, lodging accounted for ~~69%~~66%. Our room night growth has been healthy ~~with room nights growing 32% in 2016 (excluding eLong),~~at 16% in 2017, 13% in 2018 and ~~13% for~~9% in the first ~~nine months~~quarter of ~~2018.~~2019. ADRs for rooms ~~booked~~ on Expedia Group ~~and HomeAway~~ websites increased 3% in 2017, increased 5% in ~~2016 (excluding eLong)~~2018 and decreased 1% in the first quarter of 2019. The decrease in the first quarter of 2019 was primarily due to the ~~acquisition~~negative impact of ~~HomeAway, 3% in 2017, and 6% in the first nine months of 2018.~~foreign exchange.

Hotel. We generate the majority of our revenue through the facilitation of hotel reservations (stand-alone and package bookings). Although our relationships with our hotel supply partners remained broadly stable in the past few years, as part of the global rollout of ETP, we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs, which has negatively impacted the margin of revenue we earn per booking. In addition, as we continue to expand the breadth and depth of our global hotel offering, in some cases we have reduced our economics in various geographies based on local market conditions. These impacts are due to specific initiatives intended to drive greater global size and scale through faster overall room night growth. Additionally, increased promotional activities such as growing loyalty programs contribute to declines in revenue per room night and profitability.

Since our hotel supplier agreements are generally negotiated on a percentage basis, any increase or decrease in ADRs has an impact on the revenue we earn per room night. Over the course of the last several years, occupancies and ADRs in the lodging industry generally increased on a currency-neutral basis in a gradually improving overall travel environment. Current occupancy rates for hotels in the United States remain high; however, U.S. hotel supply ~~growth~~ has ~~been accelerating,~~continued to grow, which may put additional pressure on ADRs. In some international markets, hotel supply is being added at a faster rate as hotel owners and operators try to take advantage of opportunities in faster growing ~~regions such as Asia and certain Latin American markets.~~regions. Companies like Airbnb, ~~HomeAway~~Vrbo and Booking.com also added incremental global supply in the alternative accommodations space. In addition, while the global lodging industry remains very fragmented, there has been consolidation in the hotel space among chains as well as ownership groups. In the meantime, certain hotel chains have been focusing on driving direct bookings

on their own websites and mobile applications by advertising lower rates than those available on third-party websites as well as incentives such as loyalty points, increased or exclusive product availability and complimentary Wi-Fi. We have succeeded in adding supply to our global lodging

marketplace with more than ~~895,000~~1.1 million properties on our global websites as of ~~September 30, 2018,~~March 31, 2019, including ~~more than 300,000~~approximately 460,000 integrated ~~HomeAway vacation rental listings now available on select Brand Expedia, Orbitz, Travelocity, CheapTickets and ebookers websites.~~Vrbo alternative accommodations listings.

Alternative Accommodations. With our acquisition of ~~HomeAway~~Vrbo (previously HomeAway) and all of its brands in December 2015, we expanded into the fast growing ~~$120 billion~~ alternative accommodations market. ~~HomeAway~~Vrbo is a leader in this market and represents an attractive growth opportunity for Expedia Group. ~~HomeAway~~Vrbo has been undergoing a transition from a listings-based classified advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager partners, with a goal of increasing monetization and driving growth through investments in marketing as well as in product and technology. ~~In addition, HomeAway rolled out~~Vrbo offers hosts subscription-based listing or pay-per-booking service models. It also generates revenue from a traveler service fee in the United States and Europe during the first half of 2016, consistent with historical market practice. The fee has contributed to HomeAway’s revenue growth and help fund marketing investment, programs to better protect travelers and future growth initiatives. Furthermore, HomeAway moved to a single subscription option globally in July 2016. In the first quarter of 2017, HomeAway began integrating Expedia Group vacation rental properties onto its websites.for bookings. As of ~~September 30, 2018,~~March 31, 2019, there are ~~nearly 1.8~~over 1.9 million online bookable listings available on ~~HomeAway.~~Vrbo.

Air

Significant airline sector consolidation in the United States in recent years generally resulted in lower overall capacity and higher fares, which combined with the significant declines in fuel prices led to record levels of profitability for the U.S. air carriers, further strengthening their position. However, in ~~2016~~2017 and ~~2017,~~into 2018, there was evidence of discounting by the U.S. carriers while currency headwinds and weaker macroeconomic trends put pressure on international ~~results, which appear to be reversing during~~results. Starting in the ~~first nine months~~second half of ~~2018.~~2018, there has been evidence of modest fare increases, though it remains unclear if this trend will continue. Ticket prices on Expedia Group websites declined ~~6% in 2016 (excluding eLong), declined~~ 1% in 2017, increased 2% in 2018 and ~~increased 3%~~decreased 1% in the first ~~nine months~~quarter of ~~2018.~~2019. The decrease in the first quarter of 2019 includes the negative impact from foreign exchange. Based on airline reports, demand for airline tickets seems to be strong, helping increase air revenues globally. There is significant correlation between airline revenues and fuel prices, and fluctuations in fuel prices generally take time to be reflected in air revenues. Given current volatility, it is uncertain whether the recent increases in fuel prices will drive further increases in airfares, particularly when considering planned supply increases through capacity additions. We can encounter pressure on air remuneration as air carriers combine and as certain supply agreements renew, and continue to add airlines to ensure local coverage in new markets.

Air ticket volumes increased ~~32% in 2016 (excluding eLong), primarily due to the acquisition of Orbitz,~~ 4% in 2017, 5% in 2018 and 4%11% in the first ~~nine months~~quarter of ~~2018.~~2019. As a percentage of our total worldwide revenue in the first ~~nine months~~quarter of ~~2018,~~2019, air accounted for 8%10%.

Advertising & Media

Our advertising and media business is principally driven by revenue generated by trivago, a leading hotel metasearch website, ~~as well as~~in addition to Expedia Group Media Solutions, which is responsible for generating advertising revenue on our global online travel brands. In the first ~~nine months~~quarter of ~~2018,~~2019, we generated ~~$858~~a total of $264 million of advertising and media revenue, a 6% decrease from the same period in 2018, representing 10% of our total worldwide revenue. In 2018, trivago shifted its operational focus, reducing marketing spend to better balance revenue ~~consistent with~~and profit growth. The lower marketing spend negatively impacted revenue growth, while benefiting profitability. This trend continued into the first ~~nine months~~quarter of ~~2017.~~2019 and we expect it to persist for the first half of 2019.

Growth Strategy

Global Expansion. Our Brand Expedia, Hotels.com, Egencia, and Expedia Partner Solutions brands operate both domestically and through international points of sale, including in Europe, Asia Pacific, Canada and Latin America. In addition, ebookers offers multi-product online travel reservations in Europe and Wotif.com, Wotif.co.nz, lastminute.com.au, ~~lastminute.com.nz~~lastminute.co.nz and travel.com.au are focused principally on the Australia and New Zealand markets. ~~Egencia, our corporate travel business, operates in over 60 countries around the world.~~ The ~~HomeAway~~Vrbo portfolio ~~has over 55 vacation rental~~offers alternative accommodations websites all around the world. We own a majority share of trivago, a leading metasearch company. Officially launched in 2005, trivago is one of the best known travel brands in Europe and North America. In December 2016, trivago successfully completed its initial public offering and trades on the Nasdaq Global Select Market under the symbol ~~"TRVG."~~“TRVG.” In addition, we have commercial agreements in place with Ctrip and eLong in China, Traveloka in Southeast Asia, as well as Despegar in Latin America, among many others. In conjunction with the commercial arrangements with Traveloka and Despegar, we have also made strategic investments ~~of over $600 million combined~~ in ~~Traveloka in 2017 and Despegar in 2015.~~both companies. In the first ~~nine months~~quarter of ~~2018,~~2019, approximately 38% of our worldwide gross bookings and ~~45%~~43% of worldwide revenue were through international points of sale compared to just 21% for both worldwide gross bookings and revenue in 2005. We have a goal of generating more than two-thirds of our revenue through businesses and points of sale outside of the United States.

In expanding our global reach, we leverage significant investments in technology, operations, brand building, supplier relationships and other initiatives that we have made since the launch of Expedia.com in 1996. More recently, we have invested in migrating parts of our technology platform to the cloud, as well as focused on expanding our lodging supply in key focus markets around the world. Our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers. We believe that our size and scale afford the company the ability to negotiate competitive rates with our supply partners, provide breadth of choice and travel deals to our traveling customers through an expanding supply portfolio

and create opportunities for new value added offers for our customers such as our loyalty programs. The size of Expedia Group’s worldwide traveler base makes our websites an increasingly appealing channel for travel suppliers to reach customers. In addition, the sheer size of our user base and search query volume allows us to test new technologies very quickly to determine which innovations are most likely to improve the travel research and booking process, and then roll those features out to our worldwide audience to drive improvements in conversion.

