| Summary of Significant Accounting Policies1 (Policies) | 12 Months Ended |
| Dec. 31, 2017 |
| Summary of Significant Accounting Policies - Income taxes | |
| Cash and Cash Equivalents | Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments which are readily convertible into cash and have maturities of three months or less at the time of acquisition. |
| Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts
Expedia accounts receivable are generally due within thirty days and are recorded net of an allowance for doubtful accounts. Expedia considers accounts outstanding longer than the contractual payment terms as past due. Expedia determines its 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 and the condition of the general economy and industry as a whole. The allowance for doubtful accounts recorded by Expedia was $20 million and $1 million as of December 31, 2017 and 2016, respectively.
Bodybuilding receivables consist of amounts in transit from banks for customer credit card, debit card and electronic funds transfer transactions that are generally processed by the banks, and collected by the company, within one to three days of authorization. Receivables also include advertising revenue that is due from vendors within 30 days. Based on the nature of these transactions, no allowance for doubtful accounts has been recorded for Bodybuilding receivables as of December 31, 2017 or 2016. |
| Inventory | Inventory
Inventory, consisting entirely of finished goods, is stated at the lower of cost or market. Cost is determined on the first-in, first-out method. |
| Fair Value of Financial Instruments | Fair Value of Financial Instruments
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. |
| Investments | Investments
Classification of investments in marketable securities is determined at the time of purchase and reevaluated at each balance sheet date. Based on the Company’s intent and ability to hold certain assets until maturity, certain debt securities may be classified as held to maturity and measured 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 Other investments.
For those investments in affiliates in which the Company has the ability to exercise significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of net earnings or losses of the affiliate as they occur rather than as dividends or other distributions are received. Losses are limited to the extent of the Company's investment in, advances to and commitments for the investee. The Company's share of net earnings or loss of affiliates also includes any other than temporary declines in fair value recognized during the period. Changes in the Company's proportionate share of the underlying equity of an equity method investee, which result from the issuance of additional equity securities by such equity investee, are recognized in the statement of operations through the gain (loss) on dilution of investment in Expedia line item. To the extent there is a difference between our ownership percentage in the underlying equity of an equity method investee and our carrying value, such difference is accounted for as if the equity method investee were a consolidated subsidiary.
The Company continually reviews its equity investments to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company's carrying value; the severity of the decline; and the financial condition, operating performance and near term prospects of the investee. In addition, the Company considers the reason for the decline in fair value, be it general market conditions, industry specific or investee specific; analysts' ratings and estimates of 12 month share price targets for the investee; changes in stock price or valuation subsequent to the balance sheet date; and the Company's intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than temporary, the carrying value of the investment is written down to fair value. In situations where the fair value of an investment is not evident due to a lack of a public market price or other factors, the Company uses its best estimates and assumptions to arrive at the estimated fair value of such investment. The Company's assessment of the foregoing factors involves considerable management judgment and accordingly, actual results may differ materially from the Company's estimates and judgments. Write-downs for equity method investments would be included in share of earnings (losses) of affiliates. |
| Property and Equipment | Property and Equipment
Property and equipment consisted of the following:
December 31, 2017
December 31, 2016
amounts in millions
Computer equipment
$
592
428
Land
132
134
Building and leasehold improvements
122
68
Machinery, furniture and other equipment
58
43
Construction in progress
350
225
1,254
898
Accumulated depreciation
(303)
(54)
$
951
844
Property and equipment that is owned is recorded at cost. Plant and equipment under capital leases are stated at the present value of minimum lease payments. Depreciation is computed using the straight-line method using estimated useful lives of 3 to 5 years for computer equipment, 7 years for machinery and equipment and 39 years for buildings. We amortize leasehold improvements using the straight-line method, over the shorter of the estimated useful life of the improvement or the remaining term of the lease. Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $265 million, $28 million and $7 million, respectively. Repairs and maintenance costs are charged to expense when incurred.
