2017 Annual Report
and
Notice of 2018 Annual Meeting and
Proxy Statement
Dear Shareholders,
We love travel and we are dedicated to delivering products that help travelers around the world unleash the full
potential of every trip. As previewed in last year’s letter, in 2017 we more closely aligned our key product,
supply and marketing initiatives to better position our business for long-term growth.
Overall, consolidated 2017 financial results improved compared to our 2016 results. However, finding profitable
growth remained challenging in our Hotel segment. Headwinds created by competition, rapid user growth on
lower-monetizing mobile devices, as well as bidding volatility in our core click-based auction continued to
pressure Hotel segment financials, resulting in modest revenue growth of 1% and a significant decline in Hotel
segment adjusted EBITDA. This dampened not only our overall P&L, but also our public equity market
valuation.
Volatility in our quarterly Hotel results overshadowed a number of important steps we have taken to improve the
long-term growth trajectory of this business. Starting with our product work, in 2017 we launched a streamlined
hotel shopping experience, we made it easier for users to find and compare the best hotel prices across all
booking options and we also prioritized mobile in our product development cycle, delivering a cleaner, faster and
better- monetizing experience on that device.
We also made important changes to our portfolio of online and offline marketing investments. First, we
sharpened our online traffic acquisition campaigns, leveraging improved tracking capabilities to identify and
remove investments on unprofitable traffic. Second, after completing our major hotel product work, we began
strategically re-allocating some of our online savings to offline channels, including a return to television brand
advertising, which we believe can help us build a more durable and fruitful relationship with users, as we amplify
TripAdvisor as a great place to find and book the right hotel at the right price.
These product and marketing initiatives gained traction throughout the year. We believe these initiatives will
continue to coalesce, generating more revenue and profit as users visit TripAdvisor not only to get the best travel
content on the web, but also to find the best hotel room prices when they are ready to book. In 2018, our focus in
our Hotel business remains on three key areas: improving the product experience, growing brand advertising
campaign and further optimizing our marketing investment mix. We believe we are on the right path to create
long-term profitable growth.
Switching gears, TripAdvisor is great not only for having the best reviews and price-shopping tools to find, to
shop for, and to book an accommodation, but it also plays a significant role in helping users find, book,
experience, and share things to do and places to eat on a trip. We continue to match global travel demand with
bookable supply in our Experiences (formerly known as Attractions) and Restaurants businesses. This powered
Non-Hotel segment revenue growth of 24% in 2017 and Non-Hotel revenue accounted for 23% of consolidated
revenue. Additionally, following three years of significant product and supply investments, this segment
generated $45 million of adjusted EBITDA in 2017, up from negative $28 million in 2016, demonstrating strong
embedded operating leverage and its potential for substantial long-term earnings power. In 2018 and over the
coming years, our strategic objectives are to continue to improve the user experience, to grow supply, to enhance
our transaction capabilities and to grow media advertising opportunities on our platform. Given the large
addressable markets and ample growth opportunities in front of us, our focus will remain squarely on driving
strong revenue growth and market share gains.
1
TripAdvisor’s influence creates opportunity
With rich travel content of 600 million reviews and opinions, a massive travel community of 455 million
monthly unique users during our seasonal peak, and a diverse offering across a spectrum of travel products,
TripAdvisor continues to have significant influence across the $1.6 trillion travel landscape. These attributes
uniquely position our business for attractive, and largely untapped, growth opportunities. As part of our recently
announced organizational changes that will enable us to execute faster and capitalize on the opportunities ahead,
we will be adding two talented leaders to spearhead our Hotel business towards long-term profitable growth and
to lead our new Core Experience team. Core Experience will be the “connective tissue” between our travel
products and will ensure we are succeeding at delivering to travelers an engaging, seamless and holistic
TripAdvisor user experience. We believe we will be able to unlock new advertising opportunities that further
improve the overall user experience throughout every stage of the travel journey while enabling more partners to
engage on the TripAdvisor platform.
In sum, we believe our progress and our successes in 2017 outweighed the challenges we encountered. We have
a lot of work ahead, to be sure, but we have taken – and are continuing to take – a number of important steps to
position the business for long-term profitable growth. Every day, I am fortunate to be surrounded by passionate
colleagues who never stop learning and who know that our best results are achieved together. I want to thank all
TripAdvisor Media Group employees around the globe for their continued hard work. I also want to thank our
users, our partners and our shareholders for their continued support.
Happy travels,
Stephen Kaufer
Co-founder, President and Chief Executive Officer
TripAdvisor, Inc.
2
Notice of 2018 Annual Meeting
and Proxy Statement
April 27, 2018
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of TripAdvisor, Inc. We will
hold the Annual Meeting on Thursday, June 21, 2018, at 11:00 a.m. local time at the Residence Inn
located at 80 B Street, Needham, MA 02494.
At the Annual Meeting, stockholders will be asked (1) to elect the eight directors named in this Proxy
Statement, (2) to ratify the appointment of KPMG LLP as our independent registered public accounting
firm for the fiscal year ending December 31, 2018, (3) to approve the TripAdvisor, Inc. 2018 Stock and
Annual Incentive Plan; (4) to approve, on an advisory basis, the compensation of our named executive
officers; (5) to vote, on an advisory basis, on the frequency of future advisory resolutions to approve the
compensation of our named executive officers; and (6) to consider and act upon any other business that
may properly come before the meeting and any adjournments or postponements thereof. The Board of
Directors recommends a vote FOR proposals (1) through (4) and for every “THREE” years on
proposal (5).
You may vote if you were a stockholder of record on April 23, 2018. You may vote via the Internet or
by telephone by following the instructions on your Notice of Internet Availability and on the website noted
in the Notice of Internet Availability. In order to vote via the Internet or by telephone, you must have your
stockholder identification number, which is provided in your Notice. If you have requested a proxy card by
mail, you may vote by signing, voting and returning that proxy card in the envelope provided. If you attend
the Annual Meeting, you may vote in person even if you have previously returned your proxy card or have
voted via the Internet or by telephone.
Your vote is very important to us. Please review the instructions for each voting option described
in the Notice and in this Proxy Statement. Your prompt cooperation will be greatly appreciated.
Sincerely,
STEPHEN KAUFER
President and Chief Executive Officer
400 1st Avenue
Needham, Massachusetts 02494
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 21, 2018
The Annual Meeting of Stockholders of TripAdvisor, Inc., a Delaware corporation, will be held on Thursday, June
21, 2018, at 11:00 a.m. local time at the Residence Inn located at 80 B Street, Needham, MA 02494. At the Annual
Meeting, stockholders will be asked to consider the following:
1.
To elect the eight directors named in this Proxy Statement, each to serve for a one-year term from
the date of his election and until such director’s successor is elected or until such director’s earlier resignation or
removal;
2.
To ratify the appointment of KPMG LLP as our independent registered public accounting firm for
the fiscal year ending December 31, 2018;
3.
4.
5.
To approve the TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan;
To approve, on an advisory basis, the compensation of our named executive officers;
To vote, on an advisory basis, on the frequency of future advisory resolutions to approve the
compensation of our named executive officers; and
6.
To consider and act upon any other business that may properly come before the Annual Meeting
and any adjournments or postponements thereof.
Only holders of record of outstanding shares of TripAdvisor capital stock at the close of business on April 23, 2018
are entitled to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof.
In accordance with the rules of the U.S. Securities and Exchange Commission, we will furnish proxy materials over
the Internet. We will send to our stockholders a Notice of Internet Availability of Proxy Materials on or about April
27, 2018, and provide access to our proxy materials over the Internet to our holders of record and beneficial owners
of our capital stock as of the close of business on the record date.
Only stockholders and persons holding proxies from stockholders may attend the Annual Meeting. If your shares
are registered in your name, you must bring a form of identification to the Annual Meeting. If your shares are held in
the name of a broker, trust, bank or other nominee, you must bring a proxy or letter from that broker, trust, bank or
other nominee that confirms that you are the beneficial owner of those shares.
By Order of the Board of Directors,
SETH J. KALVERT
Senior Vice President, General Counsel
and Secretary
April 27, 2018
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to Be Held on June 21, 2018
This Proxy Statement and the 2017 Annual Report are available at:
http://ir.tripadvisor.com/annual-proxy.cfm
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
Procedural Matters
Proposal 1: Election of Directors
Corporate Governance
Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm
Audit Committee Report
Proposal 3: Approval of TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan
Proposal 4: Advisory Vote on Compensation of Named Executive Officers
Proposal 5: Advisory Vote on Frequency of Future Advisory Resolutions to Approve the
Compensation of Named Executive Officers
Compensation Discussion and Analysis
CEO Pay Ratio
Executive Compensation
Director Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Person Transaction
Where You Can Find More Information and Incorporation By Reference
Annual Reports
Proposals by Stockholders for Presentation at the 2018 Annual Meeting
Delivery of Documents to Stockholders Sharing an Address
2018 Stock and Annual Incentive Plan
Page
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6
12
20
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29
31
32
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48
63
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TripAdvisor, Inc. |
2018 Proxy Statement
1
PROCEDURAL MATTERS
This Proxy Statement is being furnished to holders of common stock and Class B common stock of
TripAdvisor, Inc., a Delaware corporation, in connection with the solicitation of proxies by TripAdvisor’s
Board of Directors for use at its 2018 Annual Meeting of Stockholders or any adjournment or
postponement thereof (the “Annual Meeting”). All references to “TripAdvisor,” the “Company,” “we,” “our”
or “us” in this Proxy Statement are to TripAdvisor, Inc. and its subsidiaries. An Annual Report to
Stockholders, containing financial statements for the year ended December 31, 2017, and this Proxy
Statement are being made available to all stockholders entitled to vote at the Annual Meeting.
TripAdvisor’s principal executive offices are currently located at 400 1st Avenue, Needham,
Massachusetts 02494. This Proxy Statement is being made available to TripAdvisor stockholders on or
about April 27, 2018.
Date, Time and Place of Meeting
The Annual Meeting will be held on Thursday, June 21, 2018, at 11:00 a.m. local time at the
Residence Inn located at 80 B Street, Needham, MA 02494.
Only stockholders and persons holding proxies from stockholders may attend the Annual Meeting. If
your shares are registered in your name, you must bring a form of identification to the Annual Meeting. If
your shares are held in the name of a broker, trust, bank or other nominee, otherwise known as holding in
“street name,” you must bring a proxy or letter from that broker, trust, bank or other nominee that confirms
you are the beneficial owner of those shares. Cameras and recording devices will not be permitted at the
Annual Meeting.
Record Date and Voting Rights
The Board of Directors established the close of business on April 23, 2018 as the record date for
determining the holders of TripAdvisor common stock entitled to notice of and to vote at the Annual
Meeting. On the record date, 125,819,936 shares of common stock and 12,799,999 shares of Class B
common stock were outstanding and entitled to vote at the Annual Meeting. TripAdvisor stockholders are
entitled to one vote for each share of common stock and ten votes for each share of Class B common
stock held as of the record date, voting together as a single voting group, on (i) the election of six of the
eight director nominees, (ii) the ratification of the appointment of KPMG LLP as TripAdvisor’s independent
registered public accounting firm for the year ending December 31, 2018, (iii) the approval of the
TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan; (iv) the approval, on an advisory basis, of the
compensation of our named executive officers; and (v) the vote, on an advisory basis, on the frequency of
future advisory resolutions to approve the compensation of our named executive officers. TripAdvisor
stockholders are entitled to one vote for each share of common stock held as of the record date in the
election of the two director nominees that the holders of TripAdvisor common stock are entitled to elect as
a separate class pursuant to TripAdvisor’s restated certificate of incorporation.
On August 27, 2014, the entire beneficial ownership of our common stock and Class B common
stock previously held by Liberty Interactive Corporation, which is currently known as Qurate Retail, Inc.
(“Liberty”) was transferred to Liberty TripAdvisor Holdings, Inc. (“LTRIP”). Simultaneously, Liberty,
LTRIP’s former parent company, distributed, by means of a dividend, to the holders of its Liberty Ventures
common stock, Liberty’s entire equity interest in LTRIP. We refer to this transaction as the Liberty Spin-
Off. As a result of the Liberty Spin-Off, effective August 27, 2014, LTRIP became a separate, publicly
traded company and 100% of Liberty’s interest in TripAdvisor was held by LTRIP. Liberty also assigned
to LTRIP its rights and obligations under the Governance Agreement between TripAdvisor and Liberty,
dated December 20, 2011 (the “Governance Agreement”).
TripAdvisor, Inc. |
2018 Proxy Statement
2
As a result of these transactions, as of the record date, LTRIP beneficially owned 18,159,752
shares of our common stock and 12,799,999 shares of our Class B common stock, which shares
constitute 14.4% of the outstanding shares of common stock and 100% of the outstanding shares of
Class B Common Stock. Assuming the conversion of all of the LTRIP’s shares of Class B common stock
into common stock, as of the record date LTRIP would beneficially own 22.3% of the outstanding
common stock. Because each share of Class B common stock generally is entitled to ten votes per share
and each share of common stock is entitled to one vote per share, as of the record date LTRIP may be
deemed to beneficially own equity securities representing 57.6% of our voting power. As a result,
regardless of the vote of any other TripAdvisor stockholder, LTRIP has control over the vote relating to
(i) the election of six of the eight director nominees; (ii) the ratification of the appointment of KPMG LLP
as TripAdvisor’s independent registered public accounting firm for the fiscal year ending December 31,
2018; (iii) the approval of the TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan; (iv) the approval, on
an advisory basis, of the compensation of our named executive officers; and (v) the vote, on an advisory
basis, on the frequency of future advisory resolutions to approve the compensation of our named
executive officers.
Quorum; Abstentions; Broker Non-Votes
Transaction of business at the Annual Meeting may occur if a quorum is present. If a quorum is not
present, it is expected that the Annual Meeting will be adjourned or postponed in order to permit
additional time for soliciting and obtaining additional proxies or votes, and, at any subsequent
reconvening of the Annual Meeting, all proxies will be voted in the same manner as such proxies would
have been voted at the original convening of the Annual Meeting, except for any proxies that have been
effectively revoked or withdrawn.
With respect to (i) the election of six of the eight director nominees; (ii) the ratification of the
appointment of KPMG LLP as TripAdvisor’s independent registered public accounting firm for the fiscal
year ending December 31, 2018; (iii) the approval of the TripAdvisor, Inc. 2018 Stock and Annual
Incentive Plan; (iv) the approval, on an advisory basis, on the compensation of our named executive
officers; and (v) the vote, on an advisory basis, on the frequency of future advisory resolutions to approve
the compensation of our named executive officers, the presence at the Annual Meeting, in person or by
proxy, of the holders of a majority of the total votes entitled to be cast constitutes a quorum. For the
election of the two directors whom the holders of TripAdvisor common stock are entitled to elect as a
separate class, the presence at the Annual Meeting, in person or by proxy, of the holders of a majority of
shares of common stock constitutes a quorum.
If a share is represented for any purpose at the meeting, it is deemed to be present for quorum
purposes and for all other matters as well. Shares of TripAdvisor capital stock represented by a properly
executed proxy will be treated as present at the Annual Meeting for purposes of determining a quorum,
without regard to whether the proxy is marked as casting a vote or abstaining.
Abstentions and broker non-votes are counted as present and entitled to vote for purposes of
determining a quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner
does not vote the shares on a proposal because the nominee does not have discretionary voting power
for a particular item and has not received instructions from the beneficial owner regarding voting. Brokers
who hold shares for the accounts of their clients have discretionary authority to vote shares if specific
instructions are not given with respect to the ratification of the appointment of our independent registered
public accounting firm. Brokers do not have discretionary authority to vote on the election of our directors,
so we encourage you to provide instructions to your broker regarding the voting of your shares.
Solicitation of Proxies
TripAdvisor will bear the cost of the solicitation of proxies from its stockholders. In addition to
solicitation by mail, the directors, officers and employees of TripAdvisor, without additional compensation,
may solicit proxies from stockholders by telephone, by letter, by facsimile, in person or otherwise.
TripAdvisor, Inc. |
2018 Proxy Statement
3
Following the original mailing of the proxies and other soliciting materials, TripAdvisor will ask brokers,
trusts, banks or other nominees to forward copies of the proxy and other soliciting materials to persons for
whom they hold shares of TripAdvisor capital stock and to request authority for the exercise of proxies. In
such cases, TripAdvisor, upon the request of the brokers, trusts, banks and other stockholder nominees,
will reimburse such holders for their reasonable expenses.
Voting of Proxies
The manner in which your shares may be voted depends on whether you are a:
(cid:221)
(cid:221)
Registered stockholder: Your shares are represented by certificates or book entries in your
name on the records of TripAdvisor’s stock transfer agent and you have the right to vote those
shares directly; or
Beneficial stockholder: You hold your shares “in street name” through a broker, trust, bank or
other nominee and you have the right to direct your broker, trust, bank or other nominee on how
to vote the shares in your account; however, you must request and receive a valid proxy from
your broker, trust, bank or other nominee.
Whether you hold shares directly as a registered stockholder or beneficially as a beneficial
stockholder, you may direct how your shares are voted without attending the Annual Meeting. For
directions on how to vote, please refer to the instructions below and those on the Notice of Internet
Availability of Proxy Materials, proxy card or voting instruction form provided. To vote using the Internet or
by telephone, you will be required to enter the control number included on your Notice of Internet
Availability of Proxy Materials or other voting instruction form provided by your broker, trust, bank or other
nominee.
(cid:221)
(cid:221)
(cid:221)
Using the Internet. Registered stockholders may vote using the Internet by going to
www.proxyvote.com and following the instructions. Beneficial stockholders may vote by
accessing the website specified on the voting instruction forms provided by their brokers, trusts,
banks or other nominees.
By Telephone. Registered stockholders may vote, from within the United States, using any
touch-tone telephone by calling 1-800-690-6903 and following the recorded instructions.
Beneficial owners may vote, from within the United States, using any touch-tone telephone by
calling the number specified on the voting instruction forms provided by their brokers, trusts,
banks or other nominees.
By Mail. Registered stockholders may submit proxies by mail by requesting printed proxy
cards and marking, signing and dating the printed proxy cards and mailing them in the
accompanying pre-addressed envelopes. Beneficial owners may vote by marking, signing and
dating the voting instruction forms provided by their brokers, trusts, banks or other nominees
and mailing them in the accompanying pre-addressed envelopes.
All proxies properly submitted and not revoked will be voted at the Annual Meeting in accordance
with the instructions indicated thereon. If no instructions are provided, such proxies will be voted FOR
proposals (1), (2), (3) and (4) and for every “THREE YEARS” on proposal (5).
TripAdvisor is incorporated under Delaware law, which specifically permits electronically transmitted
proxies, provided that each such proxy contains, or is submitted with, information from which the
inspector of elections can determine that such proxy was authorized by the stockholder. The electronic
voting procedures provided for the Annual Meeting are designed to authenticate each stockholder by use
of a control number, to allow stockholders to vote their shares and to confirm that their instructions have
been properly recorded.
TripAdvisor, Inc. |
2018 Proxy Statement
4
Voting in Person at the Annual Meeting
You may also vote in person at the Annual Meeting. Votes in person will replace any previous votes
you have made by mail or telephone or via the Internet. We will provide a ballot to registered stockholders
who request one at the meeting. Shares held in your name as the stockholder of record may be voted on
that ballot. Shares held beneficially in street name may be voted on a ballot only if you bring a legal proxy
from the broker, trust, bank or other nominee that holds your shares giving you the right to vote the
shares. Attendance at the Annual Meeting without voting or revoking a previous proxy in accordance with
the voting procedures will not in and of itself revoke a proxy.
Your vote is very important. Whether or not you plan to attend the Annual Meeting, please take the
time to vote via the Internet, by telephone or by returning your marked, signed and dated proxy
card so that your shares will be represented at the Annual Meeting.
Revocation of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it any time before
the taking of the vote at the Annual Meeting.
If you are a beneficial stockholder, you may revoke your proxy or change your vote only by following
the separate instructions provided by your broker, trust, bank or other nominee.
If you are a registered stockholder, you may revoke your proxy at any time before it is exercised at
the Annual Meeting by (i) delivering written notice, bearing a date later than the proxy, stating that the
proxy is revoked, (ii) submitting a later-dated proxy relating to the same shares by mail or telephone or via
the Internet prior to the vote at the Annual Meeting or (iii) attending the Annual Meeting and properly
giving notice of revocation to the inspector of elections or voting in person. Registered holders may send
any written notice or request for a new proxy card to TripAdvisor, Inc., c/o Broadridge, 51 Mercedes Way,
Edgewood, New York 11717, or follow the instructions provided on the Notice of Internet Availability of
Proxy Materials and proxy card to submit a new proxy by telephone or via the Internet. Registered
holders may also request a new proxy card by calling 1-800-579-1639.
Other Business
The Board of Directors does not presently intend to bring any business before the Annual Meeting
other than the proposals discussed in this Proxy Statement and specified in the Notice of Annual Meeting
of Stockholders. The Board has no knowledge of any other matters to be presented at the Annual
Meeting other than those described in this Proxy Statement. If any other matters should properly come
before the Annual Meeting, the persons designated in the proxy will vote on them according to their best
judgment.
TripAdvisor, Inc. |
2018 Proxy Statement
5
PROPOSAL 1:
ELECTION OF DIRECTORS
Overview
Our Board of Directors currently consists of nine members. Pursuant to the terms of TripAdvisor’s
bylaws, each director serves for a one-year term from the date of his or her election and until such
director’s successor is elected or until such director’s earlier resignation or removal. The Board
recommends that each of the eight nominees listed below be elected to serve a one-year term and until
such director’s successor shall have been duly elected and qualified or until such director’s earlier
resignation or removal:
Gregory B. Maffei
Stephen Kaufer
Jay C. Hoag
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert E. Rosenthaler
Robert S. Wiesenthal
TripAdvisor’s restated certificate of incorporation provides that the holders of TripAdvisor common
stock, acting as a single class, are entitled to elect a number of directors equal to 25% of the total number
of directors, rounded up to the next whole number, which will be two directors as of the date of the Annual
Meeting. The Board has designated Messrs. Philips and Wiesenthal as nominees for the positions on the
Board to be elected by the holders of TripAdvisor common stock voting as a separate class.
Pursuant to the Governance Agreement, LTRIP has the right to nominate up to a number of
directors equal to 20% of the total number of the directors on the Board of Directors (rounded up to the
next whole number if the number of directors on the Board is not an even multiple of five) for election to
the Board of Directors and has certain other rights regarding committee participation, so long as certain
stock ownership requirements applicable to LTRIP are satisfied. LTRIP has designated Messrs. Maffei
and Rosenthaler as its nominees to the Board of Directors.
Although management does not anticipate that any of the nominees named above will be unable or
unwilling to stand for election, in the event of such an occurrence, proxies may be voted for a substitute
nominee designated by the Board of Directors.
Information Regarding Director Nominees
The information provided below about each nominee is as of the date of this Proxy Statement. The
information presented includes the names of each of the nominees, along with his age, any positions held
with the Company, term of office as a director, principal occupations or employment for the past five years
or more, involvement in certain legal proceedings, if applicable, and the names of all other publicly-held
companies for which he or she currently serves as a director or has served as a director during the past
five years. The information also includes a description of the specific experience, qualifications, attributes
and skills of each nominee that led our Board of Directors to conclude that he should serve as a director
of the company for the ensuing term.
TripAdvisor, Inc. |
2018 Proxy Statement
6
Gregory B. Maffei
Age: 57
Director Since: 2013
Committee Memberships:
Compensation
Executive
Mr. Maffei has served as a director as well as the President and Chief
Executive Officer of Liberty Media Corporation (“LMC”) (including its
predecessor) since May 2007, LTRIP since July 2013, Liberty Broadband
Corporation (“LBC”) since June 2014 and GCI Liberty, Inc. since March
2018. He has served as Chairman of the Board of Directors of Qurate
Retail, Inc. (formerly, Liberty Interactive Corporation) (“Qurate”) since
March 2018 and as a director of Qurate (including its predecessor) since
November 2005. He previously served as President and Chief Executive
Officer of Qurate from February 2006 to March 2018 and CEO-Elect from
November 2005 through February 2006. Prior to joining Qurate in 2005,
Mr. Maffei served as President and Chief Financial Officer of Oracle
Corporation, Chairman, President and Chief Executive Officer of
360networks Corporation and Chief Financial Officer of Microsoft
Corporation. Mr. Maffei also currently serves on the Board of Directors of
the following public companies: Sirius XM Holdings Inc., Live Nation
Entertainment, Inc., Charter Communications, Inc., Zillow Group, Inc. and
Pandora Media, Inc. Mr. Maffei is a member of the Council on Foreign
Relations and the Board of Trustees of Dartmouth College. Mr. Maffei
previously served on the Board of Directors of Starz, Electronic Arts, Inc.,
Barnes & Noble, Inc., Citrix Systems, Inc., DirecTV, Starbucks Corp., and
Dorling Kindersley Limited. Mr. Maffei holds an M.B.A. from Harvard
Business School, where he was a Baker Scholar, and an A.B. from
Dartmouth College.
Board Membership Qualifications
Mr. Maffei brings to our Board significant financial and operational
experience based on his senior policy-making positions at LMC, Qurate,
LBC and LTRIP, his previous executive positions at Oracle, 360networks
and Microsoft and his other public company board experience. He
provides our board with an executive and leadership perspective on the
operation and management of large public companies and risk
management principles.
TripAdvisor, Inc. |
2018 Proxy Statement
7
Stephen Kaufer
Age: 55
Director Since: 2011
Committee Memberships:
Executive
Mr. Kaufer co-founded TripAdvisor in February 2000 and has been the
President and Chief Executive Officer of TripAdvisor since that date.
Mr. Kaufer has been a director of TripAdvisor since the completion of the
spin-off of TripAdvisor from Expedia, Inc. (“Expedia”) in December 2011
(the “Spin-Off”). Mr. Kaufer serves on the Board of Directors of
CarGurus, Inc., a company traded on The Nasdaq Stock Market, LLC.
Mr. Kaufer also serves as President and Chairman of the Board of The
TripAdvisor Charitable Foundation, a private charitable foundation.
Mr. Kaufer serves on the boards of several privately-held companies,
including GlassDoor, Inc., as well as the charity Neuroendocrine Tumor
Research Foundation (formerly known as Caring for Carcinoid
Foundation). Prior to co-founding TripAdvisor, Mr. Kaufer served as
President of CDS, Inc., an independent software vendor specializing in
programming and testing tools, and co-founded CenterLine Software and
served as its Vice President of Engineering. Mr. Kaufer holds an A.B. in
Computer Science from Harvard University.
Board Membership Qualifications
As co-founder of TripAdvisor and through his service as its Chief
Executive Officer, Mr. Kaufer has extensive knowledge of our business
and operations, and significant experience in the online advertising
sector of the global travel industry. Mr. Kaufer also possesses strategic
and governance skills gained through his executive and director roles
with several other companies.
Jay C. Hoag
Age: 59
Director Since: 2018
Committee Memberships:
Compensation
Section 16
Mr. Hoag co-founded Technology Crossover Ventures, a private equity
and venture capital firm, in 1995 and continues to serve as a founding
General Partner. Mr. Hoag serves on the Boards of Directors of the
following public companies: Electronic Arts Inc.; Zillow Group, Inc.; and
Netflix, Inc. Mr. Hoag also serves on the Board of Directors of several
private companies. Previously, Mr. Hoag has served on the Board of
Directors of numerous other public and private companies. Mr. Hoag also
serves on the Board of Trustees of Northwestern University and
Vanderbilt University and the Investment Advisory Board of the
University of Michigan. Mr. Hoag holds a B.A. from Northwestern
University and an M.B.A. from the University of Michigan.
Board Membership Qualifications
As a venture capital investor, Mr. Hoag brings strategic insights and
extensive financial experience to our Board. He has evaluated, invested
in and served as a board and committee member of numerous
companies, both public and private, and is familiar with a full range of
corporate and board functions. His many years of experience helping
companies shape and implement strategy provide our Board with unique
perspectives on matters such as risk management, corporate
governance, talent selection and leadership development.
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Dipchand (Deep) Nishar
Age: 49
Director Since: 2013
Committee Memberships:
Compensation
Section 16
Since June 2015, Mr. Nishar has been with SoftBank Investment
Advisors and currently serves as Senior Managing Partner. Prior to that,
from January 2009 to October 2014, Mr. Nishar served in various roles
with LinkedIn Corporation, most recently as Senior Vice President,
Products and User Experience. From August 2003 to January 2009, Mr.
Nishar served in various roles with Google Inc., most recently as the
Senior Director of Products for the Asia-Pacific region. Mr. Nishar served
on the Board of Directors of OPower, Inc. from August 2013 to June
2016. Mr. Nishar holds an M.B.A. with highest honors (Baker Scholar)
from Harvard Business School, an M.SEE from University of Illinois,
Urbana-Champaign, and a B.Tech with honors from the Indian Institute
of Technology.
Jeremy Philips
Age: 45
Director Since: 2011
Committee Memberships:
Audit
Board Membership Qualifications
Mr. Nishar has significant operational experience in those matters which
are directly applicable to our business and are areas of focus. Mr. Nishar
has an extensive background in the Internet industry and, in particular,
the digital media and online advertising sectors.
Mr. Philips has been a general partner of Spark Capital since May 2014.
From January 2012 until May 2014, Mr. Philips invested in private
technology companies. From June 2010 to January 2012, Mr. Philips
served as the Chief Executive Officer of Photon Group Limited, a holding
company listed on the Australian Securities Exchange. From July 2004 to
March 2010, Mr. Philips held various roles of increasing responsibility
with News Corporation, most recently as an Executive Vice President in
the Office of the Chairman. Prior to joining News Corporation, he served
in several roles, including co-founder and Vice-Chairman of ecorp, a
publicly traded Internet holding company, and as an analyst at McKinsey
& Company. Mr. Philips is on the Board of Directors of several private
Internet companies. He is an adjunct professor at Columbia Business
School and holds a B.A. and LL.B. from the University of New South
Wales and an MPA from the Harvard Kennedy School of Government.
Board Membership Qualifications
Mr. Philips has significant strategic and operational experience acquired
through his service as Chief Executive Officer and other executive-level
positions. He also possesses a high level of financial literacy and
expertise regarding mergers, acquisitions, investments and other
strategic transactions as well as an extensive background in the Internet
industry.
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Spencer M. Rascoff
Age: 42
Director Since: 2013
Committee Memberships:
Audit
Albert E. Rosenthaler
Age: 58
Director Since: 2016
Committee Memberships:
Mr. Rascoff has served as the Chief Executive Officer of Zillow Group,
Inc. since September 2010 and has served as a member of its Board of
Directors since July 2011. Mr. Rascoff joined Zillow as one of its founding
employees in 2005 and served as Vice President of Marketing and Chief
Financial Officer from December 2008 to September 2010. From 2003
to 2005, Mr. Rascoff served as Vice President of Lodging for Expedia. In
1999, Mr. Rascoff co-founded Hotwire, Inc., an online travel company,
and managed several of Hotwire’s product lines before Hotwire was
acquired in 2003 by IAC/InterActiveCorp, or IAC, Expedia’s parent
company at the time. Mr. Rascoff previously served in the mergers and
acquisitions group at Goldman, Sachs & Co., an investment banking and
securities firm, and an associate at TPG Capital, a private equity firm.
Mr. Rascoff also serves on Board of Directors of Hutch Interiors, Inc. a
home design app, in which Zillow has been an investor since July 2017.
Mr. Rascoff also serves on the Seattle Children’s Hospital Research
Institute Advisory Board. Mr. Rascoff graduated cum laude with a B.A. in
Government and Economics from Harvard University.
Board Membership Qualifications
Mr. Rascoff has significant operational and financial experience acquired
through his current service as Chief Executive Officer and prior service
as Chief Financial Officer of Zillow. Mr. Rascoff also possesses a high
level of financial literacy and expertise regarding mergers, acquisitions,
investments and other strategic transactions as well as an extensive
background in the Internet industry and global travel industry.
Mr. Rosenthaler has served as Chief Corporate Development Officer of
LMC, Qurate, LTRIP, LBC and Liberty Expedia Holdings, Inc. since
October 2016, and GCI Liberty, Inc. since March 2018. He previously
served as Chief Tax Officer of LMC, Qurate, LTRIP and LBC from
January 2016 to September 2016, and Liberty Expedia Holdings, Inc.
from March 2016 to September 2016. Prior to that, Mr. Rosenthaler
served as a Senior Vice President of LMC (including its predecessor)
from May 2007 to December 2015, Qurate (including its predecessors)
from April 2002 to December 2015, LTRIP from July 2013 to December
2015 and LBC from June 2014 to December 2015. Mr. Rosenthaler has
also served on the Board of Directors of LTRIP since August 2014. He
is a graduate of Olivet College (B.A.) and University of Illinois (M.A.S.).
Board Membership Qualifications
Mr. Rosenthaler has significant executive and financial experience
gained through his service as an executive officer of Qurate and LMC
for many years and as a partner of a major national accounting firm for
more than five years prior to joining QurateLiberty. Mr. Rosenthaler
brings a unique perspective to our Board of Directors, focused in
particular on the areas of tax management, mergers and acquisitions
and financial structuring. Mr. Rosenthaler’s perspective and expertise
assist the Board in developing strategies that take into consideration the
application of tax laws and capital allocation.
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Robert S. Wiesenthal
Age: 51
Director Since: 2011
Committee Memberships:
Audit – Chair
Since July 2015, Mr. Wiesenthal has served as founder and Chief
Executive Officer of FlyBlade, Inc., a short distance aviation company
that leverages mobile technology and crowdsourcing to provide easily
accessible and cost-effective air travel. From January 2013 to July
2015, Mr. Wiesenthal served as Chief Operating Officer of Warner
Music Group Corp., a leading global music conglomerate. From 2000 to
2012, Mr. Wiesenthal served in various senior executive capacities with
Sony Corporation, most recently as Executive Vice President and Chief
Financial Officer of Sony Corporation of America. Prior to joining Sony,
from 1988 to 2000, Mr. Wiesenthal served in various capacities with
Credit Suisse First Boston, most recently as Managing Director, Head of
Digital Media and Entertainment. Mr. Wiesenthal previously served on
the Board of Directors of Starz. Mr. Wiesenthal has a B.A. from the
University of Rochester.
Board Membership Qualifications
Mr. Wiesenthal possesses extensive strategic, operational and financial
experience, gained through his wide range of service in executive-level
positions with a strong focus on networked consumer electronics,
entertainment, and digital media. He also has a high degree of financial
literacy and expertise regarding mergers, acquisitions, investments and
other strategic transactions.
All of our nominees also have extensive management experience in complex organizations. In
addition to the information presented regarding each nominee’s specific experience, qualifications,
attributes and skills that led the Board of Directors to the conclusion that he should be nominated as a
director, each nominee has proven business acumen and an ability to exercise sound judgment, as well
as a commitment to TripAdvisor and its Board of Directors as demonstrated by each nominee’s past
service. The Board of Directors considered the NASDAQ requirement that TripAdvisor’s Audit Committee
be composed of at least three independent directors, as well as specific NASDAQ and U.S. Securities
and Exchange Commission (“SEC”) requirements regarding financial literacy and expertise.
Required Vote
Election of Messrs. Maffei, Hoag, Kaufer, Nishar, Rascoff and Rosenthaler as directors requires the
affirmative vote of a plurality of the total number of votes cast by the holders of shares of TripAdvisor
common stock and Class B common stock, present in person or represented by proxy, voting together as
a single class. Election of Messrs. Philips and Wiesenthal as directors requires the affirmative vote of a
plurality of the total number of votes cast by the holders of shares of TripAdvisor common stock, present
in person or represented by proxy, voting together as a separate class.
We ask our stockholders to vote in favor of each of the director nominees. Valid proxies received
pursuant to this solicitation will be voted in the manner specified. With respect to the election of directors,
you may vote “FOR” or “WITHHOLD”. Where no specification is made, it is intended that the proxies
received from stockholders will be voted FOR the election of the director nominees identified. Votes
withheld and broker non-votes will have no effect because approval by a certain percentage of voting
stock present or outstanding is not required.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED ABOVE.
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Executive Officers
CORPORATE GOVERNANCE
Set forth below is certain background information, as of April 23, 2018, regarding TripAdvisor’s
executive officers. There are no family relationships among directors or executive officers of TripAdvisor.
Name
Stephen Kaufer
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
Age Position
55
51
Director, President and Chief Executive Officer
Senior Vice President, Chief Financial Officer and
Treasurer
Senior Vice President, General Counsel and
Secretary
President, Vacation Rentals and Attractions
48
47
Refer to“ Proposal 1: Election of Directors” above for information about our President and Chief
Executive Officer Stephen Kaufer.
Ernst Teunissen has served as Senior Vice President, Chief Financial Officer and Treasurer of
TripAdvisor since November 2015. From October 2009 to October 2015, Mr. Teunissen served in various
capacities with Cimpress, N.V. (formerly known as Vistaprint, N.V.), most recently as Executive Vice
President and Chief Financial Officer. Before joining Cimpress, Mr. Teunissen was a founder and director
of two corporate finance and management consulting firms: Manifold Partners from May 2007 through
September 2009 and ThreeStone Ventures Limited from June 2003 through September 2009. From
August 1999 to February 2003, Mr. Teunissen served as an Executive Director in Morgan Stanley’s
Investment Banking Division in London. Mr. Teunissen worked as an Associate Director in Investment
Banking at Deutsche Bank from February 1997 to February 1999 and as a Senior Strategy Consultant at
Monitor Company from April 1990 to February 1995. Mr. Teunissen holds an M.B.A. from the University
of Oregon and a B.B.A. from Nijenrode University, The Netherlands School of Business.
Seth J. Kalvert has served as Senior Vice President, General Counsel and Secretary of
TripAdvisor since August 2011. Mr. Kalvert also serves as Secretary and a director of The TripAdvisor
Charitable Foundation, a private charitable foundation. Prior to joining TripAdvisor, from March 2005 to
August 2011, Mr. Kalvert held positions at Expedia, most recently as Vice President and Associate
General Counsel. Prior to that, Mr. Kalvert worked at IAC/InterActiveCorp. Mr. Kalvert began his career as
an associate at Debevoise & Plimpton, LLP, a New York law firm. Mr. Kalvert also serves on the Board of
Directors of Citizen Schools and as Secretary and a director of the Internet Association, an industry trade
group. Mr. Kalvert holds an A.B. from Brown University and a J.D. from Columbia Law School.
Dermot M. Halpin has been serving as President of the Vacation Rentals division since December
2011 and President of the Attractions division since November 2016. Mr. Halpin served as a board
member commencing June 2009 and Chief Executive Officer commencing November 2009 of Autoquake,
a venture-backed consumer Internet business, until his resignation in March 2011. Prior to Autoquake,
from October 2001 to December 2008, Mr. Halpin worked at Expedia, most recently serving as President
of Expedia EMEA (Europe, Middle East and Africa). Before joining Expedia, Mr. Halpin worked at several
technology-driven businesses. Mr. Halpin holds an M.B.A. from INSEAD and studied engineering at
University College Dublin, Ireland.
Board of Directors
Director Qualifications and Diversity
Our Board of Directors is comprised of a group of individuals whose previous experience, financial
and business acumen, personal ethics and dedication and commitment to our company allow the Board
to complete its key task of oversight. The specific experience and qualifications of each of our Board
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12
members are set forth above. The Board is committed to a policy of inclusiveness and diversity. The
Board believes members should be comprised of persons with diverse skills, expertise, backgrounds and
experiences including, without limitation, the following areas:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
management or board experience in a wide variety of enterprises and organizations;
banking, capital markets and finance;
accounting, audit and financial reporting;
compliance, legal and regulatory;
travel, technology, and commerce;
sales and marketing; and
operations.
In case of a Board vacancy or if the Board elects to increase its size, determinations regarding the
eligibility of director candidates are made by the entire Board, which considers the candidate’s
qualifications as to skills and experience in the context of the needs of the Board of Directors and our
stockholders. When seeking new Board candidates, the Board is committed to a policy of inclusiveness
and will take reasonable steps to ensure that women and minority candidates are considered for the pool
of candidates from which the Board nominees are chosen and will endeavor to include candidates from
non-traditional venues.
Director Independence
Under the NASDAQ Stock Market Listing Rules (the “NASDAQ Rules”), the Board has a
responsibility to make an affirmative determination that those members of the Board who serve as
independent directors do not have any relationships that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. In connection with these independence
determinations, the Board reviews information regarding transactions, relationships and arrangements
relevant to independence, including those required by the NASDAQ Rules. This information is obtained
from director responses to questionnaires circulated by management, as well as our records and publicly
available information. Following this determination, management monitors those transactions,
relationships and arrangements that were relevant to such determination, as well as solicits updated
information potentially relevant to independence from internal personnel and directors, to determine
whether there have been any developments that could potentially have an adverse impact on the Board’s
prior independence determination.
Based on the information provided by each director concerning his background, employment and
affiliations and upon review of this information, our Board of Directors previously determined that each of
Ms. Singh Cassidy and Messrs. Nishar, Philips, Rascoff and Wiesenthal do not have a relationship that
should interfere with the exercise of independent judgment in carrying out the responsibilities of a director
and that each of these directors is an “independent director” as defined under the applicable rules and
regulations of the SEC and NASDAQ. In making its independence determinations, the Board considered
the applicable legal standards and any relevant transactions, relationships or arrangements. In addition to
the satisfaction of the director independence requirements set forth in the NASDAQ Rules, members of
the Audit Committee and Compensation Committees also satisfied separate independence requirements
under the current standards imposed by the SEC and the NASDAQ Rules for audit committee members
and by the SEC, NASDAQ Rules and the Internal Revenue Service for compensation committee
members. At the first meeting of the Board of Directors following the Annual Meeting, the Board intends
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13
to conduct a review of director independence and to designate the members of the Board to serve on
each of the committees and the Chair of each of the committees for the directors’ term.
Controlled Company Status
As of the record date, LTRIP beneficially owned 18,159,752 shares of our common stock and
12,799,999 shares of our Class B common stock, which shares constitute 14.4% of the outstanding
shares of common stock and 100% of the outstanding shares of Class B common stock, respectively.
Assuming the conversion of all of LTRIP’s shares of Class B common stock into common stock, LTRIP
would beneficially own 22.3% of the outstanding common stock. Because each share of Class B common
stock generally is entitled to ten votes per share and each share of common stock is entitled to one vote
per share, LTRIP may be deemed to beneficially own equity securities representing approximately 57.6%
of our voting power. LTRIP has filed a Statement of Beneficial Ownership on Schedule 13D with respect
to its TripAdvisor holdings and related voting arrangements with the SEC.
The NASDAQ Rules exempt “controlled companies,” or companies of which more than 50% of the
voting power is held by an individual, a group or another company, such as TripAdvisor, from certain
governance requirements under the NASDAQ Rules. On this basis, TripAdvisor is relying on the
exemption for controlled companies from certain requirements under the NASDAQ Rules, including,
among others, the requirement that the Compensation Committees be composed solely of independent
directors and certain requirements relating to the nomination of directors. We may, in the future, rely on
other exemptions available to a controlled company, including, among others, the requirement that a
majority of the Board of Directors be composed of independent directors.
Board Leadership Structure
Mr. Maffei serves as the Chairman of the Board of Directors, and Mr. Kaufer serves as President
and Chief Executive Officer of TripAdvisor. The roles of Chief Executive Officer and Chairman of the
Board of Directors are currently separated in recognition of the differences between the two roles. This
leadership structure provides us with the benefit of Mr. Maffei’s oversight of TripAdvisor’s strategic goals
and vision, coupled with the benefit of a full-time Chief Executive Officer dedicated to focusing on the day-
to-day management and continued growth of TripAdvisor and its operating businesses. We believe that it
is in the best interests of our stockholders for the Board of Directors to make a determination regarding
the separation or combination of these roles each time it elects a new Chairman or Chief Executive
Officer based on the relevant facts and circumstances applicable at such time.
Independent members of the Board of Directors chair our Audit Committee, Compensation
Committee and Section 16 Committee.
Meeting Attendance
The Board of Directors met four times in 2017 and acted by written consent one time. During such
period, each member of the Board of Directors attended at least 75% of the meetings of the Board and
the Board committees on which they served. The independent directors meet in regularly scheduled
sessions, typically before or after each Board meeting, without the presence of management. We do not
have a lead independent director or any other formally appointed leader for these sessions. Directors are
encouraged but not required to attend annual meetings of TripAdvisor stockholders. All of the incumbent
directors who were directors at the time have historically attended the annual meetings of stockholders.
Committees of the Board of Directors
The Board of Directors has the following standing committees: the Audit Committee, the
Compensation Committee, the Section 16 Committee and the Executive Committee. The Audit,
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Compensation and Section 16 Committees operate under written charters adopted by the Board of
Directors. These charters are available in the “Corporate Governance” section of the Investor Relations
page of TripAdvisor’s corporate website at ir.tripadvisor.com. At each regularly scheduled Board meeting,
the Chairperson of each committee provides the full Board of Directors with an update of all significant
matters discussed, reviewed, considered and/or approved by the relevant committee since the last
regularly scheduled Board meeting. The membership of our Audit, Compensation and Section 16
Committees ensures that directors with no ties to Company management are charged with oversight for
all financial reporting and executive compensation related decisions made by Company management.
The following table sets forth the current members of the Board of Directors and the members of
each committee of the Board. At the first meeting of the Board of Directors following the Annual Meeting,
the Board intends to conduct a review of director independence and to designate the members of the
Board to serve on each of the committees and the Chair of each of the committees for the directors’ term.
Name
Gregory B. Maffei
Jay C. Hoag
Stephen Kaufer
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert Rosenthaler
Sukhinder Singh Cassidy
Robert S. Wiesenthal
Audit
Committee
Compensation
Committee
Section 16
Committee
Executive
Committee
—
—
—
—
X
X
—
—
Chair
X
X
—
X
—
—
—
—
X
—
X
—
—
—
Chair
—
Chair
—
X
—
X
—
—
—
—
—
—
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Audit Committee
Compensation
Committee
The Audit Committee of the Board of Directors currently consists of
three directors: Messrs. Philips, Rascoff and Wiesenthal. Mr. Wiesenthal
is the Chairman of the Audit Committee. Each Audit Committee
member satisfies the independence requirements under the current
standards imposed by the rules of the SEC and NASDAQ. The Board
has determined that each of Messrs. Wiesenthal, Philips and Rascoff is
an “audit committee financial expert,” as such term is defined in the
regulations promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).
The Audit Committee is appointed by the Board of Directors to assist the
Board with a variety of matters discussed in detail in the Audit
Committee charter, including monitoring (i) the integrity of our
accounting, financial reporting and public disclosures process, (ii) our
relationship with our independent registered public accounting firm,
including qualifications, performance and independence, (iii) the
performance of our internal audit department, and (iv) our compliance
with legal and regulatory requirements. The Audit Committee met four
times in 2017. The formal report of the Audit Committee with respect to
the year ended December 31, 2017 is set forth in the section below titled
“Audit Committee Report.”
The Compensation Committee currently consists of four directors:
Ms. Singh Cassidy and Messrs. Maffei, Hoag and Nishar, Ms. Singh
Cassidy is the Chairperson of the Compensation Committee. Each
member of the Compensation Committee is an “outside director” for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”). With the exception of Mr. Maffei, each member
is an “independent director” as defined by the NASDAQ Rules. No
member of the Compensation Committee is an employee of TripAdvisor.
The Compensation Committee is responsible for (i) designing and
overseeing compensation with respect to our executive officers,
including salary matters, bonus plans and stock compensation plans;
(ii) administrating our stock plans, including approving grants of equity
awards but excluding matters governed by Rule 16b-3 under the
Exchange Act (which are handled by the Section 16 Committee
described below); and (iii) periodically reviewing and approving
compensation of the members of our Board. A description of our policies
and practices for the consideration and determination of executive
compensation is included in the section below titled “Compensation
Discussion and Analysis.” The Compensation Committee met five times
in 2017.
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Section 16 Committee
Executive Committee
The Section 16 Committee currently consists of three directors:
Ms. Singh Cassidy, Mr. Hoag and Mr. Nishar. Ms. Singh Cassidy is the
Chairperson of the Section 16 Committee. Each member is an
“independent director” as defined by the NASDAQ Rules and satisfies
the definition of “non-employee director” for purposes of Section 16 of
the Exchange Act.
The Section 16 Committee is authorized to exercise all powers of the
Board of Directors with respect to matters governed by Rule 16b-3
under the Exchange Act, including approving grants of equity awards to
TripAdvisor’s executive officers. The Section 16 Committee met five
times in 2017.
In this Proxy Statement, we refer to the Compensation Committee and
Section 16 Committee collectively as the “Compensation Committees.”
The Executive Committee currently consists of two directors:
Messrs. Kaufer and Maffei. The Executive Committee has the powers
and authority of the Board of Directors, except for those matters that are
specifically reserved to the Board of Directors under Delaware law or
our organizational documents. The Executive Committee primarily
serves as a means to address issues that may arise and require Board
approval between regularly scheduled Board meetings. Following are
some examples of matters that could be handled by the Executive
Committee: (i) oversight and implementation of matters approved by the
Board of Directors (including any share repurchase program);
(ii) administrative matters with respect to benefit plans, transfer agent
matters, banking authority, formation of subsidiaries and other
administrative items involving subsidiaries and determinations or
findings under TripAdvisor’s financing arrangements; and (iii) in the case
of a natural disaster or other emergency as a result of which a quorum
of the Board of Directors cannot readily be convened for action, directing
the management of the business and affairs of TripAdvisor during such
emergency or natural disaster. The Executive Committee met informally
throughout 2017.
Risk Oversight
Assessing and managing risk is the responsibility of TripAdvisor’s management. Our Board of
Directors oversees and reviews certain aspects of our risk management efforts. Our Board of Directors is
involved in risk oversight through direct decision-making authority with respect to significant matters and
the oversight of management by the Board of Directors and its committees. The President and Chief
Executive Officer; the Senior Vice President, Chief Financial Officer and Treasurer; and the Senior Vice
President, General Counsel and Secretary attend Board meetings and discuss operational risks with the
Board. Management also provides reports and presentations on strategic risks to the Board. Among other
areas, the Board is involved, directly or through its committees, in overseeing risks related to our overall
corporate strategy, business continuity, crisis preparedness and competitive and reputational risks.
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The committees of the Board execute their oversight responsibility for risk management as follows:
(cid:221)
(cid:221)
The Audit Committee has primary responsibility for discussing with management TripAdvisor’s
major financial risks and the steps management has taken to monitor and control such risks.
In fulfilling its responsibilities, the Audit Committee receives regular reports from, among
others, the Chief Financial Officer, the General Counsel, the Vice President of Tax and the
Chief Accounting Officer as well as from representatives of information security, internal audit,
the company’s compliance committee and the Company’s auditors. The Audit Committee
makes regular reports to the Board of Directors. In addition, TripAdvisor has, under the
supervision of the Audit Committee, established procedures available to all employees for the
anonymous and confidential submission of complaints relating to any matter to encourage
employees to report questionable activities directly to our senior management and the Audit
Committee.
The Compensation Committees consider and evaluate risks related to our cash and equity-
based compensation programs, policies and practices and evaluate whether our
compensation programs encourage participants to take excessive risks that are reasonably
likely to have a material adverse effect on TripAdvisor or our business. Consistent with SEC
disclosure requirements, the Compensation Committees, working with management, have
assessed the compensation policies and practices for our employees, including our executive
officers, and have concluded that such policies and practices do not create risks that are
reasonably likely to have a material adverse effect on TripAdvisor
Ultimately, management is responsible for the day-to-day risk management process, including
identification of key risks and implementation of policies and procedures to manage, mitigate and monitor
risks. In fulfilling these duties, management conducts annually an enterprise and internal audit risk
assessment and uses the results of these assessments in its risk management efforts. In addition,
management has formed a Compliance Committee in connection with the implementation, management
and oversight of a corporate compliance program to promote operational excellence throughout the entire
organization in adherence with all legal and regulatory requirements and with the highest ethical
standards.
Director Nominations
Given the ownership structure of TripAdvisor and our status as a “controlled company,” the Board of
Directors does not have a nominating committee or other committee performing similar functions or any
formal policy on director nominations. The Board of Directors does not have specific requirements for
eligibility to serve as a director of TripAdvisor, nor does it have a specific policy on diversity; however, the
Board of Directors does consider, among other things, diversity when considering nominees to serve on
our Board of Directors. We broadly construe diversity to mean diversity of opinions, perspectives, and
personal and professional experiences and backgrounds, such as gender, race and ethnicity, as well as
other differentiating characteristics. In evaluating candidates, regardless of how recommended, the Board
of Directors considers a number of factors, including whether the professional and personal ethics and
values of the candidate are consistent with those of TripAdvisor; whether the candidate’s experience and
expertise would be beneficial to the Board in rendering service to TripAdvisor, including in providing a mix
of Board members that represent a diversity of backgrounds, perspectives and opinions; whether the
candidate is willing and able to devote the necessary time and energy to the work of the Board of
Directors; and whether the candidate is prepared and qualified to represent the best interests of
TripAdvisor’s stockholders.
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Pursuant to the Governance Agreement, LTRIP has the right to nominate a number of directors
equal to 20% of the total number of the directors on the Board of Directors (rounded up to the next whole
number if the number of directors on the Board is not an even multiple of five) for election to the Board of
Directors so long as certain stock ownership requirements are satisfied. LTRIP has nominated Messrs.
Maffei and Rosenthaler as nominees for 2018. The other nominees to the Board of Directors were
recommended by the Chairman and then were considered and recommended by the entire Board of
Directors.
The Board of Directors does not have a formal policy regarding the consideration of director
candidates recommended by stockholders, as historically TripAdvisor has not received such
recommendations. However, the Board of Directors would consider such recommendations if made in
the future. Stockholders who wish to make such a recommendation should send the recommendation to
TripAdvisor, Inc., 400 1st Avenue, Needham, Massachusetts 02494, Attention: Secretary. The envelope
must contain a clear notation that the enclosed letter is a “Director Nominee Recommendation.” The letter
must identify the author as a stockholder, provide a brief summary of the candidate’s qualifications and
history and be accompanied by evidence of the sender’s stock ownership, as well as consent by the
candidate to serve as a director if elected. Any director candidate recommendations will be reviewed by
the Secretary and, if deemed appropriate, forwarded to the Chairman for further review. If the Chairman
believes that the candidate fits the profile of a director nominee as described above, the recommendation
will be shared with the entire Board of Directors.
Communications with the Board
Stockholders who wish to communicate with the Board of Directors or a particular director may send
such communication to TripAdvisor, Inc., 400 1st Avenue, Needham, Massachusetts 02494, Attention:
Secretary. The mailing envelope must contain a clear notation indicating that the enclosed letter is a
“Stockholder-Board Communication” or “Stockholder-Director Communication.” All such letters must
identify the author as a stockholder, provide evidence of the sender’s stock ownership and clearly state
whether the intended recipients are all members of the Board of Directors or certain specified directors.
The Secretary will then review such correspondence and forward it to the Board of Directors, or to the
specified director(s), if deemed appropriate. Communications that are primarily commercial in nature, that
are not relevant to stockholders or other interested constituents or that relate to improper or irrelevant
topics will generally not be forwarded to the Board of Directors or to the specified director(s).
TripAdvisor, Inc. |
2018 Proxy Statement
19
PROPOSAL 2:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Overview
The Audit Committee of the Board of Directors is directly responsible for the appointment,
compensation, retention and oversight of the external accounting firm retained to audit the Company’s
financial statements. The Audit Committee has retained KPMG LLP (“KPMG”) as TripAdvisor’s
independent registered public accounting firm for the fiscal year ending December 31, 2018.
KPMG has served as TripAdvisor’s independent registered public accounting firm continuously
since the audit of the Company’s financial statements for the fiscal year ended December 31, 2014. In
order to assure continuing auditor independence, the Audit Committee periodically considers whether
there should be a regular rotation of the independent external audit firm. The members of the Audit
Committee and the Board believe that the continued retention of KPMG to serve as the Company’s
independent external auditor is in the best interest of the Company and its investors. A representative of
KPMG is expected to be present at the Annual Meeting, and will be given an opportunity to make a
statement if he or she so chooses and will be available to respond to appropriate questions.
If the stockholders fail to vote to ratify the appointment of KPMG, the Audit Committee will
reconsider whether to retain KPMG and may retain that firm or another firm without resubmitting the
matter to our stockholders. Even if stockholders vote on an advisory basis in favor of the appointment, the
Audit Committee may, in its discretion, direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines that such a change would be in the best
interests of TripAdvisor and our stockholders.
Required Vote
We ask our stockholders to ratify the appointment of KPMG as our independent registered public
accounting firm for the fiscal year ending December 31, 2018. This proposal requires the affirmative vote
of a majority of the voting power of our shares, present in person or represented by proxy, and entitled to
vote thereon, voting together as a single class. With respect to the ratification of KPMG, you may vote
“FOR”, “AGAINST” or “ABSTAIN”. Abstentions will be counted toward the tabulations of voting power
present and entitled to vote on the ratification of the independent registered public accounting firm
proposal and will have the same effect as votes against the proposal. Brokers have discretion to vote on
the proposal for ratification of the independent registered public accounting firm.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS TRIPADVISOR’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2018.
TripAdvisor, Inc. |
2018 Proxy Statement
20
Fees Paid to Our Independent Registered Public Accounting Firm
KPMG was TripAdvisor’s independent registered public accounting firm for the fiscal years ended
December 31, 2017 and 2016. The following table sets forth aggregate fees for professional services
rendered by KPMG for the years ended December 31, 2017 and 2016.
Audit Fees(1)
Audit-Related Fees(2)
Other Fees
Total Fees
2017
2,203,537
77,000
2,730
2,283,267
$
$
$
2016
2,017,754
1,000
2,730
2,021,484
$
$
$
(1)
(2)
Audit Fees include fees and expenses associated with the annual audit of our consolidated financial statements,
statutory audits, review of our periodic reports, accounting consultations, review of SEC registration statements, report
on the effectiveness of internal control and consents and other services related to SEC matters.
Audit-Related fees include fees and expenses for consultations in connection with due diligence assistance.
Audit and Non-Audit Services Pre-Approval Policy
The Audit Committee has responsibility for appointing, setting compensation of, retaining and
overseeing the work of the independent registered public accounting firm. In recognition of this
responsibility, the Audit Committee has adopted a policy governing the pre-approval of all audit and
permitted non-audit services performed by TripAdvisor’s independent registered public accounting firm to
ensure that the provision of such services does not impair the independent registered public accounting
firm’s independence from TripAdvisor and our management. Unless a type of service to be provided by
our independent registered public accounting firm has received general pre-approval from the Audit
Committee, it requires specific pre-approval by the Audit Committee. The payment for any proposed
services in excess of pre-approved cost levels requires specific pre-approval by the Audit Committee.
Pursuant to its pre-approval policy, the Audit Committee may delegate its authority to pre-approve
services to one or more of its members, and it has currently delegated this authority to its Chairman,
subject to a limit of $250,000 per approval. The decisions of the Chairman (or any other member(s) to
whom such authority may be delegated) to grant pre-approvals must be presented to the full Audit
Committee at its next scheduled meeting. The Audit Committee may not delegate its responsibilities to
pre-approve services to Company management.
All of the audit-related, tax and all other services provided to us by KPMG in 2017 and 2016 were
approved by the Audit Committee by means of specific pre-approvals or pursuant to the procedures
contained in the Company’s pre-approval policy.
The Audit Committee has considered the non-audit services provided by KPMG in 2017 and 2016,
as described above, and believes that they are compatible with maintaining KPMG’s independence in the
conduct of their auditing functions.
TripAdvisor, Inc. |
2018 Proxy Statement
21
AUDIT COMMITTEE REPORT
Management has primary responsibility for our financial statements, reporting process and system
of internal control over financial reporting. TripAdvisor’s independent registered public accounting firm is
engaged to audit and express opinions on the conformity of our financial statements to generally
accepted accounting principles, and the effectiveness of TripAdvisor’s internal control over financial
reporting.
The Audit Committee serves as a representative of the Board of Directors and assists the Board in
monitoring (i) the integrity of our accounting, financial reporting and public disclosures process, (ii) our
relationship with our independent registered public accounting firm, including qualifications, performance
and independence, (iii) the performance of our internal audit department, and (iv) our compliance with
legal and regulatory requirements. In this context, the Audit Committee met four times in 2017 and,
among other things, took the following actions:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
appointed KPMG as our auditors and discussed with the auditors the overall scope and plans
for the independent audit and pre-approved all audit and non-audit services to be performed by
KPMG;
reviewed and discussed with management and the auditors the audited consolidated financial
statements for the year ended December 31, 2017, as well as our quarterly financial statements
and interim financial information contained in each quarterly earnings announcement prior to
public release;
discussed with the auditors the matters required to be discussed by the Public Company
Accounting Oversight Board (“PCAOB”), and received all written disclosures and letters required
by the applicable requirements of the PCAOB;
discussed with the auditors its independence from TripAdvisor and TripAdvisor’s management
as well as considered whether the non-audit services provided by the auditors could impair its
independence and concluded that such services would not;
reviewed and discussed with management and the auditors our compliance with the
requirements of the Sarbanes-Oxley Act of 2002 with respect to internal control over financial
reporting, together with management’s assessment of the effectiveness of our internal control
over financial reporting and the auditors’ audit of internal control over financial reporting; and
regularly met with KPMG, with and without management present, to discuss the results of their
examinations, including the integrity, adequacy and effectiveness of the accounting and
financial reporting processes and controls.
Relying on the reviews and discussions referred to above, the Audit Committee recommended to
the Board of Directors that the audited consolidated financial statements be included in our Annual Report
on Form 10-K for the year ended December 31, 2017, and the Board approved such inclusion.
No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, through
any general statement incorporating by reference in its entirety the Proxy Statement in which this report
appears, except to the extent that TripAdvisor specifically incorporates this report or a portion of it by
reference. In addition, this report shall not be deemed to be “soliciting material” or “filed” under either the
Securities Act or the Exchange Act.
Members of the Audit Committee:
Robert S. Wiesenthal (Chairman)
Jeremy Philips
Spencer Rascoff
TripAdvisor, Inc. |
2018 Proxy Statement
22
APPROVAL OF TRIPADVISOR, INC. 2018 STOCK AND ANNUAL INCENTIVE PLAN
PROPOSAL 3:
Proposal
The Board of Directors believes that stock options, restricted stock units and other stock-based
incentive awards can play an important role in the success of TripAdvisor by encouraging and enabling
our employees, officers, non-employee directors and consultants, upon whose judgment, initiative and
efforts we largely depend for the success of our business, to acquire a proprietary interest in TripAdvisor.
The Board of Directors anticipates that providing such persons with a direct stake in the Company will
assure a closer identification of the interests of such individuals with those of TripAdvisor and its
stockholders, thereby stimulating their efforts on TripAdvisor’s behalf and strengthening their desire to
remain with TripAdvisor.
On April 24, 2018, the Board of Directors approved the TripAdvisor, Inc. 2018 Stock and Annual
Incentive Plan, or the 2018 Plan, subject to approval by the stockholders, primarily for the purpose of
providing sufficient reserves of shares of our common stock to ensure our ability to continue to provide
new hires, employees and management with equity incentives. If approved, the number of shares
reserved and available for issuance under the 2018 Plan would be 6,000,000 plus the number of shares
available for issuance (and not subject to outstanding awards) under the TripAdvisor, Inc. Amended and
Restated 2011 Stock and Annual Incentive Plan, or the 2011 Plan, as of the effective date of the 2018
Plan. The 2018 Plan also incorporates various other important changes to reflect developments in law,
including the Tax Cuts and Jobs Act of 2017, as passed by Congress in November 2017 (the “2017 Tax
Act”).
Historical Burn Rate and Expected Duration
We are committed to managing the use of our equity incentives prudently to balance the benefits
that equity compensation brings to our equity compensation programs against the dilution it causes our
stockholders. As a result, as part of our analysis when considering the number of shares to be reserved
under the 2018 Plan, we reviewed key metrics that are typically used to evaluate such proposed
increases. One such metric considered was our “burn rate” calculation in order to quantify how quickly
we use our stockholder capital. Over the last three years, TripAdvisor has had an average unadjusted
gross burn rate of 2.9%, well below the average unadjusted gross burn rate of 4.3% for companies in our
peer group. Over the same time frame, our average adjusted burn rate is 4.8% which is also below the
average adjusted burn rate for companies in our peer group of 5.8%. The adjusted burn rate assumes a
2x weighting for grants of restricted stock units, or RSUs.
As a result, we currently expect that the proposed share reserve under the 2018 Plan will be
sufficient for currently-anticipated awards through 2021. Expectations regarding future share usage could
be impacted by a number of factors including but not limited to, hiring and promotion activity; the rate at
which shares are returned to the 2018 Plan reserve upon the expiration, forfeiture and net share
settlement of awards; the future performance of our stock price; terms of any potential future acquisitions
and other factors. While we believe that the assumptions we used are reasonable, future share usage
may differ from current expectations.
TripAdvisor, Inc. |
2018 Proxy Statement
23
Summary of Material Features of the 2018 Plan
Some of the material features of the 2018 Plan are as follows:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
The total number of shares of common stock available for issuance under the 2018 Plan is
6,000,000 plus the number of shares available for issuance under the 2011 Plan as of the
effective date of the 2018 Plan.
Shares of common stock underlying awards that are forfeited, cancelled or otherwise
terminated and shares tendered or held back for taxes or to cover the exercise price of options
under the 2018 Plan and the 2011 Plan will be added back to the reserve pool under the 2018
Plan. Shares of common stock repurchased on the open market will not be added back to the
shares available for issuance under the 2018 Plan.
Based on current grant practices, we currently expect that the 2018 Plan will provide the
Compensation Committees with sufficient shares for grants through 2021.
The 2018 Plan does not allow for acceleration of equity awards solely upon a change in control
(also known as a “single trigger”).
Stock options and stock appreciation rights may not be repriced in any manner without
stockholder approval.
The 2018 Plan provides that, during any calendar year, the maximum value of awards made
under the 2018 Plan and cash fees paid to any non-employee director shall not exceed
$1,000,000.
Any material amendment to the 2018 Plan is subject to approval of our stockholders.
Unless sooner terminated, the 2018 Plan carries a 10-year term and will expire on June 21,
2028.
Summary of the 2018 Plan
The following description of certain features of the 2018 Plan is intended to be a summary only. The
summary is qualified in its entirety by the full text of the 2018 Plan that is attached hereto as Appendix A.
Plan Administration. The 2018 Plan is administered by the Compensation Committees. The
Compensation Committees have full power to select, from among the individuals eligible for awards, the
individuals to whom awards will be granted, to make any combination of awards to participants, and to
determine the specific terms and conditions of each award, subject to the provisions of the 2018 Plan.
The Compensation Committees may delegate to an officer of TripAdvisor the authority to grant awards to
employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act,
subject to certain limitations and guidelines.
Eligibility. Persons eligible to participate in the 2018 Plan are the directors, officers, employees,
and consultants of TripAdvisor and its subsidiaries or affiliates as selected from time to time by the
Compensation Committees in their discretion. Approximately 3,200 individuals are currently eligible to
participate in the 2018 Plan, which includes four executive officers, 3,188 employees who are not officers,
and eight non-employee directors.
Plan and Individual Limits. No more than 7,000,000 shares in the aggregate may be issued in the
form of incentive stock options. The 2018 Plan provides that the value of awards under the 2018 Plan
and all other compensation paid by the Company to any non-employee director in any calendar year shall
not exceed $1,000,000.
TripAdvisor, Inc. |
2018 Proxy Statement
24
Types of Awards. The 2018 Plan allows for the grant of different types of awards including, but not
limited to, options, stock appreciation rights, restricted stock, restricted stock units, other stock-based
awards and bonus awards.
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
Options. The 2018 Plan permits the granting of (1) options to purchase common stock
intended to qualify as incentive stock options under Section 422 of the Code and (2) options
that do not so qualify. To qualify as incentive options, options must meet additional federal tax
requirements, including a $100,000 limit on the value of shares subject to incentive options that
first become exercisable by a participant in any one calendar year. Options granted under the
2018 Plan will be non-qualified options if they fail to qualify as incentive options under Section
422 of the Code or exceed the annual limit on incentive stock options. The exercise price of
each option will be determined by the Compensation Committees but may not be less than
100% of the fair market value of the common stock on the grant date. The term of each option
will be fixed by the Compensation Committees and may not exceed ten years from the date of
grant. Non-qualified options may be granted to any persons eligible to receive incentive options
and to non-employee directors and consultants. The option exercise price of each option will be
determined by the Compensation Committees but may not be less than 100% of the fair market
value of the common stock on the date of grant. Fair market value for this purpose will be the
last reported sale price of the shares of common stock on NASDAQ on the date immediately
preceding the grant date. The exercise price of an option may not be reduced after the date of
the option grant, other than to appropriately reflect changes in our capital structure.
