Notice of 2019 Annual Meeting and
Proxy Statement
and
2018 Annual Report
April 2019
Dear Shareholders,
What a difference a year makes. Consolidated revenue grew 4%, GAAP net income grew 7% and adjusted
EBITDA grew 27% as we expanded profit margin by 500 basis points. We operated our business with a
refreshed, customer-centric focus against a number of long-term, profitable growth opportunities.
From a financial perspective, reinvigorated Hotel segment profitability led the way. We reduced marketing
expenses on channels that weren’t reinforcing our consumer brand and weren’t meeting our stringent short-term
or long-term return-on-investment targets. This generated 24% Hotel segment adjusted EBITDA growth and
improved TripAdvisor’s equity market valuation by 57% in 2018.
Importantly, we grew profit while also investing in a number of exciting initiatives to build more durable
relationships with the hundreds of millions of consumers on our platform, as well as to expand our marketplace
and catalyze future profitable growth. We’re seeing results. In 2018, we grew combined Experiences and
Restaurants revenue by approximately 40% and these strategic investment areas powered 27% Non-Hotel
segment revenue growth. Returns from brand advertising investments improved, and we took initial steps to
diversify our singular hotel-price-comparison message into one that amplifies TripAdvisor’s comprehensive
consumer value proposition. We also grew our newer media advertising products, and are focused on activating a
bigger and broader client base through additional media opportunities.
We’re pleased with our progress and we’re bullish on our long-term prospects. We’re moving fast and we’re
playing to win in the $1.7 trillion travel market.
Building the best consumer experience in travel.
We founded TripAdvisor to equip people with information to make better hotel decisions. Back then,
TripAdvisor user reviews disrupted a world of glossy hotel photos and travel agent brochures. By addressing this
previously unmet traveler need, TripAdvisor became a powerful, global consumer brand. Now, 19 years since
inception, TripAdvisor generates immeasurable positive impacts across the travel ecosystem – not just in hotels,
but also in tours and experiences, restaurants and other travel categories – matching millions of consumers with
memorable travel experiences every day. Such influence is hard-earned and, given its impermanence, needs to be
re-earned. Every. Day. We cherish this opportunity and take this responsibility extremely seriously.
In the nearly two decades since TripAdvisor disrupted travel with reviews, competition to capture consumers’
attention has increased dramatically. Ironically, over that time, there’s been much more imitation than
differentiation. We think this commodification actually further differentiates TripAdvisor from the pack. Travel
places significant demands on consumers’ two most precious resources — time and money. Today, consumers
expect more in an increasingly personalized, on-demand world. More information. More choice. More speed.
More flexibility. More value. Unlike in retail, a flawed travel experience cannot be returned, so choosing
correctly is absolutely critical. TripAdvisor uniquely helps consumers discern the good from the bad, building
trust and a unique permission. In this era of Instagram, wanderlust and showing-off on social media, I would
argue that consumers’ need for TripAdvisor has never been more acute. TripAdvisor gives consumers
authenticity, enabling a smarter choice and helping them discover and experience the world.
1
When it comes to serving consumer needs, we never settle. We also never let ourselves determine what’s “good
enough”. Building off a strong foundation of 730 million reviews and opinions, we opened our publishing
platform to brands and influencers in 2018 (as well as to video content…finally!!). This change reinforces
TripAdvisor as the de facto hub of immersive travel content and the go-to place for travel planning, helping
consumers better plan everything from an ice trek in Patagonia, to a weekend holiday in Tuscany, to a night out
in Hong Kong, and millions of other experiences. Over the past few years, we’ve established end-to-end
comprehensiveness across a spectrum of travel categories by adding price-shopping, bookable supply and
transaction capabilities. Aligning product, supply and marketing has enabled us to deliver a better consumer
experience, more bookings and booking value for partners, and more high-margin revenue on our platform. This
year, we’re focused on enhancing our holistic travel value proposition, growing and serving members and
building loyalty. We have a great position and are excited by the growth opportunities ahead.
Sending a huge ‘thank you’.
In sum, 2018 was a great year; we reinvigorated profitability, while investing in a number of attractive, long-term
growth opportunities. It’s important to celebrate wins, though we know competition abounds and consumers
always demand more. I’m grateful to the entire TripAdvisor Media Group team and consider myself privileged to
call each of you colleagues. I admire your ambition and tenacity, as well as your willingness to learn, to adapt
and to grow – together. Thank you. I also want to thank TripAdvisor consumers and partners. We’re in business
to serve your needs and we’re committed to delivering you ever increasing value. Finally, I want to thank our
TripAdvisor, Inc. shareholders who have joined us in our objective to build a bigger and better business over
time.
Happy travels,
Stephen Kaufer
Co-founder, President and Chief Executive Officer
TripAdvisor, Inc.
2
Notice of 2019 Annual Meeting
and Proxy Statement
April 26, 2019
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of TripAdvisor, Inc. We will hold the
Annual Meeting on Tuesday, June 11, 2019, 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 nine 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, 2019, and (3) 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) and (2).
You may vote if you were a stockholder of record on April 22, 2019. 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 11, 2019
The Annual Meeting of Stockholders of TripAdvisor, Inc., a Delaware corporation, will be held on Tuesday, June 11, 2019, 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 nine 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, 2019; and
3.
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 22, 2019 are entitled
to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof. We will furnish the Notice
of Annual Meeting of Stockholders, Proxy Statement and Annual Report on Form 10-K for the fiscal year ended December 31,
2018 over the Internet. We will send to our stockholders a Notice of Internet Availability of Proxy Materials on or about April
26, 2019, 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. You may request paper copies by following the instructions on the
Notice of Internet Availability of Proxy Materials.
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 26, 2019
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to Be Held on June 11, 2019
This Proxy Statement and the 2018 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
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 2020 Annual Meeting
Delivery of Documents to Stockholders Sharing an Address
Page
2
6
13
21
23
24
37
38
52
54
57
58
58
59
59
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 2019 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, 2018, and this Proxy Statement are being made available to all stockholders entitled to
vote at the Annual Meeting.
TripAdvisor’s principal executive offices are located at 400 1st Avenue, Needham, Massachusetts 02494. This
Proxy Statement is being made available to TripAdvisor stockholders on or about April 22, 2019.
Date, Time and Place of Meeting
The Annual Meeting will be held on Tuesday, June 11, 2019, 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 22, 2019, 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, 126,221,264 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 seven of the nine director nominees, and (ii) the ratification of the appointment of
KPMG LLP as TripAdvisor’s independent registered public accounting firm for the year ending December 31, 2019.
TripAdvisor stockholders are entitled to one vote for each share of common stock held as of the record date in the
election of the three 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. Stockholders have no right to
cumulative voting as to any matter, including the election of directors.
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”).
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 57.5% 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 seven of the nine director nominees; and (ii) the ratification of the appointment of KPMG LLP as
TripAdvisor’s independent registered public accounting firm for the fiscal year ending December 31, 2019.
2
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 seven of the nine director nominees; and (ii) the ratification of the
appointment of KPMG LLP as TripAdvisor’s independent registered public accounting firm for the fiscal year
ending December 31, 2019, 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 three 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. 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:129)
(cid:129)
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.
3
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:129) 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.
(cid:129)
(cid:129)
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) and (2).
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.
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.
4
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.
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 nine
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
Betsy L. Morgan
Jeremy Philips
Spencer M. Rascoff
Albert E. Rosenthaler
Trynka Shineman Blake
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 three directors as of the date of the Annual Meeting. The Board
has designated Messrs. Philips, Rascoff 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 or her 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 or she should serve as a director of the company for the ensuing term.
The nine nominees to the Board of Directors possess the experience and qualifications that we believe will
allow them to make substantial contributions to the Board of Directors. In selecting nominees to the Board, we seek
to ensure that the Board collectively has a balance of diversity, experience and expertise, including chief executive
officer experience, chief financial officer experience, international expertise, corporate governance experience and
experience in other functional areas that are relevant to our business. Following, please find a more detailed
discussion of the business experience and qualifications of each of the nominees to the Board.
6
Gregory B. Maffei
Age: 58
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. (“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, 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 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.
7
Stephen Kaufer
Age: 56
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: 60
Director Since: 2018
Committee Memberships:
Compensation - Chair
Section 16 - Chair
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 an M.B.A. from the
University of Michigan and a B.A. from Northwestern University.
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.
8
Betsy L. Morgan
Age: 50
Director Since: 2019
Committee Memberships:
None
Jeremy Philips
Age: 46
Director Since: 2011
Committee Memberships:
Audit
Betsy L. Morgan is currently the co-founder of Magnet Companies, a private
equity-backed company focused on media and commerce, and an associate
professor at Columbia Business School and Columbia College. From February
2016 to July 2018, Ms. Morgan served as an Executive in Residence of
LionTree, an advisory and merchant bank firm specializing in technology and
media. From January 2011 to July 2015, Ms. Morgan was the CEO of TheBlaze,
an early multi-platform and direct-to-consumer news and entertainment
company. Prior to TheBlaze, Ms. Morgan was the CEO of The Huffington
Post. Ms. Morgan currently serves on the Board of Directors of TheStreet, Inc., a
financial news and information provider listed on the Nasdaq Stock Market, and
serves on the Audit Committee and Nominating and Corporate Governance
Committee. She also serves on the Board of the following privately-held
companies: Trusted Media Brands, Chartbeat and TheSkimm. Ms. Morgan has
an M.B.A from Harvard Business School and a B.A. in Political Science and
Economics from Colby College, where she served as a member of the Board of
Trustees for eight years. She is also a contributor to Riptide, an oral history of
journalism and digital innovation created by Harvard’s Shorenstein Center on
Media, Politics and Public Policy.
Board Membership Qualifications
Ms. Morgan has extensive experience leading digital media, subscription and
original content businesses. This experience will benefit TripAdvisor and its
stockholders as we continue to execute on our strategy. Her financial
background, investment knowledge and Board experience also make her an
excellent addition to the Board, able to provide valuable insight and advice.
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 LL.B. and B.A. 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.
9
Spencer M. Rascoff
Age: 43
Director Since: 2013
Committee Memberships:
Audit
Mr. Rascoff has served as a member of the Board of Directors of Zillow Group,
Inc. since July 2011. He previously served as the Chief Executive Officer of
Zillow Group, Inc. from September 2010 to March 2019. 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 prior service as Chief Executive Officer and 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.
10
Albert E. Rosenthaler
Age: 59
Director Since: 2016
Committee Memberships:
None
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 University of Illinois (M.A.S.) and Olivet College
(B.A.).
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 Qurate. 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.
Trynka Shineman Blake
Age: 45
Director Since: 2019
Committee Memberships:
None
Ms. Shineman currently serves on the Board of Directors of Ally Financial, Inc.,
a leading digital financial services company currently traded on the New York
Stock Exchange, and serves as a member of the Audit and Digital
Transformation Committees. She is also a member of the Board of Trustees of
the Mass Technology Leadership Council. From March 2004 through February
2019, Ms. Shineman held positions of increasing responsibility with Cimpress
N.V., and most recently was the Chief Executive Officer of its Vistaprint
business. Ms. Shineman has an M.B.A from Columbia Business School and a
B.A. in Psychology from Cornell University.
Board Membership Qualifications
Ms. Shineman has many years of experience with customer-focused businesses
and with digital transformations. She has extensive experience helping
companies develop a deep understanding of customer needs and shaping the
organization around those needs. She will be able to provide the Board and
management with important insight and counsel as TripAdvisor improves its
platform to provide its users a better and more inspired travel planning
experience.
11
Robert S. Wiesenthal
Age: 52
Director Since: 2011
Committee Memberships:
Audit – Chair
Since July 2015, Mr. Wiesenthal has served as founder and Chief Executive
Officer of Blade Urban Air Mobility, Inc., a technology enabled short-distance
aviation company and the largest arranger of helicopter flights in and out of city
centers in the U.S. 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 Ms. Morgan and Ms. Shineman and Messrs. Maffei, Hoag, Kaufer, 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, Rascoff 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.
12
Executive Officers
CORPORATE GOVERNANCE
Set forth below is certain background information, as of April 21, 2019, 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
56
52
49
48
Position
Director, President and Chief Executive Officer
Senior Vice President, Chief Financial Officer and
Treasurer
Senior Vice President, General Counsel and Secretary
President, Experiences and Rentals
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 a J.D. from Columbia Law School and an
A.B. from Brown University.
Dermot M. Halpin has been serving as President of the Rentals business unit since December 2011 and
President of the Experiences business unit 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 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:
13
(cid:129) management or board experience in a wide variety of enterprises and organizations;
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
banking, capital markets and finance;
accounting, audit and financial reporting;
compliance, legal and regulatory;
travel, technology, and commerce;
sales and marketing and operations; and
corporate governance.
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. The Board is committed to a
policy of diversity and inclusion. When seeking new Board candidates, the Board is committed to including diverse
candidates (including women and minority candidates) in the pool of candidates from which the Board nominees are
chosen.
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 Messrs. Hoag,
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 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.
14
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 57.5% 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 2018 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, 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 direct ties to Company management are charged with
oversight for all financial reporting and executive compensation related decisions made by Company management.
15
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
Greg Maffei
Trynka Shineman Blake
Jay C. Hoag
Stephen Kaufer
Betsy L. Morgan
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert Rosenthaler
Robert S. Wiesenthal
Audit Committee
Audit
Committee
Compensation
Committee
Section 16
Committee
Executive
Committee
—
—
—
—
—
—
X
X
—
Chair
X
—
Chair
—
—
X
—
—
—
—
—
—
Chair
—
—
X
—
—
—
—
X
—
—
X
—
—
—
—
—
—
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. Philips, Rascoff and Wiesenthal 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:
-
-
-
-
the integrity of our accounting, financial reporting and public disclosures
process,
our relationship with our independent registered public accounting firm,
including qualifications, performance and independence,
the performance of our internal audit department, and
our compliance with legal and regulatory requirements. The Audit
Committee met six times in 2018.
The formal report of the Audit Committee with respect to the year ended
December 31, 2018, is set forth in the section below titled “Audit Committee
Report.” The Audit Committee met eight times in 2018.
16
Compensation Committee
Section 16 Committee
The Compensation Committee currently consists of three directors:
Messrs. Hoag, Maffei and Nishar, with Mr. Hoag serving as 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:
-
-
-
designing and overseeing compensation with respect to our executive
officers, including salary matters, bonus plans and stock compensation
plans;
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
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 2018.
The Section 16 Committee currently consists of two directors: Mr. Hoag and
Mr. Nishar. Mr. Hoag 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 2018.
In this Proxy Statement, we refer to the Compensation Committee and Section
16 Committee collectively as the “Compensation Committees.”
17
Executive Committee
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.
The following are some examples of matters that could be handled by the
Executive Committee:
-
-
-
oversight and implementation of matters approved by the Board of
Directors (including any share repurchase program);
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
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 2018.
Risk Oversight
Assessing and managing the day-to-day risk of our business is the responsibility of TripAdvisor’s
management. Our Board of Directors as a whole is responsible for oversight 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, including risks
associated with the geographies in which we operate or are considering operating. 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,
cybersecurity and other technology risks, crisis preparedness and competitive and reputational risks.
The Board of Directors has delegated primary responsibility for oversight over certain risks to the Audit
Committee and the Compensation Committees. The committees of the Board execute their oversight responsibility
for risk management as follows:
(cid:129)
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.
18
(cid:129)
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; 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 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.
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 2019.
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.
19
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).
20
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, 2019.
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, 2019. 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, 2019.
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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, 2018 and 2017. The following table sets forth aggregate fees for professional services rendered by KPMG for
the years ended December 31, 2018 and 2017.
Audit Fees(1)
Audit-Related Fees(2)
Other Fees (3)
Total Fees
2018
2017
$
$
2,400,336 $
1,000
2,730
2,404,066 $
2,203,537
77,000
2,730
2,283,267
(1)
(2)
(3)
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.
Other Fees include accounting research software.
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 and all other services provided to us by KPMG in 2018 and 2017 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 2018 and 2017, as
described above, and believes that they are compatible with maintaining KPMG’s independence in the conduct of
their auditing functions.
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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 six times in 2018 and, among other things, took the following actions:
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(cid:129)
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(cid:129)
(cid:129)
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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, 2018, 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, 2018, 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
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COMPENSATION DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and Analysis describes TripAdvisor’s executive compensation program as it
relates to the following named executive officers, or NEOs, for the year ended December 31, 2018.
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, Experiences and Rentals
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 2018 Business Highlights
We have a pay for performance philosophy that guides all aspects of our compensation decisions. For
example:
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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;
certain 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;
other long-term incentive compensation is designed to reward increasing shareholder value over the long-
term;
the interests of our NEOs are aligned with those of our stockholders through the granting of a substantial
portion of compensation in equity awards with key performance metrics linked to relative total
shareholder return and with multi-year vesting requirements; and
by combining a three- to four-year vesting period for equity awards with policies prohibiting hedging or
pledging of such securities, a substantial portion of our executive’s compensation package is tied to
changes in our stock price, and therefore, is at risk for a significant period of time.
TripAdvisor is an online travel company that helps people around the world plan, book and experience the
perfect trip. In 2018, we launched a refreshed brand and hotel shopping user experience focused on delivering
consumers a more comprehensive, end-to-end experience through the travel journey. In addition, we launched a
new brand advertising campaign reinforcing TripAdvisor as the de facto hub for travel planning. In 2018, we also
reinvigorated Hotel segment profitability while growing Experiences and Restaurants, two key strategic business
units.
More specifically, the Company was able to achieve the following:
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Full year 2018 consolidated revenue of approximately $1.62 billion, or 4% growth compared to 2017;
Full year consolidated Adjusted EBITDA* grew 27% to $422 million, and full year consolidated
Adjusted EBITDA margin improved to 26%, increasing 500 basis points year-over-year;
24
(cid:129)
730 million user-generated reviews and opinions, or 22% growth year-over-year at December 31, 2018,
covering approximately 1.3 million hotels, inns, B&Bs and specialty lodging, 875,000 vacation rentals,
4.9 million restaurants and 1.0 million travel activities and experiences worldwide;
(cid:129) Average monthly unique visitors on TripAdvisor-branded websites and applications grew 2% in Q4 2018
and grew to 490 million during the 2018 peak summer travel season; and
(cid:129)
Cash flow from operating activities for the year ended December 31, 2018, was $405 million, an increase
of $167 million, or 70%, year-over-year.
* Consolidated Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. Please
refer to the Company’s Annual Report on Form 10-K for a reconciliation of consolidated Adjusted EBITDA to its
most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted
accounting principles. We define consolidated Adjusted EBITDA margin as consolidated Adjusted EBITDA
divided by consolidated revenue.
In addition to improving our rich travel content which differentiates our brand and attracts nearly half-a-billion
monthly unique visitors, we reinvigorated Hotel segment profitability and reinforced leading positions in
Experiences and Restaurants which laid important groundwork for future growth. We believe these efforts,
combined with the attractive $1.7 trillion global travel market opportunity, continue to position the Company for
long-term growth.
Compensation Program Objectives
Our compensation program is designed to reward both short-term and long-term performance and to link the
financial interests of our named executive officers with the long-term shareholder returns. In addition, our
compensation program is designed to attract, motivate and retain highly skilled employees with the business
experience and acumen and diversity that management and the Compensation Committees believe are necessary for
achievement of our long-term business objectives. We also strive 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.
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 Messrs. Maffei, Hoag and Nishar, with Mr. Hoag 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 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. Mr. Hoag is also the Chairman of the Section 16 Committee.
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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 2013, the Compensation Committees first retained
Compensia, Inc. (“Compensia”), a management consulting firm providing executive compensation advisory services
to compensation committees and senior management. Since then, Compensia has provided the following services to
the Compensation Committees:
(cid:129) Assist in developing and annually evaluating a peer group of publicly-traded companies to help assess
executive compensation;
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(cid:129)
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Compile and analyze competitive compensation market data and review all elements of TripAdvisor’s
executive compensation to assist the Company in developing a competitive compensation framework for
our named executive officers;
Review the value of equity compensation previously granted to our executives and advise on matters
related to our equity compensation programs and to our long-term incentive compensation structure
generally; and
Provide advice on matters related to director compensation.
While the Compensation Committees meet regularly with Compensia, 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 2018, which fees amounted to less than $120,000.
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 2018 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 21, 2018, which was
approved by approximately 72% 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. Specifically, in 2018, the Company revised its annual bonus practices such
26
that annual bonus amounts are subject primarily to the achievement of performance goals relating to a combination
of revenue and Adjusted EBITDA as well as individual performance. 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 our 2018 Annual Meeting, stockholders
considered and voted upon the frequency of future say-on-pay votes and voted in favor of a say-on-pay vote every
three years. 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.
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)
Other NEO Total Compensation
Mix(2)
5% Base
Salary
5% Bonus
Target
14% Base
Salary
12% Bonus
Target
Equity Grant Date
Fair Value
90%
Equity Grant
Date Fair Value
74%
(1)
(2)
CEO Total Compensation consists of 2018 annualized base salary, 2018 annual bonus target, the grant date fair-value of his 2013 and
2017 equity grants, which grants are prorated for the portion of service period attributed to 2018.
Other NEO Total Compensation is defined as 2018 annualized base salary, 2018 annual bonus target, and the 2018 aggregate grant date
fair 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.
27
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.
Fixed vs. Variable Compensation (1)
Short vs. Long-Term Incentives (2)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
(1)
(2)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
86%
14%
Other NEO
95%
5%
CEO
95%
5%
CEO
86%
14%
Other NEO
Fixed Compensation %
Variable Compensation %
Short-Term %
Long-Term %
For our CEO and Other NEOs, Fixed Compensation consists solely of 2018 annualized base salary. For our CEO, Variable
Compensation consists of 2018 annual bonus target and the grant date fair-value of the CEO’s 2013 and 2017 equity grants, which grants
are prorated for the portion of service period attributed to 2018. For Other NEOs, Variable Compensation consists of the 2018 annual
bonus target and the 2018 aggregate grant date value of annual equity awards as disclosed in the Summary Compensation Table.
Compensation for the Other NEOs also reflects the compensation averages for Messrs. Teunissen, Kalvert, and Halpin.
For our CEO and Other NEOs, short-term incentive compensation consists of 2018 annual bonus. For our CEO, long-term incentive
compensation consists of the grant date fair-value of the CEO’s 2013 and 2017 equity grants, which grants are prorated for the portion of
service period attributed to 2018. For Other NEOs, long-term incentive compensation is defined as the grant date fair value of annual
equity awards as disclosed in the Summary Compensation Table. Compensation for the Other NEOs 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. Providing a competitive
salary to our executives is essential to achieving our objectives of attracting and retaining talent. 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:
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the named executive officer’s total compensation relative to other executives in similarly situated
positions;
his or her responsibilities, prior experience, and individual compensation history, including any non-
standard compensation;
his or her individual performance relative to performance goals established between our President and
Chief Executive Officer and the named executive officer;
competitive compensation market data, when available;
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general economic conditions; and
the recommendations of the President and Chief Executive Officer (other than in connection with his own
compensation).
After careful consideration of the factors discussed above with respect to each of the named executive officers,
the Compensation Committees approved 2018 salary changes for our named executive officers. The table below
describes, for each NEO, the 2017 base salary, the base salary increase and the 2018 base salary.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot M. Halpin
2017 (1)
Annual Salary
(Increase / Decrease)
2018 (2)
$
$
$
$
700,000 $
439,875 $
439,875 $
430,000 $
100,000 $
30,125 $
10,125 $
30,000 $
800,000
470,000
450,000
460,000
(1)
(2)
Reflects base salary of the NEOs as of December 31, 2017
Reflects base salary of the NEOs as of December 31, 2018.
Adjustments were made to the annual base salaries of the named executive officers, primarily in response to
the scope of responsibilities and 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 based on achievement of
our annual operating plan as well as achievement of any strategic goals or business goals set for such officer and
such officer’s contributions to Company performance. The amount payable each year is based on (i) with respect to
50%, the extent to which certain pre-established performance goals are achieved during the year, and (ii) with
respect to the remaining 50%, individual performance. The annual bonus is “variable compensation” because the
Company must achieve certain performance goals for the executive officers to receive an annual incentive bonus,
with the amount of bonus based on the extent to which the goals are achieved. The annual bonus is designed to
motivate our executive officers to improve Company performance. The annual bonus program aligns a portion of
executive compensation with key business and financial targets and, as a result, provides a valuable link between
compensation and creation of shareholder value.
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). 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 determined that annual incentive bonuses awarded to our named executive officers commencing for
2018 would be subject primarily to the achievement of performance goals relating to a combination of revenue and
Adjusted EBITDA (as such terms are used and such amounts are reported in the Company’s financial statements)
for the entire company or for specific business units, as appropriate. The Compensation Committee determined
these performance metrics were appropriate since most executives have influence over revenue and Adjusted
EBITDA (if not the Company a whole, then certainly their particular business units), which allows a balanced focus
on both revenue growth and profitability.
In 2018, the Compensation Committee set the threshold for payment at approximately 80-85% of the revenue
target and 80% of the Adjusted EBITDA target and the payout at a threshold of 50% of each individual's annual
bonus target. For example, no annual bonus related to the pre-determined financial goals would occur unless the
Company achieved at least 80-85% of the revenue target and 80% of the Adjusted EBITDA target, and, assuming
these thresholds were met, it would result in a payout of 50% of the target annual bonus related to the pre-
determined financial goals. The maximum payout of 200% of the target bonus requires achievement of 120% of the
revenue target and 130% of the Adjusted EBITDA target. The annual bonus was designed with such threshold,
target and maximum payout goals in order to create more financial incentive for management to achieve a
performance range of target or higher.
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In February 2019, management recommended payouts for bonuses with respect to the 2018 calendar year for
each of our named executive officers after taking into account a variety of factors including, but not limited to, the
following:
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(cid:129)
TripAdvisor’s actual revenue and Adjusted EBITDA results for the year relative to TripAdvisor’s plan;
TripAdvisor’s performance against strategic initiatives;
the named executive officer’s target bonus opportunity, if any;
the named executive officer’s individual performance; and
the recommendations of the President and Chief Executive Officer (other than in connection with his own
compensation).
The table below describes, for each named executive officer, the target bonus for 2018, the actual bonus paid
and percentage of bonus paid relative to target.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot M. Halpin
Equity Awards
Target Bonus as %
of Base Salary
100%
80%
80%
90%
$
$
$
$
Target Bonus
800,000
376,000
360,000
414,000
$
$
$
$
Bonus Award
1,163,360
546,779
460,512
502,844
Percentage of
Award to Target
145%
145%
128%
121%
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 and/or shareholder return. 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.
Under the Company’s stock plans, the Compensation Committees may grant a variety of long-term incentive
vehicles. The following is a general description of the vehicles we used in 2018.
Stock Options. 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.
Service-Based Restricted Stock Units, or RSUs. 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.
Market-Based RSUs, or MSUs. For grants to executive officers made in 2018, the Company utilized restricted
stock units based on market-based performance metrics. The MSU is a long-term incentive that is designed to
further align our executives’ interests with those of our shareholders. It is settled in common stock after certification
of performance based upon the achievement of a market-based performance metric over a specified performance
period. Payout of these MSUs is tied to the Company’s total shareholder return, or TSR, over a three-year period
30
relative to the TSR of companies listed in the Nasdaq Composite Total Return Index. These awards have a payout
opportunity ranging from 0% to 200% of target shares of common stock, with 100% of the target number of shares
earned when TripAdvisor’s TSR is equal to that of the index. Payout is increased (or decreased) by 2% of the target
shares for every 1% that TripAdvisor’s TSR exceeds (or trails) the index.
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:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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 NEOs, management makes recommendations to the Section 16 Committee based
on a variety of factors including, but not limited to, the following:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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 NEOs. After consideration of the factors discussed above, in February 2018 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
$
$
$
2,766,350
2,102,387
2,213,001
Number of
Stock Options
35,408
26,910
28,326
Number of
RSUs
30,012
22,809
24,009
Number of
MSUs
15,006
11,404
12,004
The RSUs and stock options described above vest in four equal annual installments, with the first vesting date
occurring on February 15, 2019. The stock options are exercisable at a price of $41.65 per share, the closing price
of our common stock on the date of grant. The MSUs vest following completion of the performance period
commencing January 1, 2018 through December 31, 2020, upon certification by the Compensation Committee and
based on the achievement of the applicable performance goals
31
While we typically make annual equity grants for long-term incentive to our named executive officers in
February of each year, Mr. Kaufer has not historically received annual equity grants and, instead, received a
significant equity grant for long-term incentive compensation in November 2017. The Summary Compensation
Table reflects the equity grant made to Mr. Kaufer in November 2017 and reflects that no such equity grants were
made to Mr. Kaufer in 2018. 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 2022.
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, a tax-qualified 401(k) 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 States, 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. TripAdvisor also 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. In addition, TripAdvisor sponsors a “wellness benefit” generally
available to all employees, including our named executive officers, that provides for reimbursement of up to $600
per year for qualifying health-related expenses.
In situations where a named executive officer is required to relocate, TripAdvisor 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 from the United Kingdom to our
corporate headquarters in Needham, Massachusetts and received certain relocation support. 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, reimbursement of Mr. Halpin for fees and expenses associated with the
preparation of his tax returns and a personal travel allowance of $20,000 per year as well as a tax gross-up payment
on his personal travel benefits. The Company has disclosed these benefits in the Summary Compensation Table and
Mr. Halpin no longer receives such relocation benefits.
