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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2017 

OR

 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 001-36603

LIBERTY TRIPADVISOR HOLDINGS, INC. 

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

 

State of Delaware

(State or other jurisdiction of

incorporation or organization)

46-3337365 

(I.R.S. Employer

Identification No.)

 

 

12300 Liberty Boulevard

Englewood, Colorado

(Address of principal executive offices)

80112

(Zip Code)

Registrant's telephone number, including area code: (720) 875-5200

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

 

Name of exchange on which registered

Series A Common Stock, par value $.01 per share 

 

The Nasdaq Stock Market LLC

Series B Common Stock, par value $.01 per share

 

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 

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    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 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒    No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

(do not check if

smaller reporting company)

Smaller reporting company ☐

Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No ☒

The aggregate market value of the voting stock held by non-affiliates of Liberty TripAdvisor Holdings, Inc. computed by reference to the last sales price of such stock, as of the closing of trading on June 30, 2017, was approximately $797.8 million. 

The number of outstanding shares of Liberty TripAdvisor Holdings, Inc.'s common stock as of January 31, 2018 was:

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

Liberty TripAdvisor Holdings, Inc. common stock

 

72,127,285

 

2,929,777

 

Documents Incorporated by Reference

The Registrant's definitive proxy statement for its 2018 Annual Meeting of Stockholders is hereby incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

2017 ANNUAL REPORT ON FORM 10K

 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Part I

    

Page

 

 

 

 

 

 

 

Item 1. 

 

Business

 

I-1

 

Item 1A. 

 

Risk Factors

 

I-9

 

Item 1B. 

 

Unresolved Staff Comments

 

I-30

 

Item 2. 

 

Properties

 

I-30

 

Item 3. 

 

Legal Proceedings

 

I-31

 

Item 4. 

 

Mine Safety Disclosures

 

I-31

 

 

 

 

 

 

 

 

 

Part II

 

 

 

Item 5. 

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

II-1

 

Item 6. 

 

Selected Financial Data

 

II-2

 

Item 7. 

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

II-3

 

Item 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

II-18

 

Item 8. 

 

Financial Statements and Supplementary Data

 

II-18

 

Item 9. 

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

II-18

 

Item 9A. 

 

Controls and Procedures

 

II-18

 

Item 9B. 

 

Other Information

 

II-19

 

 

 

 

 

 

 

 

 

Part III

 

 

 

Item 10. 

 

Directors, Executive Officers and Corporate Governance

 

III-1

 

Item 11. 

 

Executive Compensation

 

III-1

 

Item 12. 

 

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

 

III-1

 

Item 13. 

 

Certain Relationships and Related Transactions, and Director Independence

 

III-1

 

Item 14. 

 

Principal Accountant Fees and Services

 

III-1

 

 

 

 

 

 

 

 

 

Part IV

 

 

 

Item 15. 

 

Exhibits and Financial Statement Schedules

 

IV-1

 

Item 16. 

 

Form 10-K Summary

 

IV-3

 

 

 

 

 

 


 

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PART I.

Item 1.  Business.

(a)General Development of Business

During October 2013, the Board of Directors of Liberty Interactive Corporation and its subsidiaries (“Liberty”) authorized a plan to distribute to the stockholders of Liberty’s Liberty Ventures common stock shares of a newly-formed company, Liberty TripAdvisor Holdings, Inc. (“TripCo” or the “Company”) (the “TripCo Spin-Off”). TripCo was formed in 2013 as a Delaware corporation. TripCo holds its subsidiary TripAdvisor, Inc. (“TripAdvisor”) and held its former subsidiary, BuySeasons, Inc. (“BuySeasons”) until BuySeasons was sold on June 30, 2017. The TripCo Spin-Off was completed on August 27, 2014 and effected as a pro-rata dividend of shares of TripCo to the stockholders of Series A and Series B Liberty Ventures common stock of Liberty. As of December 31, 2017, TripCo held an approximate 22% equity interest and 58% voting interest in TripAdvisor.

Following the TripCo Spin-Off, Liberty and TripCo operate as separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. In connection with the TripCo Spin-Off, TripCo entered into certain agreements, including the reorganization agreement, the services agreement, the facilities sharing agreement and the tax sharing agreement, with Liberty and/or Liberty Media Corporation (“Liberty Media”) (or certain of their subsidiaries) in order to govern certain of the ongoing relationships between the companies after the TripCo Spin-Off and to provide for an orderly transition.

The reorganization agreement provides for, among other things, the principal corporate transactions (including the internal restructuring) required to effect the TripCo Spin-Off, certain conditions to the TripCo Spin-Off and provisions governing the relationship between TripCo and Liberty with respect to and resulting from the TripCo Spin-Off.

Pursuant to the services agreement, Liberty Media provides TripCo with general and administrative services including legal, tax, accounting, treasury and investor relations support. TripCo reimburses Liberty Media for direct, out-of-pocket expenses incurred by Liberty Media in providing these services and TripCo pays a services fee to Liberty Media under the services agreement that is subject to adjustment semi-annually, as necessary.

Under the facilities sharing agreement, TripCo shares office space with Liberty Media and related amenities at Liberty Media’s corporate headquarters in Englewood, Colorado.

The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and TripCo and other agreements related to tax matters. Pursuant to the tax sharing agreement, TripCo has agreed to indemnify Liberty, subject to certain limited exceptions, for losses and taxes resulting from the TripCo Spin-Off to the extent such losses or taxes result primarily from, individually or in the aggregate, the breach of certain restrictive covenants made by TripCo (applicable to actions or failures to act by TripCo and its subsidiaries following the completion of the TripCo Spin-Off).

BuySeasons’ results of operations were included in the consolidated financial statements of TripCo until June 30, 2017. BuySeasons is not presented as a discontinued operation as the sale did not represent a strategic shift that had a major effect on TripCo’s operations and financial results.

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* * * * *

Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; new service offerings; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash; and the anticipated impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business.  In particular, statements under Item 1. "Business," Item 1A. "Risk Factors," Item 2. "Properties," Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" contain forward-looking statements.  Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but such statements necessarily involve risks and uncertainties and there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

·

customer demand for products and services and the ability of our subsidiary to adapt to changes in demand;

·

competitor responses to products and services;

·

the levels and quality of online traffic to TripAdvisor’s businesses’ websites and the ability to convert visitors into contributors or consumers;

·

the expansion of social integration and member acquisition efforts with social media;

·

the impact of changes in search engine algorithms and dynamics or search engine disintermediation;

·

uncertainties inherent in the development and integration of new business lines and business strategies;

·

our future financial performance, including availability, terms and deployment of capital;

·

our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;

·

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

·

the ability of suppliers and vendors to deliver equipment, software and services;

·

availability of qualified personnel;

·

changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission and adverse outcomes from regulatory proceedings;

·

changes in business models;

·

changes in the nature of key strategic relationships with partners and vendors;

·

domestic and international economic and business conditions and industry trends, including the impact of “Brexit” and those conditions and trends which result in declines or disruptions in the travel industry;

·

consumer spending levels, including the availability and amount of individual consumer debt;

·

costs related to the maintenance and enhancement of brand awareness;

·

advertising spending levels;

·

rapid technological changes;

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·

failure to protect the security of personal information about customers and users, subjecting us to potentially costly government enforcement actions or private litigation and reputational damage;

·

the regulatory and competitive environment of the industries in which we operate;

·

fluctuations in foreign currency exchange rates; and

·

threatened terrorist attacks, political unrest in international markets and ongoing military action around the world.

These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Annual Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.  When considering such forward-looking statements, you should keep in mind the factors described in Item 1A, "Risk Factors" and other cautionary statements contained in this Annual Report.  Such risk factors and statements describe circumstances which could cause actual results to differ materially from those contained in any forward-looking statement.

This Annual Report includes information concerning TripAdvisor, a public company in which we have a controlling interest that files reports and other information with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Information in this Annual Report concerning TripAdvisor has been derived from the reports and other information filed by TripAdvisor with the SEC.  If you would like further information about TripAdvisor, the reports and other information it files with the SEC can be accessed on the Internet website maintained by the SEC at www.sec.gov.  Those reports and other information are not incorporated by reference in this Annual Report.

(b)Financial Information About Operating Segments

Through our ownership of an interest in TripAdvisor, we are primarily engaged in the online travel industry.

We identify our reportable segments as those consolidated subsidiaries that represent 10% or more of our annual consolidated revenue, Adjusted OIBDA or total assets.  Financial information related to our operating segments can be found in note 13 to our consolidated financial statements found in Part II of this report.

(c)Narrative Description of Business

TripAdvisor

TripAdvisor is an online travel company and its mission is to help people around the world to plan, book and experience the perfect trip. TripAdvisor seeks to achieve its mission by providing users and travel partners a global platform about destinations, accommodations, activities and attractions, and restaurants that includes rich user-generated content, price comparison tools and online reservation and related services.

TripAdvisor, Inc., by and through its subsidiaries, owns and operates a portfolio of leading online travel brands. Its flagship brand, TripAdvisor,  is the world’s largest travel site based on monthly unique visitors, with 455 million average monthly unique visitors in its seasonal peak during the year ended December 31, 2017, according to TripAdvisor’s internal log files.

TripAdvisor-branded websites include tripadvisor.com in the United States and localized versions of the TripAdvisor website in 48 markets and 28 languages worldwide. TripAdvisor’s systems infrastructure, web and database servers for TripAdvisor branded websites are housed at two geographically separate facilities and have multiple communication links as well as continuous monitoring and engineering support. Each facility is fully self-sufficient and operational with its own hardware, networking, software, and content, and is structured in an active/passive, fully redundant configuration. Substantially all of its software components, data, and content are replicated in multiple datacenters and development centers, as well as being backed up at offsite locations. TripAdvisor’s systems are monitored

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and protected though multiple layers of security. Several of its individual subsidiaries and businesses, including Viator, have their own data infrastructure and technology teams.

TripAdvisor’s Industry and Market Opportunity

TripAdvisor operates in the global travel industry, focusing exclusively on online travel activity and the online advertising market.

According to Phocuswright, an independent travel, tourism and hospitality research firm, global travel spending is expected to be greater than $1.6 trillion in 2018. Online penetration of global travel bookings currently is estimated to be less than 50%, however, travel bookings continue to move online as consumers around the world gain access to the internet, including broadband; more users continue to access the internet via mobile devices; and global tourism activity continues to increase, driven by middle class and economic growth in some parts of the world. In addition, the internet provides greater access to travel research and booking capabilities than offline methods. Given the ongoing consumer trends around online travel media consumption and online travel commerce, TripAdvisor believes travel partners will continue to allocate greater percentages of their marketing budgets to online channels, as they seek to grow their businesses.

Business Model

TripAdvisor’s businesses help to match demand – users who seek to discover, research, price compare and book the best travel experiences – with supply – TripAdvisor’s travel partners who provide travel accommodations, travel experiences and travel services, worldwide.

Users

TripAdvisor serves users through TripAdvisor’s websites and apps and focuses on content, selection, price, and convenience. TripAdvisor features approximately 600 million user-generated reviews and opinions across a broad base of global travel-related businesses, including approximately 1.2 million hotels, inns, B&Bs and specialty lodging, 750,000 vacation rentals, 4.6 million restaurants and 915,000 activities and attractions worldwide. TripAdvisor’s content – and the strong global brand it has created since its founding in 2000 – are primary drivers of not only attracting the world’s largest travel audience of 455 million unique monthly visitors but also influencing a significant amount of travel commerce. TripAdvisor is focused on creating the best online experience in travel planning and booking, making it easier for users to research destinations and experiences, to read and contribute user-generated content, compare destinations and businesses based on quality, price and availability, and to complete bookings powered by its travel partners.

Travel Partners

TripAdvisor strives to give users more choice and to help users find the best experiences and the best deals possible and it designs its websites to enable its travel partners to be discovered, to advertise and to sell their services. TripAdvisor facilitates transactions between users and travel partners in a number of ways, including by sending referrals to its partners websites, facilitating bookings on behalf of its partners, by serving as the merchant of record – as is often the case in its attractions and vacation rentals businesses – and by offering advertising placements on TripAdvisor websites and mobile apps.

Segments and Products

TripAdvisor manages its business in two reportable segments: Hotel and Non-Hotel. TripAdvisor continues to derive a significant majority of its revenue from its Hotel segment, which accounted for 77%, 80%, and 85%, of its consolidated revenue in the years ended December 31, 2017, 2016 and 2015, respectively. The Hotel segment includes revenue generated from the following sources:

·

TripAdvisor-branded Click-based and Transaction Revenue.    TripAdvisor’s largest source of Hotel segment revenue is generated from click-based advertising on TripAdvisor-branded websites, which is primarily

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comprised of contextually-relevant booking links to its travel partners’ sites. TripAdvisor’s click-based advertising travel partners are predominantly online travel agencies (“OTAs”), and direct suppliers in the hotel product category. Click-based advertising is generally priced on a cost-per-click (“CPC”), basis, with payments from advertisers determined by the number of users who click on a link multiplied by the price that partner is willing to pay for that click, or hotel shopper lead. CPC rates are determined in a dynamic, competitive auction process, or metasearch auction, that enables TripAdvisor’s partners to use its proprietary, automated bidding system to submit CPC bids to have their hotel rates and availability listed on TripAdvisor’s site. Transaction revenue is generated from its instant booking feature, which enables the merchant of record, generally an OTA or hotel partner, to pay a commission to TripAdvisor for a user that completes a hotel reservation via its website

·

TripAdvisor-branded Display-based Advertising and Subscription Revenue.  Travel partners can promote their brands in a contextually-relevant manner through a variety of display-based advertising placements on TripAdvisor’s websites. TripAdvisor’s display-based advertising clients are predominantly direct suppliers of hotels, airlines and cruises, as well as destination marketing organizations.  TripAdvisor also sells display-based advertising to OTAs, and other travel-related businesses, and to advertisers from non-travel categories. Display-based advertising is predominantly sold on a cost per thousand impressions (“CPM”), basis. In addition, TripAdvisor offers subscription-based advertising to hotels, B&Bs and other specialty lodging properties. Subscription advertising is predominantly sold for a flat fee and enables subscribers to enhance their listing, for a contracted period of time, on TripAdvisor-branded websites, including by posting special offers for travelers.

·

Other Hotel Revenue.  TripAdvisor’s other hotel revenue primarily includes revenue from non-TripAdvisor branded websites, such as www.bookingbuddy.com, www.cruisecritic.com, and www.onetime.com, which includes click-based advertising revenue, display-based advertising revenue, hotel room reservations sold through the websites, and advertising revenue from making cruise reservations available for price comparison and booking.

In recent years, a significant percentage of TripAdvisor’s user traffic as well as an increasing percentage of its consolidated revenue has come from its Non-Hotel products – attractions, restaurants and vacation rentals. These businesses generate revenue in TripAdvisor’s Non-Hotel segment, which accounted for 23%, 20%, and 15% of TripAdvisor’s consolidated revenue in the years ended December 31, 2017, 2016 and 2015, respectively.

·

Attractions. TripAdvisor provides information and services for users to research, book and experience activities and attractions in popular travel destinations both through Viator, TripAdvisor’s dedicated Attractions business, and on TripAdvisor’s website and applications.  TripAdvisor primarily generates commissions for each transaction it facilitates through its online reservation systems. In addition to its consumer-direct business, Viator also powers activity and attractions booking capabilities for its affiliate partners, including some of the world’s top airlines, hotel chains and online and offline travel agencies. TripAdvisor enables users to book approximately 83,000 activities and attractions, via third-party suppliers, which are available on Viator-branded websites and mobile applications and on TripAdvisor-branded websites and mobile applications.

·

Restaurants. TripAdvisor provides information and services for users to research and book restaurants in popular travel destinations through its dedicated restaurant reservations business, TheFork, and on TripAdvisor websites and applications. TheFork is an online restaurant booking platform operating on a number of websites (including www.lafourchette.com, www.eltenedor.com, www.iens.nl, and www.dimmi.com.au), with a network of restaurant partners located primarily across Europe and Australia. TripAdvisor generates reservation revenue that is paid by restaurants for diners seated through TheFork’s online reservation systems, and generates subscription fees for TripAdvisor’s online booking and marketing analytics tools provided by TheFork and by TripAdvisor.  TripAdvisor enables users to book approximately 46,000 restaurants, which are available on www.thefork.com and on TripAdvisor-branded websites and mobile applications.

·

Vacation Rentals. TripAdvisor provides information and services for users to research and book vacation and short-term rental properties, including full home rentals, condominiums, villas, beach rentals, cabins and

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cottages. The Vacation Rentals business generates revenue primarily by offering individual property owners and property managers, the ability to list their properties on TripAdvisor’s websites and mobile applications thereby connecting homeowners with travelers through a free-to-list, commission-based option, and, to a lesser extent, by an annual subscription-based fee structure. These properties are listed on www.flipkey.com, www.holidaylettings.co.uk, www.housetrip.com, www.niumba.com, and www.vacationhomerentals.com,  and on TripAdvisor-branded websites and mobile applications.

Commercial Relationships

TripAdvisor has a number of commercial relationships that are important to the success of its 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, TripAdvisor works hard to ensure the mutual success of these relationships.    

TripAdvisor has 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 TripAdvisor, generally on a click-based advertising basis. For the year ended December 31, 2017, TripAdvisor’s two most significant travel partners were Expedia Inc. (“Expedia”) and The Priceline Group Inc. (“Priceline”), including certain of their respective brands. For the years ended December 31, 2017, 2016 and 2015, Expedia and Priceline, each accounted for more than 10% of TripAdvisor’s consolidated revenue and together accounted for approximately  43%, 46% and 46%, respectively, of its consolidated revenue. Nearly all of this concentration of revenue is recorded in TripAdvisor’s Hotel segment for these reporting periods.

