ltrpa_Current folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2018

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)

 

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

 

46‑3337365
(I.R.S. Employer
Identification No.)

 

12300 Liberty Boulevard, Englewood, Colorado 80112

(Address, including zip code, of Registrant’s principal executive offices)

 

Registrant’s telephone number, including area code: (720) 875‑5200

 

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 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 a
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 number of outstanding shares of Liberty TripAdvisor Holdings, Inc. common stock as of July 16, 2018 was:

 

 

 

 

 

 

 

 

Series A

 

Series B

 

Liberty TripAdvisor Holdings, Inc. common stock

 

72,129,470

 

2,929,777

 

 

 

 

 

 

   

 

 

 


 

Table of Contents

 

Table of Contents

 

Part I – Financial Information

 

 

 

 

 

 

 

 

 

 

 

 

Item 1. Financial Statements 

 

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Balance Sheets (unaudited) 

I-3

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Operations (unaudited) 

I-5

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Comprehensive Earnings (Loss) (unaudited) 

I-6

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (unaudited) 

I-7

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statement of Equity (unaudited) 

I-8

LIBERTY TRIPADVISOR HOLDINGS, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 

I-9

 

 

 

 

 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

I-28

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

I-36

 

Item 4. Controls and Procedures

I-37

 

 

 

 

         Part II – Other Information

 

 

 

Item 1. Legal Proceedings

II-1

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

II-1

 

Item 6. Exhibits

II-1

 

 

 

 

 

 

 

SIGNATURES 

II-2

 

 

I-2


 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2018

 

2017

 

 

 

amounts in millions

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

685

 

695

 

Accounts receivable and contract assets, net of allowance for doubtful accounts of $18 million and $16 million, respectively

 

 

300

 

230

 

Other current assets

 

 

75

 

120

 

Total current assets

 

 

1,060

 

1,045

 

Property and equipment, at cost

 

 

231

 

226

 

Accumulated depreciation

 

 

(72)

 

(61)

 

 

 

 

159

 

165

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

Goodwill

 

 

2,450

 

2,445

 

Trademarks

 

 

1,272

 

1,272

 

 

 

 

3,722

 

3,717

 

Intangible assets subject to amortization, net

 

 

355

 

382

 

Other assets, at cost, net of accumulated amortization

 

 

97

 

175

 

Total assets

 

$

5,393

 

5,484

 

 

             (continued)

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2018

 

2017

 

 

 

amounts in millions

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Deferred merchant and other payables

 

$

364

 

164

 

Accrued liabilities

 

 

158

 

135

 

Current portion of debt (note 6)

 

 

214

 

 7

 

Deferred revenue

 

 

104

 

60

 

Other current liabilities

 

 

 5

 

 6

 

Total current liabilities

 

 

845

 

372

 

Long-term debt (note 6)

 

 

266

 

704

 

Deferred income tax liabilities

 

 

330

 

332

 

Other liabilities

 

 

306

 

323

 

Total liabilities

 

 

1,747

 

1,731

 

Equity:

 

 

 

 

 

 

Preferred stock, $.01 par value. Authorized shares 50,000,000; no shares issued.

 

 

 —

 

 —

 

Series A common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 72,129,459 shares at June 30, 2018 and 72,127,285 at December 31, 2017

 

 

 1

 

 1

 

Series B common stock, $.01 par value. Authorized shares 7,500,000; issued and outstanding 2,929,777 shares at June 30, 2018 and December 31, 2017

 

 

 —

 

 —

 

Series C common stock, $.01 par value. Authorized 200,000,000 shares; no shares issued.

 

 

 —

 

 —

 

Additional paid-in capital

 

 

224

 

250

 

Accumulated other comprehensive earnings (loss), net of taxes

 

 

(25)

 

(23)

 

Retained earnings

 

 

127

 

196

 

Total stockholders' equity

 

 

327

 

424

 

Noncontrolling interests in equity of subsidiaries

 

 

3,319

 

3,329

 

Total equity

 

 

3,646

 

3,753

 

Commitments and contingencies (note 7)

 

 

 

 

 

 

Total liabilities and equity

 

$

5,393

 

5,484

 

 

See accompanying notes to condensed consolidated financial statements.

I-4


 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

amounts in millions, except

 

 

 

per share amounts

 

Service revenue

 

$

433

 

424

 

811

 

796

 

Other revenue

 

 

 —

 

 7

 

 —

 

13

 

Total revenue, net

 

 

433

 

431

 

811

 

809

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

Operating expense, including stock-based compensation (note 3)

 

 

92

 

92

 

179

 

176

 

Selling, general and administrative, including stock-based compensation (note 3)

 

 

266

 

271

 

509

 

516

 

Depreciation and amortization

 

 

41

 

55

 

80

 

111

 

 

 

 

399

 

418

 

768

 

803

 

Operating income (loss)

 

 

34

 

13

 

43

 

 6

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(6)

 

(7)

 

(12)

 

(12)

 

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

 

 

(42)

 

13

 

(65)

 

19

 

Gain (loss) on dispositions, net (note 1)

 

 

 —

 

(18)

 

 —

 

(18)

 

Other, net

 

 

 —

 

 2

 

 1

 

 3

 

 

 

 

(48)

 

(10)

 

(76)

 

(8)

 

Earnings (loss) before income taxes

 

 

(14)

 

 3

 

(33)

 

(2)

 

Income tax (expense) benefit

 

 

(8)

 

(10)

 

(24)

 

(14)

 

Net earnings (loss)

 

 

(22)

 

(7)

 

(57)

 

(16)

 

Less net earnings (loss) attributable to noncontrolling interests

 

 

17

 

 5

 

13

 

(1)

 

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

 

$

(39)

 

(12)

 

(70)

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 4):

 

$

(0.52)

 

(0.16)

 

(0.93)

 

(0.20)

 

Diluted net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 4):

 

$

(0.52)

 

(0.16)

 

(0.93)

 

(0.20)

 

 

See accompanying notes to condensed consolidated financial statements.

