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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR 
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 GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-2705720
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
1111 Expedia Group Way W.
Seattle, WA 98119
(Address of principal executive office) (Zip Code)
(206) 481-7200
(Registrant’s telephone number, including area code)
__________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes         No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
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      No  
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common stock, $0.0001 par value
 
EXPE
 
The Nasdaq Global Select Market
Expedia Group, Inc. 2.500% Senior Notes due 2022
 
EXPE22
 
New York Stock Exchange
The number of shares outstanding of each of the registrant’s classes of common stock as of May 8, 2020 was:
 
Common stock, $0.0001 par value per share
 
135,459,390

shares
 
Class B common stock, $0.0001 par value per share
 
5,523,452

shares
 
 
 
 
 



Expedia Group, Inc.
Form 10-Q
For the Quarter Ended March 31, 2020
Contents
 
 
 
 
Part I
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
Part II
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 6




Part I. Item 1. Consolidated Financial Statements
EXPEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
(Unaudited)
 
 
Three months ended
March 31,
 
2020
 
2019
 
 
 
 
Revenue
$
2,209

 
$
2,609

Costs and expenses:
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below) (1)
629

 
490

Selling and marketing (1)
1,210

 
1,521

Technology and content (1)
308

 
297

General and administrative (1)
187

 
184

Depreciation and amortization
229

 
228

Impairment of goodwill
765

 

Impairment of intangible assets
121

 

Legal reserves, occupancy tax and other
(21
)
 
10

Restructuring and related reorganization charges
75

 
10

Operating loss
(1,294
)
 
(131
)
Other income (expense):
 
 
 
Interest income
10

 
11

Interest expense
(50
)
 
(41
)
Other, net
(145
)
 
20

Total other expense, net
(185
)
 
(10
)
Loss before income taxes
(1,479
)
 
(141
)
Provision for income taxes
82

 
41

Net loss
(1,397
)
 
(100
)
Net (income) loss attributable to non-controlling interests
96

 
(3
)
Net loss attributable to Expedia Group, Inc.
$
(1,301
)
 
$
(103
)
 
 
 
 
Loss per share attributable to Expedia Group, Inc. available to common stockholders
 
 
 
Basic
$
(9.24
)
 
$
(0.69
)
Diluted
(9.24
)
 
(0.69
)
Shares used in computing earnings (loss) per share (000's):
 
 
 
Basic
140,823

 
147,882

Diluted
140,823

 
147,882

_______
(1) Includes stock-based compensation as follows:
 
 
 
Cost of revenue
$
3

 
$
3

Selling and marketing
12

 
11

Technology and content
20

 
19

General and administrative
20

 
23


See accompanying notes.

2


EXPEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
 
Three months ended
March 31,
 
2020
 
2019
Net loss
$
(1,397
)
 
$
(100
)
Currency translation adjustments, net of tax(1)
(90
)
 
(5
)
Comprehensive loss
(1,487
)
 
(105
)
Less: Comprehensive loss attributable to non-controlling interests
(102
)
 
(5
)
Comprehensive loss attributable to Expedia Group, Inc.
$
(1,385
)
 
$
(100
)
 
(1)
Currency translation adjustments include tax expense of $2 million associated with net investment hedges for the three months ended March 31, 2020 and tax expense of $3 million and for the three months ended March 31, 2019.


See accompanying notes.

3


EXPEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)
 
March 31,
2020
 
December 31,
2019
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,905

 
$
3,315

Restricted cash and cash equivalents
813

 
779

Short-term investments
194

 
526

Accounts receivable, net of allowance of $95 and $41
1,423

 
2,524

Income taxes receivable
74

 
70

Prepaid expenses and other current assets
1,243

 
521

Total current assets
7,652

 
7,735

Property and equipment, net
2,297

 
2,198

Operating lease right-of-use assets
628

 
611

Long-term investments and other assets
610

 
796

Deferred income taxes
258

 
145

Intangible assets, net
1,642

 
1,804

Goodwill
7,330

 
8,127

TOTAL ASSETS
$
20,417

 
$
21,416

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable, merchant
$
836

 
$
1,921

Accounts payable, other
859

 
906

Deferred merchant bookings
5,905

 
5,679

Deferred revenue
221

 
321

Income taxes payable
59

 
88

Accrued expenses and other current liabilities
978

 
1,050

Current maturities of long-term debt
750

 
749

Total current liabilities
9,608

 
10,714

Long-term debt, excluding current maturities
4,180

 
4,189

Revolving credit facility
1,900

 

Deferred income taxes
58

 
56

Operating lease liabilities
547

 
532

Other long-term liabilities
383

 
389

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock $.0001 par value

 

Authorized shares: 1,600,000
 
 
 
Shares issued: 258,770 and 256,692; Shares outstanding: 135,454 and 137,076
 
 
 
Class B common stock $.0001 par value

 

Authorized shares: 400,000
 
 
 
Shares issued: 12,800 and 12,800; Shares outstanding: 5,523 and 5,523
 
 
 
Additional paid-in capital
13,124

 
12,978

Treasury stock - Common stock and Class B, at cost
(10,083
)
 
(9,673
)
Shares: 130,592 and 126,893

 

Retained earnings (deficit)
(470
)
 
879

Accumulated other comprehensive income (loss)
(301
)
 
(217
)
Total Expedia Group, Inc. stockholders’ equity
2,270

 
3,967

Non-redeemable non-controlling interests
1,471

 
1,569

Total stockholders’ equity
3,741

 
5,536

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
20,417

 
$
21,416

See accompanying notes.