Intellectual Property

TripAdvisor’s intellectual property, including patents, trademarks, copyrights, domain names, trade dress, proprietary technology and trade secrets, is an important component of its business. TripAdvisor relies on its intellectual property rights in its content, proprietary technology, software code, ratings indexes, databases of reviews and forum content. TripAdvisor has acquired some of its intellectual property rights through licenses and content agreements with third parties and these agreements may place restrictions on its use of the intellectual property.

TripAdvisor protects its intellectual property by relying on its terms of use, confidentiality agreements and contractual provisions, as well as on international, national, state and common law rights. TripAdvisor protects its brands by pursuing the trademark registration of its core brands, as appropriate, maintaining its trademark portfolio, securing contractual trademark rights protection when appropriate, and relying on common law trademark rights when appropriate. TripAdvisor also registers copyrights and domain names as deemed appropriate. Additionally, TripAdvisor protects its trademarks, domain names and copyrights with the use of intellectual property licenses and an enforcement program.

TripAdvisor has 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 TripAdvisor.

Seasonality

Traveler expenditures in the global travel market tend to follow a seasonal pattern. As such, expenditures by travel partners/advertisers to market to potential travelers and, thereby, TripAdvisor’s financial performance, or revenue and profits, tend to be seasonal as well. As a result, TripAdvisor’s financial performance tends to be seasonally highest in the second and third quarters of a year, as it is a key period for leisure travel research and trip-taking, which includes the seasonal peak in traveler hotel and vacation rental stays, and tours and attractions taken, compared to the first and fourth quarters which represent seasonal low points. Further significant shifts in TripAdvisor’s business mix or adverse economic conditions could result in future seasonal patterns that are different from historical trends.

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Terms of Investment in TripAdvisor

We own an approximate 22% equity interest and 58% voting interest in TripAdvisor as of December 31, 2017. TripAdvisor’s amended and 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 is currently three directors. We consolidate TripAdvisor as we control a majority of the voting interest in TripAdvisor. We are subject to a Governance Agreement with TripAdvisor which provides us with certain director nomination, registration and other rights and imposes certain restrictions on our shares of Class B common stock.

Regulatory Matters 

TripAdvisor is subject to a number of United States federal and state and foreign laws and regulations that affect companies conducting business on the internet, many of which are still evolving and being tested in courts, and could be interpreted in ways that could harm TripAdvisor’s business. These include laws and regulations regarding user privacy, libel, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, consumer protection, taxation, online payment services, competition and protection of minors. In particular, TripAdvisor is subject to United States federal and state and foreign laws regarding privacy and protection of user data. Foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the United States. United States federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations is often uncertain, particularly in the new and rapidly-evolving industry in which TripAdvisor operates.  

TripAdvisor provides advertising data and information and conducts marketing activities that are subject to United States federal and state consumer protection laws that regulate unfair and deceptive practices, domestically and internationally. The United States and European Union have begun to adopt legislation that regulates certain aspects of the internet, including, among other things, online editorial and user-generated content, data privacy, behavioral targeting and online advertising, taxation, and liability for third-party activities.

It is impossible to accurately predict whether new taxes or regulations will be imposed on TripAdvisor’s services, and whether or how TripAdvisor might be affected. Increased regulation of the internet could increase the cost of doing business or otherwise materially adversely affect TripAdvisor’s business, financial condition or operational results.

TripAdvisor is subject to laws that require protection of user privacy and user data. In TripAdvisor’s processing of reservations, it receives and stores a large volume of personally identifiable data in the United States, Europe and Asia. This data is increasingly subject to laws and regulations in numerous jurisdictions around the world, including the European Union through its enactment of the General Data Protection Regulation (“GDPR”). The enactment, interpretation and application of these laws is in a state of flux, and the interpretation and application of such laws may vary from country to country.

Competition

TripAdvisor competes in rapidly evolving and competitive markets. TripAdvisor faces competition for content, users, advertisers, online travel search and price comparison services, also known in the industry as hotel metasearch, and online reservations. In the competition to attract users to its platform, TripAdvisor relies on its ability to acquire traffic through offline brand recognition and brand-direct efforts such as online search, email and television.  These marketing strategies can be impacted by competitive site content, changes to TripAdvisor’s website architecture and page designs, changes to search engine ranking algorithms, updates in competitor advertising strategies, or changes to display ordering in search engine results such as preferred placement for internal products offered by search engines.

TripAdvisor competes with different types of companies in the various markets and geographies it participates in, including large and small companies in the travel space as well as broader service providers. More specifically:

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·

In TripAdvisor’s Hotel segment, it both partners with and faces competition from OTAs (including Expedia and Priceline and many of their respective subsidiaries and operating companies); hotel metasearch providers (including trivago, a subsidiary of Expedia, Kayak, a subsidiary of Priceline, HotelsCombined and Ctrip.com International, Ltd.); large online search, social media, and marketplace platforms and companies (including Google, Facebook, Microsoft’s Bing, Yahoo, Baidu, Alibaba and Amazon); traditional offline travel agencies; and global hotel chains seeking to promote direct bookings.

·

In TripAdvisor’s Non-Hotel segment, TripAdvisor’s Attractions business competes with both traditional and online travel agencies, online travel service providers,  wholesalers, and individual tour operators. TripAdvisor’s Restaurants business competes with other online restaurant reservation services, such as Yelp and OpenTable (a subsidiary of Priceline), and local or regional providers. TripAdvisor’s Vacation Rentals business competes with companies focused on alternative lodging and shared accommodations, including Airbnb and HomeAway (a subsidiary of Expedia) and booking.com (a subsidiary of Priceline).

As the industry continues to shift towards online travel services and the technology supporting it continues to evolve, TripAdvisor anticipates that the existing competitive landscape will continue to change, new competitors may emerge, and industry consolidation may continue.

Employees

TripCo currently does not have any corporate employees. Liberty Media provides TripCo with certain management services pursuant to a services agreement and certain of Liberty Media’s corporate employees and executive officers will provide services to TripCo for a determined fee. As of December 31, 2017, TripAdvisor had approximately 3,228 employees. Of those employees, approximately 51% were based in the United States. TripAdvisor believes it has good relationships with its employees, including relationships with employees represented by international works councils or other similar organizations.

 (d)Financial Information About Geographic Areas

For financial information related to the geographic areas in which we do business, see note 13 to our consolidated financial statements found in Part II of this report.

(e)Available Information

All of our filings with the SEC, including our Form 10-Ks, Form 10-Qs and Form 8-Ks, as well as amendments to such filings are available on our Internet website free of charge generally within 24 hours after we file such material with the SEC.  Our website address is www.libertytripadvisorholdings.com.

Our corporate governance guidelines, code of business conduct and ethics, compensation committee charter, nominating and corporate governance committee charter, and audit committee charter are available on our website.  In addition, we will provide a copy of any of these documents, free of charge, to any shareholder who calls or submits a request in writing to Investor Relations, Liberty TripAdvisor Holdings, Inc., 12300 Liberty Boulevard, Englewood, Colorado 80112, Tel. No. (877) 772-1518.

The information contained on our website is not incorporated by reference herein.

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Item 1A. Risk Factor

The risks described below and elsewhere in this annual report are not the only ones that relate to our businesses or our capitalization.  The risks described below are considered to be the most material.  However, there may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that also could have material adverse effects on our businesses.  Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.  If any of the events described below were to occur, our businesses, prospects, financial condition, results of operations and/or cash flows could be materially adversely affected.

Factors Relating to Our Corporate History and Structure

We are a holding company, and we could be unable in the future to obtain cash in amounts sufficient to service our financial obligations or meet our other commitments.

Our ability to meet our financial obligations and other contractual commitments, including to make debt service payments under the Margin Loan Agreements (as defined below) and any other credit facilities that we may obtain in the future, depends upon our ability to access cash. We are a holding company, and our sources of cash include our available cash balances, any dividends and interest we may receive from our investments and proceeds from any asset sales we may undertake in the future. We currently have no plans with respect to any asset sales. The ability of TripAdvisor to pay dividends or to make other payments or advances to us depends on its operating results and any statutory, regulatory or contractual restrictions to which it may be or may become subject.

We do not have access to the cash that TripAdvisor generates from its operating activities.

TripAdvisor generated $238 million, $321 million and $418 million of cash from its operations during the years ended December 31, 2017, 2016 and 2015, respectively. TripAdvisor uses the cash it generates from its operations to fund its investing activities and to service its debt and other financing obligations. We do not have access to the cash that TripAdvisor generates unless TripAdvisor declares a dividend on its capital stock payable in cash, repurchases any or all of its outstanding shares of capital stock for cash or otherwise distributes or makes payments to its stockholders, including us. Historically, TripAdvisor has not paid any dividends on its capital stock or, with limited exceptions, otherwise distributed cash to its stockholders and instead has used all of its available cash in the expansion of its business and to service its debt obligations. Covenants in TripAdvisor’s existing debt instruments also restrict the payment of dividends and cash distributions to stockholders. We expect that TripAdvisor will continue to apply its available cash to the expansion of its business.

Our company may have future capital needs and may not be able to obtain additional financing on acceptable terms.

We had outstanding borrowings of $210 million (the “Margin Loans”) at December 31, 2017, including paid in kind interest, under two margin loan agreements (the “Margin Loan Agreements”) entered into by our bankruptcy remote wholly-owned subsidiary (“TripSPV”) in connection with the TripCo Spin-Off. Borrowings under the Margin Loan Agreements are guaranteed solely by our company and secured by our ownership interest in TripAdvisor. In addition, we had outstanding borrowings of $264 million at December 31, 2017, including paid in kind interest, against a variable postpaid forward. All of our equity interests in TripAdvisor are and will be held through TripSPV. Because our primary asset consists of our equity interests in TripAdvisor and the Margin Loan Agreements prohibit, with limited exceptions, the incurrence of additional indebtedness by TripSPV, our company is very limited in its ability to incur additional financing, and our cash reserves and limited operating cash flow may be insufficient to satisfy our financial obligations. In addition, the Margin Loan Agreements provide that, among other triggering events, if at any time the closing price per share of TripAdvisor common stock falls below certain minimum values, a partial repayment of the Margin Loans to certain specified amounts will be due and payable with respect to each such circumstance, together with accrued and unpaid interest. If the company or TripSPV is unable to pay such amounts, the lenders may foreclose on the pledged stock of TripAdvisor that TripSPV holds and any other collateral that then secures TripSPV’s obligations under the Margin Loan Agreements, which would materially adversely affect our asset composition and financial condition as well as our access to capital on a going forward basis.

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In addition, the availability of capital for our company will be subject to prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, all of which are beyond the control of our company. In light of periodic uncertainty in the capital and credit markets, there can be no assurance that sufficient financing will be available on desirable terms, if at all, to fund investments, acquisitions, stock repurchases, dividends, debt refinancing or extraordinary actions or that counterparties in any such financings would honor their contractual commitments. If financing is not available when needed or is not available on favorable terms, our company may be unable to complete acquisitions, repurchase equity or otherwise take advantage of business opportunities, any of which could have a material adverse effect on the business, financial condition and results of operations of our company. If we raise additional funds through the issuance of equity securities, our stockholders may experience significant dilution.

Our company has significant indebtedness, which could adversely affect our business and financial condition.

As discussed above, in connection with the TripCo Spin-Off, we entered into the Margin Loan Agreements as the guarantor with TripSPV as the borrower, pursuant to which TripSPV had outstanding borrowings of $210 million at December 31, 2017, including paid in kind interest. In addition, we had outstanding borrowings of $264 million at December 31, 2017, including paid in kind interest, against a variable postpaid forward. As a result of this significant indebtedness, our company may:

·

Experience increased vulnerability to general adverse economic and industry conditions;

·

Be required to dedicate a substantial portion of its available cash to make payments on its indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, strategic acquisitions and investments and other general corporate purposes (and we further note that, in the case of our company, we have a limited amount of cash and do not have access to the cash of TripAdvisor as a result of the significant non-controlling interest in TripAdvisor);

·

Be handicapped in its ability to optimally capitalize and manage the cash flow for its businesses;

·

Be limited in its flexibility in planning for, or reacting to, changes in its businesses and the markets in which it operates;

·

Possibly be placed at a competitive disadvantage compared to its competitors that have less debt;

·

Be exposed to the risk of increased interest rates with respect to any variable rate portion of its indebtedness; and

·

Be limited in its ability to borrow additional funds or to borrow funds at rates or on other terms that it finds acceptable.

In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary course of business. However, there is no assurance that additional financing will be available to our company on terms favorable to us, if at all. If new debt is added to the current debt levels, the risks described above could intensify. In addition, TripSPV is prohibited from incurring additional indebtedness under the Margin Loan Agreements, and we expect our company to have limited capacity to incur indebtedness outside of TripSPV.

Although TripAdvisor has substantial cash flow from operations, we have limited sources of cash and liquidity. Our cash balance is expected to enable us to fund our parent level operating expenses and debt service obligations for the foreseeable future; however, we cannot assure you that we will not experience unexpected expenses or that we will have sufficient liquidity to fund our operations and service our direct debt obligations during the foreseeable future. For additional information about our company’s ability to potentially service our direct debt obligations, see “We are a holding company, and we could be unable in the future to obtain cash in amounts sufficient to service our financial obligations or meet our other commitments.” and “We do not have access to the cash that TripAdvisor generates from its operating activities.” above.

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The Margin Loan Agreements contain various covenants that will restrict the activities of TripSPV and could trigger an early repayment obligation.

As discussed above, in connection with the TripCo Spin-Off, we entered into the Margin Loan Agreements as the guarantor with TripSPV as the borrower, pursuant to which we had outstanding borrowings of $210 million, including paid in kind interest at December 31, 2017. The Margin Loan Agreements contain various covenants, including those that limit our ability to, among other things:

·

Incur indebtedness by TripSPV;

·

Enter into financing arrangements with respect to the stock of TripAdvisor; and

·

Cause TripSPV to enter into unrelated businesses or otherwise conduct business other than owning common stock or other shares of TripAdvisor.

In addition, as discussed above, the Margin Loan Agreements provide that, among other triggering events, if at any time the closing price per share of TripAdvisor common stock falls below certain minimum values, a partial repayment of the Margin Loans to certain specified amounts will be due and payable with respect to each such circumstance, together with accrued and unpaid interest, and if the company or TripSPV is unable to pay such amounts, the lenders may foreclose on the pledged stock of TripAdvisor that TripSPV holds and any other collateral that then secures TripSPV’s obligations under the Margin Loan Agreements, which would materially adversely affect our asset composition and financial condition.

Any failure to comply with the restrictions of the Margin Loan Agreements may result in an event of default under the agreements governing such facilities. Such default may allow the applicable creditors to accelerate the debt incurred thereunder. For additional information regarding the potential impact of the restrictions in these debt arrangements, see “Our company may have future capital needs and may not be able to obtain additional financing on acceptable terms.”

Our company has overlapping directors and officers with Liberty, Liberty Media, Liberty Broadband Corporation and Liberty Expedia Holdings, Inc. and is expected to have overlapping directors and officers with GCI Liberty, Inc., which may lead to conflicting interests.

As a result of the TripCo Spin-Off, other transactions between 2011 and 2016 that resulted in the separate corporate existence of Liberty, Liberty Media, Liberty Broadband Corporation (“LBC”) and Liberty Expedia Holdings, Inc. (“Expedia Holdings”), as well as the completion of the proposed transactions (the “GCI Transactions”) involving Liberty and GCI Liberty, Inc. (formerly General Communication, Inc.), most of our executive officers also serve or will serve as executive officers of Liberty, Liberty Media, LBC, Expedia Holdings and GCI Liberty and there are overlapping directors. Other than Liberty’s current ownership of shares of LBC’s non-voting Series C common stock, which are expected to be held by GCI Liberty after the completion of the GCI Transactions, none of the foregoing companies has any ownership interest in any of the others. Our executive officers and members of our company’s board of directors have fiduciary duties to our stockholders. Likewise, any such persons who serve in similar capacities at Liberty, Liberty Media, LBC, Expedia Holdings, GCI Liberty or any other public company have fiduciary duties to that company’s stockholders.  For example, there may be the potential for a conflict of interest when our company, Liberty, Liberty Media, LBC, Expedia Holdings or GCI Liberty looks at acquisitions and other corporate opportunities that may be suitable for each of them. Therefore, such persons may have conflicts of interest or the appearance of conflicts of interest with respect to matters involving or affecting more than one of the companies to which they owe fiduciary duties.  Moreover, many of our company’s directors and officers own or will own Liberty, Liberty Media, LBC, Expedia Holdings and/or GCI Liberty stock and equity awards. These ownership interests could create, or appear to create, potential conflicts of interest when the applicable individuals are faced with decisions that could have different implications for our company, Liberty, Liberty Media, LBC, Expedia Holdings and GCI Liberty. Any potential conflict that qualifies as a “related party transaction” (as defined in Item 404 of Regulation S-K) is subject to review by an independent committee of the applicable issuer’s board of directors in accordance with its corporate governance guidelines. Each of our company, LBC and Liberty Expedia have renounced their rights to certain business opportunities and each company’s restated certificate of incorporation contains provisions deeming directors and officers not in breach of their fiduciary duties in certain cases for directing a corporate

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opportunity to another person or entity (including Liberty, Liberty Media, LBC, Expedia Holdings and GCI Liberty) instead of such company. In addition, we understand that GCI Liberty is expected to adopt similar renouncement and waiver provisions if it is successfully able to reincorporate in Delaware following the closing of the GCI Transactions. Any other potential conflicts that arise will be addressed on a case-by-case basis, keeping in mind the applicable fiduciary duties owed by the executive officers and directors of each issuer. From time to time, we may enter into transactions with Liberty, Liberty Media, LBC, Expedia Holdings, GCI Liberty and/or their subsidiaries or other affiliates. There can be no assurance that the terms of any such transactions will be as favorable to our company, Liberty, Liberty Media, LBC, Expedia Holdings, GCI Liberty or any of their respective subsidiaries or affiliates as would be the case where there is no overlapping officer or director.

