Item 15. Exhibits, Consolidated Financial Statements and Financial Statement Schedules

(a)(1) Consolidated Financial Statements

We have filed the consolidated financial statements listed in the Index to Consolidated Financial Statements, Schedules and Exhibits on page F-1 as a part of this report.

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable, not material or the required information is shown in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits

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

Exhibit No.				Filed Herewith		Incorporated by Reference
Exhibit Description		Form		SEC File No.		Exhibit		Filing Date
1.1		Underwriting Agreement, dated Expedia, Inc., as Issuer, the Guarantors party thereto, and BNP Paribas, Goldman, Sachs & Co., J.P. Morgan Securities plc, as Representatives of the several Underwriters (relating to the Fourth Supplemental Indenture on Exhibit 4.6)				8-K		000-51447		1.1		6/3/2015

2.1		Share Purchase Agreement, dated as of December 21, 2012, by and among Expedia, Inc., trivago GmbH, a wholly owned subsidiary of Expedia and the shareholders of trivago GmbH party thereto.				8-K		000-51447		2.1		12/21/2012
2.2		Shareholders Agreement, dated as of December 21, 2012 by and among trivago GmbH, Expedia, Inc., a wholly owned subsidiary of Expedia and certain shareholders of trivago GmbH.				8-K		000-51447		2.2		12/21/2012
2.3		Purchase and Sale Agreement (Cruise), dated March 10, 2015, by and between Immunex Corporation and Cruise, LLC				8-K		000-51447		10.1		4/2/2015
2.4		First Amendment to Purchase and Sale, dated March 25, 2015, by and between Immunex Corporation and Cruise, LLC				8-K		000-51447		10.2		4/2/2015
2.5		Share Purchase Agreement, dated May 22, 2015, by and among Expedia, Inc., Expedia Asia Pacific - Alpha Limited, Ctrip.com International, Ltd., C-Travel International Limited, Luxuriant Holdings Limited, Keystone Lodging Holdings Limited and Plateno Group Limited				8-K		000-51447		2.1		5/22/2015
3.1		Restated Certificate of Incorporation of Expedia, Inc.				8-K		000-51447		3.1		12/27/2011
3.2		Amended and Restated Bylaws of Expedia, Inc.				8-K		000-51447		3.3		8/15/2005
4.1		Indenture, dated as of August 21, 2006, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Trust Company, N.A., as Trustee, relating to Expedia, Inc.’s 7.456% Senior Notes due 2018				10-Q		000-51447		4.1		11/14/2006
4.2		First Supplemental Indenture, dated as of January 19, 2007, among Expedia, Inc., as Issuer, the Subsidiary Guarantors party thereto and The Bank of New York Trust Company, N.A., as Trustee				S-4		333-140195		4.2		1/25/2007
4.3		Indenture, dated as of August 5, 2010, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 5.95% Senior Notes due 2020				8-K		000-51447		4.1		8/10/2010
4.4		Ninth Supplemental Indenture, dated as of September 30, 2016, among Expedia, Inc., as Issuer, the Subsidiary Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K		001-37429		4.1		10/3/2016
4.5		Indenture, dated as of August 13, 2014, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K		000-51447		4.1		8/18/2014
4.6		First Supplemental Indenture, dated as of August 18, 2014, among Expedia, Inc., the Subsidiary Guarantors party thereto and The Bank of New York Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 4.500% Senior Notes due 2024				8-K		000-51447		4.2		8/18/2014
4.7		Fourth Supplemental Indenture, dated as of June 3, 2015, among Expedia, Inc., as Issuer, the Subsidiary Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 2.500% Senior Notes due 2022				8-K		000-51447		4.2		6/3/2015

4.8		Indenture, dated as of December 8, 2015, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 5.000% Senior Notes due 2026				8-K		001-37429		4.1		12/8/2015
4.9		Indenture, dated as of September 21, 2017, among Expedia, Inc., the guarantors party thereto and U.S. Bank National Association				8-K		001-37429		4.1		9/21/2017
10.1		Amended and Restated Governance Agreement among Expedia, Inc., Liberty Interactive Corporation and Barry Diller, dated as of December 20, 2011				8-K		000-51447		10.1		12/27/2011
10.2		Assignment and Assumption of Governance Agreement, among Liberty Expedia holdings, Inc., LEXE Marginco, LLC, LEXEB, LLC, Liberty Interactive Corporation, Barry Diller and Expedia, Inc., dated as of November 4, 2016				8-K*†		001-37938		10.6		11/7/2016
10.3		Amended and Restated Stockholders Agreement between Liberty Interactive Corporation and Barry Diller, dated as of December 20, 2011				10-K		000-51447		10.11		2/10/2012
10.4		Assignment and Assumption of Stockholders Agreement, by and among Liberty Expedia Holdings, Inc., Liberty Interactive Corporation and Barry Diller, dated November 4, 2016				8-K*†		001-37938		10.7		11/7/2016
10.5		Amendment No. 1 to Stockholders Agreement, by and between Liberty Expedia Holdings, Inc. and Barry Diller, dated November 4, 2016				8-K*†		001-37938		10.8		11/7/2016
10.6		Amended and Restated Transaction Agreement, by and among Liberty Interactive Corporation, Liberty Expedia Holdings, Inc., Barry Diller, John C. Malone and Leslie Malone, dated as of September 22, 2016				S-4/A*†		333-210377		10.13		9/23/2016
10.7		Assignment Agreement, by and between Barry Diller and Liberty Expedia Holdings, Inc., dated November 4, 2016				8-K*†		001-37938		10.10		11/7/2016
10.8		Tax Sharing Agreement by and between Expedia, Inc. and TripAdvisor, Inc., dated as of December 20, 2011				8-K		000-51447		10.2		12/27/2011
10.9		Services Agreement by and between HomeAway.com, Inc. and Keystone Strategy LLC, dated April 1, 2017				10-Q		001-37429		10.1		7/28/2017
10.10		Amended and Restated Credit Agreement dated as of September 5, 2014, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company; Hotwire, Inc., a Delaware corporation, the Lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent				8-K		000-51447		10.1		9/11/2014
10.11		First Amendment, dated as of February 4, 2016, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company, Hotwire, Inc., a Delaware corporation, the lenders and issuing banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent				8-K		001-37429		10.1		2/8/2016

10.12		Second Amendment, dated as December 22, 2016, among Expedia, 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 J.P. Morgan Europe Limited, as London Agent				10-K		001-37429		10.14		2/10/2017
10.13		Office Building Lease by and between Tower 333 LLC, a Delaware limited liability company, and Expedia, Inc., a Washington corporation, dated June 25, 2007				10-Q		000-51447		10.1		8/3/2007
10.14*		Fourth Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan				DEF 14A		001-37429		App. A		8/23/2016
10.15*		Orbitz Worldwide, Inc. 2007 Equity and Incentive Plan				S-8		333-206990		99.1		9/17/2015
10.16*		HomeAway, Inc. 2011 Equity Incentive Plan				S-8		333-208548		99.10		12/15/2015
10.17*		Expedia, Inc. 2013 Employee Stock Purchase Plan				DEF14A		000-51447		App. B		4/30/2013
10.18*		Expedia, Inc. 2013 International Employee Stock Purchase Plan				DEF 14A		000-51447		App. C		4/30/2013
10.19*		Form of Expedia, Inc. Restricted Stock Unit Agreement (Directors)				10-Q		000-51447		10.1		8/1/2014
10.20*		Form of Expedia, Inc. Restricted Stock Unit Agreement				10-K		001-37429		10.22		2/10/2017
10.21*		Form of Expedia, Inc. Stock Option Agreement				10-K		001-37429		10.23		2/10/2017
10.22*		Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective as of January 1, 2009				10-K		000-51447		10.13		2/19/2009
10.23*		Amended and Restated Expedia, Inc. Executive Deferred Compensation Plan, effective as of January 1, 2009				10-K		000-51447		10.17		2/19/2009
10.24*		First Amendment of the Executive Deferred Compensation Plan, effective as of December 31, 2014				10-K		000-51447		10.20		2/6/2015
10.25*		Employment Agreement between Mark Okerstrom and Expedia, Inc., effective September 15, 2017				8-K/A		001-37429		10.1		9/21/2017
10.26*		Expedia, Inc. Stock Option Agreement for Mark D. Okerstrom, dated as of March 7, 2016				8-K		001-37429		10.2		3/9/2016
10.27*		Expedia, Inc. Stock Option Agreement for Mark D. Okerstrom, dated as of March 7, 2016 (Performance Options)				8-K		001-37429		10.3		3/9/2016
10.28*		Stock Option Agreement between Mark Okerstrom and Expedia, Inc., effective September 15, 2017 (Performance Options)				8-K/A		001-37429		10.2		9/21/2017
10.29*		Employment Agreement between Alan Pickerill and Expedia, Inc., effective September 15, 2017				8-K/A		001-37429		10.3		9/21/2017
10.30*		Employment Agreement between Robert J. Dzielak and Expedia, Inc., effective as of March 2, 2015				8-K		000-51447		10.1		3/4/2015
10.31*		Equity Treatment Agreement between Dara Khosrowshahi and Expedia, Inc., effective September 20, 2017				8-K/A		001-37429		10.4		9/21/2017
10.32*		Expedia, Inc. Stock Option Agreement for Dara Khosrowshahi, dated as of March 31, 2015 (Performance Options)				8-K		000-51447		10.3		4/1/2015
21		Subsidiaries of the Registrant		X
23.1		Consent of Independent Registered Public Accounting Firm		X

31.1		Certifications 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
32.2***		Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
32.3***		Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (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.
*†	Indicates reference to filing of Liberty Expedia Holdings, Inc.
***	Furnished herewith

Signatures

Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Expedia, Inc.
	By:	/s/ MARK D. OKERSTROM
		Mark D. Okerstrom Chief Executive Officer

February 8, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 8, 2018.

Signature		Title
/s/ MARK D. OKERSTROM		Chief Executive Officer, President and Director
Mark D. Okerstrom		(Principal Executive Officer)
/s/ ALAN PICKERILL		Chief Financial Officer
Alan Pickerill		(Principal Financial Officer)
/s/ LANCE A. SOLIDAY		Chief Accounting Officer and Controller
Lance A. Soliday		(Principal Accounting Officer)
/s/ BARRY DILLER		Director (Chairman of the Board)
Barry Diller
/s/ VICTOR A. KAUFMAN		Director (Vice Chairman)
Victor A. Kaufman
/s/ SUSAN C. ATHEY		Director
Susan C. Athey
/s/ A. GEORGE BATTLE		Director
A. George Battle
/s/ COURTNEE A. CHUN		Director
Courtnee A. Chun
/s/ CHELSEA CLINTON		Director
Chelsea Clinton
/s/ PAMELA L. COE		Director
Pamela L. Coe
/s/ JONATHAN L. DOLGEN		Director
Jonathan L. Dolgen
/s/ CRAIG A. JACOBSON		Director
Craig A. Jacobson
/s/ PETER M. KERN		Director
Peter M. Kern
/s/ DARA KHOSROWSHAHI		Director
Dara Khosrowshahi
/s/ SCOTT RUDIN		Director
Scott Rudin
/s/ CHRISTOPHER W. SHEAN		Director
Christopher W. Shean
/s/ ALEXANDER VON FURSTENBERG		Director
Alexander von Furstenberg

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F- 2
Consolidated Statements of Operations	F- 3
Consolidated Statements of Comprehensive Income	F- 4
Consolidated Balance Sheets	F- 5
Consolidated Statements of Changes in Stockholders’ Equity	F- 6
Consolidated Statements of Cash Flows	F- 8
Notes to Consolidated Financial Statements	F- 9
Exhibits	E- 1
Index to Exhibits

F- 1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Expedia, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Expedia, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 8, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2004.

Seattle, Washington

February 8, 2018

F- 2

Consolidated Financial Statements

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2017				2016				2015
	(In thousands, except for per share data)
Revenue	$	10,059,844			$	8,773,564			$	6,672,317
Costs and expenses:
Cost of revenue (1)	1,756,531				1,596,698				1,309,559
Selling and marketing (1)	5,297,832				4,367,417				3,381,086
Technology and content (1)	1,386,787				1,235,019				830,244
General and administrative (1)	675,961				678,292				573,913
Amortization of intangible assets	275,445				317,141				156,458
Impairment of intangible assets	—				34,890				7,207
Legal reserves, occupancy tax and other	25,412				26,498				(104,587		)
Restructuring and related reorganization charges (1)	16,738				55,907				104,871
Operating income	625,138				461,702				413,566
Other income (expense):
Interest income	34,137				19,726				16,695
Interest expense	(181,712		)		(173,148		)		(126,195		)
Gain on sale of business	—				—				508,810
Other, net	(60,799		)		(31,680		)		113,086
Total other income (expense), net	(208,374		)		(185,102		)		512,396
Income before income taxes	416,764				276,600				925,962
Provision for income taxes	(45,405		)		(15,315		)		(203,214		)
Net income	371,359				261,285				722,748
Net loss attributable to non-controlling interests	6,605				20,563				41,717
Net income attributable to Expedia, Inc.	$	377,964			$	281,848			$	764,465
Earnings per share attributable to Expedia, Inc. available to common stockholders:
Basic	$	2.49			$	1.87			$	5.87
Diluted	2.42				1.82				5.70
Shares used in computing earnings per share:
Basic	151,619				150,367				130,159
Diluted	156,385				154,517				134,018
Dividends declared per common share	$	1.16			$	1.00			$	0.84

(1) Includes stock-based compensation as follows:
Cost of revenue	$	10,173			$	11,388			$	5,307
Selling and marketing	39,855				46,654				33,164
Technology and content	54,633				63,536				26,766
General and administrative	44,689				108,149				80,082
Restructuring and related reorganization charges	—				12,690				32,749

See notes to consolidated financial statements.

F- 3

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year ended December 31,
	2017				2016				2015
	(In thousands)
Net income	$	371,359			$	261,285			$	722,748
Other comprehensive income (loss), net of tax
Currency translation adjustments, net of taxes	189,580				(10,217		)		(147,815		)
Net reclassification of foreign currency translation adjustments into total other income (expenses), net	—				—				(43,183		)
Unrealized gains (losses) on available for sale securities, net of taxes	(6,705		)		154				(67		)
Other comprehensive income (loss), net of tax	182,875				(10,063		)		(191,065		)
Comprehensive income	554,234				251,222				531,683
Less: Comprehensive income (loss) attributable to non-controlling interests	44,804				(29,075		)		(86,662		)
Comprehensive income attributable to Expedia, Inc.	$	509,430			$	280,297			$	618,345

See notes to consolidated financial statements.

F- 4

EXPEDIA, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2017				2016
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	2,846,729			$	1,796,811
Restricted cash and cash equivalents	69,055				18,733
Short-term investments	468,508				72,313
Accounts receivable, net of allowance of $30,696 and $25,278	1,865,995				1,343,247
Income taxes receivable	20,633				19,402
Prepaid expenses and other current assets	268,669				199,745
Total current assets	5,539,589				3,450,251
Property and equipment, net	1,575,258				1,394,904
Long-term investments and other assets	845,450				520,058
Deferred income taxes	17,930				23,658
Intangible assets, net	2,308,536				2,446,652
Goodwill	8,228,865				7,942,023
TOTAL ASSETS	$	18,515,628			$	15,777,546
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, merchant	$	1,837,936			$	1,509,313
Accounts payable, other	697,560				577,012
Deferred merchant bookings	3,219,279				2,617,791
Deferred revenue	325,722				282,517
Income taxes payable	33,374				49,739
Accrued expenses and other current liabilities	1,264,819				1,090,826
Current maturities of long-term debt	500,000				—
Total current liabilities	7,878,690				6,127,198
Long-term debt, excluding current maturities	3,749,054				3,159,336
Deferred income taxes	328,602				484,970
Other long-term liabilities	408,380				312,939
Commitments and contingencies
Redeemable non-controlling interests	22,334				—
Stockholders’ equity:
Common stock $.0001 par value	23				22
Authorized shares: 1,600,000
Shares issued: 228,467 and 224,310
Shares outstanding: 138,939 and 137,232
Class B common stock $.0001 par value	1				1
Authorized shares: 400,000
Shares issued and outstanding: 12,800 and 12,800
Additional paid-in capital	9,162,909				8,794,298
Treasury stock — Common stock, at cost	(4,822,743		)		(4,510,655		)
Shares: 89,528 and 87,077
Retained earnings	331,078				129,034
Accumulated other comprehensive income (loss)	(148,933		)		(280,399		)
Total Expedia, Inc. stockholders’ equity	4,522,335				4,132,301
Non-redeemable non-controlling interests	1,606,233				1,560,802
Total stockholders’ equity	6,128,568				5,693,103
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	18,515,628			$	15,777,546

See notes to consolidated financial statements.

F- 5

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)

		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, 2014		196,802,236			$	20			12,799,999			$	1			$	5,921,140			82,535,396			$	(3,998,120	)		$	—			$	(138,774	)		$	109,462			$	1,893,729
Net income (excludes $15,417 of net loss attributable to redeemable non-controlling interest)																											764,465								(26,300		)		738,165
Other comprehensive income (loss), net of taxes																															(146,120		)		641				(145,479		)
Proceeds from exercise of equity instruments and employee stock purchase plans		3,385,749			—											96,534																							96,534
Withholding taxes for stock options																(85,033		)																					(85,033		)
Tax benefits on equity awards																89,128																							89,128
Issuance of common stock in connection with acquisitions		20,195,139			2											2,552,340																							2,552,342
Treasury stock activity related to vesting of equity instruments																				127,712			(15,763		)														(15,763		)
Common stock repurchases																				525,504			(44,822		)														(44,822		)
Proceeds from issuance of treasury stock																18,779				(264,841	)		3,796																22,575
Cash dividends																—											(108,778		)										(108,778		)
Adjustment to the fair value of redeemable non-controlling interests																(40,558		)									(148,021		)										(188,579		)
Sale of controlling interest in eLong																—																			(92,550		)		(92,550		)
Acquisition of non-controlling interest																—																			64,115				64,115
Other changes in ownership of non-controlling interests																(4,198		)																	10,005				5,807
Stock-based compensation expense																147,988																							147,988
Other																388																							388
Balance as of December 31, 2015		220,383,124			22				12,799,999			1				8,696,508				82,923,771			(4,054,909		)		507,666				(284,894		)		65,373				4,929,767
Net income (excludes $22,286 of net loss attributable to redeemable non-controlling interest)																											281,848								1,723				283,571
Other comprehensive income (loss), net of taxes																															(1,551		)		—				(1,551		)
Proceeds from exercise of equity instruments and employee stock purchase plans		3,413,505			—											141,043																							141,043
Withholding taxes for stock options																(1,282		)																					(1,282		)
Issuance of common stock in connection with acquisitions		513,140			—											—																							—
Treasury stock activity related to vesting of equity instruments																				174,378			(19,377		)														(19,377		)
Common stock repurchases																				3,979,170			(436,369		)														(436,369		)
Impact of adoption of new accounting guidance related to stock-based compensation																10,048											(7,037		)										3,011
Cash dividends																—											(149,906		)										(149,906		)
Adjustment to the fair value of redeemable non-controlling interests																(344,064		)									(503,537		)										(847,601		)
Change in ownership of non-controlling interest related to trivago initial public offering ("IPO")																(32,141		)													6,046				26,095				—
Transfer from redeemable non-controlling interests																—																			1,380,976				1,380,976

F- 6

		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
Proceeds related to trivago IPO, net of fees and expenses																124,616																			85,287				209,903
Other changes in ownership of non-controlling interests																—																			274				274
Stock-based compensation expense																196,358																							196,358
Other																3,212																			1,074				4,286
Balance as of December 31, 2016		224,309,769			$	22			12,799,999			1				8,794,298				87,077,319			(4,510,655		)		129,034				(280,399		)		1,560,802				5,693,103
Net income (excludes $2,535 of net income attributable to redeemable non-controlling interest)																											377,964								(9,140		)		368,824
Other comprehensive income (loss), net of taxes																															131,466				51,409				182,875
Proceeds from exercise of equity instruments and employee stock purchase plans		3,982,546			1											228,188																							228,189
Withholding taxes for stock options																(9,063		)																					(9,063		)
Issuance of common stock in connection with acquisitions		175,040			—											—																							—
Treasury stock activity related to vesting of equity instruments																				133,319			(17,621		)														(17,621		)
Common stock repurchases																				2,317,617			(294,467		)														(294,467		)
Cash dividends																—											(175,920		)										(175,920		)
Other changes in non-controlling interests																2,649																			3,162				5,811
Stock-based compensation expense																147,843																							147,843
Other																(1,006		)																					(1,006		)
Balance as of December 31, 2017		228,467,355			$	23			12,799,999			$	1			$	9,162,909			89,528,255			$	(4,822,743	)		$	331,078			$	(148,933	)		$	1,606,233			$	6,128,568

See notes to consolidated financial statements.