I-5


 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Earnings (Loss)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

amounts in millions

 

Net earnings (loss)

 

$

(22)

 

(7)

 

(57)

 

(16)

 

Other comprehensive earnings (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(24)

 

21

 

(9)

 

35

 

Other comprehensive earnings (loss)

 

 

(24)

 

21

 

(9)

 

35

 

Comprehensive earnings (loss)

 

 

(46)

 

14

 

(66)

 

19

 

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

 

(2)

 

21

 

 6

 

26

 

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

 

$

(44)

 

(7)

 

(72)

 

(7)

 

 

See accompanying notes to condensed consolidated financial statements.

I-6


 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2018

 

2017

 

 

 

amounts in millions

 

Cash flows from operating activities:

    

 

    

    

    

 

Net earnings (loss)

 

$

(57)

 

(16)

 

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

80

 

111

 

Stock-based compensation

 

 

63

 

50

 

(Gain) loss on dispositions, net

 

 

 —

 

18

 

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

 

 

65

 

(19)

 

Deferred income tax expense (benefit)

 

 

(6)

 

(17)

 

Other noncash charges (credits), net

 

 

(10)

 

 6

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Current and other assets

 

 

(74)

 

(60)

 

Payables and other liabilities

 

 

296

 

270

 

Net cash provided (used) by operating activities

 

 

357

 

343

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expended for property and equipment, including internal-use software and website development

 

 

(31)

 

(36)

 

Purchases of short term investments and other marketable securities

 

 

(1)

 

(7)

 

Sales and maturities of short term investments and other marketable securities

 

 

50

 

120

 

Other investing activities, net

 

 

(23)

 

(6)

 

Net cash provided (used) by investing activities

 

 

(5)

 

71

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings of debt

 

 

 7

 

373

 

Repayments of debt

 

 

(245)

 

(279)

 

Shares repurchased by subsidiary

 

 

(100)

 

(250)

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(18)

 

(14)

 

Shares issued by subsidiary

 

 

 3

 

 3

 

Option exercises

 

 

 —

 

 1

 

Net cash provided (used) by financing activities

 

 

(353)

 

(166)

 

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

 

 

(9)

 

 9

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(10)

 

257

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

695

 

659

 

Cash, cash equivalents and restricted cash at end of period

 

$

685

 

916

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

I-7


 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statement of Equity

Six months ended June 30, 2018

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

other

 

 

 

interest in

 

 

 

 

 

Preferred

 

Common Stock

 

paid-in

 

comprehensive

 

Retained

 

equity of

 

Total

 

 

 

Stock

 

Series A

 

Series B

 

Series C

 

capital

 

earnings (loss)

 

earnings

 

subsidiaries

 

equity

 

 

 

amounts in millions

 

Balance at January 1, 2018

    

$

 —

 

 1

    

 —

    

 —

    

250

    

(23)

    

196

    

3,329

    

3,753

 

Net earnings (loss)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(70)

    

13

    

(57)

 

Other comprehensive earnings (loss)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

(2)

 

 —

    

(7)

    

(9)

 

Stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

18

 

 —

 

 —

    

52

    

70

 

Withholding taxes on net share settlements of stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

(18)

 

 —

 

 —

    

 —

    

(18)

 

Shares issued by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

(6)

 

 —

 

 —

    

 9

    

 3

 

Shares repurchased by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

(20)

 

 —

 

 —

 

(80)

 

(100)

 

Cumulative effect of accounting change (note 2)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 1

    

 3

    

 4

 

Balance at June 30, 2018

 

$

 —

 

 1

 

 —

 

 —

 

224

 

(25)

 

127

    

3,319

    

3,646

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

I-8


 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

(1) Basis of Presentation

During October 2013, the Board of Directors of Liberty Interactive Corporation and its subsidiaries (“Liberty”) (subsequently renamed Qurate Retail, Inc. (“Qurate Retail”)) authorized a plan to distribute to the stockholders of Liberty’s then-outstanding Liberty Ventures common stock shares of a wholly‑owned subsidiary, Liberty TripAdvisor Holdings, Inc. (“TripCo,” “Consolidated TripCo,” the “Company,” “we,” “our” or “us,” unless the context otherwise requires) (the “TripCo Spin‑Off”). TripCo does not have any operations outside of its controlling interest in its subsidiary TripAdvisor, Inc. (“TripAdvisor”) and its former wholly owned subsidiary, BuySeasons, Inc. (“BuySeasons”). TripCo sold its ownership in BuySeasons effective 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. The TripCo Spin-Off was accounted for at historical cost due to the pro rata nature of the distribution to stockholders of Liberty Ventures common stock. 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 rental stays, and tours and experiences taken, compared to the first and fourth quarters, which represent seasonal low points.