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
provide that, under certain circumstances, 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.
32
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 were reviewed in January 2019, after which revised guidelines were approved.
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:
(cid:129)
(cid:129)
(cid:129)
For our President and Chief Executive Officer, six times his annual base salary;
For all other named executive officers, three 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. Individuals subject to these guidelines are required to achieve the relevant ownership threshold
on or before the later of January 30, 2024, or five years after commencing service as a named executive officer or
director.
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/corporate-governance.
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:129) Data from salary and equity compensation surveys that include companies of a similar size, based on
market capitalization, revenues and other factors; and
33
(cid:129) 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 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 annual equity awards.
In October 2018, based on input from Compensia, the Compensation Committees approved the peer group for
purposes of reviewing and considering our executive officers’ 2019 base salaries, 2019 annual bonus targets, and
2019 equity awards. The newly-approved peer group differed from the prior peer group in that we eliminated two
companies (Pandora Media and Red Hat) and added two companies (Cimpress and Etsy) in order to more closely
position TripAdvisor near the 50th percentile of its peer group in terms of revenues and market capitalization.
The 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.
Splunk, Inc.
VeriSign, Inc.
Booking Holdings, Inc.
Cimpress, N.V.
Etsy Inc.
Expedia, Inc.
Groupon, Inc.
GrubHub Inc.
IAC/InterActiveCorp.
Match Group
Shutterfly, Inc.
Twitter, Inc.
Wayfair, Inc.
Yelp, Inc.
Zillow Group
Zynga Inc.
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. 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.”
34
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.”
Our Amended and Restated 2011 Stock and Annual Incentive Plan (the “2011 Plan”) provided that equity
awards granted to certain named 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 (and not solely upon a Change in Control).
The 2018 Stock and Annual Incentive Plan (the “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 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 Tax Cuts and Jobs Act of 2017 (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” either in 2017 (applying the pre-2018 definition) or for any tax year beginning in or after 2018
(applying the definition in the 2017 Tax Act). 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) (although we have identified the compensation that is grandfathered
under the transition rule, so as to protect against material modifications where possible). 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
35
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.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Maffei, Hoag and Nishar and the Section 16 Committee
consists of Messrs. Hoag and Nishar. None of 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, 2018.
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 2019 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:
Jay C. Hoag (Chairperson)
Gregory B. Maffei
Dipchand (Deep) Nishar
Jay C. Hoag (Chairperson)
Dipchand (Deep) Nishar
36
Overview
CEO PAY RATIO
The SEC adopted rules 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 disclosure is to provide a
measure of the equitability of pay within the organization.
The 2018 annual total compensation of our median employee, excluding Mr. Kaufer, our President and CEO,
was $101,586. The 2018 annual total compensation of our President and CEO, as reported in our Summary
Compensation Table, was $1,972,764. The ratio of the annual total compensation of our President and CEO to that
of our median employee was 19 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:129)
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, 2018, our workforce consisted of 3,366 full-
time and part-time employees, including hourly employees. Approximately half of these employees are
located in the United States, with the remaining employees located in Europe and throughout the rest of
the world.
(cid:129) We selected December 31, 2018, 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.
(cid:129) 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 730 full-time and part-time employees who
were hired in 2018 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.
(cid:129)
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.
(cid:129) We identified employees within $100 of the median 2018 annual total compensation and removed those
employees who had anomalous compensation characteristics.
Because the SEC rules for identifying the median employee and calculating the pay ratio based on that
employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and
compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio, as other
companies have offices in different countries, have different employee populations and compensation practices and
may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.
37
Summary Compensation
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the compensation earned by each of our named
executive officers for services rendered in 2018, 2017 and 2016.
Name and Principal Position
Stephen Kaufer (6)
President and Chief Executive Officer
Bonus
($) (1)
Stock
Awards
($)(2)
Option
Awards
($)(2)(3)
—
—
—
—
28,578,210
—
—
18,292,152
—
Non-Equity
Incentive Plan
Compensation
($)(4)
1,163,360
350,000
525,000
All Other
Compensation
($)(5)
13,250
13,100
8,110
Total
($)
1,972,764
47,933,462
1,233,110
Year Salary ($)
796,154
2018
700,000
2017
700,000
2016
Ernst Teunissen
Senior Vice President, Chief Financial Officer,
and Treasurer
2018
2017
2016
464,207
437,014
425,000
—
—
—
2,141,356
4,499,973
999,978
624,994
2,498,960
—
546,779
286,670
255,000
8,850
8,100
8,110
3,786,186
7,730,717
1,688,088
Seth J. Kalvert
Senior Vice President, General Counsel
and Secretary
2018
2017
2016
448,053
437,014
420,817
—
—
—
1,627,393
2,124,960
849,965
474,994
2,124,150
849,834
460,512
254,619
227,800
14,600
13,100
13,110
3,025,552
4,953,843
2,361,526
Dermot M. Halpin
President, Experiences and Rentals
2018
2017
2016
454,231
421,092
398,423
—
—
—
1,713,013
6,299,893
1,249,957
499,988
1,699,359
1,249,778
502,844
600,000
180,000
68,174
59,321
58,346
3,238,250
9,079,665
3,136,504
(1)
(2)
The amounts for annual bonus awards paid to the NEOs pursuant to the Company’s incentive plan are reflected in the “Non-Equity
Incentive Plan Compensation column.
”
The amounts reported represent the aggregate grant date fair value of 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 6 - Stock Based Awards and
Other Equity Instruments” in the notes to our consolidated financial statements in our 2018 Annual Report. For MSUs granted, the value
reported reflects the estimated grant-date fair value of the awards based upon a Monte-Carlo simulation model, which simulated the
present value of the potential outcomes of future stock prices and TSR of the Company as measured against the Nasdaq Composite Total
Return Index over the performance period. The value of Mr. Teunissen’s 2018 MSUs at the grant date, assuming the highest level of the
performance conditions was achieved, is $1,782,713. The value of Mr. Kalvert’s 2018 MSUs at the grant date, assuming the highest level
of the performance conditions was achieved, is $1,354,795. The value of Mr. Halpin’s 2018 MSUs at the grant date, assuming the highest
level of the performance conditions was achieved, is $1,426,075. The value of Mr. Kaufer’s 2017 MSUs at the grant date, assuming the
highest level of the performance conditions was achieved, is $17,239,688. For Mr. Kaufer, the 2017 amounts represent the value of the
awards granted in November 2017 and include the modification expense described below. The 2017 awards granted were a combination
of service-based restricted stock units, service-based stock options and performance-based restricted stock units 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.
(3)
On June 5, 2017, the Section 16 Committee approved a modification to the 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 for GAAP purposes and is reflected in stock awards for 2017.
38
(4)
(5)
(6)
(a)
(b)
(c)
The amounts reported in this column represent annual cash bonuses (except for Mr. Kaufer’s 2017 annual bonus, which included cash and
non-cash as described in footnote 5 below) paid to all NEOs in 2019, 2018 and 2017 for annual performance in 2018, 2017 and 2016. For
a description of the annual cash bonus program, please see “Annual Bonuses” in Compensation Discussion and Analysis.
See the “2018 All Other Compensation” table below for information regarding the 2018 amounts reported.
In consideration for services rendered in fiscal 2016, 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 2016, Mr.
Kaufer’s bonus was paid $175,000 in cash, $175,000 in the form of a stock option and $175,000 in the form of RSUs.
2018 All Other Compensation
Matching
Charitable
Donation
($)(a)
5,000
—
5,000
5,000
Employer
Retirement
Contributions
($)(b)
8,250
8,250
8,250
8,250
Other
($)(c)
—
600
1,350
54,924
Total ($)
13,250
8,850
14,600
68,174
Name
Stephen Kaufer
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
Represents matching charitable contributions made by Company on behalf of the named executive officers.
Represents matching contributions under the TripAdvisor Retirement Savings Plan as in effect through December 31, 2018, pursuant to
which TripAdvisor matches $0.50 for each dollar a participant contributes, up to the first 6% of eligible compensation, subject to certain
limits.
With respect to Mr. Halpin, represents relocation benefits, including reimbursement for fees and expenses associated with preparation of
personal tax returns and personal travel expenses, including a tax gross-up payment on the personal travel expenses.
Grants of Plan-Based Awards
While we typically make annual equity grants for long-term incentive compensation to our executive officers
in February of each year, Mr. Kaufer has not historically received annual equity grants and, instead, received a
significant equity grant for long-term incentive compensation in November 2017. In light of this grant, the Section
16 Committee did not grant to Mr. Kaufer any plan-based awards in 2018 and has indicated that it does not currently
contemplate that Mr. Kaufer would be eligible for another equity grant for long-term incentive compensation until
2022.
39
The table below provides information regarding the plan-based awards granted in 2018 to our NEOs under our
2018 Plan.
Name
Stephen Kaufer
Grant
Date
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards($)
Threshhold Target
Maximum
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)
Annual Bonus
2/22/2018
400,000 800,000 1,600,000
—
—
—
—
Ernst Teunissen
Stock Options (2)
RSUs (2)
MSUs (2)
Annual Bonus
2/22/2018
2/22/2018
2/22/2018
2/22/2018
—
—
—
—
—
—
188,000 376,000
—
—
—
752,000
Seth J. Kalvert
Stock Options (2)
RSUs (2)
MSUs (2)
Annual Bonus
Dermot M. Halpin
2/22/2018
2/22/2018
2/22/2018
2/22/2018
—
—
—
—
—
—
180,000 360,000
—
—
—
720,000
Stock Options (2)
RSUs (2)
MSUs (2)
Annual Bonus
2/22/2018
2/22/2018
2/22/2018
2/22/2018
—
—
—
—
—
—
207,000 414,000
—
—
—
828,000
—
30,012
15,006
—
—
22,809
11,404
—
—
24,009
12,004
—
35,408
—
—
—
26,910
—
—
—
28,326
—
—
—
41.65
—
—
—
41.65
—
—
—
41.65
—
—
—
624,994
1,250,000
891,356
—
474,994
949,995
677,398
—
499,988
999,975
713,038
—
(1)
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, including the value of MSUs assuming
achievement at target performance.
(2)
For a description of the vesting terms of these awards, please see “Outstanding Equity Awards at Fiscal Year-End” below.
40
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, 2018. The market value of the RSUs is based on the closing price of
TripAdvisor common stock on The NASDAQ Stock Market on December 31, 2018, the last trading day of the year,
which was $53.94 per share.
Option Awards
Stock Awards
Name
Stephen Kaufer
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
250,000
1,100,000
2,878
13,759
—
—
—
—
70,712
—
—
36,057
—
—
—
—
34,347
50,473
24,526
16,951
—
17,476
—
10,944
—
19,831
—
—
—
—
7,973
7,946
—
25,700
—
—
—
—
—
—
—
—
—
—
—
2,878
—
780,000
—
—
—
70,712
—
—
108,170
—
35,408
—
—
—
—
—
5,650
—
17,474
—
32,832
—
59,493
—
26,910
—
—
—
2,648
—
25,698
—
54,720
—
19,470
—
—
28,326
—
—
Grant
Date
5/4/2012
8/28/2013
2/22/2016 (1)
2/27/2017
11/28/2017 (2)
11/28/2017 (2)
11/28/2017 (3)
11/28/2017 (4)
12/1/2015 (5)
2/22/2016 (1)
2/27/2017 (1)
2/27/2017 (6)
2/27/2017 (6)
2/22/2018 (1)
2/22/2018 (1)
2/22/2018 (7)
5/4/2012
2/28/2013
2/21/2014 (1)
2/26/2015 (1)
2/26/2015 (1)
2/22/2016 (1)
2/22/2016 (1)
2/27/2017 (1)
2/27/2017 (1)
2/27/2017 (6)
2/27/2017 (6)
2/22/2018 (1)
2/22/2018 (1)
2/22/2018 (7)
2/21/2014 (1)
2/26/2015 (1)
2/26/2015 (1)
2/22/2016 (1)
2/22/2016 (1)
2/27/2017 (1)
2/27/2017 (1)
2/27/2017 (6)
2/27/2017 (6)
5/9/2017 (8)
2/22/2018 (1)
2/22/2018 (1)
2/22/2018 (7)
Number of
Shares or
Units of
Stock That
Have Not
Vested
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
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
($)(9)
—
—
—
—
—
426,000
—
—
—
—
—
—
—
22,978,440
—
—
—
—
—
—
—
—
213,000
213,000
—
—
—
—
—
—
11,489,220
11,489,220
Option
Exercise
Price
($)
Option
Expiration
Date
5/4/2022
40.20
8/28/2023
72.52
2/22/2026
63.11
42.81
2/27/2027
34.71 11/28/2027
—
—
—
—
—
—
82.93
—
—
42.81
—
41.65
—
—
40.20
45.54
96.92
89.86
—
63.11
—
42.81
—
42.81
—
41.65
—
—
96.92
89.86
—
63.11
—
42.81
—
42.81
—
—
41.65
—
—
12/1/2025
—
—
2/27/2027
—
2/22/2028
—
—
5/4/2022
2/28/2023
2/21/2024
2/26/2025
—
2/22/2026
—
2/27/2027
—
2/27/2027
—
2/22/2028
—
—
2/21/2024
2/26/2025
—
2/22/2026
—
2/27/2027
—
2/27/2027
—
—
2/22/2028
—
—
—
7,922
35,038
—
43,797
—
30,012
—
—
—
—
—
2,225
—
6,734
—
13,139
—
24,088
—
22,809
—
—
—
1,043
—
9,902
—
21,898
—
18,394
28,423
—
24,009
—
—
427,313
1,889,950
—
2,362,410
—
1,618,847
—
—
—
—
—
120,017
—
363,232
—
708,718
—
1,299,307
—
1,230,317
—
—
—
56,259
—
534,114
—
1,181,178
—
992,172
1,533,137
—
1,295,045
—
—
—
—
—
—
—
—
15,006
—
—
—
—
—
—
—
—
—
—
—
—
—
11,404
—
—
—
—
—
—
—
—
—
—
—
—
12,004
—
—
—
—
—
—
—
809,424
—
—
—
—
—
—
—
—
—
—
—
—
—
615,132
—
—
—
—
—
—
—
—
—
—
—
—
647,496
(1)
(2)
(3)
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 stockholder 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.
41
(4)
(5)
(6)
(7)
(8)
(9)
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.
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 stockholder return, or TSR, is 100% 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.
Vests in three equal installments on each of December 31, 2017, December 31, 2018 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 $53.94, the closing price of TripAdvisor common stock on The NASDAQ Stock Market as
of December 29, 2018, the last trading day in 2018.
Option Exercises and Stock Vested
The following table sets forth all stock option awards exercised and the taxable income realized upon exercise
and all other stock awards vested and the taxable income realized upon vesting by the named executive officers
during 2018.
Name
Stephen Kaufer
Ernst Teunissen
Seth Kalvert
Dermot Halpin
Option Awards
Stock Awards
Exercise or
Vest Date
Number of
Shares
Acquired on
Exercise (1)
Value
Realized
on
Exercise
($)(2)
Number of Shares
Acquired on Vesting
(3)
Value Realized
on Vesting
($)(4)
2/21/2018
11/26/2018
2/15/2018
2/15/2018
6/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
6/15/2018
12/4/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
5/11/2018
5/11/2018
5/11/2018
6/15/2018
8/7/2018
12/31/2018
70,785
235,950
—
—
—
—
—
—
—
—
15,653
—
—
—
—
40,200
9,213
18,240
—
6,490
—
1,547,360
7,293,215
—
—
—
—
—
—
—
—
390,370
—
—
—
—
149,402
35,868
116,617
—
75,349
—
—
—
3,961
11,680
14,600
991
2,225
3,367
4,380
8,030
—
967
1,043
4,952
7,300
—
—
—
6,132
—
—
—
161,292
475,610
842,858
40,354
90,602
137,104
178,354
463,572
—
39,376
42,471
201,645
297,256
—
—
—
354,000
—
28,423
1,522,052
(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.
42
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.
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.
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. Adoption of the Severance Plan was approved by the
Compensation Committees. 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.
Change of Control Provisions
Both the 2018 Plan and 2011 Plan provide 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 plans, 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, with an original
term of five years. This agreement was amended effective November 28, 2017 to, among other things, extend the
term to March 31, 2023.
Pursuant to the employment agreement, in the event that Mr. Kaufer’s employment terminates by reason of his
death or disability, then:
(cid:129)
TripAdvisor will pay Mr. Kaufer (or his estate) his base salary through the end of the month in which the
termination occurs;
(cid:129) Any outstanding unvested equity awards that vest less frequently than annually shall be treated as though
such awards vested annually; and
(cid:129) 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.
43
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:129)
(cid:129)
(cid:129)
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;
(cid:129) All equity awards held by Mr. Kaufer that are outstanding and unvested shall immediately vest in full;
and
(cid:129) 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:129)
(cid:129)
(cid:129)
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;
(cid:129) 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);
(cid:129) 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
(cid:129) 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.
The agreement also provides that 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. In addition, 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.
44
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 2018
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.
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. This agreement was amended effective November 28, 2017 to,
among other things, extend the term to March 31, 2021.
Pursuant to the employment agreement, as amended, 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:129)
(cid:129)
(cid:129)
TripAdvisor will continue to pay his base salary through the longer of (i) 12 months following the
termination date, and (ii) the remaining term of the employment agreement up to a maximum of 18
months, in each case 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;
(cid:129) 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
(cid:129) 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.
The agreement also provides that 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.
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.
45
Seth J. Kalvert Employment Agreement
Effective May 19, 2016, the Company entered into an employment agreement with Mr. Kalvert, for a two-
year term, although this agreement was amended effective February 19, 2018 to, among other things, extend the
term to March 31, 2021.
Pursuant to the employment agreement with Mr. Kalvert, as amended, 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:129)
(cid:129)
(cid:129)
TripAdvisor will continue to pay his base salary through the longer of (i) 12 months following the
termination date, and (ii) the remaining term of the employment agreement up to a maximum of 18
months, in each case 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;
(cid:129) 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
(cid:129) 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.
The agreement also provides that 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.
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 others, through the longer of (i) the
completion of the term of the employment agreement and (ii) 12 months after the termination of employment.
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:129)
(cid:129)
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;
46
(cid:129)
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;
(cid:129) 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
(cid:129) 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.
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 2018 Plan, Change in Control means
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
47
(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 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 2018 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. If a termination of employment occurs in connection with a Change in Control, the
participants would generally be eligible to receive enhanced severance benefits. 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.
48
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:
(cid:129)
(cid:129)
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).
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:
(cid:129)
(cid:129)
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) termination of
employment as a result of death of the NEO; (ii) a termination of employment by TripAdvisor without Cause not in
connection with a Change in Control, (iii) resignation by him or her for Good Reason not in connection with a Change
in Control, (iv) a Change in Control or (v) a termination of employment by TripAdvisor without Cause or by him or her
for Good Reason in connection with a Change in Control. No benefits are payable upon a resignation by the NEO
without Good Reason, termination of employment by TripAdvisor for Cause. Upon a termination of employment for
Disability or retirement, no benefits are provided, other than an extension of time for the exercise of any outstanding
options.
49
The amounts shown in the table (i) assume that the triggering event was effective as of December 31, 2018,
the last business day of 2018; (ii) are based on the terms of the employment agreements in effect as of December 31,
2018 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 $53.94 per share,
the closing price of TripAdvisor’s common stock on The NASDAQ Stock Market on December 31, 2018. These
amounts are estimates of the incremental amounts that would be paid out to each named executive officer upon such
triggering event. The actual amounts to be paid out can only be determined at the time of the triggering event, if any.
Termination
Without
Cause ($)
Resignation
for Good
Reason ($)
Change in
Control ($)
Termination
w/o Cause
or for Good
Reason in
connection
with
Change in
Control ($)
1,200,000
1,163,360
29,536,683
37,553
31,937,596
800,000
1,163,360
29,536,683
25,035
31,525,078
—
—
21,877,203 (3)
—
21,877,203
1,600,000
1,600,000
60,956,280 (4)
50,070
64,206,350
705,000
546,779
3,625,194
38,136
4,915,109
675,000
460,512
2,524,036
37,553
3,697,101
460,000
502,844
4,130,387
25,122
5,118,353
705,000
546,779
3,625,194
38,136
4,915,109
675,000
460,512
2,524,036
37,553
3,697,101
460,000
502,844
4,130,387
25,122
5,118,353
—
—
539,616 (3)
—
539,616
705,000
564,000
9,556,464
38,136
10,863,600
—
—
410,088 (3)
—
410,088
—
—
431,664 (3)
—
431,664
675,000
540,000
6,310,155
37,553
7,562,708
690,000
621,000
8,060,759
37,684
9,409,443
Death ($)
—
—
58,083,975
—
58,083,975
—
—
8,747,040
—
8,747,040
—
—
5,695,023
—
5,695,023
—
—
7,413,263
—
7,413,263
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)
Represents actual bonus amount for 2018, 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 or the Severance Plan.
In the event of a Change in Control, the stock options, RSUs and MSUs granted in connection with the 2017 CEO Award and the MSUs
granted to Messrs. Teunissen, Kalvert, and Halpin in February 2018 will be treated as though they vested daily over the vesting period
and the vesting will accelerate with respect to those awards that would have vested as of the effective date of the Change in Control under
this scenario. The remaining unvested awards will vest pro-rata on each anniversary of August 1, 2017 for the CEO and December 31,
2018 for Messrs. Teunissen, Kalvert, and Halpin.
(4)
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.
50
Equity Compensation Plan Information
The following table provides information as of December 31, 2018 regarding shares of common stock that
may be issued under TripAdvisor’s equity compensation plans consisting of the 2018 Plan, the Viator, Inc. 2010
Stock Incentive Plan and the Deferred Compensation Plan for Non-Employee Directors.
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)
12,969,856 (1) $
54.00 (2)
13,462,984
N/A
12,969,856
N/A
—
N/A
13,462,984
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(1)
Includes (i) 6,040,740 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) 6,640,046 shares of common stock issuable upon the vesting of
RSUs, (iii) 284,425 shares of common stock issuable upon the vesting of MSUs, and (iv) 4,645 shares of common stock reserved for
issuance upon exercise of options granted pursuant to the Deferred Compensation Plan for Non-Employee Directors.
(2)
Since RSUs and MSUs do not have an exercise price, such units are not included in the weighted average exercise price calculation.
51
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:129) An annual cash retainer of $50,000, paid in equal quarterly installments;
(cid:129) 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 2018 Plan and above), full acceleration of vesting;
(cid:129) 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 Chairman); and
(cid:129) An additional annual cash retainer of $10,000 for each of the Chairman of the Audit Committee and the
Chairman 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 (i) with respect to share units, such number of shares of TripAdvisor 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 installments, as elected by the eligible director at the time of the
deferral election.
52
2018 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, 2018:
Name
Gregory B. Maffei
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert Rosenthaler
Robert S. Wiesenthal
Jay C. Hoag
Sukhinder Singh Cassidy (4)
Fees Earned or
Paid in Cash
($)(1)
65,000
65,000
70,000
70,000
50,000
80,000
59,583
37,500
Stock Awards
($)(2)(3)
249,962
249,962
249,962
249,962
249,962
249,962
346,518
—
Total
($)
314,962
314,962
319,962
319,962
299,962
329,962
406,101
37,500
(1)
(2)
(3)
The amounts reported in this column represent the annual cash retainer amounts for services in 2018, 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, 2018, Messrs. Maffei, Nishar, Philips, Rascoff, Rosenthaler, and Wiesenthal each held 4,383 RSUs. As of December
31, 2018, Mr. Hoag held 7,168 RSUs. Ms. Cassidy did not stand for re-election in 2018 and was not a director as of December 31, 2018.
(4)
Represents the amount paid to Ms. Cassidy for service from January 1, 2018 through June 21, 2018.
53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership Table
The following table presents information as of April 22, 2019, 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 22, 2019, 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.
54
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 126,221,264 shares of common
stock and 12,799,999 shares of Class B common stock outstanding on April 22, 2019.
Common Stock
Shares
Class B Common Stock
%
Shares
%
Percent (%)
of Votes
(All Classes)
30,959,751 (1)
22.3 12,799,999 (1)
100
57.5
Beneficial Owner
5% Beneficial Owners
Liberty TripAdvisor Holdings, Inc.
12300 Liberty Boulevard Englewood,
CO 80112
The Vanguard Group
100 Vanguard Blvd Malvern, PA 19355
Jackson Square Partners, LLC
12,568,701 (2)
9.0
11,257,630 (3)
8.1
101 California Street, Suite 3750, San Francisco, CA 94111
Eagle Capital Management, LLC
9,192,915 (4)
6.6
499 Park Avenue, 17th Floor, New York, NY 10022
BlackRock, Inc.
55 East 52nd Street, New York, NY 10022
Wellington Management Group, LLP
280 Congress Street, Boston, MA 02210
Named Executive Officers and Directors
Gregory B. Maffei
Stephen Kaufer
Trynka Shineman Blake
Jay C. Hoag
Betsy Morgan
Dipchand (Deep) Nishar
Jeremy Philips
Spencer M. Rascoff
Albert Rosenthaler
Robert S. Wiesenthal
Ernst Teunissen
Seth J. Kalvert
Dermot M. Halpin
7,673,036 (5)
5.5
6,961,253 (6)
5.0
24,401 (7)
1,933,896 (8)
—
2,288,168 (9)
—
17,251 (10)
28,106 (10)
21,094 (10)
17,555 (10)
28,106 (10)
166,277 (11)
241,306 (12)
135,573 (13)
*
1.4
*
1.6
*
*
*
*
*
*
*
*
*
All executive officers, directors and director
nominees as a group (13 persons)
4,901,733 (14)
3.5
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
0
0
4.9
4.4
3.6
3.0
2.7
*
*
*
*
*
*
*
*
*
*
*
*
*
1.9
*
(1)
(2)
(3)
(4)
(5)
(6)
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 11, 2019, by The Vanguard Group
(“Vanguard”). According to the Schedule 13G/A, Vanguard beneficially owns 12,568,701 shares of common stock and has sole voting
power with respect to 129,270 shares, shared voting power with respect to 21,733 shares, sole dispositive power with respect to
12,418,631 shares and shared dispositive power with respect to 150,070 shares.
Based solely on information contained in a Schedule 13G/A filed with the SEC on February 12, 2019, by Jackson Square Partners, LLC
(“Jackson”). According to the Schedule 13G, Jackson beneficially owns and has sole dispositive power with respect to 11,257,630 shares
of common stock, has sole voting power with respect to 3,812,411 shares and shared voting power with respect to 2,429,478 shares.
Based solely on information contained in a Schedule 13G filed with the SEC on February 14, 2019, by Eagle Capital Management, LLC
(“Eagle”). According to the Schedule 13G, Eagle beneficially owns and has sole dispositive power with respect to 9,192,915 shares of
common stock and has sole voting power with respect to 7,794,013 shares.
Based solely on information contained in a Schedule 13G/A filed with the SEC on February 6, 2019, by BlackRock, Inc. According to the
Schedule 13G/A, BlackRock has sole dispositive power with respect to 7,673,036 shares of common stock and has sole voting power with
respect to 6,736,539 shares.
Based solely on information contained in a Schedule 13G filed with the SEC on February 12, 2019, by Wellington Management Group
LLP (“Wellington”). According to the Schedule 13G, Wellington beneficially owns and has shared dispositive power with respect to
6,961,253 shares of common stock and has sole voting power with respect to 6,249,986 shares.
55
(7)
(8)
(9)
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
4,383 RSUs that will vest and settle within 60 days of April 22, 2019.
Includes options to purchase 1,366,637 shares of common stock that are currently exercisable or will be exercisable within 60 days of
April 22, 2019.
Includes 4,383 RSUs that will vest and settle within 60 days of April 22, 2019. Mr. Hoag holds directly these RSUs and 2,785 shares
resulting from RSUs that previously vested and has sole voting and dispositive power over these securities; however, TCV IX
Management, L.L.C. has a right to 100% of the pecuniary interest in such securities. Mr. Hoag is a Member of TCV IX Management,
L.L.C. and disclaims beneficial ownership of such RSUs and the shares underlying such RSUs except to the extent of his pecuniary
interest therein. The remainder of the shares are held directly by TCV IX Tumi, L.P., TCV IX Tumi (A), L.P., TCV IX Tumi (B), L.P.,
and TCV IX Tumi (MF), L.P. (the “TCV Funds”). 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 each of the TCV Funds. Mr. Hoag may be deemed to beneficially own the shares held
by the TCV Funds, but disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
(10)
Includes 4,383 RSUs that will vest and settle within 60 days of April 22, 2019.
(11)
(12)
(13)
(14)
Includes options to purchase 151,678 shares of common stock that are currently exercisable or will be exercisable within 60 days of April
22, 2019 and 14,599 RSUs that will vest and settle within 60 days of April 22, 2019.
Includes options to purchase 222,260 shares of common stock that are currently exercisable or will be exercisable within 60 days of April
22, 2019 and 8,030 RSUs that will vest and settle within 60 days of April 22, 2019.