Options may be exercisable in installments and the exercisability of options may be accelerated
by the Compensation Committees. Upon exercise of options, the option exercise price must be
paid in full by certified or bank check or other instrument acceptable to the Compensation
Committees or, if authorized at the time the option is granted, by delivery (or attestation to the
ownership) of shares of common stock that are beneficially owned by the optionee. In addition,
the Compensation Committees may permit options to be exercised using a net exercise feature
which reduces the number of shares issued to the optionee by the number of shares with a fair
market value equal to the exercise price.
Stock Appreciation Rights. The Compensation Committees may award tandem or free-
standing stock appreciation rights, subject to such conditions and restrictions as the
Compensation Committees may determine. Stock appreciation rights entitle the recipient to
shares of common stock, or cash, equal to the value of the appreciation in the stock price over
the exercise price. The exercise price may not be less than the fair market value of the common
stock on the date of grant and the term shall not exceed ten years from the grant date. The
terms of the stock appreciation right (including whether the payment is made in common stock
or cash) shall be determined by the Compensation Committees.
Restricted Stock. The Compensation Committees may award shares of common stock to
participants subject to such conditions and restrictions as the Compensation Committees may
determine. These conditions and restrictions may include continued employment with
TripAdvisor through a specified vesting period and/or the achievement of certain performance
goals.
Restricted Stock Units. The Compensation Committees may award restricted stock units to
any participant. These units are ultimately payable in the form of shares of common stock,
cash, or a combination of both and may be subject to such conditions and restrictions as the
Compensation Committees may determine. As with restricted stock, these conditions and
restrictions may include continued employment with TripAdvisor through a specified vesting
period and/or the achievement of certain performance goals.
Other Stock-Based Awards. The Compensation Committees may grant awards of common
stock or other awards that are valued in whole or in part by reference to or are otherwise based
upon or settled in common stock, including without limitation unrestricted stock, performance
TripAdvisor, Inc. |
2018 Proxy Statement
25
units, dividend equivalents and convertible debentures. Dividend equivalents to participants
which entitle the recipient to receive credits for dividends that would be paid if the recipient had
held specified shares of common stock. Dividend equivalents granted as a component of
another award subject to performance vesting may be paid only if the related award becomes
vested.
(cid:221)
Bonus Awards. The Compensation Committees may grant bonuses under the 2018 Plan to
participants. The bonuses may be payable in cash or common stock and may be subject to the
achievement of certain performance goals.
Change in Control Provisions. The 2018 Plan provides that, unless otherwise specified in the
applicable award agreement, upon a participant’s termination of employment within three months prior or
12 months following a change in control of the Company, other than for “cause” or “disability,” or by the
participant for “good reason” (as all such terms are defined in the 2018 Plan), for participants serving in
the position of Vice President or above, any and all restricted stock and restricted stock units held by such
participant will automatically vest and any and all stock options and stock appreciation rights held by such
participant will automatically become fully exercisable and will remain exercisable until the later of (i) the
last day on which such option or stock appreciation right is exercisable as specified in the applicable
award agreement or (ii) the earlier of the first anniversary of the change in control and the expiration of
the term of the option or stock appreciation right. The restrictions and conditions on all other awards will
automatically be deemed waived. For the remaining participants, under such circumstances, only 50% of
such participant’s equity awards shall accelerate.
participant’s death any and all restricted stock and restricted stock units held by such participant will
automatically vest and any and all stock options and stock appreciation held by such participant will
automatically become fully exercisable and will remain exercisable until the earlier of (i) the first
anniversary of the date of such death and (ii) the expiration of the term of such award.
In addition, the 2018 Plan provides that upon a
Adjustments for Stock Dividends, Stock Splits, Etc. The 2018 Plan requires the Compensation
Committees to make appropriate adjustments to the number of shares of common stock that are subject
to the 2018 Plan, to certain limits in the 2018 Plan, and to any outstanding awards to reflect stock
dividends, stock splits, extraordinary cash dividends and similar events.
Tax Withholding. Participants in the 2018 Plan are responsible for the payment of any federal,
state or local taxes that TripAdvisor is required by law to withhold upon the exercise of options or stock
appreciation rights or vesting of other awards. Subject to approval by the Compensation Committees,
participants may elect to have the minimum tax withholding obligations satisfied by authorizing
TripAdvisor to withhold shares of common stock to be issued pursuant to the exercise or vesting or by an
arrangement whereby a certain number of shares of stock issued pursuant to an award are immediately
sold and proceeds from such sale are remitted to TripAdvisor in an amount that would satisfy the
withholding amount due. The Compensation Committees may also require awards to be subject to
mandatory share withholding up to the required withholding amount.
Amendments and Termination. The Board of Directors may at any time amend, alter or
discontinue the 2018 Plan and the Compensation Committees may unilaterally amend the terms of any
award, prospectively or retroactively. However, no such action may materially impair rights of a participant
with respect to a previously granted award without the participant’s consent, except for such an
amendment made to comply with applicable law (including without limitation Section 409A of the Code),
stock exchange rules or accounting rules. In addition, no such amendment shall be made without
stockholder approval to the extent such approval is required by applicable law or the listing standards of
NASDAQ.
TripAdvisor, Inc. |
2018 Proxy Statement
26
New Plan Benefits
Because the grant of awards under the 2018 Plan is within the discretion of the Compensation
Committees, the Company cannot determine the dollar value or number of shares of common stock that
will in the future be received by or allocated to any participant pursuant to the 2018 Plan. Accordingly, in
lieu of providing information regarding benefits that will be received under the 2018 Plan, the following
table provides information concerning the benefits that were received by the following persons and
groups during 2017: each named executive officer; all current executive officers, as a group; all current
directors who are not executive officers, as a group; and all current employees who are not executive
officers, as a group.
Name and Position
Stephen Kaufer, President and Chief Executive
Officer
Ernst Teunissen, Senior Vice President, Chief
Financial Officer and Treasurer
Seth Kalvert, Senior Vice President, General
Counsel and Secretary
Options
Stock Awards
Average Exercise
Price
($)
Number of
Shares
Subject to
Awards
Dollar Value
($)(1)
Number of
Shares or RSUs
34.71
780,000
28,578,210
852,000
42.81
144,227
4,499,973
105,115
42.81
123,100
2,124,960
49,637
Dermot Halpin, President, Vacation Rentals and
Attractions
42.81
98,920
6,299,893
138,993
All current executive officers, as a group
37.30
(2)
1,146,247
41,453,027
(3)
1,145,745
All current directors who are not executive
officers, as a group
— (2)
—
1,749,762
(3)
48,958
All current employees who are not executive
officers, as a group
42.66
(2)
1,187,114
171,950,183
(3)
3,847,457
(1) The valuation of stock awards is based on the grant date fair value computed in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. We have disclosed the assumptions made in the valuation
of the stock awards in “Note 4 - Stock Based Awards and Other Equity Based Instruments” in the notes to our consolidated
financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual
Report”).
(2) Represents the weighted-average exercise price for the group.
(3) Represents the aggregate grant date fair value for the group.
Tax Aspects Under the Code
The following is a summary of the principal federal income tax consequences of certain transactions
under the 2018 Plan. It does not describe all federal tax consequences under the 2018 Plan, nor does it
describe state or local tax consequences.
Incentive Options. No taxable income is generally realized by the optionee upon the grant or
exercise of an incentive option. If shares of common stock issued to an optionee pursuant to the exercise
of an incentive option are sold or transferred after two years from the date of grant and after one year
from the date of exercise, then (i) upon sale of such shares, any amount realized in excess of the option
price (the amount paid for the shares) will be taxed to the optionee as a long-term capital gain, and any
loss sustained will be a long-term capital loss, and (ii) the Company will not be entitled to any deduction
for federal income tax purposes. The exercise of an incentive option will give rise to an item of tax
preference that may result in alternative minimum tax liability for the optionee.
TripAdvisor, Inc. |
2018 Proxy Statement
27
If shares of common stock acquired upon the exercise of an incentive option are disposed of prior to
the expiration of the two-year and one-year holding periods described above (a “disqualifying
disposition”), generally (i) the optionee will realize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares of common stock at exercise (or, if less,
the amount realized on a sale of such shares of common stock) over the option price thereof, and (ii) we
will be entitled to deduct such amount. Special rules will apply where all or a portion of the exercise price
of the incentive option is paid by tendering shares of common stock.
If an incentive option is exercised at a time when it no longer qualifies for the tax treatment
described above, the option is treated as a non-qualified option. Generally, an incentive option will not be
eligible for the tax treatment described above if it is exercised more than three months following
termination of employment (or one year in the case of termination of employment by reason of disability).
In the case of termination of employment by reason of death, the three-month rule does not apply.
Non-Qualified Options. No income is realized by the optionee at the time the option is granted.
Generally (i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference
between the option price and the fair market value of the shares of common stock on the date of exercise,
and we receive a tax deduction for the same amount; and (ii) at disposition, appreciation or depreciation
after the date of exercise is treated as either short-term or long-term capital gain or loss depending on
how long the shares of common stock have been held. Special rules will apply where all or a portion of
the exercise price of the non-qualified option is paid by tendering shares of common stock. Upon
exercise, the optionee will also be subject to Social Security taxes on the excess of the fair market value
over the exercise price of the option.
Other Awards. The Company generally will be entitled to a tax deduction in connection with an
award under the 2018 Plan in an amount equal to the ordinary income realized by the participant at the
time the participant recognizes such income. Participants typically are subject to income tax and
recognize such tax at the time that an award is exercised, vests or becomes non-forfeitable, unless the
award provides for a further deferral.
Parachute Payments. The vesting of any portion of an option or other award that is accelerated
due to the occurrence of a change in control may cause a portion of the payments with respect to such
accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute
payments may be non-deductible to the Company, in whole or in part, and may subject the recipient to a
non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes
ordinarily payable).
Limitation on Deductions. Under Section 162(m) of the Code, the Company’s deduction for awards
under the 2018 Plan may be limited to the extent that any “covered employee” (as defined in Section
162(m) of the Code) receives compensation in excess of $1 million a year.
Required Vote
We ask our stockholders to approve the TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan.
This proposal requires the affirmative vote of a majority of the voting power of the shares of TripAdvisor
capital stock, present in person or represented by proxy, and entitled to vote thereon, voting together as a
single class.
With respect to approval of the 2018 Plan, you may vote “FOR”, “AGAINST” or “ABSTAIN”.
Abstentions will only be counted toward the tabulations of voting power present and entitled to vote on the
2018 Plan proposal and will have the same effect as votes against the proposal. Brokers do not have
discretion to vote on the proposal to approve the 2018 Plan and broker non-votes will have no effect on
the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL
OF THE TRIPADVISOR, INC. 2018 STOCK AND ANNUAL INCENTIVE PLAN.
TripAdvisor, Inc. |
2018 Proxy Statement
28
PROPOSAL 4:
ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
Overview
We are required to provide our stockholders with an opportunity to approve, on an advisory basis,
the compensation of our named executive officers, or NEOs. In recognition of the preference of our
stockholders expressed at our 2012 annual meeting of stockholders, the Board holds “say on pay”
advisory votes every three years. Consistent with this practice and SEC rules, we are asking our
stockholders to approve, on an advisory basis, the compensation of our NEOs as disclosed in this Proxy
Statement.
Our Board of Directors, with the Compensation Committees and senior management, is committed
to designing an effective compensation program and recognizes that our stockholders have an interest in
our executive compensation policies and practices. Our executive compensation program is designed to
attract, retain and motivate highly skilled executives with the experience and acumen that management
and the Compensation Committees believe are necessary to achieve our long-term business objectives.
In addition, the executive compensation program is designed to reward short-term and long-term
performance and to align the financial interests of executive officers with the interests of our stockholders
by tying a significant portion of their compensation to our performance, thereby rewarding our executive
officers for the creation of stockholder value.
Our last advisory vote on the compensation of our NEOs was held at our 2015 annual meeting of
stockholders. At that meeting, stockholders representing approximately 86% of the votes cast on the
NEO compensation proposal approved, on an advisory basis, the compensation of our NEOs as
disclosed in our proxy statement for that meeting. Since then, our Compensation Committees have made
modifications to our executive compensation program specifically to address concerns raised by our
stockholders, the recommendations of major proxy advisory firms, the practices of companies in our peer
group and the views of our compensation consultant. We have adopted features and policies that we
believe ensure promotion of stockholders’ interests and strong corporate governance, including, but not
limited to, the following:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
Greater portions of compensation that are incentive based, or “at-risk”, as described in more
detail in the section entitled “Compensation Discussion and Analysis”;
Increased focus on structuring annual bonus and equity awards so that payouts are tied to the
achievement of financial targets and strategic objectives;
Equity awards are subject to a “clawback” policy;
Robust executive stock ownership guidelines;
Amendment of our stock plan to prohibit acceleration of equity awards upon a “single trigger”
and to provide for “double trigger” arrangements in our change in control provisions and
severance arrangements;
A policy that prohibits hedging, or hedging against losses, of TripAdvisor securities; and
Provisions in our equity plans that prohibit repricing of stock options without stockholder
approval.
We will continue to evaluate ways to ensure that our executive compensation programs compensate our
NEOs for performance that furthers our business strategy and initiatives, competitive performance, sound
corporate governance principles and stockholder value and return. We will continue to seek to align our
TripAdvisor, Inc. |
2018 Proxy Statement
29
NEOs’ incentive compensation opportunities to the achievement of short-term and long-term performance
objectives that are directly aligned with the interest of our stockholders.
Required Vote
We are asking for stockholder approval, on an advisory basis, of the compensation of our NEOs as
disclosed in this Proxy Statement, which include the disclosures in the “Executive Compensation” and
“Compensation Discussion and Analysis” sections, the compensation tables and the narrative discussion
following the compensation tables. This vote is not intended to address any specific item of
compensation, but rather the overall compensation of our NEOs and the policies and practices described
in this Proxy Statement.
Generally, approval of any matter presented to stockholders requires the affirmative vote of a
majority of the voting power of the shares of our capital stock, present in person or represented by proxy,
and entitled to vote thereon, voting together as a single class. This vote is advisory and therefore not
binding on TripAdvisor, the Compensation Committees, or the Board of Directors. However, the Board
and the Compensation Committees value the opinions TripAdvisor’s stockholders express in their votes
and will review the voting results and take them into consideration as they deem appropriate when
making future decisions regarding our executive compensation program.
With respect to the advisory vote on the compensation of our NEOs, you may vote “FOR”,
“AGAINST” or “ABSTAIN”. Abstentions will be counted toward the tabulations of voting power present
and entitled to vote on this proposal and will have the same effect as votes against the proposal. Brokers
do not have discretion to vote on the proposal regarding TripAdvisor’s executive compensation and
broker non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL
OF THE COMPENSATION OF TRIPADVISOR, INC.’S NAMED EXECUTIVE OFFICERS AS
DISCLOSED IN THIS PROXY STATEMENT.
TripAdvisor, Inc. |
2018 Proxy Statement
30
PROPOSAL 5:
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY RESOLUTIONS TO APPROVE
THE COMPENSATION OF TRIPADVISOR’S NAMED EXECUTIVE OFFICERS
Overview
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank
Act, this proposal, commonly known as a “say on frequency” proposal, enables our stockholders to vote,
on an advisory or non-binding basis, on how frequently they would like to vote on future advisory
resolutions to approve the compensation of our NEOs. By voting on this proposal, stockholders may
indicate whether they would prefer an advisory vote on NEO compensation every one, two or three years.
At the 2012 annual meeting of stockholders, our stockholders determined to hold a vote, on an advisory
basis, to approve the compensation of our NEOs every three years; however, the SEC rules require that
stockholders vote on this proposal no less frequently than every six years. In light of our stockholders’
prior stated preference, as expressed in the 2012 vote, our Board of Directors recommends that
stockholders vote for a three-year interval for future advisory votes on the compensation of our NEOs.
In formulating its recommendation, our Board considered that a triennial vote on an advisory
resolution to approve the compensation of our NEOs is a reasonable frequency, as it is more in line with
the long-term nature of our equity compensation horizon and because it would allow for an appropriate
interval between the vote and an opportunity to evaluate our consideration of the results of the prior vote,
thereby enabling our stockholders to assess the impact of our NEO compensation policies and decisions.
Required Vote
We ask our stockholders to vote for, on an advisory basis, a 3-year interval for future advisory
resolutions to approve the compensation of our NEOs. Generally, approval of any matter presented to
stockholders requires the affirmative vote of a majority of the voting power of the shares of our capital
stock, present in person or represented by proxy, and entitled to vote thereon, voting together as a single
class. Although this vote will not be binding on TripAdvisor or the Board of Directors, the Board of
Directors will take into account the outcome of this vote in making a determination on the frequency at
which we will include future advisory resolutions to approve the compensation of our NEOs in future proxy
statements.
With respect to the interval for future advisory resolutions, you may vote for “1 YEAR”, “2 YEARS”,
“3 YEARS” or “ABSTAIN”. Abstentions will be counted toward the tabulations of voting power present
and entitled to vote at the meeting but will have the effect of a vote not cast on the specific proposal.
Brokers do not have discretion to vote on the proposal regarding the frequency of our NEO compensation
proposal and broker non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO HOLD FUTURE
ADVISORY VOTES TO APPROVE THE COMPENSATION OF TRIPADVISOR, INC.’S NAMED
EXECUTIVE OFFICERS EVERY “THREE YEARS.”
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2018 Proxy Statement
31
COMPENSATION DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and Analysis describes TripAdvisor’s executive compensation
program as it relates to the following NEOs for fiscal 2017.
Name
Stephen Kaufer
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
Position
President and Chief Executive Officer
Senior Vice President, Chief Financial Officer
and Treasurer
Senior Vice President, General Counsel and
Secretary
President, Vacation Rentals and Attractions
The Board of Directors has a Compensation Committee and a Section 16 Committee that together
have primary responsibility for establishing the compensation of our named executive officers.
Executive Summary and 2017 Business Highlights
We have a pay for performance philosophy that guides all aspects of our compensation decisions.
For example:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
annual salary increases are tied to individual performance and business performance over the
previous fiscal year;
annual incentive compensation is structured so that payouts are tied to the achievement of
financial targets and require year-over-year improvement in revenue or share price;
long-term incentive compensation is structured so that target equity award values are linked to
individual and business performance, while realized values are tied to our share price; and
the interests of our named executive officers are aligned with those of our stockholders through
the granting of a substantial portion of compensation in equity awards with multi-year vesting
requirements.
In fiscal 2017, we took important steps to position our company for long-term growth by investing in
areas such as content, product development, supply growth and online and offline marketing. We also
continued to diversify our consumer product offering by strengthening our leadership positions in
Attractions and Restaurants. In 2017, the Company was able to achieve the following:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
600 million user-generated reviews and opinions, or 29% growth year-over-year at December
31, 2017, covering approximately 1.2 million hotels, inns, B&Bs and specialty lodging, 750,000
vacation rentals, 4.6 million restaurants and 915,000 attractions, including tours and activities;
Average monthly unique visitors on TripAdvisor-branded websites and applications grew 17% in
Q4 2017 and grew to 455 million during the third quarter of 2017, the Company’s seasonal
peak;
Average monthly unique hotel shopper growth of 7% year-over-year, according to internal log
files;
Launched a refreshed brand and hotel shopping user experience as well as a new brand
advertising campaign focused on helping users find and book the best hotel prices;
TripAdvisor, Inc. |
2018 Proxy Statement
32
(cid:221)
(cid:221)
Full year 2017 consolidated revenue of approximately $1.6 billion, or 5% growth compared to
2016; Hotel segment revenue of approximately $1.2 billion, or 1% growth compared to 2016;
Non-Hotel segment revenue of $360 million, or 24% growth compared to 2016; and
Full year 2017 Non-Hotel segment adjusted EBITDA* of $45 million, and full year 2017 Non-
Hotel segment adjusted EBITDA margin of 13%, up from negative $28 million, or negative 10%
adjusted EBTIDA margin, in 2016.
*Adjusted EBITDA is a non-GAAP financial measure. Please refer to our 2017 Annual Report for a reconciliation of Adjusted
EBITDA to Net Income, the most directly comparable financial measure calculated and presented in accordance with U.S. Generally
Accepted Accounting Principles.
In addition to strong content, community and supply growth, senior management continued to focus
on product enhancements and improving the traveler experience throughout the travel journey. We
believe these enhancements will continue to position the Company for long-term growth.
Compensation Program Objectives
Our compensation program is designed to attract, motivate and retain highly skilled employees with
the business experience and acumen that management and the Compensation Committees believe are
necessary for achievement of our long-term business objectives and to ensure that the compensation
provided to these employees remains competitive with the compensation paid to similarly situated
employees at comparable companies. The compensation program is also designed so that it does not
encourage our named executive officers to take unreasonable risks relating to our business. In addition,
the compensation program is designed to reward both short-term and long-term performance and to align
the financial interests of our named executive officers with the interests of our stockholders.
Management and the Compensation Committees evaluate both performance and compensation
levels to ensure that we maintain our ability to attract and retain outstanding employees. To that end,
management and the Compensation Committees believe the executive compensation packages provided
by TripAdvisor to our named executive officers should include both cash and equity-based compensation.
Roles and Responsibilities
Role of the Compensation and Section 16 Committees
The Compensation Committee is appointed by the Board of Directors and consists entirely of
directors who are “outside directors” for purposes of Section 162(m) of the Code. The Compensation
Committee currently consists of Ms. Singh Cassidy and Messrs. Maffei, Hoag and Nishar, with Ms. Singh
Cassidy acting as Chairperson of the Compensation Committee. The Compensation Committee is
responsible for (i) designing and overseeing our compensation with respect to our executive officers,
including salary matters, bonus plans and stock compensation plans; and (ii) approving all grants of
equity awards, but excluding matters governed by Rule 16b-3 under the Exchange Act (for which the
Section 16 Committee has responsibility as described below). Notwithstanding the foregoing, the
Compensation Committee has delegated to the Chief Executive Officer of the Company authority to grant
certain types of equity awards, subject to certain limitations, to employees other than executive officers.
The Section 16 Committee is also appointed by the Board of Directors and consists entirely of
directors who are “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. The
Section 16 Committee currently consists of Ms. Singh Cassidy and Messrs. Hoag and Nishar. The
Section 16 Committee is responsible for administering and overseeing matters governed by Rule 16b-3
under the Exchange Act, including approving grants of equity awards to our named executive officers.
Ms. Singh Cassidy is also the Chairperson of the Section 16 Committee.
TripAdvisor, Inc. |
2018 Proxy Statement
33
Role of Executive Officers
Management participates in reviewing and refining our executive compensation program.
Mr. Kaufer, our President and Chief Executive Officer, annually reviews the performance of TripAdvisor
and each named executive officer other than himself with the Compensation Committees and makes
recommendations with respect to the appropriate base salary, annual bonus and grants of equity awards
for each named executive officer, other than in connection with compensation for himself. Based in part
on these recommendations and the other factors discussed below, the Compensation Committees review
and approve the annual compensation package of each named executive officer.
Role of Compensation Consultant
Pursuant to the Compensation Committee and Section 16 Committee Charter, the Compensation
Committees may retain compensation consultants for the purpose of assisting the Compensation
Committees in their evaluation of the compensation for our named executive officers. In 2017, the
Compensation Committees retained Compensia, Inc. (“Compensia”), a management consulting firm
providing executive compensation advisory services to compensation committees and senior
management, to assist in an evaluation of TripAdvisor’s compensation peer group, to use the
compensation peer group to compile and analyze competitive compensation market data for our named
executive officers, to advise on matters related to our long-term incentive compensation structure and to
evaluate equity compensation programs generally. The compensation consultant also consults with the
Compensation Committees about director compensation. The Compensation Committees consider input
from their compensation consultant as one factor in making decisions with respect to compensation
matters, along with information and analysis they receive from management and their own judgment and
experience.
Based on consideration of the factors set forth in the rules of the SEC and NASDAQ, the
Compensation Committees have determined that their relationship with Compensia and the work
performed by Compensia on behalf of the Compensation Committees have not raised any conflict of
interest. In addition, in compliance with the Compensation Committee and Section 16 Committee Charter,
the Compensation Committees approved the fees paid to Compensia for work performed in 2017, which
fees amounted to approximately $179,000.
Role of Stockholders
TripAdvisor provides its stockholders with the opportunity to cast an advisory vote to approve the
compensation of our named executive officers every three years. In evaluating our 2017 executive
compensation program, the Compensation Committees considered the result of the stockholder advisory
vote on our executive compensation (the “say-on-pay vote”) held at our Annual Meeting of Stockholders
on June 18, 2015, which was approved by approximately 85% of the votes cast. Although stockholders
expressed strong support for our executive compensation program in the last say-on-pay vote, since
then, our Board of Directors has made modifications to our executive compensation program specifically
to address concerns raised by some of our stockholders as well as based on the recommendations of
major proxy advisory firms, the practices of companies in our peer group and the views of our
compensation consultant. The Compensation Committees will continue to consider the outcome of the
say-on-pay vote when making future compensation decisions for our named executive officers.
We have historically held a say-on-pay vote every three years. At the Annual Meeting, stockholders
will consider and vote upon the frequency of future say-on-pay votes. Although such vote is advisory and
non-binding on TripAdvisor and our Board of Directors, the Board will take into account the outcome of
this vote in making a determination on the frequency of future say-on-pay votes.
TripAdvisor, Inc. |
2018 Proxy Statement
34
Compensation Program Elements
General
The primary elements of our executive compensation program are base salary, an annual cash
bonus and long-term incentive compensation in the form of equity awards. Generally, the Compensation
Committees review these elements in the first quarter of each year in light of business and individual
performance, recommendations from management and other relevant information, including prior
compensation history and outstanding long-term incentive compensation arrangements. Management
and the Compensation Committees believe that there are multiple, dynamic factors that contribute to
success at an individual and business level. Management and the Compensation Committees have,
therefore, refrained from adopting strict formulas and have relied primarily on a discretionary approach
that allows the Compensation Committees to set executive compensation levels on a case-by-case basis,
taking into account all relevant factors.
The following chart illustrates the composition of the target total direct compensation for the Chief
Executive Officer and for the other current named executive officers between base salary, short term and
long-term compensation. All elements of compensation are considered to be performance-based, or “at-
risk”, with the exception of base salary.
CEO Total Compensation
Mix (1)
5% Base
Salary
5% Bonus
Target
Other NEO Total Compensation
Mix (2)
16% Base
Salary
Equity Grant Date
Fair Value
90%
Equity Grant
Date Fair Value
73%
11% Bonus
Target
(1)
(2)
CEO Total Compensation consists of 2017 annualized base salary, 2017 annual bonus target, the grant date fair-
value of his 2013 and 2017 equity grants prorated for the portion of service period attributed to 2017 and the
incremental expense associated with the modification in 2017 of a stock option originally granted in 2013.
Other NEO Total Compensation is defined as 2017 annualized base salary, 2017 annual bonus target, and the 2017
grant date value of annual equity awards as disclosed in the Summary Compensation Table. The Other NEO Total
Compensation Mix chart reflects the average Total Compensation of Messrs. Teunissen, Kalvert and Halpin.
One of the primary objectives of our compensation philosophy is to design pay opportunities that
align with our performance and result in strong long-term value creation for our stockholders. The
significant weighting of long-term incentive compensation ensures that our named executive officers’
primary focus is sustained long-term performance, while our short-term incentive compensation motivates
consistent annual achievement. The following chart illustrates the percentage of compensation which is
fixed versus variable and the allocation between short and long-term compensation.
TripAdvisor, Inc. |
2018 Proxy Statement
35
Fixed vs. Variable Compensation (1)
Short vs. Long†Term Incentives (2)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
95%
5%
CEO
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
95%
5%
CEO
84%
16%
Other NEO
86%
14%
Other NEO
Fixed Compensation %
Variable Compensation %
Short·Term %
Long·Term %
(1) For our CEO and Other NEOs, Fixed Compensation consists solely of 2017 annualized base salary. For our CEO, Variable
Compensation consists of 2017 annual bonus target and the grant date fair-value of the CEO’s 2013 and 2017 equity grants
prorated for the portion of service period attributed to 2017 and the incremental expense associated with the modification of the
option granted in 2013. For Other NEOs, Variable Compensation consists of 2017 annual bonus target and the 2017 grant
date value of annual equity awards as disclosed in the Summary Compensation Table. Other NEO compensation also reflects
the compensation averages for Messrs. Teunissen, Kalvert, and Halpin.
(2) For our CEO and Other NEOs, short-term incentive compensation consists of 2017 annual bonus. For our CEO, long-term
incentive compensation consists of grant date fair-value of the CEO’s 2013 and 2017 equity grants prorated for the portion of
service period attributed to 2017. For Other NEOs, long-term incentive compensation is defined as grant date value of annual
equity awards as disclosed in the Summary Compensation Table. Other NEO compensation reflects the compensation
averages for Messrs. Teunissen, Kalvert, and Halpin.
Following recommendations from management or based on other considerations, the
Compensation Committees may also adjust compensation for specific individuals at other times during
the year when there are significant changes in responsibilities or under other circumstances that the
Compensation Committees consider appropriate.
Base Salary
Base salary represents the fixed portion of a named executive officer’s compensation and is
intended to provide compensation for expected day-to-day performance. A named executive officer’s
base salary is initially determined upon hire or promotion based on a number of factors including, but not
limited to, his or her responsibilities, prior experience, and salary levels of other executives within
TripAdvisor. Base salary is typically reviewed annually, at which time management makes
recommendations to the Compensation Committees based on consideration of a variety of factors
including, but not limited to, the following:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
the named executive officer’s total compensation relative to other executives in similarly situated
positions;
his or her individual performance relative to performance goals established between our
President and Chief Executive Officer and the named executive officer;
his or her responsibilities, prior experience, and individual compensation history, including any
non-standard compensation;
the terms of his or her employment agreement, if any;
competitive compensation market data, when available;
general economic conditions; and
the recommendations of the President and Chief Executive Officer (other than in connection
with his own compensation).
TripAdvisor, Inc. |
2018 Proxy Statement
36
After careful consideration of the factors discussed above with respect to each of the named
executive officers, the Compensation Committees approved 2017 salary changes for our named
executive officers. The table below describes, for each named executive officer, the 2016 base salary,
the base salary increase and the 2017 base salary.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot M. Halpin
2016 (1)
700,000
425,000
425,000
400,000
$
$
$
$
$
$
$
$
Annual Salary
(Increase /
Decrease)
— $
$
$
$
14,875
14,875
30,000
2017 (2)
700,000
439,875
439,875
430,000
(1) Reflects the base salary of the executive effective as of December 31, 2016.
(2) Reflects the base salary of the executive effective December 31, 2017. For Mr. Teunissen and Mr. Kalvert, reflects pay
changes effective February 27, 2017. For Mr. Halpin, reflects pay changes of $14,000 effective February 27, 2017 and
$16,000 effective May 9, 2017.
Adjustments were made to the annual base salaries of the named executive officers, primarily in
acknowledgement of the extent to which they had achieved their individual performance goals and in
response to the analysis provided by Compensia on competitive compensation market data for executive
officers within our peer group in comparable positions.
Annual Bonuses
Annual bonuses are awarded to recognize and reward each named executive officer’s annual
contribution to Company performance. Unless otherwise provided by the provisions of his or her
employment agreement, the target annual bonus opportunities for our named executive officers are
generally established by the Compensation Committees, based on competitive market data and
recommendations by the President and Chief Executive Officer (other than in connection with his own
compensation).
In February 2018, management recommended bonuses with respect to calendar year 2017 for each
of our named executive officers after taking into account a variety of factors including, but not limited to,
the following:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor’s business and financial performance, including year-over-year performance;
TripAdvisor’s performance against strategic initiatives;
the named executive officer’s target bonus opportunity, if any;
his or her individual performance;
the overall funding of the bonus pool;
the amount of bonus relative to other TripAdvisor employees;
general economic conditions; and
the recommendations of the President and Chief Executive Officer (other than in connection
with his own compensation).
Annual incentive bonuses awarded to our named executive officers for 2017 were subject to the
achievement of performance goals relating either to stock price performance or revenue, one of which
TripAdvisor, Inc. |
2018 Proxy Statement
37
was satisfied. These performance goals were designed to permit TripAdvisor to deduct all named
executive officer compensation for 2017 in accordance with Section 162(m) of the Code. Specifically, the
bonuses awarded to our named executive officers in 2017 were subject to the satisfaction of one of the
following performance goals:
(cid:221)
(cid:221)
The revenues of TripAdvisor in fiscal 2017 must be greater than revenues in fiscal 2016,
excluding the benefit of any acquisitions by TripAdvisor during this period; or
The closing price per share of TripAdvisor common stock as reported on NASDAQ shall be at
least 5% higher than the closing price of TripAdvisor’s common stock on February 3, 2017,
which was $51.96 per share, on any 30 trading days during the period beginning February 3,
2017 and ending December 31, 2017 (such days not necessarily consecutive), taking into
account any Share Change or Corporate Transaction (each as defined in the 2011 Plan).
In general, these performance goals reflect the minimally acceptable Company performance that
must be achieved for bonuses to be awarded to our named executive officers, but with respect to which
there is substantial uncertainty when established. The Compensation Committees may exercise negative
discretion in making the annual bonus awards. As a result, while performance targets were used in
setting compensation under this plan, ultimately the levels of those targets and the Compensation
Committees’ use of negative discretion typically result in the award of compensation as if the annual
incentive plan were operating as a discretionary plan.
After consideration of the factors discussed above (including confirmation of satisfaction of the
revenue performance goal established for the Company (and described above) and individual
performance goals established between our President and Chief Executive Officer and the named
executive officers), the Compensation Committees awarded 2017 bonuses to our NEOs. The table below
describes, for each named executive officer, the target bonus for 2017, the actual bonus paid and
percentage of bonus paid relative to target.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot M. Halpin
Target Bonus as %
of Base Salary
100%
75%
67%
75%
Target Bonus Bonus Award
350,000
$
286,670
$
254,619
$
600,000
$
700,000 $
329,906 $
294,716 $
322,500 $
Percentage of
Award to Target
50%
87%
86%
186%
After consideration of the views of our stockholders, the practices of other companies in our peer
group and the recommendation of our compensation consultant, the Compensation Committees have
determined that in 2018, annual incentive bonuses awarded to our named executive officers for 2018 will
be subject primarily to the achievement of performance goals relating to a combination of revenue and
Adjusted EBITDA for the entire company or for specific business units, as appropriate.
Equity Awards
The Compensation Committees use equity awards to align executive compensation with our long-
term performance. Equity awards link compensation to financial performance because their value
depends on TripAdvisor’s share price. Equity awards are also an important retention tool because they
generally vest over a multi-year period, subject to continued service by the award recipient.
Equity awards are typically granted to our named executive officers upon hire or promotion and
annually thereafter. Management generally recommends annual equity awards in the first quarter of each
year when the Compensation Committees meet to make determinations regarding annual bonuses for the
last completed fiscal year and to set compensation levels for the current fiscal year. The practice of the
Compensation Committees is to generally grant equity awards to our named executive officers only in
open trading windows.
TripAdvisor, Inc. |
2018 Proxy Statement
38
Typically, equity awards have been in the form of awards of RSUs and/or options to purchase
shares of TripAdvisor common stock or some combination of the two. Stock options have an exercise
price equal to the market price of TripAdvisor common stock on the date of grant, and, therefore, provide
value to our named executive officers only if our stock price increases. Stock options generally vest over
a period of four years. We believe stock options incentivize our named executive officers to sustain
increases in stockholder value over extended periods of time. RSUs are a promise to issue shares of our
common stock in the future provided that the named executive officer remains employed with us through
the award’s vesting period. RSUs generally vest over a period of four years. RSUs provide the
opportunity for capital accumulation and long-term incentive value and are intended to assist in satisfying
our retention objectives.
The Compensation Committees review various factors considered by management when they
establish TripAdvisor’s equity award grant pool including, but not limited to, the following:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor’s business and financial performance, including year-over-year performance;
dilution rates, taking into account projected headcount growth and employee turnover;
equity compensation utilization by peer companies;
general economic conditions; and
competitive compensation market data regarding award values.
For specific awards to our named executive officers, management makes recommendations to the
Section 16 Committee based on a variety of factors including, but not limited to, the following:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor’s business and financial performance, including year-over-year performance;
individual performance and future potential of the executive;
the overall size of the equity award pool;
award value relative to other TripAdvisor employees;
the value of previous awards and amount of outstanding unvested equity awards;
competitive compensation market data, to the degree that the available data is comparable; and
the recommendations of the President and Chief Executive Officer (other than in connection
with his own compensation).
After review and consideration of the recommendations of management and the President and
Chief Executive Officer (other than with respect to awards for himself), the Section 16 Committee decides
whether to grant equity awards to our named executive officers. After consideration of the factors
discussed above, in February 2017 the Section 16 Committee granted the equity awards described below
to our NEOs other than Mr. Kaufer in connection with our annual equity awards program.
Name
Ernst Teunissen
Seth Kalvert
Dermot M. Halpin
Grant Date Fair
Value
$
$
$
1,999,998
1,499,725
2,499,527
Number of
Stock Options
—
43,776
72,960
Number of
RSUs
46,718
17,519
29,198
TripAdvisor, Inc. |
2018 Proxy Statement
39
Each of the equity awards described above vests in four equal annual installments commencing on
February 15, 2018. The stock options are exercisable at a price of $42.81 per share, the closing price of
our common stock on the date of grant.
While we typically make annual equity grants for long-term incentive compensation to our executive
officers in February of each year, Mr. Kaufer has not historically received annual grants and, instead,
received a significant equity grant for long-term incentive compensation in August 2013, referred to as the
2013 CEO Award, and another in November 2017, referred to as the 2017 CEO Award. The table below
reflects the equity grant made in November 2017. The Section 16 Committee has indicated that it does
not currently contemplate that Mr. Kaufer would be eligible for another equity grant for long-term incentive
compensation until August 2021.
In addition, in February 2017, after consultation with our compensation consultant and evaluation of
the equity holdings of executive officers of other companies in our peer group, the Section 16 Committee
determined it was appropriate to authorize a special engagement grant to certain of our senior leaders in
order to ensure their continued retention and engagement. The engagement grant was designed to place
recipients within approximately the 50th percentile of the holdings of similarly situated employees in our
peer group. Moreover, in May 2017, after Mr. Halpin agreed to assume responsibility for our Attractions
business unit, the Section 16 Committee determined it was appropriate to authorize a promotion grant to
Mr. Halpin. As a result, in 2017, the Section 16 Committee granted the equity awards described below to
Messrs. Kaufer, Teunissen, Kalvert and Halpin, not in connection with our long-term incentive program,
but as special, one-time engagement grants and, in the case of Mr. Halpin, an additional promotion grant.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot M. Halpin
Grant Date Fair
Value
$
$
$
$
42,097,482
4,998,936
2,749,385
5,499,725
Number of
Stock Options
780,000
144,227
79,324
25,960
Number of
RSUs
852,000
58,397
32,118
109,795
The 2017 CEO Award granted to Mr. Kaufer was a combination of time-based restricted stock units,
time-based stock options and performance-based restricted stock units and is described in more detail in
the “Executive Compensation – Grants of Plan-Based Awards” section below. The engagement awards
to Messrs. Teunissen, Kalvert and Halpin vest in four equal annual installments commencing on June 15,
2018. The promotion award to Mr. Halpin vests in three equal annual installments commencing on
December 31, 2017. The vesting terms are described in more detail in the “Executive Compensation –
Grants of Plan Based Awards” section below.
Employee Benefits
In addition to the primary elements of compensation described above, our named executive officers
also participate in employee benefits programs available to our employees generally, including the
TripAdvisor Retirement Savings Plan. Under this plan, TripAdvisor matches 50% of each dollar
contributed by a participant, up to the first 6% of eligible compensation, subject to tax limits. Prior to his
relocation from the United Kingdom to the United States, Mr. Halpin participated in our UK pension
scheme, pursuant to which we match 100% of participant contributions, up to the first 5% of eligible
compensation. Following his relocation to the United Stated, Mr. Halpin was eligible for the benefits
described above with respect to the TripAdvisor Retirement Savings Plan.
In addition, we provide other benefits to our named executive officers on the same basis as all of
our domestic employees generally. These benefits include group health (medical, dental, and vision)
insurance, group disability insurance, and group life insurance.
In situations where a named executive officer is required to relocate, TripAdvisor also provides
relocation benefits, including reimbursement of moving expenses, temporary housing and other relocation
expenses as well as a tax gross-up payment on the relocation benefits. In 2015, Mr. Halpin relocated
TripAdvisor, Inc. |
2018 Proxy Statement
40
from the United Kingdom to our corporate headquarters in Needham, Massachusetts and received such
relocation support as disclosed in the Summary Compensation Table. In connection with Mr. Halpin’s
relocation to the United States, the Company and Mr. Halpin entered into a new employment
arrangement providing for, among other things, the payment of Mr. Halpin’s compensation in U.S. Dollars.
Pursuant to that new employment arrangement, the Company also agreed to reimburse Mr. Halpin for
fees and expenses associated with the preparation of his 2016 and 2017 tax returns and a personal travel
allowance of $20,000 per year as well as a tax gross-up payment on the personal travel benefits.
TripAdvisor sponsors a Global Personal Travel Reimbursement program generally available to all
employees, including our named executive officers, that provides for reimbursement of up to $750 per
year for qualifying leisure travel and also provides all employees, including our NEOs, an annual holiday
bonus in 2015 and 2016 in the form of a gift card as well as a tax gross-up payment on the value of the
gift card.
Compensation-Related Policies
Executive Compensation Recovery, or “Clawback”, Provisions
TripAdvisor has an executive compensation recovery, or clawback, provision in our form of award
agreements providing for recoupment of equity compensation. Each of TripAdvisor’s equity award
documents provides that in the event an employee is terminated for Cause (as defined in the 2011 Plan
and below) or resigns within two years after any event or circumstance that would have been grounds for
termination of employment for Cause, then the employee agrees that certain equity securities issued to
such employee (whether or not vested) may be forfeited and cancelled in their entirety upon such
termination of employment. In such event, TripAdvisor may cause the employee to either (i) return the
equity securities or shares of common stock issued upon exercise or vesting of such securities, or (ii) pay
to TripAdvisor an amount equal to the aggregate amount, if any, that the employee had previously
realized in respect of any and all shares of common stock acquired upon exercise or vesting of such
equity awards.
We intend to adopt a general clawback policy covering our annual and long-term incentive award
plans and arrangements or amend our existing documents once the SEC adopts final rules implementing
the requirement of Section 954 of the Dodd-Frank Act.
Insider Trading and Hedging Policy
TripAdvisor has adopted an Insider Trading Policy covering our directors, officers, employees and
consultants that is designed to ensure compliance with relevant SEC regulations, including insider trading
rules. TripAdvisor’s Insider Trading Policy also prohibits directors, officers, employees and consultants
from engaging in various types of transactions in which they may profit from short-term speculative
swings in the value of TripAdvisor securities. These transactions include “short sales” (or selling
borrowed securities which the sellers hopes can be purchased at a lower price in the future), “put” and
“call” options (or publicly available rights to sell or buy securities within a certain period of time at a
specified price or the like) and hedging transactions, such as zero-cost collars and forward sale contracts.
The policy also prohibits the pledge or use of company securities as collateral in a margin account or
collateral for a loan.
Stock Ownership Guidelines
In October 2015, the Board of Directors adopted guidelines which require that our named executive
officers and members of our Board own shares of our common stock to further align their interests with
those of our stockholders. These guidelines require that our named executive officers and directors must
directly hold securities having market or intrinsic value which is equal to or greater than a specified
multiple of his or her base salary or cash retainer, as set forth below:
TripAdvisor, Inc. |
2018 Proxy Statement
41
(cid:221)
(cid:221)
(cid:221)
For our President and Chief Executive Officer, four times his annual base salary;
For all other named executive officers, two times his or her annual base salary; and
For each non-employee director, three times his or her annual cash retainer.
For purpose of these calculations, 100% of shares of common stock and 50% of vested “in-the-
money” stock options are counted.
relevant ownership threshold on or before the later of December 31, 2020 or five years after commencing
service.
Individuals subject to these guidelines are required to achieve the
These stock ownership guidelines were established after consideration of the Compensation
Committees’ review of market practices of other companies in the Company’s peer group with respect to
stock ownership guidelines and in an effort to enhance risk mitigation and to more closely align the
interests of the Company’s executive officers and Board members with those of the Company’s
stockholders.
Code of Business Conduct and Ethics
In April 2018, our Board of Directors adopted an amended and restated Code of Business Conduct
and Ethics applicable to all of our directors, officers, employees, consultants and independent
contractors. A copy of the Code of Business Conduct and Ethics is posted on our website at
http://ir.tripadvisor.com/index.cfm.
Role of Competitive Compensation Market Data
Management considers multiple data sources when reviewing compensation information to ensure
that the data reflects compensation practices of relevant companies in terms of size, industry and
geographic location. Among other factors, management considers the following information in connection
with its recommendations to the Compensation Committees regarding compensation for our named
executive officers:
(cid:221)
(cid:221)
Data from salary and equity compensation surveys that include companies of a similar size,
based on market capitalization, revenues and other factors; and
Data regarding compensation for certain executive officer positions from recent proxy
statements and other SEC filings of peer companies, which include: (i) direct industry
competitors, and (ii) non-industry companies with which TripAdvisor commonly competes for
talent (including both regional and national competitors).
The Compensation Committees retained Compensia to periodically review the compensation peer
group and to recommend possible changes. Our business model is specialized in that we use our
innovative technology systems and software to attract users and then facilitate transactions between our
business partners and those users. Accordingly, Compensia identified comparable companies focusing
on publicly-traded companies in the business to consumer (“B2C”) and software industries.
In November 2016, based on input from Compensia, the Compensation Committees approved the
peer group for purposes of reviewing our executive officers’ 2017 base salaries, 2017 annual bonus
targets and 2017 equity awards. In November 2017, based on input from Compensia, the Compensation
Committees approved the peer group for purposes of reviewing and considering our executive officers’
2018 base salaries, 2018 annual bonus targets, and 2018 equity awards. The newly-approved peer
group differed from the prior peer group in that we eliminated two companies (LinkedIn and NetSuite) that
were acquired and are no longer public companies and added two companies (GrubHub and Zynga) to
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2018 Proxy Statement
42
more closely align with TripAdvisor’s revenues while also positioning TripAdvisor near the 50th percentile
of market capitalization.
Following is a list of the companies currently constituting our peer group:
B2C Internet Companies
Software Companies
Akamai Technologies, Inc.
ANSYS, Inc.
Citrix Systems, Inc.
RedHat, Inc.
Splunk, Inc.
VeriSign, Inc.
Booking Holdings, Inc.
Expedia, Inc.
Groupon, Inc.
GrubHub
IAC/InterActiveCorp.
Match Group
Pandora Media, Inc.
Shutterfly, Inc.
Twitter, Inc.
Wayfair, Inc.
Yelp, Inc.
Zillow Group
Zynga
When available, management and the Compensation Committees consider competitive market
compensation paid by peer group companies but do not attempt to maintain a certain target percentile
within the compensation peer group or otherwise rely solely on such data when making recommendations
to the Compensation Committees regarding compensation for our named executive officers. Management
and the Compensation Committees strive to incorporate flexibility into our executive compensation
program and the assessment process to respond to and adjust for the evolving business environment and
the value delivered by our named executive officers.
Post-Employment Compensation
The Company has entered into employment agreements with each of Messrs. Kaufer, Kalvert and
Teunissen and an offer letter with Mr. Halpin. In November 2017, the Company entered into an
amendment to each of Mr. Kaufer’s and Mr. Teunissen’s employment agreements and in February 2018
the Company entered into an amendment to Mr. Kalvert’s employment agreement. Pursuant to these
agreements, each of our named executive officers is eligible to receive certain severance payments and
benefits in the event of a qualifying termination of employment. The material terms of these employment
agreements are described below under the heading “Potential Payments Upon Termination or Change in
Control.”
We believe that a strong, experienced management team is essential and in the best interests of
our company and our stockholders. In addition, we recognize that the possibility of a change in control
could arise and that such an event could result in the departure of our senior leaders to the detriment of
the company and our stockholders. As a result, in 2017 we adopted a severance plan applicable to
certain senior leaders (the “Severance Plan”). The Severance Plan formalizes and standardizes our
severance practices for certain of our senior leaders. Adoption of the Severance Plan was approved by
the Compensation Committees. The Severance Plan applies to all named executive officers, including
Mr. Kaufer, as well as certain other senior leaders. While the benefits are generally consistent with the
severance benefits provided for in individual employment agreements, there are some differences. The
Severance Plan includes a provision that in the event of any conflict or inconsistency between the terms
of any employment agreement and the Severance Plan, the terms more beneficial to the executive shall
prevail. For a description and quantification of change in control payments and benefits for our named
executive officers, please see the section below entitled “Potential Payments Upon Termination or
Change in Control.”
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43
Our 2011 Plan originally provided that equity awards granted to certain executive officers would be
entitled to accelerated vesting of certain of their outstanding and unvested equity awards in the event of a
Change in Control of TripAdvisor (i.e. a “single trigger” acceleration provision). In August 2013, after
further evaluation of the “single trigger” acceleration provisions, the Compensation Committees
determined that future equity awards made under the 2011 Plan would not be entitled to “single trigger”
acceleration and, instead, the award agreements with respect to such equity awards would generally
provide that any acceleration of vesting of the equity awards would be subject to “double trigger” rather
than “single trigger” acceleration. This means that accelerated vesting of outstanding and unvested
equity awards granted on or after August 28, 2013, would generally only occur upon both a qualified
termination of employment following a Change in Control.
amended and restated 2011 Plan which, among other matters, provided for acceleration of all equity
awards upon the death of a participant.
In June 2016, our stockholders approved our
The proposed 2018 Plan provides only for “double trigger” acceleration (i.e., acceleration upon
termination by the Company other than for Cause or disability or resignation for Good Reason, in each
case within three months prior to and 12 months following a change in control). The proposed 2018 Plan
also provides for acceleration of all equity awards upon the death of a participant.
Tax Considerations
Section 162(m) of the Code generally precludes a tax deduction by any publicly-held company for
compensation paid to any “covered employee” to the extent the compensation paid to such covered
employee exceeds $1 million during any taxable year of the company. The 2017 Tax Act included
changes to Section 162(m) effective for years after 2017. Prior to 2018, “covered employees” included
the Chief Executive Officer of the company and the three other highest paid officers of the company
(other than the Chief Financial Officer). For 2018 and later years, “covered employees” will include the
Chief Executive Officer of the company, the Chief Financial Officer of the company, the three highest paid
officers of the company (other than the Chief Executive Officer and the Chief Financial Officer) and any
employee who qualified as a “covered employee” for any tax year beginning after 2016. For years
beginning prior to January 1, 2018, the $1 million deduction limit did not apply to “qualified performance-
based compensation” that was based on the attainment of pre-established, objective performance goals
established under a stockholder-approved plan. Effective for the years beginning on or after January 1,
2018, there is no exception for “qualified performance-based compensation”; but a transition rule provides
that the “qualified performance-based compensation” exemption will continue to apply to grandfathered
arrangements made pursuant to a binding contract in effect on or before November 2, 2017 that is not
materially modified thereafter. We believe that it is important to preserve flexibility in administering
compensation programs to promote various corporate goals. Accordingly, we have not adopted a policy
that all compensation must qualify as deductible under Section 162(m). Amounts paid under our
compensation programs may not be deductible as the result of Section 162(m). While our policy is
generally been to preserve corporate tax deductions by qualifying compensation over $1 million paid to
executive officers as performance-based, the Compensation Committees have, from time to time,
concluded that compensation arrangements are in our best interests and the best interests of our
stockholders despite the fact that such arrangements might not, in whole or part, qualify for tax
deductibility. Going forward, we intend to continue to design our executive compensation arrangements to
be consistent with our best interests and those of our stockholders; accordingly, the Compensation
Committees, while considering the tax deductibility as a factor in determining executive compensation,
may not limit such compensation to those levels that will be deductible, particularly in light of the
elimination of the expansion of the covered employee group and the elimination of the exception for
performance-based compensation.
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44
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Ms. Singh Cassidy and Messrs. Maffei, Hoag and Nishar
and the Section 16 Committee consists of Ms. Singh Cassidy and Messrs. Hoag and Nishar. None of
Ms. Singh Cassidy or Messrs. Maffei, Hoag or Nishar was an officer or employee of TripAdvisor, formerly
an officer of TripAdvisor, or an executive officer of an entity for which an executive officer of TripAdvisor
served as a member of the compensation committee or as a director during the one-year period ended
December 31, 2017.
During the last fiscal year, none of our executive officers served as: (1) a member of the
compensation committee (or other committee of the board of directors performing equivalent functions or,
in the absence of any such committee, the entire board of directors) of another entity, one of whose
executive officers served on our Compensation Committee; (2) a director of another entity, one of whose
executive officers served on our Compensation Committee; or (3) a member of the compensation
committee (or other committee of the board of directors performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another entity, one of whose executive
officers served on our Board.
Compensation Committees Report
This report is provided by the Compensation Committee and the Section 16 Committee, or the
Compensation Committees, of the Board of Directors. The Compensation Committees have reviewed the
Compensation Discussion and Analysis and discussed that analysis with management. Based on this
review and discussions with management, the Compensation Committees recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in TripAdvisor’s 2018 Proxy
Statement.
No portion of this Compensation Committees Report shall be deemed to be incorporated by
reference into any filing under the Securities Act or the Exchange Act, through any general statement
incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the
extent that TripAdvisor specifically incorporates this report or a portion of it by reference. In addition, this
report shall not be deemed to be “soliciting material” or “filed” under either the Securities Act or the
Exchange Act.
Members of the Compensation Committee:
Members of the Section 16 Committee:
Sukhinder Singh Cassidy (Chairperson)
Jay C. Hoag
Gregory B. Maffei
Dipchand (Deep) Nishar
Sukhinder Singh Cassidy (Chairperson)
Jay C. Hoag
Dipchand (Deep) Nishar
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45
Overview
CEO PAY RATIO
In August 2015, the SEC adopted a rule requiring annual disclosure of the ratio of the annual total
compensation of a company’s principal executive officer to such company’s median employee’s total
annual compensation, excluding the principal executive officer for purposes of this calculation. The
purpose of this new disclosure is to provide a measure of the equitability of pay within the organization.
The 2017 annual total compensation of our median employee, excluding Mr. Kaufer, our
President and CEO, was $99,643. The 2017 annual total compensation of our President and CEO, as
reported in our Summary Compensation Table, was $47,933,462. The ratio of the annual total
compensation of our President and CEO to that of our median employee was 481 to 1. We believe this
pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules.
Please note the following information to provide important context related to our employee
population and to describe the methodology and the material assumptions, adjustments, and estimates
that we used to calculate this ratio.
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
A substantial portion of our President and CEO’s total annual compensation for 2017 was the
equity awards he received pursuant to the 2017 CEO Award, which had a grant date fair value
of approximately $42 million. While we typically make long-term incentive compensation equity
grants to our executive officers in February of each year, as described above, Mr. Kaufer
received a significant equity grant in August 2013 and then received another significant award in
November 2017. The Section 16 Committee has indicated that it does not currently
contemplate that Mr. Kaufer would be eligible for another equity grant in respect of long-term
incentive compensation until August 2021. Mr. Kaufer’s 2017 total annual compensation also
includes an additional $4,772,880 attributed to the modification of the option granted in
connection with the 2013 CEO Award. If the grant date fair market value of the 2017 CEO
Award was amortized over the vesting periods and we did not include the value of the
modification of the 2013 CEO Award, the ratio of our CEO’s 2017 annual total compensation to
that of our median employee 2017 would be 107 to 1.
TripAdvisor is a global company, with complex operations worldwide and many of our
employees are located outside of the United States. As of December 31, 2017, our workforce
consisted of 3,228 full-time and part-time employees, including hourly employees.
Approximately 51% of these employees are located in the United States, and the remaining
49% are located in Europe and throughout the rest of the world.
We selected December 31, 2017, as the date upon which we would identify the “median
employee,” because it enabled us to make such identification in a reasonably efficient and
economical manner.
We included all of our full-time, part-time, and temporary employees globally, but excluded our
President and CEO. We annualized the compensation of approximately 600 full-time and part-
time employees who were hired in 2017 but did not work for us for the entire fiscal year.
Earnings of our employees outside the U.S. were converted to U.S. dollars using the currency
exchange rates used for organizational planning purposes, which consider historic and
forecasted rates as well as other factors. We did not make any cost of living adjustments.
The consistently applied compensation of measure used to identify our median employee was
annualized base salary, short-term bonus at target and annual long-term equity incentive at
target.
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(cid:221)
We identified employees within $100 of the median 2017 annual total compensation and
removed those employees who had anomalous compensation characteristics.
Because the SEC rules for identifying the median employee and calculating the pay ratio based on
that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply
certain exclusions, and to make reasonable estimates and assumptions that reflect their employee
populations and compensation practices, the pay ratio reported by other companies may not be
comparable to our pay ratio, as other companies have offices in different countries, have different
employee populations and compensation practices and may utilize different methodologies, exclusions,
estimates and assumptions in calculating their pay ratios.
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2018 Proxy Statement
47
Summary Compensation
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the compensation earned by each of our
named executive officers for services rendered in 2017, 2016 and 2015.
Name and Principal Position
Stephen Kaufer (5)
President and Chief Executive Officer
Year Salary ($)
700,000
2017
700,000
2016
700,000
2015
Bonus
($) (1)
350,000
525,000
770,000
Stock
Awards
($)(2)
28,578,210
—
—
Option
Awards
($)(2)(3)
18,292,152
—
—
All Other
Compensation
($)(4)
13,100
8,110
8,110
Total
($)
47,933,462
1,233,110
1,478,110
Ernst Teunissen (6)
Senior Vice President, Chief Financial Officer,
and Treasurer
2017
2016
2015
437,014
425,000
61,712
286,670
255,000
53,125
4,499,973
999,978
1,999,940
2,498,960
—
4,999,156
8,100
8,110
5,508
7,730,717
1,688,088
7,119,441
Seth J. Kalvert
Senior Vice President, General Counsel
and Secretary
2017
2016
2015
437,014
420,817
398,475
254,619
227,800
236,694
2,124,960
849,965
799,934
2,124,150
849,834
799,906
13,100
13,110
13,110
4,953,843
2,361,526
2,248,119
Dermot M. Halpin (7)
President, Vacation Rentals and Attractions
2017
2016
2015
421,092
398,423
433,177
600,000
180,000
211,336
6,299,893
1,249,957
374,986
1,699,359
1,249,778
374,948
21,550
58,346
274,020
9,041,894
3,136,504
1,668,467
(1)
(2)
(3)
(4)
(5)
(6)
The amounts reported in this column represent bonuses (cash and non-cash) paid to all NEOs in 2018, 2017 and 2016 for
annual performance in 2017, 2016 and 2015.
The amounts reported represent the aggregate grant date fair value of stock and option awards granted in the year indicated,
calculated in accordance with FASB ASC Topic 718. We have disclosed the assumptions made in the valuation of the
awards in “Note 4 - Stock Based Awards and Other Equity Based Instruments” in the notes to our consolidated financial
statements in our 2017 Annual Report. For performance-based RSUs granted to Mr. Kaufer in 2017, the value reported
reflects the value of the awards at the grant date based upon the probable outcome of the performance conditions. The value
of Mr. Kaufer’s 2017 performance-based RSUs at the grant date, assuming the highest level of the performance conditions
was achieved, is $17,239,688. These equity awards are described in more detail in the tables below. For Stephen Kaufer,
the 2017 amounts for stock awards and option awards represent the value of the 2017 CEO Award and include the
modification expense described below. For Messrs. Teunissen, Kalvert and Halpin, the 2017 amounts for stock awards and
option awards include the value of engagement grants granted to the NEOs in February 2017 and a promotion grant to Mr.
Halpin in May 2017.
award and not include the expense related to the modification of the 2013 CEO Award, Mr. Kaufer’s total compensation for
2017 would be $10,705,394.
NEOs’ total compensation for 2017 would be $2,731,781, $2,204,458 and $3,542,169, respectively.
If the Company were to annualize the value of the 2017 CEO Award to Mr. Kaufer over the terms of the
If the Company were to deduct the special grants to Messrs. Teunissen, Kalvert and Halpin, the
On June 5, 2017, the Section 16 Committee approved a modification to the nonqualified stock option award granted on
August 28, 2013 to Mr. Kaufer. The modification provides that the option will expire on the tenth anniversary, instead of the
seventh anniversary, of the grant date. As a result of the modification, incremental fair value of $4,772,880 will be recognized
to stock-based compensation expense over the remaining vesting term and is reflected in stock awards for 2017.
See table below for information regarding the 2017 amounts reported.
In consideration for services rendered in fiscal 2016 and fiscal 2015, the Compensation Committees determined to pay Mr.
Kaufer’s annual bonus in the form of cash and non-cash and the amounts reported above represent the cash and non-cash
forms of annual bonus. For 2015, Mr. Kaufer’s bonus was paid $630,000 in cash and $140,000 in equity. For 2016, Mr.
Kaufer’s bonus was paid $175,000 in cash, $175,000 in the form of a stock option award and $175,000 in the form of RSUs.
Mr. Teunissen’s employment commenced on November 9, 2015 and the base salary in 2015 reflects only salary earned after
his employment commenced. The bonus amount in 2015 was pro-rated for the term of service in that year.
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2018 Proxy Statement
48
(7)
Mr. Halpin’s base salary was paid in GBP until October 1, 2015, after which Mr. Halpin relocated to the United States and his
base salary began to be paid in USD. The portion of Mr. Halpin’s compensation paid in GBP has been converted from GBP
to USD at an exchange rate of 1.48 USD:1 GBP for 2015 (which was the exchange rate on December 31, 2015).
2017 All Other Compensation
Matching
Charitable
Donation
($)(a)
5,000
—
5,000
—
Employer
Retirement
Contributions
($)(b)
8,100
8,100
8,100
8,100
Other
($)(c)
—
—
—
13,450
Total ($)
13,100
8,100
13,100
21,550
Name
Stephen Kaufer
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
(a)
(b)
Represents matching charitable contributions made by The TripAdvisor Charitable Foundation on behalf of the named
executive officers.
Represents matching contributions under the TripAdvisor Retirement Savings Plan as in effect through December 31, 2017,
pursuant to which TripAdvisor matches $0.50 for each dollar a participant contributes, up to the first 6% of eligible
compensation, subject to certain limits.
(c)
Represents amount for personal tax services.
Grants of Plan-Based Awards
The table below provides information regarding the plan-based awards granted to our CEO in 2017,
all of which were made pursuant to the 2011 Plan.
Estimated Future Payouts
Under Equity Incentive Plan
Awards (1)
Grant
Date
Threshold
(#)
Target
(#)
Maximum
(#)
8/28/13 (3)
2/27/2017
11/28/2017
2/27/2017
11/28/2017
11/28/2017
11/28/2017
—
—
—
—
—
—
—
—
—
—
—
—
—
106,500 213,000
213,000 266,250
266,250
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
All Other
Option
Awards:
Number of
Shares of
Stock or
Units
(#)
Exercise
or Base
Price of
Option
Awards
($/Share)
Grant Date
Fair Value of
Stock and
Option
Awards
($) (2)
—
—
4,087
426,000
—
—
1,100,000
13,759
780,000
—
—
—
—
72.52
42.81
34.71
—
—
—
—
4,772,878
174,921
13,519,272
174,964
14,786,460
6,398,520
7,393,230
Name
Stephen Kaufer
Stock Options
RSUs
(1)
(2)
(3)
Certain of the awards described below are based on the achievement of specific performance metrics: (i) total stockholder
return over the performance period January 1, 2018 through December 31, 2020; and (ii) financial and strategic metrics to
be established each year for the fiscal years ended December 31, 2018, December 31, 2019, December 31, 2020,and
December 31, 2021. The amounts shown above represent the minimum number of shares of RSUs to be issued if the
minimum performance conditions are met, the target number of RSUs to be issued if the targets for the performance
conditions are met and the maximum number of RSUs to be issued if the maximum of the performance conditions are met.
The amounts reported represent the aggregate grant date fair value computed in accordance with GAAP, and may not
correspond to the actual value that will be realized by the executive. See footnote (2) in the Summary Compensation Table
above for more information regarding the determination of the grant date fair value of these awards.
Effective June 5, 2017, the Compensation Committees agreed to extend the exercise period of the options granted to Mr.
Kaufer in August 2013, although the vesting schedule remains the same. The amount reported in the Grant Date Fair Value
of Stock and Option Awards column represents the incremental fair value of the award, computed as of the modification
date.
TripAdvisor, Inc. |
2018 Proxy Statement
49
The table below provides information regarding the plan-based awards granted in 2017 to our NEOs
excluding our CEO, all of which were granted pursuant to the 2011 Plan.
Name
Ernst Teunissen
Stock Options
RSUs
Seth J. Kalvert
Stock Options
RSUs
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
All Other
Option
Awards:
Number of
Securities
Underlying
Options
Exercise
Price or
Base Price
of Option
Awards
($/Share)
Grant Date
Fair Value of
Stock and
Option
Awards
($)(1)
—
58,397
46,718
—
—
32118
17,519
144,227
—
—
79,324
43,776
—
—
42.81
—
—
42.81
42.81
—
—
2,498,960
2,499,976
1,999,998
1,374,413
749,737
1,374,972
749,988
Grant
Date
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
Dermot M. Halpin
Stock Options
RSUs
449,798
1,249,561
1,049,958
1,249,966
3,999,969
The amounts reported represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 and
may not correspond to the actual value that will be realized by the executive. See footnote (2) in the Summary
Compensation Table above for more information regarding the determination of the grant date fair value of these awards.
2/27/2017
2/27/2017
2/27/2017
2/27/2017
5/9/2017
25,960
72,960
—
—
—
—
—
24,526
29,198
85,269
42.81
42.81
—
—
—
(1)
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding the holdings of stock options and RSUs by our
named executive officers as of December 31, 2017. The market value of the RSUs is based on the
closing price of TripAdvisor common stock on The NASDAQ Stock Market on December 29, 2017, the
last trading day of the year, which was $34.46 per share.
TripAdvisor, Inc. |
2018 Proxy Statement
50
Option Awards
Stock Awards
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(9)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
213,000 7,339,980
213,000 7,339,980
Number of
Securities
Underlying
Unexercised
Options
Number of
Securities
Underlying
Unexercised
Options
Exercisable Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
Name
Stephen
Kaufer
Ernst
Teunissen
Seth J. Kalvert
Dermot M.
Halpin
Grant
Date
3/1/2011
11/30/2011
5/4/2012
8/28/2013(1)
2/22/2016(2)
2/27/2017
11/28/2017 (3)
11/28/2017 (3)
11/28/2017 (4)
11/28/2017 (5)
12/1/2015(6)
2/22/2016(2)
2/27/2017(2)
2/27/2017(7)
2/27/2017(7)
5/4/2012
2/28/2013
2/21/2014(2)
2/21/2014(2)
2/26/2015(2)
2/26/2015(2)
2/22/2016(2)
2/22/2016(2)
2/27/2017(2)
2/27/2017(2)
2/27/2017(7)
2/27/2017(7)
2/27/2013
2/27/2013
2/21/2014(2)
2/21/2014(2)
2/26/2015(2)
2/26/2015(2)
2/22/2016(2)
2/22/2016(2)
2/27/2017(2)
2/27/2017(2)
2/27/2017(7)
2/27/2017(7)
5/9/2017(8)
70,785
235,950
250,000
550,000
1,439
13,759
—
—
—
—
—
—
—
—
—
50,000
50,473
18,395
—
11,301
—
8,738
—
—
—
—
—
9,213
40,200
5,980
—
5,298
—
12,850
—
—
—
—
—
—
—
—
—
550,000
4,317
—
780,000
—
—
—
141,424
—
—
144,227
—
—
—
6,131
—
11,300
—
26,212
—
43,776
—
79,324
—
—
1,993
—
5,296
—
38,548
—
72,960
—
25,960
—
—
20.87
3/1/2018
29.48 11/30/2018
40.20
5/4/2022
72.52 8/28/2023
63.11 2/22/2026
42.81 2/27/2027
34.71 11/28/2027
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 426,000 14,679,960
— 213,000 7,339,980
— 213,000 7,339,980
—
—
—
—
—
82.93 12/1/2025
—
—
42.81 2/27/2027
—
—
—
—
5/4/2022
40.20
45.54 2/28/2023
96.92 2/21/2024
—
89.86 2/26/2025
—
63.11 2/22/2026
—
42.81 2/22/2027
—
42.81 2/22/2027
—
—
—
—
—
—
45.27 2/27/2023
45.27 2/27/2020
96.92 2/21/2024
—
89.86 2/26/2025
—
63.11 2/22/2026
—
42.81 2/27/2027
—
42.81 2/27/2027
—
—
—
—
—
—
—
—
409,488
11,883
46,718 1,609,902
—
58,397 2,012,361
—
—
—
—
991
—
4,450
—
10,101
—
17,519
—
—
—
—
34,150
—
153,347
—
348,080
—
603,705
—
32,118 1,106,786
—
—
—
967
—
2,086
—
14,854
—
—
—
—
33,323
—
71,884
—
511,867
—
29,198 1,006,163
—
—
845,166
24,526
56,846 1,958,913
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
Vests on August 28, 2018.
