Expedia Group Annual Report 2017

FY2017 Annual Report · Expedia Group

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2017 Annual Report

This annual report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect the views of our management regarding expectations about future events and are based on then available information. Actual results could
differ materially. The use of words such as "anticipates," "estimates," "expects," "intends," "plans" and "believes," among others, generally identify forward-looking
statements; however, these words are not the exclusive means of identifying such statements. These forward-looking statements are inherently subject to
uncertainties, risks and changes in circumstances that are difficult to predict. Please carefully review and consider the various disclosures made in our Annual
Report on Form 10-K enclosed herein and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the
risks and factors that may impact future results.
The logos on the front cover are service marks or trademarks of Expedia, Inc. and/or its affiliated companies.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended December 31, 2017

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from

Commission file number: 001-37429
_______________________________________________

EXPEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

20-2705720
(I.R.S. Employer
Identification No.)

333 108th Avenue NE
Bellevue, WA 98004
(Address of principal executive office) (Zip Code)
Registrant’s telephone number, including area code:
(425) 679-7200
_______________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class:
Common stock, $0.0001 par value
Expedia, Inc. 2.500% Senior Notes due 2022

Name of each exchange on which registered:
The Nasdaq Global Select Market
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,

every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition

period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes

As of June 30, 2017, the aggregate market value of the registrant’s common equity held by non-affiliates was

approximately $18,137,071,000. For the purpose of the foregoing calculation only, all directors and executive officers of the
registrant are assumed to be affiliates of the registrant.

Class
Common stock, $0.0001 par value per share
Class B common stock, $0.0001 par value per share

Documents Incorporated by Reference

Document
Portions of the definitive Proxy Statement for the 2018 Annual Meeting of
Stockholders (Proxy Statement)

Outstanding Shares at January
26, 2018 were approximately,
139,033,403 shares
12,799,999 shares

Parts Into Which Incorporated

Part III

Expedia, Inc.
Form 10-K
For the Year Ended December 31, 2017
Contents

Item 1 Business

Item 1A Risk Factors

Item 1B Unresolved Staff Comments

Item 2

Properties

Item 3

Legal Proceedings

Item 4 Mine Safety Disclosures

Part I

Part II

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Item 6

Selected Financial Data

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A Quantitative and Qualitative Disclosures About Market Risk

Item 8 Consolidated Financial Statements and Supplementary Data

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A Controls and Procedures

Item 9B Other Information

Item 10 Directors, Executive Officers and Corporate Governance

Item 11 Executive Compensation

Part III

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13 Certain Relationships and Related Transactions, and Director Independence

Item 14 Principal Accountant Fees and Services

Item 15 Exhibits, Consolidated Financial Statements and Financial Statement Schedules

Signatures

Part IV

Expedia, Inc.
Form 10-K
For the Year Ended December 31, 2017

Part I. Item 1. Business

We refer to Expedia, Inc. and its subsidiaries collectively as “Expedia,” the “Company,” “us,” “we” and “our” in this

Annual Report on Form 10-K.

Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities

Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current
expectations and projections about future events and are based on currently available information. Actual results could differ
materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those
discussed in the section entitled “Risk Factors” as well as those discussed elsewhere in this report. Other unknown or
unpredictable factors also could have a material adverse effect on our business, financial condition and results of operations.
Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as
“anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking
statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that
refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to
predict. We are not under any obligation and do not intend to publicly update or review any of these forward-looking
statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear
that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review
and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange
Commission (“SEC”) that attempt to advise interested parties of the risks and factors that may affect our business, prospects
and results of operations.

Management Overview

General Description of our Business

Expedia, Inc. is an online travel company, empowering business and leisure travelers through technology with the tools

and information they need to efficiently research, plan, book and experience travel. We seek to grow our business through a
dynamic portfolio of travel brands, including our majority-owned subsidiaries that feature the world’s broadest supply portfolio
— with more than 590,000 properties, including more than 150,000 of HomeAway's nearly 1.5 million online bookable
vacation rental listings, in 200 countries and territories, over 550 airlines, packages, rental cars, cruises, insurance, as well as
destination services and activities. Travel suppliers distribute and market products via our desktop and mobile offerings, as well
as through alternative distribution channels, our private label business and our call centers in order to reach our extensive,
global audience. In addition, our advertising and media businesses help other businesses, primarily travel providers, reach a
large audience of travelers around the globe.

Our portfolio of brands includes:

•

Expedia.com®, a leading full service online travel company with localized websites in 33 countries;

Hotels.com®, a leading global lodging expert operating 90 localized websites in 41 languages with its award winning
Hotels.com® Rewards loyalty program;

Expedia® Affiliate Network ("EAN"), a global business-to-business ("B2B") brand that powers the hotel business of
hundreds of leading airlines, travel agencies, loyalty and corporate travel companies plus several top consumer brands
through its API and template solutions;

trivago®, a leading online hotel metasearch platform with websites in 55 countries worldwide;

HomeAway®, a global online marketplace for the vacation rental industry, which also includes the VRBO,
VacationRentals.com and BedandBreakfast.com brands, among others;

Egencia®, a leading corporate travel management company;

Orbitz® and CheapTickets®, leading U.S. travel websites, as well as ebookers®, a full-service travel brand with
websites in seven European countries;

Travelocity®, a leading online travel brand in the United States and Canada;

•

Hotwire®, a leading online travel website offering spontaneous travel through Hot Rate® deals;

• Wotif Group, a leading portfolio of travel brands including Wotif.com®, Wotif.co.nz, lastminute.com.au®,

lastminute.co.nz and travel.com.au®;

•

Expedia® Media Solutions, the advertising sales division of Expedia, Inc. that builds creative media partnerships and
enables brand advertisers to target a highly-qualified audience of travel consumers;
CarRentals.com™, a premier online car rental booking company with localized websites in four countries;

Classic Vacations®, a top luxury travel specialist;

Expedia Local Expert®, a provider of online and in-market concierge services, activities, experiences and ground
transportation in over a thousand destinations worldwide;

Expedia® CruiseShipCenters®, a provider of exceptional value and expert advice for travelers booking cruises and
vacations through its network of over 250 retail travel agency franchises across North America; and

SilverRail Technologies, Inc., provider of a global rail retail and distribution platform connecting rail carriers and
suppliers to both online and offline travel distributors.

Equity Ownership and Voting Control

As of December 31, 2017, there were 138,939,100 shares of Expedia common stock and 12,799,999 shares of Expedia

Class B common stock outstanding. Expedia stockholders are entitled to one vote for each share of common stock and ten votes
for each share of Class B common stock outstanding. As of December 31, 2017, Liberty Expedia Holdings, Inc. (“Liberty
Expedia Holdings”), through its wholly-owned subsidiaries, held approximately 8% of Expedia’s outstanding common stock
and 100% of Expedia’s outstanding Class B common stock (or, assuming conversion of all shares of Class B common stock
into shares of common stock, held 16% of Expedia’s outstanding common stock). Barry Diller, Chairman and Senior Executive
of Expedia holds an irrevocable proxy granted by Liberty Expedia Holdings, pursuant to which Mr. Diller has the right to vote
the Expedia securities held by Liberty Expedia Holdings and its subsidiaries (the “Diller Proxy”), which proxy has been
assigned by Mr. Diller to Liberty Expedia Holdings until the earlier of May 4, 2018 or the occurrence of certain termination
events. As of December 31, 2017, as a result of their agreements and respective holdings in Expedia, Mr. Diller and Liberty
Expedia Holdings may be deemed to share voting power over securities representing approximately 54% of the combined
voting power of the outstanding Expedia capital stock.

By virtue of the voting power of an irrevocable proxy granted to Mr. Diller by John C. Malone and Leslie Malone over
their shares in Liberty Expedia Holdings and the governance arrangements at Liberty Expedia Holdings, during the period the
assignment of the Diller Proxy and the proxy granted him by the Malones are in effect, Mr. Diller is effectively able to control
the outcome of nearly all matters submitted to a vote or for the consent of Expedia’s stockholders (other than with respect to the
election by the Expedia common stockholders of 25% of the members of Expedia’s Board of Directors and certain matters as to
which a separate class vote of the holders of Expedia common stock or Expedia preferred stock is required under Delaware
law). Upon the termination or expiration of the assignment of the Diller Proxy (unless the Diller Proxy itself has terminated),
Mr. Diller will continue to be able to control the outcome of such matters. In addition, pursuant to the Amended and Restated
Governance Agreement, dated as of December 20, 2011, as amended, among Expedia, Liberty Expedia Holdings and
Mr. Diller, each of Mr. Diller and Liberty Expedia Holdings generally has the right to consent to certain significant corporate
actions in the event that Expedia or any of its subsidiaries incurs any new obligations for borrowed money within the definition
of “total debt” set forth in the Governance Agreement for as long as Expedia’s ratio of total debt to EBITDA, as defined
therein, equals or exceeds eight to one.

Market Opportunity & Business Strategy

Expedia is the world’s largest online travel company, yet our gross bookings represent only about 6% of total worldwide
travel spending. Phocuswright estimates global travel spending at approximately $1.6 trillion in 2018, with an increasing share
booked through online channels each year. We have built, and continue to build, a broad and deep supply portfolio which today
includes more than 590,000 properties, including over 150,000 of HomeAway's nearly 1.5 million online bookable vacation
rental listings, over 550 airlines and numerous car rental companies, cruise companies and other travel suppliers.

We believe the strength of our brand portfolio as well as our enhanced product offerings and new channel penetration

drives customer demand, which when combined with our global scale and broad based supply, give us a unique advantage in
addressing the ongoing migration of travel bookings from offline to online around the world. With our unmatched global
audience of travelers, and our deep and broad selection of travel products, there is a rich interplay between supply and demand
in our global marketplace that helps us provide value to both travelers planning trips and supply partners wanting to grow their
business through a better understanding of travel retailing and consumer demand in addition to reaching consumers in markets

beyond their reach. Our primary growth drivers are global expansion, including of our supply portfolio, technology and product
innovation, and new channel penetration and expansion.

Portfolio of Brands

Expedia operates a strong brand portfolio with global reach, targeting a broad range of travelers, travel suppliers and

advertisers. We know that consumers typically visit multiple travel websites prior to booking travel, and having a multi-brand
strategy increases the likelihood that those consumers will visit one or more of our websites. We also market to consumers
through a variety of channels, including internet search and metasearch and social media websites, and having multiple brands
appear in search results also increases the likelihood of attracting visitors. Our brands tailor their product offerings and websites
to particular traveler demographics. For example, Hotwire finds deep discount deals for the budget-minded travel shopper
while our Classic Vacations brand targets high-end, luxury travelers. Brand Expedia spans the widest swath of potential
customers with multi-product travel options across a broad value spectrum, while our Hotels.com brand focuses specifically on
a hotel only product offering.

Brand Expedia. A leading full-service online travel brand with localized websites in 33 countries offering a wide
selection of travel products and services. Through an award-winning mobile app and Expedia-branded websites, travelers have
access to the latest technology that delivers airline tickets, lodging, car rentals, rail, cruises, insurance and many things to do -
such as airport transfers, activities and tours - from hundreds of thousands of suppliers, on both a standalone and package basis.
Across the more than 20 years that Expedia has been helping people travel with confidence and ease, the company has learned
that travelers benefit when Expedia continually improves and optimizes its offering, to ensure that travelers the world over can
book the trip they need, in the manner they choose, at any point and save. That commitment has propelled Expedia to a
leadership position within travel, and ensures that Expedia can continue to help millions of travelers experience the world.

Hotels.com. Hotels.com focuses entirely on marketing and distributing lodging accommodations. Hotels.com, with 90

localized websites worldwide in 41 languages worldwide and market leading mobile apps on all major platforms, offers
travelers a broad selection of lodging options. Because of its single product offering, Hotels.com is often our first entry point
into a region allowing us to evaluate the market opportunity prior to adding additional brands and product offerings.
Hotels.com Rewards®, the loyalty program established in 2008, offers travelers the ability to earn one free night for every ten
nights stayed.

Expedia Affiliate Network. EAN is the purely partner-focused arm of Expedia, Inc. EAN partners with businesses across a

wide range of verticals including loyalty programs, airlines, travel agents and online retailers who remarket EAN’s
accommodation rates and availabilities to their travelers. Partners can access EAN accommodations in the way that best suits
their business, whether that is a fully customizable environment through EAN’s API or an ‘off-the-shelf,’ white-label or co-
branded template solution offering.

trivago. trivago is our majority-owned hotel metasearch company, based in Dusseldorf, Germany. The online platform

gives travelers access to price comparisons from more than 400 booking websites for over 1.8 million hotels in over 190
countries. Officially launched in 2005, trivago is a leading global brand in hotel search and can be accessed worldwide via 55
localized websites and apps in 33 languages. Subsequent to its initial public offering ("IPO") in December 2016, the company
is listed on the Nasdaq Global Select Market and trades under the symbol "TRVG."

HomeAway. In December 2015, we acquired HomeAway, which operates an online marketplace for the vacation rental
industry. The HomeAway portfolio includes the vacation rental websites HomeAway, VRBO and VacationRentals.com in the
United States; OwnersDirect.co.uk in the United Kingdom; Abritel.fr and Homelidays.com in France; Toprural.es in Spain;
AlugueTemporada.com.br in Brazil; Stayz.com.au in Australia; and Bookabach.co.nz in New Zealand. HomeAway also
operates BedandBreakfast.com, a comprehensive global website for finding bed-and-breakfast properties. In addition to its
online marketplace, HomeAway also offers software solutions to property managers through its HomeAway Software and Glad
to Have You products.

Egencia. Our full-service travel management company offers travel products and services to businesses and their
corporate travelers. Egencia maintains a global presence in more than 65 countries across North America, Europe and Asia
Pacific. Egencia provides, among other things, a global technology platform coupled with local telephone assistance with
expert travel consultants, unique supply targeted at business travelers, and consolidated reporting for its clients. Egencia
charges its corporate clients account management fees, as well as transactional fees for various contacts made as part of the
travel process. In addition, Egencia provides on-site agents to some corporate clients to provide in-house, seamless support.
Egencia also offers consulting and meeting management services as well as advertising opportunities. We believe the corporate
travel sector represents a significant opportunity for Expedia through Egencia’s compelling technology solution for businesses
seeking to improve employees’ travel experiences and optimize travel costs by moving the focus of the corporate travel
program to online and mobile services versus the traditional call center approach.

Orbitz, CheapTickets, ebookers. In September 2015, we acquired Orbitz Worldwide, Inc., including all of its brands and

assets. Orbitz Worldwide was a travel portfolio including Orbitz, CheapTickets and ebookers.

Travelocity. After entering into an exclusive, long-term strategic marketing agreement with Travelocity during the third
quarter of 2013, under which Brand Expedia powered the technology platform, supply and customer service for Travelocity’s
existing websites in the United States and Canada, we announced in January 2015 that we acquired the Travelocity brand and
associated assets from Sabre Corporation (“Sabre”) and terminated the strategic marketing and other related agreements. A
pioneer in the online travel industry, Travelocity celebrated its 20th anniversary in 2016. Travelocity and its famous Roaming
Gnome encourage travelers in the United States and Canada to “Wander Wisely™”.

Hotwire. Hotwire offers a travel booking service that matches flexible, value-oriented travelers with suppliers who have

excess seats, rooms and cars they offer at lower rates than retail. Hotwire’s Hot Rate® Hotels, Hot Rate® Cars and Hot Rate®
Flights offer travelers an extra low price as the supplier name is not revealed until after the traveler books and pays. With
Hotwire’s unique model, suppliers create value from excess availability without diluting their core, brand-loyal traveler base.
Hotwire partners with leading hotel companies worldwide, brand-name domestic and international airlines, and major car rental
companies in the United States.

Wotif Group. In November 2014, we completed the acquisition of Wotif Group, a leading Australian online travel

company, comprised of the Wotif.com, lastminute.com.au and travel.com.au brands in Australia, and Wotif.co.nz and
lastminute.co.nz in New Zealand. Wotif.com launched in 2000, and was listed on the Australian Securities Exchange in June
2006 as Wotif.com Holdings Limited, under the ASX code “WTF,” prior to being acquired by Expedia.

CarRentals.com. CarRentals.com is an online car rental marketing and retail firm offering a diverse selection of car

rentals direct to consumers. Following our July 2014 acquisition of Auto Escape Group, one of Europe’s leading online car
rental reservation companies, the Auto Escape Group joined with the CarRentals.com brand. With CarRentals.com’s
international expansion, it is able to provide our customers more choices across the globe and help our supply partners expand
their marketing reach.

Classic Vacations. Classic Vacations offers individually tailored vacations primarily through a national network of third-
party retail travel agents. Classic delivers a full line of premium vacation packages — air, hotels, car rentals, activities, cruises
and private transportation — to create customized luxury vacations in Hawaii, the Caribbean, Mexico, Costa Rica, Europe,
Australia, New Zealand, Fiji, Maldives, Dubai, Seychelles and Tahiti. Travel agents and travelers can preview our product
offering through our website www.classicvacations.com.

Expedia Local Expert. Our Expedia Local Expert network offers online and in-market concierge services, activities,
experiences, attractions and ground transportation. With access to a rich portfolio of over 25,000 tours and adventures, LX can
be found on more than 60 Expedia, Inc. websites, and operates more than 100 concierge and activity desks in major resort
destinations.

Expedia CruiseShipCenters. Expedia CruiseShipCenters is a leading seller of cruises and vacations. The franchise
company has over 250 retail locations across North America, a team of over 4,500 professionally-trained vacation consultants
and inventory of more than 200,000 staterooms available on the most popular ships and destinations to book online or in store.

SilverRail Technologies, Inc. SilverRail technology is built for rail, uniting the ecosystem of rail carriers and travel
distributors around the world’s most comprehensive search and booking platform for rail content. The product suite spans the
full customer experience: journey planning, inventory management, scheduling, pricing, booking, payment, ticketing, reporting
and administration. SilverCore, SilverRail's technology platform, is the world’s first unified platform for global rail distribution,
as it connects carriers and suppliers to both online and offline travel distributors.

Growth Strategy

Global Expansion. Our Expedia, Hotels.com, Egencia, and EAN brands operate both domestically and through
international points of sale, including in Europe, Asia Pacific, Canada and Latin America. In addition, ebookers offers multi-
product online travel reservations in Europe and Wotif Group has a leading portfolio of travel brands, including Wotif.com,
Wotif.co.nz, lastminute.com.au, lastminute.com.nz and travel.com.au, focused principally on the Australia and New Zealand
markets. Egencia, our corporate travel business, operates in over 65 countries around the world and continues to expand. The
HomeAway portfolio has 60 vacation rental websites all around the world. We own a majority share of trivago, a leading hotel
metasearch company. Officially launched in 2005, trivago is one of the best known travel brands in Europe and North America.
trivago continues to operate independently and grow revenue through global expansion, including aggressive expansion in new
countries. In December 2016, trivago successfully completed its initial public offering and trades on the Nasdaq Global Select
Market under the symbol "TRVG." In addition, we have commercial agreements in place with Ctrip and eLong in China,

Traveloka in Southeast Asia, as well as Decolar.com, Inc. in Latin America, among many others. In conjunction with the
commercial arrangements with Traveloka and Decolar, we have also made strategic investments of over $600 million combined
in Traveloka in 2017 and Decolar in 2015. In 2017, approximately 38% of our worldwide gross bookings and 45% of
worldwide revenue were through international points of sale compared to just 21% for both worldwide gross bookings and
revenue in 2005. We have a goal of generating more than two-thirds of our revenue through businesses and points of sale
outside of the United States.

In expanding our global reach, we leverage significant investments in technology, operations, brand building, supplier

relationships and other initiatives that we have made since the launch of Expedia.com in 1996. Our scale of operations
enhances the value of technology innovations we introduce on behalf of our travelers and suppliers. We believe that our size
and scale afford the company the ability to negotiate competitive rates with our supply partners, provide breadth of choice and
travel deals to our traveling customers through an expanding supply portfolio and create opportunities for new value added
offers for our customers such as our loyalty programs. The size of Expedia’s worldwide traveler base makes our websites an
increasingly appealing channel for travel suppliers to reach customers. In addition, the sheer size of our user base and search
query volume allows us to test new technologies very quickly in order to determine which innovations are most likely to
improve the travel research and booking process, and then roll those features out to our worldwide audience in order to drive
improvements in conversion.

Product Innovation. Each of our leading brands was a pioneer in online travel and has been responsible for driving key
innovations in the space for more than two decades. Each Expedia technology platform is operated by a dedicated technology
team, which drives innovations that make researching and shopping for travel increasingly easier and helps customers find and
book the best possible travel options. We have made key investments in technology, including significant development of our
technical platforms that makes it possible for us to deliver innovations at a faster pace. Improvements in our global platforms
for Hotels.com and Brand Expedia continue to enable us to increase the innovation cycle, thereby improving conversion and
driving faster growth rates for those brands. In 2013, Expedia signed an agreement to power the technology, supply and
customer service platforms for Travelocity-branded websites in the United States and Canada, enabling Expedia to leverage its
investments in each of these key areas. During 2014, the Travelocity-branded websites were successfully migrated to the
Expedia technology platform. In November 2014, Expedia completed the acquisition of Wotif Group and subsequently
converted the Wotif.com website to the Expedia technology platform. In January 2015, we acquired the Travelocity brand and
other associated assets from Sabre. The strategic marketing and other related agreements previously entered into were
terminated. In September 2015, Expedia acquired Orbitz Worldwide, including all of its brands. The Orbitz, CheapTickets and
ebookers websites were migrated to the Expedia technology platform in the first half of 2016, and Orbitz for Business
customers were migrated to the Egencia technology platform by July 2016. In December 2015, Expedia acquired HomeAway,
Inc., including all of its brands. Additionally, in June 2017, Expedia acquired a majority stake in SilverRail, a leading rail
technology distributor. We intend to continue leveraging these investments when launching additional points of sale in new
countries, introducing new website features, adding supplier products and services including new business model offerings, as
well as proprietary and user-generated content for travelers.

Channel Expansion. Technological innovations and developments continue to create new opportunities for travel
bookings. In the past few years, each of our brands made significant progress creating new mobile websites and mobile
applications that are receiving strong reviews and solid download trends, and some of our brands now see more traffic via
mobile devices than via traditional PCs. Mobile bookings continue to present an opportunity for incremental growth as they are
often completed within one or two days of the travel or stay, which is a much shorter booking window than we historically
experienced via more traditional online booking methods. Additionally, our brands implemented new technologies like voice-
based search, chatbots and messaging apps as mobile-based options for travelers. In addition, we are seeing significant cross-
device usage among our customers, who connect to our websites and apps across multiple devices and platforms throughout
their travel planning process. We also believe mobile represents an efficient marketing channel given the opportunity for direct
traffic acquisition, increase in share of wallet and in repeat customers, particularly through mobile applications. During 2017,
approximately one in three Expedia, Inc. transactions were booked globally on a mobile device.

Business Models

We make travel products and services available both on a stand-alone and package basis, primarily through the following

business models: the merchant model, the agency model and the advertising model. In addition, upon our acquisition of
HomeAway in December 2015, we also earn revenue related to subscription-based vacation rental listing and other ancillary
services provided to property owners and managers as well as from the traveler service fee that was rolled out in the United
States and Europe in the first half of 2016.

Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination services
from our travel suppliers and we are the merchant of record for such bookings. The majority of our merchant transactions relate
to hotel bookings. Under the agency model, we facilitate travel bookings and act as the agent in the transaction, passing

reservations booked by the traveler to the relevant travel provider. We receive commissions or ticketing fees from the travel
supplier and/or traveler.

We continue to see closer integration of the agency hotel product with our core merchant product through our Expedia
Traveler Preference (ETP) program by offering, for participating hotels, customers the choice of whether to pay Expedia in
advance under our merchant contract (Expedia Collect) or pay at the hotel at the time of the stay (Hotel Collect). Growth in our
ETP contracts has generally resulted in reduced negotiated economics to compensate for hotel supply partners absorbing
expenses such as credit card fees and customer service costs, and as we continue to expand the breadth and depth of our global
hotel offering, we have made adjustments to our economics in various geographies including changes based on local market
conditions. Based on these dynamics, we expect our revenue per room night to remain under pressure in the future.

Through various of our Expedia-branded and other multi-product websites, travelers can dynamically assemble multiple

component travel packages for a specified period at a lower price as compared to booking each component separately. Packages
assembled by travelers through the packaging model on these websites primarily include a merchant hotel component and an
air or car component. Travelers typically select packages based on the total package price, without being provided component
pricing, and we have started to introduce a "shopping cart" style feature that incorporates an overall package discount after a
traveler selects multiple products. The use of the merchant travel components in packages enables us to make certain travel
products available at prices lower than those charged on an individual component basis by travel suppliers without impacting
their other pricing models. In addition, we also offer third-party pre-assembled package offerings, primarily through our
international points of sale, further broadening our scope of products and services to travelers. We expect the package product
to continue to be marketed primarily using the merchant model.

Under the advertising model, we offer travel and non-travel advertisers access to a potential source of incremental traffic

and transactions through our various media and advertising offerings on trivago and our transaction-based websites.

With our acquisition of HomeAway and all of its brands in December 2015, we expanded into the fast growing $100

billion alternative accommodations market. HomeAway is a leader in this market and represents an attractive growth
opportunity for Expedia. HomeAway has been undergoing a transition from a listings-based classified advertising model to an
online transactional model that optimizes for both travelers and homeowner and property manager partners, with a goal of
increasing monetization and driving growth through investments in marketing as well as in product and technology. In addition,
HomeAway rolled out a traveler service fee in the United States and Europe during the first half of 2016, consistent with
market practice. The fee is expected to continue to contribute to HomeAway’s revenue growth and help fund marketing
investments, programs to better protect travelers and future growth initiatives. Furthermore, HomeAway moved to a single
subscription option globally in July 2016.

Relationships with Travel Partners

Overview. We make travel products and services available from a variety of hotel companies, large and small commercial
airlines, car rental companies, cruise lines, destination service providers, HomeAway property owners and managers and other
travel partners. We seek to build and maintain long-term, strategic relationships with travel suppliers and global distribution
system (“GDS”) partners. An important component of the success of our business depends on our ability to maintain our
existing, as well as build new, relationships with travel suppliers and GDS partners.

Travel Suppliers. We strive to deliver value to our travel supply partners through a wide range of innovative, targeted

merchandising and promotional strategies designed to generate consumer demand and increase their revenue, while
simultaneously reducing their overall marketing transaction and customer service costs. Our strategic account managers and
local hotel market managers work directly with travel suppliers to optimize the exposure of their travel products and brands
through our points of sale, including participation in need-based, seasonal and event-driven promotions and experimentation
within the new channels we are building.

We developed proprietary technology to assist hotel suppliers in managing, pricing and marketing their supply. Our
“direct connect” technology allows hotels to upload information about available products and services and rates directly from
their central reservation systems and to automatically confirm hotel reservations made by our travelers. Proprietary marketing
tools assist hotels in tailoring demand to their requirements and our revenue management product provides pricing insight
based on Expedia data and analytics. Our suite of white label website offerings power hotel, package and meeting space
booking on suppliers' own websites.

In addition, HomeAway’s vacation rental listing services includes a set of tools for property owners or managers, which

enables them to manage an availability calendar, reservations, inquiries and the content of the listing, as well as provide various
other services for property owners or managers to manage reservations or drive incremental sales volume.

Distribution Partners. GDSs, also referred to as computer reservation services, provide a centralized, comprehensive

repository of travel suppliers’ ‘content’ — such as availability and pricing of seats on various airline point-to-point flights, or
‘segments.’ The GDSs act as intermediaries between the travel suppliers and travel agencies, allowing agents to reserve and
book flights, rooms or other travel products. Our relationships with GDSs primarily relate to our air business. We use Sabre,
Amadeus and Travelport as our GDS segment providers in order to ensure the widest possible supply of content for our
travelers.

Marketing and Promotions

Our marketing programs are intended to build and maintain the value of our various brands, drive traffic and ultimately
bookings through our various brands and businesses, optimize ongoing traveler acquisition costs and strategically position our
brands in relation to one another. Our long-term success and profitability depends on our continued ability to maintain and
increase the overall number of traveler transactions flowing through our brand and shared global platforms in a cost-effective
manner, as well as our ability to attract repeat customers to our websites.

Our marketing channels primarily include online advertising, including search engine marketing and optimization as well
as metasearch, social media websites, offline advertising, loyalty programs, mobile apps and direct and/or personalized traveler
communications on our websites as well as through direct e-mail communication with our travelers. Our marketing programs
and initiatives include promotional offers such as coupons as well as seasonal or periodic special offers from our travel
suppliers based on our supplier relationships. Our traveler loyalty programs include Hotels.com Rewards on Hotels.com global
websites and Expedia®+ rewards on over 30 Brand Expedia points of sale, as well as Orbitz Rewards on Orbitz.com. The cost
of these loyalty programs is recorded as a reduction of revenue in our consolidated financial statements.

We also make use of affiliate marketing. The Brand Expedia, Hotels.com, Hotwire, Travelocity, Orbitz, CheapTickets,

HomeAway, Wotif and lastminute.com.au branded websites receive bookings from consumers who have clicked-through to the
respective websites through links posted on affiliate partner websites. Affiliate partners can also make travel products and
services available on their own websites through a Brand Expedia, Hotels.com or HomeAway co-branded offering or a private
label website. Our EAN business provides our affiliates with technology and access to a wide range of products and services.
We manage agreements with thousands of third-party affiliate partners, including a number of leading travel companies,
pursuant to which we pay a commission for bookings originated from their websites.

Operations and Technology

We operate several technology platforms that support our brands. The Brand Expedia technology platform supports our

full-service and multi-product brands, including Brand Expedia, Orbitz, Travelocity, Wotif Group, CheapTickets, ebookers and
Expedia Local Expert, as well as certain parts of the Hotwire brand. The Hotels.com technology platform supports our hotel-
only offering, including Hotels.com and EAN. In addition, we operate Egencia, our corporate travel platform; HomeAway, our
vacation rentals platform; and trivago, the metasearch platform.

All of our transaction-based brands share and benefit from our eCommerce platform infrastructure, including customer

support, data centers and transaction processing capabilities.

We provide 24-hour-a-day, seven-day-a-week traveler sales and support by telephone or via e-mail. For purposes of

operational flexibility, we use a combination of outsourced and in-house call centers. Our call centers are located throughout
the world, including outsourced operations in the Philippines, El Salvador, Egypt and India. We invested significantly in our
call center technologies, with the goal of improving customer experience and increasing the efficiency of our call center agents,
and have plans to continue reaping the benefits of these investments going forward.

Our systems infrastructure and web and database servers are housed in various locations, mainly in the United States,
which have 24-hour monitoring and engineering support. These data centers have their own generators and multiple back-up
systems. Significant amounts of our owned computer hardware for operating the websites are located at these facilities.
Additionally, we are in the midst of a multi-year project to migrate products, data storage and functionality and significantly
increase our utilization of public cloud computing services, such as Amazon Web Services. For some critical systems, we have
both production and disaster-recovery facilities. Our technology systems are subject to certain risks, which are described below
in Part I, Item 1A — Risk Factors.

Competition

Our brands compete in rapidly evolving and intensely competitive markets. We believe international markets represent

especially large opportunities for Expedia and those of our competitors that wish to expand their brands and businesses abroad
to achieve global scale. We also believe that Expedia is one of only a few companies that are focused on building a truly global,
travel marketplace.

Our competition, which is strong and increasing, includes online and offline travel companies that target leisure and
corporate travelers, including travel agencies, tour operators, travel supplier direct websites and their call centers, consolidators
and wholesalers of travel products and services, large online portals and search websites, certain travel metasearch websites,
mobile travel applications, social media websites, as well as traditional consumer eCommerce and group buying websites. We
face these competitors in local, regional, national and/or international markets. In some cases, competitors are offering more
favorable terms and improved interfaces to suppliers and travelers which make competition increasingly difficult. We also face
competition for customer traffic on internet search engines and metasearch websites, which impacts our customer acquisition
and marketing costs.

We believe that maintaining and enhancing our brands is a critical component of our effort to compete. We differentiate
our brands from our competitors primarily based on the multiple channels we use to generate demand, quality and breadth of
travel products, channel features and usability, price or promotional offers, traveler service and quality of travel planning
content and advice as well as offline brand efforts. The emphasis on one or more of these factors varies, depending on the brand
or business and the related target demographic. Our brands face increasing competition from travel supplier direct websites. In
some cases, supplier direct channels offer advantages to travelers, such as long standing loyalty programs, complimentary
services such as Wi-Fi, and better pricing. Our websites feature travel products and services from numerous travel suppliers,
and allow travelers to combine products and services from multiple providers in one transaction. We face competition from
airlines, hotels, alternative accommodation websites, rental car companies, cruise operators and other travel service providers,
whether working individually or collectively, some of which are suppliers to our websites. Our business is generally sensitive
to changes in the competitive landscape, including the emergence of new competitors or business models, and supplier
consolidation.

Intellectual Property Rights

Our intellectual property rights, including our patents, trademarks, copyright, domain names, trade dress, proprietary

technology, and trade secrets, are an important component of our business. For example, we rely heavily upon our intellectual
property and proprietary information in our content, brands, domain names and website URLs, software code, proprietary
technology, ratings indexes, informational databases, images, graphics and other components that make up our services. We
have acquired some of our intellectual property rights and proprietary information through acquisitions, as well as licenses and
content agreements with third parties.

We protect our intellectual property and proprietary information through registration and by relying on our terms of use,

confidentiality procedures and contractual provisions, as well as international, national, state and common law rights. In
addition, we enter into confidentiality and invention assignment agreements with employees and contractors, and license and
confidentiality agreements with other third parties. Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our trade secrets or our intellectual property and proprietary information without authorization which,
if discovered, might require the uncertainty of legal action to correct. In addition, there can be no assurance that others will not
independently and lawfully develop substantially similar properties.

We maintain our trademark portfolio by filing trademark applications with national trademark offices, maintaining
appropriate registrations, securing contractual trademark rights when appropriate, and relying on common law trademark rights
when appropriate. We also register copyrights and domain names as we deem appropriate. We protect our trademarks,
copyrights and domain names with an enforcement program and use of intellectual property licenses. Trademark and
intellectual property protection may not be available or may not be sought, sufficient or effective in every jurisdiction where we
operate. Contractual disputes or limitations may affect the use of trademarks and domain names governed by private contract.

We have considered, and will continue to consider, the appropriateness of filing for patents to protect inventions, as

circumstances may warrant. However, patents protect only specific inventions and there can be no assurance that others may
not create new products or methods that achieve similar results without infringing upon patents owned by us.

In connection with our copyrightable content, we post and institute procedures under the Digital Millennium Copyright

Act and similar Host Privilege statutes worldwide to gain immunity from copyright liability for photographs, text and other
content uploaded by users. However, differences between statutes, limitations on immunity, and moderation efforts may affect
our ability to claim immunity.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of our business, including

claims of alleged infringement or infringement by us of the trademarks, copyrights, patents and other intellectual property
rights of third parties. In addition, litigation may be necessary in the future to enforce our intellectual property rights, protect
our trade secrets or determine the validity and scope of proprietary rights claimed by others. Any such litigation, regardless of
outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could
materially harm our business.

Regulation

We must comply with laws and regulations relating to the travel industry, the vacation rental industry and the provision of

travel services, including registration in various states as “sellers of travel” and compliance with certain disclosure
requirements and participation in state restitution funds In addition, our businesses are subject to regulation by the
U.S. Department of Transportation and must comply with various rules and regulations governing the provision of air
transportation, including those relating to advertising and accessibility.

As we continue to expand the reach of our brands into the European, Asia-Pacific and other international markets, we are

increasingly subject to laws and regulations applicable to travel agents or tour operators in those markets, including, in some
countries, pricing display requirements, licensing and registration requirements, mandatory bonding and travel indemnity fund
contributions, industry specific value-added tax regimes and laws regulating the provision of travel packages. For example, the
European Economic Community Council Directive on Package Travel, Package Holidays and Package Tours imposes various
obligations upon marketers of travel packages, such as disclosure obligations to consumers and liability to consumers for
improper performance of the package, including supplier failure.

We are also subject to consumer protection, privacy and consumer data, labor, economic and trade sanction programs,

tax, and anti-trust and competition laws and regulations around the world that are not specific to the travel industry. For
example, the European Union adopted a new regulation that will become effective in May 2018, called the General Data
Protection Regulation (“GDPR”). The GDPR will require companies, including ours, to meet new requirements regarding the
handling of personal data. In addition, certain laws and regulations have not historically been applied in the context of online
travel companies, so there can be uncertainty regarding how these requirements relate to our business.

Financial Information about Segments and Geographic Areas

We generate our revenue through a diverse customer base, and there is no reliance on a single customer or small group of

customers; no customer represented 10% or more of our total revenue in the periods presented in this Annual Report on
Form 10-K.

We have four reportable segments: Core Online Travel Agencies ("Core OTA"), trivago, HomeAway, upon its acquisition

in December 2015, and Egencia. In addition, eLong was a reportable segment through its disposal on May 22, 2015. The
segment and geographic information required herein is contained in NOTE 19 — Segment Information, in the notes to our
consolidated financial statements.

Additional Information

Company Website and Public Filings. We maintain a corporate website at www.expediainc.com. Except as explicitly
noted, the information on our website, as well as the websites of our various brands and businesses, is not incorporated by
reference in this Annual Report on Form 10-K, or in any other filings with, or in any information furnished or submitted to, the
SEC.

We make available, free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Sections 13(a)
or Section 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after they have been
electronically filed with, or furnished to, the SEC.

Code of Ethics. We have adopted a Code of Business Conduct and Ethics for Directors and Senior Financial Officers (the
“Code of Ethics”) that applies to our Chief Executive officer, Chief Financial Officer, Chief Accounting Officer and Controller,
and is a “code of ethics” as defined by applicable rules of the SEC. The Code of Ethics is posted on our corporate website at
www.expediainc.com/Investors under the “Corporate Governance” tab. If we make any substantive amendments to the Code of
Ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics to our Chief Executive
Officer, Chief Financial Officer, or Chief Accounting Officer and Controller, we will disclose the nature of the amendment or
waiver on that website or in a report on Form 8-K filed with the SEC.

Employees

As of December 31, 2017, we employed approximately 22,615 full-time and part-time employees. We believe we have

good relationships with our employees, including relationships with employees represented by works councils or other similar
organizations.

Part I. Item 1A. Risk Factors

You should carefully consider each of the following risks and uncertainties associated with our company and the
ownership of our securities. If any of the following risks occur, our business and/or financial performance could be materially
adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
impair our business and/or financial performance.

We operate in an increasingly competitive global environment.

The market for the services we offer is increasingly and intensely competitive. We compete with both established and

emerging online and traditional sellers of travel-related services, including:

•

Online and traditional travel agencies, wholesalers and tour operators;

Travel suppliers, including hotels, airlines and car rental companies;

Search engines and large online portal websites;

Travel metasearch websites;

Corporate travel management service providers;

• Mobile platform travel applications;

•

Social media websites;

eCommerce and group buying websites;

Alternative accommodation websites; and

Other participants in the travel industry.

Online and traditional travel agencies: We face increasing competition from other online travel agencies (“OTAs”) in

many regions, such as The Priceline Group and its subsidiaries Booking.com and Agoda.com, as well as regional competitors
such as Ctrip, which in some cases may have more favorable offerings for travelers or suppliers, including pricing and supply
breadth. In addition, the global OTA segment continues to consolidate, with certain competitors merging or forming strategic
partnerships. We also compete with traditional travel agencies (operating both offline and online), wholesalers and tour
operators for both travelers and the acquisition and retention of supply.

Travel suppliers: Travel suppliers may offer products and services on more favorable terms to consumers who transact

directly with them. Many of these competitors, such as airlines, hotels and rental car companies, have been steadily focusing on
increasing online demand on their own websites and mobile applications in lieu of third-party distributors such as the various
Expedia sites. For instance, several large hotel chains have combined to establish a single online hotel search platform with
links directly to their own websites and mobile applications and some low-cost airlines, which are having increasing success in
the marketplace, distribute their online supply exclusively through their own websites. In recent years, certain hotel chains have
launched advertising campaigns expressly designed to drive consumer traffic directly to their websites. Suppliers who sell on
their own websites, in some instances, offer advantages such as favorable rates, increased or exclusive product availability,
complimentary Wi-Fi, and their own bonus miles or loyalty points, or in the case of airlines promote hotel supply at their
websites, which could make their offerings more attractive to consumers than ours.

Search engines and large online portal websites: We also face increasing competition from search engines, including
Google. To the extent that leading search engines that have a significant presence in our key markets disintermediate online
travel agencies or travel content providers by offering comprehensive travel planning, shopping or booking capabilities, or
increasingly refer those leads directly to suppliers or other favored partners, increase the cost of traffic directed to our websites,
or offer the ability to transact on their own website, there could be a material adverse impact on our business and financial
performance. In recent years search engines have increased their focus on acquiring or launching flight and hotel search
products that provide increasingly comprehensive travel planning content and direct booking capabilities, comparable to OTAs.
For example, Google has entered various aspects of the online travel market, including by establishing a flight metasearch
product (“Google Flights”) and a hotel metasearch product (“Hotel Ads”) that are growing rapidly, as well as its “Book on
Google” reservation functionality. In addition, these search engines continue to expand their voice and artificial intelligence

capabilities. To the extent these actions have a negative effect on our search traffic or the cost of acquiring such traffic, our
business and financial performance could be adversely affected.