4


EXPEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share data)
(Unaudited)
Three months ended March 31, 2019
 
Common stock
 
Class B
common stock
 
Additional
paid-in
capital
 
Treasury stock
 
Retained
earnings
(deficit)
 
Accumulated
other
comprehensive
income (loss)
 
Non-redeemable
non-controlling
interest
 
Total
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of December 31, 2018
 
231,492,986

 
$

 
12,799,999

 
$

 
$
9,549

 
97,158,586

 
$
(5,742
)
 
$
517

 
$
(220
)
 
$
1,547

 
$
5,651

Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(103
)
 
 
 
3

 
(100
)
Other comprehensive income (loss), net of taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3

 
(8
)
 
(5
)
Payment of dividends to stockholders (declared at $0.32 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(47
)
 
 
 
 
 
(47
)
Proceeds from exercise of equity instruments and employee stock purchase plans
 
1,801,048

 

 
 
 
 
 
91

 
 
 
 
 
 
 
 
 
 
 
91

Treasury stock activity related to vesting of equity instruments
 
 
 
 
 
 
 
 
 


 
197,122

 
(25
)
 
 
 
 
 
 
 
(25
)
Other changes in ownership of non-controlling interests
 
 
 
 
 
 
 
 
 
(3
)
 
 
 
 
 
 
 
 
 
9

 
6

Impact of adoption of new accounting guidance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6

 

 
 
 
6

Stock-based compensation expense
 
 
 
 
 
 
 
 
 
56

 
 
 
 
 
 
 
 
 
 
 
56

Other
 
 
 
 
 
 
 
 
 
1

 
 
 


 


 
 
 
 
 
1

Balance as of March 31, 2019
 
233,294,034

 
$

 
12,799,999

 
$

 
$
9,694

 
97,355,708

 
$
(5,767
)
 
$
373

 
$
(217
)
 
$
1,551

 
$
5,634



Three months ended March 31, 2020
 
Common stock
 
Class B
common stock
 
Additional
paid-in
capital
 
Treasury stock - Common and Class B
 
Retained
earnings
(deficit)
 
Accumulated
other
comprehensive
income (loss)
 
Non-redeemable
non-controlling
interest
 
Total
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of December, 2019
 
256,691,777

 
$

 
12,799,999

 
$

 
$
12,978

 
126,892,525

 
$
(9,673
)
 
$
879

 
$
(217
)
 
$
1,569

 
$
5,536

Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,301
)
 
 
 
(96
)
 
(1,397
)
Other comprehensive income (loss), net of taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(84
)
 
(6
)
 
(90
)
Payment of dividends to stockholders (declared at $0.34 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(48
)
 
 
 
 
 
(48
)
Proceeds from exercise of equity instruments and employee stock purchase plans
 
2,078,035

 

 
 
 
 
 
86

 
 
 
 
 
 
 
 
 
 
 
86

Treasury stock activity related to vesting of equity instruments
 
 
 
 
 
 
 
 
 
 
 
335,468

 
(40
)
 
 
 
 
 
 
 
(40
)
Common stock repurchases
 
 
 
 
 
 
 
 
 
 
 
3,364,119

 
(370
)
 
 
 
 
 
 
 
(370
)
Other changes in ownership of non-controlling interests
 
 
 
 
 
 
 
 
 
1

 
 
 
 
 
 
 
 
 
4

 
5

Stock-based compensation expense
 
 
 
 
 
 
 
 
 
59

 
 
 
 
 
 
 
 
 
 
 
59

Balance as of March 31, 2020
 
258,769,812

 
$

 
12,799,999

 
$

 
$
13,124

 
130,592,112

 
$
(10,083
)
 
$
(470
)
 
$
(301
)
 
$
1,471

 
$
3,741

See accompanying notes.

5


EXPEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three months ended
March 31,
 
2020
 
2019
Operating activities:
 
 
 
Net loss
$
(1,397
)
 
$
(100
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation of property and equipment, including internal-use software and website development
185

 
176

Amortization of intangible assets
44

 
52

Impairment of goodwill and intangible assets
886

 

Amortization of stock-based compensation
55

 
56

Deferred income taxes
(108
)
 
17

Foreign exchange loss on cash, restricted cash and short-term investments, net
98

 
5

Realized gain on foreign currency forwards
(19
)
 
(7
)
(Gain) loss on minority equity investments, net
188

 
(22
)
Provision for credit losses and other, net
105

 
(7
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
1,086

 
(468
)
Prepaid expenses and other assets
(791
)
 
(23
)
Accounts payable, merchant
(1,082
)
 
39

Accounts payable, other, accrued expenses and other liabilities
(129
)
 
146

Tax payable/receivable, net
(32
)
 
(169
)
Deferred merchant bookings
226

 
2,285

Deferred revenue
(99
)
 
169

Net cash provided by (used in) operating activities
(784
)
 
2,149

Investing activities:
 
 
 
Capital expenditures, including internal-use software and website development
(287
)
 
(274
)
Purchases of investments
(285
)
 
(438
)
Sales and maturities of investments
585

 

Other, net
19

 
6

Net cash provided by (used in) investing activities
32

 
(706
)
Financing activities:
 
 
 
Revolving credit facility borrowings
1,900

 

Purchases of treasury stock
(410
)
 
(25
)
Payment of dividends to stockholders
(48
)
 
(47
)
Proceeds from exercise of equity awards and employee stock purchase plan
86

 
91

Other, net
(11
)
 
2

Net cash provided by financing activities
1,517

 
21

Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
(141
)
 
(11
)
Net increase in cash, cash equivalents and restricted cash and cash equivalents
624

 
1,453

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period
4,097

 
2,705

Cash, cash equivalents and restricted cash and cash equivalents at end of period
$
4,721

 
$
4,158

Supplemental cash flow information
 
 
 
Cash paid for interest
$
87

 
$
71

Income tax payments, net
56

 
105

See accompanying notes.