Product Innovation. Each of our leading brands was a pioneer in online travel and has been responsible for driving key innovations in the space for more than two decades. Each Expedia Group technology platform is operated by a dedicated technology team, which drives innovations that make researching and shopping for travel increasingly easier and helps customers find and book the best possible travel options. We have made key investments in technology, including significant development of our technical platforms, that make it possible for us to deliver innovations at a faster pace. Improvements in our global platforms for Hotels.com and Brand Expedia continue to enable us to significantly increase the innovation cycle, thereby improving conversion and driving faster growth rates for those brands. Since 2014, we have acquired Travelocity, Wotif Group and Orbitz Worldwide, including Orbitz, CheapTickets and ebookers, and migrated their brands to the Brand Expedia technology platform. In addition, Orbitz for Business customers were migrated to the Egencia technology platform in 2016. In 2015, we acquired ~~HomeAway, Inc.~~Vrbo (previously HomeAway), including all of its brands. We intend to continue leveraging these technology investments when launching additional points of sale in new countries, introducing new website features, adding supplier products and services including new business model offerings, as well as proprietary and user-generated content for travelers.

Channel Expansion. Technological innovations and developments continue to create new opportunities for travel bookings. In the past few years, each of our brands made significant progress creating new mobile websites and mobile applications that are receiving strong reviews and solid download trends, and many of our brands now see more traffic via mobile devices than via traditional PCs. Mobile bookings continue to present an opportunity for incremental growth as they are often completed ~~within one or two days of the travel or stay, which is~~with a much shorter booking window than we historically experienced via more traditional online booking methods. Additionally, our brands are implementing new technologies like voice-based search, chatbots and messaging apps as mobile-based options for travelers. In addition, we are seeing significant cross-device usage among our customers, who connect to our websites and apps across multiple devices and platforms throughout their travel planning process. We also believe mobile represents an efficient marketing channel given the opportunity for direct traffic acquisition, increase in share of wallet and in repeat customers, particularly through mobile applications. During the first ~~nine months~~quarter of ~~2018,~~2019, more than one in three Expedia Group transactions globally were booked on a mobile device.

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 ~~vacation rental~~alternative accommodations business. Historically, ~~HomeAway~~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 ~~HomeAway,~~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, including trivago's recent changing marketplace dynamics.~~trends. As ~~HomeAway continues its shift~~Vrbo has further shifted to ~~more of~~ a predominately transaction-based business model for ~~vacation rental~~alternative accommodations listings and its booking window elongates, its seasonal trends are more pronounced than our other traditional leisure businesses.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:

It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and

Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 as well as updates in the current fiscal year provided in Note 2 – Summary of Significant Accounting Policies in the notes to the consolidated financial statements.

Occupancy and Other Taxes

Legal Proceedings. We are currently involved in ~~ten~~fourteen lawsuits brought by or against states, cities and counties over issues involving the payment of hotel occupancy and other taxes. We continue to defend these lawsuits vigorously. With respect to the principal claims in these matters, we believe that the statutes and ordinances at issue do not apply to us or the services we provide, namely the facilitation of ~~hotel~~travel planning and reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes and 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.

Recent developments include:

~~City and County~~State of ~~San Francisco, California~~New Hampshire Litigation.On ~~August 29, 2018,~~March 8, 2019, the ~~California~~New Hampshire Supreme Court ~~denied~~affirmed the ~~City~~trial court’s judgment in favor of ~~San Francisco’s petition for review. On September 13, 2018,~~ the ~~City of San Francisco refunded all $78 million in “pay-to-play” amounts previously paid by Expedia Group~~defendant online travel companies, ~~(including Orbitz), along with $19 million in accumulated interest,~~ thereby ~~effectively~~ ending the case.

~~Pine Bluff, Arkansas Litigation.~~ On August 2, 2018, the Arkansas Supreme Court denied the online travel company defendants’ petition for writ of prohibition or certiorari seeking to bar the trial court from continuing to exercise jurisdiction over the case, or holding any further proceedings. On August 24, 2018, the plaintiffs filed a motion to dismiss the defendants’ appeal as premature. On October 4, 2018, the Arkansas Supreme Court deferred ruling on the plaintiffs’ motion to dismiss the defendants’ appeal, combining it with defendants’ appeal on the merits. The motion and appeal remain pending.

Arizona Cities Litigation.On ~~September 6, 2018, the Arizona Court of Appeals affirmed in part and reversed in part the Arizona Tax Court’s decision. The parties have filed petitions for writ of certiorari seeking leave to~~April 3, 2019, the Arizona Supreme Court ~~which remains pending.~~granted the parties’ petition/cross-petition for review. The Court has scheduled argument on the appeals for June 4, 2019.

Palm Beach County, Florida Litigation. On February 26, 2019, the plaintiff county filed a notice of appeal from the trial court’s order granting the defendant platforms’ motion for summary judgment.

Miami Dade County, Florida Litigation. On March 19, 2019, the court granted in part and denied in part the defendants’ motion to dismiss. On March 29, 2019, the plaintiff county filed an amended complaint.

For additional information on these and other legal proceedings, see Part II, Item 1, Legal Proceedings.

We have established a reserve for the potential settlement of issues related to hotel occupancy and other tax litigation, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of ~~$40~~$54 million as of ~~September 30, 2018,~~March 31, 2019, and ~~$43~~$46 million as of December 31, ~~2017.~~2018.

Certain jurisdictions, including ~~but not limited to~~ the states of New York, New Jersey, North Carolina, Minnesota, Oregon, Rhode Island, Maryland, Pennsylvania, Hawaii, Iowa, Massachusetts, Arizona, the city of New York, and the District of Columbia, have enacted legislation seeking to tax online travel company services as part of sales or other taxes for hotel ~~occupancy.~~and/or other accommodations and/or car rental. We are currently remitting taxes to a number of jurisdictions, including ~~but not limited~~ to the states of New York, New Jersey, South Carolina, North Carolina, Minnesota, Georgia, Wyoming, Oregon, Rhode Island, Montana, Maryland, Kentucky, Maine, ~~the District of Columbia and~~New Jersey, Pennsylvania, Hawaii, Iowa, Massachusetts, Arizona, the city of New York and the District of Columbia, as well as certain other ~~county and local~~ jurisdictions.

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. However, any significant pay-to-play payment or litigation loss could negatively impact our liquidity. For additional information, including significant pay-to-play payments made by Expedia Group companies as well as reimbursement of certain pay-to-play amounts received by Expedia Group companies, see Note 810 – Commitments and Contingencies - Legal Proceedings - Pay-to-Play in the notes to the consolidated financial statements.

Other Jurisdictions. We are also 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, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.

Segments

We have four reportable segments: Core Online Travel Agencies (“Core OTA”), trivago, ~~HomeAway~~Vrbo and Egencia. Our Core OTA segment 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. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. Our ~~HomeAway~~Vrbo segment operates an online marketplace for the ~~vacation rental~~alternative accommodations industry. Our Egencia segment provides managed travel services to corporate customers worldwide.

Operating Metrics

Our operating results are affected by certain metrics, such as gross bookings and revenue margin, which we believe are necessary for understanding and evaluating us. Gross bookings generally represent the total retail value of transactions booked for agency, merchant and ~~HomeAway~~Vrbo transactions, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are reduced for cancellations and refunds. As travelers have increased their use of the internet to book travel arrangements, we have generally seen our gross bookings increase, reflecting the growth in the online travel industry, our organic market share gains and our business acquisitions. Revenue margin is defined as revenue as a percentage of gross bookings.

When ~~HomeAway~~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. The operating metrics, including gross bookings and room nights, are not split but instead generally reside entirely with the website marketing the property or room.

Gross Bookings and Revenue Margin


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Gross Bookings
Core OTA	$	20,217		$	18,456		10	%	$	62,399		$	56,519		10	%	$	23,029		$	21,171		9	%
trivago⁽¹⁾	—			—			N/A		—			—			N/A		—			—			N/A
HomeAway⁽²⁾	2,496			2,013			24	%	9,257			6,833			35	%
Vrbo																	4,163			3,947			5	%
Egencia	1,963			1,728			14	%	6,114			5,293			16	%	2,217			2,078			7	%
Total gross bookings	$	24,676		$	22,197		11	%	$	77,770		$	68,645		13	%	$	29,409		$	27,196		8	%

Revenue Margin
Core OTA	12.5		%	12.5		%			10.7		%	10.7		%			8.8		%	9.1		%
trivago⁽¹⁾	N/A			N/A					N/A			N/A					N/A			N/A
HomeAway⁽²⁾	16.4		%	15.1		%			10.2		%	10.4		%
Vrbo																	6.4		%	5.9		%
Egencia	7.1		%	7.3		%			7.3		%	7.2		%			6.9		%	7.2		%
Total revenue margin	13.3		%	13.4		%			11.1		%	11.3		%			8.9		%	9.2		%

____________________________


(1)	trivago, which is comprised of a hotel metasearch business that differs from our transaction-based websites, does not have associated gross bookings or revenue margin. However, third-party revenue from trivago is included in revenue used to calculate total revenue margin.

~~(2)~~

HomeAway gross bookings include on-platform and reported transactions from all HomeAway brands, with the exception of BedandBreakfast.com and TopRural (which, if included would collectively add less than an estimated 2% to gross bookings). Gross bookings for Stayz, Bookabach and Travelmob (which collectively represent less than 10% of total on-platform transactions) represent our best estimates, including gross bookings for Stayz and Bookabach that remain off-platform while we transfer those brands to HomeAway platform brands, which started during the second quarter of 2018.

The increase in worldwide gross bookings for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017,~~2018, was primarily driven by growth at our Core OTA segment, including growth at ~~Brand Expedia, Hotels.com, and~~ Expedia Partner Solutions ~~as well as growth at HomeAway.~~and Brand Expedia.