F- 7

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	December 31,
	2017				2016				2015
	(In thousands)
Operating activities:
Net income	$	371,359			$	261,285			$	722,748
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment, including internal-use software and website development	614,099				477,061				336,680
Amortization of stock-based compensation	149,350				242,417				178,068
Amortization of intangible assets	275,445				317,141				156,458
Impairment of intangible assets	—				34,890				7,207
Deferred income taxes	(103,308		)		(14,088		)		(21,635		)
Foreign exchange (gain) loss on cash, cash equivalents and short-term investments, net	(78,819		)		16,253				88,528
Realized (gain) loss on foreign currency forwards	(6,335		)		53,089				(54,226		)
Gain on sale of business	—				—				(508,810		)
Non-controlling interest basis adjustment	(1,678		)		—				(77,400		)
Other	(13,660		)		7,555				15,865
Changes in operating assets and liabilities, net of effects from acquisitions and disposals:
Accounts receivable	(455,668		)		(276,154		)		(198,262		)
Prepaid expenses and other assets	(116,768		)		(30,198		)		97,701
Accounts payable, merchant	315,989				184,398				97,248
Accounts payable, other, accrued expenses and other current liabilities	256,728				79,202				194,458
Tax payable/receivable, net	(30,577		)		(100,525		)		39,776
Deferred merchant bookings	592,912				261,402				299,534
Deferred revenue	30,085				50,606				(5,893		)
Net cash provided by operating activities	1,799,154				1,564,334				1,368,045
Investing activities:
Capital expenditures, including internal-use software and website development	(710,330		)		(749,348		)		(787,041		)
Purchases of investments	(1,811,355		)		(45,352		)		(521,329		)
Sales and maturities of investments	1,096,404				60,935				410,923
Acquisitions, net of cash acquired	(170,639		)		(777		)		(2,063,649		)
Proceeds from sale of business, net of cash divested and disposal costs	—				67,088				523,882
Net settlement of foreign currency forwards	6,335				(53,089		)		54,226
Other, net	7,195				2,222				11,728
Net cash used in investing activities	(1,582,390		)		(718,321		)		(2,371,260		)
Financing activities:
Proceeds from issuance of long-term debt, net of issuance costs	989,600				(2,093		)		1,441,860
Payment of HomeAway Convertible Notes	—				(401,424		)		—
Purchases of treasury stock	(312,089		)		(455,746		)		(60,546		)
Proceeds from issuance of treasury stock	—				—				22,575
Payment of dividends to stockholders	(175,775		)		(150,159		)		(108,527		)
Proceeds from exercise of equity awards and employee stock purchase plan	229,081				141,043				97,716
Changes in controlled subsidiaries, net	(18,137		)		208,016				(8,518		)
Excess tax benefit on equity awards	—				—				90,855
Withholding taxes for stock option exercises	(9,063		)		(1,282		)		(85,033		)
Other, net	(16,103		)		(28,974		)		13,817
Net cash provided by (used in) financing activities	687,514				(690,619		)		1,404,199
Effect of exchange rate changes on cash and cash equivalents	145,640				(34,882		)		(127,385		)
Net increase in cash and cash equivalents	1,049,918				120,512				273,599
Cash and cash equivalents at beginning of year	1,796,811				1,676,299				1,402,700
Cash and cash equivalents at end of year	$	2,846,729			$	1,796,811			$	1,676,299
Supplemental cash flow information
Cash paid for interest	$	162,932			$	153,755			$	109,507
Income tax payments, net	174,180				124,291				96,834

See notes to consolidated financial statements.

F- 8

Expedia, Inc.

Notes to Consolidated Financial Statements

NOTE 1 — Organization and Basis of Presentation

Description of Business

Expedia, Inc. and its subsidiaries provide travel products and services to leisure and corporate travelers in the United States and abroad as well as various media and advertising offerings to travel and non-travel advertisers. These travel products and services are offered through a diversified portfolio of brands including: Expedia.com®, Hotels.com®, Hotwire.comTM, Travelocity®, Expedia® Affiliate Network, Classic Vacations®, Expedia Local Expert®, Expedia® CruiseShipCenters®, CarRentals.comTM, Wotif Group, Orbitz®, CheapTickets®, ebookers®, SilverRail Technologies, Inc., Egencia®, trivago®, HomeAway® and eLongTM through its sale on May 22, 2015. In addition, many of these brands have related international points of sale, including those as part of AirAsia-Expedia. We refer to Expedia, Inc. and its subsidiaries collectively as “Expedia,” the “Company,” “us,” “we” and “our” in these consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements include Expedia, Inc., our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We record our investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the equity method. We have eliminated significant intercompany transactions and accounts.

We believe that the assumptions underlying our consolidated financial statements are reasonable. However, these consolidated financial statements do not present our future financial position, the results of our future operations and cash flows.

Seasonality

We generally experience seasonal fluctuations in the demand for our travel products and services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Because revenue for most of our travel products, including merchant and agency hotel, is recognized when the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks for our hotel business and can be several months for our vacation rental business. Historically, HomeAway 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 aggressively market 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, may influence the typical trend of the seasonality in the future, and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends.

NOTE 2 — Significant Accounting Policies

Consolidation

Our consolidated financial statements include the accounts of Expedia, Inc., our wholly-owned subsidiaries, and entities for which we control a majority of the entity’s outstanding common stock. We record non-controlling interest in our consolidated financial statements to recognize the minority ownership interest in our consolidated subsidiaries. Non-controlling interest in the earnings and losses of consolidated subsidiaries represent the share of net income or loss allocated to members or partners in our consolidated entities, which includes the non-controlling interest share of net income or loss from our redeemable and non-redeemable non-controlling interest entities. Upon closing of its initial public offering ("IPO") on December 16, 2016, trivago became 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, Inc.

We characterize our minority interest in AirAsia-Expedia and trivago, subsequent to its IPO, as a non-redeemable non-controlling interest and classify it as a component of stockholders’ equity in our consolidated financial statements. Non-

F- 9

controlling interests with shares redeemable at the option of the minority holders, such as trivago prior to its IPO, have been included in redeemable non-controlling interests. See “Redeemable Non-controlling Interest” below for further information.

We have eliminated significant intercompany transactions and accounts in our consolidated financial statements.

Accounting Estimates

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

Reclassifications

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

Revenue Recognition

We recognize revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

We also evaluate the presentation of revenue on a gross versus a net basis. The consensus of the authoritative accounting literature is that the presentation of revenue as “the gross amount billed to a customer because it has earned revenue from the sale of goods or services or the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of judgment that depends on the relevant facts and circumstances. In making an evaluation of this issue, some of the factors that should be considered are: whether we are the primary obligor in the arrangement (strong indicator); whether we have general supply risk (before customer order is placed or upon customer return) (strong indicator); and whether we have latitude in establishing price. The guidance clearly indicates that the evaluations of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. If the conclusion drawn is that we perform as an agent or a broker without assuming the risks and rewards of ownership of goods, revenue should be reported on a net basis. For our primary transaction-based revenue models, discussed below, we have determined net presentation is appropriate for the majority of revenue transactions.

We offer traditional travel products and services on a stand-alone and package basis primarily through the following business models: the merchant model, the agency model and the advertising 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. The majority of our merchant transactions relate to hotel bookings.

Under the agency model, we act as the agent in the transaction, passing reservations booked by the traveler to the relevant travel provider. 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 from global distribution systems partners that control the computer systems through which these 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.

In addition, our HomeAway business facilitates vacation rental bookings and provides listing and other ancillary services to property owners and managers.

Merchant Hotel. 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 stay occurs, at which point we record the revenue. In certain nonrefundable, nonchangeable transactions where we have no significant post-delivery obligations, we record revenue when the traveler completes the transaction on our website, less a reserve for chargebacks and cancellations based on historical experience. Amounts received from customers are presented net of amounts paid to suppliers. In certain instances when a supplier invoices us for less than the cost we accrued, we generally recognize those amounts as revenue six months in arrears, net of an allowance, when we determine it is not probable that we will be required to pay the supplier, based

F- 10

on historical experience and contract terms. We generally contract in advance with lodging providers to obtain access to rooms at negotiated rates. Certain contracts specifically identify the number of potential rooms and the negotiated rate of the rooms to which we may have access over the terms of the contracts, which generally range from one to three years. Other contracts are not specific with respect to the number of rooms and the rates of the rooms to which we may have access over the terms of the contracts. In either case we may return unbooked hotel rooms with no obligation to the lodging providers within a period specified in each contract. For hotel rooms that are cancelled by the traveler after the specified period of time, we charge the traveler a cancellation fee or penalty that approximates the amount a hotel may invoice us for the cancellation.

Agency and Merchant Air. We record revenue on air transactions when the traveler books the transaction, as we have no significant post-delivery obligations. We record a reserve for chargebacks and cancellations at the time of the transaction based on historical experience.

Agency Hotel, Car and Cruise. In addition to air tickets, our agency revenue comes from certain hotel transactions as well as cruise and car rental reservations. We generally record agency revenue from hotel, cruise and car reservations on an accrual basis when the travel occurs. We record an allowance for cancellations on this revenue based on historical experience.

Packages. Packages assembled by travelers through the packaging model 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 recognized in accordance with our revenue recognition policies stated above.

Advertising. We record advertising revenue ratably over the advertising period or upon delivery of advertising impressions, depending on the terms of the advertising contract. We record revenue from click-through fees charged to our travel partners for traveler 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.

Vacation Rental Products and Services. Vacation rental revenue is earned on a transactional or subscription basis, where 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). Listing revenue is also generated on a commission basis, when traveler bookings are completed on our websites. During 2016, HomeAway began transitioning from a subscription-based model to an online transaction model, and in 2016, HomeAway launched a traveler service fee paid by the traveler, which is recorded as deferred revenue and recognized as revenue at the time of check-in. Payments for term-based paid subscriptions received in advance of services being rendered are recorded as deferred revenue and recognized ratably on a straight-line basis over the listing period. Revenue for performance-based listings is calculated as a percentage of the traveler booking or a fixed fee-per-inquiry stated in the arrangement and recognized when the service has been performed or as the customers’ refund privileges lapse, which is typically at check-in. Revenue from other ancillary vacation rental services or products are recorded either upon delivery or when we provide the service.

Other. We record revenue from all other sources either upon delivery or when we provide the service.

Cash and Cash Equivalents

Our cash and cash equivalents include cash and liquid financial instruments, including money market funds and time deposit investments, with maturities of three months or less when purchased.

Short-term and Long-term Investments

We determine the appropriate classification of our investments in marketable securities at the time of purchase and reevaluate such designation at each balance sheet date. Based on our intent and ability to hold certain assets until maturity, we may classify certain debt securities as held to maturity and measure them at amortized cost. Investments classified as available for sale are recorded at fair value with unrealized holding gains and losses recorded, net of tax, as a component of accumulated other comprehensive income. Realized gains and losses from the sale of available for sale investments, if any, are determined on a specific identification basis. Investments with remaining maturities of less than one year are classified within short-term investments. All other investments with remaining maturities ranging from one year to five years are classified within long-term investments and other assets.

We record investments using the equity method when we have the ability to exercise significant influence over the investee. Equity investments without readily determinable fair values for which we do not have the ability to exercise significant influence are accounted for using the cost method of accounting and classified within long-term investments and other assets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions, and additional investments.

F- 11

We periodically evaluate the recoverability of investments and record a write-down to fair value if a decline in value is determined to be other-than-temporary.

Accounts Receivable

Accounts receivable are generally due within thirty days and are recorded net of an allowance for doubtful accounts. We consider accounts outstanding longer than the contractual payment terms as past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to us, and the condition of the general economy and industry as a whole.

Property and Equipment

We record property and equipment at cost, net of accumulated depreciation and amortization. We also capitalize certain costs incurred related to the development of internal use software. We capitalize costs incurred during the application development stage related to the development of internal use software. We expense costs incurred related to the planning and post-implementation phases of development as incurred.

We compute depreciation using the straight-line method over the estimated useful lives of the assets, which is three to five years for computer equipment, capitalized software development and furniture and other equipment. We amortize leasehold improvement using the straight-line method, over the shorter of the estimated useful life of the improvement or the remaining term of the lease.

We establish assets and liabilities for the present value of estimated future costs to return certain of our leased facilities to their original condition under the authoritative accounting guidance for asset retirement obligations. Such assets are depreciated over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the estimated restoration costs.

We establish assets and liabilities for the estimated construction costs incurred under lease arrangements where we are considered the owner for accounting purposes, pursuant to build-to-suit lease guidance, to the extent that we are involved in the construction of structural improvements or take construction risk prior to commencement of a lease. As a result of our involvement in the construction project for a new office space of our trivago subsidiary, we are recording that lease under build-to-suit guidance. We record project construction costs during the construction period incurred by the landlord as a construction-in-progress asset and a related construction financing obligation on our consolidated balance sheets.

Business Combinations

We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and trade names, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any changes to provisional amounts identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined.

Recoverability of Goodwill and Indefinite-Lived Intangible Assets

Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. We assess goodwill and indefinite-lived intangible assets, neither of which is amortized, for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. In the evaluation of goodwill for impairment, we typically perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value. Effective October 1, 2017, we prospectively adopted accounting guidance that simplified our goodwill impairment testing by eliminating the requirement to calculate the implied fair value of goodwill (formerly "Step 2") in the event an impairment is identified. Instead, an impairment charge is recorded based on the excess of the reporting unit's carrying amount over its fair value. Periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the goodwill is more likely than not impaired.

We generally base our measurement of fair value of reporting units on a blended analysis of the present value of future discounted cash flows and market valuation approach with the exception of our standalone publicly traded subsidiary, which is based on market valuation. The discounted cash flows model indicates the fair value of the reporting units based on the present

F- 12

value of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting units.

We believe the weighted use of discounted cash flows and market approach is the best method for determining the fair value of our reporting units because these are the most common valuation methodologies used within the travel and internet industries; and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis.

In addition to measuring the fair value of our reporting units as described above, we consider the combined carrying and fair values of our reporting units in relation to the Company’s total fair value of equity plus debt as of the assessment date. Our equity value assumes our fully diluted market capitalization, using either the stock price on the valuation date or the average stock price over a range of dates around the valuation date, plus an estimated acquisition premium which is based on observable transactions of comparable companies. The debt value is based on the highest value expected to be paid to repurchase the debt, which can be fair value, principal or principal plus a premium depending on the terms of each debt instrument.

In our evaluation of our indefinite-lived intangible assets, we typically first perform a quantitative assessment and an impairment charge is recorded for the excess of the carrying value of indefinite-lived intangible assets over their fair value, if necessary. We base our measurement of fair value of indefinite-lived intangible assets, which primarily consist of trade name and trademarks, using the relief-from-royalty method. This method assumes that the trade name and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. As with goodwill, periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the indefinite-lived intangible asset is more likely than not impaired.

Recoverability of Intangible Assets with Definite Lives and Other Long-Lived Assets

Intangible assets with definite lives and other long-lived assets are carried at cost and are amortized on a straight-line basis over their estimated useful lives of less than one to twelve years. We review the carrying value of long-lived assets or asset groups, including property and equipment, to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value.

Assets held for sale, to the extent we have any, are reported at the lower of cost or fair value less costs to sell.

Redeemable Non-controlling Interests

We have non-controlling interests in majority owned entities, which were carried at fair value as the non-controlling interests contained certain rights, whereby we could acquire and the minority shareholders could sell to us the additional shares of the company. If the redeemable non-controlling interest is redeemable at an amount other than fair value, we adjust the non-controlling interest to redemption value through earnings each period. In circumstances where the non-controlling interest is redeemable at fair value, which included trivago prior to its IPO in December 2016, changes in fair value of the shares for which the minority holders could sell to us were recorded to the non-controlling interest and as charges or credits to retained earnings (or additional paid-in capital in the absence of retained earnings). Fair value determinations required high levels of judgment (“Level 3” on the fair value hierarchy) and were based on various valuation techniques, including market comparables and discounted cash flow projections.

F- 13

Income Taxes

We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense. The Tax Cuts and Jobs Act ("the Tax Act") enacted in December 2017 reduced the U.S. Corporate income tax rate from 35% to 21%, effective January 1, 2018. See NOTE 11 — Income Taxes for further information on the tax impacts of the Tax Act.

We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. All deferred income taxes are classified as long-term on our consolidated balance sheets.

We account for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals or litigation, based on the technical merits of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the tax authority is recognized in the financial statements.

We recognize interest and penalties related to unrecognized tax benefits in the income tax expense line in our consolidated statement of operations. Accrued interest and penalties are included in other long-term liabilities on the consolidated balance sheet.

Presentation of Taxes in the Income Statement

We present taxes that we collect from customers and remit to government authorities on a net basis in our consolidated statements of operations.

Derivative Instruments

Derivative instruments are carried at fair value on our consolidated balance sheets. The fair values of the derivative financial instruments generally represent the estimated amounts we would expect to receive or pay upon termination of the contracts as of the reporting date.

At December 31, 2017 and 2016, our derivative instruments primarily consisted of foreign currency forward contracts. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. Our goal in managing our foreign exchange risk is to reduce, to the extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial position. Our foreign currency forward contracts are typically short-term and, as they do not qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. We do not hold or issue financial instruments for speculative or trading purposes.

