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2020-07-14 xbrli:pure xbrli:shares iso4217:USD iso4217:EUR
iso4217:USD xbrli:shares expe:LegalMatter
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
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☒
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
quarterly period ended
June 30, 2020
OR
|
|
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|
☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
transition period from
to
Commission
File Number: 001-37429
EXPEDIA GROUP,
INC.
(Exact name
of registrant as specified in its charter)
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Delaware
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20-2705720
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(State or
other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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1111 Expedia Group Way
W.
Seattle,
WA
98119
(Address of
principal executive office) (Zip Code)
(206)
481-7200
(Registrant’s
telephone number, including area code)
__________________________________
Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such
files). Yes ☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated
filer
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☒
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Accelerated filer
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☐
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Non-accelerated
filer
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☐
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|
Smaller reporting company
|
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☐
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|
Emerging growth
company
|
|
☐
|
|
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|
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes ☐ No ☒
Securities
registered pursuant to Section 12(b) of the Act:
|
|
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|
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Title of each
class
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Trading
symbol(s)
|
|
Name of each
exchange on which registered
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Common stock,
$0.0001 par value
|
|
EXPE
|
|
The Nasdaq Global Select
Market
|
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Expedia Group, Inc.
2.500% Senior Notes due 2022
|
|
EXPE22
|
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New York Stock
Exchange
|
The number of
shares outstanding of each of the registrant’s classes of common
stock as of July 17, 2020
was:
|
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|
|
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Common stock, $0.0001 par
value per share
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135,703,255
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shares
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|
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Class B common stock, $0.0001
par value per share
|
|
5,523,452
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|
shares
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|
|
|
|
|
|
Expedia
Group, Inc.
Form
10-Q
For the
Quarter Ended June 30,
2020
Contents
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Part I
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Item 1
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Item 2
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Item 3
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Item 4
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Part II
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Item 1
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Item 1A
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Item 2
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Item 6
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Part I.
Item 1. Consolidated Financial Statements
EXPEDIA
GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions,
except share and per share data)
(Unaudited)
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Three months
ended
June 30,
|
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Six months
ended
June 30,
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2020
|
|
2019
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2020
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|
2019
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Revenue
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$
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566
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$
|
3,153
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$
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2,775
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$
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5,762
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Costs and
expenses:
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Cost of revenue (exclusive of
depreciation and amortization shown separately below)
(1)
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389
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|
500
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|
|
1,018
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|
990
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Selling and marketing
(1)
|
296
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1,643
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|
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1,506
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|
3,164
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Technology and
content (1)
|
255
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|
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304
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563
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601
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|
General and
administrative (1)
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152
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205
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339
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389
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Depreciation and
amortization
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232
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228
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461
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456
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Impairment of
goodwill
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20
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|
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—
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785
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|
|
—
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Impairment of
intangible assets
|
10
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|
|
—
|
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131
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|
|
—
|
|
|
Legal reserves,
occupancy tax and other
|
8
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|
|
4
|
|
|
(13
|
)
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|
14
|
|
|
Restructuring and
related reorganization charges
|
53
|
|
|
4
|
|
|
128
|
|
|
14
|
|
|
Operating income
(loss)
|
(849
|
)
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|
265
|
|
|
(2,143
|
)
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|
134
|
|
|
Other income
(expense):
|
|
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|
|
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Interest income
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3
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|
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17
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|
13
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28
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|
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Interest expense
|
(95
|
)
|
|
(39
|
)
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|
(145
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)
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|
(80
|
)
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|
Other, net
|
(12
|
)
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|
(8
|
)
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|
(157
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)
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12
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Total other expense,
net
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(104
|
)
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|
(30
|
)
|
|
(289
|
)
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|
(40
|
)
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|
Income (loss) before income
taxes
|
(953
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)
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|
235
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|
(2,432
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)
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|
94
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|
Provision for income
taxes
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213
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|
(48
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)
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295
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|
(7
|
)
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Net income
(loss)
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(740
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)
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187
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|
(2,137
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)
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87
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|
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Net (income) loss
attributable to non-controlling interests
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4
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(4
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)
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100
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|
|
(7
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)
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Net income (loss)
attributable to Expedia Group, Inc.
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(736
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)
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183
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(2,037
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)
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80
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Preferred stock
dividend
|
(17
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)
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—
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(17
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)
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—
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Net income
(loss) attributable to Expedia Group, Inc. common
stockholders
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$
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(753
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)
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$
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183
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$
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(2,054
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)
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$
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80
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Earnings
(loss) per share attributable to Expedia Group, Inc. available to
common stockholders
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Basic
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$
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(5.34
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)
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$
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1.23
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$
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(14.57
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)
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$
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0.54
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Diluted
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(5.34
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)
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1.21
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(14.57
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)
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0.53
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Shares used
in computing earnings (loss) per share (000's):
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Basic
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141,072
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149,049
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140,947
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148,468
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Diluted
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141,072
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151,561
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140,947
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151,057
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_______
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(1) Includes stock-based
compensation as follows:
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Cost of revenue
|
$
|
3
|
|
|
$
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3
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|
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$
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6
|
|
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$
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6
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Selling and
marketing
|
13
|
|
|
12
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|
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25
|
|
|
23
|
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|
Technology and
content
|
18
|
|
|
19
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|
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38
|
|
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38
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General and
administrative
|
20
|
|
|
25
|
|
|
40
|
|
|
48
|
|
See
accompanying notes.
EXPEDIA
GROUP, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In
millions)
(Unaudited)
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Three months
ended
June 30,
|
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Six months
ended
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income
(loss)
|
$
|
(740
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)
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$
|
187
|
|
|
$
|
(2,137
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)
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$
|
87
|
|
|
Currency translation
adjustments, net of tax(1)
|
34
|
|
|
7
|
|
|
(56
|
)
|
|
2
|
|
|
Comprehensive income
(loss)
|
(706
|
)
|
|
194
|
|
|
(2,193
|
)
|
|
89
|
|
|
Less: Comprehensive income
(loss) attributable to non-controlling interests
|
2
|
|
|
10
|
|
|
(100
|
)
|
|
5
|
|
|
Less: Preferred stock
dividend
|
17
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
Comprehensive income (loss)
attributable to Expedia Group, Inc. common
stockholders
|
$
|
(725
|
)
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|
$
|
184
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|
$
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(2,110
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)
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$
|
84
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|
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(1)
|
Currency
translation adjustments include tax benefit of $3
million and $1
million associated with net
investment hedges for the three and six
months
ended June 30, 2020
and tax benefit
of $2
million and tax expense of
$1
million for the three and six
months
ended June 30,
2019.
|
See
accompanying notes.
EXPEDIA
GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
(In millions,
except number of shares, which are reflected in thousands, and par
value)
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|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(Unaudited)
|
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|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
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Cash and cash
equivalents
|
$
|
5,053
|
|
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$
|
3,315
|
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|
Restricted cash and cash
equivalents
|
1,311
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|
|
779
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Short-term
investments
|
422
|
|
|
526
|
|
|
Accounts receivable, net of
allowance of $115 and $41
|
1,002
|
|
|
2,524
|
|
|
Income taxes
receivable
|
107
|
|
|
70
|
|
|
Prepaid expenses and other
current assets
|
1,049
|
|
|
521
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|
|
Total current
assets
|
8,944
|
|
|
7,735
|
|
|
Property and equipment,
net
|
2,305
|
|
|
2,198
|
|
|
Operating lease right-of-use
assets
|
626
|
|
|
611
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|
|
Long-term investments and
other assets
|
618
|
|
|
796
|
|
|
Deferred income
taxes
|
482
|
|
|
145
|
|
|
Intangible assets,
net
|
1,600
|
|
|
1,804
|
|
|
Goodwill
|
7,330
|
|
|
8,127
|
|
|
TOTAL
ASSETS
|
$
|
21,905
|
|
|
$
|
21,416
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts payable,
merchant
|
$
|
531
|
|
|
$
|
1,921
|
|
|
Accounts payable,
other
|
518
|
|
|
906
|
|
|
Deferred merchant
bookings
|
4,632
|
|
|
5,679
|
|
|
Deferred revenue
|
197
|
|
|
321
|
|
|
Income taxes
payable
|
78
|
|
|
88
|
|
|
Accrued expenses and other
current liabilities
|
1,166
|
|
|
1,050
|
|
|
Current maturities of
long-term debt
|
750
|
|
|
749
|
|
|
Total current
liabilities
|
7,872
|
|
|
10,714
|
|
|
Long-term debt, excluding
current maturities
|
6,903
|
|
|
4,189
|
|
|
Revolving credit
facility
|
1,900
|
|
|
—
|
|
|
Deferred income
taxes
|
74
|
|
|
56
|
|
|
Operating lease
liabilities
|
543
|
|
|
532
|
|
|
Other long-term
liabilities
|
388
|
|
|
389
|
|
|
Commitments and
contingencies
|
|
|
|
|
Series A Preferred Stock:
$.001 par value, Authorized shares: 100,000; Shares issued and
outstanding: 1,200 and 0
|
1,022
|
|
|
—
|
|
|
Stockholders’
equity:
|
|
|
|
|
Common stock: $.0001 par
value; Authorized shares: 1,600,000
|
—
|
|
|
—
|
|
|
Shares issued: 259,085 and
256,692; Shares outstanding: 135,691 and 137,076
|
|
|
|
|
Class B common stock: $.0001
par value; Authorized shares: 400,000
|
—
|
|
|
—
|
|
|
Shares issued: 12,800 and
12,800; Shares outstanding: 5,523 and 5,523
|
|
|
|
|
Additional paid-in
capital
|
13,300
|
|
|
12,978
|
|
|
Treasury stock - Common stock
and Class B, at cost; Shares 130,670 and 126,893
|
(10,087
|
)
|
|
(9,673
|
)
|
|
Retained earnings
(deficit)
|
(1,206
|
)
|
|
879
|
|
|
Accumulated other
comprehensive income (loss)
|
(273
|
)
|
|
(217
|
)
|
|
Total Expedia Group, Inc.