TripAdvisor, Inc. |
2018 Proxy Statement
51
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Vests in four equal annual installments commencing on February 15th of the first year following the date of grant.
Vests in two equal installments on each of August 1, 2021 and August 1, 2022.
Represents the target number of shares to be issued assuming that, for the period from January 1, 2018 through December
31, 2020 the Company’s total shareholder return, or TSR, is 110% of the TSR of the NASDAQ Composite Total Return.
Award vests December 31, 2020 and will settle shortly following certification of achievement of performance criteria.
Represents the target number of shares to be issued assuming target achievement of financial and strategic performance
metrics for 2018, 2019, 2020 and 2021. One quarter of the award to vest on December 31st of the relevant year of
performance and settle shortly following certification of achievement of the performance criteria for the year.
Vests in two equal installments on each of November 9, 2018 and November 9, 2019.
Vests in four equal installments on June 15th in each of the four years following the date of grant.
Vests in three equal installments on each of December 31, 2017, December 31, 208 and December 31, 2019.
The amounts reported in this column represent the market value of shares or units of stock that have not vested calculated
by multiplying the number of RSUs that have not vested by $34.46, the closing price of TripAdvisor common stock on The
NASDAQ Stock Market as of December 29, 2017, the last trading day in 2017.
Option Exercises and Stock Vested
The following table sets forth all stock option awards exercised and the taxable income realized
upon exercise and all other stock awards vested and the taxable income realized upon vesting by the
named executive officers during 2017.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot Halpin
Option Awards
Stock Awards
Exercise or
Vest Date
Number of
Shares
Acquired on
Exercise (1)
2/17/2017
2/27/2017
2/15/2017
11/9/2017
2/15/2017
9/12/2017
2/15/2017
8/18/2017
12/29/2017
54,113
—
—
—
—
31,855
—
6,595
—
Value
Realized
on
Exercise
($)(2)
1,254,880
—
—
—
—
550,384
—
62,982
—
Number of Shares
Acquired on Vesting
(3)
Value Realized
on Vesting
($)(4)
—
4,087
3,962
12,058
6,585
—
8,033
—
28,423
—
174,964
206,777
381,756
343,671
—
419,242
—
980,594
(1)
(2)
(3)
(4)
The amounts reported in this column represent the gross number of shares acquired upon exercise of vested options without
taking into account any shares that may have been withheld to cover option exercise price or applicable tax obligations.
The amounts reported in this column represent the taxable income recognized upon exercise of vested stock options
calculated by multiplying (i) the number of shares of TripAdvisor’s common stock acquired upon exercise by (ii) the difference
between the market price of TripAdvisor’s common stock at exercise and the exercise price of the options.
The amounts reported in this column represent the gross number of shares acquired upon the vesting of RSUs without taking
into account any shares that may have been withheld to satisfy applicable tax obligations.
The amounts reported in this column represent the taxable income recognized upon the vesting of RSUs calculated by
multiplying the gross number of RSUs vested by the closing price of TripAdvisor common stock on The NASDAQ Stock
Market on the vesting date or, if the vesting occurred on a day on which The NASDAQ Stock Market was closed for trading,
the next trading day.
Non-Qualified Deferred Compensation
We do not currently have any other defined contribution or other plan that provides for deferred
compensation on a basis that is not tax-qualified for our employees.
TripAdvisor, Inc. |
2018 Proxy Statement
52
Potential Payments Upon Termination or Change in Control
We have entered into employment agreements with each of Messrs. Kaufer, Kalvert and Teunissen
and an offer letter with Mr. Halpin. Pursuant to these agreements, each of our named executive officers
is eligible to receive certain severance payments and benefits in the event of a qualifying termination of
employment. The material terms of these employment agreements are described below under the
heading “Potential Payments Upon Termination or Change in Control.”
We believe that a strong, experienced management team is essential and in the best interests of
our company and our stockholders. In addition, we recognize that the possibility of a change in control
could arise and that such an event could result in the departure of our senior leaders to the detriment of
the company and our stockholders. As a result, we adopted the Severance Plan applicable to certain
senior leaders. The plan formalizes and standardizes our severance practices for our most senior leaders
officers. Adoption of the Severance Plan was approved by the Compensation Committees. Please refer
to the section entitled “Potential Payments Upon Termination or Change in Control” for specific details
regarding post-termination compensation and benefits for our named executive officers.
The Severance Plan applies to all named executive officers, including Mr. Kaufer. While the
benefits are generally consistent with the severance benefits provided for in individual employment
agreements, there are some differences. In addition, the Severance Plan includes a provision that in the
event of any conflict or inconsistency between the terms of any employment agreement and the
Severance Plan, the terms more beneficial to the officer shall prevail. For a description and quantification
of change in control payments and benefits for our named executive officers, please see the section
below entitled “Potential Payments Upon Termination or Change in Control.”
Change of Control Provisions in TripAdvisor’s 2011 Plan
The 2011 Plan provides that, unless otherwise specified in the applicable award agreement, upon a
participant’s termination of employment by the Company during the two-year period following a Change in
Control other than for “Cause” or “Disability,” or by the participant for “Good Reason,” as each term is
defined in the 2011 Plan, during such period, stock options and stock appreciation rights held by such
participant will automatically become fully exercisable and will remain exercisable until the later of (i) the
last day on which such option or stock appreciation right is exercisable as specified in the applicable
award agreement or (ii) the earlier of the first anniversary of the change in control and the expiration of
the term of the option or stock appreciation right, and the restrictions and conditions on all other awards
will automatically be deemed waived.
Stephen Kaufer Employment Agreement
In March 2014, TripAdvisor, LLC entered into an employment agreement with Mr. Kaufer. The
agreement had an original term of five years. Pursuant to the employment agreement, in the event that
Mr. Kaufer’s employment terminates by reason of his death or disability, then:
(cid:221)
(cid:221)
(cid:221)
TripAdvisor will pay Mr. Kaufer (or his estate) his base salary through the end of the month in
which the termination occurs;
Any outstanding unvested equity awards that vest less frequently than annually shall be treated
as though such awards vested annually; and
Any unvested stock options held by Mr. Kaufer at the time of termination shall remain
exercisable through the earlier of 18 months following termination or the scheduled expiration of
such options.
TripAdvisor, Inc. |
2018 Proxy Statement
53
Pursuant to the employment agreement, in the event that Mr. Kaufer terminates his employment for
Good Reason or is terminated by TripAdvisor without Cause and such termination occurs during the
period commencing three months immediately prior to a Change in Control and ending 24 months
immediately following the Change in Control (in each case as such terms are defined in the employment
agreement and below), then:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor will pay Mr. Kaufer cash severance in an amount equal to 24 months of his base
salary;
TripAdvisor will pay Mr. Kaufer in cash an amount equal to the premiums charged by
TripAdvisor to maintain COBRA health insurance coverage for him and his eligible dependents
for each month between the date of termination and 18 months thereafter;
TripAdvisor will pay to Mr. Kaufer a lump sum in cash equal to his annual target bonus, without
pro-ration or adjustment;
All equity awards held by Mr. Kaufer that are outstanding and unvested shall immediately vest in
full; and
Mr. Kaufer will have 18 months following such date of termination of employment to exercise
any vested stock options (including stock options accelerated pursuant to the terms of his
employment agreement) or, if earlier, through the scheduled expiration date of the options.
Pursuant to the employment agreement, in the event that Mr. Kaufer terminates his employment for
Good Reason or is terminated by TripAdvisor without Cause and such termination is not in connection
with a Change in Control, then:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor will continue to pay Mr. Kaufer’s base salary through 12 months following the date
of termination;
TripAdvisor will consider in good faith the payment of an annual bonus on a pro rata basis
based on actual performance during the year of termination;
TripAdvisor will pay COBRA health insurance coverage for Mr. Kaufer and his eligible
dependents for 12 months following termination;
All equity awards held by Mr. Kaufer that otherwise would have vested during the 12-month
period following termination of employment, will accelerate and become fully vested and
exercisable (provided that awards that vest less frequently than annually will be treated as
though such awards vested annually);
Any equity awards that do not vest in connection with a termination of employment shall remain
outstanding for three months following termination, provided that there will be no additional
vesting with respect to such awards unless a Change in Control occurs within such three-month
period; and
Mr. Kaufer will have 18 months following such date of termination to exercise any vested stock
options (including stock options accelerated pursuant to the terms of his employment
agreement) or, if earlier, through the scheduled expiration date of the options.
Receipt of the severance payments and benefits set forth above is contingent upon Mr. Kaufer
executing and not revoking a separation and release in favor of TripAdvisor. Each of the payments set
forth above shall be offset by the amount of any cash compensation earned by Mr. Kaufer from another
employer during the 12 months following his termination of employment.
TripAdvisor, Inc. |
2018 Proxy Statement
54
With respect to Mr. Kaufer’s equity awards granted in August 2013 and thereafter, either Mr. Kaufer
agreed to waive the single trigger acceleration right upon a Change in Control or the award was issued
pursuant to the 2011 Plan which did not include this benefit. As a result, Mr. Kaufer’s awards will only
accelerate upon a “double trigger.”
Mr. Kaufer has also agreed to be restricted from competing with TripAdvisor or any of its
subsidiaries or affiliates or soliciting their employees, consultants, independent contractors, customers,
suppliers or business partners, among others, during the term of his employment and through the period
ending 18 months after the termination of employment.
Effective November 28, 2017, the company entered into an amendment to employment agreement
to, among other things, provide that:
(cid:221)
(cid:221)
(cid:221)
Mr. Kaufer’s annual base salary would be increased from $700,000 to $800,000, effective
January 1, 2018;
The term of Mr. Kaufer’s employment would be extended to March 31, 2023; and
A non-renewal of the employment agreement or expiration of the term will be treated as a
termination of employment without Cause or resignation for Good Reason not in connection with
a Change in Control, entitling Mr. Kaufer to benefits under his employment agreement.
Ernst Teunissen Employment Agreement
On October 6, 2015, the Company entered into an agreement with Mr. Teunissen, effective
November 9. 2015. Such employment agreement commenced on November 9, 2015 and was to expire
on March 31, 2018, unless sooner terminated in accordance with its terms. Pursuant to the employment
agreement with Mr. Teunissen, in the event that his employment terminates by reason of his death or
disability, he will be entitled to continued payment of base salary through the end of the month in which
the termination occurs. In the event that he terminates his employment for Good Reason or is terminated
by TripAdvisor without Cause (in each case, as such terms are defined in the employment agreement and
below), then:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor will continue to pay his base salary through the longer of the end of the term of the
employment agreement and 12 months following termination (provided that such payments will
be offset by any amount earned from another employer during such time period);
TripAdvisor will consider in good faith the payment of bonuses on a pro rata basis based on
actual performance for the year in which termination of employment occurs;
TripAdvisor will pay COBRA health insurance coverage for Mr. Teunissen and his eligible
dependents through the longer of the end of the term of his employment agreement and 12
months following termination;
All equity awards held by Mr. Teunissen that otherwise would have vested during the 12-month
period following termination of employment, will accelerate and become fully vested and
exercisable (provided that equity awards that vest less frequently than annually shall be treated
as though such awards vested annually); and
Mr. Teunissen will have 18 months following such date of termination or employment to exercise
any vested stock options (including stock options accelerated pursuant to the terms of his
employment agreement) or, if earlier, through the scheduled expiration date of the options.
TripAdvisor, Inc. |
2018 Proxy Statement
55
Receipt of the severance payments and benefits set forth above is contingent upon Mr. Teunissen
executing and not revoking a separation and release in favor of TripAdvisor. In addition, Mr. Teunissen
agreed to be restricted from competing with TripAdvisor or any of its subsidiaries or affiliates or soliciting
their employees, consultants, independent contractors, customers, suppliers or business partners, among
others, through the longer of (i) the completion of the term of the employment agreement and (ii) 12
months after the termination of employment.
Effective November 28, 2017, the Company entered into an amendment to the employment
agreement, to, among other things, provide that:
(cid:221)
(cid:221)
(cid:221)
The term of Mr. Teunissen’s employment will be extended to March 31, 2021;
Upon a termination of employment without Cause or resignation for Good Reason not in
connection with a Change in Control, the Company will continue to pay Mr. Teunissen’s base
salary through the longer of (x) 12 months following such termination date, and (y) the
remaining term of the employment agreement up to a maximum of 18 months; and
A non-renewal of the employment agreement or expiration of the term will be treated as a
termination of employment without Cause or resignation for Good Reason not in connection with
a Change of Control, entitling Mr. Teunissen to benefits under his employment agreement.
Seth J. Kalvert Employment Agreement
Effective May 19, 2016, the Company entered into an employment agreement with Mr. Kalvert, for
a two-year term. Pursuant to the employment agreement with Mr. Kalvert, in the event that his
employment terminates by reason of his death or disability, he will be entitled to continued payment of
base salary through the end of the month in which the termination occurs.
terminates his employment for Good Reason or is terminated by TripAdvisor without Cause (in each case
as such terms are defined in the employment agreement and below), then:
In the event that he
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor will continue to pay his base salary through the longer of the end of the term of the
employment agreement and 12 months following termination (provided that such payments will
be offset by any amount earned from another employer during such time period);
TripAdvisor will consider in good faith the payment of bonuses on a pro rata basis based on
actual performance for the year in which termination of employment occurs;
TripAdvisor will pay COBRA health insurance coverage for Mr. Kalvert and his eligible
dependents through the longer of the end of the term of his employment agreement and 12
months following termination;
All equity awards held by Mr. Kalvert that otherwise would have vested during the 12-month
period following termination of employment, will accelerate and become fully vested and
exercisable (provided that equity awards that vest less frequently than annually shall be treated
as though such awards vested annually); and
Mr. Kalvert will have 18 months following such date of termination or employment to exercise
any vested stock options (including stock options accelerated pursuant to the terms of his
employment agreement) or, if earlier, through the scheduled expiration date of the options.
Receipt of the severance payments and benefits set forth above is contingent upon Mr. Kalvert
executing and not revoking a separation and release in favor of TripAdvisor. In addition, Mr. Kalvert
agreed to be restricted from competing with TripAdvisor or any of its subsidiaries or affiliates or soliciting
their employees, consultants, independent contractors, customers, suppliers or business partners, among
TripAdvisor, Inc. |
2018 Proxy Statement
56
others, through the longer of (i) the completion of the term of the employment agreement and (ii) 12
months after the termination of employment.
Effective February 19, 2018, the Company entered into an amendment to the employment
agreement to, among other things, provide that:
(cid:221)
(cid:221)
(cid:221)
The term of Mr. Kalvert’s employment will be extended to March 31, 2021;
Upon a termination of employment without Cause or resignation for Good Reason not in
connection with a Change in Control, the Company will continue to pay Mr. Kalvert’s base salary
through the longer of (x) 12 months following such termination date, and (y) the remaining term
of the employment agreement up to a maximum of 18 months; and
A non-renewal of the employment agreement or expiration of the term will be treated as a
termination of employment without Cause or resignation for Good Reason not in connection with
a Change of Control, entitling Mr. Kalvert to benefits under his employment agreement.
Dermot M. Halpin Offer Letter
On May 9, 2017, the Company entered into a new offer letter with Dermot Halpin. Pursuant to the
offer letter, in the event that the offer letter is terminated whether by Mr. Halpin for Good Reason, by
TripAdvisor without Cause, or as a result of death or Disability (in each case, as such terms are defined in
the offer letter and below) then:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
(cid:221)
TripAdvisor will continue to pay Mr. Halpin his base salary for a period of 12 months following
termination;
TripAdvisor will pay COBRA health insurance coverage for Mr. Halpin and his eligible
dependents until the earlier of 12 months following termination and the date Mr. Halpin becomes
re-employed;
TripAdvisor will consider, in good faith, the payment of an annual bonus on a pro rata basis for
the year in which the termination of employment occurs;
All equity awards held by Mr. Halpin that otherwise would have vested during the 12-month
period following termination of employment will accelerate and become fully vested and
exercisable (provided that equity awards that vest less frequently than annually shall be treated
as though such awards vested annually); and
Mr. Halpin will have 18 months following such date of termination of employment to exercise
any vested stock options (including stock options accelerated pursuant to the terms of his
employment agreement) or, if earlier, through the scheduled expiration date of the options.
Simultaneously with entering into the new offer letter, Mr. Halpin entered into a Non-Disclosure,
Developments and Non-Competition Agreement, pursuant to which Mr. Halpin agreed to be restricted
from competing with TripAdvisor or any of its subsidiaries or affiliates or soliciting their employees,
consultants, independent contractors, customers, suppliers or business partners, among others, through
the longer of (i) the completion of the term of the employment agreement and (ii) one year after the
termination of employment.
TripAdvisor, Inc. |
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57
Definitions
Under the employment agreements and offer letter, Cause means: (i) the plea of guilty or nolo
contendere to, or conviction for, a felony offense by the executive; provided, however, that after
indictment, TripAdvisor may suspend the executive from rendition of services but without limiting or
modifying in any other way TripAdvisor’s obligations under the applicable employment agreement, (ii) a
material breach by the executive of a fiduciary duty owed to TripAdvisor or its subsidiaries, (iii) material
breach by the executive of certain covenants of the applicable employment agreement, (iv) the willful or
gross neglect by the executive of the material duties required by the applicable employment agreement or
(v) a knowing and material violation by the executive of any TripAdvisor policy pertaining to ethics, legal
compliance, wrongdoing or conflicts of interest that, in the cases of the conduct described in clauses
(iv) and (v) above, if curable, is not cured by the executive within 30 days after the executive is provided
with written notice thereof.
Under the employment agreements and offer letter as well as under the 2011 Plan, Change in
Control shall mean any of the following events:
(i)
The acquisition by any individual entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act), other than Liberty TripAdvisor Holdings, Inc. and its affiliates (a
“Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of equity securities of the Company representing more than 50% of the voting power of the then
outstanding equity securities of the Company entitled to vote generally in the election of directors (the
“Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the
Company, (B) any acquisition directly from the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the
Company, or (D) any acquisition pursuant to a transaction which complies with clauses (A), (B) and
(C) of subsection (iii); or
(ii)
Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective Date, whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company or the purchase of assets or stock of another
entity (a “Business Combination”), in each case, unless immediately following such Business
Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Voting Securities immediately prior to such Business Combination will
beneficially own, directly or indirectly, more than 50% of the then outstanding combined voting power
of the then outstanding voting securities entitled to vote generally in the election of directors (or
equivalent governing body, if applicable) of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of such transaction owns the Company or all
or substantially all of the Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Voting Securities, (B) no Person (excluding Liberty
TripAdvisor Holdings, Inc. and its respective affiliates, any employee benefit plan (or related trust) of
the Company or such entity resulting from such Business Combination) will beneficially own, directly
or indirectly, more than a majority of the combined voting power of the then outstanding voting
securities of such entity except to the extent that such ownership of the Company existed prior to the
Business Combination and (C) at least a majority of the members of the board of directors (or
TripAdvisor, Inc. |
2018 Proxy Statement
58
equivalent governing body, if applicable) of the entity resulting from such Business Combination will
have been members of the Incumbent Board at the time of the initial agreement, or action of the
Board, providing for such Business Combination; or
(iv) Approval by our stockholders of a complete liquidation or dissolution of the Company.
Under the employment agreements and offer letter, Good Reason means the occurrence of any of the
following without the executive’s prior written consent: (A) TripAdvisor’s material breach of any material
provision of the applicable employment agreement, (B) the material reduction in the executive’s title, duties,
reporting responsibilities or level of responsibilities in such executive’s position at TripAdvisor, (C) the
material reduction in the executive’s base salary or the executive’s total annual compensation opportunity,
or (D) the relocation of the executive’s principal place of employment more than 20 miles outside of their
location of employment; provided that in no event shall the executive’s resignation be for Good Reason
unless (x) an event or circumstance set forth in clauses (A) through (D) shall have occurred and the
executive provides TripAdvisor with written notice thereof within 30 days after the executive has knowledge
of the occurrence or existence of such event or circumstance, which notice specifically identifies the event
or circumstance that the executive believes constitutes Good Reason, (y) TripAdvisor fails to correct the
event or circumstance so identified within 30 days after receipt of such notice, and (z) the executive resigns
within 90 days after the date of delivery of the notice referred to in clause (x) above.
Notwithstanding the terms of the NEO employment agreements and offer letter described above,
the Severance Plan includes a provision that in the event of any conflict or inconsistency between the
terms of any employment agreement and the Severance Plan, the terms more beneficial to the employee
shall prevail. For a description and quantification of the estimated potential payments in the event of a
termination without Cause, resignation for Good Reason, Change in Control and termination without
Cause or resignation for Good Reason in connection with a Change in Control, please see the section
below entitled “Potential Payments Upon Termination or Change in Control.” The amounts reflected in
this table reflect the “better of” the terms between the employment arrangements, the 2011 Plan and the
Severance Plan.
Severance Plan
Effective August 7, 2017, the Company adopted the Severance Plan applicable to certain senior
leaders of the Company. The Severance Plan formalizes and standardizes the Company’s severance
practices for certain designated employees. Employees covered by the Severance Plan generally will be
eligible to receive severance benefits in the event of a termination by the Company without Cause or,
under certain circumstances, resignation by the employee for Good Reason. The severance benefits
differ if there is a termination of employment in connection with a Change in Control. The severance
benefits provided pursuant to the Severance Plan are determined based on the job classification of the
employees and, in certain cases, his or her years of service with the Company.
Under the Severance Plan, in the event of a termination by the Company without Cause more than
three months prior to a Change in Control or more than 12 months following a Change in Control, the
severance benefits for the employee generally shall consist of the following:
•
•
continued payment of base salary for a period of six to 18 months following the date of such
employee’s termination of employment (in such case, based on the employee’s classification
within the organization and years of service); and
continuation of coverage under the Company’s health insurance plan through the Company’s
payment of COBRA premiums for a period of six to 18 months following the date of such
employee’s termination of employment (in such case, based on the employee’s classification
within the organization and years of service).
TripAdvisor, Inc. |
2018 Proxy Statement
59
Under the Severance Plan, in the event of a termination by the Company without Cause or by the
employee for Good Reason, in each case within three months prior to or 12 months following a Change in
Control, the severance benefits for the participant shall consist of the following:
•
•
payment of a lump sum amount equal to (i) a minimum of 12 and up to 24 months of the
participant’s base salary, plus (ii) the participant’s target bonus multiplied by 1, 1.5 or 2 (in each
case, based on employee’s classification within the organization and years of service); and
payment of a lump sum amount equal to the premiums required to continue the participant’s
medical coverage under the Company’s health insurance plan for a period of 12 to 24 months (in
such case, based on employee’s classification within the organization and years of service).
The foregoing summary is qualified in its entirety by reference to the Severance Plan incorporated
herein by reference to Exhibit 10.22 to the Company’s 2017 Annual Report.
Estimated Potential Incremental Payments
The table below reflects the estimated amount of incremental compensation payable to each of our
named executive officers upon termination of his or her employment in the following circumstances: (i) a
termination of employment by TripAdvisor without Cause not in connection with a Change in Control,
(ii) resignation by him or her for Good Reason not in connection with a Change in Control, (iii) a Change in
Control or (iv) a termination of employment by TripAdvisor without Cause or by him or her for Good Reason
in connection with a Change in Control.
The amounts shown in the table (i) assume that the triggering event was effective as of December
29, 2017, the last business day of 2017; (ii) are based on the terms of the employment agreements in
effect as of December 29, 2017 and do not reflect any subsequent amendments to the employment
agreement; and (iii) are based on the “better of” such employment agreements or the terms of the
Severance Plan, as specifically provided for in the Severance Plan. The price of TripAdvisor common
stock on which certain of the calculations are based was $34.46 per share, the closing price of
TripAdvisor’s common stock on The NASDAQ Stock Market on December 29, 2017. These amounts are
estimates of the incremental amounts that would be paid out to each named executive officer upon such
triggering event. The actual amounts to be paid out can only be determined at the time of the triggering
event, if any.
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Termination
Without
Cause ($)
Resignation
for Good
Reason ($)
Change in
Control ($)
Termination
w/o Cause
or for Good
Reason in
connection
with
Change in
Control ($)
1,050,000
350,000
6,386,532
33,642
7,820,174
659,813
286,670
1,042,105
30,744
2,019,332
439,875
254,619
654,499
22,428
1,371,421
430,000
600,000
1,682,234
22,512
2,734,746
1,050,000
350,000
6,386,532
33,642
7,820,174
659,813
286,670
1,042,105
30,744
2,019,332
439,875
254,619
654,499
22,428
1,371,421
430,000
600,000
1,682,234
22,512
2,734,746
—
—
2,044,572 (3)
—
2,044,572
1,400,000
1,400,000
29,359,920 (4)
44,856
32,204,776
—
—
—
—
—
—
—
—
—
—
—
—
—
659,813
494,859
4,031,751
30,744
5,217,167
659,813
442,074
2,246,068
33,642
3,381,597
645,000
483,750
4,427,317
33,768
5,589,835
Name and Benefit
Stephen Kaufer
Salary
Bonus (1)
Equity Awards (vesting accelerated)
Health & Benefits (2)
Total estimated value
Ernst Teunissen
Salary
Bonus (1)
Equity Awards (vesting accelerated)
Health & Benefits (2)
Total estimated value
Seth J. Kalvert
Salary
Bonus (1)
Equity Awards (vesting accelerated)
Health & Benefits (2)
Total estimated value
Dermot M. Halpin
Salary
Bonus (1)
Equity Awards (vesting accelerated)
Health & Benefits (2)
Total estimated value
(1)
(2)
(3)
(4)
Represents actual bonus amount for 2017, the payment of which the Company must consider in good faith, in both cases
pursuant to the terms of the employment agreement.
Assumes extension of benefits or payment of the cost of benefits for a period of time following termination, pursuant to the
terms of the employment agreement.
In the event of a Change in Control, the time-based stock option and RSUs granted in connection with the 2017 CEO Award
will be treated as though they vested annually pro-rata over the vesting period and become exercisable as of the effective
date of the Change in Control and the remaining unvested tranches are due to vest pro-rata on each anniversary of the
August 1, 2017 vesting commencement date.
Pursuant to the terms of Mr. Kaufer’s employment agreement, any equity awards that are outstanding and unvested at the
time of such termination shall immediately vest in full as of the date of such termination of employment.
TripAdvisor, Inc. |
2018 Proxy Statement
61
Equity Compensation Plan Information
The following table provides information as of December 31, 2017 regarding shares of common
stock that may be issued under TripAdvisor’s equity compensation plans consisting of the 2011 Plan, the
Viator Inc. 2010 Stock Incentive Plan, and the Non-Employee Director Deferred Compensation Plan.
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted Average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plan
(excluding securities
reflected in column
(a))
(c)
12,871,194 (1) $
52.78 (2)
N/A
12,871,194
N/A
—
9,527,557
N/A
9,527,557
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(1)
Includes (i) 6,852,974 shares of common stock issuable upon the exercise of outstanding options, of which 13,659 shares
were granted pursuant to options under the Viator, Inc. 2010 Stock Incentive Plan, (ii) 6,014,884 shares of common stock
issuable upon the vesting of RSUs, and (iii) 3,336 shares reserved for issuance of common stock issuable upon exercise of
options granted pursuant to the Non-Employee Director Deferred Compensation Plan.
(2)
Since RSUs do not have an exercise price, such units are not included in the weighted average exercise price calculation.
TripAdvisor, Inc. |
2018 Proxy Statement
62
Overview
DIRECTOR COMPENSATION
The Board of Directors sets non-employee director compensation which is designed to provide
competitive compensation necessary to attract and retain high quality non-employee directors and to
encourage ownership of TripAdvisor common stock to further align their interests with those of our
stockholders. Each non-employee director of TripAdvisor is eligible to receive the following compensation:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
An annual cash retainer of $50,000, paid in equal quarterly installments;
An RSU award with a value of $250,000 (based on the closing price of TripAdvisor’s common
stock on the NASDAQ Stock Market on the date of grant), upon such director’s election to
office, subject to vesting in full on the first anniversary of the grant date and, in the event of a
Change in Control (as defined in the 2011 Plan and above), full acceleration of vesting;
An annual cash retainer of $20,000 for each member of the Audit Committee (including the
Chairman) and $15,000 for each member of the Compensation Committees (including the
Chairperson); and
An additional annual cash retainer of $10,000 for each of the Chairman of the Audit Committee
and the Chairperson of the Compensation Committees.
We also pay reasonable travel and accommodation expenses of the non-employee directors in
connection with their participation in meetings of the Board of Directors.
TripAdvisor employees do not receive compensation for serving as directors. Accordingly, Mr.
Kaufer does not receive any compensation for his service as a director.
Non-Employee Director Deferred Compensation Plan
Under TripAdvisor’s Non-Employee Director Deferred Compensation Plan, the non-employee
directors may defer all or a portion of their directors’ fees. Eligible directors who defer their directors’ fees
may elect to have such deferred fees (i) applied to the purchase of share units representing the number
of shares of TripAdvisor common stock that could have been purchased on the date such fees would
otherwise be payable or (ii) credited to a cash fund. If any dividends are paid on TripAdvisor common
stock, dividend equivalents will be credited on the share units. The cash fund will be credited with
deemed interest at an annual rate equal to the average “bank prime loan” rate for such year identified in
the U.S. Federal Reserve Statistical Release. Upon termination of service as a director of TripAdvisor, a
director will receive (1) with respect to share units, such number of shares of TripAdvisor common stock
as the share units represent and (2) with respect to the cash fund, a cash payment. Payments upon
termination will be made in either one lump sum or up to five installments, as elected by the eligible
director at the time of the deferral election.
TripAdvisor, Inc. |
2018 Proxy Statement
63
2017 Non-Employee Director Compensation Table
The following table shows the compensation information for the non-employee directors of
TripAdvisor for the year ended December 31, 2017:
Name
Gregory B. Maffei
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert Rosenthaler
Sukhinder Singh Cassidy
Robert S. Wiesenthal
Fees Earned or
Paid in Cash
($)(1)
65,000
65,000
70,000
70,000
50,000
75,000
80,000
Stock Awards
($)(2)(3)
249,966
249,966
249,966
249,966
249,966
249,966
249,966
Total
($)
314,966
314,966
319,966
319,966
299,966
324,966
329,966
(1)
(2)
(3)
The amounts reported in this column represent the annual cash retainer amounts for services in 2017, including fees with
respect to which directors elected to defer and credit towards the purchase of share units representing shares of the
Company common stock pursuant to the Company’s Non-Employee Director Deferred Compensation Plan.
The amounts reported in this column represent the aggregate grant date fair value of RSU awards computed in accordance
with FASB ASC Topic 718. These amounts reflect an estimate of the grant date fair value and may not correspond to the
actual value that will be recognized by the non-employee directors from their awards.
As of December 31, 2017, Messrs. Maffei, Nishar, Philips, Rascoff, and Wiesenthal and Ms. Singh Cassidy each held 6,994
unvested RSUs. As of December 31, 2017, Mr. Rosenthaler held 8,188 unvested RSU’s.
TripAdvisor, Inc. |
2018 Proxy Statement
64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership Table
The following table presents information as of April 23, 2018, relating to the beneficial ownership of
TripAdvisor’s capital stock by (i) each person or entity known to TripAdvisor to own beneficially more than
5% of the outstanding shares of TripAdvisor’s common stock or Class B common stock, (ii) each director
and director nominee of TripAdvisor, (iii) the named executive officers and (iv) our executive officers and
directors, as a group. In each case, except as otherwise indicated in the footnotes to the table, the shares
are owned directly by the named owners, with sole voting and dispositive power. Unless otherwise
indicated, beneficial owners listed in the table may be contacted at TripAdvisor’s corporate headquarters
at 400 1st Avenue, Needham, Massachusetts, 02494.
Shares of TripAdvisor Class B common stock may, at the option of the holder, be converted on a
one-for-one basis into shares of TripAdvisor common stock; therefore, the common stock column below
includes shares of Class B common stock held by each such listed person, entity or group, and the
beneficial ownership percentage of each such listed person assumes the conversion of all Class B
common stock into common stock. For each listed person, entity or group, the number of shares of
TripAdvisor common stock and Class B common stock and the percentage of each such class listed also
include shares of common stock and Class B common stock that may be acquired by such person, entity
or group on the conversion or exercise of equity securities, such as stock options, which can be
converted or exercised, and RSUs that have or will have vested, within 60 days of April 23, 2018, but do
not assume the conversion or exercise of any equity securities (other than the conversion of the Class B
common stock) owned by any other person, entity or group.
TripAdvisor, Inc. |
2018 Proxy Statement
65
The percentage of votes for all classes of TripAdvisor’s capital stock is based on one vote for each
share of common stock and ten votes for each share of Class B common stock. There were 125,819,936
shares of common stock and 12,799,999 shares of Class B common stock outstanding on April 23, 2018.
Beneficial Owner
5% Beneficial Owners
Liberty TripAdvisor Holdings, Inc.
12300 Liberty Boulevard Englewood,
CO 80112
Eagle Capital Management, LLC
499 Park Avenue, 17th Floor, New York, NY 10022
The Vanguard Group
100 Vanguard Blvd Malvern, PA 19355
BlackRock, Inc.
55 East 52nd Street, New York, NY 10022
Jackson Square Partners, LLC
101 California Street, Suite 3750, San Francisco, CA
94111
Named Executive Officers and Directors
Gregory B. Maffei
Stephen Kaufer
Jay C. Hoag
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert Rosenthaler
Sukhinder Singh Cassidy
Robert S. Wiesenthal
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
All executive officers, directors and director
nominees as a group (12 persons)
Common Stock
Class B Common Stock
Shares
%
Shares
%
Percent (%)
of Votes
(All
Classes)
30,959,751 (1)
22.3
12,799,999 (1)
100
57.6
11,007,891 (2)
10,654,008 (3)
10,284,829 (4)
9,966,688 (5)
20,018 (6)
1,516,601 (7)
2,281,000 (8)
16,365 (9)
23,723 (9)
16,711 (9)
13,172 (9)
19,723 (9)
23,723 (9)
60,115 (10)
179,075 (11)
121,894 (12)
4,292,120 (13)
7.9
7.7
7.4
7.2
*
1.1
1.7
*
*
*
*
*
*
*
*
*
*
3.1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4.3
4.2
4.1
3.9
*
*
*
*
*
*
*
*
*
*
*
*
*
1.7
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The percentage of shares beneficially owned does not exceed 1% of the class.
Based on information contained in a Schedule 13D/A filed with the SEC on July 1, 2016, by LTRIP. Consists of 18,159,752
shares of common stock and 12,799,999 shares of Class B Common Stock owned by LTRIP. Excludes shares beneficially
owned by the executive officers and directors of LTRIP, as to which LTRIP disclaims beneficial ownership.
Based solely on information contained in a Schedule 13G/A filed with the SEC on February 14, 2018, by Eagle Management,
LLC (“Eagle”). According to the Schedule 13G/A, Eagle beneficially owns and has sole dispositive power with respect to
11,007,891 shares of common stock and has sole voting power with respect to 9,214,507 shares.
Based solely on information contained in a Schedule 13G/A filed with the SEC on February 9, 2018, by The Vanguard Group
(“Vanguard”). According to the Schedule 13G/A, Vanguard beneficially owns 10,654,008 shares of common stock and has
sole voting power with respect to 150,086 shares, shared voting power with respect to 19,734 shares, sole dispositive power
with respect to 10,483,089 shares and shared dispositive power with respect to 170,919 shares.
Based solely on information contained in a Schedule 13G/A filed with the SEC on January 23, 2018, by BlackRock, Inc.
According to the Schedule 13G, BlackRock beneficially owns and has sole dispositive power with respect to 10,284,829
shares of common stock but only has sole voting power with respect to 9,302,253 shares.
Based solely on information contained in a Schedule 13G filed with the SEC on February 13, 2018, by Jackson Square
Partners, LLC (“Jackson”). According to the Schedule 13G, Jackson beneficially owns and has sole dispositive power with
respect to 9,966,688 shares of common stock, has sole voting power with respect to 3,658,021 shares and shared voting
power with respect to 2,257,806 shares.
Includes 1,938 shares of common stock that are held by the Maffei Foundation. Mr. Maffei and his wife, as the two directors
of the Maffei Foundation, have shared voting and investment power with respect to any shares held by the Maffei
Foundation. Also includes 6,994 RSUs that will vest and settle within 60 days of April 23, 2018.
Includes options to purchase 1,052,587 shares of common stock that are currently exercisable or will be exercisable within
60 days of April 23, 2018.
TripAdvisor, Inc. |
2018 Proxy Statement
66
(8)
These shares are held directly by an investment fund. Jay C.Hoag is a Class A Member of Technology Crossover
Management IX, Ltd. ("Management IX") and a limited partner of Technology Crossover Management IX, L.P. ("TCM IX").
Management IX is the sole general partner of TCM IX, which in turn is the sole general partner of TCV IX, L.P., which in turn
is the sole member of TCV IX TUMI GP, LLC, which in turn is the sole general partner of the investment fund. Mr. Hoag may
be deemed to beneficially own the shares held by TCV TUMI, but disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(9)
Also includes 6,994 RSUs that will vest and settle within 60 days of April 23, 2018.
(10)
(11)
Includes options to purchase 36,057 shares of common stock that are currently exercisable or will be exercisable within 60
days of April 23, 2018 and 14,600 RSUs that will vest and settle within 60 days of April 23, 2018.
Includes options to purchase 170,370 shares of common stock that are currently exercisable or will be exercisable within 60
days of April 23, 2018 and 8,030 RSUs that will vest and settle within 60 days of April 23, 2018.
(12) Represents options to purchase 115,762 shares of common stock that are currently exercisable or will be exercisable within
60 days of April 23, 2018 and 6,132 RSUs that will vest and settle within 60 days of April 23, 2018.
(13)
Includes options to purchase 1,374,776 shares of common stock that are currently exercisable or will be exercisable within
60 days of April 23, 2018 and 77,720 RSUs that will vest and settle within 60 days of April 23, 2018.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, TripAdvisor officers and directors and persons who
beneficially own more than 10% of a registered class of TripAdvisor’s equity securities are required to file
initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership
(Forms 4 and 5) with the SEC. Such persons are required by the rules of the SEC to furnish TripAdvisor
with copies of all such forms they file. Based solely on a review of the copies of such forms furnished to
TripAdvisor and/or written representations that no additional forms were required, TripAdvisor believes
that all of its directors and officers complied with all the reporting requirements applicable to them with
respect to transactions during 2017, with the exception of the Form 4 for Sukhinder Singh-Cassidy filed
February 10, 2017, which was filed late.
Changes in Control
We know of no arrangements, including any pledge by any person of our securities, the operation of
which may at a subsequent date result in a change in control of our company.
TripAdvisor, Inc. |
2018 Proxy Statement
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review and Approval or Ratification of Related Person Transactions
In general, we will enter into or ratify a “related person transaction” only when it has been approved
by the Audit Committee of the Board of Directors, in accordance with its written charter. Related persons
include our executive officers, directors, 5% or more beneficial owners of our common stock or immediate
family members of these persons and entities in which one of these persons has a direct or indirect
material interest. Related person transactions are transactions that meet the minimum threshold for
disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts
exceeding $120,000 in which a related person or entity has a direct or indirect material interest). When a
potential related person transaction is identified, management presents it to the Audit Committee to
determine whether to approve or ratify. When determining whether to approve, ratify, disapprove or reject
any related person transaction, the Audit Committee considers all relevant factors, including the extent of
the related person’s interest in the transaction, whether the terms are commercially reasonable and
whether the related person transaction is consistent with the best interests of TripAdvisor and our
stockholders.
The legal and accounting departments work with business units throughout TripAdvisor to identify
potential related person transactions prior to execution. In addition, we take the following steps with
regard to related person transactions:
(cid:221)
(cid:221)
(cid:221)
(cid:221)
On an annual basis, each director, director nominee and executive officer of TripAdvisor
completes a Director and Officer Questionnaire that requires disclosure of any transaction,
arrangement or relationship with us during the last fiscal year in which the director or executive
officer, or any member of his or her immediate family, had a direct or indirect material interest.
Each director, director nominee and executive officer is expected to promptly notify our legal
department of any direct or indirect interest that such person or an immediate family member of
such person had, has or may have in a transaction in which we participate.
TripAdvisor monitors its accounts payable, accounts receivable and other databases to identify
any other potential related person transactions that may require disclosure.
Any reported transaction that our legal department determines may qualify as a related person
transaction is referred to the Audit Committee.
If any related person transaction is not approved, the Audit Committee may take such action as it
may deem necessary or desirable in the best interests of TripAdvisor and our stockholders.
Related Person Transactions
Relationship between Expedia and TripAdvisor
Upon consummation of the Spin-Off, Expedia was considered a related party under GAAP based on
a number of factors, including, among others, common ownership of our shares and those of
Expedia. However, we no longer consider Expedia a related party. For purposes of governing certain of
the ongoing relationships between us and Expedia at and after the Spin-Off, and to provide for an orderly
transition, we and Expedia entered into various agreements at the time of the Spin-Off, under which
TripAdvisor has satisfied its obligations. However, TripAdvisor continues to be subject to certain post-spin
obligations under the Tax Sharing Agreement between TripAdvisor and Expedia.
Under the Tax Sharing Agreement, we are generally required to indemnify Expedia for any taxes
resulting from the Spin-Off (and any related interest, penalties, legal and professional fees, and all costs
and damages associated with related stockholder litigation or controversies) to the extent such amounts
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resulted from (i) any act or failure to act by us described in the covenants in the Tax Sharing Agreement,
(ii) any acquisition of our equity securities or assets or those of a member of our group, or (iii) any failure
of the representations with respect to us or any member of our group to be true or any breach by us or
any member of our group of any covenant, in each case, which is contained in the separation documents
or in the documents relating to the IRS private letter ruling and/or the opinion of counsel. Refer to “Note
10 – Income Taxes” in the Company’s 2017 Annual Report for information regarding the status of
completed and ongoing IRS audits of our consolidated income tax returns with Expedia.
Relationship among Liberty, LTRIP and TripAdvisor
On August 27, 2014, the entire beneficial ownership of our common stock and Class B common
stock held by Liberty was transferred to LTRIP. Simultaneously, Liberty, LTRIP’s former parent company,
distributed, by means of a dividend, to the holders of its Liberty Ventures common stock, Liberty’s entire
equity interest in LTRIP. As a result of the Liberty Spin-Off, effective August 27, 2014, LTRIP became a
separate, publicly traded company and 100% of Liberty’s interest in TripAdvisor was held by LTRIP.
As a result of these transactions, as of the record date, LTRIP beneficially owned 18,159,752
shares of our common stock and 12,799,999 shares of our Class B common stock, which shares
constitute 14.4% of the outstanding shares of common stock and 100% of the outstanding shares of
Class B common stock. Assuming the conversion of all of LTRIP’s shares of Class B common stock into
common stock, LTRIP would beneficially own 22.3% of the outstanding common stock (calculated in
accordance with Rule 13d-3). Because each share of Class B common stock is generally entitled to ten
votes per share and each share of common stock is entitled to one vote per share, LTRIP may be
deemed to beneficially own equity securities representing approximately 57.6% of our voting power. As a
result, LTRIP is effectively able to control the outcome of all matters submitted to a vote or for the consent
of TripAdvisor’s stockholders (other than with respect to the election by the holders of TripAdvisor
common stock of 25% of the members of TripAdvisor’s Board of Directors and matters as to which
Delaware law requires a separate class vote).
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE
TripAdvisor files annual, quarterly and current reports, proxy statements and other information with
the SEC. TripAdvisor’s filings are available to the public over the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document that TripAdvisor files with the SEC at its
public reference room in Washington, D.C. located at 100 F Street, N.E., Room 1580, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference facilities. You can also obtain copies of those documents at prescribed rates by writing to the
Public Reference Section of the SEC at that address. TripAdvisor’s SEC filings are also available to the
public from commercial retrieval services.
The SEC allows TripAdvisor to “incorporate by reference” the information that TripAdvisor’s files
with the SEC, which means that TripAdvisor can disclose important information to you by referring you to
those documents. The information incorporated by reference is an important part of this proxy statement.
TripAdvisor incorporates by reference its 2017 Annual Report.
ANNUAL REPORTS
TripAdvisor’s Annual Report to Stockholders for 2018, which includes our 2017 Annual Report (not
including exhibits), is available at http://ir.tripadvisor.com/annual-proxy.cfm. Upon written request to
TripAdvisor, Inc., 400 1st Avenue, Needham, Massachusetts 02494, Attention: Secretary, TripAdvisor will
provide, without charge, an additional copy of TripAdvisor’s 2016 Annual Report on Form 10-K.
TripAdvisor will furnish any exhibit contained in the 2017 Annual Report upon payment of a reasonable
fee. Stockholders may also review a copy of the 2017 Annual Report (including exhibits) by accessing
TripAdvisor’s corporate website at www.tripadvisor.com or the SEC’s website at www.sec.gov.
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PROPOSALS BY STOCKHOLDERS FOR PRESENTATION AT THE
2019 ANNUAL MEETING
Stockholders who wish to have a proposal considered for inclusion in TripAdvisor’s proxy materials
for presentation at the 2019 Annual Meeting of Stockholders must ensure that their proposal is received
by TripAdvisor no later than December 27, 2018, at its principal executive offices at 400 1st Avenue,
Needham, Massachusetts 02494, Attention: Secretary. The proposal must be made in accordance with
the provisions of Rule 14a-8 of the Exchange Act. Stockholders who intend to present a proposal at the
2019 Annual Meeting of Stockholders without inclusion of the proposal in TripAdvisor’s proxy materials
are required to provide notice of such proposal to TripAdvisor at its principal executive offices no later
than March 12, 2019. TripAdvisor reserves the right to reject, rule out of order or take other appropriate
action with respect to any proposal that does not comply with these and other applicable requirements.
DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS
If you share an address with any of our other stockholders, your household might receive only one
copy of the Proxy Statement, 2017 Annual Report and Notice, as applicable. To request individual copies
of any of these materials for each stockholder in your household, please contact TripAdvisor, Inc., 400 1st
Avenue, Needham, Massachusetts 02494, Attention: Secretary, or call us at (781) 800-5000. We will
deliver copies of the Proxy Statement, 2017 Annual Report and/or Notice promptly following your request.
To ask that only one copy of any of these materials be mailed to your household, please contact your
broker.
Needham, Massachusetts
April 27, 2018
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TRIPADVISOR, INC.
2018 STOCK AND ANNUAL INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of this Plan is to give the Company a competitive advantage in attracting, retaining and
motivating officers, employees, directors and/or consultants by providing the Company with a stock and
long-term incentive plan providing incentives directly linked to stockholder value.
SECTION 2. DEFINITIONS
Certain terms used herein have definitions given to them in the first place in which they are used. In
addition, for purposes of this Plan, the following terms are defined as set forth below:
“2011 Plan” means the TripAdvisor, Inc. Amended and Restated 2011 Stock and Annual Incentive
Plan, as amended.
“Affiliate” means a corporation or other entity controlled by, controlling or under common control
with, the Company.
“Applicable Exchange” means The NASDAQ Stock Market LLC, or such other securities exchange
as may at the applicable time be the principal market for the Common Stock.
“Award” means an Option, SAR, Restricted Stock, RSU, Performance Award, other stock-based
award or Bonus Award granted or assumed pursuant to the terms of this Plan.
“Award Agreement” means a written or electronic document or agreement setting forth the terms
and conditions of a specific Award.
“Board” means the Board of Directors of the Company.
“Bonus Award” means a bonus award made pursuant to Section 11.
“Cause” means, unless otherwise provided in an Award Agreement, (i) “Cause” as defined in any
Individual Agreement to which the applicable Participant is a party, or (ii) if there is no such Individual
Agreement or if it does not define Cause: (A) the willful or gross neglect by a Participant of his
employment duties; (B) the plea of guilty or nolo contendere to, or conviction for, the commission of a
felony offense by a Participant; (C) a material breach by a Participant of a fiduciary duty owed to the
Company or any of its subsidiaries; (D) a material breach by a Participant of any nondisclosure, non-
solicitation or non-competition obligation owed to the Company or any of its Affiliates; or (E) before a
Change in Control, such other events as shall be determined by the Committee and set forth in a
Participant’s Award Agreement. Notwithstanding the general rule of Section 3(a), following a Change in
Control, any determination by the Committee as to whether “Cause” exists shall be subject to de novo
review.
“Change in Control” has the meaning set forth in Section 13(a).
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any
successor thereto, the Treasury Regulations thereunder and other relevant interpretive guidance issued
by the Internal Revenue Service or the Treasury Department. Reference to any specific section of the
Code shall be deemed to include such regulations and guidance, as well as any successor provision of
the Code.
“Committee” has the meaning set forth in Section 3(a).
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“Common Stock” means common stock, par value $0.001 per share, of the Company.
“Company” means TripAdvisor, Inc., a Delaware corporation, or its successor.
“Corporate Transaction” has the meaning set forth in Section 4(d).
“Disability” means (i) “Disability” as defined in any Individual Agreement to which the Participant is a
party, or (ii) if there is no such Individual Agreement or it does not define “Disability,” (A) permanent and
total disability as determined under the Company’s long- term disability plan applicable to the Participant,
or (B) if there is no such plan applicable to the Participant or the Committee determines otherwise in an
applicable Award Agreement, “Disability” as determined by the Committee. Notwithstanding the above,
with respect to an Incentive Stock Option, Disability shall mean Permanent and Total Disability as defined
in Section 22(e)(3) of the Code and, with respect to all Awards, to the extent required by Section 409A of
the Code, Disability shall mean “disability” within the meaning of Section 409A of the Code.
“Disaffiliation” means a Subsidiary’s or Affiliate’s ceasing to be a Subsidiary or Affiliate for any
reason (including, without limitation, as a result of a public offering, or a spinoff or sale by the Company,
of the stock of the Subsidiary or Affiliate) or a sale of a division of the Company and its Affiliates.
“Eligible Individuals” means directors, officers, employees and consultants of the Company or any of
its Subsidiaries or Affiliates.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and
any successor thereto.
“Fair Market Value” means, unless otherwise determined by the Committee, the closing price of a
share of Common Stock on the Applicable Exchange on the date of measurement, or if Shares were not
traded on the Applicable Exchange on such measurement date, then on the next preceding date on which
Shares were traded, all as reported by such source as the Committee may select. If the Common Stock is
not listed on a national securities exchange, Fair Market Value shall be determined by the Committee in
its good faith discretion, provided that such determination shall be made in a manner consistent with any
applicable requirements of Section 409A of the Code.
“Free-Standing SAR” has the meaning set forth in Section 6(b).
“Good Reason” means (i) “Good Reason” as defined in any Individual Agreement or Award
Agreement to which the applicable Participant is a party, or (ii) if there is no such Individual Agreement or
if it does not define Good Reason, then, without the Participant’s prior written consent: (A) a material
reduction in the Participant’s rate of annual base salary from the rate of annual base salary in effect for
such Participant immediately prior to the Change in Control, (B) a relocation of the Participant’s principal
place of business more than 35 miles from the city in which such Participant’s principal place of business
was located immediately prior to the Change in Control or (C) a material and demonstrable adverse
change in the nature and scope of the Participant’s duties from those in effect immediately prior to the
Change in Control. In order to invoke a Termination of Employment for Good Reason, a Participant shall
provide written notice to the Company of the existence of one or more of the conditions described in
clauses (A) through (C) within 90 days following the Participant’s knowledge of the initial existence of
such condition or conditions, and the Company shall have 30 days following receipt of such written notice
(the “Cure Period”) during which it may remedy the condition. In the event that the Company fails to
remedy the condition constituting Good Reason during the Cure Period, the Participant must terminate
employment, if at all, within 90 days following the Cure Period in order for such Termination of
Employment to constitute a Termination of Employment for Good Reason.
“Grant Date” means (i) the date on which the Committee by resolution selects an Eligible Individual
to receive a grant of an Award and determines the number of Shares to be subject to such Award or the
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formula for earning a number of shares or cash amount, or (ii) such later date as the Committee shall
provide in such resolution.
“Incentive Stock Option” means any Option that is designated in the applicable Award Agreement as
an “incentive stock option” within the meaning of Section 422 of the Code, and that in fact so qualifies.
“Individual Agreement” means an employment, consulting or similar agreement between a
Participant and the Company or one of its Subsidiaries or Affiliates.
“Nonqualified Stock Option” means any Option that is not an Incentive Stock Option.
“Option” means an Award described under Section 6(a).
“Participant” means an Eligible Individual to whom an Award is or has been granted.
“Performance Award” means an Award granted under this Plan of Common Stock, rights based
upon, payable in or otherwise related to Shares (including Restricted Stock, RSUs or cash), as the
Committee may determine, at the end of a specified Performance Period based on the attainment of one
or more Performance Goals.
“Performance Goals” means the performance goals established by the Committee in connection
with the grant of Restricted Stock, RSUs or Bonus Awards or other stock-based awards. Such
Performance Goals also may be based upon the attaining of specified levels of Company, Subsidiary,
Affiliate, business unit or divisional performance under one or more of the measures including but not
limited to, revenue, earnings per share, total shareholder return, earnings before interest, taxes,
depreciation and amortization (EBITDA), adjusted EBITDA or return on capital). Performance goals
established by the Committee may also include individual strategic goals.
“Performance Period” means with respect to a Performance Award the period established by the
Committee or its designee at the time the Award is granted, or at any time thereafter, during which the
performance of the Company, a Subsidiary, or any Affiliate is measured for the purpose of determining
whether and to what extent the Performance Award’s Performance Goal has been achieved.
“Plan” means this TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan, as set forth herein and as
hereafter amended from time to time.
“Plan Year” means the calendar year or, with respect to Bonus Awards, the Company’s fiscal year if
different.
“Restricted Stock” means an Award described under Section 7.
“Retirement” means retirement from active employment with the Company, a Subsidiary or Affiliate
at or after the Participant’s attainment of age 65.
“RS Restriction Period” has the meaning set forth in Section 7(b)(ii).
“RSU” means an Award described under Section 8.
“RSU Restriction Period” has the meaning set forth in Section 8(b)(ii).
“SAR” has the meaning set forth in Section 7(b).
“Securities Act” means the Securities Act of 1933, as amended from time to time, and any
successor thereto.
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“Share” means a share of Common Stock.
“Subsidiary” means any corporation, partnership, joint venture, limited liability company or other
entity during any period in which at least a 50% voting or profits interest is owned, directly or indirectly, by
the Company or any successor to the Company.
“Tandem SAR” has the meaning set forth in Section 6(b).
“Term” means the maximum period during which an Option or SAR may remain outstanding, subject
to earlier termination upon Termination of Employment or otherwise, as specified in the applicable Award
Agreement.
“Termination of Employment” means the termination of the applicable Participant’s employment
with, or performance of services for, the Company and any of its Subsidiaries or Affiliates. Unless
otherwise determined by the Committee, if a Participant’s employment with, or membership on a board of
directors of, the Company and its Affiliates terminates but such Participant continues to provide services
to the Company and its Affiliates in a non-employee director capacity or as an employee, as applicable,
such change in status shall not be deemed a Termination of Employment. A Participant employed by, or
performing services for, a Subsidiary or an Affiliate or a division of the Company and its Affiliates shall be
deemed to incur a Termination of Employment if, as a result of a Disaffiliation, such Subsidiary, Affiliate,
or division ceases to be a Subsidiary, Affiliate or division, as the case may be, and the Participant does
not immediately thereafter become an employee of (or service provider for), or member of the board of
directors of, the Company or another Subsidiary or Affiliate. Temporary absences from employment of 90
days or less because of illness, vacation or leave of absence and transfers among the Company and its
Subsidiaries and Affiliates shall not be considered Termination of Employment. Notwithstanding the
foregoing, with respect to any Award that constitutes “nonqualified deferred compensation” within the
meaning of Section 409A of the Code, “Termination of Employment” shall mean a “separation from
service” as defined under Section 409A of the Code.
SECTION 3. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Compensation Committee of the Board or
such other committee of the Board as the Board may from time to time designate (the “Committee”),
which shall be composed of not less than two directors, and shall be appointed by and serve at the
pleasure of the Board. The Committee shall have plenary authority to grant Awards pursuant to the terms
of the Plan to Eligible Individuals. Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(i)
to select the Eligible Individuals to whom Awards may from time to time be granted;
(ii)
to determine the number of Shares to be covered by each Award granted hereunder or
the amount of any Bonus Award;
(iii)
to determine the terms and conditions of each Award granted hereunder, based on such
factors as the Committee shall determine;
(iv) subject to Section 16, to modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time;
(v)
subject to Section 14, to accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its sole discretion
determines;
(vi)
to interpret the terms and provisions of the Plan and any Award issued under the Plan
(and any agreement relating thereto);
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(vii)
to establish any “blackout” period that the Committee in its sole discretion deems
necessary or advisable;
(viii) to decide all other matters that must be determined in connection with an Award; and
(ix)
to otherwise administer the Plan.
(b) Procedures.
(i)
The Committee may act only by a majority of its members then in office, except that the
Committee may, except to the extent prohibited by applicable law or the listing standards of the
Applicable Exchange, allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and powers to any
person or persons selected by it.
(ii) Subject to Section 3(d), any authority granted to the Committee may also be exercised by
the full Board. To the extent that any permitted action taken by the Board conflicts with action taken
by the Committee, the Board action shall control.
(c) Delegation of Authority. Subject to applicable law, the Committee may delegate any or all of
its powers under the Plan to one or more other committees or officers of the Company (including persons
other than members of the Committee) as it shall appoint with respect to the granting of Awards to
individuals who are not (i) subject to the reporting and other provisions of Section 16 of the Exchange Act
and (ii) members of the delegated committee or the delegated individual(s). Any such delegation by the
Committee shall include limitations as to the amount of Common Stock underlying Awards that may be
granted during specified periods and shall contain guidelines as to the determination of the exercise price.
Any determination made by the Committee or by an appropriately delegated officer pursuant to delegated
authority under the provisions of the Plan with respect to any Award shall be made in the sole discretion
of the Committee or such delegate at the time of the grant of the Award or, unless in contravention of any
express term of the Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company, Participants, and Eligible Individuals.
(d) Section 16(b) Compliance. The provisions of this Plan are intended to ensure that no
transaction under the Plan is subject to (and all such transactions will be exempt from) the short-swing
recovery rules of Section 16(b) of the Exchange Act (“Section 16(b)”). Accordingly, the composition of the
Committee shall be subject to such limitations as the Board deems appropriate to permit transactions
pursuant to this Plan to be exempt (pursuant to Rule 16b-3 promulgated under the Exchange Act) from
Section 16(b), and no delegation of authority by the Committee shall be permitted if such delegation
would cause any such transaction to be subject to (and not exempt from) Section 16(b).
(e) Award Agreements. The terms and conditions of each Award (other than any Bonus Award),
as determined by the Committee, shall be set forth in an Award Agreement, which shall be delivered to
the Participant receiving such Award upon, or as promptly as is reasonably practicable following, the
grant of such Award. The effectiveness of an Award shall not be subject to the Award Agreement’s being
signed by the Company and/or the Participant receiving the Award unless specifically so provided in the
Award Agreement. Award Agreements may be amended only in accordance with Section 14 hereof.
SECTION 4. COMMON STOCK SUBJECT TO PLAN
(a) Shares Available for Awards. The maximum number of Shares that may be delivered pursuant
to Awards under the Plan shall be (i) 6,000,000, plus (ii) any Shares available for issuance under the
2011 Plan not issued or subject to outstanding Awards under such plan as of the Effective Date. For
purposes of this limitation, Shares underlying any Awards that are forfeited, canceled, held back upon
exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired
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by the Company prior to vesting, satisfied without the issuance of Common Stock or otherwise terminated
(other than by exercise) under the Plan or the 2011 Plan shall be added back to the Shares available for
issuance under the Plan and, to the extent permitted under Section 422 of the Code and the regulations
promulgated thereunder, the Shares that may be issued as Incentive Stock Options. The Shares
available for delivery under this Plan may consist of authorized and unissued Shares, Shares held in
treasury, Shares of Common Stock purchased or held by the Company for purposes of this Plan, or any
combination thereof.
(b) Plan Maximums. The maximum number of Shares that may be granted pursuant to Options
intended to be Incentive Stock Options shall be 6,000,000 Shares.
(c) Director Compensation Limit. During a calendar year, no non-employee director may be
granted any compensation (including cash and an Award) with a fair value, as determined under
accounting rules, as of the Grant Date, in excess of $1,000,000.
(d) Adjustment Provisions.
(i)
In the event of a merger, consolidation, acquisition of property or shares, stock rights
offering, liquidation, Disaffiliation, or similar event affecting the Company or any of its Subsidiaries
(each, a “Corporate Transaction”), the Committee or the Board may in its discretion make such
substitutions or adjustments as it deems appropriate and equitable to (A) the aggregate number and
kind of Shares or other securities reserved for issuance and delivery under the Plan, (B) the various
maximum limitations set forth in Sections 4(a) and 4(b) upon certain types of Awards and upon the
grants to individuals of certain types of Awards, (C) the number and kind of Shares or other
securities subject to outstanding Awards; and (D) the exercise price of outstanding Options and
SARs.
(ii)
In the event of a stock dividend, stock split, reverse stock split, separation, spinoff,
reorganization, extraordinary dividend of cash or other property, share combination, or
recapitalization or similar event affecting the capital structure of the Company (each, a “Share
Change”), the Committee or the Board shall make such substitutions or adjustments as it deems
appropriate and equitable to (A) the aggregate number and kind of Shares or other securities
reserved for issuance and delivery under the Plan, (B) the maximum limitations set forth in Sections
4(a) and 4(b) upon certain types of Awards and upon the grants to individuals of certain types of
Awards, the number and kind of Shares or other securities subject to outstanding Awards; and (C)
the exercise price of outstanding Options and SARs.
(iii)
In the case of Corporate Transactions, the adjustments contemplated by clause (i) of this
paragraph (d) may include, without limitation, (A) the cancellation of outstanding Awards in
exchange for payments of cash, property or a combination thereof having an aggregate value equal
to the value of such Awards, as determined by the Committee or the Board in its sole discretion (it
being understood that in the case of a Corporate Transaction with respect to which holders of
Common Stock receive consideration other than publicly traded equity securities of the ultimate
surviving entity, any such determination by the Committee that the value of an Option or SAR shall
for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid
for each Share pursuant to such Corporate Transaction over the exercise price of such Option or
SAR shall conclusively be deemed valid); (B) the substitution of other property (including, without
limitation, cash or other securities of the Company and securities of entities other than the
Company) for the Shares subject to outstanding Awards; and (C) in connection with any
Disaffiliation, arranging for the assumption of Awards, or replacement of Awards with new awards
based on other property or other securities (including, without limitation, other securities of the
Company and securities of entities other than the Company), by the affected Subsidiary, Affiliate, or
division or by the entity that controls such Subsidiary, Affiliate, or division following such
Disaffiliation (as well as any corresponding adjustments to Awards that remain based upon
Company securities).
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(iv) Any adjustment under this Section 4(d) need not be the same for all Participants.
(v) Any adjustments made pursuant to this Section 4(d) to Awards that are considered
“deferred compensation” within the meaning of Section 409A of the Code shall be made in
compliance with the requirements of Section 409A of the Code. Any adjustments made pursuant to
this Section 4(d) to Awards that are not considered “deferred compensation” subject to Section
409A of the Code shall be made in such a manner as to ensure that after such adjustment, the
Awards either (A) continue not to be subject to Section 409A of the Code or (B) comply with the
requirements of Section 409A of the Code. In any event, neither the Committee nor the Board shall
have the authority to make any adjustments pursuant to this Section 4(d) to the extent the existence
of such authority would cause an Award that is not intended to be subject to Section 409A of the
Code at the Grant Date to be subject thereto.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to Eligible Individuals; provided, however, that Incentive
Stock Options may be granted only to employees of the Company and its subsidiaries or parent
corporation (within the meaning of Section 424(f) of the Code).
SECTION 6. OPTIONS AND STOCK APPRECIATION RIGHTS
(a) Types of Options. Options may be of two types: Incentive Stock Options and Nonqualified
Stock Options. The Award Agreement for an Option shall indicate whether the Option is intended to be an
Incentive Stock Option or a Nonqualified Stock Option.
(b) Types and Nature of SARs. SARs may be “Tandem SARs,” which are granted in conjunction
with an Option, or “Free-Standing SARs,” which are not granted in conjunction with an Option. Upon the
exercise of an SAR, the Participant shall be entitled to receive an amount in cash, Shares, or both, in
value equal to the product of (i) the excess of the Fair Market Value of one Share over the exercise price
of the applicable SAR, multiplied by (ii) the number of Shares in respect of which the SAR has been
exercised. The applicable Award Agreement shall specify whether such payment is to be made in cash or
Common Stock or both, or shall reserve to the Committee or the Participant the right to make that
determination prior to or upon the exercise of the SAR.
(c) Tandem SARs. A Tandem SAR may be granted at the Grant Date of the related Option. A
Tandem SAR shall be exercisable only at such time or times and to the extent that the related Option is
exercisable in accordance with the provisions of this Section 6, and shall have the same exercise price as
the related Option. A Tandem SAR shall terminate or be forfeited upon the exercise or forfeiture of the
related Option, and the related Option shall terminate or be forfeited upon the exercise or forfeiture of the
Tandem SAR.
(d) Exercise Price. The exercise price per Share subject to an Option or Free- Standing SAR shall
be determined by the Committee and set forth in the applicable Award Agreement, and shall not be less
than the Fair Market Value of a share of the Common Stock on the applicable Grant Date. In no event
may any Option or Free-Standing SAR granted under this Plan be amended, other than pursuant to
Section 4(d), to decrease the exercise price thereof, be cancelled in conjunction with the grant of any new
Option or Free-Standing SAR with a lower exercise price, be cancelled for cash or other Award or
otherwise be subject to any action that would be treated, for accounting purposes, as a “repricing” of such
Option or Free-Standing SAR, unless such amendment, cancellation, or action is approved by the
Company’s stockholders.
(e) Term. The Term of each Option and each Free-Standing SAR shall be fixed by the Committee,
but shall not exceed ten years from the Grant Date. Notwithstanding the foregoing, if, by its terms, an
Option, other than an Incentive Stock Option, would expire when trading in Shares is otherwise prohibited
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by law or by the Company’s Insider Trading Policy, as such may be amended from time to time, then the
term of the Option will be automatically extended until the close of trading on the 30th trading day following
the expiration of such prohibition.
(f) Vesting and Exercisability. Except as otherwise provided herein, Options and Free-Standing
SARs shall be exercisable at such time or times and subject to such terms and conditions as shall be
determined by the Committee. If the Committee provides that any Option or Free-Standing SAR will
become exercisable only in installments, the Committee may at any time waive such installment exercise
provisions, in whole or in part, based on such factors as the Committee may determine. In addition, the
Committee may at any time accelerate the exercisability of any Option or Free-Standing SAR.
In the
event of a temporary absence exceeding 90 days, the Company shall have authority to suspend the
vesting period for such period of time and on such terms as management of the Company shall deem
appropriate.
