Liberty TripAdvisor Holdings, Inc.
Liberty TripAdvisor Holdings, Inc. (Form: 10-Q, Received: 08/08/2017 17:09:56)

 

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, 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)

 

 

 

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 31, 2017   was:

 

 

 

 

 

 

 

 

Series A

 

Series B

 

Liberty TripAdvisor Holdings, Inc. common stock

 

72,126,107

 

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 Balance Sheets (Continued) (unaudited)  

I-4

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-22

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

I-32

 

Item 4. Controls and Procedures

I-32

 

 

 

 

         Part II - Other Information

 

 

 

Item 1. Legal Proceedings

II-1

 

Item 1A. Risk Factors

II-1

 

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

II-1

 

Item 6. Exhibits

II-2

 

 

 

 

SIGNATURES  

II-3

EXHIBIT INDEX  

II-4

 

I-2


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Balance Sheet s

(unaudited)

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2017

 

2016

 

 

 

amounts in millions

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

915

 

654

 

Trade and other receivables, net of allowance for doubtful accounts of $11 million and $9 million, respectively

 

 

252

 

191

 

Short term marketable securities (note 4)

 

 

17

 

118

 

Other current assets

 

 

25

 

47

 

Total current assets

 

 

1,209

 

1,010

 

Investments in available-for-sale securities (note 4)

 

 

 4

 

16

 

Property and equipment, at cost

 

 

225

 

225

 

Accumulated depreciation

 

 

(54)

 

(49)

 

 

 

 

171

 

176

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

Goodwill

 

 

3,707

 

3,694

 

Trademarks

 

 

1,793

 

1,782

 

 

 

 

5,500

 

5,476

 

Intangible assets subject to amortization, net

 

 

434

 

487

 

Other assets, at cost, net of accumulated amortization

 

 

139

 

117

 

Total assets

 

$

7,457

 

7,282

 

 

             (continued)

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

I-3


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Balance Sheets (Continue d)

(unaudited)

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2017

 

2016

 

 

 

amounts in millions

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Deferred merchant and other payables

 

$

351

 

146

 

Accrued liabilities

 

 

169

 

132

 

Current portion of debt (note 5)

 

 

 7

 

80

 

Deferred revenue

 

 

90

 

64

 

Other current liabilities

 

 

 8

 

13

 

Total current liabilities

 

 

625

 

435

 

Long-term debt (note 5)

 

 

728

 

555

 

Deferred income tax liabilities

 

 

644

 

659

 

Other liabilities

 

 

222

 

209

 

Total liabilities

 

 

2,219

 

1,858

 

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 72,126,199 shares at June 30, 2017 and 72,046,485 at December 31, 2016

 

 

 1

 

 1

 

Series B common stock, $.01 par value. Authorized shares 7,500,000; issued and outstanding 2,929,777 shares at June 30, 2017 and 2,929,777 shares at December 31, 2016

 

 

 —

 

 —

 

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

 

 

 —

 

 —

 

Additional paid-in capital

 

 

239

 

245

 

Accumulated other comprehensive earnings (loss), net of taxes

 

 

(28)

 

(36)

 

Retained earnings

 

 

578

 

593

 

Total stockholders' equity

 

 

790

 

803

 

Noncontrolling interests in equity of subsidiaries

 

 

4,448

 

4,621

 

Total equity

 

 

5,238

 

5,424

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

Total liabilities and equity

 

$

7,457

 

7,282

 

 

See accompanying notes to condensed consolidated financial statements.

I-4


 

Table of Contents

 

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Operation s

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

amounts in millions, except

 

 

 

per share amounts

 

Service revenue

 

$

424

 

391

 

796

 

743

 

Other revenue

 

 

 7

 

 7

 

13

 

16

 

Total revenue, net

 

 

431

 

398

 

809

 

759

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

Operating expense, including stock-based compensation (note 2)

 

 

92

 

91

 

176

 

180

 

Selling, general and administrative, including stock-based compensation (note 2)

 

 

271

 

239

 

516

 

454

 

Depreciation and amortization

 

 

55

 

55

 

111

 

110

 

 

 

 

418

 

385

 

803

 

744

 

Operating income (loss)

 

 

13

 

13

 

 6

 

15

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(7)

 

(7)

 

(12)

 

(15)

 

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

 

 

13

 

 7

 

19

 

 6

 

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

 

 

(18)

 

 —

 

(18)

 

 —

 