Our inter-company agreements were negotiated while we were a subsidiary of Liberty.

We entered into a number of inter-company agreements covering matters such as tax sharing and our responsibility for certain liabilities previously undertaken by Liberty for certain of our businesses. In addition, we entered into a services agreement with Liberty Media pursuant to which it provides to us certain management, administrative, financial, treasury, accounting, tax, legal and other services, for which we pay Liberty Media a services fee. The terms of all of these agreements were established while we were a wholly owned subsidiary of Liberty, and hence may not be the result of arms’ length negotiations. Although we believe that the negotiations with Liberty Media were at arms’ length, the persons negotiating on behalf of Liberty Media also serve as officers of Liberty, as described above. We believe that the terms of these inter-company agreements are commercially reasonable and fair to all parties under the circumstances; however, conflicts could arise in the interpretation or any extension or renegotiation of the foregoing agreements.

Goodwill and other identifiable intangible assets, specifically trademarks, represent a significant portion of our total assets, and we may never realize the full value of our intangible assets.

 

As of December 31, 2017, we had intangible assets not subject to amortization, which consisted of goodwill and trademarks, of approximately $3,717 million, which represented approximately 68% of total assets as of December 31, 2017. These intangible assets were recorded in connection with our acquisition of a controlling interest in TripAdvisor in 2012. We perform our annual assessment of the recoverability of our goodwill and other non-amortizable intangible assets during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred. Impairments may result from, among other things, deterioration in financial and operational performance, declines in stock price, increased attrition, adverse market conditions, adverse changes in applicable laws and/or regulations, deterioration of general macroeconomic conditions, fluctuations in foreign exchange rates, increased competitive markets in which TripAdvisor operates in, declining financial performance over a sustained period, changes in key personnel and/or strategy, and a variety of other factors.

 

Due to certain marketplace factors impacting TripAdvisor’s operating results, which led to a decline in TripAdvisor’s stock price, impairments of $527 million and $1,271 million were recorded during the year ended December 31, 2017 related to trademarks and goodwill, respectively, related to the hotel reporting unit. Based on the quantitative assessment performed during the fourth quarter and the resulting impairment losses recorded, the estimated fair values of the trademark and hotel reporting unit do not significantly exceed their carrying values as of December 31, 2017.

 

The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Any impairment charge relating to goodwill or other intangible assets would have the effect of decreasing our earnings or increasing our losses in such period. At least annually, or as circumstances arise that may trigger an assessment, we will test our goodwill for impairment. There can be no assurance that our future evaluations of goodwill will not result in our recognition of impairment charges, which may have a material adverse effect on our financial statements and results of operations.

 

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Factors Relating to TripAdvisor

If TripAdvisor is unable to continue to increase visitors to its websites and mobile apps and to cost-effectively convert these visitors into revenue-generating users, its revenue, financial results and business could be harmed.

TripAdvisor’s long term success depends on its continued ability to maintain and increase the overall number of visitors flowing through its platforms in a cost effective manner and to engage users throughout the travel planning, booking and trip-taking phases. The primary asset that TripAdvisor uses to attract visitors to its websites and convert these visitors into engaged users and bookers is TripAdvisor’s ability to collect or create, organize and distribute high-quality, commercially valuable content and products that meets users’ specific interests. TripAdvisor’s traffic and user engagement could be adversely affected by a number of factors, including but not limited to increased competition, reduced consumer awareness of TripAdvisor’s brands, declines or inefficiencies in traffic acquisition, and macroeconomic conditions.  Certain of TripAdvisor’s competitors have advertising campaigns expressly designed to drive consumer traffic directly to their websites, and these campaigns may negatively impact traffic to TripAdvisor’s site.  There can be no assurances that TripAdvisor will continue to provide content and products in a manner that meets rapidly changing consumer demand, that encourages users to book on TripAdvisor’s platform and that is cost-effective. Any failure to obtain and manage content and products in a cost-effective manner that will engage users, or any failure to provide content and products that are perceived as useful, reliable and trustworthy, could adversely affect user experiences and their repeat behavior, reduce traffic to its websites and negatively impact its business and financial performance.

TripAdvisor relies on internet search engines and application marketplaces to drive traffic to its platform, certain providers of which offer products and services that compete directly with its products. If links to its website and applications are not displayed prominently, traffic to TripAdvisor’s platform could decline and its business would be negatively affected.

TripAdvisor relies heavily on internet search engines, such as Google, to generate a significant amount of traffic to its websites, principally through the purchase of travel-related keywords (what is also known as search engine marketing, or SEM) as well as through free, or organic, search (what is also known as search engine optimization, or SEO). The number of users TripAdvisor attracts from search engines to its platform is due in large part to how and where information from and links to TripAdvisor’s website are displayed on search engine results pages. The display, including rankings, of unpaid search results can be effected by a number of factors, many of which are not in TripAdvisor’s control and may change frequently. Search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to TripAdvisor’s websites can be negatively affected. In addition, a search engine could, for competitive or other purposes, alter its search algorithms or results causing TripAdvisor’s websites to place lower in organic search query results. If a major search engine changes its algorithms in a manner that negatively affects the search engine ranking of TripAdvisor’s websites or those of its partners, or if competitive dynamics impact the cost or effectiveness of SEO or SEM in a negative manner, TripAdvisor’s business and financial performance would be adversely affected. Furthermore, TripAdvisor’s failure to successfully manage its SEO and SEM strategies could result in a substantial decrease in traffic to its websites, as well as increased costs if TripAdvisor were to replace free traffic with paid traffic.

In addition, to the extent that Google or other leading search or metasearch engines that have a significant presence in TripAdvisor’s key markets, disintermediate OTAs or travel content providers whether by offering their own comprehensive travel planning or shopping capabilities, or by referring leads to suppliers, other favored partners or themselves directly, there could be a negative effect on search results and traffic to TripAdvisor’s site, which in turn could have a material adverse impact on TripAdvisor’s business and financial performance.

TripAdvisor also relies on application marketplaces, such as Apple’s App Store and Google’s Play, to drive downloads of its applications. In the future, Apple, Google or other marketplace operators may make changes to their marketplaces that make access to TripAdvisor’s products more difficult. For example, Google has entered various aspects of the online travel market, including by establishing a flight metasearch product and a hotel metasearch product, as well as reservation functionality. TripAdvisor’s 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

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arise in TripAdvisor’s relationships with providers of application marketplaces, traffic to its site and its user growth could be harmed.

TripAdvisor derives a substantial portion of its revenue from advertising and any significant reduction in spending by its advertisers or redirections of advertising spend could harm its business.

TripAdvisor derives a substantial portion of its revenue from the sale of advertising, primarily through click-based advertising and, to a lesser extent, display-based and subscription-based advertising. TripAdvisor enters into master advertising contracts with its advertising partners. The agreement terms are generally limited to legal matters, with campaign details governed by insertion orders, and most of these contracts can be terminated by its partners at will or on short notice. TripAdvisor’s ability to grow advertising revenue with its existing or new advertising partners is dependent in large part on its ability to generate revenue for them relative to other alternatives. Advertisers will not continue to do business with TripAdvisor if their investment in such advertising does not generate sales leads, customers, bookings, or revenue and profit on a cost-effective basis. TripAdvisor’s ability to provide value to its advertising partners depends on a number of factors, including acceptance of online advertising versus more traditional forms of advertising or more effective models, competitiveness of its products, traffic quality, perception of its platform, availability and accuracy of analytics and measurement solutions to demonstrate its value, and macroeconomic conditions, whether in the advertising industry generally, among specific types of marketers or within particular geographies. TripAdvisor cannot guarantee that its 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 it.

Click-based advertising revenue accounts for the majority of TripAdvisor’s advertising revenue. TripAdvisor’s CPC pricing for click-based advertising depends, in part, on competition between advertisers. If its large advertisers become less competitive with each other, merge with each other or with its competitors, focus more on per-click profit than on traffic volume, or are able to reduce CPCs, this could have an adverse impact on TripAdvisor’s click-based advertising revenue which would, in turn, have an adverse effect on its business, financial condition and results of operations.

TripAdvisor relies on a relatively small number of significant advertising partners and any reduction in spending by or loss of these partners could seriously harm its business.

TripAdvisor derives a substantial portion of its revenue from a relatively small number of advertising partners and relies significantly on these relationships. For example, for the year ended December 31, 2017, TripAdvisor’s two most significant advertising partners, Expedia (and its subsidiaries) and Priceline (and its subsidiaries), accounted for a combined 43% of its total revenue. While TripAdvisor enters into master advertising contracts with its partners, as discussed above, and most of these contracts can be terminated by its partners at will or on short notice. If any of its significant advertisers were to cease or significantly curtail advertising on TripAdvisor’s websites, TripAdvisor could experience a rapid decline in its revenue over a relatively short period of time which would have a material impact on its business.

TripAdvisor’s dedication to making the user experience its highest priority may cause it to prioritize rapid innovation and user experience over short-term financial results.

TripAdvisor strives to create the best experience for its users, providing them with the information, research and tools to enable them to plan, book and experience the perfect trip.  TripAdvisor believes that in doing so it will increase its rates of conversion, revenue per hotel shopper and, ultimately, its financial performance over the long-term.  TripAdvisor has taken actions in the past and may continue to make decisions in the future that have the effect of reducing its short-term revenue or profitability if it believes that the decisions benefit the overall user experience.  For example, TripAdvisor may introduce changes to existing products or new products that direct users away from formats or use cases where TripAdvisor has a proven means of monetization.  In addition, TripAdvisor’s approach of putting users first may negatively impact its relationship with existing or prospective advertisers. These actions and practices could result in a loss of advertisers, which in turn could harm TripAdvisor’s results of operations.  The short-term reductions in revenue or profitability could be more severe than TripAdvisor anticipates or these decisions may not produce the long-term benefits

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that TripAdvisor expects, in which case its user growth and engagement, its relationships with users and advertisers, and its business and results of operations could be harmed.

TripAdvisor’s business depends on a strong brand and any failure to maintain, protect and enhance its brand would hurt its ability to retain and expand its base of users and advertisers, as well as its ability to increase the frequency with which users utilize its products and services. 

TripAdvisor believes that the strength of its brands (particularly the TripAdvisor brand) has contributed significantly to its success.  TripAdvisor also believes that maintaining, protecting and enhancing its brands is critical to expanding its base of users, increasing the frequency with which users utilize its solutions and attracting advertisers and business partners. TripAdvisor’s ability to maintain and protect its brand depends, in part, on its ability to maintain consumer trust in its products and in the quality and integrity of the user content and other information found on its platform.   TripAdvisor believes that consumers must trust the integrity of TripAdvisor’s content and that they must believe that its content is reliable as well as useful. If consumers do not view TripAdvisor’s reviews to be useful and reliable, they may seek other sources to obtain the information they are looking for and may not return to TripAdvisor’s platform as often in the future, or at all.  This would negatively impact TripAdvisor’s ability to attract and retain users and advertisers and the frequency with which they use its platform.

TripAdvisor dedicates significant resources to these goals, primarily through its computer algorithms to identify inappropriate or deceptive content, removing content from its website that violates its terms of service and, in certain cases, taking legal action against businesses that it believes engage in deceptive practices.

Media, legislative or regulatory scrutiny of TripAdvisor’s decisions regarding user privacy, content, advertising, and other issues may adversely affect its reputation and brands. Negative publicity about TripAdvisor, including its content, technology, business practices or strategic plans, could diminish TripAdvisor’s reputation and confidence in TripAdvisor’s brand,  thereby negatively affecting the use of its products. For example, certain media outlets have reported that TripAdvisor has improperly filtered or screened reviews, that it has not properly verified reviews, or that TripAdvisor manipulates reviews, ranking and ratings in favor of its advertisers against non-advertisers. TripAdvisor expends significant resources to ensure the integrity of its reviews and to ensure that the most relevant reviews are available to its users; TripAdvisor does not establish rankings and ratings in favor of its advertisers.  Nevertheless, TripAdvisor’s reputation and brand, the traffic to its platform and its business may suffer from negative publicity about TripAdvisor or if users otherwise perceive that its content is manipulated or biased.  In addition, regulatory inquiries or investigations will 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, TripAdvisor’s practices relating to privacy and data protection, product changes, competitive pressures, litigation or regulatory activity, could adversely affect TripAdvisor’s reputation with its users and its advertisers. Such negative publicity also could have an adverse effect on the size, engagement, and loyalty of its user base and result in decreased revenue, which could adversely affect its business and financial results.

TripAdvisor continues to invest significant time and effort towards educating users about its brand and its product offerings and there can be no assurances that these efforts will be successful.

In an effort to enhance its brand, TripAdvisor invests significantly in brand marketing, including, but not limited to, television advertising.  TripAdvisor expects these investments to continue, and even increase, as a result of a variety of factors, including relatively high levels of advertising spending from competitors, the increasing costs of supporting multiple brands, expansion into new geographies, product positioning where TripAdvisor’s brands are less well known and the continued emergence and relative traffic share growth of search engines as destination sites for travelers.  TripAdvisor expects to continue its television advertising campaign and to adjust its marketing efforts and spend among the different marketing channels, in each case as TripAdvisor thinks appropriate based on the relative growth opportunity, the expected returns and the competitive environment in the different segments and businesses in which TripAdvisor operates.

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Such efforts may not maintain or enhance consumer awareness of TripAdvisor’s brands and, even if TripAdvisor is successful in its branding efforts, such efforts may not be cost-effective or as efficient as they have been historically. If TripAdvisor is unable to maintain or enhance consumer awareness of its brands or to generate demand in a cost-effective manner, it would have a material adverse effect on TripAdvisor’s business and financial performance. In addition, there are no assurances that these actions will have a positive impact on TripAdvisor’s 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 TripAdvisor’s current and potential competitors have access to significantly greater and more diversified resources than TripAdvisor does, and they may also be able to leverage other aspects of their businesses to enable them to compete more effectively with TripAdvisor.

Consumer adoption and use of mobile phone devices creates new challenges and, if TripAdvisor is unable to operate effectively on mobile phone devices, its business may be adversely affected.

The number of people who access the Internet through mobile phones continues to increase and TripAdvisor anticipates that the rate of use of these devices will continue to grow. A significant percentage of TripAdvisor’s traffic comes from users accessing its sites on mobile phones and TripAdvisor expects this percentage to continue to increase. In order to attract and retain engaged users of its mobile platform, the mobile products and services TripAdvisor introduces must be compelling. In addition, the mobile phones continue to monetize at a significantly lower rate than desktops and tablets and advertising opportunities are more limited on mobile phone devices. Given device sizes and technical limitations of these devices, mobile phone consumers may not be willing to download multiple apps from multiple companies providing similar service and instead prefer to use one or a limited number of apps for their hotel, restaurant and attractions activity. In addition, as new devices and platforms are released, users may begin consuming content in a manner that is more difficult to monetize.

To address these growing user demands, TripAdvisor continues to extend its platform to develop and improve upon its mobile applications and monetization strategies. If TripAdvisor is unable to continue to rapidly innovate and create new, user-friendly and differentiated mobile phone offerings and websites optimized for mobile phone devices and efficiently and effectively advertise and distribute on these platforms, or if TripAdvisor’s mobile phone offerings are not used by consumers, TripAdvisor’s future growth and results of operations could be negatively impacted. 

Declines or disruptions in the economy in general and the travel industry in particular could adversely affect TripAdvisor’s businesses and financial performance.

TripAdvisor’s 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 TripAdvisor’s control, including incidents of actual or threatened terrorism, regional hostilities or instability, unusual weather patterns, natural disasters, political instability and health concerns (including epidemics or pandemics), defaults on government debt, significant increases in fuel and energy costs, tax increases and other matters that could reduce discretionary spending, tightening of credit markets, and further declines in consumer confidence. Decreased travel expenditures could reduce the demand for TripAdvisor’s services and have a negative impact on its business, working capital and financial performance.

In addition, the uncertainty of macro-economic factors and their impact on consumer behavior, which may differ across regions, makes it more difficult to forecast industry and consumer trends and the timing and degree of their impact on TripAdvisor’s markets and business, which in turn could adversely affect TripAdvisor’s ability to effectively manage its business and adversely affect its results of operations. For example, the United Kingdom’s referendum to exit the European Union, known as Brexit, could adversely affect European and global economic or market conditions, could contribute to instability in global financial markets and may have a negative effect on the travel industry and TripAdvisor’s business. 

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TripAdvisor operates in an increasingly competitive global environment and its failure to compete effectively could reduce its market share and harm its financial performance.

TripAdvisor competes in rapidly evolving and competitive markets. It faces competition for content, users, advertisers, online travel search and price comparison services, or what is known in the industry as hotel metasearch, and online reservations. In the competition to attract users to its platform, TripAdvisor relies on its ability to acquire traffic through offline brand recognition and brand-direct efforts such as SEO, SEM, email and television.  These marketing strategies can be impacted by competitive site content, changes to TripAdvisor’s website architecture and page designs, changes to search engine ranking algorithms, updates in competitor advertising strategies, or changes to display ordering in search engine results such as preferred placement for internal products offered by search engines.

TripAdvisor also competes with different types of companies in the various markets and geographies where it participates, including large and small companies in the travel space as well as broader service providers.  More specifically:

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In TripAdvisor’s Hotel segment, it faces competition from OTAs (including Expedia, Inc. and The Priceline Group Inc. and certain of their respective subsidiaries), hotel metasearch providers (including trivago, Kayak, Ctrip.com International, Ltd., and HotelsCombined), large online search, social media, and marketplace companies (including Google, Microsoft’s Bing, Yahoo, Baidu, Facebook, Alibaba, and Amazon), traditional offline travel agencies, and global hotel chains seeking to promote direct bookings.