(g) Method of Exercise. Subject to the provisions of this Section 6, Options and Free-Standing
SARs may be exercised, in whole or in part, at any time during the applicable Term by giving written
notice of exercise to the Company or through the procedures established with the Company’s appointed
third-party Option administrator specifying the number of Shares as to which the Option or Free-Standing
SAR is being exercised; provided, however, that, unless otherwise permitted by the Committee, any such
exercise must be with respect to a portion of the applicable Option or Free-Standing SAR relating to no
less than the lesser of the number of Shares then subject to such Option or Free-Standing SAR or 100
Shares. In the case of the exercise of an Option, such notice shall be accompanied by payment in full of
the purchase price (which shall equal the product of such number of Shares multiplied by the applicable
exercise price) by certified or bank check or such other instrument as the Company may accept. If
approved by the Committee, payment, in full or in part, may also be made as follows:
(i)
Payments may be made in the form of unrestricted Shares which have been held for
more than six months (by delivery of such Shares or by attestation) of the same class as the
Common Stock subject to the Option already owned by the Participant (based on the Fair Market
Value of the Common Stock on the date the Option is exercised); provided, however, that, in the
case of an Incentive Stock Option, the right to make a payment in the form of already owned Shares
of the same class as the Common Stock subject to the Option may be authorized only at the time
the Option is granted.
(ii) To the extent permitted by applicable law, payment may be made by delivering a properly
executed exercise notice to the Company, together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay
the purchase price, and, if requested, the amount of any federal, state, local or foreign withholding
taxes. To facilitate the foregoing, the Company may, to the extent permitted by applicable law, enter
into agreements for coordinated procedures with one or more brokerage firms. To the extent
permitted by applicable law, the Committee may also provide for Company loans to be made for
purposes of the exercise of Options.
(iii) For Options that are not Incentive Stock Options, payment may be made by “net
exercise” arrangement, pursuant to which a Participant instructs the Committee to withhold a whole
number of Shares having a Fair Market Value (based on the Fair Market Value of the Common
Stock on the date the applicable Option is exercised) equal to the product of (A) the exercise price
multiplied by (B) the number of Shares in respect of which the Option shall have been exercised.
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(h) Delivery; Rights of Stockholders. No Shares shall be delivered pursuant to the exercise of an
Option until the exercise price therefor has been fully paid and applicable taxes have been withheld. The
applicable Participant shall have all of the rights of a stockholder of the Company holding the class or
series of Common Stock that is subject to the Option or SAR (including, if applicable, the right to vote the
applicable Shares and the right to receive dividends), when the Participant (i) has given written notice of
exercise, (ii) if requested, has given the representation described in Section 16(a), and (iii) in the case of
an Option, has paid in full for such Shares.
(i) Nontransferability of Options and SARs. No Option or Free-Standing SAR shall be
transferable by a Participant other than (i) by will or by the laws of descent and distribution, or (ii) in
the case of a Nonqualified Stock Option or Free-Standing SAR, pursuant to a qualified domestic
relations order or as otherwise expressly permitted by the Committee including, if so permitted,
pursuant to a transfer to the Participant’s family members or to a charitable organization, whether
directly or indirectly or by means of a trust or partnership or otherwise. For purposes of this Plan,
unless otherwise determined by the Committee, “family member” shall have the meaning given to
such term in General Instructions A.1(a)(5) to Form S-8 under the Securities Act and any successor
thereto. A Tandem SAR shall be transferable only with the related Option as permitted by the
preceding sentence. Any Option or SAR shall be exercisable, subject to the terms of this Plan, only
by the applicable Participant, the guardian or legal representative of such Participant, or any person
to whom such Option or SAR is permissibly transferred pursuant to this Section 6(i), it being
understood that the term “Participant” includes such guardian, legal representative and other
transferee; provided, however, that the term “Termination of Employment” shall continue to refer to
the Termination of Employment of the original Participant.
SECTION 7. RESTRICTED STOCK
(a) Nature of Awards and Certificates. Shares of Restricted Stock are actual Shares issued to a
Participant, and shall be evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates. Any certificate issued in respect of
Shares of Restricted Stock shall be registered in the name of the applicable Participant and shall bear an
appropriate legend referring to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
“The transferability of this certificate and the shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) of the TripAdvisor, Inc. 2018 Stock and Annual Incentive
Plan and an Award Agreement. Copies of such Plan and Agreement are on file at the offices of
TripAdvisor, Inc.”
The Committee may require that the certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of
Restricted Stock, the applicable Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
(b) Terms and Conditions. Shares of Restricted Stock shall be subject to the following terms and
conditions:
(i)
The Committee shall, prior to or at the time of grant, condition the vesting or
transferability of an Award of Restricted Stock upon the continued service of the applicable
Participant or the attainment of Performance Goals, or the attainment of Performance Goals and the
continued service of the applicable Participant. In the event that the Committee conditions the grant
or vesting of an Award of Restricted Stock upon the attainment of Performance Goals or the
attainment of Performance Goals and the continued service of the applicable Participant, the
Committee may, prior to or at the time of grant, designate such an Award as a Performance Award.
The conditions for grant, vesting, or transferability and the other provisions of Restricted Stock
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Awards (including without limitation any Performance Goals) need not be the same with respect to
each Participant.
(ii) Subject to the provisions of the Plan and the applicable Award Agreement, during the
period, if any, set by the Committee, commencing with the date of such Restricted Stock Award for
which such vesting restrictions apply and until the expiration of such vesting restrictions (the “RS
Restriction Period”), the Participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber Shares of Restricted Stock.
(iii) Except as provided in this Section 7 and in the applicable Award Agreement, the
applicable Participant shall have, with respect to the Shares of Restricted Stock, all of the rights of a
stockholder of the Company holding the class or series of Common Stock that is the subject of the
Restricted Stock, including, if applicable, the right to vote the Shares and the right to receive any
cash dividends. If so determined by the Committee in the applicable Award Agreement and subject
to Section 16(e), (A) cash dividends on the class or series of Common Stock that is the subject of
the Restricted Stock Award shall be automatically reinvested in additional Restricted Stock, held
subject to the vesting of the underlying Restricted Stock, and (B) subject to any adjustment pursuant
to Section 4(d), dividends payable in Common Stock shall be paid in the form of Restricted Stock of
the same class as the Common Stock with which such dividend was paid, held subject to the
vesting of the underlying Restricted Stock.
(iv) Except as otherwise set forth in the applicable Award Agreement, upon a Participant’s
Termination of Employment for any reason (other than death) during the RS Restriction Period or
before the applicable Performance Goals are satisfied, all Shares of Restricted Stock still subject to
restriction shall be forfeited by such Participant; provided, however, the Committee shall have the
discretion to waive, in whole or in part, any or all remaining restrictions with respect to any or all of
such Participant’s Shares of Restricted Stock. Upon a Participant’s Termination of Employment by
reason of death, during the RS Restriction Period or before the applicable Performance Goals are
satisfied, all Shares of Restricted Stock shall immediately and automatically vest.
(v)
If and when any applicable Performance Goals are satisfied and the RS Restriction
Period expires without a prior forfeiture of the Shares of Restricted Stock for which legended
certificates have been issued, unlegended certificates for such Shares shall be delivered to the
Participant upon surrender of the legended certificates.
SECTION 8. RESTRICTED STOCK UNITS
(a) Nature of Awards. RSUs are Awards denominated in Shares that will be settled, subject to the
terms and conditions of the RSUs, in an amount in cash, Shares or both, based upon the Fair Market
Value of a specified number of Shares.
(b) Terms and Conditions. RSUs shall be subject to the following terms and conditions:
(i)
The Committee shall, prior to or at the time of grant, condition the grant, vesting, or
transferability of RSUs upon the continued service of the applicable Participant or the attainment of
Performance Goals, or the attainment of Performance Goals and the continued service of the
applicable Participant. In the event that the Committee conditions the grant or vesting of RSUs upon
the attainment of Performance Goals or the attainment of Performance Goals and the continued
service of the applicable Participant, the Committee may, prior to or at the time of grant, designate
such Awards as Performance Awards. The conditions for grant, vesting or transferability and the
other provisions of RSUs (including without limitation any Performance Goals) need not be the
same with respect to each Participant.
Company shall have authority to suspend the vesting of such RSUs for such period of time and on
such terms as management of the Company shall deem appropriate.
In the event of a temporary absence exceeding 90 days, the
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(ii) Subject to the provisions of the Plan and the applicable Award Agreement, during the
period, if any, set by the Committee, commencing with the date of such RSUs for which such
vesting restrictions apply and until the expiration of such vesting restrictions (the “RSU Restriction
Period”), the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber RSUs.
(iii) The Award Agreement for RSUs shall specify whether, to what extent and on what terms
and conditions the applicable Participant shall be entitled to receive current or delayed payments of
cash, Common Stock or other property corresponding to the dividends payable on the Common
Stock (subject to Section 16(e) below).
(iv) Except as otherwise set forth in the applicable Award Agreement, upon a Participant’s
Termination of Employment for any reason during the RSU Restriction Period or before the
applicable Performance Goals are satisfied, all RSUs still subject to restriction shall be forfeited by
such Participant; provided, however, the Committee shall have the discretion to waive, in whole or in
part, any or all remaining restrictions with respect to any or all of such Participant’s RSUs; and;
provided, further, upon a Participant’s Termination of Employment by reason of death, during the
RSU Restriction Period or before the applicable Performance Goals are satisfied, all RSUs shall
immediately and automatically vest.
(v) Except to the extent otherwise provided in the applicable Award Agreement, an award of
RSUs shall be settled as and when the RSUs vest (but in no event later than 60 days thereafter).
SECTION 9. PERFORMANCE AWARDS
(a) Generally. An Award under the Plan may be in the form of a Performance Award.
(b) Performance Goals. Each Performance Award shall be earned, vested and payable (as
applicable) only upon the achievement of one or more Performance Goals, together with the satisfaction
of any other conditions, such as continued employment, as the Committee may determine to be
appropriate. Performance Goals applicable to the Performance Award will be established by the
Committee.
(c) Other Restrictions. The Committee will determine any other terms and conditions applicable to
any Performance Award, including any vesting conditions or restrictions on the delivery of Common Stock
payable in connection with the Performance Award and restrictions that could result in the future forfeiture
of all or part of any Common Stock earned. The Committee may provide that shares of Common Stock
issued in connection with a Performance Award be held in escrow and/or legended.
(d) Measurement of Performance Against Performance Goals. The Committee will, as soon as
practicable after the close of a Performance Period, determine:
•
•
The extent to which the Performance Goals for such Performance Period have been
achieved, and
The percentage of the Performance Awards, if any, earned as a result.
All determinations of the Committee will be absolute and final as to the facts and conclusions therein
made and are binding on all parties. As promptly as practicable after the Committee has made the
foregoing determination, each Eligible Individual who has earned Performance Award will be notified
thereof. Subject to Section 16(i), an Eligible Individual may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of all or any portion of a Performance Awards during the Performance
Period.
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SECTION 10. OTHER STOCK-BASED AWARDS
Other Awards of Common Stock and other Awards that are valued in whole or in part by reference
to, or are otherwise based upon or settled in, Common Stock, including (without limitation), unrestricted
stock, performance units, dividend equivalents, and convertible debentures, may be granted under the
Plan.
SECTION 11. BONUS AWARDS
(a) Determination of Awards. The Committee shall determine the total amount of Bonus Awards
for each Plan Year or such shorter performance period as the Committee may establish in its sole
discretion. Bonus Awards that are Performance Awards shall be subject to the provisions of Section 9 of
this Plan.
(b) Payment of Awards. Bonus Awards under the Plan shall be paid in cash or in Shares (valued
at Fair Market Value as of the date of payment) as determined by the Committee, as soon as practicable
following the close of the Plan Year or such shorter performance period as the Committee may establish.
It is intended that a Bonus Award will be paid no later than the fifteenth (15th) day of the third month
following the later of: (i) the end of the Participant’s taxable year in which the requirements for such
Bonus Award have been satisfied by the Participant or (ii) the end of the Company’s fiscal year in which
the requirements for such Bonus Award have been satisfied by the Participant. Subject to Section 16(k),
the Committee may at its option establish procedures pursuant to which Participants are permitted to
defer the receipt of Bonus Awards payable hereunder. The Bonus Award to any Participant for any Plan
Year or such shorter performance period may be reduced or eliminated by the Committee in its discretion.
SECTION 12. TERMINATION OF EMPLOYMENT
(a) Generally. A Participant’s Awards shall be forfeited upon such Participant’s Termination of
Employment, except as set forth below:
(i) Upon a Participant’s Termination of Employment by reason of death, any Award that was
unvested at the time of death shall automatically vest (including but not limited to Performance
Awards, which shall vest at target) and all such Options or SARs held by the Participant may be
exercised at any time until the earlier of (A) the first anniversary of the date of such death and (B)
the expiration of the Term thereof;
(ii) Upon a Participant’s Termination of Employment by reason of Disability or Retirement,
any Option or SAR held by the Participant that was exercisable immediately before the Termination
of Employment may be exercised at any time until the earlier of (A) the first anniversary of such
Termination of Employment and the (B) expiration of the Term thereof;
(iii) Upon a Participant’s Termination of Employment for Cause, any unvested Award held by
the Participant shall be forfeited, effective as of such Termination of Employment;
(iv) Upon a Participant’s Termination of Employment for any reason other than death,
Disability, Retirement or for Cause, any Option or SAR held by the Participant that was exercisable
immediately before the Termination of Employment may be exercised at any time until the earlier of
(A) the 90th day following such Termination of Employment and (B) expiration of the Term thereof;
and
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(v) Notwithstanding the above provisions of this Section 12(a), if a Participant dies after such
Participant’s Termination of Employment but while any Option or SAR remains exercisable as set
forth above, such Option or SAR may be exercised at any time until the later of (A) the earlier of (1)
the first anniversary of the date of such death and (2) expiration of the Term thereof and (B) the last
date on which such Option or SAR would have been exercisable, absent this Section 12(a).
(b) Exception. Notwithstanding the foregoing, the Committee shall have the power, in its
discretion, to apply different rules concerning the consequences of a Termination of Employment;
provided, however, that if such rules are less favorable to the Participant than those set forth above, such
rules are set forth in the applicable Award Agreement. If an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Option will
thereafter be treated as a Nonqualified Stock Option.
SECTION 13. CHANGE IN CONTROL PROVISIONS
(a) Definition of Change in Control. Except as otherwise may be provided in an applicable Award
Agreement, for purposes of the Plan, a “Change in Control” shall mean any of the following events:
(i)
The acquisition by any individual entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act), other than Liberty TripAdvisor Holdings, Inc., and its affiliates (a
“Person”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of equity securities of the Company representing more than 50% of the voting power
of the then outstanding equity securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of
this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) any
acquisition by the Company, (B) any acquisition directly from the Company, (C) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (D) any acquisition pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii); or
(ii)
Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective Date, whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company or the purchase of assets or stock of another
entity (a “Business Combination”), in each case, unless immediately following such Business
Combination, (A) all or substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to such Business
Combination will beneficially own, directly or indirectly, more than 50% of the then outstanding
combined voting power of the then outstanding voting securities entitled to vote generally in the
election of directors (or equivalent governing body, if applicable) of the entity resulting from such
Business Combination (including, without limitation, an entity which as a result of such transaction
owns the Company or all or substantially all of the Company’s assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Voting Securities, (B) no Person
(excluding Liberty TripAdvisor Holdings, Inc., and its Affiliates, any employee benefit plan (or related
trust) of the Company or such entity resulting from such Business Combination) will beneficially
own, directly or indirectly, more than a majority of the combined voting power of the then
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outstanding voting securities of such entity except to the extent that such ownership of the Company
existed prior to the Business Combination and (C) at least a majority of the members of the board of
directors (or equivalent governing body, if applicable) of the entity resulting from such Business
Combination will have been members of the Incumbent Board at the time of the initial agreement, or
action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of
the Company.
(b)
Impact of Event/Double Trigger on Vice Presidents and Above. Unless otherwise provided in
the applicable Award Agreement and subject to Sections 4(d), 13(d) and 16(k), notwithstanding any other
provision of this Plan to the contrary, upon the Termination of Employment, within three months prior to a
Change in Control or within twelve months following a Change in Control, of a Participant who, as of the
date of termination has a title of Vice President or above, by the Company other than for Cause or
Disability or by the Participant for Good Reason, then:
(i)
any Options and SARs outstanding as of such Termination of Employment which were
outstanding as of the date of such Change in Control shall be fully exercisable and vested and shall
remain exercisable until the later of (i) the last date on which such Option or SAR would be
exercisable in the absence of this Section 13(b) and (ii) the earlier of (A) the first anniversary of such
Change in Control and (B) expiration of the Term of such Option or SAR;
(ii)
all Restricted Stock outstanding as of such Termination of Employment which were
outstanding as of the date of such Change in Control shall become free of all restrictions and
become fully vested and transferable;
(iii) all RSUs outstanding as of such Termination of Employment which were outstanding as
of the date of such Change in Control shall be considered to be earned and payable in full, and any
restrictions shall lapse and such RSUs shall be settled as promptly as is practicable (but in no event
later than March 15 of the calendar year following the end of the calendar year in which the RSUs
vest); and
(iv) all Performance Awards outstanding as of such Termination of Employment which were
outstanding as of the date of such Change in Control shall be considered to be earned and payable
in full, vesting shall accelerate assuming the Performance Goals have been met at target and any
restrictions shall lapse and any such RSUs shall be settled as promptly as is practicable (but in no
event later than March 15 of the calendar year following the end of the calendar year in which the
RSUs vest).
(c)
Impact of Event/Double Trigger on Other Participants. Unless otherwise provided in the
applicable Award Agreement and subject to Sections 4(d), 13(d) and 16(k), notwithstanding any other
provision of this Plan to the contrary, upon the Termination of Employment, within three months prior to a
Change in Control or within twelve months following a Change in Control, of any other Participant, by the
Company other than for Cause or Disability or by the Participant for Good Reason:
(i)
Fifty percent (50%) of any Options and SARs outstanding as of such Termination of
Employment which were outstanding as of the date of such Change in Control shall be fully
exercisable and vested and shall remain exercisable until the later of (i) the last date on which such
Option or SAR would be exercisable in the absence of this Section 13(b) and (ii) the earlier of (A)
the first anniversary of such Change in Control and (B) expiration of the Term of such Option or
SAR;
(ii) Fifty percent (50%) of all Restricted Stock outstanding as of such Termination of
Employment which were outstanding as of the date of such Change in Control shall become free of
all restrictions and become fully vested and transferable;
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(iii) Fifty percent (50%) of all RSUs outstanding as of such Termination of Employment which
were outstanding as of the date of such Change in Control shall be considered to be earned and
payable in full, and any restrictions shall lapse and such RSUs shall be settled as promptly as is
practicable (but in no event later than March 15 of the calendar year following the end of the
calendar year in which the RSUs vest); and
(iv) Fifty percent (50%) of all Performance Awards outstanding as of such Termination of
Employment which were outstanding as of the date of such Change in Control shall be considered
to be earned and payable in full, vesting shall accelerate assuming the Performance Goals have
been met at target and any restrictions shall lapse and any such RSUs shall be settled as promptly
as is practicable (but in no event later than March 15 of the calendar year following the end of the
calendar year in which the RSUs vest).
Notwithstanding the foregoing, the Committee will continue to have plenary authority and complete
discretion to, among other things, accelerate the vesting of all or a greater percentage of Awards held by
such Participant.
(d) Notwithstanding the foregoing, if any Award is subject to Section 409A of the Code, this
Section 13 shall be applicable only to the extent specifically provided in the Award Agreement or in the
Individual Agreement.
SECTION 14. TERM, AMENDMENT AND TERMINATION
(a) Effectiveness. The Plan shall be effective as of June 21, 2018 (the “Effective Date”), subject to
approval by the affirmative vote of a majority of the outstanding shares of Common Stock present by
person or by proxy at the Company’s 2018 Annual Meeting that are entitled to vote on a proposal to
approve the adoption of the Plan.
(b) Termination. The Plan will terminate on the tenth anniversary of the Effective Date. Awards
outstanding as of such date shall not be affected or impaired by the termination of the Plan.
(c) Amendment of Plan. The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would materially impair the rights of the Participant with
respect to a previously granted Award without such Participant’s consent, except such an amendment
made to comply with applicable law (including without limitation Section 409A of the Code), stock
exchange rules or accounting rules. In addition, no such amendment shall be made without the approval
of the Company’s stockholders to the extent such approval is required by applicable law or the listing
standards of the Applicable Exchange or to the extent determined by the Committee to be required by the
Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of
the Code.
(d) Amendment of Awards. Subject to Section 6(d), the Committee may unilaterally amend the
terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall,
without the Participant’s consent, materially impair the rights of any Participant with respect to an Award,
except such an amendment made to cause the Plan or Award to comply with applicable law, stock
exchange rules or accounting rules.
SECTION 15. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an “unfunded” plan. Solely to the extent permitted
under Section 409A, the Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Common Stock or make payments; provided, however,
that the existence of such trusts or other arrangements is consistent with the “unfunded” status of the
Plan. Notwithstanding any other provision of this Plan to the contrary, with respect to any Award that
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constitutes a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code,
no trust shall be funded with respect to any such Award if such funding would result in taxable income to
the Participant by reason of Section 409A(b) of the Code and in no event shall any such trust assets at
any time be located or transferred outside of the United States, within the meaning of Section 409A(b) of
the Code.
SECTION 16.GENERAL PROVISIONS
(a) Conditions for Issuance. The Committee may require each person purchasing or receiving
Shares pursuant to an Award to represent to and agree with the Company in writing that such person is
acquiring the Shares without a view to the distribution thereof. The certificates for such Shares may
include any legend which the Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company
shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to
fulfillment of all of the following conditions: (i) listing or approval for listing upon notice of issuance, of such
Shares on the Applicable Exchange; (ii) any registration or other qualification of such Shares of the
Company under any state or federal law or regulation, or the maintaining in effect of any such registration
or other qualification which the Committee shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and (iii) obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute discretion after receiving the
advice of counsel, determine to be necessary or advisable.
(b) Additional Compensation Arrangements. Nothing contained in the Plan shall prevent the
Company or any Subsidiary or Affiliate from adopting other or additional compensation arrangements for
its employees.
(c) No Contract of Employment. The Plan shall not constitute a contract of employment, and
adoption of the Plan shall not confer upon any employee any right to continued employment, nor shall it
interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the
employment of any employee at any time.
(d) Required Taxes. No later than the date as of which an amount first becomes includible in the
gross income of a Participant for federal, state, local or foreign income or employment or other tax
purposes with respect to any Award under the Plan, such Participant shall pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such amount. If determined by the
Company, withholding obligations may be settled with Common Stock, including Common Stock that is
part of the Award that gives rise to the withholding requirement; provided, however, that the amount
withheld does not exceed the maximum statutory tax rate or such lesser amount as is necessary to avoid
liability accounting treatment. The required tax withholding obligation may also be satisfied, in whole or in
part, by an arrangement whereby a certain number of Shares issued pursuant to any Award are
immediately sold and proceeds from such sale are remitted to the Company in an amount that would
In addition, the Committee may require Awards to be subject to
satisfy the withholding amount due.
mandatory share withholding up to the required withholding amount. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise
due to such Participant. The Committee may establish such procedures as it deems appropriate,
including making irrevocable elections, for the settlement of withholding obligations with Common Stock.
(e) Limitation on Dividend Reinvestment and Dividend Equivalents. Reinvestment of dividends in
additional Restricted Stock at the time of any dividend payment, and the payment of Shares with respect
to dividends to Participants holding Awards of RSUs, shall only be permissible if sufficient Shares are
available under Section 4 for such reinvestment or payment (taking into account then outstanding
Awards). In the event that sufficient Shares are not available for such reinvestment or payment, such
reinvestment or payment shall be made in the form of a grant of RSUs equal in number to the Shares that
TripAdvisor, Inc. |
2018 Proxy Statement
A-16
would have been obtained by such payment or reinvestment, the terms of which RSUs shall provide for
settlement in cash and for dividend equivalent reinvestment in further RSUs on the terms contemplated
by this Section 16(e).
(f) Designation of Death Beneficiary. The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of
such Participant’s death are to be paid or by whom any rights of such eligible Individual, after such
Participant’s death, may be exercised.
(g) Subsidiary Employees. In the case of a grant of an Award to any employee of a Subsidiary of
the Company, the Company may, if the Committee so directs, issue or transfer the Shares, if any,
covered by the Award to the Subsidiary, for such lawful consideration as the Committee may specify,
upon the condition or understanding that the Subsidiary will transfer the Shares to the employee in
accordance with the terms of the Award specified by the Committee pursuant to the provisions of the
Plan. All Shares underlying Awards that are forfeited or canceled should revert to the Company.
(h) Governing Law and Interpretation. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws. The captions of this Plan are not part of the provisions
hereof and shall have no force or effect.
(i) Non-Transferability. Except as otherwise provided in Section 6(i) or by the Committee, Awards
under the Plan are not transferable except by will or by laws of descent and distribution.
(j) Foreign Employees and Foreign Law Considerations. The Committee may grant Awards to
Eligible Individuals who are foreign nationals, who are located outside the United States or who are not
compensated from a payroll maintained in the United States, or who are otherwise subject to (or could
cause the Company to be subject to) legal or regulatory provisions of countries or jurisdictions outside the
United States, on such terms and conditions different from those specified in the Plan as may, in the
judgment of the Committee, be necessary or desirable to foster and promote achievement of the
purposes of the Plan, and, in furtherance of such purposes, the Committee may make such modifications,
amendments, procedures, or subplans as may be necessary or advisable to comply with such legal or
regulatory provisions.
(k) Section 409A of the Code. It is the intention of the Company that no Award shall be “deferred
compensation” subject to Section 409A of the Code, unless and to the extent that the Committee
specifically determines otherwise as provided in this Section 16(k), and the Plan and the terms and
conditions of all Awards shall be interpreted accordingly. The terms and conditions governing any Awards
that the Committee determines will be subject to Section 409A of the Code, including any rules for
elective or mandatory deferral of the delivery of cash or Shares pursuant thereto and any rules regarding
treatment of such Awards in the event of a Change in Control, shall be set forth in the applicable Award
Agreement, and shall comply in all respects with Section 409A of the Code. Notwithstanding any other
provision of the Plan to the contrary, with respect to any Award that constitutes a “nonqualified deferred
compensation plan” subject to Section 409A of the Code, if the Participant is a “specified employee”
within the meaning of Section 409A of the Code, any payments (whether in cash, Shares or other
property) to be made with respect to the Award upon the Participant’s Termination of Employment shall
be delayed until the earlier of (A) the first day of the seventh month following the Participant’s Termination
of Employment and (B) the Participant’s death. Each payment under any Award shall be treated as a
separate payment for purposes of Section 409A of the Code.
indirectly, designate the calendar year of any payment to be made under any Award.
In no event may a Participant, directly or
(l)
Indemnification. Each person who is or will have been a member of the Board or of the
Committee and any designee of the Board or Committee will be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be imposed on or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may
be made party or in which he may be involved by reason of any determination, interpretation, action taken
TripAdvisor, Inc. |
2018 Proxy Statement
A-17
or failure to act under the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action,
suit or proceeding against him, provided he will give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification will not be exclusive and will be independent of any other rights of
indemnification to which such persons may be entitled under the Company’s Articles of Incorporation, By-
laws, by contract, as a matter of law, or otherwise.
(m) Compensation Recoupment or “Clawback” Policy. Awards may be made subject to any
compensation recoupment policy adopted by the Board or the Committee at any time prior to or after the
Effective Date, and as such policy may be amended from time to time after its adoption. The
compensation recoupment policy will be applied to any Award that constitutes the deferral of
compensation subject to Section 409A of the Code in a manner that complies with the requirements of
Section 409A of the Code.
TripAdvisor, Inc. |
2018 Proxy Statement
A-18
2017 Annual Report on Form 10-K
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
OR
(cid:4)
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: 001-35362
TRIPADVISOR, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
80-0743202
(I.R.S. Employer
Identification No.)
400 1st Avenue
Needham, MA 02494
(Address of principal executive office) (Zip Code)
Registrant’s telephone number, including area code:
(781) 800-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.001 par value
Name of each exchange on which registered:
The NASDAQ Stock Market LLC
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 ⌧ No (cid:4)
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 (cid:4) No ⌧
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 (cid:4)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ⌧ No (cid:4)
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, 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
Non-accelerated filer
Emerging growth company
⌧
(cid:4) (Do not check if a smaller reporting company)
(cid:4)
Accelerated filer
Smaller reporting company
(cid:4)
(cid:4)
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. (cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No ⌧
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant as of the last business day of the
registrant’s most recently completed second fiscal quarter was $4,096,061,843 based on the closing price on The NASDAQ Global Select Market
on such date. 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, $0.001 par value per share
Class B common stock, $0.001 par value per share
Outstanding Shares at February 9, 2018
126,183,939 shares
12,799,999 shares
The registrant intends to file a proxy statement pursuant to Regulation 14A not later than 120 days after the close of the fiscal year ended
December 31, 2017. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
Documents Incorporated by Reference
Table of Contents
PART I.....................................................................................................................................................................
Item 1.
Business .........................................................................................................................................
Item 1A. Risk Factors ...................................................................................................................................
Item 1B. Unresolved Staff Comments ..........................................................................................................
Item 2.
Properties .......................................................................................................................................
Item 3.
Legal Proceedings..........................................................................................................................
Item 4.
Mine Safety Disclosures ................................................................................................................
Page
2
2
10
28
28
29
29
PART II...................................................................................................................................................................... 29
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.
Financial Statements and Supplementary Data..............................................................................
29
32
33
58
61
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 113
Item 9A. Controls and Procedures ................................................................................................................ 113
Item 9B. Other Information .......................................................................................................................... 116
PART III .................................................................................................................................................................... 116
Item 10. Directors, Executive Officers and Corporate Governance ............................................................ 116
Item 11. Executive Compensation ............................................................................................................... 116
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ...................................................................................................................................... 116
Item 13. Certain Relationships and Related Transactions, and Director Independence .............................. 116
Item 14. Principal Accounting Fees and Services........................................................................................ 116
PART IV .................................................................................................................................................................... 117
Item 15. Exhibits; Financial Statement Schedules ....................................................................................... 117
Item 16. Form 10-K Summary ..................................................................................................................... 120
SIGNATURES ........................................................................................................................................................ 121
ii
We refer to TripAdvisor, Inc. and our wholly-owned subsidiaries as “TripAdvisor,” “the Company,” “us,”
“we” and “our” in this Annual Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties,
as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially
from those expressed or implied by such forward-looking statements. The statements contained in this Annual
Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934,
as amended, or the Exchange Act. The following words, when used, are intended to identify forward-looking
statements: “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,”
“result” “should,” “will,” and similar expressions which do not relate solely to historical matters. We caution
investors that any forward-looking statements in this report, or which management may make orally or in writing
from time to time, are based on management’s beliefs and on assumptions made by, and information currently
available to, management. Such statements are subject to risks, uncertainties and assumptions and are not guarantees
of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that
are beyond our control. Some of the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by forward-looking statements are more fully
described in Part I. Item 1A. "Risk Factors". Moreover, we operate in a rapidly changing environment. New risk
factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we
assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking statements. We caution
you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not
guarantees of future performance and are impacted by actual events when they occur after we make such statements.
We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new
information, future events or otherwise.
Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on
Form 8-K as we file them with the U.S. Securities and Exchange Commission, or the SEC, and to other materials we
may furnish to the public from time to time through Current Reports on Form 8-K or otherwise.
1
Item 1.
Business
Overview
PART I
TripAdvisor is an online travel company and our mission is to help people around the world to plan, book and
experience the perfect trip. We seek to achieve our mission by providing users and travel partners a global platform
about destinations, accommodations, activities and attractions, and restaurants that includes rich user-generated
content, price comparison tools and online reservation and related services.
TripAdvisor, Inc., by and through its subsidiaries, owns and operates a portfolio of leading online travel
brands. Our flagship brand, TripAdvisor, is the world’s largest travel site based on monthly unique visitors, with
455 million average monthly unique visitors in our seasonal peak during the year ended December 31, 2017,
according to our internal log files.
Our TripAdvisor-branded websites include tripadvisor.com in the United States and localized versions of the
TripAdvisor website in 48 markets and 28 languages worldwide. TripAdvisor features approximately 600 million
reviews and opinions on approximately 7.5 million places to stay, places to eat and things to do – including
approximately 1.2 million hotels, inns, B&Bs and specialty lodging, 750,000 vacation rentals, 4.6 million restaurants
and 915,000 activities and attractions worldwide. We also enable users to compare prices and/or book a number of
these travel experiences on either a TripAdvisor site or mobile app, or on the site or app of one of our travel partners.
In addition to the flagship TripAdvisor brand, we manage and operate the following 20 other travel media
brands, connected by the common goal of providing users the most comprehensive travel-planning and trip-taking
resources in the travel industry: www.airfarewatchdog.com, www.bookingbuddy.com, www.citymaps.com,
www.cruisecritic.com, www.familyvacationcritic.com, www.flipkey.com, www.thefork.com (including
www.lafourchette.com, www.eltenedor.com, www.iens.nl, and www.dimmi.com.au), www.gateguru.com,
www.holidaylettings.co.uk, www.holidaywatchdog.com, www.housetrip.com, www.jetsetter.com,
www.niumba.com, www.onetime.com, www.oyster.com, www.seatguru.com, www.smartertravel.com,
www.tingo.com, www.vacationhomerentals.com, and www.viator.com.
Our Industry and Market Opportunity
We operate in the global travel industry, focusing exclusively on online travel activity and the online
advertising market.
According to Phocuswright, an independent travel, tourism and hospitality research firm, global travel
spending is expected to be greater than $1.6 trillion in 2018. Online penetration of global travel bookings currently
is estimated to be less than 50%, however, travel bookings continue to move online as consumers around the world
gain access to the internet, including broadband; more users continue to access the internet via mobile devices; and
global tourism activity continues to increase, driven by middle class and economic growth in some parts of the
world. In addition, the internet provides greater access to travel research and booking capabilities than offline
methods. Given the ongoing consumer trends around online travel media consumption and online travel commerce,
we believe travel partners will continue to allocate greater percentages of their marketing budgets to online channels,
as they seek to grow their businesses.
Our Business Model
Our businesses help to match demand – users who seek to discover, research, price compare and book the best
travel experiences – with supply – our travel partners who provide travel accommodations, travel experiences and
travel services, worldwide.
Users
We serve users through our websites and apps and focus on content, selection, price, and convenience.
TripAdvisor features approximately 600 million user-generated reviews and opinions across a broad base of global
travel-related businesses, including approximately 1.2 million hotels, inns, B&Bs and specialty lodging, 750,000
vacation rentals, 4.6 million restaurants and 915,000 activities and attractions worldwide. Our content – and the
2
strong global brand we have created since our founding in 2000 – are primary drivers of not only attracting the
world’s largest travel audience of 455 million unique monthly visitors but also influencing a significant amount of
travel commerce. We are focused on creating the best online experience in travel planning and booking, making it
easier for users to research destinations and experiences, to read and contribute user-generated content, compare
destinations and businesses based on quality, price and availability, and to complete bookings powered by our travel
partners.
Travel Partners
We strive to give users more choice and to help users find the best experiences and the best deals possible and
we design our websites to enable our travel partners to be discovered, to advertise and to sell their services. We
facilitate transactions between users and travel partners in a number of ways, including by sending referrals to our
partners websites, facilitating bookings on behalf of our partners, by serving as the merchant of record – as is often
the case in our attractions and vacation rentals businesses – and by offering advertising placements on our websites
and mobile apps.
Segments and Products
We manage our business in two reportable segments: Hotel and Non-Hotel. We continue to derive a
significant majority of our revenue from our Hotel segment, which accounted for 77%, 80%, and 85%, of our
consolidated revenue in the years ended December 31, 2017, 2016 and 2015, respectively. The Hotel segment
includes revenue generated from the following sources:
(cid:129)
(cid:129)
TripAdvisor-branded Click-based and Transaction Revenue. Our largest source of Hotel segment
revenue is generated from click-based advertising on TripAdvisor-branded websites, which is primarily
comprised of contextually-relevant booking links to our travel partners’ sites. Our click-based
advertising travel partners are predominantly online travel agencies, or OTAs, and direct suppliers in the
hotel product category. Click-based advertising is generally priced on a cost-per-click, or “CPC”, basis,
with payments from advertisers determined by the number of users who click on a link multiplied by the
price that partner is willing to pay for that click, or hotel shopper lead. CPC rates are determined in a
dynamic, competitive auction process, or metasearch auction, that enables our partners to use our
proprietary, automated bidding system to submit CPC bids to have their hotel rates and availability
listed on our site. Transaction revenue is generated from our instant booking feature, which enables the
merchant of record, generally an OTA or hotel partner, to pay a commission to TripAdvisor for a user
that completes a hotel reservation via our website.
TripAdvisor-branded Display-based Advertising and Subscription Revenue. Travel partners can
promote their brands in a contextually-relevant manner through a variety of display-based advertising
placements on our websites. Our display-based advertising clients are predominantly direct suppliers of
hotels, airlines and cruises, as well as destination marketing organizations. We also sell display-based
advertising to OTAs and other travel-related businesses, and to advertisers from non-travel categories.
Display-based advertising is sold predominantly on a cost per thousand impressions, or CPM, basis. In
addition, we offer subscription-based advertising to hotels, B&Bs and other specialty lodging properties.
Subscription advertising is predominantly sold for a flat fee and enables subscribers to enhance their
listing, for a contracted period of time, on our TripAdvisor-branded websites, including by posting
special offers for travelers.
(cid:129) Other Hotel Revenue. Our other hotel revenue primarily includes revenue from non-TripAdvisor
branded websites, such as www.bookingbuddy.com, www.cruisecritic.com, and www.onetime.com,
which includes click-based advertising revenue, display-based advertising revenue, hotel room
reservations sold through the websites and advertising revenue from making cruise reservations
available for price comparison and booking.
3
In recent years, a significant percentage of our user traffic as well as an increasing percentage of our
consolidated revenue has come from Non-Hotel products – attractions, restaurants and vacation rentals. These
businesses generate revenue in our Non-Hotel segment, which accounted for 23%, 20%, and 15% of our
consolidated revenue in the years ended December 31, 2017, 2016 and 2015, respectively.
(cid:129) Attractions. We provide information and services for users to research, book, and experience activities
and attractions in popular travel destinations both through Viator, our dedicated Attractions business,
and on our TripAdvisor website and applications. We primarily generate commissions for each
transaction we facilitate through our online reservation systems. In addition to its consumer-direct
business, Viator also powers activity and attractions booking capabilities for its affiliate partners,
including some of the world’s top airlines, hotel chains and online and offline travel agencies. We
enable users to book approximately 83,000 activities and attractions, via third-party suppliers, which are
available on Viator-branded websites and mobile applications and on TripAdvisor-branded websites and
mobile applications.
(cid:129) Restaurants. We provide information and services for users to research and book restaurants in popular
travel destinations through our dedicated restaurant reservations business, TheFork, and on our
TripAdvisor website and applications. TheFork is an online restaurant booking platform operating on a
number of websites (including www.lafourchette.com, www.eltenedor.com, www.iens.nl and
www.dimmi.com.au), with a network of restaurant partners located primarily across Europe and
Australia. We generate reservation revenues that are paid by restaurants for diners seated through
TheFork’s online reservation systems, and generate subscription fees for our online booking and
marketing analytics tools provided by TheFork and by TripAdvisor. We enable users to book
approximately 46,000 restaurants, which are available on www.thefork.com and on TripAdvisor-
branded websites and mobile applications.
(cid:129) Vacation Rentals. We provide information and services for users to research and book vacation and
short-term rental properties, including full home rentals, condominiums, villas, beach rentals, cabins and
cottages. The Vacation Rentals business generates revenue primarily by offering individual property
owners and property managers the ability to list their properties on our websites and mobile applications
thereby connecting homeowners with travelers through a free-to-list, commission-based option and, to a
lesser extent, by an annual subscription-based fee structure. These properties are listed on
www.flipkey.com, www.holidaylettings.co.uk, www.housetrip.com, www.niumba.com, and
www.vacationhomerentals.com, and on our TripAdvisor-branded websites and mobile applications.
Our Long-Term Growth Strategy
We seek to achieve our mission of helping people around the world plan, book and experience the perfect trip
by: leveraging our user-generated content and global brand to attract users to our websites and applications;
providing users with the best user experience throughout all phases of the travel journey; deepening our partnerships
with travel partners, by providing them with a global platform of advertising opportunities to generate qualified
leads and bookings; and investing in technology, product development, marketing, and other strategic areas that we
believe can improve our long-term business prospects.
(cid:129) Drive user engagement with our platform. Since our founding, the TripAdvisor brand has become a
globally-recognized travel brand, one that is synonymous with travel reviews and research and
increasingly finding the best prices and booking. We believe that our user-generated content and our
brand have enabled us to build a large, highly engaged and loyal community of travelers who view
TripAdvisor as a valuable resource to help them discover, plan and, book their travel experiences, and
for millions of users, TripAdvisor gives them an interactive platform to share their travel experiences.
We seek to amplify our global brand and raise user awareness for and engagement with our expanded
product offerings as we aim to attract users to our websites and applications through various channels,
including domain direct and various online and offline marketing channels, including search engines
through search engine optimization and search engine marketing, and recently, through television
brand advertising.
4
(cid:129) Deliver the best user experience possible on our platform. We believe that giving users more value
throughout their TripAdvisor experience is key to our future success. To accomplish this, we have
made and will continue to make product improvements in order to provide a more enjoyable and
engaging end-to-end user experience throughout all phases of the travel journey – from inspiration and
discovery, to researching, price shopping and booking, to in-destination activities and places to eat,
and, finally, to sharing the details of these travel experiences on TripAdvisor. These enhancements
include having grown the number of hotels, inns, B&Bs and specialty lodging, vacation rentals,
restaurants, activities and attractions listed on our platform to approximately 7.5 million worldwide as
of December 31, 2017. In addition to listings and content, we have provided users more options to
price compare and book their travel experiences. During 2017, we launched a more engaging hotel
shopping experience that focused on helping hotel shoppers find the best prices on TripAdvisor
websites and applications. In order to better serve travelers needs when they are in-destination, we
have continued to rapidly expand our bookable supply in attractions and restaurants. We believe that
our continued focus on delivering an increasingly more robust user experience will ultimately result in
more repeat usage on our platform, more value for our partners, and greater monetization for our
business. We seek to quickly identify what users need to conduct their travel research and booking and
to deliver product enhancements quickly.
(cid:129) Deepen relationships with our travel partners. We are a global platform consisting of listing and
advertising opportunities that help generate impressions, brand awareness, qualified leads and
bookings for travel partners. As of December 31, 2017, TripAdvisor had approximately 1.2 million
hotels, inns, B&Bs and specialty lodging, 915,000 activities and attractions, 4.6 million restaurants,
and 750,000 vacation rentals on its website. We believe that continuing to grow the number of listings
and bookable supply, especially in our in-destination Attractions and Restaurants businesses, will
enable TripAdvisor to not only delight users in more moments during more trips, but also help partners
drive transactions for their business. We are also increasingly providing business-to-business services
that are designed to help our partners grow their business. For example, TripAdvisor’s Business
Advantage and Premium for Restaurants offer hoteliers and restauranteurs, affordable marketing and
business analytics tools, respectively, to help them attract customers and more effectively manage their
business pages on TripAdvisor.
(cid:129)
Invest in technology, product, marketing and other strategic areas. Continuous product testing and
speed to market are two of our most important priorities, as they enable us to create a richer user
experience. We operate on a regular product release cycle, where releases contain new product features
for our websites and mobile applications. For example, innovating and improving our mobile phone
offerings are key priorities since mobile phone adoption continues to scale and consumers increasingly
conduct more internet searches and commerce on these devices. During the year ended December 31,
2017, more than half of our average monthly unique visitors came from mobile phones, growing nearly
30% year-over-year, according to our internal log files. We anticipate that the growth rate in mobile
phone monthly unique visitors will continue to exceed the growth rate of our overall monthly unique
visitors, resulting in an increased proportion of users continuing to use their mobile phones to access
the full range of services available on our websites and applications. We are investing significant
resources to improve the features, functionality, engagement, and commercialization of our travel
products on our mobile websites and applications.
Marketing
We seek to amplify our global brand and raise user awareness and engagement for our expanded product
offerings as we aim to attract users to our websites and applications through various channels, including domain
direct and various online and offline marketing channels, including search engines (primarily Google), social media,
and in more recent years, through television brand advertising. Both our performance advertising expense and brand
advertising expense have increased in recent years. During 2017, our total advertising expense was approximately
$629 million, primarily related to the use of online search engines (primarily Google), social media, as well as
offline marketing, primarily television advertising, as part of our ongoing initiative to attract users to our websites
and applications when they are looking to find the best hotel deals before they are ready to book. We intend to
continue a strategy of promoting brand awareness through both online and offline advertising efforts, including by
expanding brand campaigns into additional markets.
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Competition
We compete in rapidly evolving and competitive markets. We face competition for content, users, advertisers,
online travel search and price comparison services also known in the industry as hotel metasearch, and online
reservations. In the competition to attract users to our platform, we rely on our ability to acquire traffic through
offline brand recognition and brand-direct efforts such as online search, email and television. These marketing
strategies can be impacted by competitive site content, changes to our website architecture and page designs,
changes to search engine ranking algorithms, updates in competitor advertising strategies, or changes to display
ordering in search engine results such as preferred placement for internal products offered by search engines.
We compete with different types of companies in the various markets and geographies we participate in,
including large and small companies in the travel space as well as broader service providers. More specifically:
(cid:129)
(cid:129)
In our Hotel segment, we both partner with, and face competition from OTAs (including Expedia, Inc.
and The Priceline Group, Inc. and many of their respective subsidiaries and operating companies); hotel
metasearch providers (including trivago, a subsidiary of Expedia, Kayak, a subsidiary of Priceline,
HotelsCombined and Ctrip.com International, Ltd); large online search, social media, and marketplace
platforms and companies (including Google, Facebook, Microsoft’s Bing, Yahoo, Baidu, Alibaba, and
Amazon); traditional offline travel agencies; and global hotel chains seeking to promote direct bookings.
In our Non-Hotel segment, our Attractions business competes with both traditional and online travel
agencies, online travel service providers, wholesalers, and individual tour operators. Our Restaurants
business competes with other online restaurant reservation services, such as Yelp and OpenTable (a
subsidiary of Priceline), and local or regional providers. Our Vacation Rentals business competes with
companies focused on alternative lodging and shared accommodations, including Airbnb and
HomeAway (a subsidiary of Expedia) and booking.com (a subsidiary of Priceline).
As the industry continues to shift towards online travel services and the technology supporting it continues to
evolve, we anticipate that the existing competitive landscape will continue to change, new competitors may emerge,
and industry consolidation may continue.
Commercial Relationships
We have a number of commercial relationships that are important to the success of our business. Although
these relationships are memorialized in agreements, many of these agreements are for limited terms or are
terminable at will or on short notice. As a result, we work hard to ensure the mutual success of these relationships.
We have commercial relationships with the majority of the world’s leading OTAs, as well as a variety of other
travel partners pursuant to which these companies primarily purchase traveler leads from us, generally on a click-
based advertising basis. For the year ended December 31, 2017, our two most significant travel partners were
Expedia and Priceline, including certain of their respective brands. For the years ended December 31, 2017, 2016
and 2015, Expedia (and its subsidiaries) and Priceline (and its subsidiaries), each accounted for more than 10% of
our consolidated revenue and together accounted for approximately 43%, 46% and 46% of our consolidated
revenue, respectively. Nearly all of this concentration of revenue is recorded in our Hotel segment for these
reporting periods.
Operations and Technology
We have assembled a team of highly skilled software engineers, computer scientists, data scientists, network
engineers, and systems engineers whose expertise spans a broad range of technical areas, including a wide variety of
open source operating systems, databases, languages, analytics, networking, scalable web architecture, operations,
and warehousing technologies. We make significant investments in product and feature development, data
management, personalization technologies, scalable infrastructures, networking, data warehousing, and search
engine technologies.
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Our systems infrastructure, web and database servers for TripAdvisor-branded websites are housed at two
geographically separate facilities and have multiple communication links as well as continuous monitoring and
engineering support. Each facility is fully self-sufficient and operational with its own hardware, networking,
software, and content, and is structured in an active/passive, fully redundant configuration. Substantially all of our
software components, data, and content are replicated in multiple datacenters and development centers, as well as
being backed up at offsite locations. Our systems are monitored and protected though multiple layers of security.
Several of our individual subsidiaries and businesses, including Viator, have their own data infrastructure and
technology teams.
Intellectual Property
Our intellectual property, including patents, trademarks, copyrights, domain names, trade dress, proprietary
technology and trade secrets, is an important component of our business. We rely on our intellectual property rights
in our content, proprietary technology, software code, ratings indexes, databases of reviews and forum content. We
have acquired some of our intellectual property rights through licenses and content agreements with third parties and
these arrangements may place restrictions on the use of our intellectual property.
We protect our intellectual property by relying on our terms of use, confidentiality agreements and contractual
provisions, as well as on international, national, state and common law rights. We protect our brands by pursuing the
trademark registration of our core brands, as appropriate, maintaining our trademark portfolio, securing contractual
trademark rights protection when appropriate, and relying on common law trademark rights when appropriate. We
also register copyrights and domain names as deemed appropriate. Additionally, we protect our trademarks, domain
names and copyrights with the use of intellectual property licenses and an enforcement program.
We have considered, and will continue to consider, the appropriateness of filing for patents to protect future
inventions, as circumstances may warrant. However, many 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.
Government Regulation
We are subject to a number of United States federal and state and foreign laws and regulations that affect
companies conducting business on the internet, many of which are still evolving and being tested in courts, and
could be interpreted in ways that could harm our business. These includes laws and regulations regarding user
privacy, libel, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and
other communications, consumer protection, taxation, online payment services, competition and protection of
minors. In particular, we are subject to United States federal and state and foreign laws regarding privacy and
protection of user data. Foreign data protection, privacy, and other laws and regulations are often more restrictive
than those in the United States. United States federal and state and foreign laws and regulations are constantly
evolving and can be subject to significant change. In addition, the application and interpretation of these laws and
regulations is often uncertain, particularly in the new and rapidly-evolving industry in which we operate.
In addition, we provide advertising data and information and conduct marketing activities that are subject to
United States federal and state consumer protection laws that regulate unfair and deceptive practices, domestically
and internationally. The United States and European Union have begun to adopt legislation that regulates certain
aspects of the internet, including online editorial and user-generated content, data privacy, behavioral targeting and
online advertising, taxation, and liability for third-party activities. It is impossible to accurately predict whether new
taxes or regulations will be imposed on our services, and whether or how we might be affected. Increased regulation
of the internet could increase the cost of doing business or otherwise materially adversely affect our business,
financial condition or operational results.
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We are subject to laws that require protection of user privacy and user data. In our processing of reservations,
we receive and store a large volume of personally identifiable data in the United States, Europe and Asia. This data
is increasingly subject to laws and regulations in numerous jurisdictions around the world, including the European
Union through the introduction of the General Data Protection Regulation, or GDPR. The enactment, interpretation
and application of these laws is in a state of flux, and the interpretation and application of such laws may vary from
country to country.
Corporate History, Equity Ownership and Voting Control
TripAdvisor was co-founded in February 2000 by Stephen Kaufer, our current Chief Executive Officer and
President. In April 2004, TripAdvisor was acquired by IAC/InterActiveCorp, or IAC. In August 2005, IAC spun-off
its portfolio of travel brands, including TripAdvisor, into a separate newly-formed Delaware corporation called
Expedia, Inc., or Expedia. On December 20, 2011 Expedia completed a spin-off of TripAdvisor into a separate
publicly-traded Delaware corporation. We refer to this second spin-off transaction as the “Spin-Off.” Following the
Spin-Off, on December 21, 2011, TripAdvisor began trading on The NASDAQ Global Select Market, or NASDAQ,
as an independent public company under the trading symbol “TRIP.”
On December 11, 2012, Liberty Interactive Corporation, or Liberty, purchased an aggregate of approximately
4.8 million shares of common stock of TripAdvisor from Barry Diller, our former Chairman of the Board of
Directors and Senior Executive, and certain of his affiliates. As a result, Liberty beneficially owned approximately
18.2 million shares of our common stock and 12.8 million shares of our Class B common stock.
On August 27, 2014, the entire beneficial ownership of our common stock and Class B common stock held by
Liberty was acquired by Liberty TripAdvisor Holdings, Inc., or LTRIP. Simultaneously, Liberty, LTRIP’s former
parent company, distributed, by means of a dividend, to the holders of its Liberty Ventures common stock, Liberty’s
entire equity interest in LTRIP. We refer to this transaction as the “Liberty Spin-Off”. As a result of the Liberty
Spin-Off, effective August 27, 2014, LTRIP became a separate, publicly traded company holding 100% of Liberty’s
interest in TripAdvisor.
As a result of these transactions, as of December 31, 2017, LTRIP beneficially owned approximately 18.2
million shares of our common stock and 12.8 million shares of our Class B common stock, which constitute 14.4%
of the outstanding shares of common stock and 100% of the outstanding shares of Class B common stock. Assuming
the conversion of all of LTRIP’s shares of Class B common stock into common stock, LTRIP would beneficially
own 22.3% of the outstanding common stock. Because each share of Class B common stock generally is entitled to
ten votes per share and each share of common stock is entitled to one vote per share, LTRIP may be deemed to
beneficially own equity securities representing 57.5% of our voting power.
Financial Information about Segments and Geographic Information
Our reporting structure includes two reportable segments: Hotel and Non-Hotel. Our Non-Hotel reportable
segment consists of three operating segments, which includes our Attractions, Restaurants and Vacation Rentals
businesses. The segments are determined based on how the chief operating decision maker regularly assesses
information and evaluates performance for operating decision-making purposes, including allocation of resources.
Financial information related to our two reportable segments and geographic information required herein is
contained in “Note 17 — Segment and Geographic Information,” in the notes to our consolidated financial
statements in Item 8.
Employees
As of December 31, 2017, we had 3,228 employees. Of these employees, approximately 51% were based in
the United States. We believe we have good relationships with our employees, including relationships with
employees represented by international works councils or other similar organizations.
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Seasonality
Traveler expenditures in the global travel market tend to follow a seasonal pattern. As such, expenditures by
travel partners/advertisers to market to potential travelers and, thereby, our financial performance, or revenue and
profits, tend to be seasonal as well. As a result, our financial performance tends to be seasonally highest in the
second and third quarters of a year, as it is a key period for leisure travel research and trip-taking, which includes the
seasonal peak in traveler hotel and vacation rental stays, and tours and attractions taken, compared to the first and
fourth quarters which represent seasonal low points. Further significant shifts in our business mix or adverse
economic conditions could result in future seasonal patterns that are different from historical trends.
Additional Information
We maintain a corporate website at ir.tripadvisor.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 the Investor Relations section of our website, the reports that we
file or furnish with the SEC, press releases, public conference calls and certain webcasts. Investors and others should
be aware that we use our investor relations website (http://ir.tripadvisor.com/investor-relations) to announce material
financial information to our investors as well as communicate with the public about our company, our results of
operations and other information.
We post our code of business conduct and ethics, which applies to all employees, including all executive
officers, senior financial officers and directors, on our corporate website at www.tripadvisor.com. We intend to
disclose any waivers of the code of ethics for our executive officers, senior financial officers or directors, on our
corporate website.
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Item 1A. Risk Factors
You should consider carefully the risks described below together with all of the other information included in
this Annual Report as they may impact our business, results of operations and/or financial condition. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known
to us or that we currently believe are immaterial may also impair our business, results of operations or financial
condition. If any of the following risks occur, our business, financial condition, operating results and cash flows
could be materially adversely affected.
If we are unable to continue to increase visitors to our websites and mobile apps and to cost-effectively convert
these visitors into revenue-generating users, our revenue, financial results and business could be harmed.
Our long term success depends on our continued ability to maintain and increase the overall number of visitors
flowing through our platforms in a cost effective manner and to engage users throughout the travel planning,
booking and trip-taking phases. The primary asset that we use to attract visitors to our websites and convert these
visitors into engaged users and bookers is our ability to collect or create, organize and distribute high-quality,
commercially valuable content and products that meet users’ specific interests. Our traffic and user engagement
could be adversely affected by a number of factors, including but not limited to increased competition, reduced
consumer awareness of our brands, declines or inefficiencies in traffic acquisition, and macroeconomic conditions.
Certain of our competitors have advertising campaigns expressly designed to drive consumer traffic directly to their
websites, and these campaigns may negatively impact traffic to our site. There can be no assurances that we will
continue to provide content and products in a manner that meets rapidly changing consumer demand that encourages
users to book on our platform and that is cost-effective. Any failure to obtain and manage content and products in a
cost-effective manner that will engage users, or any failure to provide content and products that are perceived as
useful, reliable and trustworthy, could adversely affect user experiences and their repeat behavior, reduce traffic to
our websites and negatively impact our business and financial performance.
We rely on internet search engines and application marketplaces to drive traffic to our platform, certain
providers of which offer products and services that compete directly with our products. If links to our website
and applications are not displayed prominently, traffic to our platform could decline and our business would be
negatively affected.
We rely heavily on internet search engines, such as Google, to generate a significant amount of traffic to our
websites, principally through the purchase of travel-related keywords (what is also known as search engine
marketing, or SEM) as well as through free, or organic, search (what is also known as search engine optimization, or
SEO). The number of users we attract from search engines to our platform is due in large part to how and where
information from and links to our website are displayed on search engine results pages. The display, including
rankings, of unpaid search results can be effected by a number of factors, many of which are not in our control and
may change frequently. 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 can be
negatively affected. In addition, a search engine could, for competitive or other purposes, alter its search algorithms
or results causing our websites to place lower in organic search query results. If a major search engine changes its
algorithms in a manner that negatively affects the search engine ranking of our websites or those of our partners, or
if competitive dynamics impact the cost or effectiveness of SEO or SEM in a negative manner, our business and
financial performance would be adversely affected. Furthermore, our failure to successfully manage our SEO and
SEM strategies could result in a substantial decrease in traffic to our websites, as well as increased costs if we were
to replace free traffic with paid traffic.
In addition, to the extent that Google or other leading search or metasearch engines that have a significant
presence in our key markets, disintermediate OTAs or travel content providers, whether by offering their own
comprehensive travel planning or shopping capabilities, or by referring leads to suppliers, other favored partners or
themselves directly, there could be a negative effect on search results and traffic to our site, which in turn could have
a material adverse impact on our business and financial performance.
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We also rely on application marketplaces, such as Apple’s App Store and Google’s Play, to drive downloads
of our applications. In the future, Apple, Google or other marketplace operators may make changes to their
marketplaces that make access to our products more difficult. For example, Google has entered various aspects of
the online travel market, including by establishing a flight metasearch product and a hotel metasearch product as
well as reservation functionality. Our applications may receive unfavorable treatment compared to the promotion
and placement of competing applications, such as the order in which they appear within marketplaces. Similarly, if
problems arise in our relationships with providers of application marketplaces, traffic to our site and our user growth
could be harmed.
We derive a substantial portion of our revenue from advertising and any significant reduction in spending by
advertisers or redirections of advertising spend could harm our business.
We derive a substantial portion of our revenue from the sale of advertising, primarily through click-based
advertising and, to a lesser extent, display-based and subscription-based advertising. We enter into master
advertising contracts with our advertising partners. The agreement terms are generally limited to legal matters, with
campaign details governed by insertion orders, and most of these contracts can be terminated by our partners at will
or on short notice. Our ability to grow advertising revenue with our existing or new advertising partners is dependent
in large part on our ability to generate revenue for them relative to other alternatives. Advertisers will not continue
to do business with us if their investment in such advertising does not generate sales leads, customers, bookings, or
revenue and profit on a cost-effective basis. Our ability to provide value to our advertising partners depends on a
number of factors, including acceptance of online advertising versus more traditional forms of advertising or more
effective models, competitiveness of our products, traffic quality, perception of our platform, availability and
accuracy of analytics and measurement solutions to demonstrate our value, and macroeconomic conditions, whether
in the advertising industry generally, among specific types of marketers or within particular geographies. We cannot
guarantee that our current advertisers will fulfill their obligations under existing contracts, continue to advertise
beyond the terms of existing contracts or enter into any additional contracts with us.
Click-based advertising revenue accounts for the majority of our advertising revenue. Our CPC pricing for
click-based advertising depends, in part, on competition between advertisers. If our large advertisers become less
competitive with each other, merge with each other or with our competitors, focus more on per-click profit than on
traffic volume, or are able to reduce CPCs, this could have an adverse impact on our click-based advertising revenue
which would, in turn, have an adverse effect on our business, financial condition and results of operations.
We rely on a relatively small number of significant advertising partners and any reduction in spending by or loss
of these partners could seriously harm our business.
We derive a substantial portion of our revenue from a relatively small number of advertising partners and rely
significantly on our relationships. For example, for the year ended December 31, 2017, our two most significant
advertising partners, Expedia and Priceline (and their subsidiaries), accounted for a combined 43% of total revenue.
While we enter into master advertising contracts with our partners, as discussed above, and most of these contracts
can be terminated by our partners at will or on short notice. If any of our significant advertisers were to cease or
significantly curtail advertising on our websites, we could experience a rapid decline in our revenue over a relatively
short period of time which would have a material impact on our business.
Our dedication to making the user experience our highest priority may cause us to prioritize rapid innovation and
user experience over short-term financial results.
We strive to create the best experience for our users, providing them with the information, research and tools
to enable them to plan, book, and experience the perfect trip. We believe that in doing so we will increase our rates
of conversion, revenue per hotel shopper and, ultimately, our financial performance over the long-term. We have
taken actions in the past and may continue to make decisions in the future that have the effect of reducing our short-
term revenue or profitability if we believe that the decisions benefit the overall user experience. For example, we
may introduce changes to existing products or new products that direct users away from formats or use cases where
we have a proven means of monetization. In addition, our approach of putting users first may negatively impact our
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relationship with existing or prospective advertisers. These actions and practices could result in a loss of advertisers,
which in turn could harm our results of operations. The short-term reductions in revenue or profitability could be
more severe than we anticipate or these decisions may not produce the long-term benefits that we expect, in which
case our user growth and engagement, our relationships with users and advertisers, and our business and results of
operations could be harmed.
Our business depends on a strong brand and any failure to maintain, protect and enhance our brand would hurt
our ability to retain and expand our base of users and advertisers, as well as increase the frequency with which
users utilize our products and services.
We believe that the strength of our brands (particularly the TripAdvisor brand) has contributed significantly to
our success. We also believe that maintaining, protecting and enhancing our brands is critical to expanding our base
of users, increasing the frequency with which users utilize our solutions and attracting advertisers and business
partners. Our ability to maintain and protect our brand depends, in part, on our ability to maintain consumer trust in
our products and in the quality and integrity of the user content and other information found on our platform. We
believe that consumers must trust the integrity of our content and that they must believe that our content is reliable
as well as useful. If consumers do not view our reviews to be useful and reliable, they may seek other sources to
obtain the information they are looking for and may not return to our platform as often in the future, or at all. This
would negatively impact our ability to attract retain users and advertisers and the frequency with which they use our
platform. We dedicate significant resources to these goals, primarily through our computer algorithms to identify
inappropriate or deceptive content removing content from our website that violates our terms of service and, in
certain cases, taking legal action against businesses that we believe engage in deceptive practices.
Media, legislative, or regulatory scrutiny of our decisions regarding user privacy, content, advertising, and
other issues may adversely affect our reputation and brands. Negative publicity about our company, including our
content, technology, business practices or strategic plans, could diminish our reputation and confidence in our brand,
thereby negatively affecting the use of our products. For example, certain media outlets have reported that we have
improperly filtered or screened reviews, that we have not properly verified reviews, or that we manipulate reviews,
ranking and ratings in favor of our advertisers against non-advertisers. We expend significant resources to ensure the
integrity of our reviews and to ensure that the most relevant reviews are available to our users; we do not establish
rankings and ratings in favor of our advertisers. Nevertheless, our reputation and brand, the traffic to our platform
and our business may suffer from negative publicity about our company or if users otherwise perceive that our
content is manipulated or biased. In addition, regulatory inquiries or investigations require management time and
attention and could result in further negative publicity, regardless of their merits or ultimate outcomes.
In addition, unfavorable publicity regarding, for example, our practices relating to privacy and data protection,
product changes, competitive pressures, litigation or regulatory activity, could adversely affect our reputation with
our users and our advertisers. Such negative publicity also could have an adverse effect on the size, engagement, and
loyalty of our user base and result in decreased revenue, which could adversely affect our business and financial
results.
We continue to invest significant time and effort towards educating users about our brand and our product
offerings and there can be no assurances that these efforts will be successful.
In an effort to enhance our brand we invest significantly in brand marketing including, but not limited to,
television advertising. We expect these investments to continue, and even increase, as a result of a variety of factors,
including relatively high levels of advertising spending from competitors, the increasing costs of supporting multiple
brands, expansion into new geographies, product positioning where our brands are less well known, and the
continued emergence and relative traffic share growth of search engines as destination sites for travelers. We expect
to continue our television advertising campaign and to adjust our marketing efforts and spend among the different
marketing channels, in each case as we think appropriate based on the relative growth opportunity, the expected
returns and the competitive environment in the different segments and businesses in which we operate.
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Such efforts may not maintain or enhance consumer awareness of our brands 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. If we are
unable to maintain or enhance consumer awareness of our brands or to generate demand in a cost-effective manner,
it would have a material adverse effect on our business and financial performance. In addition, there are no
assurances that these actions will have a positive impact on our marketing efficiencies or operating margins or when
the financial benefit expected to result from these efforts will exceed the costs of such efforts. Furthermore, some of
our current and potential competitors have access to significantly greater and more diversified resources than we do,
and they may also be able to leverage other aspects of their businesses to enable them to compete more effectively
with us.
Consumer adoption and use of mobile phone devices creates new challenges and, if we are unable to operate
effectively on mobile phone devices, our business may be adversely affected.
The number of people who access the internet through mobile phones continues to increase and we anticipate
that the rate of use of these devices will continue to grow. A significant percentage of our traffic comes from users
accessing our sites on mobile phones and we expect this percentage to continue to increase. In order to attract and
retain engaged users of our mobile platform, the mobile products and services we introduce must be compelling. In
addition, the mobile phones continue to monetize at a significantly lower rate than desktops and tablets and
advertising opportunities are more limited on mobile phone devices. Given device sizes and technical limitations of
these devices, mobile phone consumers may not be willing to download multiple apps from multiple companies
providing similar service and instead prefer to use one or a limited number of apps for their hotel, restaurant and
attractions activity. In addition, as new devices and platforms are released, users may begin consuming content in a
manner that is more difficult to monetize.
To address these growing user demands, we continue to extend our platform to develop and improve upon our
mobile applications and monetization strategies. If we are unable to continue to rapidly innovate and create new,
user-friendly and differentiated mobile phone offerings and websites optimized for mobile phone devices and
efficiently and effectively advertise and distribute on these platforms, or if our mobile phone offerings are not used
by consumers, our future growth and results of operations could be negatively impacted.
Declines or disruptions in the economy in general and travel industry in particular could adversely affect our
businesses and financial performance.
Our businesses and financial performance are affected by the health of the global economy generally as well
as the travel industry and leisure travel in particular. Sales of travel services tend to decline or grow more slowly
during economic downturns and recessions when consumers engage in less discretionary spending, are concerned
about unemployment or economic weakness, have reduced access to credit or experience other concerns that reduce
their ability or willingness to travel. The global economy may be adversely impacted by unforeseen events beyond
our control including incidents of actual or threatened terrorism, regional hostilities or instability, unusual weather
patterns, natural disasters, political instability and health concerns (including epidemics or pandemics), defaults on
government debt, significant increases in fuel and energy costs, tax increases and other matters that could reduce
discretionary spending, tightening of credit markets and further declines in consumer confidence. Decreased travel
expenditures could reduce the demand for our services and have a negative impact on our business, working capital
and financial performance.
In addition, the uncertainty of macro-economic factors and their impact on consumer behavior, which may
differ across regions, makes it more difficult to forecast industry and consumer trends and the timing and degree of
their impact on our markets and business, which in turn could adversely affect our ability to effectively manage our
business and adversely affect our results of operations. For example, the United Kingdom’s referendum to exit the
European Union, known as Brexit, could adversely affect European and global economic or market conditions,
could contribute to instability in global financial markets and may have a negative effect on the travel industry and
our business.
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We operate in an increasingly competitive global environment and our failure to compete effectively could reduce
our market share and harm our financial performance.