stockholders’ equity
|
1,734
|
|
|
3,967
|
|
|
Non-redeemable
non-controlling interests
|
1,469
|
|
|
1,569
|
|
|
Total stockholders’
equity
|
3,203
|
|
|
5,536
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
21,905
|
|
|
$
|
21,416
|
|
See
accompanying notes.
EXPEDIA
GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions,
except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2019
|
|
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 March 31,
2019
|
|
233,294,034
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
9,694
|
|
|
97,355,708
|
|
|
$
|
(5,767
|
)
|
|
$
|
373
|
|
|
$
|
(217
|
)
|
|
$
|
1,551
|
|
|
$
|
5,634
|
|
|
Net income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
|
4
|
|
|
187
|
|
|
Other comprehensive income
(loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
6
|
|
|
7
|
|
|
Payment of dividends to
common stockholders (declared at $0.32 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
(48
|
)
|
|
Proceeds from exercise of
equity instruments and employee stock purchase plans
|
|
808,152
|
|
|
—
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
Withholding taxes for stock
options
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
Treasury stock activity
related to vesting of equity instruments
|
|
|
|
|
|
|
|
|
|
|
|
28,504
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
(4
|
)
|
|
Other changes in ownership
of non-controlling interests
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
4
|
|
|
Stock-based compensation
expense
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
Balance as of June 30,
2019
|
|
234,102,186
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
9,821
|
|
|
97,384,212
|
|
|
$
|
(5,771
|
)
|
|
$
|
508
|
|
|
$
|
(216
|
)
|
|
$
|
1,565
|
|
|
$
|
5,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended June 30, 2019
|
|
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,
2018
|
|
231,492,986
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
9,549
|
|
|
97,158,586
|
|
|
$
|
(5,742
|
)
|
|
$
|
517
|
|
|
$
|
(220
|
)
|
|
$
|
1,547
|
|
|
$
|
5,651
|
|
|
Net income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
7
|
|
|
87
|
|
|
Other comprehensive income
(loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
(2
|
)
|
|
2
|
|
|
Payment of dividends to
common stockholders (declared at $0.64 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95
|
)
|
|
|
|
|
|
(95
|
)
|
|
Proceeds from exercise of
equity instruments and employee stock purchase plans
|
|
2,609,200
|
|
|
—
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
Withholding taxes for stock
options
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
Treasury stock activity
related to vesting of equity instruments
|
|
|
|
|
|
|
|
|
|
|
|
225,626
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
(29
|
)
|
|
Other changes in ownership
of non-controlling interests
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
13
|
|
|
10
|
|
|
Impact of adoption of new
accounting guidance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
6
|
|
|
Stock-based compensation
expense
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
Balance as of June 30,
2019
|
|
234,102,186
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
9,821
|
|
|
97,384,212
|
|
|
$
|
(5,771
|
)
|
|
$
|
508
|
|
|
$
|
(216
|
)
|
|
$
|
1,565
|
|
|
$
|
5,907
|
|
EXPEDIA
GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions,
except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2020
|
|
Common stock
|
|
Class B
common stock
|
|
Additional
paid-in
capital
|
|
Treasury stock - Common and
Class B
|
|
Retained
earnings
(deficit)
|
|
Accumulated
other
comprehensive
income (loss)
|
|
Non-redeemable
non-controlling
interest
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Balance as of March 31,
2020
|
|
258,769,812
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
13,124
|
|
|
130,592,112
|
|
|
$
|
(10,083
|
)
|
|
$
|
(470
|
)
|
|
$
|
(301
|
)
|
|
$
|
1,471
|
|
|
$
|
3,741
|
|
|
Net income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(736
|
)
|
|
|
|
(4
|
)
|
|
(740
|
)
|
|
Other comprehensive income
(loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
6
|
|
|
34
|
|
|
Payment of preferred
dividends (declared at $14.02 per share)
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
Proceeds from exercise of
equity instruments and employee stock purchase plans
|
|
315,120
|
|
|
—
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
Common stock warrants, net
of issuance costs
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
Treasury stock activity
related to vesting of equity instruments
|
|
|
|
|
|
|
|
|
|
|
|
57,631
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
(4
|
)
|
|
Adjustment to the fair value
of redeemable non-controlling interests
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
Other changes in ownership
of non-controlling interests
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
5
|
|
|
Stock-based compensation
expense
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
1
|
|
|
20,630
|
|
|
—
|
|
|
|
|
|
|
|
|
1
|
|
|
Balance as of June 30,
2020
|
|
259,084,932
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
13,300
|
|
|
130,670,373
|
|
|
$
|
(10,087
|
)
|
|
$
|
(1,206
|
)
|
|
$
|
(273
|
)
|
|
$
|
1,469
|
|
|
$
|
3,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended June 30, 2020
|
|
Common stock
|
|
Class B
common stock
|
|
Additional
paid-in
capital
|
|
Treasury stock - Common and
Class B
|
|
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,
2019
|
|
256,691,777
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
12,978
|
|
|
126,892,525
|
|
|
$
|
(9,673
|
)
|
|
$
|
879
|
|
|
$
|
(217
|
)
|
|
$
|
1,569
|
|
|
$
|
5,536
|
|
|
Net income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,037
|
)
|
|
|
|
(100
|
)
|
|
(2,137
|
)
|
|
Other comprehensive income
(loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
—
|
|
|
(56
|
)
|
|
Payment of dividends to
common stockholders (declared at $0.34 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
(48
|
)
|
|
Payment of preferred
dividends (declared at $14.02 per share)
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
Proceeds from exercise of
equity instruments and employee stock purchase plans
|
|
2,393,155
|
|
|
—
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
Common stock warrants, net
of issuance costs
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
Treasury stock activity
related to vesting of equity instruments
|
|
|
|
|
|
|
|
|
|
|
|
393,099
|
|
|
$
|
(44
|
)
|
|
|
|
|
|
|
|
(44
|
)
|
|
Common stock
repurchases
|
|
|
|
|
|
|
|
|
|
|
|
3,364,119
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
(370
|
)
|
|
Adjustment to the fair value
of redeemable non-controlling interests
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
Other changes in ownership
of non-controlling interests
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
10
|
|
|
Stock-based compensation
expense
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
1
|
|
|
20,630
|
|
|
—
|
|
|
|
|
|
|
|
|
1
|
|
|
Balance as of June 30,
2020
|
|
259,084,932
|
|
|
$
|
—
|
|
|
12,799,999
|
|
|
$
|
—
|
|
|
$
|
13,300
|
|
|
130,670,373
|
|
|
$
|
(10,087
|
)
|
|
$
|
(1,206
|
)
|
|
$
|
(273
|
)
|
|
$
|
1,469
|
|
|
$
|
3,203
|
|
See
accompanying notes.