In June 2015, we issued Euro 650 million of registered senior unsecured notes that are due in June 2022 and bear interest at 2.5% (the “2.5% Notes”). The aggregate principal value of the 2.5% Notes is designated as a hedge of our net investment in certain Euro functional currency subsidiaries. The notes are measured at Euro to U.S. Dollar exchange rates at each balance sheet date and transaction gains or losses due to changes in rates are recorded in accumulated other comprehensive income (loss) (“OCI”). The Euro-denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes also reported in accumulated OCI. Since the notional amount of the recorded Euro-denominated debt is less than the notional amount of our net investment, we do not expect to incur any ineffectiveness on this hedge.

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Foreign Currency Translation and Transaction Gains and Losses

Certain of our operations outside of the United States use the related local currency as their functional currency. We translate revenue and expense at average rates of exchange during the period. We translate assets and liabilities at the rates of exchange as of the consolidated balance sheet dates and include foreign currency translation gains and losses as a component of accumulated OCI. Due to the nature of our operations and our corporate structure, we also have subsidiaries that have significant transactions in foreign currencies other than their functional currency. We record transaction gains and losses in our consolidated statements of operations related to the recurring remeasurement and settlement of such transactions.

To the extent practicable, we attempt to minimize this exposure by maintaining natural hedges between our current assets and current liabilities of similarly denominated foreign currencies. Additionally, as discussed above, we use foreign currency forward contracts to economically hedge certain merchant revenue exposures and in lieu of holding certain foreign currency cash for the purpose of economically hedging our foreign currency-denominated operating liabilities.

Debt Issuance Costs

We defer costs we incur to issue debt, which are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, and amortize these costs to interest expense over the term of the debt or, in circumstances where the debt can be redeemed at the option of the holders, over the term of the redemption option.

Marketing Promotions

We periodically provide incentive offers to our customers to encourage booking of travel products and services. Generally, our incentive offers are as follows:

Current Discount Offers. These promotions include dollar off discounts to be applied against current purchases. We record the discounts as reduction in revenue at the date we record the corresponding revenue transaction.

Inducement Offers. These promotions include discounts granted at the time of a current purchase to be applied against a future qualifying purchase. We treat inducement offers as a reduction to revenue based on estimated future redemption rates. We allocate the discount amount at the time of the offer between the current purchase and the potential future purchase based on our expected relative value of the transactions. We estimate our redemption rates using our historical experience for similar inducement offers.

Concession Offers. These promotions include discounts to be applied against a future purchase to maintain customer satisfaction. Upon issuance, we record these concession offers as a reduction to revenue based on estimated future redemption rates. We estimate our redemption rates using our historical experience for concession offers.

Loyalty and Points Based Offers. We offer certain internally administered traveler loyalty programs to our customers, such as our Hotels.com Rewards® program, our Brand Expedia Expedia® + rewards program and our Orbitz rewards program. 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 points of sale. Orbitz Rewards allows travelers to earn OrbucksSM, the currency of Orbitz Rewards, on flights, hotels and vacation packages and instantly redeem those Orbucks on future bookings at various hotels worldwide. As travelers accumulate points towards free travel products, we record a liability for the estimated future cost of redemptions. The cost of these loyalty points is recorded as a reduction to revenue in our consolidated financial statements. We determine the future redemption obligation based on factors that require significant judgment including: (i) the estimated cost of travel products to be redeemed, and (ii) an estimated redemption rate based on the overall accumulation and usage of points towards free travel products, which is determined through current and historical trends as well as statistical modeling techniques. As of December 31, 2017 and 2016, we had a liability related to our loyalty programs of $562 million and $442 million included in accrued expenses and other current liabilities.

Advertising Expense

We incur advertising expense consisting of offline costs, including television and radio advertising, and online advertising expense to promote our brands. We expense the production costs associated with advertisements in the period in which the advertisement first takes place. We expense the costs of communicating the advertisement (e.g., television airtime) as incurred each time the advertisement is shown. For the years ended December 31, 2017, 2016 and 2015, our advertising expense was $3.3 billion, $2.7 billion and $2.1 billion. As of December 31, 2017 and 2016, we had $38 million and $23 million of prepaid marketing expenses included in prepaid expenses and other current assets.

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Stock-Based Compensation

We measure and amortize the fair value of stock options and restricted stock units (“RSUs”) as follows:

Stock Options. We measure the value of stock options issued or modified, including unvested options assumed in acquisitions, on the grant date (or modification or acquisition dates, if applicable) at fair value, using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option pricing models. The valuation models incorporate various assumptions including expected volatility, expected term and risk-free interest rates. The expected volatility is based on historical volatility of our common stock and other relevant factors. We base our expected term assumptions on our historical experience and on the terms and conditions of the stock awards granted to employees. We amortize the fair value, net of actual forfeitures, over the remaining vesting term on a straight-line basis. In addition, we classify certain employee option awards as liabilities when we deem it not probable that the employees holding the awards will bear the risk and rewards of stock ownership for a reasonable period of time. Such options are revalued at the end of each reporting period and upon settlement our total compensation expense recorded from grant date to settlement date will equal the settlement amount. The majority of our stock options vest over four years.

Restricted Stock Units. RSUs are stock awards that are granted to employees entitling the holder to shares of common stock as the award vests, typically over a three or four-year period. We measure the value of RSUs at fair value based on the number of shares granted and the quoted price of our common stock at the date of grant. We amortize the fair value, net of actual forfeitures, as stock-based compensation expense over the vesting term on a straight-line basis. We record RSUs that may be settled by the holder in cash, rather than shares, as a liability and we remeasure these instruments at fair value at the end of each reporting period. Upon settlement of these awards, our total compensation expense recorded over the vesting period of the awards will equal the settlement amount, which is based on our stock price on the settlement date. Performance-based RSUs vest upon achievement of certain company-based performance conditions. On the date of grant, we determine the fair value of the performance-based award based on the fair value of our common stock at that time and we assess whether it is probable that the performance targets will be achieved. If assessed as probable, we record compensation expense for these awards over the estimated performance period using the accelerated method. At each reporting period, we reassess the probability of achieving the performance targets and the performance period required to meet those targets. The estimation of whether the performance targets will be achieved and of the performance period required to achieve the targets requires judgment, and to the extent actual results or updated estimates differ from our current estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised, or the change in estimate will be applied prospectively depending on whether the change affects the estimate of total compensation cost to be recognized or merely affects the period over which compensation cost is to be recognized. The ultimate number of shares issued and the related compensation expense recognized will be based on a comparison of the final performance metrics to the specified targets.

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive these awards, and subsequent events are not indicative of the reasonableness of our original estimates of fair value.

During the second quarter of 2016, we elected to early adopt new guidance the Financial Accounting Standards Board (“FASB”) issued in March 2016 related to accounting for share-based payments, which required us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in capital for all periods in 2016. Additionally, our consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $7 million reduction to retained earnings as of January 1, 2016. The adoption of the new guidance resulted in the recognition of $40 million and $60 million of excess tax benefits in our provision for income taxes rate rather than additional paid-in capital for 2016 and 2017.

Earnings Per Share

We compute basic earnings per share by taking net income attributable to Expedia, Inc. available to common stockholders divided by the weighted average number of common and Class B common shares outstanding during the period excluding restricted stock and stock held in escrow. Diluted earnings per share include the potential dilution that could occur from stock-based awards and other stock-based commitments using the treasury stock or the as if converted methods, as applicable. For additional information on how we compute earnings per share, see NOTE 14 — Earnings Per Share.

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Fair Value Recognition, Measurement and Disclosure

The carrying amounts of cash and cash equivalents and restricted cash and cash equivalents reported on our consolidated balance sheets approximate fair value as we maintain them with various high-quality financial institutions. The accounts receivable are short-term in nature and are generally settled shortly after the sale.

We disclose the fair value of our financial instruments based on the fair value hierarchy using the following three categories:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Certain Risks and Concentrations

Our business is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines and hotels, dependence on third-party technology providers, exposure to risks associated with online commerce security and payment related fraud. We also rely on global distribution system partners and third-party service providers for certain fulfillment services.

Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of cash and cash equivalents and corporate debt securities. We maintain some cash and cash equivalents balances with financial institutions that are in excess of Federal Deposit Insurance Corporation insurance limits. Our cash and cash equivalents are primarily composed of time deposits as well as bank (both interest and non-interest bearing) account balances denominated in U.S. dollars, Euros, British pound sterling, Canadian dollar, Australian dollar, Japanese yen and Brazilian real.

Contingent Liabilities

We have a number of regulatory and legal matters outstanding, as discussed further in NOTE 17 — Commitments and Contingencies. Periodically, we review the status of all significant outstanding matters to assess the potential financial exposure. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, we record the estimated loss in our consolidated statements of operations. We provide disclosure in the notes to the consolidated financial statements for loss contingencies that do not meet both of these conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. We base accruals made on the best information available at the time which can be highly subjective. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.

Occupancy Tax

Some states and localities impose a transient occupancy or accommodation tax on the use or occupancy of hotel accommodations. Generally, hotels collect taxes based on the room rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery charge from the customer which we pay to the hotel. We calculate the tax recovery charge by applying the occupancy tax rate supplied to us by the hotels to the amount that the hotel has agreed to receive for the rental of the room by the consumer. In all but a limited number of jurisdictions, we do not collect or remit occupancy taxes, nor do we pay occupancy taxes to the hotel operator on the portion of the customer payment we retain. Some jurisdictions have questioned our practice in this regard. While the applicable tax provisions vary among the jurisdictions, we generally believe that we are not required to collect and remit such occupancy taxes. We are engaged in discussions with tax authorities in various jurisdictions to resolve this issue. Some tax authorities have brought lawsuits or have levied assessments asserting that we are required to collect and remit occupancy tax. The ultimate resolution in all jurisdictions cannot be determined at this time. We have established a reserve for the potential settlement of issues related to hotel occupancy taxes when determined to be probable and estimable. See NOTE 17 — Commitments and Contingencies for further discussion.

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Recent Accounting Policies Not Yet Adopted

Revenue from Contracts with Customers. In May 2014, the FASB issued an Accounting Standards Update ("ASU") amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods beginning after December 15, 2017. In addition, the FASB has also issued several amendments to the standard which clarify certain aspects of the guidance, including principal versus agent considerations and identifying performance obligations.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective). We will adopt this new guidance in the first quarter of 2018 and apply the modified retrospective method.

We have determined the new guidance will not change our previous conclusions on net presentation. We have also determined that the standard will impact our loyalty program accounting as we will no longer be permitted to use the incremental cost method when recording the financial impact of rewards earned in conjunction with our traveler loyalty programs. Instead, we will be required to re-value our liability using a relative fair value approach. Additionally, due to the new definition of variable consideration, we will be required to estimate and record certain variable payments earlier than currently recorded. Both modifications will result in cumulative-effect adjustments to opening retained earnings, with an insignificant change to revenue on a go-forward basis. Upon adoption, we expect a net reduction to the opening balance of retained earnings of approximately $15 to $25 million, on a pre-tax basis, of which approximately $45 to $55 million is related to changes in the accounting for our loyalty program, partially offset by the impact of estimating variable consideration of approximately $30 to $40 million. The new guidance will likely also result in insignificant changes in the timing and classification of certain other revenue streams, and an insignificant amount of capitalization of costs to obtain contracts.

We have completed our overall assessment and are finalizing the quantification of the retained earnings impact. Additionally, we have identified and implemented changes to our accounting policies and practices, business processes, and controls to support the new revenue recognition standard. We are continuing our assessment of potential changes to our disclosures under the new guidance.

Recognition and Measurement of Financial Instruments. In January 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The most significant impact for the Company is with respect to the requirement that 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. Today, such investment is designated as available for sale and is recorded at fair value with changes in fair value recorded through other comprehensive income. Upon adoption in the first quarter of 2018, we will record a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the annual period of adoption related to unrealized gains/losses, net of tax, previously classified within other comprehensive income and will begin recording fair value changes within other, net on our consolidated statements of operations. See NOTE 5 — Fair Value Measurements for the carrying value and fair value of the Despegar equity investment. In addition, we intend to elect to measure minority equity investments that do not have a readily determinable fair value at cost less impairment, adjusted by observable price changes as permitted by the new guidance with changes recorded within other, net on our consolidated statements of operations. Fair value changes for our investments could vary significantly period to period.

Definition of a Business. In January 2017, the FASB issued new guidance clarifying the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The standard must be applied prospectively. Upon adoption, the standard will impact how we assess acquisitions (or disposals) of assets or businesses.

Statement of Cash Flows. In August and November 2016, the FASB issued new guidance related to the statement of cash flows which clarifies how companies present and classify certain cash receipts and cash payments as well as amends current guidance to address the classification and presentation of changes in restricted cash in the statement of cash flows. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We plan to adopt this new guidance on January 1, 2018 retrospectively and currently anticipate

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the most significant impact will be to include in our cash and cash-equivalent balances in the consolidated statement of cash flow those amounts that are deemed to be restricted cash and restricted cash equivalents.

Intra-entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued new guidance amending the accounting for income taxes associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving intellectual property. 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. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We anticipate a retained earnings decrease of approximately $25 million upon adoption related to the unrecognized income tax effects of asset transfers that occurred prior to adoption.

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 requires new disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted and should be applied using a modified retrospective approach. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.

Hedge Accounting. In August 2017, the FASB amended the existing accounting guidance for hedge accounting. The amendments require expanded hedge accounting for both non-financial and financial risk components and refine the measurement of hedge results to better reflect an entity's hedging strategies. The new guidance also amends the presentation and disclosure requirements and 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. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.

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.

NOTE 3 — Acquisitions and Other Investments

2017 Acquisition and Other Investment Activity

During 2017, we completed several business combinations, one of which we made an initial investment in during 2015. The following summarizes the preliminary aggregate purchase price allocation for these acquisitions, in thousands:

Goodwill	$	123,915
Intangibles with definite lives (1)	75,894
Net assets and non-controlling interests acquired (2)	14,595
Deferred tax liabilities	(20,834		)
Total (3)	$	193,570

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(1)	Acquired intangible assets with definite lives have a weighted average useful life of 3.8 years.

(2)	Includes cash acquired of $5 million.

(3)	The total purchase price includes noncash consideration of $10 million related to the removal of a cost method investment upon our acquisition of a controlling interest as well as $8 million related to replacement stock awards attributable to pre-acquisition service, with the remainder paid in cash during the period.

The redeemable non-controlling interest in one of our acquisitions is redeemable at an amount other than fair value requiring that each period we adjust the non-controlling interest to redemption value through earnings. In addition, another of our acquisitions made during the period includes redeemable non-controlling interests, which are redeemable at fair value

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requiring that each period we adjust the changes in the fair value of the non-controlling interest through retained earnings (or additional paid-in capital if there is no retained earnings). Fair value determinations are based on various valuation techniques, including market comparables and discounted cash flow projections.

Of the goodwill recorded for the business combinations, $12 million is expected to be deductible for tax purposes with the remainder not expected to be deductible. The purchase price allocations were based on preliminary valuations of the assets acquired and liabilities assumed and are subject to revision. The results of operations were immaterial from the transaction close dates through December 31, 2017. Pro forma results have not been presented as such pro forma financial information would not be materially different from historical results.

Other Investments. On July 27, 2017, we announced that Expedia and Traveloka Holding Limited ("Traveloka"), a Southeast Asian online travel company, have expanded our partnership to include deeper cooperation on hotel supply and that we made a $350 million investment in Traveloka, the majority of which is accounted for as a cost method investment and included within long-term investment and other assets on the consolidated balance sheet with a small portion allocated to intangible assets.

2016 Acquisition and Other Investment Activity

We had nominal acquisition activity during the year ended December 31, 2016.

2015 Acquisition and Other Investment Activity

HomeAway Acquisition. On December 15, 2015, we completed our acquisition of HomeAway, Inc., including all of its brands, for total purchase consideration of $3.6 billion primarily in cash and Expedia common stock. With Expedia’s expertise in powering global transactional platforms and our industry-leading technology capabilities, we are partnering with HomeAway to accelerate their shift from a classified marketplace to an online, transactional model to create even better experiences for HomeAway’s global traveler audience and the owners and managers of its properties around the world.

Each outstanding share of common stock of HomeAway immediately prior to the acquisition was exchanged for $10.15 in cash and 0.2065 of a share of Expedia common stock, with cash paid in lieu of fractional shares. The aggregate purchase consideration for HomeAway is as follows, in thousands:

Fair value of shares of Expedia common stock issued to HomeAway stockholders and equity award holders	$	2,515,755
Cash consideration paid to HomeAway stockholders and equity award holders	1,027,061
Replacement restricted stock units and stock options attributable to pre-acquisition service	19,513
Total purchase consideration	$	3,562,329

The fair value of common stock shares issued was based on the closing price of Expedia’s common stock at December 14, 2015 and included the fair value of shares of Expedia common stock issued to (i) HomeAway stockholders based on approximately 97 million HomeAway shares outstanding as of December 14, 2015 and (ii) holders of equity awards vested as of December 14, 2015. Approximately 20 million shares of Expedia common stock were issued in connection with the acquisition of HomeAway. Purchase consideration also included $20 million for the portion of certain unvested employee options and restricted stock unit awards of HomeAway attributable to pre-combination service, which were replaced with Expedia awards in conjunction with the acquisition and measured at fair value on the acquisition date. The fair value for the portion of the awards attributable to post-combination service was $106 million, net of estimated forfeitures.

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The following summarizes the final allocation of the purchase price for HomeAway, in thousands:

Cash	$	900,281
Other current assets(1)	54,372
Long-term assets	90,890
Intangible assets with definite lives(2)	533,279
Intangible assets with indefinite lives(3)	239,200
Goodwill	2,613,151
Deferred revenue	(181,837		)
Other current liabilities	(109,581		)
Debt	(401,580		)
Other long-term liabilities	(30,989		)
Deferred tax liabilities, net	(144,857		)
Total	$	3,562,329

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(1)	Gross accounts receivable was $24 million, of which $1 million was estimated to be uncollectible.

(2)	Acquired definite-lived intangible assets primarily consist of supplier relationships, customer relationships and developed technology assets with average lives ranging from less than one to ten years and a weighted average useful life of 5.2 years.

(3)	Acquired indefinite-lived intangible assets primarily consist of trade names and trademarks.

The goodwill of $2.6 billion was primarily attributable to assembled workforce and operating synergies as it relates to the shift to a transaction model. The goodwill was allocated to the new HomeAway reportable segment and is not expected to be deductible for tax purposes.

We assumed approximately $402 million of 0.125% Convertible Senior Notes due 2019 (the “Convertible Notes”) in connection with the HomeAway acquisition. However, following the consummation of the HomeAway acquisition, we subsequently delivered a notice to holders of the Convertible Notes, as required per the terms of the Convertible Notes indenture, to which each holder of the Convertible Notes had the right to (i) require the Company to repurchase its Convertible Notes for cash at a price equal to 100% of the principal amount of such notes plus accrued and unpaid interest or (ii) convert its Convertible Notes, at a specified conversion rate into HomeAway common stock (which, following consummation of the HomeAway acquisition, represented the right to receive the transaction consideration) or (iii) allow the Convertible Notes to remain outstanding for the remaining term. As a result, the majority of the Convertible Notes, or $401 million, were repurchased during 2016.