Other, net

 

 

 2

 

(3)

 

 3

 

(1)

 

 

 

 

(10)

 

(3)

 

(8)

 

(10)

 

Earnings (loss) before income taxes

 

 

 3

 

10

 

(2)

 

 5

 

Income tax (expense) benefit

 

 

(10)

 

(4)

 

(14)

 

(4)

 

Net earnings (loss)

 

 

(7)

 

 6

 

(16)

 

 1

 

Less net earnings (loss) attributable to noncontrolling interests

 

 

 5

 

 8

 

(1)

 

14

 

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

 

$

(12)

 

(2)

 

(15)

 

(13)

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 3):

 

$

(0.16)

 

(0.03)

 

(0.20)

 

(0.17)

 

Diluted net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 3):

 

$

(0.16)

 

(0.03)

 

(0.20)

 

(0.17)

 

 

See accompanying notes to condensed consolidated financial statements.

I-5


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Earning s (Loss)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

amounts in millions

 

Net earnings (loss)

 

$

(7)

 

 6

 

(16)

 

 1

 

Other comprehensive earnings (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

21

 

(23)

 

35

 

(13)

 

Other comprehensive earnings (loss)

 

 

21

 

(23)

 

35

 

(13)

 

Comprehensive earnings (loss)

 

 

14

 

(17)

 

19

 

(12)

 

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

 

21

 

(9)

 

26

 

 3

 

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

 

$

(7)

 

(8)

 

(7)

 

(15)

 

 

See accompanying notes to condensed consolidated financial statements.

I-6


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flow s

(unaudited)

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2017

 

2016

 

 

 

amounts in   millions

 

Cash flows from operating activities:

    

 

    

    

    

 

Net earnings (loss)

 

$

(16)

 

 1

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

111

 

110

 

Stock-based compensation

 

 

50

 

45

 

(Gain) loss on dispositions, net

 

 

18

 

 —

 

Deferred income tax expense (benefit)

 

 

(17)

 

(20)

 

Other noncash charges (credits), net

 

 

(13)

 

 —

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Current and other assets

 

 

(60)

 

(59)

 

Payables and other liabilities

 

 

270

 

273

 

Net cash provided (used) by operating activities

 

 

343

 

350

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures, including internal-use software and website development

 

 

(36)

 

(37)

 

Purchases of short term investments and other marketable securities

 

 

(7)

 

(98)

 

Sales and maturities of short term investments and other marketable securities

 

 

120

 

57

 

Other investing activities, net

 

 

(2)

 

 1

 

Net cash provided (used) by investing activities

 

 

75

 

(77)

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings of debt, net of financing costs

 

 

373

 

259

 

Repayments of debt

 

 

(279)

 

(338)

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(14)

 

(11)

 

Option exercises

 

 

 1

 

 —

 

Shares issued by subsidiary

 

 

 3

 

 3

 

Shares repurchased by subsidiary

 

 

(250)

 

(12)

 

Net cash provided (used) by financing activities

 

 

(166)

 

(99)

 

Effect of foreign currency exchange rates on cash

 

 

 9

 

(6)

 

Net increase (decrease) in cash and cash equivalents

 

 

261

 

168

 

Cash and cash equivalents at beginning of period

 

 

654

 

644

 

Cash and cash equivalents at end of period

 

$

915

 

812

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

I-7


 

Table of Contents

 

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statement of Equit y

Six months ended June 30, 2017

(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, 2017

    

$

 —

 

 1

    

 —

    

 —

    

245

    

(36)

    

593

    

4,621

    

5,424

 

Net earnings (loss)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(15)

    

(1)

    

(16)

 

Other comprehensive earnings (loss)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 8

 

 —

    

27

    

35

 

Stock compensation

 

 

 —

 

 —

 

 —

 

 —

 

14

 

 —

 

 —

    

41

    

55

 

Issuance of common stock upon exercise of stock options

 

 

 —

 

 —

 

 —

 

 —

 

 1

 

 —

 

 —

    

 —

    

 1

 

Withholding taxes on net share settlements of stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

(14)

 

 —

 

 —

    

 —

    

(14)

 

Shares issued by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

(5)

 

 —

 

 —

    

 8

    

 3

 

Shares repurchased by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

(2)

 

 —

 

 —

 

(248)

 

(250)

 

Balance at June 30, 2017

 

$

 —

 

 1

 

 —

 

 —

 

239

 

(28)

 

578

    

4,448

    

5,238

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

I-8


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

(1) Basis of Presentation

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,”  “Consolidated TripCo,” the “Company,” “we,” “our” or “us,” unless the context otherwise requires) (the “Trip Spin‑Off”). TripCo holds its subsidiary TripAdvisor, Inc. (“TripAdvisor”) and held its former subsidiary, BuySeasons, Inc. (“BuySeasons”) until June 30, 2017. The Trip 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 Trip 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 these are key periods 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.