Includes options to purchase 114,626 shares of common stock that are currently exercisable or will be exercisable within 60 days of April
22, 2019 and 6,132 RSUs that will vest and settle within 60 days of April 22, 2019.
Includes options to purchase 1,855,201 shares of common stock that are currently exercisable or will be exercisable within 60 days of
April 22, 2019 and 59,442 RSUs that will vest and settle within 60 days of April 22, 2019.
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, except that one Form 4
filed for Noel Watson was filed three days late and one Form 4 for each of Dipchand Nishar and Spencer Rascoff
was filed one day 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.
56
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review and Approval or Ratification of Related Person Transactions
Pursuant to the Company’s Related Party Transactions Policy, 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:129) 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.
(cid:129)
(cid:129)
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.
(cid:129) 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 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
57
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 11 – Income Taxes” in the Company’s 2018 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. 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 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 57.5% 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.
ANNUAL REPORTS
TripAdvisor’s Annual Report to Stockholders for 2019, which includes our 2018 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 2018 Annual Report on Form 10-K. TripAdvisor will furnish any
exhibit contained in the 2018 Annual Report upon payment of a reasonable fee. Stockholders may also review a
copy of the 2018 Annual Report (including exhibits) by accessing TripAdvisor’s corporate website at
www.tripadvisor.com or the SEC’s website at www.sec.gov.
58
PROPOSALS BY STOCKHOLDERS FOR PRESENTATION AT THE
2020 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 28, 2019, 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 11, 2020. 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, 2018 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, 2018 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 26, 2019
59
2018 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, 2018
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 every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ⌧ No (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
Accelerated filer
Smaller reporting company
⌧
(cid:4)
(cid:4)
(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 $5,775,119,721 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 14, 2019
125,336,213 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, 2018. 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
33
33
33
33
PART II...................................................................................................................................................................... 33
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..............................................................................
33
36
37
61
63
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 115
Item 9A. Controls and Procedures ................................................................................................................ 115
Item 9B. Other Information .......................................................................................................................... 119
PART III .................................................................................................................................................................... 119
Item 10. Directors, Executive Officers and Corporate Governance ............................................................ 119
Item 11. Executive Compensation ............................................................................................................... 119
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ...................................................................................................................................... 119
Item 13. Certain Relationships and Related Transactions, and Director Independence .............................. 119
Item 14. Principal Accounting Fees and Services........................................................................................ 119
PART IV .................................................................................................................................................................... 119
Item 15. Exhibits; Financial Statement Schedules ....................................................................................... 119
Item 16. Form 10-K Summary ..................................................................................................................... 122
SIGNATURES ........................................................................................................................................................ 123
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 consumers and travel partners a global
platform with rich consumer-generated content, price comparison tools and online reservation and related services
for destinations, accommodations, travel activities and experiences, and restaurants.
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, which
reached 490 million average monthly unique visitors during our seasonal peak during the year ended December 31,
2018, according to our internal log files.
Our TripAdvisor-branded websites include www.tripadvisor.com in the United States and localized versions
of the TripAdvisor website in 48 markets and 28 languages worldwide. TripAdvisor features approximately
730 million reviews and opinions on approximately 8.1 million places to stay, places to eat and things to do –
including 1.3 million hotels, inns, B&Bs and specialty lodging, 875,000 rental properties, 4.9 million restaurants and
1.0 million travel activities and experiences worldwide. We also enable consumers to compare prices and/or book a
number of these travel experiences on either a TripAdvisor website or mobile application (“app”), or on the website
or mobile app of one of our travel partners.
In addition to the flagship TripAdvisor brand, we manage and operate the following other travel media brands,
connected by the common goal of providing consumers the most comprehensive travel-planning and trip-taking
resources in the travel industry: www.airfarewatchdog.com, www.bokun.io, www.bookingbuddy.com,
www.cruisecritic.com, www.familyvacationcritic.com, www.flipkey.com, www.thefork.com (including
www.lafourchette.com, www.eltenedor.com, and www.iens.nl), 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 and travel-related activity, and
the online advertising market.
Phocuswright, an independent travel, tourism and hospitality research firm, estimates the annual global travel
market at $1.7 trillion. Phocuswright also estimates online penetration of global travel bookings to be less than 50%.
However, travel bookings have been moving online as consumers gain access to the internet and global tourism
activity continues to increase, driven by middle class and economic growth. TripAdvisor, as an internet-enabled
travel-focused business, allows consumers to research travel activity and share their experiences and opinions with a
global audience. As consumer online travel media consumption and online travel commerce activity increases, we
believe travel and travel-related businesses will continue to allocate greater percentages of their marketing budgets
to online channels in order to grow their businesses. We believe this creates a significant long-term growth
opportunity for our business.
Our Business Model
Our businesses match demand, or consumers that seek to discover, research, price compare and book the best
travel experiences online with supply from travel partners around the world that provide travel accommodations and
experiences.
Consumer Offerings
TripAdvisor enables consumers to plan, book and experience the perfect trip by providing content, supply,
price, and convenience. Content and supply has enabled TripAdvisor to become a well-known global brand, one that
has attracted the world’s largest travel audience, based on average monthly unique visitors, and influences a
2
significant amount of travel commerce. We are focused on creating the best online experience in travel planning and
booking, making it easier for consumers to research destinations and experiences, read and contribute user-generated
content, compare destinations and businesses based on quality, price and availability, and complete bookings
powered by our travel partners.
Travel Partners
Our portfolio of travel-related websites enables our travel partners to be discovered, to advertise and to sell
their services to a global travel audience. Travel partners may include 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 market and sell their products and services to a global audience. We
enable media advertising opportunities – and in some cases, facilitate transactions between consumers and travel
partners in a number of ways, including by sending referrals to our travel partners’ websites, facilitating bookings on
behalf of our travel partners, by serving as the merchant of record – particularly in our Experiences and Rentals
offerings – 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. Our Non-Hotel reportable
segment consists of our Experiences, Restaurants and Rentals offerings. During the first quarter of 2018, we
renamed Attractions as “Experiences” and Vacation Rentals as “Rentals.” These changes had no impact on the
composition of our segments or on any financial information. These segments have been 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 and additional descriptive information
related to our segments is contained in “Note 18: Segment and Geographic Information” and “Note 4: Revenue
Recognition,” in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K.
The Hotel segment accounted for 72%, 77%, and 80%, of our consolidated revenue in the years ended
December 31, 2018, 2017 and 2016, respectively, and 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 links to our travel partners’ sites. Our click-based travel partners are
predominantly 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 travel partners determined by the
number of travelers who click on a link multiplied by the CPC rate for each specific click. CPC rates
that our travel partners pay are determined in a dynamic, competitive auction process, also known as our
metasearch auction. Transaction revenue is generated from our hotel instant booking feature, which
enables hotel shoppers to book directly on TripAdvisor through a travel partner, with the latter serving
as the merchant of record for the transaction. We earn a pre-determined commission rate from our travel
partners for each consumer that completes a hotel reservation on our website or app.
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, air travel and cruises, as well as destination marketing organizations. Other display clients
include 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. We
also offer subscription-based advertising to hoteliers, owners of B&Bs and other specialty lodging
properties, enabling subscribers to advertise their businesses on our website, as well as manage and
promote their website URL, email address, phone number, special offers and other information related
to their business. Subscription advertising services are predominantly sold for a flat fee for a contracted
period of time of one year or less.
(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, www.onetime.com, and
3
www.smartertravel.com, which primarily includes click-based advertising and display-based advertising
revenue sources, as described above.
Non-Hotel offerings – Experiences, Restaurants and Rentals – have comprised an increasing percentage of
consumer demand and consolidated revenue. Our Non-Hotel reportable segment accounted for 28%, 23%, and 20%
of our consolidated revenue in the years ended December 31, 2018, 2017 and 2016, respectively, and includes
revenue generated from the following sources:
(cid:129)
(cid:129)
(cid:129)
Experiences. We provide information and services for consumers to research, book and travel activities
and experiences in popular travel destinations both through Viator, our dedicated Experiences offering,
and on our TripAdvisor website and app. We also power travel activities and experience booking
capabilities to consumers on affiliate partner websites, including some of the world’s top airlines, hotel
chains and online and offline travel agencies. We work with local tour or travel activities/experiences
operators (the “supplier”) to provide consumers with access to tours, activities and experiences (the
“activity”) in popular destinations worldwide. We generate commissions for each booking transaction
we facilitate through our online reservation system. To a lesser extent, we earn commissions from third-
party merchant partners, which display and promote our supplier activities on their websites to generate
bookings.
Restaurants. We provide information and services for consumers to research and book restaurants in
popular travel destinations through our dedicated restaurant reservations offering, TheFork, and on our
TripAdvisor websites and mobile apps. TheFork is an online restaurant booking platform operating on a
number of websites (including www.lafourchette.com, www.eltenedor.com, and www.iens.nl), with a
network of restaurant partners located primarily across Europe and Australia. Our bookable restaurants
are available on www.thefork.com and on TripAdvisor-branded websites and mobile apps. We primarily
generate transaction fees (or per seated diner fees) that are paid by restaurants for diners seated
primarily from bookings through TheFork’s online reservation system. To a lesser extent, we also
generate subscription fees for subscription-based advertising to restaurants, access to certain online
reservation management services and marketing analytic tools provided by TheFork and TripAdvisor.
Rentals. We provide information and services for consumers to research and book vacation and short-
term rental properties, including full home rentals, condominiums, villas, beach rentals, cabins and
cottages. Our Rentals offering generates revenue primarily by offering individual property owners and
managers the ability to list their properties on our websites and mobile apps thereby connecting
homeowners with travelers through a free-to-list, commission-based option or, 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, www.vacationhomerentals.com,
and on our TripAdvisor-branded websites and mobile apps.
Seasonality
Traveler expenditures in the global travel market tend to follow a seasonal pattern. As such, advertising
investments made by travel partners to market to potential travelers and, therefore, our revenue and profits tend to be
seasonal as well. 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
rental stays, and travel activities and experiences 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.
Our Long-Term Growth Strategy
Our mission is to help people around the world plan, book and experience the perfect trip. We seek to deliver
on this mission by: increasing and leveraging our rich, user-generated content and global brand to attract consumers
to our websites and mobile apps; delivering the best consumer experience throughout all phases of the travel journey
from inspiration and travel-planning to trip-taking and sharing the experience; deepening our relationships with
travel partners by providing them an array of advertising opportunities to generate qualified leads, or hotel shoppers
4
we pass along to travel partners; and investing in technology, product development, marketing and other strategic
areas that we believe can improve the TripAdvisor experience and improve our long-term business prospects.
(cid:129) Drive consumer engagement with our platform. TripAdvisor is a globally-recognized travel brand built
on travel reviews and travel research. A large, global travel audience leverages TripAdvisor’s rich content
to discover, plan, and book travel experiences. We seek to further amplify our global brand by raising
consumer awareness for – and engagement with – our end-to-end product offerings, such as the ability to
seamlessly research, price compare, book and share travel experiences on our platform. We believe
building deeper, more durable consumer relationships can attract more consumers more frequently to our
products, either directly to our websites and mobile apps or through various online and offline marketing
channels, and that these consumers will then become qualified leads that we can provide to our partners.
These channels include search engines through search engine optimization, or SEO, and search engine
marketing, or SEM, retargeting and television, or brand advertising.
(cid:129) Deliver the best consumer experience possible on our platform. We believe delivering consumers a
more holistic, end-to-end product experience is critically important for the long-term health of our
business. We have invested – and will continue to invest – in product enhancements that ensure
TripAdvisor gives consumers an assistive experience throughout all phases of the travel journey – from
inspiration and discovery, to researching, price shopping and booking, to finding and booking things to do
and places to eat, to sharing.
(cid:129) Deepen relationships with our travel partners. Our large, global audience makes it an attractive platform
for listing and advertising opportunities that helps generate impressions, brand awareness, qualified leads
and bookings for travel partners. We believe that growing the number of listings and bookable supply,
especially in our in-destination Experiences and Restaurants offerings, enables consumers not only to find
and book the perfect trip, but also enables partners to drive transactions for their business. We also
provide business-to-business services – including subscription-based advertising services, such as
TripAdvisor’s Business Advantage for hoteliers and Premium for Restaurants, which are advertising
opportunities and marketing analytics tools – that are designed to help our partners attract customers,
more effectively manage their presence on TripAdvisor, and grow their business.
(cid:129)
Invest in technology and product. We prioritize rapid product-testing and speed to market as we seek to
deliver consumers a richer experience. We launch new product features on our websites and mobile apps
on a regular product release cycle. Also, during the year ended December 31, 2018, more than half of our
average monthly unique visitors came from mobile phones, according to our log files. We have invested –
and will continue to invest – to improve the features, functionality, consumer engagement, and
commercialization of our offerings on all devices to meet, and hopefully, exceed, evolving consumer
needs and expectations.
Marketing and Competition
We compete in a large, dynamic and competitive global travel industry. We face competition for content,
consumers, and advertisers from other online travel and price comparison services (known in the industry as
“metasearch”), as well as OTAs. In order to favorably attract consumers to our websites and mobile apps, we invest
to amplify our global brand and raise consumer awareness of, and engagement with, our end-to-end product
offerings. We invest through various marketing channels, including domain direct and various online and offline
marketing channels, including online search engines (primarily Google), social media, emails and in more recent
years, through television brand advertising. The relative success of our marketing strategy can be influenced by
changes that we, our partners, or our competitors make to our respective products and marketing strategies. During
2018, our total advertising expense was approximately $544 million, primarily driven by investments in online
search engines, and to a lesser extent, investments in offline marketing channels, which was primarily television
advertising. We intend to continue to promote brand awareness through both online and offline advertising efforts.
We compete with different types of companies in the various markets and geographies in which we operate,
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, and in some cases partner with, the following
businesses: OTAs (including Expedia Group, Inc., or Expedia, and Booking Holdings Inc., or Booking,
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and many of their respective subsidiaries and operating companies); hotel metasearch providers
(including trivago, a subsidiary of Expedia, Kayak and HotelsCombined, subsidiaries of Booking, 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); and
traditional offline travel agencies; and global hotel chains seeking to promote direct bookings.
(cid:129)
In our Non-Hotel segment, Experiences competes with online travel agencies, such as Airbnb, Booking,
and GetYourGuide; traditional travel agencies; online travel service providers; and wholesalers, among
others. Our Restaurants offering competes with other online restaurant reservation services, such as
SeatMe (owned by Yelp) and OpenTable (a subsidiary of Booking), and local or regional providers. Our
Rentals offering competes with companies focused on alternative lodging and shared accommodations
and online accommodation searches, including Airbnb, HomeAway (a subsidiary of Expedia) and
Booking.com (a subsidiary of Booking).
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 seek 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 years ended December 31, 2018, 2017 and 2016 our two most significant travel
partners were Expedia (and its subsidiaries) and Booking (and its subsidiaries), each of which accounted for more
than 10% of our consolidated revenue and together accounted for approximately 37%, 43% 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.
Our systems infrastructure and 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
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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, federal, 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.
In connection with our copyrightable content, we post and institute procedures under the U.S. Digital
Millennium Copyright Act and similar “host privilege” statutes worldwide to gain immunity from copyright liability
for photographs, text and other content loaded on our sites by users. However, differences between statutes,
limitations on immunity, and moderation efforts in the many jurisdictions in which we operate may affect our ability
to claim immunity.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of our business,
including claims of alleged infringement by us of the trademarks, copyrights, patents, and other intellectual property
rights of third parties. In addition, litigation may be necessary in the future to enforce our intellectual property
rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others. Any
such litigation, regardless of outcome or merit, could result in substantial costs and diversion of management and
technical resources, any of which could materially harm our business.
Regulation
We are subject to a number of laws and regulations that affect companies conducting business on the internet
and relating to the travel industry, the vacation rental industry and the provision of travel services. As we continue
to expand the reach of our brands into additional international markets, we are increasingly subject to additional
laws and regulations. This includes laws and regulations regarding, among other matters, consumer 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.
These laws and regulations are constantly evolving and can be subject to significant change. Many of these laws and
regulations are being tested in courts, and could be interpreted by regulators and courts in ways that could harm our
business. 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
consumer protection laws that regulate unfair and deceptive practices, domestically and internationally, including, in
some countries, pricing display requirements, licensing and registration requirements and industry specific value-
added tax regimes. The United States and European Union have adopted 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 how this new
legislation will be interpreted and applied or 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. As our business has evolved, we
have begun to receive and store a greater volume of personally identifiable data. This data is increasingly subject to
laws and regulations in numerous jurisdictions around the world. For example, the European Union, in May 2018,
adopted the General Data Protection Regulation, or GDPR, which requires companies, including ours, to meet
enhanced requirements regarding the handling of personal data. The enactment, interpretation and application of this
law is still in a state of flux, and the interpretation and application of GDPR may vary from country to country. In
addition, similar laws are currently under discussion in other jurisdictions.
Also, on June 23, 2016, the United Kingdom passed a referendum to exit the European Union, known as
Brexit. Since the terms of the United Kingdom’s exit from the European Union are uncertain, we are unable to
predict the effect Brexit will have on our business and results of operations; however, we will likely face new
regulatory costs and challenges if the U.K. regulations diverge from those of the European Union.
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 Expedia, at the time a separate newly-formed Delaware
corporation. 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, 2018, 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 14.5%
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 22.5% of the outstanding common stock. Because each share of Class B common stock 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 57.7% of our voting power.
Employees
As of December 31, 2018, we had 3,366 employees. Of these employees, approximately half of these
employees 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.
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.
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On our Investor Relations website (http://ir.tripadvisor.com/investor-relations), we provide our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to
these reports free of charge. These reports are available on our website as soon as reasonably practicable after we
electronically file or furnish these reports to the SEC or publish through press releases, public conference calls and
certain webcasts. All documents filed electronically with the SEC (including reports, proxy and information
statements and other information) are also available at www.sec.gov. 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.
Risks Related to Our Business and Industry
If we are unable to continue to increase visitors to our websites and mobile apps, to cost-effectively convert these
visitors into revenue-generating users and to continue to engage our users, our revenue, financial results and
business could be harmed.
Our long term success depends on our continued ability to increase the overall number of visitors flowing
through our platforms in a cost-effective manner, to convert those visitors into consumers and then to continue to
engage those consumers throughout the travel planning, booking and trip-taking phases. Our traffic and user
engagement could be adversely affected by a number of factors, including but not limited to, increased competition;
inability to provide quality content, inventory or supply to our consumers; declines or inefficiencies in traffic
acquisition; reduced awareness of our brands; and macroeconomic conditions. Certain of our competitors have
advertising campaigns expressly designed to drive traffic directly to their websites, and these campaigns may
negatively impact traffic to our site. We anticipate that traffic growth could decline over time, and potentially even
decrease in certain periods, as our business matures, and that our success will become increasingly dependent on our
ability to increase levels of user engagement on our platform. There can be no assurances that we will continue to
provide content and products in a manner that meets rapidly changing demand. 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 websites
and apps 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 consumers we attract from search engines to our platform is due in large part to how and
where information from, and links to, our websites are displayed on search engine results pages. The display,
including rankings, of search results can be affected 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 the 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 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 and/or other traffic acquisition strategies could result in a substantial decrease in traffic
to our websites, as well as increased costs to the extent we replace free traffic with paid traffic.
In some instances, search and metasearch companies and application marketplaces may change their displays
or rankings in order to promote their own competing products or services or the products or services of one or more
of our competitors. Google in particular is the most significant source of traffic to our website, accounting for a
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substantial portion of the visits to our websites and our success depends on our ability to maintain a prominent
presence in search results for queries regarding local businesses on Google. Google frequently promotes its own
competing products in its web search results, which has negatively impacted the search ranking of our website.
Google’s promotion of its own competing products, or similar actions by Google in the future that have the effect of
reducing our prominence or ranking on its search results, could have a substantial negative effect on our business
and results of operations.
We also rely on application marketplaces, or app stores 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 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 advertising
contracts with our advertising partners; however, the agreement terms are generally limited to legal matters, with
campaign details and economics 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 effectiveness of online advertising, 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.
In addition, advertising revenue could be impacted by a number of other factors, including, but not limited to,
the following:
(cid:129) Our inability to increase or maintain user engagement, including time spent on our platform;
(cid:129) Our inability to increase or maintain the quantity and quality of ads shown to consumers, including as a
result of technical infrastructure constraints;
(cid:129)
(cid:129)
The development of technologies that can block the display of our ads or block our ad measurement
tools, particularly for advertising displayed on tablets and/or on mobile platforms;
The effectiveness of our ad targeting or degree to which consumers opt out of certain types of ad
targeting;
(cid:129) Adverse government actions or legal developments relating to advertising, including legislative and
regulatory developments and developments in litigation that limit our ability to deliver or target
advertising, particularly in mobile devices; and
(cid:129)
The impact of macroeconomic conditions, whether in the advertising industry in general or among
special types of marketers or within particular geographies.
The occurrence of any of these or other factors could result in a reduction in demand for our ads, which may
reduce the prices we receive for our ads, or cause marketers to stop advertising with us altogether, either of which
would negatively affect our revenue and financial results.
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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, 2018, our two most significant
advertising partners, Expedia and Booking (and their subsidiaries), accounted for a combined 37% of total revenue.
While we enter into master advertising contracts with our partners, as discussed above, 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 business depends on a strong brand and any failure to maintain, protect and enhance our brand could hurt
our ability to retain and expand our base of consumers and partners, as well as increase the frequency with
which consumers 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 consumers, increasing the frequency with which consumers 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, integrity, reliability of usefulness of the user content and other information
found on our platform. 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 and retain consumers and partners and the frequency with which
they use our platform. We dedicate significant resources to these goals, primarily through our computer algorithms
and teams of moderators that are focused on identifying inappropriate, unreliable or deceptive content. We remove
those types of content from our website and, in certain cases, take legal action against individuals or businesses that
we believe have engaged 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 alleged 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 consumers; 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 consumers 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 consumers and our partners. Such negative publicity also could have an adverse effect on the size, engagement,
and loyalty of our user base and result in decreased revenue.
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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 potentially even increase, as a result of a
variety of factors, including relatively high levels of advertising spending by 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.
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 diverse 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 use of platforms other than desktop computers creates new challenges. If we are unable to operate
effectively on these platforms or our products for such devices are not compelling, our business may be adversely
affected.
The number of people who access the internet through devices other than desktop computers, including
mobile phones, tablets, handheld computers, voice-assisted speakers, television set-top devices and automobiles,
continues to increase. We anticipate that the rate of use of these devices will continue to grow and that usage
through desktop computers may continue to decline. The functionality and user experience associated with these
alternative devices, such as a smaller screen size or lack of a screen, may make the use of our platform through such
devices more difficult than through a desktop computer. For example, mobile phone devices monetize at a
significantly lower rate than desktops and advertising opportunities are more limited on these mobile devices.
Additionally, consumer purchasing patterns differ on alternative devices. For example, accommodation reservations
made on a mobile device typically are for shorter lengths of stay and are not made as far in advance. Mobile
consumers may also be unwilling to download multiple apps from multiple companies providing similar services or
contribute high quality content through such devices. As a result, the consumer experience with mobile apps and
brand recognition are likely to become increasingly important. We expect that the ways in which consumers engage
with our platform will continue to change over time as consumers increasingly engage via alternative devices. This
may make it more difficult or more expensive to develop products that consumers find useful or provide them with
the information they seek, and may also negatively affect our content if consumers do not continue to contribute
high quality content through such devices.
In order to attract and retain engaged consumers, we must continue to extend our platform to drive adoption of
and user engagement on other devices (in particular, our mobile platform) and the products and services we offer on
such devices must be compelling. As new devices and platforms are continually being released, it is difficult to
predict the problems we may encounter in adapting our products and services to them – and developing competitive
new products and services - and we may need to devote significant resources to the creation, support and
maintenance of such products. Our success will also depend on the interoperability of our products with a range of
technologies, systems, networks and standards or in creating, maintaining and developing relationships with key
participants in related industries, some of which may be our competitors. For example, Google’s Android and
Apple’s iPhone are the leading smartphones in the world. Therefore, our products need to synergistically function on
their respective operating systems in order to create a positive user experience on a mobile device. However, Google
could leverage its Android operating system to give its travel services a competitive advantage, either technically or
with prominence on its Google Play app store or within its mobile search results. Similarly, Apple obtained a patent
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for “iTravel,” a mobile app that would allow a traveler to check in for a travel reservation. In addition, Apple’s
iPhone operating system includes “Wallet,” a virtual wallet app that holds tickets, boarding passes, coupons and gift
cards, and, along with iTravel, may be indicative of Apple’s intent to enter the travel reservations business in some
capacity. Apple has substantial market share in the smartphone category and controls integration of offerings,
including travel services, into its mobile operating system. Apple also has more experience producing and
developing mobile apps and has access to greater resources than we do. Apple may use or expand iTravel, Wallet,
Siri (Apple’s voice recognition “concierge” service), Apple Pay (Apple’s mobile payment system) or another mobile
app or functionality as a means of entering the travel reservations marketplace. To the extent Google or Apple use
their mobile operating systems, app distribution channels or, in the case of Google, search services, to favor their
own travel service offerings, there may be an adverse effect on our ability to complete in the mobile space. We may
not be successful in developing products that operate effectively with these technologies, systems, networks and
standards or in creating, maintaining and developing relationships with key participants in related industries. If we
experience difficulties or increased costs in integrating our products into alternative devices, or if manufacturers
elect not to include our products in their devices, make changes that degrade the functionality of our products, give
preferential treatment to competitive products or prevent us from delivering advertising, our user growth and
operating results may be harmed. This risk may be exacerbated by the frequency with which consumers change or
upgrade their devices. In the event consumers choose devices that do not already include or support our platform or
do not install our products when they change or upgrade their devices, our traffic and user engagement may be
harmed.
In addition, the market for advertising products on mobile and other devices is rapidly evolving. As new
devices and platforms are released, consumers may begin consuming content in a manner that is more difficult to
monetize. Similarly, as advertising products for mobile and other platforms develop, demand may increase for
products that we do not offer or that may alienate our user base, which we must balance against our commitment to
prioritizing the quality of user experience over short-term monetization. If we are not able to balance these
competing considerations successfully to develop compelling advertising products, advertisers may stop or reduce
their advertising with us and we may not be able to generate meaningful revenue from alternative devices despite the
expected growth in their usage.
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
spending could reduce the demand for our services and have a negative impact on our business 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 our results of operations. For example, since the United Kingdom’s referendum to exit the European
Union, known as Brexit, global markets and foreign exchange rates have experienced increased volatility, including
a decline in the value of the British pound as compared to the U.S. Dollar. Upon leaving the European Union,
among other things, the United Kingdom could lose access to the single European Union market and travel between
the United Kingdom and European Union countries could be restricted. We could face new regulatory costs and
challenges if the U.K. regulations diverge from those of the European Union. Since the terms of the United
Kingdom’s exit from the European Union are uncertain, we are unable to predict the effect Brexit will have on our
business and results of operations.
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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, consumers,
advertisers, online travel search and price comparison services, or what is known in the industry as metasearch, and
online reservations. We compete globally with both online and offline, established and emerging, providers of travel,
lodging, experiences and restaurant reservation and related services. The markets for the services we offer are
intensely competitive, and current and new competitors can launch new services at a relatively low cost.
We also compete with different types of companies in the various markets and geographies where we operate,
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, and in some cases partner with, the following
businesses: OTAs (including Expedia and Booking and many of their respective subsidiaries and
operating companies); hotel metasearch providers (including trivago, a subsidiary of Expedia, Kayak
and HotelsCombined, subsidiaries of Booking, 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); and 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 offerings in our Non-Hotel segment.
Experiences competes with online travel agencies, such as Airbnb, Booking, and GetYourGuide;
traditional travel agencies; online travel service providers; and wholesalers, among others. Restaurants
competes with other online restaurant reservation services, such as SeatMe (owned by Yelp) and
OpenTable (a subsidiary of Booking). Rentals 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 Booking).
There has been a proliferation of new channels through which providers can offer accommodations,
experiences and restaurant reservations. Metasearch services may lower the cost for new companies to enter the
market by providing a distribution channel without the cost of promoting the new entrant’s brand to drive consumers
directly to its website. Some of our competitors and potential competitors offer a variety of online services, many of
which are used by competitors more frequently than online travel services. In addition, in some cases, our
competitors are willing to make little or no profit on a transaction, or offer travel services at a loss, in order gain
market share. Many of our competitors (such as Google, Booking and Ctrip) have significantly greater financial,
technical, marketing and other resources than us and have more 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. For example, Google has entered various aspects of
the online travel market, including by establishing a flight metasearch product ("Google Flights") and a hotel
metasearch product ("Google Hotel Ads") that are growing rapidly, as well as its "Book on Google" reservation
functionality and its Google Trips app.
In addition, Google and other large, established companies with substantial resources and expertise in
developing online commerce and facilitating internet traffic have launched travel or travel-related search,
metasearch and/or reservation booking services and may create additional inroads into online travel. Google's travel
metasearch services, Google Hotel Ads and Google Flights, are growing rapidly and have achieved significant
market share in a relatively short time. 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.