In addition, our websites, or websites in which we hold a significant ownership position, including trivago-branded

websites, compete for advertising revenue with these search engines, as well as with large internet portal sites that offer
advertising opportunities for travel-related companies. Several of these competitors have significantly greater financial,
technical, marketing and other resources and larger client bases than we do. We expect to face additional competition as other
established and emerging companies enter the online advertising market. Competition could result in higher traffic acquisition
costs, reduced margins on our advertising services, loss of market share, reduced customer traffic to our websites and reduced
advertising by travel companies on our websites.

Travel metasearch websites: Travel metasearch websites, including Kayak.com (a subsidiary of Priceline), trivago (a

majority-owned subsidiary of Expedia), TripAdvisor, Skyscanner and Qunar (both are subsidiaries of Ctrip), aggregate travel
search results for a specific itinerary across supplier, travel agent and other websites. In addition, some metasearch websites
have added or intend to add various forms of direct or assisted booking functionality to their sites in direct competition with
certain of our brands. To the extent metasearch websites limit our participation within their search results, or consumers utilize
a metasearch website for travel services and bookings instead of ours, our traffic-generating arrangements could be affected in a
negative manner, or we may be required to increase our marketing costs to maintain market share, either of which could have
an adverse effect on our business and results of operations. In addition, as a result of our majority ownership interest in trivago,
we also now compete more directly with other metasearch engines and content aggregators for advertising revenue. To the
extent that trivago’s ability to aggregate travel search results for a specific itinerary across supplier, travel agent and other
websites is hampered, whether due to its affiliation with us or otherwise, or if OTA advertisers or suppliers choose to limit their
participation in trivago’s metasearch marketplace, trivago’s business and therefore our results of operations could be adversely
affected and the value of our investment in trivago could be negatively impacted.

Corporate travel management service providers: Egencia, our full-service corporate travel management company,

competes with online and traditional corporate travel providers, including Carlson Wagonlit and American Express Global
Business Travel (GBT), as well as vendors of corporate travel and expense management software and services, including
Concur. Some of these competitors may have more financial resources, greater name recognition, well-established client bases,
differentiated business models or a broader global presence, which may make it difficult for us to retain or attract new corporate
travel clients.

Mobile and other platform travel applications: The demand for and functionality of smartphones, tablet computers and

home assistants continue to grow and improve significantly. If we are unable to offer innovative, user-friendly, feature-rich
mobile applications and mobile-responsive websites for our travel services, along with effective marketing and advertising, or
if our mobile applications and mobile-responsive websites are not used by consumers, we could lose market share to existing
competitors or new entrants and our future growth and results of operations could be adversely affected.

Social media websites: Social media websites, including Facebook, continue to develop search functionality for data

included within their websites and mobile applications, which may in the future develop into an alternative research and
booking resource for travelers, resulting in additional competition. Notably, Facebook has launched Dynamic Ads for Travel
product, expanding its reach into the travel market.

eCommerce and group buying websites: Traditional consumer eCommerce and group buying websites have periodically

undertaken efforts to expand their local offerings into the travel market. For example, traditional consumer eCommerce and
group buying websites may add hotel offers or other travel services to their sites. To the extent our travelers uses these
websites, these websites may create additional competition and could negatively affect our businesses.

Alternative accommodations: Airbnb and similar websites that facilitate the short-term rental of homes and apartments

from owners provide an alternative to hotel rooms and vacation rental properties available through Expedia websites, including
HomeAway. The continued growth of alternative accommodation sources could affect overall travel patterns generally and the
demand for our services specifically in facilitating reservations at hotels and vacation rentals. Furthermore, Airbnb and similar
websites have added other travel services, such as tours, activities, hotel and flight bookings, any of which could further extend
their reach into the travel market as they seek to compete with the traditional OTAs.

Other participants in the travel industry: Other participants or existing competitors may begin to offer or expand other

services to the travel industry that compete with the services we offer to our travelers, our travel industry affiliates and partners,
or our corporate clients. For example, ride-sharing apps increasingly compete with traditional car rental services and travel
services continue to proliferate. To the extent any of these services gain market share over time, it may create additional
competition and could negatively affect our businesses.

We cannot assure you that we will be able to compete successfully against any current, emerging and future competitors

or on platforms that may emerge, or provide differentiated products and services to our traveler base. Increasing competition
from current and emerging competitors, the introduction of new technologies and the continued expansion of existing
technologies, such as metasearch and other search engine technologies, may force us to make changes to our business models,
which could affect our financial performance and liquidity.

In general, increased competition has resulted in and may continue to result in reduced margins, as well as loss of

travelers, transactions and brand recognition.

The industry in which we operate is dynamic.

We continue to adapt our business to remain competitive, including investing in evolving channels, such as metasearch,

and mobile, as well as voice search capabilities and offering new consumer choices, including inventory types and transactional
models, and increasing supplier inventory on our existing platforms through acquisitions and partnerships. If we fail to
appropriately adapt to competitive or consumer preference developments, our business could be adversely affected. Our
attempts to adapt our current business models or practices or adopt new business models and practices in order to compete may
involve significant risks and uncertainties, including distraction of management from current operations, expenses associated
with the initiatives, different legal or tax requirements, inadequate return on investments, difficulties and expenses associated
with the integration of acquired brands and their inventory onto our platforms, as well as limiting our ability to develop new
site features. In addition, adaptations to our business may require significant investments, including changes to our financial
systems and processes, which could significantly increase our costs and increase the risk of payment delays and/or non-
payments of amounts owed to us from our supplier partners and customers. In addition, these new initiatives may not be
successful and may harm our financial condition and operating results.

Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-
generating arrangements.

We increasingly utilize internet search engines such as Google, principally through the purchase of travel-related

keywords, to generate a significant portion of the traffic to our websites and the websites of our affiliates. Search engines
frequently update and change the logic that determines the placement and display of results of a user’s search, such that the
purchased or algorithmic placement of links to our websites and those of our affiliates can be negatively affected. In addition, a
significant amount of traffic is directed to our websites and those of our affiliates through participation in pay-per-click and
display advertising campaigns on search engines, including Google, and travel metasearch websites, including Kayak,
TripAdvisor and trivago. Pricing and operating dynamics for these traffic sources can change rapidly, both technically and
competitively. Moreover, a search or metasearch engine could, for competitive or other purposes, adopt emerging technologies
such as voice, alter its search algorithms or results which could cause a website to place lower in search query results or inhibit
participation in the search query results. If a major search engine changes its algorithms or results in a manner that negatively
affects the search engine ranking, paid or unpaid, of our websites and the websites of our affiliates, or those of our third-party
distribution partners, or if competitive dynamics impact the costs or effectiveness of search engine optimization, search engine
marketing or other traffic-generating arrangements in a negative manner, our business and financial performance would be
adversely affected, potentially to a material extent. In addition, certain metasearch companies have added various forms of
direct or assisted booking functionality to their sites. To the extent such functionality is promoted at the expense of traditional
paid listings, this may reduce the amount of traffic to our websites or those of our affiliates.

Our business depends on our relationships with travel suppliers and travel distribution partners.

An important component of our business success depends on our ability to maintain and expand relationships with travel
suppliers (including owners and managers of vacation rental properties) and GDS partners. A substantial portion of our revenue
is derived from compensation negotiated with travel suppliers, in particular hotel suppliers, airlines and GDS partners for
bookings made through our websites. Each year we typically negotiate or renegotiate numerous supplier contracts.

No assurances can be given that our compensation, access to inventory or access to inventory at competitive rates will not

be further reduced or eliminated in the future, or that travel suppliers will not reduce the cost of their products or services (for
example, average daily rates (“ADRs”) or ticket prices); attempt to implement costly direct connections; charge us for or
otherwise restrict access to content; increase credit card fees or fees for other services; fail to provide us with accurate booking
information or otherwise take actions that would increase our operating expenses. Any of these actions, or other similar actions,
could reduce our revenue and margins thereby adversely affecting our business and financial performance.

Declines or disruptions in the travel industry could adversely affect our business and financial performance.

Our business and financial performance are affected by the health of the worldwide travel industry. Travel expenditures

are sensitive to personal and business-related discretionary spending levels and tend to decline or grow more slowly during
economic downturns. Decreased travel expenditures could reduce the demand for our services, thereby causing a reduction in
revenue.

For example, during regional or global recessions domestic and global economic conditions can deteriorate rapidly,

resulting in increased unemployment and a reduction in available budgets for both business and leisure travelers, which slow
spending on the services we provide and have a negative impact on our revenue growth. Additionally, if individual countries or
regions experience deteriorating credit and economic conditions and/or significant fluctuations of currency values relative to
other currencies such as the U.S. dollar, it can lead to a negative impact on our foreign denominated net assets, gross bookings,
revenues, operating expenses, and net income as expressed in U.S. dollars. Further economic weakness and uncertainty may
result in significantly decreased spending on our services by both business and leisure travelers, which may have a material
adverse impact on our business and financial performance. Political instability, including the United Kingdom withdrawal from
the European Union, bans on travel from certain countries to the United States, geopolitical conflicts, significant fluctuations in
currency values, sovereign debt issues and macroeconomic concerns are examples of events that contribute to a somewhat
uncertain economic environment, which could have a negative impact on the travel industry in the future.

Our business is also sensitive to fluctuations in hotel supply, occupancy and ADRs, decreases in airline capacity,

periodically rising airline ticket prices and the imposition of taxes or surcharges by regulatory authorities, all of which we have
experienced historically.

Other factors that could negatively affect our business include:

•

Significant changes in oil prices;

Continued air carrier and hotel chain consolidation;

Reduced access to discount airfares;

Travel-related strikes or labor unrest, bankruptcies or liquidations;

Increased incidents of actual or threatened terrorism;

Periods of political instability, geopolitical conflict or heightened local or regional crime activity, resulting in

additional restrictions on travel or travelers becoming concerned about safety issues;

Natural disasters or events such as severe weather conditions, volcanic eruptions, hurricanes or earthquakes;

Travel-related accidents or the grounding of aircraft due to safety concerns; and

Health-related risks, such as the Ebola, H1N1, MERS-CoV, SARs and avian flu outbreaks.

Such concerns could result in a protracted decrease in demand for our travel services. This decrease in demand,
depending on its scope and duration, together with any future issues affecting travel safety, could significantly and adversely
affect our business, working capital and financial performance over the short and long-term. In addition, the disruption of the
existing travel plans of a significant number of travelers upon the occurrence of certain events, such as severe weather
conditions, actual or threatened terrorist activity or war, could result in the incurrence of significant additional costs and
decrease our revenues leading to constrained liquidity if we, as we have done historically in the case of severe weather
conditions, provide relief to affected travelers by refunding the price or fees associated with airline tickets, hotel reservations
and other travel products and services.

We rely on the value of our brands, and the costs of maintaining and enhancing our brand awareness are increasing.

We invest considerable financial and human resources in our brands in order to retain and expand our customer base in
existing and emerging markets. We expect that the cost of maintaining and enhancing our brands will continue to increase due
to a variety of factors, including:

•

Increased spending from our competitors;

Promotional and discounting activities;

Our growing customer loyalty programs;

Supporting multiple brands and the impact of competition among our multiple brands;

Expanding our marketing efforts in certain geographies and developing new products;

•

Inflation in media pricing, including search engine keywords; and

Continued emergence and share growth of travel-related traffic from search and metasearch engines.

During 2017, certain online travel companies and metasearch websites continued to expand their offline and digital
advertising campaigns globally, increasing competition for share of voice, and we expect this activity to continue in the future.
We are also pursuing and expect to continue to pursue long-term growth opportunities, particularly in emerging markets, which
have had and may continue to have a negative impact on our overall marketing efficiency.

Our efforts to preserve and enhance consumer awareness of our brands may not be successful, and, even if we are

successful in our branding efforts, such efforts may not be cost-effective, or as efficient as they have been historically.
Moreover, branding efforts with respect to some brands within the Expedia portfolio have in the past and may in the future
result in marketing inefficiencies and negatively impact growth rates of other brands within our portfolio. In addition, our
decisions over allocation of resources and choosing to invest in branding efforts for certain brands in our portfolio at the
expense of not investing in, or reducing our investments in, other brands in our portfolio could have an overall negative
financial impact. If we are unable to maintain or enhance consumer awareness of our brands and generate demand in a cost-
effective manner, it would have a material adverse effect on our business and financial performance.

We rely on information technology to operate our businesses and maintain our competitiveness, and any failure to
invest in and adapt to technological developments and industry trends could harm our business.

We depend on the use of sophisticated information technologies and systems, including technology and systems used for

website and mobile applications, reservations, customer service, supplier connectivity, communications, procurement,
payments, fraud detection and administration. As our operations grow in size, scope and complexity, we must continuously
improve and upgrade our systems and infrastructure to offer an increasing number of travelers enhanced products, services,
features and functionality, while maintaining or improving the reliability and integrity of our systems and infrastructure.

Our future success also depends on our ability to adapt our services and infrastructure to meet rapidly evolving consumer

trends and demands while continuing to improve the performance, features and reliability of our service in response to
competitive service and product offerings. Cloud computing, the continued growth of alternative platforms and mobile
computing devices, the emergence of niche competitors who may be able to optimize products, services or strategies that use
cloud computing or for such platforms, as well as other technological changes, including new devices, services and home
assistants, such as Amazon’s Echo and Alexa Voice and Google Home, and developing technologies, such as machine learning,
artificial intelligence, chatbot and virtual reality technologies, have, and will continue to require, new and costly investments.
Transitioning to these new technologies may be disruptive to resources and the services we provide, and may increase our
reliance on third party service providers. For example, we are in the midst of a multi-year project to migrate products, data
storage and functionality and significantly increase our utilization of public cloud computing services, such as Amazon Web
Services. In addition, we may not be successful, or may be less successful than our current or new competitors, in developing
technology that operates effectively across multiple devices and platforms and that is appealing to consumers, either of which
would negatively impact our business and financial performance. New developments in other areas, such as cloud computing
and software as a service provider, could also make it easier for competition to enter our markets due to lower up-front
technology costs. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies
and systems as quickly as we would like or in a cost-effective manner. We have been engaged in a multi-year effort to migrate
key portions of our consumer, affiliate and corporate travel sites, and back office application functionality, to new technology
platforms to enable us to improve conversion, innovate more rapidly, achieve better search engine optimization and improve
our site merchandising and transaction processing capabilities, among other anticipated benefits. Implementations and system
enhancements such as these have been in the past, and may continue to be in the future, more time consuming and expensive
than originally anticipated, and the resources devoted to those efforts have adversely affected, and may continue to adversely
affect, our ability to develop new site features. In addition, during the migration process the sites have in the past, and may
continue in the future, to experience reduced functionality, decreases in conversion rates, and increased costs relating to
maintaining redundant systems. Also, we may be unable to devote financial resources to new technologies and systems, or
enhancements to existing infrastructure, technologies and systems, in the future. Overall, these implementations and systems
enhancements may not achieve the desired results in a timely manner, to the extent anticipated, or at all. If any of these events
occur, our business and financial performance could suffer.

Acquisitions, investments or significant commercial arrangements could result in operating and financial difficulties.

We have acquired, invested in or entered into significant commercial arrangements with a number of businesses in the
past, and our future growth may depend, in part, on future acquisitions, investments or significant commercial arrangements,
any of which could be material to our financial condition and results of operations. Certain financial and operational risks

related to acquisitions, investments or significant commercial arrangements that may have a material impact on our business
are:

•

Diversion of management’s attention or other resources from our existing businesses, for example during 2016,
we expended significant resources in the integration of Orbitz Worldwide, Inc.;

Difficulties and expenses in assimilating the operations, products, technology, privacy protection systems,
information systems or personnel of the acquired company;

Use of cash resources and incurrence of debt and contingent liabilities in funding and after consummating
acquisitions, including with regard to future payment obligations in connection with put/call rights, may limit
other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding
indebtedness;

Amortization expenses related to acquired intangible assets and other adverse accounting consequences, including
changes in fair value of contingent consideration;

Expected and unexpected costs incurred in pursuing acquisitions, including identifying and performing due
diligence on potential acquisition targets that may or may not be successful, if unsuccessful could result in
unexpected litigation or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes
due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial
condition;

Impairment of relationships with employees, suppliers, customers, vendors and affiliates of our business and the
acquired business;

The assumption of known and unknown debt and other liabilities and obligations of the acquired company;

Failure of the acquired company to achieve anticipated integration synergies, traffic, transactions, revenues,
earnings or cash flows or to retain key management or employees;

Failure to generate adequate returns on our acquisitions and investments, or returns in excess of alternative uses of
capital;

Failure to properly and timely integrate acquired companies and their operations, reducing our ability to achieve,
among other things, anticipated returns on our acquisitions through cost savings and other synergies;

Entrance into markets in which we have no direct prior experience resulting in increased complexity in our
business;

Challenges relating to the structure of an investment, such as governance, accountability and decision-making
conflicts that may arise in the context of a joint venture or other majority ownership investments;

Impairment of goodwill or other intangible assets such as trademarks or other intellectual property arising from
our acquisitions;

Costs associated with litigation or other claims arising in connection with the acquired company;

Increased or unexpected costs or delays to obtain governmental or regulatory approvals for acquisitions;

Increased competition amongst potential acquirers for acquisition targets could result in a material increase in the
purchase price for such targets or otherwise limit our ability to consummate acquisitions; and

Adverse market reaction to acquisitions or investments or failure to consummate such transactions.

Moreover, we rely heavily on the representations and warranties and related indemnities provided to us by the sellers of
acquired private companies, including as they relate to creation, ownership and rights in intellectual property and compliance
with laws and contractual requirements. Our failure to address these risks or other problems encountered in connection with
past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or
investments, incur unanticipated liabilities and harm our business generally.

Our HomeAway business is subject to regulatory risks and continues its transition to a primarily transaction-based
business, either of which could have a material adverse effect on our operations and financial results.

HomeAway has been, and continues to be, subject to regulatory development that affects the vacation rental industry and

the ability of companies like us to list those vacation rentals online. For example, some states and local jurisdictions have
adopted or are considering statutes or ordinances that prohibit property owners and managers from renting certain properties for
fewer than 30 consecutive days or otherwise limit their ability to do so, and other states and local jurisdictions may introduce
similar regulations. Many homeowners, condominium and neighborhood associations have adopted rules that prohibit or
restrict short-term vacation rentals. In addition, many of the laws that impose taxes or other obligations on travel and lodging
15

companies were established before the growth of the internet and the vacation rental industry, which creates a risk of those laws
being interpreted in ways not originally intended that could burden property owners and managers or otherwise harm our
business.

We are subject to legal, financial and competitive risk associated with HomeAway’s transition to a primarily transaction-

based business. HomeAway historically generated the majority of its revenues when owners or managers of vacation rentals
paid HomeAway subscription fees for the listing of their properties on the HomeAway family of websites. While subscription
fees were previously the predominant source of revenue for HomeAway, a growing share of HomeAway’s revenue is now
generated from a commission-based business model, where the traveler pays a service fee for the use of the HomeAway
platform and the owner or manager of the property pays HomeAway a fee or a commission on a transactional basis for each
booking of the property by a traveler. HomeAway launched the traveler service fee and introduced its Book with Confidence
Guarantee in the United States beginning in February 2016, followed by a rollout in Europe beginning in June 2016. In
addition, HomeAway moved to a single subscription option for its homeowners and property manager partners in July 2016.
HomeAway’s business model transition involves significant additional risks and potential costs for HomeAway, including:

•

Delays or unanticipated costs in completing the transition, which may delay or negate any expected benefits;

Suppliers and travelers may not adopt HomeAway’s new marketplace or payment structures and may choose to
transact with competitors;

Failure to implement or expand HomeAway’s technology, systems and network infrastructure in light of
additional payment processing and reporting complexity, or failure to do so at a reasonable cost;

New efforts in search engine marketing and participation in metasearch may be ineffective and reduce
HomeAway’s ability to spend at the desired return on investment;

Increased risk of fraud; and

Additional potential tax exposures.

These risks could have a material adverse effect on HomeAway’s business and results of operations, which in turn could

have a material adverse effect on Expedia’s operations and financial results.

Our international operations involve additional risks and our exposure to these risks will increase as our business
expands globally.

We operate in a number of jurisdictions outside of the United States and intend to continue to expand our international
presence. As we have expanded globally, our international (non-U.S.) revenue has increased from 39% in 2010 to 45% in 2017.
In foreign jurisdictions, we face complex, dynamic and varied risk landscapes. As we begin to operate in new markets and
countries, we must tailor our services, business models and functional compliance structures to the unique circumstances of
such countries and markets, which can be complex, difficult, costly and divert management and personnel resources. Laws and
business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses or our failure to
adapt our practices, systems, processes and business models effectively to the traveler and supplier preferences (as well as the
regulatory and tax landscapes) of each country into which we expand, could slow our growth. For example, to compete in
certain international markets we have in the past, and may in the future, adopt locally-preferred payment methods, which has
increased our costs and instances of fraud. Certain international markets in which we operate have lower margins than more
mature markets, which could have a negative impact on our overall margins as our revenues from these markets grow over
time.

In addition to the risks outlined elsewhere in this section, our international operations are also subject to a number of

other risks, including:

•

Currency exchange restrictions or costs and exchange rate fluctuations, and the risks and costs inherent in hedging
such exposures;

Exposure to local economic or political instability and threatened or actual acts of terrorism;

Compliance with U.S. and Non-U.S. regulatory laws and requirements relating to anti-corruption, antitrust or
competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws,
health and safety, information reporting and advertising and promotions;

Compliance with additional U.S. laws applicable to U.S. companies operating internationally;

Differences, inconsistent interpretations and changes in U.S. and non-U.S. laws and regulations, including tax
laws enacted pursuant to the 2017 Tax Cuts and Jobs Act in the United States;

• Weaker enforcement of our contractual and intellectual property rights;

•

Lower levels of credit card usage and increased payment and fraud risk;

Longer payment cycles, and difficulties in collecting accounts receivable;

Preferences by local populations for local providers;

Restrictions on, or adverse tax and other consequences related to the repatriation of cash, the withdrawal of non-
U.S. investments, cash balances and earnings, as well as restrictions on our ability to invest in our operations in
certain countries;

Financial risk arising from transactions in multiple currencies;

Slower adoption of the internet as an advertising, broadcast and commerce medium in those markets as compared
to the United States;

Our ability to support new technologies, including mobile devices or block chain technologies, that may be more
prevalent in international markets;

Difficulties in attracting and retaining qualified employees in international markets, as well as managing staffing
and operations due to increased complexity, unionization, distance, time zones, language and cultural differences;
and

Uncertainty regarding liability for services and content, including uncertainty as a result of local laws and lack of
precedent.

The China travel market in particular is significant and has grown significantly in recent years. Prior to May 2015, we
conducted our operations in China primarily through our majority ownership interest in eLong, Inc., an online travel service
provider in China. Following the sale of our eLong ownership stake in May 2015 to a group of China-based purchasers,
including to a subsidiary of Ctrip International, Ltd., we have conducted our business in China through localized websites and
commercial arrangements with local partners, including Ctrip. There can be no guarantee that we will be able to grow or even
maintain market share and brand awareness in the highly dynamic and intensely competitive market in China and our failure to
do so could significantly impact our ability to grow our overall business.

A failure to comply with current laws, rules and regulations or changes to such laws, rules and regulations and other
legal uncertainties may adversely affect our business, financial performance, results of operations or business growth.

Our business and financial performance could be adversely affected by unfavorable changes in or interpretations of
existing laws, rules and regulations or the promulgation of new laws, rules and regulations applicable to us and our businesses,
including those relating to travel and vacation rental licensing and listing requirements, the internet and online commerce,
internet advertising and price display, consumer protection, anti-corruption, anti-trust and competition, economic and trade
sanctions, tax, banking, data security, the provision of payment services and privacy. As a result, regulatory authorities could
prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were
found not to comply with applicable regulatory or licensing requirements or any binding interpretation of such requirements.
Unfavorable changes or interpretations could decrease demand for our products and services, limit marketing methods and
capabilities, affect our margins, increase costs and/or subject us to additional liabilities.

For example, there are, and will likely continue to be, an increasing number of laws and regulations pertaining to the
internet and online commerce that may relate to liability for information retrieved from or transmitted over the internet, display
of certain taxes and fees, online editorial and user-generated content, user privacy, behavioral targeting and online advertising,
taxation, liability for third-party activities and the quality of products and services. Furthermore, the growth and development
of online commerce may prompt calls for more stringent consumer protection laws and more aggressive enforcement efforts,
which may impose additional burdens on online businesses generally.

Likewise, the SEC, Department of Justice (“DOJ”) and Office of Foreign Assets Controls (“OFAC”), as well as foreign

regulatory authorities, have continued to increase the enforcement of economic sanctions and trade regulations and anti-
corruption laws, across industries. U.S. economic sanctions relate to transactions with designated foreign countries, including
Cuba, Iran, North Korea, Sudan, Syria and the Crimea region of the Ukraine, and nationals and others of those countries, as
well as certain specifically targeted individuals and entities. We believe that our activities comply with OFAC, European Union,
United Kingdom and other regulatory authorities’ economic sanction and trade regulations and anti-corruption regulations,
including the Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act and the UK Criminal Finances Act. As regulations
continue to evolve and regulatory oversight continues to increase, we cannot guarantee that our programs and policies will be
deemed compliant by all applicable regulatory authorities. In the event our controls should fail or are found to be out of
compliance for other reasons, we could be subject to monetary damages, civil and criminal money penalties, litigation and
damage to our reputation and the value of our brands.

We also have been subject, and we will likely be subject in the future, to inquiries or legal proceedings from time to time
from regulatory bodies concerning compliance with consumer protection, competition, tax and travel industry-specific laws and
regulations, including but not limited to investigations and legal proceedings relating to the travel industry and, in particular,
parity provisions in contracts between hotels and online travel companies, including Expedia and the presentation of
information to consumers, as described in Part I, Item 3, Legal Proceedings - Competition and Regulatory Matters. The failure
of our businesses to comply with these laws and regulations could result in fines and/or proceedings against us by
governmental agencies and/or consumers, which if material, could adversely affect our business, financial condition and results
of operations. Further, if such laws and regulations are not enforced equally against other competitors in a particular market,
our compliance with such laws may put us a competitive disadvantage vis-à-vis competitors who do not comply with such
requirements. We are unable at this time to predict the timing or outcome of these various investigations and lawsuits or similar
future investigations or lawsuits, and their impact, if any, on our business and results of operations.

The promulgation of new laws, rules and regulations, or the new interpretation of existing laws, rules and regulations, in
each case that restrict or otherwise unfavorably impact the ability or manner in which we provide travel services could require
us to change certain aspects of our business, operations and commercial relationships to ensure compliance, which could
decrease demand for services, reduce revenues, increase costs and/or subject the company to additional liabilities.

Furthermore, our future growth may be limited by anti-trust or competition laws. For example, our business has grown

and continues to expand, and, as a consequence, increases in our size and market share may negatively affect our ability to
obtain regulatory approval of proposed acquisitions, investments or significant commercial arrangements, any of which could
adversely affect our ability to grow and compete.

Application of existing tax laws, rules or regulations are subject to interpretation by taxing authorities.

The application of various domestic and international income and non-income tax laws, rules and regulations to our

historical and new products and services is subject to interpretation by the applicable taxing authorities. These taxing
authorities have become more aggressive in their interpretation and/or enforcement of such laws, rules and regulations over
time, as governments are increasingly focused on ways to increase revenues. This has contributed to an increase in audit
activity and harsher stances by tax authorities. As such, additional taxes or other assessments may be in excess of our current
tax reserves or may require us to modify our business practices, any of which could have a material adverse effect on our
business, results of operations and financial condition.

A number of taxing authorities have made inquiries, filed lawsuits and/or levied assessments asserting we are required to

collect and remit hotel occupancy, state and local sales or use taxes or other taxes, including, but not limited to, the legal
proceedings described in Part I, Item 3, Legal Proceedings. We are also in various stages of inquiry or audit with multiple
jurisdictions regarding the application of value added/goods and services tax to our transactions. While we believe we comply
with applicable tax laws in the jurisdictions in which we facilitate travel reservations, tax authorities may conclude we owe
additional taxes and issue tax assessments.

We have in the past been required, and may in the future be required, in certain domestic and foreign jurisdictions to pay
any such tax assessments prior to contesting their validity, which payments may be substantial. This requirement is commonly
referred to as “pay-to-play.” Payment of these amounts is not an admission that the taxpayer believes it is subject to such taxes.
For example, as a pre-condition to challenging the assessments, during 2009, we paid $48 million under protest to the city of
San Francisco and an additional $25.5 million under protest on May 26, 2014 in connection with additional assessments; and
during 2013, we paid $171 million to the state of Hawaii. In September 2015, following a ruling by the Hawaii Supreme Court,
the State of Hawaii refunded the Expedia companies $132 million of the original “pay-to-play” amount, and Orbitz also
received a similar refund of $22 million. On May 15, 2017, the Expedia companies paid under protest the full amount claimed
due, or approximately $16.7 million, as a condition of appealing the August 5, 2016 decision by the Hawaii tax court holding
that taxes are due on the online travel companies’ services to facilitate merchant model car rental transactions.

Significant judgment and estimation is required in determining our worldwide tax liabilities. In the ordinary course of our

business, there are transactions and calculations, including intercompany transactions and cross-jurisdictional transfer pricing,
for which the ultimate tax determination is uncertain or otherwise subject to interpretation. Tax authorities may disagree with
our intercompany charges, including the amount of or basis for such charges, cross-jurisdictional transfer pricing or other
matters and assess additional taxes. For example, the IRS recently notified us of a proposed adjustment relating to transfer
pricing with our foreign subsidiaries in connection with the examination of the 2009-2010 tax years, and although we disagree
with the IRS’ position and are challenging the adjustments, the ultimate resolution is uncertain and, if resolved in a manner
unfavorable to us, may adversely affect our financial results. We believe our tax estimates are reasonable, however, the final
determination of tax audits could be materially different from our historical tax provisions and accruals in which case we may

be subject to additional tax liabilities, possibly including interest and penalties, which could have a material adverse effect on
our cash flows, financial condition and results of operations.

The enactment of legislation implementing changes in taxation of international business activities, the adoption of other
corporate tax reform policies, or changes in tax legislation or policies could materially affect our financial position and
results of operations.

While many of the underlying laws, rules or regulations imposing taxes and other obligations were established before the

growth of the digital economy, some jurisdictions have enacted new tax laws, rules and regulations directed at the digital
economy and multi-national businesses. If existing tax laws, rules or regulations are amended, or if new unfavorable tax laws,
rules or regulations are enacted, particularly with respect to occupancy, sales, value-added taxes, or unclaimed property, or
other tax laws applicable to the digital economy or multi-national businesses, the results could increase our tax payments,
including the possibility of double taxation, or other obligations, prospectively or retrospectively, subject us to interest and
penalties, decrease the demand for our products and services if we pass on such costs to the consumer, result in increased costs
to update or expand our technical or administrative infrastructure or effectively limit the scope of our business activities if we
decided not to conduct business in particular jurisdictions. As a result, these changes could have an adverse effect on our
business or financial performance.

Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions

where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions
are under heightened scrutiny and tax reform legislation is being proposed or enacted in several jurisdictions. For example, the
2017 Tax Cuts and Jobs Act reforms U.S. corporate income taxes and, among other things, reduces the U.S. corporate income
tax rate from 35% to 21%, but imposes base-erosion prevention measures as well as a one-time mandatory deemed repatriation
tax on accumulated foreign earnings. Our initial estimates of the financial impact of the 2017 Tax Cuts and Jobs Act may
change as we review our analysis and as additional guidance becomes available. In general, changes in tax laws may affect our
tax rate, increase our tax liabilities, carrying value of deferred tax assets, or our deferred tax liabilities.

In addition, in October 2015, the Organization for Economic Co-Operation and Development (“OECD”) released a final

package of suggested measures to be implemented by member nations in response to a 2013 action plan calling for a
coordinated multi-jurisdictional approach to “base erosion and profit shifting” (“BEPS”) by multinational companies. Multiple
member jurisdictions, including countries in which we operate, have begun implementing recommended changes such as
country by country reporting (“CBCR”). The CBCR standards require multinationals to disclose certain financial and economic
indicators across geographies. The CBCR disclosure is expected to result in increased global tax audit activity. Additional
legislative changes are anticipated in upcoming years. Certain countries have adopted unilateral changes increasing the risk of
double taxation. Any changes to U.S. or international tax laws or interpretation of current or existing law could impact the tax
treatment of our earnings and adversely affect our profitability. Our tax liabilities in the future could also be adversely affected
by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in
the valuation of deferred tax assets and liabilities, or the discontinuance of beneficial tax arrangements in certain jurisdictions.

We continue to work with, as appropriate, relevant governmental authorities and legislators to clarify our obligations
under existing, new and emerging tax laws, rules and regulations. However, due to the large scale of our international business
activities any substantial changes in international corporate tax policies, enforcement activities or legislative initiatives may
materially and adversely affect our business, the amount of taxes we are required to pay and our financial condition and results
of operations generally.

We are involved in various legal proceedings and may experience unfavorable outcomes, which could adversely affect
our business and financial condition.

We are involved in various legal proceedings and claims involving taxes, property, personal injury, contract, alleged

infringement of third-party intellectual property rights, antitrust, consumer protection, securities laws, and other claims,
including, but not limited to, the legal proceedings described in Part I, Item 3, Legal Proceedings. These matters may involve
claims for substantial amounts of money or for other relief that might necessitate changes to our business or operations. The
defense of these actions is and will likely continue to be both time consuming and expensive and their outcomes cannot be
predicted with certainty. Determining reserves for pending litigation is a complex, fact-intensive process that requires
significant legal judgment. It is possible that unfavorable outcomes in one or more such proceedings could result in substantial
payments that could adversely affect our business, consolidated financial position, results of operations, or cash flows in a
particular period.

System interruption, security breaches and the lack of redundancy in our information systems may harm our
businesses.

We rely on information technology systems, including the internet and third-party hosted services, to support a variety of

business processes and activities and to transmit and store data, including booking transactions, intellectual property, our
proprietary business information and that of our suppliers and business partners, personally identifiable information of our
customers and employees, and invoicing information and the collection of payments, accounting, procurement, and supply
chain activities. In addition, we rely on our information technology systems to process financial information and results of
operations for internal reporting purposes and to comply with financial reporting, legal, and tax requirements. The risk of a
cybersecurity-related attack, intrusion, or disruption, including through spyware, viruses, phishing, denial of service and similar
attacks by criminal organizations, hacktivists, foreign governments, and terrorists, is persistent. In addition, as we continue to
integrate legacy systems from our acquired companies, such as Orbitz and HomeAway, into our information technology
systems, we increase the risk of these system interruptions. We have experienced and may in the future experience system
interruptions that make some or all of these systems unavailable or prevent us from efficiently fulfilling orders or providing
services to third parties. These interruptions could include security intrusions and attacks on our systems for fraud or service
interruption. Significant interruptions, outages or delays in our internal systems, or systems of third parties that we rely upon -
including multiple co-location providers for data centers, cloud computing providers for application hosting, and network
access providers - and network access, or deterioration in the performance of such systems, would impair our ability to process
transactions, decrease our quality of service that we can offer to our customers, damage our reputation and brands, increase our
costs and/or cause losses.

Potential security breaches to our systems or the systems of our service providers, whether resulting from internal or

external sources, could significantly harm our business. We devote significant resources to network security, monitoring and
testing, employee training, and other security measures, but there can be no guarantee that these measures will prevent all
possible security breaches or attacks. A party, whether internal or external, that is able to circumvent our security systems could
misappropriate customer or employee information, intellectual property, proprietary information or other business and financial
data or cause significant interruptions in our operations. We may need to expend additional significant resources to protect
against security breaches or to address problems caused by breaches, and a security breach resulting in the reduction of website
availability could cause a loss of substantial business volume during the occurrence of any such incident. Because the
techniques used to sabotage security change frequently, are often not recognized until launched against a target, and may
originate from less regulated or remote areas around the world, we may be unable to proactively address these techniques or to
implement adequate preventive measures. Security breaches could result in negative publicity, damage to reputation, exposure
to risk of loss or litigation and possible liability due to regulatory penalties and sanctions or pursuant to our contractual
arrangements with payment card processors for associated expenses and penalties. Security breaches could also cause travelers
and potential users and our business partners to lose confidence in our security, which would have a negative effect on the value
of our brands. Our failure to quickly respond to or adequately protect against attacks or intrusions, whether for our own
systems or systems of vendors, could expose us to security breaches that could have an adverse impact on financial
performance.

In addition, no assurance can be given that our backup systems or contingency plans will sustain critical aspects of our

operations or business processes in all circumstances, many other systems are not fully redundant and our disaster recovery or
business continuity planning may not be sufficient. Fire, flood, power loss, telecommunications failure, break-ins, earthquakes,
acts of war or terrorism, acts of God, computer viruses, electronic intrusion attempts from both external and internal sources
and similar events or disruptions may damage or impact or interrupt computer or communications systems or business
processes at any time. Although we have put measures in place to protect certain portions of our facilities and assets, any of
these events could cause system interruption, delays and loss of critical data, and could prevent us from providing services to
our travelers and/or third parties for a significant period of time. In addition, any remediation efforts may be costly for which
we may not have adequate insurance to cover such losses or costs. Moreover, the costs of enhancing infrastructure to attain
improved stability and redundancy may be time consuming and expensive and may require resources and expertise that are
difficult to obtain.

We process, store and use customer and employee personal, financial and other data, which subjects us to risks
stemming from possible failure to comply with governmental regulation and other legal obligations, as well as litigation
and reputational risks associated with the failure to protect such data from unauthorized use, theft or destruction.

We process, store and use customer and employee personal, financial and other data obtained from users of our websites

and mobile applications and from our administrative functions. There are numerous laws regarding the storing, sharing, use,
processing, disclosure and protection of customer and employee personal, financial and other data, the scope of which is
changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We strive
to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data

protection. It is possible, however, that these obligations may be interpreted and applied in a manner that is inconsistent from
one jurisdiction to another and may conflict with other rules or the practices of the companies.

Any failure or perceived failure by us, or our service providers, to comply with the privacy policies, privacy-related
obligations to users or other third parties, or privacy related legal obligations, or any compromise of security that results in the
unauthorized use, theft or destruction of such data, may result in a material loss of revenues from the potential adverse impact
to our reputation and brand, our ability to retain customers or attract new customers and the potential disruption to our business
and plans. In addition, such an event could result in violations of applicable U.S. and international laws, governmental
enforcement actions and consumer or securities litigation. Such events could also subject us to bank fines, penalties or
increased transaction costs, damage our reputation and brands, impair our relationships with current and potential business
partners and key service providers, all of which could have an adverse effect on our business.

We are subject to international privacy regulations, compliance with these regulations could impose significant
compliance burdens.

The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable

future. Practices regarding the collection, use, storage, transmission and security of personal information by companies
operating over the internet have recently come under increased public scrutiny. The U.S. Congress and federal agencies,
including the Federal Trade Commission and the Department of Commerce, are reviewing the need for greater regulation for
the collection and use of information concerning consumer behavior on the internet, including regulation aimed at restricting
certain targeted advertising practices. U.S. courts are also considering the applicability of existing federal and state statutes,
including computer trespass and wiretapping laws, to the collection and exchange of information online.

In addition, the European Court of Justice’s invalidation of the U.S.-EU Safe Harbor Framework could make it more

difficult for us to transfer data outside of the European Union for processing and the European Union’s reforms to its existing
data protection legal framework, which may result in a greater compliance burden for companies, including Expedia, with users
in Europe and increased costs of compliance. For example, the European Union adopted a new regulation that becomes
effective in May 2018, called the General Data Protection Regulation, which requires companies to meet new requirements
regarding the handling of personal data, including its use, protection and the ability of persons whose data is stored to correct or
delete such data about themselves. Failure to meet these requirements could result in significant penalties. Finally, countries in
other regions, most notably Asia, Eastern Europe and Latin America, are increasingly implementing new privacy regulations,
resulting in additional compliance burdens and uncertainty as to how some of these laws will be interpreted.

We are subject to payments-related and fraud risks.

We have agreements with companies that process customer credit and debit card transactions, the volume of which are
very large and continue to grow, for the facilitation of customer bookings of travel services from our travel suppliers. These
agreements allow these processing companies, under certain conditions, to hold an amount of our cash (referred to as a
“holdback”) or require us to otherwise post security equal to a portion of bookings that have been processed by that company.
These processing companies may be entitled to a holdback or suspension of processing services upon the occurrence of
specified events, including material adverse changes in our financial condition. An imposition of a holdback or suspension of
processing services by one or more of our processing companies could materially reduce our liquidity. Moreover, there can be
no assurances that the interchange rates or the fees we pay for the processing of customer credit and debit card transactions will
not increase which could reduce our revenue thereby adversely affecting our business and financial performance.