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 does not represent a strategic shift that has a major effect on TripCo’s operations and financial results. Included in Revenue in the accompanying condensed consolidated statements of operations is $7 million and $7 million for the three months ended June 30, 2017 and 2016, respectively, and $13 million and $16 million for the six months ended June 30, 2017 and 2016, 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 months ended June 30, 2017 and 2016, respectively, and losses of $1 million and $5 million for the six months ended June 30, 2017 and 2016, respectively, related to BuySeasons. Included in Total assets in the accompanying condensed consolidated balance sheets as of December 31, 2016 is $23 million related to BuySeasons.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2016, 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, 2016 as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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, (ii) accounting for income taxes and (iii) stock‑based compensation to be its most significant estimates.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance on revenue from contracts with customers.  The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,

I-9


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued additional guidance, which clarifies principal versus agent considerations, and in April 2016, the FASB issued further guidance which clarifies the identification of performance obligations and the implementation guidance for licensing. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted only for fiscal years beginning after December 15, 2016. We have identified the Company’s various revenue streams and are working with TripAdvisor to evaluate the quantitative effects of the new guidance. The Company plans to adopt this new guidance under the modified retrospective method. 

 

TripAdvisor is in the process of reviewing its revenue contracts portfolio and its current accounting policies and practices to identify potential differences that could result from applying the requirements of the new standard. To date, TripAdvisor has evaluated the majority of its Hotel revenue and, based on a preliminary analysis, does not expect a material impact to the timing or amount of its revenue recognition upon adoption of the new guidance. TripAdvisor is still evaluating the overall impact of this new guidance. We will continue to provide updates as to the progress of our evaluation in our quarterly reports during 2017.

 

In February 2016, the FASB issued new guidance which revises the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new guidance also simplifies the accounting for sale and leaseback transactions. The new standard, to be applied via a modified retrospective transition approach, is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company has not yet determined the effect of the standard on its ongoing financial reporting. The Company is currently working with its consolidated subsidiaries to evaluate the impact of the adoption of this new guidance on our consolidated financial statements, including identifying the population of leases, evaluating technology solutions and collecting lease data.

 

In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this guidance in the third quarter of 2016 .   In accordance with the new guidance, excess tax benefits and tax deficiencies are recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize forfeitures as they occur rather than continue to estimate expected forfeitures. In addition, pursuant to the new guidance, excess tax benefits are classified as an operating activity on the accompanying condensed consolidated statements of cash flows. The recognition of excess tax benefits and deficiencies are applied prospectively from January 1, 2016. The presentation changes for excess tax benefits have been applied retrospectively in the accompanying condensed consolidated statements of cash flows, resulting in $6 million of excess tax benefits for the six months ended June 30, 2016 , reclassified from cash flows from financing activities to cash flows from operating activities.   

 

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. The guidance in both standards is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Upon adoption, an entity may apply the new guidance only retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements and disclosures. The new guidance is expected to change the presentation of paid in kind interest in the period it is paid from financing to operating on the consolidated statements of cash flows.

I-10


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

In October 2016, the FASB issued new accounting guidance on income tax accounting associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving intellectual property. This new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Upon adoption, an entity may apply the new guidance only on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued new accounting guidance, which assists entities in evaluating when a set of transferred assets and activities is a business. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and will be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which the financial statements have not been issued. The Company is currently evaluating the impact of adopting this new guidance on its financial statements and related disclosures.

In January 2017, the FASB issued new accounting guidance to simplify the measurement of goodwill impairment. Under the new guidance, an entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In May 2017, the FASB issued new accounting guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if the award’s fair value (or calculated value or intrinsic value, if those measurement methods are used), the award’s vesting conditions, and the award’s classification as an equity or liability instrument are the same immediately before and after the change. The guidance also states that an entity is not required to estimate the value of the award immediately before and after the change if the change does not affect any of the inputs to the model used to value the award. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and will be applied prospectively to awards modified on or after the adoption date. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the impact of adopting this new guidance on its financial statements and related disclosures.