In connection with the issuance of the Convertible Notes, HomeAway also sold warrants (the “Warrants”) to acquire approximately 7.7 million shares of HomeAway common stock. As a result of the merger, the Warrant holders had the right to terminate the Warrants at fair value as determined in a commercially reasonable manner. A portion of such Warrants were settled on December 16, 2015 for $23 million in cash, with the $8 million remainder settled in January 2016.

HomeAway was consolidated into our financial statements starting on the acquisition date and we recognized a related $20 million in revenue and $14 million in operating losses, including fees related to the acquisition that are not allocated to the segment, for 2015.

In connection with the acquisition, HomeAway incurred fees paid to financial advisors totaling approximately $33 million, which were contingent upon closing and were excluded from both Expedia’s consolidated statement of operations and the pre-combination financial statements of HomeAway.

Orbitz Acquisition. On September 17, 2015, we completed our acquisition of Orbitz Worldwide, including all of its brands, including Orbitz, ebookers, HotelClub, CheapTickets, Orbitz Partner Network and Orbitz for Business, for a total purchase consideration of $1.8 billion. The acquisition provides Expedia the opportunity to deliver a better customer experience to Orbitz’ loyal customer base and to further enhance the marketing and distribution capabilities we offer to our global supply partners.

The purchase consideration consisted primarily of $1.4 billion in cash, or $12 per share for all shares of Orbitz common stock outstanding as of the purchase date, as well as the settlement of $432 million of pre-existing Orbitz debt at the closing of the acquisition. Purchase consideration also included $17 million for the portion of certain unvested employee restricted stock unit awards of Orbitz attributable to pre-combination service, which were replaced with Expedia awards in conjunction with

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the acquisition and measured at fair value on the acquisition date. The fair value for the portion of the awards attributable to post-combination service was $49 million, net of estimated forfeitures, of which $34 million was recognized during 2015.

The following summarizes the final allocation of the purchase price for Orbitz, in thousands:

Cash consideration for shares	$	1,362,362
Settlement of Orbitz debt	432,231
Replacement restricted stock units attributable to pre-acquisition service	16,717
Other consideration	2,214
Total purchase consideration	$	1,813,524
Cash	$	194,515
Accounts receivable, net(1)	150,187
Other current assets	33,727
Long-term assets	114,800
Intangible assets with definite lives(2)	515,003
Intangible assets with indefinite lives(3)	166,800
Goodwill	1,444,307
Current liabilities	(636,169		)
Other long-term liabilities	(54,599		)
Deferred tax liabilities, net	(115,047		)
Total	$	1,813,524

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(1)	Gross accounts receivable was $157 million, of which $7 million was estimated to be uncollectible.

(2)	Acquired definite-lived intangible assets primarily consist of customer relationship assets, developed technology assets and partner relationship assets with estimated useful lives ranging from less than one to ten years with a weighted average life of 6.0 years.

(3)	Acquired indefinite-lived intangible assets primarily consist of trade names and trademarks.

The goodwill of $1.4 billion is primarily attributable to operating synergies. The goodwill was allocated to the Core Online Travel Agencies (“Core OTA”) segment and is not expected to be deductible for tax purposes.

Orbitz was consolidated into our financial statements starting on the acquisition date and we recognized a related $196 million in revenue and $163 million in operating losses, including restructuring charges of $92 million as well as fees related to the acquisition that are not allocated to the Core OTA segment, for 2015.

In connection with the merger, Orbitz incurred fees paid to financial advisers totaling approximately $25 million, which were contingent upon closing and were excluded from both Expedia’s consolidated statement of operations and the pre-combination financial statements of Orbitz. In addition, Orbitz offered certain employees a continuity incentive of approximately $30 million for continuing employment through the closing date and beyond. The first half of the incentives were contingent and paid upon the closing of the acquisition and related to service provided in the pre-acquisition period. The second half of the incentive was payable 180 days after the closing (or upon involuntary termination, if applicable) and was expensed to restructuring and related reorganization charges over the applicable service period.

Combined Pro forma Information (Unaudited). Supplemental information on an unaudited combined pro forma basis, as if the HomeAway and Orbitz acquisitions had been consummated on January 1, 2014, is presented as follows, in thousands:

	Year Ended December 31, 2015
Revenue	$	7,838,863
Net income attributable to Expedia, Inc.	816,634

The pro forma results include adjustments primarily related to amortization of acquired intangibles, depreciation of fixed assets, certain accounting policy alignments as well as direct and incremental acquisition related costs reflected in the historical financial statements.

Other 2015 Acquisitions. On March 10, 2015, we completed the acquisition of an additional 25% equity interest of AAE Travel Pte. Ltd., the joint venture formed between Expedia and AirAsia Berhad in 2011, for cash consideration of

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approximately $94 million. This investment increased our total ownership in the venture from 50% to 75% and resulted in the consolidation of the entity. In conjunction with the acquisition of the additional interest, we remeasured our previously held equity interest to fair value, excluding any acquisition premium, and recognized a gain of $77 million in other, net during the period. The fair value of the 25% noncontrolling interest, including an acquisition premium, was estimated to be $64 million at the time of the acquisition. Both fair values were determined based on various valuation techniques, including market comparables and discounted cash flow projections (Level 3 inputs).

On January 23, 2015, we acquired the Travelocity brand and other associated assets from Sabre for $280 million in cash consideration. As a result of the asset acquisition, the strategic marketing and other related agreements entered into in 2013 were terminated. Under the terms of the strategic marketing agreement, Travelocity was compensated through a performance-based marketing fee related to bookings powered by Expedia made through Travelocity-branded websites in the United States and Canada. Revenue earned on the Travelocity websites was recorded as a component of Expedia’s net revenue in accordance with our revenue recognition policies and the related marketing fee paid to Travelocity was recorded as selling and marketing expense. In conjunction with the acquisition, we did not acquire any cash or working capital assets or assume any liabilities.

In addition, we completed three other acquisitions during 2015 for a total purchase price of $9 million.

The following summarizes the allocation of the purchase price for the 2015 acquisitions, excluding HomeAway and Orbitz, in thousands:

Goodwill	$	196,431
Intangible assets with indefinite lives	163,400
Intangible assets with definite lives(1)	146,126
Net assets and non-controlling interests acquired(2)	(23,366		)
Deferred tax liabilities	(7,910		)
Total(3)	$	474,681

---

(1)	Acquired definite-lived intangible assets primarily consist of customer relationship, reacquired right and supplier relationship assets and have estimated useful lives of between four and ten years with a weighted average life of 5.8 years.

(2)	Includes cash acquired of $41 million.

(3)	The total purchase price includes noncash consideration of $99 million related to an equity method investment, which is currently consolidated upon our acquisition of a controlling interest, as discussed above, with the remainder paid in cash during the period.

The goodwill of $196 million is primarily attributable to operating synergies and $82 million is expected to be deductible for tax purposes with the remainder not expected to be deductible.

The results of operations of the other acquired companies have been included in our consolidated results from the transaction closing dates forward. Pro forma results of operations have not been presented as such pro forma financial information would not be materially different from historical results.

Other Investments. On March 10, 2015, we announced that Expedia and Decolar.com, Inc. (“Decolar”), the Latin American online travel company that operates the Decolar.com and Despegar.com branded websites, expanded our partnership to include deeper cooperation on hotel supply and we made a $273 million cost method investment in Decolar, including acquisition-related costs, which was included within long-term investments and other assets on our consolidated balance sheet.

Acquisition-related Costs. Other than costs mentioned above related to Orbitz and HomeAway that were contingent upon closing and those costs related to cost method investments, total acquisition-related costs incurred by Expedia in 2015, which included legal, finance, consulting and other professional fees, were expensed as incurred within general and administrative expenses and were approximately $47 million.

NOTE 4 — Disposition of Business

On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong, Inc., which was a separate reportable segment, for approximately $671 million (or $666 million net of costs to sell and other transaction expenses) to several purchasers, including Ctrip.com International, Ltd. Of the total sales price, approximately $67 million was remitted directly to escrow for estimated tax obligations, and represented a noncash item in our consolidated statement of cash flows for 2015. In November 2016, we received the escrow deposit, which was included as an investing inflow in our consolidated statement of

F- 23

cash flows for 2016. As a result of the sale, we recognized a pre-tax gain of $509 million ($395 million after tax) during 2015 included in gain on sale of business in our consolidated statement of operations.

The following table presents the carrying amounts of our eLong business immediately preceding the disposition on May 22, 2015, in thousands:

Total current assets(1)	$	350,196
Total long-term assets	137,709
Total assets divested	$	487,905
Total current liabilities	$	187,296
Total long-term liabilities	5,782
Total liabilities divested	$	193,078
Components of accumulated other comprehensive income divested	45,259
Non-redeemable non-controlling interest divested	92,550
Net carrying value divested	$	157,018

---

(1)	Includes cash and cash equivalents of approximately $74 million.

We evaluated the disposition of eLong and determined it did not meet the “major effect” criteria for classification as a discontinued operation largely due to how recently it began having material impacts to our quarterly consolidated operating and net income at the time of the determination. However, we determined that the disposition did represent an individually significant component of our business. The following table presents certain amounts related to eLong in our consolidated results of operations for the year ended December 31, 2015 through its disposal on May 22, 2015, in thousands:

Operating loss(1)	$	(85,536	)
Income before taxes(2)	438,843
Income before taxes attributable to Expedia, Inc.(2)	465,400
Net income attributable to Expedia, Inc.(3)	349,183

---

(1)	Includes stock-based compensation and amortization of intangible assets of approximately $20 million, which was included within Corporate & Eliminations in NOTE 19 — Segment Information.

(2)	Includes the pre-tax gain of $509 million related to the gain on sale.

(3)	Includes the after-tax gain of $395 million related to the gain on sale.

NOTE 5 — Fair Value Measurements

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
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	15,873			$	15,873			$	—
Time deposits	552,297				—				552,297
Derivatives:
Foreign currency forward contracts	6,141				—				6,141
Investments:
Time deposits	468,508				—				468,508
Marketable equity securities	263,550				263,550				—
Total assets	$	1,306,369			$	279,423			$	1,026,946

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Financial assets measured at fair value on a recurring basis as of December 31, 2016 are classified using the fair value hierarchy in the table below:

	Total				Level 1				Level 2
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	113,955			$	113,955			$	—
Time deposits	299,585				—				299,585
Investments:
Time deposits	24,576				—				24,576
Corporate debt securities	64,227				—				64,227
Total assets	$	502,343			$	113,955			$	388,388
Liabilities
Derivatives:
Foreign currency forward contracts	$	4,402			$	—			$	4,402

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 December 31, 2017 and 2016, 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 periodically invest in investment grade corporate debt securities, all of which are classified as available for sale. As of December 31, 2017, we had no short-term or long-term available for sale investments. As of December 31, 2016, we had $48 million of short-term and $16 million of long-term available for sale investments and the amortized cost basis of the investments approximated their fair value with both gross unrealized gains and gross unrealized losses of less than $1 million.

On September 20, 2017, Despegar completed its initial public offering and, therefore we designated our previous cost method investment in Despegar as available for sale. As of December 31, 2017, the cost basis was $273 million and related gross unrealized loss was $9 million.

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

We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. As of December 31, 2017, we were party to outstanding forward contracts hedging our liability exposures with a total net notional value of $2.6 billion. We had a net forward asset of $6 million recorded in prepaid expenses and other current assets as of December 31, 2017 and a net forward liability of $4 million recorded in accrued expenses and other current liabilities as of December 31, 2016. We recorded $17 million, $(66) million and $46 million in net gains (losses) from foreign currency forward contracts in 2017, 2016 and 2015.

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 and cost method investments, are adjusted to fair value only when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs.

Intangible Assets. During 2016, we recognized intangible impairment charges of $35 million, of which $2 million was recorded during the third quarter of 2016 and $33 million was recorded in conjunction with the annual impairment of goodwill and intangible assets on October 1, 2016. These impairment charges were related to indefinite-lived trade names within our Core OTA segment and resulted from changes in estimated future revenues of the related brands. The assets, classified as Level 3 measurements, were written down to $76 million based on a valuation using the relief-from-royalty method, which includes unobservable inputs, including royalty rates and projected revenues. In addition, we recognized impairment charges of $7 million during 2015.

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Cost Method Investments. As of December 31, 2017 and 2016, we had $371 million and $323 million of cost method investments. During 2017, we recorded $14 million in net losses related to certain cost method investments, which included $6 million in other-than-temporary impairments as well as a loss recognized on the liquidation of an investment of $9 million. As a result of these impairments and subsequent liquidation, we have no remaining fair value related to these cost investments as of December 31, 2017. In addition, during 2016, we recognized other-than-temporary investment impairments of $12 million related to two cost investments, the remaining fair value of which was less than $1 million as of December 31, 2016.

NOTE 6 — Property and Equipment, Net

Our property and equipment consists of the following:

	December 31,
	2017				2016
	(In thousands)
Capitalized software development	$	2,111,262			$	1,606,960
Computer equipment	658,031				665,652
Furniture and other equipment	84,509				72,811
Buildings and leasehold improvements	282,865				241,713
Land	129,049				130,812
	3,265,716				2,717,948
Less: accumulated depreciation	(2,055,720		)		(1,575,879		)
Projects in progress (1)	365,262				252,835
Property and equipment, net	$	1,575,258			$	1,394,904

---

(1)

At December 31, 2017 and 2016, projects in progress included approximately $111 million and $38 million of project construction costs capitalized pursuant to build-to-suit lease guidance, which were incurred by the landlord, as property and equipment, net with a related construction financing obligation in other long-term liabilities. The building assets will begin depreciating when the costs incurred related to the build out of the office space are complete and ready for their intended use, which is expected to be in 2018.

As of December 31, 2017 and 2016, our recorded capitalized software development costs, net of accumulated amortization, were $735 million and $639 million. For the years ended December 31, 2017, 2016 and 2015, we recorded amortization of capitalized software development costs of $398 million, $300 million and $230 million, most of which is included in technology and content expenses.

During 2015, we acquired our future corporate headquarters for $229 million, consisting of multiple office and lab buildings located in Seattle, Washington. We have subsequently spent approximately $30 million in 2016 and approximately $70 million in 2017 relating to the build out of our headquarters. The acquired building assets and related expenditures are included in construction in process and will begin depreciating when the costs incurred related to the build out of the headquarters are complete and the building assets are ready for their intended use, which we estimate to start at the end of 2019.

NOTE 7 — Goodwill and Intangible Assets, Net

The following table presents our goodwill and intangible assets as of December 31, 2017 and 2016:

	December 31,
	2017				2016
	(In thousands)
Goodwill	$	8,228,865			$	7,942,023
Intangible assets with indefinite lives	1,478,729				1,457,072
Intangible assets with definite lives, net	829,807				989,580
	$	10,537,401			$	10,388,675

Impairment Assessments. We perform our annual assessment of possible impairment of goodwill and indefinite-lived intangible assets as of October 1, or more frequently if events and circumstances indicate that impairment may have occurred. As of October 1, 2017, we had no impairments of goodwill or intangible assets with indefinite-lives. As of October 1, 2016, we

F- 26

had no impairments to goodwill but recorded a $35 million impairment charge related to indefinite-lived trade names within our Core OTA segment.

Goodwill. The following table presents the changes in goodwill by reportable segment:

	Core OTA				trivago				HomeAway				Egencia				Total
	(In thousands)
Balance as of January 1, 2016	$	4,717,371			$	539,577			$	2,602,712			$	133,281			$	7,992,941
Additions	128				—				—				—				128
Foreign exchange translation and other	(14,028		)		(23,339		)		(12,127		)		(1,552		)		(51,046		)
Balance as of December 31, 2016	4,703,471				516,238				2,590,585				131,729				7,942,023
Additions	123,617				298				—				—				123,915
Foreign exchange translation and other	12,949				72,113				64,649				13,216				162,927
Balance as of December 31, 2017	$	4,840,037			$	588,649			$	2,655,234			$	144,945			$	8,228,865

Any change in goodwill amounts resulting from purchase accounting adjustments are presented as "Foreign exchange translation and other" in the above table. In 2017, the additions to goodwill relate to our acquisitions as described in NOTE 3 — Acquisitions and Other Investments.

As of December 31, 2017 and 2016, accumulated goodwill impairment losses in total were $2.5 billion, which was associated with our Core OTA segment.

Indefinite-lived Intangible Assets. Our indefinite-lived intangible assets relate principally to trade names and trademarks acquired in various acquisitions.

Intangible Assets with Definite Lives. The following table presents the components of our intangible assets with definite lives as of December 31, 2017 and 2016:

	December 31, 2017												December 31, 2016
	Cost				Accumulated Amortization				Net				Cost				Accumulated Amortization				Net
	(In thousands)
Customer relationships	$	665,027			$	(304,130	)		$	360,897			$	622,117			$	(185,468	)		$	436,649
Supplier relationships	655,467				(367,609		)		287,858				618,543				(289,834		)		328,709
Technology	531,735				(440,852		)		90,883				480,823				(355,471		)		125,352
Domain names	131,944				(70,203		)		61,741				117,109				(53,607		)		63,502
Other	451,915				(423,487		)		28,428				446,617				(411,249		)		35,368
Total	$	2,436,088			$	(1,606,281	)		$	829,807			$	2,285,209			$	(1,295,629	)		$	989,580

Amortization expense was $275 million, $317 million and $156 million for the years ended December 31, 2017, 2016 and 2015. The estimated future amortization expense related to intangible assets with definite lives as of December 31, 2017, assuming no subsequent impairment of the underlying assets, is as follows, in thousands:

2018	$	279,126
2019	172,834
2020	133,859
2021	88,895
2022	72,411
2023 and thereafter	82,682
Total	$	829,807

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NOTE 8 — Debt

The following table sets forth our outstanding debt:

	December 31,
	2017				2016
	(In thousands)
7.456% senior notes due 2018	$	500,000			$	500,000
5.95% senior notes due 2020	747,829				747,020
2.5% (€650 million) senior notes due 2022	774,882				677,503
4.5% senior notes due 2024	495,159				494,472
5.0% senior notes due 2026	741,319				740,341
3.8% senior notes due 2028	989,865				—
Total debt(1)	4,249,054				3,159,336
Current maturities of long-term debt	(500,000		)		—
Long-term debt, excluding current maturities	$	3,749,054			$	3,159,336

---

(1)	Net of discounts and debt issuance costs.

Long-term Debt

Our $500 million in registered senior unsecured notes outstanding at December 31, 2017 are due in August 2018 and bear interest at 7.456% (the “7.456% Notes”). Interest is payable semi-annually in February and August of each year. At any time Expedia may redeem the 7.456% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.

Our $750 million in registered senior unsecured notes outstanding at December 31, 2017 are due in August 2020 and bear interest at 5.95% (the “5.95% Notes”). The 5.95% Notes were issued at 99.893% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 5.95% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.