We compete with certain companies that we also do business with, including some of our click-based travel
partners. The consolidation of our competitors and travel partners, including Expedia (through its acquisitions of
Orbitz, Travelocity, and HomeAway) and Booking (through its acquisitions of KAYAK and OpenTable), may affect
our relative competitiveness and our travel partner relationships. Competition and consolidation could result in
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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 user engagement, any
of which could adversely affect our business and financial performance.
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 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 consumers.
In addition, the emergence of alternative devices, such as mobile phones and tablets, 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 competitors 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 products, services and features that are useful to users, we may not
remain competitive, and our business and financial performance could suffer.
Our success depends in part on continued innovation to provide products, features and services that make our
platform compelling to users and engage our consumers. 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 consumer experience in order to engage our consumers and drive user traffic and conversion rates. We have
invested, and expect to continue to invest significant resources in developing and marketing these innovations. 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 users want to use, existing consumers may become dissatisfied and use competitors’
offerings and we may be unable to attract additional consumers, which could adversely affect our business and
financial performance.
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, products 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, our 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 new products or changes to existing products or the user experience that decrease rates of conversion
but increases revenue per hotel shopper. In addition, our approach of putting users first may negatively impact our
relationship with existing or prospective partners. These actions and practices could result in a loss of partners,
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
16
case our user growth and engagement, our relationships with consumers and travel partners, and our business and
results of operations could be harmed. In addition, if new or enhanced products fail to engage users or if we are
unsuccessful in our effort to monetize these initiatives, we may fail to generate sufficient revenue, profit margin or
other value to justify our investments, in which case our business and results of operations would be adversely
affected.
We are dependent upon the quality of traffic in our network to provide value to our partners, and any failure in
our quality control could have a material adverse effect on the value of our websites to our partners and
adversely affect our revenue.
We use technology and processes to monitor the quality of the internet traffic that we deliver to our partners
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 partners. Furthermore, low-quality or invalid traffic may be detrimental to our
relationships with partners, 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 consumers may restrict our ability to accurately identify them across visits, some mobile apps
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. Accordingly, readers should not place undue reliance on these metrics.
We rely on the performance of highly skilled personnel and, if we are unable to retain or motivate key personnel
or hire, retain and motivate qualified personnel, our business would be harmed.
Our future success is largely dependent on the talents and efforts of highly skilled individuals. In particular,
the contributions of Stephen Kaufer, our co-founder, Chief Executive Officer and President, the contributions of key
senior management and the contributions of software engineers and other technology professionals, are critical to
our overall management and the success of our business. We cannot ensure that we will be able to retain the
services of our existing key personnel 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 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
17
attracting well-qualified employees or retaining or motivating existing employees, our business would be adversely
affected.
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 in order to grow our business
in response to changing technologies, user and partner 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. 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 product development, stock repurchases, 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, 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 invested, and may in the future invest, in privately-held companies and these investments are
currently accounted for using the measurement alternative for equity investments without a readily determinable fair
value, which measure these investments at cost while subtracting any impairments, if any, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or a similar investment of the same
issuer. 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.
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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.
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 areas 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.
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
dedicated Rentals websites. 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 adopting, statutes or ordinances that prohibit property owners and managers from renting
certain properties on a short-term basis 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 that restrict whether and how properties may be rented, which they assert apply to vacation rentals. Many
homeowners, condominium and neighborhood associations have adopted rules that prohibit or restrict short-term
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.
19
Risks Related to Legal and Regulatory Matters
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, legislation, regulatory environments (including labor laws and customs), tax
laws, levels of consumer acceptance and use of the internet for commerce 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, the U.K.
Bribery Act and GDPR), data privacy requirements, labor and employment law, laws regarding
advertisements and promotions and anti-competition regulations;
(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 or laws and regulations involving economic or trade prohibitions or
sanctions; and
(cid:129) Threatened or actual acts of terrorism.
Our strategy includes continued expansion in existing international and new international markets. Many of
these markets have different economic conditions, customers, languages, currencies, consumer expectations, levels
of consumer acceptance and use of the internet for commerce, legislation, regulatory environments, tax laws and
levels of political stability, and we are subject to associated risks typical of international businesses. International
markets have strong local competitors with established brands and travel service providers or relationships that may
make expansion in certain markets difficult and costly and take more time than anticipated. In addition, compliance
with legal, regulatory or tax requirements in multiple jurisdictions places demands on our time and resources, and
we may nonetheless experience unforeseen and potentially adverse legal, regulatory or tax consequences. In some
markets, such as China, legal and other regulatory requirements may prohibit or limit participation by foreign
businesses, such as by making foreign ownership or management of internet or travel-related businesses illegal or
difficult or may make direct participation in those markets uneconomic, which could make our entry or expansion in
those markets difficult or impossible, require that we work with a local partner or result in higher operating costs. If
we are unsuccessful in expanding in new and existing markets and effectively managing that expansion, our
business and results of operations could be adversely affected. 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 Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Foreign governments may enact tax laws
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 and analysis of information not previously relevant or regularly produced. The U.S.
20
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.
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, or debt refinancings, may result in additional U.S.
income tax expense and higher cost for such capital.
We are regularly subject to claims, lawsuits, government investigations, and other proceedings that may result in
adverse outcomes.
We are regularly subject to claims, lawsuits, government investigations and other proceedings involving,
among other matters, patent and intellectual property rights (including alleged infringement of third-party
intellectual property rights), tax matters (including value-added, excise, transient, occupancy and accommodation
taxes), regulatory compliance (including competition and consumer protection matters), defamation and free speech,
labor and employment matters and commercial disputes.
Such claims, lawsuits, 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 could 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 damages, fines or 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.
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 internet and online commerce, internet advertising,
consumer protection, data security and privacy, travel and 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 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.
Further, Rentals has been and continues to be subject to regulatory developments that affect the rental industry
and the ability of competitors like us to list those 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
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
rentals.
21
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 at 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. For example, in 2018, the European Union adopted GDPR implementing enhanced
data protection requirements and other jurisdictions are contemplating and may in the future adopt similar legislation.
This legislation could increase the cost and complexity of delivering our services. Unfavorable changes could
decrease demand for products and services, limit marketing methods and capabilities, impede development of new
products, result in negative publicity, require significant management time, increase costs and/or subject us to
additional liabilities. Violations of these laws and regulations could result in penalties and/or criminal sanctions
against us, our officers or our employees and/or restrictions on the conduct of parts of our business in certain
jurisdictions.
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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Risks Related to Data and Privacy
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 consumers. 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
that is intended to enhance the privacy and security of personal data, including credit card information. There are a
number of proposals for data privacy laws pending or proposed in other jurisdictions, including at both the state and
federal level of the United States. Implementing and complying 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 consumers
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 users and partners to lose trust in us, which could
have an adverse effect on our business, brand, market share and results of operations. For example, GDPR imposes a
strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide annual
turnover and/or €20 million.
We are subject to risks associated with processing credit card and other payment transactions 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 from consumers and partners 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). These regulations and/or requirements could result in significant
costs and reduce the ease of use of our payment products and yet may still be susceptible to fraudulent activity. In
addition, we may be held liable for accepting fraudulent credit cards on our websites as well as other payment
disputes with our customers. 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,
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
23
regulations, we could be subject to additional requirements and civil and criminal penalties, or forced to cease
providing certain services.
System security issues, data protection breaches, cyberattacks and system outage issues could disrupt our
operations or services provided to our consumers, and any such disruption could damage our reputation and
adversely affect our business, financial results and stock price.
Our reputation and ability to attract, retain and service our consumers and travel partners is dependent upon
the reliable performance and security of our computer systems and those of third parties we utilize in our operations.
Significant security issues, data breaches, cyberattacks and outages, interruptions or delays, in our systems or third
party systems upon which we rely, could impair our ability to display content or process transactions and
significantly harm our business. Breaches of our security measures or the accidental loss, inadvertent disclosure or
unapproved dissemination of proprietary information or sensitive or confidential data about us, our consumers or our
travel partners, could expose us, our consumers and travel partners to a risk of loss or misuse of this information,
damage our brand and reputation or otherwise harm our business and financial performance and result in
government enforcement actions and litigation and potential liability for us.
Computer programmers and hackers also may be able to develop and deploy viruses, worms, ransomware and
other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our
products, or attempt to fraudulently induce our employees, consumers, or others to disclose passwords or other
sensitive information or unwittingly provide access to our systems or data. In addition, sophisticated hardware and
operating system software and applications that we produce or procure from third parties may contain defects in
design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of
the system. We may need to expend significant resources to protect against security breaches or to investigate and
address problems caused by cyber or other security problems.
We may be unable to proactively address these techniques or to implement adequate preventive measures and
our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of
service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other
critical functions. 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 our financial performance.
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. In addition, to the extent that we do
experience a data breach, remediation may be costly and we may not have adequate insurance to cover such costs.
Much of our business is conducted with third party marketing affiliates or, to a lesser degree, 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 or 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 incidents may also result in a decline in our active user base or engagement levels. Finally, failure of
such third parties to comply with applicable disclosure requirements could expose us to liability.
We have acquired a number of companies over the years and may continue to do so in the future. As a result
of these acquisitions, we may increase the volume of personal data that we collect, store, process and transmit.
While we make significant efforts to address any information technology security issues and personal data
protection issues with respect to our acquisitions, we may still inherit such risks when we integrate the acquired
businesses.
Media coverage of data breaches has escalated, in part because of the increased number of enforcement
actions, investigations and lawsuits. 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. 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
24
potential consumers to lose confidence in our data security, which would have a negative effect on the value of our
brand.
"Cookie" laws could negatively impact the way we do business.
A "cookie" is a text file that is stored on a user's web browser by a website. Cookies are common tools used by
thousands of websites, including ours, to, among other things, store or gather information (e.g., remember log-on
details so a user does not have to re-enter them when revisiting a website), market to consumers and enhance the
user experience on a website. Cookies are valuable tools for websites like ours to improve the customer experience
and increase conversion on their websites. Many countries have adopted regulations governing the use of "cookies"
by websites servicing consumers, especially in the European Union. To the extent any such regulations require "opt-
in" consent before certain cookies can be placed on a user's web browser, our ability to serve certain customers in
the manner we currently do, including with respect to retargeting of advertising, might be adversely affected and our
ability to continue to improve and optimize performance on our websites might be impaired, either of which could
negatively affect a consumer's experience using our services and our business, market share and results of operations.
Risks Related to the Financial and Tax Matters
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 (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 or 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, 2018, we had no outstanding long-term debt; however, 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.
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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 the then existing debt levels, the risks described above could intensify.
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 facility. 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 financial results will fluctuate from quarter to quarter and are difficult to predict.
Our quarterly financial results have fluctuated in the past and will likely fluctuate in the future. Additionally,
we have limited operating history with the current scale of our business, which means it is difficult to forecast our
financial results. As a result, you should not rely upon our quarterly financial results as indicators of future
performance. Our financial results in any given quarter can be influenced by numerous factors, many of which we
are unable to predict or are outside of our control, including:
(cid:129) Our ability to maintain and grow our user base and to increase user engagement;
(cid:129)
Increase in marketing, sales and other operation expenses that we will incur to grow and expand our
operations and to remain competitive;
(cid:129)
(cid:129)
Fluctuations in the marketing spend of our travel partners due to seasonality, episodic global or regional
events or other factors;
The pricing of our ads and other products;
(cid:129) User behavior or product changes that may reduce traffic to features or products that we successfully
monetize;
(cid:129)
(cid:129)
(cid:129)
System failure or outages, which would prevent us from serving ads for any period of time;
Breaches of security or privacy and the costs associated with any such breaches and remediation;
Fees paid to third parties for content or promotion of our products and services;
(cid:129) Adverse litigation judgments, settlement or other litigation related costs;
26
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Changes in the legislative or regulatory environment, including with respect to privacy and data
protection, or engagement by government regulators, including final orders or consent decrees;
The impact of changes in tax laws, which are recorded in the period enacted and may significantly affect
our effective income tax rates;
Tax obligations that may arise from resolutions of tax examinations, including the examinations we are
currently under that may materially differ from the amounts we have anticipated;
Fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses
denominated in foreign currencies;
Changes in U.S. generally accepted accounting principles; and
Changes in global business and macroeconomic conditions.
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.
Our effective income 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 income 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 income 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. For example, the Organization for Economic Cooperation and Development (the “OECD”) has recently
recommended changes to numerous long-standing international tax principles. If countries amend their tax laws to
adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact our tax
liabilities. Any of these changes could affect our financial performance.
27
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. Also, our future effective income tax rates could be affected by
changes in the mix of earnings in countries with differing statutory tax rates, changes in valuation of deferred tax
assets or changes in tax laws or their interpretation. If our effective income tax rates were to increase, our results of
operations and cash flows would be adversely affected.
The income tax effects of the accounting for share-based compensation may significantly impact our effective
income tax rate. In periods in which our stock price is higher than the grant-date price of the share-based
compensation awards vesting in that period, we will recognize excess tax benefits that will decrease our effective
income tax rate. In periods in which our stock price is lower than the grant-date price of the share-based
compensation awards vesting in that period, our effective income tax rate will increase.
Additionally, we continue to accumulate positive cash flow 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 withholding taxes and state taxes.
Application of U.S. state and local or international tax laws, changes in tax laws or tax rulings, or the
examination of our tax positions, could materially affect our financial position and results of operations.
As an international business, we are subject to incomes taxes and non-income-based taxes in the United States
and various other international jurisdictions. 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, due to economic and political conditions, tax rates and tax regimes in various jurisdictions may be subject
to significant change and the tax benefits that we intend to eventually derive could be undermined due to changing
tax laws. Governments are increasingly focused on ways to increase tax revenues, which has contributed to an
increase in audit activity, more aggressive positions taken by tax authorities and an increase in tax legislation. Any
such additional taxes or other assessments may be in excess of our current tax provisions or may require us to
modify our business practices in order to reduce our exposure to additional taxes going forward, any of which could
have a material adverse effect on our business, results of operations and financial condition.
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, significant estimates in calculations,
and the preparation and analysis of information not previously relevant or regularly produced. The tax law changes
by the 2017 Tax Act are broad and complex and there are still uncertainties about how the 2017 Tax Act will be
interpreted at both the U.S. federal and state levels. 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. This could materially change the taxes that we recorded in
2017 and 2018, and the expected future impact of the 2017 Tax Act on our business.
On January 28, 2016, the European Commission unveiled a new package of proposals aimed at providing a
framework for fairer taxation and to provide a coordinated European Union response to combating corporate tax
avoidance. Following agreement among the European Union member states on the final content of the package, the
European Council formally adopted an Anti-Tax Avoidance Directive in July 2016, which was further amended in
February 2017. The Directive is aimed at preventing aggressive tax planning, increasing tax transparency and
creating a fairer tax environment for all businesses in the European Union. The OECD is working towards a
consensus-based solution to the challenges of the digitalization of the economy by 2020. In addition, on March 21,
2018, the European Commission released two draft directives on the Taxation of the Digital Economy. One directive
aims at a more comprehensive solution whereby EU states would be able to levy corporate income tax on companies
that have digital presence in those states regardless of whether they have a physical presence in those states. The
second directive provides for an interim solution whereby EU States are to apply a 3% revenue based Digital
Services Tax, which if enacted, would be effective beginning in 2020. In the interim, certain EU States (Austria,
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France, Italy, Spain, Belgium and the United Kingdom) have proposed legislation to implement a Digital Services
Tax that, if enacted, would impose a tax on revenue earned by larger companies from users of digital services
located in these respective EU States as early as 2019. Any changes to international tax laws, including new
definitions of permanent establishment, could affect the tax treatment of our foreign earnings and adversely impact
our effective income tax rate. Further, changes to tax laws and additional reporting requirements could increase the
complexity, burden and cost of compliance. Due to the large and expanding scale of our international business
activities, any changes in U.S. or international taxation of our activities or the combined effect of tax laws in
multiple jurisdictions may increase our worldwide effective income tax rate, increase the complexity and costs
associated with tax compliance (especially if changes are implemented or interpreted inconsistently across tax
jurisdictions) and adversely affect our cash flows and results of operations.
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 operating results and financial condition.
In July 2015, the United States Tax Court issued an opinion favorable to Altera Corporation, accepting
Altera’s position of excluding stock-based compensation from its intercompany cost-sharing arrangement. The IRS
subsequently appealed the Court decision on February 19, 2016. On July 24, 2018, the IRS won an appeals court
case at the Ninth Circuit, however, on August 7, 2018, the Ninth Circuit withdrew its decision regarding Altera and
the case was reheard. While we have recorded an income tax benefit based on the Court’s 2015 opinion, we may be
required to reverse the income tax benefit if an unfavorable opinion is issued by the Court when the case is reheard.
Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our
sites and our financial results.
Due to the global nature of the internet, it is possible that various states or foreign countries might attempt to
levy additional or new sales, income or other taxes relating to our activities. Tax authorities at the international,
federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-
commerce. New or revised international, federal, state or local tax regulations or court decisions may subject us or
our customers to additional sales, occupancy, income and other taxes. For example, Congress is considering various
approaches to legislation that would require companies engaged in e-commerce to collect sales tax on internet
revenue and a growing number of U.S. states and certain foreign jurisdictions have adopted or are considering
proposals to impose obligations on remote sellers and online marketplaces to collect taxes on their behalf.
Additionally, the U.S. Supreme Court’s ruling in South Dakota v. Wayfair Inc., in which a Court reversed
longstanding precedent that remote sellers are not required to collect state and local sales taxes, may have an adverse
impact on our business. We cannot predict the effect of these and other attempts to impose sales, income or other
taxes on e-commerce. New or revised taxes and, in particular, sales taxes, occupancy taxes, value added taxes
(“VAT”) and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of
selling products and services over the Internet. New taxes could also create significant increases in internal costs
necessary to capture data and collect and remit taxes. Any of these events could have a material adverse effect on
our business, financial condition and operating results.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and
use, occupancy, VAT or similar taxes, and we could be subject to liability with respect to past or future sales,
which could adversely affect our operating results.
We do not collect and remit sales and use, occupancy, VAT or similar taxes in all jurisdictions in which we
have sales, based on our belief that such taxes are not applicable or legally required. Several states and other taxing
jurisdictions have presented or threatened us with assessments, alleging that we are required to collect and remit
certain taxes there. While we do not believe that we are subject to such taxes and intend to vigorously defend our
position in these cases, we cannot be sure of the outcome of our discussions and/or appeals with these states or cases
that are pending in the courts. In the event of an adverse outcome, we could face assessments for additional time
periods since the last assessments we received, plus any additional interest and penalties. We also expect additional
jurisdictions may make similar assessments or pass similar new laws in the future, and any of the jurisdictions where
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we have sales may apply more rigorous enforcement efforts or take more aggressive positions in the future that
could result in greater tax liability allegations. Such tax assessments, penalties and interest or future requirements
may materially adversely affect our business, financial condition and operating results.
We continue to be subject to significant potential tax liabilities in connection with the Spin-Off.
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 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.
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, 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. For example, Brexit caused significant volatility in currency exchange rates,
especially between the U.S. dollar and the British pound. Continued uncertainty regarding Brexit may result in
future exchange rate volatility. In addition, in the event that one or more European countries were to replace the
Euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely
affected until stable exchange rates are established. Accordingly, fluctuations in foreign currency exchange rates,
such as the strengthening of the U.S. dollar against the Euro or the British pound, could adversely affect our net
revenue growth in future periods.
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.
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Risks Related to Ownership of our Common Stock
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 Gregory 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.
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.
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;
31
(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.
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.
We do not intend to pay dividends for the foreseeable future and, as a result, our stockholders’ ability to achieve a
return on their investment will depend on appreciation in the price of our common stock.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash
dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the
development of our business and for general corporate purposes. Any determination to pay dividends in the future
will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock
after price appreciation, which may never occur, as the only way to realize future gains on their investments.
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.
Sales of substantial amounts of our common stock in the public market, particularly sales by our directors,
officers, employees and significant stockholders, or the perception that these sales might occur, could depress the
market price of our common stock and could impact our ability to raise capital through the sale of additional equity
securities. 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
32
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. 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. 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, 2018.
Refer to “Note 14: 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 and other property
leases.
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 14, 2019, the
closing price of our common stock reported on NASDAQ was $57.76 per share. Our Class B common stock is not
listed and there is no established public trading market for that security. As of February 14, 2019, all of our Class B
common stock was held by LTRIP.
33
Performance Comparison Graph
The following graph provides a comparison of the total stockholder return from December 31, 2013 to
December 31, 2018, of an investment of $100 in cash on December 31, 2013 for TripAdvisor, Inc. common stock
and an investment of $100 in cash on December 31, 2013 for (i) the Standard and Poor’s 500 Index (the “S&P 500
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
$250
$200
$150
$100
$50
$0
12/13
12/14
12/15
12/16
12/17
12/18
TripAdvisor, Inc.
S&P 500
NASDAQ Composite
RDG Internet Composite
*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2019 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.
34
Holders of Record
As of February 14, 2019, there were 125,336,213 outstanding shares of our common stock held by 2,220
stockholders of record, and 12,799,999 outstanding shares of our Class B common stock held by one stockholder of
record: LTRIP.
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 also limited by the terms of our 2015 Credit Facility. Refer to “Note 10: Debt” in the
notes to the consolidated financial statements in Item 8 in this Annual Report on Form 10-K 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, 2018, 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 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
repurchase program has no expiration date but may be suspended or terminated by the Board of Directors at any
time.
A summary of information about our common stock repurchases during the fourth quarter of 2018 is set forth
in the table below:
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
— $ 150,000,033
— $ 150,000,033
— $ 150,000,033
—
Total
Number
of Shares
Purchased
Average
Price Paid
per Share
— $
— $
— $
—
—
—
—
Period
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
As of December 31, 2018, we have repurchased a total of 2,582,198 shares of outstanding common stock
under this share repurchase program for an aggregate cost of $100 million, or an average price of $38.73 per share,
exclusive of fees and commissions. Refer to “Note 16: Stockholders’ Equity” in the notes to the consolidated
financial statements in Item 8 for additional information regarding our share repurchase program and share
repurchases.
35
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)
2018
Year Ended December 31,
2017
2016
(in millions, except per share data)
2015
2014
$ 1,615
1,432
183
173
113
$ 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
$
$
0.82
0.81
(0.14) $
(0.14)
$
0.83
0.82
$
1.38
1.36
1.58
1.55
138
140
140
140
145
147
144
146
143
146
2018
2017
December 31,
2016
(in millions)
2015
2014
$
$
$
670
522
2,167
-
83
696
1,471
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
(1)
(2)
Includes a non-cash charitable contribution expense to The TripAdvisor Charitable Foundation (the
“Foundation”) of $67 million for the year ended December 31, 2015, which was recorded to general and
administrative expense in our consolidated statement of operations. In comparison, charitable contributions to
the Foundation, which were paid in cash, were $8 million for the year ended December 31, 2014. There were
no charitable contributions made to the Foundation during any period after December 31, 2015, and the
Company does not expect to make any future contributions to the Foundation.
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, of which $31 million remained
unpaid as of December 31, 2018. Refer to “Note 11: Income Taxes” in the notes to the consolidated financial
statements in Item 8 on this Annual Report on Form10-K 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 on this
Annual Report on Form 10-K for further information regarding our calculation of earnings per share numbers.
36
(4) Amount does not include available for sale long-term marketable securities of $27 million, $16 million, $37
million and $31 million, as of December 31, 2017, 2016, 2015, and 2014, respectively.
(5) Refer to “Note 10: Debt” in the notes to the consolidated financial statements in Item 8 on this Annual Report
on Form 10-K for information regarding our long-term debt.
(6) Refer to our consolidated statements of changes in stockholders’ equity and “Note 16: Stockholders’ Equity”
in the notes to the consolidated financial statements in Item 8 on this Annual Report on Form 10-K 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 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 consumers and travel partners a global
platform with rich consumer-generated content, price comparison tools and online reservation and related services
for destinations, accommodations, travel activities and experiences, and restaurants.
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 average monthly unique visitors,
which reached 490 million in our seasonal peak during the year ended December 31, 2018, according to our internal
log files. Our TripAdvisor-branded websites include www.tripadvisor.com in the United States and localized
versions of the TripAdvisor website in 48 markets and 28 languages worldwide. TripAdvisor features approximately
730 million reviews and opinions on approximately 8.1 million places to stay, places to eat and things to do –
including 1.3 million hotels, inns, B&Bs and specialty lodging, 875,000 rental properties, 4.9 million restaurants and
1.0 million travel activities and experiences worldwide. We also enable consumers to compare prices and/or book a
number of these travel experiences on either a TripAdvisor website or mobile app, or on the website or mobile app
of one of our travel partners.
In addition to the flagship TripAdvisor brand, we manage and operate other travel media brands, connected by
the common goal of providing consumers 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 reportable
segment consists of our Experiences, Restaurants and Rentals offerings. During the first quarter of 2018, we
renamed Attractions as “Experiences” and Vacation Rentals as “Rentals.” These changes had no impact on the
composition of our segments or on any financial information. Financial information and additional descriptive
information related to our segments is contained in “Note 18: Segment and Geographic Information” and “Note 4:
Revenue Recognition,” in the notes to our consolidated financial statements in Item 8 on this Annual Report on
Form 10-K and below.
Executive Financial Summary and Business Trends
TripAdvisor is the world’s largest online travel site, as measured by average unique monthly visitors. As a
result, TripAdvisor represents an attractive platform for travel partners—including hotel chains, independent
hoteliers, OTAs, destination marketing organizations, and other travel-related and non-travel related product and
service providers—who seek to market and sell their products and services to a global audience. Our platform and
product offerings enable consumers to find, research and price shop and book a variety of travel products, including
hotels, flights, cruises, rental properties, tours, travel activities and experiences, and restaurants either directly on our
websites or mobile apps, or on our travel partners’ websites or mobile apps. Our financial results, current trends
affecting our business and our segment information are provided below.
37
Business Trends
The online travel industry in which we operate, is large and growing, and also remains highly dynamic and
competitive.
Hotel Segment
Over the past year, we have focused on delivering a great product experience and optimizing our paid
marketing investments and profit as we drive for long-term, profitable growth. Marketing optimizations have
impacted revenue growth, but have successfully generated significant profit growth and margin expansion compared
to 2017.
On the product side, we continue to make product enhancements that we believe deliver consumers a more
engaging, and comprehensive, hotel shopping experience. Content on travel destinations, properties and room types
continues to grow; and we continue to make it easier for consumers find the best room prices offered by our travel
partners. We also continue to focus on increasing supply, and adding more properties from more travel partners. We
believe that providing consumers a robust experience, with rich content and a comprehensive selection of
accommodations helps increase brand awareness and brand loyalty, which, over time, can result in deeper consumer
engagement with our platform, more qualified leads delivered to travel partners and higher monetization for our
business.
We seek to maximize revenue per hotel shopper generated in our Hotel segment. Revenue per hotel shopper
performance improved throughout 2018 and increased 14% for the three months ended December 31, 2018 when
compared to the same period in 2017, primarily due to metasearch auction stability throughout 2018 and progress
along the aforementioned product enhancements and also marketing efforts, partially offset by the continued hotel
shopper growth on mobile phone, which has a significantly lower revenue per hotel shopper compared to desktop
and tablet.
We look to acquire hotel shoppers that meet or exceed our desired marketing return on investment targets on
paid online marketing channels. Since mid-2017, we progressively increased Hotel segment profits by significantly
reducing investments in direct selling and marketing channels and re-investing some of the savings into brand
advertising, or television advertising, in pursuit of our long-term strategic growth objectives. As expected, the
optimized marketing mix, as well as product enhancements focused on increasing traffic quality, has caused hotel
shopper growth to slow and decline in recent periods; however, our marketing portfolio optimizations reduced our
total marketing expenses and increased both our Hotel segment Adjusted EBITDA and Hotel Adjusted EBITDA
margin in 2018 as compared to 2017.
Consumers are increasingly using mobile phones to conduct ecommerce activity and mobile average monthly
unique visitor growth continues to drive overall user growth on our platform. We continue to support investments
and product enhancements that improve the consumer experience as opposed to maximizing the number of display
advertising impressions we can sell in a given period. Historically, this preference has limited the number and type
of display advertising opportunities we make available to customers, which, in turn, has hampered TripAdvisor-
branded display-based advertising revenue growth, particularly on mobile phone. However, we continue to explore
product enhancements and media advertising products that can deliver increased value to both consumers and travel
partners, as well as generate more revenue for our business.
Other Hotel revenue, which consists primarily of hotel revenue from non-TripAdvisor branded sites, has
decreased in recent periods primarily due to increased marketing efficiency from paid online marketing channels,
which has reduced revenue and improved Hotel segment profit. We have also taken certain steps to re-align
operations within some of these other Hotel brands which have had a material adverse impact to revenue
performance during 2018, while increasing Hotel segment profitability.
Non-Hotel Segment
TripAdvisor’s Non-Hotel offerings – Experiences, Restaurants and Rentals – enable consumers to discover
and book great travel experiences across a diversified spectrum of travel offerings.
Our key priority in our Non-Hotel segment remains revenue growth. To achieve this, we continue to invest in
product, supply and marketing to improve the experience for consumers and suppliers on our platform. We believe
scaling and presenting a greater selection of offerings will deepen our relationships with consumers, will drive more
bookings and marketing opportunities for more travel partners and will increase monetization on our platform.
