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4-Traders Homepage  >  Equities  >  Nasdaq  >  Tripadvisor Inc    TRIP

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TRIPADVISOR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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02/17/2017 | 10:51pm CET

Overview


TripAdvisor, Inc., by and through its subsidiaries, owns and operates a
portfolio of leading online travel brands. TripAdvisor, our flagship brand, is
the world's largest travel site, and its mission is to help people around the
world plan, book and experience the perfect trip. We accomplish this by, among
other things, aggregating millions of travelers' reviews and opinions about
destinations, accommodations, activities and attractions, and restaurants
worldwide, thereby creating the foundation for a unique platform that enables
users to research and plan their travel experiences. Our platform also enables
users to compare real-time pricing and availability for these experiences as
well as to book hotels, flights, cruises, vacation rentals, tours, activities
and attractions, and restaurants, either on a TripAdvisor site or app, or on the
site or app of one of our travel partner sites.

Our TripAdvisor-branded websites include tripadvisor.com in the United States
and localized versions of the TripAdvisor website in 48 markets and 28 languages
worldwide. Our TripAdvisor-branded websites reached nearly 390 million average
monthly unique visitors in our seasonal peak during the year ended December 31,
2016, according to our internal log files. We currently feature 465 million
reviews and opinions on 7 million places to stay, places to eat and things to do
- including 1,060,000 hotels and accommodations and 835,000 vacation rentals,
4.3 million restaurants and 760,000 activities and attractions worldwide.

In addition to the flagship TripAdvisor brand, we manage and operate 23 other
travel media brands, connected by the common goal of providing users the most
comprehensive travel-planning and trip-taking resources in the travel industry.
For additional information about our portfolio of brands and our business model,
see the disclosure set forth in Part I, Item 1, Business, under the caption
"Overview."

Our reporting structure includes two reportable segments: Hotel and Non-Hotel.
Our Non-Hotel reportable segment consists of three operating segments, which
includes our Attractions, Restaurants and Vacation Rentals businesses. The
segments are determined based on how the chief operating decision maker
regularly assesses information and evaluates performance for operating
decision-making purposes, including allocation of resources.  Financial
information and additional descriptive information related to our segments and
geographic information is contained in "Note 17 - Segment and Geographic
Information," in the notes to our consolidated financial statements in Item 8
and below.

Executive Financial Summary and Trends


As the largest online travel platform, we believe we are an attractive marketing
channel for advertisers-including hotel chains, independent hoteliers, OTAs,
destination marketing organizations, and other travel-related and non-travel
related product and service providers- who seek to sell their products and
services to our large user base. We are also a booking platform offering users
the ability to book hotels, flights, cruises, vacation rentals, tours,
activities and attractions, and restaurants directly on our website. The key
drivers of our financial results are described below, including a summary of our
key financial results, business metrics, and current trends affecting our
business, and our segment information.

Below are our key financial results and business metrics for the year ended December 31, 2016 (consolidated unless otherwise noted):

Financial results

• Revenue of $1,480 million, a decrease of 1% year over year.

• Hotel segment revenue of $1,190 million, a decrease of 6% year over year

and Non-Hotel segment revenues of $290 million, an increase of 27% year

over year.

• Revenue from North America, EMEA, APAC and LATAM was $830 million, $454

          million, $144 million and $52 million, respectively.


  • Total costs and expenses were $1,314 million.




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  • Operating income was $166 million.


  • Effective tax rate of 20.5%.


  • Net income of $120 million, or diluted earnings per share of $0.82.


  • Operating cash flow was $321 million.


  • Capital expenditures were $72 million.

• Cash and cash equivalents, and short and long term available-for-sale

          marketable securities were $746 million as of December 31, 2016.


  • Headcount was 3,327 as of December 31, 2016.

Business Metrics

  • Revenue per hotel shopper decreased 15% year over year.


  • Average unique monthly hotel shoppers increased 6% year over year.

Current Trends in Our Business

Hotel Segment


In our hotel segment, we have invested significant time and resources towards
enabling users to book hotels on our sites and applications through our instant
booking feature. We began with the accelerated rollout in our two largest
markets - the United States and the United Kingdom - in the third quarter of
2015, and completed an accelerated and staged global rollout of this feature to
all of our markets during the first half of 2016. During the year, the instant
booking feature has monetized at a lower revenue per hotel shopper rate than our
metasearch feature, and therefore has been dilutive to our TripAdvisor-branded
click-based and transaction revenue growth and to our overall revenue per hotel
shopper. However, in the second half of 2016, TripAdvisor-branded click-based
and transaction revenue growth rates improved as we lapped the instant booking
rollout in the United States, our largest market, increased spend in our online
paid marketing channels, and made product enhancements throughout the year. In
addition, the majority of our instant booking revenue is recorded under the
consumption model and is recognized at the time the traveler consumes, or
completes, the stay. Comparatively, revenue recognized under our metasearch
feature is recorded when a traveler makes the click-through to the travel
partners' websites. In future periods, greater contribution from our instant
booking consumption model to TripAdvisor-branded click-based and transaction
revenue could result in additional revenue recognized at the time of a consumed
stay and therefore a shift in the timing of our revenue recognition.

During 2016, we continued to improve our hotel shopping experience, which
included an improved display of our metasearch and instant booking features to
hotel shoppers, as well as improving booking transaction acumen, which includes
improving the on-site experience by offering the best price value proposition,
improving room-level content, optimizing the room selection and booking path,
and on-boarding more partners with strong branding and supply channels in order
to achieve increased initial and repeat bookings. We have continued to explore
and develop additional opportunities to engage users with our booking
capabilities through online and offline marketing. We now offer users an
end-to-end hotel shopping experience, which we believe has improved the hotel
shopping experience, as well as educated users about our more comprehensive
offering, which we believe will enable us to drive more conversions of hotel
shoppers to bookings, ultimately resulting in higher bookings for our partners
and higher revenue per hotel shopper on our platform.

In 2016, hotel shopper growth slowed due to a number of factors, including lower
revenue per hotel shopper impacting our advertising expenditure, macroeconomic
and geopolitical factors, a continued intense competitive environment, and other
travel market dynamics. One of our key strategic objectives is to grow our brand
awareness and grow the number of hotel shoppers on our platforms. We continue to
leverage a number of marketing channels, both paid and unpaid, to achieve this
objective, including online efforts such as SEM, social media, and email
campaigns, as well as offline efforts such as permanent branding campaigns
(TripAdvisor-branded travel awards, certificates, stickers and badges). Over
time, the traffic visiting our websites and applications from paid marketing



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channels has generally grown faster than traffic from unpaid sources due to competition from other travel companies and search engines and we may see a continuation of this trend.


In 2016, hotel shoppers that visited our websites and applications on mobile
phone continued to grow significantly faster than traffic from desktop and
tablet devices. As a result, this has contributed to a decline in revenue per
hotel shopper and our click-based and transaction revenue, as mobile phone
devices monetize significantly less than desktop and tablet. This is due to a
number of factors, including the fact that mobile phone is still in the early
stages of eCommerce adoption, our partners reduced ability to attribute booking
behavior on their websites and applications back to TripAdvisor, limited
advertising opportunities on smaller screen devices, lower cost-per-click, lower
booking intent, and lower average gross booking value based on consumer
purchasing patterns. Mobile phone product development continues to be an area of
strategic growth and investment, and we will continue to invest and innovate in
this growing platform in order to increase our user base, engagement and
monetization over the long term.