In addition, credit card networks, such as Visa, MasterCard and American Express, have adopted rules and regulations

that apply to all merchants who process and accept credit cards and include payment card association operating rules, the
Payment Card Industry Data Security Standards, or the PCI DSS. Under these rules, we are required to adopt and implement
internal controls over the use, storage and security of card data. We assess our compliance with the PCI DSS rules on a periodic
basis and make necessary improvements to our internal controls. If we fail to comply with these rules or requirements, or if our
data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher
transaction fees, and lose our ability to accept credit and debit card payments from our customers, or facilitate other types of
online payments, and our business and operating results could be adversely affected.

Our results of operations and financial positions have been negatively affected by our acceptance of fraudulent bookings

made using credit and debit cards or fraudulently obtained loyalty points. We are sometimes held liable for accepting fraudulent
bookings on our websites or other bookings for which payment is subsequently disputed by our customers both of which lead
to the reversal of payments received by us for such bookings (referred to as a “charge back”). Accordingly, we calculate and
record an allowance for the resulting credit and debit card charge backs. Our ability to detect and combat fraudulent schemes,
which have become increasingly common and sophisticated, may be negatively impacted by the adoption of new payment
methods, the emergence and innovation of new technology platforms, including smartphones, tablet computers and in-home

assistants, and our global expansion, including into markets with a history of elevated fraudulent activity. In addition, for
existing and future payment options we offer to our customers, we may become subject to additional regulations and
compliance requirements (including obligations to implement enhanced authentication processes that could result in significant
costs and reduce the ease of use of our payments products), as well as fraud. If we are unable to effectively combat fraudulent
bookings on our websites or mobile applications or if we otherwise experience increased levels of charge backs, our results of
operations and financial positions could be materially adversely affected.

In addition, when onboarding suppliers to our websites, we may fail to identify falsified or stolen supplier credentials,
which may result in fraudulent bookings or unauthorized access to personal or confidential information of users of our websites
and mobile applications. A fraudulent supplier scheme could also result in negative publicity, damage to our reputation, and
could cause users of our websites and mobile applications to lose confidence in the quality of our services. Any of these events
would have a negative effect on the value of our brands, which could have an adverse impact on our financial performance.

We have foreign exchange risk.

We conduct a significant and growing portion of our business outside the United States. As a result, we face exposure to

movements in currency exchange rates, particularly those related to the British pound sterling, euro, Canadian dollar, Australian
dollar, Thai baht, Brazilian real, and Nordic currencies.

These exposures include but are not limited to re-measurement gains and losses from changes in the value of foreign

denominated monetary assets and liabilities; translation gains and losses on foreign subsidiary financial results that are
translated into U.S. dollars upon consolidation; fluctuations in hotel revenue due to relative currency movements from the time
of booking to the time of stay; planning risk related to changes in exchange rates between the time we prepare our annual and
quarterly forecasts and when actual results occur; and the impact of relative exchange rate movements on cross-border travel
such as from Europe to the United States and the United States to Europe.

Depending on the size of the exposures and the relative movements of exchange rates, if we choose not to hedge or fail to

hedge effectively our exposure, we could experience a material adverse effect on our financial statements and financial
condition. As we have seen in some recent periods, in the event of severe volatility in exchange rates these exposures can
increase, and the impact on our results of operations can be more pronounced. In addition, the current environment and the
increasingly global nature of our business have made hedging these exposures more complex. We have increased and plan to
continue increasing the scope and complexity of our foreign exchange risk management. We make a number of estimates in
conducting hedging activities including in some cases cancellations and payments in foreign currencies. In addition, an
effective exchange rate hedging program is dependent upon effective systems, accurate and reliable data sources, controls and
change management procedures. In the event our estimates differ significantly from actual results or if we fail to adopt effective
hedging processes, we could experience greater volatility as a result of our hedging activities.

Our stock price is highly volatile.

The market price of our common stock is highly volatile and could continue to be subject to wide fluctuations in response

to factors such as the following, some of which are beyond our control:

•

Quarterly variations in our operating and financial results;

Operating and financial results that vary from the expectations of securities analysts and investors, including
failure to deliver returns on technology, supply or emerging market marketing investments;

Changes in expectations as to our future financial performance, including financial estimates by securities
analysts and investors;

Rating agency credit rating actions or pronouncements;

Reaction to our earnings releases and conference calls, or presentations by executives at investor and industry
conferences;

• Worldwide macro-economic conditions and fluctuations in currency exchange rates;

•

Changes in our capital or governance structure;

Changes in the stock price or market valuations of trivago, our majority-owned, publicly traded subsidiary, whose
stock price is also highly volatile;

Changes in market valuations of other internet or online service companies;

Changes in device and platform technologies and search industry dynamics, such as key word pricing and traffic,
or other changes that negatively affect our ability to generate traffic to our websites;

•

Announcements of dividends or changes in the amount or frequency of our dividends;

Announcements by us or our competitors of technological innovations, new services or promotional and
discounting activities;

Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;

Loss of a major travel supplier, such as an airline, hotel or car rental chain;

Changes in the status of our intellectual property rights;

Lack of success in the expansion of our business model geographically;

Claims or proceedings against us or adverse developments or decisions in pending proceedings;

Significant security breaches;

Additions or departures of key personnel;

Rumors or public speculation about any of the above factors; and

Price and volume fluctuations in the stock markets in general.

Volatility in our stock price could also make us less attractive to certain investors, and/or invite speculative trading in our

common stock or debt instruments.

We may experience constraints in our liquidity and may be unable to access capital when necessary or desirable, either
of which could harm our financial position.

We have experienced, and may experience in the future, declines in seasonal liquidity and capital provided by our
merchant hotel business, which has historically provided a meaningful portion of our operating cash flow and is dependent on
several factors, including the rate of growth of our merchant hotel business and the relative growth of businesses which
consume rather than generate working capital, such as our agency hotel, advertising and managed corporate travel businesses
and payment terms with suppliers. We also continued to see growth in both our merchant (Expedia Collect) and our agency
(Hotel Collect) hotel products. To the extent our merchant hotel business stopped growing or began to decline, it would likely
result in pressure on our working capital cash balances, cash flow over time and liquidity.

The availability of funds depends in significant measure on capital markets and liquidity factors over which we exert no
control. In light of periodic uncertainty in the capital and credit markets, we can provide no assurance that sufficient financing
will be available on desirable or even any terms to fund investments, acquisitions, stock repurchases, dividends, debt
refinancing or extraordinary actions or that our counterparties in any such financings would honor their contractual
commitments. In addition, any downgrade of our debt ratings by Standard & Poor’s, Moody’s Investor Service, Fitch or similar
ratings agencies, increases in general interest rate levels and credit spreads or overall weakening in the credit markets could
increase our cost of capital.

We rely on the performance of highly skilled personnel and, if we are unable to retain or motivate key personnel or hire,
retain and motivate qualified personnel, our business would be harmed.

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends

on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization.
In particular, the contributions of Barry Diller, our Chairman and Senior Executive, and Mark Okerstrom, our Chief Executive
Officer, are critical to the overall management of the company. Our future success will depend on the performance of our senior
management and key employees. Expedia cannot ensure that it will be able to retain the services of Mr. Diller, Mr. Okerstrom
or any other member of our senior management or key employees, the loss of whom could seriously harm our business. We do
not maintain any key person life insurance policies.

Competition for well-qualified employees in certain aspects of our business, including software engineers, developers,

product management personnel, development personnel, and other technology professionals, also remains intense. Our
continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing
employees. For example, additional barriers to or restricts on travel for professional or personal purposes, such as those in the
United States in early 2017, may cause significant disruption to our businesses or negatively affect our ability to attract and
retain employees on a global basis. If we do not succeed in attracting well-qualified employees or retaining or motivating
existing employees, our business would be adversely affected.

In addition, we have in the past and may again in the future, restructure portions of our global workforce to simplify and

streamline our organization, improve our cost structure and strengthen our overall businesses. These changes could affect
employee morale and productivity and be disruptive to our business and financial performance.

Mr. Diller currently effectively controls Expedia. If Mr. Diller ceases to control the company, Liberty Expedia Holdings,
Inc. may effectively control the company.

Subject to the terms of a Stockholders Agreement between Mr. Diller and Liberty Expedia Holdings, Mr. Diller holds
an irrevocable proxy to vote shares of Expedia stock held by Liberty Expedia Holdings, which proxy has been assigned by Mr.
Diller to Liberty Expedia Holdings until the earlier of May 4, 2018 or the occurrence of certain termination events. By virtue of
the agreements between Mr. Diller and Liberty Expedia Holdings and their respective holdings in Expedia, the voting power of
an irrevocable proxy granted to Mr. Diller by John C. Malone and Leslie Malone over their shares in Liberty Expedia Holdings
and the governance arrangements at Liberty Expedia Holdings, during the period the assignment of the Diller Proxy and the
proxy granted him by the Malones are in effect, Mr. Diller is effectively able to control the outcome of nearly all matters
submitted to a vote or for the consent of our stockholders (other than with respect to the election by the holders of common
stock of 25% of the members of our Board of Directors and matters as to which Delaware law requires a separate class vote).
Upon Mr. Diller’s permanent departure from Expedia, the irrevocable proxy would terminate and depending on the
capitalization of Expedia at such time, Liberty Expedia Holdings could effectively control the voting power of our capital
stock. As a result of their agreements and respective holdings in Expedia, Mr. Diller and Liberty Expedia Holdings may be
deemed to share voting power over securities representing approximately 54% of the combined voting power of the outstanding
Expedia capital stock as of December 31, 2017.

In addition, under a Governance Agreement among Mr. Diller, Liberty Expedia Holdings, Inc. and Expedia, Inc., as
amended, each of Mr. Diller and Liberty Expedia Holdings generally has the right to consent to limited matters in the event that
we incur debt such that our ratio of total debt to EBITDA, as defined in the Governance Agreement, equals or exceeds 8:1 over
a continuous 12-month period. We cannot assure you that Mr. Diller and Liberty Expedia Holdings will consent to any such
matter at a time when we are highly leveraged, in which case we would not be able to engage in such transactions or take such
actions.

As a result of Mr. Diller’s and Liberty Expedia Holdings’ ownership interests and voting power, the agreements between

Mr. Diller and Liberty Expedia Holdings and between Mr. Diller and the Malones, and the governance structure at Liberty
Expedia Holdings, Mr. Diller is currently in a position to control or influence, and Liberty Expedia Holdings is in a position to
influence, significant corporate actions, including, corporate transactions such as mergers, business combinations or
dispositions of assets. As a result of Liberty Expedia Holdings’ ownership interests and voting power upon Mr. Diller’s
permanent departure from Expedia, in the future Liberty Expedia Holdings may be in a position to control or influence such
corporate actions. This concentrated control could discourage others from initiating any potential merger, takeover or other
change of control transaction that may otherwise be beneficial to us.

Actual or potential conflicts of interest may develop between Expedia management and directors, on the one hand, and
the management and directors of IAC, on the other.

Mr. Diller serves as our Chairman of the Board of Directors and Senior Executive, while retaining his role as Chairman
of the Board of Directors and Senior Executive of IAC, and Mr. Kaufman serves as Vice Chairman of both Expedia and IAC.
The fact that Mr. Diller and Mr. Kaufman hold positions with and securities of both companies could create, or appear to create,
potential conflicts of interest for them when facing decisions that may affect both IAC and Expedia. They may also face
conflicts of interest with regard to the allocation of their time between the companies.

Our certificate of incorporation provides that no officer or director of Expedia who is also an officer or director of IAC be

liable to Expedia or its stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a
corporate opportunity to IAC instead of Expedia, or does not communicate information regarding a corporate opportunity to
Expedia because the officer or director has directed the corporate opportunity to IAC. This corporate opportunity provision may
have the effect of exacerbating the risk of conflicts of interest between the companies because the provision effectively shields
an overlapping director/executive officer from liability for breach of fiduciary duty in the event that such director or officer
chooses to direct a corporate opportunity to IAC instead of Expedia.

We work closely with various business partners and rely on third-parties for many systems and services, and therefore
could be harmed by their activities.

We could be harmed by the activities of third parties that we do not control. We work closely with business partners,

including in connection with significant commercial arrangements and joint ventures, and through our Expedia Affiliate
Network business. We also rely on third-party service providers for certain customer care, fulfillment, processing, systems
development, technology and other services, including, increasingly, travel care and information technology services. If these
partners or third-party service providers experience difficulty or fail to meet our requirements or standards or the requirements
or standards of applicable laws or governmental authorities, it could damage our reputation, make it difficult for us to operate

some aspects of our business, or expose us to liability for their actions which could have an adverse impact on our business and
financial performance. Likewise, if the third-party service providers on which we rely were to cease operations, temporarily or
permanently, face financial distress or other business disruption, we could suffer increased costs and delays in our ability to
provide similar services until an equivalent service provider could be found or we could develop replacement technology or
operations, any of which could also have an adverse impact on our business and financial performance.

We are exposed to various counterparty risks.

We are exposed to the risk that various counterparties, including financial entities, will fail to perform. This creates risk in

a number of areas, including with respect to our bank deposits and investments, foreign exchange risk management, insurance
coverages, and letters of credit. As it relates to deposits, as of December 31, 2017, we held cash in bank depository accounts of
approximately $2.1 billion (primarily in Bank of America, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, HSBC, and JPMorgan
Chase) and held term deposits of approximately $852 million at financial institutions including, BNP Paribas, JPMorgan Chase,
Mizuho Bank Ltd., National Australia Bank, The Bank of Nova Scotia, Sumitomo Mitsui Bank, and Standard Chartered Bank.
Additionally, majority-owned subsidiaries held cash of approximately $163 million (primarily in Deutsche Bank, HSBC and
National Australia Bank) and held term deposits of approximately $169 million at financial institutions including CitiBank and
Deutsche Bank. As it relates to foreign exchange, as of December 31, 2017, we were party to forward contracts with a notional
value of approximately $2.6 billion, the fair value of which was an asset of approximately $6 million. The counterparties to
these contracts were Barclays Bank, BNP Paribas, Bank of America, The Bank of Tokyo-Mitsubishi UFJ, Citibank, Credit
Suisse International, Goldman Sachs, HSBC, JPMorgan Chase, Mizuho, Royal Bank of Canada, Standard Chartered Bank, The
Bank of Nova Scotia, Societe Generale, US Bank and Wells Fargo. We employ forward contracts to hedge a portion of our
exposure to foreign currency exchange rate fluctuations. At the end of the deposit term or upon the maturity of the forward
contracts, the counterparties are obligated, or potentially obligated in the case of forward contracts, to return our funds or pay
us net settlement values. If any of these counterparties were to liquidate, declare bankruptcy or otherwise cease operations, it
may not be able to satisfy its obligations under these time deposits or forward contracts.

In addition, due to instability in the economy we also face increased credit risk and payment delays from our non-

financial contract counterparties.

We have significant indebtedness, which could adversely affect our business and financial condition.

We have outstanding long-term indebtedness, excluding current maturities, with a face value of $3.7 billion and we have

a $1.5 billion unsecured revolving credit facility. Risks relating to our indebtedness include:

•

Increasing our vulnerability to general adverse economic and industry conditions;

Requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby
reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments
and other general corporate purposes;

• Making it difficult for us to optimally capitalize and manage the cash flow for our businesses;

•

Limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we
operate;

Placing us at a competitive disadvantage compared to our competitors that have less debt; and

Limiting our ability to borrow additional funds or to borrow funds at rates or on other terms we find acceptable.

The agreements governing our indebtedness contain various covenants that may limit our ability to effectively operate

our businesses, including those that restrict our ability to, among other things:

•

Borrow money, and guarantee or provide other support for indebtedness of third parties including guarantees;

Pay dividends on, redeem or repurchase our capital stock;

Enter into certain asset sale transactions, including partial or full spin-off transactions;

Enter into secured financing arrangements;

Enter into sale and leaseback transactions; and

Enter into unrelated businesses.

In addition, our credit facility requires that we meet certain financial tests, including an interest coverage test and a

leverage ratio test.

Any failure to comply with the restrictions of our credit facility or any agreement governing our other indebtedness may
result in an event of default under those agreements. Such default may allow the creditors to accelerate the related debt, which
acceleration may trigger cross-acceleration or cross-default provisions in other debt. In addition, lenders may be able to
terminate any commitments they had made to supply us with further funds (including periodic rollovers of existing
borrowings). In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary course of
business. The terms of our credit facility and the indentures governing our outstanding senior notes allow us to incur additional
debt subject to certain limitations. If new debt is added to current debt levels, the risks described above could intensify.

We cannot be sure that our intellectual property and proprietary information is protected from copying or use by
others, including potential competitors.

Our websites and mobile applications rely on content, brands, domain names and technology, much of which is

proprietary. We establish and protect our intellectual property by relying on a combination of trademark, domain name,
copyright, trade secret and patent laws in the U.S. and other jurisdictions, license and confidentiality agreements, and internal
policies and procedures. In connection with our license agreements with third parties, we seek to control access to, and the use
and distribution of, our proprietary information and intellectual property. Even with these precautions, however, it may be
possible for another party to copy or otherwise obtain and use our intellectual property without our authorization or to develop
similar intellectual property independently. Effective trademark, domain name, copyright, patent and trade secret protection
may not be available in every jurisdiction in which our services are made available, and policing unauthorized use of our
intellectual property is difficult and expensive. We cannot be sure that the steps we have taken will prevent misappropriation or
infringement of intellectual property. Any misappropriation or violation of our rights could have a material adverse effect on
our business. Furthermore, we may need to go to court or other tribunals to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary rights of others. These proceedings might result in
substantial costs and diversion of resources and management attention.

We currently license from third parties some of the technologies, content and brands incorporated into our websites. As
we continue to introduce new services that incorporate new technologies, content and brands, we may be required to license
additional technology, content or brands. We cannot be sure that such technology, content and brand licenses will be available
on commercially reasonable terms, if at all.

Part I. Item 1B. Unresolved Staff Comments

None.

Part I. Item 2. Properties

We lease approximately 3.9 million square feet of office space worldwide, pursuant to leases with expiration dates

through March 2031.

We lease approximately 565,000 square feet for our headquarters in Bellevue, Washington, pursuant to leases with
expiration dates through December 2019. We also lease approximately 1.4 million square feet of office space for our domestic
operations in various other cities and locations pursuant to leases with expiration dates through March 2031.

We also lease approximately 2.0 million square feet of office space for our international operations in various cities and

locations pursuant to leases with expiration dates through June 2030.

In addition to our leased space, on April 30, 2015, we acquired our future corporate headquarters, consisting of multiple

office and lab buildings located in Seattle, Washington. The build out of the headquarters is significant as we convert lab
facilities into office space. We expect employees to begin to move into the new campus at the end of 2019.

Part I. Item 3. Legal Proceedings

In the ordinary course of business, Expedia and its subsidiaries are parties to legal proceedings and claims involving

property, personal injury, contract, alleged infringement of third-party intellectual property rights and other claims. The
amounts that may be recovered in such matters may be subject to insurance coverage.

Rules of the SEC require the description of material pending legal proceedings, other than ordinary, routine litigation
incident to the registrant’s business, and advise that proceedings ordinarily need not be described if they primarily involve
damages claims for amounts (exclusive of interest and costs) not individually exceeding 10% of the current assets of the
registrant and its subsidiaries on a consolidated basis. In the judgment of management, none of the pending litigation matters
that the Company and its subsidiaries are defending, including those described below, involves or is likely to involve amounts

of that magnitude. The litigation matters described below involve issues or claims that may be of particular interest to our
stockholders, regardless of whether any of these matters may be material to our financial position or results of operations based
upon the standard set forth in the SEC’s rules.

Litigation Relating to Occupancy and Other Taxes

A number of jurisdictions in the United States have filed lawsuits against online travel companies, including Expedia
companies, such as Hotels.com, Expedia, Hotwire, Orbitz and HomeAway, claiming that such travel companies have failed to
collect and/or pay taxes (e.g., occupancy taxes, excise taxes, sales taxes, etc.), as well as related claims such as unjust
enrichment, restitution, interest, and penalties. In addition, we may file complaints contesting tax assessments made by states,
counties and municipalities seeking to obligate online travel companies, including certain Expedia companies, to collect and
remit certain taxes, either retroactively or prospectively, or both. Moreover, certain jurisdictions may require us to pay tax
assessments prior to contesting any such assessments. This requirement is commonly referred to as “pay-to-play.” Payment of
these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we
continue to defend our position vigorously.

Actions Filed by Individual States, Cities and Counties

City of Los Angeles Litigation. On December 30, 2004, the city of Los Angeles filed a purported class action in
California state court against a number of online travel companies, including Hotels.com, Expedia, Hotwire and Orbitz. City
of Los Angeles, California, on Behalf of Itself and All Others Similarly Situated v. Hotels.com, L.P. et al., No. BC326693
(Superior Court, Los Angeles County). The complaint alleged that the defendants failed to pay hotel occupancy taxes, and
sought certification of a statewide class of all California cities and counties that have enacted uniform transient occupancy-
tax ordinances effective on or after December 30, 1990. The complaint alleged violation of those ordinances, violation of
Section 17200 of the California Business and Professions Code, and common-law conversion; it also sought a declaratory
judgment that the defendants are subject to hotel occupancy taxes on the hotel rate charged to consumers and imposition of a
constructive trust, disgorgement, restitution, interest and penalties. In the administrative process preceding the litigation, the
City of Los Angeles had issued assessments in September 2009 totaling $29.5 million against certain Expedia companies
(Expedia, Hotels.com and Hotwire). On April 18, 2013, the trial court held that the online travel companies are not liable to
remit hotel occupancy taxes to the city of Los Angeles. On January 8, 2014, the court entered final judgment in favor of the
online travel companies. On March 21, 2014, the city of Los Angeles filed a notice of appeal. The California Court of
Appeals stayed this case pending review and decision by the California Supreme Court in the San Diego litigation. The stay
is now lifted and the appeal is proceeding.

City of San Antonio, Texas Litigation. On May 8, 2006, the city of San Antonio filed a putative statewide class action
in federal court against a number of online travel companies, including Expedia, Hotels.com, Hotwire, and Orbitz. See City
of San Antonio, et al. v. Hotels.com, L.P., et al., SA06CA0381 (United States District Court, Western District of Texas, San
Antonio Division). The complaint alleged that the defendants failed to pay hotel accommodations taxes as required by
municipal ordinance. The complaint asserted claims for violation of that ordinance, common-law conversion, and
declaratory judgment, and sought damages in an unspecified amount, restitution and disgorgement. On October 30, 2009, a
jury verdict was entered finding that defendant online travel companies "control hotels," and awarding approximately $15
million for historical damages against the Expedia companies. The jury also found that defendants were not liable for
conversion or punitive damages. On April 4, 2013, the court entered a final judgment holding the online travel companies
liable for hotel occupancy taxes to counties and cities in the statewide class action. The online travel companies filed a
motion for judgment as a matter of law or, in the alternative, for a new trial. The cities filed a motion to amend the judgment
regarding calculation of penalties. On February 20, 2014, the court denied the online travel companies' motion. On January
22, 2015, the court granted in part and denied in part the cities' motion regarding penalties. On April 11, 2016, the court
entered an amended judgment including approximately $68 million in tax, interest and penalty amounts for the Expedia
companies, including Orbitz. The online travel companies filed a notice of appeal to the U.S. Fifth Circuit Court of Appeals
on May 6, 2016. Plaintiffs filed a notice of cross appeal on May 12, 2016. The Fifth Circuit heard argument on the parties’
cross appeals on September 26, 2017. On November 29, 2017, the Fifth Circuit issued an opinion reversing the district court
and rendering judgment for the defendant online travel companies, finding that the amounts charged by the defendants for
their services are not subject to the hotel accommodations taxes at issue. The plaintiff municipalities filed petitions for
rehearing and en banc review, which were denied by the Fifth Circuit Court on February 6, 2018. On July 25, 2016,
plaintiffs filed a request for attorneys’ fees and costs in the trial court; the defendant online travel companies opposed that
request. On February 16, 2017, the court referred the matter to a magistrate judge for review and recommendation. On April
10, 2017, the defendant online travel companies filed a motion to stay further proceedings on plaintiffs’ fee request pending
resolution of their substantive appeal to the United States Fifth Circuit Court of Appeals. On April 17, 2017, the magistrate
judge issued a report and recommendation as to attorneys' fees. On April 20, 2017, the district court stayed further

proceedings on plaintiff's fee petition pending resolution of the parties' appeal to the Fifth Circuit Court of Appeals. On
December 8, 2017, the district court dismissed plaintiff’s fee petition as moot in light of the Fifth Circuit’s decision.

Nassau County, New York Litigation. On October 24, 2006, the county of Nassau, New York filed a putative statewide

class action in federal court against a number of online travel companies, including Expedia, Hotels.com, Hotwire, and
Orbitz. Nassau County, New York, et al. v. Hotels.com, L.P., et al., (United States District Court, Eastern District of New
York). The complaint alleged that the defendants failed to pay hotel accommodation taxes as required by local ordinances to
certain New York cities, counties and local governments in New York. The complaint asserted claims for violations of those
ordinances, as well as claims for conversion, unjust enrichment, and imposition of a constructive trust, and sought
unspecified damages. The county subsequently dismissed its case on May 13, 2011 on the basis that the court lacked
jurisdiction and refiled in state court. County of Nassau v. Expedia, Inc., et al., (In the Supreme Court of the State of New
York, County of Nassau). The defendants filed a motion to dismiss the refiled state court case. On June 13, 2012, the court
denied the online travel companies' motion to dismiss. On November 27, 2012, plaintiff filed a motion for class certification.
On April 11, 2013, the court granted plaintiff s motion for class certification. The online travel company defendants appealed
both the court's certification order and its prior order denying their motion to dismiss. On September 10, 2014, the New
York Supreme Court Appellate Division reversed the trial court's order granting the plaintiff s motion for class certification.
In a separate opinion, the Appellate Division also affirmed in part and reversed in part the trial court's denial of the online
travel companies' motion to dismiss. On September 11, 2015, the parties filed cross motions for summary judgment. On
September 25, 2015, Erie County, Orange County, Rensselaer County and Saratoga County, New York (the “first group of
intervenors”) filed a motion seeking leave to intervene as plaintiffs in the lawsuit; the defendant online travel companies
opposed the motion. On February 23, 2016, the court granted the counties' motion to intervene. The defendants filed their
notice of appeal from the February 23, 2016 Order on April 26, 2016. On July 20, 2016, the court entered a stipulated order
permitting the addition of another group of taxing jurisdictions - the Counties of Chautauqua, Oswego, Steuben,
Westchester, and the City of Saratoga Springs (the “second group of intervenors”) - as Intervenor-Plaintiffs in the lawsuit
and agreeing that these Intervenor-Plaintiffs will be bound by the disposition of the defendants' appeal from the Supreme
Court's February 23, 2016 Order granting intervention. On December 2, 2016, the court granted defendants’ motion for
summary judgment and denied plaintiff Nassau County’s motion for summary judgment. The court concluded that the
enabling statute for plaintiff’s tax ordinance did not impose a tax on defendants’ fees. The court further invited defendants to
file a successive motion for summary judgment against the first group of intervenors on similar grounds. The court also
vacated its prior order granting the second group of intervenors permission to intervene. On December 23, 2016, defendants
filed a motion for summary judgment against the first group of intervenors. On March 15, 2017, the parties filed a
stipulation and proposed order which would permit the second group of intervenors to re-enter the case and be subject to the
pending motion for summary judgment against the first group of intervenors. On March 22, 2017, the court granted
defendants’ motion for summary judgment against the first and second group of intervenors. Nassau County and the
Intervenor-Plaintiffs have appealed the court’s dismissal of their claims. That appeal remains pending.

City and County of San Francisco, California Litigation. On May 13, 2008, San Francisco instituted an audit of a

number of online travel companies, including Expedia, Hotels.com, Hotwire and Orbitz, for hotel occupancy taxes claimed
to be due from 2000 through the third quarter of 2007. During an administrative hearing process, the hearing examiner
upheld the tax assessments. Thereafter, the online travel companies proceeded to the California superior court to vacate the
decision of the hearing examiner and for a declaratory judgment that the online travel companies are not subject to San
Francisco's hotel occupancy tax. Expedia, Inc. v. City and County of San Francisco, ET. al.; Hotels.com, Inc. v. City and
County of San Francisco, ET. al.; Hotwire, Inc. v. City and County of San Francisco, ET. al., (Superior Court of the State of
California, County of San Francisco). San Francisco also filed a lawsuit against hotels in the city for the recovery of hotel
occupancy taxes on the online travel companies' services. The hotel suit was consolidated with the case relating to the online
travel companies. On June 19, 2009, the court granted the city's demurrer on the "pay first" issue relating to pay-to-play
provisions. Expedia’s and Hotwire's appeal of the "pay first" decision was denied, as was Hotels.com's appeal. The total
assessed amount paid by the Expedia companies was approximately $48 million. On February 6, 2013, the court held that
the online travel companies are not liable to remit hotel occupancy taxes to San Francisco. On October 10, 2013, the court
entered judgment in favor of the online travel companies. On December 9, 2013, San Francisco filed a notice of appeal. San
Francisco also has issued additional tax assessments against the Expedia companies in the amount of $22 million for the
time period from the fourth quarter of 2007 through the fourth quarter of 2011. These subsequent tax assessments are
pending before the court, and on August 24, 2013, the court held that these subsequent assessments against the online travel
companies as well as the lawsuit against the hotels should be stayed pending the appeal of San Francisco's first assessment.
On January 21, 2014, the city notified the Expedia companies that despite proceeding in court on its assessments that it now
intended to proceed against the Expedia companies in the administrative process to recover the assessment amount of $22
million. On May 14, 2014, the court heard oral argument on the Expedia companies' contest of the prepayment requirement
for the additional assessments and held that the Expedia companies were required to prepay in order to litigate the legality of
the assessments. On May 26, 2014, the Expedia companies paid $25.5 million under protest in order to contest the additional
28

assessments. In addition, Orbitz in total has paid $4.6 million to the city of San Francisco in prepayment of taxes to contest
these assessments issued against it by the city. The California Court of Appeals stayed this case pending review and decision
by the California Supreme Court in the San Diego litigation. The stay is now lifted and the appeal is proceeding.

Pine Bluff, Arkansas Litigation. On September 25, 2009, Pine Bluff Advertising and Promotion Commission and
Jefferson County filed a class action against a number of online travel companies, including Expedia, Inc., Hotels.com,
Hotwire and Orbitz. Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, and others similarly
situated v. Hotels.com LP, et al. CV-2009- 946-5 (In the Circuit Court of Jefferson, Arkansas). The complaint alleged that
defendants have failed to collect and/or pay taxes under hotel tax occupancy ordinances. The court denied defendants'
motion to dismiss. Plaintiffs filed a motion for class certification, which the court granted on February 19, 2013. Defendants
appealed the class certification decision, and on October 10, 2013 the Arkansas Supreme Court affirmed that decision. On
October 10, 2017, plaintiffs filed a motion for partial summary judgment on the issue of liability. Defendants opposed that
motion and filed a cross motion for partial summary judgment on November 22, 2017. On January 31, 2018, the court heard
argument on the parties’ cross motions. On February 1, 2018, the trial court granted plaintiffs’ motion for summary
judgment and denied defendants’ motion for summary judgment on the issue of tax liability.

Town of Breckenridge, Colorado Litigation. On July 25, 2011, the Town of Breckenridge, Colorado brought suit on

behalf of itself and other home rule municipalities against a number of online travel companies, including Expedia,
Hotels.com, Hotwire and Orbitz. Town of Breckenridge, Colorado v. Colorado Travel Company, LLC, Case No.
2011CV420 (District Court, Summit County, Colorado). The complaint included claims for declaratory judgment, violations
of municipal ordinances, conversion, civil conspiracy and unjust enrichment. The online travel companies filed a motion to
dismiss. On June 8, 2012, the court granted in part and denied in part the online travel companies' motion to dismiss. On
March 26, 2014, the court denied the plaintiffs' motion for class certification. The parties filed cross-motions for summary
judgment and, on April 20, 2016, the court granted the online travel companies' motion for summary judgment, and denied
the town's motion for summary judgment, holding that the Breckenridge Accommodations Tax does not apply to the online
travel companies or the amounts they charge for their services. On June 8, 2016, the Town of Breckenridge filed a notice of
appeal from the court's order on the parties' cross motions for summary judgment, as well as the court's prior rulings denying
class certification and dismissing claims for state sales tax. On June 8, 2016, the Town of Breckenridge filed a notice of
appeal from the trial court’s order on the parties’ cross motions for summary judgment, as well as the trial court’s prior
rulings denying class certification and dismissing claims for state sales tax. On September 8, 2016, the Colorado Court of
Appeals dismissed the Town of Breckenridge’s appeal without prejudice for lack of a final appealable judgment on the
ground that the Town had failed to demonstrate that the trial court had disposed of claims against two non-online travel
company defendants. On September 22, 2016, the trial court granted the Town’s motion to dismiss one of the non-online
travel company defendants and entered final judgment for all other remaining defendants. On November 7, 2016, the Town
again filed notice of appeal. The Colorado Court of Appeals heard argument on the Town’s appeal on January 11, 2018 and
on January 25, 2018 affirmed the trial court’s decision on all grounds, finding that the defendant online travel companies are
not liable for accommodations taxes, that the Town’s sales tax claims were properly dismissed for lack of subject matter
jurisdiction and that class certification was properly denied.

State of Mississippi Litigation. On December 29, 2011, the State of Mississippi brought suit against a number of

online travel companies, including Expedia, Hotels.com, Hotwire and Orbitz. State of Mississippi v. Priceline.com, et al.,
Case No. G-2011-002211 (Chancery Court, Hinds County, Mississippi). The complaint included claims for declaratory
judgment, injunctive relief, violations of state sales tax statute and local ordinances, violation of Consumer Protection Act,
conversion, unjust enrichment, constructive trust, money had and received and joint venture liability. On March 23, 2012,
the defendant online travel companies filed a motion to dismiss. On September 20, 2012, the court denied the defendants'
motion to dismiss.

Village of Bedford Park, Illinois Litigation. On April 5, 2013, a group of Illinois municipalities (City of Warrenville,

Village of Bedford Park, City of Oakbrook Terrace, Village of Oak Lawn, Village of Orland Hills, City of Rockford and
Village of Willowbrook) filed a putative class action in Illinois federal court against a number of online travel companies,
including Expedia, Hotels.com, Hotwire and Orbitz. City of Warrenville, et al. v. Priceline.com, Incorporated, et al., Case
No. 1:13-cv-02586 (USDC, D. Ill., Eastern Division). The complaint sought certification of a class of all Illinois
municipalities (broken into four alleged subclasses) that have enacted and collect a tax on the percentage of the retail rate
that each consumer occupant pays for lodging, including service costs, denominated in any manner, including but not
limited to occupancy tax, a hotel or motel room tax, a use tax, a privilege tax, a hotel or motel tax, a licensing tax, an
accommodations tax, a rental receipts tax, a hotel operator's tax, a hotel operator's occupation tax, or a room rental, lease or
letting tax. The complaint alleged claims for relief for declaratory judgment, violations of municipal ordinances, conversion,
civil conspiracy, unjust enrichment, imposition of a constructive trust, damages and punitive damages. On July 8, 2013, the
plaintiff municipalities voluntarily dismissed their federal court lawsuit and filed a similar putative class action lawsuit in

Illinois state court. City of Bedford Park, et al. v. Expedia, Inc., et al. (Circuit Court of Cook County, Illinois, Chancery
Division). The online travel companies removed the case to federal district court. On September 13, 2013, the online travel
companies filed a motion to dismiss plaintiffs' common law claims. On March 13, 2014, the court granted the defendant
online travel companies' motion and dismissed the plaintiffs' common law claims. On October 3, 2014, plaintiffs filed a
motion for class certification, which the court denied without prejudice on January 6, 2015. Plaintiffs filed a renewed motion
for class certification, which the court denied on September 28, 2015. The case proceeded only on the claims brought by the
individual plaintiff municipalities named in the suit. On February 1, 2016, the plaintiffs filed a motion for summary
judgment. On February 29, 2016, the defendant online travel companies filed a cross motion for summary judgment. The
Expedia and Orbitz defendants reached a settlement with one of the plaintiff municipalities -the city of Oakbrook Terrace,
Illinois and on March 4, 2016, those parties filed a stipulation for voluntary dismissal of the city's claims. On June 20, 2016,
the court granted the defendant online travel companies' motion for summary judgment as to 12 of the 13 plaintiff
municipalities, finding no liability for occupancy taxes in those jurisdictions. The court granted the plaintiffs' motion for
summary judgment, and denied the defendants' motion, as to the Village of Lombard. On October 19, 2016, the trial court
entered a stipulated judgment on plaintiff Village of Lombard’s claims. The parties filed cross notices of appeal from the
trial court’s summary judgment ruling in November 2016. The U.S. Seventh Circuit Court of Appeals heard argument on the
cross appeals on October 23, 2017. On November 22, 2017, the Seventh Circuit denied the plaintiffs’ appeal, affirming the
district court’s decision finding no liability for occupancy taxes in 12 of the 13 plaintiff municipalities, and granted the
defendants’ appeal, reversing the district court’s finding of liability for occupancy taxes in the Village of Lombard.

State of New Hampshire Litigation. On October 16, 2013, the State of New Hampshire filed a lawsuit against a
number of online travel companies, including Expedia, Hotels.com, Hotwire, Orbitz and Egencia. State of New Hampshire
v. Priceline.com, et al., Case No. 217-2013-CV-00613 (Merrimack Superior Court, New Hampshire). The complaint alleged
claims for declaratory judgment, injunctive relief, violation of state meals and room tax law, violation of Consumer
Protection Act, breach of fiduciary duty, accounting, conversion, unjust enrichment, assumpsit for money had and received,
civil conspiracy, and constructive trust. On December 23, 2013, the defendant online travel companies filed a motion to
dismiss, which the court granted in part and denied in part on June 30, 2014. On February 19, 2015, the plaintiff filed a
motion to amend its complaint. On May 5, 2015, the court issued an order denying the motion to amend except as to
"housekeeping changes." On May 27, 2015, plaintiff filed its amended complaint, which the Expedia defendants answered
on June 26, 2015. On December 21, 2015, the parties filed cross motions for summary judgment. The court heard oral
argument on the parties' motions on May 5, 2016. At the request of the Court, the Parties subsequently embarked on a
process designed to explore the possibility of agreement upon a Statement of Facts and, if there can be an agreement, to
prepare an Agreed Statement of Facts for submission to the Court on or before August 1, 2016. The court indicated that if
the parties were unable to agree, it would deny all pending motions and set the case for trial. The parties were unable to
agree on an Agreed Statement of Facts for submission to the Court by August 1, 2016. On August 1, 2016, the defendants
filed a motion for leave of court to submit a renewed motion for summary judgment as to the plaintiffs’ consumer protection
act claims. On October 3, 2016, the court denied the motion. The case went to trial from May 1 to May 12, 2017. On
October 18, 2017, the trial court issued its post-trial order finding that the defendant online travel companies are not subject
to the New Hampshire meals and room tax and that their business practices do not violate the state consumer protection act.
On November 17, 2017, the plaintiff filed a notice of appeal to the New Hampshire Supreme Court. That appeal remains
pending.

Arizona Cities Litigation. Tax assessments were issued in 2013 by 12 Arizona cities (Apache Junction, Chandler,
Flagstaff, Glendale, Mesa, Nogales, Peoria, Phoenix, Prescott, Scottsdale, Tempe and Tucson) against a group of online
travel companies including Expedia, Hotels.com, Hotwire and Orbitz. The OTCs petitioned for redetermination of the
assessments. On May 28, 2014, the Municipal Tax Hearing Officer granted the online travel companies' protests to the
assessments and ordered the cities to abate the assessments. On August 26, 2014, the cities appealed the Hearing Officer's
decision by filing complaints and notices of appeal against the online travel companies in Arizona Tax Court. (See, City of
Phoenix, et al. v. Expedia, Inc., Case No. TX2014-00471). On August 31, 2015, the cities filed a motion for summary
judgment. On September 30, 2015, the online travel companies filed a response to the cities' motion and their own cross
motion for summary judgment. On April 20, 2016, the Arizona Tax Court granted the plaintiff cities' motion for summary
judgment in part and denied it in part; the court also denied the defendant online travel companies' motion for summary
judgment. On June 6, 2016, the Arizona Tax Court entered judgment. On June 21, 2016, the plaintiff cities filed a motion to
amend or alter that judgment on the grounds that the court's ruling that the online travel companies do not owe past taxes
based upon prior administrative guidance should be reversed. The defendant online travel companies opposed the motion.
On October 17, 2016, the court denied the motion. The plaintiffs and the defendants each filed a notice of appeal. Argument
on the appeals is scheduled for February 15, 2018.

