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Acquisitions and Other Investments | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Acquisitions and Other Investments | 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 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. 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 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 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 |
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(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.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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