On June 30, 2017, TripCo sold BuySeasons. The sale resulted in an $18 million loss, which is included in Gain (loss) on dispositions, net in the accompanying condensed consolidated statement of operations. 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. Included in other revenue in the accompanying condensed consolidated statements of operations is $7 million and $13 million for the three and six months ended June 30, 2017, respectively, related to BuySeasons. Included in net earnings (loss) in the accompanying condensed consolidated statements of operations are losses of less than $1 million and $1 million for the three and six months ended June 30, 2017, respectively, related to BuySeasons.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2017, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10‑Q and Article 10 of Regulation S‑X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. Additionally, certain prior period amounts have been reclassified for comparability with the current period presentation. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2017 as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The preparation of financial statements in conformity with GAAP requires management 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. Actual results could differ from those estimates. The Company considers (i) recognition and recoverability of goodwill, intangible and long-lived assets and (ii) accounting for income taxes to be its most significant estimates.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017. The Tax Act significantly changed U.S. tax law by, among other things, lowering U.S. corporate income tax rate, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.  In the prior year, we recognized the provisional tax impacts related to the one-time transition tax and the revaluation of deferred tax balances and included

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

these estimates in our consolidated financial statements for the year ended December 31, 2017. During the three and six months ended June 30, 2018, we recorded a $5 million income tax benefit and zero net income tax expense, respectively,  for the transition tax, reflecting additional information obtained related to uncertain tax positions, earnings and profits, foreign tax credits and state taxes. We are still in the process of analyzing the impact of the various provisions of the Tax Act. The ultimate impact may materially differ from these provisional amounts due to, among other things, continued analysis of the estimates and further guidance and interpretations on the application of the law. We expect to complete our analysis by December 2018.

 

Spin‑Off of TripCo from Liberty

Following the TripCo Spin‑Off, Qurate Retail 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 Qurate Retail 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 Qurate Retail and TripCo and other agreements related to tax matters. Pursuant to the tax sharing agreement, TripCo has agreed to indemnify Qurate Retail, 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).

Under these agreements, approximately $1 million was reimbursable to Liberty Media for both of the three months ended June 30, 2018 and 2017,  and approximately $2 million and $1 million was reimbursable to Liberty Media for the six month periods ended June 30, 2018 and 2017, respectively.

(2) Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications, which will reduce diversity in practice. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if the award’s fair value (or calculated value or intrinsic value, if those measurement methods are

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

used), the award’s vesting conditions, and the award’s classification as an equity or liability instrument are the same immediately before and after the change. The guidance also states that an entity is not required to estimate the value of the award immediately before and after the change if the change does not affect any of the inputs to the model used to value the award. The Company adopted this guidance prospectively in the first quarter of 2018. The Company believes the new guidance will likely result in fewer changes to the terms of an award being accounted for as modifications.

In August and November 2016, the FASB issued new accounting standards which add and clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows, and add guidance on the presentation of restricted cash in the statement of cash flows, respectively. This new guidance requires entities to show changes in cash, cash equivalents and restricted cash on a combined basis in the statement of cash flows. In addition, this accounting guidance requires a reconciliation of the total cash, cash equivalent and restricted cash in the statement of cash flows to the related captions in the balance sheet if cash, cash equivalents and restricted cash are presented in more than one line item in the balance sheet. The Company adopted this guidance effective January 1, 2018 and applied it retrospectively to all prior periods presented in the financial statements as required under the new guidance. The Company does not currently have material amounts described as restricted cash; however, the Company’s consolidated statement of cash flows for the year ended December 31, 2016 has been recast to present $5 million of restricted cash as beginning of period cash and cash equivalents and $1 million of restricted cash as end of period cash and cash equivalents at June 30, 2017. These amounts were included in other current assets as of December 31, 2016 and June 30, 2017.

In October 2016, the FASB issued new accounting guidance on income tax accounting associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving intellectual property. This new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted this new guidance in the first quarter of 2018 on a modified retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers, or ASC 606, Revenue from Contracts with Customers (“ASC 606”), which replaced numerous requirements in GAAP, and provides companies with a single model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In addition, the FASB has also issued several amendments to the standard, which clarifies certain aspects of the guidance, including principal versus agent considerations and identifying performance obligations.

 

In the first quarter of 2018, the Company adopted ASC 606 under the modified retrospective method for all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the previous accounting policies under the historical revenue guidance, or ASC 605, Revenue Recognition.  

 

As a result of adoption of ASC 606, certain revenue streams, such as the instant booking revenue, recorded under the consumption model, which was previously recorded upon completion of the traveler stay, is now recognized upon booking. The amount of the recognized transaction price is recorded as revenue, net of the impact of estimated cancellations. TripAdvisor also recorded an adjustment to capitalize certain costs to obtain contracts for existing arrangements as of the implementation date. TripAdvisor expects the adoption of this new revenue standard will not have

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

a material impact, either on an annual or quarterly basis, to its consolidated financial statements on an ongoing basis. Its systems and internal controls were not significantly impacted as a result of the accounting changes and TripAdvisor has made the necessary changes to its accounting policies and internal processes to support the new revenue recognition standard, including the related disclosures. 

 

TripAdvisor recognized the cumulative effect of initial application of ASC 606 as an adjustment to the opening balance of retained earnings. TripAdvisor recorded a net increase in opening retained earnings of $4 million as of January 1, 2018 due to the cumulative impact of adoption of the new revenue guidance, resulting in a $1 million increase in TripCo’s opening retained earnings and $3 million increase in TripCo’s noncontrolling interest in equity of subsidiaries as of January 1, 2018. All other accounts were not materially impacted.

 

Revenue Recognition under ASC 606

 

TripAdvisor generates all of its revenue from contracts with customers. It recognizes revenue when it satisfies a performance obligation by transferring control of the promised services to a customer in an amount that reflects the consideration that it expects to receive in exchange for those services. When TripAdvisor acts as an agent in the transaction under ASC 606, it recognizes revenue for only its commission on the arrangement. TripAdvisor determines revenue recognition through the following steps:

 

(1)

Identification of the contract, or contracts, with a customer

(2)

Identification of the performance obligations in the contract

(3)

Determination of the transaction price

(4)

Allocation of the transaction price to the performance obligations in the contract

(5)

Recognition of revenue when, or as, TripAdvisor satisfies a performance obligation

At contract inception, TripAdvisor assesses the services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct. To identify the performance obligations, TripAdvisor considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. TripAdvisor has provided qualitative information about its performance obligations for its principal revenue streams discussed below. There was no significant revenue recognized in the three and six months ended June 30, 2018 related to performance obligations satisfied in prior periods. TripAdvisor has applied a practical expedient and does not disclose the value of unsatisfied performance obligations that have an original expected duration of less than one year, and TripAdvisor does not have any material unsatisfied performance obligations over one year. The value related to TripAdvisor’s remaining or partially satisfied performance obligations relates to subscription services that are satisfied over time or services that are recognized at a point in time, but not yet achieved.  The timing of services, invoicing and payments are discussed in more detail below and do not include a significant financing component. TripAdvisor’s customer invoices are generally due 30 days from the time of invoicing.