6


Notes to Consolidated Financial Statements
March 31, 2020
(Unaudited)
Note 1 – Basis of Presentation
Description of Business
Expedia Group, Inc. and its subsidiaries provide travel products and services to leisure and corporate travelers in the United States and abroad as well as various media and advertising offerings to travel and non-travel advertisers. These travel products and services are offered through a diversified portfolio of brands including: Brand Expedia®, Hotels.com®, Expedia® Partner Solutions, Vrbo®, Egencia®, trivago®, HomeAway®, Orbitz®, Travelocity®, Hotwire®, Wotif®, ebookers®, CheapTickets®, Expedia Group™ Media Solutions, Expedia Local Expert®, CarRentals.comTM, Expedia® CruiseShipCenters®, Classic Vacations®, Traveldoo®, VacationRentals.com and SilverRailTM. In addition, many of these brands have related international points of sale. We refer to Expedia Group, Inc. and its subsidiaries collectively as “Expedia Group,” the “Company,” “us,” “we” and “our” in these consolidated financial statements.
COVID-19
In December 2019, a novel strain of coronavirus (“COVID-19”) was initially detected in China, and over the subsequent months the virus spread globally. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Measures to contain the virus, including travel restrictions and quarantine orders, as well as limited operations for hotel and airline suppliers, have had a significant impact on the travel industry. This has contributed to unprecedented increases in cancellations and a decline in travel demand, which is having a material negative effect on our financial and operating results. It remains difficult to predict the duration of the impact from the virus, and when travel restrictions and quarantine orders will be lifted.
During this pandemic, Expedia Group has been working closely with our partners, and putting significant effort into taking care of our customers. For example, the Company has modified its cancellation policies. On near-term bookings with non-refundable rates impacted by COVID-19, customers have received refunds where hotels agree to make the booking refundable; otherwise, the customer received credit for a future booking. Recently, the Company started to allow customers eligible for a refund the ability to elect cash or credit for bookings impacted by COVID-19. Customers with certain non-refundable rates that are impacted by COVID-19 will continue to receive credit. Expedia Group continues to monitor the situation and adapt cancellation policies.
Due to the high degree of cancellations and customer refunds and lower new bookings in the merchant business model, the Company is experiencing unfavorable working capital trends and material negative cash flow. This is expected to continue until cancellations stabilize and travel demand begins to recover from current levels, at which time we expect merchant bookings and cash flow to increase. For a discussion on incremental credit losses and allowance impacts related to our accounts receivable and prepaid merchant bookings, see Note 2 – Summary of Significant Accounting Policies. For a discussion of goodwill and intangible asset impairments recognized in conjunction with this pandemic, see Note 3 – Fair Value Measurements. For a discussion of recent actions to strengthen our liquidity position in the current environment, see Note 11 – Subsequent Events.
Basis of Presentation
These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. The unaudited consolidated financial statements include Expedia Group, Inc., our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We have eliminated significant intercompany transactions and accounts.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, previously filed with the Securities and Exchange Commission (“SEC”). trivago is a separately listed company on the Nasdaq Global Select Market and, therefore is subject to its own reporting and filing requirements, which could result in possible differences that are not expected to be material to Expedia Group.

7

Notes to Consolidated Financial Statements – (Continued)
 



Accounting Estimates
We use estimates and assumptions in the preparation of our interim unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our interim unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our interim unaudited consolidated financial statements include revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income and transactional taxes, such as potential settlements related to occupancy and excise taxes; loss contingencies; deferred loyalty rewards; acquisition purchase price allocations; stock-based compensation; accounting for derivative instruments and provisions for credit losses, customer refunds and chargebacks.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business disruptions and adversely impact our results of operations. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Reclassifications
We have reclassified prior period financial statements to conform to the current period presentation. During the first quarter of 2020, we reclassified depreciation expense from within our operating expense line items on our consolidated statements of operations to be included with intangible asset amortization expense. The following table presents a summary of the amounts as reported and as reclassified in our consolidated statements of operations for the three months ended March 31, 2019:
 