We compete in rapidly evolving and competitive markets. We face competition for content, users, advertisers,
online travel search and price comparison services, or what is known in the industry as hotel metasearch, and online
reservations. In the competition to attract users to our platform, we rely on our ability to acquire traffic through
offline brand recognition and brand-direct efforts such as SEO, SEM, email and television. These marketing
strategies can be impacted by competitive site content, changes to our website architecture and page designs,
changes to search engine ranking algorithms, updates in competitor advertising strategies, or changes to display
ordering in search engine results such as preferred placement for internal products offered by search engines.
We also compete with different types of companies in the various markets and geographies where we
participate, including large and small companies in the travel space as well as broader service providers. More
specifically:
(cid:129)
In our Hotel segment, we face competition from OTAs (including Expedia, Inc. and The Priceline Group
Inc. and certain of their respective subsidiaries), hotel metasearch providers (including trivago, Kayak,
Ctrip.com International, Ltd., and HotelsCombined), large online search, social media, and marketplace
companies (including Google, Microsoft Bing, Yahoo, Baidu, Facebook, Alibaba, and Amazon), traditional
offline travel agencies, and global hotel chains seeking to promote direct bookings.
(cid:129) We also face competition from different companies in each of the operating segments in our Non-Hotel
segment. Our Attractions business competes with traditional travel agencies, wholesalers, and individual
tour operators as well as Airbnb and similar websites that have added other travel services such as tours and
activities. Our Restaurants business competes with other online restaurant reservation services, such as
SeatMe (owned by Yelp) and OpenTable (a subsidiary of Priceline). Our Vacation Rentals business
competes with companies focused on alternative lodging, shared accommodations and online
accommodation searches, including Airbnb, HomeAway (a subsidiary of Expedia) and booking.com (a
subsidiary of Priceline).
Many of our competitors have significantly greater financial, technical, marketing and other resources
compared to us and have expertise in developing online commerce and facilitating internet traffic as well as large
client bases. They also have the ability to leverage other aspects of their business to enable them to compete more
effectively against us. In addition, many of our competitors, including online search companies, continue to expand
their voice and artificial intelligence capabilities, which may provide them with a competitive advantage in travel.
We cannot assure you that we will be able to compete successfully against our current, emerging and future
competitors or on platforms that may emerge, or provide differentiated products and services to our traveler base.
Certain of the companies we do business with, including some of our click-based advertising partners, are also
our competitors. The consolidation of our competitors and partners, including Expedia (through its acquisitions of
Orbitz, Travelocity, and HomeAway) and Priceline (through its acquisitions of Kayak and OpenTable), may affect
our relative competitiveness and our partner relationships. Competition and consolidation 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.
As the industry shifts towards online travel services and the technology supporting it continues to evolve,
including platforms such as mobile phone and tablet computing devices, competition is likely to intensify.
Competition in our industry may result in pricing pressure, loss of market share or decreased member engagement,
any of which could adversely affect our business and financial performance.
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We rely on information technology to operate our business and remain competitive, and any failure to adapt to
technological developments or industry trends could harm our businesses.
We depend on the use of sophisticated information technologies and systems for, among other things, website
and mobile apps, supplier connectivity, communications, reservations, payment processing, procurement, customer
service and fraud prevention. Our future success depends on our ability to continuously improve and upgrade our
systems and infrastructure to meet rapidly evolving consumer trends and demands while at the same time
maintaining the reliability and integrity of our systems and infrastructure. We may not be able to maintain or replace
our existing systems or introduce new technologies and systems as quickly as we would like or in a cost-effective
manner. We may not be successful, or as successful as our competitors, in developing technologies and systems that
operate effectively across multiple devices and platforms in a way that is appealing to our users.
In addition, the emergence of alternative platforms such as mobile phone and tablet computing devices and the
emergence of niche competitors who may be able to optimize products, services or strategies for such platforms will
require new investment in technology. New developments in other areas could also make it easier for competition to
enter our markets due to lower up-front technology costs. Technology changes, including new devices, services and
home assistants, such as Amazon’s Alexa Voice and Google Home, and developing technologies, such as machine
learning and artificial intelligence, could negatively impact our business.
If we do not continue to innovate and provide tools and services that are useful to travelers, we may not remain
competitive, and our business and financial performance could suffer.
Our success depends in part on continued innovation to provide features and services that make our platform
compelling to travelers. Our competitors are continually developing innovations in online travel-related services and
features. As a result, we are continually working to improve our business model and user experience in order to
drive user traffic and conversion rates. We can give no assurances that the changes we make will yield the benefits
we expect and will not have unintended or adverse impacts that we did not anticipate. If we are unable to continue
offering innovative products and services and quality features that travelers want to use, existing users may become
dissatisfied and use competitors’ offerings and we may be unable to attract additional users, which could adversely
affect our business and financial performance.
We are dependent upon the quality of traffic in our network to provide value to online advertisers, and any
failure in our quality control could have a material adverse effect on the value of our websites to our advertisers
and adversely affect our revenue.
We use technology and processes to monitor the quality of the internet traffic that we deliver to online
advertisers and have identified metrics to demonstrate the quality of that traffic. These metrics are used to not only
identify the value of advertising on our website but also to identify low quality clicks such as non-human processes,
including robots, spiders or other software; the mechanical automation of clicking; and other types of invalid clicks
or click fraud. Even with such monitoring in place, there is a risk that a certain amount of low-quality traffic, or
traffic that online advertisers deem to be invalid, will be delivered to such online advertisers. As a result, we may be
required to credit amounts owed to us by our advertisers. Furthermore, low-quality or invalid traffic may be
detrimental to our relationships with advertisers, and could adversely affect our advertising pricing and revenue.
We rely on assumptions and estimates and data to calculate certain of our key metrics, and real or perceived
inaccuracies in such metrics may harm our reputation and negatively affect our business.
We believe that certain metrics are key to our business, including but not limited to unique visitors, hotel
shoppers, and revenue per hotel shopper. As both the industry in which we operate and our business continue to
evolve, so too might the metrics by which we evaluate our business. While the calculation of these metrics is based
on what we believe to be reasonable estimates, our internal tools are not independently verified by a third party and
have a number of limitations and, furthermore, our methodologies for tracking these metrics may change over
time. For example, a single person may have multiple accounts or browse the internet on multiple browsers or
devices, some users may restrict our ability to accurately identify them across visits, some mobile applications
15
automatically contact our servers for regular updates with no user action, and we are not always able to capture user
information on all of our platforms. As such, the calculations of our unique visitors may not accurately reflect the
number of people actually visiting our platforms. We continue to improve upon our tools and methodologies to
capture data and believe that our current metrics are accurate; however, the improvement of our tools and
methodologies could cause inconsistency between current data and previously reported data, which could confuse
investors or lead to questions about the integrity of our data. Also if the internal tools we use to track these metrics
under-count or over-count performance or contain algorithm or other technical errors, the data we report may not be
accurate. In addition, historically, certain metrics were calculated by independent third parties. Accordingly readers
should not place undue reliance on these numbers.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel
in the future, could harm our business.
Our future success depends upon the continued contributions of our senior corporate management and other
key employees. In particular, the contributions of Stephen Kaufer, our co-founder, Chief Executive and President,
are critical to our overall management. We cannot ensure that we will be able to retain the services of these
individuals, and the loss of one or more of our key personnel could seriously harm our business. We do not maintain
any key person life insurance policies.
In addition, competition remains intense for well-qualified employees in certain aspects of our business,
including software engineers, developers, product management and development personnel, and other technology
professionals. Our continued ability to compete effectively depends on our ability to attract new employees and to
retain and motivate existing employees. As a global company, we aim to attract quality employees from all over the
world, so any restrictions on travel for professional or personal purposes, such as those put in place 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.
We may be subject to claims that we violated intellectual property rights of others and these claims can be
extremely costly to defend and could require us to pay significant damages and limit our ability to operate.
Certain companies in the internet and technology industries that own patents, copyrights, trademarks and trade
secrets frequently enter into litigation based on allegations of infringement or other violations of those intellectual
property rights in order to extract value from technology companies, such as royalties in connection with grants of
licenses. We have received in the past, and expect to receive in the future notices that claim we have
misappropriated or misused other parties’ intellectual property rights. Any intellectual property claim against us,
regardless of merit, could be time-consuming and expensive to settle or litigate and could divert management’s
attention and other resources. These claims also could subject us to significant liability for damages and could result
in our having to stop using technology or content found to be in violation of another party’s rights. We might be
required or may opt to seek a license for rights to intellectual property held by others, which may not be available on
commercially reasonable terms, or at all. Even if a license is available, we could be required to pay significant
royalties, which would increase our operating expenses. We may also be required to develop alternative non-
infringing technology, or content, which could require significant effort and expense and make us less competitive
in the relevant market. Any of these results could harm our business and financial performance.
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Acquisitions, investments, significant commercial arrangements and/or new business strategies could disrupt our
ongoing business and present new challenges and risks.
Our success will depend, in part, on our ability to expand our product offerings and expand user engagement
in order to grow our business in response to changing technologies, user and advertiser demands and competitive
pressures. As a result, we have acquired, invested in and/or entered into significant commercial arrangements with a
number of new businesses in the past and our future growth may depend, in part, on future acquisitions, investments,
commercial arrangements and/or changes in business strategies, any of which could be material to our financial
conditions and results of operations. Such endeavors may involve significant risks and uncertainties, including, but
not limited to, the following:
(cid:129)
Expected and unexpected costs incurred in identifying and pursuing these endeavors, and performing
due diligence on potential targets that may or may not be successful;
(cid:129) Use of cash resources and incurrence of debt and contingent liabilities in funding these endeavors that
may limit other potential uses of our cash, including stock repurchases, retirement of outstanding
indebtedness and/or dividend payments;
(cid:129) Amortization expenses related to acquired intangible assets and other adverse accounting consequences;
(cid:129) Diversion of management’s attention or other resources from our existing business;
(cid:129) Difficulties and expenses in integrating the operations, products, technology, privacy protection
systems, information systems or personnel of the company, including the assimilation of corporate
cultures;
(cid:129) Difficulties in implementing and retaining uniform standards, controls, procedures, policies and
information systems;
(cid:129)
(cid:129)
(cid:129)
The assumption of known and unknown debt and liabilities of the acquired company, including costs
associated with litigation, cybersecurity risks assumed, and other claims relating to the acquired
company;
Failure of any company which we have acquired, in which we have invested, or with which we have a
commercial arrangement, to achieve anticipated revenues, earnings or cash flows or to retain key
management or employees;
Failure to generate adequate returns on acquisitions and investments;
(cid:129) With respect to minority investments, limited management or operational control and reputational risk,
which risk is heightened if the controlling person in such case has business interests, strategies or goals
that are inconsistent with ours;
(cid:129)
(cid:129)
Entrance into markets in which we have no direct prior experience and increased complexity in our
business;
Impairment of goodwill or other intangible assets such as trademarks or other intellectual property
arising from acquisitions; and
(cid:129) Adverse market reaction to acquisitions.
We have recently invested, and may in the future invest, in privately-held companies and these investments
are currently accounted for under the cost method accounting. Such investments are inherently risky in that such
companies are typically at an early stage of development, may have no or limited revenues, may not be or may never
become profitable, may not be able to secure additional funding or their technologies, services or products may not
be successfully developed or introduced into the market. Further, our ability to liquidate any such investments is
typically dependent upon some liquidity event, such as a public offering or acquisition, since no public market exists
for such securities. Valuations of such privately-held companies are inherently complex and uncertain due to the
lack of liquid market for the company’s securities. Moreover, we could lose the full amount of any of our
investments and any impairment of our investments could have a material adverse effect on our financial condition
and results of operations.
17
We cannot assure you that these investments will be successful or that such endeavors will result in the
realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that may be
possible or that we will achieve these benefits within a reasonable period of time.
If we fail to manage our growth effectively, our brand, results of operations and business could be harmed.
Over the years, we have experienced rapid growth in some of our business, including through acquisitions of
other businesses and in new international markets. We continue to make substantial investments in our technology,
product and sales and marketing organizations. This growth places substantial demands on management and our
operational infrastructure. In addition, as our business matures, we make periodic changes and adjustments to our
organization in response to various internal and external considerations, including market opportunities, the
competitive landscape, new and enhanced products and acquisitions. These changes may result in a temporary lack
of focus or productivity or otherwise impact our business.
To manage our growth, we may need to improve our operational, financial and management systems and
processes which may require significant capital expenditures and allocation of valuable management and employee
resources. As we continue to grow, we must effectively integrate, develop and motivate a large number of new
employees, including employees in international markets, while maintaining the beneficial aspects of our company
culture. If we do not manage the growth of our business and operations effectively, the quality of our platform and
efficiency of our operations could suffer, which could harm our brand, results of operations and business.
We are regularly subject to claims, suits, government investigations, and other proceedings that may result in
adverse outcomes.
We are regularly subject to claims, suits, government investigations and other proceedings involving
competition, intellectual property, privacy and data protection, consumer protection, tax, labor and employment,
commercial disputes, content generated by our users, free speech issues, goods and services offered by advertisers or
publishers using our platforms, short-term and vacation rentals and other matters. In addition, our businesses face
intellectual property litigation that exposes us to the risk of exclusion and cease and desist orders, which could limit
our ability to sell products and services.
Such claims, suits, government investigations and proceedings are inherently uncertain and their results cannot
be predicted with certainty. Regardless of the outcome, any of these types of legal proceedings can have an adverse
impact on us because of legal costs, diversion of management resources, injunctions or damage awards and other
factors. Determining reserves for our pending litigation or other legal proceedings is a complex, fact-intensive
process that requires significant judgment. It is possible that a resolution of one or more such proceedings could
result in substantial fines and penalties that could adversely affect our business, consolidated financial position,
results of operations, or cash flows in a particular period. These proceedings could also result in reputational harm,
criminal sanctions, consent decrees, or orders preventing us from offering certain features, functionalities, products,
or services, requiring a change in our business practices or other field action, or requiring development of non-
infringing or otherwise altered products or technologies. Any of these consequences could adversely affect our
business and results of operations.
We are a global company that operates in many different jurisdictions and these operations expose us to
additional risks, which risks increase as our business continues to expand.
We operate in a number of jurisdictions both inside and outside of the United States and continue to expand
our operations both domestically and internationally. Many regions have different economic conditions, languages,
currencies, consumer expectations, levels of consumer acceptance and use of the internet for commerce, legislation,
regulatory environments (including labors laws and customs), tax laws and levels of political stability. We are
subject to associated risks typical of global businesses, including, but not limited to, the following:
(cid:129) Compliance with additional laws and regulations, including the Foreign Corrupt Practices Act and the
U.K. Bribery Act (including the European Union’s General Data Protection Regulation, or GDPR), data
privacy requirements, labor and employment law, laws regarding advertisements and promotions and
anti-competition regulations;
18
(cid:129) Diminished ability to legally enforce contractual rights;
(cid:129) Increased risk and limits on enforceability of intellectual property rights;
(cid:129) Restrictions on repatriation of cash as well as restrictions on investments in operations in certain
countries;
(cid:129) Financial risk arising from transactions in multiple currencies as well as foreign currency exchange
restrictions;
(cid:129) Difficulties in managing staff and operations due to distance, time zones, language and cultural
differences;
(cid:129) Uncertainty regarding liability for services, content and intellectual property rights, including
uncertainty as a result of local laws and lack of precedent;
(cid:129) Economic or political instability; and
(cid:129) Threatened or actual acts of terrorism.
A number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals,
such as the recently enacted U.S. tax legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017
(the “2017 Tax Act”). Foreign governments may enact tax laws in response to the 2017 Tax Act that could result in
further changes to global taxation and materially affect our financial position and results of operations.
The 2017 Tax Act resulted in significant changes to the U.S. corporate income tax system. The 2017 Tax Act
requires complex computations to be performed that were not previously required in U.S. tax law, significant
judgments to be made in interpretation of the provisions of the 2017 Tax Act and significant estimates in
calculations, and the preparation of analysis of information not previously relevant or regularly produced. The U.S.
Treasury Department, the IRS and other standard-setting bodies could interpret or issue guidance on how provisions
of the 2017 Tax Act will be applied or otherwise administered that is different from our interpretation. As we
complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret additional guidance, we
may make adjustments to provisional amounts that we have recorded that may materially impact our provision for
income taxes in the period in which the adjustments are made.
Additionally, we continue to accumulate positive cash flows in foreign jurisdictions, which we consider
indefinitely reinvested, although we will continue to evaluate the impact of the 2017 Tax Act on our capital
deployment within and outside the U.S. The repatriation of such funds for use in the United States, including for
corporate purposes such as acquisitions, stock repurchases, dividends or debt refinancings, may result in additional
U.S. income tax expense and higher cost for such capital.
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 or financial performance.
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 business, including those relating to the internet and online commerce, internet advertising,
consumer protection, data security and privacy, travel and vacation rental licensing and listing requirements and tax.
In some cases, these laws continue to evolve.
For example, there is, 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, online editorial and user-generated content, user privacy, data security, behavioral targeting and online
advertising, taxation, liability for third-party activities and the quality of products and services. In addition,
enforcement authorities continue to rely on their authority under existing consumer protection laws to take action
against companies relating to data privacy and security practices. 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.
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Further, our Vacation Rentals business has been and continues to be subject to regulatory developments that
affect the vacation rental industry and the ability of competitors like us to list those vacation rentals online. For
example, some states and local jurisdictions have fair housing or other laws governing whether and how properties
may be rented, which they assert apply to vacation rentals. In addition, many homeowners, condominium and
neighborhood associations have adopted or are considering adopting statutes or ordinances that prohibit or restrict
property owners and managers from short-term vacation rentals.
We also have been subject, and we will likely be subject in the future, to inquiries from time to time from
regulatory bodies concerning compliance with consumer protection, competition, tax and travel industry-specific
laws and regulations. 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.
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
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. Unfavorable changes could decrease demand for products and services, limit
marketing methods and capabilities, increase costs and/or subject us to additional liabilities. Violations of these laws
and regulations could result in finds and/or criminal sanctions against us, our officers or our employees and/or
prohibitions on the conduct of our business.
We cannot be sure that our intellectual property is protected from copying or use by others, including potential
competitors.
Our websites rely on content, brands and technology, much of which is proprietary. We protect our proprietary
content, brands and technology by relying on a combination of trademarks, copyrights, trade secrets, patents and
confidentiality agreements. Any misappropriation or violation of our rights could have a material adverse effect on
our business. Even with these precautions, it may be possible for another party to copy or otherwise obtain and use
our proprietary technology, content or brands without authorization or to develop similar technology, content or
brands independently.
Effective intellectual property protection is expensive to develop and maintain, both in terms of initial and
ongoing registration requirements and expenses and the costs of defending our rights. In addition, effective
intellectual property 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. Therefore, in certain
jurisdictions, we may be unable to protect our intellectual property adequately against unauthorized third-party
copying or use, which could adversely affect our business or ability to compete. We cannot be sure that the steps we
have taken will prevent misappropriation or infringement of our intellectual property. Furthermore, we may need to
go to court or other tribunals or administrative bodies in order 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. Our failure to protect our
intellectual property in a cost-effective or effective manner could have a material adverse effect on our business and
ability to protect our technology, content and brands.
We currently license from third parties and incorporate the technologies and content into our websites. As we
continue to introduce new services that incorporate new technologies and content, we may be required to license
additional technology, or content. We cannot be sure that such technology or content will be available on
commercially reasonable terms, if at all.
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Our processing, storage and use of personal information and other data subjects us to additional laws and
regulations and failure to comply with those laws and regulations could give rise to liabilities.
We collect, process, store and transmit data, including personal information, for our users. As a result, we are
subject to a variety of laws in the United States and abroad regarding privacy and the storing, sharing, use,
processing, disclosure and protection of personal information and other consumer data, the scope of which are
changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules.
In addition, the security of data when engaging in electronic commerce is essential to maintaining consumer and
travel service provider confidences in our services. 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. Various 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, we are subject to GDPR, a new data protection legal framework
adopted by the European Union effective in May 2018. These data protection laws and regulations are intended to
protect the privacy and security of personal data, including credit card information. Implementation of and
compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise
affect our business operations.
We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating
to privacy and data protection. Any failure or perceived failure by us to comply with our privacy policies, privacy-
related obligations to users or other third parties, or privacy-related legal obligations, may result in governmental
enforcement actions, litigation or public statements that could harm our reputation and cause our customers and
members to lose trust in us, which could have an adverse effect on our business, brand, market share and results of
operations.
We have acquired a number of companies over the years and may continue to do so in the future. While we
make significant efforts to address any information technology security issues with respect to our acquisitions, we
may still inherit such risks when we integrate the acquired businesses.
We are subject to payments-related risks and failure to manage those risks may subject us to fines, penalties and
additional costs and could have a negative impact on our business.
We accept payments, both from consumers and advertising partners and suppliers, using a variety of methods,
including credit card, debit card, direct debit from a customer’s bank account, and invoicing. 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. For certain payment methods, including
credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating
costs and lower profitability. We rely on third parties to provide certain payment methods and payment processing
services, including the processing of credit cards and debit cards. In each case, our business could be disrupted, if
these companies become unwilling or unable to provide these services to us. We are also subject to payment card
association operating rules, including data security rules, certification requirements, and rules governing electronic
funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. 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/or lose our ability to accept
credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of
online payments.
We are also subject to a number of other laws and regulations relating to payments, money laundering,
international money transfers, privacy and information security, and electronic fund transfers. If we were found to be
in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal
penalties, or forced to cease providing certain services.
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Any significant system disruption in or unauthorized access to our computer systems or those of third parties that
we utilize, including those relating to cybersecurity or arising from cyberattacks, could result in a loss or
degradation of service, unauthorized disclosure of data or theft of intellectual property, could harm our business.
Our reputation and ability to attract, retain and service our users and partners is dependent upon the reliable
performance and security of our computer systems and those of third parties we utilize in our operations. Significant
interruptions, outages, delays or security breaches in internal systems, systems of third parties that we rely upon,
would impair our ability to process transactions or display content and significantly harm our business. A party,
whether internal or external, that is able to circumvent our security systems could misappropriate user information or
proprietary information or cause significant interruptions in our operations. In the past, we have experienced
cyberattacks, such as computer viruses, security intrusions, “denial-of-service” or “bot” type attacks, that have made
portions of our websites unavailable for short periods of time as well as allowed unauthorized access of our systems
and data.
We also face risks associated with security breaches affecting third parties conducting business over the
internet. Much of our business is conducted with third party marketing affiliates or, more recently, through business
partners powering our instant booking feature. A security breach at such third party could be perceived by
consumers as a security breach of our systems and could result in negative publicity, damage our reputation, expose
us to risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions. In addition,
such third parties may not comply with applicable disclosure requirements, which could expose us to liability.
We may need to expend significant resources to protect against security breaches or to investigate and address
problems caused by breaches. Reductions in 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,
often are not recognized until launched against a target and may originate from less regulated and 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. Media coverage of data breaches has
escalated, in part because of the increased number of enforcement actions, investigations and lawsuits. As this focus
and attention on privacy and data protection increases, we also risk exposure to potential liabilities and costs
resulting from the compliance with, or any failure to comply with applicable legal requirements, conflicts among
these legal requirements or differences in approaches to privacy and security. Security breaches could also cause
travelers and potential users to lose confidence in our security, which would have a negative effect on the value of
our brand. Failure to 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.
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 content
and services to users, travelers and/or third parties for a significant period of time. In addition, remediation may be
costly and we may not have adequate insurance to cover such 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.
The online short-term and vacation rental market is rapidly evolving and if we fail to predict the manner in
which the market develops, our business and prospects may suffer.
We offer short-term and vacation rental services on our TripAdvisor-branded sites as well as through our
U.S.-based FlipKey and Vacation Home Rentals and European-based Holiday Lettings and Niumba businesses. The
short-term and vacation rental market has been and continues to be, subject to regulatory development globally that
affects the industry and the ability of companies like us to list these rental properties online. For example, some
states and local jurisdictions, both domestically and internationally, 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. Some states and local jurisdictions also have fair housing or other laws governing whether and how
properties may be rented, which they assert apply to vacation rentals. Many homeowners, condominium and
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neighborhood associations have adopted rules that prohibit or restrict short-term vacation rentals. Many of the
fundamental statutes and ordinances that impose taxes or other obligations on travel and lodging companies were
established before the growth of the internet and e-commerce, which creates a risk of these laws being used in ways
not originally intended that could burden property owners and managers or otherwise harm our business. Operating
in this dynamic regulatory environment requires significant management attention and financial resources. We
cannot assure that our efforts will be successful, and the investment and additional resources required to manage
growth will produce the desired levels of revenue or profitability.
We may have future capital needs and may not be able to obtain additional financing on acceptable terms.
We are currently party to a credit agreement with respect to a $1.2 billion revolving credit facility maturing in
May 2022, or (as more fully discussed below) the “2015 Credit Facility”. This agreement includes restrictive
covenants that may impact the way we manage our business and may limit our ability to secure significant
additional financing in the future on favorable terms. Our ability to secure additional financing and satisfy our
financial obligations outstanding from time to time will depend upon our future operating performance, which is
subject to then prevailing general economic and credit market conditions, including interest rate levels and the
availability of credit generally, and financial, business and other factors, many of which are beyond our control.
There can be 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
counterparties in any such financings would honor their contractual commitments.
We have indebtedness which could adversely affect our business and financial condition.
At December 31, 2017, we have outstanding $230 million in long-term debt. Although we subsequently repaid
this indebtedness, we continue to have existing credit facilities from which we can borrow significant amounts; as
such, we are still subject to risks relating to our indebtedness that include:
(cid:129)
(cid:129)
Increasing our vulnerability to general adverse economic and industry conditions;
Requiring us to dedicate a portion of our cash flow from operations to principal and interest 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;
(cid:129) Making it more difficult for us to optimally capitalize and manage the cash flow for our businesses;
(cid:129)
Limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in
which we operate;
(cid:129)
(cid:129)
(cid:129)
Possibly placing us at a competitive disadvantage compared to our competitors that have less debt;
Limiting our ability to borrow additional funds or to borrow funds at rates or on other terms that we find
acceptable; and
Exposing us to the risk of increased interest rates because our outstanding debt is expected to be subject
to variable rates of interest.
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 2015 Credit Facility allow us to incur additional debt subject to certain limitations;
however, there is no assurance that additional financing will be available to us on terms favorable to us, if at all. In
addition, if new debt is added to current debt levels, the risks described above could intensify.
23
Our 2015 Credit Facility provides for various provisions that limit our discretion in the operation of our business
and require us to meet financial maintenance tests and other covenants and the failure to comply with their
covenants could have a material adverse effect on us.
We are party to a credit agreement providing for our 2015 Credit Facility. The agreements that govern the
2015 Credit Facility contain various covenants, including those that limit our ability to, among other things:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Incur indebtedness;
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.
These covenants may limit our ability to optimally operate our business. In addition, our 2015 Credit Facility
requires that we meet certain financial tests, including a leverage ratio test. Any failure to comply with the
restrictions of our credit facility may result in an event of default under the agreements governing such facilities.
Such default may allow the creditors to accelerate the debt incurred thereunder. 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).
Our effective tax rate is impacted by a number of factors that could have a material impact on our financial
results and could increase the volatility of those results.
Due to the global nature of our business, we are subject to income taxes in the United States and other foreign
jurisdictions. In the event we incur net income in certain jurisdictions but incur losses in other jurisdictions, we
generally cannot offset the income from one jurisdiction with the loss from another. This lack of flexibility increases
our effective tax rate. Furthermore, significant judgment is required to calculate our worldwide provision for income
taxes and depends on our ability to operate our business in a manner consistent with our corporate structure and
intercompany arrangements. In the ordinary course of our business there are many transactions and calculations
where the ultimate tax determination is uncertain.
We believe our tax estimates are reasonable. However, we are routinely under audit by federal, state and
foreign taxing authorities. The taxing authorities of jurisdictions in which we operate may challenge our
methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or
determine that the manner in which we operate our business does not achieve the intended tax consequences, which
would increase our effective tax rate and harm our financial position and results of operations. As we operate in
numerous taxing jurisdictions, the application of tax laws can also be subject to diverging and sometimes conflicting
interpretations by taxing authorities of these jurisdictions. It is not uncommon for taxing authorities of different
countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s
length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. The
final determination of audits could be materially different from our income tax provisions and accruals and could
have a material effect on our financial position, results of operations, or cash flows in the period or periods for
which that determination is made.
The income tax effects of the accounting for share-based compensation may significantly impact our effective
tax rate. In periods in which our stock price is higher than the grant price of the share-based compensation awards
vesting in that period, we will recognize excess tax benefits that will decrease our effective tax rate. In periods in
which our stock price is lower than the grant price of the share-based compensation awards vesting in that period,
our effective tax rate will increase.
24
Additionally, we continue to accumulate positive cash flows in foreign jurisdictions, which we consider
indefinitely reinvested, although we will continue to evaluate the impact of the 2017 Tax Act on our capital
deployment within and outside the U.S. Any repatriation of funds currently held in foreign jurisdictions may result
in higher effective tax rates and incremental cash tax payments.
Changes in tax laws or tax rulings, or the examination of our tax positions, could materially affect our financial
position and results of operations.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are
issued or applied. Our existing corporate structure and intercompany arrangements have been implemented in a
manner we believe is in compliance with current prevailing tax laws. However, the tax benefits that we intend to
eventually derive could be undermined due to changing tax laws. A number of countries are actively pursuing
changes to their tax laws applicable to corporate multinationals, such as the recently enacted 2017 Tax Act. Foreign
governments or U.S. states may enact tax laws in response to the 2017 Tax Act that could result in further changes
to global taxation and materially affect our financial position and results of operations.
The 2017 Tax Act has resulted in significant changes to the U.S. corporate income tax system. The 2017 Tax
Act requires complex computations to be performed that were not previously required in U.S. tax law, significant
judgments to be made in interpretation of the provisions of the 2017 Tax Act and significant estimates in
calculations, and the preparation of analysis of information not previously relevant or regularly produced. The U.S.
Treasury Department, the IRS and other standard-setting bodies could interpret or issue guidance on how provisions
of the 2017 Tax Act will be applied or otherwise administered that is different from our interpretation. As we
complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret additional guidance, we
may make adjustments to provisional amounts that we have recorded that may materially impact our provision for
income taxes in the period in which the adjustments are made.
In addition, the taxing authorities in the United States and other jurisdictions where we do business regularly
examine our income and other tax returns as well as the tax returns of Expedia, our former parent. The ultimate
outcome of these examinations (including the IRS audit described below) cannot be predicted with certainty. Should
the IRS or other taxing authorities assess additional taxes as a result of examinations, we may be required to record
charges to our operations, which could harm our business, operating results and financial condition.
In connection with the Spin-Off, we could be subject to significant tax liabilities.
Under the Tax Sharing Agreement between us and Expedia entered into in connection with the Spin-Off, we
are generally required to indemnify Expedia for any taxes resulting from the Spin-Off (and any related interest,
penalties, legal and professional fees, and all costs and damages associated with related stockholder litigation or
controversies) to the extent such amounts resulted from (i) any act or failure to act by us described in the covenants
in the tax sharing agreement, (ii) any acquisition of our equity securities or assets or those of a member of our group,
or (iii) any failure of the representations with respect to us or any member of our group to be true or any breach by
us or any member of our group of any covenant, in each case, which is contained in the separation documents or in
the documents relating to the IRS private letter ruling and/or the opinion of counsel.
We continue to be responsible for potential tax liabilities in connection with consolidated income tax returns
filed with Expedia prior to or in connection with the Spin-Off. By virtue of previously filed consolidated tax returns
with Expedia, we are currently under an IRS audit for the 2009, 2010, and short-period 2011 tax years. In
connection with that audit, we received, in January 2017, notices of proposed adjustment from the IRS for the 2009
and 2010 tax years, which would result in an increase in our worldwide income tax expense. The proposed
adjustments would result in an increase to our worldwide income tax expense in an estimated range totaling $10
million to $14 million for those specific years after consideration of competent authority relief, exclusive of interest
and penalties. We are also subject to various ongoing state income tax audits. The outcome of these matters or any
other audits could subject us to significant tax liabilities.
25
We are subject to fluctuation in foreign currency exchange risk.
We conduct a significant and growing portion of our business outside the United States but report our results
in U.S. dollars. As a result, we face exposure to movements in foreign currency exchange rates, particularly those
related to the Euro, British pound sterling, and Australian dollar. These exposures include, but are not limited to re-
measurement of gains and losses from changes in the value of foreign denominated assets and liabilities; translation
gains and losses on foreign subsidiary financial results that are translated into U.S. dollars upon consolidation; and
planning risk related to changes in exchange rates between the time we prepare our annual and quarterly forecasts
and when actual results occur.
Depending on the size of the exposures and the relative movements of exchange rates, if we were to choose
not to hedge or were to fail to hedge effectively our exposure, we could experience a material adverse effect on our
financial statements and financial condition. As seen in some recent periods, in the event of severe volatility in
exchange rates the impact of these exposures can increase, and the impact on 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 both more complex. We hedge certain short-term foreign currency exposures with the
purchase of forward exchange contracts. These forward exchange contracts only help mitigate the impact of changes
in foreign currency rates that occur during the term of the related contract period and carry risks of counter-party
failure. There can be no assurance that our forward exchange contracts will have their intended effects.
Significant fluctuations in foreign currency exchange rates can affect consumer travel behavior. Volatility in
foreign currency exchange rates and its impact on consumer behavior, which may differ across regions, makes it
more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and
business, which in turn could adversely affect our ability to effectively manage our business and adversely affect our
results of operations.
Liberty TripAdvisor Holdings, Inc. currently is a controlling stockholder.
Liberty TripAdvisor Holdings, Inc., or LTRIP, effectively controls the outcome of all matters submitted to a
vote or for the consent of our stockholders (other than with respect to the election by the holders of our common
stock of 25% of the members of our Board of Directors and matters as to which Delaware law requires separate
class votes), including but not limited to, corporate transactions such as mergers, business combinations or
dispositions of assets, the authorization or issuance of new equity or debt securities and determinations with respect
to our business direction and policies. Our Chairman Greg Maffei, and one of our Directors Albert Rosenthaler also
serve as officers and directors of LTRIP. LTRIP may have interests that differ from those of our other stockholders
and they may vote in a way with which our other stockholders may not agree or that may be adverse to other
stockholders’ interests. LTRIP is not restricted from investing in other businesses involving or related to our
business. LTRIP’s control of us, as well as the existing provisions of our organizational documents and Delaware
law, may discourage or prevent a change of control that might otherwise be beneficial, which may reduce the market
price of our common stock.
We are currently relying on the “controlled company” exemption under NASDAQ Stock Market Listing Rules,
pursuant to which “controlled companies” are exempt from certain corporate governance requirements
otherwise applicable under NASDAQ listing rules.
The NASDAQ Stock Market Listing Rules exempt “controlled companies,” or companies of which more than
50% of the voting power is held by an individual, a group or another company, from certain corporate governance
requirements, including those requirements that:
(cid:129) A majority of the Board of Directors consist of independent directors;
(cid:129)
Compensation of officers be determined or recommended to the Board of Directors by a majority of its
independent directors or by a compensation committee comprised solely of independent directors; and
(cid:129) Director nominees be selected or recommended to the Board of Directors by a majority of its
independent directors or by a nominating committee that is composed entirely of independent directors.
26
We currently rely on the controlled company exemption for certain of the above requirements. Accordingly,
our stockholders will not be afforded the same protections generally as stockholders of other NASDAQ-listed
companies with respect to corporate governance for so long as we rely on these exemptions from the corporate
governance requirements.
If we are unable to successfully maintain effective internal control over financial reporting, investors may lose
confidence in our reported financial information and our stock price and business may be adversely impacted.
As a public company, we are required to maintain internal control over financial reporting and our
management is required to evaluate the effectiveness of our internal control over financial reporting as of the end of
each fiscal year. Additionally, we are required to disclose in our Annual Reports on Form 10-K our management’s
assessment of the effectiveness of our internal control over financial reporting and a registered public accounting
firm’s attestation report on this assessment. If we are not successful in maintaining effective internal control over
financial reporting, there could be inaccuracies or omissions in the consolidated financial information we are
required to file with the SEC. Additionally, even if there are no inaccuracies or omissions, we could be required to
publicly disclose the conclusion of our management that our internal control over financial reporting or disclosure
controls and procedures are not effective. These events could cause investors to lose confidence in our reported
financial information, adversely impact our stock price, result in increased costs to remediate any deficiencies,
attract regulatory scrutiny or lawsuits that could be costly to resolve and distract management’s attention, limit our
ability to access the capital markets or cause our stock to be delisted from NASDAQ or any other securities
exchange on which we are then listed.
The market price and trading volume of our common stock may be volatile and may face negative pressure.
Our stock price has experienced, and could continue to experience in the future, substantial volatility. The
market price of our common stock is affected by a number of factors, including the risk factors described in this
section and other factors beyond our control. Factors affecting the trading price of our common stock could include:
(cid:129) Quarterly variations in our or our competitors’ results of operations;
(cid:129)
Changes in earnings estimates or recommendations by securities analysts;
(cid:129)
(cid:129)
(cid:129)
Failure to meet market expectations;
The announcement of new products or product enhancements by us or our competitors;
Repurchases of our common stock pursuant to our share repurchase program which could also cause our
stock price to be higher than it would be in the absence of such a program and could potentially reduce
the market liquidity for our stock;
(cid:129) Developments in our industry, including changes in governmental regulations; and
(cid:129) General market conditions and other factors, including factors related to our operating performance or
the operating performance of our competitors.
Furthermore, the stock markets have experienced price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many companies. These fluctuations often have been
unrelated or disproportionate to the operating performance of those companies. These broad market and industry
fluctuations and general economic, political and market conditions, such as recessions, interest rate changes or
foreign currency exchange fluctuations, may negatively impact the market price of our common stock regardless of
our actual operating performance.
27
Future sales of shares of our common stock in the public market, or the perception that such sales may occur,
may depress our stock price.
For the year ended December 31, 2017, the average daily trading volume of our common stock on NASDAQ
was approximately 3.1 million shares. If our existing stockholders or their distributees sell substantial amounts of
our common stock in the public market, the market price of the common stock could decrease significantly. The
perception in the public market that our existing stockholders might sell shares of common stock could also depress
the trading price of our common stock. In addition, certain stockholders have rights, subject to some conditions, to
require us to file registration statements covering their shares or to include their shares in registration statements that
we may file for ourselves or other stockholders. If LTRIP or some other stockholder sells substantial amounts of our
common stock in the public market, or if there is a perception in the public market that LTRIP might sell shares of
our common stock, the market price of our common stock could decrease significantly. A decline in the price of
shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our
common stock or other equity securities.
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change
of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price
adversely and prevent attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control
of our company or changes in our Board of Directors that our stockholders might consider favorable. These
provisions include:
(cid:129) Authorization and issuance of Class B common stock that entitles holders to ten votes per share;
(cid:129) Authorization of the issuance of preferred stock which can be created and issued by the Board of
Directors without prior stockholder approval, with rights senior to those of our common stock;
(cid:129)
(cid:129)
Prohibiting our stockholders from filling board vacancies or calling special stockholder meetings; and
Limiting who may call special meetings of stockholders.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may
prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock.
These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult
for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed
by our then-current Board of Directors, including a merger, tender offer or proxy contest involving our company.
Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the
market price of our common stock to decline.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
We currently lease approximately 280,000 square feet for our corporate headquarters in Needham,
Massachusetts, pursuant to a lease with an expiration date of December 2030, with an option to extend the lease
term for two consecutive terms of five years each. Refer to “Note 13— Commitments and Contingencies” in the
notes to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information
on our corporate headquarters.
28
We also lease an aggregate of approximately 450,000 square feet of office space at approximately 40 other
locations across North America, Europe and Asia Pacific, including New York, Boston, London, Sydney, Barcelona,
Paris, and Beijing, primarily for our sales offices, subsidiary headquarters, and international management teams,
pursuant to leases with various expiration dates, with the latest expiring in June 2027. We believe that our current
facilities are adequate for our current operations and that additional leased space can be obtained on reasonable
terms if needed. We do not legally own any real estate as of December 31, 2017.
Item 3.
Legal Proceedings
In the ordinary course of business, we are parties to legal proceedings and claims involving alleged
infringement of third-party intellectual property rights, defamation, taxes, regulatory compliance and other claims.
Rules and regulations promulgated by 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 we are defending involves or is likely to involve amounts of
that magnitude. There may be claims or actions pending or threatened against us of which we are currently not
aware and the ultimate disposition of which could have a material adverse effect on us.
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 NASDAQ under the ticker symbol “TRIP.” On February 9, 2018, the closing
price of our common stock reported on NASDAQ was $38.31 per share. The following table sets forth, for the
periods indicated, the high and low sale prices per share of our common stock as reported on NASDAQ during the
period 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
$
$
$
$
$
$
$
$
44.01 $
45.97 $
50.95 $
53.58 $
66.13 $
71.69 $
71.61 $
83.97 $
29.50
35.55
35.34
40.45
45.63
59.72
58.96
53.48
Our Class B common stock is not listed and there is no established public trading market for that security. As
of February 9, 2018, all of our Class B common stock was held by LTRIP.
Performance Comparison Graph
The following graph provides a comparison of the total stockholder return from December 31, 2012 to
December 31, 2017 of an investment of $100 in cash on December 31, 2012 for TripAdvisor, Inc. common stock
and an investment of $100 in cash on December 31, 2012 for (i) the Standard and Poor’s 500 Index (the “S&P 500
29
Index”), (ii) the NASDAQ Composite Index, and (iii) the Research Data Group (“RDG”) Internet Composite Index.
The RDG Internet Composite Index is an index of stocks representing the internet industry, including internet
software and service companies and e-commerce companies. The stock price performance shown on the graph
below is not necessarily indicative of future price performance. Data for the S&P 500 Index, the NASDAQ
Composite Index, and the RDG Internet Composite Index assume reinvestment of dividends. We have never paid
dividends on our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among TripAdvisor, Inc., the S&P 500 Index,
the NASDAQ Composite Index and the RDG Internet Composite Index
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/12
12/13
12/14
12/15
12/16
12/17
TripAdvisor, Inc.
S&P 500
NASDAQ Composite
RDG Internet Composite
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
This performance comparison graph is not “soliciting material,” is not deemed filed with the SEC and is not
deemed to be incorporated by reference by any general statement incorporating by reference this Annual Report on
Form 10-K into any filing of TripAdvisor, Inc. under the Securities Act of 1933, as amended (the “Securities Act”),
or any filing under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that
we specifically request that the information be treated as soliciting material or specifically incorporate this
information by reference into any such filing, and will not otherwise be deemed incorporated by reference into any
other filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by
reference.
Holders of Record
As of February 9, 2018, there were 126,183,939 outstanding shares of our common stock held by 2,358
stockholders of record, and 12,799,999 outstanding shares of our Class B common stock held by one stockholder of
record: LTRIP.
30
Dividends
We have never declared or paid dividends and do not expect to pay any dividends for the foreseeable future.
Our ability to pay dividends is limited by the terms of our 2015 Credit Facility. Refer to “Note 9— Debt” in the
notes to the consolidated financial statements in Item 8 for additional information regarding this revolving credit
facility. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of
our Board of Directors and will depend on then-existing conditions, including our financial condition, operating
results, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors
may deem relevant.
Unregistered Sales of Equity Securities
During the year ended December 31, 2017, we did not issue or sell any shares of our common stock, Class B
common stock or other equity securities pursuant to unregistered transactions in reliance upon an exemption from
the registration requirements of the Securities Act.
Issuer Purchases of Equity Securities
On February 15, 2013, our Board of Directors authorized the repurchase of $250 million of our shares of
common stock under a share repurchase program. During the year ended December 31, 2015, we did not repurchase
any shares of outstanding common stock under the share repurchase program. During the year ended December 31,
2016, we repurchased 2,002,356 shares of outstanding common stock under the share repurchase program at an
average cost of $52.35 per share. As of December 31, 2016, we had repurchased a total of 4,123,065 shares of
outstanding common stock under the share repurchase program at an average cost of $60.63 per share and
completed our share repurchase program authorized by our Board of Directors.
On January 25, 2017, our Board of Directors authorized an additional repurchase of $250 million of our shares
of common stock under a new share repurchase program. Our Board of Directors authorized and directed
management, working with the Executive Committee of our Board of Directors to affect the share repurchase
program in compliance with applicable legal requirements. During the year ended December 31, 2017, we
repurchased a total of 6,079,003 shares of the Company’s outstanding common stock at an average share price of
$41.13, or $250 million in the aggregate, and completed this share repurchase program. As of December 31, 2017,
there were 9,474,490 shares of the Company’s common stock held in treasury with an aggregate cost of $447
million.
On January 31, 2018, TripAdvisor’s Board of Directors authorized up to $250 million of share repurchases.
Our Board of Directors authorized and directed management, working with the Executive Committee of our Board
of Directors, to affect the share repurchase program in compliance with applicable legal requirements. This new
repurchase program has no expiration but may be suspended or terminated by the Board of Directors at any time.
Refer to “Note 15 —Stockholders’ Equity” in the notes to the consolidated financial statements in Item 8 for
additional information regarding our treasury shares.
Equity Compensation Plan Information
Our equity plan information required by this item is incorporated by reference to the information in Part III,
Item 12, of this Annual Report on Form 10-K.
31
Item 6.
Selected Financial Data
We have derived the following selected financial data presented below from our 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 appearing in Item 8
“Financial Statements and Supplementary Data,” and Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Annual Report on Form 10-K. Historical results are not necessarily
indicative of the results to be expected in any future period.
Consolidated Statements of Operations Data:
Revenue
Total costs and expenses
Operating income (1)
Income before income taxes
Net income (loss) (2)
Earnings (loss) per share attributable to common
stockholders:
Basic (3)
Diluted (3)
Shares used in computing net income per share:
Basic (3)
Diluted (3)
Consolidated Balance Sheet Data:
Cash and cash equivalents, short and long-term
marketable securities
Working capital (4)
Total assets
Long-term debt (5)
Other long-term obligations under financing obligation
Total liabilities (2)
Total stockholders’ equity (6)
2017
Year Ended December 31,
2016
2014
2015
(in millions, except per share data)
2013
$ 1,556
1,432
124
110
(19)
$ 1,480
1,314
166
151
120
$ 1,492
1,260
232
239
198
$ 1,246
906
340
322
226
$
945
651
294
284
205
$
(0.14) $
(0.14)
$
0.83
0.82
$
1.38
1.36
$
1.58
1.55
1.44
1.41
140
140
145
147
144
146
143
146
143
145
2017
2016
December 31,
2015
(in millions)
2014
2013
$
$
$
$
735
621
2,272
230
84
909
1,363
746
527
2,238
91
84
736
1,502
698
553
2,128
200
84
716
1,412
$
594
356
1,948
259
67
823
1,125
670
387
1,473
300
8
608
865
(1)
(2)
Includes a non-cash charitable contribution to The TripAdvisor Charitable Foundation (the “Foundation”) of
$67 million for the year ended December 31, 2015. In comparison, charitable contributions to the Foundation,
which were paid in cash, were $8 million and $7 million for the years ended December 31, 2014 and 2013,
respectively. There were no charitable contributions made to the Foundation for the year ended December 31,
2017 and 2016, and the Company does not expect to make any future contributions to the Foundation. Refer to
“Note 17 —Segment and Geographic Information” in the notes to the consolidated financial statements in
Item 8 for further information regarding this charitable contribution.
The year ended December 31, 2017 reflects $67 million of tax expense recorded for the mandatory deemed
repatriation of accumulative foreign earnings which was included in the short and long-term income tax
liabilities on our consolidated balance sheet, and $6 million of tax expense recorded for the remeasurement of
deferred taxes related to the 2017 Tax Act enacted on December 22, 2017. Refer to “Note 10 - Income Taxes”
in the notes to the consolidated financial statements in Item 8 for further information on the financial
statement impact of the 2017 Tax Act.
(3) Refer to “Note 5 —Earnings per Share” in the notes to the consolidated financial statements in Item 8 for
further information regarding our calculation of earnings per share numbers.
32
(4) Amount does not include available for sale long-term marketable securities of $27 million, $16 million, $37
million, $31 million, and $188 million, as of December 31, 2017, 2016, 2015, 2014, and 2013, respectively.
(5) Refer to “Note 9— Debt” in the notes to the consolidated financial statements in Item 8 for information
regarding our long-term debt.
(6) Refer to our consolidated statements of changes in stockholders’ equity and “Note 15— Stockholders’ Equity”
in the notes to the consolidated financial statements in Item 8 for additional information on changes to our
stockholders’ equity.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
TripAdvisor, Inc., by and through its subsidiaries, owns and operates a portfolio of leading online travel
brands. TripAdvisor, our flagship brand, is the world’s largest travel site based on monthly unique visitors, and its
mission is to help people around the world plan, book and experience the perfect trip. We accomplish this by, among
other things, aggregating millions of members’ reviews and opinions about destinations, accommodations, activities
and attractions, and restaurants worldwide, thereby creating the foundation for a unique platform that enables users
to research and plan their travel experiences. Our platform also enables users to compare real-time pricing and
availability for these experiences as well as to book hotels, flights, cruises, vacation rentals, tours, activities and
attractions, and restaurants, either on a TripAdvisor site or mobile app, or on the site or app of one of our travel
partner sites.
Our TripAdvisor-branded websites include tripadvisor.com in the United States and localized versions of the
TripAdvisor website in 48 markets and 28 languages worldwide. Our TripAdvisor-branded websites reached 455
million average monthly unique visitors in our seasonal peak during the year ended December 31, 2017, according
to our internal log files. We currently feature approximately 600 million reviews and opinions on approximately 7.5
million places to stay, places to eat and things to do – including approximately 1.2 million hotels, inns, B&Bs and
specialty lodging, 750,000 vacation rentals, 4.6 million restaurants and 915,000 activities and attractions worldwide.
In addition to the flagship TripAdvisor brand, we manage and operate 20 other travel media brands, connected
by the common goal of providing users the most comprehensive travel-planning and trip-taking resources in the
travel industry. For additional information about our portfolio of brands and our business model, see the disclosure
set forth in Part I, Item 1. “Business”, under the caption “Overview.”
Our reporting structure includes two reportable segments: Hotel and Non-Hotel. Our Non-Hotel segment
consists of our Attractions, Restaurants and Vacation Rentals businesses. Financial information and additional
descriptive information related to our segments and geographic information is contained in “Note 17 — Segment
and Geographic Information,” in the notes to our consolidated financial statements in Item 8 and below.
Executive Financial Summary and Trends
As the largest online travel platform, we believe we are an attractive marketing channel for travel partners—
including hotel chains, independent hoteliers, online travel agencies, or OTAs, destination marketing organizations,
and other travel-related and non-travel related product and service providers— who seek to sell their products and
services to our large user base. We offer users the ability to do real-time price comparison through our metasearch
feature, as well as the ability to book hotels, flights, cruises, vacation rentals, tours, activities and attractions, and
restaurants either directly on our website or mobile app through our instant booking feature or on one of our travel
partner sites.
33
Tax Reform
The 2017 Tax Act was signed into law on December 22, 2017, and has resulted in significant changes to the
U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the
elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest
expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide
system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which
has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-
taxed income (GILTI). These changes are effective beginning January 1, 2018.
The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign
subsidiaries' previously untaxed foreign earnings (the “Transition Tax”).
Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year
ended December 31, 2017, we recorded a charge totaling $73 million related to our current estimate of the
provisions of the 2017 Tax Act, principally due to the Transition Tax. The Transition Tax, recorded of $67 million,
will be paid over an eight-year period, starting in 2018, and will not accrue interest. We also recorded a charge of $6
million for the remeasurement of our net deferred tax assets. These estimates are reflected in our financial results in
accordance with Staff Accounting Bulletin No. 118 (“SAB 118"), which provides for a measurement period to
complete the accounting for certain elements of the tax reform. Refer to “Note 10 - Income Taxes” in the notes to
the consolidated financial statements in Item 8 for further information on the financial statement impact of the 2017
Tax Act. As we complete our analysis of the 2017 Tax Act and interpret additional guidance issued with respect to
the 2017 Tax Act, we may make adjustments to provisional amounts.
Current Trends in Our Business
The online travel industry is large and growing and remains highly dynamic and competitive.
Hotel Segment
During 2017, we continued to improve the hotel shopping experience on TripAdvisor by, among other things,
launching a redesigned TripAdvisor website and mobile application and making it easier for our users to find the
lowest hotel prices. We have and will continue to seek new ways to provide a more comprehensive hotel shopping
experience, by improving content on destinations, properties and rooms, optimizing the room selection process and
helping users find the best prices with our hotelier and OTA partners. On the supply side, we continue to on-board
more partners that have unique brand, supply or room pricing to provide consumers a more comprehensive selection
of accommodations in order to drive higher repeat usage and conversion of hotel shoppers to bookings and higher
cost-per-click rates on our platform.
We compete with other travel companies and search engines for hotel shoppers, which we define as the users
who view TripAdvisor hotel pages. Hotel shoppers from unpaid online marketing channels, such as users that
navigate directly to our homepage or applications through branded search queries on search engines, are of the
highest value to our business. Over time, increased competition has resulted in hotel shoppers visiting our websites
and applications from paid online marketing channels, such as SEM, to grow faster than traffic from unpaid online
marketing channels, such as SEO, thereby increasing our aggregate cost of hotel shopper acquisition. Following the
launch of our redesigned website, our new hotel shopping experience, we launched a brand advertising campaign, or
television campaign, in June 2017 aimed at increasing usage of TripAdvisor as a place to find and book the best
hotels at the lowest prices. We also continue to leverage a number of other marketing channels, both paid and unpaid,
to achieve this objective, including online efforts such as social media and cost relationship management or CRM, as
well as offline efforts such as TripAdvisor-branded advertising campaigns. Our television campaign has been funded,
in part, through optimization of our online marketing spend. We expect to continue to optimize our marketing
investment mix, between online and offline channels based on the relative growth opportunity, the expected returns
and the competitive environment in which we operate. We believe optimizing our marketing mix to include brand
advertising will help TripAdvisor establish a more durable, long-lasting direct relationship with users shopping for
hotels, with a greater long-term financial return than we would be able to achieve solely from online paid marketing.
Our marketing strategy comes with a near-term trade-off, as online paid marketing may better enable us to generate
a short-term hotel shopper and click-based and transaction revenue, whereas we expect our television advertising
campaign to generate such returns over a longer timeframe, improving marketing efficiency and profit growth.
34
A key objective is to grow the number of hotel shoppers on our platform at or above our desired return on
investment targets. In the year ended December 31, 2017, our average monthly unique hotel shoppers increased 7%,
when compared to the same period in 2016, according to our internal log files. The increase is primarily due to the
general trend of an increasing number of hotel shoppers visiting our websites and apps on mobile phones, as well as
the success of our paid online marketing strategy, partially offset by marketing spend tradeoffs resulting from
increased brand advertising investment in our television campaign, as discussed above.
Another key objective is to increase our revenue per hotel shopper. In the year ended December 31, 2017, our
revenue per hotel shopper decreased 7%, when compared to the same period in 2016, primarily driven by partners
bidding to lower CPCs in our click-based metasearch auction during the second half of the year, and the general
trend of a greater percentage of hotel shoppers visiting TripAdvisor-branded websites and apps on mobile phones.
During the year ended December 31, 2017, the growth rate of hotel shoppers that visited our websites and apps on
mobile phones continued to grow significantly faster than that of hotel shoppers using desktop and tablet devices.
Mobile phones currently generate significantly lower revenue per hotel shopper compared to desktop and tablet
devices. We believe that this monetization difference is due to a number of factors, including the reduced ability to
achieve marketing attribution on the mobile phone for facilitating traffic to partner websites and applications; more
limited advertising opportunities on smaller screen devices; our historic positioning as a place to read reviews; and
general consumer purchasing patterns on mobile phones resulting in lower booking intent, lower conversion rates,
lower cost-per-click bids from our travel partners, and lower average gross booking value. As a result, our growth in
hotel shoppers on mobile phones has remained a headwind against our overall revenue per hotel shopper and our
TripAdvisor-branded click-based and transaction revenue.
The general trend of increasing traffic to our websites and apps on mobile phones reduces our ability to grow
TripAdvisor-branded display-based advertising revenue, as we believe prioritizing and preserving a cleaner user
experience over increasing advertising units on smaller screen devices is the most appropriate way to engage more
users on our mobile phone app. We continue to prioritize investment in product development in order to improve the
mobile user experience, and to improve mobile phone traffic acquisition to increase our user base. We believe that,
over the long-term, these efforts will result in increased usage and engagement, conversion of hotel shoppers to
bookings for our hotel advertising partners and higher monetization rates for us.
Non-Hotel Segment
Our ongoing product efforts to deliver an end-to-end user experience extend to our Non-Hotel segment, which
includes our Attractions, Restaurants, and Vacation Rentals businesses. Our key growth strategies have been to grow
users, improve our products and grow bookable supply. We continued to deliver on those objectives during the year
ended December 31, 2017, as monthly unique users to these pages on our websites and applications continued to
grow, we enhanced our product experience on all devices, and we grew bookable supply on our platform in our
Attractions and Restaurants businesses. Notably, we have been able to increasingly leverage strong user growth on
the TripAdvisor-branded platform to drive increased bookings in our Attractions business. Additionally, our
Attractions and Restaurants businesses have both experienced increased engagement and growth on mobile phones.
In Vacation Rentals, as the business continues to shift from our subscription model to our free-to-list model, we
have focused on delivering high-quality supply for users in order to drive conversion for partners on our platform.
We continued to work to improve content and overall user experience across each business.
Continued successful execution of our key growth strategies and increased marketing and operating
efficiencies primarily contributed to this segment’s revenue and profit growth during the year ended December 31,
2017, as compared to the same period in 2016. Our ongoing strategic objectives are to continue to enhance the user
experience, to grow traffic and drive increased user engagement, to grow bookable supply, and to grow bookings in
this segment.
35
Results of Operations
Selected Financial Data
(in millions, except per share amounts and percentages)
Year ended December 31,
2016
2015
2017
% Change
2017 vs. 2016
2016 vs. 2015
Revenue
$
1,556 $
1,480 $
1,492
5%
(1)%
Costs and expenses:
Cost of revenue
Selling and marketing
Technology and content
General and administrative
Depreciation
Amortization of intangible assets
Total costs and expenses
Operating income
Other income (expense):
Interest expense
Interest income and other, net
Total other income (expense), net
Income before income taxes
Provision for income taxes
Net income (loss)
Earnings (loss) per share attributable to common
stockholders:
Basic
Diluted
Other financial data:
Adjusted EBITDA (1)
$
$
$
$
72
849
243
157
79
32
1,432
124
(15)
1
(14)
110
(129)
(19) $
71
756
243
143
69
32
1,314
166
(12)
(3)
(15)
151
(31)
120 $
58
692
207
210
57
36
1,260
232
(10)
17
7
239
(41)
198
1%
12%
0%
10%
14%
0%
9%
(25)%
25%
133%
(7)%
(27)%
316%
(116)%
22%
9%
17%
(32)%
21%
(11)%
4%
(28)%
20%
(118)%
(314)%
(37)%
(24)%
(39)%
(0.14) $
(0.14) $
0.83 $
0.82 $
1.38
1.36
(117)%
(117)%
(40)%
(40)%
331 $
352 $
466
(6)%
(24)%
(1) See “Adjusted EBITDA” discussion below for more information.
Revenue and Segment Information
Year ended December 31,
2017
2016
2015
% Change
2017 vs. 2016
2016 vs. 2015
Revenue by Segment:
Hotel
Non-Hotel
Total revenue
Adjusted EBITDA by Segment (1):
Hotel
Non-Hotel
Adjusted EBITDA Margin by Segment (2):
Hotel
Non-Hotel
$1,196
360
$1,556
(in millions)
$1,190
290
$1,480
$1,263
229
$1,492
1%
24%
5%
(6)%
27%
(1)%
$ 286
45
$ 380
(28)
$ 472
(6)
(25)%
261%
(19)%
(367)%
24%
13%
32%
(10)%
37%
(3)%
(1)
Included in Adjusted EBITDA is a general and administrative expense allocation for each segment, which is based on the segment’s
percentage of our total personnel costs, excluding stock-based compensation. Refer to “Note 17 — Segment and Geographic
Information,” in the notes to our consolidated financial statements in Item 8 for more information.
(2) We define “Adjusted EBITDA Margin by Segment”, as Adjusted EBITDA by segment divided by revenue by segment.
36
Hotel Segment
Our Hotel segment revenue increased $6 million during the year ended December 31, 2017 when compared to
the same period in 2016, primarily due to a $6 million increase in TripAdvisor-branded click-based and transaction
revenue and a $10 million increase in TripAdvisor-branded display-based advertising and subscription revenue,
partially offset by a decrease of $10 million in other hotel revenue, all of which are discussed below. Our Hotel
segment revenue decreased $73 million during the year ended December 31, 2016 when compared to the same
period in 2015, primarily due to a $87 million decrease in TripAdvisor-branded click-based and transaction revenue,
partially offset by growth of $10 million in TripAdvisor-branded display-based advertising and subscription
revenue, and $4 million in other hotel revenue, all of which are discussed below.
Adjusted EBITDA and Adjusted EBITDA margin in our Hotel segment decreased $94 million and to 24%,
respectively, during the year ended December 31, 2017, when compared to the same period in 2016, primarily due
to costs related to our television campaign, which launched in June 2017, and also due to increased SEM and other
online traffic acquisition costs during the first half of 2017, partially offset by cost efficiencies created through
optimization of our online marketing spend during the second half of 2017. Adjusted EBITDA and Adjusted
EBITDA margin in our Hotel segment decreased $92 million and decreased to 32%, during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to a decrease in Hotel segment
revenue, which is discussed below, and increased operating costs, primarily driven by an increase in online traffic
acquisition costs, partially offset by lower television advertising costs due to the cessation of our 2015 television
advertising campaign in 2016.
The following is a detailed discussion of the revenue sources within our Hotel segment:
Hotel:
TripAdvisor-branded click-based and transaction
TripAdvisor-branded display-based advertising and
subscription
Other hotel revenue
Total Hotel revenue
Year ended December 31,
% Change
2017
2016
2015
(in millions)
2017 vs
2016
2016 vs
2015
$
756 $
750 $
837
1%
(10%)
292
148
1,196 $
282
158
1,190 $
272
154
1,263
$
4%
(6%)
1%
4%
3%
(6%)
TripAdvisor-branded Click-based and Transaction Revenue
TripAdvisor-branded click-based and transaction revenue includes cost-per-click-based advertising revenue
from our TripAdvisor-branded websites as well as transaction-based revenue from our hotel instant booking feature.
For the years ended December 31, 2017, 2016 and 2015, approximately 63%, 63% and 66%, respectively, of our
total Hotel segment revenue was derived from our TripAdvisor-branded click-based and transaction revenue.
TripAdvisor-branded click-based and transaction revenue increased $6 million during the year ended December 31,
2017, when compared to the same period in 2016, primarily due to an increase in average monthly unique hotel
shoppers of 7%, which was largely offset by a decrease of 7% in revenue per hotel shopper during the year ended
December 31, 2017, which is explained below. TripAdvisor-branded click-based and transaction revenue decreased
$87 million during the year ended December 31, 2016, when compared to the same period in 2015, primarily due to
a decline of 15% in revenue per hotel shopper, partially offset by an increase in average monthly unique hotel
shoppers of 6% during the year ended December 31, 2016, which is explained below.
Our largest source of Hotel segment revenue is click-based advertising revenue from our TripAdvisor-branded
websites, which include links to our travel partners’ sites and contextually-relevant branded and related text links.
Click-based advertising is generated primarily through our metasearch auction, a description of which follows. Our
click-based travel partners are predominantly OTAs and hoteliers. Click-based advertising is generally priced on a
cost-per-click, or CPC, basis, with payments to us from advertisers based on the number of users who click on each
type of link or, in other words, the conversion of a hotel shopper to a paid click. CPC is the price that a partner is
willing to pay us for a hotel shopper lead and is determined in a competitive process that enables our partners to
submit CPC bids to have their rates and availability listed on our site. When a partner submits a CPC bid, they agree
37
to pay us the bid amount each time a user subsequently clicks on the link to that partner’s website. Bids can be
submitted periodically – as often as daily– on a property-by-property basis. Primary factors used to determine the
placement of partner links on our site include, but are not limited to, room night price, the size of the bid relative to
other bids, and other variables. CPCs are generally lower in markets outside the U.S. market, and hotel shoppers
visiting via mobile phones currently monetize at a significantly lower rate than hotel shoppers visiting via desktop or
tablet.
Our Hotel segment transaction-based revenue is comprised of revenue from our hotel instant booking feature,
which enables the merchant of record, generally an OTA or hotel partner, to pay a commission to TripAdvisor for a
user that completes a hotel reservation via our website. This feature was rolled out in our two largest markets – the
United States and the United Kingdom – in the third quarter of 2015, and we completed an accelerated and staged
global rollout of this feature to all of our markets during the first half of 2016. Instant booking revenue is currently
recognized under two different models: the consumption model and the transaction model. Under the consumption
model, which currently represents the majority of our instant booking revenue, commission revenue is not recorded
until such time as the traveler completes their stay, at which time our consumption partner is liable to us for
commission payment. Under the transaction model commission revenue is recorded at the time a traveler books a
hotel reservation on our site, as our transaction partner is liable for commission payments to us upon booking and
the partner assumes the cancellation risk. OTA and hotel partner placement, as well as comparative hotel prices
available to the traveler in the booking process under both models, is determined by a bidding process within our
proprietary automated bidding system, that takes into account a number of variables, primarily hotel room prices,
but also including other factors, such as conversion rates and commission rates, depending on the specific hotel
selected. Instant booking commissions are primarily a function of average gross booking value generated from hotel
reservations, cancellation rates experienced, and commission rates negotiated with each of our partners.
The key drivers of TripAdvisor-branded click-based and transaction revenue include growth in average
monthly unique hotel shoppers and revenue per hotel shopper growth, the latter of which measures how effectively
we convert our hotel shoppers into revenue. We measure performance by calculating revenue per hotel shopper on
an aggregate basis by dividing total TripAdvisor-branded click-based and transaction revenue by total average
monthly unique hotel shoppers on TripAdvisor-branded websites for the periods presented.
While we believe that total traffic growth, or growth in monthly visits from unique visitors, is reflective of our
overall brand growth, we also track and analyze sub-segments of our traffic and their correlation to revenue
generation and utilize data regarding hotel shoppers as one of the key indicators of revenue growth. Hotel shoppers
are visitors who view either a listing of hotels in a city or on a specific hotel page. The number of hotel shoppers
tends to vary based on seasonality of the travel industry and general economic conditions, as well as other factors
outside of our control. Given these factors, as well as the trend towards increased usage on mobile phones and
international expansion, quarterly and annual hotel shopper growth is a difficult metric to forecast.
The below table summarizes our revenue per hotel shopper calculation and growth rate, in aggregate, for the
periods presented (in millions, except calculated revenue per hotel shopper and percentages):
Revenue per hotel shopper:
TripAdvisor-branded click-based and
transaction revenue
Divided by: Total average monthly unique hotel
shoppers for the year
Year ended December 31,
% Change
2017
2016
2015
(in millions)
2017 vs
2016
2016 vs
2015
$
756 $
750 $
837
1%
(10%)
1,768
0.43 $
1,645
0.46 $
1,555
0.54
$
7%
(7%)
6%
(15%)
38
2017 vs. 2016
Revenue per hotel shopper decreased 7% during the year ended December 31, 2017, when compared to the
same period in 2016, according to our internal log files. The decrease was primarily driven by partners bidding to
lower CPCs in our click-based metasearch auction during the second half of the year, and the general trend of a
greater percentage of hotel shoppers visiting TripAdvisor-branded websites and apps on mobile phones, which
monetize at a lower rate than desktop hotel shoppers, which grew significantly faster than traffic from desktop and
tablet devices, as well as dilution from product testing related to the second-quarter 2017 launch of our redesigned
website and applications, and the timing of our instant booking feature rollout in certain non-U.S. markets during the
first half of 2016.
Our aggregate average monthly unique hotel shoppers on TripAdvisor-branded websites increased by 7%
during the year ended December 31, 2017, when compared to the same period in 2016, according to our internal log
files. The increase in hotel shoppers is primarily due to the general trend of an increasing number of hotel shoppers
visiting our websites and apps on mobile phones, as well as growth in our paid online marketing channels, partially
offset by marketing spend tradeoffs resulting from increased brand advertising investment in our television
campaign, as discussed above.