EXPEDIA
GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30,
|
|
|
2020
|
|
2019
|
|
Operating
activities:
|
|
|
|
|
Net income
(loss)
|
$
|
(2,137
|
)
|
|
$
|
87
|
|
|
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
Depreciation of property and
equipment, including internal-use software and website
development
|
376
|
|
|
352
|
|
|
Amortization of intangible
assets
|
85
|
|
|
104
|
|
|
Impairment of goodwill and
intangible assets
|
916
|
|
|
—
|
|
|
Amortization of stock-based
compensation
|
109
|
|
|
115
|
|
|
Deferred income
taxes
|
(279
|
)
|
|
(15
|
)
|
|
Foreign exchange (gain) loss
on cash, restricted cash and short-term investments,
net
|
65
|
|
|
(13
|
)
|
|
Realized gain on foreign
currency forwards
|
(79
|
)
|
|
(16
|
)
|
|
(Gain) loss on minority
equity investments, net
|
195
|
|
|
(12
|
)
|
|
Provision for credit losses
and other, net
|
119
|
|
|
(13
|
)
|
|
Changes in operating assets
and liabilities:
|
|
|
|
|
Accounts
receivable
|
1,479
|
|
|
(742
|
)
|
|
Prepaid expenses and other
assets
|
(585
|
)
|
|
(7
|
)
|
|
Accounts payable,
merchant
|
(1,389
|
)
|
|
271
|
|
|
Accounts payable, other,
accrued expenses and other liabilities
|
(244
|
)
|
|
436
|
|
|
Tax payable/receivable,
net
|
(82
|
)
|
|
(143
|
)
|
|
Deferred merchant
bookings
|
(1,058
|
)
|
|
2,726
|
|
|
Deferred revenue
|
(121
|
)
|
|
157
|
|
|
Net cash
provided by (used in) operating activities
|
(2,630
|
)
|
|
3,287
|
|
|
Investing
activities:
|
|
|
|
|
Capital expenditures,
including internal-use software and website
development
|
(493
|
)
|
|
(573
|
)
|
|
Purchases of
investments
|
(685
|
)
|
|
(636
|
)
|
|
Sales and maturities of
investments
|
761
|
|
|
27
|
|
|
Other, net
|
76
|
|
|
16
|
|
|
Net cash
provided by (used in) investing activities
|
(341
|
)
|
|
(1,166
|
)
|
|
Financing
activities:
|
|
|
|
|
Revolving credit facility
borrowings
|
1,900
|
|
|
—
|
|
|
Proceeds from issuance of
long-term debt, net of issuance costs
|
2,714
|
|
|
—
|
|
|
Net proceeds from issuance of
preferred stock and warrants
|
1,132
|
|
|
—
|
|
|
Purchases of treasury
stock
|
(414
|
)
|
|
(29
|
)
|
|
Payment of dividends to
common stockholders
|
(48
|
)
|
|
(95
|
)
|
|
Payment of preferred stock
dividends
|
(17
|
)
|
|
—
|
|
|
Proceeds from exercise of
equity awards and employee stock purchase plan
|
96
|
|
|
156
|
|
|
Other, net
|
(30
|
)
|
|
2
|
|
|
Net cash
provided by financing activities
|
5,333
|
|
|
34
|
|
|
Effect of exchange rate
changes on cash, cash equivalents and restricted cash and cash
equivalents
|
(93
|
)
|
|
20
|
|
|
Net increase
in cash, cash equivalents and restricted cash and cash
equivalents
|
2,269
|
|
|
2,175
|
|
|
Cash, cash equivalents and
restricted cash and cash equivalents at beginning of
period
|
4,097
|
|
|
2,705
|
|
|
Cash, cash
equivalents and restricted cash and cash equivalents at end of
period
|
$
|
6,366
|
|
|
$
|
4,880
|
|
|
Supplemental
cash flow information
|
|
|
|
|
Cash paid for
interest
|
$
|
118
|
|
|
$
|
87
|
|
|
Income tax payments,
net
|
63
|
|
|
157
|
|
See
accompanying notes.
Notes to
Consolidated Financial Statements
June 30,
2020
(Unaudited)
Note 1 –
Basis of Presentation
Description of Business
Expedia Group,
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: Brand
Expedia®,
Hotels.com®, Expedia® Partner Solutions,
Vrbo®, Egencia®, trivago®, HomeAway®, Orbitz®,
Travelocity®, Hotwire®, Wotif®, ebookers®, CheapTickets®,
Expedia Group™
Media Solutions, Expedia Local Expert®,
CarRentals.comTM,
Expedia® CruiseShipCenters®,
Classic Vacations®,
Traveldoo®,
VacationRentals.com and
SilverRailTM.
In addition, many of these brands have related international points
of sale. We refer to Expedia Group, Inc. and its subsidiaries
collectively as “Expedia Group,” the “Company,” “us,” “we” and
“our” in these consolidated financial statements.
COVID-19
During the
quarter ended June 30, 2020, travel booking volumes remain
significantly below prior year levels and cancellation levels
remain elevated compared to pre-COVID levels. We have seen varying
degrees of containment of the virus in certain countries and some
signs of travel recovery; however, the degree of containment and
the recovery in travel, has varied country to country and there
have been instances where cases of COVID-19 have started to
increase again after a period of decline. Additionally, many travel
restrictions and quarantine orders remain in place. Overall, the
full duration and total impact of COVID-19 remains uncertain and it
is difficult to predict how the recovery will unfold for the travel
industry and, in particular, our business.
Due to the high
degree of cancellations and customer refunds and lower new bookings
in the merchant business model, the Company experienced unfavorable
working capital trends and material negative cash flow in the
second quarter of 2020, although the level of negative cash flow
moderated as booking trends improved and cancellations stabilized
during the quarter. We expect cash flow to remain negative until
the decline in new merchant bookings improves further with
cancellations either remaining stable or moderating further. For a
discussion on incremental credit losses and allowance impacts
related to our accounts receivable and prepaid merchant bookings,
see Note 2 – Summary of
Significant Accounting Policies. For a discussion of
goodwill and intangible asset impairments recognized in conjunction
with this pandemic, see Note 3 – Fair Value
Measurements. For a discussion of recent
actions to strengthen our liquidity position in the current
environment, see Note 4 –
Debt, Note 5 – Capital Stock - Preferred Stock and
Warrants, as well as Note
11 – Subsequent Events.
Basis of Presentation
These
accompanying financial statements present our results of
operations, financial position and cash flows on a consolidated
basis. The unaudited consolidated financial statements include
Expedia Group, Inc., our wholly-owned subsidiaries, and entities we
control, or in which we have a variable interest and are the
primary beneficiary of expected cash profits or losses. We have
eliminated significant intercompany transactions and
accounts.
We have prepared
the accompanying unaudited consolidated financial statements in
accordance with accounting principles generally accepted in the
United States (“GAAP”) for interim financial reporting. We have
included all adjustments necessary for a fair presentation of the
results of the interim period. These adjustments consist of normal
recurring items. Our interim unaudited consolidated financial
statements are not necessarily indicative of results that may be
expected for any other interim period or for the full year. These
interim unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements
and related notes included in our Annual Report on Form 10-K for
the year ended December 31,
2019,
previously filed with the Securities and Exchange Commission
(“SEC”). trivago is a separately listed company on the Nasdaq
Global Select Market and, therefore is subject to its own reporting
and filing requirements, which could result in possible differences
that are not expected to be material to Expedia Group.
Accounting Estimates
We use estimates
and assumptions in the preparation of our interim unaudited
consolidated financial statements in accordance with GAAP. Our
estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as
of the date of our interim unaudited consolidated financial
statements. These estimates and assumptions also affect the
reported amount of net income or loss during any period. Our actual
financial results could differ significantly from these estimates.
The significant estimates underlying our interim unaudited
consolidated financial statements
Notes to
Consolidated Financial Statements – (Continued)
include revenue
recognition; recoverability of current and long-lived assets,
intangible assets and goodwill; income and transactional taxes,
such as potential settlements related to occupancy and excise
taxes; loss contingencies; deferred loyalty rewards; acquisition
purchase price allocations; stock-based compensation; accounting
for derivative instruments and provisions for credit losses,
customer refunds and chargebacks.
The COVID-19
pandemic has created and may continue to create significant
uncertainty in macroeconomic conditions, which may cause further
business disruptions and adversely impact our results of
operations. As a result, many of our estimates and assumptions
required increased judgment and carry a higher degree of
variability and volatility. As events continue to evolve and
additional information becomes available, our estimates may change
materially in future periods.
Reclassifications
We have
reclassified prior period financial statements to conform to the
current period presentation. During the first quarter of 2020, we
reclassified depreciation expense from within our operating expense
line items on our consolidated statements of operations to be
included with intangible asset amortization expense. The following
table presents a summary of the amounts as reported and as
reclassified in our consolidated statements of operations for the
three and six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended June 30, 2019
|
|
Six months
ended June 30, 2019
|
|
|
As
reported
|
|
As
reclassified
|
|
As
reported
|
|
As
reclassified
|
|
|
(In
millions)
|
|
Cost of revenue
|
$
|
522
|
|
|
$
|
500
|
|
|
$
|
1,035
|
|
|
$
|
990
|
|
|
Selling and
marketing
|
1,657
|
|
|
1,643
|
|
|
3,192
|
|
|
3,164
|
|
|
Technology and
content
|
435
|
|
|
304
|
|
|
864
|
|
|
601
|
|
|
General and
administrative
|
214
|
|
|
205
|
|
|
405
|
|
|
389
|
|
|
Depreciation and
amortization
|
52
|
|
|
228
|
|
|
104
|
|
|
456
|
|
Seasonality
We generally
experience seasonal fluctuations in the demand for our travel
services. For example, traditional leisure travel bookings are
generally the highest in the first three quarters as travelers plan
and book their spring, summer and winter holiday travel. The number
of bookings typically decreases in the fourth quarter. Because
revenue for most of our travel services, including merchant and
agency hotel, is recognized as the travel takes place rather than
when it is booked, revenue typically lags bookings by several weeks
for our hotel business and can be several months or more for our
alternative accommodations business. Historically, Vrbo has seen
seasonally stronger bookings in the first quarter of the year, with
the relevant stays occurring during the peak summer travel months.