Three months ended March 31, 2019
 
As reported
 
As reclassified
 
(In millions)
Cost of revenue
$
513

 
$
490

Selling and marketing
1,535

 
1,521

Technology and content
429

 
297

General and administrative
191

 
184

Depreciation and amortization
52

 
228


Seasonality
We generally experience seasonal fluctuations in the demand for our travel services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Because revenue for most of our travel services, including merchant and agency hotel, is recognized as the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks for our hotel business and can be several months or more for our alternative accommodations business. Historically, Vrbo has seen seasonally stronger bookings in the first quarter of the year, with the relevant stays occurring during the peak summer travel months. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs, which we typically realize in closer alignment to booking volumes, and the more stable nature of our fixed costs. Furthermore, operating profits for our primary advertising business, trivago, have typically been experienced in the second half of the year, particularly the fourth quarter, as selling and marketing costs offset revenue in the first half of the year as we typically increase marketing during the busy booking period for spring, summer and winter holiday travel. As a result on a consolidated basis, revenue and income are typically the lowest in the first quarter and highest in the third quarter. The growth of our international operations, advertising business or a change in our product mix, including the growth of Vrbo, may influence the typical trend of the seasonality in the future.
Due to COVID-19, which impacted travel bookings made in the first quarter 2020 and led to significant cancellations for future travel, we do not expect our typical seasonal pattern for bookings, revenue and profit during 2020. In addition, with the lower new bookings and elevated cancellations in the merchant business model, our typical, seasonal working capital source of cash has been significantly disrupted resulting in the Company experiencing unfavorable working capital trends and material negative cash flow. This is expected to continue until cancellations stabilize and travel demand begins to recover from current

8

Notes to Consolidated Financial Statements – (Continued)
 


levels, at which time we expect merchant bookings and cash flow to increase. It is difficult to forecast the seasonality for the upcoming quarters, given the uncertainty related to the duration of the impact from COVID-19 and the shape and timing of a recovery.
Note 2 – Summary of Significant Accounting Policies
Recently Adopted Accounting Policies
Measurement of Credit Losses on Financial Instruments. As of January 1, 2020, we adopted the Accounting Standards Updates (“ASU”) guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities, using the modified retrospective method. The new guidance replaced the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. Upon adoption, this new guidance did not have a material impact on our consolidated financial statements and no cumulative-effect adjustment to retained earnings was made.
Cloud Computing Arrangements. As of January 1, 2020, we adopted the new ASU guidance on the accounting for implementation costs incurred for a cloud computing arrangement that is a service contract using the prospective method. The update conformed the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting guidance that provides for capitalization of costs incurred to develop or obtain internal-use-software. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Fair Value Measurements. As of January 1, 2020, we adopted the new ASU guidance related to the disclosure requirements on fair value measurements, which removed, modified or added certain disclosures using the prospective method. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Guarantor Financial Information. In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements. We adopted these amendments for the quarter ended March 31, 2020. Accordingly, combined summarized financial information has been presented only for the issuer and guarantors of our senior notes for the most recent fiscal year and the year-to-date interim period, and the location of the required disclosures has been removed from the Notes to the Consolidated Financial Statements and moved to Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recent Accounting Policies Not Yet Adopted
Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board issued new guidance to simplify the accounting for income taxes. This new standard eliminates certain exceptions in current guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. For public business entities, this guidance is effective for interim or annual periods beginning after December 15, 2020, with early adoption permitted in any interim period within that year. We are currently evaluating the impact of this guidance on our consolidated financial statements and the timing of adoption
Investments - equity securities; Investments - Equity Method and Joint Ventures; Derivatives and Hedging. In January 2020, the FASB issued an accounting standards update which clarifies the interaction between the accounting for investments in equity securities, equity method investments and certain derivative instruments. The new standard is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The standards update is effective for interim or annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements and the timing of adoption.
Significant Accounting Policies
Below are the significant accounting policies updated during 2020 as a result of the recently adopted accounting policies noted above as well as certain other accounting policies with interim disclosure requirements. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.

9

Notes to Consolidated Financial Statements – (Continued)
 


Revenue
Prepaid Merchant Bookings. We classify payments made to suppliers in advance of our performance obligations as prepaid merchant bookings included within prepaid and other current assets. Prepaid merchant bookings was $533 million as of March 31, 2020, which is net of a $23 million reserve for future collectibility risk in consideration of the impact of the COVID-19 pandemic on the economy, and $226 million as of December 31, 2019.
Deferred Merchant Bookings. We classify cash payments received in advance of our performance obligations as deferred merchant bookings. At December 31, 2019, $4.898 billion of cash advance cash payments was reported within deferred merchant bookings, $2.880 billion of which was recognized resulting in $442 million of revenue during the three months ended March 31, 2020. At March 31, 2020, the related balance was $5.116 billion.
At December 31, 2019, $781 million of deferred loyalty rewards was reported within deferred merchant bookings, $158 million of which was recognized within revenue during the three months ended March 31, 2020. At March 31, 2020, the related balance was $789 million.
Deferred Revenue. At December 31, 2019, $321 million was recorded as deferred revenue, $109 million of which was recognized as revenue during the three months ended March 31, 2020. At March 31, 2020, the related balance was $221 million.
Practical Expedients and Exemptions. We have used the portfolio approach to account for our loyalty points as the rewards programs share similar characteristics within each program in relation to the value provided to the traveler and their breakage patterns. Using this portfolio approach is not expected to differ materially from applying the guidance to individual contracts. However, we will continue to assess and refine, if necessary, how a portfolio within each rewards program is defined.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Cash, Restricted Cash and Cash Equivalents
Our cash and cash equivalents include cash and liquid financial instruments, including money market funds and term deposit investments, with maturities of three months or less when purchased. Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to certain traveler deposits and to a lesser extent collateral for office leases. The following table reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the total amount presented in our consolidated statements of cash flows:
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Cash and cash equivalents
$
3,905

 
$
3,315

Restricted cash and cash equivalents
813

 
779

Restricted cash included within long-term investments and other assets
3

 
3

Total cash, cash equivalents and restricted cash and cash equivalents in the consolidated statement of cash flow
$
4,721