TripAdvisor recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. TripAdvisor has determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were approximately $1 million as of June 30, 2018. These contract costs are amortized on a straight-line basis over the estimated customer life, which is based on historical data. Amortization expense recorded during the three and six months ended June 30, 2018 was not material. TripAdvisor assesses such assets for impairment when events or circumstances indicate that the carrying amount may not be recoverable.

The recognition of revenue may require the application of judgment related to the determination of the performance obligations, the timing of when the performance obligations are satisfied and other areas. The determination of TripAdvisor’s performance obligations does not require significant judgment given that it generally does not provide

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

multiple services to a customer in a given transaction, and the point in which control is transferred to the customer is readily determinable. In instances where TripAdvisor recognizes revenue over time, it generally has either a subscription service that is recognized over time on a straight-line basis using the time-elapsed output method, or based on other output measures that provide a faithful depiction of the transfer of TripAdvisor’s services. When an estimate for cancellations is included in the transaction price, the estimate is based on historical data. The estimate is not material. Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue–producing transaction, that are collected by TripAdvisor from a customer, are reported on a net basis, or in other words, excluded from revenue on its consolidated financial statements, which is consistent with prior periods. The application of TripAdvisor’s revenue recognition policies and a description of the principal activities, organized by segment, from which it generates revenue, are presented below. 

 

Hotels

TripAdvisor-branded Click-based Advertising and Transaction Revenue. TripAdvisor’s largest source of Hotel revenue is generated from click-based advertising on TripAdvisor-branded websites, which is primarily comprised of contextually-relevant booking links to its travel partners’ sites. TripAdvisor’s click-based travel partners are predominantly online travel agencies, or “OTAs,” and direct suppliers in the hotel category. Click-based advertising is generally priced on a cost-per-click, or “CPC,” basis, with payments from advertisers determined by the number of users who click on a link multiplied by the price that partner is willing to pay for that click, or hotel shopper lead. CPC rates that travel partners are willing to pay are determined in a dynamic, competitive auction process, or metasearch auction. TripAdvisor records click-based advertising revenue as the click occurs and traveler leads are sent to the travel partner websites as the performance obligation is fulfilled at that time. Click-based revenue is generally billed to travel partners on a monthly basis consistent with the timing of the service.

Transaction revenue is generated from TripAdvisor’s instant booking feature, which enables hotel shoppers to book directly with a travel partner, or the merchant of record, without leaving TripAdvisor’s website. TripAdvisor earns a commission from its travel partner for a user that completes a hotel reservation on TripAdvisor’s website. TripAdvisor’s instant booking revenue includes arrangements where commissions are billable on all instant booking hotel reservations and also includes arrangements where the commission is billable only upon the completion of the traveler’s stay resulting from the reservation. TripAdvisor’s performance obligation in both arrangements is complete at the time of the booking and the commission earned is recognized upon booking, as TripAdvisor has no post-booking service obligations. The amount of revenue recognized for commissions which are billable contingent upon a travelers stay requires an estimate of the impact of cancellations using historical cancellation rates. Contract assets are recognized at the time of booking for commissions that are billable at the time of stay. TripAdvisor is the agent in these transactions under ASC 606.

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 websites. TripAdvisor’s display-based advertising clients are predominately 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, as well as advertisers from non-travel categories. Display-based advertising is sold predominantly on a cost per thousand impressions basis. The performance obligation in TripAdvisor’s display based advertising business is to display a number of advertising impressions on TripAdvisor’s websites and TripAdvisor recognizes revenue for impressions as they are delivered. Services are generally billed monthly. TripAdvisor has applied the practical expedient to measure progress toward completion, as it has the right to invoice the customer in an amount that directly corresponds with the value to the customer of TripAdvisor’s performance to date, which is measured based on impressions delivered.

In addition, TripAdvisor offers subscription-based advertising to hotels, B&Bs and other specialty lodging

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

properties. TripAdvisor’s performance obligation is generally to enable subscribers to advertise their business on TripAdvisor’s website, including such information as a website URL, email address and phone number, as well as other information. Subscription advertising services are predominantly sold for a flat fee, for a contracted period of time of one year or less and revenue is recognized on a straight-line basis over the period of the subscription service as efforts are expended evenly throughout the contract period. Subscription advertising services are generally billed in advance of service.  When prepayments are received, TripAdvisor recognizes deferred revenue for the amount of prepayment in excess of revenue recognized until the performance obligation is satisfied.

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 primarily includes click-based advertising and display-based advertising revenue. The performance obligations and timing of customer payments for these brands and methods of recognizing revenue are generally consistent with click-based advertising or display-based advertising revenue, as described above.