The seasonal revenue impact is exacerbated with respect to income
by the nature of our variable cost of revenue and direct sales and
marketing costs, which we typically realize in closer alignment to
booking volumes, and the more stable nature of our fixed costs.
Furthermore, operating profits for our primary advertising
business, trivago, have typically been experienced in the second
half of the year, particularly the fourth quarter, as selling and
marketing costs offset revenue in the first half of the year as we
typically increase marketing during the busy booking period for
spring, summer and winter holiday travel. As a result on a
consolidated basis, revenue and income are typically the lowest in
the first quarter and highest in the third quarter. The growth of
our international operations, advertising business or a change in
our product mix, including the growth of Vrbo, may influence the
typical trend of the seasonality in the future.
Due to COVID-19,
which impacted travel bookings in the first half of 2020 and led to
significant cancellations for future travel, we do not expect our
typical seasonal pattern for bookings, revenue and profit during
2020. In addition, with the lower new bookings and elevated
cancellations in the merchant business model, our typical, seasonal
working capital source of cash has been significantly disrupted
resulting in the Company experiencing unfavorable working capital
trends and material negative cash flow. It is difficult to forecast
the seasonality for the upcoming quarters, given the uncertainty
related to the duration of the impact from COVID-19 and the shape
and timing of any sustained recovery.
Note 2 – Summary of
Significant Accounting Policies
Recently Adopted Accounting Policies
Measurement
of Credit Losses on Financial Instruments. As of January 1, 2020, we
adopted the Accounting Standards Updates (“ASU”) guidance on the
measurement of credit losses for financial assets measured at
amortized cost, which includes accounts receivable, and
available-for-sale debt securities, using the modified
retrospective method. The new guidance replaced
Notes to
Consolidated Financial Statements – (Continued)
the existing
incurred loss impairment model with an expected loss methodology,
which will result in more timely recognition of credit losses. Upon
adoption, this new guidance did not have a material impact on our
consolidated financial statements and no cumulative-effect
adjustment to retained earnings was made.
Cloud
Computing Arrangements. As of January 1, 2020, we
adopted the new ASU guidance on the accounting for implementation
costs incurred for a cloud computing arrangement that is a service
contract using the prospective method. The update conformed the
requirements for capitalizing implementation costs incurred in a
cloud computing arrangement that is a service contract with the
accounting guidance that provides for capitalization of costs
incurred to develop or obtain internal-use-software. The adoption
of this new guidance did not have a material impact on our
consolidated financial statements.
Fair Value
Measurements. As of January 1, 2020, we
adopted the new ASU guidance related to the disclosure requirements
on fair value measurements, which removed, modified or added
certain disclosures using the prospective method. The adoption of
this new guidance did not have a material impact on our
consolidated financial statements.
Guarantor
Financial Information. In March 2020, the SEC
amended Rule 3-10 of Regulation S-X regarding financial disclosure
requirements for registered debt offerings involving subsidiaries
as either issuers or guarantors and affiliates whose securities are
pledged as collateral. This new guidance narrows the circumstances
that require separate financial statements of subsidiary issuers
and guarantors and streamlines the alternative disclosures required
in lieu of those statements. We adopted these amendments for the
quarter ended March 31, 2020. Accordingly, combined summarized
financial information has been presented only for the issuer and
guarantors of our senior notes for the most recent fiscal year and
the year-to-date interim period, and the location of the required
disclosures has been removed from the Notes to the Consolidated
Financial Statements and moved to Part I. Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Recent Accounting Policies Not Yet Adopted
Simplifying
the Accounting for Income Taxes. In December 2019, the
Financial Accounting Standards Board issued new guidance to
simplify the accounting for income taxes. This new standard
eliminates certain exceptions in current guidance related to the
approach for intraperiod tax allocation, the methodology for
calculating income taxes in an interim period, and the recognition
of deferred tax liabilities for outside basis differences. It also
clarifies and simplifies other aspects of the accounting for income
taxes. For public business entities, this guidance is effective for
interim or annual periods beginning after December 15, 2020, with
early adoption permitted in any interim period within that year. We
are currently evaluating the impact of this guidance on our
consolidated financial statements and the timing of
adoption
Investments
- equity securities; Investments - Equity Method and Joint
Ventures; Derivatives and Hedging. In January 2020, the FASB
issued an accounting standards update which clarifies the
interaction between the accounting for investments in equity
securities, equity method investments and certain derivative
instruments. The new standard is expected to reduce diversity in
practice and increase comparability of the accounting for these
interactions. The standards update is effective for interim or
annual periods beginning after December 15, 2020, with early
adoption permitted. We are currently evaluating the impact of this
guidance on our consolidated financial statements and the timing of
adoption.
Significant Accounting Policies
Below are the
significant accounting policies updated during 2020 as a result of
the recently adopted accounting policies noted above as well as
certain other accounting policies with interim disclosure
requirements. For a comprehensive description of our accounting
policies, refer to our Annual Report on Form 10-K for the year
ended December 31, 2019.
Revenue
Prepaid
Merchant Bookings. We classify payments made to
suppliers in advance of our performance obligations as prepaid
merchant bookings included within prepaid and other current assets.
Prepaid merchant bookings was $579
million as of June 30,
2020, which is net of a
$11
million reserve for future
collectibility risk in consideration of the impact of the COVID-19
pandemic on the economy, and $226
million as of December 31,
2019.
Deferred
Merchant Bookings. We classify cash payments
received in advance of our performance obligations as deferred
merchant bookings. At December 31, 2019, $4.898
billion of cash advance cash payments
was reported within deferred merchant bookings, $3.173
billion of which was recognized
resulting in $506
million of revenue during the
six months ended
June 30, 2020. At June 30,
2020, the
related balance was $3.842
billion.
At December 31,
2019, $781
million of deferred loyalty rewards
was reported within deferred merchant bookings, $209
million of which was recognized
within revenue during the six months ended June 30,
2020.
At June 30,
2020, the
related balance was $790
million.
Notes to
Consolidated Financial Statements – (Continued)
Deferred
Revenue. At December 31, 2019,
$321
million was recorded as deferred
revenue, $159
million of which was recognized as
revenue during the six months ended June 30,
2020.
At June 30,
2020, the
related balance was $197
million.
Practical
Expedients and Exemptions. We have used the portfolio
approach to account for our loyalty points as the rewards programs
share similar characteristics within each program in relation to
the value provided to the traveler and their breakage patterns.
Using this portfolio approach is not expected to differ materially
from applying the guidance to individual contracts. However, we
will continue to assess and refine, if necessary, how a portfolio
within each rewards program is defined.
We do not
disclose the value of unsatisfied performance obligations for (i)
contracts with an original expected length of one year or less and
(ii) contracts for which we recognize revenue at the amount to
which we have the right to invoice for services
performed.
Cash, Restricted Cash and Cash Equivalents
Our cash and cash
equivalents include cash and liquid financial instruments,
including money market funds and term deposit investments, with
maturities of three months or less when purchased. Restricted cash
includes cash and cash equivalents that is restricted through legal
contracts, regulations or our intention to use the cash for a
specific purpose. Our restricted cash primarily relates to certain
traveler deposits and to a lesser extent collateral for office
leases. The following table reconciles cash, cash equivalents and
restricted cash reported in our consolidated balance sheets to the
total amount presented in our consolidated statements of cash
flows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(in
millions)
|
|
Cash and cash
equivalents
|
$
|
5,053
|
|
|
$
|
3,315
|
|
|
Restricted cash and cash
equivalents
|
1,311
|
|
|
779
|
|
|
Restricted cash included
within long-term investments and other assets
|
2
|
|
|
3
|
|
|
Total cash, cash equivalents
and restricted cash and cash equivalents in the consolidated
statement of cash flow
|
$
|
6,366
|
|
|
$
|
4,097
|
|
Accounts Receivable and Allowances
Accounts
receivable are generally due within thirty days and are recorded
net of an allowance for expected uncollectible amounts. We consider
accounts outstanding longer than the contractual payment terms as
past due. The risk characteristics we generally review when
analyzing our accounts receivable pools primarily include the type
of receivable (for example, credit card vs hotel collect),
collection terms and historical or expected credit loss patterns.
For each pool, we make estimates of expected credit losses for our
allowance by considering a number of factors, including the length
of time trade accounts receivable are past due, previous loss
history continually updated for new collections data, the credit
quality of our customers, current economic conditions, reasonable
and supportable forecasts of future economic conditions and other
factors that may affect our ability to collect from customers. The
provision for estimated credit losses is recorded as cost of
revenue in our consolidated statements of operations. During the
six months ended June 30, 2020, we recorded approximately
$82
million of incremental allowance for
expected uncollectible amounts, including estimated future losses
in consideration of the impact of COVID-19 pandemic on the economy
and the Company, partially offset by $8
million of other adjustments. Actual
future bad debt could differ materially from this estimate
resulting from changes in our assumptions of the duration and
severity of the impact of the COVID-19 pandemic.