Assets and liabilities are established 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 Expedia’s involvement in the construction project for a new office space of its trivago subsidiary, that lease is recorded under build-to-suit guidance. Construction costs during the construction period incurred by the landlord are recorded as a construction in progress asset along with a related construction financing obligation on the consolidated balance sheets. At December 31, 2017, construction in progress includes approximately $111 million of project construction costs that were incurred by the landlord as property and equipment, net with a related construction financing obligation in other long-term liabilities, pursuant to build-to-suit lease guidance. 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. |
| Websites and Internal Use Software Development Costs | Websites and Internal Use Software Development Costs
Certain costs incurred during the application development stage related to the development of internal use software are capitalized and included in intangibles. Capitalization occurs when the preliminary project design state is completed and management has authorized further funding for the project, which it deems probable of completion and to be used for the function intended. Capitalized costs include amounts directly related to website and software development such as payroll and payroll-related costs for employees and contractors who are directly associated with, and who devote time to, the development effort. Capitalization of such costs ceases when the project is substantially complete and ready for its intended use. |
| Derivative Instruments | Derivative Instruments
Derivative instruments are carried at fair value in the consolidated balance sheets. The fair values of the derivative financial instruments generally represent the estimated amounts expected to be received or paid upon termination of the contracts as of the reporting date.
At December 31, 2017, the Company’s derivative instruments primarily consisted of Expedia’s foreign currency forward contracts. Expedia uses foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of Expedia’s loyalty programs and other foreign currency-denominated operating liabilities. The goal in managing foreign exchange risk is to reduce, to the extent practicable, the Company’s potential exposure to the changes that exchange rates might have on the Company’s earnings, cash flows and financial position. Expedia’s foreign currency forward contracts are typically short-term and, as they do not qualify for hedge accounting treatment, the changes in their fair value are classified in other, net. The Company does not hold or issue financial instruments for speculative or trading purposes.
Expedia has outstanding Euro 650 million of registered senior unsecured notes that are due in June 2022 and bear interest at 2.5% (the “Expedia 2.5% Notes”). The aggregate principal value of the Expedia 2.5% Notes is designated as a hedge of Expedia’s 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 earnings (loss). 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 other comprehensive earnings (loss). Since the notional amount of the recorded Euro-denominated debt is less than the notional amount of Expedia’s net investment, Expedia does not expect to incur any ineffectiveness on this hedge. |
| Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets
The Company assigns the value of an acquired 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 and useful lives of tradenames, customer relationships, supplier relationships, developed technology, royalty rates, terminal growth rate, income tax rate 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.
In January 2017, the Financial Accounting Standards Board (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 the Company assesses acquisitions (or disposals) of assets or businesses.
Goodwill and other intangible assets with indefinite useful lives (collectively, "indefinite lived intangible assets") are not amortized, but instead are tested for impairment at least annually. Our annual impairment assessment of our indefinite-lived intangible assets is performed during the fourth quarter of each year, or more frequently if events and circumstances indicate that impairment may have occurred.
In January 2017, the FASB issued new accounting guidance to simplify the measurement of goodwill impairment. Under the new guidance, an entity no longer performs a hypothetical purchase price allocation to measure goodwill impairment. Instead, a goodwill impairment is measured using the difference between the carrying value and the fair value of the reporting unit. The Company early adopted this guidance during the fourth quarter of 2017.
In evaluating goodwill on a qualitative basis, the Company reviews the business performance of each reporting unit and evaluates other relevant factors as identified in the relevant accounting guidance to determine whether it was more likely than not that an indicated impairment exists for any of our reporting units. The Company considers whether there are any negative macroeconomic conditions, industry specific conditions, market changes, increased competition, increased costs in doing business, management challenges, the legal environments and how these factors might impact company specific performance in future periods. As part of the analysis the Company also considers fair value determinations for certain reporting units that have been made at various points throughout the current year and prior year for other purposes. If based on the qualitative analysis it is more likely than not that an impairment exists, the Company performs the quantitative impairment test.