Village of Matteson, Illinois Litigation. On December 3, 2015, the Villages of Matteson, Bloomington and Oakbrook,

Illinois filed a lawsuit in Illinois state court against a number of online travel companies, including Expedia, Hotels.com,

Hotwire, Egencia and Orbitz. Village of Matteson, et al. v. Expedia, Inc. (WA), et al., Case No. 2015CHI7598 (Cook County
Chancery Court, State of Illinois). The complaint alleged claims for declaratory judgment, violation of municipal tax
ordinances, fraud, conversion, civil conspiracy, unjust enrichment, imposition of a constructive trust, breach of fiduciary
duty requiring an accounting, damages and punitive damages. On April 4, 2016, the defendant online travel companies filed
a motion to dismiss plaintiffs' common law claims. On July 29, 2016, the court granted the motion and dismissed plaintiffs’
common law claims.

State of Louisiana/City of New Orleans Litigation. On August 24, 2016, the State of Louisiana Department of
Revenue and the City of New Orleans filed a lawsuit in Louisiana state court against a number of online travel companies,
including Expedia, Hotels.com, Hotwire, Orbitz and Egencia. See Kimberly L. Robinson, Secretary of the Department of
Revenue for the State of Louisiana and City of New Orleans Department of Finance v. Priceline.com, Inc. et al., Case No.
650894 (19th Judicial District Court, Parish of East Baton Rouge, Louisiana). The complaint alleged claims for declaratory
judgment, violation of state and city tax laws, unfair trade practices, breach of fiduciary duty, and imposition of a
constructive trust. On November 30, 2016, the defendant online travel companies filed a motion for judgment on the
pleadings seeking dismissal of plaintiffs’ common law and unfair trade practices claims. On March 6, 2017, the court denied
the motion. On April 5, 2017, Defendants filed an application for supervisory writ to the Louisiana Court of Appeals seeking
to reverse the trial court’s denial of the motion. On July 24, 2017, the Louisiana Court of Appeals denied the application. On
August 10, 2017, defendants filed an application for supervisory writ to the Louisiana Supreme Court seeking to reverse the
trial court’s denial of the motion. On November 6, 2017, the court denied the writ application.

In addition, HomeAway is a party in the following proceedings:

Palm Beach, Florida Litigation. On January 13, 2014, Palm Beach County, Florida filed a lawsuit in Florida state

court against HomeAway and other vacation rental listing businesses seeking tourist development taxes imposed by Palm
Beach County. Palm Beach County v. AirBnb, Inc., et al., Case No. 502014CA000428XXXXMBAO (15th Judicial Circuit
Court, Palm Beach County, Florida). On July 1, 2014, plaintiff filed an amended complaint. On September 16, 2014, the
defendants filed a motion to dismiss the complaint. On December 12, 2014, the court denied the motion. On December 22,
2015, plaintiff filed its second amended complaint. On July 20, 2015, the defendants filed a motion for judgment on the
pleadings. On November 5, 2015, the court denied defendants' motion. The court has set the matter on the trial calendar that
begins on May 28, 2018.

Portland, Oregon Litigation. On October 21, 2015, the City of Portland, Oregon filed a lawsuit in federal district court

against HomeAway. City of Portland, Oregon v. Homeaway.com, Inc., et al., Case No. 3:15-cv-01984-MO (D. Or.). The
complaint alleges claims for declaratory judgment, injunctive relief, taxes and fines for alleged violations of the Portland
Transient Lodgings Tax ordinance, including alleged failures to register, collect and remit tax and display certain information in
advertisements and websites. On November 13, 2015, HomeAway filed a motion to dismiss the complaint. The court heard
oral argument on the motion on May 17, 2016. The court granted the defendants' motion to dismiss plaintiffs' claims, some
with prejudice and some without. On July 11, 2016, the City of Portland filed an amended complaint. HomeAway responded by
filing a motion to dismiss the amended complaint on August 5, 2016. The City of Portland opposed the motion. The court heard
argument on the motion on December 16, 2016 and, on March 10, 2017, granted the motion in part and denied the motion in
part. The City of Portland amended its ordinance on short-term rentals, which took effect on January 20, 2017. On January 19,
2017, HomeAway filed two lawsuits challenging the amended ordinance. The first was filed in federal district court and sought
a declaration that certain of the amendments violated the Communications Decency Act of 1996, the First, Fourth, Fifth, and
Fourteenth Amendments of the U.S. Constitution, the dormant commerce clause, and the Stored Communications Act.
HomeAway.com, Inc. v. City of Portland, Case No. 3:17-cv-00091 (U.S. District Court, District of Oregon). HomeAway also
sought to enjoin enforcement of the amended ordinance. In response to the lawsuit, the city agreed to stay enforcement of the
ordinance against HomeAway pending the court’s decision on HomeAway’s preliminary injunction motion. The hearing on that
motion took place on March 20, 2017. The court issued a ruling from the bench granting the motion in part, denying it in part
based on the city’s representation as to how it would enforce a portion of its ordinance, and ordering supplemental briefing on
an additional issue involving the scope of an audit provision. On May 11, 2017, the court ruled that the audit provision could
not be used to obtain information protected by the Stored Communications Act. The court has set the case for trial on April 24,
2018. The second lawsuit was filed in state court and sought an injunction and declaration that the amended ordinance
improperly seeks to impose transient lodging taxes on HomeAway even though the imposition of such taxes is not authorized
by the City Charter or the state transient lodging statute applicable to localities. HomeAway.com, Inc. v. City of Portland,
MCCC No. 17cv01894 (Multnomah County Circuit Court). The state court has set the case for trial on April 16, 2018.

Clackamas County, Oregon Litigation. On September 7, 2017, Clackamas County, Oregon filed a lawsuit in state circuit

court against HomeAway, Expedia, Inc. and other vacation rental listing companies. Clackamas County v. Homeaway.com,
Inc., et al., Case No. 17-CV-38408 (Clackamas County Circuit Court). The complaint alleges the defendants failed to register

with, and remit taxes to, the county as persons “engaging…in business as an…intermediary of transient lodging” as allegedly
required by a new ordinance that became effective June 15, 2017. The complaint purports to seek enforcement of the ordinance
and injunctive relief. On October 12, 2017, the defendants removed the case to the U.S. District Court for the District of
Oregon. On November 16, 2017, HomeAway, Expedia and Airbnb filed a motion to dismiss the complaint. On December 7,
2017, the County filed a motion to strike defendants’ challenge to the legality of the amended tax ordinance. These motions
were assigned to a magistrate judge, who heard argument on the motions on January 3, 2018. The parties await issuance of the
magistrate’s report and recommendation to the district court judge.

Notices of Audit or Tax Assessments

At various times, the Company has also received notices of audit, or tax assessments from over 15 states or counties and

over 80 municipalities concerning its possible obligations with respect to state and local occupancy or other taxes.

Actions Filed by Expedia

Hawaii Tax Court Litigation (General Excise Tax). During 2013, the Expedia companies were required to “pay-to-

play” and paid a total of $171 million in advance of litigation relating to general excise taxes for merchant model hotel
reservations in the State of Hawaii. In September 2015, following a ruling by the Hawaii Supreme Court, the State of
Hawaii refunded the Expedia companies $132 million of the original “pay-to-play” amount. Orbitz also received a similar
refund of $22 million from the State of Hawaii in September 2015. The amount paid, net of refunds, by the Expedia
companies and Orbitz to the State of Hawaii in satisfaction of past general excise taxes on their services for merchant model
hotel reservations was $44 million. The parties reached a settlement relating to Orbitz merchant model hotel tax liabilities,
and on October 5, 2016, the Expedia companies paid the State of Hawaii for the tax years 2012 through 2015. The Expedia
companies and Orbitz have now resolved all assessments by the State of Hawaii for merchant model hotel taxes through
2015.

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

Final assessments by the Hawaii Department of Taxation for general exercise taxes against the Expedia companies,

including Orbitz, relating to merchant car rental transactions during the years 2000 to 2014 are also under review in the
Hawaii tax courts. With respect to merchant model car rental transactions at issue for the tax years 2000 through 2013, the
Hawaii tax court held on August 5, 2016 that general excise tax is due on the online travel companies’ services to facilitate
car rentals. The court further ruled that for merchant model car rentals in Hawaii, the online travel companies are required to
pay general excise tax on the total amount paid by consumers, with no credit for tax amounts already remitted by car rental
companies to the State of Hawaii for tax years 2000 through 2013, thus resulting in a double tax on the amount paid by
consumers to car rental companies for the rental of the vehicle. The court, however, ruled that when car rentals are paid for
as part of a vacation package, tax is only due once on the amount paid by consumers to the car rental company for the rental
of the vehicle. In addition, the court ruled that the online travel companies are required to pay interest and certain penalties
on the amounts due. On April 25, 2017, the court entered a stipulated order and final judgment. On May 15, 2017, the
Expedia companies paid under protest the full amount claimed due, or approximately $16.7 million, as a condition of appeal.
The parties filed notices of cross-appeal from the order. The appeals have been transferred to the Hawaii Supreme Court and
oral argument on the merchant car appeals is scheduled for April 5, 2018. The Hawaii tax court’s decision did not resolve
“merchant model” car rental transactions for the tax year 2014, which also remain under review.

Non-Tax Litigation and Other Legal Proceedings

Putative Class Action Litigation

Buckeye Tree Lodge Lawsuit. On August 17, 2016, a putative class action suit was filed in federal district court in the

Northern District of California against Expedia, Hotels.com, Orbitz, Expedia Australia Investments Pty Ltd. and Trivago
relating to alleged false advertising. Buckeye Tree Lodge and Sequoia Village Inn, LLC v. Expedia, Inc., et al, Case No. 3:16-
cv-04721-SK (U.S. District Court, Norther District of California). Plaintiff has not effected service of process as to trivago. The
putative class is comprised of hotels and other providers of overnight accommodations whose names appeared on the Expedia
defendants’ websites with whom the Expedia defendants did not have a booking agreement during the relevant time period. The
complaint asserts claims against the Expedia defendants for violations of the Lanham Act, the California Business &
Professions Code, intentional and negligent interference with prospective economic advantage, unjust enrichment and

restitution. On January 12, 2017, the court granted the Expedia defendants’ motion to dismiss plaintiff’s claims for intentional
and negligent interference with prospective economic advantage without prejudice. On March 7, 2017, a related putative class
action was filed in the same court, 2020 O Street Corporation, Inc. v. Expedia, Inc., et al, Case No. 3:17-cv-01186-JSC,
asserting similar Lanham Act claims, and claims for Unfair Competition, and Unjust Enrichment and Restitution. The court
determined that the cases were related and assigned them to the same judge. Expedia accepted service of the Complaint on
March 13, 2017. On May 5, 2017, Plaintiffs filed a Consolidated Class Action Complaint.

Israeli Putative Class Action Lawsuit (Silis). In or around September 2016, a putative class action lawsuit was filed in the

District Court in Tel Aviv, Israel against Hotels.com. Silis v. Hotels.com, (Case No. 23241-09-16CA). The plaintiff generally
alleges that Hotels.com violated Israeli consumer protection laws in various ways by failing to calculate and display VAT
charges in pricing displays shown to Israeli consumers. On March 15, 2017, Hotels.com filed an application with the District
Court challenging service. On June 22, 2017, the court registrar rejected Hotels.com’s application. Hotels.com appealed this
decision. On November 7, 2017, the court denied the appeal. Hotels.com has sought leave to appeal to the Supreme Court of
Israel. The Supreme Court has ordered the parties to send the pleadings to the General Attorney of the Israeli Government and
has asked the General Attorney to provide a written opinion with respect to the subjects addressed in Hotels.com’s appeal.

Israeli Putative Class Action Lawsuit (Ze’ev). In or around January 2018, a putative class action lawsuit was filed in the

District Court in Lod, Israel against a number of online travel companies including Expedia, Inc. and Hotels.com. Ze’ev v.
Expedia, Inc., et al (Case No. CA 6771-01-18). The plaintiff generally alleges that the defendants violated Israeli consumer
laws by limiting hotel price competition. The Expedia defendants have not yet been served.

Cases against HomeAway.com, Inc. On March 15, 2016, a putative class action suit was filed in federal district court in
Texas against HomeAway.com, Inc. related to its recent implementation of a service fee. Arnold v. HomeAway.com, Inc., Case
No. l-16-cv-00374 (U.S. District Court, Western District of Texas). The putative class is comprised of homeowners that list
their properties on HomeAway’s websites for rent. The complaint asserts claims against HomeAway for breach of contract,
breach of the duty of good faith and fair dealing, fraud, fraudulent concealment, and violations of the Texas Deceptive Trade
Practices Act, the California Consumer Legal Remedies Act, and the California Unfair Competition Law. On April 15, 2016,
another putative class action suit was filed against HomeAway, also related to the implementation of a service fee. Seim v.
HomeAway, Inc., Case No. 1:16- cv-00479 (U.S. District Court, Western District of Texas). The putative class is comprised of
homeowners that list their properties on HomeAway’s websites. The complaint asserts claims against HomeAway for breach of
contract, breach of the duty of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, and violations of
the Texas Deceptive Trade Practices Act, the Kentucky Consumer Protection Act, and other state consumer protection statutes.
HomeAway moved to compel arbitration and dismissal in both of these cases on July 11, 2016; a hearing on both motions to
compel took place on August 24, 2016. On January 10, 2017, the court denied HomeAway’s motion in Arnold. On January 31,
2017, HomeAway filed a notice of appeal. On March 10, 2017, HomeAway filed a motion to dismiss the complaint in Arnold.
On August 1, 2017, the Magistrate Judge issued his report and recommendation to the court, recommending the court grant
HomeAway's motion to dismiss the complaint in part, and deny the motion in part. On September 25, 2017, the court adopted
the magistrate’s report in Arnold. On October 13, 2017, plaintiffs filed their third amended complaint. On November 10, 2017,
HomeAway filed a motion to dismiss the third amended complaint and/or to strike the class allegations. On January 10, 2018,
the district court referred the motion to the Magistrate Judge. On January 18, 2017, the court granted HomeAway’s motion in
Seim and entered final judgment dismissing the case. On February 2, 2017, Seim filed a notice of appeal. On December 7,
2017, the United States Fifth Circuit Court of Appeals heard argument in the Arnold and Seim matters on the parties’ appeals
from the trial court’s decisions on HomeAway’s motions to compel arbitration. The parties await a ruling.

On June 23, 2016, another putative class action was filed against HomeAway.com, Inc., also related to the implementation

of a service fee. Brickman v. HomeAway, Inc., Case No. 1:16-cv-00733 (U.S. District Court, Western District of Texas). This
putative class is comprised of homeowners from nine different states that list their properties on HomeAway's websites. The
complaint asserts claims against HomeAway for breach of contract, breach of the duty of good faith and fair dealing, fraud,
fraudulent concealment, unjust enrichment, restitution, and violations of various state consumer protection statutes. On
October 26, Plaintiffs filed an amended complaint, dismissing certain named Plaintiffs and adding two new Plaintiffs. On
December 6, 2016, HomeAway filed a motion to dismiss the amended complaint, which plaintiffs opposed. On August 1,
2017, the Magistrate Judge issued his report and recommendation to the court, recommending the court grant HomeAway's
motion to dismiss the complaint in part, and deny the motion in part. On August 25, 2017, the district court adopted the
Magistrate Judge’s report and recommendation and ordered plaintiffs to file an amended complaint by September 8, 2017. On
September 7, 2017, plaintiffs filed their third amended complaint. On November 10, 2017, HomeAway filed a motion to
dismiss the third amended complaint and/or to strike the class allegations. On January 10, 2018, the district court referred the
motion to the Magistrate Judge. On November 7, 2016, another putative class action was filed against HomeAway.com, Inc.,
also related to the implementation of a service fee. May v. Expedia, Inc., et al., Case No. 1:16-cv-01211 (U.S. District Court,
Western District of Texas). The complaint asserts claims against HomeAway for breach of contract, fraud, fraudulent
concealment, and violation of the Oregon Unlawful Trade Practices Act. It also names Expedia as a defendant. HomeAway and

Expedia moved to compel arbitration and dismissal in this case on May 1, 2017. On July 6, 2017, the court held a hearing on
the motion. On July 10, 2017, the court entered an order directing the parties to advise it when the Fifth Circuit Court of
Appeals issues decisions in the Arnold and Seim appeals.

Other Legal Proceedings

Santa Monica, California Litigation. On September 2, 2016, HomeAway filed a lawsuit against the City of Santa
Monica requesting a declaration that certain sections of a Santa Monica ordinance violate the Communications Decency Act
of 1996, the Storage Communications Act, and the First, Fourth, and Fourteenth Amendments of the U.S. Constitution.
HomeAway.com, Inc. v. City of Santa Monica, Case Nos. 2:16-cv-6645-ODW-AFM; 2:16-cv-06641-ODW-AFM (U.S.
District Court, Central District of California). On the same day, HomeAway filed a motion for preliminary injunction,
seeking to enjoin enforcement of the ordinance. In response, the city requested a stay of proceedings to prepare and consider
amendments to the Ordinance to address the legal challenges raised by Plaintiffs’ actions. The court granted the city's motion
to stay the case until the effective date of any new Santa Monica ordinance. The city passed an amended ordinance that took
effect February 23, 2017, although enforcement of that ordinance has been stayed by agreement of the parties. HomeAway
filed an amended complaint and preliminary injunction motion on December 13, 2017. The motion is scheduled for hearing
on February 26, 2018.

Chicago, Illinois Litigation. On May 22, 2017, HomeAway filed a lawsuit against the City of Chicago requesting a

declaration that certain sections of the city’s ordinance violate the Communications Decency Act of 1996, the Storage
Communications Act, and the First, Fourth, and Fourteenth Amendments of the U.S. Constitution. HomeAway.com, Inc. v.
City of Chicago, Case No. 1:17-cv-03784 (U.S. District Court, Northern District of Illinois). Enforcement of the ordinance
has been stayed by agreement of the parties.

Ryanair Lawsuit (Ireland). On or around February 15, 2017, Ryanair D.A.C. filed a lawsuit against Expedia, Inc. in
the Irish High Court. The case involves claims over alleged bookings of Ryanair flight reservations with data that has been
scraped from Ryanair’s website. Ryanair D.A.C. v. Expedia, Inc., (Case No. 2017/11 IA).

Ryanair Lawsuit (United States). On November 29, 2017, Ryanair D.A.C. filed a lawsuit against Expedia, Inc. in
federal court in Washington alleging violation of the Computer Fraud and Abuse Act. Ryanair DAC v. Expedia, Inc., Case
No. 2:17-cv-01789 (U.S. District Court, Western District of Washington). The case involves claims relating to alleged
bookings of Ryanair flight reservations with data that has been scraped from Ryanair’s website. On February 5, 2018,
Expedia filed a motion to dismiss.

IBM Lawsuit. On December 29, 2017, IBM filed a complaint against Expedia, Inc. (DE), Expedia, Inc. (WA),
Travelscape, Hotels.com, Hotwire, Orbitz, and HomeAway in federal court in Delaware. International Business Machines
Corporation v. Expedia, Inc. et al., Case No. 1:17-cv-01875-LPS-CJB (U.S. District Court, District of Delaware). The
Complaint alleges that the defendants infringe four patents held by IBM.

Derivative Litigation

In Re Orbitz Worldwide, Inc. Consolidated Stockholder Litigation, Case No. 10711-VCP (Court of Chancery of the State
of Delaware). On April 8, 2015, an amended class action complaint was brought against Expedia, Inc. and Orbitz Worldwide,
Inc. relating to the merger agreement signed by the parties. Plaintiffs assert claims for breach of fiduciary duty by the Orbitz
Board of Directors and claims against Expedia for aiding and abetting in the Orbitz directors’ breach of their duties. Plaintiffs
specifically claim that the Orbitz Board breached their fiduciary duties by agreeing to an inadequate price for the transaction
and unreasonable deal protection devices. On May 20, 2015, Orbitz, its Board of Directors, and the plaintiffs entered into an
agreement in principle to settle the lawsuit. On August 29, 2016, plaintiffs filed a notice of dismissal and reserved their rights
to seek an award of attorneys’ fees.

Competition and Consumer Matters

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

In Europe, investigations or inquiries into contractual parity provisions between hotels and online travel companies,

by Booking.com removing and/or modifying certain rate, conditions and availability parity provisions in its contracts with
accommodation providers in France, Italy and Sweden as of July 1, 2015, among other commitments. Booking.com voluntarily
extended the geographic scope of these commitments to accommodation providers throughout Europe as of the same date.

With effect from August 1, 2015, Expedia waived certain rate, conditions and availability parity clauses in its agreements

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

The German Federal Cartel Office ("FCO") has required another online travel company, Hotel Reservation Service

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

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

On November 6, 2015, the Swiss competition authority announced that it had issued a final decision finding certain parity

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

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

Hotelverband Deutschland (“IHA”) e.V. (a German hotel association) brought proceedings before the Cologne regional

court against Expedia, Inc., Expedia.com GmbH and Expedia Lodging Partner Services Sàrl. IHA applied for a ‘cease and
desist’ order against these companies in relation to the enforcement of certain rate and availability parity clauses contained in
contracts with hotels in Germany. On or around February 16, 2017, the court dismissed IHA’s action and declared the claimant
liable for the Expedia defendants’ statutory costs. IHA appealed the decision and, on December 4, 2017, the Court of Appeals
rejected IHA’s appeal. The Court of Appeals expressly confirmed that Expedia’s MFNs are in compliance both with European
and German competition law. While IHA had indicated an intention to appeal the decision to the Federal Supreme Court, it has
not lodged an appeal within the applicable deadline, with the consequence that the Court of Appeals judgment has now become
final.

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

Legislative bodies in France (July 2015), Austria (December 2016) and Italy (August 2017) have also adopted new
domestic anti-parity clause legislation. Expedia believes each of these pieces of legislation violates both EU and national legal
principles and therefore, Expedia has challenged these laws at the European Commission.

predict whether these proposals in their current form or in another form will ultimately be adopted and, if so, when this might
be the case. It is not yet clear how any adopted domestic anti-parity clause legislations and/or any possible future legislation in
this area may affect Expedia’s business.

Outside of Europe, a number of NCAs have also opened investigations or inquired about contractual parity provisions in
contracts between hotels and online travel companies in their respective territories, including Expedia. A Brazilian hotel sector
association -- Forum de Operadores Hoteleiros do Brasil -- filed a complaint with the Brazilian Administrative Council for
Economic Defence (“CADE”) against a number of online travel companies, including Booking.com, Decolar.com and Expedia,
on July 27, 2016 with respect to parity provisions in contracts between hotels and online travel companies. On September 13,
2016, Expedia submitted its response to the complaint to CADE. In late 2016, Expedia resolved the concerns of the Australia
and New Zealand NCAs based on implementation of the waivers substantially similar to those provided to accommodation
providers in Europe (on September 1, 2016 in Australia and on October 28, 2016 in New Zealand). More recently, however, the
Australian NCA indicated that it has reopened its investigation. Expedia is in ongoing discussions with a limited number of
NCAs in other countries in relation to its contracts with hotels. Expedia is currently unable to predict the impact the
implementation of the waivers both in Europe and elsewhere will have on Expedia's business, on investigations or inquiries by
NCAs in other countries, or on industry practice more generally.

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

Part I. Item 4. Mine Safety Disclosures

Not applicable.

Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information

Our common stock is quoted on the Nasdaq Global Select Market under the ticker symbol “EXPE.” Our Class B
common stock is not listed and there is no established public trading market. As of January 26, 2018, there were approximately
2,110 holders of record of our common stock and the closing price of our common stock was $131.76 on Nasdaq. As of
January 26, 2018, all of our Class B common stock was held by a subsidiary of Liberty Expedia Holdings.

The following table sets forth the intra-day high and low prices per share for our common stock during the periods

indicated:

Year ended December 31, 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

Year ended December 31, 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

High

Low

154.24
161.00
156.39
132.17

133.55
119.77
118.00
122.13

High

115.55
138.35
124.33
111.88

112.63
104.44
96.58
88.40

Low

Dividend Policy

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

dividends:

Year ended December 31, 2017:

Year ended December 31, 2016

Declaration Date

Dividend
Per Share

Record Date

Total Amount
(in thousands)

Payment Date

February 7, 2017 $
April 26, 2017
July 26, 2017
October 25, 2017

March 9, 2017 $
0.28
May 25, 2017
0.28
August 24, 2017
0.30
0.30 November 16, 2017

March 30, 2017
42,247
42,438
June 15, 2017
45,578 September 14, 2017
December 7, 2017
45,512

February 8, 2016 $
April 26, 2016
July 27, 2016
October 24, 2016

March 10, 2016 $
0.24
May 26, 2016
0.24
0.26
August 25, 2016
0.26 November 17, 2016

March 30, 2016
36,174
June 16, 2016
35,773
39,062 September 15, 2016
December 8, 2016
39,150

In February 2018, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash
dividend of $0.30 per share of outstanding common stock payable on March 28, 2018 to the stockholders of record as of the
close of business on March 8, 2018.

Declaration and payment of future dividends, if any, is at the discretion of the Board of Directors and will depend on,

among other things, our results of operations, cash requirements and surplus, financial condition, share dilution management,
legal risks, tax policies, capital requirements relating to research and development, investments and acquisitions, challenges to
our business model and other factors that the Board of Directors may deem relevant. In addition, our credit agreement limits
our ability to pay cash dividends under certain circumstances.

Unregistered Sales of Equity Securities

During the quarter ended December 31, 2017, we did not issue or sell any shares of our common stock or other equity

securities pursuant to unregistered transactions in reliance upon an exemption from the registration requirements of the
Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

A summary of the repurchase activity for the fourth quarter of 2017 is as follows:

Period

October 1-31, 2017
November 1-30, 2017
December 1-31, 2017
Total

Total Number of
Shares Purchased

Average Price
Paid Per Share

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

Maximum
Number of
Shares that
May Yet Be
Purchased
Under Plans or
Programs

— $

1,294
—
1,294

(In thousands, expect per share data)
—
1,294
—
1,294

—
120.35
—

6,237
4,943
4,943

In 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million

outstanding shares of our common stock. As of December 31, 2017, 4.9 million shares remain authorized for repurchase under
the 2015 authorization. There is no fixed termination date for the repurchases.

Performance Comparison Graph

The graph shows a five-year comparison of cumulative total return, calculated on a dividend reinvested basis, for Expedia

common stock, the NASDAQ Composite Index, the RDG (Research Data Group) Internet Composite Index and the S&P 500.
The graph assumes an investment of $100 in each of the above on December 31, 2012. The stock price performance shown in
the graph is not necessarily indicative of future price performance.

Part II. Item 6. Selected Financial Data

We have derived the following selected financial data presented below from the consolidated financial statements and

related notes. The information set forth below is not necessarily indicative of future results and should be read in conjunction
with the consolidated financial statements and related notes and Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations.

SELECTED FINANCIAL DATA

Year Ended December 31,

2017

2016

2015

2014

2013

(in thousands, except per share data)

$ 10,059,844

8,773,564

6,672,317

5,763,485

4,771,259

625,138
377,964

461,702
281,848

413,566
764,465

517,764
398,097

366,060
232,850

2.49

2.42

1.87

1.82

5.87

5.70

3.09

2.99

1.73

1.67

Consolidated Statements of Operations
Data:
Revenue

Operating income
Net income attributable to Expedia, Inc.(1)
Earnings per share attributable to
Expedia, Inc. available to common
stockholders:
Basic

Diluted

Shares used in computing earnings per
share:

Basic

Diluted

151,619

156,385

150,367

154,517

130,159

134,018

128,912

133,168

134,912

139,593

0.56

Dividends declared per common share

1.16

1.00

0.84

0.66

2017

2016

2015

2014

2013

December 31,

Consolidated Balance Sheet Data:
Working deficit

Total assets
Senior notes debt(2)
Non-redeemable non-controlling interest(3)
Total stockholders’ equity

$ (2,339,101) $ (2,676,947) $ (2,949,756) $ (1,263,283) $ (1,075,817)
7,734,689
15,485,675
1,244,620
3,183,140

18,515,628
4,249,054

15,777,546
3,159,336

9,012,299
1,738,548

1,606,233

6,128,568

1,560,802

5,693,103

65,373

109,462

113,521

4,929,767

1,893,729

2,258,985

___________________________________
(1) On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong, Inc. We recognized an after tax gain of

$395 million (or $509 million pre-tax gain) during 2015.

(2) Includes current and long-term portion of senior notes.
(3) On December 16, 2016, our majority-owned subsidiary, trivago, completed its IPO. In conjunction with the IPO, Expedia
and trivago's founders entered into an Amended and Restated Shareholders' Agreement under which the original put/call
rights were no longer effective and, as such, we reclassified the redeemable non-controlling interest into non-redeemable
non-controlling interest on the consolidated balance sheet. See NOTE 12 — Redeemable Non-controlling Interests in the
notes to consolidated financial statements for further information.

Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Expedia, Inc. is an online travel company, empowering business and leisure travelers with the tools and information they
need to efficiently research, plan, book and experience travel. We created a global travel marketplace used by a broad range of
leisure and corporate travelers, offline retail travel agents and travel service providers. We make available, on a stand-alone and
package basis, travel products and services provided by numerous lodging properties, airlines, car rental companies, destination
service providers, cruise lines, vacation rental property owners and managers, and other travel product and service companies.
We also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our
various media and advertising offerings on our transaction-based websites. For additional information about our portfolio of
brands, see the disclosure set forth in Part I, Item 1, Business, under the caption “Management Overview.”

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

Trends

The travel industry, including offline agencies, online agencies and other suppliers of travel products and services, has

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

Online Travel

Increased usage and familiarity with the internet drove rapid growth in online penetration of travel expenditures.

According to Phocuswright, an independent travel, tourism and hospitality research firm, in 2018, over 45% of U.S. and
European leisure and unmanaged corporate travel expenditures are expected to occur online. Online penetration rates in the
emerging markets, such as Asia Pacific and Latin American regions, are lagging behind that of the United States and Europe,
and are estimated to be in the range of 30% to 40%. These penetration rates increased over the past few years, and are expected
to continue growing, which has attracted many competitors to online travel. This competition intensified in recent years, and
the industry is expected to remain highly competitive for the foreseeable future. In addition to the growth of online travel
agencies, airlines and lodging companies aggressively pursued direct online distribution of their products and services.
Competitive entrants such as “metasearch” companies, including Kayak.com (owned by The Priceline Group), trivago (in
which Expedia owns a majority interest) as well as TripAdvisor, introduced differentiated features, pricing and content
compared with the legacy online travel agency companies, as well as various forms of direct or assisted booking tools, the
impact of which is currently uncertain. In addition, the increasing popularity of the “sharing economy,” accelerated by online
penetration, has had a direct impact on the travel and lodging industry. Players such as Airbnb, HomeAway (which Expedia
acquired in December 2015) and Booking.com (owned by The Priceline Group) emerged as the leaders, bringing incremental
alternative accommodation and vacation rental inventory to the market. Many other competitors, including vacation rental
metasearch players, continue to emerge in this space, which is estimated by analysts to account for approximately $100 billion
of annual travel spend and expected to continue to grow as a percentage of the global accommodation market. Furthermore, we
saw increased interest in the online travel industry from search engine companies as evidenced by recent innovations including
direct booking functionality, as well as licensing deals and proposed and actual acquisitions by companies such as Google.
Finally, traditional consumer eCommerce and group buying websites expanded their local offerings into the travel market by
adding hotel offers to their websites.

The online travel industry also saw the development of alternative business models and variations in the timing of

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

Intense competition also historically led to aggressive marketing efforts by the travel suppliers and intermediaries, and a

meaningful unfavorable impact on our overall marketing efficiencies and operating margins. We manage our selling and
marketing spending on a brand basis, making decisions in each applicable market that we think are appropriate based on the
relative growth opportunity, the expected returns and the competitive environment. In certain cases, particularly in emerging
markets, we are pursuing and expect to continue to pursue long-term growth opportunities for which our marketing efficiency
is less favorable than that for our consolidated business, but for which we still believe the opportunity to be attractive. The
crowded online travel environment is now driving certain secondary and tertiary online travel companies to establish marketing

agreements with global players in order to leverage distribution and technology capabilities while focusing resources on
capturing traveler mind share.

In May 2015, Expedia sold its 62.4% equity stake in eLong for approximately $671 million to several purchasers
including Ctrip.com International, Ltd (“Ctrip”). Expedia and Ctrip also reached agreement on cooperation for certain travel
products in specified geographic markets. The transaction closed on May 22, 2015. Unless otherwise noted, all discussion in
the “Trends” and “Growth Strategy” sections refers to results for Expedia, Inc. excluding eLong.

Lodging

Lodging includes hotel accommodations as well as alternative accommodations primarily made available through
HomeAway. As a percentage of our total worldwide revenue in 2017, lodging accounted for 68%. Our room night growth has
been healthy, with room nights excluding eLong growing 36% in 2015, 32% in 2016, and 16% in 2017. ADRs for rooms
booked on Expedia and HomeAway websites excluding eLong declined 5% in 2015, increased 5% in 2016 due to the
acquisition of HomeAway, and increased 3% in 2017.

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

Since our hotel supplier agreements are generally negotiated on a percentage basis, any increase or decrease in ADRs has

an impact on the revenue we earn per room night. Over the course of the last several years, occupancies and ADRs in the
lodging industry generally increased on a currency-neutral basis in a gradually improving overall travel environment. However,
U.S. dollar-denominated hotel ADRs declined in 2015 and 2016, due to the currency translation impact, and increased in 2017.
Current occupancy rates for hotels in the United States remain high; however, U.S. hotel supply growth has been accelerating,
which may put additional pressure on ADRs. In international markets, hotel supply is being added at a faster rate as hotel
owners and operators try to take advantage of opportunities in faster growing regions such as Asia and certain Latin American
markets. Companies like Airbnb, HomeAway and Booking.com also added incremental global supply in the alternative
accommodations space. In addition, while the global lodging industry remains very fragmented, there has been consolidation in
the hotel space among chains as well as ownership groups. In the meantime, certain hotel chains have been focusing on driving
direct bookings on their own websites and mobile applications by advertising lower rates than those available on third-party
websites as well as incentives such as loyalty points, increased or exclusive product availability and complimentary Wi-Fi. We
have had success adding supply to our marketplace with more than 590,000 properties on our global websites as of December
31, 2017, including more than 150,000 HomeAway vacation rental properties now available on select Brand Expedia, Orbitz,
Travelocity, CheapTickets and ebookers websites.

Alternative Accommodations. With our acquisition of HomeAway and all of its brands in December 2015, we expanded
into the fast growing $100 billion alternative accommodations market. HomeAway is a leader in this market and represents an
attractive growth opportunity for Expedia. HomeAway has been undergoing a transition from a listings-based classified
advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager
partners, with a goal of increasing monetization and driving growth through investments in marketing as well as in product and
technology. In addition, HomeAway rolled out a traveler service fee in the United States and Europe during the first half of
2016, consistent with market practice. The fee is expected to continue to contribute to HomeAway’s revenue growth and help
fund marketing investment, programs to better protect travelers and future growth initiatives. Furthermore, HomeAway moved
to a single subscription option globally in July 2016. In the first quarter of 2017, HomeAway began integrating Expedia
vacation rental properties onto its websites. As of December 31, 2017, there are nearly 1.5 million online bookable listings
available on HomeAway.

Air

Significant airline sector consolidation in the United States in recent years generally resulted in lower overall capacity

and higher fares, which combined with the significant declines in fuel prices led to record levels of profitability for the U.S. air
carriers, further strengthening their position. However, in 2015, 2016 and 2017, there has been evidence of discounting by the
U.S. carriers while currency headwinds and weaker macroeconomic trends put pressure on international results. Ticket prices
on Expedia websites excluding eLong declined 11% in 2015, 6% in 2016, and 1% in 2017 as short-haul traffic and low cost
carriers grew alongside increasingly competitive airline pricing and more recently a volatile fuel pricing environment. We can

encounter pressure on air remuneration as air carriers combine and as certain supply agreements renew, and continue to add
airlines to ensure local coverage in new markets.

Air ticket volumes excluding eLong increased 35% in 2015 and 32% in 2016, primarily due to the acquisition of Orbitz,

and 4% in 2017. As a percentage of our total worldwide revenue in 2017, air accounted for 8%.

Advertising & Media

Our advertising and media business is principally driven by revenue generated by trivago, a leading hotel metasearch

website, in addition to Expedia Media Solutions, which is responsible for generating advertising revenue on our global online
travel brands. In 2017, we generated a total of $1.1 billion of advertising and media revenue representing 11% of our total
worldwide revenue, up from $807 million in 2016.

Growth Strategy

Global Expansion. Our Brand Expedia, Hotels.com, Egencia, and EAN brands operate both domestically and through
international points of sale, including in Europe, Asia Pacific, Canada and Latin America. In addition, ebookers offers multi-
product online travel reservations in Europe and Wotif Group has a leading portfolio of travel brands, including Wotif.com,
Wotif.co.nz, lastminute.com.au, lastminute.com.nz and travel.com.au, focused principally on the Australia and New Zealand
markets. Egencia, our corporate travel business, operates in over 65 countries around the world and continues to expand. The
HomeAway portfolio has 60 vacation rental websites all around the world. We own a majority share of trivago, a leading
metasearch company. Officially launched in 2005, trivago is one of the best known travel brands in Europe and North America.
trivago continues to operate independently and grow revenue through global expansion, including aggressive expansion in new
countries. In December 2016, trivago successfully completed its initial public offering and trades on the Nasdaq Global Select
Market under the symbol "TRVG." In addition, we have commercial agreements in place with Ctrip and eLong in China,
Traveloka in Southeast Asia, as well as Decolar.com, Inc. in Latin America, among many others. In conjunction with the
commercial arrangements with Traveloka and Decolar, we have also made strategic investments of over $600 million combined
in Traveloka in 2017 and Decolar in 2015. In 2017, approximately 38% of our worldwide gross bookings and 45% of
worldwide revenue were through international points of sale compared to just 21% for both worldwide gross bookings and
revenue in 2005. We have a goal of generating more than two-thirds of our revenue through businesses and points of sale
outside of the United States.

In expanding our global reach, we leverage significant investments in technology, operations, brand building, supplier

Product Innovation. Each of our leading brands was a pioneer in online travel and has been responsible for driving key
innovations in the space for more than two decades. Each Expedia technology platform is operated by a dedicated technology
team, which drives innovations that make researching and shopping for travel increasingly easier and helps customers find and
book the best possible travel options. We have made key investments in technology, including significant development of our
technical platforms that makes it possible for us to deliver innovations at a faster pace. Improvements in our global platforms
for Hotels.com and Brand Expedia continue to enable us to significantly increase the innovation cycle, thereby improving
conversion and driving faster growth rates for those brands. In 2013, Expedia signed an agreement to power the technology,
supply and customer service platforms for Travelocity-branded websites in the United States and Canada, enabling Expedia to
leverage its investments in each of these key areas. During 2014, the Travelocity-branded websites were successfully migrated
to the Expedia technology platform. In November 2014, Expedia completed the acquisition of Wotif Group and subsequently
converted the Wotif.com website to the Expedia technology platform. In January 2015, we acquired the Travelocity brand and
other associated assets from Sabre. The strategic marketing and other related agreements previously entered into were
terminated. In September 2015, Expedia acquired Orbitz Worldwide, including all of its brands. The Orbitz, CheapTickets and
ebookers websites were migrated to the Expedia technology platform in the first half of 2016, and Orbitz for Business
customers were migrated to the Egencia technology platform by July 2016. In December 2015, Expedia acquired HomeAway,
Inc., including all of its brands. Additionally, in June 2017, Expedia acquired a majority stake in SilverRail, a leading rail
technology distributor. We intend to continue leveraging these investments when launching additional points of sale in new

countries, introducing new website features, adding supplier products and services including new business model offerings, as
well as proprietary and user-generated content for travelers.

Seasonality

We generally experience seasonal fluctuations in the demand for our travel products and services. For example,
traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring,
summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Because revenue for most
of our travel products, including merchant and agency hotel, is recognized when the travel takes place rather than when it is
booked, revenue typically lags bookings by several weeks for our hotel business and can be several months for our vacation
rental business. Historically, HomeAway has seen seasonally stronger bookings in the first quarter of the year, with the relevant
stays occurring during the peak summer travel months. The seasonal revenue impact is exacerbated with respect to income by
the nature of our variable cost of revenue and direct sales and marketing costs, which we typically realize in closer alignment to
booking volumes, and the more stable nature of our fixed costs. Furthermore, operating profits for our primary advertising
business, trivago, have typically been experienced in the second half of the year, particularly the fourth quarter, as selling and
marketing costs offset revenue in the first half of the year as we aggressively market during the busy booking period for spring,
summer and winter holiday travel. As a result on a consolidated basis, revenue and income are typically the lowest in the first
quarter and highest in the third quarter. The continued growth of our international operations, advertising business or a change
in our product mix, including the growth of HomeAway, may influence the typical trend of the seasonality in the future, and
there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ
from the typical seasonal trends. We expect that as HomeAway continues its shift to more of a transaction-based business
model for vacation rental listings its seasonal trends will be more pronounced than our other traditional leisure businesses.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated

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

There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated

financial statements. We consider an accounting estimate to be critical if:

•

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

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

For more information on each of these policies, see NOTE 2 — Significant Accounting Policies, in the notes to
consolidated financial statements. We discuss information about the nature and rationale for our critical accounting estimates
below.