Notes to
Consolidated Financial Statements – (Continued)
Note 3 – Fair Value
Measurements
Financial assets
and liabilities measured at fair value on a recurring basis as
of June 30, 2020
are classified
using the fair value hierarchy in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
|
(In
millions)
|
|
Assets
|
|
|
|
|
|
|
Cash
equivalents:
|
|
|
|
|
|
|
Money market
funds
|
$
|
458
|
|
|
$
|
458
|
|
|
$
|
—
|
|
|
Term deposits
|
107
|
|
|
—
|
|
|
107
|
|
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency forward
contracts
|
12
|
|
|
—
|
|
|
12
|
|
|
Investments:
|
|
|
|
|
|
|
Term deposits
|
422
|
|
|
—
|
|
|
422
|
|
|
Marketable equity
securities
|
69
|
|
|
69
|
|
|
—
|
|
|
Total
assets
|
$
|
1,068
|
|
|
$
|
527
|
|
|
$
|
541
|
|
Financial assets
measured at fair value on a recurring basis as of
December 31,
2019 are
classified using the fair value hierarchy in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
|
(In
millions)
|
|
Assets
|
|
|
|
|
|
|
Cash
equivalents:
|
|
|
|
|
|
|
Money market
funds
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
Term deposits
|
865
|
|
|
—
|
|
|
865
|
|
|
U.S. treasury
securities
|
10
|
|
|
10
|
|
|
—
|
|
|
Investments:
|
|
|
|
|
|
|
Term deposits
|
526
|
|
|
—
|
|
|
526
|
|
|
Marketable equity
securities
|
129
|
|
|
129
|
|
|
—
|
|
|
Total
assets
|
$
|
1,566
|
|
|
$
|
175
|
|
|
$
|
1,391
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency forward
contracts
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
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
June 30,
2020 and December 31,
2019, our
cash and cash equivalents consisted primarily of term deposits with
maturities of three months or less and bank account
balances.
We hold term
deposit investments with financial institutions. Term deposits with
original maturities of less than three months are classified as
cash equivalents and those with remaining maturities of less than
one year are classified within short-term investments.
Our marketable
equity securities consist of our investment in Despegar, a publicly
traded company, which is included in long-term investments and
other assets in our consolidated balance sheets. During the
six months ended
June 30, 2020 and 2019, we recognized a
gain (loss) of approximately $(60)
million and $14
million within other, net in our
consolidated statements of operations related to the fair value
changes of this equity investment.
Derivative
instruments are carried at fair value on our consolidated balance
sheets. We use foreign currency forward contracts to economically
hedge certain merchant revenue exposures, foreign denominated
liabilities related to certain of our loyalty programs and our
other foreign currency-denominated operating liabilities. Our goal
in managing our foreign exchange
Notes to
Consolidated Financial Statements – (Continued)
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. As of June 30,
2020, we
were party to outstanding forward contracts hedging our liability
and revenue exposures with a total net notional value of
$2.4
billion. We had a net forward asset
of $12
million ($37
million gross forward asset) as
of June 30, 2020
recorded in
prepaid expenses and other current assets and a net forward
liability of $8
million ($30
million gross forward liability) as
of December 31, 2019
recorded in
accrued expenses and other current liabilities. We recorded
$(6)
million in net gains (losses) from
foreign currency forward contracts during both of the three months
ended June 30, 2020
and 2019 as well
as $100
million and $(12)
million in net gains (losses) from
foreign currency forward contracts during the six months ended June 30,
2020 and
2019.
Assets Measured at Fair Value on a Non-recurring Basis
Our non-financial
assets, such as goodwill, intangible assets and property and
equipment, as well as equity method investments, are adjusted to
fair value when an impairment charge is recognized or the
underlying investment is sold. Such fair value measurements are
based predominately on Level 3 inputs. We measure our minority
investments that do not have readily determinable fair values at
cost less impairment, adjusted by observable price changes with
changes recorded within other, net on our consolidated statements
of operations.
Goodwill.
During the first quarter of 2020, we recognized goodwill impairment
charges of $765
million, of which
$539
million related to our Retail
segment,
primarily our
Vrbo reporting unit, and $226
million related to our trivago
segment. These impairment charges resulted from the significant
negative impact related to COVID-19, which has had a severe effect
on the entire global travel industry. As a result, we concluded
that sufficient indicators existed to require us to perform an
interim quantitative assessment of goodwill as of March 31, 2020 in
which we compared the fair value of the reporting units to their
carrying value. The fair value estimates for all reporting units
except trivago were based on a blended analysis of the present
value of future discounted cash flows and market value approach,
Level 3 inputs. The significant estimates used in the discounted
cash flows model included our weighted average cost of capital,
projected cash flows and the long-term rate of growth. Our
assumptions were based on the actual historical performance of the
reporting unit and took into account the recent severe and
continued weakening of operating results as well as the anticipated
rate of recovery, and implied risk premiums based on market prices
of our equity and debt as of the assessment dates. Our significant
estimates in the market approach model included identifying similar
companies with comparable business factors such as size, growth,
profitability, risk and return on investment and assessing
comparable revenue and earnings multiples in estimating the fair
value of the reporting unit. The fair value estimate for the
trivago reporting unit was based on trivago’s stock price, a Level
1 input, adjusted for an estimated control premium. The excess of
the reporting unit's carrying value over our estimate of the fair
value was recorded as the goodwill impairment charge in the first
quarter of 2020. In addition, during the second quarter of 2020, we
recognized goodwill impairment charges of $20
million related to a recent decision
to streamline operations for a smaller brand within our Retail
segment. As of June 30, 2020, the
applicable reporting units within our Retail segment had
$2.2
billion goodwill remaining and our
trivago segment had $315
million goodwill
remaining.
Intangible
Assets.
During the first quarter of 2020, also as a result of the
significant negative impact related to COVID-19, which has had a
severe effect on the entire global travel industry, we recognized
intangible asset impairment charges of $121
million. The impairment charges were
primarily related to indefinite-lived trade names within our Retail
segment and resulted from changes in estimated future revenues of
the related brands. The assets, classified as Level 3 measurements,
were written down to $237
million based on valuation using the
relief-from-royalty method, which includes unobservable inputs,
including royalty rates and projected revenues. In addition, during
the second quarter of 2020, we recognized intangible impairment
charges of $10
million primarily related to supplier
relationship assets that were entirely written off in connection
with our recent decision to streamline a smaller brand within our
Retail segment.
The full duration
and total impact of COVID-19 remains uncertain and it is difficult
to predict how the recovery will unfold for global economies, the
travel industry or our business. As a result, we may continue to
record impairment charges in the future due to the potential
long-term economic impact and near-term financial impacts of the
COVID-19 pandemic.
Minority
Investments without Readily Determinable Fair Values.
As of
June 30,
2020 and December 31,
2019, the
carrying values of our minority investments without readily
determinable fair values totaled $331
million and $467
million. During the
three and
six months
ended June 30,
2020, we
recorded $21
million and $134
million of impairment losses related
to a minority investment, which had recent observable and orderly
transactions for similar investments, using an option pricing model
that utilizes judgmental inputs such as discounts for lack of
marketability and estimated exit event timing. As of June 30, 2020,
total cumulative adjustments made to the initial cost bases of
these investments included $103
million in unrealized downward
adjustments (including impairments). During the three and six
months ended June 30, 2019, we had no material gains or
losses recognized related to these minority
investments.
Notes to
Consolidated Financial Statements – (Continued)
Note 4 – Debt
The following
table sets forth our outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(In
millions)
|
|
5.95% senior notes due
2020
|
$
|
750
|
|
|
$
|
749
|
|
|
2.5% (€650 million) senior
notes due 2022
|
729
|
|
|
725
|
|
|
4.5% senior notes due
2024
|
497
|
|
|
497
|
|
|
6.25% senior notes due
2025
|
1,970
|
|
|
—
|
|
|
7.0% senior notes due
2025
|
739
|
|
|
—
|
|
|
5.0% senior notes due
2026
|
744
|
|
|
743
|
|
|
3.8% senior notes due
2028
|
992
|
|
|
992
|
|
|
3.25% senior notes due
2030
|
1,232
|
|
|
1,232
|
|
|
Long-term
debt(1)
|
7,653
|
|
|
4,938
|
|
|
Current maturities of
long-term debt
|
(750
|
)
|
|
(749
|
)
|
|
Long-term debt,
excluding current maturities
|
$
|
6,903
|
|
|
$
|
4,189
|
|
|
|
|
|
|
|
Revolving credit
facility
|
$
|
1,900
|
|
|
$
|
—
|
|
_______________
|
|
|
(1)
|
Net of applicable
discounts and debt issuance costs.
|
Outstanding Debt
Our
$750
million in registered senior
unsecured notes outstanding at June 30, 2020
are due in August
2020 and bear interest at 5.95%
(the
“5.95%
Notes”).