As a global travel business specializing in discretionary leisure travel, we
believe our 2016 hotel shopper growth, revenue per hotel shopper and Hotel
segment financial performance also was negatively impacted by macroeconomic and
geopolitical dynamics, including foreign currency and a number of terrorism
events, among other factors.

Non-Hotel Segment


TripAdvisor's end-to-end user experience extends beyond our hotel business. In
2016, unique monthly users to non-hotel pages on our websites and applications -
including attractions, restaurants, and vacation rentals - continued to grow. In
efforts to address this growing demand and engagement with these products we
have strategically invested in improving the user experience on all devices as
well as in building our inventory of global supply of bookable attractions,
restaurants, and vacation rentals. In addition to achieving strong supply
growth, during 2016 we drove increased mobile engagement and mobile bookings
with new mobile ticketing capabilities and mobile push notifications, including
in-destination suggestions on the best things to do, helpful tips on the best
nearby restaurants, and popular dish recommendations. Continued successful
execution of our key growth strategies resulted in 27% revenue growth in this
segment in 2016, when compared to the same period in 2015. Increasing traffic to
and engagement with our Non-Hotel business, as well as increasing our global
supply to offer users more choice are ongoing strategic objectives.



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                             Results of Operations

                            Selected Financial Data

              (in millions, except per share data and percentages)



                                             Year ended December 31,                         % Change
                                         2016          2015         2014        2016 vs. 2015        2015 vs. 2014
Revenue                                $   1,480     $  1,492     $  1,246                  (1 )%                20 %

Costs and expenses:
Cost of revenue                               71           58           40                  22 %                 45 %
Selling and marketing                        756          692          502                   9 %                 38 %
Technology and content                       243          207          171                  17 %                 21 %
General and administrative                   143          210          128                 (32 )%                64 %
Depreciation                                  69           57           47                  21 %                 21 %
Amortization of intangible assets             32           36           18                 (11 )%               100 %
Total costs and expenses                   1,314        1,260          906                   4 %                 39 %
Operating income                             166          232          340                 (28 )%               (32 )%
Other income (expense):
Interest expense                             (12 )        (10 )         (9 )                20 %                 11 %
Interest income and other, net                (3 )         17           (9 )               118 %               (289 )%
Total other income (expense), net            (15 )          7          (18 )               314 %               (139 )%
Income before income taxes                   151          239          322                 (37 )%               (26 )%
Provision for income taxes                   (31 )        (41 )        (96 )               (24 )%               (57 )%
Net income                             $     120     $    198     $    226                 (39 )%               (12 )%
Earnings per share attributable to
common
  stockholders:
Basic                                  $    0.83     $   1.38     $   1.58                 (40 )%               (13 )%
Diluted                                $    0.82     $   1.36     $   1.55                 (40 )%               (12 )%
Weighted average common shares
outstanding:
Basic                                        145          144          143                   1 %                  1 %
Diluted                                      147          146          146                   1 %                  0 %
Other financial data:
Adjusted EBITDA (1)                    $     352     $    466     $    468                 (24 )%                 0 %

(1) Adjusted EBITDA is a non-GAAP measure. See "Adjusted EBITDA" discussion below for more information.






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Consolidated Revenue and Segments

Revenue and Segment Information


In the first quarter of 2016 we began providing additional disclosure on our
revenue sources within our Hotel segment, which are TripAdvisor-branded
click-based and transaction revenue, TripAdvisor-branded display-based
advertising and subscription revenue, and other hotel revenue. The purpose of
this additional disclosure is to provide further understanding of our hotel
revenue sources and allow for additional insight into the calculation of one of
our key operating performance metrics, revenue per hotel shopper. In conjunction
with providing these additional revenue disclosures, we will no longer provide
our historically reported revenue disclosure of click-based advertising,
display-based advertising, and subscription, transaction and other revenues.
This change had no effect on our consolidated financial statements in any period
or with the composition of our operating or reportable segments.



                                               Year ended December 31,                           % Change
                                           2016          2015          2014         2016 vs. 2015        2015 vs. 2014
Revenue by Segment:                                 (in millions)
Hotel                                    $  1,190      $  1,263      $  1,135                   (6 )%                11 %
Non-Hotel                                     290           229           111                   27 %                106 %
Total revenue                            $  1,480      $  1,492      $  1,246                   (1 )%                20 %
Adjusted EBITDA by Segment (1):
Hotel                                    $    380      $    472      $    472                  (19 )%                 0 %
Non-Hotel                                     (28 )          (6 )          (4 )               (367 )%               (50 )%
Adjusted EBITDA Margin by Segment (2):
Hotel                                          32 %          37 %          42 %
Non-Hotel                                     (10 )%         (3 )%         (4 )%






    (1) Included in Adjusted EBITDA is a general and administrative expense

allocation for each segment, which is based on the segment's percentage of

our total personnel costs, excluding stock-based compensation. See

"Note 17 - Segment and Geographic Information," in the notes to our

consolidated financial statements in Item 8 for more information and for a

reconciliation of Adjusted EBITDA to net income, for the periods presented

        above.


    (2) We define "Adjusted EBITDA Margin by Segment", as Adjusted EBITDA by
        segment divided by revenue by segment.

Hotel Segment


Our Hotel segment revenue decreased $73 million during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to a
$87 million decrease in TripAdvisor-branded click-based and transaction revenue,
which is primarily due to a decline in revenue per hotel shopper of 15%,
partially offset by a 6% increase in average unique monthly hotel shoppers,
partially offset by growth of $10 million in TripAdvisor-branded display-based
advertising and subscription revenue, and $4 million in other hotel revenue. Our
Hotel segment revenue increased $128 million during the year ended December 31,
2015 when compared to the same period in 2014, primarily due to a $73 million
increase in TripAdvisor-branded click-based and transaction revenue, which is
primarily due to an increase in average unique monthly hotel shoppers of 15%
partially offset by a 4% decrease in revenue per hotel shopper, a $39 million
increase in TripAdvisor-branded display-based advertising and subscription
revenue, and $16 million increase in other hotel revenue. See below for
discussion of these revenue sources within our Hotel segment.

Adjusted EBITDA in our Hotel segment decreased $92 million during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to a
decrease in Hotel segment revenue and increased operating costs, primarily
driven by an increase in online traffic acquisition costs, partially offset by
lower television advertising costs due to the cessation of our television
advertising campaign in 2016. Our Hotel segment adjusted EBITDA margin also
decelerated during the year ended December 31, 2016 when compared to the same
period in 2015, primarily due to an overall decrease in Hotel segment revenue,
and to a lesser extent an increase in operating costs. Adjusted EBITDA in our
Hotel Segment was flat for the year ended December 31, 2015 when compared to the
same period in 2014, due to an increase in revenue, offset by increased
operating costs, primarily driven by increased personnel and overhead costs,
online traffic acquisition costs, and television advertising. Our Hotel



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segment adjusted EBITDA margin also decelerated during the year ended December 31, 2015 when compared to the same period in 2014, primarily due to the deceleration in revenue growth year over year.