 
$
4,097


Accounts Receivable and Allowances
Accounts receivable are generally due within thirty days and are recorded net of an allowance for expected uncollectible amounts. We consider accounts outstanding longer than the contractual payment terms as past due. The risk characteristics we generally review when analyzing our accounts receivable pools primarily include the type of receivable (for example, credit card vs hotel collect), collection terms and historical or expected credit loss patterns. For each pool, we make estimates of expected credit losses for our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history continually updated for new collections data, the credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions and other factors that may affect our ability to collect from customers. The provision for estimated credit losses is recorded as cost of revenue in our consolidated statements of operations. During the three months ended March 31, 2020, we recorded approximately $59 million of incremental allowance for expected uncollectible amounts, including estimated future losses in consideration of the impact of COVID-19 pandemic on the economy and the Company, partially offset by $5 million of other adjustments. Actual future bad debt could differ materially from this estimate resulting from changes in our assumptions of the duration and severity of the impact of the COVID-19 pandemic.

10

Notes to Consolidated Financial Statements – (Continued)
 



Note 3 – Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 are classified using the fair value hierarchy in the table below:
 
Total
 
Level 1
 
Level 2
 
(In millions)
Assets
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market funds
$
322

 
$
322

 
$

Term deposits
863

 

 
863

Derivatives:
 
 
 
 
 
Foreign currency forward contracts
79

 

 
79

Investments:
 
 
 
 
 
Term deposits
184

 

 
184

Marketable equity securities
54

 
54

 

U.S. treasury securities
10

 
10

 
 
Total assets
$
1,512

 
$
386

 
$
1,126

Financial assets measured at fair value on a recurring basis as of December 31, 2019 are classified using the fair value hierarchy in the table below:
 
Total
 
Level 1
 
Level 2
 
(In millions)
Assets
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market funds
$
36

 
$
36

 
$

Term deposits
865

 

 
865

U.S. treasury securities
10

 
10

 

Investments:
 
 
 
 
 
Term deposits
526

 

 
526

Marketable equity securities
129

 
129

 

Total assets
$
1,566

 
$
175

 
$
1,391

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Derivatives:
 
 
 
 
 
Foreign currency forward contracts
$
8

 
$

 
$
8


We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.
As of March 31, 2020 and December 31, 2019, our cash and cash equivalents consisted primarily of term deposits with maturities of three months or less and bank account balances.
We hold term deposit investments with financial institutions. Term deposits with original maturities of less than three months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-term investments.
Our marketable equity securities consist of our investment in Despegar, a publicly traded company, which is included in long-term investments and other assets in our consolidated balance sheets. During the three months ended March 31, 2020 and 2019, we recognized a gain (loss) of approximately $(75) million and $24 million within other, net in our consolidated statements of operations related to the fair value changes of this equity investment.
Derivative instruments are carried at fair value on our consolidated balance sheets. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our

11

Notes to Consolidated Financial Statements – (Continued)
 


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. As of March 31, 2020, we were party to outstanding forward contracts hedging our liability and revenue exposures with a total net notional value of $3.7 billion. We had a net forward asset of $79 million ($131 million gross forward asset) as of March 31, 2020 recorded in prepaid expenses and other current assets and a net forward liability of $8 million ($30 million gross forward liability) as of December 31, 2019 recorded in accrued expenses and other current liabilities. We recorded $106 million and $(6) million in net gains (losses) from foreign currency forward contracts during the three months ended March 31, 2020 and 2019.
Assets Measured at Fair Value on a Non-recurring Basis
Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity method investments, are adjusted to fair value when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. We measure our minority investments that do not have readily determinable fair values at cost less impairment, adjusted by observable price changes with changes recorded within other, net on our consolidated statements of operations.
Goodwill. During the first quarter of 2020, we recognized goodwill impairment charges of $765 million, of which $539 million related to our Retail segment, primarily our Vrbo reporting unit, and $226 million related to our trivago segment. These impairment charges resulted from the significant negative impact related to COVID-19, which has had a severe effect on the entire global travel industry. As a result, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill as of March 31, 2020 in which we compared the fair value of the reporting units to their carrying value. The fair value estimates for all reporting units except trivago were based on a blended analysis of the present value of future discounted cash flows and market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our assumptions were based on the actual historical performance of the reporting unit and took into account the recent severe and continued weakening of operating results as well as the anticipated rate of recovery, and implied risk premiums based on market prices of our equity and debt as of the assessment dates. Our significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The fair value estimate for the trivago reporting unit was based on trivago’s stock price, a Level 1 input, adjusted for an estimated control premium. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the first quarter of 2020. As of March 31, 2020, the applicable reporting units within our Retail segment had $2.3 billion goodwill remaining and our trivago segment had $316 million goodwill remaining.
Intangible Assets. During the first quarter of 2020, also as a result of the significant negative impact related to COVID-19, which has had a severe effect on the entire global travel industry, we recognized intangible asset impairment charges of $121 million. The impairment charges were primarily related to indefinite-lived trade names within our Retail segment and resulted from changes in estimated future revenues of the related brands. The assets, classified as Level 3 measurements, were written down to $237 million based on valuation using the relief-from-royalty method, which includes unobservable inputs, including royalty rates and projected revenues.
We may continue to record impairment charges in the future due to the long-term economic impact and near-term financial impacts of the COVID-19 pandemic.
Minority Investments without Readily Determinable Fair Values. As of March 31, 2020 and December 31, 2019, the carrying values of our minority investments without readily determinable fair values totaled $352 million and $467 million. During the three months ended March 31, 2020, we recorded $113 million of impairment losses related to a minority investment, which had a recent observable and orderly transaction for similar investments, using an option pricing model that utilizes judgmental inputs such as discounts for lack of marketability and estimated exit event timing. As of March 31, 2020, total cumulative adjustments made to the initial cost bases of these investments included $82 million in unrealized downward adjustments (including impairments). During the three months ended March 31, 2019, we had no material gains or losses recognized related to these minority investments.