Non-Hotel

TripAdvisor provides information and services for users to research, book and experience activities and attractions in popular travel destinations both through Viator, its dedicated Experiences offering, and on its TripAdvisor website and applications. TripAdvisor also powers travel activities and experiences booking capabilities to users for affiliate partners, including some of the world’s top airlines, hotel chains and online and offline travel agencies. TripAdvisor works with local tour or travel activities/experiences operators (“the supplier”) to provide users with access to book tours, activities and experiences (“the activity”) in popular destinations worldwide. TripAdvisor generates commissions for each booking transaction facilitated through its online reservation system. TripAdvisor provides post-booking service to the user until the time of the activity, which is the completion of the performance obligation. Revenue is recognized at the time that the activity occurs. TripAdvisor is an agent in the transaction, under ASC 606, for nearly all of these transactions. TripAdvisor generally collects payment from the user at the time of booking that includes both TripAdvisor’s commission revenue and the amount due to the supplier. TripAdvisor’s commission revenue is recorded as deferred revenue until revenue is recognized, and the amount due to the supplier is recorded to deferred merchant payables on the consolidated balance sheet, until payment is made to the supplier after the completion of the activity. To a lesser extent, TripAdvisor earns commissions from third-party merchant partners, who display and promote TripAdvisor’s supplier activities on their websites to generate bookings. In these transactions, where TripAdvisor is not the merchant of record, TripAdvisor generally invoices and receives commissions directly from the third-party merchant partners. TripAdvisor’s performance obligation is to allow the third-party merchant partners to display and promote its supplier activities on their website and TripAdvisor earns a commission when users book and complete an activity. TripAdvisor’s performance obligation is complete and revenue is recognized at the time of the booking, as TripAdvisor has no post-booking obligations. TripAdvisor recognizes this revenue net of an estimate of the impact of cancellations using historical cancellation rates. Contract assets are recognized for commissions that are billable contingent upon completion of the activity. TripAdvisor is an agent in these transactions, under ASC 606. 

TripAdvisor also provides information and services for users to research and book restaurants in popular travel destinations through its dedicated restaurant reservations offering, TheFork, and on TripAdvisor’s website and applications. TheFork is an online restaurant booking platform operating on a number of websites (including www.lafourchette.com, www.eltenedor.com, www.iens.nl and www.dimmi.com.au), with a network of restaurant partners located primarily across Europe and Australia. TripAdvisor’s bookable restaurants are available on www.thefork.com and on TripAdvisor-branded websites and mobile applications. TripAdvisor primarily generates transaction fees (or per seated diner fees) that are paid by restaurants for diners seated primarily from bookings through TheFork’s online reservation system. The transaction fee is recognized as revenue after the reservation is fulfilled, or as diners are seated by restaurant customers. Revenue is billed monthly when the transaction fees are payable, which is at the time the diner is seated. To a

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

lesser extent, TripAdvisor also generates subscription fees for access to certain online reservation management services and marketing analytic tools provided by TheFork and TripAdvisor. As the performance obligation is to provide restaurants with access to these services over the subscription period, subscription fee revenue is recognized over the period of the subscription service on a straight-line basis as efforts are expended evenly throughout the contract period. Subscription fees are generally billable in advance of service. When prepayments are received, TripAdvisor recognizes deferred revenue for the amount of prepayment in excess of revenue recognized until the performance obligation is satisfied.

 

In addition, 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 cottages. TripAdvisor’s Rentals business generates revenue primarily by offering individual property owners and 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 or, to a lesser extent, by an annual subscription-based fee structure. These properties are listed on www.flipkey.com, www.holidaylettings.co.uk, www.housetrip.com, www.niumba.com, and www.vacationhomerentals.com, and on TripAdvisor-branded websites and mobile applications. TripAdvisor earns commissions associated with rental transactions through its free-to-list model from both the traveler and the property owner or manager. TripAdvisor provides post-booking service to the travelers, property owners and managers until the time the rental commences, which is the time the performance obligation is completed. Revenue from transaction fees is recognized at the time that the rental commences. TripAdvisor is an agent in these transactions, under ASC 606. TripAdvisor generally collects payment from the traveler at the time of booking that includes TripAdvisor’s commissions, which is recorded as deferred revenue until revenue is recognized, and the amount due to the property owner, which is recorded in deferred merchant payables on the consolidated balance sheet, until payment is made to the property owner after the completion of the rental. Payments for term-based subscription fees related to online advertising services for the listing of rental properties, are generally due in advance.  As the performance obligation is the listing service provided to the property owner or manager over the subscription period, revenue is recognized over the period of the subscription service on a straight-line basis as efforts are expended evenly throughout the contract period. TripAdvisor recognizes deferred revenue for the amount of prepayment in excess of revenue recognized until the performance obligation is satisfied. 

 

Practical Expedients and Exemptions

 

TripAdvisor expenses costs to obtain a contract as incurred, such as sales commissions, when the amortization period would have been one year or less.

TripAdvisor does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Impact of Adoption of ASC 606

 

The impact of this new revenue recognition guidance on TripCo’s unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2018 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported - ASC 606

 

 

 

 

Adjusted - ASC 605

 

 

Three months ended

 

Impact of Accounting

 

Three months ended

 

 

June 30, 2018

 

under ASC 606

 

June 30, 2018

 

 

(in millions)

Revenue

 

$

433

 

$

(2)

 

$

431

Operating income

 

 

34

 

 

(2)

 

 

32

Earnings (loss) before income taxes

 

 

(14)

 

 

(2)

 

 

(16)

Income tax (expense) benefit

 

 

(8)

 

 

 -

 

 

(8)

Net earnings (loss)

 

 

(22)

 

 

(2)

 

 

(24)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported - ASC 606

 

 

 

 

Adjusted - ASC 605

 

 

Six months ended

 

Impact of Accounting

 

Six months ended

 

 

June 30, 2018

 

under ASC 606

 

June 30, 2018

 

 

(in millions)

Revenue

 

$

811

 

$

(6)

 

$

805

Operating income

 

 

43

 

 

(6)

 

 

37

Earnings (loss) before income taxes

 

 

(33)

 

 

(6)

 

 

(39)

Income tax (expense) benefit

 

 

(24)

 

 

 1

 

 

(23)

Net earnings (loss)

 

 

(57)

 

 

(5)

 

 

(62)

 

The impact of the new guidance was not meaningful as of and for the six months ended June 30, 2018 for the unaudited condensed consolidated balance sheet and unaudited condensed consolidated statement of cash flows.