The following is a detailed discussion of the revenue sources within our Hotel
segment:



                                            Year ended December 31,                       % Change
                                        2016          2015         2014       2016 vs 2015       2015 vs 2014
Hotel:                                           (in millions)
TripAdvisor-branded click-based and
transaction                           $     750     $    837     $    764               (10 %)              10 %
TripAdvisor-branded display-based
advertising and
  Subscription                              282          272          233                 4 %               17 %
Other hotel revenue                         158          154          138                 3 %               12 %
Total Hotel revenue                   $   1,190     $  1,263     $  1,135                (6 %)              11 %



TripAdvisor-branded Click-based and Transaction Revenue


TripAdvisor-branded click-based and transaction revenue includes click-based
advertising revenue (or revenue derived from our metasearch auction) from our
TripAdvisor-branded websites and revenue from our transaction-based instant
booking feature. For the years ended December 31, 2016, 2015 and 2014, 63%, 66%
and 67%, respectively, of our total Hotel segment revenue was derived from our
TripAdvisor-branded click-based and transaction revenue. TripAdvisor-branded
click-based and transaction revenue decreased $87 million during the year ended
December 31, 2016, when compared to the same period in 2015, primarily due to a
decline of 15% in revenue per hotel shopper, offset by an increase in average
monthly unique hotel shoppers of 6% during the year ended December 31, 2016.
TripAdvisor-branded click-based and transaction revenue increased $73 million
during the year ended December 31, 2015, when compared to the same period in
2014, primarily due to an increase in average monthly unique hotel shoppers of
15%, offset by a decline of 4% in revenue per hotel shopper during the year
ended December 31, 2015.

Our largest source of Hotel segment revenue is click-based advertising revenue
from our TripAdvisor-branded websites, which includes links to our partners'
sites and contextually-relevant branded and related text links. Click-based
advertising is generated primarily through our metasearch auction, a description
of which follows. Our click-based advertising partners are predominantly OTAs,
and direct suppliers in the hotel product category. Click-based advertising is
generally priced on a cost-per-click, or "CPC", basis, with payments from
advertisers based on the number of users who click on each type of link, or in
other words a conversion of a hotel shopper to a paid click. CPC is the price
that partners are willing to pay for a hotel shopper lead, and is determined in
a competitive process that enables our partners to use our proprietary,
automated bidding system to submit CPC bids to have their rates and availability
listed on our site. This process is called our metasearch auction. When a
partner submits a CPC bid, they are agreeing to pay the amount of that bid each
time a user subsequently clicks on the link to the partner's website. Bids can
be submitted periodically - as often as daily- on a property-by-property basis.
The size of the bid relative to other bids received is the primary factor used
to determine the placement of partner links on our site, including on hotel
comparison search results and on property detail pages. CPCs are generally lower
in markets outside the U.S., than in the U.S. market, and, in addition, hotel
shoppers visiting via mobile phones currently monetize at a significantly lower
rate than hotel shoppers visiting via desktop or tablet.

Our transaction revenue is comprised of revenue from our instant booking
feature, which enables the merchant of record, generally an OTA or hotel
partner, to pay a commission to TripAdvisor for a user that completes a hotel
reservation on our website. Instant booking revenue is currently recognized
under two different models: the transaction model and the consumption model. Our
transaction model commission revenue is recorded at the time a traveler books a
hotel reservation on our site with one of our transaction partners. Our
transaction partners are liable for commission payments to us upon booking and
the partner assumes the cancellation risk. When a traveler makes a hotel
reservation on our site with one of our consumption partners, which comprises
the majority of our instant booking revenue, revenue is not recorded until the
traveler completes the stay as our consumption partners are liable for
commission payment only upon the completion of stay by the traveler. OTA and
hotel partner placement, as well as comparative hotel prices available to the
traveler in the booking process under both models, are determined



                                       39

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by a bidding process within our proprietary automated bidding system, based on a
number of variables, primarily hotel room prices, but also including other
factors, such as conversion rates and commission rates, depending on the
specific hotel selected. Instant booking commissions are primarily a function of
average gross booking value generated from hotel reservations, cancellation
rates experienced, and commission rates negotiated with each of our partners.

The key drivers of TripAdvisor-branded click-based and transaction revenue
include the growth in average monthly unique hotel shoppers and, in particular,
revenue per hotel shopper, which measures how effectively we convert our hotel
shoppers into revenue. We measure performance by calculating revenue per hotel
shopper on an aggregate basis, dividing total TripAdvisor-branded click-based
and transaction revenue by total average monthly unique hotel shoppers on
TripAdvisor-branded websites for the periods presented.

While we believe total traffic growth, or growth in monthly visits from unique
visitors, is reflective of our overall brand growth, we also track and analyze
sub-segments of our traffic and their correlation to revenue generation and
utilize data regarding hotel shoppers as a key indicator of revenue growth.
Hotel shoppers are visitors who view either a listing of hotels in a city or a
specific hotel page. The number of hotel shoppers tends to vary based on
seasonality of the travel industry and general economic conditions, as well as
other factors outside of our control. Given these factors, as well as the trend
towards increased usage on mobile phones and international expansion, quarterly
and annual hotel shopper growth is a difficult metric to forecast.

Our aggregate average monthly unique hotel shoppers on TripAdvisor-branded
websites increased by 6% and 15%, respectively, for the years ended December 31,
2016 and 2015, when compared to the same periods in 2015 and 2014, according to
our log files. The increase in hotel shoppers for the years ended December 31,
2016 and 2015, was primarily due to growth in our paid online marketing channels
as well as the general trend of an increasing number of hotel shoppers visiting
our websites and apps on mobile phones, which has grown significantly faster
than traffic from desktop and tablet devices during these periods. Our average
monthly unique hotel shopper growth rate decelerated during the year ended
December 31, 2016, when compared to the same period in 2015, due to the dilutive
effects from the global launch of our instant booking product feature, which
impacted 2016 to a greater extent than 2015 due to the timing of the staged
rollout, increased competition, macroeconomic and geopolitical factors,
including foreign currency and a number of terrorism events, among other
factors. While increasing the absolute number of hotel shoppers on our sites
remains a top strategic priority, our ability to grow through paid traffic
channels has been negatively impacted by lower revenue per hotel shopper.

The below table summarizes our revenue per hotel shopper calculation and growth rate, in aggregate, for the periods presented:



                                            Year ended December 31,                       % Change
                                        2016          2015         2014       2016 vs 2015       2015 vs 2014
                                                 (in millions)
Revenue per hotel shopper:
TripAdvisor-branded click-based and
  transaction revenue                 $     750     $    837     $    764               (10 %)              10 %
Divided by: Total average unique
monthly hotel
  shoppers for the year                   1,645        1,555        1,357                 6 %               15 %
                                      $    0.46     $   0.54     $   0.56               (15 %)              (4 %)




Our overall revenue per hotel shopper decreased 15% and 4%, during the years
ended December 31, 2016 and 2015, respectively, when compared to the same
periods in 2015 and 2014, according to our log files.  We believe the primary
drivers of this decrease include the dilutive effects from our global launch of
our instant booking product feature, which impacted 2016 to a greater extent
than 2015 due to the timing of the staged rollout, a greater percentage of hotel
shoppers visiting TripAdvisor websites and apps via mobile phones, in addition
to, challenging metasearch comparatives in early 2016 relative to the same
periods in 2015, increased competition, macroeconomic and geopolitical factors,
including foreign currency and a number of terrorism events, among other
factors.



                                       40
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TripAdvisor-branded Display-based Advertising and Subscription Revenue


For the years ended December 31, 2016, 2015 and 2014, 24%, 22% and 21%,
respectively, of our Hotel segment revenue was derived from our
TripAdvisor-branded display based advertising and subscription revenue, which
primarily consists of revenue from display-based advertising and
subscription-based hotel advertising revenue (or Business Advantage, formerly
Business Listings). Our TripAdvisor-branded display-based advertising and
subscription revenue increased by $10 million or 4%, and $39 million or 17%,
during the years ended December 31, 2016 and 2015, respectively, when compared
to the same periods in 2015 and 2014. Display-based advertising revenue and
subscription revenue each grew at comparable rates during these periods.