12

Notes to Consolidated Financial Statements – (Continued)
 



Note 4 – Debt
The following table sets forth our outstanding debt:
 
March 31,
2020
 
December 31,
2019
 
(In millions)
5.95% senior notes due 2020
$
750

 
$
749

2.5% (€650 million) senior notes due 2022
715

 
725

4.5% senior notes due 2024
497

 
497

5.0% senior notes due 2026
744

 
743

3.8% senior notes due 2028
992

 
992

3.25% senior notes due 2030
1,232

 
1,232

Long-term debt(1)
4,930

 
4,938

Current maturities of long-term debt
(750
)
 
(749
)
Long-term debt, excluding current maturities
$
4,180

 
$
4,189

 
 
 
 
Revolving credit facility
$
1,900

 
$

 
_______________
(1)
Net of applicable discounts and debt issuance costs.
Outstanding Debt
Our $750 million in registered senior unsecured notes outstanding at March 31, 2020 are due in August 2020 and bear interest at 5.95% (the “5.95% Notes”). The 5.95% Notes were issued at 99.893% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 5.95% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.
Our Euro 650 million in registered senior unsecured notes outstanding at March 31, 2020 are due in June 2022 and bear interest at 2.5% (the “2.5% Notes”). The 2.5% Notes were issued at 99.525% of par resulting in a discount, which is being amortized over their life. Interest is payable annually in arrears in June of each year. We may redeem the 2.5% Notes at our option, at whole or in part, at any time or from time to time. If we elect to redeem the 2.5% Notes prior to March 3, 2022, we may redeem them at a specified “make-whole” premium. If we elect to redeem the 2.5% Notes on or after March 3, 2022, we may redeem them at a redemption price of 100% of the principal plus accrued and unpaid interest. Subject to certain limited exceptions, all payments of interest and principal for the 2.5% Notes will be made in Euros.
The aggregate principal value of the 2.5% Notes is designated as a hedge of our net investment in certain Euro functional currency subsidiaries. The notes are measured at Euro to U.S. Dollar exchange rates at each balance sheet date and transaction gains or losses due to changes in rates are recorded in accumulated other comprehensive income (loss) (“AOCI”). The Euro-denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes also reported in AOCI. Since the notional amount of the recorded Euro-denominated debt is less than the notional amount of our net investment, we do not expect to incur any ineffectiveness on this hedge.
Our $500 million in registered senior unsecured notes outstanding at March 31, 2020 are due in August 2024 and bear interest at 4.5% (the “4.5% Notes”). The 4.5% Notes were issued at 99.444% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 4.5% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 4.5% Notes prior to May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 4.5% Notes on or after May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
Our $750 million in registered senior unsecured notes outstanding at March 31, 2020 are due in February 2026 and bear interest at 5.0% (the “5.0% Notes”). The 5.0% Notes were issued at 99.535% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the 5.0% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 5.0% Notes prior to November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 5.0% Notes on or after November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest.

13

Notes to Consolidated Financial Statements – (Continued)
 


Our $1 billion in registered senior unsecured notes outstanding at March 31, 2020 are due in February 2028 and bear interest at 3.8% (the “3.8% Notes”). The 3.8% Notes were issued at 99.747% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the 3.8% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 3.8% Notes prior to November 15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 3.8% Notes on or after November 15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
In September 2019, we privately placed $1.25 billion of senior unsecured notes that are due in February 2030 and bear interest at 3.25%. In February 2020, we completed an offer to exchange these notes for registered notes having substantially the same financial terms and covenants as the original notes (the unregistered and registered notes collectively, the “3.25% Notes”). The 3.25% Notes were issued at 99.225% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the 3.25% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 3.25% Notes prior to November 15, 2029, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 3.25% Notes on or after November 15, 2029, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
In May 2020, we privately placed an additional $2.75 billion in unsecured senior notes. See Note 11 – Subsequent Events for additional information.
The 5.95%, 2.5%, 4.5%, 5.0%, 3.8% and 3.25% Notes (collectively the “Notes”) are senior unsecured obligations issued by Expedia Group and guaranteed by certain domestic Expedia Group subsidiaries. The Notes rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations of Expedia Group and the guarantor subsidiaries. In addition, the Notes include covenants that limit our ability to (i) create certain liens, (ii) enter into sale/leaseback transactions and (iii) merge or consolidate with or into another entity or transfer substantially all of our assets. Accrued interest related to the Notes was $38 million and $76 million as of March 31, 2020 and December 31, 2019. The Notes are redeemable in whole or in part, at the option of the holders thereof, upon the occurrence of certain change of control triggering events at a purchase price in cash equal to 101% of the principal plus accrued and unpaid interest.
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):
 