 

Spin‑Off of TripCo from Liberty

Following the Trip 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 Trip 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 Trip Spin‑Off and to provide for an orderly transition.

I-11


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

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

Under these agreements, approximately $1 million was reimbursable to Liberty for both of the three month periods ended June 30, 2017 and 2016 and approximately $1 million was reimbursable to Liberty for both of the six month periods ended June 30, 2017 and 2016.

(2) 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 using the Black-Scholes-Merton model. TripCo estimates the expected term of the Awards based on historical exercise and forfeiture data. Since TripCo common stock has not traded on the stock market for a significant length of time, the volatility used in the calculation for Awards is based on a blend of the historical volatility of TripCo and TripAdvisor common stock and the implied volatility of publicly traded TripCo and TripAdvisor options; as the most significant asset within TripCo, the volatility of TripAdvisor was considered in the overall volatility of TripCo. TripCo uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.

 

I-12


 

Table of Contents

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,

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

amounts in millions

 

Operating expense

 

$

13

 

12

 

20

 

22

 

Selling, general and administrative expense

 

 

17

 

12

 

30

 

23

 

 

 

$

30

 

24

 

50

 

45

 

 

Stock-based compensation expense related to TripAdvisor was $28 million and $23 million for the three months ended June 30, 2017 and 2016, respectively, and $47 million and $43 million for the six months ended June 30, 2017 and 2016, 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 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, 2017

 

661

 

$

14.99

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

Exercised

 

(80)

 

$

10.28

 

 

 

 

 

 

Forfeited/Cancelled

 

(2)

 

$

28.64

 

 

 

 

 

 

Outstanding at June 30, 2017

 

579

 

$

15.61

 

2.6

 

$

 —

 

Exercisable at June 30, 2017

 

503

 

$

15.43

 

2.1

 

$

 —

 

There were no options to purchase shares of Series A common stock granted during the six months ended June 30, 2017. There was no activity during the period related to the TripCo Series B options.

As of June 30, 2017 , the total unrecognized compensation cost related to unvested Awards was approximately $12 million . Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2 years.

As of June 30, 2017, TripCo reserved 2.4 million shares of Series A and Series B common stock for issuance under exercise privileges of outstanding stock Awards.

I-13


 

Table of Contents

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, 2017

 

5,818

 

$

57.60

 

 

 

 

 

 

Granted

 

1,502

 

$

42.88

 

 

 

 

 

 

Exercised

 

(404)

 

$

30.34

 

 

 

 

 

 

Cancelled or expired

 

(383)

 

$

75.44

 

 

 

 

 

 

Outstanding at June 30, 2017

 

6,533

 

$

54.89

 

6.7

 

$

 6

 

Exercisable at June 30, 2017

 

2,856

 

$

47.75

 

4.6

 

$

 6

 

The weighted average grant date fair value of options granted was $17.19 for the six months ended June 30, 2017.  

As of June 30, 2017, the total unrecognized compensation cost related to unvested TripAdvisor stock options was approximately $59 million and will be recognized over a weighted average period of approximately 2.6 years. The total intrinsic value of stock options exercised for the six months ended June 30, 2017 and 2016 was $6 million and $19 million, respectively.

Additionally, during the six months ended June 30, 2017, TripAdvisor granted 4,002 thousand service-based restricted stock units (“RSUs”) under its Amended and Restated 2011 Stock and Annual Incentive Plan for which the fair value was measured based on the quoted price of TripAdvisor common stock at the date of grant. The weighted average grant date fair value for RSUs granted during the six months ended June 30, 2017 was $42.88 per share. As of June 30, 2017, the total unrecognized compensation cost related to TripAdvisor RSUs was approximately $258 million and will be recognized over a weighted average period of approximately 3.2 years.

 

(3) 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 months ended June 30, 2017 and 2016 are 2 million potential common shares,  because their inclusion would be antidilutive. Excluded from EPS for both the six months ended June 30, 2017 and 2016 are 2 million potential common shares, because their inclusion would be antidilutive. 