38
During 2018, Non-Hotel revenue growth was driven by growth in consumer demand, bookable supply and
bookings in our Experiences and Restaurants offerings. Rentals revenue declined primarily due to competition in the
alternative accommodations marketplace as well as our strategic resource re-allocation within Non-Hotel to
Experiences and Restaurants.
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 were 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. During the year ended December 31, 2017, we recorded a charge totaling
$73 million related to our estimate at that time of the provisions of the 2017 Tax Act, principally due to the
Transition Tax. The Transition Tax, recorded of $67 million, which will not accrue interest, will be paid over an
eight-year period, of which $31 million remained unpaid at December 31, 2018. We also recorded a charge of $6
million for the remeasurement of our net deferred tax assets. These estimates as of December 31, 2017 were
reflected in our financial results in accordance with Staff Accounting Bulletin No. 118 (“SAB 118"), which provided
for a measurement period of one year to complete the accounting for certain elements of the tax reform. The impact
of adjustments recorded during the measurement period by the Company during the year ended December 31, 2018
was not material. Refer to “Note 11: Income Taxes” in the notes to the consolidated financial statements in Item 8
on this Annual Report on Form 10-K for further information on the financial statement impact of the 2017 Tax Act.
39
Results of Operations
Selected Financial Data
(in millions, except per share amounts and percentages)
Year ended December 31,
2017
2016
2018
% Change
2018 vs. 2017
2017 vs. 2016
Revenue
$
1,615 $
1,556 $
1,480
4%
5%
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)
n.m. = not meaningful
$
$
$
$
86
778
275
177
82
34
1,432
183
(12)
2
(10)
173
(60)
113 $
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
19%
(8)%
13%
13%
4%
6%
0%
48%
(20)%
100%
(29)%
57%
(53)%
n.m.
1%
12%
0%
10%
14%
0%
9%
(25)%
25%
n.m.
(7)%
(27)%
316%
n.m.
0.82 $
0.81 $
(0.14) $
(0.14) $
0.83
0.82
n.m.
n.m.
n.m.
n.m.
422 $
331 $
352
27%
(6)%
(1) See “Adjusted EBITDA” discussion below for more information.
Revenue and Segment Information
Year ended December 31,
2018
2017
2016
% Change
2018 vs. 2017
2017 vs. 2016
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
n.m. = not meaningful
$1,157
458
$1,615
(in millions)
$1,196
360
$1,556
$1,190
290
$1,480
$ 356
66
$ 286
45
$ 380
(28)
31%
14%
24%
13%
32%
(10)%
(3)%
27%
4%
24%
47%
1%
24%
5%
(25)%
n.m.
40
(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 18: Segment and Geographic
Information,” in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for more
information.
(2) We define “Adjusted EBITDA Margin by Segment”, as Adjusted EBITDA by segment divided by Revenue by segment.
Hotel Segment
Our Hotel segment revenue decreased $39 million during the year ended December 31, 2018 when compared
to the same period in 2017, primarily due to a $34 million decrease in TripAdvisor-branded click-based and
transaction revenue and $21 million decrease in other Hotel revenue, partially offset by $16 million increase in
TripAdvisor-branded display-based advertising and subscription revenue, all of which are discussed below. 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 $6 million increase in TripAdvisor-branded click-based and transaction revenue and
$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.
Adjusted EBITDA and Adjusted EBITDA margin in our Hotel segment increased $70 million and to 31%,
respectively, during the year ended December 31, 2018 when compared to the same period in 2017, primarily due to
a decrease in our direct selling and marketing expenses related to SEM and other online paid traffic acquisition costs
as we have continued to optimize and improve our marketing efficiency from our online marketing campaigns and,
to a lesser extent, growth in our TripAdvisor-branded display-based advertising and subscription revenue. 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 savings created through optimization and
improved marketing efficiencies of our online marketing campaigns during the second half of 2017.
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
2018
2017
2016
(in millions)
2018 vs
2017
2017 vs
2016
$
722 $
756 $
750
(4%)
1%
308
127
1,157 $
292
148
1,196 $
282
158
1,190
$
5%
(14%)
(3%)
4%
(6%)
1%
TripAdvisor-branded Click-based and Transaction Revenue
TripAdvisor-branded click-based and transaction revenue includes CPC-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, 2018, 2017 and 2016, 62%, 63% and 63%, respectively, of our Hotel segment revenue
was derived from our TripAdvisor-branded click-based and transaction revenue. TripAdvisor-branded click-based
and transaction revenue decreased $34 million or 4% during the year ended December 31, 2018 when compared to
the same period in 2017, primarily due to a 4% decrease in our average monthly unique hotel shoppers as well as a
2% decrease in our revenue per hotel shopper during the year ended December 31, 2018, which is explained below.
TripAdvisor-branded click-based and transaction revenue increased $6 million or 1% during the year ended
December 31, 2017 when compared to the same period in 2016, primarily due to an increase in our average monthly
unique hotel shoppers of 10%, which was largely offset by a decrease of 9% in our revenue per hotel shopper during
the year ended December 31, 2017, 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
41
click-based travel partners are predominantly OTAs and hoteliers. Click-based advertising is generally priced on a
CPC basis, with payments to us from advertisers based on the number of consumer clicks 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, which is determined in a competitive process as partner CPC bids for rates and availability
listed on our site are submitted. When a CPC bid is submitted, the partner agrees to pay us the bid amount each time
a consumer 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, nightly room rate, the size of the bid relative to other bids, and other variables. 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 pre-determined commission rate
to TripAdvisor for each consumer that completes a hotel reservation via our website.
The key drivers of TripAdvisor-branded click-based and transaction revenue include average monthly unique
hotel shoppers and revenue per hotel shopper, 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.
The table below summarizes our revenue per hotel shopper calculation and growth rate, in the 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
2018
2017
2016
(in millions)
2018 vs
2017
2017 vs
2016
$
722 $
756 $
750
(4%)
1%
1,742
0.41 $
1,814
0.42 $
1,645
0.46
$
(4%)
(2%)
10%
(9%)
2018 vs. 2017
Revenue per hotel shopper decreased 2% during the year ended December 31, 2018 when compared to the
same period in 2017, according to our internal log files. The decrease was primarily driven by travel partners
bidding to lower CPCs in our click-based metasearch auction during the second half of 2017, which created difficult
year-over-year growth comparisons during the first half of 2018, as well as a greater percentage of hotel shoppers
visiting TripAdvisor-branded websites and apps on mobile phones, partially offset by our success in product
improvements and increasing traffic quality, as discussed above.
42
Our aggregate average monthly unique hotel shoppers on TripAdvisor-branded websites decreased by 4%
during the year ended December 31, 2018 when compared to the same period in 2017, according to our internal log
files. The decrease was primarily due to significantly reducing our direct marketing spend on our least-profitable
paid online marketing campaigns, as well as product enhancements focused on increasing traffic quality, which we
believe limits our ability to grow hotel shoppers in the near term, as discussed above, partially offset by the general
trend of an increasing number of hotel shoppers visiting our websites and apps on mobile phones which we
continued to experience during 2018.
2017 vs. 2016
Revenue per hotel shopper decreased 9% 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 travel partners
bidding to lower CPCs in our click-based metasearch auction during the second half of 2017, and the general trend
of a greater percentage of hotel shoppers visiting TripAdvisor-branded websites and apps on mobile phones, 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 apps, and the timing of our hotel 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 10%
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 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.
TripAdvisor-branded Display-based Advertising and Subscription Revenue
For the years ended December 31, 2018, 2017 and 2016, 27%, 24% and 24%, 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.
2018 vs. 2017
Our TripAdvisor-branded display-based advertising and subscription revenue increased by $16 million or 5%,
during the year ended December 31, 2018 when compared to the same period in 2017, primarily attributable to
revenue from our new media ad product during 2018, which enables hotels to enhance their visibility on
TripAdvisor hotel pages. The increase was partially offset by the general trend of an increasing percentage of our
traffic visiting our websites on mobile phones, which yield smaller impression opportunities due to the smaller
screen size.
2017 vs. 2016
Our TripAdvisor-branded display-based advertising and subscription revenue increased by $10 million or 4%,
during the year ended December 31, 2017 when compared to the same period in 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 on mobile phones, in
addition to hotel industry consolidation.
Other Hotel Revenue
For the years ended December 31, 2018, 2017 and 2016, 11%, 12% and 13%, respectively, of our Hotel
segment revenue was derived from other Hotel revenue. Our other Hotel revenue primarily includes revenue from
non-TripAdvisor branded websites, such as bookingbuddy.com, cruisecritic.com, onetime.com, and
smartertravel.com, primarily through click-based advertising and display-based advertising. Other Hotel revenue
decreased by $21 million and $10 million during the years ended December 31, 2018 and 2017, respectively, when
compared to the same periods in 2017 and 2016, primarily due to increased marketing efficiency from paid online
marketing channels, and in 2018, increased with the elimination of some marginal and unprofitable revenue within
43
these offerings, in addition to realignment of certain capital resources within the Hotel segment. These steps have
resulted in increased profitability within the Hotel segment; however, these changes have had an adverse impact on
other Hotel revenue performance in 2018 and 2017.
Non-Hotel Segment
For the years ended December 31, 2018, 2017 and 2016, our Non-Hotel segment revenue accounted for 28%,
23% and 20%, respectively, of our total consolidated revenue. Our Non-Hotel segment revenue increased by $98
million or 27% and $70 million or 24%, for the years ended December 31, 2018 and 2017, respectively, when
compared to the same periods in 2017 and 2016, respectively, driven by Experiences and Restaurants, as we
continue our investment in product, bookable supply and marketing.
Experiences continued to generate strong revenue due to increased growth in bookings, which was primarily
driven by an increased and greater selection of bookable supply, and growth in demand from bookings sourced by
TripAdvisor. Another contributing factor was the key feature improvements made to the shopping experience, which
improvements are ongoing. In addition, we launched a new supplier platform during the fourth quarter of 2018,
which increased the efficiency with which suppliers can participate and market their bookable experiences, thereby
offering consumers a greater selection of travel activities and experiences. Continued strong revenue growth in
Restaurants was primarily due to seated diner growth, mobile bookings growth, user experience improvements, and
increased bookable supply of restaurant listings, as well as increased revenue from TripAdvisor websites. Rentals’
revenue decreased during the year ended December 31, 2018 when compared to the same period in 2017, primarily
due to increasing competition in the alternative accommodations marketplace and our strategic re-allocation of
resources within the Non-Hotel segment to support growth in Experiences and Restaurants, and to a lesser extent the
continued migration of our subscription model to our free-to-list model. Revenue in our Rentals offering 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, in addition to a slower growth rate in our
free-to-list revenues than 2016.
Adjusted EBITDA and Adjusted EBITDA margin in our Non-Hotel segment increased $21 million and to
14%, respectively, during the year ended December 31, 2018 when compared to the same period in 2017. This
increase was primarily driven by the increase in our Non-Hotel segment revenue, partially offset primarily by
increased personnel and overhead costs of $41 million, to support growth in this segment during the year ended
December 31, 2018, as well as an increase in online advertising costs. 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 driven by the increase
in our Non-Hotel segment revenue, in addition to increased efficiencies in paid online marketing channels and other
operational synergies across our Experiences and Rentals offerings, partially offset by increased personnel and
overhead costs to support growth in this segment for the year ended December 31, 2017.
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 credit card and other booking transaction payment fees, data center costs, costs
associated with prepaid tour tickets, ad serving fees, flight search fees, and other transaction costs. In addition, cost
of revenue includes personnel and overhead expenses, including salaries, benefits, stock-based compensation 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,
2018
$
2017
(in millions)
53
$
19
72
$
4.6%
67
19
86
$
5.3%
% Change
2018 vs
2017
2017 vs
2016
2016
51
20
71
4.8%
26%
0%
19%
4%
(5%)
1%
44
2018 vs. 2017
Cost of revenue increased $14 million during the year ended December 31, 2018 when compared to the same
period in 2017, primarily due to increased direct costs associated with prepaid tour tickets and merchant credit card
and other transaction payment processing fees as a result of revenue growth in our Non-Hotel segment and, to a
lesser extent, an increase in transaction costs related to revenue generation in our Hotel segment.
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 other transaction payment
processing fees as a result of revenue growth 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,
2018
$
2017
(in millions)
639
$
210
$
849
54.6%
553
225
778
$
48.2%
% Change
2018 vs
2017
2017 vs
2016
2016
554
202
756
51.1%
(13%)
7%
(8%)
15%
4%
12%
2018 vs. 2017
Direct selling and marketing costs decreased $86 million during the year ended December 31, 2018 when
compared to the same period in 2017, primarily due to decreased SEM and online traffic acquisition costs in our
Hotel segment, partially offset by an increase in our Hotel segment television advertising campaign spend of $40
million during the year ended December 31, 2018, and by an increase in online and offline advertising costs in our
Non-Hotel segment during the year ended December 31, 2018 when compared to the same period in 2017.
Personnel and overhead costs increased $15 million during the year ended December 31, 2018 when compared to
the same period in 2017, due to an increase in headcount in our Non-Hotel segment to support business growth.
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 a new television
campaign in June of 2017, as well as an increase in SEM and other online traffic acquisition costs in 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 attributable to our Hotel segment,
which we did not incur during the year ended December 31, 2016.
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
45
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,
2018
$
2017
(in millions)
219
$
24
$
243
15.6%
246
29
275
$
17.0%
% Change
2018 vs
2017
2017 vs
2016
2016
213
30
243
16.4%
12%
21%
13%
3%
(20%)
0%
2018 vs. 2017
Technology and content costs increased $32 million during the year ended December 31, 2018 when
compared to the same period in 2017 primarily due to increased personnel and overhead costs, which includes an
increase in stock-based compensation of $11 million for the year ended December 31, 2018, primarily as a result of
an increase in headcount to support business growth in our Non-Hotel segment. Other costs increased by $5 million
during the year ended December 31, 2018 when compared to the same period in 2017, primarily due to an increase
in software and other professional licensing costs.
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.
General and Administrative
General and administrative expenses consist primarily of personnel and related overhead costs, including
personnel engaged in 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.
Personnel and overhead
Professional service fees and other
Total general and administrative
% of revenue
$
$
Year ended December 31,
2018
$
2017
(in millions)
116
$
41
$
157
10.1%
129
48
177
$
11.0%
% Change
2018 vs
2017
2017 vs
2016
2016
101
42
143
9.7%
11%
17%
13%
15%
(2%)
10%
46
2018 vs. 2017
General and administrative costs increased $20 million during the year ended December 31, 2018 when
compared to the same period in 2017. Personnel costs and overhead costs increased $13 million during the year
ended December 31, 2018 when compared to the same period in 2017, primarily due to an increase in stock-based
compensation of $10 million, which was primarily as a result of equity awards granted to our CEO in November
2017. Professional service fees and other increased $7 million during the year ended December 31, 2018 when
compared to the same period in 2017, primarily due to an increase of $5 million in legal settlements and to a lesser
extent an increase in bad debt expense.
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 expense.
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
2018
Year ended December 31,
2017
(in millions)
79
82
$
$
5.1%
5.1%
$
2016
69
4.7%
Depreciation expense increased $3 million and $10 million during the years ended December 31, 2018 and
2017 when compared to the same periods in 2017 and 2016, respectively, primarily due to an increase in
amortization related to capitalized software and website development costs.
Amortization of Intangible Assets
Amortization consists of the amortization of definite-lived intangibles purchased in business acquisitions.
Amortization of intangible assets
% of revenue
2018
Year ended December 31,
2017
(in millions)
32
34
$
$
2.1%
2.1%
$
2016
32
2.2%
Amortization of intangible assets increased $2 million during the year ended December 31, 2018 when
compared to the same period in 2017, primarily due to incremental amortization from purchased definite-lived
intangibles related to a business acquisition during 2018. Refer to “Note 3: Acquisitions and Other Investments” in
the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for additional
information on our acquisitions. Amortization of intangible assets remained flat during the year ended December 31,
2017 when compared to the same period in 2016, as incremental amortization from purchased definite-lived
intangibles related to business acquisitions in 2016 were offset due to the completion of amortization related to
certain intangible assets from business acquisitions in prior periods.
47
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
2018
Year ended December 31,
2017
(in millions)
2016
$
(12) $
(15) $
(12)
Interest expense decreased $3 million during the year ended December 31, 2018 when compared to the same
period in 2017, primarily due to lower average outstanding borrowings on our 2015 Credit Facility during the year
ended December 31, 2018. 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 related to higher average
outstanding borrowings and effective interest rates during the year ended December 31, 2017, primarily on our 2015
Credit Facility. Refer to “Note 10: Debt” and “Note 14: Commitments and Contingencies” in the notes to our
consolidated financial statements in Item 8 on this Annual Report on Form 10-K for additional information on our
borrowing facilities and our financing obligation related to our corporate headquarters building, respectively.
Interest Income and Other, Net
Interest income and other, net primarily consists of interest earned from our money market funds and
marketable securities, 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.
Interest income and other, net
$
2 $
1 $
(3)
2018
Year ended December 31,
2017
(in millions)
2016
Interest income and other, net increased $1 million during the year ended December 31, 2018 when compared
to the same period in 2017, primarily due to an increase in interest income earned from our money market funds of
$6 million and a loss of $2 million in 2017 related to our investment in a privately-held company which did not
reoccur in 2018, partially offset by an increase of $7 million in net foreign currency transaction losses as a result of
the fluctuation of foreign exchange rates. 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 of $6 million in net
foreign currency transaction gains, as a result of the fluctuation of foreign exchange rates, partially offset by a loss
of $2 million related to our investment in a privately-held company recognized during the year ended December 31,
2017, which did not occur in 2016.
Provision for Income Taxes
Provision for income taxes
Effective income tax rate
2018
Year ended December 31,
2017
(in millions)
60
$
34.7%
129
$
117.3%
$
2016
31
20.5%
On December 22, 2017, the 2017 Tax Act was signed into United States tax law. The legislation significantly
changed 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 reduced the U.S.
corporate income tax rate from 35% to 21%, effective January 1, 2018. Refer to “Note 11: 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.
48
Our effective income tax rate is higher than the federal statutory rate in the United States primarily due to
foreign valuation allowances, unrecognized tax benefits, and non-deductible stock based compensation. This is
partially offset by international provisions from the 2017 Tax Act, and earnings in jurisdictions outside the United
States, where our effective income tax rate is lower.
2018 vs. 2017
Our effective income tax rate decreased to 34.7% during the year ended December 31, 2018 from 117.3% in
the same period in 2017. The decrease in the effective tax rate for the year ended December 31, 2018 when
compared to the same period in 2017, was primarily due to the Transition Tax and remeasurement of our deferred
tax assets and liabilities as a result of the 2017 Tax Act recorded in 2017 and which did not reoccur in 2018, as well
as the decrease in the U.S. corporate tax rate.
2017 vs. 2016
Our effective income 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 income tax rate for 2017 compared to the 2016 rate was
primarily due to the Transition Tax and remeasurement of our deferred tax assets and liabilities as a result of the
2017 Tax Act, foreign valuation allowances, and non-deductible stock based compensation. We recorded an
estimate of $67 million of Transition Tax, and $6 million due to a remeasurement of our net deferred tax assets,
during the year ended December 31, 2017, which reflected provisional amounts for those specific income tax effects
of the 2017 Tax Act, which did not occur in 2016.
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 also 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; (7) legal reserves and settlements; and (8) other non-recurring expenses and income.
During the fourth quarter of 2018, the Company revised its Adjusted EBITDA definition to exclude legal reserves
and settlements, as the Company believes these costs are not directly tied to the core operations of our business. The
Company believes that excluding these amounts better enables management and investors to compare financial
results between periods as these costs may vary independent of business performance. This revision to our definition
did not have a material impact to Adjusted EBITDA for any period prior to the year ended December 31, 2018;
therefore, no reclassifications have been made to conform the prior periods to the current period presentation. This
revision had no effect on GAAP results in any period.
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.
49
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 certain income and expenses not directly tied to the core operations
of our business, such as legal reserves and settlements;
(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: Stock-based compensation
Add: Legal reserves and settlements
Add: Amortization of intangible assets
Add: Depreciation
Adjusted EBITDA
Liquidity and Capital Resources
2018
Year ended December 31,
2017
(in millions)
2016
$
$
113 $
60
10
118
5
34
82
422 $
(19) $
129
14
96
-
32
79
331 $
120
31
15
85
-
32
69
352
Our principal source of liquidity is cash flows generated from operations, although liquidity needs can also be
met through drawdowns under our credit facilities. As of December 31, 2018 and 2017, we had $670 million and
$735 million, respectively, of cash, cash equivalents and short and long-term available-for-sale marketable debt
securities. As of December 31, 2018 approximately $237 million of our cash and cash equivalents, and $15 million
of short-term available-for-sale marketable debt securities, were held by our international subsidiaries outside of the
United States, with the majority in the United Kingdom. As of December 31, 2018 the significant majority of total
cash on hand is denominated in U.S. dollars. Cumulative undistributed earnings of foreign subsidiaries totaled
approximately $651 million as of December 31, 2018. During the year ended December 31, 2018, we 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. We intend to indefinitely reinvest the remaining foreign
undistributed earnings 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.
50
income taxes or tax benefits. The amount of any unrecognized deferred income tax on this temporary difference is
not material.
As of December 31, 2018, we had no outstanding borrowings and approximately $1.2 billion of borrowing
capacity available under our 2015 Credit Facility and approximately $40 million of borrowing capacity available
under our Chinese Credit Facilities. For further discussion on our credit facilities, see below, and also refer to “Note
10: Debt” in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K.
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”). 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 2015 Credit Facility in U.S. dollars, Euros and British pound.
As of December 31, 2018, we had no outstanding borrowings and approximately $1.2 billion of borrowing
capacity available under our 2015 Credit Facility. We are 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, 2018, 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
Swingline borrowings on same-day notice.
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, 2018 and December 31, 2017, we were in compliance with all of our debt covenants.
2016 Credit Facility
We were party to an uncommitted facility agreement which provided for a $73 million unsecured revolving
credit facility (the “2016 Credit Facility”) with no specific expiration date. We initially borrowed $73 million from
this uncommitted credit facility in 2016 and repaid the full amount during the year ended December 31, 2017. These
funds were used for general working capital needs of the Company, primarily for partial repayment of our 2015
Credit Facility. In June 2018, the Company terminated the 2016 Credit Facility and had no outstanding borrowings
under the 2016 Credit Facility at the time of termination.
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.
51
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 market conditions at the
time of borrowing. As of December 31, 2018 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 market conditions at the time of borrowing. As of December 31, 2018, there were no outstanding
borrowings under our Chinese Credit Facility—JPM.
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, 2016, we repurchased
2,002,356 shares of the Company’s outstanding common stock under this share repurchase program at an aggregate
cost of $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 another 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 aggregate cost of $250 million, and completed this share repurchase program.
On January 31, 2018, our Board of Directors authorized an additional repurchase of up to $250 million of our
shares of common stock under a share repurchase program. This share repurchase program has no expiration date
but may be suspended or terminated by the Board of Directors at any time. During the year ended December 31,
2018, we repurchased 2,582,198 shares of the Company’s outstanding common stock at an aggregate cost of $100
million. As of December 31, 2018, we had a remaining $150 million available to repurchase shares of our common
stock under this share repurchase program.
Our business experiences seasonal fluctuations that affect the timing of our annual cash flows related to
working capital. In our Rentals free-to-list model and our Experiences offerings, 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 property rental owners and experience providers, 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 Rentals and Experiences
bookings typically exceed the amount of completed 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.
We believe that our available cash, cash equivalents and marketable securities, combined with expected cash
flows generated by operating activities and available borrowings 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 may potentially reduce our cash balance and/or increase our
debt.
Our cash flows from operating, investing and financing activities, as reflected in our consolidated statements
of cash flows, are summarized in the following table:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
2018
Year ended December 31,
2017
(in millions)
2016
$
405 $
(49)
(358)
238 $
6
(200)
321
(163)
(143)
52
During the year ended December 31, 2018, our primary use of cash was in operations, financing activities,
including the repayment of combined outstanding borrowings under the 2015 Credit Facility and Chinese Credit
Facilities of $245 million, repurchases of our outstanding common stock at an aggregate cost of $100 million under
our existing share repurchase program, and investing activities, including capital expenditures incurred during the
year of $61 million and business acquisitions and other investing activities of $36 million. This use of cash was
funded primarily with cash on hand and cash equivalents, which included a one-time cash repatriation $325 million
of foreign earnings to the United States, cash provided by operations, and investing activities, including net cash
generated of $48 million from purchases, sales and maturities of marketable securities.
During the year ended December 31, 2017, our primary use of cash was in operations, financing activities,
including the repayment of borrowings under the 2015 Credit Facility of $296 million, repurchases of our
outstanding common stock at an aggregate cost of $250 million under a share repurchase program, repayment of
outstanding borrowings under the 2016 Credit Facility of $73 million, and investing activities, including capital
expenditures incurred during the year of $64 million. This use of cash was funded primarily with cash on hand and
cash equivalents, cash provided by operations, financing activities, including additional net borrowings of $433
million under the 2015 Credit Facility, and investing activities, including net cash generated of $70 million from
purchases, sales and maturities of marketable securities.
During the year ended December 31, 2016, our primary use of cash was in operations, and financing activities,
including the repayment of borrowings under our 2015 Credit Facility of $210 million, repurchases of our
outstanding common stock at an aggregate cost of $105 million under a share repurchase program, and investing
activities, including capital expenditures incurred during the year of $72 million and net cash used of a $50 million
in purchases, sales and maturities of marketable securities, and business acquisitions and other investments of $43
million. This use of cash was funded primarily with cash on hand and cash equivalents, cash provided by operations,
and financing activities, including additional borrowings of $101 million under the 2015 Credit Facility and $73
million under the 2016 Credit Facility.
For the year ended December 31, 2018, net cash provided by operating activities increased by $167 million or
70% when compared to the same period in 2017, primarily due to an increase in net income of $132 million and an
increase in net working capital movements of $35 million, primarily due to the timing of collection of customer
receivables, vendor payments, and income tax payments. 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 decrease in net 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 the timing of collection of customer receivables,
vendor payments, income tax payments, and deferred merchant payments.
For the year ended December 31, 2018, net cash provided by investing activities decreased by $55 million
when compared to the same period in 2017, primarily due to a decrease in net cash generated from the purchases,
sales and maturities of our marketable securities of $22 million, and an increase in cash paid for business
acquisitions and other investing activities of $36 million during year ended December 31, 2018. 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 an increase in net cash provided from the purchases, sales and maturities of our
marketable securities of $120 million, a decrease in cash paid for business acquisitions and other investments of $43
million, and a decrease in capital expenditures of $8 million.
For the year ended December 31, 2018, net cash used in financing activities increased by $158 million when
compared to the same period in 2017, primarily due to a net repayment on our 2015 Credit Facility of $230 million
during the year ended December 31, 2018, compared to a net borrowing of $137 million during the year ended
December 31, 2017, partially offset by a decrease of $150 million in cash used to purchase shares of our common
stock under our share repurchase programs in 2018, as discussed above, as well as the repayment of our 2016 Credit
Facility borrowings of $73 million during the year ended December 31, 2017, which did not reoccur in 2018. 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 share repurchase programs in 2017, as discussed above, as well as a net new borrowing on
53
our 2016 Credit Facility of $73 million in 2016 which was subsequently repaid 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.
The following table summarizes our material contractual obligations and commercial commitments as of
December 31, 2018:
By Period
Total
Less than
1 year
1 to 3 years 3 to 5 years
(in millions)
More than
5 years
Property leases, net of sublease income (1)
2017 Tax Act - Transition tax liability
Expected commitment fee payments on 2015
Credit Facility (2)
Purchase obligations and other (3)
Total (4),(5)
$
$
193 $
31
6
19
249 $
25 $
-
2
7
34 $
49 $
-
3
8
60 $
43 $
4
1
3
51 $
76
27
-
1
104
(1)
(2)
(3)
Estimated future minimum rental payments under operating leases with non-cancelable lease terms, including
our corporate headquarters lease in Needham, MA. Refer to “Office Lease Commitments” discussion below.
Expected commitment fee payments are based on the daily unused portion of the 2015 Credit Facility, issued
letters of credit, and the effective commitment fee rate as of December 31, 2018; however, these variables
could change significantly in the future.
Estimated purchase obligations that are fixed and determinable are primarily related to telecommunication and
licensing contracts, with various expiration dates through approximately December 2024. These contracts
have non-cancelable terms or are cancelable only upon payment of significant penalty.
(4) Excluded from the table was $148 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. Refer to “Note 11: Income
Taxes” in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for
further discussion.
(5) Excluded from the table was $3 million of undrawn standby letters of credit, primarily related to our property
leases.
Office Lease Commitments
In June 2013 we entered into a lease for a new corporate headquarters building (“Headquarters Lease”).
Pursuant to the Headquarters 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 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 Headquarters Lease for two consecutive terms of five years each.
Because we were involved in the construction project and were responsible for paying a significant 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.