March 31,
2020
 
December 31,
2019
 
(In millions)
5.95% senior notes due 2020
$
747

 
$
767

2.5% (€650 million) senior notes due 2022 (1)
691

 
764

4.5% senior notes due 2024
457

 
536

5.0% senior notes due 2026
691

 
825

3.8% senior notes due 2028
875

 
1,021

3.25% senior notes due 2030
1,150

 
1,206

 
_______________
(1)
Approximately 625 million Euro as of March 31, 2020 and 682 million Euro as of December 31, 2019.
Credit Facility
As of March 31, 2020, Expedia Group maintained a $2 billion unsecured revolving credit facility with a group of lenders, which was unconditionally guaranteed by certain domestic Expedia Group subsidiaries that were the same as under the Notes and expired in May 2023. On March 18, 2020, we borrowed $1.9 billion under the revolving credit facility, which remained outstanding as of March 31, 2020. As of December 31, 2019, we had no revolving credit facility borrowings outstanding. The facility bore interest based on the Company’s credit ratings, with drawn amounts bearing interest at LIBOR plus 112.5 basis points and the commitment fee on undrawn amounts at 15 basis points as of March 31, 2020. The interest rate on the outstanding balance was 2.01% as of March 31, 2020. The facility contained covenants including maximum leverage and minimum interest coverage ratios. In May 2020, we amended this facility. See Note 11 – Subsequent Events for additional information.
The amount of stand-by letters of credit (“LOC”) issued under the facility reduced the credit amount available. As of both March 31, 2020 and December 31, 2019, there was $16 million of outstanding stand-by LOCs issued under the facility.

14

Notes to Consolidated Financial Statements – (Continued)
 


In addition, one of our international subsidiaries maintains a Euro 50 million uncommitted credit facility, which is guaranteed by Expedia Group, that may be terminated at any time by the lender. As of March 31, 2020 and December 31, 2019, there were no borrowings outstanding.
Note 5 – Stockholders’ Equity
Dividends on our Common Stock
The Executive Committee, acting on behalf of the Board of Directors, declared the following dividends during the periods presented:
Declaration Date
Dividend
Per Share
 
Record Date
 
Total Amount
(in millions)
 
Payment Date
Three Months Ended March 31, 2020


 

 


 

February 13, 2020
$
0.34

 
March 10, 2020
 
$
48

 
March 26, 2020
Three Months Ended March 31, 2019


 

 


 

February 6, 2019
0.32

 
March 7, 2019
 
47

 
March 27, 2019

Treasury Stock
As of March 31, 2020, the Company’s treasury stock was comprised of approximately 123.3 million common stock and 7.3 million Class B shares. As of December 31, 2019, the Company’s treasury stock was comprised of approximately 119.6 million shares of common stock and 7.3 million Class B shares.
Share Repurchases. In April 2018, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 15 million outstanding shares of our common stock. In December 2019, the Board of Directors authorized a repurchase of up to 20 million outstanding shares of our common stock. During the three months ended March 31, 2020, we repurchased, through open market transactions, 3.4 million shares under these authorizations for the total cost of $370 million, excluding transaction costs, representing an average repurchase price of $109.88 per share. As of March 31, 2020, there were approximately 23.3 million shares remaining under the 2018 and 2019 repurchase authorizations. There is no fixed termination date for the repurchases.
Stock-based Awards
Stock-based compensation expense relates primarily to expense for restricted stock units (“RSUs”) and stock options. As of March 31, 2020, we had stock-based awards outstanding representing approximately 18 million shares of our common stock, consisting of approximately 6 million RSUs and options to purchase approximately 12 million shares of our common stock with a weighted average exercise price of $104.82 and weighted average remaining life of 3.2 years.
Annual employee stock-based award grants typically occur during the first quarter of each year and generally vest over four years. During 2019, we started issuing RSUs as our primary form of stock-based compensation, which vest 25% after one year and will then vest quarterly over the following three years. During the three months ended March 31, 2020, we granted approximately 3 million RSUs.
Accumulated Other Comprehensive Loss
The balance of accumulated other comprehensive loss as of March 31, 2020 and December 31, 2019 was comprised of foreign currency translation adjustments. These translation adjustments include foreign currency transaction losses at March 31, 2020 of $7 million ($9 million before tax) and $15 million ($19 million before tax) at December 31, 2019 associated with our 2.5% Notes. The 2.5% Notes are Euro-denominated debt designated as hedges of certain of our Euro-denominated net assets. See Note 4 – Debt for more information.
Note 6 – Earnings (Loss) Per Share
Basic earnings per share is calculated using our weighted-average outstanding common shares. The earnings per share amounts are the same for common stock and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive

15

Notes to Consolidated Financial Statements – (Continued)
 


effect. For the three months ended March 31, 2020 and 2019, approximately 18 million and 21 million of outstanding stock awards have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive.
Note 7 – Restructuring and Related Reorganization Charges
In late February 2020, we committed to restructuring actions intended to simplify our businesses and improve operational efficiencies, which have resulted in headcount reductions. As a result, we recognized $75 million in restructuring and related reorganization charges during the three months ended March 31, 2020. Based on current plans, which are subject to change, we expect total reorganization charges in the remainder of 2020 in the range of $60 million to $115 million. These costs could be higher or lower should we make additional decisions in future periods that impact our reorganization efforts.
We also engaged in certain smaller scale restructure actions in 2019 to centralize and migrate certain operational functions and systems, for which we recognized $10 million in restructuring and related reorganization charges during the three months ended March 31, 2019, which were primarily related to severance and benefits.
The following table summarizes the restructuring and related reorganization activity for the three months ended March 31, 2020:
 