                                 2016 vs. 2015

The increase in display-based advertising revenue was primarily due to a slight
increase in pricing, as well as impressions sold during the year, while the
increase in subscription revenue was a result of increased sales productivity in
2015 which also benefitted 2016, as well as increased pricing and improvements
in customer retention rates. The display-based advertising and subscription
revenue growth rate decelerated during the year ended December 31, 2016, when
compared to the same period in 2015, primarily due to the decline in the number
of impressions sold for display-based advertising and lower sales productivity
in 2016 for subscription revenue.

                                 2015 vs. 2014

The increase in display-based advertising revenue was a result of an increase in
the number of impressions sold, due to increased sales productivity, as well as
increased sellable inventory due to traffic growth and introduction of new
products and features, partially offset by a slight decrease in pricing, while
the increase in subscription revenue was primarily related to increased sales
productivity.

Other Hotel Revenue

For the years ended December 31, 2016, 2015 and 2014, 13%, 12% and 12%,
respectively, of our Hotel segment revenue was derived from other hotel
revenues. Our other hotel revenue primarily includes revenue from
non-TripAdvisor branded websites, such as smartertravel.com,
independenttraveler.com, and bookingbuddy.com, including click-based advertising
revenue, display-based advertising revenue and room reservations sold through
these websites. Our other hotel revenue increased by $4 million and $16 million
during the years ended December 31, 2016 and 2015, respectively, when compared
to the same periods in 2015 and 2014.

Non-Hotel Segment


For the years ended December 31, 2016, 2015 and 2014, our Non-Hotel segment
revenue accounted for 20%, 15% and 9%, respectively, of our total consolidated
revenue. Our Non-Hotel segment revenue increased by $61 million or 27%, for the
year ended December 31, 2016, when compared to the same period in 2015,
primarily driven by increased bookings in 2016 and 2015 across all businesses.

Our Attractions business benefitted in 2016 from an increase in supply of
attraction listings and attraction partners, continued growth in our user base
globally, and enhanced user experience from the introduction of new features,
such as attractions on instant booking for mobile, which enables users to
purchase tickets and tours seamlessly without leaving the mobile app. These
factors are all contributing to more consumer choice, increased conversion, and
continued revenue growth as a result of increased bookings. In our Restaurants
business, we have experienced continued revenue growth due to increased bookings
in our more established markets and additionally from expansion into new
markets. In our Vacation Rentals business we continued to see an increase in
property listings, as well as increased revenue during the year ended December
31, 2016, when compared to the same periods in 2015, primarily due to continued
growth in our free-to-list model and increased bookings during the year.

Our Non-Hotel segment revenue increased $118 million during the year ended
December 31, 2015 when compared to the same period in 2014. This was driven by
growth in our Vacation Rentals business, primarily due to growth in our
free-to-list commission-based booking model, and $96 million in incremental
revenue during the years ended December 31, 2015, when compared to the same
period in 2014, related to our Attractions and Restaurants businesses, which
Viator and Lafourchette were acquired in August 2014 and May 2014, respectively.



                                       41
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Adjusted EBITDA in our Non-Hotel segment decreased $22 million and $2 million
during the years ended December 31, 2016 and 2015, respectively, when compared
to the same periods in 2015 and 2014. The decrease during the year ended
December 31, 2016, when compared to the same period in 2015, was primarily due
to increased personnel and overhead costs of $47 million, in addition to
increased online traffic acquisition costs and merchant credit card and
transaction fees, which more than offset the increase in revenue. Adjusted
EBITDA in our Non-Hotel Segment was relatively flat for the year ended December
31, 2015 when compared to the same period in 2014. The Attractions, Restaurants
and Vacation Rentals businesses are all at the earlier stages of their growth
and business life cycle which require early investment to fund growth
initiatives, such as additional personnel, and a contributing factor to this
reportable segment operating at a loss for the periods presented.

Revenue by Geography

The following table presents our revenue by geographic region. Revenue by geography is based on the geographic location of our websites:



                                            Year ended December 31,                       % Change
                                        2016          2015         2014       2016 vs 2015       2015 vs 2014
                                                 (in millions)
Revenue by geographic region:
North America (1)                     $     830     $    775     $    629                 7 %               23 %
EMEA (2)                                    454          473          405                (4 %)              17 %
APAC (3)                                    144          172          156               (16 %)              10 %
LATAM (4)                                    52           72           56               (28 %)              29 %
Total                                 $   1,480     $  1,492     $  1,246                (1 %)              20 %




  (1) United States and Canada


  (2) Europe, Middle East, and Africa


  (3) Asia-Pacific


  (4) Latin America


Revenue outside of North America, or international revenue, decreased $67
million or 9% during the year ended December 31, 2016, when compared to the same
period in 2015 and increased $100 million or 16% during the year ended
December 31, 2015, when compared to the same period in 2014. International
revenue represented 44%, 48%, and 50% of total revenue during the years ended
December 31, 2016, 2015, and 2014, respectively. Our international revenue
growth rate decelerated during the year ended December 31, 2016 when compared to
the same period in 2015, primarily due to the overall decrease in revenue per
hotel shopper, which is explained above. Our international revenue also declined
as a percentage of total revenue during the year ended December 31, 2016 when
compared to the same period in 2015. We believe this was largely due to the
timing of our instant booking feature rollout in international markets during
the first half of this year, and its associated dilutive impact to
TripAdvisor-branded click-based and transaction revenue, as compared to the
rollout in our U.S market, which was completed in the third quarter of 2015, and
to a lesser extent the negative impact to total revenue from the fluctuation of
foreign currency exchange rates.  Although international revenue increased, our
international revenue growth rate slowed and international revenue, as a
percentage of total revenue, declined slightly during the year ended December
31, 2015 when compared to the same period in 2014, primarily due to the impact
of fluctuations in foreign currency exchange rates, specifically the prolonged
weakness of the Euro, in addition to our accelerated rollout of instant booking
in the U.K. in the third quarter of 2015, which had a dilutive impact on
international revenue in 2015. In addition, our international hotel shoppers
have generally monetized at lower revenue per hotel shopper rates than hotel
shoppers in the U.S. market for all periods presented.



                                       42

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Consolidated Expenses

Cost of Revenue

Cost of revenue consists of expenses that are directly related or closely
correlated to revenue generation, including direct costs, such as ad serving
fees, flight search fees, credit card fees and other transaction costs, and data
center costs. In addition, cost of revenue includes personnel and overhead
expenses, including salaries, benefits, stock-based compensation and bonuses for
certain customer support personnel who are directly involved in revenue
generation.



                                Year ended December 31,                     % Change
                             2016           2015       2014      2016 vs 2015      2015 vs 2014
                                     (in millions)
  Direct costs             $     51       $     43     $  31                19 %              39 %
  Personnel and overhead         20             15         9                33 %              67 %
  Total cost of revenue    $     71       $     58     $  40                22 %              45 %
  % of revenue                  4.8 %          3.9 %     3.2 %




                                 2016 vs. 2015

Cost of revenue increased $13 million during the year ended December 31, 2016,
when compared to the same periods in 2015, primarily due to increased direct
costs from merchant credit card and transaction fees of $5 million, driven by
additional transaction costs from growth in our Attractions and Vacation Rentals
free-to-list businesses, and to a lesser extent increased personnel costs from
increased headcount needed to support business growth and customer support
primarily in our Non-Hotel segment.