The quantitative goodwill impairment test compares the estimated fair value of a reporting unit to its carrying value. Developing estimates of fair value requires significant judgments, including making assumptions about appropriate discount rates, perpetual growth rates, relevant comparable market multiples, public trading prices and the amount and timing of expected future cash flows. The cash flows employed in the Company's valuation analyses are based on management's best estimates considering current marketplace factors and risks as well as assumptions of growth rates in future years. There is no assurance that actual results in the future will approximate these forecasts.
The accounting guidance also permits entities to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not that the carrying value of the Company's indefinite-lived intangible assets, other than goodwill, exceeds its fair value, then a quantitative assessment is performed. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. There were no impairment charges related to indefinite-lived intangible assets during the years ended December 31, 2017, 2016 or 2015. For the year ended December 31, 2017, the Company recorded a goodwill impairment of $2,197 million related to the trivago reporting unit. See additional details in note 5. |
| Impairment of Long-lived Assets | Impairment of 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. The Company periodically reviews the carrying amounts of its long-lived assets (other than goodwill and indefinite-lived intangibles) to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. If the carrying amount of the asset group is greater than the expected undiscounted cash flows to be generated by such asset group, including its ultimate disposition, an impairment adjustment is to be recognized. Such adjustment is measured by the amount that the carrying value of such asset groups exceeds their fair value. The Company generally measures fair value by considering sale prices for similar asset groups or by discounting estimated future cash flows using an appropriate discount rate. Considerable management judgment is necessary to estimate the fair value of asset groups. Accordingly, actual results could vary significantly from such estimates. Asset groups to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell. There was no impairment of long-lived assets during the years ended December 31, 2017, 2016 or 2015. |
| Noncontrolling Interest | Noncontrolling Interest
Historically, the Company had a noncontrolling interest related to the equity ownership interest in Bodybuilding until the Company purchased the remaining ownership interest in October 2015. Subsequent to the Expedia Holdings Split-Off, noncontrolling interest relates to the equity ownership interest in Expedia that the Company does not own. The Company reports noncontrolling interest of the consolidated company within equity in the consolidated balance sheet and the amount of consolidated net income attributable to the parent and to the noncontrolling interest is presented in the consolidated statements of operations. Also, changes in ownership interest in a consolidated company in which the Company maintains a controlling interest are recorded in equity.
Redeemable Noncontrolling Interest
Expedia has noncontrolling interests in majority owned entities, which are carried at fair value as the noncontrolling interests contained certain rights, whereby Expedia could acquire and the minority shareholders could sell to Expedia the additional shares of the company. If the redeemable noncontrolling interest is redeemable at an amount other than fair value, we adjust the noncontrolling interest to redemption value through earnings in each period. In circumstances where the noncontrolling interest is redeemable at fair value, which included trivago prior to its initial public offering (“IPO”) in December 2016, changes in fair value of the shares for which the minority holders could sell to Expedia were recorded to the noncontrolling 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) and were based on various valuation techniques, including market comparables and discounted cash flow projections. In conjunction with the IPO, 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, as such, the redeemable non-controlling interest was reclassified into non-redeemable non-controlling interest, and is included in the Other long term liabilities line item in the consolidated balance sheet. |
| Cost of Sales | Cost of Sales
Cost of service revenue primarily consists of Expedia’s (1) customer operations, including Expedia’s customer support and telesales as well as fees to air ticket fulfillment vendors, (2) credit card processing, including merchant fees, fraud and chargebacks, and (3) other costs, primarily including data center costs to support Expedia’s websites, supplier operations, destination supply and stock-based compensation.
Cost of retail sales primarily includes actual product cost, product promotions and volume purchase discounts received from suppliers, shipping and handling costs and warehouse costs. |
| Vendor Rebates | Vendor Rebates
Bodybuilding enters into arrangements with certain vendors through which Bodybuilding receives rebates for volume purchases or sales made during the year. As the right of offset exists under these arrangements, most rebates receivable under these arrangements are recorded as a reduction in the vendors' accounts payable balances on the consolidated balance sheets and represent the estimated amounts due to Bodybuilding under the rebate provisions of such contracts. The corresponding rebate income is recorded as a reduction of cost of goods sold based on sales of the associated inventory. |
| Marketing Promotions | Marketing Promotions
Expedia periodically provides incentive offers to its customers to encourage booking of travel products and services. Generally, its incentive offers are as follows:
Current Discount Offers. These promotions include dollar off discounts to be applied against current purchases. Expedia records the discounts as reduction in revenue at the date the corresponding revenue transaction is recorded.