Results of Operations

Revenue


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change
	($ in millions)						($ in millions)						($ in millions)
Revenue by Segment
Core OTA	$	2,527	$	2,314	9	%	$	6,706	$	6,022	11	%	$	2,037	$	1,926	6	%
trivago (Third-party revenue)	200		221		(10	)%	571		621		(8	)%	152		197		(23	)%
HomeAway	410		305		35	%	941		714		32	%
Vrbo													267		234		14	%
Egencia	139		126		10	%	446		384		16	%	153		151		2	%
Total revenue	$	3,276	$	2,966	10	%	$	8,664	$	7,741	12	%	$	2,609	$	2,508	4	%

Revenue increased for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily driven by growth in the Core OTA segment, including growth at ~~Brand Expedia, Hotels.com and~~ Expedia Partner Solutions and Brand Expedia, as well as growth at ~~HomeAway.~~

Vrbo, partially offset by declines at trivago.


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change
	($ in millions)						($ in millions)						($ in millions)
Revenue by Service Type
Lodging	$	2,347	$	2,102	12	%	$	5,951	$	5,246	13	%	$	1,725	$	1,612	7	%
Air	209		189		11	%	674		608		11	%	248		242		3	%
Advertising and media⁽¹⁾	302		299		1	%	858		858		—	%	264		282		(6	)%
Other	418		376		11	%	1,181		1,029		15	%	372		372		—	%
Total revenue	$	3,276	$	2,966	10	%	$	8,664	$	7,741	12	%	$	2,609	$	2,508	4	%

____________________________


(1)	Includes third-party revenue from trivago as well as our transaction-based websites.

Lodging revenue increased ~~12% and 13%~~7% for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, on a 9% increase in room nights stayed driven by growth at Expedia Partner Solutions, Hotels.com and Brand Expedia, partially offset by a 2% decrease in ~~HomeAway, Hotels.com,~~revenue per room night due to the negative impact of foreign exchange.

Air revenue increased 3% for the three months ended March 31, 2019, compared to the same period in 2018, on a 11% increase in air tickets sold driven by growth at Expedia Partner Solutions and Brand ~~Expedia. Room nights stayed increased 13% for both the three and nine months ended September 30, 2018, compared to the same periods~~Expedia, partially offset by a 7% decrease in ~~2017, and~~ revenue per ~~room night declined 1%~~ticket, which was driven by a shift in product mix and reclassification of certain partner fees to other revenue as well as a negative impact from foreign exchange.

Advertising and media revenue decreased 6% for the three months ended ~~September 30, 2018 and was essentially flat for the nine months ended September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017.~~

~~Worldwide air revenue increased 11% for both the three and nine months ended September 30,~~ 2018, compared to the same periods in 2017, on a 4% increase in air tickets sold for both periods as well as a 6% and 7% increase in revenue per ticket. Air revenue growth for the periods included an approximately 300 basis point and 350 basis point benefit due to ~~an accounting change related to classification of certain fees, which were previously recorded as contra-revenue but now classified as cost of revenue with no net impact to operating income (loss).~~

Advertising and media revenue increased 1% for the three months ended September 30, 2018 and was essentially flat for the nine months ended September 30, 2018, compared to the same periods in 2017, due todeclines at trivago, partially offset by continued growth at Expedia Group Media ~~Solutions, mostly offset by a decline at trivago for both periods.~~Solutions. All other revenue, which includes car rental, insurance, destination services and fee revenue related to our corporate travel business, ~~increased by 11% and 15%~~was essentially flat for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017, primarily due to growth in travel insurance products and car rental revenue.~~2018.

In addition to the above segment and product revenue discussion, our revenue by business model is as follows:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change
	($ in millions)						($ in millions)						($ in millions)
Revenue by Business Model
Merchant	$	1,688	$	1,559	8	%	$	4,554	$	4,111	11	%	$	1,392	$	1,334	4	%
Agency	876		803		9	%	2,311		2,058		12	%	686		658		4	%
Advertising and media	302		299		1	%	858		858		—	%	264		282		(6	)%
HomeAway	410		305		35	%	941		714		32	%
Vrbo													267		234		14	%
Total revenue	$	3,276	$	2,966	10	%	$	8,664	$	7,741	12	%	$	2,609	$	2,508	4	%

Merchant revenue increased for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to the increase in merchant hotel revenue driven by an increase in room nights stayed.

Agency revenue increased for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to the growth in agency ~~hotel~~air and ~~air.~~hotel.

~~HomeAway~~Vrbo revenue increased for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to growth in transactional revenue of approximately ~~50% and 60%~~25% driven by a benefit from the traveler service fee, partially offset by subscription revenue decreasing ~~approximately 20% and 25%~~10%.

Cost of Revenue


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Customer operations	$	223		$	203		10	%	$	661		$	579		14	%	$	234		$	218		7	%
Credit card processing	136			129			6	%	394			389			2	%	125			124			1	%
Data center, cloud and other	145			127			15	%	434			352			23	%	154			145			6	%
Total cost of revenue	$	504		$	459		10	%	$	1,489		$	1,320		13	%	$	513		$	487		5	%
% of revenue	15.4		%	15.5		%			17.2		%	17.0		%			19.7		%	19.4		%

Cost of revenue primarily consists of (1) customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors, (2) credit card processing, including merchant fees, fraud and chargebacks, and (3) other costs, primarily including data center and cloud costs to support our websites, supplier operations, destination supply and stock-based compensation.

During the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, the increase in cost of revenue expense, compared to the same ~~periods~~period in ~~2017,~~2018, was driven by ~~$20 million and $82~~$16 million of higher customer operations expenses ~~including higher direct~~at Expedia Partner Solutions and ~~headcount costs to support growth of the business,~~Egencia, as well as ~~$18 million and $82~~$9 million of higher data center, cloud and other costs. Cloud expense in cost of revenue during the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 was ~~$22 million and $67~~$32 million, compared to ~~$17 million and $38~~$23 million for the same ~~periods~~period of ~~2017.~~2018.

Selling and Marketing


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Direct costs	$	1,228		$	1,224		—	%	$	3,731		$	3,485		7	%	$	1,261		$	1,239		2	%
Indirect costs	273			237			15	%	827			689			20	%	274			277			(2	)%
Total selling and marketing	$	1,501		$	1,461		3	%	$	4,558		$	4,174		9	%	$	1,535		$	1,516		1	%
% of revenue	45.8		%	49.3		%			52.6		%	53.9		%			58.8		%	60.4		%

Selling and marketing expense primarily relates to direct costs, including traffic generation costs from search engines and internet portals, television, radio and print spending, private label and affiliate program commissions, public relations

and other costs. The remainder of the expense relates to indirect costs, including personnel and related overhead in our various brands and global supply organization, as well as stock-based compensation costs.

Selling and marketing expenses increased ~~$40~~$19 million during the three months ended ~~September 30, 2018,~~March 31, 2019, compared to the same period in ~~2017,~~2018, primarily due to higher ~~indirect~~direct costs of ~~$36~~$22 million ~~which were primarily driven by growth in personnel in the lodging supply organization. In addition, direct costs increased $4 million, which were primarily~~as a result of increases at Vrbo, Expedia Partner Solutions and Brand Expedia, ~~that~~which were ~~mostly~~partially offset by a decrease at trivago.

Selling and marketing expenses increased $384 million during the nine months ended September 30, 2018, compared to the same period in 2017, driven by increase of $246 million of direct costs, including online and offline marketing expenses. Expedia Partner Solutions, Hotels.com and HomeAway accounted for the majority of the total direct cost increases. In addition, higher indirect costs of $138 million also contributed to the increases and were driven by growth in personnel in the lodging supply organization.

Technology and Content


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Personnel and overhead	$	194		$	165		18	%	$	590		$	487		21	%	$	209		$	203		3	%
Depreciation and amortization of technology assets	127			113			12	%	370			325			14	%	132			119			11	%
Other	83			72			16	%	240			203			18	%	88			74			20	%
Total technology and content	$	404		$	350		15	%	$	1,200		$	1,015		18	%	$	429		$	396		9	%
% of revenue	12.3		%	11.8		%			13.8		%	13.1		%			16.5		%	15.8		%

Technology and content expense includes product development and content expense, as well as information technology costs to support our infrastructure, back-office applications and overall monitoring and security of our networks, and is principally comprised of personnel and overhead, depreciation and amortization of technology assets including hardware, and purchased and internally developed software, and other costs including cloud expense, licensing and maintenance expense and stock-based compensation.

Technology and content expense increased ~~$54 million and $185~~$33 million during the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to increased personnel and overhead of $29 million and $103 million from our investments in our ecommerce platform and products. In addition, for the nine months ended September 30, 2018, growth at HomeAway and inorganic impacts of acquisitions also contributed to the increase. Depreciationhigher depreciation and amortization of technology assets ~~also increased $14~~of $13 million as well as higher licensing and ~~$45 million.~~maintenance expenses. Cloud expense in technology and content was $13 million during both the three ~~and nine~~ months ended ~~September 30, 2018 was $11 million~~March 31, 2019 and ~~$36 million, compared to $11 million and $27 million in the same periods of 2017.~~2018.

General and Administrative


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Personnel and overhead	$	128		$	115		11	%	$	383		$	326		18	%	$	122		$	129		(5	)%
Professional fees and other	74			26			182	%	214			152			40	%	69			70			(1	)%
Total general and administrative	$	202		$	141		43	%	$	597		$	478		25	%	$	191		$	199		(4	)%
% of revenue	6.1		%	4.8		%			6.9		%	6.2		%			7.3		%	7.9		%

General and administrative expense consists primarily of personnel-related costs, including our executive leadership, finance, legal and human resource functions as well as fees for external professional services including legal, tax and accounting, and other costs including stock-based compensation.