                                 2015 vs. 2014

Cost of revenue increased $18 million during the year ended December 31, 2015,
when compared to the same periods in 2014, primarily due to increased direct
costs from merchant credit card and transaction fees of $9 million, driven by
additional transaction costs from our 2014 business acquisition of our
Attractions business and growth in our Vacation Rentals free-to-list business;
and to a lesser extent increased personnel costs from additional headcount to
support business growth and customer support, primarily in our Non-Hotel
segment. Our Attractions and Restaurants businesses, which Viator and
Lafourchette were acquired in August 2014 and May 2014, respectively, added an
incremental $15 million to our cost of revenue for the year ended December 31,
2015, of which an incremental $6 million was related to personnel and overhead.

Selling and Marketing


Selling and marketing expenses primarily consist of direct costs, including
traffic generation costs from SEM and other online traffic acquisition costs,
syndication costs and affiliate program commissions, social media costs, brand
advertising, television and other offline advertising, and public relations. In
addition, our indirect sales and marketing expense consists of personnel and
overhead expenses, including salaries, commissions, benefits, stock-based
compensation and bonuses for sales, sales support, customer support and
marketing employees.



                                             Year ended December 31,                       % Change
                                        2016            2015         2014       2016 vs 2015      2015 vs 2014
                                                  (in millions)
Direct costs                          $     554       $    514     $    347                 8 %              48 %
Personnel and overhead                      202            178          155                13 %              15 %
Total selling and marketing           $     756       $    692     $    502                 9 %              38 %
% of revenue                               51.1 %         46.4 %       40.3 %




                                       43
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                                 2016 vs. 2015

Direct selling and marketing costs increased $40 million during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to
increased SEM and other online traffic acquisition costs of $79 million,
partially offset by a decrease in costs related to the cessation of our
television advertising campaign. We spent $51 million on our television
advertising campaign during the year ended December 31, 2015 in our Hotel
segment, which we did not incur during the year ended December 31,
2016. Personnel and overhead costs increased $24 million during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to an
increase in headcount in our Non-Hotel segment, which was needed to support
business growth.

                                 2015 vs. 2014

Direct selling and marketing costs increased $167 million during the year ended
December 31, 2015 when compared to the same period in 2014, primarily due to
increased SEM and other online traffic acquisition costs and increased costs
related to our television campaign. During the year ended December 31, 2015, we
spent $51 million on our television advertising campaign, all within our Hotel
segment. Personnel and overhead costs increased $23 million during the year
ended December 31, 2015 when compared to the same period in 2014, primarily due
to incremental personnel costs related to our 2014 business acquisitions in
Attractions (Viator purchased in August 2014) and Restaurants (Lafourchette
acquired in May 2014). Our Attraction and Restaurant businesses added an
incremental $68 million to our selling and marketing expenses for the year ended
December 31, 2015, of which an incremental $20 million was related to personnel
and overhead, with the remaining incremental costs primarily related to SEM and
other online traffic acquisition costs.

Technology and Content


Technology and content expenses consist primarily of personnel and overhead
expenses, including salaries and benefits, stock-based compensation and bonuses
for salaried employees and contractors engaged in the design, development,
testing, content support, and maintenance of our websites and mobile apps. Other
costs include licensing, maintenance expense, computer supplies, telecom costs,
content translation costs, and consulting costs.



                                             Year ended December 31,                        % Change
                                        2016            2015         2014       2016 vs 2015       2015 vs 2014
                                                  (in millions)
Personnel and overhead                $     213       $    174     $    147                22 %               18 %
Other                                        30             33           24                (9 %)              38 %

Total technology and content $ 243 $ 207 $ 171

               17 %               21 %
% of revenue                               16.4 %         13.9 %       13.7 %




                                 2016 vs. 2015

Technology and content costs increased $36 million during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to
increased personnel costs, including an increase of $12 million in stock-based
compensation, from increased headcount needed to support business growth,
including international expansion and enhanced site features.

                                 2015 vs. 2014

Technology and content costs increased $36 million during the year ended
December 31, 2015 when compared to the same period in 2014, primarily due to
increased personnel costs from increased headcount to support business growth,
including international expansion and enhanced site features, as well as
incremental personnel costs related to our 2014 business acquisitions in
Attractions (Viator purchased in August 2014) and Restaurants (Lafourchette
acquired in May 2014). Our Attractions and Restaurants businesses added an
incremental



                                       44
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$15 million to our technology and content expenses for the year ended December 31, 2015, of which an incremental $9 million was related to personnel and overhead.

General and Administrative


General and administrative expenses consist primarily of personnel and related
overhead costs, including personnel engaged in executive leadership, finance,
legal, and human resources, including stock-based compensation. General and
administrative costs also include professional service fees and other fees
including audit, legal, tax and accounting, and other costs including bad debt
expense, non-income taxes and charitable contributions.



                                             Year ended December 31,                         % Change
                                        2016            2015          2014       2016 vs 2015       2015 vs 2014
                                                  (in millions)
Personnel and overhead                $     101       $     106     $     87                (5 %)              22 %
Professional service fees and other          42             104           41               (60 %)             154 %
Total general and administrative      $     143       $     210     $    128               (32 %)              64 %
% of revenue                                9.7 %          14.1 %       10.3 %




                                 2016 vs. 2015

General and administrative costs decreased $67 million during the year ended
December 31, 2016, when compared to the same period in 2015. Personnel costs and
overhead costs decreased $5 million during the year ended December 31, 2016,
when compared to the same period in 2015. Professional service fees and other
also decreased $62 million during the year ended December 31, 2016, when
compared to the same period in 2015, primarily due to a non-cash charitable
contribution of $67 million during the year ended December 31, 2015, discussed
below, which did not reoccur in 2016, partially offset by increased consulting
costs, non-income taxes, and bad debt expense.

                                 2015 vs. 2014

General and administrative costs increased $82 million during the year ended
December 31, 2015, when compared to the same period in 2014, primarily due to an
increase in charitable contributions of $59 million. During the year ended
December 31, 2015, we made a $67 million non-cash charitable contribution to
settle our pledge obligation to the TripAdvisor Charitable Foundation, while we
recorded a charitable contribution of $8 million in the year ended December 31,
2014, which was settled in cash. See "Note 17- Segments and Geographic
Information" in the notes to our consolidated financial statements in Item 8 for
additional information. Personnel costs and overhead costs also increased $19
million, which was related to an increase in headcount to support our business
operations, as well as incremental personnel costs related to our 2014 business
acquisitions in Attractions (Viator purchased in August 2014) and Restaurants
(Lafourchette acquired in May 2014). Our Attractions and Restaurants businesses
added an incremental $11 million to our general and administrative expenses for
the year ended December 31, 2015, of which an incremental $8 million was related
to personnel and overhead.

Depreciation


Depreciation expense consists of depreciation on computer equipment, leasehold
improvements, furniture, office equipment and other assets, our corporate
headquarters building and amortization of capitalized software and website
development costs.



                                         Year ended December 31,
                                      2016           2015       2014
                                              (in millions)
                     Depreciation   $     69       $     57     $  47
                     % of revenue        4.7 %          3.8 %     3.8 %






                                       45
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Depreciation expense increased $12 million during the year ended December 31,
2016 when compared to the same period in 2015, primarily due to increased
amortization related to capitalized software and website development costs of $9
million and incremental depreciation on our corporate headquarters building of
$1 million. Depreciation expense increased $10 million during the year ended
December 31, 2015 when compared to the same period in 2014, primarily due to
increased amortization related to capitalized software and website development
costs of $7 million and incremental depreciation on our corporate headquarters
building of $2 million. Refer to "Note 13- Commitments and Contingencies" in the
notes to our consolidated financial statements in Item 8 for additional
information on our corporate headquarters asset.