 

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Disaggregation of Revenue

 

TripAdvisor disaggregates revenue from contracts with customers into major products/revenue sources. TripAdvisor has determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. A reconciliation of disaggregated revenue to total hotel and non-hotel revenue is also included below. 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2018

    

2018

Major products/revenue sources:

 

(in millions)

Click-based advertising and transaction revenue

 

$

199

 

389

Display-based advertising and subscription revenue

 

 

80

 

150

Other hotel revenue

 

 

34

 

73

  Total Hotel Revenue (1)

 

 

313

 

612

 

 

 

 

 

 

Non-Hotel Revenue (1)

 

 

120

 

199

 Total Revenue

 

$

433

 

811

 

(1)

TripAdvisor’s revenue is recognized primarily at a point in time for both Hotel and Non-Hotel revenue.

 

Contract balances

 

The following table provides information about the opening and closing balances of accounts receivables and contract assets from contracts with customers (in millions):

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2018

 

2017

Accounts receivable

 

$

285

 

230

Contract assets

 

 

15

 

 —

 Total

 

$

300

 

230

 

Accounts receivable are recognized when the right to consideration becomes unconditional. Contract assets are rights to consideration in exchange for services that TripAdvisor has transferred to a customer when that right is conditional on something other than the passage of time, such as commission payments that are contingent upon the completion of the service by the principal in the transaction. Contract liabilities generally include payments received in advance of performance under the contract, and are realized as revenue as the performance obligation to the customer is satisfied, which TripAdvisor presents as deferred revenue on its unaudited consolidated balance sheet. As of January 1, 2018, TripAdvisor had $59 million recorded as deferred revenue on its consolidated balance sheet, of which $13 million and $45 million was recognized in revenue during the three and six months ended June 30, 2018, respectively. The difference between the opening and closing balances of TripAdvisor’s contract assets and deferred revenue primarily results from the timing differences between when TripAdvisor receives customer payments and the time in which TripAdvisor satisfies its performance obligations. There were no significant changes in contract assets or liabilities during the six months ended June 30, 2018 related to business combinations, impairments, cumulative catch-ups or other material adjustments.

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires the recognition of assets (right-of-use-assets) and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. The new guidance will classify leases as either finance or operating leases, with classification determining the presentation of expenses and cash flows on the consolidated financial statements. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. For leases with a term of 12 months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases and amounts previously recognized in accordance with the business combinations guidance for leases. TripAdvisor will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases which include, among other things, the computation and disclosure of its weighted average remaining lease term and discount rate, cash paid for amounts included in the measurement of lease liabilities, and supplemental non-cash information on lease liabilities arising from obtaining the right-of-use assets. These disclosures are intended to provide supplemental information to the amounts recorded in the financial statements so that users can better understand the nature of an entity’s leasing activities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.  The Company anticipates adopting this new guidance in the first quarter of 2019. The new guidance requires the recognition and measurement of leases at the beginning of the earliest comparative period presented in the financial statements using a modified retrospective approach, with an option to apply the transition provisions of the new guidance at the adoption date without adjusting the comparative periods presented. The Company is considering the method of transition upon adoption of this guidance. 

TripAdvisor will continue to evaluate the new lease guidance and is in the process of updating accounting policies, accounting position memos, and evaluating its existing population of contracts to ensure all contracts that meet the definition of a lease contract under the new standard are identified. TripAdvisor is also in the process of implementing additional lease software to support its accounting and reporting process, including the new quantitative and qualitative financial disclosure requirements. In addition, TripAdvisor is evaluating the impact of the system implementation and new accounting guidance on its internal controls. TripAdvisor will continue to provide updates on its assessment of the effect that this new lease guidance will have on its consolidated financial statements, disclosures, systems and related internal controls, and will disclose material effects, if any, when known.

(3) Stock-Based Compensation

TripCo Incentive Plans

TripCo has granted to certain of its directors and employees options to purchase shares of TripCo common stock (“Awards”). TripCo measures the cost of employee services received in exchange for an equity classified Award based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award).

TripCo has calculated the GDFV for all of its equity classified Awards and any subsequent remeasurement of its liability classified Awards using the Black-Scholes-Merton model. TripCo estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of TripCo common stock and the implied volatility of publicly traded TripCo options. TripCo uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Included in the accompanying condensed consolidated statements of operations are the following amounts of stock‑based compensation, the majority of which relates to TripAdvisor as discussed below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

amounts in millions

 

Operating expense

 

$

14

 

13

 

26

 

20

 

Selling, general and administrative expense

 

 

19

 

17

 

37

 

30

 

 

 

$

33

 

30

 

63

 

50

 

 

Stock-based compensation expense related to TripAdvisor was $31 million and $28 million for the three months ended June 30, 2018 and 2017, respectively, and $61 million and $47 million for the six months ended June 30, 2018 and 2017, respectively.

 

TripCo - Outstanding Awards

 

The following table presents the number and weighted average exercise price (“WAEP”) of the Awards to purchase TripCo common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining contractual life and aggregate intrinsic value of the Awards.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

 

 

 

 

remaining

 

Aggregate

 

 

 

 

 

 

 

 

contractual

 

intrinsic

 

 

 

Series A

 

WAEP

 

life

 

value

 

 

 

in thousands

 

 

 

 

in years

 

in millions

 

Outstanding at January 1, 2018

 

681

 

$

14.68

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

Exercised

 

(2)

 

$

9.70

 

 

 

 

 

 

Forfeited/Cancelled

 

(149)

 

$

14.12

 

 

 

 

 

 

Outstanding at June 30, 2018

 

530

 

$

14.86

 

2.8

 

$

 1

 

Exercisable at June 30, 2018

 

421

 

$

16.16

 

1.9

 

$

 1

 

There were no options to purchase shares of Series A common stock granted during the six months ended June 30, 2018. There was no activity during the period related to the outstanding TripCo Series B common stock options.