Inducement Offers. These promotions include discounts granted at the time of a current purchase to be applied against a future qualifying purchase. Expedia treats inducement offers as a reduction to revenue based on estimated future redemption rates. Expedia allocates the discount amount at the time of the offer between the current purchase and the potential future purchase based on the expected relative value of the transactions. Expedia estimates the redemption rates using its 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, Expedia records these concession offers as a reduction to revenue based on estimated future redemption rates. Expedia estimates its redemption rates using historical experience for concession offers.
Loyalty and Points Based Offers. Expedia offers certain internally administered traveler loyalty programs to its customers, such as its Hotels.com Rewards ® program, Brand Expedia Expedia ® + rewards program and 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 Orbucks SM , 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, Expedia records a liability for the estimated future cost of redemptions. The cost of these loyalty programs is recorded as a reduction to revenue in the consolidated financial statements. Expedia determines 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 the liability related to Expedia’s loyalty programs of $562 million and $442 million, respectively, was included in accrued liabilities. |
| Advertising Costs | Advertising Costs
Advertising expense consists of offline costs, including television and radio advertising, and online advertising expense. Production costs associated with advertisements are expensed in the period in which the advertisement first takes place. Costs of communicating the advertisement (e.g., television airtime) are expensed as incurred each time the advertisement is shown. Advertising expense aggregated $3,312 million, $439 million and $9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Advertising costs are reflected in selling and marketing expense in the consolidated statements of operations. |
| Stock-Based Compensation | Stock-Based Compensation
As more fully described in note 9, Expedia Holdings has granted to its directors and employees options and restricted stock (collectively, “Awards”) to purchase shares of Expedia Holdings common stock. Expedia Holdings measures the cost of employee services received in exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). Certain outstanding Awards of Liberty Interactive were split into Awards of Expedia Holdings and Liberty Interactive at the time of the Expedia Holdings Split-Off, but the compensation expense related to such Awards is recorded at Liberty Interactive.
Additionally, Expedia has granted certain stock options and restricted stock units (“RSUs”). Expedia measures and amortizes the fair value of stock options and RSUs as follows:
Stock Options. Expedia measures 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 Expedia’s common stock and other relevant factors. Expedia bases its expected term assumptions on its historical experience and on the terms and conditions of the stock awards granted to employees. Expedia amortizes the fair value, net of actual forfeitures, over the remaining vesting term on a straight-line basis. In addition, Expedia classifies certain employee option awards as liabilities when it deems 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 Expedia’s total compensation expense recorded from grant date to settlement date will equal the settlement amount. The majority of Expedia’s 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. Expedia measures the value of RSUs at fair value based on the number of shares granted and the quoted price of Expedia’s common stock at the date of grant. Expedia amortizes the fair value, net of actual forfeitures, as stock-based compensation expense over the vesting term on a straight-line basis. Expedia records RSUs that may be settled by the holder in cash, rather than shares, as a liability and remeasured at fair value at the end of each reporting period. Upon settlement of these awards, Expedia’s total compensation expense recorded over the vesting period of the awards will equal the settlement amount, which is based on Expedia’s stock price on the settlement date. Performance-based RSUs vest upon achievement of certain company-based performance conditions. On the date of grant, Expedia determines the fair value of the performance-based award based on the fair value of Expedia’s common stock at that time and Expedia assesses whether it is probable that the performance targets will be achieved. If assessed as probable, Expedia records compensation expense for these awards over the estimated performance period using the accelerated method. At each reporting period, Expedia reassesses 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 Expedia’s current estimates, the cumulative effect on current and prior periods of those changes is 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 Expedia’s original estimates of fair value.