The 5.95%
Notes were issued
at 99.893%
of par resulting
in a discount, which is being amortized over their life. Interest
is payable semi-annually in February and August of each year. We
may redeem the 5.95%
Notes at a
redemption price of 100%
of the principal
plus accrued interest, plus a “make-whole” premium, in whole or in
part.
Our Euro
650
million in registered senior
unsecured notes outstanding at June 30, 2020
are due in June
2022 and bear interest at 2.5%
(the
“2.5%
Notes”).
The 2.5%
Notes were issued
at 99.525%
of par resulting
in a discount, which is being amortized over their life. Interest
is payable annually in arrears in June of each year. We may redeem
the 2.5%
Notes at our
option, at whole or in part, at any time or from time to time. If
we elect to redeem the 2.5% Notes prior to March 3, 2022, we
may redeem them at a specified “make-whole” premium. If we elect to
redeem the 2.5%
Notes on or after
March 3, 2022, we may redeem them at a redemption price
of 100%
of the principal
plus accrued and unpaid interest. Subject to certain limited
exceptions, all payments of interest and principal for the
2.5%
Notes will be
made in Euros.
The aggregate
principal value of the 2.5%
Notes is
designated as a hedge of our net investment in certain Euro
functional currency subsidiaries. The notes are measured at Euro to
U.S. Dollar exchange rates at each balance sheet date and
transaction gains or losses due to changes in rates are recorded in
accumulated other comprehensive income (loss) (“AOCI”). The
Euro-denominated net assets of these subsidiaries are translated
into U.S. Dollars at each balance sheet date, with effects of
foreign currency changes also reported in AOCI. Since the notional
amount of the recorded Euro-denominated debt is less than the
notional amount of our net investment, we do not expect to incur
any ineffectiveness on this hedge.
Our
$500
million in registered senior
unsecured notes outstanding at June 30, 2020
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.
In May 2020, we
privately placed $2
billion of senior unsecured notes
that are due in May 2025 that bear interest at 6.250%
(the
“6.25%
Notes”).
The 6.25%
Notes were issued
at a price of 100%
of the aggregate
principal amount. Interest is payable semi-annually in arrears in
May and November of each year, beginning November 1, 2020. We may
redeem some or all of the 6.25%
Notes at any time
prior to February 1, 2025 by paying a “make-whole” premium plus
accrued and unpaid interest, if any. We may redeem some or all of
the 6.25%
Notes on or after
February 1, 2025 at par plus accrued and unpaid interest, if
any.
Notes to
Consolidated Financial Statements – (Continued)
In May 2020, we
also privately placed $750
million of senior unsecured notes due
May 2025 that bear interest at 7.000%
(the
“7.0%
Notes”).
The 7.0%
Notes were issued
at a price of 100%
of the aggregate
principal amount. Interest is payable semi-annually in arrears in
May and November of each year, beginning November 1, 2020. We may
redeem some or all of the 7.0%
Notes at any time
prior to May 1, 2022 at a redemption price equal to
100%
of the principal
amount of the 7.0%
Notes to be
redeemed, plus a “make-whole” premium, plus accrued and unpaid
interest, if any. We may redeem some or all of the
7.0%
Notes on or after
May 1, 2022 at specified redemption prices set forth in the
7.0%
Indenture, plus
accrued and unpaid interest, if any. In addition, at any time or
from time to time prior to May 1, 2022, we may redeem up to
40%
of the aggregate
principal amount of the 7.0%
Notes with the
net proceeds of certain equity offerings at the specified
redemption price described in the 7.0%
Indenture, plus
accrued and unpaid interest, if any.
Our
$750
million in registered senior
unsecured notes outstanding at June 30, 2020
are due in
February 2026 and bear interest at 5.0%
(the
“5.0%
Notes”).
The 5.0%
Notes were issued
at 99.535%
of par resulting
in a discount, which is being amortized over their life. Interest
is payable semi-annually in arrears in February and August of each
year. We may redeem the 5.0%
Notes at our
option at any time in whole or from time to time in part. If we
elect to redeem the 5.0%
Notes prior to
November 12, 2025, we may redeem them at a redemption price
of 100%
of the principal
plus accrued interest, plus a “make-whole” premium. If we elect to
redeem the 5.0%
Notes on or after
November 12, 2025, we may redeem them at a redemption price
of 100%
of the principal
plus accrued interest.
Our
$1
billion in registered senior
unsecured notes outstanding at June 30, 2020
are due in
February 2028 and bear interest at 3.8%
(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. We may redeem the 3.8%
Notes at our
option at any time in whole or from time to time in part. If we
elect to redeem the 3.8%
Notes prior to
November 15, 2027, we may redeem them at a redemption price
of 100%
of the principal
plus accrued interest, plus a “make-whole” premium. If we elect to
redeem the 3.8%
Notes on or after
November 15, 2027, we may redeem them at a redemption price
of 100%
of the principal
plus accrued interest.
In September
2019, we privately placed $1.25
billion of senior unsecured notes
that are due in February 2030 and bear interest at
3.25%.
In February 2020, 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 “3.25%
Notes”).
The 3.25%
Notes were issued
at 99.225%
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 3.25%
Notes at our
option at any time in whole or from time to time in part. If we
elect to redeem the 3.25%
Notes prior to
November 15, 2029, 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 3.25%
Notes on or after
November 15, 2029, we may redeem them at a redemption price
of 100%
of the principal
plus accrued interest.
In July 2020, we
privately placed an additional $1.25
billion in unsecured senior notes.
See Note 11 – Subsequent
Events for
additional information.
The
5.95%,
2.5%,
4.5%,
5.0%,
3.8%,
3.25%,
6.25%
and
7.0%
Notes
(collectively the “Notes”) are senior unsecured obligations issued
by Expedia Group and guaranteed by certain domestic Expedia Group
subsidiaries. The Notes rank equally in right of payment with all
of our existing and future unsecured and unsubordinated obligations
of Expedia Group and the guarantor subsidiaries. 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 $98
million and $76
million as of June 30, 2020
and
December 31,
2019. The
Notes are redeemable in whole or in part, at the option of the
holders thereof, upon the occurrence of certain change of control
triggering events at a purchase price in cash equal to
101%
of the principal
plus accrued and unpaid interest.
Notes to
Consolidated Financial Statements – (Continued)
The following
table sets forth the approximate fair value of our outstanding
debt, which is based on quoted market prices in less active markets
(Level 2 inputs):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(In
millions)
|
|
5.95% senior notes due
2020
|
$
|
753
|
|
|
$
|
767
|
|
|
2.5% (€650 million) senior
notes due 2022 (1)
|
731
|
|
|
764
|
|
|
4.5% senior notes due
2024
|
518
|
|
|
536
|
|
|
6.25% senior notes due
2025
|
2,134
|
|
|
—
|
|
|
7.0% senior notes due
2025
|
790
|
|
|
—
|
|
|
5.0% senior notes due
2026
|
778
|
|
|
825
|
|
|
3.8% senior notes due
2028
|
960
|
|
|
1,021
|
|
|
3.25% senior notes due
2030
|
1,171
|
|
|
1,206
|
|
_______________
|
|
|
(1)
|
Approximately
649
million Euro as of
June 30,
2020 and 682
million Euro as of
December 31,
2019.
|
Credit Facility
As of
December 31,
2019,
Expedia Group maintained a $2
billion unsecured revolving credit
facility with a group of lenders, which was unconditionally
guaranteed by certain domestic Expedia Group subsidiaries that were
the same as under the Notes and expired in May 2023. The facility
contained covenants including maximum leverage and minimum interest
coverage ratios. As of December 31,
2019, we
had no
revolving credit
facility borrowings outstanding. On March 18, 2020, we
borrowed $1.9
billion under the revolving credit
facility.
On May 4, 2020,
the Company, certain of the Company’s subsidiaries party thereto
and the lenders party thereto (the “Consenting Lenders”) executed a
restatement agreement, which amends and restates our existing
revolving credit facility (as amended and restated, the “Amended
Credit Facility”) to, among other things, suspend the maximum
leverage ratio covenant until December 31, 2021, increase the
maximum permissible leverage ratio (once such covenant is
reinstated) until March 31, 2023 (at which time the maximum
permissible leverage ratio will return to the level in effect
immediately prior to effectiveness of the Amended Credit Facility),
eliminate the covenant imposing a minimum interest coverage ratio
and add a covenant regarding minimum liquidity, as well as to make
certain other amendments to the affirmative and negative covenants
therein. The Amended Credit Facility became effective on May 5,
2020 (the “Amended Credit Facility Effective Date”).