General and administrative expense ~~increased $61 million and $119~~decreased $8 million during the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily ~~due to the prior year reversal of approximately $41 million of previously recognized stock-based compensation expense relate to the departure of our former CEO in September 2017 as well as higher~~driven by lower personnel and overhead ~~costs of $13 million and $57 million, resulting from increased headcount at corporate.~~costs.

Amortization of Intangible Assets

Three months ended September 30, Nine months ended September 30,
2018 2017 % Change 2018 2017 % Change
($ in millions) ($ in millions)
Amortization of intangible assets $ 71
$ 71
1 % $ 215
$ 204
5 %



	Three months ended March 31,
	2019		2018		% Change
	($ in millions)
Amortization of intangible assets	$	52	$	72	(28	)%

Amortization of intangible assets decreased $20 million during the three months ended ~~September 30, 2018 was consistent compared to the prior year period. Amortization of intangible assets increased $11 million during the nine months ended September 30, 2018,~~March 31, 2019, compared to the same period in ~~2017,~~2018 primarily due to the completion of amortization related to ~~new business acquisitions.~~certain intangible assets.

~~Impairment of Goodwill~~

~~During nine months ended September 30, 2018, we recognized a goodwill impairment charge of $61 million related to a reporting unit within our Core OTA segment. See~~ ~~Note 3 – Fair Value Measurements~~ ~~for further information.~~

Legal Reserves, Occupancy Tax and Other


	Three months ended September 30,								Nine months ended September 30,							Three months ended March 31,
	2018			��	2017			% Change	2018			2017			% Change	2019			2018			% Change
	($ in millions)								($ in millions)							($ in millions)
Legal reserves, occupancy tax and other	$	(78	)		$	(1	)	N/A	$	(74	)	$	23		N/A	$	10		$	3		169	%
% of revenue	(2.4		)%		(0.1		)%		(0.8		)%	0.3		%		0.4		%	0.1		%

Legal reserves, occupancy tax and other consists of changes in our reserves for court decisions and the potential and final settlement of issues related to hotel occupancy and other taxes, expenses recognized related to monies paid in advance of occupancy and other tax proceedings (“pay-to-play”) as well as certain other legal reserves.

During the three and nine months ended September 30, 2018, we received a refund of prepaid pay-to-play payments of $78 million from the City of San Francisco and recorded a related gain in legal reserves, occupancy tax and other.

The amounts in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and 2018 primarily related to changes in our reserve related to hotel occupancy and other taxes.

Restructuring and Related Reorganization Charges

In connection with ~~activities to centralize~~the centralization and ~~optimize~~migration of certain ~~operations as well as migrate technology platforms in the prior years, primarily related to previously disclosed acquisitions,~~operational functions and systems, we recognized ~~$4 million and $16~~$10 million in restructuring and related reorganization charges during the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2019 primarily related to severance and benefits. Based on current plans, which are subject to change, we expect total reorganization charges in 2019 of up to $25 million. These costs could be higher or lower should we make additional decisions in future periods that impact our reorganization efforts and exclude any possible future acquisition, or other, integrations.

Operating ~~Income~~Loss


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Operating income	$	672		$	481		39	%	$	618		$	511		21	%
Operating loss																	$	(131	)	$	(165	)	21	%
% of revenue	20.5		%	16.2		%			7.1		%	6.6		%			(5.0		)%	(6.6		)%

Operating ~~income increased~~loss decreased for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to a growth in revenue in excess of operating ~~costs as well as the $78 million gain recognized related to the San Francisco pay-to-play refund in the current period.~~costs.

Adjusted EBITDA by Segment


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Core OTA	$	837		$	734		14	%	$	1,721		$	1,523		13	%	$	344		$	323		6	%
trivago	31			(8		)	N/A		(17		)	14			N/A		24			(28		)	N/A
HomeAway	209			126			66	%	266			171			55	%
Vrbo																	(40		)	(21		)	(85	)%
Egencia	19			20			(8	)%	76			76			—	%	29			27			9	%
Unallocated overhead costs (Corporate)	(184		)	(163		)	13	%	(547		)	(474		)	15	%	(181		)	(177		)	(3	)%
Total Adjusted EBITDA ⁽¹⁾	$	912		$	709		29	%	$	1,499		$	1,310		14	%	$	176		$	124		42	%

____________________________


(1)	Adjusted EBITDA is a non-GAAP measure. See ~~"Definition~~“Definition and Reconciliation of Adjusted ~~EBITDA"~~EBITDA” below for more information.

Adjusted EBITDA is our primary segment operating metric. See Note 912 – Segment Information in the notes to the consolidated financial statements for additional information on intersegment transactions, unallocated overhead costs and for a reconciliation of Adjusted EBITDA by segment to net income (loss) attributable to Expedia Group, Inc. for the ~~periods~~period presented above.

Core OTA Adjusted EBITDA increased ~~$103 million and $198~~$21 million during the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to an increase of ~~$213 million and $684~~$111 million in revenue, partially offset by higher operating expenses, including an increase in direct sales and marketing expense mostly at Expedia Partner Solutions ~~Hotels.com~~ and Brand ~~Expedia as well as growth in personnel in the lodging supply organization.~~Expedia.

During the three months ended ~~September 30, 2018, trivago had~~March 31, 2019, trivago’s Adjusted EBITDA ~~of $31~~was $24 million compared to an Adjusted EBITDA loss of $8$28 million for the same period in ~~2017. During~~2018 with the nine months ended September 30, 2018, trivago had an Adjusted EBITDA loss of $17 million compared to Adjusted EBITDA of $14 million for the same period in 2017. During the third quarter of 2017, trivago experienced a deterioration in earnings driven by changes inchange resulting from its ~~marketplace, which led to a deceleration in revenue growth that occurred more quickly than planned television advertising spend could be reduced to an efficient level.~~continued marketing rationalization efforts. Beginning late in the second quarter of 2018, trivago ~~has focused~~started focusing on improved profitability and made significant reductions in its advertising spend as a result of this increased focus on reducing operating expenditures.

~~HomeAway~~Vrbo Adjusted EBITDA loss increased ~~$83 million and $95~~$19 million during the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, due to ~~an increase of $105 million and $227 million in revenue, partially offset by~~ higher operating expenses from planned investments in performance-based marketing, ~~as well as~~partially offset by an increase of $33 million in revenue. These marketing investments had a ~~continuation~~more pronounced impact on Adjusted EBITDA in ~~investing~~the first quarter of this year given the increasing seasonality in ~~both consumer and supplier facing products, and HomeAway's migration to the cloud.~~Vrbo’s business.

Egencia Adjusted EBITDA ~~decreased $1~~increased $2 million for the three months ended ~~September 30, 2018 and was essentially flat for the nine months ended September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, as a result of growth in revenue ~~from new corporate clients and room nights was mostly offset by headcount costs from investments in sales, product and technology.~~as well as leverage on operating expenses.

Unallocated overhead costs increased ~~$21 million and $73~~$4 million during the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to ~~higher general and administrative personnel and overhead costs as well as~~ higher technology and content expenses to support investments in our ecommerce platform.

Interest Income and Expense


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Interest income	$	34		$	9		269	%	$	61		$	25		147	%	$	11		$	11		2	%
Interest expense	(47		)	(44		)	6	%	(149		)	(130		)	14	%	(41		)	(51		)	(20	)%

Interest income ~~increased~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 was consistent with the same period in 2018 as a result of higher rates of return offsetting lower invested balances. Interest expense decreased for the three months ended March 31, 2019, compared to the same ~~periods~~period in 2017, primarily due to interest income recognized on the San Francisco pay-to-play refund mentioned above of $19 million as well as higher average cash balances and to a lesser extent higher rates of return in the current year periods.

~~Interest expense increased for the three and nine months ended September 30,~~ 2018, ~~compared to the same periods in 2017,~~ as a result of ~~interest on the $1 billion senior unsecured notes issued in September 2017, partially offset by~~ the August 2018 maturity of our $500 million senior unsecured notes.

Other, Net

Other, net is comprised of the following:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
	($ in millions)												($ in millions)
Foreign exchange rate gains (losses), net	$	(6	)	$	(21	)	$	1		$	(47	)
Losses on minority equity investments, net	(39		)	(9		)	(100		)	(14		)
Foreign exchange rate losses, net													$	(14	)	$	(2	)
Gains on minority equity investments, net													22			37
Other	(2		)	(1		)	(2		)	(4		)	12			1
Total other, net	$	(47	)	$	(31	)	$	(101	)	$	(65	)	$	20		$	36

~~During~~For the three ~~and nine~~ months ended ~~September 30, 2018, the losses on minority equity investments,~~March 31, 2019, other, net ~~primarily~~included a $12 million gain related to ~~fair value changes~~the release of a non-operating liability previously recorded in ~~our investment in Despegar, a publicly traded company. As described in~~ ~~Note 2 – Summary~~connection with an acquisition, which was deemed not probable of ~~Significant Accounting Policies~~ – Recently Adopted Accounting Policies, we adopted new accounting guidance on January 1, 2018, which requires minority investments with readily determinable fair values to be carried at fair value with changes recorded through net income.payment.