Included in the accompanying consolidated statements of operations are the following amounts of stock-based compensation:
Years ended December 31,
2017
2016
2015
amounts in millions
Operating costs and expenses:
Operating expense
$
12
3
—
Selling and marketing
45
10
—
Technology and content
62
13
—
General and administrative
7
21
2
$
126
47
2
In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted this guidance in the third quarter of 2016. In accordance with the new guidance, excess tax benefits and tax deficiencies are recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize forfeitures as they occur rather than continue to estimate expected forfeitures. In addition, pursuant to the new guidance, excess tax benefits are classified as an operating activity on the consolidated statements of cash flows. The recognition of excess tax benefits and deficiencies are applied prospectively from January 1, 2016. The Company considered whether there were any tax benefits that were not previously recognized and for adjustments to compensation cost based on actual forfeitures, noting none. Accordingly, no cumulative-effect adjustment was recorded in retained earnings as of January 1, 2016. No changes were made to the consolidated statements of cash flows, as excess tax benefits were insignificant for all periods presented. |
| Employee Benefit Plans | Employee Benefit Plans
On January 31, 2012, Bodybuilding began participating in the Liberty Interactive 401(k) Plan. The plan covered substantially all employees and matched 100% of the first 6% of employee contributions. In November 2016, Bodybuilding began participating in its own 401(k) Plan which maintains the same employer matching provisions as the Liberty Interactive 401(k) Plan. In addition, Expedia has a separate employee benefit plan for its employees whereby Expedia makes matching contributions to the plan based on a percentage of the amount contributed by its employees. Employer cash contributions to all plans aggregated $61 million, $10 million and $2 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
| Income Taxes | Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying value amounts and income tax bases of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using enacted tax rates in effect for each taxing jurisdiction in which the Company operates for the year in which those temporary differences are expected to be recovered or settled. Net deferred tax assets are then reduced by a valuation allowance if the Company believes it is more likely than not such net deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of an enacted change in tax rates is recognized in income in the period that includes the enactment date.
When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law. Such interest expense is included in income tax expense in the accompanying consolidated statements of operations. Any accrual of penalties related to underpayment of income taxes on uncertain tax positions is included in income tax expense in the accompanying consolidated statements of operations.
The impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position, is recognized in the consolidated financial statements.
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 $8 million upon adoption related to the unrecognized income tax effects of asset transfers that occurred prior to adoption. |
| Occupancy tax | 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 Expedia’s travel services, Expedia collects a tax recovery charge from the customer which Expedia pays to the hotel. Expedia calculates the tax recovery charge by applying the occupancy tax rate supplied to it 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, Expedia does not collect or remit occupancy taxes, nor does Expedia pay occupancy taxes to the hotel operator on the portion of the customer payment Expedia retains. Some jurisdictions have questioned Expedia’s practice in this regard. While the applicable tax provisions vary among the jurisdictions, Expedia generally believes that it is not required to collect and remit such occupancy taxes. Expedia is 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 Expedia is 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 11 for further discussion.
Taxes collected from customers and remitted to government authorities, including occupancy tax, are presented on a net basis in the consolidated statements of operations. |
| Contingent Liabilities | Contingent Liabilities
The Company has a number of regulatory and legal matters outstanding, as discussed further in note 11. Periodically, management reviews the status of all significant outstanding matters to assess any potential financial exposure. When (i) it is probable that a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, an estimated loss is recorded in the consolidated statements of operations. Disclosures are provided in the notes to the consolidated financial statements for loss contingencies that do not meet both 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. Accruals are based 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. |
| Comprehensive Earnings (Loss) | Comprehensive Earnings (Loss)
Prior to the Expedia Holdings Split-Off, comprehensive earnings (loss) consisted of net income (loss) and the Company's share of the comprehensive earnings (loss) of Expedia, accounted for as an equity method affiliate. Subsequent to the Expedia Holdings Split-Off, comprehensive earnings (loss) consists of net income (loss) and Expedia’s comprehensive earnings (loss). |
| Foreign Currency Translation and Transaction Gains and Losses | Foreign Currency Translation and Transaction Gains and Losses
Certain of Expedia’s operations outside of the United States use the related local currency as their functional currency. Expedia translates revenue and expense at average rates of exchange during the period. Expedia translates assets and liabilities at the rates of exchange as of the consolidated balance sheet dates and includes foreign currency translation gains and losses as a component of accumulated other comprehensive earnings. Due to the nature of Expedia’s operations and corporate structure, Expedia also has subsidiaries that have significant transactions in foreign currencies other than their functional currency. Expedia records transaction gains and losses in the consolidated statements of operations related to the recurring remeasurement and settlement of such transactions.