54
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
Headquarters 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. In the years ended December 31,
2018, 2017 and 2016, the Company recorded $7 million of interest expense in each year, respectively, $3 million of
depreciation expense in each year, respectively, and $2 million of rent expense in each year, in general and
administrative expense, respectively, on our consolidated statements of operations 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, 2018, future minimum commitments under our 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
2019
2020
2021
2022
2023
Thereafter
Total
Corporate
Headquarters
Lease (1)
Other
Operating
Leases
Sublease
Income
Total Lease
Commitments
(Net of
Sublease
Income)
$
$
9 $
9
10
10
10
67
115 $
(in millions)
19 $
18
16
16
9
9
87 $
(3) $
(2)
(2)
(2)
—
—
(9) $
25
25
24
24
19
76
193
(1) Amount includes an $83 million financing obligation, which we have recorded in other long-term
liabilities on our consolidated balance sheet at December 31, 2018, related to our Headquarters Lease.
The Financial Accounting Standards Board (“FASB”) issued new lease accounting guidance under ASC 842,
Leases, which the Company will adopt on January 1, 2019. Upon adoption, we expect our Headquarters Lease to be
classified and accounted for as a finance lease under the new accounting guidance, rather than as a financing
obligation under the existing GAAP. Upon adoption of the new guidance, we expect to derecognize amounts in
property and equipment, net and other long-term liabilities on our consolidated balance sheet as of December 31,
2018 related to our Headquarters Lease of approximately $62 million and $70 million, respectively, with the
difference recorded to our opening balance of retained earnings as of the adoption date. Accordingly, we expect to
then recognize a right-of-use (ROU) asset ranging from $105 million to $120 million and a lease liability of
approximately $85 million to $95 million based on the initial measurement of the present value of the remaining
lease payments over the remaining lease term. The difference between the ROU asset and lease liability relates to a
net prepaid rent balance. We expect our office space leases, except for our Headquarters Lease, to remain operating
55
leases under the new guidance, which we will recognize ROU assets and corresponding lease liabilities on our
consolidated balance sheet under the new guidance. We expect to recognize ROU assets ranging from $70 million to
$80 million and lease liabilities of approximately $85 million to $95 million based on the present value of the
remaining rental payments for these office leases as of January 1, 2019. The difference in the ROU asset and the
lease liability is the result of balances already recognized related to deferred and prepaid rent balances. We do not
expect the adoption of this new guidance will have a material impact, either on an annual or quarterly basis, to our
consolidated statement of operations, including operating income, net income and adjusted EBITDA, as well as to
our consolidated statement of cash flows on a go-forward basis. Refer to “Note 2: Significant Accounting Policies”
in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for further
discussion regarding the new lease accounting guidance and its expected impact of adoption to our consolidated
financial statements and related disclosures.
Off-Balance Sheet Arrangements
As of December 31, 2018, 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 promulgated by 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.
Contingencies
In the ordinary course of business, we are parties to regulatory and legal matters, including threats thereof,
arising out of our operations. These matters may involve claims involving patent and intellectual property rights
(including alleged infringement of third-party intellectual property rights), tax matters (including value-added,
excise, transient occupancy and accommodation taxes), regulatory compliance (including competition and consumer
matters), defamation 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 possibility that a loss may
have been incurred that would be material to the consolidated financial statements. We base accruals on the best
information available at the time which can be highly subjective. Although occasional adverse decisions or
settlements may occur, we do not believe that the final disposition of any of these matters will have a material
adverse effect on our 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.
On December 22, 2017, the Securities and Exchange Commission issued SAB 118, which allowed us to
record provisional amounts during a measurement period not to extend beyond one year of the enactment date.
Accordingly, we recorded an estimate of $67 million of Transition Tax, and $6 million due to a remeasurement of
our net deferred tax assets, during the year ended December 31, 2017, which reflected provisional amounts for those
specific income tax effects of the 2017 Tax Act. December 22, 2018 marked the end of the measurement period for
the purposes of SAB 118. During the measurement period, impacts of the law were recorded at the time a reasonable
estimate for all or a portion of the effects were made, and provisional amounts were recognized and adjusted as
information became available, prepared, or analyzed. As permitted under SAB 118, we have subsequently finalized
our accounting analysis based on the guidance, interpretations, and data available as of December 31, 2018. During
the year ended December 31, 2018, we recorded a $2 million income tax expense related to the Transition Tax,
which reflects additional information that we obtained during 2018 related to uncertain tax positions, earnings and
profits, foreign tax credits, and state taxes. We also recorded a $2 million benefit related to the adjustment of
deferred taxes based on the tax rate that is expected to apply when such deferred taxes are settled or realized in
future periods.
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
56
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 consolidated income tax returns previously 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 under 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, 2018, 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 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 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 $3 million, $5 million and $6 million in its consolidated
statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively. Since the Court’s
2015 opinion, the Company has taken total income tax benefits of $15 million as of December 31, 2018. On July 24,
2018, the IRS won the appeals court case at the Ninth Circuit; however, on August 7, 2018, the Ninth Circuit
withdrew its decision regarding Altera and the case was reheard. While we have taken an income tax benefit based
on the Court’s 2015 opinion, as discussed above, we will continue to review the latest decisions on the case and its
impact to our consolidated financial statements.
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. 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.
Refer to “Note 11: Income Taxes” in the notes to our consolidated financial statements in Item 8 on this
Annual Report on Form 10-K 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 LTRIP and Expedia refer to “Note 17: Related Party Transactions”
in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K.
57
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, when 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 our
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 we were making the estimate; and/or
Changes in the estimate or different estimates that we could have selected may have had a material impact
on our financial condition or results of operations.
Refer to “Note 2: Significant Accounting Policies” in the notes to our consolidated financial statements in Item
8 on this Annual Report on Form 10-K 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.
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, including, but not limited to, the size of the
58
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, the amount of time in between quantitative fair value assessments
from the date of acquisition to establish an updated baseline quantitative analysis, and other performance and market
indicators. 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.
During the Company's annual goodwill impairment test during the fourth quarter of 2018, a qualitative
assessment for each of our reporting units' goodwill was performed and we concluded it was not more likely than
not that an impairment existed. Accordingly, we did not proceed to a quantitative assessment or recognize any
impairment charges during the year ending December 31, 2018. As part of our qualitative assessment for our 2018
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, (h) changes in estimates, valuation inputs, and/or assumptions
since the last quantitative analysis of the reporting units, (i) changes in the regulatory environment; (j) changes in
strategic outlook or organizational structure and leadership of the reporting units; and (k) other relevant factors, 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
59
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 intangibles or other long term assets on our
consolidated balance sheet at December 31, 2018.
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 income 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.
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
changed U.S. tax law by, among other provisions, lowering corporate income tax rates, and imposing Transition
Tax. The 2017 Tax Act permanently reduced 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 provided for prospective changes that began in 2018.
Under GAAP, the effects of changes in income tax rates and laws are recognized in the period in which the new
legislation is enacted.
We are subject to additional requirements of the 2017 Tax Act which began during the year ended
December 31, 2018. Those provisions include a deduction for foreign derived intangible income (“FDII”), GILTI, a
limitation of certain executive compensation, and other immaterial provisions. We have elected to account for
GILTI as a period cost, and therefore included GILTI expense in the effective income tax rate calculation. Our 2018
effective income tax rate includes our estimates of these new provisions, with a net tax benefit of $5 million
recorded during the year ended December 31, 2018. Our estimates may be revised in future periods as we obtain
additional data, and as the IRS issues new guidance implementing the law changes.
Refer to “Note 11: Income Taxes” in the notes to our consolidated financial statements in Item 8 on this
Annual Report on Form 10-K for further information on income taxes.
60
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign
currency exchange rates. We are exposed to market risks primarily due to our international operations, and our
ongoing investing and financial activities. The risk of loss can be assessed from the perspective of adverse changes
in our future earnings, cash flows, fair values, and financial condition. Our exposure to market risk includes our
credit facilities, derivative instruments, cash, 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 have established policies, procedures and internal processes governing our
management of market risks and the use of financial instruments to manage and attempt to mitigate our exposure to
such risks.
Interest Rates
As of December 31, 2018, our primary exposure to changes in interest rates relates primarily to our investment
portfolio. Changes in interest rates affect the amount of interest earned on our cash, cash equivalents, and
marketable securities, and the fair value of those securities. Our interest income and expense is most sensitive to
fluctuations in U.S. interest rates and Libor.
We currently invest our excess cash in cash deposits at major global banks, money market 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. Our investment policy requires our 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, 2018, a hypothetical 100 basis point increase in interest rates across all maturities
would not result in a material decline in the fair value of the portfolio. In addition, such losses would only be
realized if we sold the investments prior to maturity. Refer to “Note 7: Financial Instruments and Fair Value
Measurements” in the notes to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K
for further information on our investment portfolio and other financial instruments. As of December 31, 2018, we
had no outstanding borrowings under our 2015 Credit Facility.
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, 2018, 2017 or 2016.
Foreign Currency Exchange Rates
We conduct business in certain international markets, primarily the European Union, including the United
Kingdom, and also 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 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 those
subsidiary’s 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 non-U.S. dollar operations are translated from local currency,
or functional currency, into U.S. dollars upon consolidation. If the U.S. dollar weakens against the functional
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,
61
operating income and net income will decrease if the U.S. dollar strengthens against the functional 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 consolidated financial statements, 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 as of December 31,
2018, 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 transactional 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 loss of $6 million for the year ended December 31, 2018, gain of $1 million for the year ended
December 31, 2017, and a loss of $6 million for the year ended December 31, 2016, respectively, in “Interest
income and other, net” on our consolidated statements of operations. Future 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
monetary assets and liabilities each period.
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 between the Euro and 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 two outstanding forward currency contracts as of December 31, 2018 with a total notional value of
$13 million. These outstanding forward currency contracts were not designated as hedges and had maturities of less
than 90 days. We had no outstanding derivative contracts as of December 31, 2017. We recognize gains and losses
from our derivative contracts in our consolidated statement of operations and have recorded net losses of $3 million
and $1 million for the years ended December 31, 2018 and 2017, respectively, and a net gain of $2 million for the
year ended December 31, 2016, in “Interest income and other, net” on our consolidated statements of operations.
Refer to “Note 7: Financial Instruments and Fair Value Measurements” in the notes to the consolidated financial
statements in Item 8 on this Annual Report on Form 10-K 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. For example, Brexit has caused significant
volatility in currency exchange rates, especially between the U.S. dollar and the British pound. Continued
uncertainty regarding Brexit may result in future exchange rate volatility. Since the terms of the United Kingdom’s
exit from the European Union are uncertain, we are unable to predict the effect Brexit will have on our business and
results of operations related to foreign currency and other market risks.
62
Item 8.
Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data:
Report of Independent Registered Public Accounting Firm ....................................................................................... 64
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016.................... 65
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and
2016 ............................................................................................................................................................... 66
Consolidated Balance Sheets as of December 31, 2018 and 2017..................................................................... 67
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018,
2017 and 2016 ............................................................................................................................................... 68
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 .................. 69
Notes to Consolidated Financial Statements...................................................................................................... 70
63
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2018, 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, 2018, 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 22, 2019 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 22, 2019
/s/ KPMG LLP
64
TRIPADVISOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
2018
Year ended December 31,
2017
2016
$
1,615
$
1,556 $
1,480
Revenue (Note 4)
Costs and expenses:
Cost of revenue (1)(2)
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 (Note 19)
Total other income (expense), net
Income before income taxes
Provision for income taxes (Note 11)
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
(Note 6):
Cost of revenue
Selling and marketing
Technology and content
General and administrative
$
$
$
$
$
$
86
778
275
177
82
34
1,432
183
(12)
2
(10)
173
(60)
113 $
0.82
0.81
$
$
138
140
8 $
59
67 $
1 $
21 $
51 $
45 $
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
The accompanying notes are an integral part of these consolidated financial statements.
65
TRIPADVISOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments (1)
Total other comprehensive income (loss)
Comprehensive income
2018
Year ended December 31,
2017
2016
$
113 $
(19) $
(20)
(20)
93 $
35
35
16 $
$
120
(14)
(14)
106
(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 16: Stockholders’ Equity”.
The accompanying notes are an integral part of these consolidated financial statements.
66
TRIPADVISOR, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares and per share amounts)
December 31,
2018
December 31,
2017
ASSETS
Current assets:
Cash and cash equivalents (Note 7)
Short-term marketable securities (Note 7)
Accounts receivable and contract assets, net of allowance for doubtful accounts of
$21 and $16, respectively (Note 2, Note 4)
Income taxes receivable (Note 11)
Prepaid expenses and other current assets
$
Total current assets
Long-term marketable securities (Note 7)
Property and equipment, net (Note 8)
Intangible assets, net (Note 9)
Goodwill (Note 9)
Deferred income taxes, net (Note 11)
Other long-term assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Deferred merchant payables (Note 2)
Deferred revenue (Note 4)
Accrued expenses and other current liabilities (Note 12)
Total current liabilities
Long-term debt (Note 10)
Deferred income taxes, net (Note 11)
Other long-term liabilities (Note 13)
Total Liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity: (Note 16)
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: 137,158,010 and 135,617,263, respectively
Shares outstanding: 125,101,322 and 126,142,773, 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, 12,056,688 and 9,474,490 shares,
respectively
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
655 $
15
212
—
33
915
—
253
118
756
27
98
2,167 $
15 $
164
63
151
393
—
21
282
696
—
—
—
1,037
1,043
(62)
(547)
1,471
2,167 $
673
35
230
30
25
993
27
263
142
758
16
73
2,272
8
156
60
148
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.
67
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6
TRIPADVISOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year ended December 31,
2017
2016
2018
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 6)
Deferred tax expense (benefit) and 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)
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 16)
Proceeds from 2015 credit facility, net of financing costs
Payments to 2015 credit facility
Proceeds from Chinese credit facilities
Payments to Chinese credit facilities
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
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash 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
$
113 $
(19) $
120
82
34
118
12
(8)
22
14
13
5
405
(61)
(24)
(16)
59
5
(12)
(49)
(100)
5
(235)
2
(10)
—
—
6
(26)
(358)
(16)
(18)
673
655 $
79
32
96
39
(36)
—
14
38
(5)
238
(64)
—
(63)
105
28
—
6
(250)
433
(296)
—
—
—
(73)
3
(17)
(200)
17
61
612
673 $
53 $
8 $
62 $
13 $
69
32
85
(10)
(24)
7
21
20
1
321
(72)
(43)
(166)
84
32
2
(163)
(105)
101
(210)
7
(1)
73
—
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(15)
(143)
(17)
(2)
614
612
29
10
$
$
$
$
13 $
13 $
12
The accompanying notes are an integral part of these consolidated financial statements.
69
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 Group, Inc. (“Expedia”) 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, 2018, 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 14.5%
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 22.5% of the outstanding common stock. Because each share of Class B common stock 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 57.7% 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 consumers and travel partners a global
platform with rich consumer-generated content, price comparison tools and online reservation and related services
for destinations, accommodations, travel activities and experiences, and restaurants.
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 and 28 languages worldwide. TripAdvisor features
approximately 730 million reviews and opinions on approximately 8.1 million places to stay, places to eat and things
to do – including 1.3 million hotels, inns, B&Bs and specialty lodging, 875,000 rental properties, 4.9 million
restaurants and 1.0 million travel activities and experiences worldwide. We also enable consumers to compare prices
and/or book a number of these travel experiences on either a TripAdvisor website or mobile app, or on the website
or mobile app of one of our travel partners. In addition to the flagship TripAdvisor brand, we manage and operate
the following other travel media brands, connected by the common goal of providing consumers the most
comprehensive travel-planning and trip-taking resources in the travel industry: www.airfarewatchdog.com,
www.bokun.io, www.bookingbuddy.com, www.cruisecritic.com, www.familyvacationcritic.com,
www.flipkey.com, www.thefork.com (including www.lafourchette.com, www.eltenedor.com, and www.iens.nl),
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.
70
Seasonality
Traveler expenditures in the global travel market tend to follow a seasonal pattern. As such, advertising
investments made by travel partners to market to potential travelers and, therefore, our revenue and profits tend to be
seasonal as well. 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
rental stays, and travel activities and experiences 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 11: Income Taxes” for further discussion of our
significant income tax amounts included in our consolidated financial statements.
Revenue Recognition
Refer to “Note 4: Revenue Recognition” for a discussion about our revenue recognition policies and other
financial disclosures.
Cost of Revenue
Cost of revenue consists of expenses that are directly related or closely correlated to revenue generation,
including direct costs, such as credit card and other booking transaction payment fees, data center costs, costs
associated with prepaid tour tickets, ad serving fees, flight search fees, and other transaction costs. In addition, cost
of revenue includes personnel and overhead expenses, including salaries, benefits, stock-based compensation 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,
71
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 (primarily 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, 2018, 2017 and 2016, we recorded advertising expense of $544 million, $629 million, and $543
million, respectively, in selling and marketing expense on our consolidated statements of operations. As of
December 31, 2018 and 2017, we had $2 million and $5 million, respectively, of prepaid advertising expenses
included in prepaid expenses and other current assets on our consolidated balance sheets. We expect to fully expense
our prepaid advertising asset of $2 million as of December 31, 2018 to the consolidated statement of operations
during 2019.
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 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.
Stock-Based Compensation
Stock Options. The exercise price for all stock options granted by us 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.
72
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 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
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 (“MSUs”), vest upon achievement of specified
levels of market conditions. The fair value of our MSUs 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 income 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.
73
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 and marketable debt securities, 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.
As of December 31, 2018 and 2017, our marketable debt 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 recognized when the right to consideration becomes unconditional and are recorded
net of an allowance for doubtful accounts. We record accounts receivable at the invoiced amount. Our customer
invoices are generally due 30 days from the time of invoicing. 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.
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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 to earnings
Write-offs, net of recoveries and other
adjustments
Balance, end of period
Derivative Financial Instruments
2018
December 31,
2017
(in millions)
2016
$
$
16 $
11
(6)
21 $
9 $
8
(1)
16 $
6
4
(1)
9
In certain circumstances, we enter into foreign currency forward exchange contracts (“forward contracts”) to
reduce, to the extent practical, our potential exposure to the effects of fluctuating foreign currency exchange rates on
our cash flows denominated in foreign currencies. We account for derivative instruments that do not qualify for
hedge accounting as either assets or liabilities and carry them at fair value, with any subsequent adjustments to fair
value recorded in interest income and other, net on our consolidated statements of operations. 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 typically 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 flows. Counterparties to forward contracts 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. We do not use derivatives for trading or
speculative purposes. We had not entered into any cash flow, fair value or net investment hedges as of December 31,
2018. Refer to “Note 7: Financial Instruments and Fair Value Measurements” for further disclosure on our
derivatives.
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
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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, 2018 and December 31, 2017, respectively.
Refer to “Note 2: Significant Accounting Policies,” under the section New Accounting Pronouncements Not
Yet Adopted, for information on the potential impact of new lease accounting guidance on our property leases which
the Company will adopt on January 1, 2019.
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 estimates and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain intangible assets may 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, including, but not limited to the size of the
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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, the amount of time in between quantitative fair value assessments
from the date of acquisition to establish an updated baseline quantitative analysis, and other performance and market
indicators. 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.
During the Company's annual goodwill impairment test during the fourth quarter of 2018, a qualitative
assessment for each of our reporting units' goodwill was performed and we concluded it was not more likely than
not that an impairment existed. Accordingly, we did not proceed to a quantitative assessment or recognize any
impairment charges during the year ending December 31, 2018. As part of our qualitative assessment for our 2018
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, (h) changes in estimates, valuation inputs, and/or assumptions
since the last quantitative analysis of the reporting units, (i) changes in the regulatory environment; (j) changes in
strategic outlook or organizational structure and leadership of the reporting units; and (k) other relevant factors, 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-lived 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.
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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
amount 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 quantitative 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, 2018 and consists of trademarks and tradenames. During the Company's annual
indefinite-lived intangible impairment test during the fourth quarter of 2018, 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, changes in estimates, and
valuation input assumptions, since our previous 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,
2018.
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 intangibles or other long term assets on our
consolidated balance sheet at December 31, 2018.
Deferred Merchant Payables
In our Rentals free-to-list model and our Experiences offerings, 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
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working capital source or use of cash to us. Our deferred merchant payables balance was $164 million and $156
million at December 31, 2018 and 2017, 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 losses of $6 million, gains of $1 million, and losses of $6 million for the years ended December 31, 2018,
2017 and 2016, 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.
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, 2018, 2017 and 2016 our two most
significant travel partners, Expedia (and its subsidiaries) and Booking (and its subsidiaries), each accounted for more
than 10% of our consolidated revenue and combined accounted for 37%, 43% and 46%, respectively, of our
consolidated revenue, with nearly all of this revenue concentrated in our Hotel segment. In addition, refer to “Note
18: Segment and Geographic Information” for 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, forward contracts, and accounts receivable. We maintain some cash
and cash equivalents balances with financial institutions that are in excess of Federal Deposit Insurance Corporation
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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 pounds, 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. Forward contracts are
transacted with various international financial institutions with high credit standings, which to date, have typically
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 consolidated 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.
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 any remaining balance is charged to retained earnings.
Earnings Per Share (“EPS”)
Refer to “Note 5: Earnings Per Share” for a discussion about how we compute Basic EPS and Diluted EPS.
New Accounting Pronouncements Not Yet Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance which
require a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow
the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as
incurred. The accounting for the cost of the hosting component of the arrangement (i.e., service costs the customer
pays for the cloud computing service) is not affected by this new guidance. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted,
including adoption in any interim period. Entities have the option to apply the guidance retrospectively or
prospectively to all implementation costs incurred after the date of adoption. We are currently considering our
timing of adoption and the transition application method. We are also in the process of evaluating the impact of
adopting this guidance 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)
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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
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 amends
the existing standards for lease accounting and includes the requirement for lessee recognition of right-of-use (ROU)
assets and lease liabilities on the balance sheet for all leases with a term longer than twelve months, which will be
initially measured at the present value of the future lease payments over the lease term. Under the new guidance,
leases will be classified as either finance or operating leases, with classification affecting the pattern and
presentation of expenses and cash flows on our consolidated financial statements. This guidance is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption
permitted. In July 2018, the FASB issued additional guidance on the accounting for leases which provides
companies with an additional transition method, which allows companies to recognize a cumulative-effect
adjustment to the opening balance of retained earnings as of the date of adoption. Under this transition method,
previously presented years’ financial positions and financial results would not be adjusted. We will adopt the new
standard on January 1, 2019 and use the effective date as our date of initial application based on the modified
retrospective approach without adjusting the comparative periods presented. Consequently, we will not update our
consolidated financial statements or provide any disclosures required under the new standard for dates and periods
prior to January 1, 2019.
The new guidance provides a number of optional practical expedients and exemptions available upon adoption
and for ongoing accounting. We plan to elect the following practical expedients: 1) the “practical expedients
package of three”, which allows us at transition to continue to maintain prior accounting conclusions under the
existing guidance for leases as of the adoption date, such as whether any expired or existing contracts contain leases,
the classification of leases, and the accounting treatment for initial direct costs; thereby not being required to
reassess these positions upon adoption of the new standard; 2) the “short-term lease recognition exemption”, which
allows us to forego recognition of ROU assets and lease liabilities on our consolidated balance sheet for leases with
a lease term of twelve months or less and which also do not include an option to renew the lease term that we are
reasonably certain to exercise; 3) elect by asset class as an accounting policy, to combine lease and non-lease
components as a single component and subsequently account for the combined single component as the lease
component; and 4) apply the portfolio approach to similar types of leases where the Company does not reasonably
expect the outcome to differ materially from applying the new guidance to individual leases.
In anticipation of adoption, we have updated our accounting policies to reflect the accounting rules within the
new guidance and have completed the implementation of our lease accounting software to support our accounting
process, financial reporting and the new financial disclosure requirements. We expect to implement certain new
internal controls surrounding our lease accounting process upon the adoption of the new guidance.
We currently expect the primary effects of adoption of this new guidance to be as follows:
(cid:129) Office space leases. We expect our office space leases, except for our Headquarters Lease, to remain
operating leases which we will recognize ROU assets and corresponding lease liabilities on our
consolidated balance sheet under the new guidance. We expect to recognize ROU assets ranging from $70
million to $80 million and lease liabilities of approximately $85 million to $95 million based on the present
value of the remaining rental payments for these office space leases as of January 1, 2019. The difference
in the ROU asset and the lease liability is the result of balances already recognized related to deferred and
prepaid rent balances. In addition, we do not expect our short-term lease costs, variable lease costs,
primarily from rental payments that are adjusted periodically for inflation, and our initial direct costs, to be
material to our consolidated financial statements.
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(cid:129)
Corporate headquarters lease. We are deemed the owner for accounting purposes of our corporate
headquarters building under existing GAAP. Refer to “Note 14— Commitments and Contingencies” for
additional information on the accounting under existing GAAP for our Headquarters Lease. Upon adoption
of the new guidance, we expect to derecognize amounts in property and equipment, net and other long-term
liabilities on our consolidated balance sheet as of December 31, 2018 of approximately $62 million and $70
million, respectively, with the difference recorded to our opening balance of retained earnings as of the
adoption date. We expect our Headquarters Lease to be classified and accounted for as a finance lease
under the new guidance as of January 1, 2019. Accordingly, we expect to then recognize an ROU asset
ranging from $105 million to $120 million and a lease liability of approximately $85 million to $95 million
based on the initial measurement of the present value of the remaining lease payments over the remaining
lease term. The difference between the ROU asset and lease liability relates to a net prepaid rent balance.
We do not anticipate the income tax impact to be material to our consolidated financial statements from the
adoption of this guidance. We also do not expect the adoption of this new guidance will have a material impact,
either on an annual or quarterly basis, to our consolidated statement of operations and consolidated statement of cash
flows on a go-forward basis. We expect to expand financial disclosure concerning leasing activity, including
qualitative and quantitative disclosures.
Recently Adopted Accounting Pronouncements
In August 2018, the SEC adopted a final rule under SEC Release No. 33-10532, Disclosure Update and
Simplification, that amends certain disclosure requirements that were redundant, duplicative, overlapping, outdated
or superseded. The amendments also expanded the disclosure requirements on the analysis of stockholders' equity
for interim financial statements, in which registrants must now analyze changes in stockholders’ equity, in the form
of reconciliation, for the current and comparative year-to-date periods, with subtotals for each interim period, which
the Company will begin applying this disclosure change in stockholders’ equity analysis in its March 31, 2019,
Form 10-Q. This final rule is effective on November 5, 2018 and we assessed the impact on our consolidated
financial statements disclosures to be not significant.
In May 2017, the 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. We adopted this guidance prospectively in the first quarter of 2018 and the adoption did not have an
impact on our consolidated financial statements and related disclosures. We believe the new guidance will likely
result in fewer changes to the terms of an award being accounted for as modifications.
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. 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. We adopted this guidance in the first quarter of 2018
and it will be applied prospectively to any transactions occurring within and after the adoption date. The adoption did
not have an impact on our consolidated financial statements and related disclosures.
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
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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. We adopted this guidance in the first quarter of 2018
and applied it retrospectively to all prior periods presented in the financial statements as required under the new
guidance. The adoption did not have a material impact on our consolidated financial statements and related
disclosures.
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. We adopted this
new guidance in the first quarter of 2018 on a modified retrospective basis. Accordingly, we recognized the
cumulative effect of initial application of this new guidance as an adjustment to the opening balance of retained
earnings, which was not material to our consolidated financial statements.
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. We adopted this new guidance in the first quarter of 2018
retrospectively and the adoption did not have an impact on our consolidated financial statements and related
disclosures.
In January 2016, the FASB issued new accounting guidance which amends the standard on the recognition
and measurement of financial instruments. The FASB clarified certain aspects of this guidance by issuing an update
for technical corrections and improvements related to this guidance in February 2018. The guidance (1) requires an
entity to measure equity investments (except those accounted for under the equity method or those that result in
consolidation of the investee) at fair value with changes in fair value recognized in net income rather than
accumulated other comprehensive income on the balance sheet; (2) allows an entity to elect to measure the equity
investments that do not have a readily determinable fair value using a new measurement alternative which measure
these equity 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 the same issuer; (3) simplifies the
impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
assessment to identify impairment; and (4) clarifies that an entity should evaluate the need for a valuation allowance
on a deferred tax asset related to available-for-sale securities in combination with the entity’s evaluation of their
other deferred tax assets. We adopted this guidance in the first quarter of 2018 and elected to prospectively account
for our investments in equity securities of privately-held companies that do not have a readily determinable fair
value using the measurement alternative. The adoption did not have a material impact on our consolidated financial
statements and related disclosures.
In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers, or ASC
606, Revenue from Contracts with Customers (“ASC 606”), which replaced numerous requirements in GAAP, and
provides companies with a single 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 clarifies certain aspects of the guidance, including principal
versus agent considerations and identifying performance obligations.
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In the first quarter of 2018, we adopted ASC 606 under the modified retrospective method for all contracts
that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are
presented under the new revenue guidance, while prior period amounts are not adjusted and continue to be reported
in accordance with our previous accounting policies under the historical revenue guidance, or ASC 605, Revenue
Recognition.