2016 vs. 2015
Revenue per hotel shopper decreased 15% during the year ended December 31, 2016, when compared to the
same period in 2015, according to our internal log files. We believe the primary drivers of this decrease included the
dilutive effects from our global launch of our instant booking feature, which impacted 2016 to a greater extent than
2015 due to the timing of the staged rollout; a greater percentage of hotel shoppers visiting TripAdvisor websites
and apps via mobile phones; challenging metasearch comparatives in early 2016 relative to the same periods in 2015;
increased competition; macroeconomic and geopolitical factors, including foreign currency and a number of
terrorism events.
Our aggregate average monthly unique hotel shoppers on TripAdvisor-branded websites increased by 6%
during the year ended December 31, 2016, when compared to the same period in 2015, according to our internal log
files. The increase in hotel shoppers was primarily due to growth in our paid online marketing channels as well as
the general trend of an increasing number of hotel shoppers visiting our websites and apps on mobile phones during
2016, which has grown significantly faster than traffic from desktop and tablet devices.
TripAdvisor-branded Display-based Advertising and Subscription Revenue
For the years ended December 31, 2017, 2016 and 2015, 24%, 24% and 22%, respectively, of our Hotel
segment revenue was derived from our TripAdvisor-branded display-based advertising and subscription revenue,
which primarily consists of revenue from display-based advertising and subscription-based hotel advertising revenue.
Our TripAdvisor-branded display-based advertising and subscription revenue increased by $10 million or 4%,
during each of the years ended December 31, 2017 and 2016, respectively, when compared to the same periods in
2016 and 2015.
2017 vs. 2016
The increase in display-based advertising revenue was primarily due to an increase in impressions sold, as
well as an increase in pricing, partially offset by the general trend of an increasing percentage of our traffic visiting
our websites and apps on mobile phones. While we continue to focus on new product initiatives to drive growth, our
subscription revenue decreased slightly, primarily as we work to enhance our product offering to hoteliers and
increase our sales pipeline in this business, in addition to hotel industry consolidation.
2016 vs. 2015
The increase in display-based advertising revenue was primarily due to a slight increase in pricing, as well as
impressions sold during the year, while the increase in subscription revenue was a result of increased sales
productivity in 2015 which also benefitted 2016, as well as increased pricing and improvements in customer
retention rates.
39
Other Hotel Revenue
For the years ended December 31, 2017, 2016 and 2015, 12%, 13% and 12%, respectively, of our Hotel
segment revenue was derived from other hotel revenues. Our other hotel revenue primarily includes revenue from
non-TripAdvisor branded websites, such as bookingbuddy.com, cruisecritic.com, and onetime.com, including click-
based advertising revenue, display-based advertising revenue and room reservations sold through these websites.
Our other hotel revenue decreased by $10 million during the year ended December 31, 2017, when compared to the
same period in 2016, primarily due to increased focus on return on marketing spend from paid marketing channels
within this revenue stream. Our other hotel revenue increased $4 million during the year ended December 31, 2016,
when compared to the same period in 2015.
Non-Hotel Segment
For the years ended December 31, 2017, 2016 and 2015, our Non-Hotel segment revenue accounted for 23%,
20% and 15%, respectively, of our total consolidated revenue. Our Non-Hotel segment revenue increased by $70
million or 24%, for the year ended December 31, 2017, when compared to the same period in 2016, driven by
increased bookings in our Attractions and Restaurants businesses. Our Non-Hotel segment revenue increased $61
million, or 27%, during the year ended December 31, 2016 when compared to the same period in 2015, primarily
driven by increased bookings across all businesses.
During this timeframe, strong revenue growth in our Attractions business has been driven by the following
factors: growth in bookings sourced by TripAdvisor, growth in bookable supply, which leads to better consumer
choice, as well as by growth in free and paid traffic sources. Another contributing factor is the improved shopping
experience from the introduction of new features, such as attractions instant booking for mobile phone, which
enables users to purchase tickets and tours seamlessly without leaving the mobile app. These factors are all
contributing to more consumer choice, increased bookings and continued revenue growth. Similarly, in our
Restaurants business, continued strong revenue growth can be attributed to increased bookings in our most
established markets, expansion into new markets, growth in mobile bookings, a continually improving user
experience and an increase in bookable supply of restaurant listings. Revenue in our Vacation Rentals business
decreased slightly during the year ended December 31, 2017, when compared to the same period in 2016, primarily
due to the continued migration of our subscription model to our free-to-list model, which we believe will have a
longer term return to the business, in addition to slower growth in our free-to-list revenues than 2016. Revenue in
our Vacation Rentals business increased during the year ended December 31, 2016, when compared to the same
period in 2015, primarily due to growth in our free-to-list model and increased bookings during the year.
Adjusted EBITDA and Adjusted EBITDA margin in our Non-Hotel segment increased $73 million and to
13%, respectively, during the year ended December 31, 2017, when compared to the same period in 2016. This
increase was primarily due to increased revenue growth, in addition to increased efficiencies in paid online
marketing channels and other operational synergies across our Attractions and Vacation Rentals businesses, partially
offset by increased personnel and overhead costs to support growth in this segment for the year ended December 31,
2017. Adjusted EBITDA in our Non-Hotel segment decreased $22 million during the year ended December 31,
2016, when compared to the same period in 2015. The decrease during the year ended December 31, 2016, when
compared to the same period in 2015, was primarily due to increased personnel and overhead costs of $47 million,
in addition to increased online traffic acquisition costs and merchant credit card and transaction fees, which more
than offset the increase in revenue.
40
Revenue by Geography
The following table presents our revenue by geographic region. Revenue by geography is based on the
geographic location of our websites:
Revenue by geographic region (1):
United States
Europe
ROW
Total
Year ended December 31,
% Change
2017
2016
2015
(in millions)
2017 vs
2016
2016 vs
2015
$
$
877 $
415
264
1,556 $
800 $
411
269
1,480 $
739
432
321
1,492
10%
1%
(2%)
5%
8%
(5%)
(16%)
(1%)
(1) In the first quarter of 2017, we reclassified Canada, Middle East, Africa, Asia-Pacific (“APAC”) and Latin
America (“LATAM”) into rest of world (“ROW”) when presenting our revenue by geographic region. Prior
period amounts were reclassified to conform to the current presentation. This change had no effect on our
consolidated financial statements in any reporting period.
Our U.S. revenue increased $77 million or 10%, during the year ended December 31, 2017, when compared to
the same period in 2016. U. S. revenue represented 56% of total revenue during the year ended December 31, 2017.
This revenue increase in the U.S. was due primarily to growth in our Attractions business, as well as an increase in
U.S. TripAdvisor-branded click-based and transaction revenue, driven by growth in U.S. revenue per hotel shopper.
Our U.S. revenue increased $61 million or 8%, during the year ended December 31, 2016, when compared to the
same period in 2015. U. S. revenue represented 54% of total revenue during the year ended December 31, 2016.
This revenue increase in U.S. was due primarily to growth in our Attractions business and our U.S. display-based
advertising and subscription revenue.
Revenue outside of the U.S., or non-U.S. revenue, decreased $1 million during the year ended December 31,
2017, when compared to the same period in 2016. Non-U.S. revenue decreased $73 million or 10%, during the year
ended December 31, 2016, when compared to the same period in 2015. Non-U.S. revenue represented
approximately 44%, 46%, and 50% of total revenue during the years ended December 31, 2017, 2016, and 2015,
respectively. The decline in our non-U.S. revenue, as a percentage of total revenue during these periods, was
primarily driven by the factors noted in the growth of our U.S. revenue discussed above, as well as the timing of our
instant booking feature rollout in non-U.S. markets during the first half of 2016, and its associated dilutive impact to
Trip-Advisor-branded click-based and transaction revenue, as compared to the rollout in our U.S. market, which was
completed in the third quarter of 2015, and to a lesser extent foreign currency fluctuations.
Consolidated Expenses
Cost of Revenue
Cost of revenue consists of expenses that are directly related or closely correlated to revenue generation,
including direct costs, such as ad serving fees, flight search fees, credit card fees and other transaction costs, and
data center costs. In addition, cost of revenue includes personnel and overhead expenses, including salaries, benefits,
stock-based compensation expense and bonuses for certain customer support personnel who are directly involved in
revenue generation.
Direct costs
Personnel and overhead
Total cost of revenue
% of revenue
$
$
Year ended December 31,
2017
$
2016
(in millions)
51
$
20
71
$
4.8%
53
19
72
$
4.6%
% Change
2017 vs
2016
2016 vs
2015
2015
43
15
58
3.9%
4%
(5%)
1%
19%
33%
22%
41
2017 vs. 2016
Cost of revenue increased $1 million during the year ended December 31, 2017 when compared to the same
period in 2016, primarily due to increased direct costs from merchant credit card and transaction fees in our Non-
Hotel segment, as a result of revenue growth.
2016 vs. 2015
Cost of revenue increased $13 million during the year ended December 31, 2016, when compared to the same
periods in 2015, primarily due to increased direct costs from merchant credit card and transaction fees of $5 million
in our Non-Hotel segment, as a result of revenue growth, and to a lesser extent increased personnel costs from
increased headcount needed to support business growth and customer support primarily in our Non-Hotel segment.
Selling and Marketing
Selling and marketing expenses primarily consist of direct costs, including traffic generation costs from SEM
and other online traffic acquisition costs, syndication costs and affiliate program commissions, social media costs,
brand advertising, television and other offline advertising, promotions and public relations. In addition, our sales and
marketing expenses consist of indirect costs such as personnel and overhead expenses, including salaries,
commissions, benefits, stock-based compensation expense and bonuses for sales, sales support, customer support
and marketing employees.
Direct costs
Personnel and overhead
Total selling and marketing
% of revenue
$
$
Year ended December 31,
2017
$
2016
(in millions)
554
$
202
756
$
51.1%
639
210
849
$
54.4%
% Change
2017 vs
2016
2016 vs
2015
2015
514
178
692
46.4%
15%
4%
12%
8%
13%
9%
2017 vs. 2016
Direct selling and marketing costs increased $85 million during the year ended December 31, 2017 when
compared to the same period in 2016, primarily due to costs incurred related to the launch of our new television
campaign in June of 2017, as well as an increase in SEM and other online traffic acquisition costs of $19 million,
driven by our Hotel segment during the first half of 2017, partially offset by a decrease in other advertising costs.
We spent $74 million on our television advertising campaign during the year ended December 31, 2017 in our Hotel
segment, which we did not incur during the year ended December 31, 2016.
2016 vs. 2015
Direct selling and marketing costs increased $40 million during the year ended December 31, 2016 when
compared to the same period in 2015, primarily due to increased SEM and other online traffic acquisition costs of
$79 million primarily driven by our Hotel segment, partially offset by a decrease in costs related to the cessation of
our television advertising campaign. We spent $51 million on our television advertising campaign during the year
ended December 31, 2015 in our Hotel segment, which we did not incur during the year ended December 31, 2016.
Personnel and overhead costs increased $24 million during the year ended December 31, 2016 when compared to
the same period in 2015, primarily due to an increase in headcount in our Non-Hotel segment, which was needed to
support business growth.
42
Technology and Content
Technology and content expenses consist primarily of personnel and overhead expenses, including salaries
and benefits, stock-based compensation expense and bonuses for salaried employees and contractors engaged in the
design, development, testing, content support, and maintenance of our websites and mobile apps. Other costs include
licensing, maintenance expense, computer supplies, telecom costs, content translation costs, and consulting costs.
Personnel and overhead
Other
Total technology and content
% of revenue
$
$
Year ended December 31,
2017
$
2016
(in millions)
213
$
30
$
243
16.4%
219
24
$
243
15.6%
% Change
2017 vs
2016
2016 vs
2015
2015
174
33
207
13.9%
3%
(20%)
0%
22%
(9%)
17%
2017 vs. 2016
Technology and content costs remained flat during the year ended December 31, 2017 when compared to the
same period in 2016. Personnel and overhead costs increased $6 million during the year ended December 31, 2017,
when compared to the same period in 2016, primarily to support our mobile phone and website initiatives, as well as
to support business growth, partially offset by a decrease in contingent staff costs. Other costs decreased by $6
million during the year ended December 31, 2017, when compared to the same period in 2016, primarily due to a
decrease in content translation costs.
2016 vs. 2015
Technology and content costs increased $36 million during the year ended December 31, 2016 when
compared to the same period in 2015, primarily due to increased personnel costs, including an increase of $12
million in stock-based compensation, from increased headcount needed to support business growth, including
international expansion and enhanced site features.
General and Administrative
General and administrative expenses consist primarily of personnel and related overhead costs, including
personnel engaged in executive leadership, finance, legal, and human resources, as well as stock-based
compensation expense for those same personnel. General and administrative costs also include professional service
fees and other fees including audit, legal, tax and accounting, and other costs including bad debt expense, non-
income taxes, such as sales, use and other non-income related taxes, and charitable contributions.
Personnel and overhead
Professional service fees and other
Total general and administrative
% of revenue
$
$
Year ended December 31,
2017
$
2016
(in millions)
101
$
42
143
$
9.7%
116
41
157
$
10.1%
% Change
2017 vs
2016
2016 vs
2015
2015
106
104
210
14.1%
15%
(2%)
10%
(5%)
(60%)
(32%)
43
2017 vs. 2016
General and administrative costs increased $14 million during the year ended December 31, 2017, when
compared to the same period in 2016. Personnel costs and overhead costs increased $15 million during the year
ended December 31, 2017, when compared to the same period in 2016, primarily related to an increase in stock-
based compensation of $10 million. Professional service fees and other decreased $1 million during the year ended
December 31, 2017, when compared to the same period in 2016, primarily due to a decrease in consulting costs and
non-income taxes, partially offset by an increase in bad debt costs.
2016 vs. 2015
General and administrative costs decreased $67 million during the year ended December 31, 2016, when
compared to the same period in 2015. Personnel costs and overhead costs decreased $5 million during the year
ended December 31, 2016, when compared to the same period in 2015. Professional service fees and other also
decreased $62 million during the year ended December 31, 2016, when compared to the same period in 2015,
primarily due to a non-cash charitable contribution of $67 million during the year ended December 31, 2015, which
did not reoccur in 2016, partially offset by increased consulting costs, non-income taxes, and bad debt expense.
Refer to “Note 17 – Segment and Geographic Information” in the notes to our consolidated financial statements in
Item 8 and below discussion in “Adjusted EBITDA”, for a discussion of this charitable contribution.
Depreciation
Depreciation expense consists of depreciation on computer equipment, leasehold improvements, furniture,
office equipment and other assets, our corporate headquarters building and amortization of capitalized software and
website development costs.
Depreciation
% of revenue
2017
Year ended December 31,
2016
(in millions)
2015
$
79
$
5.1%
69
$
4.7%
57
3.8%
Depreciation expense increased $10 million during the year ended December 31, 2017 when compared to the
same period in 2016, primarily due to increased amortization related to capitalized software and website
development costs of $8 million. Depreciation expense increased $12 million during the year ended December 31,
2016 when compared to the same period in 2015, primarily due to increased amortization related to capitalized
software and website development costs of $9 million and incremental depreciation on our corporate headquarters
building of $1 million. Refer to “Note 13— Commitments and Contingencies” in the notes to our consolidated
financial statements in Item 8 for additional information on our corporate headquarters asset.
Amortization of Intangible Assets
Amortization consists of the amortization of purchased definite-lived intangibles.
Amortization of intangible assets
% of revenue
2017
Year ended December 31,
2016
(in millions)
2015
$
$
32
2.0%
$
32
2.2%
36
2.4%
Amortization of intangible assets remained flat during the year ended December 31, 2017 when compared to
the same period in 2016. Amortization of intangible assets decreased $4 million during the year ended December 31,
2016 when compared to the same period in 2015, primarily due to the completion of amortization related to certain
intangible assets from previous business acquisitions. Refer to “Note 3— Acquisitions and Dispositions” in the notes
to our consolidated financial statements in Item 8 for additional information on our acquisitions.
44
Interest Expense
Interest expense primarily consists of interest incurred, commitment fees and debt issuance cost amortization
related to our 2015 Credit Facility, 2016 Credit Facility, and Chinese Credit Facilities, as well as interest on our
financing obligation related to our corporate headquarters.
Interest expense
2017
Year ended December 31,
2016
(in millions)
2015
$
(15) $
(12) $
(10)
Interest expense increased $3 million during the year ended December 31, 2017 when compared to the same
period in 2016, primarily due to an increase in interest incurred due to higher average outstanding borrowings and
effective interest rates during the year ended December 31, 2017, primarily on our 2015 Credit Facility. Interest
expense increased $2 million during the year ended December 31, 2016 when compared to the same period in 2015,
primarily due to an increase of $3 million in interest imputed on our financing obligation related to our corporate
headquarters lease in 2016, partially offset by a decrease in interest incurred due to lower average outstanding
borrowings during the year ended December 31, 2016, primarily on our 2015 Credit Facility. Refer to “Note 9—
Debt” and “Note 13— Commitments and Contingencies” in the notes to our consolidated financial statements in
Item 8 for additional information on our borrowing facilities and our financing obligation related to our corporate
headquarters, respectively.
Interest Income and Other, Net
Interest income and other, net primarily consists of interest earned and amortization of discounts and
premiums on our marketable securities, net foreign exchange gains and losses, and gains and losses on sales of our
marketable securities and sale of businesses.
Interest income and other, net
$
1 $
(3) $
17
2017
Year ended December 31,
2016
(in millions)
2015
2017 vs. 2016
Interest income and other, net increased $4 million during the year ended December 31, 2017, when compared
to the same period in 2016, primarily due to an increase in net foreign currency transaction gains of $6 million, as a
result of the fluctuation of foreign exchange rates, partially offset by a loss of $2 million related to one of our cost-
method investments recognized during the year ended December 31, 2017.
Interest income and other, net decreased during the year ended December 31, 2016, when compared to the
same period in 2015, primarily due to a $20 million gain from sale of business of one of our Chinese subsidiaries in
2015 that did not reoccur in 2016.
2016 vs. 2015
Provision for Income Taxes
Provision for income taxes
Effective tax rate
2017
Year ended December 31,
2016
(in millions)
2015
$
129
$
117.3%
31
$
20.5%
41
17.2%
45
On December 22, 2017, the 2017 Tax Act was signed into United States tax law. The legislation significantly
changes U.S. tax law by, among other provisions, lowering corporate income tax rates, and imposing a repatriation
tax on deemed repatriated earnings of foreign subsidiaries. The 2017 Tax Act permanently reduces the U.S.
corporate income tax rate from 35% to 21%, effective January 1, 2018. Certain income tax effects of the 2017 Tax
Act, including $67 million of tax expense recorded for the Transition Tax, and $6 million recorded for the
remeasurement of our net deferred tax assets, are reflected in our financial results in accordance with SAB 118,
which provides for a measurement period to complete the accounting for certain elements of the tax reform. Refer to
“Note 10 - Income Taxes” in the notes to our consolidated financial statements in Item 8 for further information on
the financial statement impact of the 2017 Tax Act.
Our effective tax rate is higher than the federal statutory rate in the United States primarily due to the
mandatory deemed repatriation of accumulated foreign earnings and the remeasurement of our deferred tax assets
and liabilities as a result of the recent U.S. tax reform, foreign valuation allowances, and non-deductible stock based
compensation. This is partially offset by earnings in jurisdictions outside the United States, where our effective tax
rate is lower.
2017 vs. 2016
Our effective tax rate increased to 117.3% during the year ended December 31, 2017 from 20.5% in the same
period in 2016. The change in the effective tax rate for 2017 compared to the 2016 rate was primarily due to the
mandatory deemed repatriation of accumulated foreign earnings and the remeasurement of our deferred tax assets
and liabilities as a result of the recent U.S. tax reform, foreign valuation allowances, and non-deductible stock based
compensation.
2016 vs. 2015
Our effective tax rate increased to 20.5% during the year ended December 31, 2016 from 17.2% in the same
period in 2015. The change in the effective tax rate for 2016 compared to the 2015 rate was primarily due to a
change in jurisdictional earnings, which includes a non-cash charitable contribution during the year ended December
31, 2015, which did not reoccur in 2016, and the recognition of prior year tax benefits in response to a recent U.S.
Tax Court ruling in regards to Altera Corporation on the treatment of stock-based compensation in cost-sharing
arrangements. Refer to “Note 10 - Income Taxes” in the notes to our consolidated financial statements in Item 8 for
further information on the impact of this Tax Court ruling.
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we also disclose Adjusted
EBITDA, which is a non-GAAP financial measure. A “non-GAAP financial measure” refers to a numerical measure
of a company’s historical or future financial performance, financial position, or cash flows that excludes (or includes)
amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in
accordance with generally accepted accounting principles in the United States (“GAAP”) in such company’s
financial statements.
Adjusted EBITDA is our segment profit measure and a key measure used by our management and board of
directors to understand and evaluate the operating performance of our business and on which internal budgets and
forecasts are based and approved. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA
can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that
Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our
operating results in the same manner as our management and board of directors. We define Adjusted EBITDA as net
income (loss) plus: (1) provision for income taxes; (2) other income (expense), net; (3) depreciation of property and
equipment, including amortization of internal use software and website development; (4) amortization of intangible
assets; (5) stock-based compensation and other stock-settled obligations; (6) goodwill, long-lived asset and
intangible asset impairments; and (7) other non-recurring expenses and income.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation
or as a substitute for analysis of our results reported in accordance with GAAP. Because of these limitations, you
should consider Adjusted EBITDA alongside other financial performance measures, including net income and our
other GAAP results.
46
Some of these limitations are:
(cid:129) Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures
or contractual commitments;
(cid:129) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
(cid:129) Adjusted EBITDA does not reflect the interest expense, or cash requirements necessary to service
interest or principal payments on our debt;
(cid:129) Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation or
other stock-settled obligations;
(cid:129) Although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements or for new capital expenditure requirements;
(cid:129) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
and
(cid:129) Other companies, including companies in our own industry, may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative measure.
The following table presents a reconciliation of Adjusted EBITDA to Net Income, the most directly
comparable financial measure calculated and presented in accordance with GAAP, for the periods presented:
Net income (loss)
Add: Provision for income taxes
Add: Other expense (income), net
Add: Other non-recurring expenses
Add: Non-cash charitable contribution (1)
Add: Stock-based compensation
Add: Amortization of intangible assets
Add: Depreciation
Adjusted EBITDA
2017
Year ended December 31,
2016
(in millions)
2015
$
$
(19) $
129
14
-
-
96
32
79
331 $
120 $
31
15
-
-
85
32
69
352 $
198
41
(7)
2
67
72
36
57
466
(1) During the fourth quarter of 2015, we incurred an expense in the amount of $67 million to reflect a non-cash contribution to The
TripAdvisor Charitable Foundation (the “Foundation”), which was recorded to general and administrative expense in our consolidated
statement of operations. We settled this obligation in treasury shares based on the fair value of our common stock on the date the shares
were issued to the Foundation. Given the use of stock to settle the obligation, the amount has been excluded from Adjusted EBITDA.
TripAdvisor does not expect to make any future contributions to the Foundation. Refer to “Note 17 – Segment and Geographic Information”
in the notes to our consolidated financial statements in Item 8 for a discussion of this charitable contribution.
Liquidity and Capital Resources
Our principal source of liquidity is cash flows generated from operations, although liquidity needs can also be
met through drawdowns under our credit facilities, which are discussed below. As of December 31, 2017 and 2016,
we had $735 million and $746 million, respectively, of cash, cash equivalents and short and long-term available-for-
sale marketable securities. As of December 31, 2017 approximately $518 million of our cash and cash equivalents,
and $62 million of short and long-term available-for-sale marketable securities, were held by our international
subsidiaries outside of the United States, with the majority in the United Kingdom. As of December 31, 2017 the
majority of total cash on hand is denominated in U.S. dollars.
47
As of December 31, 2017, we had outstanding borrowings of $230 million in long-term debt, within our U.S
subsidiaries, and approximately $967 million of borrowing capacity available under our 2015 Credit Facility. The
weighted average rate of our outstanding borrowings under the 2015 Credit Facility as of December 31, 2017 was
2.74% per annum, under a one-month interest period, which will reset periodically. Refer to “Note 20— Subsequent
Events” in the notes to our consolidated financial statements in Item 8 for additional information on the subsequent
repayment of our $230 million of outstanding borrowings under our 2015 Credit Facility in 2018. In addition, we
had $73 million borrowing capacity available under our 2016 Credit Facility with no outstanding borrowing as of
December 31, 2017. Finally, as of December 31, 2017, we had short-term borrowings of $7 million and
approximately $33 million of available borrowing capacity under our Chinese Credit Facilities, which bear interest
at a rate based on People’s Bank of China benchmark, including certain adjustments which may be made in
accordance with the market condition at the time of borrowing, or a weighted average rate of 5.00%. For further
discussion on our credit facilities, see below, and also refer to “Note 9— Debt” in the notes to our consolidated
financial statements in Item 8.
Cumulative undistributed earnings of foreign subsidiaries totaled approximately $882 million as of
December 31, 2017. Subsequent to December 31, 2017, on February 2, 2018, TripAdvisor made a one-time
repatriation of $325 million of foreign earnings to the United States primarily to repay our remaining outstanding
borrowings under the 2015 Credit Facility. Refer to “Note 20— Subsequent Events” in the notes to our consolidated
financial statements in Item 8 for additional information on this repatriation. TripAdvisor intends to indefinitely
reinvest the remaining foreign undistributed earnings of $557 million, although we will continue to evaluate the
impact of the 2017 Tax Act on our capital deployment within and outside the U.S. Should we distribute, or be
treated under certain U.S. tax rules as having distributed, the earnings of foreign subsidiaries in the form of
dividends or otherwise, we may be subject to U.S. income taxes or tax benefits. The amount of any unrecognized
deferred income tax on this temporary difference is not material.
Certain transactions have seasonal fluctuations that affect the timing of our annual cash flows related to
working capital. In our Vacation Rentals free-to-list model and our Attractions business, we receive cash from
travelers at the time of booking and we record these amounts, net of commissions, on our consolidated balance
sheets as deferred merchant payables. We pay the suppliers, or the vacation rental owners and tour providers,
respectively, after the travelers’ use. Therefore, we receive cash from the traveler prior to paying the supplier and
this operating cycle represents a working capital source or use of cash to us. During the first half of the year vacation
rentals and attractions bookings typically exceed stays and tour-taking, resulting in higher cash flow related to
working capital, while during the second half of the year, particularly in the third quarter, this pattern reverses and
cash flows from these transactions are typically negative. While we expect the impact of seasonal fluctuations to
continue, further significant shifts in our business mix or adverse economic conditions could result in future seasonal
patterns that are different from historical trends.
On February 15, 2013, our Board of Directors authorized the repurchase of $250 million of our shares of
common stock under a share repurchase program. During the year ended December 31, 2015, we did not repurchase
any shares of outstanding common stock under the share repurchase program. During the year ended December 31,
2016, we repurchased 2,002,356 shares of outstanding common stock under the share repurchase program at an
average cost of $52.35 per share, or $105 million, and completed this share repurchase program. On January 25,
2017, our Board of Directors authorized the repurchase of $250 million of our shares of common stock under a new
share repurchase program. During the year ended December 31, 2017, we repurchased a total of 6,079,003 shares of
the Company’s outstanding common stock at an average share price of $41.13, or $250 million in the aggregate, and
completed this share repurchase program.
On January 31, 2018, TripAdvisor’s Board of Directors authorized up to $250 million of share repurchases.
This new repurchase program has no expiration but may be suspended or terminated by the Board of Directors at
any time. Refer to “Note 20— Subsequent Events” in the notes to our consolidated financial statements in Item 8 for
additional information on this repurchase program.
48
We believe that our available cash and marketable securities, combined with expected cash flows generated by
operating activities and available cash from our credit facilities, will be sufficient to fund our foreseeable working
capital requirements, capital expenditures, existing business growth initiatives, debt obligations, lease commitments,
and other financial commitments through at least the next twelve months. Our future capital requirements may also
include capital needs for acquisitions, share repurchases, and/or other expenditures in support of our business
strategy; thus potentially reducing our cash balance and/or increasing our debt. We expect total capital expenditures
for 2018 to be comparable to our 2017 spending levels.
Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements
of cash flows, are summarized in the following table:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating Activities
2017
Year ended December 31,
2016
(in millions)
2015
$
238 $
6
(200)
321 $
(163)
(143)
418
(58)
(189)
2017 vs. 2016
For the year ended December 31, 2017, net cash provided by operating activities decreased by $83 million or
26% when compared to the same period in 2016, primarily due to a decrease in net income of $139 million and a net
decrease in working capital movements of $14 million, partially offset by an increase in non-cash items affecting
cash flow of $70 million which is primarily due to an increase in the following items: deferred tax expenses; stock-
based compensation; and depreciation. The decrease in working capital movements of $14 million was primarily
due to timing of collection of receivables, income tax payments, vendor payments, and deferred merchant
payments.
Investing Activities
For the year ended December 31, 2017, net cash provided by investing activities increased by $169 million
when compared to the same period in 2016, primarily due to a net increase in cash provided from the purchases,
sales and maturities of our marketable securities of $120 million, a decrease in cash paid for business acquisitions of
$43 million and a decrease in capital expenditures of $8 million.
Financing Activities
For the year ended December 31, 2017, net cash used in financing activities increased by $57 million when
compared to the same period in 2016, primarily due to an increase of $145 million in cash used in 2017 to purchase
shares of our common stock under our authorized share repurchase program in 2017, net new borrowings on our
2016 Credit Facility of $73 million in 2016 which was subsequently repaid in 2017, net borrowings under our
Chinese Credit Facility of $6 million in 2016 which did not reoccur in 2017, partially offset by an increase in net
borrowings under our 2015 Credit Facility of $246 million for the year ended December 31, 2017, when compared
to the same period in 2016. Refer to the discussion of our credit facilities below.
Operating Activities
2016 vs. 2015
For the year ended December 31, 2016, net cash provided by operating activities decreased by $97 million or
23% when compared to the same period in 2015, primarily due to a decrease in net income of $78 million and a
decrease in working capital movements of $11 million, which was primarily due to timing of collection of
receivables, income tax payments, vendor payments, and deferred merchant payments.
49
Investing Activities
For the year ended December 31, 2016, net cash used in investing activities increased by $105 million when
compared to the same period in 2016, primarily due to a net increase in cash used for the purchases, sales and
maturities of our marketable securities of $103 million, net proceeds from the sale of one of our Chinese subsidiaries
of $25 million in 2015 which did not reoccur in 2016, and a net increase in cash paid for business acquisitions and
other investments of $14 million, partially offset by a decrease in capital expenditures of $37 million, primarily
related to the completion of our corporate headquarters building in mid-2015.
Financing Activities
For the year ended December 31, 2016, net cash used in financing activities decreased by $46 million when
compared to the same period in 2015, primarily due to: (i) a repayment of our 2011 credit facility of $300 million in
2015, (ii) a decrease in borrowings of $186 million in 2016 from our 2015 Credit Facility, (iii) incremental
borrowings of $3 million and a decrease in repayments of $40 million in 2016 on our Chinese Credit Facilities, (iv)
a decrease in tax withholding payments of $58 million and cash received for stock option exercises of $5 million in
2016 primarily related to a decrease in the number of stock options exercised and lower average stock price in 2016,
and (v) borrowings on our 2016 Credit Facility of $73 million in 2016; partially offset by (i) an increase in
repayments of $120 million in 2016 related to our 2015 Credit Facility, (ii) payments of $105 million for common
stock share repurchases under an authorized share repurchase program in 2016, and (iii) $12 million in lease
incentive payments received related to our corporate headquarters in 2015 that did not reoccur in 2016.
The following table aggregates our material contractual obligations and minimum commercial commitments
as of December 31, 2017:
2015 Credit Facility and Chinese Credit Facilities
(1)
Expected interest and commitment fee payments on
2015 Credit Facility (2)
Property leases, net of sublease income (3)
Total (4)(5)
$
$
Total
Less than
1 year
1 to 3 years
(in millions)
3 to 5 years
More than
5 years
By Period
237 $
7 $
— $
230 $
34
228
499 $
7
28
42 $
16
53
69 $
11
51
292 $
—
—
96
96
(1) Debt repayment amounts assume that our existing debt under our 2015 Credit Facility, or $230 million, is
repaid at the end of the credit agreement and do not assume additional borrowings or refinancing of existing
debt. Refer to “Note 9— Debt” in the notes to the consolidated financial statements in Item 8 for additional
information on our 2015 Credit Facility and Chinese Credit Facilities. Refer to “Note 20— Subsequent
Events” in the notes to our consolidated financial statements in Item 8 for additional information on the
subsequent repayment of our outstanding borrowings under our 2015 Credit Facility in 2018.
(2) Expected interest payments on the 2015 Credit Facility are based on the effective interest rate and outstanding
borrowings as of December 31, 2017, but could change significantly in the future. Amounts assume that our
existing debt is repaid at the end of the credit agreement and do not assume additional borrowings or
refinancing of existing debt. Expected commitment fee payments are based on the unused portion of credit
facility, issued letters of credit, and current effective commitment fee rate as of December 31, 2017; however,
these variables could change significantly in the future. Refer to “Note 9— Debt” in the notes to our
consolidated financial statements in Item 8 for additional information on our 2015 Credit Facility.
(3) Estimated future minimum rental payments under operating leases with non-cancelable lease terms, including
our corporate headquarters lease in Needham, MA. Refer to discussion under “Office Lease Commitments”
below.
50
(4)
Excluded from the table was $127 million of unrecognized tax benefits, including interest, that we have
recorded in other long-term liabilities for which we cannot make a reasonably reliable estimate of the amount
and period of payment. We do not anticipate any material changes in the next year. Also excluded from the
table was $61 million of estimated Transition Tax related to the 2017 Tax Act recorded in long-term liabilities
on the consolidated balance sheet at December 31, 2017, that we believe the majority will be paid more than
five years from December 31, 2017. Refer to “Note 10 - Income Taxes” in the notes to our consolidated
financial statements in Item 8 for further discussion of these amounts.
(5) Excluded from the table was $3 million of undrawn standby letters of credit, related to our property leases.
2015 Credit Facility
In June 2015, we entered into a five year credit agreement with a group of lenders which, among other things,
provided for a $1 billion unsecured revolving credit facility (the “2015 Credit Facility”) and immediately borrowed
$290 million. In May 2017, the 2015 Credit Facility was amended to, among other things, (i) increase the aggregate
amount of revolving loan commitments available from $1.0 billion to $1.2 billion; and (ii) extend the maturity date
of the 2015 Credit Facility from June 26, 2020 to May 12, 2022 (the “First Amendment”). Borrowings under the
2015 Credit Facility generally bear interest, at the Company’s option, at a rate per annum equal to either (i) the
Eurocurrency Borrowing rate, or the adjusted LIBO rate for the interest period in effect for such borrowing; plus an
applicable margin ranging from 1.25% to 2.00% (“Eurocurrency Spread”), based on the Company’s leverage ratio;
or (ii) the Alternate Base Rate (“ABR”) Borrowing, which is the greatest of (a) the Prime Rate in effect on such day,
(b) the New York Fed Bank Rate in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate
(or LIBO rate multiplied by the Statutory Reserve Rate) for an interest period of one month plus 1.00%; in addition
to an applicable margin ranging from 0.25% to 1.00% (“ABR Spread”), based on the Company’s leverage ratio. The
Company may borrow from the revolving credit facility in U.S dollars, Euros and British pound sterling.
During the year ended December 31, 2017, the Company borrowed an additional $435 million and repaid
$296 million of our outstanding borrowings under the 2015 Credit Facility. These net borrowings during the year
were primarily used to repurchase shares of our outstanding common stock under the Company’s repurchase
program, which is described in “Note 15 - Stockholders Equity” in the notes to the consolidated financial statements
in Item 8. As of December 31, 2017, based on the Company’s leverage ratio, our borrowings bear interest at LIBO
rate; plus an applicable margin of 1.25%, or the Eurocurrency Spread. The Company was borrowing under a one-
month interest rate period or a weighted average rate of 2.74% per annum as of December 31, 2017, using a one-
month interest period Eurocurrency Spread, which will reset periodically. Interest will be payable on a monthly
basis while the Company is borrowing under the one-month interest rate period. We are also required to pay a
quarterly commitment fee, at an applicable rate ranging from 0.15% to 0.30%, on the daily unused portion of the
revolving credit facility for each fiscal quarter and additional fees in connection with the issuance of letters of credit.
As of December 31, 2017, our unused revolver capacity was subject to a commitment fee of 0.15%, given the
Company’s leverage ratio. The 2015 Credit Facility includes $15 million of borrowing capacity available for letters
of credit and $40 million for Swing Line borrowings on same-day notice. As of December 31, 2017, we had issued
$3 million of outstanding letters of credit under the 2015 Credit Facility. During the year ended December 31, 2016,
the Company borrowed an additional $101 million and repaid $210 million of our outstanding borrowings on the
2015 Credit Facility.
There is no specific repayment date prior to the maturity date for borrowings under this credit agreement. We
may voluntarily repay any outstanding borrowing under the 2015 Credit Facility at any time without premium or
penalty, other than customary breakage costs with respect to Eurocurrency loans. Additionally, the Company
believes that the likelihood of the lender exercising any subjective acceleration rights, which would permit the
lenders to accelerate repayment of any outstanding borrowings, is remote. As such, we classify borrowings under
this facility as long-term debt as of December 31, 2017. The 2015 Credit Facility contains a number of covenants
that, among other things, restrict our ability to: incur additional indebtedness, create liens, enter into sale and
leaseback transactions, engage in mergers or consolidations, sell or transfer assets, pay dividends and distributions,
make investments, loans or advances, prepay certain subordinated indebtedness, make certain acquisitions, engage
in certain transactions with affiliates, amend material agreements governing certain subordinated indebtedness, and
change our fiscal year. The 2015 Credit Facility also requires us to maintain a maximum leverage ratio and contains
certain customary affirmative covenants and events of default, including a change of control. If an event of default
occurs, the lenders under the 2015 Credit Facility will be entitled to take various actions, including the acceleration
of all amounts due under the 2015 Credit Facility. As of December 31, 2017, we were in compliance with all of our
debt covenants.
51
2016 Credit Facility
In September 2016, we entered into an uncommitted facility agreement which provides for a $73 million
unsecured revolving credit facility (the “2016 Credit Facility”) with no specific expiration date. The 2016 Credit
Facility is available at the Lender’s discretion and can be canceled at any time. Repayment terms for borrowings
under the 2016 Credit Facility are generally one to six month periods, or such other periods as the parties may
mutually agree, and bear interest at LIBOR plus 112.5 basis points. The Company may borrow from the 2016 Credit
Facility in U.S dollars only and we may voluntarily repay any outstanding borrowing at any time without premium
or penalty. Any overdue amounts under or in respect of the 2016 Credit Facility not paid when due shall bear
interest in the case of principal at the applicable interest rate plus 1.50% per annum. There are no specific
financial or incurrence covenants.
We borrowed $73 million from this uncommitted credit facility in September 2016, which was included in
current portion of debt on our consolidated balance sheet as of December 31, 2016. These funds were used for
general working capital needs of the Company, primarily for partial repayment of our 2015 Credit Facility. The
Company repaid all outstanding borrowings during the first three months of 2017 and as of December 31, 2017, we
had no outstanding borrowings under the 2016 Credit Facility.
Chinese Credit Facilities
In addition to our 2015 Credit Facility and 2016 Credit Facility, we maintain two credit facilities in China
(jointly, the “Chinese Credit Facilities”).
We are parties to a $30 million, one-year revolving credit facility with Bank of America (the “Chinese Credit
Facility—BOA”) that is currently subject to review on a periodic basis with no specific expiration period.
Borrowings under our Chinese Credit Facility—BOA generally bears interest at a rate based on People’s Bank of
China benchmark, including certain adjustments which may be made in accordance with the market condition at the
time of borrowing. As of December 31, 2017 and December 31, 2016, there were no outstanding borrowings under
our Chinese Credit Facility—BOA.
We are also parties to a RMB 70,000,000 (approximately $10 million), one-year revolving credit facility with
J.P. Morgan Chase Bank (“Chinese Credit Facility—JPM”). Our Chinese Credit Facility—JPM generally bears
interest at a rate based on People’s Bank of China benchmark, including certain adjustments which may be made in
accordance with the market condition at the time of borrowing. As of both December 31, 2017 and December 31,
2016, we had $7 million of outstanding borrowings from the Chinese Credit Facility – JPM at a weighted average
rate of 5.00% and 4.35%, respectively.
Office Lease Commitments
In June 2013, we entered into a lease, for a new corporate headquarters (the “Lease”). Pursuant to the Lease,
the landlord built an approximately 280,000 square foot rental building in Needham, Massachusetts (the “Premises”),
and leased the Premises to the Company as our new corporate headquarters for an initial term of 15 years and 7
months or through December 2030. The Company also has an option to extend the term of the Lease for two
consecutive terms of five years each.
Because we were involved in the construction project and were responsible for paying a portion of the costs of
normal finish work and structural elements of the Premises, the Company was deemed for accounting purposes to be
the owner of the Premises during the construction period under build to suit lease accounting guidance under GAAP.
Therefore, the Company recorded 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. The amounts that the Company has paid or incurred for normal tenant improvements and structural
improvements had also been recorded to the construction-in-progress asset.
52
Upon completion of construction at end of the second quarter of 2015, we evaluated the construction-in-
progress asset and construction financing obligation for de-recognition under the criteria for “sale-leaseback”
treatment under GAAP. We concluded that we have forms of continued economic involvement in the facility, and
therefore did not meet the provisions for sale-leaseback accounting. This determination was based on the Company's
continuing involvement with the property in the form of non-recourse financing to the lessor. Therefore, the Lease is
accounted for as a financing obligation. Accordingly, we began depreciating the building asset over its estimated
useful life and incurring interest expense related to the financing obligation imputed using the effective interest rate
method. We bifurcate our lease payments pursuant to the Premises into: (i) a portion that is allocated to the building
(a reduction to the financing obligation) and; (ii) a portion that is allocated to the land on which the building was
constructed. The portion of the lease obligations allocated to the land is treated as an operating lease that
commenced in 2013. The lease costs allocated to the land are recognized as rent expense on a straight-line basis over
the term of the lease and are recorded in general and administrative expense in the consolidated statements of
operations. The financing obligation is considered a long-term finance lease obligation and is recorded to other long-
term liabilities on our consolidated balance sheet. At the end of the lease term, the carrying value of the building
asset and the remaining financing obligation are expected to be equal, at which time we may either surrender the
leased asset as settlement of the remaining financing obligation or extend the initial term of the lease for the
continued use of the asset. In the years ended December 31 2017, 2016, and 2015, the Company recorded $7 million,
$7 million, and $4 million of interest expense, respectively, $3 million, $3 million, and $2 million of depreciation
expense, respectively, and $2 million, $2 million, $1 million, of rent expense in general and administrative expense
on our consolidated statements of operations, respectively, related to the Premises.
We also lease an aggregate of approximately 450,000 square feet of office space at approximately 40 other
locations across North America, Europe and Asia Pacific, in cities such as, New York, Boston, London, Sydney,
Barcelona, Paris, and Beijing, primarily for our sales offices, subsidiary headquarters, and international management
teams, pursuant to leases with various expiration dates, with the latest expiring in June 2027.
As of December 31, 2017, future minimum commitments under our corporate headquarters lease and other
non-cancelable operating leases for office space with terms of more than one year and contractual sublease income
were as follows:
Year
2018
2019
2020
2021
2022
Thereafter
Total
Corporate
Headquarters
Lease (1)
Other
Operating
Leases
Sublease
Income
Total Lease
Commitments
(Net of
Sublease
Income)
$
$
9 $
9
9
10
10
77
124 $
(in millions)
22 $
21
19
17
17
19
115 $
(3) $
(3)
(2)
(2)
(1)
—
(11) $
28
27
26
25
26
96
228
(1) Amount includes an $84 million financing obligation, which we have recorded in other long-term liabilities on
our consolidated balance sheet at December 31, 2017, related to our corporate headquarters lease.
Off-Balance Sheet Arrangements
As of December 31, 2017, other than the items discussed above, we did not have any off-balance sheet
arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K of the SEC, that have, or are reasonably likely to
have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or
capital resources.
53
Contingencies
In the ordinary course of business, we and our subsidiaries are parties to regulatory and legal matters. These
matters may relate to claims involving alleged infringement of third-party intellectual property rights, defamation,
taxes, regulatory compliance and other claims. 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 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. Although occasional adverse
decisions or settlements may occur, the Company does not believe that the final disposition of any of these matters
will have a material adverse effect on the business. However, the final outcome of these matters could vary
significantly from our estimates. Moreover, such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources, divert management's attention from the Company's business
objectives and adversely affect the Company's business, results of operations, financial condition and cash flows.
There may also be claims or actions pending or threatened against us of which we are currently not aware and the
ultimate disposition of which would have a material adverse effect on us.
On December 22, 2017, the 2017 Tax Act was signed into United States tax law. The legislation significantly
changes U.S. tax law by, among other provisions, lowering corporate income tax rates, and imposing a repatriation
tax on deemed repatriated earnings of foreign subsidiaries. The 2017 Tax Act permanently reduces the U.S.
corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. Certain income tax
effects of the 2017 Tax Act, including $67 million of Transition Tax, and $6 million recorded for the remeasurement
of our net deferred tax assets, are reflected in our financial results in accordance with SAB 118, which provides for a
measurement period to complete the accounting for certain elements of the tax reform.
We are also under audit by the IRS and various other domestic and foreign tax authorities with regards to
income tax matters. We have reserved for potential adjustments to our provision for income taxes that may result
from examinations by, or any negotiated agreements with, these tax authorities. Although we believe our tax
estimates are reasonable, the final determination of audits could be materially different from our historical income
tax provisions and accruals. The results of an audit could have a material effect on our financial position, results of
operations, or cash flows in the period for which that determination is made.
By virtue of previously filed consolidated income tax returns filed with Expedia, we are currently under an
IRS audit for the 2009, 2010, and short-period 2011 tax years, and have various ongoing state income tax audits. We
are separately under examination by the IRS for the short-period 2011, 2012 and 2013 tax years and have
commenced an employment tax audit with the IRS for the 2013 and 2014 tax years. These audits include
questioning of the timing and the amount of income and deductions and the allocation of income among various tax
jurisdictions. These examinations may lead to proposed or ordinary course adjustments to our taxes. We are no
longer subject to tax examinations by tax authorities for years prior to 2009. As of December 31, 2017, no material
assessments have resulted, except as noted below regarding our 2009 and 2010 IRS audit with Expedia.
In January 2017, as part of the Company’s IRS audit of Expedia, we received Notices of Proposed Adjustment
from the IRS for the 2009 and 2010 tax years. These proposed adjustments are related to certain transfer pricing
arrangements with our foreign subsidiaries, and would result in an increase to our worldwide income tax expense in
an estimated range of $10 million to $14 million after consideration of competent authority relief, exclusive of
interest and penalties. We disagree with the proposed adjustments and we intend to defend our position through
applicable administrative and, if necessary, judicial remedies. Our policy is to review and update tax reserves as
facts and circumstances change. Based on our interpretation of the regulations and available case law, we believe the
position we have taken with regard to transfer pricing with our foreign subsidiaries is sustainable. In addition to the
risk of additional tax for 2009 and 2010 transactions, if the IRS were to seek transfer pricing adjustments of a similar
nature for transactions in subsequent years, we would be subject to significant additional tax liabilities.
54
Additionally, we continue to accumulate positive cash flows in foreign jurisdictions, which we consider
indefinitely reinvested, although we will continue to evaluate the impact of the 2017 Tax Act on our capital
deployment within and outside the U.S. Any repatriation of funds currently held in foreign jurisdictions may result
in higher effective tax rates and incremental cash tax payments.
Refer to “Note 10— Income Taxes” in the notes to our consolidated financial statements in Item 8 for further
information on the impact of the 2017 Tax Act, potential contingencies surrounding current audits by the IRS and
various other domestic and foreign tax authorities, and other income tax matters.
Certain Relationships and Related Party Transactions
For information on our relationships with Expedia and Liberty TripAdvisor Holdings, Inc. refer to “Note 16 —
Related Party Transactions” in the notes to our consolidated financial statements in Item 8.
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 management use judgment and estimates in applying
those policies. We prepare our consolidated financial statements and accompanying notes in accordance with
GAAP.
Preparation of the consolidated financial statements and accompanying notes requires that management 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. Management bases its estimates on historical experience, where applicable and other
assumptions that it believes are reasonable under the circumstances. Actual results may differ from estimates under
different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of the
consolidated financial statements. We consider an accounting estimate to be critical if:
(cid:129)
(cid:129)
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 management was making the estimate; and/or
Changes in the estimate or different estimates that management could have selected may have had a
material impact on our financial condition or results of operations.
Refer to “Note 2— Significant Accounting Policies” in the notes to our consolidated financial statements in
Item 8 for an overview of our significant accounting policies and new accounting pronouncements that we have
adopted or that we plan to adopt that have had or may have an impact on our financial statements.
A discussion of information about the nature and rationale for our critical accounting estimates is below.
Income Taxes
We record income taxes under the asset and 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 all relevant 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 assessing
available tax planning strategies. We may establish a valuation allowance to reduce deferred tax assets to the amount
we believe is more likely than not to be realized. We classify deferred tax assets and liabilities as noncurrent on our
consolidated balance sheet. 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.
55
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% 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.
On December 22, 2017, the 2017 Tax Act was signed into United States tax law. The legislation significantly
changes U.S. tax law by, among other provisions, lowering corporate income tax rates, and imposing a repatriation
tax on deemed repatriated earnings of foreign subsidiaries. The 2017 Tax Act permanently reduces the U.S.
corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The 2017 Tax Act
also provides for a Transition Tax, as well as prospective changes beginning in 2018, including additional
limitations on executive compensation. Under GAAP, the effects of changes in tax rates and laws are recognized in
the period in which the new legislation is enacted.
On December 22, 2017, the SEC issued SAB 118, which allows us to record provisional amounts during a
measurement period not to extend beyond one year of the enactment date. The measurement period is deemed to
have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its
accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable
estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as
information becomes available, prepared, or analyzed.
SAB 118 summarizes a three-step process to be applied at each reporting period to account for and
qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional
amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but
that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore
taxes are reflected in accordance with law prior to the enactment of the 2017 Tax Act.
Our financial results, including an estimate of $67 million of Transition Tax, and $6 million recorded due to a
remeasurement of our net deferred tax assets, reflect provisional amounts for those specific income tax effects of the
2017 Tax Act for which the accounting under GAAP is incomplete but a reasonable estimate could be determined.
The Company has not obtained, prepared and analyzed the information necessary to finalize its computations and
accounting for the Transition Tax. Since there is ongoing guidance and accounting interpretation expected over the
next 12 months, we consider the accounting of the Transition Tax, deferred tax remeasurements, and other items to
be provisional due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions.
Other significant provisions that are not yet effective but may impact income taxes in future years include: an
exemption from U.S. tax on dividends of future foreign earnings, limitations on the deductibility of certain executive
compensation, an incremental tax (base erosion anti-abuse tax or “BEAT”) on excessive amounts paid to foreign
related parties, deductions related to foreign derived intangible income, and a minimum tax on certain foreign
earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income
or “GILTI”). We are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or
to provide U.S. deferred taxes on foreign temporary differences that are expected to generate GILTI income when
they reverse in future years.
Refer to “Note 10— Income Taxes” in the notes to our consolidated financial statements in Item 8 for further
information on income taxes.
56
Recognition and Recoverability of Goodwill, Definite-Lived Intangibles, and Other Long-Term Assets
We account for acquired businesses using the acquisition method of accounting which requires that the
tangible assets and identifiable intangible assets acquired and assumed liabilities be recorded at the date of
acquisition at their respective fair values. Any excess purchase price over the estimated 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. Significant estimates in valuing certain intangible assets include but are not limited to future expected cash
flows from customer and supplier relationships, acquired technology and trade names from a market participant
perspective, useful lives 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. Valuations are performed by management or third party valuation specialists under
management's supervision, where appropriate.
We assess goodwill, which is not amortized, for impairment annually during the fourth quarter, or more
frequently, if events and circumstances indicate impairment may have occurred. We test goodwill for impairment at
the reporting unit level. Goodwill is assigned to reporting units that are expected to benefit from the synergies of the
business combination as of the acquisition date. We evaluate our reporting units when changes in our operating
structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. Once goodwill
has been allocated to the reporting units, it no longer retains its identification with a particular acquisition and
becomes identified with the reporting unit in its entirety. Accordingly, the fair value of the reporting unit as a whole
is available to support the recoverability of its goodwill.
The Company has the option to qualitatively assess whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. In the evaluation of goodwill for impairment, we generally first perform
a qualitative assessment to determine whether it is more likely than not (i.e., a likelihood of more than 50%) that the
estimated fair value of the reporting unit is less than the carrying amount. Periodically, we may choose to forgo the
initial qualitative assessment and proceed directly to a quantitative analysis to assist in our annual evaluation. When
assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual
reporting unit in a given year is influenced by a number of factors, such as the size of the reporting unit's goodwill,
the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative
assessment date, and the amount of time in between quantitative fair value assessments and the date of acquisition to
establish an updated baseline quantitative analysis. During a qualitative assessment, if we determine that it is not
more likely than not that the implied fair value of the goodwill is less than its carrying amount, no further testing is
necessary. If, however, we determine that it is more likely than not that the implied fair value of the goodwill is less
than its carrying amount, we then perform a quantitative assessment and compare the estimated fair value of the
reporting unit to the carrying value. If the carrying value of a reporting unit exceeds its estimated fair value, the
goodwill impairment is measured using the difference between the carrying value and the fair value of the reporting
unit, however, any loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
In determining the estimated fair values of reporting units in a quantitative goodwill impairment test, we
generally use a blend, of the following recognized valuation methods: the income approach (discounted cash flows
model) and the market valuation approach, which we believe compensates for the inherent risks of using either
model on a stand-alone basis. 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: weighted average cost of capital; long-term rate of growth and
profitability of the reporting unit; income tax rates and working capital effects. The market valuation approach
indicates the fair value of the business based on a comparison to comparable publicly traded firms in similar lines of
business and other precedent transactions. 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/or income multiples in estimating the fair value of the reporting
units. Valuations are performed by management or third party valuation specialists under management's supervision,
where appropriate. We believe that the estimated fair values assigned to our reporting units in impairment tests are
based on reasonable assumptions that marketplace participants would use. However, such assumptions are
inherently uncertain and actual results could differ from those estimates. The use of different assumptions, estimates
or judgments could trigger the need for an impairment charge, or materially increase or decrease the amount of any
such impairment charge.
57
During the Company's annual goodwill impairment test during the fourth quarter of 2017, a qualitative
assessment for all our reporting units' goodwill was performed. For fiscal year 2017, we determined the fair value of
all our reporting units were significantly in excess of their carrying values. Accordingly, we did not recognize any
impairment charges during the year ending December 31, 2017. As part of our qualitative assessment for our 2017
goodwill impairment analysis of our reporting units, the factors that we considered included, but were not limited to:
(a) changes in macroeconomic conditions in the overall economy and the specific markets in which we operate, (b)
our ability to access capital, (c) changes in the online travel industry, (d) changes in the level of competition, (e)
evaluation of current and future forecasted financial results of the reporting units, (f) comparison of our current
financial performance to historical and budgeted results of the reporting units, (g) change in excess of the
Company’s market capitalization over its book value, factoring in the decline in the Company’s stock price during
2017, (h) changes in estimates, valuation inputs, and/or assumptions since the last quantitative analysis of the
reporting units, (i) changes in the regulatory environment; and (j) changes in strategic outlook or organizational
structure and leadership of the reporting units, and how these factors might impact specific performance in future
periods. However, as we periodically reassess estimated future cash flows and asset fair values, changes in our
estimates and assumptions may cause us to realize material impairment charges in the future.
We also periodically review the carrying amount of our definite-lived intangible assets and other long-term
assets, including property and equipment and website and internal use software, to determine whether current events
or circumstances indicate that such carrying amounts may 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 assess the recoverability of the 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 of the 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, using an
appropriate discount rate. Any impairment would be measured by the amount that the carrying values, of such asset
groups, exceed their fair value and would be included in operating income on the consolidated statement of
operations. Considerable management judgment is necessary to estimate the fair value of asset groups. Accordingly,
actual results could vary significantly from such estimates. We have not identified any circumstances that would
warrant an impairment charge for any recorded definite lived or other long term assets on our consolidated balance
sheet at December 31, 2017.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
We are exposed to certain market risks, including changes in interest rates and foreign currency exchange
rates that could adversely affect our results of operations or financial condition. Our exposure to market risk
includes our revolving credit facilities, derivative instruments and cash and cash equivalents, short term and long
term marketable securities, accounts receivable, intercompany receivables/payables, accounts payable and deferred
merchant payables denominated in foreign currencies. We manage our exposure to these risks through established
policies and procedures and by assessing the anticipated near-term and long-term fluctuations in interest rates and
foreign currency exchange rates. Our objective is to mitigate potential income statement, cash flow and market
exposures from changes in foreign currency exchange rates and interest rates.
Interest Rates
As of December 31, 2017, our exposure to changes in interest rates relate primarily to our investment portfolio
and the outstanding debt under our 2015 Credit Facility. Our interest income and expense is most sensitive to
fluctuations in U.S. interest rates and Libor. Changes in interest rates affect the interest earned on our cash, cash
equivalents and marketable securities and the fair value of those securities, as well as the amount of interest we pay
on outstanding debt.
58
We currently invest our excess cash in cash deposits at major global banks, money market mutual funds and
marketable securities. Our investment policy and strategy are focused on preservation of capital and supporting our
liquidity requirements. We invest in highly-rated securities, and our investment policy limits the amount of credit
exposure to any one issuer. The policy requires investments to be investment grade, with the primary objective of
minimizing the potential risk of principal loss.
In order to provide a meaningful assessment of the interest rate risk associated with our investment portfolio,
we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our
current investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on our investment
positions as of December 31, 2017, a hypothetical 100 basis point increase in interest rates across all maturities
would result in less than a $1 million decline in the fair market value of the portfolio. Such losses would only be
realized if we sold the investments prior to maturity.
As of December 31, 2017, we had $230 million of debt under our 2015 Credit Facility, which has a variable
rate. The variable interest rate on the 2015 Credit Facility is based on current assumptions, leverage and LIBOR
rates. Based on our current outstanding debt balance as of December 31, 2017, a 25 basis point change in our
interest rates on our 2015 Credit Facility would result in an increase or decrease to interest expense of less than $1
million per annum. We currently do not hedge our interest rate risk; however, we are continually evaluating the
interest rate market, and if we become increasingly exposed to potentially volatile movements in interest rates, and if
these movements are material, this could cause us to adjust our financing strategy.
We did not experience any material financial impact from changes in interest rates for the years ended
December 31, 2017, 2016 or 2015.
Foreign Currency Exchange Rates
We conduct business in certain international markets, primarily the European Union including the United
Kingdom, Singapore and Australia. Because we operate in international markets, we have exposure to different
economic climates, political arenas, tax systems and regulations that could affect foreign currency exchange rates.
Some of our foreign subsidiaries maintain their accounting records in their respective local currencies other
than the U.S. dollar. Consequently, changes in foreign currency exchange rates may impact the translation of foreign
financial statements into U.S. dollars. As a result, we face exposure to adverse movements in foreign currency
exchange rates as the financial results of our international operations are translated from local currency, or
functional currency, into U.S. dollars upon consolidation. If the U.S. dollar weakens against the local currency, the
translation of these foreign-currency-denominated balances will result in increased net assets, revenue, operating
expenses, operating income and net income. Similarly, our net assets, revenue, operating expenses, operating
income and net income will decrease if the U.S. dollar strengthens against local currency. The effect of foreign
currency exchange on our business historically has varied from quarter to quarter and may continue to do so,
potentially materially. In order to provide a meaningful assessment of the foreign currency exchange rate risk
associated with our overall financials, we performed a sensitivity analysis. A hypothetical 10% decrease of the
foreign currency exchange rates relative to the U.S. dollar, or strengthening of the U.S. dollar, would generate an
unrealized loss of approximately $27 million related to a decrease in our net assets held in functional currencies
other than the U.S. dollar as of December 31, 2017, which would initially be recorded to accumulated other
comprehensive income (loss) on our consolidated balance sheet.
In addition, foreign currency exchange rate fluctuations on transactions denominated in currencies other than
the functional currency result in gains and losses. We recognize these transactional gains and losses (primarily Euro
currency transactions) in our consolidated statements of operations and have recorded a foreign currency exchange
gain of $1 million for the year ended December 31, 2017, and losses of $6 million for both the years ended
December 31, 2016 and 2015, respectively, in interest income and other, net on our consolidated statements of
operations. Future net transactional 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 and other functional currencies, and
the relative composition and denomination of current assets and liabilities each period.
59
We currently manage our exposure to foreign currency risk through internally established policies and
procedures. 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, as well as, using
derivative financial instruments. We use foreign currency forward exchange contracts to manage certain short-term
foreign currency risk to try and reduce the effects of fluctuating foreign currency exchange rates on our cash flows
denominated in foreign currencies. We do not use financial instruments for trading purposes and are not a party to
any leveraged derivatives.
Our objective is to hedge only those foreign currency exposures that can be confidently identified and
quantified and that may result in significant impacts to our cash or the consolidated statement of operations. Our
policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts
for which there are no underlying exposures.
Our foreign currency forward exchange contracts, to date, have principally addressed foreign currency
exchange fluctuation risk for the Euro versus the U.S. dollar. We have accounted for our derivative instruments to
date, which have not been designated as hedges under GAAP, as either assets or liabilities and carry them at fair
value. We had no outstanding forward currency contracts as of December 31, 2017. As of December 31, 2016, we
had $6 million notional value of outstanding forward currency contracts not designated as hedges. These contracts
had maturities of less than 90 days. The fair value of these derivatives at December 31, 2016 were not material. We
recognize gains and losses from our derivative contract in our consolidated statement of operations and have
recorded a loss of $1 million for the year ended December 31, 2017, and gains of $2 million for both the years ended
December 31, 2016 and 2015, respectively, in interest income and other, net on our consolidated statements of
operations. Refer to “Note 6— Financial Instruments and Fair Value Measurements” in the notes to the
consolidated financial statements in Item 8 for further detail on our derivative instruments.
As we increase our operations in international markets, our exposure to potentially volatile movements 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 foreign currency risk strategies.
60
Item 8.
Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data:
Report of Independent Registered Public Accounting Firm ....................................................................................... 62
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015.................... 63
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015 ............................................................................................................................................................... 64
Consolidated Balance Sheets as of December 31, 2017 and 2016..................................................................... 65
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017,
2016 and 2015 ............................................................................................................................................... 66
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 .................. 67
Notes to Consolidated Financial Statements...................................................................................................... 68
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and board of directors
TripAdvisor, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TripAdvisor, Inc. and subsidiaries (the
“Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2017, and the related notes (collectively, “the consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the
three-year 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 (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 21, 2018 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated 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 consolidated 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 consolidated 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 consolidated 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
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2014.
Boston, Massachusetts
February 21, 2018
/s/ KPMG LLP
62
TRIPADVISOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
2017
Year ended December 31,
2016
2015
$
1,556
$
1,480 $
1,492
Revenue
Costs and expenses:
Cost of revenue (1)
Selling and marketing (2)
Technology and content (2)
General and administrative (2)
Depreciation
Amortization of intangible assets
Total costs and expenses
Operating income
Other income (expense):
Interest expense
Interest income and other, net
Total other income (expense), net
Income before income taxes
Provision for income taxes
Net income (loss)
Earnings (loss) per share attributable to common stockholders
(Note 5):
Basic
Diluted
$
$
$
Weighted average common shares outstanding (Note 5):
Basic
Diluted
(1) Excludes amortization expense as follows:
Amortization of acquired technology included in
amortization of intangible assets
Amortization of website development costs included in
depreciation
(2) Includes stock-based compensation expense as follows:
Selling and marketing
Technology and content
General and administrative
$
$
$
$
$
72
849
243
157
79
32
1,432
124
(15)
1
(14)
110
(129)
(19) $
(0.14)
(0.14)
$
$
140
140
8 $
54
62 $
21 $
40 $
35 $
71
756
243
143
69
32
1,314
166
(12)
(3)
(15)
151
(31)
120 $
0.83 $
0.82 $
145
147
7 $
46
53 $
20 $
40 $
25 $
58
692
207
210
57
36
1,260
232
(10)
17
7
239
(41)
198
1.38
1.36
144
146
9
37
46
16
28
28
The accompanying notes are an integral part of these consolidated financial statements.
63
TRIPADVISOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income (loss)
Other comprehensive income (loss):
2017
Year ended December 31,
2016
2015
$
(19) $
120 $
Foreign currency translation adjustments (1)
Reclassification adjustment on sale of business included in
total other income (expense), net (Note 3)
Total other comprehensive income (loss)
Comprehensive income
$
35
—
35
16 $
(14)
—
(14)
106 $
198
(33)
1
(32)
166
(1)
Foreign currency translation adjustments exclude income taxes due to our intention to indefinitely reinvest the earnings of
our foreign subsidiaries in those operations. Refer to “Note 15 — Stockholders’ Equity”.
The accompanying notes are an integral part of these consolidated financial statements.
64
TRIPADVISOR, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares and per share amounts)
December 31,
2017
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents (Note 6)
Short-term marketable securities (Note 6)
Accounts receivable, net of allowance for doubtful accounts of $16 and $9,
respectively (Note 2)
Income taxes receivable (Note 10)
Prepaid expenses and other current assets
Total current assets
Long-term marketable securities (Note 6)
Property and equipment, net (Note 7)
Intangible assets, net (Note 8)
Goodwill (Note 8)
Deferred income taxes, net (Note 10)
Other long-term assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Deferred merchant payables (Note 2)
Deferred revenue
Current portion of debt (Note 9)
Income taxes payable (Note 10)
Accrued expenses and other current liabilities (Note 11)
Total current liabilities
Long-term debt (Note 9)
Deferred income taxes, net (Note 10)
Other long-term liabilities (Note 12)
Total Liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity: (Note 15)
Preferred stock, $0.001 par value
Authorized shares: 100,000,000
Shares issued and outstanding: 0 and 0
Common stock, $0.001 par value
Authorized shares: 1,600,000,000
Shares issued: 135,617,263 and 134,706,467, respectively
Shares outstanding: 126,142,773 and 131,310,980, respectively
Class B common stock, $0.001 par value
Authorized shares: 400,000,000
Shares issued and outstanding: 12,799,999 and 12,799,999, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock-common stock, at cost, 9,474,490 and 3,395,487 shares,
respectively
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
$
$
673 $
35
230
30
25
993
27
263
142
758
16
73
2,272 $
8 $
156
60
7
5
136
372
230
14
293
909
—
—
—
926
926
(42)
(447)
1,363
2,272 $
$
The accompanying notes are an integral part of these consolidated financial statements.
65
612
118
189
-
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950
16
260
167
736
42
67
2,238
14
128
64
80
10
127
423
91
12
210
736
—
—
—
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945
(77)
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6
TRIPADVISOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year ended December 31,
2016
2015
2017
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment, including amortization of internal-use
software and website development
Amortization of intangible assets
Stock-based compensation expense (Note 4)
Non-cash contribution to charitable foundation (Note 17)
Gain on sale of business (Note 3)
Deferred tax expense (benefit)
Other, net
Changes in operating assets and liabilities, net of effects from acquisitions, other
investments and dispositions:
Accounts receivable, prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities
Deferred merchant payables
Income tax receivables/payables, net
Deferred revenue
Net cash provided by operating activities
Investing activities:
Capital expenditures, including internal-use software and website development
Acquisitions and other investments, net of cash acquired (Note 3)
Proceeds from sale of business, net of cash sold (Note 3)
Purchases of marketable securities
Sales of marketable securities
Maturities of marketable securities
Other investing activities, net
Net cash provided by (used in) investing activities
Financing activities:
Repurchase of common stock (Note 15)
Proceeds from Chinese credit facilities
Payments to Chinese credit facilities
Principal payments on 2011 credit facility
Proceeds from 2015 credit facility, net of financing costs
Payments to 2015 credit facility
Proceeds from 2016 credit facility, net of financing costs
Payments to 2016 credit facility
Proceeds from exercise of stock options
Payment of withholding taxes on net share settlements of equity awards
Other financing activities, 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 period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes, net of refunds
Cash paid during the period for interest
Supplemental disclosure of non-cash investing and financing activities:
Stock-based compensation capitalized with internal-use software and website
development costs
Capitalization of construction in-process related to build to suit lease
$
(19) $
120 $
198
79
32
96
—
—
29
10
(36)
-
14
38
(5)
238
(64)
—
—
(63)
105
28
—
6
(250)
—
—
—
433
(296)
—
(73)
3
(17)
—
(200)
17
61
612
673 $
69
32
85
—
—
(20)
10
(24)
7
21
20
1
321
(72)
(43)
—
(166)
84
32
2
(163)
(105)
7
(1)
—
101
(210)
73
—
7
(15)
—
(143)
(17)
(2)
614
612 $
62 $
13 $
29 $
10 $
13 $
— $
12 $
— $
57
36
72
67
(20)
(37)
9
(31)
13
15
32
7
418
(109)
(29)
25
(205)
187
71
2
(58)
—
4
(41)
(300)
287
(90)
—
—
12
(73)
12
(189)
(12)
159
455
614
43
7
8
6
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
67
TRIPADVISOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BUSINESS DESCRIPTION
We refer to TripAdvisor, Inc. and our wholly-owned subsidiaries as “TripAdvisor,” “the Company,” “us,”
“we” and “our” in these notes to the consolidated financial statements.