Provision for Income Taxes


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
	($ in millions)								($ in millions)								($ in millions)
Provision for income taxes	$	81		$	66		23	%	$	56		$	22		151	%	$	(41	)	$	(20	)	101	%
Effective tax rate	13.3		%	15.9		%			13.1		%	6.6		%			29.2		%	12.0		%

We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items. We have included in the estimated annual effective tax the reduction in the U.S. statutory tax rate, global intangible low-taxed income ("GILTI"), and the foreign derived intangible income ("FDII") deduction related to current year operations and have not provided additional GILTI on deferred items.

For the three months ended ~~September 30, 2018,~~March 31, 2019, the effective tax rate was a ~~13.3% expense~~29.2% benefit on pre-tax ~~income,~~loss, compared to ~~15.9% expense~~12.0% benefit on a pre-tax ~~income~~loss for the three months ended ~~September 30, 2017 with the~~March 31, 2018. The change was primarily driven by ~~the Tax Cuts and Jobs Act ("Tax Act"), a decrease~~foreign rate differential, an increase in excess tax benefits ~~for stock compensation~~related to share-based payments, as well as other ~~discrete~~ tax items.

For the nine months ended September 30, 2018, the effective tax rate was a 13.1% expense on a pre-tax income, compared to a 6.6% expense on pre-tax income for the nine months ended September 30, 2017 with the change primarily driven by the Tax Act, the 2018 goodwill impairments as discussed in ~~Note 3 – Fair Value Measurements~~ ~~in the notes to the consolidated financial statements, a decrease in excess tax benefits for stock compensation as well as other discrete tax items.~~

We are subject to taxation in the United States and various other state and foreign jurisdictions. We are under examination by the IRS for our 2009 through 2013 tax years. 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. During first quarter of 2017, the IRS issued proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2009 to 2010 audit cycle. The proposed adjustments would increase our U.S. taxable income by $105 million, which would result in federal tax ~~expense~~ of approximately $37 million, subject to interest. We do not agree with the proposed adjustments and are formally protesting the IRS position.

Definition and Reconciliation of Adjusted EBITDA

We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ~~("GAAP"~~(“GAAP”). Adjusted EBITDA is among the primary metrics by which management evaluates the performance of the business and on which internal budgets are based. Management believes that investors should have access to the same set of tools that management uses to analyze our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP. Adjusted EBITDA has certain limitations in that it does not take into account the impact of certain expenses to our consolidated statements of operations. We endeavor to compensate for the limitation of the non-GAAP measure presented by also providing the most directly comparable GAAP measure and a description of the reconciling items and adjustments to derive the non-GAAP measure. Adjusted EBITDA also excludes certain items related to transactional tax matters, which may ultimately be settled in cash, and we urge investors to review the detailed disclosure regarding these matters included above, in the Legal Proceedings section, as well as the notes to the financial statements. The non-GAAP financial measure used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Adjusted EBITDA is defined as net income (loss) attributable to Expedia Group adjusted for (1) net income (loss) attributable to non-controlling interests; (2) provision for income taxes; (3) total other expenses, net; (4) stock-based compensation expense, including compensation expense related to certain subsidiary equity plans; (5) acquisition-related impacts, including (i) amortization of intangible assets and goodwill and intangible asset impairment, (ii) gains (losses) recognized on changes in the value of contingent consideration arrangements, if any, and (iii) upfront consideration paid to settle employee compensation plans of the acquiree, if any; (6) certain other items, including restructuring; (7) items included in legal reserves, occupancy tax and other; (8) that portion of gains (losses) on revenue hedging activities that are included in other, net that relate to revenue recognized in the period; and (9) depreciation.

The above items are excluded from our Adjusted EBITDA measure because these items are noncash in nature, or because the amount and timing of these items is unpredictable, not driven by core operating results and renders comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA is a useful measure for analysts and investors to evaluate our future on-going performance as this measure allows a more meaningful comparison of our performance and projected cash earnings with our historical results from prior periods and to the results of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments. In addition, we believe that by excluding certain items, such as stock-based compensation and acquisition-related impacts, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business and allows investors to gain an understanding of the factors and trends affecting the ongoing cash earnings capabilities of our business, from which capital investments are made and debt is serviced.

The reconciliation of net income (loss) attributable to Expedia Group, Inc. to Adjusted EBITDA is as follows:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
	(In millions)												(In millions)
Net income attributable to Expedia Group, Inc.	$	525		$	352		$	389		$	323
Net loss attributable to Expedia Group, Inc.													$	(103	)	$	(137	)
Net (income) loss attributable to non-controlling interests	6			(3		)	(16		)	(4		)	3			(12		)
Provision for income taxes	81			66			56			22			(41		)	(20		)
Total other expense, net	60			66			189			170			10			4
Operating income	672			481			618			511
Operating loss													(131		)	(165		)
Gain (loss) on revenue hedges related to revenue recognized	22			(9		)	18			3			3			(3		)
Restructuring and related reorganization charges	—			4			—			16			10			—
Legal reserves, occupancy tax and other	(78		)	(1		)	(74		)	23			10			3
Stock-based compensation	54			7			154			104			56			50
Amortization of intangible assets	71			71			215			204			52			72
Impairment of goodwill	—			—			61			—
Depreciation	171			156			507			449			176			167
Adjusted EBITDA	$	912		$	709		$	1,499		$	1,310		$	176		$	124

Financial Position, Liquidity and Capital Resources

Our principal sources of liquidity are cash flows generated from operations; our cash and cash equivalents and short-term investment balances, which were ~~$3.4~~$4.2 billion and ~~$3.3~~$2.5 billion at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, and our $2 billion revolving credit facility, which is essentially untapped and expires in May 2023.

The revolving credit facility which was amended in the second quarter of 2018 to increase the borrowing capacity to $2 billion, extend the expiration to May 2023, and reduce the interest rate on loans under the facility (as disclosed herein), bears interest based on the Company’s credit ratings with the applicable interest rate on drawn amounts at LIBOR plus 125 basis points and the commitment fee on undrawn amounts at 17.5 basis points as of ~~September 30, 2018.~~March 31, 2019.

As of ~~September 30, 2018,~~March 31, 2019, the total cash and cash equivalents and short-term investments held outside the United States was ~~$1.4 billion~~$856 million ($~~1.3 billion~~623 million in wholly-owned foreign subsidiaries and ~~$180~~$233 million in majority-owned subsidiaries).

Our credit ratings are periodically reviewed by rating agencies. As of ~~September 30, 2018,~~March 31, 2019, Moody’s rating was Ba1 with an outlook of “stable,” S&P’s rating was BBB with an outlook of “stable” and Fitch’s rating was BBB- with an outlook of ~~“stable.~~“stable,” which Fitch subsequently upgraded to BBB in April 2019 following our announcement of an agreement to acquire Liberty Expedia Holdings, Inc. Changes in our operating results, cash flows, financial position, capital structure, financial policy or capital allocations to share repurchase, dividends, investments and acquisitions could impact the ratings assigned by the various rating agencies. Should our credit ratings be adjusted downward, we may incur higher costs to borrow and/or limited access to capital markets, which could have a material impact on our financial condition and results of operations.

As of ~~September 30, 2018,~~March 31, 2019, we were in compliance with the covenants and conditions in our revolving credit facility and outstanding debt, which was comprised of $750 million in registered senior unsecured notes due in August 2020 that bear interest at 5.95%, $500 million in registered senior unsecured notes due in August 2024 that bear interest at 4.5%, Euro 650 million of registered senior unsecured notes due in June 2022 that bear interest at 2.5%, $750 million of registered senior unsecured notes due in February 2026 that bear interest at 5.0% and the $1 billion of registered senior unsecured notes due in February 2028 that bear interest at 3.8%. ~~In August 2018, our $500 million in registered senior unsecured notes that bore interest at 7.456% matured and the balance was repaid.~~

Under the merchant model, we receive cash from travelers at the time of booking and we record these amounts on our consolidated balance sheets as deferred merchant bookings. We pay our airline suppliers related to these merchant model bookings generally within a few weeks after completing the transaction, but we are liable for the full value of such transactions until the flights are completed. For most other merchant bookings, which is primarily our merchant hotel business, we generally pay after the travelers’ use and, in some cases, subsequent billing from the hotel suppliers. Therefore, generally we receive cash from the traveler prior to paying our supplier, and this operating cycle represents a working capital source of cash to us. As long as the merchant hotel business grows, we expect that changes in working capital related to merchant hotel transactions will positively impact operating cash flows. However, we are using both the merchant model and the agency model in many of our markets. If the merchant hotel model declines relative to our other business models that generally consume working capital such as agency hotel, managed corporate travel, advertising or certain Expedia Partner Solutions relationships, or if there are changes to the merchant model, supplier payment terms, or booking patterns that compress the time period between our receipt of cash from travelers and our payment to suppliers, such as with mobile bookings via smartphones, our overall working capital benefits could be reduced, eliminated or even reversed. Our future working capital benefits could also be impacted by ~~HomeAway's~~Vrbo’s continued shift to become the merchant of record on more of ~~a transactional model from a subscription model.~~its transactions.

As our ETP program continues to expand, and depending on relative traveler and supplier adoption rates and customer payment preferences, among other things, the scaling up of ETP has and will continue to negatively impact near term working capital cash balances, cash flow, relative liquidity during the transition, and hotel revenue margins.

Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash flows. During the first half of the year, hotel bookings have traditionally exceeded stays, resulting in much higher cash flow related to working capital. During the second half of the year, this pattern reverses and cash flows are typically negative. While we expect the impact of seasonal fluctuations to continue, merchant hotel growth rates, changes to the model or booking patterns, changes in the relative mix of merchant hotel transactions compared with transactions in our working capital consuming businesses, including ETP, as well as the transformation of the ~~HomeAway vacation rental~~Vrbo alternative accommodations listing business, may counteract or intensify the anticipated seasonal fluctuations.

As of ~~September 30, 2018,~~March 31, 2019, we had a deficit in our working capital of ~~$2.6~~$3.0 billion, which increased slightly compared to the deficit of ~~$2.3~~$2.9 billion as of December 31, 2017. The change in the deficit was primarily due to investing and financing activities, including capital expenditures, purchase of treasury stock and payment of long-term debt, partially offset by operating cash flows.2018.

We continue to invest in the development and expansion of our operations. Ongoing investments include but are not limited to improvements in infrastructure, which include our servers, networking equipment and software, release improvements to our software code, platform migrations and consolidation and search engine marketing and optimization

efforts. In addition, in 2016, we began our expansion into the cloud computing environment. While our cloud computing expenses have increased and are expected to continue to increase significantly over the next few years, they are expected to result in lower overall capital expenditures related to our data centers over time. Our future capital requirements may include capital needs for acquisitions (including purchases of non-controlling interest), share repurchases, dividend payments or expenditures in support of our business strategy; thus reducing our cash balance and/or increasing our debt. Excluding capital expenditures associated with the build out of our new corporate headquarters, we expect total capital expenditures for full year ~~2018~~2019 to increase over ~~2017~~2018 spending levels. For the new headquarters, we expect to spend approximately $900 million, with final estimates contingent on completion of design plans and final determination of completed office space required in the initial build out as well as impacts from any additional tariffs.million. Of the total, approximately ~~$30~~$290 million was spent between 2016 and 2018, and $79 million was spent in ~~2016~~the first quarter of 2019. During full year 2019 and ~~approximately $70 million in 2017. During 2018 and 2019,~~2020, we expect to spend ~~$230 to $250 million (having incurred approximately $120 million year-to-date) and~~ $425 to $475 million ~~respectively, with~~and $135 to $185 million, respectively. However, the ~~remaining costs to be incurred in 2020.~~timing of spend could shift as we progress toward completion of the project.

Our cash flows are as follows:


	Nine months ended September 30,									Three months ended March 31,
	2018			2017			$ Change			2019			2018			$ Change
	(In millions)									(In millions)
Cash provided by (used in):
Operating activities	$	2,120		$	1,946		$	174		$	2,149		$	1,676		$	473
Investing activities	(655		)	(1,479		)	824			(706		)	(728		)	22
Financing activities	(1,154		)	861			(2,015		)	21			(236		)	257
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	(119		)	142			(261		)	(11		)	17			(28		)

For the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, net cash provided by operating activities increased by ~~$174~~$473 million primarily due to ~~higher operating income after adjusting for impacts of depreciation and amortization and a refund of "pay-to-play" hotel occupancy tax amounts, partially offset by a decrease~~an increase in benefits from working capital changes ~~including higher cash paid for taxes.~~driven mostly from a change in deferred merchant bookings.

For the ~~nine~~three months ended ~~September 30, 2018, $824~~March 31, 2019, $22 million less cash was used in investing activities primarily due to ~~higher~~lower net purchases of investments of ~~$770~~$112 million, ~~and higher cash paid for acquisitions in the prior period,~~ partially offset by higher current year capital expenditures, ~~primarily~~including amounts related to our new corporate headquarters.

For the ~~nine~~three months ended September 30, 2018, cash used in financing activities primarily included cash paid to acquire shares of $620 million, including the repurchased shares under the authorizations discussed below, the $500 million long-term debt repayment, and $138 million in cash dividend payments, partially offset by $138 million of proceeds from the exercise of options and employee stock purchase plans. For the nine months ended September 30, 2017,March 31, 2019, cash provided by financing activities primarily included ~~$992 million of net proceeds for the issuance of 3.8% Notes in September 2017 as well as $180~~$91 million of proceeds from the exercise of options and employee stock purchase plans, partially offset by cash dividend payments of $47 million and treasury stock activity related to the vesting of equity instruments of $25 million. For the three months ended March 31, 2018, cash used in financing activities primarily included cash paid to acquire shares of ~~$154~~$202 million, including the repurchased shares under the authorization discussed below, and ~~$130~~a $46 million in cash dividend ~~payments.~~payment, partially offset by $20 million of proceeds from the exercise of options and employee stock purchase plans.

In February 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million shares of our common stock. In April 2018, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to an additional 15 million shares of our common stock. During the ~~nine~~three months ended ~~September 30,~~March 31, 2018, ~~and 2017,~~ we repurchased, through open market transactions, ~~5.2 million and 1.0~~1.8 million shares under ~~these~~share authorizations for a total cost of ~~$602 million and $139~~$191 million, excluding transaction costs. We did not repurchase any shares through open market transactions during the three months ended March 31, 2019. As of ~~September 30, 2018,~~March 31, 2019, there were approximately ~~14.7~~12.2 million shares remaining under ~~the~~an April 2018 authorization. There is no fixed termination date for the repurchases. Subsequent to the end of the third quarter of 2018, we repurchased an additional 0.3 million shares for a total cost of $33 million, excluding transaction costs, representing an average purchase price of $129.35 per share.

During the first ~~nine~~three months of ~~2018~~2019 and ~~2017,~~2018, the Executive Committee, acting on behalf of the Board of Directors, declared and we paid the following dividends:

Declaration Date
Dividend
Per Share
Record Date
Total Amount
(in millions)
Payment Date
Nine Months Ended September 30, 2018
February 7, 2018 $ 0.30
March 8, 2018 $ 46
March 28, 2018
April 24, 2018 0.30
May 24, 2018 45
June 14, 2018
July 23, 2018 0.32
August 23, 2018 47
September 13, 2018
Nine Months Ended September 30, 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

Declaration Date

Dividend

Per Share

Record Date

Total Amount

(in millions)

Payment Date

Three Months Ended March 31, 2019

February 6, 2019

0.32

March 7, 2019

March 27, 2019

Three Months Ended March 31, 2018

February 7, 2018

0.30

March 8, 2018

March 28, 2018

The effect of foreign exchange on our cash and restricted cash balances denominated in foreign currency for the nine months ended September 30, 2018, compared to the same period in 2017, showed a net change of $(261) million reflecting net depreciations in foreign currencies for the current year period compared to net appreciations in foreign currencies in the prior year period.

In our opinion, available cash, funds from operations and available borrowings will provide sufficient capital resources to meet our foreseeable liquidity needs. There can be no assurance, however, that the cost or availability of future borrowings, including refinancings, if any, will be available on terms acceptable to us.

Contractual Obligations, Commercial Commitments and Off-balance Sheet Arrangements

There have been no material changes outside the normal course of business to our contractual obligations and commercial commitments since December 31, ~~2017.~~2018. Other than our contractual obligations and commercial commitments, we did not have any off-balance sheet arrangements as of ~~September 30, 2018~~March 31, 2019 or December 31, ~~2017.~~2018.

Certain Relationships and Related Party Transactions

For a discussion of certain relationships and related party transactions, see Note 11 – Related Party Transactionsin the notes to the consolidated financial statements.

Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

There has been no material changes in our market risk during the three months ended ~~September 30, 2018.~~March 31, 2019. For additional information, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Part I. Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting.

There were no changes to our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Item 1. Legal Proceedings

In the ordinary course of business, Expedia Group and its subsidiaries are parties to legal proceedings and claims involving property, personal injury, contract, alleged infringement of third party intellectual property rights and other claims. A discussion of certain legal proceedings can be found in the section titled “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, ~~2017 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30,~~ 2018. The following are developments regarding, as applicable, such legal proceedings and/or new legal proceedings:

Litigation Relating to Occupancy and Other Taxes

Actions Filed by Individual States, Cities and Counties

~~City and County of San Francisco, California Litigation.~~ On August 29, 2018, the California Supreme Court denied the City of San Francisco’s petition for review. On September 13, 2018, the City of San Francisco refunded all $78 million in pay-to-play amounts previously paid by the Expedia Group companies (including Orbitz), along with $19 million in accumulated interest, thereby effectively ending the case.

~~Pine Bluff, Arkansas Litigation.~~ On August 2, 2018, the Arkansas Supreme Court denied defendants’ petition for writ of prohibition or certiorari seeking to bar the trial court from continuing to exercise jurisdiction over the case, or holding any further proceedings. On August 24, 2018, the plaintiffs filed a motion to dismiss the defendants’ appeal as premature. On October 4, 2018, the Arkansas Supreme Court deferred ruling on the plaintiffs’ motion, combining it with defendants’ appeal on the merits. The motion and appeal remain pending.

Town of Breckenridge, Colorado Litigation. ~~On August 20, 2018, the~~The Colorado Supreme Court ~~granted~~has scheduled argument on plaintiff’s ~~petition for writ of certiorari seeking leave to~~ appeal as to local accommodations tax issues ~~but denied the petition as to class certification and state sales tax issues. Breckenridge’s appeal remains pending.~~for May 9, 2019.