Amortization of Intangible Assets


Amortization consists of the amortization of purchased definite-lived
intangibles.



                                                   Year ended December 31,
                                                2016           2015       2014
                                                        (in millions)
          Amortization of intangible assets   $     32       $     36     $  18
          % of revenue                             2.2 %          2.4 %     1.4 %




Amortization of intangible assets decreased $4 million during the year ended
December 31, 2016 when compared to the same period in 2015, primarily due to the
completion of amortization related to certain intangible assets from previous
business acquisitions. Amortization of intangible assets increased $18 million
during the year ended December 31, 2015 when compared to the same period in
2014, primarily due to incremental amortization from purchased definite lived
intangibles related to our 2014 business acquisitions. Refer to "Note 3-
Acquisitions and Dispositions" in the notes to our consolidated financial
statements in Item 8 for additional information on our acquisitions.

Interest Expense


Interest expense primarily consists of interest incurred, commitment fees and
debt issuance cost amortization related to our 2011 Credit Facility, 2015 Credit
Facility, 2016 Credit Facility, and Chinese Credit Facilities, as well as
interest on our financing obligation related to our corporate headquarters.



                                           Year ended December 31,
                                        2016           2015       2014
                                                (in millions)
                   Interest expense   $    (12 )     $    (10 )   $  (9 )




Interest expense increased $2 million during the year ended December 31, 2016
when compared to the same period in 2015, primarily due to an increase of $3
million in interest imputed on our financing obligation related to our corporate
headquarters lease in 2016, partially offset by a decrease in interest incurred
due to lower average outstanding borrowings during the year ended December 31,
2016. Interest expense increased $1 million during the year ended December 31,
2015 when compared to the same period in 2014, primarily due to interest imputed
on our financing obligation related to our corporate headquarters lease of
approximately $4 million in 2015, partially offset by a decrease in interest
incurred due to lower average outstanding borrowings during 2015. Refer to "Note
9- Debt" and "Note 13- Commitments and Contingencies" in the notes to our
consolidated financial statements in Item 8 for additional information on our
outstanding borrowing facilities and our financing obligation related to our
corporate headquarters, respectively.



                                       46

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Interest Income and Other, Net

Interest income and other, net primarily consists of interest earned and amortization of discounts and premiums on our marketable securities, net foreign currency exchange gains and losses, and gains and losses on sales of our marketable securities and sale of businesses.



                                                  Year ended December 31,
                                              2016          2015         2014
                                                       (in millions)
            Interest income and other, net   $    (3 )     $    17       $  (9 )




                                 2016 vs. 2015

Interest income and other, net decreased during the year ended December 31,
2016, when compared to the same period in 2015, primarily due to a $20 million
gain from sale of business of one of our Chinese subsidiaries in 2015 that did
not reoccur in 2016.

                                 2015 vs. 2014

Interest income and other, net increased during the year ended December 31, 2015, when compared to the same periods in 2014, primarily due to the fluctuation of foreign currency exchange rates and a $20 million gain from the sale of one of our Chinese subsidiaries during 2015. Refer to "Note 3- Acquisitions and Dispositions" in the notes to our consolidated financial statements in Item 8 for additional information on the sale of this business.


Provision for Income Taxes



                                               Year ended December 31,
                                             2016          2015       2014
                                                    (in millions)
              Provision for income taxes   $     31       $   41     $   96
              Effective tax rate               20.5 %       17.2 %     29.8 %




Our effective tax rate is generally less than the federal statutory rate in the
United States primarily due to earnings in jurisdictions outside the United
States, where our effective tax rate is lower. This is partly driven by a
statutory tax rate in the United Kingdom of 20% and our tax incentive of 5% tax
rate on qualifying income in Singapore granted by the Singapore Economic
Development Board in 2011. This incentive provides for a reduced tax rate on
qualifying income of 5% as compared to Singapore's statutory tax rate of 17% and
is conditional upon our meeting certain employment and investment thresholds,
which the Company has met through 2016. Our effective tax rate is partially
offset by state income taxes, non-deductible stock compensation and accruals on
uncertain tax positions.

                                 2016 vs. 2015

Our effective tax rate increased to 20.5% during the year ended December 31,
2016 from 17.2% in the same period in 2015. The change in the effective tax rate
for 2016 compared to the 2015 rate was primarily due to a change in
jurisdictional earnings, which includes a non-cash charitable contribution
during the year ended December 31, 2015, which did not reoccur in 2016, and the
recognition of prior year tax benefits in response to a recent U.S. Tax Court
ruling in regards to Altera Corporation on the treatment of stock-based
compensation in cost-sharing arrangements, both of which are discussed below.

                                 2015 vs. 2014

Our effective tax rate decreased to 17.2% during the year ended December 31,
2015 from 29.8% in the same period in 2014. The change in the effective tax rate
for 2015 compared to the 2014 rate was primarily due to a change in
jurisdictional earnings, which includes an incremental $59 million of expense
related to charitable contributions in the U.S. during 2015, and the recognition
of a tax benefit of $13 million in response to a recent U.S.



                                       47

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Tax Court ruling in regards to Altera Corporation on the treatment of
stock-based compensation in cost-sharing arrangements. Refer to "Note 10 -
Income Taxes" in the notes to our consolidated financial statements in Item 8
for a discussion regarding the Altera Corporation court ruling. The decline in
our effective tax rate was also partly driven by a decrease in the statutory tax
rate in the United Kingdom from 21% to 20% in 2015

Adjusted EBITDA


To provide investors with additional information regarding our financial
results, we also disclose Adjusted EBITDA, which is a non-GAAP financial
measure. A "non-GAAP financial measure" refers to a numerical measure of a
company's historical or future financial performance, financial position, or
cash flows that excludes (or includes) amounts that are included in (or excluded
from) the most directly comparable measure calculated and presented in
accordance with GAAP in such company's financial statements.

Adjusted EBITDA is our segment profit measure and a key measure used by our
management and board of directors to understand and evaluate the operating
performance of our business and on which internal budgets and forecasts are
based and approved. In particular, the exclusion of certain expenses in
calculating Adjusted EBITDA can provide a useful measure for period-to-period
comparisons of our core business. Accordingly, we believe that Adjusted EBITDA
provides useful information to investors and others in understanding and
evaluating our operating results in the same manner as our management and board
of directors. We define Adjusted EBITDA as net income (loss) plus: (1) provision
for income taxes; (2) other income (expense), net; (3) depreciation of property
and equipment, including amortization of internal use software and website
development; (4) amortization of intangible assets; (5) stock-based compensation
and other stock-settled obligations; (6) goodwill, long-lived asset and
intangible asset impairments; and (7) other non-recurring expenses and income.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results reported in accordance with GAAP. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our other GAAP results.

Some of these limitations are:

• Adjusted EBITDA does not reflect our cash expenditures or future

requirements for capital expenditures or contractual commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for,

          our working capital needs;


      •   Adjusted EBITDA does not reflect the interest expense, or cash
          requirements necessary to service interest or principal payments on our
          debt;

• Adjusted EBITDA does not consider the potentially dilutive impact of

stock-based compensation or other stock-settled obligations;

• Although depreciation and amortization are non-cash charges, the assets

          being depreciated and amortized may have to be replaced in the future,
          and Adjusted EBITDA does not reflect cash capital expenditure
          requirements for such replacements or for new capital expenditure
          requirements;

• Adjusted EBITDA does not reflect tax payments that may represent a

reduction in cash available to us; and

• Other companies, including companies in our own industry, may calculate

          Adjusted EBITDA differently than we do, limiting its usefulness as a
          comparative measure.