To the extent practicable, Expedia attempts to minimize this exposure by maintaining natural hedges between its current assets and current liabilities of similarly denominated foreign currencies. Additionally, as discussed above, Expedia uses 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 its foreign currency-denominated operating liabilities. |
| Earnings per Share (EPS) | Earnings per Share (EPS)
Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented.
The Company issued 56,946,673 common shares, which is the aggregate number of shares of Series A and Series B common stock outstanding upon the completion of the Expedia Holdings Split-Off on November 4, 2016. The number of shares issued upon completion of the Expedia Holdings Split-Off was used to determine both basic and diluted earnings (loss) per share for the year ended December 31, 2015 and for the period from January 1, 2016 through the date of the Expedia Holdings Split-Off, as no Company equity awards were outstanding prior to the Expedia Holdings Split-Off. Basic earnings (loss) per share subsequent to the Expedia Holdings Split-Off was computed using the weighted average number of shares outstanding (“WASO”) from the date of the completion of the Expedia Holdings Split-Off through December 31, 2016, and for the year ended December 31, 2017. Diluted earnings per share subsequent to the Expedia Holdings Split-Off was computed using the WASO from the date of the completion of the Expedia Holdings Split-Off through December 31, 2016, and for the year ended December 31, 2017, adjusted for potentially dilutive equity awards outstanding during the same period.
Years ended December 31,
2017
2016
2015
number of shares in millions
Basic WASO
57
57
57
Potentially dilutive shares
1
1
—
Diluted WASO
58
58
57
Excluded from diluted EPS for the years ended December 31, 2017 and 2016 are zero and less than a million potential common shares, respectively, because their inclusion would be anti-dilutive. |
| Certain Risks and Concentrations | Certain Risks and Concentrations
Expedia 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. Expedia also relies on global distribution system partners and third-party service providers for certain fulfillment services.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and corporate debt securities. Expedia maintains some cash and cash equivalents balances with financial institutions that are in excess of Federal Deposit Insurance Corporation insurance limits. Expedia’s 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, Brazilian Real, Australian dollar and Canadian dollar.
Bodybuilding is subject to certain risks and concentrations including dependence on relationships with vendors. Bodybuilding’s largest vendors, that accounted for greater than 10% of its purchases, aggregated 18%, 30% and 30% of its total purchases for the years ended December 31, 2017, 2016 and 2015, respectively. |
| Reclassifications and adjustments | Reclassifications and adjustments
Certain prior period amounts have been reclassified for comparability with the current year presentation. |
| Estimates | Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers (i) fair value of non-financial instruments, (ii) accounting for certain merchant revenue, (iii) loyalty program accruals, (iv) other long-term liabilities, (v) stock-based compensation and (vi) accounting for income taxes to be its most significant estimates. |
| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In January 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The most significant impact for the Company is with respect to the requirement that equity investments with readily determinable fair values, must be carried at fair value with changes in fair value recorded through net income. Today, the Company has an investment that 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, the Company 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 its consolidated statements of operations. In addition, the Company intends 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 statement of operations. Fair value changes could vary significantly period to period.
In February 2016, the FASB issued new guidance which revises the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new guidance also simplifies the accounting for sale and leaseback transactions. The new standard, to be applied via a modified retrospective transition approach, is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. Companies are required to use a modified retrospective approach to adopt this guidance. The Company is currently working with its consolidated subsidiaries to evaluate the impact of the adoption of this new guidance on our consolidated financial statements, including identifying the population of leases, evaluating technology solutions and collecting lease data.
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.
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 the most significant impact will be to include 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.
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. |
