(3) Investment in Expedia

Expedia 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. Expedia seeks to grow its business through a dynamic portfolio of travel brands, including its majority owned subsidiaries that feature the world's broadest supply portfolio as well as destination services and activities. Expedia Holdings began consolidating Expedia as of November 4, 2016, the completion date of the Expedia Holdings Split-Off, as Expedia Holdings then controlled a majority of the voting interest in Expedia. As of September 30, 2017, Expedia Holdings beneficially owned approximately 15.5% of the outstanding Expedia common stock which represents a 51.9% voting interest in Expedia.

In conjunction with the application of acquisition accounting, we recorded a full step up in basis of Expedia which resulted in an approximate $2.0 billion gain during the fourth quarter of 2016. The gain on the transaction was excluded from taxable income. Additionally, the deferred income tax liability that had historically resulted from the difference between the book basis and tax basis of the Company’s ownership in Expedia shares was reversed as a result of the transaction. As control of Expedia was achieved without the exchange of consideration, in order to apply acquisition accounting, we used the sum of the fair value (including an applicable control premium) of our ownership interest previously held (approximately $3.0 billion) and the fair value of the initial noncontrolling interest ($16.5 billion), as determined based on the trading price of Expedia (Level 1) at the time control was obtained and the fair value of Expedia’s vested options (Level 2) on November 4, 2016. Following the Expedia Holdings Split-Off, Expedia is a consolidated subsidiary with an approximate 85% noncontrolling interest as of September 30, 2017.

The preliminary acquisition price allocation for Expedia is as follows (amounts in millions):


Fair value of Expedia equity interests	$	2,991
Noncontrolling interest		16,462
	$	19,453

Cash and cash equivalents	$	1,725
Receivables		1,487
Property, plant and equipment		780
Goodwill		16,922
Other nonamortizable intangible assets		6,152
Intangible assets subject to amortization		6,774
Other assets		815
Debt		(3,472)
Deferred merchant bookings		(2,810)
Deferred income tax liabilities, net		(3,602)
Other liabilities assumed		(5,318)
	$	19,453

Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, value associated with future customers, continued innovation and noncontractual relationships. Acquired Expedia nonamortizable intangible assets consist of trademarks and tradenames. Expedia amortizable intangible assets were comprised of customer relationships of $4,233 million with a weighted average life of approximately 9 years, developed technology of $1,480 million with a weighted average life of approximately 5 years, supplier relationships of $980 million with a weighted average life of approximately 4 years and other intangible assets of $81 million with useful lives of 1 to 6 years. None of the acquired goodwill is expected to be deductible for tax purposes. The Company made measurement period adjustments to the fair value of certain assets acquired and liabilities assumed in the Expedia transaction during the second quarter of 2017, including an increase to the initial noncontrolling interest of $167 million and a corresponding increase to goodwill of $126 million, and decrease to deferred income tax liabilities, net of $41 million. As of September 30, 2017, the valuation related to the acquisition of a controlling interest in Expedia is not final, and the acquisition price allocation is preliminary and subject to revision. The primary areas of the acquisition price allocation that are not yet finalized are related to certain intangible assets, liabilities and tax balances.

Included in the Company’s net earnings (loss) for the three and nine months ended September 30, 2017 are acquisition accounting-related adjustments of $221 million and $747 million, respectively, primarily related to amortization on the fair value step-up of amortizable intangible assets acquired.

The following unaudited pro forma presentation of revenue and net earnings of Expedia Holdings for the three and nine months ended September 30, 2016, was prepared utilizing the historical financial statements of Expedia, giving effect to acquisition accounting related adjustments made at the time of acquisition, as if the transaction discussed above occurred on January 1, 2016, and utilizing 57 million common shares for the calculation of basic and diluted EPS, which is the aggregate number of shares of Series A and Series B common stock outstanding upon the completion of the Expedia Holdings Split-Off on November 4, 2016.


	Three months ended		Nine months ended
	September 30, 2016		September 30, 2016
	amounts in millions
Revenue	$	2,667	6,858
Net earnings (loss)	$	69	(624)
Net earnings (loss) attributable to Expedia Holdings shareholders	$	11	(119)
Basic net earnings (loss) attributable to Expedia Holdings shareholders per common share	$	0.18	(2.10)
Diluted net earnings (loss) attributable to Expedia Holdings shareholders per common share	$	0.18	(2.10)

The pro forma results include adjustments primarily related to amortization of acquired intangible assets, amortization of the premiums related to the step-up to fair value of Expedia’s debt, the amortization of the step-up to fair value of Expedia’s deferred revenue and incremental stock-based compensation for the step-up to fair value of Expedia’s outstanding options and restricted stock units (“RSUs”) on the date of acquisition. The pro forma information is not representative of the Company’s future results of operations nor does it reflect what the Company’s results of operations would have been if the transaction had happened previously and the Company consolidated Expedia during the period presented.

Dividends declared by Expedia

During the nine months ended September 30, 2017, Expedia has declared a quarterly cash dividend each quarter, and has paid in cash an aggregate amount of $130 million to stockholders of record on each respective record date, of which the Company has received $20 million. In addition, in October 2017, Expedia declared a quarterly cash dividend of $0.30 per share of outstanding common stock payable on December 7, 2017 to stockholders of record as of the close of business on November 16, 2017.

Expedia share repurchases

In February 2015, Expedia’s Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million shares of its common stock. There is no fixed termination date for the repurchases. As of September 30, 2017, 6.2 million shares remain authorized for repurchase under the 2015 authorization. During the nine months ended September 30, 2017, Expedia repurchased 1.0 million shares for a total cost of $139 million, excluding transaction costs.