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TripAdvisor also faces competition from different companies in each of the operating segments in its Non-Hotel segment. TripAdvisor’s Attractions business competes with traditional travel agencies, wholesalers, and individual tour operators as well as Airbnb and similar websites that have added other travel services such as tours and activities. TripAdvisor’s Restaurants business competes with other online restaurant reservation services, such as SeatMe (owned by Yelp) and OpenTable (a subsidiary of Priceline). TripAdvisor’s Vacation Rentals business competes with companies focused on alternative lodging, shared accommodations and online accommodation searches, including Airbnb, HomeAway (a subsidiary of Expedia) and booking.com (a subsidiary of Priceline).

Many of TripAdvisor’s competitors have significantly greater financial, technical, marketing and other resources compared to TripAdvisor and have expertise in developing online commerce and facilitating internet traffic as well as large client bases. They also have the ability to leverage other aspects of their business to enable them to compete more effectively against TripAdvisor.  In addition, many of TripAdvisor’s competitors, including online search companies, continue to expand their voice and artificial intelligence capabilities, which may provide them with a competitive advantage in travel. TripAdvisor cannot provide assurance that it will be able to compete successfully against current, emerging and future competitors or on platforms that may emerge, or provide differentiated products and services to its traveler base.  

Certain of the companies TripAdvisor does business with, including some of its click-based advertising partners, are also its competitors. The consolidation of TripAdvisor’s competitors and partners, including Expedia (through its acquisitions of Orbitz, Travelocity, and HomeAway) and Priceline (through its acquisitions of Kayak and OpenTable), may affect TripAdvisor’s relative competitiveness and its partner relationships. Competition and consolidation could result in higher traffic acquisition costs, reduced margins on TripAdvisor’s advertising services, loss of market share, reduced customer traffic to its websites and reduced advertising by travel companies on its 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 TripAdvisor’s industry may result in pricing pressure, loss of market share or decreased member engagement, any of which could adversely affect its business and financial performance.

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TripAdvisor relies on information technology to operate its business and remain competitive, and any failure to adapt to technological developments or industry trends could harm its businesses.

TripAdvisor depends on the use of sophisticated information technologies and systems for, among other things, website and mobile apps, supplier connectivity, communications, reservations, payment processing, procurement, customer service and fraud prevention. TripAdvisor’s future success depends on its ability to continuously improve and upgrade its systems and infrastructure to meet rapidly evolving consumer trends and demands while at the same time maintaining the reliability and integrity of its systems and infrastructure. TripAdvisor may not be able to maintain or replace its existing systems or introduce new technologies and systems as quickly as it would like or in a cost-effective manner. TripAdvisor may not be successful, or as successful as its competitors, in developing technologies and systems that operate effectively across multiple devices and platforms in a way that is appealing to its users. In addition, the emergence of alternative platforms such as mobile phone and tablet computing devices and the emergence of niche competitors who may be able to optimize products, services or strategies for such platforms will require new investment in technology. New developments in other areas could also make it easier for competition to enter TripAdvisor’s 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 TripAdvisor’s business.

If TripAdvisor does not continue to innovate and provide tools and services that are useful to travelers, it may not remain competitive, and its business and financial performance could suffer.

TripAdvisor’s success depends in part on continued innovation to provide features and services that make its platform compelling to travelers. Its competitors are continually developing innovations in online travel-related services and features. As a result, TripAdvisor is continually working to improve its business model and user experience in order to drive user traffic and conversion rates. TripAdvisor can give no assurances that the changes it makes will yield the benefits it expects and will not have unintended or adverse impacts that TripAdvisor did not anticipate. If TripAdvisor is unable to continue offering innovative products and services and quality features that travelers want to use, existing users may become dissatisfied and use competitors’ offerings and it may be unable to attract additional users, which could adversely affect its business and financial performance.

TripAdvisor is dependent upon the quality of traffic in its network to provide value to online advertisers, and any failure in its quality control could have a material adverse effect on the value of its websites to its advertisers and adversely affect its revenue.

TripAdvisor uses technology and processes to monitor the quality of the Internet traffic that it delivers to online advertisers and has identified metrics to demonstrate the quality of that traffic. These metrics are used to not only identify the value of advertising on TripAdvisor’s 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, TripAdvisor may be required to credit amounts owed to it by its advertisers. Furthermore, low-quality or invalid traffic may be detrimental to TripAdvisor’s relationships with advertisers, and could adversely affect its advertising pricing and revenue.

TripAdvisor relies on assumptions and estimates and data to calculate certain of its key metrics, and real or perceived inaccuracies in such metrics may harm TripAdvisor’s reputation and negatively affect its business.

TripAdvisor believes certain metrics are key to TripAdvisor’s business, including but not limited to unique visitors, hotel shoppers, and revenue per hotel shopper. As both the industry in which it operates and its business continue to evolve, so too might the metrics by which TripAdvisor evaluates its business. While the calculation of these metrics is based on what TripAdvisor believes to be reasonable estimates, TripAdvisor’s internal tools are not independently verified by a third party and have a number of limitations and, furthermore, its methodologies for tracking these metrics may change over time.  For example, a single person may have multiple accounts or browse the internet on multiple browsers or devices, some users may restrict TripAdvisor’s ability to accurately identify them across visits, some mobile applications automatically contact its servers for regular updates with no user action, and it is not always able to capture

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user information on all of its platforms. As such, the calculations of its unique visitors may not accurately reflect the number of people actually visiting its platforms.  TripAdvisor continues to improve upon its tools and methodologies to capture data and believes that its current metrics are accurate; however, the improvement of its 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 its data. Also, if the internal tools TripAdvisor uses to track these metrics under-count or over-count performance or contain algorithm or other technical errors, the data TripAdvisor reports may not be accurate. In addition, historically, certain metrics were calculated by independent third parties.  Accordingly readers should not place undue reliance on these numbers.

The loss of one or more of TripAdvisor’s key personnel, or its failure to attract and retain other highly qualified personnel in the future, could harm TripAdvisor’s business.

TripAdvisor’s future success depends upon the continued contributions of its senior corporate management and other key employees. In particular, the contributions of Stephen Kaufer, TripAdvisor’s co-founder, Chief Executive Officer and President, are critical to its overall management. TripAdvisor cannot ensure that it will be able to retain the services of these individuals, and the loss of one or more of its key personnel could seriously harm its business. TripAdvisor does not maintain any key person life insurance policies.

In addition, competition remains intense for well-qualified employees in certain aspects of TripAdvisor’s business, including software engineers, developers, product management and development personnel, and other technology professionals. TripAdvisor’s continued ability to compete effectively depends on its ability to attract new employees and to retain and motivate existing employees. As a global company, TripAdvisor aims to attract quality employees from all over the world, so any restrictions on travel for professional or personal purposes, such as those put in place  in the United States in early 2017, may cause significant disruption to TripAdvisor’s businesses or negatively affect its ability to attract and retain employees on a global basis. If TripAdvisor does not succeed in attracting well-qualified employees or retaining or motivating existing employees, its business would be adversely affected.

TripAdvisor may be subject to claims that it violated intellectual property rights of others and these claims can be extremely costly to defend and could require TripAdvisor to pay significant damages and limit its ability to operate.

Certain companies in the Internet and technology industries that own patents, copyrights, trademarks and trade secrets frequently enter into litigation based on allegations of infringement or other violations of those intellectual property rights in order to extract value from technology companies, such as royalties in connection with grants of licenses. TripAdvisor has received in the past, and expects to receive in the future, notices that claim it has misappropriated or misused other parties’ intellectual property rights. Any intellectual property claim against TripAdvisor, regardless of merit, could be time consuming and expensive to settle or litigate and could divert management’s attention and other resources. These claims also could subject TripAdvisor to significant liability for damages and could result in it having to stop using technology or content found to be in violation of another party’s rights. TripAdvisor might be required or may opt to seek a license for rights to intellectual property held by others, which may not be available on commercially reasonable terms, or at all. Even if a license is available, it could be required to pay significant royalties, which would increase its operating expenses. TripAdvisor may also be required to develop alternative non-infringing technology, or content, which could require significant effort and expense and make it less competitive in the relevant market. Any of these results could harm its business and financial performance.

TripAdvisor’s acquisitions, investments, significant commercial arrangements and/or new business strategies could disrupt its ongoing business and present new challenges and risks.  

TripAdvisor’s success will depend, in part, on its ability to expand its product offerings and expand user engagement in order to grow its business in response to changing technologies, user and advertiser demands and competitive pressures. As a result, TripAdvisor has acquired, invested in and/or entered into significant commercial arrangements with a number of new businesses in the past and its future growth may depend, in part, on future acquisitions, investments, commercial arrangements and/or changes in business strategies, any of which could be material to its financial

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conditions and results of operations.  Such endeavors may involve significant risks and uncertainties, including, but not limited to, the following:

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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;

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Use of cash resources and incurrence of debt and contingent liabilities in funding these endeavors that may limit other potential uses of TripAdvisor’s cash, including stock repurchases, retirement of outstanding indebtedness and/or dividend payments;

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Amortization expenses related to acquired intangible assets and other adverse accounting consequences;

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Diversion of TripAdvisor’s management’s attention or other resources from its existing business;

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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;

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Difficulties in implementing and retaining uniform standards, controls, procedures, policies and information systems;

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The assumption of known and unknown debt and liabilities of the acquired company, including costs associated with litigation, cybersecurity risks assumed, and other claims relating to the acquired company;

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Failure of any company which TripAdvisor has acquired, in which it has invested, or with which it has a commercial arrangement, to achieve anticipated revenue, earnings or cash flows or to retain key management or employees;

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Failure to generate adequate returns on acquisitions and investments;

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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 those of TripAdvisor;

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Entrance into markets in which TripAdvisor has no direct prior experience and increased complexity in its business;

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

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Adverse market reaction to acquisitions.

TripAdvisor has recently invested, and may in the future invest, in privately-held companies and these investments are currently accounted for under the cost method of accounting.  Such investments are inherently risky in that such companies are typically at an early stage of development, may have no or limited revenue, 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, TripAdvisor’s ability to liquidate any such investments is typically dependent upon some liquidity event, such as a public offering or acquisition, since no public market exists for such securities.  Valuations of such privately-held companies are inherently complex and uncertain due to the lack of liquid market for the company’s securities.  Moreover, TripAdvisor could lose the full amount of any of its investments and any impairment of its investments could have a material adverse effect on its financial condition and results of operations.

TripAdvisor 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 TripAdvisor will achieve these benefits within a reasonable period of time.

If TripAdvisor fails to manage its growth effectively, its brand, results of operations and business could be harmed.

Over the years, TripAdvisor has experienced rapid growth in some of it business, including through acquisitions of other businesses and in new international markets. TripAdvisor continues to make substantial investments in its

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technology, product and sales and marketing organizations. This growth places substantial demands on TripAdvisor’s management and its operational infrastructure. In addition, as TripAdvisor’s business matures, it makes periodic changes and adjustments to its 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 TripAdvisor’s business.

To manage its growth, TripAdvisor may need to improve its operational, financial and management systems and processes which may require significant capital expenditures and allocation of valuable management and employee resources. As TripAdvisor continues to grow, it must effectively integrate, develop and motivate a large number of new employees, including employees in international markets, while maintaining the beneficial aspects of its company culture. If TripAdvisor does not manage the growth of its business and operations effectively, the quality of its platform and efficiency of its operations could suffer, which could harm its brand, results of operations and business.

TripAdvisor is regularly subject to claims, suits, government investigations, and other proceedings that may result in adverse outcomes.

TripAdvisor is regularly subject to claims, suits, government investigations and other proceedings involving competition, intellectual property, privacy and data protection, consumer protection, tax, labor and employment, commercial disputes, content generated by its users, free speech issues, goods and services offered by advertisers or publishers using its platforms, short-term and vacation rentals and other matters. In addition, TripAdvisor’s businesses face intellectual property litigation, that exposes it to the risk of exclusion and cease and desist orders, which could limit its ability to sell products and services.

Such claims, suits, government investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, any of these types of legal proceedings can have an adverse impact on TripAdvisor because of legal costs, diversion of management resources, injunctions or damage awards and other factors. Determining reserves for TripAdvisor’s pending litigation or other legal proceedings is a complex, fact-intensive process that requires significant judgment. It is possible that a resolution of one or more such proceedings could result in substantial fines and penalties that could adversely affect TripAdvisor’s 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 TripAdvisor from offering certain features, functionalities, products, or services, requiring a change in TripAdvisor’s 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 its business and results of operations. 

TripAdvisor is a global company that operates in many different jurisdictions and these operations expose TripAdvisor to additional risks, which risks increase as its business continues to expand.

TripAdvisor operates in a number of jurisdictions both inside and outside of the United States and continues to expand its operations both domestically and internationally. Many regions have different economic conditions, languages, currencies, consumer expectations, levels of consumer acceptance and use of the Internet for commerce, legislation, regulatory environments (including labor laws and customs), tax laws and levels of political stability. TripAdvisor is subject to associated risks typical of global businesses, including but not limited to, the following:

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Compliance with additional laws and regulations, including the Foreign Corrupt Practices Act and the U.K. Bribery Act (including the European Union’s General Data Protection Regulation, or GDPR), data privacy requirements, labor and employment law, laws regarding advertisements and promotions and anti-competition regulations;

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Diminished ability to legally enforce contractual rights;

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Increased risk and limits on enforceability of intellectual property rights;

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Restrictions on repatriation of cash as well as restrictions on investments in operations in certain countries;

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Financial risk arising from transactions in multiple currencies, as well as foreign currency exchange restrictions;

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Difficulties in managing staff and operations due to distance, time zones, language and cultural differences;

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Uncertainty regarding liability for services, content and intellectual property rights, including uncertainty as a result of local laws and lack of precedent;

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Economic or political instability; and

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Threatened or actual acts of terrorism.

A number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals, such as the recently enacted U.S. tax legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”).  Foreign governments may enact tax laws in response to the Tax Act that could result in further changes to global taxation and materially affect TripAdvisor’s financial position and results of operations. 

The Tax Act resulted in significant changes to the U.S. corporate income tax system. The Tax Act requires complex computations that were not previously required under U.S. tax law, significant judgments in interpreting the provisions of the Tax Act, significant estimates in calculations and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the Internal Revenue Service (“IRS”) and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from TripAdvisor’s interpretation. As TripAdvisor completes its analysis of the Tax Act, collects and prepares necessary data, and interprets additional guidance, TripAdvisor may make adjustments to provisional amounts that it has recorded that may materially impact its provision for income taxes in the period in which the adjustments are made. 

Additionally, TripAdvisor continues to accumulate positive cash flows in foreign jurisdictions, which it considers indefinitely reinvested, although it will continue to evaluate the impact of the Tax Act on its capital deployment within and outside the U.S. The repatriation of such funds for use in the United States, including for corporate purposes such as acquisitions, stock repurchases, dividends or debt refinancings, may result in additional U.S. income tax expense and higher cost for such capital.

A failure to comply with current laws, rules and regulations or changes to such laws, rules and regulations and other legal uncertainties may adversely affect TripAdvisor’s businesses or financial performance.

TripAdvisor’s 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 TripAdvisor and its business, including those relating to the Internet and online commerce, Internet advertising, consumer protection, data security and privacy, travel and vacation rental licensing and listing requirements and tax. In some cases, these laws continue to evolve.

For example, there is, and will likely continue to be, an increasing number of laws and regulations pertaining to the Internet and online commerce that may relate to liability for information retrieved from or transmitted over the Internet, online editorial and user-generated content, user privacy, data security, behavioral targeting and online advertising, taxation, liability for third-party activities and the quality of products and services.  In addition, enforcement authorities continue to rely on their authority under existing consumer protection laws to take action against companies relating to data privacy and security practices. The growth and development of online commerce may prompt calls for more stringent consumer protection laws and more aggressive enforcement efforts, which may impose additional burdens on online businesses generally.

Further, TripAdvisor’s Vacation Rentals business has been and continues to be subject to regulatory developments that affect the vacation rental industry and the ability of competitors like TripAdvisor to list those vacation rentals online.  For example, some states and local jurisdictions have fair housing or other laws governing whether and how properties may be rented, which they assert apply to vacation rentals. In addition, many homeowners, condominium and neighborhood associations have adopted or are considering adopting statutes or ordinances that prohibit or restrict property owners and managers  from short-term vacation rentals. 

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TripAdvisor also has been subject, and it 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 its businesses to comply with these laws and regulations could result in fines and/or proceedings against TripAdvisor by governmental agencies and/or consumers, which if material, could adversely affect its business, financial condition and results of operations. Further, if such laws and regulations are not enforced equally against other competitors in a particular market, TripAdvisor’s compliance with such laws may put it 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 TripAdvisor provides services could require it to change certain aspects of its business, operations and commercial relationships to ensure compliance, which could decrease demand for services, reduce revenue, increase costs and/or subject the company to additional liabilities. Unfavorable changes could decrease demand for products and services, limit marketing methods and capabilities, increase costs and/or subject TripAdvisor to additional liabilities.  Violations of these laws and regulations could result in fines and/or criminal sanctions against TripAdvisor, its officers or its employees and/or prohibitions on the conduct of its business.

TripAdvisor cannot be sure that its intellectual property is protected from copying or use by others, including potential competitors.

TripAdvisor’s websites rely on content, brands and technology, much of which is proprietary. TripAdvisor protects its proprietary content, brands and technology by relying on a combination of trademarks, copyrights, trade secrets, patents and confidentiality agreements. Any misappropriation or violation of its rights could have a material adverse effect on TripAdvisor’s business. Even with these precautions, it may be possible for another party to copy or otherwise obtain and use TripAdvisor’s 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 TripAdvisor’s rights. In addition, effective intellectual property protection may not be available in every jurisdiction in which its services are made available, and policing unauthorized use of its intellectual property is difficult and expensive. Therefore, in certain jurisdictions, TripAdvisor may be unable to protect its intellectual property adequately against unauthorized third-party copying or use, which could adversely affect its business or ability to compete. TripAdvisor cannot be sure that the steps it has taken will prevent misappropriation or infringement of its intellectual property. Furthermore, TripAdvisor may need to go to court or other tribunals or administrative bodies in order to enforce its intellectual property rights, to protect its 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. TripAdvisor’s failure to protect its intellectual property in a cost-effective or effective manner could have a material adverse effect on its business and ability to protect its technology, content and brands.