The following table presents a reconciliation of Adjusted EBITDA to Net Income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods presented above.

                                       48

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                                                     Year ended December 31,
                                                  2016           2015       2014
                                                          (in millions)
         Net income                             $    120       $    198     $ 226
         Provision for income taxes                   31             41        96
         Other expense (income), net                  15             (7 )      18
         Other non-recurring expenses                  -              2         -
         Non-cash charitable contribution (1)          -             67         -
         Stock-based compensation                     85             72        63
         Amortization of intangible assets            32             36        18
         Depreciation                                 69             57        47
         Adjusted EBITDA                        $    352       $    466     $ 468



(1) During the fourth quarter of 2015, we incurred an expense in the amount of

$67 million to reflect a non-cash contribution to The TripAdvisor Charitable

Foundation (the "Foundation"), which was recorded to general and

administrative expense in our consolidated statement of operations. We

settled this obligation in treasury shares based on the fair value of our

common stock on the date the shares were issued to the Foundation. Given the

use of stock to settle the obligation, the amount has been excluded from

Adjusted EBITDA. TripAdvisor does not expect to make any future contributions

to the Foundation. Refer to "Note 17 - Segments and Geographic Information"

    for a discussion of this charitable contribution.



Liquidity and Capital Resources

The following section explains how we have generated and used our cash historically, describes our current capital resources and discusses our future known financial commitments.


Sources and Uses of Cash

Our cash flows from operating, investing and financing activities, as reflected
in the consolidated statements of cash flows, are summarized in the following
table:



                                                  Year ended December 31,
                                                2016          2015       2014
                                                       (in millions)
            Net cash provided by (used in):
            Operating activities              $    321       $  418     $  407
            Investing activities                  (163 )        (58 )     (233 )
            Financing activities                  (143 )       (189 )      (61 )




Our principal source of liquidity is cash flows generated from operations,
although liquidity needs can also be met through drawdowns under our 2015 Credit
Facility, 2016 Credit Facility and Chinese Credit Facilities. As of December 31,
2016 and 2015, we had $746 million and $698 million, respectively, of cash, cash
equivalents and short and long-term available-for-sale marketable securities. As
of December 31, 2016 approximately $476 million of our cash, cash equivalents
and all, or $134 million of short and long-term available-for-sale marketable
securities, were held by our international subsidiaries, primarily in the United
Kingdom. Cumulative undistributed earnings of foreign subsidiaries that we
intend to indefinitely reinvest outside of the United States totaled
approximately $828 million as of December 31, 2016. Should we distribute, or be
treated under certain U.S. tax rules as having distributed, the earnings of
foreign subsidiaries in the form of dividends or otherwise, we may be subject to
U.S. income taxes. To date, we have permanently reinvested our foreign earnings
outside of the United States and we currently do not intend to repatriate these
earnings to fund U.S. operations. Determination of the amount of any
unrecognized deferred income tax liability on this temporary difference is not
practicable because of the complexities of the hypothetical calculation. The
majority of cash on hand is denominated in U.S. dollars.

As of December 31, 2016, we had outstanding borrowings of $91 million in
long-term debt, within our U.S subsidiaries, and approximately $906 million of
borrowing capacity available under our 2015 Credit Facility, which we are
currently borrowing under a one-month interest period at 2.0% per annum, which
will reset periodically. In



                                       49
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addition, we had outstanding borrowings of $73 million in short-term debt,
within our subsidiaries outside the U.S., and no additional borrowing capacity
available under our 2016 Credit Facility, which we are currently borrowing under
a one-month interest period at 1.9% per annum, which will also reset
periodically. Finally, as of December 31, 2016, we had current borrowings of $7
million and approximately $33 million of available borrowing capacity under our
Chinese Credit Facilities, which currently bear interest at a rate based on 100%
of the People's Bank of China's base rate, or 4.35%. For further discussion on
our credit facilities, see below, and also refer to "Note 9- Debt" in the notes
to our consolidated financial statements in Item 8.

Historically, the cash we generate from operations has been sufficient to fund
our working capital requirements, capital expenditures and to meet our long term
debt obligations and other financial commitments. Management believes that our
cash, cash equivalents and available-for-sale marketable securities, combined
with expected cash flows generated by operating activities and available cash
from our credit facilities, will be sufficient to fund our ongoing working
capital requirements, capital expenditures and business growth initiatives; meet
our long term debt obligations, lease commitments and other financial
commitments; and fund any potential share repurchases or potential acquisitions
for at least the next twelve months. However, if during that period or
thereafter, we are not successful in generating sufficient cash flow from
operations or in raising additional capital, including refinancing or incurring
additional debt, when required in sufficient amounts and on terms acceptable to
us, we may be required to reduce our planned capital expenditures and scale back
the scope of our business growth initiatives, either of which could have a
material adverse effect on our future financial condition or results of
operations.

                                 2016 vs. 2015

Operating Activities

For the year ended December 31, 2016, net cash provided by operating activities
decreased by $97 million or 23% when compared to the same period in 2015,
primarily due to a decrease in net income of $78 million and a decrease in
working capital movements of $11 million, primarily due to the timing of vendor
payments, income tax payments, and collection of receivables, as well as a lower
income tax provision in 2016.

Investing Activities


For the year ended December 31, 2016, net cash used in investing activities
increased by $105 million when compared to the same period in 2016, primarily
due to a net increase in cash used for the purchases, sales and maturities of
our marketable securities of $103 million, net proceeds from the sale of one of
our Chinese subsidiaries of $25 million in 2015 which did not reoccur in 2016,
and a net increase in cash paid for business acquisitions and other investments
of $14 million, partially offset by a decrease in capital expenditures of $37
million, primarily related to the completion of our corporate headquarters
building in mid-2015.

Financing Activities


For the year ended December 31, 2016, net cash used in financing activities
decreased by $46 million when compared to the same period in 2015, primarily due
to: (i) a repayment of our 2011 credit facility of $300 million in 2015, (ii) a
decrease in borrowings of $186 million in 2016 from our 2015 Credit Facility,
(iii) incremental borrowings of $3 million and a decrease in repayments of $40
million in 2016 on our Chinese Credit Facilities, (iv) a decrease in tax
withholding payments of $58 million and cash received for stock option exercises
of $5 million in 2016 primarily related to a decrease in the number of stock
options exercised and lower average stock price in 2016, and (v) borrowings on
our 2016 Credit Facility of $73 million in 2016; partially offset by (i) an
increase in repayments of $120 million in 2016 related to our 2015 Credit
Facility, (ii) payments of $105 million for common stock share repurchases under
our authorized share repurchase program in 2016, and (iii) $12 million in lease
incentive payments received related to our corporate headquarters in 2015 that
did not reoccur in 2016.



                                       50
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                                 2015 vs. 2014

Operating Activities

For the year ended December 31, 2015, net cash provided by operating activities
increased by $11 million or 3% when compared to the same period in 2014,
primarily driven by an increase in non-cash items affecting cash flows of $55
million, which is primarily due to an increase in the following items:
stock-based compensation; depreciation; amortization of intangibles; and
charitable contributions, partially offset by deferred tax benefits and gain on
sale of a business, all of which was partially offset by a decrease in net
income of $28 million and working capital movements of $16 million. The decrease
in working capital movements of $16 million was primarily related to an overall
lower income tax provision for 2015, partially offset by an increase in
operating cash flow from deferred merchant payables.