Accounting for Certain Merchant Revenue

We accrue the cost of certain merchant revenue based on the amount we expect to be billed by suppliers. In certain
instances when a supplier invoices us for less than the cost we accrued, we generally recognize those amounts as revenue six
months in arrears, net of an allowance, when we determine it is not probable that we will be required to pay the supplier, based
on historical experience and contract terms. Actual revenue could be greater or less than the amounts estimated due to changes
in hotel billing practices or changes in traveler behavior.

Loyalty Program Accruals

We offer certain internally administered traveler loyalty programs to our customers, such as our Hotels.com Rewards
program, our Brand Expedia Expedia+ rewards program and our Orbitz rewards program. Hotels.com Rewards offers travelers
one free night at any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia+
rewards enables participating travelers to earn points on all hotel, flight, package and activities made on over 30 Brand Expedia
websites. Orbitz Rewards allows travelers to earn OrbucksSM, the currency of Orbitz Rewards, on flights, hotels and vacation
packages and instantly redeem those Orbucks on future bookings at various hotels worldwide. As travelers accumulate points
towards free travel products, we record a liability for the estimated future cost of redemptions. The cost of these loyalty points
is recorded as a reduction to revenue in our consolidated financial statements. We determine the future redemption obligation
based on judgment factors including: (i) the estimated cost of travel products to be redeemed, and (ii) an estimated redemption
rate based on the overall accumulation and usage of points towards free travel products, which is determined through current
and historical trends as well as statistical modeling techniques. The actual future cost and rate of redemptions could differ
materially from our estimates.

Business Combinations

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

Recoverability of Goodwill and Indefinite and Definite-Lived Intangible Assets

Goodwill. We assess goodwill for impairment annually as of October 1, or more frequently, if events and circumstances

indicate impairment may have occurred. In the evaluation of goodwill for impairment, we typically perform a quantitative
assessment and compare the fair value of the reporting unit to the carrying value and, if applicable, record an impairment
charge based on the excess of the reporting unit's carrying amount over its fair value. Periodically, we may choose to perform a
qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the goodwill is more
likely than not impaired.

We generally base our measurement of fair value of reporting units on a blended analysis of the present value of future

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

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

equity value assumes our fully diluted market capitalization, using either the stock price on the valuation date or the average
stock price over a range of dates around the valuation date, plus an estimated acquisition premium which is based on
observable transactions of comparable companies. The debt value is based on the highest value expected to be paid to
repurchase the debt, which can be fair value, principal or principal plus a premium depending on the terms of each debt
instrument.

Indefinite-Lived Intangible Assets. We base our measurement of fair value of indefinite-lived intangible assets, which
primarily consist of trade name and trademarks, using the relief-from-royalty method. This method assumes that the trade name
and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received
from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the
weighted average cost of capital.

Definite-Lived Intangible Assets. We review the carrying value of long-lived assets or asset groups to be used in

operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be
recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or
manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value
of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential
impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group
exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets
over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying
value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation
methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the
difference between the asset groups carrying amount and its estimated fair value.

The use of different estimates or assumptions in determining the fair value of our goodwill, indefinite-lived and definite-

lived intangible assets may result in different values for these assets, which could result in an impairment or, in the period in
which an impairment is recognized, could result in a materially different impairment charge.

Income Taxes

We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future

tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We
determine deferred income taxes based on the differences in accounting methods and timing between financial statement and
income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the
enacted tax rates expected to be in effect when we realize the underlying items of income and expense. We consider many
factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience
by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes,
as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe
is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in
income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain
judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.

We record liabilities to address uncertain tax positions we have taken in previously filed tax returns or that we expect to
take in a future tax return. The determination for required liabilities is based upon an analysis of each individual tax position,
taking into consideration whether it is more likely than not that our tax position, based on technical merits, will be sustained
upon examination. For those positions for which we conclude it is more likely than not it will be sustained, we recognize the
largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing
authority. The difference between the amount recognized and the total tax position is recorded as a liability. The ultimate
resolution of these tax positions may be greater or less than the liabilities recorded.

The Tax Cuts and Jobs Act ("the Tax Act") was enacted in December 2017. The Tax Act significantly changes U.S. tax
law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a
one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduces the U.S. corporate income
tax rate from 35% to 21%, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to
address the application of U.S. GAAP in situations when a registrant does not have the necessary information available,
prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of
the Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year
of the enactment date. We have recognized the provisional impacts related to the one-time transition tax and revaluation of
deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31,
2017. The ultimate impact may materially differ from these provisional amounts, due to, among other things, additional

analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and
actions we may take as a result of the Tax Act. In addition, foreign governments may enact tax laws in response to the Tax Act
that could result in further changes to global taxation and materially affect our financial position and results of operations. We
expect to complete our analysis within the measurement period in accordance with SAB 118.

Other Long-Term Liabilities

Various Legal and Tax Contingencies. We record liabilities to address potential exposures related to business and tax
positions we have taken that have been or could be challenged by taxing authorities. In addition, we record liabilities associated
with legal proceedings and lawsuits. These liabilities are recorded when the likelihood of payment is probable and the amounts
can be reasonably estimated. The determination for required liabilities is based upon analysis of each individual tax issue, or
legal proceeding, taking into consideration the likelihood of adverse judgments and the range of possible loss. In addition, our
analysis may be based on discussions with outside legal counsel. The ultimate resolution of these potential tax exposures and
legal proceedings may be greater or less than the liabilities recorded.

Occupancy Tax. Some states and localities impose a transient occupancy or accommodation tax on the use or occupancy
of hotel accommodations. Generally, hotels collect taxes based on the rate paid to the hotel and remit these taxes to the various
tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery charge from the
customer which we pay to the hotel. We calculate the tax recovery charge by applying the occupancy tax rate supplied to us by
the hotels to the amount that the hotel has agreed to receive for the rental of the room by the consumer. In all but a limited
number of jurisdictions, we do not collect or remit occupancy taxes, nor do we pay occupancy taxes to the hotel operator, on
the portion of the customer payment we retain. Some jurisdictions have questioned our practice in this regard. While the
applicable tax provisions vary among the jurisdictions, we generally believe that we are not required to pay such occupancy
taxes. We are engaged in discussions with tax authorities in various jurisdictions to resolve this issue. Some tax authorities have
brought lawsuits or have levied assessments asserting that we are required to collect and remit occupancy tax. The ultimate
resolution in all jurisdictions cannot be determined at this time. Certain jurisdictions may require us to pay tax assessments,
including occupancy and other transactional tax assessments, prior to contesting any such assessments.

We have established a reserve for the potential settlement of issues related to hotel occupancy taxes for prior and current
periods, consistent with applicable accounting principles and in light of all current facts and circumstances. A variety of factors
could affect the amount of the liability (both past and future), which factors include, but are not limited to, the number of, and
amount of revenue represented by, jurisdictions that ultimately assert a claim and prevail in assessing such additional tax or
negotiate a settlement and changes in relevant statutes.

We note that there are more than 7,000 taxing jurisdictions in the United States, and it is not feasible to analyze the
statutes, regulations and judicial and administrative rulings in every jurisdiction. Rather, we have obtained the advice of state
and local tax experts with respect to tax laws of certain states and local jurisdictions that represent a large portion of our hotel
revenue. Many of the statutes and regulations that impose hotel occupancy taxes were established before the emergence of the
internet and eCommerce. Certain jurisdictions have enacted, and others may enact, legislation regarding the imposition of
occupancy taxes on businesses that arrange the booking of hotel accommodations. We continue to work with the relevant tax
authorities and legislators to clarify our obligations under new and emerging laws and regulations. We will continue to monitor
the issue closely and provide additional disclosure, as well as adjust the level of reserves, as developments warrant.
Additionally, certain of our businesses are involved in occupancy tax related litigation, which is discussed in Part I, Item 3,
Legal Proceedings. Recent occupancy tax developments are also discussed below under the caption “Occupancy and Other
Taxes.”

Stock-Based Compensation

Our primary form of employee stock-based compensation is stock option awards. We measure the value of stock option

awards on the date of grant at fair value using the appropriate valuation techniques, including the Black-Scholes and Monte
Carlo option-pricing models. We amortize the fair value over the remaining term on a straight-line basis. We account for
forfeitures as they occur. The pricing models require various highly judgmental assumptions including volatility and expected
option term. If any of the assumptions used in the models change significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current period.

In addition, we classify certain employee option awards as liabilities when we deem it not probable that the employees

holding the awards will bear the risk and rewards of stock ownership for a reasonable period of time. Such options are revalued
at the end of each reporting period and upon settlement our total compensation expense recorded from grant date to settlement
date will equal the settlement amount.

New Accounting Pronouncements

For a discussion of new accounting pronouncements, see NOTE 2 — Significant Accounting Policies in the notes to

consolidated financial statements.

Occupancy and Other Taxes

We are currently involved in sixteen lawsuits brought by or against states, cities and counties over issues involving the

payment of hotel occupancy and other taxes. We continue to defend these lawsuits vigorously. With respect to the principal
claims in these matters, we believe that the statutes and ordinances at issue do not apply to the services we provide, namely the
facilitation of hotel reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the
statutes and ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or
similar businesses) or furnish or provide hotel rooms or similar accommodations.

Recent developments include:

•

City of San Antonio, Texas Litigation. On November 29, 2017, the United States Fifth Circuit Court of Appeals
reversed the decision of the district court and held that the amounts charged by the defendants for their services are
not subject to tax. The plaintiff municipalities filed petitions for rehearing and en banc review. On February 6,
2018, the Fifth Circuit Court denied those petitions.

Town of Breckenridge, Colorado Litigation. On January 25, 2018, the Colorado Court of Appeals affirmed the trial
court’s decision on all grounds, finding that the defendant online travel companies are not liable for
accommodations taxes, that the Town’s sales tax claims were properly dismissed for lack of subject matter
jurisdiction and that class certification was properly denied.

Village of Bedford Park, Illinois Litigation. On November 22, 2017, the United States Seventh Circuit Court of
Appeals denied the plaintiffs’ appeal, affirming the district court’s finding of no liability for occupancy taxes in 12
of the 13 plaintiff municipalities, and granted the defendant online travel companies’ appeal, reversing the district
court’s finding of liability for occupancy taxes in the Village of Lombard.

State of New Hampshire Litigation. On November 17, 2017, the plaintiff filed a notice of appeal to the New
Hampshire Supreme Court from the trial court’s October 18, 2017 ruling that the defendant online travel companies
are not subject to the New Hampshire meals and room tax and that their business practices do not violate the state
consumer protection act.

For additional information on these and other legal proceedings, see Part I, Item 3, Legal Proceedings.

We have established a reserve for the potential settlement of issues related to hotel occupancy and other tax litigation,
consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $43 million
as of December 31, 2017 and $71 million as of December 31, 2016.

Certain jurisdictions, including the states of New York, North Carolina, Minnesota, Oregon, Rhode Island, and Maryland,

the city of New York, and the District of Columbia, have enacted legislation seeking to tax online travel company services as
part of sales taxes for hotel occupancy. We are currently remitting taxes to a number of jurisdictions, including to the states of
New York, South Carolina, North Carolina, Minnesota, Georgia, Wyoming, Oregon, Rhode Island, Montana, Maryland,
Kentucky and Maine, the District of Columbia and the city of New York, as well as certain other county and local jurisdictions.

Pay-to-Play

Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being allowed to contest or litigate

the applicability of the ordinances. This prepayment of contested taxes is referred to as “pay-to-play.” Payment of these
amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we continue
to defend our position vigorously. If we prevail in the litigation, for which a pay-to-play payment was made, the jurisdiction
collecting the payment will be required to repay such amounts and also may be required to pay interest. However, any
significant pay-to-play payment or litigation loss could negatively impact our liquidity. For additional information, including
significant pay-to-play payments made by Expedia companies, see NOTE 17 — Commitments and Contingencies - Legal
Proceedings - Pay-to-Play in the notes to the consolidated financial statements.

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

Segments

We have four reportable segments: Core OTA, trivago, HomeAway upon its acquisition on December 15, 2015 and
Egencia. In addition, eLong was a reportable segment through its disposal on May 22, 2015. Our Core OTA segment provides a
full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com
and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Orbitz,
CheapTickets, ebookers, EAN, Hotwire.com, Travelocity, Wotif Group, CarRentals.com, Classic Vacations and SilverRail
Technologies, Inc. Our trivago segment generates advertising revenue primarily from sending referrals to online travel
companies and travel service providers from its hotel metasearch websites. Our HomeAway segment operates an online
marketplace for the vacation rental industry. Our Egencia segment provides managed travel services to corporate customers
worldwide.

Operating Metrics

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

When HomeAway properties are booked through our Core OTA websites and vice versa, the segments split the third-

party revenue for management and segment reporting purposes with the majority of the third-party revenue residing with the
website marketing the property or room. The operating metrics, including gross bookings and room nights, are not split but
instead generally reside entirely with the website marketing the property or room.

Gross Bookings and Revenue Margin

Gross Bookings
Core OTA
trivago(1)
HomeAway(2)
Egencia
eLong(3)

Total gross bookings

Revenue Margin

Core OTA
trivago(1)
HomeAway(2)
Egencia
eLong(3)

Total revenue margin

Year ended December 31,

% Change

2017

2016
($ in millions)

2015

2017 vs 2016

2016 vs 2015

72,701
—
8,746
6,963
—
88,410

66,063
—
5,980
6,368
—
78,411

54,252
—
—
5,427
1,151
60,830

10%
N/A
46%
9%
N/A
13%

22%
N/A
N/A
17%
N/A
29%

10.8%
N/A
10.4%
7.5%
N/A
11.4%

10.7%
N/A
11.5%
7.3%
N/A
11.2%

10.8%
N/A
N/A
7.4%
3.6%
11.0%

___________________________________
(1)

trivago, which is comprised of a hotel metasearch business that differs from our transaction-based websites, does not
have associated gross bookings or revenue margin. However, third-party revenue from trivago is included in revenue
used to calculate total revenue margin.
In 2017, we began reporting HomeAway gross bookings along with the historical comparable information for 2016. As
we acquired HomeAway on December 15, 2015, we did not report HomeAway gross bookings for 2015. HomeAway
gross bookings include on-platform transactions from all HomeAway brands, with the exception of
BedandBreakfast.com and TopRural (which, if included would collectively add less than an estimated 2% to gross
bookings). On-platform gross bookings for Stayz, Bookabach and Travelmob (which collectively represent less than
10% of total on-platform transactions) represent our best estimates.
Includes results for eLong through its disposal on May 22, 2015.

(2)

(3)

The increase in worldwide gross bookings in 2017 as compared to 2016 was primarily due to growth in the Core OTA

segment, including growth at Brand Expedia, Hotels.com and EAN, as well as growth at HomeAway. The increase in
worldwide gross bookings in 2016 as compared to 2015 was primarily driven by the inorganic impact from acquisitions of
22%, growth in the Core OTA segment, including growth at Brand Expedia and Hotels.com, as well as growth at Egencia.

Revenue margin increased in 2017 as compared to 2016 primarily due to a mix shift to higher margin products, including

growth in advertising and media revenue, and the favorable impact of lower air ticket prices, partially offset by lower revenue
per room night and lower HomeAway revenue margins. Revenue margin increased in 2016 compared to 2015 primarily due to
the favorable impact of lower air ticket prices and a mix shift to higher margin products, including advertising and media
revenue. These impacts were partially offset by the inclusion of a higher share of lower margin air gross bookings with the
acquisition of Orbitz and lower revenue per room night

Results of Operations

On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong. The below discussion of the results of

operations for 2015 include results for eLong through its disposal on May 22, 2015. Operating expense tables below present
total expenses including eLong for 2015 as well as eLong specific amounts included within the consolidated total.

On September 17, 2015, we completed our acquisition of Orbitz. Orbitz was consolidated into our results of operations

starting on the acquisition date and we recognized $196 million in revenue and $163 million in operating losses, including
restructuring charges of $92 million as well as fees related to the acquisition, from the acquisition date to December 31, 2015.

On December 15, 2015, we completed our acquisition of HomeAway. HomeAway was consolidated into our results of

operations starting on the acquisition date and we recognized $20 million in revenue and $14 million in operating loss,
including fees related to the acquisition, from the acquisition date to December 31, 2015.

Revenue

Revenue by Segment
Core OTA
trivago (Third-party revenue)
HomeAway
Egencia
eLong

Total revenue

Year ended December 31,
2016

2017

($ in millions)

2015

2017 vs 2016

2016 vs 2015

% Change

7,881
752
906
521
—
10,060

7,084
539
689
462
—
8,774

5,877
333
20
400
42
6,672

11%
40%
32%
13%
N/A
15%

21%
62%
N/A
16%
N/A
31%

In 2017, revenue increased primarily driven by growth in the Core OTA segment, including growth at Brand Expedia and

EAN, as well as growth at HomeAway and trivago. In 2016, revenue increased primarily driven by 19% of inorganic impact
from acquisitions, growth in the Core OTA segment, including growth at Brand Expedia and Hotels.com, as well as growth at
trivago.

Lodging revenue, which includes hotel and HomeAway revenue, increased 14% in 2017 primarily due to a 16% increase

in room nights stayed driven by growth in Brand Expedia, HomeAway and EAN, partially offset by a 2% decline in revenue
per room night. Lodging revenue increased 30% in 2016 primarily due to a 22% (32% excluding eLong) increase in room
nights stayed driven by the inorganic impact of acquisitions of HomeAway and Orbitz as well as organic growth in Hotels.com,
Brand Expedia and EAN, and a 6% increase (1% decrease excluding eLong) in revenue per room night in 2016. Acquisitions
added approximately 21% of inorganic lodging revenue growth in 2016 and 16% of room night growth in 2016.

Worldwide air revenue increased 1% in 2017 due to 4% increase in air tickets sold, partially offset by a 3% decrease in

revenue per ticket. Worldwide air revenue increased 37% (39% excluding eLong) in 2016 due to a 29% (32% excluding eLong)
increase in air tickets sold and a 6% (5% excluding eLong) increase in revenue per air ticket, driven by new contractual
agreements and the addition of Orbitz. Acquisitions added approximately 28% of inorganic air revenue growth in 2016 and
21% of air ticket growth in 2016.

The remaining worldwide revenue, other than lodging and air discussed above, which includes advertising and media, car

rental, destination services and fees related to our corporate travel business, increased by 23% in 2017 and 35% in 2016

primarily due to growth in advertising and media revenue as well as growth in our travel insurance and car rental products,
including an inorganic contribution from Orbitz in 2016.

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

Revenue by Business Model
Merchant
Agency
Advertising and media(1)
HomeAway

Total revenue

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

($ in millions)

5,394
2,687
1,073
906
10,060

4,852
2,425
807
689
8,774

4,204
1,882
566
20
6,672

11%
11%
33%
32%
15%

15%
29%
43%
N/A
31%

___________________________________
(1)

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

The increase in merchant revenue in 2017 and 2016 was primarily due to the increase in merchant hotel revenue driven

by an increase in room nights stayed.

The increase in agency revenue in 2017 and 2016 was primarily due to the growth in agency hotel for both periods as

well as agency air in 2016.

The increase in advertising and media revenue in 2017 and 2016 was primarily due to continued growth in trivago and

Expedia Media Solutions.

HomeAway revenue increased 32% in 2017 compared to 2016 primarily due to growth in transactional revenue of 115%

driven by a benefit from the traveler service fee, partially offset by subscription revenue decreasing approximately 30%. The
large increase in 2016 compared to 2015 was due to our acquisition of HomeAway in December 2015.

Cost of Revenue

Customer operations
Credit card processing
Data center, cloud and other
Total cost of revenue(1)

% of revenue
(1) Includes the following eLong amounts:

Year ended December 31,
2016

2017

767
506
484
1,757

($ in millions)
727
$
508
362
1,597

17.5%

18.2%

— $

2015

2017 vs 2016

2016 vs 2015

% Change

569
451
290
1,310
19.6%
37

5 %
— %
34 %
10 %

N/A

28%
13%
25%
22%

N/A

Cost of revenue primarily consists of (1) customer operations, including our customer support and telesales as well as

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

In 2017, the increase in cost of revenue expense was driven by $122 million of higher data center, cloud and other costs,

including a $37 million increase in depreciation expense primarily data center related, as well as $40 million of increased
customer operations expenses. Cloud expense in cost of revenue during 2017 was $57 million compared to $4 million in 2016.

In 2016, the increase in cost of revenue expense was driven by $158 million of increased customer operations expenses,

$72 million of higher data center, cloud and other costs, as well as $57 million of higher net credit card processing costs related
to growth of our merchant bookings. Acquisitions added approximately 18% of year-on-year cost of revenue growth for 2016.

Selling and Marketing

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

Direct costs
Indirect costs

Total selling and marketing(1)

% of revenue
(1) Includes the following eLong amounts:

4,360
938
5,298
52.7%

($ in millions)
3,530
$
837
4,367
49.8%

— $

2,718
663
3,381
50.7%
54

24%
12%
21%

N/A

30%
26%
29%

N/A

Selling and marketing expense primarily relates to direct costs, including traffic generation costs from search engines and
internet portals, television, radio and print spending, private label and affiliate program commissions, public relations and other
costs. The remainder of the expense relates to indirect costs, including personnel and related overhead in our various brands
and global supply organization as well as stock-based compensation costs.

Selling and marketing expenses increased $931 million during 2017 compared to 2016 driven by an increase of $830

million of direct costs, including online and offline marketing expenses. trivago, Brand Expedia, EAN and Hotels.com
accounted for the majority of the total direct cost increases. In addition, higher indirect costs of $101 million also contributed to
the increase and were primarily driven by growth in personnel at Egencia as well as in the lodging supply organization.

Selling and marketing expenses increased $986 million during 2016 compared to 2015 driven by an increase of $812

million of direct costs, including online and offline marketing expenses. trivago, Brand Expedia and Hotels.com as well as the
added costs from our acquisitions of HomeAway and Orbitz accounted for the majority of the total direct cost increase. In
addition, higher indirect costs of $174 million also contributed to the increase and were driven by additional personnel due to
an accelerated pace of hiring in the lodging supply organization in the first half of the year and additional headcount at
HomeAway and Orbitz. Acquisitions added approximately 14% of year-on-year selling and marketing growth for 2016.

Technology and Content

Personnel and overhead
Depreciation and amortization of technology
assets

Other

Total technology and content(1)

% of revenue
(1) Includes the following eLong amounts:

Year ended December 31,

% Change

2017

667

2016
($ in millions)
600
$

445
275
1,387
13.8%

362
273
1,235
14.1%

— $

2015

2017 vs 2016

2016 vs 2015

415

265
150
830
12.4%
11

11%

23%
1%
12%

45%

36%
82%
49%

N/A

Technology and content expense includes product development and content expense, as well as information technology

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

Technology and content expense increased $152 million for 2017 compared to 2016 primarily due to increased

depreciation and amortization of technology assets of $83 million year-over-year. Personnel and overhead costs also increased
$67 million on higher headcount. Other costs increased $2 million year-over-year primarily due to higher licensing and
maintenance to support the growth of our technology platforms, partially offset by lower stock-based compensation of $9
million, including the impact of prior year amounts related to the trivago employee stock option plan as described in NOTE
10 — Stock-Based Awards and Other Equity Instruments. Cloud expense in technology and content during 2017 was $38
million, compared to $35 million in 2016.

Technology and content expense increased $405 million for 2016 compared to 2015 primarily due to increased personnel

and overhead costs of $185 million to support key technology projects primarily in Brand Expedia Group, the corporate

technology function and trivago, as well as the addition of HomeAway personnel and overhead costs. Depreciation and
amortization of technology assets also increased $97 million year-over-year. Other costs increased $123 million year-over-year
primarily due to expansion into the cloud computing environment and higher licensing and maintenance to support the growth
of our technology platforms as well as higher stock-based compensation of $37 million, including amounts related to the
trivago employee stock option plan. Acquisitions added approximately 20% to year-on-year technology and content growth for
2016.

General and Administrative

Personnel and overhead
Professional fees and other

Total general and administrative(1)

% of revenue
(1) Includes the following eLong amounts:

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

($ in millions)
411
$
267
678
7.7%
— $

453
223
676
6.7%
— $

330
244
574
8.6%
23

10 %
(17)%
— %

N/A

24%
10%
18%

N/A

General and administrative expense consists primarily of personnel-related costs, including our executive leadership,

finance, legal and human resource functions as well as fees for external professional services including legal, tax and
accounting, and other costs including stock-based compensation.

General and administrative expense decreased $2 million in 2017 compared to 2016 primarily related to a decrease in

professional fees and other on lower stock-based compensation of $63 million year-over-year, resulting from the current year
reversal of approximately $41 million of previously recognized stock-based compensation expense related to the departure of
our former CEO as well as the absence of certain 2016 stock-based compensation charges related to trivago, partially offset by
an increase in professional fees. In addition, personnel and overhead expenses also increased $42 million primarily driven by
the organic growth of the business.

General and administrative expense increased $104 million in 2016 compared to 2015 due primarily to higher personnel

and overhead expenses of $81 million driven by the organic growth of the business and the inorganic addition of HomeAway
and Orbitz. In addition, stock-based compensation increased $28 million year-over-year, which included increases related to
trivago as well as in general employee stock-based compensation that were partially offset by the absence of eLong related
stock-based compensation in 2016. Acquisitions added approximately 7% of year-on-year general and administrative growth
for 2016, which reflects the addition of a full year of expenses for HomeAway and Orbitz, partially offset by higher acquisition-
related expenses in 2015.

Amortization and Impairment of Intangible Assets

Amortization of intangible assets
Impairment of intangible assets

Year ended December 31,

% Change

2017

2016
($ in millions)
317
$
35

275
—

2015

2017 vs 2016

2016 vs 2015

156
7

(13)%
N/A

103%
N/A

Amortization of intangible assets decreased $42 million in 2017 compared to 2016 primarily due to the completion of

amortization related to certain intangible assets, partially offset by $11 million of amortization related to new business
acquisitions in the current year. In 2016, amortization increased $161 million primarily due to amortization related to new
business acquisitions in the prior year, partially offset by the completion of amortization related to certain intangible assets.

In 2016 and 2015, we recorded impairment losses of $35 million and $7 million related to indefinite-lived trade names

within our Core OTA segment due to changes in estimated future revenues of the related brands.

Legal Reserves, Occupancy Tax and Other

Legal reserves, occupancy tax and other

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

($ in millions)
26
$

(105)

(4)%

N/A

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

During 2017, the expense primarily related to changes in our reserve related to hotel occupancy and other taxes.

During 2016, we recognized approximately $12 million for amounts expected to be paid in advance of litigation related

to merchant car rental transactions in connection with Hawaii's general excise tax litigation. The remaining expense in 2016
related to changes in our reserve related to hotel occupancy and other taxes.

During 2015, we received a refund of prepaid pay-to-play payments of $132 million from the State of Hawaii in
connection with the general excise tax litigation. In addition, during 2015, we recorded a $24 million benefit in legal reserves,
occupancy tax and other for the recovery of costs related to occupancy tax litigation matters. These gains were partially offset
by charges for changes in our reserve related to hotel occupancy and other taxes.

For additional information, see NOTE 17 — Commitments and Contingencies in the notes to the consolidated financial

statements.

Restructuring and Related Reorganization Charges

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

For additional information, see NOTE 15 — Restructuring and Related Reorganization Charges in the notes to the

consolidated financial statements.

Operating Income

Operating income
% of revenue

Year ended December 31,

% Change

2017

625
6.2%

2016
($ in millions)
462
$
5.3%

2015

2017 vs 2016

2016 vs 2015

414
6.2%

35%

12%

In 2017, operating income increased primarily due to growth in revenue and a decrease in most major expense categories

as a percentage of revenue, partially offset by growth in sales and marketing as a percentage of revenue in 2017.

In 2016, operating income increased primarily due to higher growth in revenue and the absence of eLong operating
losses, partially offset by increased costs and expenses, including growth in technology and content expense in excess of
revenue growth, higher amortization of intangible assets as well as the comparative impact of the 2015 Hawaii pay-to-play gain
of $132 million.

Included in our consolidated operating income for 2015 are operating losses for eLong through its disposition date of

May 22, 2015 of $86 million.

Adjusted EBITDA by Segment

Core OTA
trivago

HomeAway
Egencia

eLong
Unallocated overhead costs (Corporate)
Total Adjusted EBITDA(1)

______________________________________

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

($ in millions)
1,966
$
35

175
81

—
(641)
1,616

2,069
5

202
94

—
(657)
1,713

1,600
3

4
68
(62)
(510)
1,103

5 %
(84)%

15 %
17 %

N/A
(3)%

6 %

23 %
N/A

N/A
18 %

N/A
(26)%

46 %

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

information.

Adjusted EBITDA is our primary segment operating metric. See NOTE 19 — Segment Information in the notes to the

consolidated financial statements for additional information on intersegment transactions, unallocated overhead costs and for a
reconciliation of Adjusted EBITDA by segment to net income (loss) attributable to Expedia, Inc. for the periods presented
above.

Core OTA Adjusted EBITDA increased $103 million and $366 million during 2017 and 2016, primarily due to an

increase of $797 million and $1.2 billion in revenue, partially offset by an increase in online marketing expense mostly at
Brand Expedia, EAN and Hotels.com, and including an increase in online spend at trivago. The acquisition of Orbitz
contributed to $264 million to the increase in Core OTA Adjusted EBITDA for 2016.

trivago Adjusted EBITDA declined $30 million during 2017. The deterioration was largely driven by a sudden change in
advertising bidding at the end of the second quarter of 2017 resulting in a sharp decline in revenue growth. Marketing spend, in
particular pre-committed television spend, could not be adjusted to an optimal level timely enough and resulted in the declining
profitability. trivago Adjusted EBITDA increased $32 million during 2016, primarily due to an increase of $288 million in
revenue driven by continued global expansion and market share gains, including $83 million in intersegment revenue growth
from Core OTA. Revenue growth during 2016 was partially offset by higher online and offline marketing expense.

HomeAway Adjusted EBITDA increased $27 million during 2017 due to an increase of $217 million in revenue, partially
offset by higher selling and marketing and technology and content expense. During the current year, HomeAway has continued
to invest in offline and online brand marketing to bring more demand to its supply base and in growing its product and
technology teams. The increase during 2016 was due to our acquisition of the company in December 2015.

Egencia Adjusted EBITDA increased $13 million during 2017 primarily due to an increase in revenue of $59 million as a

result of adding new corporate clients and room night growth as well as scale efficiencies, partially offset by investments in
sales, product and technology. Egencia Adjusted EBITDA increased $13 million in 2016 primarily due to the addition of
Orbitz for Business.

Unallocated overhead costs increased $16 million during 2017 primarily due to higher general and administrative
professional fees as well as personnel and overhead costs, partially offset by lower technology and content expense as we lap
over an accelerated pace of technology hiring in the prior year. Unallocated overhead costs increased $131 million during 2016
primarily due to increased technology and content expense to support key corporate technology projects as well as higher
general and administrative personnel and overhead costs. The acquisition of Orbitz contributed $27 million to the increase in
unallocated overhead costs for 2016.

Interest Income and Expense

Interest income
Interest expense

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

($ in millions)
20
$
(173)

34
(182)

17
(126)

73%
5%

18%
37%

Interest income increased in 2017 compared to 2016 primarily due to higher invested balances and to a lesser extent
higher rates of return. Interest income increased in 2016 compared to 2015 primarily due to higher rates of return, partially
offset by lower invested balances.

Interest expense increased in 2017 compared to 2016 primarily as a result of additional interest on the $1 billion senior

unsecured notes issued in September 2017. Interest expense increased in 2016 compared to 2015 primarily as a result of
additional interest on the Euro 650 million of senior unsecured notes issued in June 2015 and the $750 million senior unsecured
notes issued in December 2015.

As of December 31, 2017, our senior unsecured notes indebtedness totaled $4.2 billion. As of December 31, 2016 and

2015, our indebtedness totaled $3.2 billion.

Gain on Sale of Business

On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong, Inc. for approximately $671 million (or

$666 million net of costs to sell and other transaction expenses) to several purchasers, including Ctrip.com International, Ltd.
As a result of the sale, we recognized a pre-tax gain of $509 million ($395 million after tax) during 2015 included in gain on
sale of business in our consolidated statement of operations.

Other, Net

Other, net is comprised of the following:

Foreign exchange rate gains (losses), net
Non-controlling interest basis adjustment
Loss on investments, net
Other

Total other, net

Provision for Income Taxes

Provision for income taxes
Effective tax rate

2017

Year ended December 31,
2016

2015

($ in millions)

(46) $
2
(14)
(3)
(61) $

(15) $
—
(12)
(5)
(32) $

25
77
—
11
113

Year ended December 31,

% Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

($ in millions)
15
$
5.5%

45
10.9%

203
21.9%

196%

(92)%

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

The decrease in the effective rate for 2016 compared to 2015 was primarily due to tax benefits from the adoption of new
accounting guidance relating to stock-based compensation and the release of valuation allowances in the United Kingdom and
Germany on cumulative foreign net operating losses for which it is more likely than not the tax benefit will be realized. As a

result of lower pre-tax earnings in 2016, the impacts of these benefits create a significant effect on our effective tax rate. Our
effective tax rate for 2016 was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions outside of the
United States as well as the same factors impacting the year-over-year effective tax rate comparison.

Our effective rate for 2015 was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions outside

of the United States as well as the sale of eLong, which had a U.S. effective rate of less than 35%.

For additional information including additional information on the impacts of the Tax Act, see NOTE 11 — Income

Taxes in the notes to the consolidated financial statements.

Definition and Reconciliation of Adjusted EBITDA

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

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

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

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

Net income attributable to Expedia, Inc.
Net loss attributable to non-controlling interests

Provision for income taxes
Total other expense, net

Operating income
Gain (loss) on revenue hedges related to revenue recognized

Restructuring and related reorganization charges, excluding stock-based
compensation

Legal reserves, occupancy tax and other
Stock-based compensation

Amortization of intangible assets
Impairment of intangible assets

Depreciation

Adjusted EBITDA

Year ended December 31,

2017

2016

2015

377,964
(6,605)
45,405
208,374

625,138
6,323

16,738

25,412
149,350

275,445
—

614,099

(In thousands)
281,848
(20,563)
15,315
185,102

461,702
12,746

43,217

26,498
242,417

317,141
34,890

477,061

764,465
(41,717)
203,214
(512,396)
413,566
43,597

72,122
(104,587)
178,068

156,458
7,207

336,680

1,712,505

1,615,672

1,103,111

Financial Position, Liquidity and Capital Resources

Our principal sources of liquidity are cash flows generated from operations; our cash and cash equivalents and short-term

investment balances, which were $3.3 billion and $1.9 billion at December 31, 2017 and 2016, and our $1.5 billion revolving
credit facility, which is essentially untapped. As of December 31, 2017, the total cash and cash equivalents and short-term
investments held outside the United States was $1.6 billion ($1.3 billion in wholly-owned foreign subsidiaries and $315 million
in majority-owned subsidiaries), for which the amount available to be repatriated is still being determined. We believe any
amount repatriated would not incur significant additional taxes. Additionally, we expect to pay minimal taxes for the 2017
mandatory repatriation required by the Tax Act due to the use of our existing net operating loss and tax credit carryforwards.

In September 2017, we privately placed $1 billion of senior unsecured notes that are due in February 2028 and bear
interest at 3.8%. In January 2018, we completed an offer to exchange these notes for registered notes having substantially the
same financial terms and covenants as the original notes (the unregistered and registered notes collectively, the "3.8% Notes").
The 3.8% Notes were issued at 99.747% of par resulting in a discount, which is being amortized over their life. Interest is
payable semi-annually in arrears in February and August of each year, beginning February 15, 2018. We used or expect to use
the net proceeds of this offering for general corporate purposes, which may include, but are not limited to, the repayment,
prepayment, redemption or repurchase of our indebtedness (including, but not limited to, our 7.456% senior notes due 2018) as
well as working capital, capital expenditures and acquisitions.

As of December 31, 2017, we maintained a $1.5 billion revolving credit facility with a February 2021 maturity date. The

facility contains various restrictive covenants, including a maximum permissible leverage ratio and a minimum permissible
interest coverage ratio, and interest payable under the facility is based on the Company’s credit ratings. As of December 31,
2017, the maximum permissible leverage ratio and the minimum interest coverage were both 3.25 to 1.00, the applicable
interest rate on drawn amounts was LIBOR plus 137.5 basis points and the commitment fee on undrawn amounts was 17.5
basis points.

Our credit ratings are periodically reviewed by rating agencies. As of December 31, 2017, Moody’s rating was Ba1 with

an outlook of “stable,” S&P’s rating was BBB- with an outlook of “stable” and Fitch’s rating was BBB- with an outlook of
“stable.” Changes in our operating results, cash flows, financial position, capital structure, financial policy or capital allocations
to share repurchase, dividends, investments and acquisitions could impact the ratings assigned by the various rating agencies.
Should our credit ratings be adjusted downward, we may incur higher costs to borrow and/or limited to access to capital
markets, which could have a material impact on our financial condition and results of operations.

As of December 31, 2017, we were in compliance with the covenants and conditions in our revolving credit facility and

outstanding debt, which was comprised of $500 million in registered senior unsecured notes due in August 2018 that bear

interest at 7.456% (the “7.456% Notes”), $750 million in registered senior unsecured notes due in August 2020 that bear
interest at 5.95% (the “5.95% Notes”), $500 million in registered senior unsecured notes due in August 2024 that bear interest
at 4.5% (the “4.5% Notes”), Euro 650 million of registered senior unsecured notes due in June 2022 that bear interest at 2.5%
(the "2.5% Notes"), $750 million of registered senior unsecured notes due in February 2026 that bear interest at 5.0% ("the
5.0% Notes") and the 3.8% Notes.

Under the merchant model, we receive cash from travelers at the time of booking and we record these amounts on our

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

As our ETP program continues to expand, and depending on relative traveler and supplier adoption rates and customer

payment preferences, among other things, the scaling up of ETP has and will continue to negatively impact near term working
capital cash balances, cash flow, relative liquidity during the transition, and hotel revenue margins.

Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash flows. During the first half of

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

As of December 31, 2017, we had a deficit in our working capital of $2.3 billion, compared to a deficit of $2.7 billion as
of December 31, 2016. The change in the deficit was primarily due to operating cash flows as well as proceeds from the 3.8%
Notes issued in September 2017, partially offset by investing activities, including capital expenditures and cash paid for
acquisitions.

We continue to invest in the development and expansion of our operations. Ongoing investments include but are not

limited to improvements in infrastructure, which include our servers, networking equipment and software, release
improvements to our software code, platform migrations and consolidation and search engine marketing and optimization
efforts. In addition, in 2016, we began our expansion into the cloud computing environment. While we expect our cloud
computing expenses to increase significantly over the next few years they are expected to result in lower overall capital
expenditures related to our data centers over time. Our future capital requirements may include capital needs for acquisitions
(including purchases of non-controlling interest), share repurchases, dividend payments or expenditures in support of our
business strategy; thus reducing our cash balance and/or increasing our debt. Excluding capital expenditures associated with the
build out of our new corporate headquarters, we expect total capital expenditures for 2018 to increase over 2017 spending
levels. Our current estimates for the new headquarters total approximately $700 to $900 million, with final estimates contingent
on completion of design plans and final determination of completed office space required in the initial build out. Of the total
approximately $30 million was spent in 2016 and approximately $70 million in 2017. We plan to make significant progress on
our corporate headquarters building in the coming year, spending approximately $230 million in 2018 followed by nearly $450
million in 2019, when we expect to begin to move into the campus.

Our cash flows are as follows:

Year ended December 31,

$ Change

2017

2016

2015

2017 vs 2016

2016 vs 2015

(In millions)

Cash provided by (used in) operations:

Operating activities
Investing activities

Financing activities

Effect of foreign exchange rate changes on
cash and cash equivalents

1,799
(1,582)

688

146

1,564
(718)
(691)

1,368
(2,371)
1,404

235
(864)
1,379

196
1,653
(2,095)

(35)

(127)

181

In 2017, net cash provided by operating activities increased by $235 million primarily due to increased benefits from

working capital changes driven mostly from a change in deferred merchant bookings. In 2016, net cash provided by operating
activities increased by $196 million primarily due to higher operating income after adjusting for impacts of depreciation and
amortization, partially offset by a decrease in benefits from working capital adjustments and a net refund of hotel occupancy
and other taxes in 2015.