Obligations under
the Amended Credit Facility are secured by substantially all of the
assets of the Company and its subsidiaries that guarantee the
Amended Credit Facility (subject to certain exceptions, including
for our new headquarters located in Seattle, WA) up to the maximum
amount permitted under the indentures governing the Notes and the
Company’s existing 5.95%
Notes,
2.5%
Notes,
4.5%
Notes,
5.0%
Notes,
3.8%
Notes and
3.25%
Senior Notes
(collectively, the “Existing Notes”) as of the Amended Credit
Facility Effective Date without securing such notes. Aggregate
commitments under the Amended Credit Facility initially
total $2
billion, and will mature on May 31,
2023.
Pursuant to the
terms of the Amended Credit Facility, the Company agreed to use
reasonable best efforts to enter into (and to cause certain of its
subsidiaries, including certain of its subsidiaries that are not
guarantors of the 6.25%
and
7.0%
Notes or the
Existing Notes, to enter into), promptly after the Amended Credit
Facility Effective Date, a new credit facility incurred by one or
more of the Company’s subsidiaries that are not obligors with
respect to the Amended Credit Facility, the 6.25%
and
7.0%
Notes or the
Existing Notes and which will be guaranteed by the Company, its
subsidiaries that guarantee the Amended Credit Facility, the
6.25%
and
7.0%
Notes and the
Existing Notes and certain of the Company’s non-guarantor
subsidiaries (the “Additional Credit Facility”), on specified terms
in an aggregate principal amount up to approximately
$855
million. Upon establishment of the
Additional Credit Facility, the Company will prepay indebtedness,
and reduce commitments, under the Amended Credit Facility, in an
amount equal to the aggregate commitments in respect of the
Additional Credit Facility.
Loans under the
Amended Credit Facility held by Consenting Lenders will bear
interest (A) in the case of eurocurrency loans, at rates ranging
from (i) prior to December 31, 2021, 2.35%
per annum for any
day that the aggregate unused commitments and funded exposure under
the Amended Credit Facility exceed $1.145
billion to 2.25%
per annum
otherwise and (ii) on and after December 31, 2021, or prior to such
date for each quarter that the leverage ratio, as of the end of the
most recently ended fiscal quarter for which financial statements
have been delivered, calculated on an annualized basis using
consolidated EBITDA for the two most recently ended fiscal quarters
included in such financial statements multiplied by two, is not
greater than 5.00:1.00,
1.10%
to
1.85%
per annum for any
day that the aggregate unused commitments and funded
Notes to
Consolidated Financial Statements – (Continued)
exposure under
the Amended Credit Facility exceed $1.145
billion and, otherwise, ranging
from 1.00%
to
1.75%
per annum, in
each case, depending on the Company’s credit ratings, and (B) in
the case of base rate loans, at rates ranging from (i) prior to
December 31, 2021, 1.35%
per annum for any
day that the aggregate unused commitments and funded exposure under
the Amended Credit Facility exceed $1.145
billion to 1.25%
per annum
otherwise and (ii) on and after December 31, 2021, or prior to such
date if the leverage ratio condition referred to above is
satisfied, 0.10%
to
0.85%
per annum for any
day that the aggregate unused commitments and funded exposure under
the Amended Credit Facility exceed $1.145
billion, and, otherwise, ranging
from 0.00%
to
0.75%
per annum, in
each case, depending on the Company’s credit ratings.
As of
June 30,
2020, $1.9
billion was outstanding under the
Amended Credit Facility and the interest rate on the outstanding
balance was 2.55%.
The amount of
stand-by letters of credit (“LOC”) issued under the prior credit
facility as well as the Amended Credit Facility reduced the credit
amount available. As of both June 30, 2020
and
December 31,
2019,
there was $16
million of outstanding stand-by LOCs
issued under the facilities.
In addition, one
of our international subsidiaries maintains a Euro
50
million uncommitted credit facility,
which is guaranteed by Expedia Group, which may be terminated at
any time by the lender. As of June 30, 2020
and
December 31,
2019,
there were no
borrowings
outstanding.
Note 5 – Capital Stock
Preferred Stock and Warrants
On May 5, 2020,
we completed the sale of Series A Preferred Stock (as defined
below) and warrants (the “Warrants”) to purchase our common stock
(“Common Stock”) to AP Fort Holdings, L.P., an affiliate of Apollo
Global Management, Inc. (the “Apollo Purchaser”) and SLP Fort
Aggregator II, L.P. and SLP V Fort Holdings II, L.P., affiliates of
Silver Lake Group, L.L.C. (the “Silver Lake Purchasers”) pursuant
to the Company’s previously announced Investment Agreements, dated
as of April 23, 2020, with the Apollo Purchaser and the Silver Lake
Purchasers (together, the “Investment Agreements”).
We issued and
sold (1) to the Apollo Purchaser, pursuant to the Apollo Investment
Agreement, 600,000
shares of the
Company’s newly created Series A Preferred Stock, par value
$0.001
per share (the
“Series A Preferred Stock”) and warrants (the “Warrants”) to
purchase 4.2
million shares of the Company’s
common stock, par value $0.0001
per share
(“Common Stock”), for an aggregate purchase price of
$588
million and (2) to the Silver Lake
Purchaser, pursuant to the Silver Lake Investment Agreement,
600,000
shares of Series
A Preferred Stock and Warrants to purchase 4.2
million shares of Common Stock, for
an aggregate purchase price of $588
million. At closing, we paid certain
fees in an aggregate amount of $12
million to affiliates of the Apollo
Purchaser and the Silver Lake Purchaser. On the terms and subject
to the conditions set forth in the Investment Agreements, from and
after the closing, (1) each of the Apollo Purchaser and the Silver
Lake Purchaser designated one representative who was appointed to
the Board of Directors of the Company (the “Board”) and (2) the
Apollo Purchaser appointed one non-voting observer to the Board, in
each case until such time as the applicable Purchaser and its
Permitted Transferees (as defined in the Investment Agreements) no
longer beneficially own (a) at least 50%
of the shares of
Series A Preferred Stock purchased by the applicable Purchaser
under the Investment Agreement (unless the applicable Purchaser
holds less than 50%
of the shares of
Series A Preferred Stock as a result of redemptions by the Company,
in which case the reference to 50%
shall be replaced
with a reference to 20%)
and (b) Warrants and/or Common Stock for which the Warrants were
exercised that represent in the aggregate and on an as exercised
basis, at least 50%
of the shares
underlying the Warrants purchased by the applicable Purchaser under
the Investment Agreement.
The Investment
Agreements (including the forms of Certificate of Designations,
Warrants and Registration Rights Agreement) contain other customary
covenants and agreements, including certain standstill provisions
and customary preemptive rights.
Certificate
of Designations for Series A Preferred Stock. Dividends on each share of
Series A Preferred Stock accrue daily on the Preference Amount (as
defined below) at the then-applicable Dividend Rate (as defined
below) and are payable semi-annually in arrears. As used herein,
“Dividend Rate” with respect to the Series A Preferred Stock means
(a) from the closing until the day immediately preceding the fifth
anniversary of the closing, 9.5%
per annum, (b)
beginning on each of the fifth, sixth and seventh anniversaries of
the closing, the then-applicable Dividend Rate shall be increased
by 100 basis points on each such yearly anniversary, and (c)
beginning on each of the eighth and ninth anniversaries of the
closing date, the then-applicable Dividend Rate shall be increased
by 150 basis points on each such yearly anniversary. The Dividend
Rate is also subject to certain adjustments if the Company incurs
indebtedness causing its leverage to exceed certain thresholds.
Dividends are payable (a) until the third anniversary of the
closing, either in cash or through an accrual of unpaid dividends
(“Dividend Accrual”), at the Company’s option, (b) from the third
anniversary of the closing until the sixth anniversary of the
closing, either in cash or in a combination of cash and Dividend
Accrual (with no more than 50%
of the total
amount of such Dividend being paid through a Dividend Accrual), at
the Company’s option and (c) thereafter, in cash.
Notes to
Consolidated Financial Statements – (Continued)
The Series A
Preferred Stock rank senior to the Common Stock and the Class B
common stock, par value $0.0001
per share, of the
Company (the “Class B Common Stock”) with respect to dividend
rights, redemption rights and rights on the distribution of assets
on any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
At any time on or
before the first anniversary of the closing, we may redeem all or
any portion of the Series A Preferred Stock in cash at a price
equal to 105.0%
of the sum of the
original liquidation preference of $1,000
per share of
Series A Preferred Stock plus any Dividend Accruals (the
“Preference Amount”), plus accrued and unpaid distributions as of
the redemption date. Any time after the first anniversary of the
closing but on or prior to the second anniversary of the closing,
we may redeem all or any portion of the Series A Preferred Stock in
cash at a price equal to 103.0%
of the Preference
Amount, plus accrued and unpaid distributions as of the redemption
date. Any time after the second anniversary of the closing but on
or prior to the third anniversary of the closing, we may redeem all
or any portion of the Series A Preferred Stock in cash at a price
equal to 102.0%
of the Preference
Amount, plus accrued and unpaid distributions as of the redemption
date. Any time after the third anniversary of the closing but on or
prior to the fourth anniversary of the closing, we may redeem all
or any portion of the Series A Preferred Stock in cash at a price
equal to 101.0%
of the Preference
Amount, plus accrued and unpaid distributions as of the redemption
date. At any time after the fourth anniversary of the closing, we
may redeem all or any portion of the Series A Preferred Stock in
cash at a price equal to the Preference Amount plus accrued and
unpaid distributions as of the redemption date.