On December 20, 2011 Expedia, Inc. completed a spin-off of TripAdvisor into a separate publicly traded
Delaware corporation. We refer to this transaction as the “Spin-Off.” TripAdvisor’s common stock began trading on
the NASDAQ as an independent public company on December 21, 2011 under the trading symbol “TRIP.”
On December 11, 2012, Liberty Interactive Corporation, or Liberty, purchased an aggregate of approximately
4.8 million shares of common stock of TripAdvisor from Barry Diller, our former Chairman of the Board of
Directors and Senior Executive, and certain of his affiliates. As a result, Liberty beneficially owned approximately
18.2 million shares of our common stock and 12.8 million shares of our Class B common stock.
On August 27, 2014, the entire beneficial ownership of our common stock and Class B common stock held by
Liberty was acquired by Liberty TripAdvisor Holdings, Inc., or LTRIP. Simultaneously, Liberty, LTRIP’s former
parent company, distributed, by means of a dividend, to the holders of its Liberty Ventures common stock, Liberty’s
entire equity interest in LTRIP. We refer to this transaction as the “Liberty Spin-Off”. As a result of the Liberty
Spin-Off, effective August 27, 2014, LTRIP became a separate, publicly traded company holding 100% of Liberty’s
interest in TripAdvisor.
As a result of these transactions, as of December 31, 2017, LTRIP beneficially owned approximately 18.2
million shares of our common stock and 12.8 million shares of our Class B common stock, which constitute 14.4%
of the outstanding shares of common stock and 100% of the outstanding shares of Class B common stock. Assuming
the conversion of all of LTRIP’s shares of Class B common stock into common stock, LTRIP would beneficially
own 22.3% of the outstanding common stock. Because each share of Class B common stock generally is entitled to
ten votes per share and each share of common stock is entitled to one vote per share, LTRIP may be deemed to
beneficially own equity securities representing 57.5% of our voting power.
Description of Business
TripAdvisor is an online travel company and our mission is to help people around the world to plan, book and
experience the perfect trip. We seek to achieve our mission by providing users and travel partners a global platform
about destinations, accommodations, activities and attractions, and restaurants that encompasses rich user-generated
content, price comparison tools and online reservation and related services.
TripAdvisor, Inc., by and through its subsidiaries, owns and operates a portfolio of leading online travel
brands. Our flagship brand is TripAdvisor. TripAdvisor-branded websites include tripadvisor.com in the United
States and localized versions of the website in 48 markets worldwide and 28 languages worldwide. TripAdvisor
features approximately 600 million reviews and opinions on approximately 7.5 million places to stay, places to eat
and things to do – including approximately 1.2 million hotels, inns, B&Bs and specialty lodging and 750,000
vacation rentals, 4.6 million restaurants and 915,000 activities and attractions worldwide. In addition to the flagship
TripAdvisor brand, we manage and operate the following 20 other media brands, connected by the common goal of
providing users the most comprehensive travel-planning and trip-taking resources in the travel industry:
www.airfarewatchdog.com, www.bookingbuddy.com, www.citymaps.com, www.cruisecritic.com,
www.familyvacationcritic.com, www.flipkey.com, www.thefork.com (including www.lafourchette.com,
www.eltenedor.com, www.iens.nl, and www.dimmi.com.au), www.gateguru.com, www.holidaylettings.co.uk,
www.holidaywatchdog.com, www.housetrip.com, www.jetsetter.com, www.niumba.com, www.onetime.com,
www.oyster.com, www.seatguru.com, www.smartertravel.com, www.tingo.com, www.vacationhomerentals.com,
and www.viator.com.
68
Seasonality
Traveler expenditures in the global travel market tend to follow a seasonal pattern. As such, expenditures by
travel partners/advertisers to market to potential travelers and, therefore, our financial performance, or revenue and
profits, tend to be seasonal as well. As a result, our financial performance tends to be seasonally highest in the
second and third quarters of a year, as it is a key period for leisure travel research and trip-taking, which includes the
seasonal peak in traveler hotel and vacation rental stays, and tours and attractions taken, compared to the first and
fourth quarters which represent seasonal low points. Further significant shifts in our business mix or adverse
economic conditions could result in future seasonal patterns that are different from historical trends.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include TripAdvisor, 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. All inter-company accounts and transactions have been eliminated in consolidation. Additionally, certain
prior period amounts have been reclassified for comparability with the current period presentation. The
accompanying consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”). 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.
One of our subsidiaries that operates in China has variable interests in affiliated entities in China in order to
comply with Chinese laws and regulations, which restrict foreign investment in Internet content provision
businesses. Although we do not own the capital stock of these Chinese affiliates, we consolidate their results as we
are the primary beneficiary of the cash losses or profits of these variable interest affiliates and have the power to
direct the activity of these affiliates. Our variable interest entities’ financials were not material for all periods
presented.
Accounting Estimates
We use estimates and assumptions in the preparation of our 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 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: (i) recognition and recoverability of goodwill, definite-lived intangibles and other long-lived
assets; and (ii) accounting for income taxes. Refer to “Note 10 - Income Taxes” for further discussion of our
significant income tax amounts included in our consolidated financial statements.
Revenue Recognition
We recognize revenue from our services rendered when the following four revenue recognition criteria are
met: persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable,
and collectability is reasonably assured. Deferred revenue, which primarily relates to our subscription-based and
commission based arrangements, is recorded when payments are received in advance of our performance as required
by the underlying agreements.
Click-based advertising and transaction revenue. Click-based revenue is derived primarily from click-through
fees charged to our travel partners for traveler leads sent to the travel partners’ website. We record revenue from
click-through fees in the same period as when the traveler makes the click-through to the travel partners’ website.
Our instant booking transaction model revenue is comprised of commissions earned on all valid instant booking
reservations. In a transaction model, our instant booking commission revenue is recorded at the time a traveler books
a hotel transaction on our partner’s site where we, as facilitator for such booking, do not assume associated
cancellation risk. Under the other instant booking model, called the consumption model, we assume cancellation risk
associated with booking, and we record that revenue when the traveler’s stay at a hotel occurs. We have no post-
booking service obligations for all instant booking transactions, regardless of the model chosen.
69
Display-based and subscription-based advertising. We recognize display-based advertising revenue ratably
over the advertising period or upon delivery of advertising impressions, depending on the terms of the advertising
contract. Subscription-based advertising revenue is recognized ratably over the related contractual period over which
service is delivered.
Attractions. We work with local operators, or merchant partners, to provide travelers with access to tours and
activities in popular destinations worldwide, earning a commission for such service. While the merchant of record,
we receive cash from the consumer at the time of booking of the destination activity and record these amounts, net
of commissions, as deferred merchant payables on our consolidated balance sheet. Commission revenue is recorded
as deferred revenue at the time of booking and later recognized when the consumer has completed the destination
activity. We pay the destination activity operators after the travelers’ use. In transactions where we are not the
merchant of record, we invoice and receive commissions directly from our merchant partners and record
commission revenue when the consumer has completed the destination activity.
Restaurants. We recognize reservation revenues (or per seated diner fees) on a transaction-by-transaction
basis as diners are seated by our restaurant customers. Subscription-based revenue is recognized ratably over the
related contractual period over which the service is delivered.
Vacation Rentals. We generate revenue from customers primarily on either a subscription basis over a fixed-
term, or on a commission basis for transactions that are booked on our platform. Payments for term-based
subscriptions, related to online advertising services for the listing of vacation rental properties for rent, received in
advance of services being rendered are recorded as deferred revenue and recognized ratably to revenue on a straight-
line basis over the listing period. Our commission revenue is primarily generated on our free-to-list option, in lieu of
a pre-paid subscription fee. When a commissionable transaction is booked on our platform, we act as the merchant
of record and receive cash from the traveler that includes both our commission, which is recorded as deferred
revenue, and the amount due to the property owner, which is recorded to deferred merchant payables on our
consolidated balance sheet. We pay the amount due to the property owner and recognize our commission revenue at
the time of the traveler’s stay. Additional revenues are also derived on a pay-per-lead basis, as we provide leads for
rental properties to property managers. Pay-per-lead revenue is billed and recognized in the period when the leads
are delivered to the property managers.
Cost of Revenue
Cost of revenue consists of expenses that are directly related or closely correlated to revenue generation,
including direct costs, such as ad serving fees, flight search fees, credit card fees and other transaction costs, and
data center costs. In addition, cost of revenue includes personnel and overhead expenses, including salaries, benefits,
stock-based compensation expense and bonuses for certain customer support personnel who are directly involved in
revenue generation.
Selling and Marketing
Selling and marketing expenses primarily consist of direct costs, including traffic generation costs from SEM
and other online traffic acquisition costs, syndication costs and affiliate program commissions, social media costs,
brand advertising, television and other offline advertising, promotions and public relations. In addition, our sales and
marketing expenses consist of indirect costs such as personnel and overhead expenses, including salaries,
commissions, benefits, stock-based compensation expense and bonuses for sales, sales support, customer support
and marketing employees.
We incur advertising expense, which includes traffic generation costs from SEM and other online traffic costs,
affiliate program commissions, display advertising, social media, and other online, and offline (including television)
advertising expense, promotions and public relations to promote our brands. We expense the costs associated with
communicating the advertisements in the period in which the advertisement takes place. We expense the production
costs associated with advertisements in the period in which the advertisement first takes place. For the years ended
December 31, 2017, 2016 and 2015, we recorded advertising expense of $629 million, $543 million, and $507
million, respectively, in selling and marketing expense on our consolidated statements of operations. As of both
December 31, 2017 and 2016, we had $5 million of prepaid marketing expenses included in prepaid expenses and
other current assets on our consolidated balance sheets. We expect to fully expense our prepaid marketing asset of
$5 million as of December 31, 2017 to the consolidated statement of operations during 2018.
70
Technology and Content
Technology and content expenses consist primarily of personnel and overhead expenses, including salaries
and benefits, stock-based compensation expense and bonuses for salaried employees and contractors engaged in the
design, development, testing, content support, and maintenance of our websites and mobile apps. Other costs include
licensing, maintenance expense, computer supplies, telecom costs, content translation costs, and consulting costs.
General and Administrative
General and administrative expenses consist primarily of personnel and related overhead costs, including
personnel engaged in executive leadership, finance, legal, and human resources, as well as stock-based
compensation expense for those same personnel. General and administrative costs also include professional service
fees and other fees including audit, legal, tax and accounting, and other costs including bad debt expense, non-
income taxes, such as sales, use and other non-income related taxes, and charitable contributions.
Stock-Based Compensation
Stock Options. The exercise price for all stock options granted by us to date has been equal to the market price
of the underlying shares of common stock at the date of grant. In this regard, when making stock option awards, our
practice is to determine the applicable grant date and to specify that the exercise price shall be the closing price of
our common stock on the date of grant. Our stock options generally have a term of ten years from the date of grant
and typically vest equally over a four-year requisite service period. We amortize the grant-date fair value of our
stock option grants as stock-based compensation expense over the vesting term on a straight-line basis, with the
amount of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of
the award that is vested at that date.
The estimated grant-date fair value of stock options is calculated using a Black-Scholes Merton option-
pricing model (“Black-Scholes model”). The Black-Scholes model incorporates assumptions to fair value stock-
based awards, which includes the risk-free rate of return, expected volatility, expected term and expected dividend
yield. Our risk-free interest rate is based on the rates currently available on zero-coupon U.S. Treasury issues, in
effect at the time of the grant, whose remaining maturity period most closely approximates the stock option’s
expected term assumption. Our expected volatility is calculated by equally weighting the historical volatility and
implied volatility on our own common stock. Historical volatility is determined using actual daily price observations
of our common stock price over a period equivalent to or approximate to the expected term of our stock option
grants to date. Implied volatility represents the volatility calculated from the observed prices of our actively traded
options on our common stock, with remaining maturities in excess of six months and market prices approximate to
the exercise prices of the stock option grant. We estimate our expected term using historical exercise behavior and
expected post-vest termination data. Our expected dividend yield is zero, as we have not paid any dividends on our
common stock to date and do not expect to pay any cash dividends for the foreseeable future.
Restricted Stock Units. RSUs are stock awards that are granted to employees entitling the holder to shares of
our common stock as the award vests. RSUs are measured 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 of RSUs as stock-based
compensation expense over the vesting term, which is typically four years on a straight-line basis, with the amount
of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of the
award that is vested at that date.
Performance-Based Awards. Performance-based stock options and RSUs vest upon achievement of certain
company-based performance conditions and a requisite service period. On the date of grant, the fair value of a
performance-based award is calculated using the same method as our service based stock options and RSUs
described above. We then assess whether it is probable that the individual performance targets would be achieved. If
assessed as probable, compensation expense will be recorded for these awards over the estimated performance
period. At each reporting period, we will 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
71
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.
Market-based performance RSUs, or market-based RSUs, vest upon achievement of specified levels of market
conditions. The fair value of our market-based RSUs is estimated at the date of grant using a Monte-Carlo
simulation model. The probabilities of the actual number of market-based performance units expected to vest and
resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values;
therefore, the compensation expense for these awards will be recognized assuming the requisite service period is
rendered and are not adjusted based on the actual number of awards that ultimately vest.
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. The Company accounts for forfeitures in the period in which they occur, rather than estimate
expected forfeitures.
Income Taxes
We record income taxes under the asset and 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 all relevant 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
assessing available tax planning strategies. 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 classify deferred tax assets and liabilities as noncurrent on our
consolidated balance sheet.
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.
Cash and Cash Equivalents
Our cash consists of cash deposits held in global financial institutions. Our cash equivalents consist of highly
liquid investments, including money market funds, with maturities of 90 days or less at the date of purchase.
Short-term and Long-term Marketable Securities
We classify our marketable debt securities as either short-term or long-term based on each instrument’s
underlying contractual maturity date and as to whether and when we intend to sell a particular security prior to its
maturity date. Marketable debt securities with maturities greater than 90 days at the date of purchase and 12 months
or less remaining at the balance sheet date will be classified as short-term and marketable debt securities with
maturities greater than 12 months from the balance sheet date will generally be classified as long-term. We classify
our marketable equity securities, limited by policy to money market funds and mutual funds, as either a cash
equivalent, short-term or long-term based on the nature of each security and its availability for use in current
operations.
72
As of December 31, 2017, our marketable securities have been classified and accounted for as available-for-
sale, and therefore are carried at fair value, with the unrealized gains and losses, net of taxes, reported in
accumulated other comprehensive income (loss) as a component of stockholders’ equity. Fair values are determined
for each individual security in the investment portfolio. We determine the appropriate classification of our
marketable securities at the time of purchase and reevaluate the designations at each balance sheet date. We invest in
highly-rated securities, and our investment policy limits the amount of credit exposure to any one issuer, industry
group and currency. The policy requires investments to be investment grade, with the primary objective of
minimizing the potential risk of principal loss and providing liquidity of investments sufficient to meet our operating
and capital spending requirements and debt repayments. Realized gains and losses on the sale of marketable
securities are determined by specific identification of each security’s cost basis. We may sell certain of our
marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of
credit deterioration, liquidity, and duration management. The weighted average maturity of our total invested cash
shall not exceed 18 months, and no security shall have a final maturity date greater than three years, according to our
investment policy.
We continually review our available for sale securities to determine whether a decline in fair value below the
carrying value is other than temporary. When evaluating an investment for other-than-temporary impairment, we
review factors such as the length of time and extent to which fair value has been below its cost basis, the financial
condition of the issuer and any changes thereto, and our intent to sell, or whether it is more likely than not it will be
required to sell the investment before recovery of the investment’s cost basis. Once a decline in fair value is
determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is
established. If we do not intend to sell the security, but it is probable that we will not collect all amounts due, then
only the impairment due to the credit risk would be recognized in earnings and the remaining amount of the
impairment would be recognized in accumulated other comprehensive loss within stockholders’ equity.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are generally due within 30 days and are recorded net of an allowance for doubtful
accounts. We record accounts receivable at the invoiced amount. Collateral is not required for accounts receivable.
For accounts outstanding longer than the contractual payment terms, we determine an 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.
The following table presents the changes in our allowance for doubtful accounts for the periods presented:
Allowance for doubtful accounts:
Balance, beginning of period
Charges (recoveries) to earnings
Write-offs, net of recoveries and other
adjustments
Balance, end of period
2017
December 31,
2016
(in millions)
2015
$
$
9 $
8
(1)
16 $
6 $
4
(1)
9 $
7
3
(4)
6
Derivative Financial Instruments
Our goal in managing our foreign currency 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 do
not use derivatives for trading or speculative purposes. We account for our derivative instruments as either assets or
liabilities and carry them at fair value.
73
In certain circumstances, we enter into foreign currency forward exchange contracts (“forward contracts”) to
reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign
currencies. Our derivative instruments, or forward contracts, that the Company has entered into to date have not
been designated as hedges. Derivatives that do not qualify for hedge accounting must be adjusted to fair value
through current income. Monetary assets and liabilities denominated in a currency other than the functional currency
of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in
spot rates reported in interest income and other, net on our consolidated statements of operations. Accordingly, fair
value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities
attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences.
These differences are not expected to be significant due to the short-term nature of the contracts, which to date, have
had maturities at inception of 90 days or less. The net cash received or paid related to our derivative instruments are
classified in other investing activities in our consolidated statements of cash flow.
We had not entered into any cash flow, fair value or net investment hedges as of December 31, 2017.
Property and Equipment, Including Website and Software Development Costs
We record property and equipment at cost, net of accumulated depreciation. We capitalize certain costs
incurred during the application development stage related to the development of websites and internal use software
when it is probable the project will be completed and the software will be used as intended. Capitalized costs include
internal and external costs, if direct and incremental, and deemed by management to be significant. We expense
costs related to the planning and post-implementation phases of software and website development as these costs are
incurred. Maintenance and enhancement costs (including those costs in the post-implementation stages) are typically
expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software
resulting in added functionality, in which case the costs are capitalized.
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 and website development, office furniture and other
equipment. We depreciate leasehold improvements using the straight-line method, over the shorter of the estimated
useful life of the improvement or the remaining term of the lease.
Leases
We lease office space in many countries around the world under non-cancelable lease agreements. We
generally lease our office facilities under operating lease agreements. Office facilities subject to an operating lease
and the related lease payments are not recorded on our balance sheet. The terms of certain lease agreements provide
for rental payments on a graduated basis, however, we recognize rent expense on a straight-line basis over the lease
period in accordance with GAAP. Any lease incentives are recognized as reductions of rental expense on a straight-
line basis over the term of the lease. The lease term begins on the date we become legally obligated for the rent
payments or when we take possession of the office space, whichever is earlier.
We establish assets and liabilities for the estimated construction costs incurred under lease arrangements
where we are considered the owner for accounting purposes only, or build-to-suit leases, to the extent we are
involved in the construction of structural improvements or take construction risk prior to commencement of a lease.
Upon occupancy of facilities under build-to-suit leases, we assess whether these arrangements qualify for sales
recognition under the sale-leaseback accounting guidance under GAAP. If we continue to be the deemed owner, for
accounting purposes, the facilities are accounted for as financing obligations.
We also establish assets and liabilities for the present value of estimated future costs to return certain of our
leased facilities to their original condition 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 and are included in other long-term liabilities on our consolidated balance sheet. Our asset retirement
obligations were not material as of December 31, 2017 and December 31, 2016, respectively.
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Business Combinations
We account for acquired businesses using the acquisition method of accounting which requires that the
tangible assets and identifiable intangible assets acquired and assumed liabilities be recorded at the date of
acquisition at their respective fair values. Any excess purchase price over the estimated 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. Significant estimates in valuing certain intangible assets include but are not limited to future expected cash
flows from customer and supplier relationships, acquired technology and trade names from a market participant
perspective, useful lives 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. Valuations are performed by management or third party valuation specialists under
management's supervision, where appropriate. Any changes to provisional amounts identified during the
measurement period, calculated as if the accounting had been completed as of the acquisition date, are recognized in
the consolidated statement of operations in the reporting period in which the adjustment amounts are determined.
Goodwill and Intangible Assets
Goodwill
We assess goodwill, which is not amortized, for impairment annually during the fourth quarter, or more
frequently, if events and circumstances indicate impairment may have occurred. We test goodwill for impairment at
the reporting unit level. Goodwill is assigned to reporting units that are expected to benefit from the synergies of the
business combination as of the acquisition date. We evaluate our reporting units when changes in our operating
structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. Once goodwill
has been allocated to the reporting units, it no longer retains its identification with a particular acquisition and
becomes identified with the reporting unit in its entirety. Accordingly, the fair value of the reporting unit as a whole
is available to support the recoverability of its goodwill.
The Company has the option to qualitatively assess whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. In the evaluation of goodwill for impairment, we generally first perform
a qualitative assessment to determine whether it is more likely than not (i.e., a likelihood of more than 50%) that the
estimated fair value of the reporting unit is less than the carrying amount. Periodically, we may choose to forgo the
initial qualitative assessment and proceed directly to a quantitative analysis to assist in our annual evaluation. When
assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual
reporting unit in a given year is influenced by a number of factors, such as the size of the reporting unit's goodwill,
the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative
assessment date, and the amount of time in between quantitative fair value assessments and the date of acquisition to
establish an updated baseline quantitative analysis. During a qualitative assessment, if we determine that it is not
more likely than not that the implied fair value of the goodwill is less than its carrying amount, no further testing is
necessary. If, however, we determine that it is more likely than not that the implied fair value of the goodwill is less
than its carrying amount, we then perform a quantitative assessment and compare the estimated fair value of the
reporting unit to the carrying value. If the carrying value of a reporting unit exceeds its estimated fair value, the
goodwill impairment is measured using the difference between the carrying value and the fair value of the reporting
unit, however, any loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
In determining the estimated fair values of reporting units in a quantitative goodwill impairment test, we
generally use a blend, of the following recognized valuation methods: the income approach (discounted cash flows
model) and the market valuation approach, which we believe compensates for the inherent risks of using either
model on a stand-alone basis. 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: weighted average cost of capital; long-term rate of growth and
profitability of the reporting unit; income tax rates and working capital effects. The market valuation approach
indicates the fair value of the business based on a comparison to comparable publicly traded firms in similar lines of
business and other precedent transactions. 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/or income multiples in estimating the fair value of the reporting
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units. Valuations are performed by management or third party valuation specialists under management's supervision,
where appropriate. We believe that the estimated fair values assigned to our reporting units in impairment tests are
based on reasonable assumptions that marketplace participants would use. However, such assumptions are
inherently uncertain and actual results could differ from those estimates. The use of different assumptions, estimates
or judgments could trigger the need for an impairment charge, or materially increase or decrease the amount of any
such impairment charge.
During the Company's annual goodwill impairment test during the fourth quarter of 2017, a qualitative
assessment for all our reporting units' goodwill was performed. For fiscal year 2017, we determined the fair value of
all our reporting units were significantly in excess of their carrying values. Accordingly, we did not recognize any
impairment charges during the year ending December 31, 2017. As part of our qualitative assessment for our 2017
goodwill impairment analysis of our reporting units, the factors that we considered included, but were not limited to:
(a) changes in macroeconomic conditions in the overall economy and the specific markets in which we operate, (b)
our ability to access capital, (c) changes in the online travel industry, (d) changes in the level of competition, (e)
evaluation of current and future forecasted financial results of the reporting units, (f) comparison of our current
financial performance to historical and budgeted results of the reporting units, (g) change in excess of the
Company’s market capitalization over its book value, factoring in the decline in the Company’s stock price during
2017, (h) changes in estimates, valuation inputs, and/or assumptions since the last quantitative analysis of the
reporting units, (i) changes in the regulatory environment; and (j) changes in strategic outlook or organizational
structure and leadership of the reporting units, and how these factors might impact specific performance in future
periods. However, as we periodically reassess estimated future cash flows and asset fair values, changes in our
estimates and assumptions may cause us to realize material impairment charges in the future.
Intangible Assets
Intangible assets with estimable useful lives, or definite-live intangibles, are carried at cost and are amortized
on a straight-line basis over their estimated useful lives and reviewed for impairment upon certain triggering events.
We routinely review the remaining estimated useful lives of definite-lived intangible assets. If we reduce the
estimated useful life assumption, the remaining unamortized balance is amortized over the revised estimated useful
life.
Intangible assets that have indefinite lives are not amortized and are tested for impairment annually during the
fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Similar to the qualitative assessment for goodwill, we may assess qualitative factors to determine if it is
more likely than not that the implied fair value of the indefinite-lived intangible asset is less than its carrying
amount. If we determine that it is not more likely than not that the implied fair value of the indefinite-lived
intangible asset is less than its carrying amount, no further testing is necessary. If, however, we determine that it is
more likely than not that the implied fair value of the indefinite-lived intangible asset is less than its carrying
amount, we compare the implied fair value of the indefinite-lived asset with its carrying amount. If the carrying
value of an individual indefinite-lived intangible asset exceeds its implied fair value, the individual asset is written
down by an amount equal to such excess. The assessment of qualitative factors is optional and at our discretion. We
may bypass the qualitative assessment for any indefinite-lived intangible asset in any period and resume performing
the qualitative assessment in any subsequent period. We base our measurement of fair value of indefinite-lived
intangible assets, 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 future revenues, the appropriate royalty rate and the weighted average
cost of capital, however, such assumptions are inherently uncertain and actual results could differ from those
estimates. The use of different assumptions, estimates or judgments could trigger the need for an impairment charge,
or materially increase or decrease the amount of any such impairment charge.
The carrying value of indefinite-lived intangible assets that is subject to annual assessment for impairment is
$30 million at December 31, 2017 and consists of trademarks and tradenames. During the Company's annual
indefinite-lived intangible impairment test during the fourth quarter of 2017, a qualitative assessment was
performed. As part of our qualitative assessment we considered, amongst other factors, the amount of excess fair
value of our trade names and trademarks to the carrying value of those same assets, using the results of our most
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recent quantitative assessment, while also considering changes in estimates and/or valuation input assumptions since
the last quantitative analysis. After considering these factors and the impact that changes in such factors would have
on the inputs used in our previous quantitative assessment, we determined that it was more likely than not that our
indefinite-lived intangible assets were not impaired as of December 31, 2017.
Impairment of Long-Lived Assets
We periodically review the carrying amount of our definite-lived intangible assets and other long term assets,
including property and equipment and website and internal use software, to determine whether current events or
circumstances indicate that such carrying amounts may 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 assess the recoverability of the 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 of the 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, using an
appropriate discount rate. Any impairment would be measured by the amount that the carrying values, of such asset
groups, exceed their fair value and would be included in operating income on the consolidated statement of
operations. Considerable management judgment is necessary to estimate the fair value of asset groups. Accordingly,
actual results could vary significantly from such estimates. We have not identified any circumstances that would
warrant an impairment charge for any recorded definite lived or other long term assets on our consolidated balance
sheet at December 31, 2017.
Deferred Merchant Payables
In our Vacation Rentals free-to-list model and our Attractions businesses, we receive cash from travelers at the
time of booking and we record these amounts, net of commissions, on our consolidated balance sheets as deferred
merchant payables. We pay the suppliers, or the vacation rental owners and tour providers, respectively, after the
travelers’ use. Therefore, we receive cash from the traveler prior to paying the supplier and this operating cycle
represents a working capital source or use of cash to us. Our deferred merchant payables balance was $156 million
and $128 million at December 31, 2017 and 2016, respectively, on our consolidated balance sheets.
Foreign Currency Translation and Transaction Gains and Losses
Our consolidated financial statements are reported in U.S. dollars. Certain of our subsidiaries outside of the
United States use the related local currency as their functional currency and not the U.S. dollar. Therefore assets and
liabilities of our foreign subsidiaries are translated at the spot rate in effect at the applicable reporting date, and the
consolidated statements of operations are translated at the average exchange rates in effect during the applicable
period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other
comprehensive income (loss) in stockholders’ equity on our consolidated balance sheet.
We also have subsidiaries that have transactions in foreign currencies other than their functional currency.
Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at
the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which
are reflected in our consolidated statements of operations as unrealized (based on the applicable period-end
exchange rate) or realized upon settlement of the transactions. Accordingly, we have recorded net foreign currency
exchange gains of $1 million and losses of $4 million and $4 million for the years ended December 31, 2017, 2016
and 2015, respectively, in interest income and other, net on our consolidated statement of operations. These amounts
also include transaction gains and losses, both realized and unrealized from forward contracts.
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Fair Value Measurements and Disclosures
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities
that are recognized or disclosed at fair value in the financial statements on a recurring basis. We measure assets and
liabilities at fair value based on the expected exit price, which is the amount that would be received on the sale of an
asset or amount paid to transfer a liability, as the case may be, in an orderly transaction between market participants
in the principal or most advantageous market in which we would transact. As such, fair value may be based on
assumptions that market participants would use in pricing an asset or liability at the measurement date. The
authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on
either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical
level. GAAP provides the following hierarchical levels of inputs used to measure fair value:
Level 1—Valuations are based on quoted market prices for identical assets and liabilities in active
markets.
Level 2—Valuations are based on observable inputs other than quoted market 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 are based on unobservable inputs reflecting our 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 concentration related to dependence on
our relationships with our customers. For the years ended December 31, 2017, 2016 and 2015 our two most
significant travel partners, Expedia (and its subsidiaries) and Priceline (and its subsidiaries), each accounted for
more than 10% of our consolidated revenue and combined accounted for 43%, 46% and 46%, respectively, of our
consolidated revenue. Nearly all of this concentration of revenue is recorded in our Hotel segment for these
reporting periods. Refer to “Note 17 – Segment and Geographic Information” for further disclosure on our
concentrations for geographic revenue and products.
Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of cash
and cash equivalents, corporate debt securities, foreign currency exchange contracts, and accounts receivable. 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 bank account
balances with financial institutions primarily denominated in U.S. dollars, Euros, British pound sterling, and
Australian dollars, as well as, money market funds. We invest in highly-rated corporate debt securities, and our
investment policy limits the amount of credit exposure to any one issuer, industry group and currency. Our credit
risk related to corporate debt securities is also mitigated by the relatively short maturity period required by our
investment policy. Foreign currency exchange contracts are transacted with various international financial
institutions with high credit standings, which to date, have had maturities of less than 90 days. Our overall credit risk
related to accounts receivable is mitigated by the relatively short collection period.
Contingent Liabilities
Periodically, we review the status of all significant outstanding matters to assess any 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 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 may be 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.
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Treasury Stock
Shares of our common stock repurchased are recorded at cost as treasury stock and result in the reduction of
stockholders' equity in our consolidated balance sheet. We may reissue these treasury shares. When treasury shares
are reissued, we use the average cost method for determining the cost of reissued shares. If the issuance price is
higher than the cost, the excess of the issuance price over the cost is credited to additional paid-in-capital. If the
issuance price is lower than the cost, the difference is first charged against any credit balance in additional paid-in-
capital from the previous issuances of treasury stock and the remaining balance is charged to retained earnings.
Earnings Per Share (“EPS”)
We compute basic earnings per share by dividing net income by the weighted average number of common and
Class B common shares outstanding during the period. Diluted earnings per share include the potential dilution of
common equivalent shares outstanding that could occur from stock-based awards and other stock-based
commitments using the treasury stock method. We compute diluted earnings per share by dividing net income by the
sum of the weighted average number of common and common equivalent shares outstanding during the period. 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 effect. For additional information on how we compute
EPS, see Note 5 — Earnings Per Share.
New Accounting Pronouncements Not Yet Adopted
In May 2017, the Financial Accounting Standard Board (“FASB”) issued new accounting guidance that
clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as
modifications which will reduce diversity in practice. Under the new guidance, an entity will not apply modification
accounting to a share-based payment award if the award’s fair value (or calculated value or intrinsic value, if those
measurement methods are used), the award’s vesting conditions, and the award’s classification as an equity or
liability instrument are the same immediately before and after the change. The guidance also states that an entity is
not required to estimate the value of the award immediately before and after the change if the change does not affect
any of the inputs to the model used to value the award. The guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017, and will be applied prospectively to awards modified
on or after the adoption date. Early adoption is permitted, including adoption in any interim period for which
financial statements have not yet been issued or made available for issuance. We will adopt this new guidance on
January 1, 2018. Upon adoption, we believe the new guidance will likely result in fewer changes to the terms of an
award being accounted for as modifications.
In March 2017, the FASB issued new accounting guidance which shortens the amortization period for the
premium paid on certain purchased callable debt securities to the earliest call date instead of the bond’s maturity.
The amendments do not require an accounting change for securities held at a discount; instead, the discount
continues to be amortized to maturity. The guidance is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018, and will be applied on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early
adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim
period. We anticipate adopting this new guidance on January 1, 2019 and based on the composition of our current
investment portfolio we do not expect the new guidance will have a material impact on our consolidated financial
statements and related disclosures.
In January 2017, the FASB issued new accounting guidance to clarify the definition of a business and provide
additional guidance to assist entities with evaluating whether transactions should be accounted for as asset
acquisitions (or asset disposals) or business combinations (or disposals of a business). Under this new guidance, an
entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted
for as an asset acquisition as opposed to a business combination. This distinction is important because the
accounting for an asset acquisition significantly differs from the accounting for a business combination. This new
guidance eliminates the requirement to evaluate whether a market participant could replace missing elements (e.g.
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inputs or processes), narrows the definition of outputs and requires that a business include, at a minimum, an input
and a substantive process that together significantly contribute to the ability to create outputs. This new guidance is
effective for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption
is permitted including adoption in any interim or annual periods in which the financial statements have not been
issued or made available for issuance. The new guidance will be applied prospectively to any transactions occurring
within the period of adoption. We will adopt this new guidance on January 1, 2018. Upon adoption, the new
guidance will impact how we assess any prospective acquisitions (or disposals) of assets or businesses.
In November 2016, the FASB issued new accounting guidance on the classification and presentation of
restricted cash in the statement of cash flows to address the diversity in practice. This new guidance requires entities
to show changes in cash, cash equivalents and restricted cash on a combined basis in the statement of cash flows. In
addition, this accounting guidance requires a reconciliation of the total cash, cash equivalent and restricted cash in
the statement of cash flows to the related captions in the balance sheet if cash, cash equivalents and restricted cash
are presented in more than one line item in the balance sheet. The guidance is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, including
adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that
includes that interim period. We will adopt this new guidance on January 1, 2018 and apply it retrospectively to all
prior periods presented in the financial statements as required under the new guidance. We do not expect a material
impact on our consolidated financial statements and related disclosures upon the adoption of this new guidance.
In October 2016, the FASB issued new accounting guidance on income tax accounting 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 guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early
adoption is permitted as of the beginning of an annual reporting period for which interim or annual financial
statements have not been issued. Upon our adoption of this new guidance on January 1, 2018, we are required to
apply the new guidance only on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings as of the beginning of the period of adoption, which we do not expect to be material to our
consolidated financial statements and related disclosures.
In August 2016, the FASB issued new accounting guidance which clarifies how companies present and
classify certain cash receipts and cash payments in the statement of cash flows. The new guidance specifically
addresses the following cash flow topics in an effort to reduce diversity in practice: (1) debt prepayment or debt
extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a
business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of
corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received
from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable
cash flows and application of the predominance principle. The guidance is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Upon adoption,
an entity may apply the new guidance only retrospectively to all prior periods presented in the financial statements.
We will adopt this new guidance on January 1, 2018 and we do not expect this new guidance will have a material
impact on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses for financial
assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. For
financial assets measured at amortized cost, this new guidance requires an entity to: (1) estimate its lifetime
expected credit losses upon recognition of the financial assets and establish an allowance to present the net amount
expected to be collected; (2) recognize this allowance and changes in the allowance during subsequent periods
through net income; and (3) consider relevant information about past events, current conditions and reasonable and
supportable forecasts in assessing the lifetime expected credit losses. For available-for-sale debt securities, this new
guidance made several targeted amendments to the existing other-than-temporary impairment model, including: (1)
requiring disclosure of the allowance for credit losses; (2) allowing reversals of the previously recognized credit
losses until the entity has the intent to sell, is more-likely-than-not required to sell the securities or the maturity of
the securities; (3) limiting impairment to the difference between the amortized cost basis and fair value; and (4) not
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allowing entities to consider the length of time that fair value has been less than amortized cost as a factor in
evaluating whether a credit loss exists. This guidance is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019, with early adoption permitted, including interim periods within
those fiscal years beginning after December 15, 2018. We are currently considering our timing of adoption and in
the process of evaluating the impact of adopting this guidance on our consolidated financial statements and related
disclosures.
In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires
the recognition of assets (right-of-use-assets) and liabilities arising from lease transactions on the balance sheet and
the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for
its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and
liability will initially be measured at the present value of the future minimum lease payments over the lease term.
The new guidance will classify leases as either finance or operating leases, with classification determining the
presentation of expenses and cash flows on our consolidated financial statements. Initial costs directly attributable to
negotiating and arranging the lease will be included in the asset. For leases with a term of 12 months or less, a lessee
can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding
liability. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit
leases and amounts previously recognized in accordance with the business combinations guidance for leases. We
will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and
uncertainty of cash flows arising from leases which include, among other things, the computation and disclosure of
our weighted average remaining lease term and discount rate, cash paid for amounts included in the measurement of
lease liabilities, and supplemental non-cash information on lease liabilities arising from obtaining the right-of-use
assets. These disclosures are intended to provide supplemental information to the amounts recorded in the financial
statements so that users can better understand the nature of an entity’s leasing activities. This guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early
adoption permitted, which will require the recognition and measurement of leases at the beginning of the earliest
comparative period presented in the financial statements using a modified retrospective approach. We anticipate
adopting this new guidance on January 1, 2019.
To date, we have made measurable progress toward evaluating the new lease guidance and are in the process
of updating accounting policies, accounting position memos, and evaluating our existing population of contracts to
ensure all contracts that meet the definition of a lease contract under the new standard are identified. We are also in
the process of implementing additional lease software to support our accounting and reporting process, including the
new quantitative and qualitative financial disclosure requirements. In addition, we are evaluating the impact of the
system implementation and new accounting guidance on our internal controls. We will continue to provide updates
of our assessment of the effect, that this new lease guidance will have on our consolidated financial statements,
disclosures, systems and related internal controls, and will disclose any material effects, if any, when known.
In January 2016, the FASB issued a new accounting update which amends the guidance on the classification
and measurement of financial instruments. Although the accounting update retains many current requirements, it
significantly revises accounting related to (1) the classification and measurement of investments in equity securities
and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The accounting
update also amends certain fair value disclosures of financial instruments and clarifies that an entity should evaluate
the need for a valuation allowance on a deferred tax asset related to available-for-sale debt securities in combination
with the entity’s evaluation of their other deferred tax assets. The update requires entities to carry all investments in
equity securities, including other ownership interests such as partnerships, unincorporated joint ventures and limited
liability companies at fair value, with fair value changes recognized through net income. This requirement does not
apply to investments that qualify for equity method accounting, investments that result in consolidation of the
investee or investments in which the entity has elected the practicability exception to fair value measurement. Under
current GAAP, available-for-sale investments in equity securities, with a readily determinable fair value, are re-
measured to fair value at each reporting period with changes in fair value recognized in accumulated other
comprehensive income (loss). However, under the new guidance, fair value adjustments will be recognized through
net income. For equity securities currently accounted for under the cost method (as they do not have a readily
determinable fair value), the new guidance requires those equity investments to be carried at fair value with changes
in net income, unless an entity elects to measure those investments, at cost less impairment, if any, plus or minus
changes resulting from observable price changes in orderly transactions for the identical or a similar investment of
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the same issuer. The Company intends to elect this measurement alternative for equity securities without a readily
determinable fair value. Additionally, this accounting update will simplify the impairment assessment of equity
investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.
When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at
fair value. In addition, this accounting update eliminates the requirement for public business entities to disclose the
methods and significant assumptions used to estimate the fair value that is currently required to be disclosed for
financial instruments measured at amortized cost in the balance sheet. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for the
provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-
specific credit risk in other comprehensive income. We will adopt this new guidance on January 1, 2018 on a
modified retrospective basis, which requires an entity to recognize the cumulative effect of adopting this guidance as
an adjustment to the opening balance of retained earnings, which we do not expect to be material. We also do not
expect a material impact on our consolidated financial statements and related disclosures upon the adoption of this
new guidance.
In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers which
will replace numerous requirements in GAAP, and provide companies with a single revenue recognition model for
recognizing revenue from contracts with customers. The core principle of the new standard is that a company should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those goods or services. This guidance
also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. 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 two permitted transition methods under this new accounting guidance are the full retrospective method, in
which case the guidance would be applied to each prior reporting period presented and the cumulative effect of
applying the guidance would be recognized at the earliest period shown, or the modified retrospective method, in
which case the cumulative effect of applying the guidance would be recognized at the date of initial application. We
will adopt this new guidance on January 1, 2018 under the modified retrospective method applied to those contracts
which were not completed as of that date. Upon adoption, we will recognize the cumulative effect of adopting this
guidance as an adjustment to our opening balance of retained earnings. We do not expect this adjustment to be
material. Prior periods will not be retrospectively adjusted, however, revenues for 2018 will be reported on the new
basis and also disclosed on the historical basis.
We have evaluated our revenue streams and based on the Company's analysis; the adoption of this new
revenue guidance will result primarily in immaterial timing changes in recognition of revenue to certain revenue
streams, such as for our instant booking revenue recorded under the consumption model, which will be recognized at
the transaction booking date for a hotel accommodation rather than upon completion of the stay by the traveler. We
expect the adoption of this new revenue standard will not have a material impact, either on an annual or quarterly
basis, to our consolidated financial statements on a go-forward basis. Our systems and internal controls were not
significantly impacted related to the identified accounting changes. While we have made the necessary changes to
our accounting policies and internal processes to support the new revenue recognition standard, we are continuing
our assessment of potential changes to our disclosures under the new guidance.
Recently Adopted Accounting Pronouncements
On December 22, 2017, the SEC published Staff Accounting Bulletin (SAB) No. 118, which expresses views
of the staff regarding application of FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, in
the reporting period that includes December 22, 2017, the date on which the 2017 Tax Act was signed into law. The
2017 Tax Act changes existing United States tax law and includes numerous provisions that will affect businesses.
The 2017 Tax Act, for instance, introduces changes that impact U.S. corporate tax rates, business-related exclusions,
and deductions and credits. The 2017 Tax Act will also have international tax consequences for many companies
that operate internationally. Specifically, the staff issued this SAB to address situations where the accounting under
82
ASC Topic 740 is incomplete for certain income tax effects of the 2017 Tax Act upon issuance of an entity’s
financial statements for the reporting period in which the 2017 Tax Act was enacted. A company would report
provisional amounts for the specific income tax effects of the 2017 Tax Act for which the accounting under FASB
ASC Topic 740 will be incomplete but a reasonable estimate can be determined. Such provisional amounts would be
subject to adjustment during a “measurement period,” i.e., begins on December 22, 2017 and ends when a company
has obtained, prepared, and analyzed the information that was needed in order to complete the accounting
requirements under ASC Topic 740, until the accounting under FASB ASC Topic 740 is complete and in no
circumstances should the measurement period extend beyond one year from the enactment date. Additionally,
supplemental disclosures should accompany the provisional amounts, including the reasons for the incomplete
accounting, additional information or analysis that is needed, and other information relevant to why the registrant
was not able to complete the accounting required under FASB ASC Topic 740 in a timely manner. For any specific
income tax effects of the 2017 Tax Act for which a reasonable estimate cannot be determined, the company would
continue to apply FASB ASC Topic 740 based on the provisions of the tax laws that were in effect immediately
prior to the 2017 Tax Act being enacted, and would report provisional amounts in the first reporting period in which
a reasonable estimate can be determined. Refer to “Note 10 - Income Taxes” for further discussion on the impact of
the 2017 Tax Act on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued new accounting guidance to simplify the accounting for goodwill impairment.
The new guidance removes step two of the goodwill impairment test, which measures a goodwill impairment loss by
comparing the implied fair value of a reporting unit’s goodwill, which requires a hypothetical purchase price
allocation, with the carrying amount of that reporting unit’s goodwill. Under this new guidance, an entity should
perform its annual, or interim, quantitative goodwill impairment test by comparing the fair value of a reporting unit
with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit. All other goodwill impairment guidance will remain largely unchanged.
Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative
impairment test is necessary. The new guidance is effective for annual and interim periods in fiscal years beginning
after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests occurring after
January 1, 2017. The new guidance will be applied prospectively. We early adopted this new guidance in the fourth
quarter of 2017. The adoption of this new guidance had no impact on our annual goodwill impairment analysis, or
on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued new accounting guidance which amends the consolidation guidance on
how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in
the entity held through related parties that are under common control within the reporting entity when determining
whether it is the primary beneficiary of that variable interest entity. We adopted this new guidance on January 1,
2017, on a retrospective basis, with no impact on our consolidated financial statements and related disclosures.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
During the years ended December 31, 2016 and 2015, we acquired a number of businesses in which business
combinations were accounted for as purchases of businesses under the acquisition method. The fair value of
purchase consideration has been allocated to tangible and identifiable intangible assets acquired and liabilities
assumed, based on their respective fair values on the acquisition date, with the remaining amount recorded to
goodwill. Acquired goodwill represents the premium we paid over the fair value of the net tangible and intangible
assets acquired. We paid a premium in each of these transactions for a number of reasons, including expected
operational synergies, the assembled workforces, and the future development initiatives of the assembled
workforces. The results of each of these acquired businesses have been included in the consolidated financial
statements beginning on the respective acquisition dates. Pro-forma results of operations for these acquisitions have
not been presented as the financial impact to our consolidated financial statements, both individually and in
aggregate, would not be materially different from historical results. For both the years ended December 31, 2016
and 2015, acquisition-related costs were expensed as incurred and were $1 million, respectively, which are included
in general and administrative expenses on our consolidated statements of operations.
83
2016 Acquisitions of Businesses
During the year ended December 31, 2016, we completed five acquisitions with a total purchase price of $34
million. The Company paid net cash consideration of $28 million, which is net of $4 million of cash acquired, and
includes $2 million in future holdback payments, which we currently expect to settle with Company common stock
over the next three years. The cash consideration was paid primarily from our U.S. cash. We acquired 100% of the
outstanding capital stock of the following companies: Tous Au Restaurant, a leading restaurant event week brand in
France, purchased in January 2016; HouseTrip, a European-based vacation rental website, purchased in April 2016;
Citymaps, a social mapping platform, purchased in August 2016; Sneat, a provider of a mobile reservation platform
for restaurants in France, purchased in October 2016; and Couverts, a provider of an online and mobile reservations
platform for restaurants in the Netherlands, purchased in October 2016.
The aggregate purchase price consideration of $34 million was allocated to the fair value of assets acquired
and liabilities assumed. The following summarizes the final allocation, in millions:
Goodwill (1)
Intangible assets (2)
Net tangible assets (liabilities) (3)
Total purchase price consideration (4)
$
$
Total
17
25
(8)
34
(1) Goodwill is not deductible for tax purposes.
(2)
Identifiable definite-lived intangible assets acquired during 2016 were comprised of trade names of $4
million with a weighted average life of 10 years, customer lists and supplier relationships of $4 million with
a weighted average life of 6 years, subscriber relationships of $5 million with a weighted average life of
approximately 7 years, and technology and other of $12 million with a weighted average life of
approximately 5 years. The overall weighted-average life of the identifiable definite-lived intangible assets
acquired in the purchase of these businesses during 2016 was 6 years, and will be amortized on a straight-
line basis over their estimated useful lives from acquisition date.
Primarily includes cash acquired of $4 million, accounts receivable of $2 million, and liabilities assumed,
including accrued expenses and deferred merchant payables of $3 million and $10 million, respectively,
which reflect their respective fair values at acquisition.
Subject to adjustment based on indemnification obligations for general representations and warranties of
certain acquired company stockholders.
(3)
(4)
2016 Other Investments
During the year ended December 31, 2016, we also invested a total of $14 million in the equity securities of
privately-held companies. The cash consideration was paid primarily from our non-U.S. subsidiaries. These
investments were recorded to other long-term assets on our consolidated balance sheet on the acquisition date as cost
method investments.
2015 Acquisitions of Businesses
During the year ended December 31, 2015, we completed three acquisitions for a total purchase price
consideration of $28 million and paid in cash. The cash consideration was paid primarily from our non-U.S.
subsidiaries. We acquired 100% of the outstanding capital stock of the following companies: ZeTrip, a personal
journal app that helps users log activities, including places they have visited and photos they have taken, purchased
in January 2015; BestTables, a provider of an online and mobile reservations platform for restaurants in Portugal
and Brazil, purchased in March 2015; and Dimmi, a provider of an online and mobile reservations platform for
restaurants in Australia, purchased in May 2015.
84
The aggregate purchase price consideration of $28 million was allocated to the fair value of assets acquired
and liabilities. The following summarizes the final allocation, in millions:
Goodwill (1)
Intangible assets (2)
Net tangible assets (liabilities)
Deferred tax liabilities, net
Total purchase price consideration
$
$
Total
17
12
1
(2)
28
(1) Goodwill is not deductible for tax purposes.
(2)
Identifiable definite-lived intangible assets acquired during 2015 were comprised of trade names of $2 million
with a weighted average life of approximately 10 years, customer lists and supplier relationships of $7 million
with a weighted average life of approximately 6 years and technology and other of $3 million with a weighted
average life of approximately 2 years. The overall weighted-average life of the identifiable definite-lived
intangible assets acquired in the purchase of these businesses during 2015 was 6 years, and will be amortized
on a straight-line basis over their estimated useful lives from acquisition date.
2015 Sale of Business
In August 2015, we sold 100% interest in one of our Chinese subsidiaries to an unrelated third party for $28
million in cash consideration. Accordingly, we deconsolidated $11 million of assets (which included $3 million of
cash sold) and $4 million of liabilities from our consolidated balance sheet and recognized a $20 million gain on sale
of subsidiary on our consolidated statement of operations in interest income and other, net during the year ended
December 31, 2015.
NOTE 4: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS
Stock-based Compensation Expense
The following table presents the amount of stock-based compensation expense related to stock-based awards,
primarily stock options and RSUs, on our consolidated statements of operations during the periods presented:
Selling and marketing
Technology and content
General and administrative
Total stock-based compensation expense
Income tax benefit from stock-based compensation
expense
Total stock-based compensation expense, net of
tax effect
2017
Year ended December 31,
2016
(in millions)
2015
$
21 $
40
35
96
20 $
40
25
85
(28)
(31)
$
68
$
54 $
16
28
28
72
(26)
46
During the years ended December 31, 2017, 2016 and 2015, we capitalized $13 million, $12 million and $8
million, respectively, of stock-based compensation expense as internal-use software and website development costs.
85
Stock and Incentive Plans
On December 20, 2011, our 2011 Stock and Annual Incentive Plan became effective and we filed Post-
Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (File No. 333-178637) (the “Prior
Registration Statement”) with the SEC, registering a total of 17,500,000 shares of our common stock, of which
17,400,000 shares were issuable in connection with grants of equity-based awards under our 2011 Incentive Plan
(7,400,000 of which shares were originally registered on the Form S-4 and 10,000,000 of which shares were first
registered on the Prior Registration Statement) and 100,000 shares were issuable under our Deferred Compensation
Plan for Non-Employee Directors (refer to “Note 14— Employee Benefit Plans” below for information on our
Deferred Compensation Plan for Non-Employee Directors). At our annual meeting of stockholders held on June 28,
2013, our stockholders approved an amendment to our 2011 Stock and Annual Incentive Plan to, among other
things, increase the aggregate number of shares of common stock authorized for issuance thereunder by 15,000,000
shares. We refer to our 2011 Stock and Annual Incentive Plan, as amended, the “2011 Incentive Plan”.
Pursuant to the 2011 Incentive Plan, we may, among other things, grant RSUs, restricted stock, stock options
and other stock-based awards to our directors, officers, employees and consultants. The summary of the material
terms of the 2011 Incentive Plan is qualified in its entirety by the full text of the 2011 Incentive Plan previously filed.
As of December 31, 2017, the total number of shares reserved for future stock-based awards under the 2011
Incentive Plan is approximately 9.4 million shares. All shares of common stock issued in respect of the exercise of
options or other equity awards since Spin-Off have been issued from authorized, but unissued common stock.
Stock Based Award Activity and Valuation
2017 Stock Option Activity
During the year ended December 31, 2017, we have issued 2,333,361 of service-based non-qualified stock
options from the 2011 Incentive Plan. These stock options generally have a term of ten years from the date of grant
and typically vest equally over a four-year requisite service period.
A summary of our stock option activity is presented below:
Options outstanding at December 31, 2016
Granted (1)
Exercised (2)
Cancelled or expired
Options outstanding as of December 31, 2017
Exercisable as of December 31, 2017
Vested and expected to vest after December 31,
2017 (3)
Weighted Weighted
Average
Exercise
Price Per Contractual
Average
Remaining Aggregate
Share
Life
Intrinsic
Value
(in years) (in millions)
Options
Outstanding
(in thousands)
5,818 $
2,333
(496)
(802)
6,853 $
3,340 $
57.60
40.03
29.37
65.13
52.78
52.69
6,853
$
52.78
6.5 $
4.4 $
6.5
$
3
3
3
(1) Inclusive of 780,000 stock options awarded to our Chief Executive Officer and President, or CEO, during
November 2017. The estimated grant-date fair value per option, using a Black-Scholes option pricing
model was $17.33. These stock options shall vest in equal installments on each of August 1, 2021 and
August 1, 2022, subject to the CEO’s continuous employment with, or performance of services for, the
Company. The estimated grant-date fair value of this award will be amortized on a straight-line basis over
the requisite service period through August 1, 2022.
86
(2) Inclusive of 294,410 options, which were not converted into shares due to net share settlement in order to
cover the aggregate exercise price and the required amount of employee withholding taxes. Potential shares
which had been convertible under stock options that were withheld under net share settlement remain in the
authorized but unissued pool under the 2011 Incentive Plan and can be reissued by the Company. Total
payments for the employees’ tax obligations to the taxing authorities due to net share settlements are
reflected as a financing activity within the consolidated statements of cash flows.
(3) The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed
under GAAP and therefore do not include a forfeiture rate in our vested and expected to vest calculation
unless necessary for a performance condition award.
Aggregate intrinsic value represents the difference between the closing stock price of our common stock and
the exercise price of outstanding, in-the-money options. Our closing stock price as reported on NASDAQ as of
December 31, 2017 was $34.46. The total intrinsic value of stock options exercised for the years ended
December 31, 2017, 2016 and 2015 were $8 million, $24 million, and $149 million, respectively.
The fair value of stock option grants under the 2011 Incentive Plan has been estimated at the date of grant
using the Black–Scholes option pricing model with the following weighted average assumptions for the periods
presented:
Risk free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
2017
December 31,
2016
2015
2.02%
6.13
1.20%
4.85
1.58%
5.42
42.14% 41.81% 41.79%
— %
— %
— %
The weighted-average grant date fair value of options granted was $16.50, $22.95, and $33.02 for the years
ended December 31, 2017, 2016 and 2015, respectively. The total fair value of stock options vested for the years
ended December 31, 2017, 2016 and 2015 were $40 million, $28 million, and $36 million, respectively. Cash
received from stock option exercises for the years ended December 31, 2017, 2016 and 2015 were $3 million, $7
million, and $12 million, respectively.
On June 5, 2017, the Section 16 Committee of our Board of Directors approved an amendment to the
nonqualified stock option award (the “Option”) granted on August 28, 2013 to Stephen Kaufer, the Company’s
CEO. The amendment provides that the Option will expire on the tenth anniversary, instead of the seventh
anniversary, of the grant date. Vesting conditions under the Option were not affected by this amendment. As a result
of the modification, incremental fair value of $5 million will be recognized to stock-based compensation expense on
a straight-line basis over the remaining vesting term, which is through August 2018.
2017 RSU Activity
During the year ended December 31, 2017, we issued 5,042,160 RSUs under the 2011 Incentive Plan, which
typically vest over a four-year requisite service period.
87
A summary of our RSU activity, including service based awards and performance-based awards, is presented
below:
Unvested RSUs outstanding as of December 31, 2016
Granted (1)(2)
Vested and released (3)
Cancelled
Unvested RSUs outstanding as of December 31, 2017
Expected to vest after December 31, 2017 (4)
Weighted
Average
Grant-
Date Fair
RSUs
Outstanding Value Per Share
(in thousands)
Aggregate
Intrinsic
Value
(in millions)
2,856 $
5,042
(1,030)
(853)
6,015 $
6,015 $
69.35
41.09
67.25
52.64
48.14 $
48.14 $
207
207
(1)
(2)
(3)
(4)
Includes the following RSU grants awarded to our CEO, during November 2017: 1) 426,000 service-
based RSUs; and 2) 213,000 market-based RSUs. The service-based RSU award provides for vesting in
two equal annual installments on each of August 1, 2021 and August 1, 2022, subject to the CEO’s
continuous employment with, or performance of services for, the Company. The estimated grant-date fair
value per RSU, based on the quoted price of our common stock on the date of grant, was $34.71. The
estimated grant-date fair value of this award will be amortized on a straight-line basis over the requisite
service period through August 1, 2022. The market-based RSU award provides for vesting based upon the
Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2018
through December 31, 2020 relative to the TSR performance of the Nasdaq Composite Total Return
Index. A Monte-Carlo simulation model, which simulated the present value of the potential outcomes of
future stock prices and TSR of the Company and the Nasdaq Composite Total Return Index over the
performance period, was used to calculate the grant-date fair value of these awards, or $30.04 per RSU.
The estimated grant-date fair value of this award will be amortized on a straight-line basis over the
requisite service period through December 31, 2020. Based upon actual attainment relative to the target
performance metric, the CEO has the ability to receive up to 125% of the target number of market-based
RSUs originally granted, or to be issued none at all.
Excludes a performance-based RSU grant for 213,000 shares awarded to our CEO during November 2017.
This award provides for vesting based on the extent to which the Company achieves certain financial
and/or the CEO achieves certain strategic performance metrics relative to the targets to be established by
the Company’s Compensation Committee. One quarter of these RSUs may vest and settle annually based
on actual performance relative to the targets established annually for each of the four fiscal years ending
December 31, 2018; December 31, 2019; December 31, 2020 and December 31, 2021. The estimated
grant-date fair value per RSU will be calculated upon the establishment of annual performance targets and
each tranche will be amortized on a straight-line basis over its requisite service period. At any point in
time during the vesting period, the award’s expense to date will at least equal the portion of the grant-date
fair value that is expected to vest at that date. Based upon actual attainment relative to the target
performance metrics, the CEO has the ability to receive up to 125% of the target number originally
granted, or to be issued none at all.
Inclusive of 301,932 RSUs withheld to satisfy required employee tax withholding requirements due to net
share settlement. Potential shares which had been convertible under RSUs that were withheld under net
share settlement remain in the authorized but unissued pool under the 2011 Incentive Plan and can be
reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due
to net share settlements are reflected as a financing activity within the consolidated statements of cash
flows.
The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed
under GAAP and therefore do not include a forfeiture rate in our expected to vest calculation unless
necessary for a performance condition award, respectively.
88
Total current income tax benefits associated with the exercise or settlement of TripAdvisor stock-based
awards held by our employees during the years ended December 31, 2017, 2016, and 2015 were $27 million, $21
million and $63 million, respectively.
Unrecognized Stock-Based Compensation
A summary of our remaining unrecognized compensation expense and the weighted average remaining
amortization period at December 31, 2017 related to our non-vested stock options and RSU awards is presented
below (in millions, except in years information):
Unrecognized compensation expense
Weighted average period remaining (in years)
Stock
Options
$
52 $
2.9
RSUs
222
3.0
NOTE 5: EARNINGS PER SHARE
Basic Earnings Per Share Attributable to Common Stockholders
We compute basic earnings per share, or Basic EPS, by dividing net income by the weighted average number
of common shares outstanding during the period. We compute the weighted average number of common shares
outstanding during the reporting period using the total of common stock and Class B common stock outstanding as
of the last day of the previous year end reporting period plus the weighted average of any additional shares issued
and outstanding less the weighted average of any common shares repurchased during the reporting period.
Diluted Earnings Per Share Attributable to Common Stockholders
Diluted earnings per share, or Diluted EPS, include the potential dilution of common equivalent shares
outstanding that could occur from stock-based awards and other stock-based commitments using the treasury stock
method. We compute Diluted EPS by dividing net income (loss) by the sum of the weighted average number of
common and common equivalent shares outstanding during the period. We computed the weighted average number
of common and common equivalent shares outstanding during the period using the sum of (i) the number of shares
of common stock and Class B common stock used in the basic earnings per share calculation as indicated above, and
(ii) if dilutive, the incremental weighted average common stock that we would issue upon the assumed exercise of
outstanding common equivalent shares related to stock options and the vesting of restricted stock units using the
treasury stock method, and (iii) if dilutive, performance based awards based on the number of shares that would be
issuable as of the end of the reporting period assuming the end of the reporting period was also the end of the
contingency period.
Under the treasury stock method, the assumed proceeds calculation includes the actual proceeds to be received
from the employee upon exercise of outstanding equity awards and the average unrecognized compensation cost
during the period. The treasury stock method assumes that a company uses the proceeds from the exercise of an
equity award to repurchase common stock at the average market price for the reporting period.
In periods of a net loss, common equivalent shares are excluded from the calculation of Diluted EPS as their
inclusion would have an antidilutive effect. Accordingly, for periods in which we report a net loss, Diluted EPS is
the same as Basic EPS, since dilutive common equivalent shares are not assumed to have been issued if their effect
is anti-dilutive.
89
Below is a reconciliation of the weighted average number of shares of common stock outstanding in
calculating Diluted EPS (shares in thousands and dollars in millions, except per share amounts) for the periods
presented:
Numerator:
Net income (loss)
Denominator:
Weighted average shares used to compute
Basic EPS
Weighted average effect of dilutive
securities:
Stock options
RSUs
Weighted average shares used to compute
Diluted EPS
Basic EPS
Diluted EPS
2017
Year ended December 31,
2016
2015
$
(19) $
120 $
198
140,445
145,443
143,836
-
-
1,129
321
1,839
292
140,445
(0.14) $
(0.14) $
146,893
0.83 $
0.82 $
145,967
1.38
1.36
$
$
Potential common shares, consisting of outstanding stock options and RSUs, totaling approximately 12.5
million, 3.9 million, and 2.7 million, respectively, for the years ending December 31, 2017, 2016 and 2015, have
been excluded from the calculations of Diluted EPS because their effect would have been antidilutive. In addition,
potential common shares of approximately 0.6 million, 0.1 million, and 0.1 million, respectively, for the years
ending December 31, 2017, 2016 and 2015, consisting of performance-based options and RSUs, for which all
targets required to trigger vesting had not been achieved, were excluded from the calculation of weighted average
shares used to compute Diluted EPS for those reporting periods.
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.
NOTE 6: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Cash, Cash Equivalents and Marketable Securities
The following tables show our cash and available-for-sale securities’ amortized cost, gross unrealized gains,
gross unrealized losses and fair value by fair value hierarchy and significant investment category recorded as cash
and cash equivalents or short and long-term marketable securities as of the dates presented (in millions):
December 31, 2017
Amortized Unrealized Unrealized Fair
Value
Cost
$
Losses
Gains
663 $
— $
— $
663 $
Short-
Term Long-Term
Cash and
Cash
Marketable Marketable
Equivalents Securities Securities
—
663 $
— $
Cash
Level 1:
Money market funds
1
—
—
1
1
—
Level 2:
U.S. agency securities
U.S. treasury securities
Certificates of deposit
Commercial paper
Corporate debt securities
Subtotal
Total
11
1
2
11
46
71
735 $
$
—
—
—
—
—
—
— $
11
1
2
11
46
71
735 $
—
—
—
9
—
9
673 $
6
1
2
2
24
35
35 $
—
—
—
—
—
—
— $
90
—
5
—
—
—
22
27
27
December 31, 2016
Amortized Unrealized Unrealized Fair
Cost
Value
$
Losses
Gains
595 $
— $
— $
595 $
Short-
Term Long-Term
Cash and
Marketable Marketable
Cash
Equivalents Securities Securities
—
595 $
— $
Cash
Level 1:
Money market funds
17
—
—
17
17
—
Level 2:
U.S. agency securities
U.S. treasury securities
Certificates of deposit
Commercial paper
Corporate debt securities
Subtotal
Total
23
8
16
5
82
134
746 $
—
—
—
—
—
—
— $
—
—
—
—
—
—
— $
23
8
16
5
82
134
746 $
—
—
—
—
—
—
612 $
21
8
15
5
69
118
118 $
$
—
2
—
1
—
13
16
16
Our cash and cash equivalents consist of cash on hand in global financial institutions, money market funds and
marketable securities, with maturities of 90 days or less at the date purchased. The remaining maturities of our long-
term marketable securities range from one to three years and our short-term marketable securities include maturities
that were greater than 90 days at the date purchased and had 12 months or less remaining at December 31, 2017 and
2016, respectively.
We classify our cash equivalents and marketable securities within Level 1 and Level 2 as we value our cash
equivalents and marketable securities using quoted market prices (Level 1) or alternative pricing sources (Level 2).
The valuation technique we used to measure the fair value of money market funds were derived from quoted prices
in active markets for identical assets or liabilities. Fair values for Level 2 investments are considered “Level 2”
valuations because they are obtained from independent pricing sources for identical or comparable instruments,
rather than direct observations of quoted prices in active markets. Our procedures include controls to ensure that
appropriate fair values are recorded, including comparing the fair values obtained from our independent pricing
services against fair values obtained from another independent source.
There were no material realized gains or losses related to sales of our marketable securities for the years ended
December 31, 2017, 2016, and 2015. There were also no material unrealized gains or losses related to our
marketable securities held at December 31, 2017 and 2016. We consider any individual investments in an unrealized
loss position to be temporary in nature and do not consider any of our investments other-than-temporarily impaired
as of December 31, 2017.
Derivative Financial Instruments
Our forward contracts, which we have entered into to date, have not been designated as hedges and have had
maturities of less than 90 days. Consequently, any gain or loss resulting from the change in fair value has been
recognized in our consolidated statement of operations. We recorded a net loss of $1 million for the year ended
December 31, 2017, and a net gain of $2 million for both the years ended December 31, 2016 and 2015, respectively,
related to our forward contracts in our consolidated statements of operations in interest income and other, net.
The following table shows the notional principal amounts of our outstanding derivative instruments that are
not designated as hedging instruments for the periods presented:
Foreign currency exchange-forward contracts (1)(2)
$
(in millions)
— $
6
December 31,
2017
December 31,
2016
(1) Derivative contracts address foreign currency exchange fluctuations for the Euro versus the U.S. dollar. The
Company had no outstanding derivative contracts as of December 31, 2017 and two outstanding derivative
contracts as of December 31, 2016.
91
(2)
The fair value of our outstanding derivatives as of December 31, 2016 was not material and was reported as an
asset in prepaid expenses and other current assets on our consolidated balance sheet. We measure the fair
value of our outstanding or unsettled derivatives using Level 2 fair value inputs, as we use a pricing model
that takes into account the contract terms as well as current foreign currency exchange rates in active markets.
Counterparties to foreign currency exchange derivatives consist of major international financial institutions.
We monitor our positions and the credit ratings of the counterparties involved and, by policy limits, the amount of
credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-
performance by these counterparties, losses are not anticipated and any credit risk amounts associated with our
outstanding or unsettled derivative instruments are deemed to be not material for any period presented.