State of ~~Mississippi~~New Hampshire Litigation. On ~~August 30, 2018,~~March 8, 2019, the New Hampshire Supreme Court affirmed the trial court’s judgment in favor of the defendant online travel companies, thereby ending the case.

Arizona Cities Litigation. On April 3, 2019, the Arizona Supreme Court granted the parties petition/cross-petition for review. The court has scheduled argument on the appeals for June 4, 2019.

Jefferson Parish, Louisiana Litigation. On March 21, 2019, the defendant online travel companies filed a motion for judgment on the pleadings seeking dismissal of plaintiffs’ common law and unfair trade practices claims.

Miami Dade County, Florida Litigation. On March 19, 2019, the trial court granted in part and denied in part defendants’ motion to ~~dismiss~~dismiss. On March 29, 2019, the ~~State’s case for failure~~plaintiff county filed an amended complaint.

Broward County, Florida Litigation. On March 1, 2019, HomeAway filed a motion to ~~prosecute. The State has opposed that motion.~~dismiss; thereafter, on March 8, 2019, the plaintiff county filed an amended complaint.

Palm Beach County, Florida Litigation (Ordinance Tax Amendments Challenge). On ~~September 7, 2018, the State~~March 27, 2019, HomeAway filed a motion for partial summary judgment. ~~Defendants will be opposing that motion and filing their own cross motion for partial summary judgment. The court has scheduled argument~~Therefore, on ~~these motions for November 19, 2018.~~

~~Arizona Cities Litigation.~~ ~~On September 6, 2018, the Arizona Court of Appeals affirmed in part and reversed in part the Arizona Tax Court’s decision. On October 5 and~~April 22, ~~2018, respectively,~~2019, the defendant ~~online travel companies and~~county Tax Collector filed an unopposed motion to stay the ~~plaintiffs filed petitions for writ~~case pending the county’s consideration of ~~certiorari seeking leave to appeal~~further amendments to the ~~Arizona Supreme Court. Those petitions remain pending.~~

~~Village of Matteson, Illinois Litigation.~~ ~~The parties reached a settlement and, on August 1, 2018, the court dismissed the case.~~

~~Palm Beach, Florida HomeAway Litigation.~~ On October 12, 2018, the defendants filed a renewed motion for summary judgment. The County is scheduled to file a cross motion for summary judgment on October 31, 2018. The court has scheduled argument on the parties’ cross motions for November 27, 2018.

~~Clackamas County, Oregon HomeAway Litigation.~~ ~~On August 3, 2018, the court adopted the magistrate’s findings and recommendations and dismissed all claims against the defendants. The county did not appeal and the case has ended.~~tax ordinance at issue.

Non-Tax Litigation and Other Legal Proceedings

Putative Class Action Litigation

Buckeye Tree Lodge/2020 O Street Corporation Lawsuits. On ~~August 17, 2018, plaintiffs filed~~March 13, 2019, the court denied certification of a ~~renewed motion for~~damages class ~~certification; that motion remains pending.~~

~~Cases against HomeAway.com, Inc.~~ ~~On August 16, 2018, the district court entered final judgment dismissing the~~ ~~Arnold~~ ~~case. On August 27, 2018, the district court adopted the Magistrate’s report~~ and ~~recommendation, thereby granting HomeAway’s motion to compel arbitration and dismissing the~~ ~~May~~ ~~case.~~granted certification of a narrow injunctive relief only class.

Other Legal Proceedings

Santa Monica, California Litigation. ~~The United States~~On March 13, 2019, the Ninth Circuit ~~Court of Appeals heard argument on HomeAway’s appeals from~~affirmed the ~~district~~trial court’s ~~denial of its motion~~ruling. On April 26, 2019, HomeAway filed a petition for ~~a preliminary injunction and dismissal of its claims on October 12, 2018. The parties await a ruling.~~rehearing/rehearing en banc.

~~Ryanair Lawsuit (United States)~~Palm Beach County, Florida Litigation (Ordinance Regulatory Amendments Challenge). ~~On August 6, 2018,~~The county filed an uncontested motion to stay the litigation to allow it to consider further amendments to its ordinance, which the court granted on February 28, 2019. In light of the stay, the court denied ~~Expedia, Inc.’s~~the parties’ pending motions to dismiss. On September 25, 2018, the court certified its decisions for interlocutory appeal to the Ninth Circuit. Expedia, Inc. filed a motion for interlocutory review with the Ninth Circuit on October 5, 2018 which Ryanair has opposed. That motion remains pending.as moot.

IBM Lawsuit. On ~~August 27, 2018,~~April 9, 2019, IBM filed a second lawsuit against Expedia, Hotels.com, Hotwire, and Orbitz in federal district court for the district of Arizona. The complaint alleges infringement of three additional patents. On April 11, 2019, the magistrate judge in the Delaware action issued a partial Report and Recommendation recommending denial, in part, of Defendants’ motion to dismiss Expedia Group, Inc. from the lawsuit.

Fee Disclosure Class Actions. On February 25, 2019, defendants filed ~~motions~~a motion to ~~dismiss. Those~~compel arbitration in the Church case. On March 18, 2019, defendants filed a motion to dismiss in the Woodell case. Both motions remain pending.

~~New York City Litigation~~United Airlines Litigation.. On August 24, 2018, HomeAway filed a lawsuit against the City of New York requesting a declaration that the City’s ordinance governing hosting platforms violates the Stored Communications Act, the First and Fourth Amendments of the U.S. Constitution, and Article 1, Section 12 of the New York Constitution. ~~HomeAway.com, Inc. v. City of New York, Case No. 18-cv-7742 (U.S. District Court, Southern District of New York). On September 4, 2018, HomeAway~~February 25, 2019, Expedia filed a motion for a preliminary injunction, ~~to enjoin enforcement of~~which the ~~law~~court denied on ~~the same grounds. The court heard argument on October~~April 5, ~~2018. The parties await a ruling.~~2019.

Competition and Consumer Protection Matters

For a discussion of certain competition and consumer protection matters see Note 810 – Commitments and Contingencies - Legal Proceedings - Competition and Consumer Protection Matters in the notes to consolidated financial statements.

Part II. Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~ 2018, as well as in the section entitled “Risk Factors” in the Registration Statement on Form S-4 (Registration No. 333-231164) filed by Expedia Group with the SEC on May 1, 2019,which could materially affect our business, financial condition or future results. ~~The risks described in our Annual Report on Form 10-K~~These are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Share Repurchases~~

During 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million shares of our common stock. In April 2018, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to an additional 15 million shares of our common stock. A summary of the repurchase activity for the third quarter of 2018 is as follows:

Period
Total Number of
Shares Purchased

Average Price
Paid Per Share

Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

Maximum
Number of
Shares that
May Yet Be
Purchased
Under Plans or
Programs
(In thousands, expect per share data)
July 1-31, 2018 333
$ 124.95
333
15,909
August 1-31, 2018 394
131.39
394
15,515
September 1-30, 2018 767
128.93
767
14,748
Total 1,494
1,494

~~Preemptive Rights Share Purchases~~

Pursuant to the Amended and Restated Governance Agreement, dated as of December 20, 2011 (the “Original Governance Agreement”), among the Company, Qurate Retail, Inc. (f/k/a Liberty Interactive Corporation (“Liberty Interactive”)) and Barry Diller as assigned to and assumed by Liberty Expedia Holdings, Inc. (“Liberty”) pursuant to the Assignment and Assumption of Governance Agreement, dated as of November 4, 2016, by and among Liberty, LEXE Marginco, LLC, LEXEB, LLC, Liberty Interactive, Barry Diller and the Company (the “Assignment” and, together with the Original Governance Agreement, the “Governance Agreement”), Liberty in certain circumstances has preemptive rights in connection with certain issuances by the Company of common stock that entitle it to purchase a number of common shares of the Company so that Liberty will maintain the identical ownership interest in the Company (subject to certain adjustments) that Liberty had immediately prior to such issuance (but not in excess of 20.01%). The foregoing is an abbreviated summary of such preemptive rights and is qualified in its entirety by the terms of the Governance Agreement. On August 21, 2018, Liberty delivered a notice to the Company exercising its preemptive rights under the Governance Agreement with respect to issuances by the Company of its common stock made from October 10, 2017 to July 27, 2018. On September 14, 2018, pursuant to and in accordance with the Governance Agreement, the Company issued 269,646 shares of its common stock to Liberty at a price per share of $113.32, receiving from Liberty an aggregate of approximately $31 million. The sale and issuance of the shares to Liberty were required by the terms of the Governance Agreement and exempt from registration under Section 4(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(2) of the Securities Act and other applicable requirements were met. Neither the Company nor anyone acting on the Company’s behalf offered or sold these shares by any form of general solicitation or general advertising.

Part II. Item 6. Exhibits

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.