TripAdvisor currently licenses from third parties and incorporates the technologies and content into its websites. As TripAdvisor continues to introduce new services that incorporate new technologies and content, it may be required to license additional technology or content. TripAdvisor cannot be sure that such technology or content will be available on commercially reasonable terms, if at all.

TripAdvisor’s processing, storage and use of personal information and other data subjects  it to additional laws and regulations and failure to comply with those laws and regulations could give rise to liabilities.

TripAdvisor collects, processes, stores and transmits data, including personal information, for its users. As a result, TripAdvisor is 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 is 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 its services. The regulatory framework for privacy issues worldwide is currently in flux and is likely to

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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, TripAdvisor is subject to the GDPR, a new data protection legal framework, adopted by the European Union effective in May 2018. These data protection laws and regulations are intended to protect the privacy and security of personal data, including credit card information. Implementation of and compliance with these laws and regulations may be more costly or take longer than TripAdvisor anticipates, or could otherwise affect its business operations.

TripAdvisor strives 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 TripAdvisor to comply with its privacy policies, privacy-related obligations to users or other third parties, or privacy-related legal obligations, may result in governmental enforcement actions, litigation or public statements that could harm TripAdvisor’s reputation and cause its customers and members to lose trust in it, which could have an adverse effect on TripAdvisor’s business, brand, market share and results of operations.

TripAdvisor has acquired a number of companies over the years and may continue to do so in the future. While TripAdvisor makes significant efforts to address any information technology security issues with respect to its acquisitions, it may still inherit such risks when it integrates the acquired businesses.

TripAdvisor is subject to payments-related risks and failure to manage those risks may subject it to fines, penalties and additional costs and could have a negative impact on its business. 

TripAdvisor accepts payments, both from consumers and advertising partners and suppliers, using a variety of methods, including credit card, debit card, direct debit from a customer’s bank account, and invoicing. For existing and future payment options TripAdvisor offers to its customers, TripAdvisor may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in significant costs and reduce the ease of use of its payments products), as well as fraud. For certain payment methods, including credit and debit cards, TripAdvisor pays interchange and other fees, which may increase over time and raise its operating costs and lower profitability. TripAdvisor relies on third parties to provide certain payment methods and payment processing services, including the processing of credit cards and debit cards. In each case, TripAdvisor’s business could be disrupted, if these companies become unwilling or unable to provide these services to TripAdvisor. TripAdvisor is 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 TripAdvisor to comply. If TripAdvisor fails to comply with these rules or requirements, or if its data security systems are breached or compromised, it may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and/or lose its ability to accept credit and debit card payments from its customers, process electronic funds transfers, or facilitate other types of online payments. 

TripAdvisor is 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 TripAdvisor is found to be in violation of applicable laws or regulations, it could be subject to additional requirements and civil and criminal penalties, or forced to cease providing certain services.

Any significant system disruption in or unauthorized access to TripAdvisor’s computer systems or those of third parties that it utilizes, including those relating to cybersecurity or arising from cyberattacks, could result in a loss or degradation of service, unauthorized disclosure of data or theft of intellectual property and could harm TripAdvisor’s business.

TripAdvisor’s reputation and ability to attract, retain and service its users and partners is dependent upon the reliable performance and security of its computer systems and those of third parties it utilizes in its operations. Significant interruptions, outages, delays or security breaches in internal systems, or systems of third parties that it relies upon, would

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impair its ability to process transactions or display content and significantly harm its business. A party, whether internal or external, that is able to circumvent TripAdvisor’s security systems could misappropriate user information or proprietary information or cause significant interruptions in its operations. In the past, TripAdvisor has experienced cyberattacks, such as computer viruses, security intrusions, and “denial-of-service” or “bot” type attacks, that have made portions of its websites unavailable for short periods of time as well as allowed unauthorized access of its systems and data.

TripAdvisor also faces risks associated with security breaches affecting third parties conducting business over the internet. Much of TripAdvisor’s business is conducted with third party marketing affiliates or, more recently, through business partners powering its instant booking feature. A security breach at such third party could be perceived by consumers as a security breach of TripAdvisor’s systems and could result in negative publicity, damage its reputation, expose TripAdvisor to risk of loss or litigation and possible liability and subject TripAdvisor to regulatory penalties and sanctions. In addition, such third parties may not comply with applicable disclosure requirements, which could expose TripAdvisor to liability.

TripAdvisor may need to expend significant resources to protect against security breaches or to investigate and address problems caused by breaches. Reductions in website availability could cause a loss of substantial business volume during the occurrence of any such incident. Because the techniques used to sabotage security change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, TripAdvisor may be unable to proactively address these techniques or to implement adequate preventive measures. Security breaches could result in negative publicity, damage to reputation, exposure to risk of loss or litigation and possible liability due to regulatory penalties and sanctions. Media coverage of data breaches has escalated, in part because of the increased number of enforcement actions, investigations and lawsuits. As this focus and attention on privacy and data protection increases, TripAdvisor also risks exposure to potential liabilities and costs resulting from the compliance with, or any failure to comply with applicable legal requirements, conflicts among these legal requirements or differences in approaches to privacy and security. Security breaches could also cause travelers and potential users to lose confidence in TripAdvisor’s security, which would have a negative effect on the value of its brand. Failure to adequately protect against attacks or intrusions, whether for its own systems or systems of vendors, could expose TripAdvisor to security breaches that could have an adverse impact on financial performance.

Although TripAdvisor has put measures in place to protect certain portions of its facilities and assets, any of these events could cause system interruption, delays and loss of critical data, and could prevent TripAdvisor from providing content and services to users, travelers and/or third parties for a significant period of time. In addition, remediation may be costly and TripAdvisor may not have adequate insurance to cover such costs. Moreover, the costs of enhancing infrastructure to attain improved stability and redundancy may be time consuming and expensive and may require resources and expertise that are difficult to obtain.

The online short-term and vacation rental market is rapidly evolving and if TripAdvisor fails to predict the manner in which the market develops, its business and prospects may suffer.

TripAdvisor offers short-term and vacation rental services on its TripAdvisor-branded sites as well as through its U.S.-based FlipKey and Vacation Home Rentals and European-based Holiday Lettings and Niumba businesses. The short-term and vacation rental market has been and continues to be, subject to regulatory development globally that affects the industry and the ability of companies like us to list these rental properties online. For example, some states and local jurisdictions, both domestically and internationally, have adopted or are considering statutes or ordinances that prohibit property owners and managers from renting certain properties for fewer than 30 consecutive days or otherwise limit their ability to do so, and other states and local jurisdictions may introduce similar regulations. Some states and local jurisdictions also have fair housing or other laws governing whether and how properties may be rented, which they assert apply to vacation rentals. Many homeowners, condominium and neighborhood associations have adopted rules that prohibit or restrict short-term vacation rentals. Many of the fundamental statutes and ordinances that impose taxes or other obligations on travel and lodging companies were established before the growth of the Internet and e-commerce, which creates a risk of these laws being used in ways not originally intended that could burden property owners and managers or otherwise harm TripAdvisor’s business.  Operating in this dynamic regulatory environment requires significant management attention and financial resources. TripAdvisor cannot assure that its efforts will be successful, and that the investment and additional resources required to manage growth will produce the desired levels of revenue or profitability.

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TripAdvisor may have future capital needs and may not be able to obtain additional financing on acceptable terms.

TripAdvisor is currently party to a credit agreement with respect to a $1.2 billion revolving credit facility maturing in May 2022 ( “2015 Credit Facility”). This agreement includes restrictive covenants that may impact the way TripAdvisor manages its business and may limit its ability to secure significant additional financing in the future on favorable terms. TripAdvisor’s ability to secure additional financing and satisfy its financial obligations outstanding from time to time will depend upon its 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 its control. There can be no assurance that sufficient financing will be available on desirable or even any terms to fund investments, acquisitions, stock repurchases, dividends, debt refinancing or extraordinary actions or that counterparties in any such financings would honor their contractual commitments.

TripAdvisor has indebtedness which could adversely affect its business and financial condition.

At December 31, 2017, TripAdvisor had outstanding $230 million in long-term debt. Although TripAdvisor subsequently repaid this indebtedness, it continues to have existing credit facilities from which it can borrow significant amounts; as such, TripAdvisor is still subject to risks relating to its indebtedness that include:

·

Increasing its vulnerability to general adverse economic and industry conditions;

·

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

·

Making it more difficult for TripAdvisor to optimally capitalize and manage the cash flow for its businesses;

·

Limiting TripAdvisor’s flexibility in planning for, or reacting to, changes in its businesses and the markets in which it operates;  

·

Possibly placing TripAdvisor at a competitive disadvantage compared to its competitors that have less debt;

·

Limiting TripAdvisor’s ability to borrow additional funds or to borrow funds at rates or on other terms that it finds acceptable; and

·

Exposing TripAdvisor to the risk of increased interest rates because its outstanding debt is expected to be subject to variable rates of interest.

In addition, it is possible that TripAdvisor may need to incur additional indebtedness in the future in the ordinary course of business. The terms of the 2015 Credit Facility allow TripAdvisor to incur additional debt subject to certain limitations; however, there is no assurance that additional financing will be available to TripAdvisor on terms favorable to it, if at all. In addition, if new debt is added to current debt levels, the risks described above could intensify.

TripAdvisor’s 2015 Credit Facility provides for various provisions that limit its discretion in the operation of its business and require TripAdvisor to meet financial maintenance tests and other covenants and the failure to comply with their covenants could have a material adverse effect on TripAdvisor.

TripAdvisor is party to a credit agreement providing for the 2015 Credit Facility. The agreements that govern the 2015 Credit Facility contain various covenants, including those that limit TripAdvisor’s ability to, among other things:

·

Incur indebtedness;

·

Pay dividends on, redeem or repurchase its capital stock;

·

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

·

Enter into secured financing arrangements;

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·

Enter into sale and leaseback transactions; and

·

Enter into unrelated businesses.

These covenants may limit TripAdvisor’s ability to optimally operate its business. In addition, the 2015 Credit Facility requires that TripAdvisor meet certain financial tests, including a leverage ratio test. Any failure to comply with the restrictions of the 2015 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 TripAdvisor with further funds (including periodic rollovers of existing borrowings).

TripAdvisor’s effective tax rate is impacted by a number of factors that could have a material impact on its financial results and could increase the volatility of those results.

Due to the global nature of its business, TripAdvisor is subject to income taxes in the United States and other foreign jurisdictions. In the event TripAdvisor incurs net income in certain jurisdictions but incurs losses in other jurisdictions, it generally cannot offset the income from one jurisdiction with the loss from another. This lack of flexibility increases TripAdvisor’s effective tax rate. Furthermore, significant judgment is required to calculate TripAdvisor’s worldwide provision for income taxes and depends on its ability to operate its business in a manner consistent with its corporate structure and intercompany arrangements. In the ordinary course of its business there are many transactions and calculations where the ultimate tax determination is uncertain.

TripAdvisor believes its tax estimates are reasonable. However, TripAdvisor is routinely under audit by federal, state and foreign taxing authorities.  The taxing authorities of jurisdictions in which TripAdvisor operates may challenge its methodologies for valuing developed technology or intercompany arrangements, including its transfer pricing, or determine that the manner in which it operates its business does not achieve the intended tax consequences, which would increase TripAdvisor’s effective tax rate and harm its financial position and results of operations.  As TripAdvisor operates in numerous taxing jurisdictions, the application of tax laws can also be subject to diverging and sometimes conflicting interpretations by taxing authorities of these jurisdictions.  It is not uncommon for taxing authorities of different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property.  The final determination of audits could be materially different from TripAdvisor’s income tax provisions and accruals and could have a material effect on its financial position, results of operations, or cash flows in the period or periods for which that determination is made.

The income tax effects of the accounting for share-based compensation may significantly impact TripAdvisor’s effective tax rate. In periods in which TripAdvisor’s stock price is higher than the grant price of the share-based compensation awards vesting in that period, it will recognize excess tax benefits that will decrease its effective tax rate.  In periods in which TripAdvisor’s stock price is lower than the grant price of the share-based compensation awards vesting in that period, its effective tax rate will increase.

Additionally, TripAdvisor continues to accumulate positive cash flows, in foreign jurisdictions which it considers indefinitely reinvested, although it will continue to evaluate the impact of the Tax Act on its capital deployment within and outside the U.S. Any repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates and incremental cash tax payments.

Changes in tax laws or tax rulings, or the examination of TripAdvisor’s tax positions, could materially affect its financial position and results of operations.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. TripAdvisor’s existing corporate structure and intercompany arrangements have been implemented in a manner TripAdvisor believes is in compliance with current prevailing tax laws. However, the tax benefits that TripAdvisor intends to eventually derive could be undermined due to changing tax laws. A number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals, such as the recently enacted the Tax Act.  Foreign governments or

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U.S. states may enact tax laws in response to the Tax Act that could result in further changes to global taxation and materially affect TripAdvisor’s financial position and results of operations. 

The Tax Act has resulted in significant changes to the U.S. income tax system. The 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 Tax Act and significant estimates in calculations, and the preparation of analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from TripAdvisor’s interpretation.  As TripAdvisor completes its analysis of the Tax Act, collects and prepares necessary data, and interprets additional guidance, TripAdvisor may make adjustments to provisional amounts that it has recorded that may materially impact its provision for income taxes in the period in which the adjustments are made. 

In addition, the taxing authorities in the United States and other jurisdictions where TripAdvisor does business regularly examine its income and other tax returns as well as the tax returns of Expedia, TripAdvisor’s 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, TripAdvisor may be required to record charges to its operations, which could harm its business, operating results and financial condition. 

In connection with TripAdvisor’s spin-off from Expedia (the “Spin-Off”), TripAdvisor could be subject to significant tax liabilities.

Under the tax sharing agreement between TripAdvisor and Expedia entered into in connection with the Spin-Off, TripAdvisor is 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 TripAdvisor described in the covenants in the tax sharing agreement, (ii) any acquisition of TripAdvisor’s equity securities or assets or those of a member of its group, or (iii) any failure of the representations with respect to TripAdvisor or any member of its group to be true or any breach by TripAdvisor or any member of its 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.

TripAdvisor continues 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, TripAdvisor is currently under an IRS audit for the 2009, 2010, and short-period 2011 tax years. In connection with that audit, TripAdvisor 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 TripAdvisor’s worldwide income tax expense. The proposed adjustments would result in an increase to TripAdvisor’s 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. TripAdvisor is also subject to various ongoing state income tax audits. The outcome of these matters or any other audits could subject TripAdvisor to significant tax liabilities. 

TripAdvisor is subject to fluctuation in foreign currency exchange risk.

TripAdvisor conducts a significant and growing portion of its business outside the United States, but reports its results in U.S. dollars. As a result, TripAdvisor faces exposure to movements in foreign currency exchange rates, particularly those related to the Euro, British pound sterling and Australian dollar. These exposures include, but are not limited to re-measurement of gains and losses from changes in the value of foreign denominated assets and liabilities; translation gains and losses on foreign subsidiary financial results that are translated into U.S. dollars upon consolidation; and planning risk related to changes in exchange rates between the time TripAdvisor prepares its annual and quarterly forecasts and when actual results occur.

Depending on the size of the exposures and the relative movements of exchange rates, if TripAdvisor were to choose not to hedge or were to fail to hedge effectively its exposure, TripAdvisor could experience a material adverse effect on its financial statements and financial condition. As seen in some recent periods, in the event of severe volatility

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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 TripAdvisor’s business have made hedging these exposures more complex. TripAdvisor hedges 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 its 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 TripAdvisor’s markets and business, which in turn could adversely affect its ability to effectively manage its business and adversely affect its results of operations.

Future sales of shares of TripAdvisor’s or our common stock in the public market, or the perception that such sales may occur, may depress its or our stock price.

For the year ended December 31, 2017, the average daily trading volume of TripAdvisor’s common stock on Nasdaq was approximately 3.1 million shares. If its existing stockholders or their distributees sell substantial amounts of TripAdvisor’s common stock in the public market, the market price of its common stock and hence our common stock could decrease significantly. The perception in the public market that TripAdvisor’s existing stockholders or our stockholders might sell shares of common stock could also depress the trading price of TripAdvisor’s common stock and hence our common stock. For example, sales of or hedging transactions, such as collars, in our shares by any of our directors or executive officers could cause a perception in the marketplace that our stock price (and hence TripAdvisor's stock price) has peaked or that adverse events or trends have occurred or may be occurring at our company or TripAdvisor. This perception could result notwithstanding any personal financial motivation for these insider transactions. In addition, we have the right to require TripAdvisor to file registration statements covering TripAdvisor shares we own or to include TripAdvisor shares in registration statements that it may file for itself or other stockholders. If we or some other TripAdvisor stockholder sells substantial amounts of TripAdvisor’s common stock in the public market, or if there is a perception in the public market that we might sell shares of TripAdvisor common stock, the market price of TripAdvisor’s common stock could decrease significantly. A decline in the price of shares of TripAdvisor’s common stock or our common stock might impede its or our ability to raise capital through the issuance of additional shares of common stock or other equity securities.

Factors Relating to our Common Stock and the Securities Market

Our stock price may be disproportionately affected by the results of operations of TripAdvisor and developments in its business.

The fair value of our investment in TripAdvisor, on an as-converted basis, was approximately $1.1 billion as of December 31, 2017, which represents a significant portion of our total market value. Since the TripCo Spin-Off in 2014, our share price has had a tendency to move in tandem with the share price of TripAdvisor's common stock. As a result, our stock price may be disproportionately affected by the results of operations of TripAdvisor and developments in its business.

It may be difficult for a third party to acquire us, even if doing so may be beneficial to our stockholders.