As of June 30, 2018, the total unrecognized compensation cost related to unvested Awards was approximately $7 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 1.6 years.

As of June 30, 2018, TripCo reserved 2.3 million shares of Series A and Series B common stock for issuance under exercise privileges of outstanding stock Awards.

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LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

TripAdvisor Equity Grant Awards

The following table presents the number and WAEP of the Awards to purchase TripAdvisor common stock granted to certain officers, employees and directors of TripAdvisor.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

TripAdvisor

 

 

 

 

remaining

 

Aggregate

 

 

 

stock

 

 

 

 

contractual

 

intrinsic

 

 

 

options

 

WAEP

 

life

 

value

 

 

 

in thousands

 

 

 

 

in years

 

in millions

 

Outstanding at January 1, 2018

 

6,853

 

$

52.78

 

 

 

 

 

 

Granted

 

621

 

$

41.61

 

 

 

 

 

 

Exercised

 

(532)

 

$

35.72

 

 

 

 

 

 

Cancelled or expired

 

(190)

 

$

51.34

 

 

 

 

 

 

Outstanding at June 30, 2018

 

6,752

 

$

53.13

 

6.5

 

$

65

 

Exercisable at June 30, 2018

 

3,265

 

$

55.96

 

4.7

 

$

28

 

The weighted average GDFV of options granted was $17.62 for the six months ended June 30, 2018.  

As of June 30, 2018, the total unrecognized compensation cost related to unvested TripAdvisor stock options was approximately $46 million and will be recognized over a weighted average period of approximately 3.0 years. The total intrinsic value of stock options exercised was $6 million for both of the six months ended June 30, 2018 and 2017.

Additionally, during the six months ended June 30, 2018, TripAdvisor granted 3,159 thousand of primarily service-based restricted stock units (“RSUs”) and market-based restricted stock units (“MSUs”) under its Amended and Restated 2011 Stock and Annual Incentive Plan. The RSUs’ fair value was measured based on the quoted price of TripAdvisor common stock at the date of grant. As the MSUs provide for vesting based upon TripAdvisor’s total shareholder return, or “TSR,” performance, the potential outcomes of future stock prices and TSR of TripAdvisor and the Nasdaq Composite Total Return Index, was used to calculate the GDFV of these awards. The weighted average GDFV for RSUs and MSUs granted during the six months ended June 30, 2018 was $41.83 per share. As of June 30, 2018, the total unrecognized compensation cost related to TripAdvisor RSUs and MSUs was approximately $284 million and will be recognized over a weighted average period of approximately 2.9 years.

 

 

 

 

 

 

 

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(4) Earnings (Loss) Per Common Share (EPS)

Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) attributable to TripCo shareholders by the weighted average number of common shares outstanding (“WASO”) for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. Excluded from EPS for both the three and six months ended June 30, 2018 and 2017 are 2 million potential common shares, because their inclusion would be antidilutive.

 

 

 

 

 

 

 

 

 

 

 

Liberty TripAdvisor Holdings Common Stock

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2018

 

2017

 

2018

 

2017

 

 

number of shares in millions

Basic WASO

 

75

 

75

 

75

 

75

Potentially dilutive shares

 

 —

 

 —

 

 —

 

 —

Diluted WASO

 

75

 

75

 

75

 

75

 

(5) Assets and Liabilities Measured at Fair Value

 

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any recurring assets or liabilities measured at fair value that would be considered Level 3.

The Company’s assets and liabilities measured at fair value are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

 

 

 

Quoted prices

 

Significant

 

 

 

Quoted prices

 

Significant

 

 

 

 

 

 

in active

 

other

 

 

 

in active

 

other

 

 

 

 

 

 

markets for

 

observable

 

 

 

markets for

 

observable

 

 

 

 

 

 

identical assets

 

inputs

 

 

 

identical assets

 

inputs

 

Description

 

Total

 

(Level 1)

 

(Level 2)

 

Total

 

(Level 1)

 

(Level 2)

 

 

 

amounts in millions

 

Cash equivalents

    

$

210

    

210

    

 —

    

32

 

23

 

 9

 

Marketable securities

 

$

14

 

 —

 

14

 

62

 

 —

 

62

 

Variable postpaid forward

 

$

13

 

 —

 

13

 

75

 

 —

 

75

 

On June 6, 2016, TripCo entered into a variable postpaid forward transaction with a financial institution with respect to 7 million shares of TripAdvisor common stock held by the Company with a forward floor price of $38.90 per share and a forward cap price of $98.96 per share.  TripCo borrowed $259 million against the variable postpaid forward on June 23, 2016 (see note 6). The asset associated with this instrument is included in the other assets, at cost, net of accumulated amortization in the accompanying condensed consolidated balance sheets. 

The fair value of Level 2 cash equivalents and marketable securities were obtained from pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets. Marketable securities are

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

included in other current assets and other assets in the accompanying condensed consolidated balance sheets. The fair value of Level 2 derivative assets were derived from a Black-Scholes-Merton model using observable market data as the significant inputs.

Other Financial Instruments

Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, current portion of debt and long-term debt. With the exception of debt, the carrying amount approximates fair value due to the short maturity of these instruments as reported on our condensed consolidated balance sheets. The carrying value of our debt bears interest at a variable rate and therefore is also considered to approximate fair value.