Exhibit No.	Exhibit Description	Filed Herewith		Incorporated by Reference
Exhibit No.	Exhibit Description		Form	SEC File No.	Exhibit	Filing Date

2.1	Agreement and Plan of Merger by and among Expedia Group, Inc., LEMS II Inc., LEMS I LLC and Liberty Expedia Holdings, Inc., dated as of April 15, 2019†		8-K	001-37429	2.1	04/16/2019

3.1	Amended and Restated By-Laws of Expedia Group, Inc., dated as of April 15, 2019		8-K	001-37429	3.1	04/16/2019

10.1*	Expedia Group, Inc. 2013 International Employee Stock Purchase Plan, As Amended and Restated	X

10.2*	Form Expedia Group, Inc. Stock Option Agreement	X

10.3*	Form Expedia Group, Inc. Restricted Stock Unit Agreement	X

10.4*	Expedia Group, Inc. Restricted Stock Unit Agreement between Peter M. Kern and Expedia Group, Inc., dated as of March 7, 2019	X

10.5	Voting Agreement by and among Expedia Group, Inc. and the Shareholders (as defined therein), dated as of April 15, 2019		8-K	001-37429	10.1	04/16/2019

10.6	Exchange Agreement by and among Barry Diller, The Diller - von Furstenberg Family Foundation, Liberty Expedia Holdings, Inc. and Expedia Group, Inc., dated as of April 15, 2019		8-K	001-37429	10.2	04/16/2019

10.7	Second Amended and Restated Governance Agreement by and between Expedia Group, Inc. and Barry Diller, dated as of April 15, 2019		8-K	001-37429	10.3	04/16/2019

10.8	Amendment No. 2 to Amended and Restated Transaction Agreement, by and among Qurate Retail, Inc., Liberty Expedia Holdings, Inc., Barry Diller, John C. Malone		8-K	001-37429	10.4	04/16/2019

10.9	Stockholders Agreement Termination Agreement, by and among Barry Diller, Liberty Expedia Holdings, Inc., LEXEB, LLC and LEXE Marginco, LLC, dated as of April 15, 2019		8-K	001-37429	10.5	04/16/2019

10.10	Governance Agreement Termination Agreement, by and among Barry Diller, Expedia Group, Inc., Liberty Expedia Holdings, Inc., LEXEB, LLC and LEXE Marginco, LLC, dated as of April 15, 2019		8-K	001-37429	10.6	04/16/2019

10.11	Assumption and Joinder Agreement to Tax Sharing Agreement by and among Expedia Group, Inc., Liberty Expedia Holdings, Inc. and Qurate Retail, Inc., dated as of April 15, 2019		8-K	001-37429	10.7	04/16/2019

10.12	Tax Sharing Agreement, by and between Liberty Interactive Corporation and Liberty Expedia Holdings, Inc., dated as of November 4, 2016 (incorporated by reference to Exhibit 10.1 to Qurate Retail, Inc.’s Current Report on Form 8-K filed with the SEC on November 7, 2016 (File No. 001-33982))		8-K	001-33982	10.1	11/07/2016

10.13	Assumption Agreement Concerning Transaction Agreement Obligations, by and among Expedia Group, Inc., Liberty Expedia Holdings, Inc., Qurate Retail, Inc., Barry Diller, John C. Malone and Leslie Malone, dated as of April 15, 2019		8-K	001-37429	10.9	04/16/2019

10.14	Assumption and Joinder Agreement to Reorganization Agreement by and among Expedia Group, Inc., Liberty Expedia Holdings, Inc. and Qurate Retail, Inc., dated as of April 15, 2019		8-K	001-37429	10.10	04/16/2019



10.15	Reorganization Agreement by and between Liberty Interactive Corporation and the Registrant, dated as of October 26, 2016 (incorporated by reference to Exhibit 2.1 to Post-Effective Amendment No. 1 to Liberty Expedia Holdings, Inc.’s Registration Statement on Form S-4 filed with the SEC on November 4, 2016 (File No. 333-210377))		S-4	333-210377	2.1	11/04/2016

10.16	Seventh Amendment, dated as of March 7, 2019, to the Amended and Restated Credit Agreement dated as of September 5, 2014 among Expedia Group, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company, Hotwire, Inc., a Delaware corporation, the other Borrowing Subsidiaries from time to time party thereto, the Lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and London Agent	X

31.1	Certification of the Chairman and Senior Executive pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

31.2	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

31.3	Certification of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002	X

32.1	Certification of the Chairman and Senior Executive pursuant Section 906 of the Sarbanes-Oxley Act of 2002	X

32.2	Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002	X

32.3	Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002	X

101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.	X

* Indicates a management contract or compensatory plan or arrangement.



~~Exhibit~~ ~~No.~~ †	~~Exhibit Description~~	~~Filed~~ ~~Herewith~~		~~Incorporated by Reference~~
	~~Form~~	~~SEC File No.~~	~~Exhibit~~	~~Filing Date~~
~~10.1~~	~~Fifth Amendment, dated as~~Schedules have been omitted pursuant to Item 601(b)(2) of ~~September 10, 2018,~~Regulation S-K. The Company hereby undertakes to ~~the Amended and Restated Credit Agreement dated as~~furnish supplemental copies of September 5, 2014 among Expedia Group, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company, Hotwire, Inc., a Delaware corporation, the other Borrowing Subsidiaries from time to time party thereto, the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and London Agent	X

~~31.1~~	~~Certification~~any of the ~~Chairman~~omitted schedules upon request by the U.S. Securities and ~~Senior Executive~~Exchange Commission; provided, however, that the Company may request confidential treatment pursuant to ~~Section 302~~Rule 24b-2 of the ~~Sarbanes-Oxley~~Securities Exchange Act of ~~2002~~	X

~~31.2~~	~~Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	X

~~31.3~~	~~Certification of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002~~	X

~~32.1~~	~~Certification of the Chairman and Senior Executive pursuant Section 906 of the Sarbanes-Oxley Act of 2002~~	X

~~32.2~~	~~Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002~~	X

~~32.3~~	~~Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002~~	X

~~101~~	~~The following financial statements from the Company’s Quarterly Report on Form 10-Q~~1934, as amended, for the quarter ended September 30, 2018, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.	X			any schedules so furnished.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



~~October 25, 2018~~May 2, 2019	Expedia Group, Inc.

	By:	/s/ Alan Pickerill
		Alan Pickerill
		Chief Financial Officer

5752



	Balance at December 31, 2017		Adjustments			Balance at January 1, 2018
	(in millions)
Current and long-term assets:
Accounts receivable, net	$	1,866	$	(40	)	$	1,826
Prepaid expenses and other current assets	269		(1		)	268
Long-term investments and other assets	845		(3		)	842
Current and long-term liabilities:
Deferred merchant bookings	3,219		619			3,838
Accrued expenses and other current liabilities	1,265		(564		)	701
Deferred income taxes	329		(3		)	326
Stockholders' equity:
Retained earnings	331		(8		)	323



	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
	(in millions)
Business Model:
Merchant	$	1,688	$	4,554
Agency	876		2,311
Advertising and media	302		858
HomeAway	410		941
Total revenue	$	3,276	$	8,664
Service Type:
Lodging	$	2,347	$	5,951
Air	209		674
Advertising and media	302		858
Other⁽¹⁾	418		1,181
Total revenue	$	3,276	$	8,664



	Nine months ended September 30, 2018
	Core OTA			trivago			HomeAway			Egencia			Corporate & Eliminations			Total
	(In millions)
Third-party revenue	$	6,706		$	571		$	941		$	446		$	—		$	8,664
Intersegment revenue	—			323			—			—			(323		)	—
Revenue	$	6,706		$	894		$	941		$	446		$	(323	)	$	8,664
Adjusted EBITDA	$	1,721		$	(17	)	$	266		$	76		$	(547	)	$	1,499
Depreciation	(256		)	(11		)	(46		)	(35		)	(159		)	(507		)
Amortization of intangible assets	—			—			—			—			(215		)	(215		)
Impairment of goodwill	—			—			—			—			(61		)	(61		)
Stock-based compensation	—			—			—			—			(154		)	(154		)
Legal reserves, occupancy tax and other	—			—			—			—			74			74
Realized (gain) loss on revenue hedges	(17		)	—			(1		)	—			—			(18		)
Operating income (loss)	$	1,448		$	(28	)	$	219		$	41		$	(1,062	)	618
Other expense, net																(189		)
Income before income taxes																429
Provision for income taxes																(56		)
Net income																373
Net loss attributable to non-controlling interests																16
Net income attributable to Expedia Group, Inc.																$	389



	Nine months ended September 30, 2017
	Core OTA			trivago			HomeAway			Egencia			Corporate & Eliminations			Total
	(In millions)
Third-party revenue	$	6,022		$	621		$	714		$	384		$	—		$	7,741
Intersegment revenue	—			331			—			—			(331		)	—
Revenue	$	6,022		$	952		$	714		$	384		$	(331	)	$	7,741
Adjusted EBITDA	$	1,523		$	14		$	171		$	76		$	(474	)	$	1,310
Depreciation	(226		)	(6		)	(27		)	(30		)	(160		)	(449		)
Amortization of intangible assets	—			—			—			—			(204		)	(204		)
Stock-based compensation	—			—			—			—			(104		)	(104		)
Legal reserves, occupancy tax and other	—			—			—			—			(23		)	(23		)
Restructuring and related reorganization charges	—			—			—			—			(16		)	(16		)
Realized (gain) loss on revenue hedges	(3		)	—			—			—			—			(3		)
Operating income (loss)	$	1,294		$	8		$	144		$	46		$	(981	)	511
Other expense, net																(170		)
Income before income taxes																341
Provision for income taxes																(22		)
Net income																319
Net loss attributable to non-controlling interests																4
Net income attributable to Expedia Group, Inc.																$	323



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs
	(In thousands, expect per share data)
July 1-31, 2018	333	$	124.95	333	15,909
August 1-31, 2018	394	131.39		394	15,515
September 1-30, 2018	767	128.93		767	14,748
Total	1,494			1,494