In 2017, cash used in investing activities increased by $864 million due to net purchase of investments of $715 million in
the current year compared to cash provided by net sales of investments of $16 million in the prior year and an increase of cash
used for acquisitions of $170 million in 2017. These increases were partially offset by $6 million cash inflow in the 2017 due to
the net settlement of foreign currency forwards compared to $53 million cash outflow in 2016 as well as lower capital
expenditures of $39 million in the current year. In 2016, cash used in investing activities decreased by $1.7 billion primarily
due to a decrease of cash used for acquisitions of $2.1 billion, partially offset by a decrease in net proceeds related to the sale of
eLong of $457 million in 2015.

Cash provided by financing activities in 2017 primarily included $990 million of net proceeds from the issuance of 3.8%
Notes in September 2017 as well as $229 million of proceeds from the exercise of options and employee stock purchase plans,
partially offset by cash paid to acquire shares of $312 million, including the repurchased shares under the authorizations
discussed below, and a $176 million cash dividend payment. Cash used in financing activities in 2016 primarily included cash
paid to acquire shares of $456 million, the repayment of $401 million of HomeAway Convertible Notes and $150 million cash
dividend payment, partially offset by $215 million of net proceeds from the initial public offering of trivago as well as $141
million of proceeds from the exercise of options and employee stock purchase plans. Cash provided by financing activities in
2015 primarily included $700 million of net proceeds from the issuance of 2.5% Notes in June 2015, $741 million in net
proceeds from the issuance of the 5.0% Notes in December 2015, $120 million of proceeds from the exercise of options and
employee stock purchase plans as well as the issuance of treasury stock, and $91 million in excess tax benefit on equity awards,
of which approximately $47 million related to the excess tax benefit associated with the stock options exercised by our
Chairman and Senior Executive. These financing inflows were offset in part by $85 million of withholding taxes for stock
option exercises paid on behalf of our Chairman and Senior Executive in exchange for surrendering a portion of his vested
shares, which were concurrently cancelled, as well as cash paid to acquire shares of $61 million primarily under the repurchase
authorizations discussed below, and $109 million cash dividend payments.

During 2012, 2010, and 2006, our Board of Directors, or the Executive Committee, acting on behalf of the Board of

Directors, authorized a repurchase of up to 20 million outstanding shares of our common stock during each of the respective
years and during 2015 authorized a repurchase of up to 10 million shares of our common stock for a total of 70 million shares.
Shares repurchased under the authorized programs were as follows:

Number of shares repurchased
Average price per share
Total cost of repurchases (in millions)(1)

(1)

Amount excludes transaction costs.

Year ended December 31,

2017
2.3 million
127.04
294

$
$

2016
4.0 million
109.64
436

$
$

2015
0.5 million
85.27
45

$
$

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

termination date for the repurchases.

Our common stock dividend was $1.16 per share for 2017, $1.00 per share for 2016 and $0.84 per share for 2015. See

NOTE 13 — Stockholders’ Equity in the notes to consolidated financial statements for a detail of the quarterly dividend
payments by year. In addition, in February 2018, the Executive Committee, acting on behalf of the Board of Directors, declared
a quarterly cash dividend of $0.30 per share of outstanding common stock payable on March 28, 2018 to the stockholders of
record as of the close of business on March 8, 2018. Future declarations of dividends are subject to final determination by our
Board of Directors.

The effect of foreign exchange on our cash balances denominated in foreign currency in 2017 showed a net change of
$181 million reflecting net appreciations in foreign currencies in 2017 compared to net depreciations in 2016. The effect of
foreign exchange on our cash balances denominated in foreign currency in 2016 showed a net change of $92 million reflecting
lower depreciations in foreign currencies in 2016 compared to 2015.

In our opinion, available cash, funds from operations and available borrowings will provide sufficient capital resources to

meet our foreseeable liquidity needs. There can be no assurance, however, that the cost of availability of future borrowings,
including refinancing, if any, will be available on terms acceptable to us.

Contractual Obligations and Commercial Commitments

The following table presents our material contractual obligations and commercial commitments as of December 31,

2017:

Senior notes debt (1)
Operating leases (2)
Purchase obligations (3)
Guarantees (4)
Letters of credit (4)
Total(5)

By Period

Total

Less than
1 year

1 to 3 years

(In millions)

3 to 5 years

More than
5 years

5,462
850
410
135
42
6,899

699
139
257
120
26
1,241

1,074
225
153
15
11
1,478

1,015
152
—
—
—
1,167

2,674
334
—
—
5
3,013

____________________
(1)

Our 7.456% Notes, 5.95% Notes, 2.5% Notes, 4.5% Notes, 5.0% and 3.8% Notes include interest payments through
maturity in 2018, 2020, 2022, 2024, 2026 and 2028 respectively, based on the stated fixed rates. For the 2.5% Notes, the
December 31, 2017 Euro exchange rate was used to convert the Euro 650 million to U.S. Dollars and calculate the
related U.S. Dollar interest payments.
The operating leases are for office space and related office equipment. We account for these leases on a monthly basis.
Certain leases contain periodic rent escalation adjustments and renewal options. Operating lease obligations expire at
various dates with the latest maturity in 2031.
Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors and
marketing partners. These minimum obligations are less than our projected use for those periods. Payments may be
more than the minimum obligations based on actual use.
Guarantees and LOCs are commitments that represent funding responsibilities that may require our performance in the
event of third-party demands or contingent events. We use our stand-by LOCs primarily for certain regulatory purposes
as well as to secure payment for hotel room transactions to particular hotel properties. Of the outstanding balance of our
stand-by LOCs, $14 million directly reduces the amount available to us from our revolving credit facility. The LOC
amounts in the above table represent the amount of commitment expiration per period. In addition, we provide a
guarantee to the aviation authorities of certain foreign countries to protect against potential non-delivery of our
packaged travel services sold within those countries. These countries hold all travel agents and tour companies to the
same standard. Our guarantees also include bonds relating to tax assessments that we are contesting and certain surety
bonds related to various company performance obligations.
Excludes $160 million of net unrecognized tax benefits for which we cannot make a reasonably reliable estimate of the
amount and period of payment.

(2)

(3)

(4)

(5)

Other than the items described above, we do not have any off-balance sheet arrangements as of December 31, 2017.

Certain Relationships and Related Party Transactions

For a discussion of certain relationships and related party transactions, see NOTE 18 — Related Party Transactions in the

notes to the consolidated financial statements.

Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

Market risk is the potential loss from adverse changes in interest rates, foreign exchange rates and market prices. Our
exposure to market risk includes our long-term debt, our revolving credit facility, derivative instruments and cash and cash
equivalents, accounts receivable, intercompany receivables, investments, merchant accounts payable and deferred merchant
bookings denominated in foreign currencies. We manage our exposure to these risks through established policies and
procedures. Our objective is to mitigate potential income statement, cash flow and market exposures from changes in interest
and foreign exchange rates.

Interest Rate Risk

In August 2006, we issued $500 million senior unsecured notes with a fixed rate of 7.456%. In August 2010, we issued

$750 million senior unsecured notes with a fixed rate of 5.95%. In August 2014, we issued $500 million senior unsecured notes
with a fixed rate of 4.5%. In June 2015, we issued Euro 650 million of senior unsecured notes with a fixed rate of 2.5%. (See
“Foreign Exchange Risk” below for further discussion or our 2.5% Notes.) In December 2015, we issued $750 million of
senior unsecured notes with a fixed rate of 5.0%. In September 2017, we issued $1 billion of senior unsecured notes with a
fixed rate of 3.8%. As a result, if market interest rates decline, our required payments will exceed those based on market rates.
The fair values of our 7.456% Notes, 5.95% Notes, 2.5% Notes, 4.5% Notes, 5.0% Notes and 3.8% Notes were approximately
$516 million, $810 million, $828 million, $528 million, $807 million and $969 million as of December 31, 2017 as calculated
based on quoted market prices in less active markets at year end. A 50 basis point increase or decrease in interest rates would
decrease or increase the fair value of our 7.456% Notes by approximately $2 million, our 5.95% Notes by approximately $10
million, our 2.5% Notes by approximately $17 million, our 4.5% Notes by approximately $15 million, our 5.0% Notes by
approximately $27 million and our 3.8% Notes by approximately $41 million.

We maintain a $1.5 billion revolving credit facility, which bears interest based on market rates plus a spread determined
by our credit ratings. Because our interest rate is tied to a market rate, we will be susceptible to fluctuations in interest rates if,
consistent with our practice to date, we do not hedge the interest rate exposure arising from any borrowings under our revolving
credit facility. As of December 31, 2017 and 2016, we had no revolving credit facility borrowings outstanding.

We did not experience any significant impact from changes in interest rates for the years ended December 31, 2017, 2016

or 2015.

Foreign Exchange Risk

We conduct business in certain international markets, primarily in Australia, Canada, China and the European Union.
Because we operate in international markets, we have exposure to different economic climates, political arenas, tax systems and
regulations that could affect foreign exchange rates. Our primary exposure to foreign currency risk relates to transacting in
foreign currency and recording the activity in U.S. dollars. Changes in exchange rates between the U.S. dollar and these other
currencies will result in transaction gains or losses, which we recognize in our consolidated statements of operations.

To the extent practicable, we minimize our foreign currency exposures by maintaining natural hedges between our
current assets and current liabilities in similarly denominated foreign currencies. Additionally, 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. These instruments are typically short-term
and are recorded at fair value with gains and losses recorded in other, net. As of December 31, 2017, we had a net forward asset
of $6 million included in prepaid expenses and other current assets As of December 31, 2016, we had a net forward liability of
$4 million included in accrued expenses and other current liabilities. We may enter into additional foreign exchange derivative
contracts or other economic hedges in the future. Our goal in managing our foreign exchange risk is to reduce to the extent
practicable our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial
position. We make a number of estimates in conducting hedging activities including in some cases the level of future bookings,
cancellations, refunds, customer stay patterns and payments in foreign currencies. In the event those estimates differ
significantly from actual results, we could experience greater volatility as a result of our hedges.

In June 2015, we issued Euro 650 million of registered senior unsecured notes that are due in June 2022 and bear interest

at 2.5%. The 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). The Euro-
denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign
currency changes also reported in accumulated other comprehensive income (loss). 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.

Future net transaction gains and losses are inherently difficult to predict as they are reliant on how the multiple currencies

in which we transact fluctuate in relation to the U.S. dollar, the relative composition and denomination of current assets and
liabilities each period, and our effectiveness at forecasting and managing, through balance sheet netting or the use of derivative
contracts, such exposures. As an example, if the foreign currencies in which we hold net asset balances were to all weaken 10%
against the U.S. dollar and foreign currencies in which we hold net liability balances were to all strengthen 10% against the
U.S. dollar, we would recognize foreign exchange losses of approximately $26 million based on our foreign currency forward
positions (including the impact of forward positions economically hedging our merchant revenue exposures) and the net asset
or liability balances of our foreign denominated cash and cash equivalents, accounts receivable, deferred merchant bookings
and merchant accounts payable balances as of December 31, 2017. As the net composition of these balances fluctuate
frequently, even daily, as do foreign exchange rates, the example loss could be compounded or reduced significantly within a
given period.

During 2017, 2016 and 2015, we recorded net foreign exchange rate losses of approximately $46 million ($40 million

loss excluding the contracts economically hedging our forecasted merchant revenue), net foreign exchange rate losses of
approximately $15 million ($30 million loss excluding the contracts economically hedging our forecasted merchant revenue)
and net foreign exchange rate gains of approximately $25 million ($15 million loss excluding the contracts economically
hedging our forecasted merchant revenue). As we increase our operations in international markets, our exposure to fluctuations
in foreign currency exchange rates increases. The economic impact to us of foreign currency exchange rate movements is
linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material,
could cause us to adjust our financing and operating strategies.

Part II. Item 8. Consolidated Financial Statements and Supplementary Data

The Consolidated Financial Statements and Schedule listed in the Index to Financial Statements, Schedules and Exhibits

on page F-1 are filed as part of this report.

Part II. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Part II. Item 9A. Controls and Procedures

Changes in Internal Control over Financial Reporting.

There were no changes to our internal control over financial reporting that occurred during the quarter ended
December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Evaluation of Disclosure Controls and Procedures.

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

Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as

defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process to provide reasonable
assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles
generally accepted in the United States of America. Management conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the criteria for effective control over financial reporting described in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that, as of December 31, 2017, the Company’s internal control over
financial reporting was effective. Management has reviewed its assessment with the Audit Committee. Ernst & Young, LLP, an
independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as
of December 31, 2017, as stated in their report which is included below.

Limitations on Controls.

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting
will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and
instances of fraud, if any, within the Company have been detected.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Expedia, Inc.

We have audited Expedia, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), (the COSO criteria). Expedia, Inc.’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Expedia, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
2017 consolidated financial statements of Expedia, Inc. and our report dated February 8, 2018 expressed an unqualified opinion
thereon.

/s/Ernst & Young LLP

Seattle, Washington

February 8, 2018

Part II. Item 9B. Other Information

None.

Part III.

We are incorporating by reference the information required by Part III of this report on Form 10-K from our proxy
statement relating to our 2018 annual meeting of stockholders (the “2018 Proxy Statement”), which will be filed with the
Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2017.

Part III. Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is included under the captions “Election of Directors — Nominees,” “Election of
Directors — Board Meetings and Committees,” “Information Concerning Executive Officers” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the 2018 Proxy Statement and incorporated herein by reference.

Part III. Item 11. Executive Compensation

The information required by this item is included under the captions “Election of Directors —Compensation of Non-

Employee Directors,” “Election of Directors — Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation” in the 2018
Proxy Statement and incorporated herein by reference.

Part III. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is included under the captions “Security Ownership of Certain Beneficial Owners

and Management” and “Equity Compensation Plan Information” in the 2018 Proxy Statement and incorporated herein by
reference.

Part III. Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is included under the captions “Certain Relationships and Related Person
Transactions” and “Election of Directors — Board Meetings and Committees” in the 2018 Proxy Statement and incorporated
herein by reference.

Part III. Item 14. Principal Accounting Fees and Services

The information required by this item is included under the caption “Audit Committee Report” in the 2018 Proxy

Statement and incorporated herein by reference.

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

(a)(1) Consolidated Financial Statements

We have filed the consolidated financial statements listed in the Index to Consolidated Financial Statements, Schedules

and Exhibits on page F-1 as a part of this report.

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable, not material or the required

information is shown in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits

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

Exhibit
No.
1.1

Filed
Herewith

Incorporated by Reference

Form
8-K

SEC File No.
000-51447

Exhibit
1.1

Filing Date
6/3/2015

2.1

2.2

2.3

2.4

2.5

3.1

3.2
4.1

4.2

4.3

4.4

4.5

4.6

4.7

Share Purchase Agreement, dated as of
December 21, 2012, by and among Expedia, Inc.,
trivago GmbH, a wholly owned subsidiary of
Expedia and the shareholders of trivago GmbH
party thereto.
Shareholders Agreement, dated as of
December 21, 2012 by and among trivago GmbH,
Expedia, Inc., a wholly owned subsidiary of
Expedia and certain shareholders of trivago
GmbH.
Purchase and Sale Agreement (Cruise), dated
March 10, 2015, by and between Immunex
Corporation and Cruise, LLC
First Amendment to Purchase and Sale, dated
March 25, 2015, by and between Immunex
Corporation and Cruise, LLC
Share Purchase Agreement, dated May 22, 2015,
by and among Expedia, Inc., Expedia Asia
Pacific - Alpha Limited, Ctrip.com International,
Ltd., C-Travel International Limited, Luxuriant
Holdings Limited, Keystone Lodging Holdings
Limited and Plateno Group Limited
Restated Certificate of Incorporation of Expedia,
Inc.
Amended and Restated Bylaws of Expedia, Inc.
Indenture, dated as of August 21, 2006, among
Expedia, Inc., as Issuer, the Subsidiary Guarantors
from time to time parties thereto and The Bank of
New York Trust Company, N.A., as Trustee,
relating to Expedia, Inc.’s 7.456% Senior Notes
due 2018
First Supplemental Indenture, dated as of
January 19, 2007, among Expedia, Inc., as Issuer,
the Subsidiary Guarantors party thereto and The
Bank of New York Trust Company, N.A., as
Trustee

Indenture, dated as of August 5, 2010, among
Expedia, Inc., as Issuer, the Subsidiary Guarantors
from time to time parties thereto and The Bank of
New York Mellon Trust Company, N.A., as
Trustee, governing Expedia, Inc.’s 5.95% Senior
Notes due 2020

Ninth Supplemental Indenture, dated as of
September 30, 2016, among Expedia, Inc., as
Issuer, the Subsidiary Guarantors party thereto
and The Bank of New York Mellon Trust
Company, N.A., as Trustee
Indenture, dated as of August 13, 2014, among
Expedia, Inc., as Issuer, the Subsidiary Guarantors
from time to time parties thereto and The Bank of
New York Mellon Trust Company, N.A., as
Trustee

First Supplemental Indenture, dated as of
August 18, 2014, among Expedia, Inc., the
Subsidiary Guarantors party thereto and The Bank
of New York Trust Company, N.A., as Trustee,
governing Expedia, Inc.’s 4.500% Senior Notes
due 2024
Fourth Supplemental Indenture, dated as of
June 3, 2015, among Expedia, Inc., as Issuer, the
Subsidiary Guarantors party thereto and The Bank
of New York Mellon Trust Company, N.A., as
Trustee, governing Expedia, Inc.’s 2.500% Senior
Notes due 2022

8-K

000-51447

2.1

12/21/2012

8-K

000-51447

2.2

12/21/2012

8-K

000-51447

10.1

4/2/2015

8-K

000-51447

10.2

4/2/2015

8-K

000-51447

2.1

5/22/2015

8-K

000-51447

8-K
10-Q

000-51447
000-51447

3.1

3.3
4.1

12/27/2011

8/15/2005
11/14/2006

S-4

333-140195

4.2

1/25/2007

8-K

000-51447

4.1

8/10/2010

8-K

001-37429

4.1

10/3/2016

8-K

000-51447

4.1

8/18/2014

8-K

000-51447

4.2

8/18/2014

8-K

000-51447

4.2

6/3/2015

8-K

001-37429

4.1

12/8/2015

8-K

001-37429

4.1

9/21/2017

8-K

000-51447

10.1

12/27/2011

8-K*†

001-37938

10.6

11/7/2016

10-K

000-51447

10.11

2/10/2012

8-K*†

001-37938

10.7

11/7/2016

8-K*†

001-37938

10.8

11/7/2016

S-4/A*†

333-210377

10.13

9/23/2016

8-K*†

001-37938

10.10

11/7/2016

8-K

000-51447

10.2

12/27/2011

10-Q

001-37429

10.1

7/28/2017

8-K

000-51447

10.1

9/11/2014

8-K

001-37429

10.1

2/8/2016

4.8

4.9

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

Indenture, dated as of December 8, 2015, among
Expedia, Inc., as Issuer, the Subsidiary Guarantors
from time to time parties thereto and The Bank of
New York Mellon Trust Company, N.A., as
Trustee, governing Expedia, Inc.’s 5.000% Senior
Notes due 2026
Indenture, dated as of September 21, 2017, among
Expedia, Inc., the guarantors party thereto and
U.S. Bank National Association

Amended and Restated Governance Agreement
among Expedia, Inc., Liberty Interactive
Corporation and Barry Diller, dated as of
December 20, 2011
Assignment and Assumption of Governance
Agreement, among Liberty Expedia holdings,
Inc., LEXE Marginco, LLC, LEXEB, LLC,
Liberty Interactive Corporation, Barry Diller and
Expedia, Inc., dated as of November 4, 2016
Amended and Restated Stockholders Agreement
between Liberty Interactive Corporation and
Barry Diller, dated as of December 20, 2011
Assignment and Assumption of Stockholders
Agreement, by and among Liberty Expedia
Holdings, Inc., Liberty Interactive Corporation
and Barry Diller, dated November 4, 2016
Amendment No. 1 to Stockholders Agreement, by
and between Liberty Expedia Holdings, Inc. and
Barry Diller, dated November 4, 2016
Amended and Restated Transaction Agreement,
by and among Liberty Interactive Corporation,
Liberty Expedia Holdings, Inc., Barry Diller, John
C. Malone and Leslie Malone, dated as of
September 22, 2016
Assignment Agreement, by and between Barry
Diller and Liberty Expedia Holdings, Inc., dated
November 4, 2016
Tax Sharing Agreement by and between Expedia,
Inc. and TripAdvisor, Inc., dated as of
December 20, 2011
Services Agreement by and between
HomeAway.com, Inc. and Keystone Strategy
LLC, dated April 1, 2017
Amended and Restated Credit Agreement dated as
of September 5, 2014, among Expedia, Inc., a
Delaware corporation, Expedia, Inc., a
Washington corporation, Travelscape, LLC, a
Nevada limited liability company; Hotwire, Inc., a
Delaware corporation, the Lenders party hereto,
JPMorgan Chase Bank, N.A., as Administrative
Agent, and J.P. Morgan Europe Limited, as
London Agent

First Amendment, dated as of February 4, 2016,
among Expedia, Inc., a Delaware corporation,
Expedia, Inc., a Washington corporation,
Travelscape, LLC, a Nevada limited liability
company, Hotwire, Inc., a Delaware corporation,
the lenders and issuing banks party thereto,
JPMorgan Chase Bank, N.A., as Administrative
Agent, and J.P. Morgan Europe Limited, as
London Agent

10.12

10.13

10.14*

Second Amendment, dated as December 22, 2016,
among Expedia, Inc., a Delaware corporation,
Expedia, Inc., a Washington corporation,
Travelscape, LLC, a Nevada limited liability
company, Hotwire, Inc., a Delaware corporation,
the other Borrowing Subsidiaries from time to
time party thereto, the Lenders from time to time
party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, and J.P. Morgan Europe
Limited, as London Agent
Office Building Lease by and between Tower 333
LLC, a Delaware limited liability company, and
Expedia, Inc., a Washington corporation, dated
June 25, 2007
Fourth Amended and Restated Expedia, Inc. 2005
Stock and Annual Incentive Plan

10.15* Orbitz Worldwide, Inc. 2007 Equity and Incentive

Plan

10.16* HomeAway, Inc. 2011 Equity Incentive Plan
10.17*
10.18*

Expedia, Inc. 2013 Employee Stock Purchase Plan
Expedia, Inc. 2013 International Employee Stock
Purchase Plan
Form of Expedia, Inc. Restricted Stock Unit
Agreement (Directors)
Form of Expedia, Inc. Restricted Stock Unit
Agreement
Form of Expedia, Inc. Stock Option Agreement

10.21*
10.22* Amended and Restated Expedia, Inc. Non-

10.19*

10.20*

Employee Director Deferred Compensation Plan,
effective as of January 1, 2009

10.23* Amended and Restated Expedia, Inc. Executive

10.24*

10.25*

10.26*

10.27*

10.28*

10.29*

10.30*

10.31*

10.32*

21
23.1

Deferred Compensation Plan, effective as of
January 1, 2009
First Amendment of the Executive Deferred
Compensation Plan, effective as of December 31,
2014
Employment Agreement between Mark
Okerstrom and Expedia, Inc., effective September
15, 2017
Expedia, Inc. Stock Option Agreement for Mark
D. Okerstrom, dated as of March 7, 2016
Expedia, Inc. Stock Option Agreement for Mark
D. Okerstrom, dated as of March 7, 2016
(Performance Options)
Stock Option Agreement between Mark
Okerstrom and Expedia, Inc., effective September
15, 2017 (Performance Options)
Employment Agreement between Alan Pickerill
and Expedia, Inc., effective September 15, 2017
Employment Agreement between Robert J.
Dzielak and Expedia, Inc., effective as of
March 2, 2015

X
X

10-K

001-37429

10.14

2/10/2017

10-Q

000-51447

10.1

8/3/2007

DEF 14A

001-37429

App. A 8/23/2016

S-8

333-206990

99.1

9/17/2015

S-8
DEF14A
DEF 14A

333-208548
99.10
000-51447 App. B
000-51447 App. C

12/15/2015
4/30/2013
4/30/2013

10-Q

000-51447

10.1

8/1/2014

10-K

001-37429

10.22

2/10/2017

10-K
10-K

001-37429
000-51447

10.23
10.13

2/10/2017
2/19/2009

10-K

000-51447

10.17

2/19/2009

10-K

000-51447

10.20

2/6/2015

8-K/A

001-37429

10.1

9/21/2017

8-K

001-37429

10.2

3/9/2016

001-37429

10.3

3/9/2016

8-K/A

001-37429

10.2

9/21/2017

8-K/A

001-37429

10.3

9/21/2017

8-K

000-51447

10.1

3/4/2015

8-K/A

001-37429

10.4

9/21/2017

8-K

000-51447

10.3

4/1/2015

31.1

31.2

31.3

Certifications of the Chairman and Senior
Executive Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of the Chief Financial Officer
pursuant Section 302 of the Sarbanes-Oxley Act
of 2002

32.1*** Certification of the Chairman and Senior

Executive pursuant Section 906 of the Sarbanes-
Oxley Act of 2002

32.2*** Certification of the Chief Executive Officer

pursuant Section 906 of the Sarbanes-Oxley Act
of 2002

32.3*** Certification of the Chief Financial Officer

pursuant Section 906 of the Sarbanes-Oxley Act
of 2002
The following financial statements from the
Company’s Annual Report on Form 10-K for the
year ended December 31, 2017, formatted in
XBRL: (i) Consolidated Statements of Operations,
(ii) Consolidated Statements of Comprehensive
Income, (iii) Consolidated Balance Sheets,
(iv) Consolidated Statements of Changes in
Stockholders’ Equity, (v) Consolidated Statements
of Cash Flows, and (vi) Notes to Consolidated
Financial Statements.

101

*†
***

Indicates a management contract or compensatory plan or arrangement.

Indicates reference to filing of Liberty Expedia Holdings, Inc.

Furnished herewith

Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused

this report to be signed on its behalf by the undersigned hereunto duly authorized.

Signatures

Expedia, Inc.

By:

/s/ MARK D. OKERSTROM
Mark D. Okerstrom
Chief Executive Officer

February 8, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the Registrant and in the capacities indicated on February 8, 2018.

Signature

/s/ MARK D. OKERSTROM
Mark D. Okerstrom

/s/ ALAN PICKERILL
Alan Pickerill

/s/ LANCE A. SOLIDAY
Lance A. Soliday

/s/ BARRY DILLER
Barry Diller

/s/ VICTOR A. KAUFMAN
Victor A. Kaufman

/s/ SUSAN C. ATHEY
Susan C. Athey

/s/ A. GEORGE BATTLE
A. George Battle

/s/ COURTNEE A. CHUN
Courtnee A. Chun

/s/ CHELSEA CLINTON
Chelsea Clinton

/s/ PAMELA L. COE
Pamela L. Coe

/s/ JONATHAN L. DOLGEN
Jonathan L. Dolgen

/s/ CRAIG A. JACOBSON
Craig A. Jacobson

/s/ PETER M. KERN
Peter M. Kern

/s/ DARA KHOSROWSHAHI
Dara Khosrowshahi

/s/ SCOTT RUDIN
Scott Rudin

/s/ CHRISTOPHER W. SHEAN
Christopher W. Shean

/s/ ALEXANDER VON FURSTENBERG
Alexander von Furstenberg

Title

Chief Executive Officer, President and Director
(Principal Executive Officer)

Chief Financial Officer
(Principal Financial Officer)

Chief Accounting Officer and Controller
(Principal Accounting Officer)

Director (Chairman of the Board)

Director (Vice Chairman)

Director

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Exhibits

Index to Exhibits

F- 2
F- 3
F- 4
F- 5
F- 6
F- 8
F- 9

E- 1

F- 1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Expedia, Inc.

Opinion on the Financial Statements

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

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

Basis for Opinion

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

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

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2004.
Seattle, Washington
February 8, 2018

F- 2

Consolidated Financial Statements

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31,

2017

2016

2015

(In thousands, except for per share data)

10,059,844

8,773,564

6,672,317

Revenue
Costs and expenses:

Cost of revenue (1)
Selling and marketing (1)
Technology and content (1)
General and administrative (1)
Amortization of intangible assets
Impairment of intangible assets
Legal reserves, occupancy tax and other
Restructuring and related reorganization charges (1)

Operating income
Other income (expense):
Interest income
Interest expense
Gain on sale of business
Other, net

Total other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Net loss attributable to non-controlling interests
Net income attributable to Expedia, Inc.
Earnings per share attributable to Expedia, Inc. available to
common stockholders:

Basic
Diluted

Shares used in computing earnings per share:

Basic
Diluted

Dividends declared per common share

(1) Includes stock-based compensation as follows:

Cost of revenue
Selling and marketing
Technology and content
General and administrative
Restructuring and related reorganization charges

1,756,531
5,297,832
1,386,787
675,961
275,445
—
25,412
16,738
625,138

34,137
(181,712)
—
(60,799)
(208,374)
416,764
(45,405)
371,359
6,605
377,964

2.49
2.42

151,619
156,385
1.16

10,173
39,855
54,633
44,689
—

1,596,698
4,367,417
1,235,019
678,292
317,141
34,890
26,498
55,907
461,702

19,726
(173,148)
—
(31,680)
(185,102)
276,600
(15,315)
261,285
20,563
281,848

1.87
1.82

150,367
154,517
1.00

11,388
46,654
63,536
108,149
12,690

1,309,559
3,381,086
830,244
573,913
156,458
7,207
(104,587)
104,871
413,566

16,695
(126,195)
508,810
113,086
512,396
925,962
(203,214)
722,748
41,717
764,465

5.87
5.70

130,159
134,018
0.84

5,307
33,164
26,766
80,082
32,749

See notes to consolidated financial statements.

F- 3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

EXPEDIA, INC.

Year ended December 31,

2017

2016

2015

(In thousands)

371,359

261,285

722,748

189,580

(10,217)

(147,815)

—

(43,183)

(6,705)
182,875
554,234

44,804

154
(10,063)
251,222

(29,075)
280,297

(67)
(191,065)
531,683

(86,662)
618,345

Net income

Other comprehensive income (loss), net of tax

Currency translation adjustments, net of taxes

Net reclassification of foreign currency translation adjustments
into total other income (expenses), net

Unrealized gains (losses) on available for sale securities, net of
taxes

Other comprehensive income (loss), net of tax
Comprehensive income

Less: Comprehensive income (loss) attributable to non-
controlling interests

Comprehensive income attributable to Expedia, Inc.

509,430

See notes to consolidated financial statements.

F- 4

EXPEDIA, INC.

CONSOLIDATED BALANCE SHEETS

December 31,

2017

2016

(In thousands, except per share data)

ASSETS

Current assets:

Cash and cash equivalents
Restricted cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance of $30,696 and $25,278
Income taxes receivable
Prepaid expenses and other current assets

Total current assets

Property and equipment, net
Long-term investments and other assets
Deferred income taxes
Intangible assets, net
Goodwill
TOTAL ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable, merchant
Accounts payable, other
Deferred merchant bookings
Deferred revenue
Income taxes payable
Accrued expenses and other current liabilities
Current maturities of long-term debt

Total current liabilities
Long-term debt, excluding current maturities
Deferred income taxes
Other long-term liabilities
Commitments and contingencies
Redeemable non-controlling interests
Stockholders’ equity:

Common stock $.0001 par value

Authorized shares: 1,600,000
Shares issued: 228,467 and 224,310
Shares outstanding: 138,939 and 137,232

Class B common stock $.0001 par value

Authorized shares: 400,000
Shares issued and outstanding: 12,800 and 12,800

Additional paid-in capital
Treasury stock — Common stock, at cost

Shares: 89,528 and 87,077

Retained earnings
Accumulated other comprehensive income (loss)
Total Expedia, Inc. stockholders’ equity

Non-redeemable non-controlling interests

Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

See notes to consolidated financial statements.

F- 5

2,846,729
69,055
468,508
1,865,995
20,633
268,669
5,539,589
1,575,258
845,450
17,930
2,308,536
8,228,865
18,515,628

1,837,936
697,560
3,219,279
325,722
33,374
1,264,819
500,000
7,878,690
3,749,054
328,602
408,380

22,334

9,162,909
(4,822,743)

331,078
(148,933)
4,522,335
1,606,233
6,128,568
18,515,628

1,796,811
18,733
72,313
1,343,247
19,402
199,745
3,450,251
1,394,904
520,058
23,658
2,446,652
7,942,023
15,777,546

1,509,313
577,012
2,617,791
282,517
49,739
1,090,826
—
6,127,198
3,159,336
484,970
312,939

—

8,794,298
(4,510,655)

129,034
(280,399)
4,132,301
1,560,802
5,693,103
15,777,546

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F

EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment, including internal-use software and
website development
Amortization of stock-based compensation
Amortization of intangible assets
Impairment of intangible assets
Deferred income taxes
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investments, net
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disposals:

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Prepaid expenses and other assets
Accounts payable, merchant
Accounts payable, other, accrued expenses and other current liabilities
Tax payable/receivable, net
Deferred merchant bookings
Deferred revenue

Net cash provided by operating activities
Investing activities:

Capital expenditures, including internal-use software and website development
Purchases of investments
Sales and maturities of investments
Acquisitions, net of cash acquired
Proceeds from sale of business, net of cash divested and disposal costs
Net settlement of foreign currency forwards
Other, net

Net cash used in investing activities
Financing activities:

Proceeds from issuance of long-term debt, net of issuance costs
Payment of HomeAway Convertible Notes
Purchases of treasury stock
Proceeds from issuance of treasury stock
Payment of dividends to stockholders
Proceeds from exercise of equity awards and employee stock purchase plan
Changes in controlled subsidiaries, net
Excess tax benefit on equity awards
Withholding taxes for stock option exercises
Other, net

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information

Cash paid for interest
Income tax payments, net

See notes to consolidated financial statements.

F- 8

2017

December 31,
2016
(In thousands)

2015

$ 371,359

$ 261,285

$ 722,748

614,099
149,350
275,445
—
(103,308)

(78,819)
(6,335)
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(13,660)

(455,668)
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315,989
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1,096,404
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242,417
317,141
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178,068
156,458
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88,528
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(508,810)
(77,400)
15,865

(276,154)
(30,198)
184,398
79,202
(100,525)
261,402
50,606
1,564,334

(198,262)
97,701
97,248
194,458
39,776
299,534
(5,893)
1,368,045

(749,348)
(45,352)
60,935
(777)
67,088
(53,089)
2,222
(718,321)

(787,041)
(521,329)
410,923
(2,063,649)
523,882
54,226
11,728
(2,371,260)

989,600
—
(312,089)
—
(175,775)
229,081
(18,137)
—
(9,063)
(16,103)
687,514
145,640
1,049,918
1,796,811
$ 2,846,729

(2,093)
(401,424)
(455,746)
—
(150,159)
141,043
208,016
—
(1,282)
(28,974)
(690,619)
(34,882)
120,512
1,676,299
$ 1,796,811

1,441,860
—
(60,546)
22,575
(108,527)
97,716
(8,518)
90,855
(85,033)
13,817
1,404,199
(127,385)
273,599
1,402,700
$ 1,676,299

$ 162,932
174,180

$ 153,755
124,291

$ 109,507
96,834

Expedia, Inc.

Notes to Consolidated Financial Statements

NOTE 1 — Organization and Basis of Presentation

Description of Business

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

Basis of Presentation

The accompanying consolidated financial statements include Expedia, Inc., our wholly-owned subsidiaries, and entities

we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We record
our investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the
equity method. We have eliminated significant intercompany transactions and accounts.

We believe that the assumptions underlying our consolidated financial statements are reasonable. However, these

consolidated financial statements do not present our future financial position, the results of our future operations and cash
flows.

Seasonality

NOTE 2 — Significant Accounting Policies

Consolidation

Our consolidated financial statements include the accounts of Expedia, Inc., our wholly-owned subsidiaries, and entities

for which we control a majority of the entity’s outstanding common stock. We record non-controlling interest in our
consolidated financial statements to recognize the minority ownership interest in our consolidated subsidiaries. Non-controlling
interest in the earnings and losses of consolidated subsidiaries represent the share of net income or loss allocated to members or
partners in our consolidated entities, which includes the non-controlling interest share of net income or loss from our
redeemable and non-redeemable non-controlling interest entities. Upon closing of its initial public offering ("IPO") on
December 16, 2016, trivago became a separately listed company on the Nasdaq Global Select Market and, therefore, is subject
to its own reporting and filing requirements, which could result in possible differences that are not expected to be material to
Expedia, Inc.

We characterize our minority interest in AirAsia-Expedia and trivago, subsequent to its IPO, as a non-redeemable non-

controlling interest and classify it as a component of stockholders’ equity in our consolidated financial statements. Non-

F- 9

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

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

Accounting Estimates

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

Reclassifications

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

Revenue Recognition

We recognize revenue when it is earned and realizable based on the following criteria: persuasive evidence that an

arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

We also evaluate the presentation of revenue on a gross versus a net basis. The consensus of the authoritative accounting

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

We offer traditional travel products and services on a stand-alone and package basis primarily through the following

business models: the merchant model, the agency model and the advertising model.

Under the agency model, we act as the agent in the transaction, passing reservations booked by the traveler to the relevant

travel provider. We receive commissions or ticketing fees from the travel supplier and/or traveler. For certain agency airline,
hotel and car transactions, we also receive fees from global distribution systems partners that control the computer systems
through which these reservations are booked.

Under the advertising model, we offer travel and non-travel advertisers access to a potential source of incremental traffic

and transactions through our various media and advertising offerings on trivago and our transaction-based websites.

In addition, our HomeAway business facilitates vacation rental bookings and provides listing and other ancillary services

to property owners and managers.

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

F- 10

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

Agency and Merchant Air. We record revenue on air transactions when the traveler books the transaction, as we have no

significant post-delivery obligations. We record a reserve for chargebacks and cancellations at the time of the transaction based
on historical experience.

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

Packages. Packages assembled by travelers through the packaging model on our websites generally include a merchant
hotel component and some combination of an air, car or destination services component. The individual package components
are recognized in accordance with our revenue recognition policies stated above.

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

Vacation Rental Products and Services. Vacation rental revenue is earned on a transactional or subscription basis, where

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

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

Cash and Cash Equivalents

Our cash and cash equivalents include cash and liquid financial instruments, including money market funds and time

deposit investments, with maturities of three months or less when purchased.

Short-term and Long-term Investments

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

We record investments using the equity method when we have the ability to exercise significant influence over the

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

F- 11

We periodically evaluate the recoverability of investments and record a write-down to fair value if a decline in value is

determined to be other-than-temporary.

Accounts Receivable

Accounts receivable are generally due within thirty days and are recorded net of an allowance for doubtful accounts. We

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

Property and Equipment

We record property and equipment at cost, net of accumulated depreciation and amortization. We also capitalize certain

costs incurred related to the development of internal use software. We capitalize costs incurred during the application
development stage related to the development of internal use software. We expense costs incurred related to the planning and
post-implementation phases of development as incurred.

We compute depreciation using the straight-line method over the estimated useful lives of the assets, which is three to

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

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

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

Business Combinations

Recoverability of Goodwill and Indefinite-Lived Intangible Assets

Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of

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

We generally base our measurement of fair value of reporting units on a blended analysis of the present value of future

F- 12

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

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

In our evaluation of our indefinite-lived intangible assets, we typically first perform a quantitative assessment and an

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

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

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

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

Redeemable Non-controlling Interests

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

F- 13

Income Taxes

We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future

We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our

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

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

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

Presentation of Taxes in the Income Statement

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

statements of operations.

Derivative Instruments

Derivative instruments are carried at fair value on our consolidated balance sheets. The fair values of the derivative

financial instruments generally represent the estimated amounts we would expect to receive or pay upon termination of the
contracts as of the reporting date.

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

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

F- 14

Foreign Currency Translation and Transaction Gains and Losses

Certain of our operations outside of the United States use the related local currency as their functional currency. We

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

To the extent practicable, we attempt to minimize this exposure by maintaining natural hedges between our current assets

and current liabilities of similarly denominated foreign currencies. Additionally, as discussed above, we use foreign currency
forward contracts to economically hedge certain merchant revenue exposures and in lieu of holding certain foreign currency
cash for the purpose of economically hedging our foreign currency-denominated operating liabilities.

Debt Issuance Costs

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

Marketing Promotions

We periodically provide incentive offers to our customers to encourage booking of travel products and services.

Generally, our incentive offers are as follows:

Current Discount Offers. These promotions include dollar off discounts to be applied against current purchases. We

record the discounts as reduction in revenue at the date we record the corresponding revenue transaction.