I-14


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Liberty TripAdvisor Holdings Common Stock

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2017

 

2016

 

2017

 

2016

 

 

number of shares in millions

Basic WASO

 

75

 

75

 

75

 

75

Potentially dilutive shares

 

 —

 

 —

 

 —

 

 —

Diluted WASO

 

75

 

75

 

75

 

75

 

 

(4) 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, 2017

 

December 31, 2016

 

 

 

 

 

 

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

    

$

24

    

24

    

 —

    

53

    

53

    

 —

 

Marketable securities

 

$

17

 

 —

 

17

 

118

 

 —

 

118

 

Available-for-sale securities

 

$

 4

 

 —

 

 4

 

16

 

 —

 

16

 

Variable postpaid forward

 

$

69

 

 —

 

69

 

51

 

 —

 

51

 

On June 6, 2016, TripCo entered into a variable postpaid forward transaction with a financial institution with respect to 7 million TripAdvisor shares 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 5). The asset associated with this instrument is included in the Other assets line item on the face of the accompanying condensed consolidated balance sheets.    

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

I-15


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

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.

(5) Debt

Outstanding debt at June 30, 2017 and December 31, 2016 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

 

 

amounts in millions

 

TripAdvisor Credit Facilities

 

 

260

 

164

 

TripAdvisor Chinese credit facilities

 

 

 7

 

 7

 

TripCo margin loans

 

 

206

 

203

 

TripCo variable postpaid forward

 

 

262

 

261

 

Total consolidated TripCo debt

 

$

735

 

635

 

Less debt classified as current

 

 

(7)

 

(80)

 

Total long-term debt

 

$

728

 

555

 

TripAdvisor Credit Facilities

On June 26, 2015, TripAdvisor entered into a five year credit agreement, which among other things, provides for a $1 billion unsecured revolving credit facility (the “2015 Credit Facility”). On May 12, 2017, the 2015 Credit Facility was amended to, among other things, (i) increase the aggregate amount of revolving loan commitments available from $1.0 billion to $1.2 billion; and (ii) extend the maturity date of the 2015 Credit Facility from June 26, 2020 to May 12, 2022. 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% (“Eurocurrency Spread”), based on TripAdvisor’s leverage ratio; or (ii) the Alternate Base Rate (“ABR”) Borrowing, which is the greatest of (a) the Prime Rate in effect on such day, (b) the New York Fed Bank Rate in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted 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% (“ABR Spread”), based on TripAdvisor’s leverage ratio. TripAdvisor may borrow from the revolving credit facility in U.S dollars, Euros and British pound sterling.

There is no specific repayment date prior to the maturity date for borrowings under this revolving credit facility. During the six months ended June 30, 2017, TripAdvisor borrowed an additional $375 million and repaid $206 million of outstanding borrowings under the 2015 Credit Facility. As of June 30, 2017, based on TripAdvisor’s leverage ratio, borrowings bear interest at LIBOR plus an applicable margin of 1.25%, or the Eurocurrency Spread. TripAdvisor is currently borrowing under a one-month interest rate period or a weighted average rate of 2.37% per annum as of June 30, 2017, using a one-month interest period Eurocurrency Spread, which will reset periodically. Interest will be payable on a monthly basis while TripAdvisor is borrowing under the one-month interest rate period. 

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 revolving credit facility for each fiscal quarter and additional fees in connection with the issuance of letters of credit. As of June 30, 2017, TripAdvisor’s unused revolver capacity is 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 for Swing Line borrowings on same-day notice. As of June 30, 2017,

I-16


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

TripAdvisor had issued $3 million of outstanding letters of credit 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. Certain wholly-owned domestic subsidiaries of TripAdvisor have agreed to guarantee TripAdvisor’s obligations under the 2015 Credit Facility.

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 TripAdvisor’s 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. Additionally, the 2015 Credit Facility includes a subjective acceleration clause, which could be triggered by the lenders if a representation, warranty or statement made by TripAdvisor proves to be incorrect in any material respect, which in turn would permit the lenders to accelerate repayment of any outstanding obligations.  TripAdvisor believes that the likelihood of the lender exercising this right is remote and, as such, borrowings under this facility are classified as long-term debt.     

On September 7, 2016, TripAdvisor entered into an uncommitted facility agreement with Bank of America Merrill Lynch International Limited (the “Lender”), which provides 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.  The 2016 Credit Facility is available at the Lender’s absolute discretion and can be canceled at any time. Repayment terms for borrowings under the 2016 Credit Facility are generally one to six month periods or such other periods as the parties may mutually agree and bear interest at LIBOR plus 112.5 basis points.  TripAdvisor may borrow from the 2016 Credit Facility in U.S. dollars only and it may voluntarily repay any outstanding borrowing at any time without premium or penalty.  Any overdue amounts under or in respect of the 2016 Credit Facility not paid when due shall bear interest in the case of principal at the applicable interest rate plus 1.50% per annum. In addition, TripAdvisor, LLC, a wholly-owned domestic subsidiary of TripAdvisor, has agreed to guarantee TripAdvisor’s obligations under the 2016 Credit Facility.  There are no specific financial or incurrence covenants. 