Our Euro 650 million of registered senior unsecured notes outstanding at December 31, 2017 are due in June 2022 and bear interest at 2.5% (the “2.5% Notes”). The 2.5% Notes were issued at 99.525% of par resulting in a discount, which is being amortized over their life. Interest is payable annually in arrears in June of each year, beginning June 3, 2016. We may redeem the 2.5% Notes at our option, at whole or in part, at any time or from time to time. If we elect to redeem the 2.5% Notes prior to March 3, 2022, we may redeem them at a specified “make-whole” premium. If we elect to redeem the 2.5% Notes on or after March 3, 2022, we may redeem them at a redemption price of 100% of the principal plus accrued and unpaid interest. Subject to certain limited exceptions, all payments of interest and principal for the 2.5% Notes will be made in Euros.

Our $500 million in registered senior unsecured notes outstanding at December 31, 2017 are due in August 2024 and bear interest at 4.5% (the “4.5% Notes”). The 4.5% Notes were issued at 99.444% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 4.5% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 4.5% Notes prior to May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 4.5% Notes on or after May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest.

Our $750 million in registered senior unsecured notes outstanding at December 31, 2017 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.

In September 2017, we privately placed $1 billion of senior unsecured notes that are due in February 2028 and bear interest at 3.8%. In January 2018, we completed an offer to exchange these notes for registered notes having substantially the same financial terms and covenants as the original notes (the unregistered and registered notes collectively, the "3.8% Notes"). The 3.8% Notes were issued at 99.747% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year, beginning February 15, 2018. We may redeem the 3.8%

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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 7.456%, 5.95%, 2.5% 4.5%, 5.0% and 3.8% Notes (collectively the “Notes”) are senior unsecured obligations issued by Expedia and guaranteed by certain domestic Expedia subsidiaries. The Notes rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations of Expedia and the guarantor subsidiaries. For further information, see NOTE 22 — 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 $75 million and $63 million as of December 31, 2017 and 2016. The 5.95%, 2.5%, 4.5%, 5.0% and 3.8% Notes are redeemable in whole or in part, at the option of the holders thereof, upon the occurrence of certain change of control triggering events at a purchase price in cash equal to 101% of the principal plus accrued and unpaid interest.

The following table sets forth the approximate fair value of our outstanding debt, which is based on quoted market prices in less active markets (Level 2 inputs):

	December 31,
	2017				2016
	(In thousands)
7.456% senior notes due 2018	$	516,000			$	541,000
5.95% senior notes due 2020	810,000				823,000
2.5% (€650 million) senior notes due 2022(1)	828,000				718,000
4.5% senior notes due 2024	528,000				511,000
5.0% senior notes due 2026	807,000				782,000
3.8% senior notes due 2028	969,000				—

---

(1)	Approximately 690 million Euro as of December 31, 2017 and 682 million Euro as of December 31, 2016.

Credit Facility

As of December 31, 2017, Expedia, Inc. maintained a $1.5 billion unsecured revolving credit facility with a group of lenders, which is unconditionally guaranteed by certain domestic Expedia subsidiaries that are the same as under the Notes and expires in February 2021. As of December 31, 2017 and 2016, we had no revolving credit facility borrowings outstanding. The facility bears interest based on the Company’s credit ratings, with drawn amounts bearing interest at LIBOR plus 137.5 basis points and the commitment fee on undrawn amounts at 17.5 basis points as of December 31, 2017. The facility contains covenants including maximum leverage and minimum interest coverage ratios.

The amount of stand-by letters of credit (“LOCs”) issued under the facility reduces the credit amount available. As of December 31, 2017 and 2016, there was $14 million and $19 million of outstanding stand-by LOCs issued under the facility.

In addition, one of our international subsidiaries maintains a Euro 50 million uncommitted credit facility, which is guaranteed by Expedia, Inc. and may be terminated at any time by the lender. As of December 31, 2017 and 2016, we had no borrowings outstanding under this facility.

NOTE 9 — Employee Benefit Plans

Our U.S. employees are generally eligible to participate in a retirement and savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 50% of their pretax salary, but not more than statutory limits. We contribute fifty cents for each dollar a participant contributes in this plan, with a maximum contribution of 3% of a participant’s earnings. Our contribution vests with the employee after the employee completes two years of service. Participating employees have the option to invest in our common stock, but there is no requirement for participating employees to invest their contribution or our matching contribution in our common stock. We also have various defined contribution plans for our international employees. Our contributions to these benefit plans were $60 million, $53 million and $41 million for the years ended December 31, 2017, 2016 and 2015.

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NOTE 10 — Stock-Based Awards and Other Equity Instruments

Pursuant to the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan, we may grant restricted stock, restricted stock awards, RSUs, stock options and other stock-based awards to directors, officers, employees and consultants. As of December 31, 2017, we had approximately 13 million shares of common stock reserved for new stock-based awards under the 2005 Stock and Annual Incentive Plan. We issue new shares to satisfy the exercise or release of stock-based awards. In 2017, we introduced an equity choice program for annual awards that allows for the choice of stock options or RSUs with certain limitations. During 2016 and 2015, we awarded stock options as our primary form of stock-based compensation.

The following table presents a summary of our stock option activity:

	Options			Weighted Average Exercise Price				Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)							(In years)		(In thousands)
Balance as of January 1, 2015	14,435			$	49.33
Granted	7,572			94.13
Exercised	(4,201	)		34.57
Cancelled	(751	)		74.06
Balance as of December 31, 2015	17,055			71.77
Granted	5,670			105.37
Exercised	(2,686	)		47.57
Cancelled	(1,198	)		91.62
Balance as of December 31, 2016	18,841			84.07
Granted	3,618			124.08
Exercised	(3,422	)		62.67
Cancelled	(3,384	)		96.86
Balance as of December 31, 2017	15,653			95.23				4.4		$	402,509
Exercisable as of December 31, 2017	5,903			74.64				3.1		266,849
Vested and expected to vest after December 31, 2017	15,653			95.23				4.4		402,509

The aggregate intrinsic value of outstanding options shown in the stock option activity table above represents the total pretax intrinsic value at December 31, 2017, based on our closing stock price of $119.77 as of the last trading date in 2017. The total intrinsic value of stock options exercised was $249 million, $181 million and $314 million for the years ended December 31, 2017, 2016 and 2015.

The fair value of stock options granted during the years ended December 31, 2017, 2016 and 2015 were estimated at the date of grant using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models, assuming the following weighted average assumptions:

	2017				2016				2015
Risk-free interest rate	1.58		%		0.97		%		1.19		%
Expected volatility	32.47		%		39.06		%		41.48		%
Expected life (in years)	3.65				3.59				4.06
Dividend yield	0.92		%		0.91		%		0.78		%
Weighted-average estimated fair value of options granted during the year	$	30.17			$	29.48			$	30.56

In addition to the Expedia, Inc. stock plan, there were certain shares held by trivago employees, which were originally awarded in the form of stock options pursuant to the trivago employee stock option plan and subsequently exercised by such employees. During 2016, we exercised our call right on these shares and elected to do so at a premium to fair value, which resulted in an incremental stock-based compensation charge of approximately $49 million pursuant to liability award treatment.

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The following table presents a summary of RSU activity:

	RSUs			Weighted Average Grant-Date Fair Value
	(In thousands)
Balance as of January 1, 2015	337			$	61.97
Granted	1,643			123.42
Vested	(493	)		103.73
Cancelled	(91	)		67.11
Balance as of December 31, 2015	1,396			119.20
Granted	691			109.38
Vested	(516	)		118.71
Cancelled	(222	)		117.84
Balance as of December 31, 2016	1,349			114.58
Granted	1,350			123.24
Vested	(492	)		115.29
Cancelled	(266	)		116.26
Balance as of December 31, 2017	1,941			120.19

RSUs, which are stock awards that are granted to employees entitling the holder to shares of our common stock as the award vests, were our primary form of stock-based award prior to 2009. Our RSUs generally vest over three or four-years, but may accelerate in certain circumstances, including certain changes in control. During 2015, in connection with the acquisitions disclosed in NOTE 3 — Acquisitions and Other Investments, we replaced certain unvested employee RSUs of the acquiree with Expedia awards the amount of which is included within granted in the above table.

The total market value of shares vested during the years ended December 31, 2017, 2016 and 2015 was $65 million, $57 million and $60 million.

In 2017, we recognized total stock-based compensation expense of $149 million, which included the reversal of $41 million of previously recognized stock-based compensation as a result of the departure of our former CEO and the related forfeiture of certain of his stock-based awards within general and administrative expense. In 2016 and 2015, we recognized total stock-based compensation expense of $242 million, including amounts related to trivago discussed above, and $178 million. The total income tax benefit related to stock-based compensation expense was $38 million, $56 million and $45 million for 2017, 2016 and 2015.

Cash received from stock-based award exercises for the years ended December 31, 2017 and 2016 was $213 million and $128 million. Total current income tax benefits during the years ended December 31, 2017 and 2016 associated with the exercise of stock-based awards held by our employees were $100 million and $76 million.

During 2015, our Chairman and Senior Executive exercised options to purchase 1.9 million shares. 0.5 million shares were withheld and concurrently cancelled by the Company to cover the weighted average exercise price of $30.38 per share and 0.8 million shares were withheld and concurrently cancelled to cover tax obligations, with a net delivery of 0.6 million shares.

As of December 31, 2017, there was approximately $410 million of unrecognized stock-based compensation expense related to unvested stock-based awards, which is expected to be recognized in expense over a weighted-average period of 2.6 years.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (“ESPP”), which allows shares of our common stock to be purchased by eligible employees at three-month intervals at 85% of the fair market value of the stock on the last day of each three-month period. Eligible employees are allowed to contribute up to 10% of their base compensation. During 2017, 2016 and 2015, approximately 141,000, 139,000, and 95,000 shares were purchased under this plan for an average price of $112.31, $95.63 and $93.30 per share. As of December 31, 2017, we have reserved approximately 1 million shares of our common stock for issuance under the ESPP.

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NOTE 11 — Income Taxes

The Tax Act was enacted in December 2017. The Tax Act significantly changes U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $158 million tax benefit.

The Tax Act provided for a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”). We have recognized a provisional $144 million of income tax expense related to the transition tax. After utilization of existing net operating loss and tax credits carryforwards, we expect to pay minimal U.S. federal cash taxes on the deemed repatriation.

While the Tax Act provides for a modified territorial tax system, beginning in 2018, global intangible low-taxed income (“GILTI”) provisions will be applied providing 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 SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) 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 and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recognized a net tax benefit of $14 million for the provisional tax impacts related to the one-time transition tax and the revaluation of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. We are in the process of analyzing the impact of the various provisions of the Tax Act. The ultimate impact may materially differ from these provisional amounts due to, among 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.

The following table summarizes our U.S. and foreign income (loss) before income taxes:

	Year Ended December 31,
	2017				2016				2015
	(In thousands)
U.S.	$	(44,867	)		$	(47,205	)		$	24,397
Foreign	461,631				323,805				901,565
Total	$	416,764			$	276,600			$	925,962

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Provision for Income Taxes

The following table summarizes our provision for income taxes:

	Year Ended December 31,
	2017				2016				2015
					(In thousands)
Current income tax expense:
Federal	$	12,671			$	(41,418	)		$	154,050
State	5,862				5,875				1,440
Foreign	130,180				64,946				69,359
Current income tax expense	148,713				29,403				224,849
Deferred income tax (benefit) expense:
Federal	(93,842		)		(5,166		)		(6,865		)
State	(891		)		(2,863		)		2,156
Foreign	(8,575		)		(6,059		)		(16,926		)
Deferred income tax (benefit) expense:	(103,308		)		(14,088		)		(21,635		)
Income tax expense	$	45,405			$	15,315			$	203,214

We reduced our current income tax payable by $100 million, $76 million and $130 million for the years ended December 31, 2017, 2016 and 2015 for tax deductions attributable to stock-based compensation.

Deferred Income Taxes

As of December 31, 2017 and 2016, the significant components of our deferred tax assets and deferred tax liabilities were as follows:

	December 31,
	2017				2016
	(In thousands)
Deferred tax assets:
Provision for accrued expenses	$	49,526			$	94,031
Loyalty rewards reserve	131,248				163,410
Occupancy tax reserve	11,017				27,814
Net operating loss and tax credit carryforwards	121,896				114,470
Stock-based compensation	51,706				81,221
Other	36,187				31,569
Total deferred tax assets	401,580				512,515
Less valuation allowance	(76,280		)		(65,516		)
Net deferred tax assets	$	325,300			$	446,999
Deferred tax liabilities:
Prepaid merchant bookings and prepaid expenses	$	(1,372	)		$	(20,289	)
Goodwill and intangible assets	(499,190		)		(718,810		)
Property and equipment	(130,736		)		(152,550		)
Other	(4,674		)		(16,662		)
Total deferred tax liabilities	$	(635,972	)		$	(908,311	)
Net deferred tax liability	$	(310,672	)		$	(461,312	)

As of December 31, 2017, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of approximately $65 million, $210 million and $370 million. If not utilized, the federal and state NOLs will expire at various times between 2018 and 2037. Foreign NOLs of $253 million may be carried forward indefinitely, and foreign NOLs of $117 million will expire at various times between 2018 and 2024.

As of December 31, 2017, we had a valuation allowance of approximately $76 million related to certain NOL carryforwards for which it is more likely than not the tax benefit will not be realized. The valuation allowance increased by $10 million from the amount recorded as of December 31, 2016 primarily due to the historic NOL carryforwards of acquired

F- 33

entities in 2017 as well as foreign net operating losses for which realization is not certain. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subjected to U.S. federal income tax. To the extent we repatriate these earnings to the United States, we estimate we will not incur significant additional taxes related to such amounts, however our estimates are provisional and subject to further analysis.

Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Income Tax Rate

A reconciliation of amounts computed by applying the federal statutory income tax rate to income before income taxes to total income tax expense is as follows:

	Year Ended December 31,
	2017				2016				2015
					(In thousands)
Income tax expense at the federal statutory rate of 35%	$	145,867			$	96,810			$	324,087
Foreign tax rate differential	(81,509		)		(66,947		)		(162,784		)
Unrecognized tax benefits and related interest	27,690				33,170				33,362
Change in valuation allowance	3,686				(13,924		)		27,320
Return to provision true-ups	686				(14,420		)		(8,875		)
Pay-to-play penalties	—				—				(11,222		)
Acquisition related costs	1,554				1,611				12,545
Federal research and development credit	(16,000		)		(15,000		)		(11,500		)
trivago stock-based-compensation	5,011				16,956				—
Excess tax benefits related to stock-based compensation	(59,668		)		(39,751		)		—
Tax Act transition tax	144,167				—				—
U.S. statutory tax rate change	(158,286		)		—				—
Other, net	32,207				16,810				281
Income tax expense	$	45,405			$	15,315			$	203,214

Our effective tax rate in 2017, 2016 and 2015 was lower than the 35% federal statutory income tax rate due to earnings in foreign jurisdictions outside of the United States, primarily Switzerland, where the statutory income tax rate is lower. In addition, excess tax benefits relating to share-based payments also decrease our effective tax rate in 2017 and 2016.

The increase in our effective tax rate for 2017 compared to 2016 was primarily due to one-time tax benefits in the prior year period including release of a valuation allowance and return to provision true-ups, as well as an increase in losses generated in foreign jurisdictions at tax rates below the 35% federal statutory rate. The effects of the provisional income inclusion for the deemed repatriation transition tax pursuant to the Tax Act were negated by the benefit of the provisional remeasurement of our net deferred tax liability.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	2017				2016				2015
					(In thousands)
Balance, beginning of year	$	220,532			$	171,177			$	110,561
Increases to tax positions related to the current year	35,211				42,877				33,880
Increases to tax positions related to prior years	3,544				8,124				26,219
Decreases to tax positions related to prior years	(1,069		)		(2,262		)		—
Reductions due to lapsed statute of limitations	(2,783		)		(4,688		)		(2,525		)
Settlements during current year	(1,213		)		—				(100		)
Interest and penalties	6,697				5,304				3,142
Balance, end of year	$	260,919			$	220,532			$	171,177

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As of December 31, 2017, we had $261 million of gross unrecognized tax benefits, $155 million of which, if recognized, would affect the effective tax rate. As of December 31, 2016, we had $221 million of gross unrecognized tax benefits, $181 million of which, if recognized, would affect the effective tax rate.

As of December 31, 2017 and 2016, total gross interest and penalties accrued was $22 million and $15 million, respectively. We recognized interest (benefit) expense in 2017, 2016 and 2015 of $7 million, $5 million and $3 million in connection with our unrecognized tax benefits.

The Company is routinely under audit by federal, state, local and foreign income tax authorities. These audits include questioning the timing and the amount of income and deductions, and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") is currently examining Expedia’s U.S. consolidated federal income tax returns for the periods ended December 31, 2009 through December 31, 2013. As of December 31, 2017, for the Expedia, Inc. & Subsidiaries group, statute of limitations for tax years 2009 through 2016 remain open to examination in the federal jurisdiction and most state jurisdictions. For the HomeAway and Orbitz groups, statutes of limitations for tax years 2001 through 2015 remain open to examination in the federal and most state jurisdictions due to net operating loss carryforwards.

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 position of the IRS and are formally protesting the IRS position.

NOTE 12 — Redeemable Non-controlling Interests

We have non-controlling interests in majority owned entities, which are carried at fair value as the non-controlling interests contained certain rights, whereby we could acquire and the minority shareholders could sell to us the additional shares of the companies. A reconciliation of redeemable non-controlling interest for the years ended December 31, 2017, 2016 and 2015 is as follows:

	Year Ended December 31,
	2017				2016				2015
	(In thousands)
Balance, beginning of the period	$	—			$	658,478			$	560,073
Acquisition of redeemable non-controlling interest	19,618				—				6,829
Purchase of subsidiary shares at fair value	—				(7,054		)		—
Net income (loss) attributable to non-controlling interests	2,535				(22,286		)		(15,417		)
Fair value adjustments	—				848,885				188,579
Currency translation adjustments	—				(89,436		)		(90,244		)
Other	181				(7,611		)		8,658
Transfer to non-redeemable non-controlling interest	—				(1,380,976		)		—
Balance, end of period	$	22,334			$	—			$	658,478

The fair value of the redeemable non-controlling interest was determined based on a blended analysis of the present value of future discounted cash flows and market value approach (“Level 3” on the fair value hierarchy). Our significant estimates in the discounted cash flow model included our weighted average cost of capital as well as long-term growth and profitability of the business. Our significant estimates in the market value approach included identifying similar companies with comparable business factors and assessing comparable revenue and operating multiples in estimating the fair value of the business.

In connection with the acquisition of our majority ownership interests in trivago in 2013, we entered into a shareholders agreement with trivago’s founders that contains certain put/call rights whereby we could cause the founders to sell to us, and the founders could cause us to acquire from them, up to 50% and 100% of the trivago shares held by them at fair value during two windows. The first window would have closed during the first half of 2016. However, during the second quarter of 2016, we and the founders agreed not to exercise our respective put/call rights during that window and instead to postpone the window while the parties explored the feasibility of an IPO of trivago shares. On December 16, 2016, trivago completed its IPO for proceeds of approximately $210 million after deducting discounts, commissions and offering expenses and became a separately listed company on the NASDAQ. Prior to the initial public offering, we owned 63.5% of trivago. In conjunction with the initial public offering, Expedia and trivago’s founders entered into an Amended and Restated Shareholders’ Agreement under which the original put/call rights were no longer effective and were replaced with a contingent founder held put right whereby Expedia would be obligated to buy all, but not less than all, of a founder’s shares in the event a founder is removed from trivago’s management board under certain circumstances which are within the control of Expedia. Immediately prior to

F- 35

the offering and the effective date of the newly Amended and Restated Shareholders’ Agreement, we adjusted the fair value of our redeemable non-controlling interest to reflect the estimated fair value immediately prior to the offering. We then subsequently reclassified the redeemable non-controlling interest into non-redeemable non-controlling interest on the consolidated balance sheet as the non-controlling interest was no longer redeemable pursuant to the Amended and Restated Shareholders’ Agreement. Post offering, and as of December 31, 2016, our ownership interest and voting interest was approximately 59.7% and 64.7% of trivago N.V. and its subsidiaries.