Inducement Offers. These promotions include discounts granted at the time of a current purchase to be applied against a

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

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

Loyalty and Points Based Offers. We offer certain internally administered traveler loyalty programs to our customers,

such as our Hotels.com Rewards® program, our Brand Expedia Expedia® + rewards program and our Orbitz rewards program.
Hotels.com Rewards offers travelers one free night at any Hotels.com partner property after that traveler stays 10 nights,
subject to certain restrictions. Expedia+ rewards enables participating travelers to earn points on all hotel, flight, package and
activities made on over 30 Brand Expedia points of sale. Orbitz Rewards allows travelers to earn OrbucksSM, the currency of
Orbitz Rewards, on flights, hotels and vacation packages and instantly redeem those Orbucks on future bookings at various
hotels worldwide. As travelers accumulate points towards free travel products, we record a liability for the estimated future cost
of redemptions. The cost of these loyalty points is recorded as a reduction to revenue in our consolidated financial statements.
We determine the future redemption obligation based on factors that require significant judgment including: (i) the estimated
cost of travel products to be redeemed, and (ii) an estimated redemption rate based on the overall accumulation and usage of
points towards free travel products, which is determined through current and historical trends as well as statistical modeling
techniques. As of December 31, 2017 and 2016, we had a liability related to our loyalty programs of $562 million and $442
million included in accrued expenses and other current liabilities.

Advertising Expense

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

F- 15

Stock-Based Compensation

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

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

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

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who

receive these awards, and subsequent events are not indicative of the reasonableness of our original estimates of fair value.

During the second quarter of 2016, we elected to early adopt new guidance the Financial Accounting Standards Board

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

Earnings Per Share

We compute basic earnings per share by taking net income attributable to Expedia, Inc. available to common

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

F- 16

Fair Value Recognition, Measurement and Disclosure

The carrying amounts of cash and cash equivalents and restricted cash and cash equivalents reported on our consolidated

balance sheets approximate fair value as we maintain them with various high-quality financial institutions. The accounts
receivable are short-term in nature and are generally settled shortly after the sale.

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

categories:

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

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

Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with

reasonably available assumptions made by other market participants. These valuations require significant judgment.

Certain Risks and Concentrations

Our business is subject to certain risks and concentrations including dependence on relationships with travel suppliers,

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

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

Contingent Liabilities

We have a number of regulatory and legal matters outstanding, as discussed further in NOTE 17 — Commitments and

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

Occupancy Tax

Some states and localities impose a transient occupancy or accommodation tax on the use or occupancy of hotel

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

F- 17

Recent Accounting Policies Not Yet Adopted

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

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full

retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial
application (modified retrospective). We will adopt this new guidance in the first quarter of 2018 and apply the modified
retrospective method.

We have determined the new guidance will not change our previous conclusions on net presentation. We have also

determined that the standard will impact our loyalty program accounting as we will no longer be permitted to use the
incremental cost method when recording the financial impact of rewards earned in conjunction with our traveler loyalty
programs. Instead, we will be required to re-value our liability using a relative fair value approach. Additionally, due to the new
definition of variable consideration, we will be required to estimate and record certain variable payments earlier than currently
recorded. Both modifications will result in cumulative-effect adjustments to opening retained earnings, with an insignificant
change to revenue on a go-forward basis. Upon adoption, we expect a net reduction to the opening balance of retained earnings
of approximately $15 to $25 million, on a pre-tax basis, of which approximately $45 to $55 million is related to changes in the
accounting for our loyalty program, partially offset by the impact of estimating variable consideration of approximately $30 to
$40 million. The new guidance will likely also result in insignificant changes in the timing and classification of certain other
revenue streams, and an insignificant amount of capitalization of costs to obtain contracts.

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

Recognition and Measurement of Financial Instruments. In January 2016, the FASB issued new guidance related to

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

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

Statement of Cash Flows. In August and November 2016, the FASB issued new guidance related to the statement of cash

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

F- 18

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

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

Leases. In February 2016, the FASB issued new guidance related to accounting and reporting guidelines for leasing
arrangements. The new guidance requires entities that lease assets to recognize assets and liabilities on the balance sheet related
to the rights and obligations created by those leases regardless of whether they are classified as finance or operating leases.
Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a
lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to
help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This
guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted
and should be applied using a modified retrospective approach. We are in the process of evaluating the impact of adopting this
new guidance on our consolidated financial statements.

Hedge Accounting. In August 2017, the FASB amended the existing accounting guidance for hedge accounting. The

amendments require expanded hedge accounting for both non-financial and financial risk components and refine the
measurement of hedge results to better reflect an entity's hedging strategies. The new guidance also amends the presentation
and disclosure requirements and changes how entities assess hedge effectiveness. The new guidance is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted.
The new guidance must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to
opening retained earnings as of the initial adoption date. We are in the process of evaluating the impact of adopting this new
guidance on our consolidated financial statements.

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued new guidance on the

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

NOTE 3 — Acquisitions and Other Investments

2017 Acquisition and Other Investment Activity

During 2017, we completed several business combinations, one of which we made an initial investment in during 2015.

The following summarizes the preliminary aggregate purchase price allocation for these acquisitions, in thousands:

Goodwill
Intangibles with definite lives (1)
Net assets and non-controlling interests acquired (2)
Deferred tax liabilities
Total (3)

123,915
75,894
14,595
(20,834)
193,570

___________________________________
(1)
(2)
(3)

Acquired intangible assets with definite lives have a weighted average useful life of 3.8 years.
Includes cash acquired of $5 million.
The total purchase price includes noncash consideration of $10 million related to the removal of a cost method
investment upon our acquisition of a controlling interest as well as $8 million related to replacement stock awards
attributable to pre-acquisition service, with the remainder paid in cash during the period.

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

F- 19

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

Of the goodwill recorded for the business combinations, $12 million is expected to be deductible for tax purposes with the

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

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

2016 Acquisition and Other Investment Activity

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

2015 Acquisition and Other Investment Activity

HomeAway Acquisition. On December 15, 2015, we completed our acquisition of HomeAway, Inc., including all of its

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

Each outstanding share of common stock of HomeAway immediately prior to the acquisition was exchanged for $10.15

in cash and 0.2065 of a share of Expedia common stock, with cash paid in lieu of fractional shares. The aggregate purchase
consideration for HomeAway is as follows, in thousands:

Fair value of shares of Expedia common stock issued to HomeAway stockholders and equity award
holders

Cash consideration paid to HomeAway stockholders and equity award holders

Replacement restricted stock units and stock options attributable to pre-acquisition service

Total purchase consideration

2,515,755

1,027,061

19,513

3,562,329

The fair value of common stock shares issued was based on the closing price of Expedia’s common stock at

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

F- 20

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

Cash
Other current assets(1)
Long-term assets
Intangible assets with definite lives(2)
Intangible assets with indefinite lives(3)
Goodwill
Deferred revenue
Other current liabilities
Debt
Other long-term liabilities
Deferred tax liabilities, net

Total

900,281
54,372
90,890
533,279
239,200
2,613,151
(181,837)
(109,581)
(401,580)
(30,989)
(144,857)
3,562,329

___________________________________
(1)
(2)

Gross accounts receivable was $24 million, of which $1 million was estimated to be uncollectible.
Acquired definite-lived intangible assets primarily consist of supplier relationships, customer relationships and
developed technology assets with average lives ranging from less than one to ten years and a weighted average useful
life of 5.2 years.
Acquired indefinite-lived intangible assets primarily consist of trade names and trademarks.

(3)

The goodwill of $2.6 billion was primarily attributable to assembled workforce and operating synergies as it relates to the

shift to a transaction model. The goodwill was allocated to the new HomeAway reportable segment and is not expected to be
deductible for tax purposes.

We assumed approximately $402 million of 0.125% Convertible Senior Notes due 2019 (the “Convertible Notes”) in

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

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

HomeAway was consolidated into our financial statements starting on the acquisition date and we recognized a related

$20 million in revenue and $14 million in operating losses, including fees related to the acquisition that are not allocated to the
segment, for 2015.

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

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

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

F- 21

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

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

Cash consideration for shares
Settlement of Orbitz debt
Replacement restricted stock units attributable to pre-acquisition service
Other consideration

Total purchase consideration

Cash
Accounts receivable, net(1)
Other current assets
Long-term assets
Intangible assets with definite lives(2)
Intangible assets with indefinite lives(3)
Goodwill
Current liabilities
Other long-term liabilities
Deferred tax liabilities, net

Total

1,362,362
432,231
16,717
2,214
1,813,524

194,515
150,187
33,727
114,800
515,003
166,800
1,444,307
(636,169)
(54,599)
(115,047)
1,813,524

___________________________________
(1)
(2)

Gross accounts receivable was $157 million, of which $7 million was estimated to be uncollectible.
Acquired definite-lived intangible assets primarily consist of customer relationship assets, developed technology assets
and partner relationship assets with estimated useful lives ranging from less than one to ten years with a weighted
average life of 6.0 years.
Acquired indefinite-lived intangible assets primarily consist of trade names and trademarks.

(3)

The goodwill of $1.4 billion is primarily attributable to operating synergies. The goodwill was allocated to the Core

Online Travel Agencies (“Core OTA”) segment and is not expected to be deductible for tax purposes.

Orbitz was consolidated into our financial statements starting on the acquisition date and we recognized a related $196

million in revenue and $163 million in operating losses, including restructuring charges of $92 million as well as fees related to
the acquisition that are not allocated to the Core OTA segment, for 2015.

In connection with the merger, Orbitz incurred fees paid to financial advisers totaling approximately $25 million, which

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

Combined Pro forma Information (Unaudited). Supplemental information on an unaudited combined pro forma basis, as

if the HomeAway and Orbitz acquisitions had been consummated on January 1, 2014, is presented as follows, in thousands:

Revenue
Net income attributable to Expedia, Inc.

Year Ended
December 31, 2015

7,838,863
816,634

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

Other 2015 Acquisitions. On March 10, 2015, we completed the acquisition of an additional 25% equity interest of AAE

Travel Pte. Ltd., the joint venture formed between Expedia and AirAsia Berhad in 2011, for cash consideration of

F- 22

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

On January 23, 2015, we acquired the Travelocity brand and other associated assets from Sabre for $280 million in cash

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

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

The following summarizes the allocation of the purchase price for the 2015 acquisitions, excluding HomeAway and

Orbitz, in thousands:

Goodwill
Intangible assets with indefinite lives
Intangible assets with definite lives(1)
Net assets and non-controlling interests acquired(2)
Deferred tax liabilities

Total(3)

196,431
163,400
146,126
(23,366)
(7,910)
474,681

___________________________________
(1)

Acquired definite-lived intangible assets primarily consist of customer relationship, reacquired right and supplier
relationship assets and have estimated useful lives of between four and ten years with a weighted average life of 5.8
years.
Includes cash acquired of $41 million.
The total purchase price includes noncash consideration of $99 million related to an equity method investment, which is
currently consolidated upon our acquisition of a controlling interest, as discussed above, with the remainder paid in cash
during the period.

(2)
(3)

The goodwill of $196 million is primarily attributable to operating synergies and $82 million is expected to be deductible

for tax purposes with the remainder not expected to be deductible.

The results of operations of the other acquired companies have been included in our consolidated results from the

transaction closing dates forward. Pro forma results of operations have not been presented as such pro forma financial
information would not be materially different from historical results.

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

Acquisition-related Costs. Other than costs mentioned above related to Orbitz and HomeAway that were contingent upon

closing and those costs related to cost method investments, total acquisition-related costs incurred by Expedia in 2015, which
included legal, finance, consulting and other professional fees, were expensed as incurred within general and administrative
expenses and were approximately $47 million.

NOTE 4 — Disposition of Business

On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong, Inc., which was a separate reportable

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

F- 23

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

The following table presents the carrying amounts of our eLong business immediately preceding the disposition on

May 22, 2015, in thousands:

Total current assets(1)
Total long-term assets

Total assets divested

Total current liabilities

Total long-term liabilities

Total liabilities divested

Components of accumulated other comprehensive income divested
Non-redeemable non-controlling interest divested

Net carrying value divested

___________________________________
(1)

Includes cash and cash equivalents of approximately $74 million.

$
$

350,196
137,709

487,905
187,296

5,782
193,078

45,259
92,550

157,018

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

Operating loss(1)
Income before taxes(2)
Income before taxes attributable to Expedia, Inc.(2)
Net income attributable to Expedia, Inc.(3)

(85,536)
438,843
465,400
349,183

___________________________________
(1)

Includes stock-based compensation and amortization of intangible assets of approximately $20 million, which was
included within Corporate & Eliminations in NOTE 19 — Segment Information.
Includes the pre-tax gain of $509 million related to the gain on sale.
Includes the after-tax gain of $395 million related to the gain on sale.

(2)
(3)

NOTE 5 — Fair Value Measurements

Financial assets measured at fair value on a recurring basis as of December 31, 2017 are classified using the fair value

hierarchy in the table below:

Assets
Cash equivalents:

Money market funds
Time deposits

Derivatives:

Foreign currency forward contracts

Investments:

Time deposits

Marketable equity securities
Total assets

Total

Level 1

(In thousands)

Level 2

15,873
552,297

15,873
—

—
552,297

6,141

—

6,141

468,508
263,550
1,306,369

—
263,550
279,423

468,508
—
1,026,946

F- 24

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

hierarchy in the table below:

Assets
Cash equivalents:

Money market funds
Time deposits

Investments:

Time deposits

Corporate debt securities
Total assets

Liabilities
Derivatives:
Foreign currency forward contracts

Total

Level 1

(In thousands)

Level 2

113,955
299,585

24,576
64,227
502,343

113,955
—

—
—
113,955

—
299,585

24,576
64,227
388,388

4,402

— $

4,402

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

As of December 31, 2017 and 2016, our cash and cash equivalents consisted primarily of prime institutional money

market funds with maturities of three months or less, time deposits as well as bank account balances.

We periodically invest in investment grade corporate debt securities, all of which are classified as available for sale. As of

December 31, 2017, we had no short-term or long-term available for sale investments. As of December 31, 2016, we had $48
million of short-term and $16 million of long-term available for sale investments and the amortized cost basis of the
investments approximated their fair value with both gross unrealized gains and gross unrealized losses of less than $1 million.

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

We also hold time deposit investments with financial institutions. Time deposits with original maturities of less than three

months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-
term investments.

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

Assets Measured at Fair Value on a Non-recurring Basis

Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity and cost
method investments, are adjusted to fair value only when an impairment charge is recognized or the underlying investment is
sold. Such fair value measurements are based predominately on Level 3 inputs.

Intangible Assets. During 2016, we recognized intangible impairment charges of $35 million, of which $2 million was

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

F- 25

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

NOTE 6 — Property and Equipment, Net

Our property and equipment consists of the following:

Capitalized software development
Computer equipment
Furniture and other equipment
Buildings and leasehold improvements
Land

Less: accumulated depreciation
Projects in progress (1)
Property and equipment, net

December 31,

2017

2016

(In thousands)

2,111,262
658,031
84,509
282,865
129,049
3,265,716
(2,055,720)
365,262
1,575,258

1,606,960
665,652
72,811
241,713
130,812
2,717,948
(1,575,879)
252,835
1,394,904

___________________________________
(1)

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

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

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

NOTE 7 — Goodwill and Intangible Assets, Net

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

Goodwill
Intangible assets with indefinite lives
Intangible assets with definite lives, net

December 31,

2017

2016

(In thousands)

8,228,865
1,478,729
829,807
10,537,401

7,942,023
1,457,072
989,580
10,388,675

Impairment Assessments. We perform our annual assessment of possible impairment of goodwill and indefinite-lived

intangible assets as of October 1, or more frequently if events and circumstances indicate that impairment may have occurred.
As of October 1, 2017, we had no impairments of goodwill or intangible assets with indefinite-lives. As of October 1, 2016, we

F- 26

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

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

Core OTA

trivago

HomeAway

Egencia

Total

Balance as of January 1, 2016

$ 4,717,371

539,577

Additions
Foreign exchange translation and other

Balance as of December 31, 2016

Additions

128
(14,028)

4,703,471
123,617

—
(23,339)
516,238
298

(In thousands)
$ 2,602,712

—
(12,127)
2,590,585
—

133,281

$ 7,992,941

—
(1,552)
131,729
—

128
(51,046)
7,942,023
123,915

Foreign exchange translation and other

Balance as of December 31, 2017

12,949
$ 4,840,037

72,113
588,649

64,649
$ 2,655,234

13,216
144,945

162,927
$ 8,228,865

Any change in goodwill amounts resulting from purchase accounting adjustments are presented as "Foreign exchange

translation and other" in the above table. In 2017, the additions to goodwill relate to our acquisitions as described in
NOTE 3 — Acquisitions and Other Investments.

As of December 31, 2017 and 2016, accumulated goodwill impairment losses in total were $2.5 billion, which was

associated with our Core OTA segment.

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

acquired in various acquisitions.

Intangible Assets with Definite Lives. The following table presents the components of our intangible assets with definite

lives as of December 31, 2017 and 2016:

December 31, 2017

Accumulated
Amortization

Cost

Net

Cost

(In thousands)

December 31, 2016

Accumulated
Amortization

Customer relationships
Supplier relationships
Technology
Domain names
Other

Total

665,027
655,467
531,735
131,944
451,915
2,436,088

(304,130) $
(367,609)
(440,852)
(70,203)
(423,487)
$ (1,606,281) $

360,897
287,858
90,883
61,741
28,428
829,807

622,117
618,543
480,823
117,109
446,617
2,285,209

(185,468) $
(289,834)
(355,471)
(53,607)
(411,249)
$ (1,295,629) $

Net

436,649
328,709
125,352
63,502
35,368
989,580

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

2018
2019
2020
2021
2022
2023 and thereafter

Total

279,126
172,834
133,859
88,895
72,411
82,682
829,807

F- 27

NOTE 8 — Debt

The following table sets forth our outstanding debt:

7.456% senior notes due 2018
5.95% senior notes due 2020
2.5% (€650 million) senior notes due 2022
4.5% senior notes due 2024
5.0% senior notes due 2026
3.8% senior notes due 2028

Total debt(1)

Current maturities of long-term debt

Long-term debt, excluding current maturities

___________________________________
(1)

Net of discounts and debt issuance costs.

Long-term Debt

December 31,

2017

2016

(In thousands)

500,000
747,829
774,882
495,159
741,319
989,865
4,249,054
(500,000)
3,749,054

500,000
747,020
677,503
494,472
740,341
—
3,159,336
—
3,159,336

Our $500 million in registered senior unsecured notes outstanding at December 31, 2017 are due in August 2018 and bear

interest at 7.456% (the “7.456% Notes”). Interest is payable semi-annually in February and August of each year. At any time
Expedia may redeem the 7.456% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-
whole” premium, in whole or in part.

Our $750 million in registered senior unsecured notes outstanding at December 31, 2017 are due in August 2020 and bear

interest at 5.95% (the “5.95% Notes”). The 5.95% Notes were issued at 99.893% of par resulting in a discount, which is being
amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 5.95%
Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.

Our Euro 650 million of registered senior unsecured notes outstanding at December 31, 2017 are due in June 2022 and

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

Our $500 million in registered senior unsecured notes outstanding at December 31, 2017 are due in August 2024 and bear

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

Our $750 million in registered senior unsecured notes outstanding at December 31, 2017 are due in February 2026 and

bear interest at 5.0% (the “5.0% Notes”). The 5.0% Notes were issued at 99.535% of par resulting in a discount, which is being
amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the
5.0% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 5.0% Notes prior to
November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-
whole” premium. If we elect to redeem the 5.0% Notes on or after November 12, 2025, we may redeem them at a redemption
price of 100% of the principal plus accrued interest.

Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 3.8% Notes prior to November
15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole”
premium. If we elect to redeem the 3.8% Notes on or after November 15, 2027, we may redeem them at a redemption price of
100% of the principal plus accrued interest.

The 7.456%, 5.95%, 2.5% 4.5%, 5.0% and 3.8% Notes (collectively the “Notes”) are senior unsecured obligations issued
by Expedia and guaranteed by certain domestic Expedia subsidiaries. The Notes rank equally in right of payment with all of our
existing and future unsecured and unsubordinated obligations of Expedia and the guarantor subsidiaries. For further
information, see NOTE 22 — Guarantor and Non-Guarantor Supplemental Financial Information. In addition, the Notes
include covenants that limit our ability to (i) create certain liens, (ii) enter into sale/leaseback transactions and (iii) merge or
consolidate with or into another entity or transfer substantially all of our assets. Accrued interest related to the Notes was $75
million and $63 million as of December 31, 2017 and 2016. The 5.95%, 2.5%, 4.5%, 5.0% and 3.8% Notes are redeemable in
whole or in part, at the option of the holders thereof, upon the occurrence of certain change of control triggering events at a
purchase price in cash equal to 101% of the principal plus accrued and unpaid interest.

The following table sets forth the approximate fair value of our outstanding debt, which is based on quoted market prices

in less active markets (Level 2 inputs):

7.456% senior notes due 2018

5.95% senior notes due 2020
2.5% (€650 million) senior notes due 2022(1)
4.5% senior notes due 2024

5.0% senior notes due 2026

3.8% senior notes due 2028

December 31,

2017

2016

(In thousands)

516,000

810,000
828,000

528,000

807,000

969,000

541,000

823,000
718,000

511,000

782,000

—

___________________________________
(1)

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

Credit Facility

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

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

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

NOTE 9 — Employee Benefit Plans

Our U.S. employees are generally eligible to participate in a retirement and savings plan that qualifies under

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

F- 29

NOTE 10 — Stock-Based Awards and Other Equity Instruments

Pursuant to the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan, we may grant restricted

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

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

Options

(In thousands)

Weighted Average
Exercise Price

Remaining
Contractual Life

(In years)

Aggregate
Intrinsic Value

(In thousands)

Balance as of January 1, 2015
Granted
Exercised
Cancelled
Balance as of December 31, 2015
Granted
Exercised
Cancelled
Balance as of December 31, 2016
Granted
Exercised
Cancelled
Balance as of December 31, 2017
Exercisable as of December 31, 2017
Vested and expected to vest after
December 31, 2017

14,435
7,572
(4,201)
(751)
17,055
5,670
(2,686)
(1,198)
18,841
3,618
(3,422)
(3,384)
15,653
5,903

15,653

49.33
94.13
34.57
74.06
71.77
105.37
47.57
91.62
84.07
124.08
62.67
96.86
95.23
74.64

95.23

4.4 $
3.1

402,509
266,849

4.4

402,509

The aggregate intrinsic value of outstanding options shown in the stock option activity table above represents the total

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

The fair value of stock options granted during the years ended December 31, 2017, 2016 and 2015 were estimated at the

date of grant using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models,
assuming the following weighted average assumptions:

Risk-free interest rate
Expected volatility
Expected life (in years)
Dividend yield
Weighted-average estimated fair value of options granted during
the year

2017

2016

2015

1.58%
32.47%
3.65
0.92%

0.97%
39.06%
3.59
0.91%

1.19%
41.48%
4.06
0.78%

30.17

29.48

30.56

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

F- 30

The following table presents a summary of RSU activity:

Balance as of January 1, 2015
Granted
Vested
Cancelled
Balance as of December 31, 2015
Granted
Vested
Cancelled
Balance as of December 31, 2016
Granted
Vested
Cancelled
Balance as of December 31, 2017

RSUs

(In thousands)

Weighted Average
Grant-Date Fair
Value

337
1,643
(493)
(91)
1,396
691
(516)
(222)
1,349
1,350
(492)
(266)
1,941

61.97
123.42
103.73
67.11
119.20
109.38
118.71
117.84
114.58
123.24
115.29
116.26
120.19

RSUs, which are stock awards that are granted to employees entitling the holder to shares of our common stock as the

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

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

million and $60 million.

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

Cash received from stock-based award exercises for the years ended December 31, 2017 and 2016 was $213 million and

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

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

As of December 31, 2017, there was approximately $410 million of unrecognized stock-based compensation expense

related to unvested stock-based awards, which is expected to be recognized in expense over a weighted-average period of 2.6
years.

Employee Stock Purchase Plan

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

F- 31

NOTE 11 — Income Taxes

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

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in

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

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

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

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in
situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations)
in reasonable detail to complete the accounting for certain income tax effects of the Tax Act and allows the registrant to record
provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recognized a
net tax benefit of $14 million for the provisional tax impacts related to the one-time transition tax and the revaluation of
deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31,
2017. We are in the process of analyzing the impact of the various provisions of the Tax Act. The ultimate impact may
materially differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and
assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax
Act. We expect to complete our analysis within the measurement period in accordance with SAB 118.

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

U.S.
Foreign
Total

2017

Year Ended December 31,

2016
(In thousands)

2015

(44,867) $
461,631
416,764

(47,205) $
323,805
276,600

24,397
901,565
925,962

F- 32

Provision for Income Taxes

The following table summarizes our provision for income taxes:

Current income tax expense:

Federal
State
Foreign

Current income tax expense
Deferred income tax (benefit) expense:

Federal
State
Foreign

Deferred income tax (benefit) expense:
Income tax expense

2017

Year Ended December 31,

2016

(In thousands)

2015

12,671
5,862
130,180
148,713

(93,842)
(891)
(8,575)
(103,308)
45,405

(41,418) $
5,875
64,946
29,403

(5,166)
(2,863)
(6,059)
(14,088)
15,315

154,050
1,440
69,359
224,849

(6,865)
2,156
(16,926)
(21,635)
203,214

We reduced our current income tax payable by $100 million, $76 million and $130 million for the years ended

December 31, 2017, 2016 and 2015 for tax deductions attributable to stock-based compensation.

Deferred Income Taxes

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

as follows:

Deferred tax assets:
Provision for accrued expenses
Loyalty rewards reserve
Occupancy tax reserve
Net operating loss and tax credit carryforwards
Stock-based compensation
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Prepaid merchant bookings and prepaid expenses
Goodwill and intangible assets
Property and equipment
Other
Total deferred tax liabilities
Net deferred tax liability

December 31,

2017

2016

(In thousands)

$
$

49,526
131,248
11,017
121,896
51,706
36,187
401,580
(76,280)
325,300

(1,372) $

(499,190)
(130,736)
(4,674)
(635,972) $
(310,672) $

94,031
163,410
27,814
114,470
81,221
31,569
512,515
(65,516)
446,999

(20,289)
(718,810)
(152,550)
(16,662)
(908,311)
(461,312)

As of December 31, 2017, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of approximately

$65 million, $210 million and $370 million. If not utilized, the federal and state NOLs will expire at various times between
2018 and 2037. Foreign NOLs of $253 million may be carried forward indefinitely, and foreign NOLs of $117 million will
expire at various times between 2018 and 2024.

As of December 31, 2017, we had a valuation allowance of approximately $76 million related to certain NOL

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

F- 33

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

Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and

profits, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subjected to
U.S. federal income tax. To the extent we repatriate these earnings to the United States, we estimate we will not incur
significant additional taxes related to such amounts, however our estimates are provisional and subject to further analysis.

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

A reconciliation of amounts computed by applying the federal statutory income tax rate to income before income taxes to

total income tax expense is as follows:

Income tax expense at the federal statutory rate of 35%
Foreign tax rate differential
Unrecognized tax benefits and related interest
Change in valuation allowance
Return to provision true-ups
Pay-to-play penalties
Acquisition related costs
Federal research and development credit
trivago stock-based-compensation
Excess tax benefits related to stock-based compensation
Tax Act transition tax
U.S. statutory tax rate change
Other, net
Income tax expense

2017

Year Ended December 31,

2016

(In thousands)

2015

145,867
(81,509)
27,690
3,686
686
—
1,554
(16,000)
5,011
(59,668)
144,167
(158,286)
32,207
45,405

96,810
(66,947)
33,170
(13,924)
(14,420)
—
1,611
(15,000)
16,956
(39,751)
—
—
16,810
15,315

324,087
(162,784)
33,362
27,320
(8,875)
(11,222)
12,545
(11,500)
—
—
—
—
281
203,214

Our effective tax rate in 2017, 2016 and 2015 was lower than the 35% federal statutory income tax rate due to earnings in

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

The increase in our effective tax rate for 2017 compared to 2016 was primarily due to one-time tax benefits in the prior

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

Uncertain Tax Positions

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

Balance, beginning of year
Increases to tax positions related to the current year
Increases to tax positions related to prior years
Decreases to tax positions related to prior years
Reductions due to lapsed statute of limitations
Settlements during current year
Interest and penalties
Balance, end of year

2017

2016

(In thousands)

2015

220,532
35,211
3,544
(1,069)
(2,783)
(1,213)
6,697
260,919

171,177
42,877
8,124
(2,262)
(4,688)
—
5,304
220,532

110,561
33,880
26,219
—
(2,525)
(100)
3,142
171,177

F- 34

As of December 31, 2017, we had $261 million of gross unrecognized tax benefits, $155 million of which, if recognized,

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

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

The Company is routinely under audit by federal, state, local and foreign income tax authorities. These audits include

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

During first quarter of 2017, the IRS issued proposed adjustments related to transfer pricing with our foreign subsidiaries

for our 2009 to 2010 audit cycle. The proposed adjustments would increase our U.S. taxable income by $105 million, which
would result in federal tax expense of approximately $37 million, subject to interest. We do not agree with the position of the
IRS and are formally protesting the IRS position.

NOTE 12 — Redeemable Non-controlling Interests

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

2017

Year Ended December 31,
2016

2015

(In thousands)

Balance, beginning of the period
Acquisition of redeemable non-controlling interest
Purchase of subsidiary shares at fair value
Net income (loss) attributable to non-controlling interests
Fair value adjustments
Currency translation adjustments
Other
Transfer to non-redeemable non-controlling interest
Balance, end of period

— $

19,618
—
2,535
—
—
181
—
22,334

658,478
—
(7,054)
(22,286)
848,885
(89,436)
(7,611)
(1,380,976)

— $

560,073
6,829
—
(15,417)
188,579
(90,244)
8,658
—
658,478

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

In connection with the acquisition of our majority ownership interests in trivago in 2013, we entered into a shareholders

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

F- 35

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

NOTE 13 — Stockholders’ Equity

Common Stock and Class B Common Stock

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

Preferred Stock

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

Share Repurchases

During 2012, 2010, and 2006, our Board of Directors, or the Executive Committee, acting on behalf of the Board of

Number of shares repurchased
Average price per share
Total cost of repurchases (in millions)(1)

___________________________________
Amount excludes transaction costs.
(1)

Year Ended December 31,

2017
2.3 million
127.04
294

$
$

2016
4.0 million
109.64
436

$
$

2015
0.5 million
85.27
45

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

termination date for the repurchases.

F- 36

Dividends on our Common Stock

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

following dividends:

Year ended December 31, 2017:

Year ended December 31, 2016:

Year ended December 31, 2015:

Declaration Date

Dividend
Per Share

Record Date

Total Amount
(in thousands)

Payment Date

February 7, 2017
April 26, 2017
July 26, 2017
October 25, 2017

March 9, 2017 $
0.28
May 25, 2017
0.28
0.30
August 24, 2017
0.30 November 16, 2017

March 30, 2017
42,247
42,438
June 15, 2017
45,578 September 14, 2017
December 7, 2017
45,512

February 8, 2016 $
April 26, 2016
July 27, 2016
October 24, 2016

March 10, 2016 $
0.24
May 26, 2016
0.24
0.26
August 25, 2016
0.26 November 17, 2016

March 30, 2016
36,174
June 16, 2016
35,773
39,062 September 15, 2016
December 8, 2016
39,150

February 4, 2015 $
April 29, 2015
July 29, 2015
October 29, 2015

March 10, 2015 $
0.18
May 28, 2015
0.18
0.24
August 27, 2015
0.24 November 19, 2015

March 26, 2015
22,895
23,096
June 18, 2015
31,182 September 17, 2015
31,354 December 10, 2015

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

Accumulated Other Comprehensive Income (Loss)

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

Foreign currency translation adjustments, net of tax(1)
Net unrealized gain (loss) on available for sale securities, net of tax(2)
Accumulated other comprehensive loss

(142,255) $
(6,678)
(148,933) $

(280,426)
27
(280,399)

December 31,

2017

2016

(In thousands)

___________________________________
(1)

Foreign currency translation adjustments, net of tax, includes foreign currency transaction losses at December 31, 2017
of $45 million ($71 million before tax) and foreign currency transaction gains at December 31, 2016 of $16 million
($25 million before tax) associated with our 2.5% Notes. The 2.5% Notes are Euro-denominated debt designated as
hedges of certain of our Euro-denominated net assets. See NOTE 2 — Significant Accounting Policies for more
information.
The net unrealized loss on available for sale securities before tax at December 31, 2017 was $9 million.

(2)

F- 37

Non-redeemable Non-controlling Interests

As of December 31, 2017, 2016 and 2015, our ownership interest in AirAsia-Expedia was approximately 75%. As of

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

Net income attributable to Expedia, Inc.

377,964

281,848

764,465

2017

2016

2015

Transfers (to) from the non-controlling interest due to:

Net decrease in Expedia, Inc.’s paid-in capital related
to trivago IPO

Net increase (decrease) in Expedia, Inc.’s paid-in
capital for newly issued eLong shares and other equity
activity
Other

Net transfers from non-controlling interest

Change from net income attributable to Expedia, Inc. and
transfers from non-controlling interest

—

(32,141)

—

—
2,649
2,649

—
—
(32,141)

(4,198)
—
(4,198)

380,613

249,707

760,267

NOTE 14 — Earnings Per Share

Basic Earnings Per Share

Basic earnings per share was calculated for the years ended December 31, 2017, 2016 and 2015 using the weighted

average number of common and Class B common shares outstanding during the period excluding restricted stock and stock
held in escrow.

Diluted Earnings Per Share

For the years ended December 31, 2017, 2016 and 2015, we computed diluted earnings per share using (i) the number of

shares of common stock and Class B common stock used in the basic earnings per share calculation as indicated above (ii) if
dilutive, the incremental common stock that we would issue upon the assumed exercise of stock options and stock warrants and
the vesting of RSUs using the treasury stock method, and (iii) other stock-based commitments.

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

Net income attributable to Expedia, Inc.
Earnings per share attributable to Expedia, Inc. available
to common stockholders:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Dilutive effect of:

Options to purchase common stock
Other dilutive securities

Diluted

Year Ended December 31,

2017

2016
(In thousands, except per share data)

2015

377,964

281,848

764,465

2.49
2.42

1.87
1.82

5.87
5.70

151,619

150,367

130,159

4,218
548
156,385

3,874
276
154,517

3,685
174
134,018

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

The earnings per share amounts are the same for common stock and Class B common stock because the holders of each

class are legally entitled to equal per share distributions whether through dividends or in liquidation.

F- 38

NOTE 15 — Restructuring and Related Reorganization Charges

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

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

Employee
Severance
and Benefits

Stock-based
Compensation

Other

Total

10,117
66,255
(29,388)
(1,095)
45,889
39,477
(66,442)
(774)
18,150
8,380
(19,005)
810
8,335

(In thousands)
— $

32,749
—
(32,749)
—
12,690
—
(12,690)
—
—
—
—
— $

13,658
5,867
(18,408)
6
1,123
3,740
(4,932)
343
274
8,358
(7,722)
69
979

23,775
104,871
(47,796)
(33,838)
47,012
55,907
(71,374)
(13,121)
18,424
16,738
(26,727)
879
9,314

Accrued liability as of January 1, 2015
Charges
Payments
Non-cash items
Accrued liability as of December 31, 2015
Charges
Payments
Non-cash items
Accrued liability as of December 31, 2016

Charges
Payments
Non-cash items
Accrued liability as of December 31, 2017

NOTE 16 — Other Income (Expense)

Other, net

The following table presents the components of other, net:

Foreign exchange rate gains (losses), net
Non-controlling interest basis adjustment
Loss on investments, net
Equity gains (losses) in unconsolidated affiliates
Other

Total

For the Year Ended December 31,
2016

2015

2017

(In thousands)

(45,614) $
1,678
(14,318)
232
(2,777)
(60,799) $

(15,244) $
—
(12,117)
(1,490)
(2,829)
(31,680) $

24,787
77,400
—
(13)
10,912
113,086

F- 39

NOTE 17 — Commitments and Contingencies

Letters of Credit, Purchase Obligations and Guarantees

We have commitments and obligations that include purchase obligations, guarantees and LOCs, which could potentially

require our payment in the event of demands by third parties or contingent events. The following table presents these
commitments and obligations as of December 31, 2017:

Purchase obligations
Guarantees
Letters of credit

Total

Less than
1 year

1 to 3
years

3 to 5
years

More than
5 years

By Period

409,802
135,053
42,419
587,274

256,834
120,278
25,653
402,765

(In thousands)
152,968
$
14,775
11,103
178,846

— $
—
169
169

—
—
5,494
5,494

Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors.

These minimum obligations are less than our projected use for those periods. Payments may be more than the minimum
obligations based on actual use.

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

Our LOCs consist of stand-by LOCs, underwritten by a group of lenders, which we primarily issue for certain regulatory

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

Lease Commitments

We have contractual obligations in the form of operating leases for office space and related office equipment for which

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

The following table presents our estimated future minimum rental payments under operating leases with noncancelable

lease terms that expire after December 31, 2017, in thousands:

Year ending December 31,
2018
2019
2020
2021
2022
2023 and thereafter

Legal Proceedings

138,785
121,017
103,695
79,192
72,901
333,792
849,382

In the ordinary course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have

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

F- 40

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

In addition, we have been audited by the state of Colorado. The state has issued assessments for claimed tax, interest and

penalty in the approximate amount of $23 million for the periods December 1, 1999 through December 31, 2005 and January 1,
2009 through December 31, 2011. We do not agree with these assessments and have filed protests.

Pay-to-Play. Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being allowed to

contest or litigate the applicability of the ordinances. This prepayment of contested taxes is referred to as “pay-to-play.”
Payment of these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are
made, we continue to defend our position vigorously. If we prevail in the litigation, for which a pay-to-play payment was made,
the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest.

Hawaii (General Excise Tax). During 2013, the Expedia companies were required to “pay-to-play” and paid a total of

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

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

Final assessments by the Hawaii Department of Taxation for general exercise taxes against the Expedia companies,
including Orbitz, relating to merchant car rental transactions during the years 2000 to 2014 are also under review in the Hawaii
tax courts. With respect to merchant model car rental transactions at issue for the tax years 2000 through 2013, the Hawaii tax
court held on August 5, 2016 that general excise tax is due on the online travel companies’ services to facilitate car rentals. The
court further ruled that for merchant model car rentals in Hawaii, the online travel companies are required to pay general excise
tax on the total amount paid by consumers, with no credit for tax amounts already remitted by car rental companies to the State
of Hawaii for tax years 2000 through 2013, thus resulting in a double tax on the amount paid by consumers to car rental
companies for the rental of the vehicle. The court, however, ruled that when car rentals are paid for as part of a vacation
package, tax is only due once on the amount paid by consumers to the car rental company for the rental of the vehicle. In
addition, the court ruled that the online travel companies are required to pay interest and certain penalties on the amounts due.
On April 25, 2017, the court entered a stipulated order and final judgment. On May 15, 2017, the Expedia companies paid

F- 41

under protest the full amount claimed due, or approximately $16.7 million, as a condition of appeal. The parties filed notices of
cross-appeal from the order. The appeals have been transferred to the Hawaii Supreme Court and oral argument on the
merchant car appeals is scheduled for April 5, 2018. The Hawaii tax court’s decision did not resolve “merchant model” car
rental transactions for the tax year 2014, which also remain under review.

San Francisco. During 2009, we were required to “pay-to-play” and paid $48 million in advance of litigation relating to

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

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

The ultimate resolution of these contingencies may be greater or less than the pay-to-play payments made and our

estimates of additional assessments mentioned above.

Matters Relating to International VAT. We are in various stages of inquiry or audit in multiple European Union
jurisdictions, including in the United Kingdom, regarding the application of VAT to our European Union related transactions.
While we believe we comply with applicable VAT laws, rules and regulations in the relevant jurisdictions, the tax authorities
may determine that we owe additional taxes. In certain jurisdictions, including the United Kingdom, we may be required to
“pay-to-play” any VAT assessment prior to contesting its validity. While we believe that we will be successful based on the
merits of our positions with regard to the United Kingdom and other VAT audits in pay-to-play jurisdictions, it is nevertheless
reasonably possible that we could be required to pay any assessed amounts in order to contest or litigate the applicability of any
assessments and an estimate for a reasonably possible amount of any such payments cannot be made.

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

In Europe, investigations or inquiries into contractual parity provisions between hotels and online travel companies,

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

With effect from August 1, 2015, Expedia waived certain rate, conditions and availability parity clauses in its agreements

The German Federal Cartel Office ("FCO") has required another online travel company, Hotel Reservation Service

F- 42

Booking.com by way of an infringement decision to remove certain clauses from its contracts with German hotels.
Booking.com has appealed the decision and the appeal was heard by the Higher Regional Court Düsseldorf on February 8,
2017. Those proceedings remain ongoing.

On November 6, 2015, the Swiss competition authority announced that it had issued a final decision finding certain parity

Hotelverband Deutschland (“IHA”) e.V. (a German hotel association) brought proceedings before the Cologne regional

A motion requesting the Swiss government to take action on narrow price parity has been adopted in the Swiss
parliament. Moreover, in Belgium, the government is also reviewing narrow parity provisions. The Company is unable to
predict whether these proposals in their current form or in another form will ultimately be adopted and, if so, when this might
be the case. It is not yet clear how any adopted domestic anti-parity clause legislations and/or any possible future legislation in
this area may affect Expedia’s business.