TripAdvisor repaid all outstanding borrowings on the 2016 Credit Facility during the first three months of 2017 and, as of June 30, 2017,  had no outstanding borrowings.

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 currently bear interest at a rate based on the People’s Bank of China benchmark,  including certain adjustments which may be made in accordance with the market condition at the time of borrowing.  As of June 30, 2017, TripAdvisor had no outstanding borrowings from the Chinese Credit Facility—BOA. 

In addition, TripAdvisor’s Chinese subsidiary is party to a RMB 70,000,000 (approximately $10 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 the market condition at the time of borrowing.  As of June 30,

I-17


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

2017, TripAdvisor had $7 million of outstanding borrowings under the Chinese Credit Facility—JPM at a weighted average rate of 4.47%.

TripCo Margin Loans and Variable Postpaid Forward

On August 21, 2014, a wholly owned subsidiary of TripCo entered into two margin loan agreements, which aggregated total borrowings of $400 million. Interest on the margin loans accrued at a rate of 3.65% plus LIBOR for six months and 3.25% thereafter. Interest on the margin loans was paid in kind and added to the principal amount on the loans.

In connection with the variable postpaid forward transaction entered into on June 6, 2016, as described in note 4, TripCo borrowed $259 million against the variable postpaid forward on June 23, 2016.  The term of the variable postpaid forward is four years. At maturity, the accreted loan amount due is approximately $272 million. The proceeds from the variable postpaid forward were used to repay $200 million in principal and $29 million of paid in kind interest on the margin loans with the remainder being used for general corporate purposes.

On June 23, 2016, TripCo amended the terms of the margin loan agreements with respect to the remaining borrowings of $200 million. Common Stock and Class B Common Stock of TripAdvisor were pledged as collateral pursuant to these agreements. Each agreement contains language that indicates that the Company, as borrower and transferor of underlying shares as collateral, has the right to exercise all voting, consensual and other powers of ownership pertaining to the transferred shares for all purposes, provided that TripCo agrees that it will not vote the shares in any manner that would reasonably be expected to give rise to transfer or certain other restrictions. Similarly, the loan agreements indicate that no lender party shall have any voting rights with respect to the shares transferred, except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms of the loan agreements. The agreements also contain certain restrictions related to additional indebtedness and margin calls. The initial margin call would require the outstanding balance to be reduced to $150 million if at any time the closing price per share of TripAdvisor common stock were to fall below certain minimum values. Pursuant to the amendments, interest on the margin loans accrues at a rate of 2.0% plus LIBOR per year to be paid in kind or cash at the election of TripCo. The Company expects that interest on the loan will be paid in kind and added to the principal amount on the loan. The term of the loan is three years and the maturity date is June 21, 2019.

For the six months ended June 30, 2017, TripCo recorded $3 million and $2 million of non-cash interest related to the amended margin loans and variable postpaid forward, respectively.

As of June 30, 2017,  the values of TripAdvisor’s shares pledged as collateral pursuant to the margin loan agreements and variable postpaid forward, determined based on the trading price of the Common Stock and on an as-if converted basis for the Class B Common Stock, are as follows:

 

 

 

 

 

 

 

   

 

Number of Shares

   

   

 

 

 

 

Pledged as

 

 

 

 

   

 

Collateral as of

   

Share value as of

 

Pledged Collateral

 

June 30, 2017

 

June 30, 2017

 

   

 

amounts in millions

 

Common Stock

 

18.2

 

$

694

 

Class B Common Stock

 

12.8

 

$

489

 

The outstanding margin loans contain various affirmative and negative covenants that restrict the activities of the borrower. The loan agreements do not include any financial covenants.

I-18


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Additionally, in support of the original margin loan agreements, TripCo and Liberty Interactive LLC entered into a promissory note (which expires in August 2017) whereby TripCo may request, upon certain margin call thresholds, up to $200 million in funds. Proceeds from the promissory note must be used by a bankruptcy remote wholly-owned subsidiary of TripCo to offset obligations under the margin loan agreements.