Certain provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a change in control of our company that a stockholder may consider favorable. These provisions include the following:

·

authorizing a capital structure with multiple series of common stock: a Series B that entitles the holders to ten votes per share, a Series A that entitles the holders to one vote per share and a Series C that, except as otherwise required by applicable law, entitles the holders to no voting rights;

·

authorizing the issuance of “blank check” preferred stock, which could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

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·

classifying our board of directors with staggered three-year terms, which may lengthen the time required to gain control of our board of directors;

·

limiting who may call special meetings of stockholders;

·

prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of the stockholders;

·

establishing advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

·

requiring stockholder approval by holders of at least 80% of our voting power or the approval by at least 75% of our board of directors with respect to certain extraordinary matters, such as a merger or consolidation of our company, a sale of all or substantially all of our assets or an amendment to our certificate of incorporation; and

·

the existence of authorized and unissued stock which would allow our board of directors to issue shares to persons friendly to current management, thereby protecting the continuity of its management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us.

In addition, Gregory B. Maffei, our Chairman, President and Chief Executive Officer, beneficially owns shares representing the power to direct approximately 27% of the aggregate voting power in our company, due to his beneficial ownership of approximately 95% of the outstanding shares of our Series B common stock as of January 31, 2018.

Holders of a single series of our common stock may not have any remedies if an action by our directors has an adverse effect on only that series of our common stock.

Principles of Delaware law and the provisions of our certificate of incorporation may protect decisions of our board of directors that have a disparate impact upon holders of any single series of our common stock. Under Delaware law, the board of directors has a duty to act with due care and in the best interests of all of our stockholders, including the holders of all series of our common stock. Principles of Delaware law established in cases involving differing treatment of multiple classes or series of stock provide that a board of directors owes an equal duty to all common stockholders regardless of class or series and does not have separate or additional duties to any group of stockholders. As a result, in some circumstances, our directors may be required to make a decision that is viewed as adverse to the holders of one series of our common stock. Under the principles of Delaware law and the business judgment rule, holders may not be able to successfully challenge decisions that they believe have a disparate impact upon the holders of one series of our stock if our board of directors is disinterested and independent with respect to the action taken, is adequately informed with respect to the action taken and acts in good faith and in the honest belief that the board is acting in the best interest of all of our stockholders.

Item 1B.  Unresolved Staff Comments

None. 

Item 2.  Properties.

In connection with the TripCo Spin-Off, a wholly owned subsidiary of Liberty Media entered into a facilities sharing agreement with TripCo, pursuant to which TripCo shares office facilities with Liberty Media and related amenities at Liberty Media’s corporate headquarters located at 12300 Liberty Boulevard, Englewood, Colorado.

TripAdvisor did not legally own any real estate as of December 31, 2017. TripAdvisor currently leases approximately 280,000 square feet for its 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. TripAdvisor also leases an aggregate of approximately 450,000 square feet of office space at approximately 40 other locations across North America, Europe and Asia Pacific, primarily for its sales offices, subsidiary headquarters and international management teams, pursuant to lease agreements, with the latest expiring in June 2027. TripAdvisor believes

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that its current facilities are adequate for its current operations and that additional leased space can be obtained on reasonable terms if needed.

Item 3.  Legal Proceeding

In the ordinary course of its business, our subsidiary TripAdvisor and its subsidiaries are party to legal proceedings and claims arising out of their operations. These matters may relate to claims involving alleged infringement of third-party intellectual property rights, defamation, taxes, regulatory compliance and other claims. We do not believe there are any material pending legal proceedings or claims to which we or our subsidiaries are party or of which any of our property is the subject. There may be claims or actions pending or threatened against us or our subsidiaries 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.

 

 

 

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PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters of Equity Securities.

Market Information

Our Series A and Series B common stock have been outstanding since August 27, 2014.   Each series of our common stock trades on the Nasdaq Global Select Market.  The following table sets forth the range of high and low sales prices of shares of our common stock for the years ended December 31, 2017 and 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty TripAdvisor Holdings, Inc.

 

 

 

Series A

 

Series B

 

 

    

High

    

Low

    

High

    

Low

 

2016

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

29.86

 

17.23

 

30.86

 

19.92

 

Second quarter

 

$

24.64

 

19.86

 

24.95

 

19.81

 

Third quarter

 

$

24.18

 

20.34

 

25.12

 

21.70

 

Fourth quarter

 

$

22.74

 

14.83

 

21.80

 

16.65

 

2017

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

18.75

 

12.98

 

17.50

 

13.50

 

Second quarter

 

$

16.95

 

10.55

 

16.60

 

11.30

 

Third quarter

 

$

14.55

 

10.05

 

14.00

 

11.40

 

Fourth quarter

 

$

13.75

 

7.90

 

13.90

 

9.35

 

 

Holders

As of January 31, 2018, there were approximately 967 and  54 record holders of our Series A and Series B common stock, respectively.  The foregoing numbers of record holders do not include the number of stockholders whose shares are held nominally by banks, brokerage houses or other institutions, but include each such institution as one shareholder.

Dividends

We have not paid any cash dividends on our common stock, and we have no present intention of so doing.  Payment of cash dividends, if any, in the future will be determined by our board of directors in light of our earnings, financial condition and other relevant considerations. Covenants in TripAdvisor’s existing debt instruments also restrict the payment of dividends and cash distributions to stockholders. See note 7 to the accompanying consolidated financial statements.

Securities Authorized for Issuance Under Equity Compensation Plans

Information required by this item is incorporated by reference to our definitive proxy statement for our 2018 Annual Meeting of stockholders.

Purchases of Equity Securities by the Issuer

There were no repurchases of our common stock during the three months ended December 31, 2017. No shares of our common stock were surrendered by certain of our officers and employees to pay withholding taxes and other deductions in connection with the vesting of their restricted stock during the three months ended December 31, 2017.

 

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Item 6.    Selected Financial Data.

The following tables present selected historical information relating to our financial condition and results of operations for the past five years. Certain prior period amounts have been reclassified for comparability with current year presentation. The following data should be read in conjunction with our consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

 

2017

 

2016

    

2015

    

2014

    

2013

 

Summary Balance Sheet Data:

 

amounts in millions

 

Cash and cash equivalents

 

$

695

 

654

 

644

 

509

 

354

 

Investments in available for sale securities and other cost investments

 

$

27

 

16

 

37

 

31

 

188

 

Intangible assets not subject to amortization (1)

 

$

3,717

 

5,476

 

5,492

 

5,510

 

5,292

 

Intangible assets subject to amortization, net

 

$

382

 

487

 

625

 

841

 

908

 

Total assets

 

$

5,484

 

7,282

 

7,285

 

7,366

 

7,087

 

Long-term debt

 

$

704

 

555

 

620

 

662

 

298

 

Deferred income tax liabilities

 

$

332

 

659

 

719

 

808

 

853

 

Total stockholders' equity

 

$

424

 

803

 

808

 

897

 

1,208

 

Noncontrolling interest

 

$

3,329

 

4,621

 

4,628

 

4,450

 

4,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

 

2017

 

2016

    

2015

    

2014

    

2013

 

Summary Statement of Operations Data:

 

amounts in millions, except per share amounts

 

Revenue

 

$

1,569

 

1,532

 

1,565

 

1,329

 

1,034

 

Impairment of intangible assets (1)

 

$

(1,798)

 

 —

 

(2)

 

(2)

 

(3)

 

Operating income (loss)

 

$

(1,792)

 

23

 

15

 

68

 

(17)

 

Interest expense

 

$

(25)

 

(25)

 

(28)

 

(13)

 

(12)

 

Realized and unrealized gains (losses) on financial instruments, net

 

$

24

 

53

 

 2

 

 1

 

 —

 

Other, net

 

$

 1

 

(5)

 

(4)

 

(12)

 

 1

 

Net earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders

 

$

(397)

 

21

 

(40)

 

(22)

 

(7)

 

Basic net earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. stockholders per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Series A and Series B common stock (2)

 

$

(5.29)

 

0.28

 

(0.53)

 

(0.30)

 

(0.10)

 

Diluted earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. stockholders per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Series A and Series B common stock (2)

 

$

(5.29)

 

0.28

 

(0.53)

 

(0.30)

 

(0.10)

 

 


(1)

During the year ended December 31, 2017, TripCo recorded $1,798 million of impairment losses related to trademarks and goodwill that were initially recorded in conjunction with the acquisition of TripAdvisor.

(2)

Liberty issued 73,685,924 common shares, which is the aggregate number of shares of Series A and Series B common stock outstanding upon the completion of the TripCo Spin-Off on August 27, 2014.  The same number of shares is being used for both basic and diluted earnings per share for all periods prior to the date of the TripCo Spin-Off as no company equity awards were outstanding prior to the TripCo Spin-Off.

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

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying consolidated financial statements and the notes thereto.

See note 2 in the accompanying consolidated financial statements for an overview of new accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial statements.

Overview

During October 2013, the Board of Directors of Liberty Interactive Corporation and its subsidiaries (“Liberty”) authorized a plan to distribute to the stockholders of Liberty’s Liberty Ventures common stock shares of a wholly-owned subsidiary Liberty TripAdvisor Holdings, Inc. (“TripCo” or the “Company”)(the “TripCo Spin-Off”). TripCo holds its subsidiary TripAdvisor, Inc. (“TripAdvisor”) and held its former subsidiary, BuySeasons, Inc. (“BuySeasons”) until BuySeasons was sold on June 30, 2017. The TripCo Spin-Off was completed on August 27, 2014 and was effected as a pro-rata dividend of shares of TripCo to the stockholders of Series A and Series B Liberty Ventures common stock of Liberty. The TripCo Spin-Off is intended to be tax-free and has been accounted for at historical cost due to the pro rata nature of the distribution to shareholders of Liberty Ventures common stock.

The financial information represents a combination of the historical results of TripAdvisor and BuySeasons as discussed in note 1 in the accompanying consolidated financial statements. These financial statements refer to the combination of TripAdvisor and BuySeasons as “TripCo,” “the Company,” “us,” “we” and “our” in the notes to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Our “Corporate and Other” category includes our interest in BuySeasons, until its disposition on June 30, 2017, and corporate expenses.

Strategies and Challenges 

Executive Summary

Results for TripCo are largely dependent upon the operating performance of TripAdvisor. Therefore, the executive summary below contains the strategies and challenges of TripAdvisor for an understanding of the business objectives of TripAdvisor.  

TripAdvisor’s Growth Strategy

TripAdvisor seeks to achieve its mission of helping people around the world plan, book and experience the perfect trip by: leveraging its user-generated content and global brand to attract users to TripAdvisor websites and applications; providing users with the best user experience throughout all phases of the travel journey; deepening its partnerships with travel partners, by providing them with a global platform of advertising opportunities to generate qualified leads and bookings; and investing in technology, product development, marketing, and other strategic areas that TripAdvisor believes can improve its long-term business prospects.

·

Drive user engagement with TripAdvisor’s platform. Since TripAdvisor’s founding, the TripAdvisor brand has become a globally-recognized travel brand, one that is synonymous with travel reviews and research and increasingly finding the best prices and booking. TripAdvisor believes that its user-generated content and its brand have enabled TripAdvisor to build a large, highly engaged and loyal community of travelers who view TripAdvisor as a valuable resource to help them discover, plan and book their travel experiences, and for millions of users, TripAdvisor gives them an interactive platform to share their travel experiences. TripAdvisor seeks to amplify its global brand and raise user awareness for, and engagement with, its expanded product offerings as TripAdvisor aims to attract users to its websites and applications through

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various channels, including domain direct and various online and offline marketing channels, including search engines through search engine optimization and search engine marketing, and recently, through television brand advertising.

·

Deliver the best user experience possible on its platform. TripAdvisor believes that giving users more value throughout their TripAdvisor experience is key to its future success. To accomplish this, TripAdvisor has made and will continue to make product improvements in order to provide a more enjoyable and engaging end-to-end user experience throughout all phases of the travel journey – from inspiration and discovery, to researching, price shopping and booking, to in-destination activities and places to eat, and, finally, to sharing the details of these travel experiences on TripAdvisor. These enhancements include having grown the number of hotels, inns, B&Bs and specialty lodging, vacation rentals, restaurants, activities and attractions listed on TripAdvisor’s platform to approximately 7.5 million worldwide as of December 31, 2017. In addition to listings and content, TripAdvisor has provided users more options to price compare and book their travel experiences. During 2017, TripAdvisor launched a more engaging hotel shopping experience that focused on helping hotel shoppers find the best prices on TripAdvisor websites and applications. In order to better serve travelers needs when they are in-destination, TripAdvisor has continued to rapidly expand its bookable supply in attractions and restaurants. TripAdvisor believes that its continued focus on delivering an increasingly more robust user experience will ultimately result in more repeat usage on its platform, more value for its partners, and greater monetization for its business. TripAdvisor seeks to quickly identify what users need to conduct their travel research and booking and to deliver product enhancements quickly.

·

Deepen relationships with its travel partners. TripAdvisor is a global platform consisting of listing and advertising opportunities that help generate impressions, brand awareness, qualified leads and bookings for travel partners.  TripAdvisor believes that continuing to grow the number of listings and bookable supply, especially in its in-destination Attractions and Restaurants businesses, will enable TripAdvisor to not only serve users in more moments during more trips, but also help partners drive transactions for their business. TripAdvisor is also increasingly providing business-to-business services that are designed to help its partners grow their business. For example, TripAdvisor’s Business Advantage and Premium for Restaurants offer hoteliers and restauranteurs affordable marketing and business analytics tools, respectively, to help them attract customers and more effectively manage their business pages on TripAdvisor.

·

Invest in technology, product, marketing and other strategic areas. Continuous product testing and speed to market are two of TripAdvisor’s most important priorities, as they enable TripAdvisor to create a richer user experience. TripAdvisor operates on a regular product release cycle, where releases contain new product features for its websites and mobile applications. For example, innovating and improving its mobile phone offerings are key priorities since mobile phone adoption continues to scale and consumers increasingly conduct more internet searches and commerce on these devices. During the year ended December 31, 2017, more than half of TripAdvisor’s average monthly unique visitors came from mobile phones, growing nearly 30% year-over-year, according to TripAdvisor’s internal log files. TripAdvisor anticipates that the growth rate in mobile phone monthly unique visitors will continue to exceed the growth rate of its overall monthly unique visitors, resulting in an increased proportion of users continuing to use their mobile phones to access the full range of services available on TripAdvisor’s  websites and applications. TripAdvisor is investing significant resources to improve the features, functionality, engagement, and commercialization of its travel products on TripAdvisor mobile websites and applications.

Current Trends Affecting TripAdvisor’s Business

The online travel industry is large and growing and remains highly dynamic and competitive.

Hotel Segment

During 2017, TripAdvisor continued to improve the hotel shopping experience on TripAdvisor, by, among other things, launching a redesigned TripAdvisor website and mobile application and making it easier for users to find the lowest hotel prices. TripAdvisor has and will continue to seek new ways to provide a more comprehensive hotel shopping experience, by improving content on destinations, properties and rooms, optimizing the room selection process and helping

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users find the best prices with TripAdvisor’s hotelier and OTA partners. On the supply side, TripAdvisor continues to on-board more partners that have unique brand, supply or room pricing to provide consumers a more comprehensive selection of accommodations in order to drive higher repeat usage and conversion of hotel shoppers to bookings and higher cost-per-click rates on its platform.

TripAdvisor competes with other travel companies and search engines for hotel shoppers, which its defines as the users who view TripAdvisor hotel pages. Over time, increased competition has caused hotel shoppers visiting TripAdvisor websites and applications from paid online marketing channels to grow faster than traffic from unpaid online marketing channels. Hotel shoppers from unpaid online marketing channels, such as users that navigate directly to TripAdvisor’s homepage or applications through branded search queries on search engines, are of the highest value to TripAdvisor’s business. Following the launch of TripAdvisor’s redesigned website, its new hotel shopping experience, TripAdvisor launched a brand advertising campaign, or television campaign, in June 2017 aimed at increasing usage of TripAdvisor as a place to find and book the best hotels at the lowest prices. TripAdvisor also continues to leverage a number of other marketing channels, both paid and unpaid, to achieve this objective, including online efforts such as social media and cost relationship management, as well as offline efforts such as TripAdvisor-branded advertising campaigns.  TripAdvisor’s television campaign has been funded, in part, through optimization of its online marketing spend. TripAdvisor expects to continue to optimize its marketing investment mix, between online and offline channels based on the relative growth opportunity, the expected returns and the competitive environment in which it operates. TripAdvisor believes optimizing its marketing mix to include brand advertising will help TripAdvisor establish a more durable, long-lasting direct relationship with users shopping for hotels, with a greater long-term financial return than TripAdvisor would be able to achieve solely from online paid marketing. TripAdvisor’s marketing strategy comes with a near-term trade-off, as online paid marketing may better enable TripAdvisor to generate a short-term hotel shopper and click-based and transaction revenue, whereas TripAdvisor expects its television advertising campaign to generate such returns over a longer timeframe, improving marketing efficiency and profit growth.

A key objective is to grow the number of hotel shoppers on TripAdvisor’s platform. In the year ended December 31, 2017, average monthly unique hotel shoppers increased 7%, when compared to the same period in 2016, according to TripAdvisor’s internal log files. The increase is primarily due to the general trend of an increasing number of hotel shoppers visiting TripAdvisor websites and apps on mobile phones, as well as the success of TripAdvisor’s paid online marketing strategy, partially offset by marketing spend tradeoffs resulting from increased brand advertising investment in TripAdvisor’s television campaign, as discussed above. 