F- 43

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

Other than described above, we have not accrued a reserve in connection with the market studies, investigations, inquiries
or legal proceedings described above either because the likelihood of an unfavorable outcome is not probable or the amount of
any loss is not estimable.

NOTE 18 — Related Party Transactions

Liberty. Mr. Diller is the Chairman and Senior Executive of Expedia. Subject to the terms of an Amended and Restated
Stockholders Agreement between Liberty Expedia Holdings, Inc. (“Liberty Expedia Holdings”) and Mr. Diller, as amended as
of November 4, 2016, Mr. Diller also holds an irrevocable proxy to vote shares of Expedia common stock and Class B common
stock beneficially owned by Liberty Expedia Holdings (the “Diller Proxy”), which proxy has been assigned by Mr. Diller to
Liberty Expedia Holdings as described below.

On November 4, 2016, Liberty Interactive Corporation (“Liberty Interactive”) redeemed a portion of the outstanding

shares of its Liberty Ventures common stock in exchange for all of the outstanding shares of Liberty Expedia Holdings, which
at that time was a wholly owned subsidiary of Liberty Interactive (the “Liberty Split-Off”). At the time of the Liberty Split-Off,
Liberty Expedia Holdings’ assets included all of Liberty Interactive’s interest in Expedia. Pursuant to a Transaction Agreement
among Mr. Diller, Liberty Interactive, Liberty Expedia Holdings, John C. Malone and Leslie Malone, dated as of March 24,
2016 and amended and restated effective as of September 22, 2016, at the time of the Liberty Split-Off, for a period ending not
later than May 4, 2018 (i) Mr. Diller assigned the Diller Proxy to Liberty Expedia Holdings (the “Diller Assignment”) and
(ii) Mr. and Mrs. Malone granted Mr. Diller an irrevocable proxy to vote all shares of Liberty Expedia Holdings Series A
common stock and Series B common stock beneficially owned by them upon completion of the Liberty Split-Off or thereafter
(the “Malone Proxy”), in each case, subject to certain limitations. As a result, by virtue of the voting power associated with the
Malone Proxy, the governance structure at Liberty Expedia Holdings and Mr. Diller’s continuing position as Chairman of
Expedia’s Board of Directors, Mr. Diller indirectly controls Expedia until the termination or expiration of the Diller Assignment
and Malone Proxy, at which point (and by virtue of the termination of the Diller Assignment), unless the Diller Assignment and
Malone Proxy terminate as a result of Mr. Diller’s death or disability, Mr. Diller will have the power to vote directly all shares
of Expedia Common Stock and Class B Common Stock beneficially owned by Liberty Expedia Holdings.

In connection with the then-pending Liberty Split-Off, on March 24, 2016, Liberty Interactive and Liberty Expedia

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

On September 30, 2016, Expedia received consents from the holders of more than a majority of the aggregate principal

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

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

F- 44

During 2015, we issued 264,841 shares of common stock from treasury stock to Liberty Interactive at a price per share of

$85.24 and an aggregate value of approximately $23 million pursuant to and in accordance with the preemptive rights as
detailed by the Governance Agreement with Liberty Interactive.

IAC/InterActiveCorp. In addition to serving as our Chairman and Senior Executive, Mr. Diller also serves as Chairman of

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

NOTE 19 — Segment Information

We have four reportable segments: Core OTA, trivago, HomeAway and Egencia. In addition, eLong was a reportable

segment through its disposal on May 22, 2015. Our Core OTA segment, which consists of the aggregation of operating
segments, provides a full range of travel and advertising services to our worldwide customers through a variety of brands
including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the
world, Orbitz, CheapTickets, ebookers, Expedia Affiliate Network, Hotwire.com, Travelocity, Wotif Group, CarRentals.com,
Classic Vacations and SilverRail Technologies, Inc. Our trivago segment generates advertising revenue primarily from sending
referrals to online travel companies and travel service providers from its hotel metasearch websites. Our HomeAway segment
operates an online marketplace for the vacation rental industry. Our Egencia segment provides managed travel services to
corporate customers worldwide.

We determined our operating segments based on how our chief operating decision makers manage our business, make

operating decisions and evaluate operating performance. Our primary operating metric is adjusted EBITDA. Adjusted EBITDA
for our Core OTA and Egencia segments includes allocations of certain expenses, primarily cost of revenue and facilities, and
our Core OTA segment includes the total costs of our global supply organizations as well as the realized foreign currency gains
or losses related to the forward contracts hedging a component of our net merchant hotel revenue. We base the allocations
primarily on transaction volumes and other usage metrics. We do not allocate certain shared expenses such as accounting,
human resources, information technology and legal to our reportable segments. We include these expenses in Corporate and
Eliminations. Our allocation methodology is periodically evaluated and may change.

Our segment disclosure includes intersegment revenues, which primarily consist of advertising and media services
provided by our trivago segment to our Core OTA segment. These intersegment transactions are recorded by each segment at
amounts that approximate fair value as if the transactions were between third parties, and therefore, impact segment
performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such
intersegment transactions is included within Corporate and Eliminations in the table below. In addition, when HomeAway
properties are booked through our Core OTA websites and vice versa, the segments split the third-party revenue for
management and segment reporting purposes with the majority of the third-party revenue residing with the website marketing
the property or room.

Corporate and Eliminations also includes unallocated corporate functions and expenses. In addition, we record

amortization of intangible assets and any related impairment, as well as stock-based compensation expense, restructuring and
related reorganization charges, legal reserves, occupancy tax and other, and other items excluded from segment operating
performance in Corporate and Eliminations. Such amounts are detailed in our segment reconciliation below. Included with
eLong’s standalone financial statements for 2015 (through its disposal on May 22, 2015) was approximately $20 million of
stock-based compensation and intangible amortization.

F- 45

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

Core OTA

trivago

HomeAway

Egencia

Corporate &
Eliminations

Total

Year ended December 31, 2017

(413,855)

— $10,059,844
—
$ (413,855) $10,059,844
$ (657,414) $ 1,712,505
(614,099)
(275,445)
(149,350)

(213,787)
(275,445)
(149,350)

(25,412)

(16,738)
—
$(1,338,146)

(16,738)
(6,323)
625,138
(208,374)
416,764
(45,405)
371,359

6,605

377,964

$ 7,880,597
—

$ 7,880,597
$ 2,068,405

(309,842)
—

752,352
413,855

$ 1,166,207
5,439
$
(9,182)
—

$
$

(In thousands)

$
$

906,469
—

906,469
201,810
(40,211)
—

520,426
—

520,426
94,265
(41,077)
—

Third-party revenue
Intersegment revenue

Revenue
Adjusted EBITDA

Depreciation
Amortization of intangible assets

Stock-based compensation
Legal reserves, occupancy tax and
other

Restructuring and related
reorganization charges

—

Realized (gain) loss on revenue hedges

(6,323)

$ 1,752,240

Operating income (loss)

Other expense, net
Income before income taxes

Provision for income taxes

Net income

Net loss attributable to non-controlling
interests
Net income attributable to Expedia,
Inc.

—

—
(3,743) $

—

161,599

53,188

F- 46

Core OTA

trivago

HomeAway

Egencia

Corporate &
Eliminations

Total

Year ended December 31, 2016

(297,318)

— $ 8,773,564
—
$ (297,318) $ 8,773,564
$ (641,168) $ 1,615,672
(477,061)
(317,141)
(34,890)
(242,417)
(26,498)

(164,956)
(317,141)
(34,890)
(242,417)
(26,498)

(43,217)
—
$(1,470,287)

(43,217)
(12,746)
461,702
(185,102)
276,600
(15,315)
261,285

20,563

281,848

Third-party revenue
Intersegment revenue

Revenue
Adjusted EBITDA

Depreciation
Amortization of intangible assets

Impairment of intangible assets
Stock-based compensation

Legal reserves, occupancy tax and other
Restructuring and related reorganization
charges, excluding stock-based
compensation

(In thousands)

$ 7,083,620
—

$ 7,083,620
$ 1,965,987

$
$

(255,778)
—

$
$

538,479
297,318

835,797
34,826
(7,145)
—

$
$

689,186
—

689,186
175,402
(17,842)
—

462,279
—

462,279
80,625
(31,340)
—

—
—

—

—
—

—

—
—

—

—
—

—

Realized (gain) loss on revenue hedges

(12,746)

$ 1,697,463

27,681

157,560

49,285

Operating income (loss)

Other expense, net

Income before income taxes

Provision for income taxes
Net income

Net loss attributable to non-controlling
interests
Net income attributable to Expedia,
Inc.

F- 47

Core OTA

trivago

HomeAway(1)

Egencia

eLong(2)

Corporate &
Eliminations

Total

Year ended December 31, 2015

(214,632)

41,743
—

— $ 6,672,317
—
$ (214,632) $ 6,672,317
41,743
(62,167) $ (509,747) $ 1,103,111
(336,680)
(116,850)
(3,263)

—

(156,458)

(7,207)

(178,068)

104,587

—

(72,122)

—

—
(65,430) $ (935,865)

(43,597)
413,566

512,396

925,962

(203,214)
722,748

41,717

764,465

Third-party revenue
Intersegment revenue

Revenue
Adjusted EBITDA

Depreciation
Amortization of
intangible assets
Impairment of intangible
assets
Stock-based
compensation
Legal reserves,
occupancy tax and other
Restructuring and related
reorganization charges,
excluding stock-based
compensation

Realized (gain) loss on
revenue hedges

$ 5,877,213
—

$ 5,877,213
$ 1,600,042

$
$

333,024
214,632

547,656
2,856

$
$

(189,318)

(2,113)

(In thousands)

$
$

20,222
—

20,222
4,011
(742)

$
$

400,115
—

400,115
68,116
(24,394)

—

(43,597)

—

Operating income (loss)

$ 1,367,127

743

3,269

43,722

Other income, net

Income before income
taxes

Provision for income
taxes

Net income

Net loss attributable to
non-controlling interests
Net income attributable
to Expedia, Inc.

___________________________________
(1)
(2)

Includes results since our acquisition of HomeAway on December 15, 2015.
Includes results through our disposal of eLong on May 22, 2015.

F- 48

Revenue by Services

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

Lodging(1)
Advertising and media

Air
Other(2)
Total revenue

___________________________________

Year Ended December 31,

2017

2016

2015

(In thousands)

6,851,171
1,072,656

783,573
1,352,444
10,059,844

6,020,668
807,383

777,696
1,167,817
8,773,564

4,638,481
565,704

566,123
902,009
6,672,317

(1)

(2)

During the first quarter of 2017, we began disclosing lodging revenue, which includes both hotel accommodations as
well as alternative accommodations primarily made through HomeAway.
Other includes car rental, insurance, destination services, cruise and fee revenue related to our corporate travel business,
among other revenue streams, none of which are individually material.

Geographic Information

The following table presents revenue by geographic area, the United States and all other countries, based on the

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

Revenue

United States
All other countries

2017

Year Ended December 31,

2016
(In thousands)

2015

5,534,466
4,525,378
10,059,844

5,036,539
3,737,025
8,773,564

3,703,302
2,969,015
6,672,317

The following table presents property and equipment, net for the United States and all other countries, as of

December 31, 2017 and 2016:

Property and equipment, net

United States
All other countries

As of December 31,

2017

2016

(In thousands)

1,330,808
244,450
1,575,258

1,217,952
176,952
1,394,904

F- 49

NOTE 20 — Valuation and Qualifying Accounts

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

Description

2017
Allowance for doubtful accounts
Other reserves
2016
Allowance for doubtful accounts
Other reserves
2015
Allowance for doubtful accounts
Other reserves

Balance at
Beginning of
Period

Charges to
Earnings

Charges to
Other
Accounts

(1)

(In thousands)

Deductions

Balance at End
of Period

25,278
24,493

27,035
29,959

13,760
25,258

18,567

598

(13,747) $

12,191

(2,554) $

(11,394) $

11,513

10,309

(8,547) $

30,696
22,368

25,278
24,493

27,035
29,959

___________________________________
(1)

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

NOTE 21 — Quarterly Financial Information (Unaudited)

Year ended December 31, 2017
Revenue
Operating income (loss)
Net income (loss) attributable to Expedia, Inc.
Basic earnings (loss) per share(1)
Diluted earnings (loss) per share(1)
Year ended December 31, 2016
Revenue
Operating income (loss)(2)
Net income (loss) attributable to Expedia, Inc.(2)
Basic earnings (loss) per share(1)
Diluted earnings (loss) per share(1)

Three Months Ended

December 31

September 30

June 30

March 31

(In thousands, except per share data)

2,319,208
113,475
55,159
0.36
0.35

2,092,829
147,186
79,457
0.53
0.51

2,965,848
481,728
352,238
2.32
2.23

2,580,905
386,152
279,331
1.86
1.81

2,586,052
102,768
56,689
0.37
0.36

2,195,869
25,662
31,649
0.21
0.21

2,188,736
(72,833)
(86,122)
(0.57)
(0.57)

1,903,961
(97,298)
(108,589)
(0.72)
(0.72)

___________________________________
(1)

Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly
earnings per share may not equal the total computed for the year.
During the fourth quarter of 2016, we recognized a $33 million impairment charge related to indefinite lived intangible
assets.

(2)

NOTE 22 — Guarantor and Non-Guarantor Supplemental Financial Information

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

F- 50

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2017

Revenue
Costs and expenses:

Cost of revenue
Selling and marketing

Technology and content
General and administrative

Amortization of intangible assets
Legal reserves, occupancy tax and
other
Restructuring and related
reorganization charges

Intercompany (income) expense,
net

Operating income

Other income (expense):

Equity in pre-tax earnings of
consolidated subsidiaries

Other, net

Total other income, net

Income before income taxes

Provision for income taxes

Net income

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

Consolidated

— $

7,661,878

(In thousands)
2,817,310

(419,344) $

10,059,844

—
—

—

1,342,847
3,714,710

991,291
408,949

181,778

430,662
1,985,541

395,504
266,951

93,667

25,412

—

4,924

11,814

695,328

296,639

(695,328)
328,499

(16,978)
(402,419)
(8)
61

—

493,013

(179,541)

313,472

64,492

377,964

336,300
(59,547)
276,753

573,392
(67,406)
505,986

—

30,714

359,213
(42,491)
316,722

(829,313)
—
(829,313)
(829,313)
—
(829,313)

1,756,531
5,297,832

1,386,787
675,961

275,445

25,412

16,738

—

625,138

—
(208,374)
(208,374)
416,764
(45,405)
371,359

Net loss attributable to non-controlling
interests
Net income attributable to Expedia,
Inc.
Comprehensive income attributable to
Expedia, Inc.

—

846

5,759

—

6,605

377,964

509,430

506,832

698,106

322,481

563,978

(829,313) $

377,964

(1,262,084) $

509,430

F- 51

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2016

Revenue

Costs and expenses:
Cost of revenue

Selling and marketing
Technology and content

General and administrative
Amortization of intangible assets

Impairment of intangibles
Legal reserves, occupancy tax and
other

Restructuring and related
reorganization charges

Intercompany (income) expense,
net

Operating income

Other income (expense):

Equity in pre-tax earnings of
consolidated subsidiaries

Other, net

Total other income (expense), net

Income before income taxes

Provision for income taxes

Net income

Net loss attributable to non-controlling
interests
Net income attributable to Expedia,
Inc.
Comprehensive income attributable to
Expedia, Inc.

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

Consolidated

— $

6,807,279

(In thousands)
2,267,516

(301,231) $

8,773,564

—

—
—

—

383,883

(162,455)

221,428

60,420

281,848

1,263,828

3,071,762
903,444

429,015
248,634

—

26,498

30,322

656,273

177,503

286,016
(21,206)
264,810

442,313
(50,168)
392,145

346,200

1,583,993
331,230

249,185
68,507

34,890

—

25,585

(656,273)
284,199

—
(1,441)
(1,441)
282,758
(25,567)
257,191

(13,330)
(288,338)
345

92
—

—

(669,899)
—
(669,899)
(669,899)
—
(669,899)

1,596,698

4,367,417
1,235,019

678,292
317,141

34,890

26,498

55,907

—

461,702

—
(185,102)
(185,102)
276,600
(15,315)
261,285

—

20,563

—

20,563

281,848

280,297

392,145

373,649

277,754

238,299

(669,899) $

281,848

(611,948) $

280,297

F- 52

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2015

Revenue
Costs and expenses:

Cost of revenue
Selling and marketing

Technology and content
General and administrative

Amortization of intangible assets
Impairment of intangible assets

Legal reserves, occupancy tax and
other

Restructuring and related
reorganization charges

Intercompany (income) expense,
net

Operating income

Other income (expense):

Equity in pre-tax earnings of
consolidated subsidiaries

Gain on sale of business

Other, net

Total other income, net

Income before income taxes

Provision for income taxes

Net income

Net loss attributable to non-controlling
interests
Net income attributable to Expedia,
Inc.
Comprehensive income attributable to
Expedia, Inc.

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries(1)

Eliminations

Consolidated

— $

5,194,549

(In thousands)
1,682,677

(204,909) $

6,672,317

—
—

—

1,009,785
2,347,919

584,560
373,162

58,524
—

308,463
1,230,059

245,495
200,268

97,934
7,207

(104,587)

—

76,422

28,449

742,010

106,754

(742,010)
306,812

(8,689)
(196,892)
189
483

—
—

—

839,779

870,108

—

(119,451)

720,328

44,137

764,465

—

64,576

934,684

1,041,438
(194,251)
847,187

—

508,810

58,461

567,271

874,083
(53,100)
820,983

(1,709,887)
—

—
(1,709,887)
(1,709,887)
—
(1,709,887)

1,309,559
3,381,086

830,244
573,913

156,458
7,207

(104,587)

104,871

—

413,566

—

508,810

3,586

512,396

925,962
(203,214)
722,748

—

41,717

—

41,717

764,465

763,202

847,187

822,898

862,700

742,132

(1,709,887) $

764,465

(1,709,887) $

618,345

___________________________________

(1)

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

F- 53

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2017

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

(In thousands)

Eliminations

Consolidated

ASSETS

Total current assets
Investment in subsidiaries

Intangible assets, net
Goodwill

Other assets, net
TOTAL ASSETS

LIABILITIES AND
STOCKHOLDERS’ EQUITY

Total current liabilities

Long-term debt, excluding current
maturities

Other long-term liabilities

Redeemable non-controlling
interests

Stockholders’ equity
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY

358,251
10,265,237

—
—

5,056
10,628,544

3,493,392
4,249,014

1,735,988
6,366,378

1,677,397
17,522,169

2,263,166
—

572,548
1,862,487

775,421
5,473,622

(575,220) $

(14,514,251)
—
—
(19,236)

$ (15,108,707) $

5,539,589
—

2,308,536
8,228,865

2,438,638
18,515,628

750,922

6,797,895

905,093

(575,220) $

7,878,690

3,749,054

—

494,134

—

262,084

—
(19,236)

6,128,568

10,220,467

4,293,784

9,673

12,661

—
(14,514,251)

3,749,054

736,982

22,334

6,128,568

10,628,544

17,522,169

5,473,622

$ (15,108,707) $

18,515,628

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2016

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

(In thousands)

Eliminations

Consolidated

ASSETS

Total current assets

Investment in subsidiaries
Intangible assets, net
Goodwill
Other assets, net
TOTAL ASSETS

LIABILITIES AND
STOCKHOLDERS’ EQUITY

Total current liabilities
Long-term debt, excluding current
maturities
Other long-term liabilities

Stockholders’ equity
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY

293,759

2,535,711

1,829,191

9,536,273
—
—
4,107
9,834,139

3,410,687
1,921,519
6,392,479
1,608,218
15,868,614

—
525,133
1,549,544
331,818
4,235,686

(1,208,410) $
(12,946,960)
—
—
(5,523)

$ (14,160,893) $

3,450,251

—
2,446,652
7,942,023
1,938,620
15,777,546

981,700

5,733,755

620,153

(1,208,410) $

6,127,198

3,159,336
—
5,693,103

—
629,634
9,505,225

—
173,798
3,441,735

—
(5,523)
(12,946,960)

3,159,336
797,909
5,693,103

9,834,139

15,868,614

4,235,686

$ (14,160,893) $

15,777,546

F- 54

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2017

Operating activities:
Net cash provided by operating activities
Investing activities:

Capital expenditures, including internal-use
software and website development
Purchases of investments

Sales and maturities of investments
Acquisitions, net of cash acquired

Transfers (to) from related parties
Other, net

Net cash used in investing activities
Financing activities:

Proceeds from issuance of long-term debt,
net of debt issuance costs

Purchases of treasury stock
Payment of dividends to stockholders

Proceeds from exercise of equity awards
and employee stock purchase plan

Withholding taxes for stock option exercises

Changes in controlled subsidiaries, net

Transfers (to) from related parties
Other, net

Net cash provided by financing activities

Effect of exchange rate changes on cash and
cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidated

(In thousands)

— $

1,310,451

488,703

1,799,154

—
—

—

(546,679)
(1,221,821)
875,497
(169,836)
(5,031)
6,657
(1,061,213)

989,600
(312,089)
(175,775)

228,187
(5,398)
—
(724,525)
—

—

—
—

—

605,047
(14,909)
590,138

36,052

875,428

425,471

(163,651)
(589,534)
220,907
(803)
5,031
6,873
(521,177)

—

—
—

894
(3,665)
(18,137)
119,478
(1,194)
97,376

109,588

174,490

1,371,340

— $

1,300,899

1,545,830

(710,330)
(1,811,355)
1,096,404
(170,639)
—
13,530
(1,582,390)

989,600
(312,089)
(175,775)

229,081
(9,063)
(18,137)
—
(16,103)
687,514

145,640

1,049,918

1,796,811

2,846,729

F- 55

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2016

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidated

(In thousands)

— $

940,191

624,143

1,564,334

Operating activities:
Net cash provided by operating activities
Investing activities:

Capital expenditures, including internal-use
software and website development
Purchases of investments

Sales and maturities of investments
Acquisitions, net of cash acquired

Transfers (to) from related parties
Proceeds from sale of business, net of cash
divested and disposal costs
Other, net

Net cash provided by (used in) investing activities
Financing activities:

Proceeds from issuance of long-term debt, net
of debt issuance costs
Payment of HomeAway Convertible Notes

Purchases of treasury stock

Payment of dividends to stockholders
Proceeds from exercise of equity awards and
employee stock purchase plan

Withholding taxes for stock option exercises
Changes in controlled subsidiaries, net

Transfers (to) from related parties

Other, net

Net cash used in financing activities

Effect of exchange rate changes on cash and
cash equivalents

Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

—
—

—

(2,093)
—
(455,746)
(150,159)

141,043
(1,282)
—

468,511
(274)
—

(635,534)
—

37,830
—
(172,731)

—
(50,029)
(820,464)

—
(401,424)
—

—

—
(118,179)
(1,484)
(521,087)

(113,814)
(45,352)
23,105
(777)
172,731

67,088
(838)
102,143

—

—
—

—

208,016
(350,332)
(27,216)
(169,532)

(749,348)
(45,352)
60,935
(777)
—

67,088
(50,867)
(718,321)

(2,093)
(401,424)
(455,746)
(150,159)

141,043
(1,282)
208,016

—
(28,974)
(690,619)

—

(14,865)

(20,017)

(34,882)

—
—
— $

(416,225)
841,696
425,471

536,737
834,603
1,371,340

120,512
1,676,299
1,796,811

F- 56

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2015

Operating activities:
Net cash provided by operating activities from
continuing operations
Investing activities:

Capital expenditures, including internal-use
software and website development
Purchases of investments

Sales and maturities of investments
Acquisitions, net of cash acquired

Transfers (to) from related parties
Proceeds from sale of business, net of cash
divested and disposal costs

Other, net

Net cash provided by (used in) investing activities
Financing activities:

Proceeds from issuance of long-term debt, net of
issuance costs

Purchases of treasury stock

Proceeds from issuance of treasury stock

Payment of dividends to stockholders
Proceeds from exercise of equity awards and
employee stock purchase plan

Withholding taxes for stock option exercises
Changes in controlled subsidiaries, net

Transfers (to) from related parties

Other, net

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidated

(In thousands)

— $

624,327

743,718

$ 1,368,045

—
—

—
(126,779)
126,779

—

1,441,860
(60,546)
22,575
(108,527)

96,526
(85,033)
—
(1,396,210)
89,355

(709,679)
(473,538)
327,191
(1,873,079)
(303,846)

—

54,226
(2,978,725)

—
—

—

—
2,350,385
(11,998)
2,338,387

(77,362)
(47,791)
83,732
(63,791)
177,067

(787,041)
(521,329)
410,923
(2,063,649)
—

523,882

11,728

607,465

523,882

65,954
(2,371,260)

— 1,441,860
(60,546)
—
22,575
(108,527)

—

1,190

—
(8,518)
(954,175)
27,315
(934,188)

97,716
(85,033)
(8,518)
—

104,672

1,404,199

(86,269)
(102,280)
943,976
841,696

(41,116)
375,879
458,724
834,603

(127,385)
273,599
1,402,700
$ 1,676,299

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash
equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

—

—
—
— $

F- 57

Index to Exhibits

Exhibit
No.
1.1

2.1

2.2

2.3

2.4

2.5

3.1

3.2
4.1

4.2

4.3

4.4

4.5

Exhibit Description
Underwriting Agreement, dated Expedia, Inc., as
Issuer, the Guarantors party thereto, and BNP
Paribas, Goldman, Sachs & Co., J.P. Morgan
Securities plc, as Representatives of the several
Underwriters (relating to the Fourth Supplemental
Indenture on Exhibit 4.6)
Share Purchase Agreement, dated as of
December 21, 2012, by and among Expedia, Inc.,
trivago GmbH, a wholly owned subsidiary of
Expedia and the shareholders of trivago GmbH
party thereto.
Shareholders Agreement, dated as of
December 21, 2012 by and among trivago GmbH,
Expedia, Inc., a wholly owned subsidiary of
Expedia and certain shareholders of trivago
GmbH.

Purchase and Sale Agreement (Cruise), dated
March 10, 2015, by and between Immunex
Corporation and Cruise, LLC
First Amendment to Purchase and Sale, dated
March 25, 2015, by and between Immunex
Corporation and Cruise, LLC
Share Purchase Agreement, dated May 22, 2015,
by and among Expedia, Inc., Expedia Asia
Pacific - Alpha Limited, Ctrip.com International,
Ltd., C-Travel International Limited, Luxuriant
Holdings Limited, Keystone Lodging Holdings
Limited and Plateno Group Limited
Restated Certificate of Incorporation of Expedia,
Inc.
Amended and Restated Bylaws of Expedia, Inc.
Indenture, dated as of August 21, 2006, among
Expedia, Inc., as Issuer, the Subsidiary Guarantors
from time to time parties thereto and The Bank of
New York Trust Company, N.A., as Trustee,
relating to Expedia, Inc.’s 7.456% Senior Notes
due 2018

First Supplemental Indenture, dated as of
January 19, 2007, among Expedia, Inc., as Issuer,
the Subsidiary Guarantors party thereto and The
Bank of New York Trust Company, N.A., as
Trustee

Ninth Supplemental Indenture, dated as of
September 30, 2016, among Expedia, Inc., as
Issuer, the Subsidiary Guarantors party thereto and
The Bank of New York Mellon Trust Company,
N.A., as Trustee
Indenture, dated as of August 13, 2014, among
Expedia, Inc., as Issuer, the Subsidiary Guarantors
from time to time parties thereto and The Bank of
New York Mellon Trust Company, N.A., as
Trustee

Filed
Herewith

Incorporated by Reference

Form
8-K

SEC File No.
000-51447

Exhibit
1.1

Filing Date
06/03/2015

8-K

000-51447

2.1

12/21/2012

8-K

000-51447

2.2

12/21/2012

8-K

000-51447

10.1

04/02/2015

8-K

000-51447

10.2

04/02/2015

8-K

000-51447

2.1

05/22/2015

8-K

000-51447

8-K
10-Q

000-51447
000-51447

3.1

3.3
4.1

12/27/2011

08/15/2005
11/14/2006

S-4

333-140195

4.2

01/25/2007

8-K

000-51447

4.1

08/10/2010

8-K

001-37429

4.1

10/03/2016

8-K

000-51447

4.1

08/18/2014

E- 1

8-K

000-51447

4.2

08/18/2014

8-K

000-51447

4.2

06/03/2015

8-K

001-37429

4.1

12/08/2015

8-K

001-37429

4.1

09/21/2017

8-K

000-51447

10.1

12/27/2011

8-K*†

001-37938

10.6

11/07/2016

10-K

000-51447

10.11

02/10/2012

8-K*†

001-37938

10.7

11/07/2016

8-K*†

001-37938

10.8

11/07/2016

S-4/A*†

333-210377

10.13

09/23/2016

8-K*†

001-37938

10.10

11/07/2016

8-K

000-51447

10.2

12/27/2011

10-Q

001-37429

10.1

07/28/2017

8-K

000-51447

10.1

09/11/2014

4.6

4.7

4.8

4.9

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

Fourth Supplemental Indenture, dated as of
June 3, 2015, among Expedia, Inc., as Issuer, the
Subsidiary Guarantors party thereto and The Bank
of New York Mellon Trust Company, N.A., as
Trustee, governing Expedia, Inc.’s 2.500% Senior
Notes due 2022

Amended and Restated Governance Agreement
among Expedia, Inc., Liberty Interactive
Corporation and Barry Diller, dated as of
December 20, 2011
Assignment and Assumption of Governance
Agreement, among Liberty Expedia holdings, Inc.,
LEXE Marginco, LLC, LEXEB, LLC, Liberty
Interactive Corporation, Barry Diller and Expedia,
Inc., dated as of November 4, 2016
Amended and Restated Stockholders Agreement
between Liberty Interactive Corporation and Barry
Diller, dated as of December 20, 2011
Assignment and Assumption of Stockholders
Agreement, by and among Liberty Expedia
Holdings, Inc., Liberty Interactive Corporation
and Barry Diller, dated November 4, 2016
Amendment No. 1 to Stockholders Agreement, by
and between Liberty Expedia Holdings, Inc. and
Barry Diller, dated November 4, 2016
Amended and Restated Transaction Agreement, by
and among Liberty Interactive Corporation,
Liberty Expedia Holdings, Inc., Barry Diller, John
C. Malone and Leslie Malone, dated as of
September 22, 2016
Assignment Agreement, by and between Barry
Diller and Liberty Expedia Holdings, Inc., dated
November 4, 2016
Tax Sharing Agreement by and between Expedia,
Inc. and TripAdvisor, Inc., dated as of
December 20, 2011
Services Agreement by and between
HomeAway.com, Inc. and Keystone Strategy LLC,
dated April 1, 2017
Amended and Restated Credit Agreement dated as
of September 5, 2014, among Expedia, Inc., a
Delaware corporation, Expedia, Inc., a
Washington corporation, Travelscape, LLC, a
Nevada limited liability company; Hotwire, Inc., a
Delaware corporation, the Lenders party hereto,
JPMorgan Chase Bank, N.A., as Administrative
Agent, and J.P. Morgan Europe Limited, as
London Agent

E- 2

10.11

10.12

10.13

10.14*

10.15* Orbitz Worldwide, Inc. 2007 Equity and Incentive

Plan

10.16* HomeAway, Inc. 2011 Equity Incentive Plan
10.17*
10.18*

10.21*
10.22* Amended and Restated Expedia, Inc. Non-

10.19*

10.20*

Employee Director Deferred Compensation Plan,
effective as of January 1, 2009

10.23* Amended and Restated Expedia, Inc. Executive

10.24*

10.25*

10.26*

10.27*

10.28*

10.29*

10.30*

Deferred Compensation Plan, effective as of
January 1, 2009
First Amendment of the Executive Deferred
Compensation Plan, effective as of December 31,
2014
Employment Agreement between Mark Okerstrom
and Expedia, Inc., effective September 15, 2017
Expedia, Inc. Stock Option Agreement for Mark
D. Okerstrom, dated as of March 7, 2016
Expedia, Inc. Stock Option Agreement for Mark
D. Okerstrom, dated as of March 7, 2016
(Performance Options)
Stock Option Agreement between Mark
Okerstrom and Expedia, Inc., effective September
15, 2017 (Performance Options)
Employment Agreement between Alan Pickerill
and Expedia, Inc., effective September 15, 2017
Employment Agreement between Robert J.
Dzielak and Expedia, Inc., effective as of March 2,
2015

E- 3

8-K

001-37429

10.1

02/08/2016

10-K

001-37429

10.14

02/10/2017

10-Q

000-51447

10.1

08/03/2007

DEF 14A

001-37429

App. A 08/23/2016

S-8

333-206990

99.1

09/17/2015

333-208548

99.10

12/15/2015

DEF14A
DEF 14A

000-51447 App. B 04/30/2013
000-51447 App. C 04/30/2013

10-Q

000-51447

10.1

08/01/2014

10-K

001-37429

10.22

02/10/2017

10-K
10-K

001-37429
000-51447

10.23
10.13

02/10/2017
02/19/2009

10-K

000-51447

10.17

02/19/2009

10-K

000-51447

10.20

02/06/2015

8-K/A

001-37429

10.1

09/21/2017

8-K

001-37429

10.2

03/09/2016

001-37429

10.3

03/09/2016

8-K/A

001-37429

10.2

09/21/2017

8-K/A

001-37429

10.3

09/21/2017

8-K

000-51447

10.1

03/04/2015

8-K/A

001-37429

10.4

09/21/2017

8-K

000-51447

10.3

04/01/2015

X
X

10.31*

10.32*

21
23.1

31.1

31.2

31.3

Equity Treatment Agreement between Dara
Khosrowshahi and Expedia, Inc., effective
September 20, 2017
Expedia, Inc. Stock Option Agreement for Dara
Khosrowshahi, dated as of March 31, 2015
(Performance Options)
Subsidiaries of the Registrant
Consent of Independent Registered Public
Accounting Firm
Certifications of the Chairman and Senior
Executive Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification of the Chief Financial Officer
pursuant Section 302 of the Sarbanes-Oxley Act of
2002

32.1*** Certification of the Chairman and Senior

Executive pursuant Section 906 of the Sarbanes-
Oxley Act of 2002

32.2*** Certification of the Chief Executive Officer

pursuant Section 906 of the Sarbanes-Oxley Act of
2002

32.3*** Certification of the Chief Financial Officer

pursuant Section 906 of the Sarbanes-Oxley Act
of 2002

The following financial statements from the
Company’s Annual Report on Form 10-K for the
year ended December 31, 2017, formatted in
XBRL: (i) Consolidated Statements of Operations,
(ii) Consolidated Statements of Comprehensive
Income, (iii) Consolidated Balance Sheets,
(iv) Consolidated Statements of Changes in
Stockholders’ Equity, (v) Consolidated Statements
of Cash Flows, and (vi) Notes to Consolidated
Financial Statements.

101

*†
***

Indicates a management contract or compensatory plan or arrangement.

Indicates reference to filing of Liberty Expedia Holdings, Inc.

Furnished herewith

E- 4

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-K/A
(Amendment No. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended December 31, 2017

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from to

Commission file number: 001-37429
_______________________________________________

EXPEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

20-2705720
(I.R.S. Employer
Identification No.)

Title of each class:
Common stock, $0.0001 par value
Expedia, Inc. 2.500% Senior Notes due 2022

Name of each exchange on which registered:
The Nasdaq Global Select Market
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company) Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition

period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes

As of June 30, 2017, the aggregate market value of the registrant’s common equity held by non-affiliates was

approximately $18,137,071,000. For the purpose of the foregoing calculation only, all directors and executive officers of the
registrant are assumed to be affiliates of the registrant.

Class
Common stock, $0.0001 par value per share
Class B common stock, $0.0001 par value per share

Documents Incorporated by Reference

Document
Portions of the definitive Proxy Statement for the 2018 Annual Meeting of
Stockholders (Proxy Statement)

Outstanding Shares at January
26, 2018 were approximately,
139,033,403 shares
12,799,999 shares

Parts Into Which Incorporated

Part III

Explanatory Note

This Amendment No. 1 on Form 10-K/A ("Amendment No. 1") amends the Annual Report of Expedia, Inc. (the

"Company") on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange
Commission on February 8, 2018 (the "Original Filing").

This Amendment No. 1 is being filed solely to provide a corrected version of Ernst & Young LLP's report on Internal
Control over Financial Reporting included in Part II, Item 9A of the Original Filing. The corrected Ernst & Young LLP report
includes paragraph headings and a statement regarding Ernst & Young LLP's independence that were inadvertently omitted
from the original report, but does not in any way change the conclusions expressed by Ernst & Young LLP in the original
report, or any other disclosure included in Part II, Item 9A of the Original Filing. For ease of reference, the entire Part II, Item
9A is included in this Amendment No. 1. Other than with respect to the foregoing, this Amendment No. 1 does not modify or
update in any way the disclosures made in the Original Filing.

Part II. Item 9A. Controls and Procedures

Changes in Internal Control over Financial Reporting.

Evaluation of Disclosure Controls and Procedures.

Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as

Limitations on Controls.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Expedia, Inc.

Opinion on Internal Control over Financial Reporting
We have audited Expedia, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Expedia, Inc. (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated
statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2017 and the related notes of the Company and our report dated February 8, 2018 expressed an
unqualified opinion thereon.

Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/Ernst & Young LLP

Seattle, Washington

February 8, 2018

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

Exhibit
No.
23.1

31.1

31.2

31.3

32.1*

32.2*

32.3*

Exhibit Description

Consent of Independent Registered Public Accounting Firm
Certifications of the Chairman and Senior Executive Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chairman and Senior Executive Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

Filed
Herewith
X

Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused

this report to be signed on its behalf by the undersigned hereunto duly authorized.

Signature

Expedia, Inc.

By:

/s/ MARK D. OKERSTROM
Mark D. Okerstrom
Chief Executive Officer

February 14, 2018

BOARD OF DIRECTORS

Barry Diller
Chairman and Senior Executive
Expedia Group, Inc. and IAC/InterActiveCorp

OFFICERS
Barry Diller
Chairman and Senior Executive

Mark D. Okerstrom
President and
Chief Executive Officer

Victor A. Kaufman
Vice Chairman

Alan R. Pickerill
Executive Vice President,
Chief Financial Officer
and Treasurer

Robert J. Dzielak
Chief Legal Officer
and Secretary

Lance A. Soliday
Senior Vice President,
Chief Accounting Officer and
Controller

Mark D. Okerstrom
President and Chief Executive Officer
Expedia Group, Inc.

Victor A. Kaufman
Vice Chairman
Expedia Group, Inc. and IAC/InterActiveCorp

Susan C. Athey
Economics of Technology Professor
Stanford Graduate School of Business

A. George (Skip) Battle
Former CEO and Executive Chairman
Ask Jeeves, Inc.

Courtnee A. Chun
Senior Vice President, Investor Relations
Qurate Retail, Inc. and
Liberty Media Corporation

Chelsea Clinton
Vice Chair
Clinton Foundation

Pamela L. Coe
Senior Vice President, Deputy General
Counsel and Secretary
Qurate Retail, Inc., Liberty Media Corporation
and Liberty Broadband Corporation

Jonathan L. Dolgen
Private Investor

Craig A. Jacobson
Partner
Hansen, Jacobson, Teller, Hoberman,
Newman, Warren, Richman, Rush, Kaller &
Gellman, L.L.P.

Peter M. Kern
Managing Partner
InterMedia Partners VII, LP

Dara Khosrowshahi
Chief Executive Officer
Uber Technologies, Inc.

Scott Rudin
Film and Theatre Producer

Christopher W. Shean
Chief Executive Officer, President and
Director
Liberty Expedia Holdings, Inc.

Alexander von Furstenberg
Founder and Chief Investment Officer
Ranger Global Advisors, LLC

STOCKHOLDER INFORMATION
Annual Meeting
Date and Time:
Wednesday, June 20, 2018
at 8:00 a.m. PT
Place:
Online virtual meeting at
EXPE.onlineshareholdermeeting.com

Stock Market Listing
Expedia Group’s common stock is
traded on the Nasdaq Global Select
Market under the symbol “EXPE.”

Registrar and Transfer Agent
Computershare
Stockholder correspondence should
be mailed to:
Expedia Group, Inc.
Computershare
P.O. Box 50500
Louisville, KY 40233

Overnight correspondence should be
mailed to:
Expedia Group, Inc.
462 South 4th Street
Suite 1600
Louisville, KY 40202

Computershare stockholder website:
www.computershare.com/investor

Computershare stockholder
online inquiries:
https://www-us.computershare.com/-
Investor/Contact

Computershare
US & Canada 1-866-202-9254
1-201-680-6578 (Outside US)

Independent Registered
Public Accounting Firm
Ernst & Young LLP
999 Third Avenue
Suite 3500
Seattle, WA 98104

Investor Inquiries
All inquiries can be directed
as follows:

(425) 679-3759 ir@expedia.com

Corporate Headquarters
333 108th Avenue N.E.
Bellevue, WA 98004
(425) 679-7200