Other Financial Instruments
Other financial assets and liabilities not measured at fair value on a recurring basis, or carried at cost, include
accounts receivable, accounts payable, deferred merchant payables, short-term debt, accrued and other current
liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value
because of the short maturity of these instruments as reported on our consolidated balance sheets as of December 31,
2017 and December 31, 2016, respectively. The carrying value of the long-term debt from our 2015 Credit Facility
bears interest at a variable rate and therefore is also considered to approximate fair value.
We also hold investments in equity securities of privately-held companies with a total carrying value of $12
million and $14 million at December 31, 2017 and 2016, respectively. These investments are accounted for under
the cost method and included in other long-term assets on our consolidated balance sheet. Under cost method
accounting, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value,
certain distributions, and additional investments. The Company evaluates its investments at each reporting period or
on a quarterly basis, to determine if any indicators of other-than-temporary impairment exist. Accordingly, we
recognized a loss of $2 million related to the investment in one of these privately-held companies during the year
ended December 31, 2017, which is included in interest income and other, net on our consolidated statement of
operations. We did not have any losses or impairments related to our cost method investments during the year ended
December 31, 2016.
The Company did not have any recurring assets or liabilities measured at fair value that would be considered
Level 3 at December 31, 2017 and December 31, 2016.
NOTE 7: PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following for the periods presented:
December 31, 2017
December 31, 2016
Capitalized software and website development
Building (1)
Leasehold improvements
Computer equipment and purchased software
Furniture, office equipment and other
Less: accumulated depreciation
Total
$
$
$
(in millions)
213
123
39
46
19
440
(177)
263
$
153
123
39
37
19
371
(111)
260
(1)
The Company is deemed for accounting purposes to be the owner of its corporate headquarters building under
GAAP, and depreciates the asset over its estimated useful life of 40 years on a straight-line basis. Refer to
“Note 13 – Commitments and Contingencies,” for additional information on our corporate headquarters
lease.
92
As of December 31, 2017 and December 31, 2016, the carrying value of our capitalized software and website
development costs, net of accumulated amortization, were $97 million and $86 million, respectively. For the years
ended December 31, 2017, 2016 and 2015, we capitalized $65 million, $62 million and $52 million, respectively,
related to software and website development costs. For the years ended December 31, 2017, 2016 and 2015, we
recorded amortization of capitalized software and website development costs of $54 million, $46 million and $37
million, respectively, which is included in depreciation expense on our consolidated statements of operations for
those years.
NOTE 8: GOODWILL AND INTANGIBLE ASSETS, NET
The following table summarizes our goodwill activity by reportable segment for the periods presented:
Balance as of December 31, 2015
Acquisitions (1)
Other adjustments (2)
Balance as of December 31, 2016
Other adjustments (2)
Balance as of December 31, 2017
Hotel
Non-Hotel
Consolidated
(in millions)
$
$
$
442 $
10
(1)
451 $
-
451 $
290 $
7
(12)
285 $
22
307 $
732
17
(13)
736
22
758
(1)
(2)
The additions to goodwill relate to our business acquisitions. Refer to “Note 3— Acquisitions and
Dispositions,” for further information.
Primarily related to impact of changes in foreign currency exchange rates to goodwill.
Intangible assets, which were acquired in business combinations and recorded at fair value on the date of
purchase, consist of the following for the periods presented:
Intangible assets with definite lives
Less: accumulated amortization
Intangible assets with definite lives, net
Intangible assets with indefinite lives
Total
December 31,
2017
2016
(in millions)
224 $
(112)
112
30
142 $
217
(80)
137
30
167
$
$
Amortization expense was $32 million, $32 million, and $36 million, respectively, for the years ended
December 31, 2017, 2016 and 2015. Our indefinite-lived intangible assets relate to trade names and trademarks.
There were no impairment charges recognized to our consolidated statement of operations during the years ended
December 31, 2017, 2016 and 2015 related to our goodwill or intangible assets.
93
The following table presents the components of our intangible assets with definite lives for the periods
presented:
December 31, 2017
December 31, 2016
Weighted
Average
Gross
Net
Remaining Life Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
(in years)
Gross
Net
Trade names and trademarks
Customer lists and supplier relationships
Subscriber relationships
Technology and other
Total
(in millions)
(in millions)
6.8
3.6
4.3
2.6
4.6
$
$
58 $
87
35
44
224 $
(20) $
(43)
(22)
(27)
(112) $
38 $
44
13
17
112 $
56 $
84
33
44
217 $
(14) $
(31)
(15)
(20)
(80) $
42
53
18
24
137
Refer to “Note 3— Acquisitions and Dispositions” above for a discussion of definite lived intangible assets
acquired in business combinations during the years ended December 31, 2016 and 2015.
Our definite-lived intangible assets are being amortized on a straight-line basis. The straight-line method of
amortization is currently our best estimate, or approximates to date, the distribution of the economic use of these
intangible assets.
The estimated amortization expense for intangible assets with definite lives for each of the next five years, and
the expense thereafter, assuming no subsequent impairment of the underlying assets or change in estimate of
remaining lives, is expected to be as follows (in millions):
2018
2019
2020
2021
2022
2023 and thereafter
Total
$
$
31
27
22
14
7
11
112
NOTE 9: DEBT
The Company’s outstanding debt consisted of the following for the periods presented:
Short-Term Debt:
Chinese Credit Facilities
2016 Credit Facility
Total Short-Term Debt (1)
Long-Term Debt:
2015 Credit Facility
Total Long-Term Debt
December 31, December 31,
2017
2016
(in millions)
$
$
$
$
7 $
-
7
$
230 $
$
230
7
73
80
91
91
(1)
The weighted-average interest rate on short-term debt was 5.0% as of December 31, 2017 and 2.1%
as of December 31, 2016.
94
2011 Credit Facility
In December 2011, we entered into a credit agreement (the “2011 Credit Facility”) with a group of lenders,
which provided $600 million of borrowing including:
—a term loan facility in an aggregate principal amount of $400 million with a term of five years due
December 2016 (“Term Loan”); and
—a revolving credit facility in an aggregate principal amount of $200 million available in U.S. dollars,
Euros and British pound sterling with a term of five years expiring December 2016.
In June 2015, the entire outstanding principal on our Term Loan in the amount of $290 million was repaid
with borrowings from our 2015 Credit Facility (described below) and the 2011 Credit Facility was subsequently
terminated. During the year ended December 31, 2015, we recorded total interest and commitment fees on our 2011
Credit Facility of $3 million to interest expense on our consolidated statements of operations. There was no resulting
loss on early extinguishment of this debt.
2015 Credit Facility
In June 2015, we entered into a five year credit agreement with a group of lenders which, among other things,
provided for a $1 billion unsecured revolving credit facility (the “2015 Credit Facility”) and immediately borrowed
$290 million. In May 2017, the 2015 Credit Facility was amended to, among other things, (i) increase the aggregate
amount of revolving loan commitments available from $1.0 billion to $1.2 billion; and (ii) extend the maturity date
of the 2015 Credit Facility from June 26, 2020 to May 12, 2022 (the “First Amendment”). Borrowings under the
2015 Credit Facility generally bear interest, at the Company’s option, at a rate per annum equal to either (i) the
Eurocurrency Borrowing rate, or the adjusted LIBO rate for the interest period in effect for such borrowing; plus an
applicable margin ranging from 1.25% to 2.00% (“Eurocurrency Spread”), based on the Company’s leverage ratio;
or (ii) the Alternate Base Rate (“ABR”) Borrowing, which is the greatest of (a) the Prime Rate in effect on such day,
(b) the New York Fed Bank Rate in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate
(or LIBO rate multiplied by the Statutory Reserve Rate) for an interest period of one month plus 1.00%; in addition
to an applicable margin ranging from 0.25% to 1.00% (“ABR Spread”), based on the Company’s leverage ratio. The
Company may borrow from the revolving credit facility in U.S dollars, Euros and British pound sterling.
During the year ended December 31, 2017, the Company borrowed an additional $435 million and repaid
$296 million of our outstanding borrowings under the 2015 Credit Facility. These net borrowings during the year
were primarily used to repurchase shares of our outstanding common stock under the Company’s repurchase
program, which is described in “Note 15 - Stockholders Equity”. During the year ended December 31, 2016, the
Company borrowed an additional $101 million and repaid $210 million of our outstanding borrowings on the 2015
Credit Facility.
As of December 31, 2017, based on the Company’s leverage ratio, our borrowings bear interest at LIBO rate;
plus an applicable margin of 1.25%, or the Eurocurrency Spread. The Company was borrowing under a one-month
interest rate period or a weighted average rate of 2.74% per annum as of December 31, 2017, using a one-month
interest period Eurocurrency Spread, which will reset periodically. Interest will be payable on a monthly basis while
the Company is borrowing under the one-month interest rate period. We are also required to pay a quarterly
commitment fee, at an applicable rate ranging from 0.15% to 0.30%, on the daily unused portion of the revolving
credit facility for each fiscal quarter and additional fees in connection with the issuance of letters of credit. As of
December 31, 2017, our unused revolver capacity was subject to a commitment fee of 0.15%, given the Company’s
leverage ratio. The 2015 Credit Facility includes $15 million of borrowing capacity available for letters of credit and
$40 million for Swing Line borrowings on same-day notice. As of December 31, 2017, we had issued $3 million of
outstanding letters of credit under the 2015 Credit Facility. We recorded total interest expense and commitment fees
on our 2015 Credit Facility of $6 million, $4 million and $2 million for the years ended December 31, 2017, 2016
and 2015, respectively, to interest expense on our consolidated statements of operations. All unpaid interest and
commitment fee amounts as of December 31, 2017 and December 31, 2016, respectively, were not material.
We also incurred lender fees and debt financing costs totaling $3 million in connection with entering into the
2015 Credit Facility in June 2015, which were capitalized as deferred financing costs and recorded to other long-
term assets on the consolidated balance sheet. In connection with the First Amendment, in May 2017, we incurred
95
additional lender fees and debt financing costs totaling $2 million, which were capitalized as deferred financing
costs and recorded to other long-term assets on the consolidated balance sheet. As of December 31, 2017, the
Company has $3 million remaining in deferred financing costs in connection with the 2015 Credit Facility. These
costs are being amortized over the remaining term on a straight line basis and recorded to interest expense on our
consolidated statements of operations. The resulting write down of previous deferred financing costs as a result of
the First Amendment was not material.
There is no specific repayment date prior to the maturity date for borrowings under this credit agreement. We
may voluntarily repay any outstanding borrowing under the 2015 Credit Facility at any time without premium or
penalty, other than customary breakage costs with respect to Eurocurrency loans. Additionally, the Company
believes that the likelihood of the lender exercising any subjective acceleration rights, which would permit the
lenders to accelerate repayment of any outstanding borrowings, is remote. As such, we classify borrowings under
this facility as long-term debt. The 2015 Credit Facility contains a number of covenants that, among other things,
restrict our ability to: incur additional indebtedness, create liens, enter into sale and leaseback transactions, engage in
mergers or consolidations, sell or transfer assets, pay dividends and distributions, make investments, loans or
advances, prepay certain subordinated indebtedness, make certain acquisitions, engage in certain transactions with
affiliates, amend material agreements governing certain subordinated indebtedness, and change our fiscal year. The
2015 Credit Facility also requires us to maintain a maximum leverage ratio and contains certain customary
affirmative covenants and events of default, including a change of control. If an event of default occurs, the lenders
under the 2015 Credit Facility will be entitled to take various actions, including the acceleration of all amounts due
under the 2015 Credit Facility. As of December 31, 2017, we were in compliance with all of our debt covenants.
2016 Credit Facility
In September 2016, we entered into an uncommitted facility agreement which provides for a $73 million
unsecured revolving credit facility (the “2016 Credit Facility”) with no specific expiration date. The 2016 Credit
Facility is available at the Lender’s discretion and can be canceled at any time. Repayment terms for borrowings
under the 2016 Credit Facility are generally one to six month periods, or such other periods as the parties may
mutually agree, and bear interest at LIBOR plus 112.5 basis points. The Company may borrow from the 2016 Credit
Facility in U.S dollars only and we may voluntarily repay any outstanding borrowing at any time without premium
or penalty. Any overdue amounts under or in respect of the 2016 Credit Facility not paid when due shall bear
interest in the case of principal at the applicable interest rate plus 1.50% per annum. In connection with the 2016
Credit Facility, any lender fees and debt financing costs paid were not material. There are no specific financial or
incurrence covenants.
We borrowed $73 million from this uncommitted credit facility in September 2016 and repaid the full amount
during the first three months of 2017. These funds were used for general working capital needs of the Company,
primarily for partial repayment of our 2015 Credit Facility and recorded in current portion of debt on our
consolidated balance sheet at December 31, 2016. We had no outstanding borrowings under this 2016 Credit
Facility as of December 31, 2017. During the years ended December 31, 2017 and 2016, total interest recorded with
respect to our 2016 Credit Facility to interest expense on our consolidated statement of operations were not material.
Chinese Credit Facilities
In addition to our 2015 Credit Facility and 2016 Credit Facility, we maintain two credit facilities in China
(jointly, the “Chinese Credit Facilities”).
We are parties to a $30 million, one-year revolving credit facility with Bank of America (the “Chinese Credit
Facility—BOA”) that is currently subject to review on a periodic basis with no specific expiration period.
Borrowings under our Chinese Credit Facility – BOA generally bear interest at a rate based on People’s Bank of
China benchmark, including certain adjustments which may be made in accordance with the market condition at the
time of borrowing. As of December 31, 2017 and 2016, there were no outstanding borrowings under our Chinese
Credit Facility—BOA.
96
We are also parties to a RMB 70,000,000 (approximately $10 million) one-year revolving credit facility with
J.P. Morgan Chase Bank (“Chinese Credit Facility-JPM”). Our Chinese Credit Facility—JPM generally bears
interest at a rate based on People’s Bank of China benchmark, including certain adjustments which may be made in
accordance with the market condition at the time of borrowing. As of both December 31, 2017 and December 31,
2016, we had $7 million of outstanding borrowings from the Chinese Credit Facility – JPM at a weighted average
rate of 5.00% and 4.35%, respectively.
NOTE 10: INCOME TAXES
The following table presents a summary of our domestic and foreign income before income taxes:
Domestic
Foreign
Total
2017
Year Ended December 31,
2016
(in millions)
2015
$
$
81 $
29
110 $
64 $
87
151 $
67
172
239
The following table presents a summary of the components of our provision for income taxes:
Current income tax expense:
Federal
State
Foreign
Current income tax expense
Deferred income tax expense (benefit):
Federal
State
Foreign
Deferred income tax expense (benefit):
Provision for income taxes
2017
Year Ended December 31,
2016
(in millions)
2015
$
$
93 $
1
6
100
25
2
2
29
129 $
38 $
2
11
51
(12)
(3)
(5)
(20)
31 $
48
8
22
78
(29)
(2)
(6)
(37)
41
The Company reduced its current income tax payable by $27 million, $21 million and $63 million for the
years ended December 31, 2017, 2016 and 2015, respectively, for tax deductions attributable to the exercise or
settlement of the Company’s stock-based awards.
97
The significant components of our deferred tax assets and deferred tax liabilities as of December 31, 2017 and
2016 are as follows:
Deferred tax assets:
Stock-based compensation
Net operating loss carryforwards
Provision for accrued expenses
Deferred rent
Lease financing obligation
Foreign advertising spend
Deferred expense related to cost-sharing arrangement
Interest carryforward
Charitable contribution carryforward
Other
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible assets
Property and equipment
Prepaid expenses
Building - corporate headquarters
Deferred income related to cost-sharing arrangement
Total deferred tax liabilities
Net deferred tax asset (liability)
December 31,
2017
2016
(in millions)
36 $
56
4
3
22
13
26
7
—
7
174 $
(55)
119 $
(59) $
(21)
(4)
(20)
(13)
(117) $
2 $
52
46
12
5
33
10
30
—
20
7
215
(27)
188
(83)
(28)
(6)
(31)
(10)
(158)
30
$
$
$
$
$
$
At December 31, 2017, we had federal, state and foreign net operating loss carryforwards (“NOLs”) of
approximately $9 million, $41 million and $171 million, respectively. If not utilized, the federal and state NOLs will
expire at various times between 2020 and 2037 and the foreign NOLs will expire at various times between 2018 and
2028.
As of December 31, 2017, we had a valuation allowance of approximately of $55 million related to certain
NOL carryforwards for which it is more likely than not, the tax benefit will not be realized. This amount represented
an overall increase of $28 million over the amount recorded as of December 31, 2016. The increase is primarily
related to additional foreign net operating losses. Except for such foreign deferred tax assets, we expect to realize all
of our deferred tax assets based on a strong history of earnings in the U.S. and other jurisdictions, as well as future
reversals of taxable temporary differences.
98
A reconciliation of the provision for income taxes to the amounts computed by applying the statutory federal
income tax rate to income before income taxes is as follows:
Income tax expense at the federal statutory rate of 35%
Foreign rate differential
State income taxes, net of effect of federal tax benefit
Unrecognized tax benefits and related interest
Change in cost-sharing treatment of stock-based compensation
Non-deductible transaction costs
Impacts related to the 2017 Tax Act
Research tax credit
Stock-based compensation
Change in valuation allowance
Other, net
Provision for income taxes
2017
Year Ended December 31,
2016
(in millions)
2015
$
$
38 $
(25)
5
12
(5)
—
73
(8)
13
25
1
129 $
53 $
(35)
4
11
(6)
—
—
(10)
2
9
3
31 $
84
(53)
4
12
(13)
1
—
(3)
2
5
2
41
During 2011, the Singapore Economic Development Board accepted our application to receive a tax incentive
under the International Headquarters Award. This incentive provides for a reduced tax rate on qualifying income of
5% as compared to Singapore’s statutory tax rate of 17% and is conditional upon our meeting certain employment
and investment thresholds. This agreement has been extended until June 30, 2021 as we have met certain
employment and investment thresholds. This benefit resulted in a decrease to our 2017 provision for income tax
expense of $1 million.
The 2017 Tax Act was signed into United States tax law on December 22, 2017. The 2017 Tax Act
significantly changes the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax
rate from 35% to 21% effective January 1, 2018. The 2017 Tax Act also provides for a mandatory one-time tax on
the deemed repatriation of accumulative foreign earnings of foreign subsidiaries (the “Transition Tax”), as well as
prospective changes beginning in 2018, including additional limitations on executive compensation. Under GAAP,
the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted.
On December 22, 2017, the Securities and Exchange Commission issued SAB 118, which allows us to record
provisional amounts during a measurement period not to extend beyond one year of the enactment date. The
measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the
information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to
be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts
can be recognized and adjusted as information becomes available, prepared, or analyzed.
SAB 118 summarizes a three-step process to be applied at each reporting period to account for and
qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional
amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but
that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore
taxes are reflected in accordance with law prior to the enactment of the 2017 Tax Act.
Our financial results, including an estimate of $67 million of Transition Tax, and $6 million recorded due to a
remeasurement of our net deferred tax assets, reflect provisional amounts for those specific income tax effects of the
2017 Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be
determined. The Company has not obtained, prepared and analyzed the information necessary to finalize its
computations and accounting for the Transition Tax. Since there is ongoing guidance and accounting interpretation
expected over the next 12 months, we consider the accounting of the Transition Tax, deferred tax remeasurements,
and other items to be provisional due to the forthcoming guidance and our ongoing analysis of final year-end data
and tax positions.
99
Other significant provisions that are not yet effective but may impact income taxes in future years include: an
exemption from U.S. tax on dividends of future foreign earnings, limitations on the deductibility of certain executive
compensation, an incremental tax (base erosion anti-abuse tax or “BEAT”) on excessive amounts paid to foreign
related parties, deductions related to foreign derived intangible income, and a minimum tax on certain foreign
earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income
or “GILTI”). We are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or
to provide U.S. deferred taxes on foreign temporary differences that are expected to generate GILTI income when
they reverse in future years.
By virtue of previously filed consolidated income tax returns filed with Expedia, we are currently under an
IRS audit for the 2009, 2010, and short-period 2011 tax years, and have various ongoing state income tax audits. We
are separately under examination by the IRS for the short-period 2011, 2012 and 2013 tax years and have
commenced an employment tax audit with the IRS for the 2013 and 2014 tax years. These audits include
questioning of the timing and the amount of income and deductions and the allocation of income among various tax
jurisdictions. These examinations may lead to proposed or ordinary course adjustments to our taxes. We are no
longer subject to tax examinations by tax authorities for years prior to 2009. As of December 31, 2017, no material
assessments have resulted, except as noted below regarding our 2009 and 2010 IRS audit with Expedia.
In January 2017, as part of the Company’s IRS audit of Expedia, we received Notices of Proposed Adjustment
from the IRS for the 2009 and 2010 tax years. These proposed adjustments are related to certain transfer pricing
arrangements with our foreign subsidiaries, and would result in an increase to our worldwide income tax expense in
an estimated range of $10 million to $14 million after consideration of competent authority relief, exclusive of
interest and penalties. We disagree with the proposed adjustments and we intend to defend our position through
applicable administrative and, if necessary, judicial remedies. Our policy is to review and update tax reserves as
facts and circumstances change. Based on our interpretation of the regulations and available case law, we believe the
position we have taken with regard to transfer pricing with our foreign subsidiaries is sustainable. In addition to the
risk of additional tax for 2009 and 2010 transactions, if the IRS were to seek transfer pricing adjustments of a similar
nature for transactions in subsequent years, we would be subject to significant additional tax liabilities.
In July 2015, the United States Tax Court (the “Court”) issued an opinion favorable to Altera Corporation
(“Altera”) with respect to Altera’s litigation with the IRS. This opinion was submitted as a final decision under Tax
Court Rule 155 during December 2015. The litigation relates to the treatment of stock-based compensation expense
in an inter-company cost-sharing arrangement with Altera’s foreign subsidiary. In its opinion, the Court accepted
Altera’s position of excluding stock based compensation from its inter-company cost-sharing arrangement. The IRS
appealed the Court decision on February 19, 2016. At this time, the U.S. Department of the Treasury has not
withdrawn the requirement from its regulations to include stock-based compensation in intercompany cost-sharing
arrangements. The Company recorded a tax benefit of $5 million and $6 million in its consolidated statements of
operations for the years ended December 31, 2017 and 2016, respectively. The Company will continue to monitor
this matter and related potential impacts to its consolidated financial statements.
Cumulative undistributed earnings of foreign subsidiaries totaled approximately $882 million as of
December 31, 2017. Subsequent to December 31, 2017, on February 2, 2018, TripAdvisor made a one-time
repatriation of $325 million of foreign earnings to the United States primarily to repay our remaining outstanding
debt under the 2015 Credit Facility. Refer to “Note 20— Subsequent Events” for additional information on this
repatriation. TripAdvisor intends to indefinitely reinvest the remaining foreign undistributed earnings of $557
million although we will continue to evaluate the impact of the 2017 Tax Act on our capital deployment within and
outside the U.S. Should we distribute, or be treated under certain U.S. tax rules as having distributed, the earnings of
foreign subsidiaries in the form of dividends or otherwise, we may be subject to U.S. income taxes or tax benefits.
The amount of any unrecognized deferred income tax on this temporary difference is not material. The majority of
cash on hand is denominated in U.S. dollars.
100
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (excluding interest
and penalties) is as follows:
Balance, beginning of year
Increases to tax positions related to the current year
Increases to tax positions related to the prior year
Reductions due to lapsed statute of limitations
Decreases to tax positions related to the prior year
Settlements during current year
Balance, end of year
2017
December 31,
2016
(in millions)
2015
$
$
105 $
17
1
—
—
—
123 $
89 $
16
1
(1)
—
—
105 $
67
15
7
—
—
—
89
As of December 31, 2017, we had $123 million of unrecognized tax benefits, net of interest, which is
classified as long-term and included in other long-term liabilities and deferred income taxes, net on our consolidated
balance sheet. The amount of unrecognized tax benefits, if recognized, would reduce income tax expense by $78
million, due to correlative adjustments in other tax jurisdictions. We recognize interest and penalties related to
unrecognized tax benefits in income tax expense on our consolidated statement of operations. As of December 31,
2017 and 2016, total gross interest accrued was $13 million and $9 million, respectively. We do not anticipate any
material changes in the next fiscal year.
NOTE 11: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following for the periods presented:
December 31,
2017
December 31,
2016
Accrued employee salary, bonus, and related benefits $
Accrued marketing costs
Other
Total
$
(in millions)
60 $
39
37
136 $
53
37
37
127
NOTE 12: OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following for the periods presented:
Unrecognized tax benefits (1)
Long-term income taxes payable (2)
Financing obligation, net of current portion (3)
Other (4)
Total
December 31,
2017
December 31,
2016
$
$
(in millions)
127 $
61 $
84
21
293 $
108
-
84
18
210
(1) Refer to “Note 10—Income Taxes” for additional information on our unrecognized tax benefits. Amount
includes accrued interest related to this liability.
(2) Amount relates to the long-term portion of Transition Tax related to 2017 Tax Act at December 31, 2017.
Refer to “Note 10 – Income Taxes,” for additional information.
(3) Refer to “Note 13 – Commitments and Contingencies,” for additional information on our corporate
headquarters lease.
(4) Amounts primarily consist of long-term deferred rent balances related to our operating leases for office
space.
101
NOTE 13: COMMITMENTS AND CONTINGENCIES
We have material commitments and obligations that include office space leases, and expected interest and
commitment fees on long-term debt, which are not accrued on the consolidated balance sheet at December 31, 2017
but we expect to require future cash outflows.
The following table summarizes our material commitments and obligations as of December 31, 2017:
Property leases, net of sublease income (1)
Expected interest and commitment fee payments on 2015
Credit Facility (2)
Total (3)
$
$
By Period
Total
Less than
1 year
1 to 3 years
(in millions)
3 to 5 years
More than
5 years
228 $
28 $
34
7
262 $
35 $
53 $
16
69 $
51 $
11
62 $
96
—
96
(1)
(2)
(3)
Estimated future minimum rental payments under operating leases with non-cancelable lease terms, including
our corporate headquarters lease in Needham, MA.
Expected interest payments on the 2015 Credit Facility are based on the effective interest rate and outstanding
borrowings as of December 31, 2017, but could change significantly in the future. Amounts assume that our
existing debt is repaid at the end of the credit agreement and do not assume additional borrowings or
refinancing of existing debt. Expected commitment fee payments are based on the unused portion of credit
facility, issued letters of credit, and current effective commitment fee rate as of December 31, 2017; however,
these variables could change significantly in the future. Refer to “Note 9— Debt” and “Note 20— Subsequent
Events” for additional information on our 2015 Credit Facility and subsequent repayment of our outstanding
borrowings on our 2015 Credit Facility in 2018, respectively.
Excluded from the table was $127 million of unrecognized tax benefits, including accrued interest, that we
have recorded in other long-term liabilities on our consolidated balance sheet for which we cannot make a
reasonably reliable estimate of the amount and period of payment. We do not anticipate any material changes
in the next year. Also excluded from the table was $61 million of estimated Transition Tax related to 2017
Tax Act recorded in long-term liabilities on the consolidated balance sheet at December 31, 2017, that we
believe the majority will be paid more than five years from December 31, 2017. Refer to “Note 10 – Income
Taxes,” for additional information on these amounts.
Office Lease Commitments
We have contractual obligations in the form of operating leases for office space 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. Office lease commitments expire at various
dates with the latest maturity in December 2030. For the years ended December 31, 2017, 2016 and 2015, we
recorded rental expense of $18 million, $18 million and $19 million, respectively, net of sublease income of $3
million, $2 million and $1 million, respectively.
Corporate Headquarters Lease
In June 2013, we entered into a lease, for a new corporate headquarters (the “Lease”). Pursuant to the Lease,
the landlord built an approximately 280,000 square foot rental building in Needham, Massachusetts (the “Premises”),
and leased the Premises to the Company as our new corporate headquarters for an initial term of 15 years and 7
months or through December 2030. The Company also has an option to extend the term of the Lease for two
consecutive terms of five years each.
102
Because we were involved in the construction project and were responsible for paying a portion of the costs of
normal finish work and structural elements of the Premises, the Company was deemed for accounting purposes to be
the owner of the Premises during the construction period under build to suit lease accounting guidance under GAAP.
Therefore, the Company recorded 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. The amounts that the Company has paid or incurred for normal tenant improvements and structural
improvements had also been recorded to the construction-in-progress asset.
Upon completion of construction at end of the second quarter of 2015, we evaluated the construction-in-
progress asset and construction financing obligation for de-recognition under the criteria for “sale-leaseback”
treatment under GAAP. We concluded that we have forms of continued economic involvement in the facility, and
therefore did not meet the provisions for sale-leaseback accounting. This determination was based on the Company's
continuing involvement with the property in the form of non-recourse financing to the lessor. Therefore, the Lease is
accounted for as a financing obligation. Accordingly, we began depreciating the building asset over its estimated
useful life and incurring interest expense related to the financing obligation imputed using the effective interest rate
method. We bifurcate our lease payments pursuant to the Premises into: (i) a portion that is allocated to the building
(a reduction to the financing obligation) and; (ii) a portion that is allocated to the land on which the building was
constructed. The portion of the lease obligations allocated to the land is treated as an operating lease that
commenced in 2013. The lease costs allocated to the land are recognized as rent expense on a straight-line basis over
the term of the lease and are recorded in general and administrative expense in the consolidated statements of
operations. The financing obligation is considered a long-term finance lease obligation and is recorded to other long-
term liabilities on our consolidated balance sheet. At the end of the lease term, the carrying value of the building
asset and the remaining financing obligation are expected to be equal, at which time we may either surrender the
leased asset as settlement of the remaining financing obligation or extend the initial term of the lease for the
continued use of the asset. In the years ended December 31 2017, 2016, and 2015, the Company recorded $7
million, $7 million, and $4 million of interest expense, respectively, $3 million, $3 million, and $2 million of
depreciation expense, respectively, and $2 million, $2 million, $1 million, of rent expense in general and
administrative expense on our consolidated statements of operations, respectively, related to the Premises.
Additional United States and International Locations
We also lease an aggregate of approximately 450,000 square feet of office space at approximately 40 other
locations across North America, Europe and Asia Pacific, in cities such as, New York, Boston, London, Sydney,
Barcelona, Paris, and Beijing, primarily for our sales offices, subsidiary headquarters, and international management
teams, pursuant to leases with various expiration dates, with the latest expiring in June 2027.
As of December 31, 2017, future minimum commitments under our corporate headquarters lease and other
non-cancelable operating leases for office space with terms of more than one year and contractual sublease income
were as follows:
Year
2018
2019
2020
2021
2022
Thereafter
Total
Corporate
Headquarters
Lease (1)
Other
Operating
Leases
Sublease
Income
Total Lease
Commitments
(Net of
Sublease
Income)
$
$
9 $
9
9
10
10
77
124 $
(in millions)
22 $
21
19
17
17
19
115 $
(3) $
(3)
(2)
(2)
(1)
—
(11) $
28
27
26
25
26
96
228
(1) Amount includes an $84 million financing obligation, which we have recorded in other long-term liabilities on
our consolidated balance sheet at December 31, 2017, related to our corporate headquarters lease.
103
Letters of Credit
As of December 31, 2017, we have issued unused letters of credit totaling approximately $3 million, related to
our property leases, which includes $1 million delivered to the landlord of our corporate headquarters as security
deposit, which amount is subject to increase under certain circumstances.
Legal Proceedings
In the ordinary course of business, we are parties to regulatory and legal matters arising out of our
operations. These matters may involve claims involving alleged infringement of third-party intellectual property
rights (including patent infringement), defamation, taxes, regulatory compliance, privacy issues and other claims.
Periodically, we review the status of all significant outstanding matters to assess any 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 disclosures in the notes to the consolidated financial statements for loss contingencies that
do not meet both of these conditions if there is a reasonable probability that a loss may have been incurred and
whether such loss is reasonably estimable. We base accruals made on the best information available at the time
which can be highly subjective. Although occasional adverse decisions or settlements may occur, the Company does
not believe that the final disposition of any of these matters will have a material adverse effect on the business.
However, the final outcome of these matters could vary significantly from our estimates. Finally, there may be
claims or actions pending or threatened against us of which we are currently not aware and the ultimate disposition
of which could have a material adverse effect on us.
Income Taxes
As described above, we are also under audit by the IRS and various other domestic and foreign tax authorities
with regards to income tax matters. We have reserved for potential adjustments to our provision for income taxes
that may result from examinations by, or any negotiated agreements with, these tax authorities. Although we believe
our tax estimates are reasonable, the final determination of audits could be materially different from our historical
income tax provisions and accruals. The results of an audit could have a material effect on our financial position,
results of operations, or cash flows in the period for which that determination is made.
We continue to accumulate cash flows, in foreign jurisdictions which we consider indefinitely reinvested,
although we will continue to evaluate the impact of the 2017 Tax Act on our capital deployment within and outside
the U.S. Any repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates and
incremental cash tax payments. Refer to “Note 10— Income Taxes” above for further information on potential
contingencies surrounding income taxes.
NOTE 14: EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
The TripAdvisor Retirement Savings Plan (the “401(k) Plan”), qualifies under Section 401(k) of the Internal
Revenue Code. The 401(k) Plan allows participating employees, most of our U.S. employees, to make contributions
of a specified percentage of their eligible compensation. Participating employees may contribute up to 50% of their
eligible salary on a pre-tax basis, but not more than statutory limits. Employee-participants age 50 and over may also
contribute an additional amount of their salary on a pre-tax tax basis up to the IRS Catch-Up Provision Limit, or
catch-up contributions. Employees may also contribute into the 401(k) Plan on an after-tax basis up to an annual
maximum of 10%. The 401(k) Plan has an automatic enrollment feature at 6% pre-tax. We match 50% of the first
6% of employee contributions to the plan for a maximum employer contribution of 3% of a participant’s eligible
earnings. The “catch up contributions”, are not eligible for employer matching contributions. The matching
contributions portion of an employee’s account, vests after two years of service. The Plan also permits certain after-
tax Roth 401(k) contributions. Additionally, at the end of the 401(k) Plan year, we make a discretionary matching
contribution to eligible participants. This additional discretionary matching employer contribution referred to as
“true up” is limited to match only contributions up to 3% of eligible compensation.
104
We also have various defined contribution plans for our international employees. Our contribution to the
401(k) Plan and our international defined contribution plans which are recorded in our consolidated statement of
operations for the years ended December 31, 2017, 2016 and 2015 were $9 million, $9 million, and $7 million,
respectively.
TripAdvisor, Inc. Deferred Compensation Plan for Non-Employee Directors
The Company also has a Deferred Compensation Plan for Non-Employee Directors (the “Plan”). Under the
Plan, eligible directors who defer their directors’ fees may elect to have such deferred fees (i) applied to the
purchase of share units, representing the number of shares of our common stock that could have been purchased on
the date such fees would otherwise be payable, or (ii) credited to a cash fund. The cash fund will be credited with
interest at an annual rate equal to the weighted average prime or base lending rate of a financial institution selected
in accordance with the terms of the Plan and applicable law. Upon termination of service as a director of
TripAdvisor, a director will receive (i) with respect to share units, such number of shares of our common stock as
the share units represent, and (ii) with respect to the cash fund, a cash payment. Payments upon termination will be
made in either one lump sum or up to five annual installments, as elected by the eligible director at the time of the
deferral election.
Under the 2011 Incentive Plan, 100,000 shares of TripAdvisor common stock are available for issuance to
non-employee directors. From the inception of the Plan through December 31, 2017, a total of 3,336 shares have
been reserved for such purpose.
TripAdvisor, Inc. Executive Severance Plan and Summary Plan Description
Effective August 7, 2017, the Company adopted an Executive Severance Plan and Summary Plan Description
(the “Severance Plan”) applicable to certain employees of the Company and its subsidiaries. The Severance Plan
formalizes and standardizes the Company’s severance practices for certain designated employees (each, a
“Participant” and, collectively, the “Participants”). Participants covered by the Severance Plan generally will be
eligible to receive severance benefits in the event of a termination by the Company without Cause or, under certain
circumstances, by the Participant for Good Reason. The severance benefits differ if there is a termination of
employment in connection with a Change in Control. The severance benefits provided pursuant to the Severance
Plan are determined based on the job classification of the Participants (as reflected in internal job profile
designations) and, in certain cases, their years of service with the Company.
Under the Severance Plan, in the event of a termination by the Company without Cause more than three
months prior to a Change in Control or more than twelve (12) months following a Change in Control, the severance
benefits for the Participant generally shall consist of the following:
•
•
continued payment of base salary for a period of six to eighteen (18) months following the date of such
Participant’s termination of employment; and
continuation of coverage under the Company’s health insurance plan through the Company’s payment of
COBRA premiums for a period of six to eighteen (18) months following the date of such Participant’s
termination of employment.
Under the Severance Plan, in the event of a termination by the Company without Cause or by the Participant
for Good Reason, in each case within three months prior to or twelve (12) months following a Change in Control,
the severance benefits for the Participant shall consist of the following:
•
•
payment of a lump sum amount equal to (i) twelve (12) to twenty four (24) months of the Participant’s
Base Salary, plus (ii) the Participant’s Target Bonus multiplied by 1, 1.5 or 2; and
payment of a lump sum amount equal to the premiums required to continue the Participant’s medical
coverage under the Company’s health insurance plan for a period of twelve (12) to twenty four
(24) months.
105
The foregoing summary is qualified in its entirety by reference to the Executive Severance Plan and Summary
Plan Description incorporated herein by reference as Exhibit 10.22 to this Annual Report on Form 10-K. During the
year end December 31, 2017, we recorded $1 million of severance under the Severance Plan in our consolidated
statement of operations.
NOTE 15: STOCKHOLDERS’ EQUITY
Preferred Stock
In addition to common stock, we are authorized to issue up to 100 million preferred shares, with $ 0.001 par
value per share, with terms determined by our Board of Directors, without further action by our stockholders. At
December 31, 2017, no preferred shares had been issued.
Common Stock and Class B Common Stock
Our authorized common stock consists of 1.6 billion shares of common stock with par value of $0.001 per
share, and 400 million shares of Class B common stock with par value of $0.001 per share. Both classes of common
stock qualify for and share equally in dividends, if declared by our Board of Directors. Common stock is entitled to
one vote per share and Class B common stock is entitled to 10 votes per share on most matters. Holders of
TripAdvisor common stock, acting as a single class, are entitled to elect a number of directors equal to 25% percent
of the total number of directors, rounded up to the next whole number, which was three directors as of December 31,
2017. 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 TripAdvisor the holders of both classes of common
stock have equal rights to receive all the assets of TripAdvisor after the rights of the holders of the preferred stock
have been satisfied. There were 135,617,263 and 126,142,773 shares of common stock issued and outstanding,
respectively, and 12,799,999 shares of Class B common stock issued and outstanding at December 31, 2017.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss is primarily comprised of accumulated foreign currency translation
adjustments, as follows for the periods presented:
Cumulative foreign currency translation
adjustments (1)
Total accumulated other comprehensive loss (2)
December 31,
2017
December 31,
2016
(in millions)
$
$
(42) $
(42) $
(77)
(77)
(1) Due to our intention to indefinitely reinvest foreign subsidiary earnings; deferred taxes are not provided on
foreign currency translation adjustments.
(2) Our accumulated net unrealized gain (loss) on available for sale securities was not material as of December
31, 2017 and December 31, 2016.
106
Treasury Stock
On February 15, 2013, our Board of Directors authorized the repurchase of $250 million of our shares of
common stock under a share repurchase program. During the year ended December 31, 2015, we did not repurchase
any shares of outstanding common stock under the share repurchase program. During the year ended December 31,
2016, we repurchased 2,002,356 shares of outstanding common stock under the share repurchase program at an
average cost of $52.35 per share. As of December 31, 2016, we had repurchased a total of 4,123,065 shares of
outstanding common stock under the share repurchase program at an average cost of $60.63 per share and
completed our share repurchase program authorized by our Board of Directors.
On January 25, 2017, our Board of Directors authorized an additional repurchase of $250 million of our shares
of common stock under a new share repurchase program. Our Board of Directors authorized and directed
management, working with the Executive Committee of our Board of Directors to affect the share repurchase
program in compliance with applicable legal requirements. During the year ended December 31, 2017, we
repurchased a total of 6,079,003 shares of the Company’s outstanding common stock at an average share price of
$41.13, or $250 million in the aggregate, and completed this share repurchase program. As of December 31, 2017,
there were 9,474,490 shares of the Company’s common stock held in treasury with an aggregate cost of $447
million.
In December 2015, we issued 801,042 treasury shares to the Foundation in settlement of all future pledge
obligations. Refer to “Note 17 – Segment and Geographic Information,” for a discussion of this transaction.
Dividends
During the years ended December 31, 2017, 2016, and 2015, our Board of Directors did not declare any
dividends on our outstanding common stock and do not expect to pay any dividends for the foreseeable future.
NOTE 16: RELATED PARTY TRANSACTIONS
Relationship between Expedia and TripAdvisor
Upon consummation of the Spin-Off, Expedia was considered a related party under GAAP based on a number
of factors, including, among others, common ownership of our shares and those of Expedia. However, we no longer
consider Expedia a related party. For purposes of governing certain of the ongoing relationships between us and
Expedia at and after the Spin-Off, and to provide for an orderly transition, we and Expedia entered into various
agreements at the time of the Spin-Off, which TripAdvisor has satisfied its obligations. However, TripAdvisor
continues to be subject to certain post-spin obligations under the Tax Sharing Agreement.
Under the Tax Sharing Agreement between us and Expedia, we are generally required to indemnify Expedia
for any taxes resulting from the Spin-Off (and any related interest, penalties, legal and professional fees, and all
costs and damages associated with related stockholder litigation or controversies) to the extent such amounts
resulted from (i) any act or failure to act by us described in the covenants in the tax sharing agreement, (ii) any
acquisition of our equity securities or assets or those of a member of our group, or (iii) any failure of the
representations with respect to us or any member of our group to be true or any breach by us or any member of our
group of any covenant, in each case, which is contained in the separation documents or in the documents relating to
the IRS private letter ruling and/or the opinion of counsel. The full text of the Tax Sharing Agreement is
incorporated by reference in this Annual Report on Form 10-K as Exhibit 10.2. Refer to “Note 10— Income Taxes”
above for information regarding the status of completed and ongoing IRS audits of our consolidated income tax
returns with Expedia to date.
107
Relationship between Liberty TripAdvisor Holdings, Inc. and TripAdvisor
We consider Liberty TripAdvisor Holdings, Inc. (“LTRIP”) a related party. As of December 31, 2017, LTRIP
beneficially owned approximately 18.2 million shares of our common stock and 12.8 million shares of our Class B
common stock, which constitute 14.4% of the outstanding shares of common stock and 100% of the outstanding
shares of Class B common stock. Assuming the conversion of all of LTRIP’s shares of Class B common stock into
common stock, LTRIP would beneficially own 22.3% of the outstanding common stock. Because each share of
Class B common stock generally is entitled to ten votes per share and each share of common stock is entitled to one
vote per share, LTRIP may be deemed to beneficially own equity securities representing 57.5% of our voting power.
Refer to “Note 1— Organization and Business Description” above, which describes the evolution of our
relationship with LTRIP.
We had no related party transactions with LTRIP during the years ended December 31, 2017, 2016 or 2015.
NOTE 17: SEGMENT AND GEOGRAPHIC INFORMATION
Our reporting structure includes two reportable segments: Hotel and Non-Hotel.
Hotel
Our Hotel segment includes revenue generated from the following sources:
(cid:129)
(cid:129)
TripAdvisor-branded Click-based and Transaction Revenue. Our largest source of Hotel segment
revenue is generated from click-based advertising on TripAdvisor-branded websites, which is primarily
comprised of contextually-relevant booking links to our travel partners’ sites. Our click-based travel
partners are predominantly online travel agencies, or OTAs, and direct suppliers in the hotel category.
Click-based advertising is generally priced on a cost-per-click, or “CPC”, basis, with payments from
advertisers determined by the number of users who click on a link multiplied by the price that partner is
willing to pay for that click, or hotel shopper lead. CPC rates are determined in a dynamic, competitive
auction process, or metasearch auction, that enables our partners to use our proprietary, automated
bidding system to submit CPC bids to have their hotel rates and availability listed on our site.
Transaction revenue is generated from our instant booking feature, which enables the merchant of
record, generally an OTA or hotel partner, to pay a commission to TripAdvisor for a user that completes
a hotel reservation via our website.
TripAdvisor-branded Display-based Advertising and Subscription Revenue. Travel partners can
promote their brands in a contextually-relevant manner through a variety of display-based advertising
placements on our websites. Our display-based advertising clients are predominately direct suppliers of
hotels, airlines and cruises, as well as destination marketing organizations. We also sell display-based
advertising to OTAs and other travel related businesses, as well as advertisers from non-travel
categories. Display-based advertising is sold predominantly on a cost per thousand impressions, or
CPM, basis. In addition, we offer subscription-based advertising to hotels, B&Bs and other specialty
lodging properties. Subscription advertising is predominantly sold for a flat fee and enables subscribers
to enhance their listing, for a contracted period of time, on our TripAdvisor-branded websites, including
by posting special offers for travelers.
(cid:129) Other Hotel Revenue. Our other hotel revenue primarily includes revenue from non-TripAdvisor
branded websites, such as www.bookingbuddy.com, www.cruisecritic.com, and www.onetime.com,
which includes click-based advertising revenue, display-based advertising revenue, hotel room
reservations sold through the websites, and advertising revenue from making cruise reservations
available for price comparison and booking.
108
Non-Hotel
Our Non-Hotel segment consists of the aggregation of three operating segments, our Attractions, Restaurants
and Vacation Rentals businesses.
(cid:129)
(cid:129)
(cid:129)
Attractions. We provide information and services for users to research, book and experience activities
and attractions in popular travel destinations both through Viator, our dedicated Attractions business,
and on our TripAdvisor website and applications. We predominately generate commissions for each
transaction we facilitate through our online reservation systems. In addition to its consumer-direct
business, Viator also powers activity and attractions booking capabilities for its affiliate partners,
including some of the world’s top airlines, hotel chains and online and offline travel agencies. Viator’s
bookable activities and attractions are available on Viator-branded websites and mobile applications and
on TripAdvisor-branded websites and mobile applications.
Restaurants. We provide information and services for users to research and book restaurants in popular
travel destinations through our dedicated restaurant reservations business, TheFork, and on our
TripAdvisor website and applications. TheFork is an online restaurant booking platform operating on a
number of websites (including www.lafourchette.com, www.eltenedor.com, www.iens.nl and
www.dimmi.com.au), with a network of restaurant partners located primarily across Europe and
Australia. We generate reservation revenues that are paid by restaurants for diners seated through
TheFork’s online reservation systems, and generate subscription fees for our online booking and
marketing analytics tools provided by TheFork and by TripAdvisor. TheFork’s bookable restaurants are
available on www.thefork.com and on TripAdvisor-branded websites and mobile applications.
Vacation Rentals. We provide information and services for users to research and book vacation and
short-term rental properties, including full home rentals, condominiums, villas, beach rentals, cabins and
cottages. The Vacation Rentals business generates revenue primarily by offering individual property
owners and property managers the ability to list their properties on our websites and mobile applications
thereby connecting homeowners with travelers through a free-to-list, commission-based option and, to a
lesser extent, by an annual subscription-based fee structure. These properties are listed on
www.flipkey.com, www.holidaylettings.co.uk, www.housetrip.com, www.niumba.com, and
www.vacationhomerentals.com, and on our TripAdvisor-branded websites and mobile applications.
Our operating segments are determined based on how our chief operating decision maker manages our
business, regularly assesses information and evaluates performance for operating decision-making purposes,
including allocation of resources. The chief operating decision maker for the Company is our CEO.
Adjusted EBITDA is our segment profit measure and a key measure used by our management and board of
directors to understand and evaluate the operating performance of our business and on which internal budgets and
forecasts are based and approved. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA
can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that
Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our
operating results in the same manner as our management and board of directors. We define Adjusted EBITDA as net
income (loss) plus: (1) provision for income taxes; (2) other income (expense), net; (3) depreciation of property and
equipment, including amortization of internal use software and website development; (4) amortization of intangible
assets; (5) stock-based compensation and other stock-settled obligations; (6) goodwill, long-lived asset and
intangible asset impairments; and (7) non-recurring expenses and income.
The following tables present our segment information for the years ended December 31, 2017, 2016 and 2015,
and includes a reconciliation of Adjusted EBITDA to Net Income. We record depreciation of property and
equipment, including amortization of internal-use software and website development, amortization of intangible
assets, stock-based compensation and other stock-settled obligations, other income (expense), net, other non-
recurring expenses and income, net, and income taxes, which are excluded from segment operating performance, in
corporate and unallocated. In addition, we do not report our assets, capital expenditures and related depreciation
expense by segment as our chief operating decision maker does not use this information to evaluate operating
segments. Accordingly, we do not regularly provide such information by segment to our chief operating decision
maker. Intersegment revenue is not material and, in addition, already eliminated in the information by segment
109
provided to our chief operating decision maker. Our consolidated general and administrative expenses, excluding
stock-based compensation costs, are shared by all operating segments. Each operating segment receives an allocated
charge based on the segment’s percentage of the Company’s total personnel costs.
Year ended December 31, 2017
Hotel
Non-Hotel
Corporate and
unallocated
Total
Revenue
Adjusted EBITDA (1)
Depreciation
Amortization of intangible assets
Stock-based compensation
Operating income
Other expense, net
Income before income taxes
Provision for income taxes (2)
Net loss
Revenue
Adjusted EBITDA (1)
Depreciation
Amortization of intangible assets
Stock-based compensation
Operating income
Other expense, net
Income before income taxes
Provision for income taxes
Net income
Revenue
Adjusted EBITDA (1)
Depreciation
Amortization of intangible assets
Stock-based compensation
Non-cash charitable contribution (3)
Other non-recurring expenses
Operating income
Other income, net
Income before income taxes
Provision for income taxes
Net income
$
$
1,196
286
(in millions)
360
45
$
$
—
—
(79)
(32)
(96)
$
1,556
331
(79)
(32)
(96)
124
(14)
110
(129)
(19)
Year ended December 31, 2016
Hotel
Non-Hotel
Corporate and
unallocated
Total
$
1,190 $
380
(in millions)
290 $
(28)
— $
—
(69)
(32)
(85)
$
1,480
352
(69)
(32)
(85)
166
(15)
151
(31)
120
Year ended December 31, 2015
Hotel
Non-Hotel
Corporate and
unallocated
Total
$
1,263 $
472
(in millions)
229 $
(6)
— $
—
(57)
(36)
(72)
(67)
(2)
$
1,492
466
(57)
(36)
(72)
(67)
(2)
232
7
239
(41)
198
(1)
Includes allocated general and administrative expenses in our Hotel segment of $81 million, $80 million and $85 million; and in our Non-
Hotel segment of $42 million, $38 million and $28 million for the years ended December 31, 2017, 2016 and 2015, respectively.
110
(2)
(3)
The year ended December 31, 2017 reflects $67 million of Transition Tax and $6 million of tax expense recorded due to the
remeasurement of net deferred tax assets related to the 2017 Tax Act enacted on December 22, 2017. Refer to “Note 10 - Income Taxes”
for further information.
During the fourth quarter of 2015, we incurred an expense in the amount of $67 million to reflect a non-cash contribution to The
TripAdvisor Charitable Foundation (the “Foundation”), which was recorded to general and administrative expense in our consolidated
statement of operations. TripAdvisor had historically funded 2% of its annual operating income before amortization and stock-based
compensation. TripAdvisor’s pledge agreement provided for an immediate satisfaction of all future annual contributions, by paying an
amount equal to eight multiplied by TripAdvisor’s prior year contribution to the Foundation. TripAdvisor exercised this right under its
pledge agreement in December 2015. We settled this obligation in treasury shares based on the fair value of our common stock on the date
the treasury shares were issued to the Foundation and therefore given the use of stock to settle the obligation, the amount has been
excluded from Adjusted EBITDA. TripAdvisor does not expect to make any future contributions to the Foundation.
Revenue and Geographic Information
Our revenue sources within our Hotel segment, which are TripAdvisor-branded click-based and transaction
revenue, TripAdvisor-branded display-based advertising and subscription revenue; and other hotel revenue, which
along with our Non-Hotel revenue source, comprise our products.
The following table presents revenue by source for the periods presented:
TripAdvisor-branded click-based and transaction
TripAdvisor-branded display-based advertising and
subscription
Other hotel revenue
Non-hotel revenue
Total revenue
Year ended December 31,
2016
2015
2017
(in millions)
$
756 $
750 $
837
292
148
360
1,556 $
282
158
290
1,480 $
272
154
229
1,492
$
The following table presents revenue by geographic area, the United States, the United Kingdom and all other
countries, based on the geographic location of our websites for the periods presented:
Revenue
United States
United Kingdom
All other countries
Total revenue
2017
Year ended December 31,
2016
(in millions)
2015
$
$
877 $
209
470
1,556 $
799 $
210
471
1,480 $
739
215
538
1,492
The following table presents property and equipment, net for the United States and all other countries based
on the geographic location of the assets for the periods presented:
Property and equipment, net
United States
All other countries
Total
December 31,
2017
2016
(in millions)
$
$
219 $
44
263 $
222
38
260
111
NOTE 18: INTEREST INCOME AND OTHER, NET
The following table presents the detail of interest income and other, net, for the periods presented:
Year Ended December 31,
2017
2016
(in millions)
2015
Net gain (loss), realized and unrealized, on foreign currency
exchange and foreign currency derivative contracts and other, net
Interest income
Loss on cost method investment
Gain on sale of business (1)
Total
$
$
2 $
1
(2)
—
1 $
(4) $
1
—
—
(3) $
(4)
1
—
20
17
(1) Refer to “Note 3 – Acquisitions and Dispositions” for information regarding our gain on sale of business in
2015.
NOTE 19: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected unaudited financial information for the eight quarters in the period ended
December 31, 2017. The results for any quarter are not necessarily indicative of future quarterly results and,
accordingly, period to period comparisons should not be relied upon as an indication of future performance.
Year ended December 31, 2017
Revenue
Operating income
Net income (loss) (1)
Basic earnings (loss) per share (2)
Diluted earnings (loss) per share (2)
Year ended December 31, 2016
Revenue
Operating income
Net income
Basic earnings per share (2)
Diluted earnings per share (2)
Three Months Ended
March 31 June 30 September 30 December 31
(in millions, except per share data)
$
$
$
$
$
$
372 $
27
13
0.09 $
0.09 $
352 $
42
29
0.20 $
0.20 $
424 $
46
27
0.19 $
0.19 $
391 $
47
34
0.23 $
0.23 $
439 $
42
25
0.18 $
0.18 $
421 $
66
55
0.38 $
0.37 $
321
9
(84)
(0.60)
(0.60)
316
10
1
0.01
0.01
(1)
(2)
During the fourth quarter of 2017, we recognized $67 million of Transition Tax and $6 million of tax expense
recorded for the remeasurement of our net deferred tax assets related to the 2017 Tax Act enacted on
December 22, 2017. Refer to “Note 10 - Income Taxes” for further information.
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.
NOTE 20: SUBSEQUENT EVENTS
On January 31, 2018, TripAdvisor’s Board of Directors authorized up to $250 million of share repurchases.
Our Board of Directors authorized and directed management, working with the Executive Committee of our Board
of Directors, to affect the share repurchase program in compliance with applicable legal requirements. This new
repurchase program has no expiration but may be suspended or terminated by the Board of Directors at any time.
On February 2, 2018, the Company made a one-time repatriation of $325 million of foreign earnings to the
United States primarily to repay outstanding borrowings under the 2015 Credit Facility. The remaining outstanding
borrowings under the 2015 Credit Facility was subsequently repaid by the Company.
112
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2017, our management, with the participation of our Chief Executive Officer and
President and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
pursuant to Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Based upon that evaluation, our Chief Executive Officer and President and our Chief Financial
Officer concluded that, as of December 31, 2017, our disclosure controls and procedures were effective in ensuring
that material information required to be disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s, or the SEC’s, rules and forms, including ensuring that such material information is accumulated and
communicated to our management, including our Chief Executive Officer and President and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
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.
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. Under the supervision and with the
participation of the Company’s management, including the Chief Executive Officer and President and the Chief
Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the criteria for effective internal control over financial reporting described in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s management evaluated the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2017. Pursuant to Exchange Act Rule 13a-15(d) or 15d-15(d), management has
concluded that, as of December 31, 2017, our internal control over financial reporting was effective. Management
has reviewed its assessment with the Audit Committee. KPMG 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 Effectiveness of Controls and Procedures
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 our company have been detected.
113
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and board of directors
TripAdvisor, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited TripAdvisor, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
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, the related
consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the
consolidated financial statements), and our report dated February 21, 2018 expressed an unqualified opinion on
those consolidated financial statements.
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 of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included 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.
114
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/ KPMG LLP
Boston, Massachusetts
February 21, 2018
115
Item 9B. Other Information
Effective February 19, 2018, the Company entered into an Amendment to Employment Agreement with
respect to the Employment Agreement of Seth Kalvert, General Counsel and Senior Vice President, to, among other
things, provide that:
-
-
-
The term of Mr. Kalvert’s employment will be extended to March 31, 2021;
Upon a Termination of Employment without Cause or Resignation for Good Reason not in connection with
a Change in Control, the Company will continue to pay Mr. Kalvert’s base salary through the longer of (x)
12 months following such termination date, and (y) the remaining term of the Employment up to a
maximum of 18 months; and
A non-renewal of the Employment Agreement or expiration of the term will be treated as a Termination of
Employment without Cause or resignation for Good Reason not in connection with a Change of Control,
entitling Mr. Kalvert’s to benefits under his Employment Agreement.
The foregoing description of the Amendment to Employment Agreement is summary in nature and is qualified
in its entirety by the text of the Amendment to Employment Agreement filed as an exhibit to this Annual Report.
Terms not otherwise defined herein shall have the meaning ascribed to them in the Amendment to
Employment Agreement and/or the underlying Employment Agreement, as appropriate.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to our 2018 Proxy Statement,
which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the
close of our fiscal year ended December 31, 2017.
Item 11.
Executive Compensation
The information required under this item is incorporated herein by reference to our 2018 Proxy Statement,
which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the
close of our fiscal year ended December 31, 2017.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required under this item is incorporated herein by reference to our 2018 Proxy Statement,
which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the
close of our fiscal year ended December 31, 2017.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference to our 2018 Proxy Statement,
which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the
close of our fiscal year ended December 31, 2017.
Item 14.
Principal Accounting Fees and Services
The information required under this item is incorporated herein by reference to our 2018 Proxy Statement,
which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the
close of our fiscal year ended December 31, 2017.
116
Item 15.
Exhibits, Financial Statement Schedules
(a) The following is filed as part of this Annual Report on Form 10-K:
PART IV
1.
Consolidated Financial Statements: The consolidated financial statements and report of
independent registered public accounting firms required by this item are included in Part II,
Item 8.
All other schedules are omitted because they are not applicable or not required, or because the required
information is shown either in the consolidated financial statements or in the notes thereto.
117
(b) Exhibits:
Exhibit
No.
3.1 Restated Certificate of Incorporation of
Exhibit Description
TripAdvisor, Inc.
3.2 Amended and Restated Bylaws of
TripAdvisor, Inc.
3.3 Amended No. 1 to Amended and Restated Bylaws
4.1
of TripAdvisor, Inc.
Specimen TripAdvisor, Inc. Common Stock
Certificate
10.1 Governance Agreement, by and among
TripAdvisor, Inc., Liberty Interactive Corporation
and Barry Diller, dated as of December 20, 2011
Incorporated by Reference
Filed
Herewith
Form
8-K
SEC File No.
001-35362
8-K
8-K
S-
4/A
8-K
001-35362
001-35362
333-175828-
01
001-35362
Exhibit
No.
3.1
3.2
3.1
4.6
Filing
Date
12/27/11
12/27/11
2/12/13
10/24/11
10.1
12/27/11
10.2 Tax Sharing Agreement by and between
8-K
001-35362
10.2
12/27/11
TripAdvisor, Inc. and Expedia, Inc., dated as of
December 20, 2011
10.3+ Amended and Restated TripAdvisor, Inc. 2011
10-Q
333-190384
10.1
11/8/16
Stock and Annual Incentive Plan
10.4+ TripAdvisor, Inc. Deferred Compensation Plan for
S-8
333-178637
4.6
12/20/11
10-Q
001-35362
10.1
7/24/13
10-Q
001-35362
10.2
7/24/13
8-K
001-35362
10.1
5/23/16
10-Q
001-35362
10.3
5/6/14
8-K
001-35362
10.1
6/8/17
Non-Employee Directors
10.5 Corporate Headquarters Lease with Normandy
Gap-V Needham Building 3, LLC, as landlord,
dated as of June 20, 2013
10.6 Guaranty dated June 20, 2013 by TripAdvisor, Inc.
for the benefit of Normandy Gap-V Needham
Building 3, LLC, as landlord
10.7+ Employment Agreement between TripAdvisor
LLC and Seth Kalvert, effective as of May 19,
2016
10.8+ Amendment to Employment Agreement between
TripAdvisor LLC and Seth Kalvert, dated as of
February 19, 2018
10.9+ Employment Agreement between TripAdvisor
X
LLC and Stephen Kaufer, effective as of March 31,
2014
10.10+ Amendment to Employment Agreement between
X
TripAdvisor LLC and Stephen Kaufer, effective as
of November 28, 2017
10.11+ Amended and Restated Option Agreement dated
June 5, 2017 between Stephen Kaufer and
TripAdvisor, Inc.
10.12+ Stock Option Agreement (time-based) between
Stephen Kaufer and TripAdvisor, Inc. dated
November 28, 2017
10.13+ RSU Agreement (time-based) between Stephen
Kaufer and TripAdvisor, Inc. dated November 28,
2017
10.14+ RSU Agreement (performance based (market))
between Stephen Kaufer and TripAdvisor, Inc.
dated November 28, 2017
10.15+ RSU Agreement (performance based (financial and
strategic)) between Stephen Kaufer and
TripAdvisor, Inc. dated November 28, 2017
X
X
X
X
118
Exhibit
No.
Exhibit Description
10.16+ Viator, Inc. 2010 Stock Incentive Plan
10.17+ Offer Letter dated May 9, 2017, between
TripAdvisor Limited and Dermot Halpin
Incorporated by Reference
Filed
Herewith
Form
S-8
10-Q
SEC File No.
333-198726
001-35362
Exhibit
No.
99.1
10.1
Filing
Date
9/12/14
5/9/17
10.18 Credit Agreement dated as of June 26, 2015 by and
8-K
001-35362
10.1
6/30/15
8-K
001-35362
10.1
5/15/17
8-K
001-35362
10.1
10/8/15
10-Q
001-36362
10.4
8/8/17
among TripAdvisor, Inc., TripAdvisor Holdings,
LLC, TripAdvisor LLC, JPMorgan Chase Bank,
N.A., as Administrative Agent; J.P. Morgan
Europe Limited, as London Agent; Morgan Stanley
Bank, N.A.; Bank of America, N.A.; BNP Paribas;
SunTrust Bank; Wells Fargo Bank, National
Association; Royal Bank of Canada; Barclays
Bank PLC; U.S. Bank National Association;
Citibank, N.A.; The Bank of Tokyo-Mitsubishi
UFJ, Ltd.; Goldman Sachs Bank USA; and
Deutsche Bank AG New York Branch
10.19 First Amendment, dated as of May 12, 2017, by
and among TripAdvisor, Inc., TripAdvisor
Holdings, LLC, TripAdvisor LLC and other
Subsidiary Loan Parties party thereto, the Lenders
party thereto, JPMorgan Chase Bank, N.A., as
administrative agent, and J.P.Morgan Europe
Limited, as London Agent
10.20+ Employment Agreement, dated as of October 6,
2015, between TripAdvisor, LLC and Ernst
Teunissen
10.21+ Amendment to Employment Agreement, dated as
of November 28, 2017, between TripAdvisor, LLC
and Ernst Teunissen
10.22+ Executive Severance Plan and Summary Plan
Description
10.23 Form of TripAdvisor Media Group Master
Advertising Insertion Order
Subsidiaries of the Registrant
21.1
23.1 Consent of KPMG, LLP, Independent Registered
Public Accounting Firm
Power of Attorney (included in signature page)
24.1
31.1 Certification of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 Certification of the Chief Financial Officer
pursuant Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of the Chief Executive Officer
pursuant Section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification of the Chief Financial Officer
pursuant Section 906 of the Sarbanes-Oxley Act of
2002
X
X
X
X
X
X
X
X
X
119
Incorporated by Reference
Form
SEC File No.
Exhibit
No.
Filing
Date
Filed
Herewith
X
Exhibit
No.
101
Exhibit Description
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.
+ Indicates a management contract or a compensatory plan, contract or arrangement.
Item 16.
Form 10-K Summary
Not applicable.
120
Pursuant to the requirements of the Section 13 or 15(d) of Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signatures
February 21, 2018
TRIPADVISOR, INC.
By:
/s/ STEPHEN KAUFER
Stephen Kaufer
Chief Executive Officer and
President
POWER OF ATTORNEY
We, the undersigned officers and directors of TripAdvisor, Inc., hereby severally constitute and appoint
Stephen Kaufer and Ernst Teunissen, and each of them singly, our true and lawful attorneys, with full power to them
and each of them singly, to sign for us in our names in the capacities indicated below, all amendments to this report,
and generally to do all things in our names and on our behalf in such capacities to enable TripAdvisor, Inc. to
comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the
Securities and Exchange Commission.
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 21, 2018.
121
Signature
Title
/s/ STEPHEN KAUFER
Stephen Kaufer
/s/ ERNST TEUNISSEN
Ernst Teunissen
/s/ NOEL WATSON
Noel Watson
/s/ GREGORY B. MAFFEI
Gregory B. Maffei
/s/ JAY C. HOAG
Jay C. Hoag
/s/ DIPCHAND V. NISHAR
Dipchand V. Nishar
/s/ JEREMY PHILIPS
Jeremy Philips
/s/ SPENCER M. RASCOFF
Spencer M. Rascoff
/s/ ALBERT E. ROSENTHALER
Albert E. Rosenthaler
/s/ SUKHINDER SINGH CASSIDY
Sukhinder Singh Cassidy
/s/ ROBERT S. WIESENTHAL
Robert S. Wiesenthal
Chief Executive Officer, President and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board
Director
Director
Director
Director
Director
Director
Director
122
TripAdvisor, Inc.
Board of Directors
Gregory B. Maffei
Chairman
Stephen Kaufer
Director, President and Chief
Executive Officer
Jay C. Hoag
Director
Dipchand (Deep) Nishar
Director
Jeremy Philips
Director
Spencer M. Rascoff
Director
Albert Rosenthaler
Director
Sukhinder Singh Cassidy
Director
Robert S. Wiesenthal
Director
Executive Officers
Stephen Kaufer
President and
Chief Executive Officer
Ernst Teunissen
Senior Vice President,
Chief Financial Officer and
Treasurer
Dermot Halpin
President,
Vacation Rentals and
Attractions
Seth Kalvert
Senior Vice President,
General Counsel and
Secretary
Corporate and Stockholder Information
Headquarters
TripAdvisor, Inc.
400 1st Ave.
Needham, Massachusetts 02494
Exchange Listing and Ticker Symbol
NASDAQ Global Select Market, “TRIP”
Annual Meeting
June 21, 2018 11:00 a.m. Eastern Time
Residence Inn
80 B Street
Needham, Massachusetts 02494
Publications and Reports
A variety of stockholder publications and reports, including TripAdvisor’s
Annual Report on Form 10-K, proxy statement, financial news releases and a
variety of legal filings are available at http://ir.tripadvisor.com. Stockholders can
also request a copy of the Annual Report and proxy statement by contacting
the Secretary of TripAdvisor, Inc., 400 1st Avenue, Needham, Massachusetts
02494.
Independent Registered Public Accounting Firm
KPMG LLP
Two Financial Center
60 South Street
Boston, Massachusetts 02110
Transfer Agent and Registrar
Computershare
P.O. Box 358015
Pittsburgh, PA 15252
Electronic Delivery
Most stockholders can elect to receive e-mails in the future with links to the
Annual Report, proxy statement and voting web site. Registered
stockholders can sign up for electronic delivery at
www.bnymellon.com/shareowner/equityaccess. Street name stockholders
should contact their bank or broker to inquire about electronic delivery.