In addition, upon
the occurrence of a change of control, (i) we shall have the right,
but not the obligation, to redeem any or all of the outstanding
shares of Series A Preferred Stock at the then applicable
redemption price, payable in cash and (ii) each holder will have
the right, but not the obligation, to require the Company to redeem
any or all of the outstanding shares of Series A Preferred Stock
owned by such holder at the then applicable redemption price,
payable in cash.
The Series A
Preferred Stock is not convertible into Common Stock or Class B
Common Stock.
Each holder of
Series A Preferred Stock will have one vote per share on any matter
on which holders of Series A Preferred are entitled to vote
separately as a class (as described below), whether at a meeting or
by written consent. The holders of shares of Series A Preferred
Stock do not otherwise have any voting rights.
The vote or
consent of the holders of at least two-thirds of the shares of
Series A Preferred Stock outstanding at such time, voting together
as a separate class, is required in order for the Company to (i)
amend, alter or repeal any provision of its Amended and Restated
Certificate of Incorporation (including the certificates of
designations relating to the Series A Preferred Stock) in a manner
that would have an adverse effect on the rights, preferences or
privileges of the Series A Preferred Stock, as applicable, (ii)
issue, any capital stock ranking senior or pari passu to the Series
A Preferred Stock, other than certain issuances to a governmental
entity in connection with a financing transaction or (iii)
liquidate, dissolve or wind up the Company.
The Series A
Preferred Stock is classified within temporary equity on our
consolidated balance sheets due to provisions that could cause the
equity to be redeemable at the option of the holder. However, such
events that could cause the Series A Preferred Stock to become
redeemable are not considered probable of occurring. As of June 30,
2020, the carrying value of the Series A Preferred Stock was
$1,022
million, net of $68
million in initial discount and
issuance costs as well as $110
million allocated on a relative fair
value basis to the concurrently issued Warrants recorded to
additional paid-in capital (as described below). The Series A
Preferred Stock accumulated and we paid $17
million (or $14.02
per share of
Series A Preferred Stock) of total dividends during the three and
six months ended June 30, 2020.
Warrants to
Purchase Company Common Stock. Pursuant to the Investment
Agreements, we issued to each of (1) the Silver Lake Purchasers (in
the aggregate) and (2) the Apollo Purchaser, Warrants to
purchase 4.2
million shares of Common Stock at an
exercise price of $72.00
per share,
subject to certain customary anti-dilution adjustments provided
under the Warrants, including for stock splits, reclassifications,
combinations and dividends or distributions made by the Company on
the Common Stock. The Warrants are exercisable on a net share
settlement basis. The Warrants expire ten years
after the closing
date.
Registration
Rights Agreement. In connection with and
concurrently with the effective time of the transactions
contemplated by the Investment Agreements, the Company, the Apollo
Purchaser and the Silver Lake Purchasers entered into a
Registration Rights Agreement (the “Registration Rights
Agreement”), pursuant to which the Apollo Purchaser and the Silver
Lake Purchasers are entitled to certain registration rights. Under
the terms of the Registration Rights Agreement, the Apollo
Purchaser and the Silver Lake Purchasers are entitled to customary
registration rights with respect to the shares of Common Stock for
which the Warrants may be exercised and, from and after the fifth
anniversary of the closing, the Series A Preferred
Stock.
Dividends on our Common Stock
The Executive
Committee, acting on behalf of the Board of Directors, declared the
following dividends during the periods presented:
Notes to
Consolidated Financial Statements – (Continued)
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|
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|
Declaration Date
|
Dividend
Per Share
|
|
Record Date
|
|
Total Amount
(in millions)
|
|
Payment Date
|
|
Six Months
Ended June 30, 2020
|
|
|
|
|
|
|
|
|
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February 13, 2020
|
$
|
0.34
|
|
|
March 10, 2020
|
|
$
|
48
|
|
|
March 26, 2020
|
|
Six Months
Ended June 30, 2019
|
|
|
|
|
|
|
|
|
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|
February 6, 2019
|
0.32
|
|
|
March 7, 2019
|
|
47
|
|
|
March 27, 2019
|
|
May 1, 2019
|
0.32
|
|
|
May 23, 2019
|
|
48
|
|
|
June 13, 2019
|
During the second
quarter of 2020, we suspended quarterly dividends on our common
stock. We do not expect to declare future dividends on our common
stock, at least until the current economic and operating
environment improves.
Treasury Stock
As of
June 30,
2020, the
Company’s treasury stock was comprised of approximately
123.4
million common stock and
7.3
million Class B shares. As of
December 31,
2019, the
Company’s treasury stock was comprised of approximately
119.6
million shares of common stock
and 7.3
million Class B shares.
Share
Repurchases. In April 2018, the Executive
Committee, acting on behalf of the Board of Directors, authorized a
repurchase of up to 15
million outstanding shares of our
common stock. In December 2019, the Board of Directors authorized a
repurchase of up to 20
million outstanding shares of
our common stock. During the six months ended June 30, 2020,
we repurchased, through open market
transactions, 3.4
million shares under these
authorizations for the total cost of $370
million, excluding transaction
costs, representing an average repurchase price
of $109.88 per
share. As of June 30, 2020, there were
approximately 23.3
million shares remaining under
the 2018 and 2019 repurchase authorizations. There is no fixed
termination date for the repurchases.
Accumulated Other Comprehensive Loss
The balance of
accumulated other comprehensive loss as of June 30, 2020
and
December 31,
2019 was
comprised of foreign currency translation adjustments. These
translation adjustments include foreign currency transaction losses
at June 30, 2020
of
$17
million ($22
million before tax) and
$15
million ($19
million before tax) at
December 31,
2019 associated with our
2.5%
Notes. The
2.5%
Notes are
Euro-denominated debt designated as hedges of certain of our
Euro-denominated net assets. See Note 4 – Debt for more
information.
Note 6 –
Earnings (Loss) Per Share
The following
table presents our basic and diluted earnings (loss) per
share:
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Three months
ended
June 30,
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|
Six months
ended
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions,
except share and per share data)
|
|
Net income
(loss) attributable to Expedia Group, Inc.
|
$
|
(736
|
)
|
|
$
|
183
|
|
|
$
|
(2,037
|
)
|
|
$
|
80
|
|
|
Preferred stock
dividend
|
(17
|
)
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
Net income
(loss) attributable to Expedia Group, Inc. common
stockholders
|
$
|
(753
|
)
|
|
$
|
183
|
|
|
$
|
(2,054
|
)
|
|
$
|
80
|
|
|
Earnings
(loss) per share attributable to Expedia Group, Inc. available to
common stockholders:
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|
|
|
|
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|
Basic
|
$
|
(5.34
|
)
|
|
$
|
1.23
|
|
|
$
|
(14.57
|
)
|
|
$
|
0.54
|
|
|
Diluted
|
(5.34
|
)
|
|
1.21
|
|
|
(14.57
|
)
|
|
0.53
|
|
|
Weighted
average number of shares outstanding (000's):
|
|
|
|
|
|
|
|
|
Basic
|
141,072
|
|
|
149,049
|
|
|
140,947
|
|
|
148,468
|
|
|
Dilutive effect
of:
|
|
|
|
|
|
|
|
|
Options to purchase common
stock
|
—
|
|
|
1,893
|
|
|
—
|
|
|
1,944
|
|
|
Other dilutive
securities
|
—
|
|
|
619
|
|
|
—
|
|
|
645
|
|
|
Diluted
|
141,072
|
|
|
151,561
|
|
|
140,947
|
|
|
151,057
|
|
Notes to
Consolidated Financial Statements – (Continued)
Basic earnings
per share is calculated using our weighted-average outstanding
common shares. The earnings per share amounts are the same for
common stock and Class B common stock because the holders of each
class are legally entitled to equal per share distributions whether
through dividends or in liquidation.
Diluted earnings
per share is calculated using our weighted-average outstanding
common shares including the dilutive effect of stock awards and
common stock warrants as determined under the treasury stock
method. In periods when we recognize a net loss, we exclude the
impact of outstanding stock awards and common stock warrants from
the diluted loss per share calculation as their inclusion would
have an antidilutive effect. For both of the three and six
months
ended June 30,
2020,
approximately 26
million of outstanding stock awards
and common stock warrants have been excluded from the calculations
of diluted earnings per share attributable to c