NOTE 13 — Stockholders’ Equity

Common Stock and Class B Common Stock

Our authorized common stock consists of 1.6 billion shares of common stock with par value of $0.0001 per share, and 400 million shares of Class B common stock with par value of $0.0001 per share. Both classes of common stock qualify for and share equally in dividends, if declared by our Board of Directors, and generally vote together on all matters. Common stock is entitled to 1 vote per share and Class B common stock is entitled to 10 votes per share. Holders of common stock, voting as a single, separate class are entitled to elect 25% of the total number of directors. Class B common stockholders may, at any time, convert their shares into common stock, on a one for one share basis. Upon conversion, the Class B common stock is retired and is not available for reissue. In the event of liquidation, dissolution, distribution of assets or winding-up of Expedia, Inc., the holders of both classes of common stock have equal rights to receive all the assets of Expedia, Inc. after the rights of the holders of the preferred stock, if any, have been satisfied.

Preferred Stock

As of December 31, 2017 and 2016, we have no preferred stock outstanding.

Share Repurchases

During 2012, 2010, and 2006, our Board of Directors, or the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 20 million outstanding shares of our common stock during each of the respective years and during 2015 authorized a repurchase of up to 10 million shares of our common stock for a total of 70 million shares. Shares repurchased under the authorized programs were as follows:

	Year Ended December 31,
	2017				2016				2015
Number of shares repurchased	2.3 million				4.0 million				0.5 million
Average price per share	$	127.04			$	109.64			$	85.27
Total cost of repurchases (in millions)(1)	$	294			$	436			$	45

---

(1)	Amount excludes transaction costs.

As of December 31, 2017, 4.9 million shares remain authorized for repurchase under the 2015 authorization with no fixed termination date for the repurchases.

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Dividends on our Common Stock

In 2017, 2016 and 2015, the Executive Committee, acting on behalf of the Board of Directors, declared and paid the following dividends:

	Declaration Date		Dividend Per Share				Record Date		Total Amount (in thousands)				Payment Date
Year ended December 31, 2017:
	February 7, 2017		$	0.28			March 9, 2017		$	42,247			March 30, 2017
	April 26, 2017		0.28				May 25, 2017		42,438				June 15, 2017
	July 26, 2017		0.30				August 24, 2017		45,578				September 14, 2017
	October 25, 2017		0.30				November 16, 2017		45,512				December 7, 2017
Year ended December 31, 2016:
	February 8, 2016		$	0.24			March 10, 2016		$	36,174			March 30, 2016
	April 26, 2016		0.24				May 26, 2016		35,773				June 16, 2016
	July 27, 2016		0.26				August 25, 2016		39,062				September 15, 2016
	October 24, 2016		0.26				November 17, 2016		39,150				December 8, 2016
Year ended December 31, 2015:
	February 4, 2015		$	0.18			March 10, 2015		$	22,895			March 26, 2015
	April 29, 2015		0.18				May 28, 2015		23,096				June 18, 2015
	July 29, 2015		0.24				August 27, 2015		31,182				September 17, 2015
	October 29, 2015		0.24				November 19, 2015		31,354				December 10, 2015

In addition, in February 2018, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.30 per share of outstanding common stock payable on March 28, 2018 to the stockholders of record as of the close of business on March 8, 2018. Future declarations of dividends are subject to final determination by our Board of Directors.

Accumulated Other Comprehensive Income (Loss)

The balance for each class of accumulated other comprehensive loss as of December 31, 2017 and 2016 is as follows:

	December 31,
	2017				2016
	(In thousands)
Foreign currency translation adjustments, net of tax(1)	$	(142,255	)		$	(280,426	)
Net unrealized gain (loss) on available for sale securities, net of tax(2)	(6,678		)		27
Accumulated other comprehensive loss	$	(148,933	)		$	(280,399	)

---

(1)

Foreign currency translation adjustments, net of tax, includes foreign currency transaction losses at December 31, 2017 of $45 million ($71 million before tax) and foreign currency transaction gains at December 31, 2016 of $16 million ($25 million before tax) associated with our 2.5% Notes. The 2.5% Notes are Euro-denominated debt designated as hedges of certain of our Euro-denominated net assets. See NOTE 2 — Significant Accounting Policies for more information.

(2)	The net unrealized loss on available for sale securities before tax at December 31, 2017 was $9 million.

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Non-redeemable Non-controlling Interests

As of December 31, 2017, 2016 and 2015, our ownership interest in AirAsia-Expedia was approximately 75%. As of December 31, 2017 and 2016, our ownership interest in trivago was approximately 59.6% and 59.7%. Prior to our sale of eLong on May 22, 2015, our ownership interest in eLong was approximately 62.4%. Amounts paid in excess of the respective non-controlling interest were recorded to additional paid-in capital. The following table shows the effects of the changes in non-controlling interest on our equity for the respective periods, in thousands:

	2017				2016				2015
Net income attributable to Expedia, Inc.	$	377,964			$	281,848			$	764,465
Transfers (to) from the non-controlling interest due to:
Net decrease in Expedia, Inc.’s paid-in capital related to trivago IPO	—				(32,141		)		—
Net increase (decrease) in Expedia, Inc.’s paid-in capital for newly issued eLong shares and other equity activity	—				—				(4,198		)
Other	2,649				—				—
Net transfers from non-controlling interest	2,649				(32,141		)		(4,198		)
Change from net income attributable to Expedia, Inc. and transfers from non-controlling interest	$	380,613			$	249,707			$	760,267

NOTE 14 — Earnings Per Share

Basic Earnings Per Share

Basic earnings per share was calculated for the years ended December 31, 2017, 2016 and 2015 using the weighted average number of common and Class B common shares outstanding during the period excluding restricted stock and stock held in escrow.

Diluted Earnings Per Share

For the years ended December 31, 2017, 2016 and 2015, we computed diluted earnings per share using (i) the number of shares of common stock and Class B common stock used in the basic earnings per share calculation as indicated above (ii) if dilutive, the incremental common stock that we would issue upon the assumed exercise of stock options and stock warrants and the vesting of RSUs using the treasury stock method, and (iii) other stock-based commitments.

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

	Year Ended December 31,
	2017				2016				2015
	(In thousands, except per share data)
Net income attributable to Expedia, Inc.	$	377,964			$	281,848			$	764,465
Earnings per share attributable to Expedia, Inc. available to common stockholders:
Basic	$	2.49			$	1.87			$	5.87
Diluted	2.42				1.82				5.70
Weighted average number of shares outstanding:
Basic	151,619				150,367				130,159
Dilutive effect of:
Options to purchase common stock	4,218				3,874				3,685
Other dilutive securities	548				276				174
Diluted	156,385				154,517				134,018

Outstanding stock awards that have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive were approximately four million for 2017, seven million for 2016, and two million for 2015.

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.

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NOTE 15 — Restructuring and Related Reorganization Charges

In connection with activities to centralize and optimize certain operations as well as migrate technology platforms in the prior years, primarily related to previously disclosed acquisitions, we recognized $17 million, $56 million and $105 million in restructuring and related reorganization charges during 2017, 2016 and 2015. The charges were primarily related to employee severance and benefits, including severance amounts under pre-existing written plans and contracts Orbitz had with its employees and incremental retention compensation for exiting employees as well as stock-compensation charges for acceleration of replacement awards pursuant to certain employment agreements. Based on current plans, which are subject to change, and excluding any possible future acquisition integrations, we do not expect material restructuring charges in 2018.

The following table summarizes the restructuring and related reorganization activity for 2015, 2016 and 2017:

	Employee Severance and Benefits				Stock-based Compensation				Other				Total
	(In thousands)
Accrued liability as of January 1, 2015	$	10,117			$	—			$	13,658			$	23,775
Charges	66,255				32,749				5,867				104,871
Payments	(29,388		)		—				(18,408		)		(47,796		)
Non-cash items	(1,095		)		(32,749		)		6				(33,838		)
Accrued liability as of December 31, 2015	45,889				—				1,123				47,012
Charges	39,477				12,690				3,740				55,907
Payments	(66,442		)		—				(4,932		)		(71,374		)
Non-cash items	(774		)		(12,690		)		343				(13,121		)
Accrued liability as of December 31, 2016	18,150				—				274				18,424
Charges	8,380				—				8,358				16,738
Payments	(19,005		)		—				(7,722		)		(26,727		)
Non-cash items	810				—				69				879
Accrued liability as of December 31, 2017	$	8,335			$	—			$	979			$	9,314

NOTE 16 — Other Income (Expense)

Other, net

The following table presents the components of other, net:

	For the Year Ended December 31,
	2017				2016				2015
	(In thousands)
Foreign exchange rate gains (losses), net	$	(45,614	)		$	(15,244	)		$	24,787
Non-controlling interest basis adjustment	1,678				—				77,400
Loss on investments, net	(14,318		)		(12,117		)		—
Equity gains (losses) in unconsolidated affiliates	232				(1,490		)		(13		)
Other	(2,777		)		(2,829		)		10,912
Total	$	(60,799	)		$	(31,680	)		$	113,086

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NOTE 17 — Commitments and Contingencies

Letters of Credit, Purchase Obligations and Guarantees

We have commitments and obligations that include purchase obligations, guarantees and LOCs, which could potentially require our payment in the event of demands by third parties or contingent events. The following table presents these commitments and obligations as of December 31, 2017:

					By Period
	Total				Less than 1 year				1 to 3 years				3 to 5 years				More than 5 years
	(In thousands)
Purchase obligations	$	409,802			$	256,834			$	152,968			$	—			$	—
Guarantees	135,053				120,278				14,775				—				—
Letters of credit	42,419				25,653				11,103				169				5,494
	$	587,274			$	402,765			$	178,846			$	169			$	5,494

Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors. These minimum obligations are less than our projected use for those periods. Payments may be more than the minimum obligations based on actual use.

We have guarantees which consist primarily of bonds relating to tax assessments that we are contesting as well as bonds required by certain foreign countries’ aviation authorities for the potential non-delivery, by us, of packaged travel sold in those countries. The authorities also require that a portion of the total amount of packaged travel sold be bonded. Our guarantees also include certain surety bonds related to various company performance obligations.

Our LOCs consist of stand-by LOCs, underwritten by a group of lenders, which we primarily issue for certain regulatory purposes as well as to certain hotel properties to secure our payment for hotel room transactions. The contractual expiration dates of these LOCs are shown in the table above. There were no material claims made against any stand-by LOCs during the years ended December 31, 2017, 2016 and 2015.

Lease Commitments

We have contractual obligations in the form of operating leases for office space and related office equipment for which we record the related expense on a monthly basis. Certain leases contain periodic rent escalation adjustments and renewal options. Rent expense related to such leases is recorded on a straight-line basis. Operating lease obligations expire at various dates with the latest maturity in 2031. For the years ended December 31, 2017, 2016 and 2015, we recorded rental expense of $168 million, $147 million and $109 million.

The following table presents our estimated future minimum rental payments under operating leases with noncancelable lease terms that expire after December 31, 2017, in thousands:

Year ending December 31,
2018	$	138,785
2019	121,017
2020	103,695
2021	79,192
2022	72,901
2023 and thereafter	333,792
	$	849,382

Legal Proceedings

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

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Litigation Relating to Occupancy Taxes. Ninety-six lawsuits have been filed by cities, counties and states involving hotel occupancy and other taxes. Sixteen lawsuits are currently active. These lawsuits are in various stages and we continue to defend against the claims made in them vigorously. With respect to the principal claims in these matters, we believe that the statutes or ordinances at issue do not apply to the services we provide and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes or ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations. To date, forty-two of these lawsuits have been dismissed. Some of these dismissals have been without prejudice and, generally, allow the governmental entity or entities to seek administrative remedies prior to pursuing further litigation. Twenty-eight dismissals were based on a finding that we and the other defendants were not subject to the local hotel occupancy tax ordinance or that the local government lacked standing to pursue their claims. As a result of this litigation and other attempts by certain jurisdictions to levy such taxes, we have established a reserve for the potential settlement of issues related to hotel occupancy and other taxes, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $43 million and $71 million as of December 31, 2017 and 2016, respectively. It is also reasonably possible that amounts paid in connection with these issues could include up to an additional $56 million related to tax, interest and penalties in one jurisdiction. Our settlement reserve is based on our best estimate of probable losses and the ultimate resolution of these contingencies may be greater or less than the liabilities recorded. An estimate for a reasonably possible loss or range of loss in excess of the amount reserved or disclosed 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.

Hawaii (General Excise Tax). During 2013, the Expedia companies were required to “pay-to-play” and paid a total of $171 million in advance of litigation relating to general excise taxes for merchant model hotel reservations in the State of Hawaii. In September 2015, following a ruling by the Hawaii Supreme Court, the State of Hawaii refunded the Expedia companies $132 million of the original “pay-to-play” amount. As we had previously expensed the pay-to-play payments in prior periods, we recognized a gain in legal reserves, occupancy tax and other during the third quarter of 2015 related to this matter. Orbitz also received a similar refund of $22 million from the State of Hawaii in September 2015. The amount paid, net of refunds, by the Expedia companies and Orbitz to the State of Hawaii in satisfaction of past general excise taxes on their services for merchant model hotel reservations was $44 million. The parties reached a settlement relating to Orbitz merchant model hotel tax liabilities, and on October 5, 2016, the Expedia companies paid the State of Hawaii for the tax years 2012 through 2015. The Expedia companies and Orbitz have now resolved all assessments by the State of Hawaii for merchant model hotel taxes through 2015.

The Department of Taxation also issued final assessments for general excise taxes against the Expedia 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 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. The Department of Taxation has asked the tax court to stay proceedings in the agency hotel and car rental case pending a decision by the Hawaii Supreme Court in the merchant model car rental case addressed below. The defendants have opposed that request. On February 5, 2018, the tax court granted the motion to stay.

Final assessments by the Hawaii Department of Taxation for general exercise taxes against the Expedia companies, including Orbitz, relating to merchant car rental transactions during the years 2000 to 2014 are also under review in the Hawaii tax courts. With respect to merchant model car rental transactions at issue for the tax years 2000 through 2013, the Hawaii tax court held on August 5, 2016 that 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 companies paid

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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 have been transferred to the Hawaii Supreme Court and oral argument on the merchant car appeals is scheduled for April 5, 2018. The Hawaii tax court’s decision did not resolve “merchant model” car rental transactions for the tax year 2014, which also remain under review.

San Francisco. During 2009, we were required to “pay-to-play” and paid $48 million in advance of litigation relating to occupancy tax proceedings with the city of San Francisco. The city of San Francisco subsequently issued additional assessments of tax, penalties and interest for the time period from the fourth quarter of 2007 through the fourth quarter of 2011 against the online travel companies, including against certain Expedia companies. The additional assessments, including the prepayment of such assessments, were contested by the Expedia companies on the basis that the court has already ruled that taxes are not due from the online travel companies and that binding precedent by the California Court of Appeals precludes the city’s claim for taxes. On May 14, 2014, the court heard oral argument on the Expedia companies’ contest of the prepayment requirement for the additional assessments and held that the Expedia companies were required to prepay in order to litigate the legality of the assessments. On May 26, 2014, the Expedia companies paid $25.5 million under protest in order to contest the additional assessments. The additional assessments were expensed during the second quarter of 2014. In addition, Orbitz in total has paid $4.6 million to the city of San Francisco to contest these assessments issued against it by the city. On August 6, 2014, the California Court of Appeals stayed this case pending review and decision by the California Supreme Court of the City of San Diego, California Litigation. The stay is now lifted and the appeal is proceeding.

Other Jurisdictions. We are also in various stages of inquiry or audit with domestic and foreign tax authorities, some of which, including in the United Kingdom regarding the application of value added tax (“VAT”) to our European Union related transactions as discussed below, 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 the United Kingdom, we may be required to “pay-to-play” any VAT assessment prior to contesting its validity. While we believe that we will be successful based on the merits of our positions with regard to the United Kingdom and other VAT audits in pay-to-play jurisdictions, it is nevertheless reasonably possible that we could be required to pay any assessed amounts in order to contest or litigate the applicability of any assessments and an estimate for a reasonably possible amount of any such payments cannot be made.

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

In Europe, investigations or inquiries into contractual parity provisions between hotels and online travel companies, including Expedia, 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 Expedia’s 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 waived certain rate, conditions and availability parity clauses in its agreements with its European hotel partners for a period of five years. While Expedia maintains that its parity clauses have always been lawful and in compliance with competition law, these waivers were nevertheless implemented as a positive step towards facilitating the closure of the open investigations into such clauses on a harmonized pan-European basis. Following the implementation of Expedia's waivers, nearly all NCAs in Europe have announced either the closure of their investigation or inquiries involving Expedia or a decision not to open an investigation or inquiry involving Expedia. Below are descriptions of additional rate parity-related matters of note in Europe.

The German Federal Cartel Office ("FCO") has required another online travel company, Hotel Reservation Service ("HRS"), to remove certain clauses from its contracts with hotels. HRS’ appeal of this decision was rejected by the Higher Regional Court Düsseldorf on January 9, 2015. On December 23, 2015, the FCO announced that it had also required

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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 case closure decision against Booking.com and Expedia 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 Expedia, Booking.com and HRS to be prohibited under Swiss law. The decision explicitly notes that Expedia's current contract terms with Swiss hotels are not subject to this prohibition. The Swiss competition authority imposed no fines or other sanctions against Expedia and did not find an abuse of a dominant market position by Expedia. The FCO’s case against Expedia’s 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 Expedia 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 entities objecting to certain parity clauses in contracts between Expedia entities and French hotels. In May 2015, the French court ruled that certain of the parity provisions in certain contracts that were the subject of the lawsuit were not in compliance with French commercial law, but imposed no fine and no injunction. The DGCCRF 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 Expedia to amend its contracts, and imposed a fine. Expedia has appealed the decision. The appeal will not stay payment of the fine and we have recorded a related reserve.

Hotelverband Deutschland (“IHA”) e.V. (a German hotel association) brought proceedings before the Cologne regional court against Expedia, Inc., Expedia.com GmbH and Expedia Lodging Partner Services Sàrl. IHA applied for a ‘cease and desist’ order against these companies in relation to the enforcement of certain rate and availability parity clauses contained in contracts with hotels in Germany. On or around February 16, 2017, the court dismissed IHA’s action and declared the claimant liable for the Expedia 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’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) in relation to certain parity provisions in their contracts with hotels. The working group issued questionnaires to online travel agencies including Expedia, 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) have also adopted new domestic anti-parity clause legislation. Expedia believes each of these pieces of legislation violates both EU and national legal principles and therefore, Expedia has challenged these laws at the European Commission.