Debt Covenants

As of June 30, 2017, each of the Company and TripAdvisor was in compliance with its respective debt covenants.

(6) Commitments and Contingencies

Litigation

In the ordinary course of business, the Company and its subsidiaries are parties to legal proceedings and claims involving alleged infringement of third‑party intellectual property rights, defamation, and other claims. Although it is reasonably possible that the Company may incur losses upon conclusion of such matters, an estimate of any loss or range 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 condensed consolidated financial statements.

(7) Segment Information

TripCo, through its ownership interests in subsidiaries and other companies, is primarily engaged in the online commerce industries. TripCo identifies its reportable segments as (A) those consolidated companies that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of TripCo’s annual pre‑tax earnings.

TripCo evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue, Adjusted OIBDA, gross margin, and revenue or sales per customer equivalent. In addition, TripCo reviews nonfinancial measures such as unique website visitors, conversion rates and active customers, as appropriate.

TripCo defines Adjusted OIBDA as revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding stock‑based compensation). TripCo believes this measure is an important indicator of the operational strength and performance of its businesses, including each business’s ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock‑based compensation, separately reported litigation settlements 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. TripCo generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.

For the six months ended June 30, 2017, TripCo has identified the following consolidated company as its reportable segment:

·

TripAdvisor - an online travel research company, empowering users to plan and maximize their travel experience.

I-19


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

TripCo’s operating segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The accounting policies of the segments are the same as those described in the Company’s Summary of Significant Accounting Policies included in the Annual Report on Form 10-K for the year ended December 31, 2016.

Performance Measures

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 

2017

 

2016

 

 

 

 

 

 

Adjusted

 

 

 

Adjusted

 

 

 

Revenue

 

OIBDA

 

Revenue

 

OIBDA

 

 

 

amounts in millions

 

TripAdvisor

    

$

424

    

101

    

391

    

95

 

Corporate and other

 

 

 7

 

(3)

 

 7

 

(3)

 

Consolidated TripCo

 

$

431

 

98

 

398

 

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 

2017

 

2016

 

 

 

 

 

 

Adjusted

 

 

 

Adjusted

 

 

 

Revenue

 

OIBDA

 

Revenue

 

OIBDA

 

 

 

amounts in millions

 

TripAdvisor

    

$

796

    

174

    

743

    

180

 

Corporate and other

 

 

13

 

(7)

 

16

 

(10)

 

Consolidated TripCo

 

$

809

 

167

 

759

 

170

 

Other Information

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

Total

 

Capital

 

 

 

assets

 

expenditures

 

 

 

amounts in millions

 

TripAdvisor

    

$

7,360

    

35

 

Corporate and other

 

 

97

 

 1

 

Consolidated TripCo

 

$

7,457

 

36

 

 

I-20


 

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

The following table provides a reconciliation of segment Adjusted OIBDA to operating income (loss) and earnings (loss) before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

 

 

 

ended June 30,

 

ended June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

amounts in millions

 

Consolidated segment Adjusted OIBDA

    

$

98

    

92

    

167

    

170

 

Stock-based compensation

 

 

(30)

 

(24)

 

(50)

 

(45)

 

Depreciation and amortization

 

 

(55)

 

(55)

 

(111)

 

(110)

 

Operating income (loss)

 

 

13

 

13

 

 6

 

15

 

Interest expense

 

 

(7)

 

(7)

 

(12)

 

(15)

 

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

 

 

13

 

 7

 

19

 

 6

 

Gain (loss) on dispositions, net

 

 

(18)

 

 —

 

(18)

 

 —

 

Other, net

 

 

 2

 

(3)

 

 3

 

(1)

 

Earnings (loss) before income taxes

 

$

 3

 

10

 

(2)

 

 5

 

 

 

 

 

 

I-21


 

   

Table of Contents

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

Certain statements in this Quarterly Report on Form 10-Q 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 non-material impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. 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 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 company to adapt to changes in demand;

·

competitor responses to products and services;

·

the levels and quality of online traffic to our 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;

·

the ability of suppliers and vendors to deliver products, 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 our business models, including the rollout of TripAdvisor, Inc.’s (“TripAdvisor”) instant booking feature;

·

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

·

domestic and international economic and business conditions and industry trends, including the impact of “Brexit” and those 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;

·

failure to protect the security of personal information about customers, subjecting each of 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.

I-22