Another key objective is to increase TripAdvisor’s revenue per hotel shopper. In the year ended December 31, 2017, TripAdvisor’s revenue per hotel shopper decreased 7%, when compared to the same period in 2016, primarily driven by partners bidding to lower CPCs in its click-based metasearch auction during the second half of the year, and the general trend of a greater percentage of hotel shoppers visiting TripAdvisor-branded websites and apps on mobile phones. During the year ended December 31, 2017, the growth rate of hotel shoppers that visited TripAdvisor websites and apps on mobile phones continued to grow significantly faster than that of hotel shoppers using desktop and tablet devices. Mobile phones currently generate significantly lower revenue per hotel shopper compared to desktop and tablet devices. TripAdvisor believes that this monetization difference is due to a number of factors, including the reduced ability to achieve marketing attribution on the mobile phone for facilitating traffic to partner websites and applications; more limited advertising opportunities on smaller screen devices; TripAdvisor’s historic positioning as a place to read reviews; and general consumer purchasing patterns on mobile phones resulting in lower booking intent, lower conversion rates, lower cost-per-click bids from its travel partners, and lower average gross booking value. As a result, TripAdvisor’s growth in hotel shoppers on mobile phones has remained a headwind against TripAdvisor’s overall revenue per hotel shopper and TripAdvisor-branded click-based and transaction revenue. 

The general trend of increasing traffic to TripAdvisor websites and apps on mobile phones reduces its ability to grow TripAdvisor-branded display-based advertising revenue, as TripAdvisor believes prioritizing and preserving a cleaner user experience over increasing advertising units on smaller screen devices is the most appropriate way to engage more users on TripAdvisor’s mobile phone app. TripAdvisor continues to prioritize investment in product development in order to improve the mobile user experience and to improve mobile phone traffic acquisition to increase its user base. TripAdvisor believes that, over the long-term, these efforts will result in increased usage and engagement, conversion of hotel shoppers to bookings for its hotel advertising partners and higher monetization rates for TripAdvisor.  

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Non-Hotel Segment

TripAdvisor’s ongoing product efforts to deliver an end-to-end user experience extend to its Non-Hotel segment, which includes its Attractions, Restaurants, and Vacation Rentals businesses. TripAdvisor’s key growth strategies have been to grow users, improve products and grow bookable supply. TripAdvisor continued to deliver on those objectives during the year ended December 31, 2017, as monthly unique users to these pages on TripAdvisor websites and applications continued to grow, TripAdvisor enhanced its product experience on all devices and grew bookable supply on its platform in its Attractions and Restaurants businesses. Notably, TripAdvisor has been able to increasingly leverage strong user growth on the TripAdvisor-branded platform to drive increased bookings in its Attractions business. Additionally, TripAdvisor’s Attractions and Restaurants businesses have both experienced increased engagement and growth on mobile phones. In Vacation Rentals, as the business continues to shift from TripAdvisor’s subscription model to its free-to-list model, TripAdvisor has focused on delivering high-quality supply for users in order to drive conversion for partners on its platform.  TripAdvisor continued to work to improve content and overall user experience across each business.

Continued successful execution of key growth strategies and increased marketing and operating efficiencies primarily contributed to this segment’s revenue and profit growth during the year ended December 31, 2017, as compared to the same period in 2016.

Results of Operations—Consolidated

General.  We provide in the tables below information regarding our historical Consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our reportable segment. The “corporate and other” category consists of those assets or businesses which we do not disclose separately, such as BuySeasons (through June 30, 2017). For a more detailed discussion and analysis of the financial results of the principal reporting segment, see “Results of Operations—TripAdvisor” below.

Operating Results

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

    

2017

    

2016

    

2015

 

 

 

amounts in millions

 

Revenue

 

 

 

 

 

 

 

 

TripAdvisor

 

$

1,556

 

1,480

 

1,492

 

Corporate and other

 

 

13

 

52

 

73

 

Consolidated TripCo

 

$

1,569

 

1,532

 

1,565

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

TripAdvisor

 

$

(1,775)

 

47

 

56

 

Corporate and other

 

 

(17)

 

(24)

 

(41)

 

Consolidated TripCo

 

$

(1,792)

 

23

 

15

 

Adjusted OIBDA

 

 

 

 

 

 

 

 

TripAdvisor

 

$

331

 

352

 

464

 

Corporate and other

 

 

(9)

 

(16)

 

(30)

 

Consolidated TripCo

 

$

322

 

336

 

434

 

 

Revenue.  Our consolidated revenue increased $37 million and decreased $33 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. Revenue for TripAdvisor increased $76 million and decreased $12 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. Revenue for BuySeasons, the only consolidated subsidiary in Corporate and other until its disposition on June 30, 2017,  decreased $39 million and $21 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior periods.  The decrease in revenue for BuySeasons for the year ended December 31, 2017 as compared to the corresponding prior year period was attributable to declines in BuySeasons’ sales and the disposition of BuySeasons mid-year.  The decrease in revenue for BuySeasons for the year

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ended December 31, 2016 as compared to the corresponding prior year period was due to a decrease in retail sales resulting from a decision to shift to a dropship business model, partially offset by revenue from its online marketplace and dropship channels. See “Results of Operations—TripAdvisor” below for a more complete discussion of the results of operations of TripAdvisor.

Operating Income (Loss).  Our consolidated operating income decreased $1,815 million and increased $8 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. The primary driver of the decrease in operating income for 2017 is a result of impairments of $1,798 million related to goodwill and trademarks that were recorded in conjunction with the acquisition of TripAdvisor. TripAdvisor’s stand-alone operating income decreased $42 million and $66 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. See “Results of Operations—TripAdvisor” below for a more complete discussion of the results of operations of TripAdvisor.

Operating losses for Corporate and other decreased $7 million and $17 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. These changes are primarily due to BuySeasons, which was sold on June 30, 2017.  As discussed above, in 2016, BuySeasons made the decision to focus its business on a dropship model. As part of this shift, BuySeasons reduced certain costs, resulting in improved operating results.

Adjusted OIBDA.  We define Adjusted OIBDA as revenue less operating expenses, and selling, general and administrative (“SG&A”) expenses (excluding stock-based compensation), adjusted for specifically identified non-recurring transactions. Our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our business and make decisions about our resources. We believe this is an important indicator of the operational strength and performance of our businesses, including each business’s ability to service debt and fund capital expenditures. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation and amortization, stock-based compensation and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. See note 13 to the accompanying December 31, 2017 consolidated financial statements for a reconciliation of Adjusted OIBDA to operating income and earnings (loss) before income taxes.

Consolidated Adjusted OIBDA decreased approximately $14 million and $98 million for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. Adjusted OIBDA at TripAdvisor decreased $21 million and  $112 million during the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior year periods. See “Results of Operations—TripAdvisor” below for a more complete discussion of the results of operations of TripAdvisor.

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Other Income and Expense

Components of Other Income (Expense) are presented in the table below.

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

2017

 

2016

 

2015

 

 

 

amounts in millions

 

Interest expense

    

 

    

    

    

    

    

 

TripAdvisor

 

$

(15)

 

(12)

 

(10)

 

Corporate and other

 

 

(10)

 

(13)

 

(18)

 

Consolidated TripCo

 

$

(25)

 

(25)

 

(28)

 

Realized and unrealized gains (losses) on financial instruments, net

    

 

    

    

    

    

    

 

TripAdvisor

 

$

(1)

 

 2

 

 2

 

Corporate and other

 

 

25

 

51

 

 —

 

Consolidated TripCo

 

$

24

 

53

 

 2

 

Gain (loss) on dispositions, net

 

 

 

 

 

 

 

 

TripAdvisor

 

$

 —

 

 —

 

20

 

Corporate and other

 

 

(18)

 

 —

 

(1)

 

Consolidated TripCo

 

$

(18)

 

 —

 

19

 

Other, net

 

 

 

 

 

 

 

 

TripAdvisor

 

$

 2

 

(5)

 

(4)

 

Corporate and other

 

 

(1)

 

 —

 

 —

 

Consolidated TripCo

 

$

 1

 

(5)

 

(4)

 

Interest expense.  Interest expense remained flat for the year ended December 31, 2017 when compared to the same period in 2016. TripAdvisor’s interest expense increased $3 million for the year ended December 31, 2017 when compared to the same period in 2016 primarily due to higher average outstanding borrowings and effective interest rates during 2017. Interest expense for corporate and other decreased $3 million for the year ended December 31, 2017 when compared to the same period in 2016 due to lower interest rates on outstanding borrowings. Interest expense decreased $3 million for the year ended December 31, 2016 when compared to the same period in 2015. TripAdvisor’s interest expense increased $2 million for the year ended December 31, 2016 when compared to the same period in 2015 primarily due to an increase of $3 million in interest imputed on TripAdvisor’s financing obligation related to its corporate headquarters lease, partially offset by a decrease in interest incurred due to lower average outstanding borrowings. Interest expense for corporate and other decreased $5 million for the year ended December 31, 2016 when compared to the same period in 2015 due to lower interest rates on outstanding borrowings.

Realized and unrealized gains (losses) on financial instruments, net. Realized and unrealized gains (losses) on financial instruments, net is primarily comprised of the change in the fair value of the variable postpaid forward.

Gain (loss) on dispositions, net. On June 30, 2017, TripCo sold BuySeasons. The sale resulted in an $18 million loss. In August 2015, TripAdvisor sold its 100% interest in a Chinese subsidiary to an unrelated third party, resulting in a $20 million gain.

Other, net.  The primary components of other, net are income and interest earned on marketable securities offset by net foreign exchange losses. Other, net expenses decreased $6 million and increased $1 million for the years ended December 31, 2017 and 2016, respectively, when compared to the corresponding prior year periods, primarily due to transactions gains and losses at TripAdvisor as a result of the fluctuation of foreign exchanges rates. 

Income taxes.    The Company had income tax benefits of $229 million, $1 million and $10 million for the years ended December 31, 2017, 2016, and 2015, respectively.  

In connection with our initial analysis of the impact of the Tax Cuts and Jobs Act (the “Tax Act”),  as discussed in note 8 to the accompanying financial statements, the Company has recorded a discrete net tax benefit in the period ending

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December 31, 2017. This net benefit primarily consists of a net benefit for the corporate rate reduction, offset partially by a net tax expense related to a transition tax on the deemed repatriation of foreign earnings.

During 2016, the Company had income tax benefits from earnings in foreign jurisdictions taxed at rates lower than the 35% U.S. federal tax rate, partially offset by changes in unrecognized tax benefits and changes in valuation allowance. During 2015, the Company had income tax benefits from earnings in foreign jurisdictions taxed at rates lower than the 35% U.S. federal tax rate, partially offset by the recognition of deferred tax liabilities for basis differences in the stock of a consolidated subsidiary, changes in valuation allowance, and changes in unrecognized tax benefits.

Net earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders.  We had net losses attributable to Liberty TripAdvisor Holdings, Inc. shareholders of $397 million, net earnings of $21 million and net losses of $40 million for the years ended December 31, 2017, 2016 and 2015, respectively. The changes in net earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders were the result of the above-described fluctuations in our revenue, expenses and other gains and losses. Losses attributable to the noncontrolling interests increased during the year ended December 31, 2017 as a result of the goodwill and trademark impairment losses.

Liquidity and Capital Resources

As of December 31, 2017, substantially all of our cash and cash equivalents consist of cash on hand in global financial institutions, money market funds and marketable securities, with maturities of 90 days or less at the date purchased.

The following are potential sources of liquidity: available cash balances, proceeds from asset sales, monetization of our investments, outstanding or anticipated debt facilities, debt and equity issuances, and dividend and interest receipts.

As of December 31, 2017, TripCo had a cash balance of $695 million. Approximately $673 million of the cash balance is held at TripAdvisor. Although TripCo has a 58% voting interest in TripAdvisor, TripAdvisor is a separate public company with a significant non-controlling interest, as TripCo has only a 22% economic interest in TripAdvisor. Even though TripCo controls TripAdvisor through its voting interest and board representation, decision making with respect to using TripAdvisor’s cash balances must consider TripAdvisor’s minority holders. Accordingly, any potential distributions of cash from TripAdvisor to TripCo would generally be on a pro rata basis based on economic ownership interests. Covenants in TripAdvisor’s debt instruments also restrict the payment of dividends and cash distributions to stockholders. See note 7 to the accompanying consolidated financial statements. As of December 31, 2017, approximately $518 million of TripCo cash is held by TripAdvisor foreign subsidiaries. 

Cumulative undistributed earnings of foreign subsidiaries totaled approximately $882 million as of December 31, 2017. Subsequent to December 31, 2017, on February 2, 2018, TripAdvisor made a one-time repatriation of $325 million of foreign earnings to the United States primarily to repay remaining outstanding borrowings of $230 million under the 2015 Credit Facility.  TripAdvisor intends to indefinitely reinvest the remaining foreign undistributed earnings of $557 million, although TripAdvisor will continue to evaluate the impact of the Tax Act on its capital deployment within and outside the U.S. Should TripAdvisor 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, TripAdvisor 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.

Historically, TripAdvisor’s operating cash flows have been sufficient to fund its working capital requirements, capital expenditures and long term debt obligations and other financial commitments and are expected to be sufficient in future periods.

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Years ended

 

 

 

December 31,

 

 

 

2017

 

2016

 

2015

 

 

 

amounts in millions

 

Cash flow information

    

 

    

    

    

    

    

 

TripAdvisor cash provided (used) by operating activities

 

$

238

 

321

 

418

 

Corporate and other cash provided (used) by operating activities

 

 

(18)

 

(20)

 

(27)

 

Net cash provided (used) by operating activities

 

$

220

 

301

 

391

 

 

 

 

 

 

 

 

 

 

TripAdvisor cash provided (used) by investing activities

 

$

 6

 

(163)

 

(58)

 

Corporate and other cash provided (used) by investing activities

 

 

(3)

 

(1)

 

(3)

 

Net cash provided (used) by investing activities

 

$

 3

 

(164)

 

(61)

 

 

 

 

 

 

 

 

 

 

TripAdvisor cash provided (used) by financing activities

 

$

(200)

 

(143)

 

(189)

 

Corporate and other cash provided (used) by financing activities

 

 

 1

 

33

 

 6

 

Net cash provided (used) by financing activities

 

$

(199)

 

(110)

 

(183)

 

 

During the year ended December 31, 2017, TripCo’s primary use of cash was approximately $250 million of share repurchases under TripAdvisor’s authorized share repurchase program, as well as $369 million in debt repayments, $63 million in purchases of short term investments and other marketable securities and $65 million of capital expenditures.  These uses of cash were funded primarily with cash provided by operations, proceeds from sales and maturities of short term investments and other marketable securities and borrowings of debt. During the year ended December 31, 2016, TripCo’s primary uses of cash were $439 million in debt repayments, $166 million in purchases of short term investments and other marketable securities, $105 million of subsidiary share repurchases and $73 million of capital expenditures.  These uses of cash were funded primarily with cash provided by operations, proceeds from sales and maturities of short term investments and other marketable securities and borrowings of debt. During the year ended December 31, 2015, TripCo’s primary uses of cash were $431 million in debt repayments, $205 million in purchases of short term investments and other marketable securities, $112 million of capital expenditures and $72 million of withholding tax payments.  These uses of cash were funded primarily with cash on hand, cash provided by operations, proceeds from sales and maturities of short term investments and other marketable securities and borrowings of debt.

The projected use of TripCo’s corporate cash will primarily be to  pay fees (not expected to exceed $4 million annually) to Liberty Media for providing certain services pursuant to the services agreement and the facilities sharing agreement, and to pay any other corporate level expenses. We anticipate that TripCo’s corporate cash balance (without other financial resources potentially available as discussed above) to be sufficient to maintain operations through a refinancing arrangement on the margin loans and the variable postpaid forward. The debt service costs of two margin loan agreements (the “Margin Loan Agreements”) entered into by our bankruptcy remote wholly-owned subsidiary are paid in kind and become outstanding principal. In addition, debt service costs accrue on the variable postpaid forward borrowing described in note 7 to the accompanying consolidated financial statements. At maturity, the accreted loan amount due is approximately $272 million. At the maturity of the Margin Loan Agreements, a number of options are available to satisfy the obligation as discussed above in potential sources of liquidity.  

TripAdvisor’s available cash and marketable securities, combined with expected cash flows generated by operating activities and available cash from its credit facilities are expected to be sufficient to fund TripAdvisor’s 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. TripAdvisor’s future capital requirements may also include capital needs for acquisitions, share repurchases, and/or other expenditures in support of its business strategy; thus potentially reducing TripAdvisor’s cash balance and/or increasing its debt.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We have contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business including potential tax obligations associated with certain transactions following the TripCo Spin-Off. Although it is reasonably possible we may incur losses upon conclusion of such matters, an estimate of any loss or range

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of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements.

Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our contractual obligations, excluding uncertain tax positions as it is undeterminable when payments will be made, is summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by period

 

 

 

 

 

 

Less than

 

 

 

 

 

More than

 

 

 

Total

 

1 year

 

1 - 3 years

 

3 - 5 years

 

5 years

 

 

 

amounts in millions

 

Consolidated contractual obligations

    

 

    

    

    

    

    

    

    

    

    

 

Long-term debt(1)

 

$

696

 

 7

 

459

 

230

 

 —

 

Interest payments and commitment fees (2)(3)

 

$

105

 

 7

 

87

 

11

 

 —

 

Lease obligations

 

$

228

 

28

 

53

 

51

 

96

 

Total

 

$

1,029

 

42

 

599

 

292

 

96

 

 


(1)

Amounts are stated at the face amount at maturity of our debt instruments. Amounts also include capital lease obligations. Amounts do not assume additional borrowings or refinancings of existing debt. TripAdvisor’s outstanding Chinese credit facility and uncommitted facility agreement with Bank of America Merrill Lynch International Limited have been included as current payments as both are short term in nature.

(2)

Amounts (i) are based on our outstanding debt at December 31, 2017, (ii) assume the interest rates on TripAdvisor’s variable rate debt remains constant at the December 31, 2017 rates, (iii) assume the interest rates on TripCo’s variable rate debt change based on forecasted LIBOR rates and (iv) assume that our existing debt is repaid at maturity.