A motion requesting the Swiss government to take action on narrow price parity has been adopted in the Swiss parliament. Moreover, in Belgium, the government is also reviewing narrow parity provisions. The Company is unable to predict whether these proposals in their current form or in another form 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’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. A Brazilian hotel sector association -- Forum de Operadores Hoteleiros do Brasil -- filed a complaint with the Brazilian Administrative Council for Economic Defence (“CADE”) against a number of online travel companies, including Booking.com, Decolar.com and Expedia, on July 27, 2016 with respect to parity provisions in contracts between hotels and online travel companies. On September 13, 2016, Expedia submitted its response to the complaint to CADE. In late 2016, Expedia 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 indicated that it has reopened its investigation. Expedia is in ongoing discussions with a limited number of NCAs in other countries in relation to its contracts with hotels. Expedia is currently unable to predict the impact the

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implementation of the waivers both in Europe and elsewhere will have on Expedia's business, on investigations or inquiries by NCAs in other countries, or on industry practice more generally.

In addition, regulatory authorities in Europe, Australia, and elsewhere have recently initiated market studies, inquiries and investigations into online marketplaces and how information is presented to consumers using those marketplaces, investigating practices such as search results rankings and algorithms, discount claims, disclosure of charges, and availability and similar messaging. We are unable to predict the implications of these market studies, inquiries and investigations on Expedia’s business.

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 18 — Related Party Transactions

Liberty. Mr. Diller is the Chairman and Senior Executive of Expedia. 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, 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 has been assigned by Mr. Diller to Liberty Expedia Holdings as described below.

On November 4, 2016, Liberty Interactive Corporation (“Liberty Interactive”) 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. Pursuant to a Transaction Agreement among Mr. Diller, Liberty Interactive, Liberty Expedia Holdings, John C. Malone and Leslie Malone, dated as of March 24, 2016 and amended and restated effective as of September 22, 2016, at the time of the Liberty Split-Off, for a period ending not later than May 4, 2018 (i) Mr. Diller assigned the Diller Proxy to Liberty Expedia Holdings (the “Diller Assignment”) and (ii) Mr. and Mrs. Malone 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’s Board of Directors, Mr. Diller indirectly controls Expedia 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 will have the power to vote directly all shares of Expedia Common Stock and Class B Common Stock beneficially owned by Liberty Expedia Holdings.

In connection with the then-pending Liberty Split-Off, on March 24, 2016, Liberty Interactive and Liberty Expedia Holdings entered into a Reimbursement Agreement with Expedia pursuant to which Liberty Interactive and Liberty Expedia Holdings agreed to reimburse Expedia, up to a specified cap, for certain costs and expenses resulting from the Liberty Split-Off and the above-described proxy arrangements that may be incurred by Expedia with respect to Expedia’s $1.5 billion unsecured revolving credit facility and Expedia’s 7.456% Notes maturing in 2018 and 5.95% Notes maturing in 2020 (as amended and restated as of September 22, 2016, the “Reimbursement Agreement”).

On September 30, 2016, Expedia received consents from the holders of more than a majority of the aggregate principal amount of its 5.95% Notes and entered into a supplemental indenture to amend the indenture governing its 5.95% Notes to conform the definition of “Permitted Holders” to the definition employed in Expedia’s 2.5% Notes, 4.5% Notes and 5.0% Notes, including by specifying that “Permitted Holders” include certain entities succeeding to the interest of Liberty Interactive in Expedia. During 2016, Liberty Interactive reimbursed Expedia approximately $4 million for the cost of the consent solicitation pursuant to the terms of the Reimbursement Agreement.

The Reimbursement Agreement constitutes Expedia’s sole and exclusive remedy with respect to any claim arising out of any potential change of control under any contract, debt instrument, agreement or other similar instrument resulting, directly or indirectly, from the Liberty Split-Off or the above-described proxy arrangements entered into in connection with the Liberty Split-Off. On January 3, 2017, other than those provisions relating to Expedia’s remedies described above and certain administrative provisions, the Reimbursement Agreement terminated in accordance with its terms upon the non-occurrence within the 60 day-period following the Liberty Split-Off of certain reimbursement triggers.

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During 2015, we issued 264,841 shares of common stock from treasury stock to Liberty Interactive at a price per share of $85.24 and an aggregate value of approximately $23 million pursuant to and in accordance with the preemptive rights as detailed by the Governance Agreement with Liberty Interactive.

IAC/InterActiveCorp. In addition to serving as our Chairman and Senior Executive, Mr. Diller also serves as Chairman of the Board of Directors and Senior Executive at IAC. The Company and Expedia are related parties since they are under common control, given that Mr. Diller serves as Chairman and Senior Executive of both Expedia and IAC. Each of IAC and Expedia has a 50% ownership interest in two aircraft that may be used by both companies as well as one aircraft that was held-for-sale as of December 31, 2017. We share equally in fixed and nonrecurring costs for the planes; direct operating costs are pro-rated based on actual usage. As of December 31, 2017 and 2016, the net basis in our ownership interest in the planes was $40 million and $30 million recorded in long-term investments and other assets. In 2017, 2016 and 2015, operating and maintenance costs paid directly to the jointly-owned subsidiary for the airplanes were nominal.

NOTE 19 — Segment Information

We have four reportable segments: Core OTA, trivago, HomeAway and Egencia. In addition, eLong was a reportable segment through its disposal on May 22, 2015. Our Core OTA segment, which consists of the aggregation of operating segments, provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Orbitz, CheapTickets, ebookers, Expedia Affiliate Network, Hotwire.com, Travelocity, Wotif Group, 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 segment operates an online marketplace for the vacation rental 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 the realized foreign currency gains or losses related to the forward contracts hedging a component of our net merchant hotel revenue. We base the allocations primarily on transaction volumes and other usage metrics. We do not allocate certain shared expenses such as accounting, human resources, information technology and legal to our reportable segments. We include these expenses in Corporate and Eliminations. Our allocation methodology is periodically evaluated and may change.

Our segment disclosure includes intersegment revenues, which primarily consist of advertising and media services provided by our trivago segment to our Core OTA segment. These intersegment transactions are recorded by each segment at amounts that approximate fair value as if the transactions were between third parties, and therefore, impact segment performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such intersegment transactions is included within Corporate and Eliminations in the table below. In addition, when HomeAway 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. Included with eLong’s standalone financial statements for 2015 (through its disposal on May 22, 2015) was approximately $20 million of stock-based compensation and intangible amortization.

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The following tables present our segment information for 2017, 2016 and 2015. As a significant portion of our property and equipment is not allocated to our operating segments and depreciation is not included in our segment measure, we do not report the assets by segment as it would not be meaningful. We do not regularly provide such information to our chief operating decision makers.

	Year ended December 31, 2017
	Core OTA				trivago				HomeAway				Egencia				Corporate & Eliminations				Total
	(In thousands)
Third-party revenue	$	7,880,597			$	752,352			$	906,469			$	520,426			$	—			$	10,059,844
Intersegment revenue	—				413,855				—				—				(413,855		)		—
Revenue	$	7,880,597			$	1,166,207			$	906,469			$	520,426			$	(413,855	)		$	10,059,844
Adjusted EBITDA	$	2,068,405			$	5,439			$	201,810			$	94,265			$	(657,414	)		$	1,712,505
Depreciation	(309,842		)		(9,182		)		(40,211		)		(41,077		)		(213,787		)		(614,099		)
Amortization of intangible assets	—				—				—				—				(275,445		)		(275,445		)
Stock-based compensation	—				—				—				—				(149,350		)		(149,350		)
Legal reserves, occupancy tax and other	—				—				—				—				(25,412		)		(25,412		)
Restructuring and related reorganization charges	—				—				—				—				(16,738		)		(16,738		)
Realized (gain) loss on revenue hedges	(6,323		)		—				—				—				—				(6,323		)
Operating income (loss)	$	1,752,240			$	(3,743	)		$	161,599			$	53,188			$	(1,338,146	)		625,138
Other expense, net																					(208,374		)
Income before income taxes																					416,764
Provision for income taxes																					(45,405		)
Net income																					371,359
Net loss attributable to non-controlling interests																					6,605
Net income attributable to Expedia, Inc.																					$	377,964

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	Year ended December 31, 2016
	Core OTA				trivago				HomeAway				Egencia				Corporate & Eliminations				Total
	(In thousands)
Third-party revenue	$	7,083,620			$	538,479			$	689,186			$	462,279			$	—			$	8,773,564
Intersegment revenue	—				297,318				—				—				(297,318		)		—
Revenue	$	7,083,620			$	835,797			$	689,186			$	462,279			$	(297,318	)		$	8,773,564
Adjusted EBITDA	$	1,965,987			$	34,826			$	175,402			$	80,625			$	(641,168	)		$	1,615,672
Depreciation	(255,778		)		(7,145		)		(17,842		)		(31,340		)		(164,956		)		(477,061		)
Amortization of intangible assets	—				—				—				—				(317,141		)		(317,141		)
Impairment of intangible assets	—				—				—				—				(34,890		)		(34,890		)
Stock-based compensation	—				—				—				—				(242,417		)		(242,417		)
Legal reserves, occupancy tax and other	—				—				—				—				(26,498		)		(26,498		)
Restructuring and related reorganization charges, excluding stock-based compensation	—				—				—				—				(43,217		)		(43,217		)
Realized (gain) loss on revenue hedges	(12,746		)		—				—				—				—				(12,746		)
Operating income (loss)	$	1,697,463			$	27,681			$	157,560			$	49,285			$	(1,470,287	)		461,702
Other expense, net																					(185,102		)
Income before income taxes																					276,600
Provision for income taxes																					(15,315		)
Net income																					261,285
Net loss attributable to non-controlling interests																					20,563
Net income attributable to Expedia, Inc.																					$	281,848

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	Year ended December 31, 2015
	Core OTA				trivago				HomeAway(1)				Egencia				eLong(2)				Corporate & Eliminations				Total
	(In thousands)
Third-party revenue	$	5,877,213			$	333,024			$	20,222			$	400,115			$	41,743			$	—			$	6,672,317
Intersegment revenue	—				214,632				—				—				—				(214,632		)		—
Revenue	$	5,877,213			$	547,656			$	20,222			$	400,115			$	41,743			$	(214,632	)		$	6,672,317
Adjusted EBITDA	$	1,600,042			$	2,856			$	4,011			$	68,116			$	(62,167	)		$	(509,747	)		$	1,103,111
Depreciation	(189,318		)		(2,113		)		(742		)		(24,394		)		(3,263		)		(116,850		)		(336,680		)
Amortization of intangible assets	—				—				—				—				—				(156,458		)		(156,458		)
Impairment of intangible assets	—				—				—				—				—				(7,207		)		(7,207		)
Stock-based compensation	—				—				—				—				—				(178,068		)		(178,068		)
Legal reserves, occupancy tax and other	—				—				—				—				—				104,587				104,587
Restructuring and related reorganization charges, excluding stock-based compensation	—				—				—				—				—				(72,122		)		(72,122		)
Realized (gain) loss on revenue hedges	(43,597		)		—				—				—				—				—				(43,597		)
Operating income (loss)	$	1,367,127			$	743			$	3,269			$	43,722			$	(65,430	)		$	(935,865	)		413,566
Other income, net																									512,396
Income before income taxes																									925,962
Provision for income taxes																									(203,214		)
Net income																									722,748
Net loss attributable to non-controlling interests																									41,717
Net income attributable to Expedia, Inc.																									$	764,465

---

(1)	Includes results since our acquisition of HomeAway on December 15, 2015.

(2)	Includes results through our disposal of eLong on May 22, 2015.

F- 48

Revenue by Services

The following table presents revenue by groups of services for the years ended December 31, 2017, 2016 and 2015.

	Year Ended December 31,
	2017				2016				2015
	(In thousands)
Lodging(1)	$	6,851,171			$	6,020,668			$	4,638,481
Advertising and media	1,072,656				807,383				565,704
Air	783,573				777,696				566,123
Other(2)	1,352,444				1,167,817				902,009
Total revenue	$	10,059,844			$	8,773,564			$	6,672,317

---

(1)	During the first quarter of 2017, we began disclosing lodging revenue, which includes both hotel accommodations as well as alternative accommodations primarily made through HomeAway.

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

Geographic Information

The following table presents revenue by geographic area, the United States and all other countries, based on the geographic location of our websites or points of sale with the exception of trivago, which has all been allocated to Germany, the location of its corporate headquarters, for the years ended December 31, 2017, 2016 and 2015. No sales to an individual country other than the United States accounted for more than 10% of revenue for the presented years.

	Year Ended December 31,
	2017				2016				2015
	(In thousands)
Revenue
United States	$	5,534,466			$	5,036,539			$	3,703,302
All other countries	4,525,378				3,737,025				2,969,015
	$	10,059,844			$	8,773,564			$	6,672,317

The following table presents property and equipment, net for the United States and all other countries, as of December 31, 2017 and 2016:

	As of December 31,
	2017				2016
	(In thousands)
Property and equipment, net
United States	$	1,330,808			$	1,217,952
All other countries	244,450				176,952
	$	1,575,258			$	1,394,904

F- 49

NOTE 20 — Valuation and Qualifying Accounts

The following table presents the changes in our valuation and qualifying accounts. Other reserves primarily include our accrual of the cost associated with purchases made on our website related to the use of fraudulent credit cards “charged-back” due to payment disputes and cancellation fees.

Description	Balance at Beginning of Period				Charges to Earnings				Charges to Other Accounts(1)				Deductions				Balance at End of Period
	(In thousands)
2017
Allowance for doubtful accounts	$	25,278			$	18,567			$	598			$	(13,747	)		$	30,696
Other reserves	24,493																22,368
2016
Allowance for doubtful accounts	$	27,035			$	12,191			$	(2,554	)		$	(11,394	)		$	25,278
Other reserves	29,959																24,493
2015
Allowance for doubtful accounts	$	13,760			$	11,513			$	10,309			$	(8,547	)		$	27,035
Other reserves	25,258																29,959

---

(1)	Charges to other accounts primarily relates to amounts acquired through acquisitions and net translation adjustments.

NOTE 21 — Quarterly Financial Information (Unaudited)

	Three Months Ended
	December 31				September 30				June 30				March 31
	(In thousands, except per share data)
Year ended December 31, 2017
Revenue	$	2,319,208			$	2,965,848			$	2,586,052			$	2,188,736
Operating income (loss)	113,475				481,728				102,768				(72,833		)
Net income (loss) attributable to Expedia, Inc.	55,159				352,238				56,689				(86,122		)
Basic earnings (loss) per share(1)	$	0.36			$	2.32			$	0.37			$	(0.57	)
Diluted earnings (loss) per share(1)	0.35				2.23				0.36				(0.57		)
Year ended December 31, 2016
Revenue	$	2,092,829			$	2,580,905			$	2,195,869			$	1,903,961
Operating income (loss)(2)	147,186				386,152				25,662				(97,298		)
Net income (loss) attributable to Expedia, Inc.(2)	79,457				279,331				31,649				(108,589		)
Basic earnings (loss) per share(1)	$	0.53			$	1.86			$	0.21			$	(0.72	)
Diluted earnings (loss) per share(1)	0.51				1.81				0.21				(0.72		)

---

(1)	Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total computed for the year.

(2)	During the fourth quarter of 2016, we recognized a $33 million impairment charge related to indefinite lived intangible assets.

NOTE 22 — Guarantor and Non-Guarantor Supplemental Financial Information

Condensed consolidating financial information of Expedia, Inc. (the “Parent”), our subsidiaries that are guarantors of our debt facility and instruments (the “Guarantor Subsidiaries”), and our subsidiaries that are not guarantors of our debt facility and instruments (the “Non-Guarantor Subsidiaries”) is shown below. The debt facility and instruments are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The guarantees are full, unconditional, 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.

F- 50

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2017

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
	(In thousands)
Revenue	$	—			$	7,661,878			$	2,817,310			$	(419,344	)		$	10,059,844
Costs and expenses:
Cost of revenue	—				1,342,847				430,662				(16,978		)		1,756,531
Selling and marketing	—				3,714,710				1,985,541				(402,419		)		5,297,832
Technology and content	—				991,291				395,504				(8		)		1,386,787
General and administrative	—				408,949				266,951				61				675,961
Amortization of intangible assets	—				181,778				93,667				—				275,445
Legal reserves, occupancy tax and other	—				25,412				—				—				25,412
Restructuring and related reorganization charges	—				4,924				11,814				—				16,738
Intercompany (income) expense, net	—				695,328				(695,328		)		—				—
Operating income	—				296,639				328,499				—				625,138
Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries	493,013				336,300				—				(829,313		)		—
Other, net	(179,541		)		(59,547		)		30,714				—				(208,374		)
Total other income, net	313,472				276,753				30,714				(829,313		)		(208,374		)
Income before income taxes	313,472				573,392				359,213				(829,313		)		416,764
Provision for income taxes	64,492				(67,406		)		(42,491		)		—				(45,405		)
Net income	377,964				505,986				316,722				(829,313		)		371,359
Net loss attributable to non-controlling interests	—				846				5,759				—				6,605
Net income attributable to Expedia, Inc.	$	377,964			$	506,832			$	322,481			$	(829,313	)		$	377,964
Comprehensive income attributable to Expedia, Inc.	$	509,430			$	698,106			$	563,978			$	(1,262,084	)		$	509,430

F- 51

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2016

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
	(In thousands)
Revenue	$	—			$	6,807,279			$	2,267,516			$	(301,231	)		$	8,773,564
Costs and expenses:
Cost of revenue	—				1,263,828				346,200				(13,330		)		1,596,698
Selling and marketing	—				3,071,762				1,583,993				(288,338		)		4,367,417
Technology and content	—				903,444				331,230				345				1,235,019
General and administrative	—				429,015				249,185				92				678,292
Amortization of intangible assets	—				248,634				68,507				—				317,141
Impairment of intangibles	—				—				34,890				—				34,890
Legal reserves, occupancy tax and other	—				26,498				—				—				26,498
Restructuring and related reorganization charges	—				30,322				25,585				—				55,907
Intercompany (income) expense, net	—				656,273				(656,273		)		—				—
Operating income	—				177,503				284,199				—				461,702
Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries	383,883				286,016				—				(669,899		)		—
Other, net	(162,455		)		(21,206		)		(1,441		)		—				(185,102		)
Total other income (expense), net	221,428				264,810				(1,441		)		(669,899		)		(185,102		)
Income before income taxes	221,428				442,313				282,758				(669,899		)		276,600
Provision for income taxes	60,420				(50,168		)		(25,567		)		—				(15,315		)
Net income	281,848				392,145				257,191				(669,899		)		261,285
Net loss attributable to non-controlling interests	—				—				20,563				—				20,563
Net income attributable to Expedia, Inc.	$	281,848			$	392,145			$	277,754			$	(669,899	)		$	281,848
Comprehensive income attributable to Expedia, Inc.	$	280,297			$	373,649			$	238,299			$	(611,948	)		$	280,297

F- 52

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2015

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries(1)				Eliminations				Consolidated
	(In thousands)
Revenue	$	—			$	5,194,549			$	1,682,677			$	(204,909	)		$	6,672,317
Costs and expenses:
Cost of revenue	—				1,009,785				308,463				(8,689		)		1,309,559
Selling and marketing	—				2,347,919				1,230,059				(196,892		)		3,381,086
Technology and content	—				584,560				245,495				189				830,244
General and administrative	—				373,162				200,268				483				573,913
Amortization of intangible assets	—				58,524				97,934				—				156,458
Impairment of intangible assets	—				—				7,207				—				7,207
Legal reserves, occupancy tax and other	—				(104,587		)		—				—				(104,587		)
Restructuring and related reorganization charges	—				76,422				28,449				—				104,871
Intercompany (income) expense, net	—				742,010				(742,010		)		—				—
Operating income	—				106,754				306,812				—				413,566
Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries	839,779				870,108				—				(1,709,887		)		—
Gain on sale of business	—				—				508,810				—				508,810
Other, net	(119,451		)		64,576				58,461				—				3,586
Total other income, net	720,328				934,684				567,271				(1,709,887		)		512,396
Income before income taxes	720,328				1,041,438				874,083				(1,709,887		)		925,962
Provision for income taxes	44,137				(194,251		)		(53,100		)		—				(203,214		)
Net income	764,465				847,187				820,983				(1,709,887		)		722,748
Net loss attributable to non-controlling interests	—				—				41,717				—				41,717
Net income attributable to Expedia, Inc.	$	764,465			$	847,187			$	862,700			$	(1,709,887	)		$	764,465
Comprehensive income attributable to Expedia, Inc.	$	763,202			$	822,898			$	742,132			$	(1,709,887	)		$	618,345

---

(1)	Includes results through our disposal of eLong on May 22, 2015.