We evaluated each of our revenue streams and applied ASC 606 as further discussed in “Note 4: Revenue
Recognition.” As a result of adoption of the new revenue guidance, certain revenue streams, such as our hotel instant
booking revenue recorded under the consumption model which we previously recorded upon completion of the
traveler stay, is now recognized upon booking. The amount of the recognized transaction price for the commission is
recorded as revenue net of the impact of estimated cancellations. We also recorded an adjustment to capitalize
certain costs to obtain contracts for existing arrangements as of the implementation date. 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 an ongoing basis. Our systems and internal controls were not significantly impacted as a
result of the accounting changes and we have made the necessary changes to our accounting policies and internal
processes to support the new revenue recognition standard, including the related disclosures.
We recognized the cumulative effect of initial application of ASC 606 as an adjustment to the opening balance
of retained earnings. We recorded a net increase in opening retained earnings of $4 million as of January 1, 2018
due to the cumulative impact of adoption of the new revenue guidance and all other accounts were not materially
impacted.
NOTE 3: ACQUISITIONS AND OTHER INVESTMENTS
During the years ended December 31, 2018 and 2016, we acquired businesses which 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, 2018 and December 31, 2016 acquisition-related costs which were expensed
as incurred, were not material and are included in general and administrative expenses on our consolidated
statements of operations.
2018 Acquisition of Business
During the year ended December 31, 2018, we acquired one business for a purchase price and net cash
consideration of $23 million. The cash consideration was paid from our U.S. cash.
The purchase price consideration of $23 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)
Deferred tax liabilities, net
Total purchase price consideration (3)
$
$
Total
11
14
(2)
23
(1) Goodwill is not deductible for tax purposes.
(2)
Identifiable definite-lived intangible assets acquired during 2018 were comprised of supplier relationships of
$6 million with a weighted average life of 10 years and technology and other of $8 million with a weighted
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average life of approximately 6 years. The overall weighted-average life of the identifiable definite-lived
intangible assets acquired in the purchase of this business during 2018 was 8 years, and will be amortized on
a straight-line basis over the estimated useful lives from acquisition date.
Subject to adjustment based on indemnification obligations for general representations and warranties of
certain acquired company stockholders.
(3)
2016 Acquisitions of Businesses and Other Investments
During the year ended December 31, 2016, we completed five acquisitions of certain businesses with a total
purchase price of $34 million. The Company paid net cash consideration of $29 million, which is net of $4 million
of cash acquired, and includes $1 million in future holdback payments, which we currently expect to settle with
Company common stock over the next two years. The cash consideration was paid primarily from our U.S. cash.
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)
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 investment date.
NOTE 4: REVENUE RECOGNITION
Revenue Recognition under ASC 606
We generate all of our revenue from contracts with customers. We recognize revenue when we satisfy a
performance obligation by transferring control of the promised services to a customer in an amount that reflects the
consideration that we expect to receive in exchange for those services. When we act as an agent in the transaction
under ASC 606, we recognize revenue for only our commission on the arrangement. We determine revenue
recognition through the following steps:
(1) Identification of the contract, or contracts, with a customer
(2) Identification of the performance obligations in the contract
(3) Determination of the transaction price
(4) Allocation of the transaction price to the performance obligations in the contract
(5) Recognition of revenue when, or as, we satisfy a performance obligation.
85
At contract inception, we assess the services promised in our contracts with customers and identify a
performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct.
To identify the performance obligations, we consider all of the services promised in the contract regardless of
whether they are explicitly stated or are implied by customary business practices. We have provided qualitative
information about our performance obligations for our principal revenue streams discussed below. There was no
significant revenue recognized in the year ended December 31, 2018 related to performance obligations satisfied in
prior periods. We have applied a practical expedient and do not disclose the value of unsatisfied performance
obligations that have an original expected duration of less than one year, and we do not have any material
unsatisfied performance obligations over one year. The value related to our remaining or partially satisfied
performance obligations relates to subscription services that are satisfied over time or services that are recognized at
a point in time, but not yet achieved. Our timing of services, invoicing and payments are discussed in more detail
below and do not include a significant financing component. Our customer invoices are generally due 30 days from
the time of invoicing.
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the
benefit of those costs to be longer than one year. Although the substantial majority of our contract costs have an
amortization period of less than one year, we have determined contract costs arising from certain sales incentives
have an amortization period in excess of one year given the high likelihood of contract renewal. Sales incentives are
not paid upon renewal of these contracts and therefore are not commensurate with the initial sales incentive costs.
Total capitalized costs to obtain a contract were approximately $2 million as of December 31, 2018. We amortize
these contract costs on a straight-line basis over the estimated customer life, which is based on historical customer
retention rates. Amortization expense recorded to selling and marketing during the year ended December 31, 2018
was not material. We assess such assets for impairment when events or circumstances indicate that the carrying
amount may not be recoverable.
The recognition of revenue may require the application of judgment related to the determination of the
performance obligations, the timing of when the performance obligations are satisfied and other areas. The
determination of our performance obligations does not require significant judgment given that we generally do not
provide multiple services to a customer in a transaction, and the point in which control is transferred to the customer
is readily determinable. In instances where we recognize revenue over time, we generally have either a subscription
service that is recognized over time on a straight-line basis using the time-elapsed output method, or based on other
output measures that provide a faithful depiction of the transfer of our services. When an estimate for cancellations
is included in the transaction price, we base our estimate on historical cancellation rates. There have been no
significant adjustments to our cancellation estimates and the cancellation estimates are not material. Taxes assessed
by a government authority that are both imposed on and concurrent with a specific revenue–producing transaction,
that are collected by us from a customer, are reported on a net basis, or in other words excluded from revenue on our
consolidated financial statements, which is consistent with prior periods. The application of our revenue recognition
policies and a description of our principal activities, organized by segment, from which we generate our revenue, are
presented below.
Hotel Segment
TripAdvisor-branded Click-based Advertising 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 OTAs, and direct suppliers in the hotel category. Click-based advertising is generally priced on a
CPC basis, with payments from travel partners determined by the number of travelers who click on a link multiplied
by the CPC rate for each specific click. CPC rates that our travel partners pay are determined in a dynamic,
competitive auction process, also known as our metasearch auction. We record click-based advertising revenue as
the click occurs and traveler leads are sent to the travel partner websites as our performance obligation is fulfilled at
that time. Click-based revenue is generally billed to our travel partners on a monthly basis consistent with the timing
of the service. Transaction revenue is generated from our hotel instant booking feature, which enables hotel
shoppers to book directly with a travel partner, with the latter serving as the merchant of record for the transaction,
without leaving our website. We earn a commission from our travel partners for each consumer that completes a
86
hotel reservation on our website; based on a pre-determined commission rate. Our hotel instant booking revenue
includes (i) arrangements where commissions are billable on all instant booking hotel reservations; and (ii)
arrangements where the commission is billable only upon the completion of the traveler’s stay resulting from the
reservation. The travel partner provides the service to the traveler and we act as an agent under ASC 606. Our
performance obligation in both arrangements is complete at the time of the booking and the commission earned is
recognized upon booking, as we have no post-booking service obligations. The amount of revenue recognized for
commissions which are billable contingent upon a traveler stay requires an estimate of the impact of cancellations
using historical cancellation rates. Contract assets are recognized at the time of booking for commissions that are
billable at the time of stay.
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, as well as advertisers from non-travel categories. Display-based advertising is sold predominantly on a
cost per thousand impressions, or CPM, basis. The performance obligation in our display-based advertising business
is to display a number of advertising impressions on our websites and we recognize revenue for impressions as they
are delivered. Services are generally billed monthly. We have applied the practical expedient to measure progress
toward completion, as we have the right to invoice the customer in an amount that directly corresponds with the
value to the customer of our performance to date, which is measured based on impressions delivered.
In addition, we offer subscription-based advertising to hoteliers, owners of B&Bs and other specialty lodging
properties. Our performance obligation is generally to enable subscribers to advertise their businesses on our
website, as well as manage and promote their website URL, email address, phone number, special offers and other
information related to their business. Subscription advertising services are predominantly sold for a flat fee for a
contracted period of time of one year or less and revenue is recognized on a straight-line basis over the period of the
subscription service as efforts are expended evenly throughout the contract period. Subscription advertising services
are generally billed in advance of service. When prepayments are received, we recognize deferred revenue for the
amount of prepayment in excess of revenue recognized until the performance obligation is satisfied.
Other Hotel Revenue. Our other Hotel revenue primarily includes revenue from non-TripAdvisor-branded
websites, such as www.bookingbuddy.com, www.cruisecritic.com, www.onetime.com and www.smartertravel.com,
which primarily includes click-based advertising and display-based advertising revenue. The performance
obligations, timing of customer payments for these brands and methods of recognizing revenue are generally
consistent with click-based advertising or display-based advertising revenue, as described above.
Non-Hotel Segment
We provide information and services for consumers to research, book and experience activities and attractions
in popular travel destinations both through Viator, our dedicated Experiences offering, and on our TripAdvisor
website and mobile apps. We also power travel activities and experiences booking capabilities to consumers on
affiliate partner websites, including some of the world’s top airlines, hotel chains, and online and offline travel
agencies. We work with local tour or travel activities/experiences operators (“the supplier”) to provide our
consumers with access to book tours, activities and experiences (“the activity”) in popular destinations worldwide.
We generate commissions for each booking transaction we facilitate through our online reservation system. We
provide post-booking service to the consumer until the time of the activity, which is the completion of the
performance obligation. Revenue is recognized at the time that the activity occurs. We do not control the activity
before the supplier provides the activity to our consumers and therefore act as agent for nearly all of these
transactions under ASC 606. We generally collect payment from the consumer at the time of booking that includes
both our commission revenue and the amount due to the supplier. Our commission revenue is recorded as deferred
revenue until revenue is recognized, and the amount due to the supplier is recorded to deferred merchant payables on
our consolidated balance sheet, until payment is made to the supplier after the completion of the activity. To a lesser
extent, we earn commissions from third-party merchant partners, who display and promote our supplier activities on
their websites to generate bookings. In these transactions, where we are not the merchant of record, we generally
invoice and receive commissions directly from the third-party merchant partners. Our performance obligation is to
87
allow the third-party merchant partners to display and promote our supplier activities on their website and we earn a
commission when consumers book and complete an activity. We do not control the service and act as an agent for
these transactions under ASC 606. Our performance obligation is complete and revenue is recognized at the time of
the booking, as we have no post-booking obligations. We recognize this revenue net of an estimate of the impact of
cancellations using historical cancellation rates. Contract assets are recognized for commissions that are billable
contingent upon completion of the activity.
We also provide information and services for consumers to research and book restaurants in popular travel
destinations through our dedicated restaurant reservations offering, TheFork, and on our TripAdvisor website and
mobile apps. TheFork is an online restaurant booking platform operating on a number of websites (including
www.lafourchette.com, www.eltenedor.com, and www.iens.nl), with a network of restaurant partners located
primarily across Europe and Australia. Our bookable restaurants are available on www.thefork.com and on
TripAdvisor-branded websites and mobile apps. We primarily generate transaction fees (or per seated diner fees)
that are paid by restaurants for diners seated primarily from bookings through TheFork’s online reservation system.
The transaction fee is recognized as revenue after the reservation is fulfilled, or as diners are seated by our restaurant
customers. Revenue is billed monthly when the transaction fees are payable, which is at the time the diner is seated.
To a lesser extent, we also generate subscription fees for subscription-based advertising to restaurants, access to
certain online reservation management services and marketing analytic tools provided by TheFork and TripAdvisor.
As the performance obligation is to provide restaurants with access to these services over the subscription period,
subscription fee revenue is recognized over the period of the subscription service on a straight-line basis as efforts
are expended evenly throughout the contract period. Subscription fees are generally billable in advance of service.
When prepayments are received, we recognize deferred revenue for the amount of prepayment in excess of revenue
recognized until the performance obligation is satisfied.
In addition, we provide information and services for travelers to research and book vacation and short-term
rental properties, including full home rentals, condominiums, villas, beach rentals, cabins and cottages. Our Rentals
offering generates revenue primarily by offering individual property owners and managers the ability to list their
properties on our websites and mobile apps thereby connecting homeowners with travelers through a free-to-list,
commission-based option or, to a lesser extent, by an annual subscription-based fee structure. These properties are
on www.flipkey.com, www.holidaylettings.co.uk, www.housetrip.com, www.niumba.com, and
listed
www.vacationhomerentals.com, and on our TripAdvisor-branded websites and mobile apps. We earn commissions
associated with rental transactions through our free-to-list model from both the traveler and the property owner or
manager. We provide post-booking service to the travelers, property owners and managers until the time the rental
commences, which is the time the performance obligation is completed. Revenue from transaction fees is recognized
at the time that the rental commences. We act as an agent, under ASC 606, in the transactions as we do not control
any properties before the property owner provides the accommodation to the traveler and do not have inventory risk.
We generally collect payment from the traveler at the time of booking that includes our commissions, which is
recorded as deferred revenue until revenue is recognized, and the amount due to the property owner, which is
recorded in deferred merchant payables on our consolidated balance sheet, until payment is made to the property
owner after the completion of the rental. Payments for term-based subscription fees related to online advertising
services for the listing of rental properties are generally due in advance. As the performance obligation is the listing
service provided to the property owner or manager over the subscription period, revenue is recognized over the
period of the subscription service on a straight-line basis as efforts are expended evenly throughout the contract
period. We recognize deferred revenue for the amount of prepayment in excess of revenue recognized until the
performance obligation is satisfied.
Practical Expedients and Exemptions
We expense costs to obtain a contract as incurred, such as sales incentives, when the amortization period
would have been one year or less.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected
length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right
to invoice for services performed.
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Impact of Adoption of ASC 606
The impact of the new guidance was not meaningful as of and for the year ended December 31, 2018 for the
consolidated statement of operations, consolidated balance sheet, and consolidated statement of cash flows,
respectively.
Disaggregation of Revenue
We disaggregate revenue from contracts with customers into major products/revenue sources. We have
determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the
nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in
“Note 18: Segment and Geographic Information”, our business consists of two reportable segments – Hotel and
Non-Hotel. A reconciliation of disaggregated revenue to segment revenue is also included below.
Major products/revenue sources:
TripAdvisor-branded click-based advertising and
transaction revenue
TripAdvisor-branded display-based advertising and
subscription revenue
Other hotel revenue
Total Hotel Revenue (1)
Non-Hotel Revenue (1)
Total Revenue
Year ended
December 31, 2018
(in millions)
$
$
722
308
127
1,157
458
1,615
(1) Our revenue is recognized primarily at a point in time for both our Hotel and Non-Hotel segments.
Contract Balances
The following table provides information about the opening and closing balances of accounts receivables and
contract assets from contracts with customers (in millions):
Accounts receivable
Contract assets
Total
December 31, 2018 December 31, 2017
230
$
—
230
205 $
7
212 $
$
Accounts receivable are recognized when the right to consideration becomes unconditional. Contract assets
are rights to consideration in exchange for services that we have transferred to a customer when that right is
conditional on something other than the passage of time, such as commission payments that are contingent upon the
completion of the service by the principal in the transaction. Contract liabilities generally include payments received
in advance of performance under the contract, and are realized as revenue as the performance obligation to the
customer is satisfied, which we present as deferred revenue on our consolidated balance sheets. As of January 1,
2018, we had $59 million recorded as deferred revenue on our consolidated balance sheet, of which $57 million was
recognized in revenue and $2 million was refunded due to cancellations by travelers during the year ended
December 31, 2018. The difference between the opening and closing balances of our deferred revenue primarily
results from the timing differences between when we receive customer payments and the time in which we satisfy
our performance obligations. The difference between the opening and closing balances of our contract assets
primarily results from the timing difference between when we satisfy our performance obligations and the time
when the principal completes the service in the transaction. There were no significant changes in contract assets or
deferred revenue during the year ended December 31, 2018 related to business combinations, impairments,
cumulative catch-ups or other material adjustments.
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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, includes 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 EPS 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, primarily related to stock options and the vesting of restricted stock units
using the treasury stock method, and (iii) if dilutive, performance-based and market-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.
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/MSUs
Weighted average shares used to compute
Diluted EPS
Basic EPS
Diluted EPS
2018
Year ended December 31,
2017
2016
$
113 $
(19) $
120
138,116
140,445
145,443
351
1,908
-
-
1,129
321
140,375
0.82 $
0.81 $
140,445
(0.14) $
(0.14) $
146,893
0.83
0.82
$
$
Potential common shares, consisting of outstanding stock options and RSUs, totaling approximately 6.2
million, 12.5 million, and 3.9 million, respectively, for the years ending December 31, 2018, 2017 and 2016, have
90
been excluded from the calculations of Diluted EPS because their effect would have been antidilutive. In addition,
potential common shares of approximately 0.5 million, 0.6 million, and 0.1 million, respectively, for the years
ending December 31, 2018, 2017 and 2016, consisting of performance-based awards, 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: 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:
Cost of revenue
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
2018
Year ended December 31,
2017
(in millions)
2016
$
1 $
21
51
45
118
- $
21
40
35
96
(27)
(28)
$
91
$
68 $
-
20
40
25
85
(31)
54
We capitalized $13 million, $13 million and $12 million of stock-based compensation expense as internal-use
software and website development costs during the years ended December 31, 2018, 2017 and 2016, respectively.
Stock and Incentive Plans
On December 20, 2011, our 2011 Stock and Annual Incentive Plan (the “2011 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 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 15: 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 Plan to, among other things, increase the aggregate
number of shares of common stock authorized for issuance thereunder by 15,000,000 shares.
On June 21, 2018, our stockholders approved the 2018 Stock and Annual Incentive Plan (the “2018 Plan”)
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. The number of shares reserved
and available for issuance under the 2018 Plan is 6,000,000 plus the number of shares available for issuance (and not
subject to outstanding awards) under the 2011 Plan, as of the effective date of the 2018 Plan. Both plans provide for
the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based
awards to our directors, officers, employees and consultants, although no additional awards will be granted pursuant
to the 2011 Plan. The summary of the material terms of both the 2018 Plan and its predecessor, the 2011 Plan, is
qualified in its entirety by the full texts of the 2018 Plan and 2011 Plan previously filed.
91
As of December 31, 2018, the total number of shares reserved for future stock-based awards under the 2018
Plan is approximately 13.5 million shares. All shares of common stock issued in respect of the exercise of options or
other equity awards have been issued from authorized, but unissued common stock.
Stock Based Award Activity and Valuation
2018 Stock Option Activity
During the year ended December 31, 2018, we have issued 762,124 service-based non-qualified stock options
under both the 2018 Plan and the 2011 Plan. 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.
A summary of our stock option activity is presented below:
Weighted Weighted
Options outstanding as of December 31, 2015
Granted
Exercised (1)
Cancelled or expired
Options outstanding as of December 31, 2016
Granted (2)
Exercised (1)
Cancelled or expired
Options outstanding as of December 31, 2017
Granted
Exercised (1)
Cancelled or expired
Options outstanding as of December 31, 2018
Exercisable as of December 31, 2018
Vested and expected to vest after December 31, 2018 (3)
Options
Outstanding
(in thousands)
5,720 $
1,064
(733)
(233)
5,818
2,333
(496)
(802)
6,853
762
(1,162)
(412)
6,041 $
3,217 $
6,041 $
Average
Exercise
Price Per
Share
Average
Remaining Aggregate
Intrinsic
Contractual
Value
Life
(in millions)
(in years)
53.71
63.43
31.58
70.76
57.60
40.03
29.37
65.13
52.78
43.53
37.26
61.46
54.00
61.85
54.00
6.5 $
4.7 $
6.5 $
47
15
47
(1)
(2)
Inclusive of 814,635, 294,410, and 318,773 options as of December 31, 2018, 2017 and 2016, respectively,
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 2018 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.
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.
(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
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December 31, 2018 was $53.94. The total intrinsic value of stock options exercised for the years ended
December 31, 2018, 2017 and 2016 were $20 million, $8 million, and $24 million, respectively.
The fair value of stock option grants 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
2018
December 31,
2017
2016
2.70%
5.45
2.02%
6.13
1.20%
4.85
41.86% 42.14% 41.81%
— %
— %
— %
The weighted-average grant date fair value of options granted was $18.11, $16.50, and $22.95 for the years
ended December 31, 2018, 2017 and 2016, respectively. The total fair value of stock options vested for the years
ended December 31, 2018, 2017 and 2016 were $38 million, $40 million, and $28 million, respectively. Cash
received from stock option exercises for the years ended December 31, 2018, 2017 and 2016 were $6 million, $3
million, and $7 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 provided 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 was recognized to stock-based compensation expense on a
straight-line basis over the remaining vesting term, or through August 2018, in general and administrative expense
on the consolidated statement of operations.
2018 RSU Activity
During the year ended December 31, 2018, we granted 3,302,689 primarily service-based RSUs under the
2018 Plan and the 2011 Plan, which typically vest over a four-year requisite service period. A summary of our RSU
activity is presented below:
Weighted
Average
Grant-
Date Fair
RSUs
Outstanding Value Per Share
Aggregate
Intrinsic
Value
(in millions)
79.02
63.71
76.02
73.06
69.35
41.58
67.25
52.64
48.81
43.04
54.22
46.43
44.93 $
44.93 $
358
358
Unvested RSUs outstanding as of December 31, 2015
Granted
Vested and released (1)
Cancelled
Unvested RSUs outstanding as of December 31, 2016
Granted (2)(3)
Vested and released (1)
Cancelled
Unvested RSUs outstanding as of December 31, 2017
Granted
Vested and released (1)
Cancelled
Unvested RSUs outstanding as of December 31, 2018
Expected to vest after December 31, 2018 (4)
(in thousands)
1,750 $
2,016
(627)
(283)
2,856
4,829
(1,030)
(853)
5,802
3,302
(1,617)
(847)
6,640 $
6,640 $
93
(1)
(2)
(3)
Inclusive of 424,848, 301,932, and 173,429 RSUs as of December 31, 2018, 2017 and 2016, respectively,
withheld due to net share settlement to satisfy required employee tax withholding requirements. Potential
shares which had been convertible under RSUs that were withheld under net share settlement remain in the
authorized but unissued pool under the 2018 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.
Inclusive of 426,000 service-based RSUs awarded to our CEO during November 2017. 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.
Excludes from the 2017 RSU grants, 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.
(4) 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.
A summary of our RSU activity for MSUs is presented below:
Unvested MSUs outstanding as of December 31, 2016
Granted (1)
Vested and released
Cancelled
Unvested MSUs outstanding as of December 31, 2017
Granted (2)
Vested and released
Cancelled
Unvested MSUs outstanding as of December 31, 2018
(in thousands)
- $
213
-
-
213
71
-
-
284 $
Weighted
Average
Grant-
Date Fair
MSUs
Outstanding Value Per Share
Aggregate
Intrinsic
Value
(in millions)
-
30.04
30.04
59.40
-
-
37.41 $
15
(1) Represents 213,000 market-based RSU or MSUs awarded to the Company’s CEO in November 2017. The
MSU 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. 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 MSUs originally granted, or to
be issued none at all.
(2) MSUs provide 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. Based upon actual attainment relative to the target performance metric,
94
the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to be
issued none at all. These MSUs were granted under the 2011 Plan.
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 our MSU awards. The estimated grant-date fair value of these awards is
being amortized on a straight-line basis over the requisite service period through December 31, 2020.
Unrecognized Stock-Based Compensation
A summary of our remaining unrecognized compensation expense and the weighted average remaining
amortization period at December 31, 2018 related to our non-vested equity awards is presented below (in millions,
except in years information):
Stock
Options
Unrecognized compensation expense
$
Weighted average period remaining (in years)
37 $
2.8
RSUs
MSUs
218 $
2.6
7
2.0
NOTE 7: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Cash, Cash Equivalents, Restricted Cash and Marketable Securities
The following tables show our cash, cash equivalents, restricted cash and short-term and long-term available-
for-sale marketable debt securities, by major security type, that are measured at fair value on a recurring basis and
were categorized using the fair value hierarchy, as well as their classification on our consolidated balance sheets, as
of the periods presented (in millions):
Amortized
Cost
Value (2)
Fair
December 31, 2018
Cash, Cash
Short-Term Long-Term
Equivalents and Marketable Marketable
Restricted Cash Securities
Securities
Cash and restricted cash (1)
Level 1:
Money market funds
Level 2:
Commercial paper
Total
$
522 $
522 $
522 $
— $
128
128
128
—
20
670 $
20
670 $
$
5
655 $
15
15 $
—
—
—
—
Amortized
Cost
Value (2)
Fair
December 31, 2017
Cash, Cash
Short-Term Long-Term
Equivalents and Marketable Marketable
Restricted Cash Securities
Securities
Cash and restricted cash (1)
Level 1:
Money market funds
Level 2:
U.S. agency securities
U.S. treasury securities
Certificates of deposit
Commercial paper
Corporate debt securities
Subtotal
Total
$
663 $
663 $
663 $
— $
1
1
1
—
11
1
2
11
46
71
735 $
—
—
—
9
—
9
673 $
6
1
2
2
24
35
35 $
11
1
2
11
46
71
735 $
95
$
—
—
5
—
—
—
22
27
27
(1) As of December 31, 2018 and 2017, our restricted cash, which primarily consists of escrowed security deposits, was not
material and is included in other long-term assets on our consolidated balance sheets.
(2) As of December 31, 2018 and 2017, any unrealized gains or losses related to our marketable securities were not material.
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 of purchase. 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,
2018 and 2017, respectively.
We classify our cash, cash equivalents, restricted cash and marketable securities within Level 1 and Level 2 as
we value these financial instruments 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 was derived from quoted prices in
active markets for identical assets or liabilities. Fair values for Level 2 marketable securities 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, 2018, 2017 and 2016. We consider any unrealized loss positions in our available-for-sale marketable
debt securities to be temporary in nature and do not consider any of these investments other-than-temporarily
impaired as of December 31, 2018 and December 31, 2017.
Derivative Financial Instruments
We typically use derivatives, or forward contracts, to reduce the effects of foreign currency exchange rate
fluctuations on our cash flows primarily for the Euro versus the U.S. Dollar. For the periods ended December 31,
2018, 2017 and 2016, our forward contracts have not been designated as hedges and have typically had maturities of
less than 90 days.
Our outstanding or unsettled forward contracts are carried at fair value on our consolidated balance sheets at
December 31, 2018. Any gain or loss resulting from the change in fair value of our forward contracts for the years
ended December 31, 2018, 2017 and 2016, has been recognized in our consolidated statement of operations in
“Interest income and other, net.” We recorded a net loss of $3 million and $1 million for the years ended
December 31, 2018 and 2017, respectively, and a net gain of $2 million for the year ended December 31, 2016,
related to our forward contracts.
The following table shows the notional principal amounts of our outstanding derivative instruments for the
periods presented:
Foreign currency exchange-forward contracts (1)(2)
$
(in millions)
13 $
—
December 31,
2018
December 31,
2017
(2)
(1) Derivative contracts address foreign currency exchange fluctuations for the Euro versus the U.S. dollar. The
Company had two outstanding derivative contracts as of December 31, 2018 and no outstanding derivative
contracts as of December 31, 2017. These outstanding derivatives are not designated as hedging instruments.
The fair value of our outstanding derivatives as of December 31, 2018 was not material and was reported as a
liability in accrued expenses and other current liabilities 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.
Other Financial Instruments
Other financial instruments not measured at fair value on a recurring basis include accounts receivable and
contract assets, accounts payable, deferred merchant payables, short-term debt, accrued expenses and other current
liabilities and long-term debt. The carrying amount of these financial instruments, with the exception of long-term
debt, approximate their fair value because of the short maturity of these instruments as reported on our consolidated
96
balance sheets as of December 31, 2018 and December 31, 2017, respectively. The carrying value of any long-term
debt from our 2015 Credit Facility bears interest at a variable rate and therefore is also considered to approximate
fair value.
In addition, we hold investments in equity securities of privately-held companies that do not have a readily
determinable fair value. As of both December 31, 2018 and 2017, respectively, the total carrying value of our equity
investments in these privately-held companies were $12 million and are included in other long-term assets on our
consolidated balance sheets. Our policy is to measure these 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 the same issuer such observable price changes may include instances where the investee issues equity
securities to new investors, thus creating a new indicator of fair value, as an example. On a quarterly basis, we
perform a qualitative assessment considering impairment indicators to evaluate whether these investments are
impaired and also monitor for any observable price changes. During the year ended December 31, 2018, we did not
have any impairment loss on these equity investments. The Company recognized a loss of $2 million related to one
of our equity investments during the year ended December 31, 2017 in “Interest income and other, net” on our
consolidated statements of operations.
The Company did not have any material assets or liabilities measured at fair value on a recurring basis using
Level 3 unobservable inputs at both December 31, 2018 and December 31, 2017.
NOTE 8: PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following for the periods presented:
December 31, 2018
December 31, 2017
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)
259
123
41
52
18
493
(240)
253
$
213
123
39
46
19
440
(177)
263
(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 14: Commitments and Contingencies,” for additional information on our corporate headquarters lease.
As of December 31, 2018 and December 31, 2017, the carrying value of our capitalized software and website
development costs, net of accumulated amortization, was $99 million and $97 million, respectively. For the years
ended December 31, 2018, 2017 and 2016, we capitalized $63 million, $65 million and $62 million, respectively,
related to software and website development costs. For the years ended December 31, 2018, 2017 and 2016, we
recorded amortization of capitalized software and website development costs of $59 million, $54 million and $46
million, respectively, which is included in depreciation expense on our consolidated statements of operations for
those years.