(6) Debt

Outstanding debt at June 30, 2018 and December 31, 2017 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2018

 

2017

 

 

 

amounts in millions

 

TripAdvisor Credit Facilities

 

 

 —

 

230

 

TripAdvisor Chinese Credit facilities

 

 

 —

 

 7

 

TripCo margin loans

 

 

214

 

210

 

TripCo variable postpaid forward

 

 

266

 

264

 

Total consolidated TripCo debt

 

$

480

 

711

 

Debt classified as current

 

 

(214)

 

(7)

 

Total long-term debt

 

$

266

 

704

 

TripAdvisor Credit Facilities

TripAdvisor is party to a five year credit agreement, with a group of lenders, which, among other things, provides for a $1.2 billion unsecured revolving credit facility (the “2015 Credit Facility”) with a maturity date of May 12, 2022. Borrowings under the 2015 Credit Facility generally bear interest, at TripAdvisor’s option, at a rate per annum equal to either (i) the Eurocurrency Borrowing rate, or the adjusted LIBOR for the interest period in effect for such borrowing; plus an applicable margin ranging from 1.25% to 2.00%, based on TripAdvisor’s leverage ratio; or (ii) the Alternate Base Rate Borrowing, which is the greatest of (a) the Prime Rate in effect on such day, (b) the New York Fed Bank Rate in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBOR (or LIBOR multiplied by the Statutory Reserve Rate) for an interest period of one month plus 1.00%; in addition to an applicable margin ranging from 0.25% to 1.00%, based on TripAdvisor’s leverage ratio. TripAdvisor may borrow from the 2015 Credit Facility in U.S. dollars, Euros and British pound sterling.

During the six months ended June 30, 2018, TripAdvisor borrowed an additional $5 million and repaid $235 million of its outstanding borrowings on the 2015 Credit Facility. These net repayments were primarily made from a one-time cash repatriation of $325 million of foreign earnings to the United States during the six months ended June 30, 2018. As of June 30, 2018, there were no outstanding borrowings under the 2015 Credit Facility. TripAdvisor is also required to pay a quarterly commitment fee, at an applicable rate ranging from 0.15% to 0.30%, on the daily unused portion of the 2015 Credit Facility for each fiscal quarter and additional fees in connection with the issuance of letters of credit. As of June 30, 2018, TripAdvisor’s unused revolver capacity was subject to a commitment fee of 0.15%, given TripAdvisor’s leverage ratio. The 2015 Credit Facility includes $15 million of borrowing capacity available for letters of credit and $40 million

I-22


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

for Swing Line borrowings on same-day notice. As of June 30, 2018, TripAdvisor had issued $3 million of outstanding letters of credit under the 2015 Credit Facility.

There is no specific repayment date prior to the maturity date for borrowings under the 2015 Credit Facility. TripAdvisor may voluntarily repay any outstanding borrowing under the 2015 Credit Facility at any time without premium or penalty, other than customary breakage costs with respect to Eurocurrency loans.

The 2015 Credit Facility contains a number of covenants that, among other things, restrict TripAdvisor’s ability to: incur additional indebtedness, create liens, enter into sale and leaseback transactions, engage in mergers or consolidations, sell or transfer assets, pay dividends and distributions, make investments, loans or advances, prepay certain subordinated indebtedness, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements governing certain subordinated indebtedness, and change its fiscal year. The 2015 Credit Facility also requires TripAdvisor to maintain a maximum leverage ratio and contains certain customary affirmative covenants and events of default, including a change of control. If an event of default occurs, the lenders under the 2015 Credit Facility will be entitled to take various actions, including the acceleration of all amounts due under the 2015 Credit Facility.        

TripAdvisor was party to an uncommitted facility agreement which provided for a $73 million unsecured revolving credit facility (the “2016 Credit Facility,” and together with the 2015 Credit Facility, the “TripAdvisor Credit Facilities”) with no specific expiration date.  TripAdvisor repaid all outstanding borrowings on the 2016 Credit Facility during the first three months of 2017. As of December 31, 2017, there were no outstanding borrowings under the 2016 Credit Facility. In June 2018, TripAdvisor terminated the 2016 Credit Facility.

TripAdvisor Chinese Credit Facilities

In addition to borrowings under the Trip Advisor Credit Facilities, TripAdvisor maintains two credit facilities in China (jointly, the “TripAdvisor Chinese Credit Facilities”).

TripAdvisor’s Chinese subsidiary is party to a $30 million, one-year revolving credit facility with Bank of America (the “Chinese Credit Facility—BOA”) that is currently subject to review on a periodic basis with no specific expiration period. Borrowings under the Chinese Credit Facility—BOA generally bear interest at a rate based on the People’s Bank of China benchmark, including certain adjustments which may be made in accordance with market conditions at the time of borrowing. As of June 30, 2018 and December 31, 2017, there were no outstanding borrowings under the Chinese Credit Facility—BOA.

In addition, TripAdvisor’s Chinese subsidiary is party to a RMB 70,000,000 (approximately $11 million) one-year revolving credit facility with J.P. Morgan Chase Bank (the “Chinese Credit Facility—JPM”). Borrowings under the Chinese Credit Facility—JPM generally bear interest at a rate based on the People’s Bank of China benchmark, including certain adjustments which may be made in accordance with market conditions at the time of borrowing.  As of December 31, 2017, TripAdvisor had $7 million of outstanding borrowings from the Chinese Credit Facility—JPM at a weighted average rate of 5.00%. During the six months ended June 30, 2018, TripAdvisor borrowed an additional $2 million and repaid in full the outstanding borrowings under the Chinese Credit Facility—JPM.  

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

TripCo Margin Loans and Variable Postpaid Forward