F- 53

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2017

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
	(In thousands)
ASSETS
Total current assets	$	358,251			$	3,493,392			$	2,263,166			$	(575,220	)		$	5,539,589
Investment in subsidiaries	10,265,237				4,249,014				—				(14,514,251		)		—
Intangible assets, net	—				1,735,988				572,548				—				2,308,536
Goodwill	—				6,366,378				1,862,487				—				8,228,865
Other assets, net	5,056				1,677,397				775,421				(19,236		)		2,438,638
TOTAL ASSETS	$	10,628,544			$	17,522,169			$	5,473,622			$	(15,108,707	)		$	18,515,628
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	750,922			$	6,797,895			$	905,093			$	(575,220	)		$	7,878,690
Long-term debt, excluding current maturities	3,749,054				—				—				—				3,749,054
Other long-term liabilities	—				494,134				262,084				(19,236		)		736,982
Redeemable non-controlling interests	—				9,673				12,661				—				22,334
Stockholders’ equity	6,128,568				10,220,467				4,293,784				(14,514,251		)		6,128,568
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,628,544			$	17,522,169			$	5,473,622			$	(15,108,707	)		$	18,515,628

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2016

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
	(In thousands)
ASSETS
Total current assets	$	293,759			$	2,535,711			$	1,829,191			$	(1,208,410	)		$	3,450,251
Investment in subsidiaries	9,536,273				3,410,687				—				(12,946,960		)		—
Intangible assets, net	—				1,921,519				525,133				—				2,446,652
Goodwill	—				6,392,479				1,549,544				—				7,942,023
Other assets, net	4,107				1,608,218				331,818				(5,523		)		1,938,620
TOTAL ASSETS	$	9,834,139			$	15,868,614			$	4,235,686			$	(14,160,893	)		$	15,777,546
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	981,700			$	5,733,755			$	620,153			$	(1,208,410	)		$	6,127,198
Long-term debt, excluding current maturities	3,159,336				—				—				—				3,159,336
Other long-term liabilities	—				629,634				173,798				(5,523		)		797,909
Stockholders’ equity	5,693,103				9,505,225				3,441,735				(12,946,960		)		5,693,103
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,834,139			$	15,868,614			$	4,235,686			$	(14,160,893	)		$	15,777,546

F- 54

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended December 31, 2017

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidated
	(In thousands)
Operating activities:
Net cash provided by operating activities	$	—			$	1,310,451			$	488,703			$	1,799,154
Investing activities:
Capital expenditures, including internal-use software and website development	—				(546,679		)		(163,651		)		(710,330		)
Purchases of investments	—				(1,221,821		)		(589,534		)		(1,811,355		)
Sales and maturities of investments	—				875,497				220,907				1,096,404
Acquisitions, net of cash acquired	—				(169,836		)		(803		)		(170,639		)
Transfers (to) from related parties	—				(5,031		)		5,031				—
Other, net	—				6,657				6,873				13,530
Net cash used in investing activities	—				(1,061,213		)		(521,177		)		(1,582,390		)
Financing activities:
Proceeds from issuance of long-term debt, net of debt issuance costs	989,600				—				—				989,600
Purchases of treasury stock	(312,089		)		—				—				(312,089		)
Payment of dividends to stockholders	(175,775		)		—				—				(175,775		)
Proceeds from exercise of equity awards and employee stock purchase plan	228,187				—				894				229,081
Withholding taxes for stock option exercises	(5,398		)		—				(3,665		)		(9,063		)
Changes in controlled subsidiaries, net	—				—				(18,137		)		(18,137		)
Transfers (to) from related parties	(724,525		)		605,047				119,478				—
Other, net	—				(14,909		)		(1,194		)		(16,103		)
Net cash provided by financing activities	—				590,138				97,376				687,514
Effect of exchange rate changes on cash and cash equivalents	—				36,052				109,588				145,640
Net increase in cash and cash equivalents	—				875,428				174,490				1,049,918
Cash and cash equivalents at beginning of year	—				425,471				1,371,340				1,796,811
Cash and cash equivalents at end of year	$	—			$	1,300,899			$	1,545,830			$	2,846,729

F- 55

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended December 31, 2016

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidated
	(In thousands)
Operating activities:
Net cash provided by operating activities	$	—			$	940,191			$	624,143			$	1,564,334
Investing activities:
Capital expenditures, including internal-use software and website development	—				(635,534		)		(113,814		)		(749,348		)
Purchases of investments	—				—				(45,352		)		(45,352		)
Sales and maturities of investments	—				37,830				23,105				60,935
Acquisitions, net of cash acquired	—				—				(777		)		(777		)
Transfers (to) from related parties	—				(172,731		)		172,731				—
Proceeds from sale of business, net of cash divested and disposal costs	—				—				67,088				67,088
Other, net	—				(50,029		)		(838		)		(50,867		)
Net cash provided by (used in) investing activities	—				(820,464		)		102,143				(718,321		)
Financing activities:
Proceeds from issuance of long-term debt, net of debt issuance costs	(2,093		)		—				—				(2,093		)
Payment of HomeAway Convertible Notes	—				(401,424		)		—				(401,424		)
Purchases of treasury stock	(455,746		)		—				—				(455,746		)
Payment of dividends to stockholders	(150,159		)		—				—				(150,159		)
Proceeds from exercise of equity awards and employee stock purchase plan	141,043				—				—				141,043
Withholding taxes for stock option exercises	(1,282		)		—				—				(1,282		)
Changes in controlled subsidiaries, net	—				—				208,016				208,016
Transfers (to) from related parties	468,511				(118,179		)		(350,332		)		—
Other, net	(274		)		(1,484		)		(27,216		)		(28,974		)
Net cash used in financing activities	—				(521,087		)		(169,532		)		(690,619		)
Effect of exchange rate changes on cash and cash equivalents	—				(14,865		)		(20,017		)		(34,882		)
Net increase (decrease) in cash and cash equivalents	—				(416,225		)		536,737				120,512
Cash and cash equivalents at beginning of year	—				841,696				834,603				1,676,299
Cash and cash equivalents at end of year	$	—			$	425,471			$	1,371,340			$	1,796,811

F- 56

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended December 31, 2015

	Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidated
	(In thousands)
Operating activities:
Net cash provided by operating activities from continuing operations	$	—			$	624,327			$	743,718			$	1,368,045
Investing activities:
Capital expenditures, including internal-use software and website development	—				(709,679		)		(77,362		)		(787,041		)
Purchases of investments	—				(473,538		)		(47,791		)		(521,329		)
Sales and maturities of investments	—				327,191				83,732				410,923
Acquisitions, net of cash acquired	(126,779		)		(1,873,079		)		(63,791		)		(2,063,649		)
Transfers (to) from related parties	126,779				(303,846		)		177,067				—
Proceeds from sale of business, net of cash divested and disposal costs	—				—				523,882				523,882
Other, net	—				54,226				11,728				65,954
Net cash provided by (used in) investing activities	—				(2,978,725		)		607,465				(2,371,260		)
Financing activities:
Proceeds from issuance of long-term debt, net of issuance costs	1,441,860				—				—				1,441,860
Purchases of treasury stock	(60,546		)		—				—				(60,546		)
Proceeds from issuance of treasury stock	22,575				—				—				22,575
Payment of dividends to stockholders	(108,527		)		—				—				(108,527		)
Proceeds from exercise of equity awards and employee stock purchase plan	96,526				—				1,190				97,716
Withholding taxes for stock option exercises	(85,033		)		—				—				(85,033		)
Changes in controlled subsidiaries, net	—				—				(8,518		)		(8,518		)
Transfers (to) from related parties	(1,396,210		)		2,350,385				(954,175		)		—
Other, net	89,355				(11,998		)		27,315				104,672
Net cash provided by (used in) financing activities	—				2,338,387				(934,188		)		1,404,199
Effect of exchange rate changes on cash and cash equivalents	—				(86,269		)		(41,116		)		(127,385		)
Net increase (decrease) in cash and cash equivalents	—				(102,280		)		375,879				273,599
Cash and cash equivalents at beginning of year	—				943,976				458,724				1,402,700
Cash and cash equivalents at end of year	$	—			$	841,696			$	834,603			$	1,676,299

F- 57

Index to Exhibits

Exhibit No.				Filed Herewith		Incorporated by Reference
Exhibit Description		Form		SEC File No.		Exhibit		Filing Date
1.1		Underwriting Agreement, dated Expedia, Inc., as Issuer, the Guarantors party thereto, and BNP Paribas, Goldman, Sachs & Co., J.P. Morgan Securities plc, as Representatives of the several Underwriters (relating to the Fourth Supplemental Indenture on Exhibit 4.6)				8-K		000-51447		1.1		06/03/2015
2.1		Share Purchase Agreement, dated as of December 21, 2012, by and among Expedia, Inc., trivago GmbH, a wholly owned subsidiary of Expedia and the shareholders of trivago GmbH party thereto.				8-K		000-51447		2.1		12/21/2012
2.2		Shareholders Agreement, dated as of December 21, 2012 by and among trivago GmbH, Expedia, Inc., a wholly owned subsidiary of Expedia and certain shareholders of trivago GmbH.				8-K		000-51447		2.2		12/21/2012
2.3		Purchase and Sale Agreement (Cruise), dated March 10, 2015, by and between Immunex Corporation and Cruise, LLC				8-K		000-51447		10.1		04/02/2015
2.4		First Amendment to Purchase and Sale, dated March 25, 2015, by and between Immunex Corporation and Cruise, LLC				8-K		000-51447		10.2		04/02/2015
2.5		Share Purchase Agreement, dated May 22, 2015, by and among Expedia, Inc., Expedia Asia Pacific - Alpha Limited, Ctrip.com International, Ltd., C-Travel International Limited, Luxuriant Holdings Limited, Keystone Lodging Holdings Limited and Plateno Group Limited				8-K		000-51447		2.1		05/22/2015
3.1		Restated Certificate of Incorporation of Expedia, Inc.				8-K		000-51447		3.1		12/27/2011
3.2		Amended and Restated Bylaws of Expedia, Inc.				8-K		000-51447		3.3		08/15/2005
4.1		Indenture, dated as of August 21, 2006, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Trust Company, N.A., as Trustee, relating to Expedia, Inc.’s 7.456% Senior Notes due 2018				10-Q		000-51447		4.1		11/14/2006
4.2		First Supplemental Indenture, dated as of January 19, 2007, among Expedia, Inc., as Issuer, the Subsidiary Guarantors party thereto and The Bank of New York Trust Company, N.A., as Trustee				S-4		333-140195		4.2		01/25/2007
4.3		Indenture, dated as of August 5, 2010, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 5.95% Senior Notes due 2020				8-K		000-51447		4.1		08/10/2010
4.4		Ninth Supplemental Indenture, dated as of September 30, 2016, among Expedia, Inc., as Issuer, the Subsidiary Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K		001-37429		4.1		10/03/2016
4.5		Indenture, dated as of August 13, 2014, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K		000-51447		4.1		08/18/2014

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4.6		First Supplemental Indenture, dated as of August 18, 2014, among Expedia, Inc., the Subsidiary Guarantors party thereto and The Bank of New York Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 4.500% Senior Notes due 2024				8-K		000-51447		4.2		08/18/2014
4.7		Fourth Supplemental Indenture, dated as of June 3, 2015, among Expedia, Inc., as Issuer, the Subsidiary Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 2.500% Senior Notes due 2022				8-K		000-51447		4.2		06/03/2015
4.8		Indenture, dated as of December 8, 2015, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.’s 5.000% Senior Notes due 2026				8-K		001-37429		4.1		12/08/2015
4.9		Indenture, dated as of September 21, 2017, among Expedia, Inc., the guarantors party thereto and U.S. Bank National Association				8-K		001-37429		4.1		09/21/2017
10.1		Amended and Restated Governance Agreement among Expedia, Inc., Liberty Interactive Corporation and Barry Diller, dated as of December 20, 2011				8-K		000-51447		10.1		12/27/2011
10.2		Assignment and Assumption of Governance Agreement, among Liberty Expedia holdings, Inc., LEXE Marginco, LLC, LEXEB, LLC, Liberty Interactive Corporation, Barry Diller and Expedia, Inc., dated as of November 4, 2016				8-K*†		001-37938		10.6		11/07/2016
10.3		Amended and Restated Stockholders Agreement between Liberty Interactive Corporation and Barry Diller, dated as of December 20, 2011				10-K		000-51447		10.11		02/10/2012
10.4		Assignment and Assumption of Stockholders Agreement, by and among Liberty Expedia Holdings, Inc., Liberty Interactive Corporation and Barry Diller, dated November 4, 2016				8-K*†		001-37938		10.7		11/07/2016
10.5		Amendment No. 1 to Stockholders Agreement, by and between Liberty Expedia Holdings, Inc. and Barry Diller, dated November 4, 2016				8-K*†		001-37938		10.8		11/07/2016
10.6		Amended and Restated Transaction Agreement, by and among Liberty Interactive Corporation, Liberty Expedia Holdings, Inc., Barry Diller, John C. Malone and Leslie Malone, dated as of September 22, 2016				S-4/A*†		333-210377		10.13		09/23/2016
10.7		Assignment Agreement, by and between Barry Diller and Liberty Expedia Holdings, Inc., dated November 4, 2016				8-K*†		001-37938		10.10		11/07/2016
10.8		Tax Sharing Agreement by and between Expedia, Inc. and TripAdvisor, Inc., dated as of December 20, 2011				8-K		000-51447		10.2		12/27/2011
10.9		Services Agreement by and between HomeAway.com, Inc. and Keystone Strategy LLC, dated April 1, 2017				10-Q		001-37429		10.1		07/28/2017
10.10		Amended and Restated Credit Agreement dated as of September 5, 2014, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company; Hotwire, Inc., a Delaware corporation, the Lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent				8-K		000-51447		10.1		09/11/2014

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10.11		First Amendment, dated as of February 4, 2016, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company, Hotwire, Inc., a Delaware corporation, the lenders and issuing banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent				8-K		001-37429		10.1		02/08/2016
10.12		Second Amendment, dated as December 22, 2016, among Expedia, 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 J.P. Morgan Europe Limited, as London Agent				10-K		001-37429		10.14		02/10/2017
10.13		Office Building Lease by and between Tower 333 LLC, a Delaware limited liability company, and Expedia, Inc., a Washington corporation, dated June 25, 2007				10-Q		000-51447		10.1		08/03/2007
10.14*		Fourth Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan				DEF 14A		001-37429		App. A		08/23/2016
10.15*		Orbitz Worldwide, Inc. 2007 Equity and Incentive Plan				S-8		333-206990		99.1		09/17/2015
10.16*		HomeAway, Inc. 2011 Equity Incentive Plan				S-8		333-208548		99.10		12/15/2015
10.17*		Expedia, Inc. 2013 Employee Stock Purchase Plan				DEF14A		000-51447		App. B		04/30/2013
10.18*		Expedia, Inc. 2013 International Employee Stock Purchase Plan				DEF 14A		000-51447		App. C		04/30/2013
10.19*		Form of Expedia, Inc. Restricted Stock Unit Agreement (Directors)				10-Q		000-51447		10.1		08/01/2014
10.20*		Form of Expedia, Inc. Restricted Stock Unit Agreement				10-K		001-37429		10.22		02/10/2017
10.21*		Form of Expedia, Inc. Stock Option Agreement				10-K		001-37429		10.23		02/10/2017
10.22*		Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective as of January 1, 2009				10-K		000-51447		10.13		02/19/2009
10.23*		Amended and Restated Expedia, Inc. Executive Deferred Compensation Plan, effective as of January 1, 2009				10-K		000-51447		10.17		02/19/2009
10.24*		First Amendment of the Executive Deferred Compensation Plan, effective as of December 31, 2014				10-K		000-51447		10.20		02/06/2015
10.25*		Employment Agreement between Mark Okerstrom and Expedia, Inc., effective September 15, 2017				8-K/A		001-37429		10.1		09/21/2017
10.26*		Expedia, Inc. Stock Option Agreement for Mark D. Okerstrom, dated as of March 7, 2016				8-K		001-37429		10.2		03/09/2016
10.27*		Expedia, Inc. Stock Option Agreement for Mark D. Okerstrom, dated as of March 7, 2016 (Performance Options)				8-K		001-37429		10.3		03/09/2016
10.28*		Stock Option Agreement between Mark Okerstrom and Expedia, Inc., effective September 15, 2017 (Performance Options)				8-K/A		001-37429		10.2		09/21/2017
10.29*		Employment Agreement between Alan Pickerill and Expedia, Inc., effective September 15, 2017				8-K/A		001-37429		10.3		09/21/2017
10.30*		Employment Agreement between Robert J. Dzielak and Expedia, Inc., effective as of March 2, 2015				8-K		000-51447		10.1		03/04/2015

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10.31*		Equity Treatment Agreement between Dara Khosrowshahi and Expedia, Inc., effective September 20, 2017				8-K/A		001-37429		10.4		09/21/2017
10.32*		Expedia, Inc. Stock Option Agreement for Dara Khosrowshahi, dated as of March 31, 2015 (Performance Options)				8-K		000-51447		10.3		04/01/2015
21		Subsidiaries of the Registrant		X
23.1		Consent of Independent Registered Public Accounting Firm		X
31.1		Certifications 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
32.2***		Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
32.3***		Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (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.
*†	Indicates reference to filing of Liberty Expedia Holdings, Inc.
***	Furnished herewith

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