97
NOTE 9: GOODWILL AND INTANGIBLE ASSETS, NET
The following table summarizes our goodwill activity by reportable segment for the periods presented:
Balance as of December 31, 2016
Other adjustments (1)
Balance as of December 31, 2017
Acquisitions (2)
Other adjustments (1)
Balance as of December 31, 2018
Hotel
Non-Hotel
Consolidated
(in millions)
$
$
$
451 $
-
451 $
-
-
451 $
285 $
22
307 $
11
(13)
305 $
736
22
758
11
(13)
756
(1)
(2)
Primarily related to impact of changes in foreign currency exchange rates to goodwill.
The additions to goodwill relate to our business acquisitions. Refer to “Note 3: Acquisitions and Other
Investments,” for further information.
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,
2018
2017
(in millions)
228 $
(140)
88
30
118 $
224
(112)
112
30
142
$
$
Amortization expense was $34 million, $32 million, and $32 million, respectively, for the years ended
December 31, 2018, 2017 and 2016. 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, 2018, 2017 and 2016 related to our goodwill or intangible assets.
The following table presents the components of our intangible assets with definite lives for the periods
presented:
December 31, 2018
December 31, 2017
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)
5.8 $
3.6
3.7
3.3
4.3 $
57 $
88
34
49
228 $
(28) $
(53)
(25)
(34)
(140) $
29 $
35
9
15
88 $
58 $
87
35
44
224 $
(20) $
(43)
(22)
(27)
(112) $
38
44
13
17
112
Refer to “Note 3: Acquisitions and Other Investments” above for a discussion of definite lived intangible
assets acquired in business combinations during the years ended December 31, 2018 and 2016.
98
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):
2019
2020
2021
2022
2023
2024 and thereafter
Total
$
$
28
22
15
9
7
7
88
NOTE 10: 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 2015 Credit Facility in U.S dollars, Euros and British pound.
During the year ended December 31, 2018, we repaid all of our outstanding borrowings, or approximately
$230 million, under the 2015 Credit Facility. This repayment was primarily made from a one-time cash repatriation
of $325 million of foreign earnings to the United States during the year ended December 31, 2018. During the year
ended December 31, 2017, we borrowed $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 16: Stockholders
Equity”. During the year ended December 31, 2016, the Company borrowed $101 million and repaid $210 million
of our outstanding borrowings on the 2015 Credit Facility.
As of December 31, 2018, we had no outstanding borrowings and approximately $1.2 billion of borrowing
capacity available under our 2015 Credit Facility. As of December 31, 2017 we had $230 million of outstanding
borrowings under a one-month interest rate period or a weighted average rate of 2.74% per annum. We are 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, 2018, 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 Swingline borrowings on same-day notice. As of December 31, 2018, 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 $3 million, $6 million and $4 million for the years ended December
31, 2018, 2017 and 2016, respectively, to interest expense on our consolidated statements of operations. All unpaid
interest and commitment fee amounts as of December 31, 2018 and December 31, 2017, respectively, were not
99
material. We also incurred lender fees and debt financing costs in connection with entering into the 2015 Credit
Facility and in connection with the First Amendment totaling $5 million, which were capitalized as deferred
financing costs and recorded to other long-term assets on the consolidated balance sheet. As of December 31, 2018,
the Company has $2 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.
There is no specific repayment date prior to the maturity date for any 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 any 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, 2018 and 2017, we were in compliance with all of our debt
covenants.
2016 Credit Facility
We were party to an uncommitted facility agreement which provided for a $73 million unsecured revolving
credit facility (the “2016 Credit Facility”) with no specific expiration date. We initially borrowed $73 million from
this uncommitted credit facility during the year ended December 31, 2016, which was used for general working
capital needs of the Company primarily for partial repayment of our 2015 Credit Facility, and repaid the full amount
during the year ended December 31, 2017. As of December 31, 2017, there were no outstanding borrowings under
the 2016 Credit Facility. In June 2018, the Company terminated the 2016 Credit Facility. We had no outstanding
borrowings under the 2016 Credit Facility at the time of termination.
Chinese Credit Facilities
In addition to our 2015 Credit Facility, we maintain two credit facilities in China (jointly, the “Chinese Credit
Facilities”).
We are party 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 market conditions at the
time of borrowing. As of December 31, 2018 and 2017, there were no outstanding borrowings under our Chinese
Credit Facility—BOA.
We are also party 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 market conditions at the time of borrowing. During the year ended December 31, 2018 we repaid
all outstanding borrowings, and as of December 31, 2018, there were no outstanding borrowings under our Chinese
Credit Facility—JPM. As of December 31, 2017, we had $7 million of outstanding borrowings from the Chinese
Credit Facility – JPM at a weighted average interest rate of 5.00%.
100
NOTE 11: INCOME TAXES
The following table presents a summary of our domestic and foreign income before income taxes:
Domestic
Foreign
Total
2018
Year Ended December 31,
2017
(in millions)
2016
$
$
104 $
69
173 $
81 $
29
110 $
64
87
151
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
2018
Year Ended December 31,
2017
(in millions)
2016
$
$
37 $
12
17
66
(10)
(1)
5
(6)
60 $
93 $
1
6
100
25
2
2
29
129 $
38
2
11
51
(12)
(3)
(5)
(20)
31
The Company reduced its current income tax payable by $15 million, $27 million and $21 million for the
years ended December 31, 2018, 2017 and 2016, respectively, for tax deductions attributable to the exercise or
settlement of the Company’s stock-based awards.
101
The significant components of our deferred tax assets and deferred tax liabilities as of December 31, 2018 and
2017 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
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,
2018
2017
(in millions)
$
$
$
$
$
$
44 $
38
6
3
22
15
31
14
10
183 $
(57)
126 $
(57) $
(22)
(2)
(23)
(16)
(120) $
6 $
36
56
4
3
22
13
26
7
7
174
(55)
119
(59)
(21)
(4)
(20)
(13)
(117)
2
At December 31, 2018, we had federal, state and foreign net operating loss carryforwards (“NOLs”) of
approximately $6 million, $39 million and $126 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 2019 and
2028.
As of December 31, 2018, we had a valuation allowance of approximately of $57 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 $2 million over the amount recorded as of December 31, 2017. The increase is primarily
related to additional foreign net operating losses, offset by releases of certain foreign valuation allowances. 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.
102
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
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
FDII, GILTI and other provisions
Impacts related to the 2017 Tax Act
Research tax credit
Stock-based compensation
Change in valuation allowance
Local income tax on intercompany transaction (1)
Executive compensation
Other, net
Provision for income taxes
2018
Year Ended December 31,
2017
(in millions)
2016
$
$
36 $
(17)
9
15
(3)
(5)
—
(9)
8
9
10
2
5
60 $
38 $
(25)
5
12
(5)
—
73
(8)
13
25
—
1
—
129 $
53
(35)
4
11
(6)
—
—
(10)
2
9
—
—
3
31
(1)
During 2018, we completed an intra-entity transfer from Australia to the U.S. of certain intangible property (“IP”)
rights associated with a subsidiary’s technology platform. This transfer resulted in an income tax expense for
Australian tax purposes of approximately $10 million. As a result of the IP transfer, we utilized NOLs and
consequently released the valuation allowance on our Australian entity.
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 2018 provision for income tax
expense of $2 million.
The 2017 Tax Act was signed into United States tax law on December 22, 2017. The 2017 Tax Act
significantly changed 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 provided 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 income 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 allowed us to
record provisional amounts during a measurement period not to extend beyond one year of the enactment date.
Accordingly, we recorded an estimate of $67 million of Transition Tax, and $6 million due to a remeasurement of
our net deferred tax assets, during the year ended December 31, 2017, which reflected provisional amounts for those
specific income tax effects of the 2017 Tax Act. December 22, 2018 marked the end of the measurement period for
the purposes of SAB 118. During the measurement period, impacts of the law were recorded at the time a reasonable
estimate for all or a portion of the effects were made, and provisional amounts were recognized and adjusted as
information became available, prepared, or analyzed.
As permitted by SAB 118, we recorded provisional estimates for the impact of the Tax Act during the year
ended December 31, 2017, and have subsequently finalized our accounting analysis based on the guidance,
interpretations, and data available as of December 31, 2018. During the year ended December 31, 2018, we recorded
a $2 million income tax expense related to the Transition Tax, which reflects additional information that we
obtained during 2018 related to uncertain tax positions, earnings and profits, foreign tax credits, and state taxes. We
103
also recorded a $2 million benefit related to the adjustment of deferred taxes based on the income tax rate that is
expected to apply when such deferred taxes are settled or realized in future periods.
We are subject to additional requirements of the 2017 Tax Act during the year ended December 31, 2018.
Those provisions include a deduction for foreign derived intangible income (“FDII”), a tax on global intangible low-
taxed income (“GILTI”), a limitation of certain executive compensation, and other immaterial provisions. We have
elected to account for GILTI as a period cost, and therefore included GILTI expense in the effective income tax rate
calculation. Our 2018 effective income tax rate includes our estimates of these new provisions, with a net tax benefit
of $5 million recorded during the year ended December 31, 2018. Our estimates may be revised in future periods as
we obtain additional data, and as the IRS issues new guidance implementing the law changes.
By virtue of consolidated income tax returns previously 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 under 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, 2018, 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 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 $3 million, $5 million and $6 million in its consolidated
statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively. Since the Court’s
2015 opinion, the Company has taken total income tax benefits of $15 million as of December 31, 2018. On July 24,
2018, the IRS won the appeals court case at the Ninth Circuit; however, on August 7, 2018, the Ninth Circuit
withdrew its decision regarding Altera and the case was reheard. While we have taken an income tax benefit based
on the Court’s 2015 opinion, as discussed above, we will continue to review the latest decisions on the case and its
impact to our consolidated financial statements.
Cumulative undistributed earnings of foreign subsidiaries totaled approximately $651 million as of
December 31, 2018. During the year ended December 31, 2018, we 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. We intend to indefinitely reinvest the remaining foreign undistributed earnings 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.
104
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
2018
December 31,
2017
(in millions)
2016
$
$
123 $
11
2
—
—
—
136 $
105 $
17
1
—
—
—
123 $
89
16
1
(1)
—
—
105
As of December 31, 2018, we had $136 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 $87
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,
2018 and 2017, total gross interest accrued was $20 million and $13 million, respectively. We do not anticipate any
material changes in the next fiscal year.
NOTE 12: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following for the periods presented:
December 31,
2018
December 31,
2017
Accrued employee salary, bonus, and related benefits
Accrued marketing costs
Current income taxes payable (1)
Current portion of debt (2)
Other
Total
$
$
(in millions)
67 $
31
7
-
46
151 $
60
39
5
7
37
148
(1) Refer to “Note 11: Income Taxes” for additional information.
(2) The amount of debt outstanding at December 31, 2017 is related to our Chinese Credit Facilities. Refer to “Note
10: Debt,” for additional information.
NOTE 13: 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,
2018
December 31,
2017
$
$
(in millions)
148 $
31
83
20
282 $
127
61
84
21
293
(1) Refer to “Note 11: Income Taxes” for additional information on our unrecognized tax benefits. Amount includes
accrued interest related to this liability.
105
(2) Amount relates to the long-term portion of Transition Tax related to 2017 Tax Act. Refer to “Note 11: Income
Taxes,” for additional information.
(3) Refer to “Note 14: Commitments and Contingencies,” for additional information on our corporate headquarters
lease and its related financing obligation.
(4) Amounts primarily consist of long-term deferred rent balances related to our operating leases for office space.
NOTE 14: COMMITMENTS AND CONTINGENCIES
We have material contractual obligations and commercial commitments that include office space leases,
expected commitment fees on our 2015 Credit Facility, and purchase obligations, which are not accrued on the
consolidated balance sheet at December 31, 2018 but we expect to require future cash outflows; as summarized in
the following table:
By Period
Total
Less than
1 year
1 to 3 years 3 to 5 years
(in millions)
More than
5 years
Property leases, net of sublease income (1)
Expected commitment fee payments on 2015 Credit
Facility (2)
Purchase obligations and other (3)
Total (4)
$
193 $
25 $
49 $
43 $
6
19
218 $
2
7
34 $
$
3
8
60 $
1
3
47 $
76
—
1
77
(1)
(2)
Estimated future minimum rental payments under operating leases with non-cancelable lease terms, including
our corporate headquarters lease in Needham, MA.
Expected commitment fee payments are based on the daily unused portion of our 2015 Credit Facility, issued
letters of credit, and the effective commitment fee rate as of December 31, 2018; however, these variables
could change significantly in the future. Refer to “Note 10: Debt” for a discussion of the 2015 Credit Facility
with additional information on our available borrowing capacity and effective commitment fee as of
December 31, 2018.
(3) Estimated purchase obligations that are fixed and determinable are primarily related to telecommunication and
licensing contracts, with various expiration dates through approximately December 2024. These contracts
have non-cancelable terms or are cancelable only upon payment of significant penalty.
Excluded from the table was $3 million of undrawn standby letters of credit, primarily related to our property
leases.
(4)
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. Excluding our corporate headquarters lease,
discussed below, we 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. For the
years ended December 31, 2018, 2017 and 2016, we recorded rental expense of $16 million in each year,
respectively, net of sublease income of $3 million during both the years ended December 31, 2018 and 2017,
respectively, and $2 million for the year ended December 31, 2016, related to these operating leases. In addition,
certain of our lease agreements include rental payments which are adjusted periodically for inflation. We recognize
these costs as our variable lease costs on our consolidated statement of operations, which were not material during
the years ended December 31, 2018, 2017 and 2016.
Corporate Headquarters Lease
In June 2013, we entered into a lease for a new corporate headquarters building. Pursuant to the corporate
headquarters lease, the landlord built an approximately 280,000 square foot rental building in Needham,
106
Massachusetts (the “Premises”), and leased the Premises to the Company as our 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 Headquarters Lease for two consecutive terms of five years each.
Because we were involved in the construction project and were responsible for paying a significant 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 had 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
Headquarters 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 sheets. In the years ended December 31
2018, 2017 and 2016, the Company recorded $7 million of interest expense in each year, respectively, $3 million of
depreciation expense in each year, respectively, and $2 million of rent expense in each year in general and
administrative expense, respectively, on our consolidated statements of operations related to the Premises.
Refer to “Note 2: Significant Accounting Policies,” under the New Accounting Pronouncements Not Yet
Adopted, for information on the potential impact of new lease accounting guidance on our property leases which the
Company will adopt on January 1, 2019.
As of December 31, 2018, 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
2019
2020
2021
2022
2023
Thereafter
Total
Corporate
Headquarters
Lease (1)
Other
Operating
Leases
Sublease
Income
Total Lease
Commitments
(Net of
Sublease
Income)
$
$
9 $
9
10
10
10
67
115 $
(in millions)
19 $
18
16
16
9
9
87 $
(3) $
(2)
(2)
(2)
—
—
(9) $
25
25
24
24
19
76
193
(1) Amount includes an $83 million financing obligation, which we have recorded in other long-term liabilities on
our consolidated balance sheet at December 31, 2018, related to our corporate headquarters lease.
107
Letters of Credit
As of December 31, 2018, we have issued unused letters of credit totaling approximately $3 million, primarily
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, including threats thereof,
arising out of our operations. These matters may involve claims involving patent and intellectual property rights
(including alleged infringement of third-party intellectual property rights), tax matters (including value-added,
excise, transient occupancy and accommodation taxes), regulatory compliance (including competition and consumer
matters), defamation 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 possibility that a loss may
have been incurred that would be material to the consolidated financial statements. We base accruals on the best
information available at the time which can be highly subjective. Although occasional adverse decisions or
settlements may occur, we do not believe that the final disposition of any of these matters will have a material
adverse effect on our 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. All legal fees incurred by the
Company related to any regulatory and legal matters are expensed in the period incurred.
Income Taxes
We are 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 U.S. income taxes or tax
benefits. Refer to “Note 11: Income Taxes” for further information on potential contingencies surrounding income
taxes.
NOTE 15: 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 (or “Roth
401(k) contributions”) 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.
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 (or “true up”) is limited to match only
contributions up to 3% of eligible compensation.
108
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, 2018, 2017 and 2016 were $13 million, $9 million, and $9 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 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, 2018, a total of 4,645 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 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 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 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 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 to twenty-four 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 to twenty-four months.
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 10.23 to this Annual Report on Form 10-K. During the
109
year end December 31, 2018, severance recorded under the Severance Plan in our consolidated statement of
operations was not material. During the year ended December 31, 2017, we recorded $1 million of severance under
the Severance Plan in our consolidated statement of operations.
NOTE 16: 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. As of
December 31, 2018, 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. 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 two directors as of December 31, 2018. 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 137,158,010 and 125,101,322 shares of common stock issued and outstanding, respectively,
and 12,799,999 shares of Class B common stock issued and outstanding at December 31, 2018.
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,
2018
December 31,
2017
(in millions)
$
$
(62) $
(62) $
(42)
(42)
(1) Due to our intention to indefinitely reinvest foreign subsidiary earnings in those operations; deferred taxes
are not provided on foreign currency translation adjustments.
(2) Our accumulated net unrealized gain (loss) on available for sale debt securities was not material as of
December 31, 2018 and December 31, 2017.
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, 2016, we repurchased
2,002,356 shares of the Company’s outstanding common stock under this share repurchase program at an average
cost of $52.33 per share, exclusive of fees and commissions, or $105 million in the aggregate, and completed this
share repurchase program authorized by our Board of Directors.
On January 25, 2017, 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, 2017, we repurchased a total
of 6,079,003 shares of the Company’s outstanding common stock under this share repurchase program at an average
110
share price of $41.13, exclusive of fees and commissions, 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, our Board of Directors authorized an additional repurchase of up to $250 million of our
shares of common stock under a share repurchase program. This share repurchase program has no expiration date
but may be suspended or terminated by the Board of Directors at any time. During the year ended December 31,
2018, we repurchased 2,582,198 shares of our outstanding common stock at an average share price of $38.73 per
share, exclusive of fees and commissions, or $100 million in the aggregate. As of December 31, 2018, we had a
remaining $150 million available to repurchase shares of our common stock under this share repurchase program.
As of December 31, 2018, there were 12,056,688 shares of the Company’s common stock held in treasury with an
aggregate cost of $547 million.
Our Board of Directors authorized and directed management, working with the Executive Committee of our
Board of Directors, to affect the share repurchase programs discussed above in compliance with applicable legal
requirements.
Dividends
During the years ended December 31, 2018, 2017 and 2016, 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. Our
ability to pay dividends is also limited by the terms of our 2015 Credit Facility.
NOTE 17: 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-Off 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 11: Income Taxes”
above for information regarding the status of completed and ongoing IRS audits of our consolidated income tax
returns with Expedia to date.
111
Relationship between Liberty TripAdvisor Holdings, Inc. and TripAdvisor
We consider Liberty TripAdvisor Holdings, Inc. (“LTRIP”) a related party. As of December 31, 2018, 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 14.5% 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 22.5% of the outstanding common stock. Because each share of
Class B common stock 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 57.7% 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, 2018, 2017 or 2016.
NOTE 18: SEGMENT AND GEOGRAPHIC INFORMATION
Our reporting structure includes two reportable segments: Hotel and Non-Hotel. Our Non-Hotel segment
consists of the aggregation of three operating segments: Experiences, Restaurants and Rentals. The nature of the
services provided are summarized in “Note 4: Revenue Recognition”.
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; (7) legal reserves and settlements; and (8) non-recurring expenses and income. During
the fourth quarter of 2018, the Company revised its Adjusted EBITDA definition to exclude legal reserves and
settlements, as the Company believes these costs are not directly tied to the core operations of our business. The
Company believes that excluding these amounts better enables management and investors to compare segment
financial results between periods as these costs may vary independent of business performance. This revision to our
Adjusted EBITDA definition did not have a material impact to our segment financial results for any period prior to
the year ended December 31, 2018, therefore no reclassifications have been made to conform the prior periods to the
current period presentation.
The following tables present our segment information for the years ended December 31, 2018, 2017 and 2016,
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, legal reserves and settlements, 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 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.
112
Revenue
Adjusted EBITDA (1)
Depreciation
Amortization of intangible assets
Stock-based compensation
Legal reserves and settlements
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
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
Year ended December 31, 2018
Hotel
Non-Hotel
Corporate and
unallocated
Total
$
$
1,157
356
(in millions)
458
66
$
$
—
—
(82)
(34)
(118)
(5)
$
1,615
422
(82)
(34)
(118)
(5)
183
(10)
173
(60)
113
Year ended December 31, 2017
Hotel
Non-Hotel
Corporate and
unallocated
Total
$
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
(1)
(2)
Includes allocated general and administrative expenses in our Hotel segment of $77 million, $81 million and $80 million; and in our Non-
Hotel segment of $50 million, $42 million and $38 million for the years ended December 31, 2018, 2017 and 2016, respectively.
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 11: Income Taxes”
for further information.
113
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,
2017
2016
2018
(in millions)
$
722 $
756 $
750
308
127
458
1,615 $
292
148
360
1,556 $
282
158
290
1,480
$
During the fourth quarter of 2018, the Company revised the basis in which it measures geographic revenue
information to the physical location of the TripAdvisor subsidiary which generates the revenue, which is consistent
with our measurement of long-lived physical assets, or property and equipment, net. This change had no effect on
our consolidated financial statements. The geographic classification is independent of where the consumer resides,
where the consumer is physically located while using the Company's services, or the location of the travel service
provider, experience operator or restaurant. For example, a reservation made through TripAdvisor.com at a hotel in
the U.S. by a consumer in the U.S. could be part of the Company's non-U.S. revenue. All prior periods have been
reclassified to conform to the current period presentation. These reclassifications also had no effect on our
consolidated financial statements.
Revenue
United States
United Kingdom
All other countries
Total revenue
2018
Year ended December 31,
2017
(in millions)
2016
$
$
835 $
508
272
1,615 $
802 $
530
224
1,556 $
718
564
198
1,480
The Company’s 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,
2018
2017
(in millions)
$
$
214 $
39
253 $
219
44
263
114
NOTE 19: 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,
2018
2017
(in millions)
2016
Net gain (loss), realized and unrealized, on foreign currency
exchange and foreign currency derivative contracts and
other, net
Interest income
Gain/(loss) on investment in privately-held companies
Total
$
$
(6) $
7
1
2 $
2 $
1
(2)
1 $
(4)
1
—
(3)
NOTE 20: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected unaudited financial information for the eight quarters in the period ended
December 31, 2018. 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, 2018
Revenue
Operating income
Net income
Basic earnings per share (1)
Diluted earnings per share (1)
Year ended December 31, 2017
Revenue
Operating income
Net income (loss) (2)
Basic earnings (loss) per share (1)
Diluted earnings (loss) per share (1)
Three Months Ended
March 31 June 30 September 30 December 31
(in millions, except per share data)
$
$
$
$
$
$
378 $
23
5
0.04 $
0.04 $
372 $
27
13
0.09 $
0.09 $
433 $
49
32
0.23 $
0.23 $
424 $
46
27
0.19 $
0.19 $
458 $
89
69
0.50 $
0.49 $
439 $
42
25
0.18 $
0.18 $
346
23
7
0.05
0.05
321
9
(84)
(0.60)
(0.60)
(1)
(2)
Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the
quarterly earnings per share may not equal the total computed for the year.
During the fourth quarter of 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 11: Income Taxes” for further information.
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, 2018, 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
115
the Exchange Act. Based upon that evaluation, our Chief Executive Officer and President and our Chief Financial
Officer concluded that, as of December 31, 2018, 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, 2018 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, 2018. Pursuant to Exchange Act Rule 13a-15(d) or 15d-15(d), management has
concluded that, as of December 31, 2018, 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, 2018, 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.
116
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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes (collectively, the
consolidated financial statements), and our report dated February 22, 2019 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.
117
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 22, 2019
118
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to our 2019 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, 2018.
Item 11.
Executive Compensation
The information required under this item is incorporated herein by reference to our 2019 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, 2018.
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 2019 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, 2018.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference to our 2019 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, 2018.
Item 14.
Principal Accounting Fees and Services
The information required under this item is incorporated herein by reference to our 2019 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, 2018.
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.
119
(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
001-35362
Stock and Annual Incentive Plan
10.4+ TripAdvisor, Inc. 2018 Stock and Annual Incentive
10-Q
001-35362
10.1
10.1
11/8/16
8/1/18
Plan
10.5+ TripAdvisor, Inc. Deferred Compensation Plan for
S-8
333-178637
4.6
12/20/11
Non-Employee Directors
10.6 Corporate Headquarters Lease with Normandy
Gap-V Needham Building 3, LLC, as landlord,
dated as of June 20, 2013
10.7 Guaranty dated June 20, 2013 by TripAdvisor, Inc.
for the benefit of Normandy Gap-V Needham
Building 3, LLC, as landlord
10.8+ Employment Agreement between TripAdvisor
LLC and Seth Kalvert, effective as of May 19,
2016
10.9+ Amendment to Employment Agreement between
TripAdvisor LLC and Seth Kalvert, dated as of
February 19, 2018
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-K
001-35362
10.8
2/21/18
10.10+ Employment Agreement between TripAdvisor
10-Q
001-35362
10.3
5/6/14
LLC and Stephen Kaufer, effective as of March 31,
2014
10.11+ Amendment to Employment Agreement between
10-K
001-35362
10.10
2/21/18
TripAdvisor LLC and Stephen Kaufer, effective as
of November 28, 2017
10.12+ Amended and Restated Option Agreement dated
June 5, 2017 between Stephen Kaufer and
TripAdvisor, Inc.
10.13+ Stock Option Agreement (time-based) between
Stephen Kaufer and TripAdvisor, Inc. dated
November 28, 2017
8-K
001-35362
10.1
6/8/17
10-K
001-35362
10.12
2/21/18
10.14+ RSU Agreement (time-based) between Stephen
10-K
001-35362
10.13
2/21/18
Kaufer and TripAdvisor, Inc. dated November 28,
2017
10.15+ RSU Agreement (performance based (market))
between Stephen Kaufer and TripAdvisor, Inc.
dated November 28, 2017
10-K
001-35362
10.14
2/21/18
120
Exhibit
No.
Exhibit Description
10.16+ RSU Agreement (performance based (financial and
strategic)) between Stephen Kaufer and
TripAdvisor, Inc. dated November 28, 2017
10.17+ Viator, Inc. 2010 Stock Incentive Plan
10.18+ Offer Letter dated May 9, 2017, between
TripAdvisor Limited and Dermot Halpin
Incorporated by Reference
Filed
Herewith
Form
10-K
SEC File No.
001-35362
Exhibit
No.
10.15
Filing
Date
2/21/18
S-8
10-Q
333-198726
001-35362
99.1
10.1
10.1
9/12/14
5/9/17
6/30/15
10.19 Credit Agreement dated as of June 26, 2015 by and
8-K
001-35362
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
10.20 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
10.21+ Employment Agreement, dated as of October 6,
2015, between TripAdvisor, LLC and Ernst
Teunissen
8-K
001-35362
10.1
5/15/17
8-K
001-35362
10.1
10/8/15
10.22+ Amendment to Employment Agreement, dated as
10-K
001-35362
10.21
2/21/18
of November 28, 2017, between TripAdvisor, LLC
and Ernst Teunissen
10.23+ Executive Severance Plan and Summary Plan
10-Q
001-35362
10.4
8/8/17
Description
10.24 Form of TripAdvisor Media Group Master
10-K
001-35362
10.23
2/21/18
Advertising Insertion Order
10.25+ Form of Option Agreement (Domestic)
10.26+ Form of Option Agreement (International)
10.27+ Form of Restricted Stock Unit Agreement
(Domestic)
10-Q
10-Q
10-Q
001-35362
001-35362
001-35362
10.28+ Form of Restricted Stock Unit Agreement
10-Q
001-35362
(International)
10.29+ Form of Restricted Stock Unit Agreement (French)
10.30+ Form of Restricted Stock Unit Agreement
10-Q
10-Q
001-35362
001-35362
(Performance Based Domestic)
10.31+ Form of Restricted Stock Unit Agreement
10-Q
001-35362
(Performance Based French)
10.32+ Form of Restricted Stock Unit Agreement (Non-
Employee Directors)
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
X
X
X
10-Q
001-35362
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.2
5/8/18
5/8/18
5/8/18
5/8/18
5/8/18
5/8/18
5/8/18
8/1/18
121
Incorporated by Reference
Form
SEC File No.
Exhibit
No.
Filing
Date
Filed
Herewith
X
X
X
X
X
Exhibit
No.
Exhibit Description
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
101
pursuant Section 906 of the Sarbanes-Oxley Act of
2002
The following financial statements from the
Company’s Annual Report on Form 10-K for the
year ended December 31, 2018, 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.
122
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 22, 2019
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 as of February 22, 2019.
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/ 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
123
TripAdvisor, Inc.
Board of Directors
Gregory B. Maffei
Chairman
Stephen Kaufer
Director, President and Chief
Executive Officer
Jay C. Hoag
Director
Betsy L. Morgan
Director
Dipchand (Deep) Nishar
Director
Jeremy Philips
Director
Spencer M. Rascoff
Director
Albert Rosenthaler
Director
Trynka Shineman Blake
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,
Rentals and Experiences
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 11, 2019 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.