(3)

Amounts reflect expected commitment fee payments based on the unused portion of the TripAdvisor Credit Facilities (as defined in note 7 in the accompanying consolidated financial statements), issued letters of credit, and current effective commitment fee rate as of December 31, 2017.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Listed below are the accounting estimates that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.

Recognition and Recoverability of Goodwill, Intangible and Long-lived Assets

We account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. We test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment). Goodwill is allocated to our reporting units at the date the goodwill is initially recorded. 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.

Our non-financial instrument valuations are primarily comprised of our annual assessment of the recoverability of our goodwill and other nonamortizable intangibles, such as trademarks and our evaluation of the recoverability of our other long-lived assets upon certain triggering events and the initial recognition of such assets through the application of the purchase accounting method. If the carrying value of our definite lived intangible assets and long-lived assets exceeds their undiscounted cash flows, we are required to write the carrying value down to fair value. Any such writedown is

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included in impairment of long-lived assets in our consolidated statement of operations. A high degree of judgment is required to estimate the fair value of our long-lived assets. We may use quoted market prices, prices for similar assets, present value techniques and other valuation techniques to prepare these estimates. We may need to make estimates of future cash flows and discount rates as well as other assumptions in order to implement these valuation techniques. Due to the high degree of judgment involved in our estimation techniques, any value ultimately derived from our long-lived assets may differ from our estimate of fair value. As each of our operating segments has long-lived assets, this critical accounting policy affects the financial position and results of operations of each segment.

As of December 31, 2017, the intangible assets not subject to amortization for each of our significant reportable segments was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

Trademarks

 

Total

 

 

 

amounts in millions

 

TripAdvisor

    

$

2,445

 

1,272

 

3,717

 

Corporate and other

 

 

 —

 

 —

 

 —

 

 

 

$

2,445

 

1,272

 

3,717

 

 

We perform our annual assessment of the recoverability of our goodwill and other non-amortizable intangible assets during the fourth quarter, or more frequently, if events and circumstances indicate impairment may have occurred. During the fourth quarter, we elected to bypass a qualitative assessment and proceed directly to performing a quantitative impairment test for our non-amortizable intangible assets and our hotel and non-hotel reporting units. The fair value of the non-amortizable intangible assets, which consist of indefinite-lived trademarks, was determined using the relief from royalty method. The fair values of the reporting units were determined using a combination of the income approach and the market approach. Due to certain marketplace factors impacting TripAdvisor’s operating results, which led to a decline in TripAdvisor’s stock price, impairments of $527 million and $1,271 million were recorded during the year ended December 31, 2017 related to trademarks and goodwill, respectively, related to the hotel reporting unit. Based on the quantitative assessment performed during the fourth quarter and the resulting impairment losses recorded, the estimated fair values of the trademark and hotel reporting unit do not significantly exceed their carrying values as of December 31, 2017. TripCo will continue to monitor TripAdvisor’s financial performance, stock price and other events and circumstances that may negatively impact the estimated fair values to determine if an additional impairment assessment is necessary. There were no impairments during the year ended December 31, 2016. Due to declining operating results at BuySeasons, trademark impairments of approximately $2 million were recorded during the year ended December 31, 2015.  

Income Taxes 

We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns for each taxing jurisdiction in which we operate. This process requires our management to make judgments regarding the timing and probability of the ultimate tax impact of the various agreements and transactions that we enter into. Based on these judgments we may record tax reserves or adjustments to valuation allowances on deferred tax assets to reflect the expected realizability of future tax benefits. Actual income taxes could vary from these estimates due to future changes in income tax law, significant changes in the jurisdictions in which we operate, our inability to generate sufficient future taxable income or unpredicted results from the final determination of each year’s liability by taxing authorities. These changes could have a significant impact on our financial position.

Additionally, TripAdvisor records liabilities to address uncertain tax positions taken in previously filed tax returns or that are expected to be taken 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 the tax position, based on its technical merits, will be sustained upon examination. For those positions for which a conclusion is reached that it is more likely than not it will be sustained, the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the taxing authority is recognized. 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.

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Results of Operations—TripAdvisor

Our economic ownership interest in TripAdvisor is 22% and our results include the consolidated results of TripAdvisor and the elimination of approximately 78% of TripAdvisor’s net income (loss), including purchase accounting adjustments, through the noncontrolling interest line item in the consolidated statements of operations. TripAdvisor is a separate publicly traded company and additional information about TripAdvisor can be obtained through its website and its public filings. We believe a discussion of TripAdvisor’s stand alone results promotes a better understanding of overall results of their business. TripAdvisor’s revenue, Adjusted OIBDA and operating income on a standalone basis for the years ended December 31, 2017, 2016 and 2015 were as follows (see tables below for a reconciliation of TripAdvisor’s standalone results to those amounts reported by TripCo):

 

 

 

 

 

 

 

 

 

 

 

 

Years ended

 

 

 

December 31,

 

 

 

2017

 

2016

 

2015

 

 

 

amounts in millions

 

Revenue

    

 

    

    

    

    

    

 

Hotel

 

$

1,196

 

1,190

 

1,263

 

Non-Hotel

 

 

360

 

290

 

229

 

Total revenue

 

 

1,556

 

1,480

 

1,492

 

Operating expense, excluding stock-based compensation

 

 

275

 

274

 

237

 

SG&A, excluding stock-based compensation and stock settled charitable contribution

 

 

950

 

854

 

791

 

Adjusted OIBDA

 

 

331

 

352

 

464

 

Stock settled charitable contribution

 

 

 —

 

 —

 

67

 

Stock based compensation

 

 

96

 

85

 

72

 

Depreciation and amortization

 

 

111

 

101

 

93

 

Operating income (loss) as reported by TripAdvisor

 

$

124

 

166

 

232

 

Revenue

TripAdvisor’s Hotel revenue increased $6 million and decreased $73 million during the years ended December 31, 2017 and 2016,  respectively, as compared to the corresponding prior year periods. The changes in Hotel revenue are detailed as follows:

 

 

 

 

 

 

 

 

 

 

 

Years ended

 

 

 

December 31,

 

 

 

2017

 

2016

 

2015

 

 

 

amounts in millions

 

 

 

 

    

    

    

    

    

 

TripAdvisor-branded click-based and transaction

 

$

756

 

750

 

837

 

TripAdvisor-branded display-based advertising and subscription

 

 

292

 

282

 

272

 

Other hotel revenue

 

 

148

 

158

 

154

 

Total Hotel revenue

 

$

1,196

 

1,190

 

1,263

 

TripAdvisor-branded click-based and transaction revenue includes cost-per-click based advertising revenue from its TripAdvisor-branded websites as well as transaction-based revenue from its hotel instant booking feature. For the years ended December 31, 2017, 2016 and 2015, approximately 63%, 63%, and 66%, respectively, of TripAdvisor’s total Hotel segment revenue was derived from its TripAdvisor-branded click-based and transaction revenue. TripAdvisor-branded click-based and transaction revenue increased $6 million during the year ended December 31, 2017, when compared to the same period in 2016, primarily due to an increase in average monthly unique hotel shoppers of 7%, which was largely offset by a decrease of 7% in revenue per hotel shopper during the year ended December 31, 2017, according to TripAdvisor’s internal log files. TripAdvisor believes the primary drivers of decreases in revenue per hotel shopper were 

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partners bidding to lower CPCs in TripAdvisor’s click-based metasearch auction during the second half of the year, and the general trend of a greater percentage of hotel shoppers visiting TripAdvisor-branded websites and apps on mobile phones, which monetize at a lower rate than desktop hotel shoppers, which has grown significantly faster than traffic from desktop and tablet devices, as well as dilution from product testing related to the second-quarter 2017 launch of TripAdvisor’s redesigned website and applications, and the timing of its instant booking feature rollout in certain non-U.S. markets during the first half of 2016. TripAdvisor believes the increases in aggregate average monthly unique hotel shoppers was primarily due to the general trend of an increasing number of hotel shoppers visiting TripAdvisor websites and apps on mobile phones, as well as growth in its paid online marketing channels.

TripAdvisor-branded click-based and transaction revenue decreased $87 million during the year ended December 31, 2016, when compared to the same period in 2015, primarily due to a decline of 15% in revenue per hotel shopper, partially offset by an increase in average monthly unique hotel shoppers of 6% during the year ended December 31, 2016. TripAdvisor believes the primary drivers of the decreases in revenue per hotel shopper include the dilutive effects from the global launch of its hotel instant booking feature which impacted 2016 to a greater extent than 2015 due to the timing of the staged rollout; a greater percentage of hotel shoppers visiting TripAdvisor websites and apps via mobile phone; challenging metasearch comparatives in early 2016 relative to the same periods in 2015; increased competition; macroeconomic and geopolitical factors, including foreign currency and a number of terrorism events.   

For the years ended December 31, 2017, 2016 and 2015, 24%, 24% and 22%, respectively, of TripAdvisor’s Hotel segment revenue was derived from TripAdvisor-branded display-based advertising and subscription revenue, which primarily consists of revenue from display-based advertising and subscription-based hotel advertising revenue. TripAdvisor-branded display-based advertising and subscription revenue increased by $10 million or 4% during each of the years ended December 31, 2017 and 2016 when compared to the same periods in 2016 and 2015.  The increase in display-based advertising revenue in 2017 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 TripAdvisor’s traffic visiting TripAdvisor websites and apps on mobile phones. While TripAdvisor continues to focus on new product initiatives to drive growth, its subscription revenue decreased slightly, primarily as TripAdvisor works to enhance its product offering to hoteliers and increase its sales pipeline in this business, in addition to hotel industry consolidation. The increase in display-based advertising revenue in 2016, when compared to 2015, was primarily due to a slight increase in pricing, as well as impressions sold during the year, while the increase in subscription revenue was a result of increased sales productivity in 2015 which also benefitted 2016, as well as increased pricing and improvements in customer retention rates. 

For the years ended December 31, 2017, 2016 and 2015, 12%, 13% and 12%, respectively, of TripAdvisor’s Hotel segment revenue was derived from other hotel revenue. Other hotel revenue primarily includes revenue from non-TripAdvisor branded websites, such as www.bookingbuddy.com, www.cruisecritic.com, and www.onetime.com, including click-based advertising revenue, display-based advertising revenue and room reservations sold through these websites.  Other hotel revenue decreased by $10 million during the year ended December 31, 2017, when compared to the same period in 2016, primarily due to increased focus on return on marketing spend from paid marketing channels within this revenue stream.  Other hotel revenue increased $4 million during the year ended December 31, 2016, when compared to the same period in 2015.

For the years ended December 31, 2017, 2016 and 2015, TripAdvisor’s Non-Hotel segment revenue accounted for 23%, 20% and 15%, respectively, of TripAdvisor’s total consolidated revenue. TripAdvisor’s Non-Hotel segment revenue increased by $70 million, or 24%, for the year ended December 31, 2017, when compared to the same period in 2016, driven by increased bookings in TripAdvisor’s Attractions and Restaurants businesses. TripAdvisor’s Non-Hotel segment revenue increased $61 million, or 27%, during the year ended December 31, 2016 when compared to the same period in 2015, primarily driven by increased bookings across all businesses.

During this timeframe, strong revenue growth in TripAdvisor’s Attractions business has been driven by the following factors: growth in bookings sourced by TripAdvisor, growth in bookable  supply, which leads to better consumer choice, as well as by growth in free and paid traffic sources. Another contributing factor is the improved shopping experience from the introduction of new features, such as attractions instant booking for mobile phone, which enables users to purchase tickets and tours seamlessly without leaving the mobile app. These factors are all contributing to more consumer choice, increased bookings and continued revenue growth. Similarly, in TripAdvisor’s Restaurants business,

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continued strong revenue growth can be attributed to increased bookings in its most established markets, expansion into new markets, growth in mobile bookings, a continually improving user experience and an increase in bookable supply of restaurant listings. Revenue in TripAdvisor’s Vacation Rentals business decreased slightly during the year ended December 31, 2017, when compared to the same period in 2016, primarily due to the continued migration of TripAdvisor’s subscription model to its free-to-list model, which TripAdvisor believes will have a longer term return to the business, in addition to slower growth in its free-to-list revenue than 2016. Revenue in TripAdvisor’s Vacation Rentals business increased during the year ended December 31, 2016, when compared to the same period in 2015, primarily due to growth in its free-to-list model and increased bookings during the year.

Revenue by Geography

TripAdvisor’s U.S. revenue increased $77 million or 10%, during the year ended December 31, 2017, when compared to the same period in 2016. U.S. revenue represented 56% of total revenue during the year ended December 31, 2017. This revenue increase in the U.S. was due primarily to growth in TripAdvisor’s Attractions business, as well as an increase in U.S. TripAdvisor-branded click-based and transaction revenue, driven by growth in U.S. revenue per hotel shopper. TripAdvisor’s U.S. revenue increased $61 million or 8%, during the year ended December 31, 2016, when compared to the same period in 2015. U.S. revenue represented 54% of total revenue during the year ended December 31, 2016. This revenue increase in U.S. was due primarily to growth in TripAdvisor’s Attractions business and TripAdvisor’s U.S. display-based advertising and subscription revenue.

Revenue outside of the U.S., or non-U.S. revenue, decreased $1 million during the year ended December 31, 2017, when compared to the same period in 2016. Non-U.S. revenue decreased $73 million or 10%, during the year ended December 31, 2016, when compared to the same period in 2015. Non-U.S. revenue represented approximately 44%, 46%, and 50% of total revenue during the years ended December 31, 2017, 2016, and 2015, respectively. The decline in TripAdvisor’s non-U.S. revenue, as a percentage of total revenue during these periods, was primarily driven by the factors noted in the growth of the U.S. revenue discussed above, as well as the timing of TripAdvisor’s instant booking feature rollout in non-U.S. markets during the first half of 2016, and its associated dilutive impact to Trip-Advisor-branded click-based and transaction revenue, as compared to the rollout in the U.S. market, which was completed in the third quarter of 2015, and to a lesser extent foreign currency fluctuations.

Operating Expense

The most significant drivers of operating expense are technology and content costs, which were flat during the year ended December 31, 2017 when compared to the same period in 2016, primarily due to a decrease in content translation costs, offset by increased personnel and overhead costs to support TripAdvisor’s mobile phone and website initiatives, as well as support business growth.

Technology and content costs increased $24 million during the year ended December 31, 2016 when compared to the same period in 2015, primarily due to increased personnel costs from increased headcount needed to support business growth, including international expansion and enhanced site features.

Selling and Marketing

Selling and marketing expenses primarily consist of direct costs, including traffic generation costs from search engine marketing (“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, indirect sales and marketing expense consists of personnel and overhead expenses, including salaries, commissions, benefits, bonuses for sales, sales support, customer support and marketing employees.

Total selling and marketing costs increased $92 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 TripAdvisor’s new television campaign in June of 2017, as well as an increase in SEM and other online traffic acquisition costs of $19 million,  driven by TripAdvisor’s hotel segment, during the first half of 2017, partially offset by a decrease in other advertising costs. 

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TripAdvisor spent $74 million on its television advertising campaign during the year ended December 31, 2017 in its Hotel segment, which it did not incur during the year ended December 31, 2016.

Total selling and marketing costs increased $60 million during the year ended December 31, 2016 when compared to the same period in 2015, primarily due to increased SEM and other online traffic acquisition costs of $79 million primarily driven by its Hotel segment,  partially offset by a decrease in costs related to the cessation of TripAdvisor’s television advertising campaign.  TripAdvisor spent $51 million on its television advertising campaign during the year ended December 31, 2015, which it did not incur during the year ended December 31, 2016.  Personnel and overhead costs also increased during the year ended December 31, 2016 when compared to the same period in 2015, primarily due to increased headcount in TripAdvisor’s Non-Hotel segment, which was needed to support business growth.

General and Administrative

General and administrative expense consists primarily of personnel and related overhead costs, including executive leadership, finance, legal and human resource functions and stock-based compensation as well as professional service fees and other fees including audit, legal, tax and accounting, and other costs including bad debt expense, non-income taxes and charitable foundation costs.

General and administrative expenses increased $4 million during the year ended December 31, 2017, when compared to the same period in 2016, primarily due to increased personnel and overhead costs and bad debt expense, offset by decreased personal services fees, consulting costs and non-income taxes.

General and administrative expenses increased $3 million during the year ended December 31, 2016, when compared to the same period in 2015, primarily due to increased consulting costs, non-income taxes and bad debt expense.

Stock settled charitable contribution

As discussed in note 13 to the accompanying consolidated financial statements, during 2015, TripAdvisor recognized $67 million related to a charitable contribution settled with its treasury shares. Due to the one-time nature and use of stock to settle the obligation, this contribution has been excluded from Adjusted OIBDA for the year ended December 31, 2015.

Stock-based compensation

Stock-based compensation increased $11 million and $13 million for the years ended December 31, 2017 and 2016, respectively, when compared to the same period in the prior year due to continued grants of stock options. 

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The following is a reconciliation of the results as reported by TripAdvisor, used for comparison purposes as discussed above, for a greater understanding of the stand-alone operations of TripAdvisor to the results reported by TripCo (amounts in millions):

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

 

 

 

 

 

Purchase

 

 

 

 

 

As Reported

 

Accounting

 

As Reported

 

 

 

By TripAdvisor

 

Adjustments

 

By TripCo

 

Revenue

    

$

1,556

 

 —

 

1,556

 

Operating expense

 

 

(275)

 

 —

 

(275)

 

SG&A, excluding stock-based compensation and stock settled charitable contribution

 

 

(950)

 

 —

 

(950)

 

Adjusted OIBDA

 

 

331

 

 —

 

331

 

Stock-based compensation expense

 

 

(96)

 

 —

 

(96)

 

Depreciation and amortization expense

 

 

(111)

 

(101)

 

(212)

 

Impairment of intangible assets

 

 

 —

 

(1,798)

 

(1,798)

 

Operating income (loss)

 

$

124

 

(1,899)

 

(1,775)