Employee Severance and Benefits
 
Other
 
Total
 
(In millions)
Accrued liability as of January 1, 2020
$
11

 
$
6

 
$
17

Charges
69

 
6

 
75

Payments
(17
)
 
(5
)
 
(22
)
Accrued liability as of March 31, 2020
$
63

 
$
7

 
$
70


Note 8 – Income Taxes
Ordinarily, our interim provision for income taxes is determined using an estimate of our annual effective tax rate (“estimated annual effective tax rate method”), and we record any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items. Due to the COVID-19 pandemic, and difficulty forecasting the fiscal year 2020 mix of income by jurisdiction, we determined the estimated annual effective rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate. As such, we have calculated the tax provision using the actual effective rate for the three months ended March 31, 2020.
For the three months ended March 31, 2020, the effective tax rate was a 5.6% benefit on a pre-tax loss, compared to a 29.2% benefit on a pre-tax loss for the three months ended March 31, 2019. The change in the effective tax rate was primarily driven by the mix of income across jurisdictions, nondeductible impairment charges and a valuation allowance principally related to unrealized capital losses in the first quarter of 2020.
We are subject to taxation in the United States and various other state and foreign jurisdictions. We are under examination by the Internal Revenue Service (“IRS”) for our 2011 to 2013 tax years. During the fourth quarter of 2019, the IRS issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2011 to 2013 audit cycle. The proposed adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million subject to interest. We do not agree with the position of the IRS and are formally protesting the IRS position. Subsequent years remain open to examination by the IRS. We do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which, along with earlier issued IRS guidance, provides for deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which may benefit the Company. We continue to assess the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.
Note 9 – Commitments and Contingencies
Legal Proceedings
In the ordinary course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia Group. We also evaluate other potential contingent matters, including value-added tax, excise tax, sales tax, transient occupancy or accommodation tax and

16

Notes to Consolidated Financial Statements – (Continued)
 


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.
Litigation Relating to Occupancy Taxes. One hundred one lawsuits have been filed by or against cities, counties and states involving hotel occupancy and other taxes. Eight 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 us or 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-seven 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. Thirty-three dismissals were based on a finding that we and the other defendants were not subject to the local tax ordinance or that the local government lacked standing to pursue its 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 $52 million and $48 million as of March 31, 2020 and December 31, 2019, respectively. 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 cannot be made. Changes to the settlement reserve are included within legal reserves, occupancy tax and other in the consolidated statements of operations.
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.
We are in various stages of inquiry or audit with domestic and foreign tax authorities, some of which, including in the City of Los Angeles regarding hotel occupancy taxes and in the United Kingdom regarding the application of value added tax (“VAT”) to our European Union related transactions as discussed below, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.
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. On August 23, 2018, the Australian Competition and Consumer Commission, or "ACCC", instituted proceedings in the Australian Federal Court against trivago. The ACCC alleged breaches of Australian Consumer Law, or "ACL," relating to trivago’s advertisements in Australia concerning the hotel prices available on trivago’s Australian site, trivago’s strike-through pricing practice and other aspects of the way offers for accommodation were displayed on trivago's Australian website. The matter went to trial in September 2019 and, on January 20, 2020, the Australian Federal Court issued a judgment finding trivago had engaged in conduct in breach of the ACL. On March 4, 2020, trivago filed a notice of appeal of part of that judgment at the Australian Federal Court. The appeal is scheduled to be heard on July 20-21, 2020. The court has yet to set a date for a separate trial regarding penalties and other orders.We recorded the estimated probable loss associated with the proceedings in a previous period. An estimate for the reasonable possible loss or range of loss in excess of the amount reserved cannot be made.

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Notes to Consolidated Financial Statements – (Continued)
 


Note 10 – Segment Information
Beginning in the first quarter of 2020, we have the following reportable segments: Retail, B2B, and trivago. The change from our previous reportable segments, Core OTA, trivago, Vrbo and Egencia, reflect Expedia Group’s efforts to simplify our organization into a platform operating model by aligning our retail brand operations, combining our business focused brands and centralizing our platform and supply organizations to support all of our businesses. Our Retail 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 consumer brands including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Vrbo, Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com, CarRentals.com, CruiseShipCenters, Classic Vacations and SilverRail Technologies, Inc. Our B2B segment is comprised of our Expedia Business Services organization including Expedia Partner Solutions, which operates private label and co-branded programs to make travel services available to leisure travelers through third-party company branded websites, and Egencia, a full-service travel management company that provides travel services to businesses and their corporate customers. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. There were no changes to our reporting units for goodwill testing as a result of these current year segment changes.
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 Retail and B2B segments includes allocations of certain expenses, primarily related to our global travel supply organization and the majority of costs from our product and technology platform, as well as facility costs and the realized foreign currency gains or losses related to the forward contracts hedging a component of our net merchant lodging 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, certain 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 Retail 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.
Corporate and Eliminations also includes unallocated corporate functions and expenses as well as Bodybuilding.com subsequent to our acquisition on July 26, 2019. 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.
The following tables present our segment information for the three months ended March 31, 2020 and 2019. 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.
 

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Notes to Consolidated Financial Statements – (Continued)
 


 
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