Investing Activities


For the year ended December 31, 2015, net cash used in investing activities
decreased by $175 million when compared to the same period in 2014, primarily
due to a net decrease in cash paid for business acquisitions of $302 million and
net proceeds from the sale of one of our Chinese subsidiaries of $25 million in
2015, partially offset by a net increase in cash used for the purchases, sales
and maturities of our marketable securities of $125 million, and an increase in
capital expenditures of $28 million, primarily driven by expenditures on our
corporate headquarters.

Financing Activities

For the year ended December 31, 2015, net cash used in financing activities
increased by $128 million when compared to the same period in 2014, primarily
due to the repayment of our Term Loan of $300 million in 2015, or an incremental
outflow of $260 million, partial repayment of our outstanding borrowings related
to our 2015 Credit Facility of $90 million, incremental repayments of our
outstanding borrowings related to our Chinese Credit Facilities of $38 million,
and an increase in tax withholding payments of $40 million primarily related to
increased exercises of stock options, partially offset by net borrowings on our
2015 Credit Facility of $287 million, and receipts of $12 million in lease
incentive payments related to our corporate headquarters building financing
obligation.

Cash Requirements

The following table aggregates our material contractual obligations and minimum commercial commitments as of December 31, 2016:



                                                                               By Period
                                                     Less than                                           More than
                                        Total         1 year        1 to 3 years      3 to 5 years        5 years
                                                                      (in millions)
2015 Credit Facility, 2016 Credit
Facility, and                         $     171     $        80     $       

- $ 91 $ -

  Chinese Credit Facilities (1)
Expected interest payments on 2015
Credit                                        7               2                 4                 1
  Facility (2)                                                                                                    -
Expected commitment fee payments on
2015 Credit
  Facility (3)                                7               2                 4                 1               -
Property leases, net of sublease            248              25                51                52             120
income (4)
Total (5)(6)                          $     433     $       109     $          59     $         145     $       120





(1) Debt repayment amounts assume that our existing debt under our 2015 Credit

Facility is repaid at the end of the credit agreement and do not assume

additional borrowings or refinancing of existing debt. See "Note 9- Debt" in

the notes to the consolidated financial statements in Item 8 for additional

information on our 2015 Credit Facility, 2016 Credit Facility, and Chinese

Credit Facilities.

(2) The amounts included as expected interest payments in this table are based

on the effective interest rate as of December 31, 2016, but, could change

     significantly in the future. Amounts assume that our existing debt is




                                       51
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     repaid at the end of the credit agreement and do not assume additional
     borrowings or refinancing of existing debt.


(3)  The amounts included as expected commitment fee payments in this table are

based on the unused portion of credit facility, issued letters of credit,

and current effective commitment fee rate as of December 31, 2016, however,

     these variables could change significantly in the future.


(4)  Estimated future minimum rental payments under operating leases with
     non-cancelable lease terms, including our corporate headquarters lease in
     Needham, MA. See discussion under "Office Lease Commitments" below.


(5)  Excluded from the table was $108 million of unrecognized tax benefits,

including interest, that we have recorded in other long-term liabilities for

which we cannot make a reasonably reliable estimate of the amount and period

of payment. We do not anticipate any material changes in the next year.

(6) Excluded from the table was $3 million of undrawn standby letters of credit,

     related to our property leases.




2015 Credit Facility

On June 26, 2015, we entered into a five year credit agreement (the "2015 Credit
Facility") with a group of lenders and immediately borrowed $290 million, which
was used to repay all outstanding borrowings pursuant to the 2011 Credit
Facility (as described in "Note 9 - Debt" in the notes to the consolidated
financial statements in Item 8). The 2015 Credit Facility, among other things,
provides for (i) a $1 billion unsecured revolving credit facility, (ii) an
interest rate on borrowings and commitment fees based on the Company's and its
subsidiaries' consolidated leverage ratio; and (iii) uncommitted incremental
revolving loan and term loan facilities, subject to compliance with a leverage
covenant and other conditions. Any overdue amounts under or in respect of the
2015 Credit Facility not paid when due shall bear interest at (i) in the case of
principal, the applicable interest rate plus 2.00% per annum, (ii) in the case
of interest denominated in Sterling or Euro, the applicable rate plus 2.00% per
annum; and (iii) in the case of interest denominated in US dollars, 2.00% per
annum plus the Alternate Base Rate plus the interest rate spread applicable to
ABR loans. The Company may borrow from the 2015 Credit Facility in U.S dollars,
Euros and British pound sterling with a term of five years expiring June 26,
2020.

There is no specific repayment date prior to the end of the five-year agreement
for our outstanding borrowings under the 2015 Credit Facility. During the year
ended December 31, 2016, the Company borrowed an additional $101 million and
repaid $210 million of our outstanding borrowings on the 2015 Credit
Facility. Based on the Company's current leverage ratio, our borrowings bear
interest at LIBOR plus 125 basis points, or the Eurocurrency Spread. As of
December 31, 2016, the Company had $91 million in outstanding borrowings under
this facility and was borrowing under a one-month interest period of 2.0% per
annum, which was determined using a one-month interest period Eurocurrency
Spread, which will reset periodically. Interest will be payable on a monthly
basis while the Company is borrowing under the one-month interest rate period.
We are also required to pay a quarterly commitment fee, on the daily unused
portion of the revolving credit facility for each fiscal quarter and fees in
connection with the issuance of letters of credit. Unused revolver capacity is
currently subject to a commitment fee of 20.0 basis points, given the Company's
current leverage ratio. The 2015 Credit Facility includes $15 million of
borrowing capacity available for letters of credit and $40 million for
borrowings on same-day notice. As of December 30, 2016, we had issued $3 million
of outstanding letters of credit under the 2015 Credit Facility.

We may voluntarily repay any outstanding borrowing under the 2015 Credit
Facility at any time without premium or penalty, other than customary breakage
costs with respect to Eurocurrency loans. Certain wholly-owned domestic
subsidiaries of the Company have agreed to guarantee the Company's obligations
under the 2015 Credit Facility.

The 2015 Credit Facility contains a number of covenants that, among other
things, restrict our ability to: incur additional indebtedness, create liens,
enter into sale and leaseback transactions, engage in mergers or consolidations,
sell or transfer assets, pay dividends and distributions, make investments,
loans or advances, prepay certain subordinated indebtedness, make certain
acquisitions, engage in certain transactions with affiliates, amend material
agreements governing certain subordinated indebtedness, and change our fiscal
year. The 2015 Credit Facility also requires us to maintain a maximum leverage
ratio and contains certain customary affirmative covenants and events of
default, including a change of control. If an event of default occurs, the
lenders under the 2015 Credit Facility will be entitled to take various actions,
including the acceleration of all amounts due under 2015 Credit Facility. As of
December 31, 2016, we are in compliance with all of our debt covenants.



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2016 Credit Facility


On September 7, 2016, we 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") 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 and bear interest at LIBOR plus 112.5 basis points.  The
Company may borrow from the 2016 Credit Facility in U.S dollars only and we may
voluntarily repay any outstanding borrowing at any time without premium or
penalty.  Any overdue amounts under or in respect of the 2016 Credit Facility
not paid when due shall bear interest in the case of principal at the applicable
interest rate plus 1.50% per annum. In connection with the 2016 Credit Facility,
any lender fees and debt financing costs paid were not material. In addition,
TripAdvisor, LLC, a wholly-owned domestic subsidiary of the Company, has agreed
to guarantee the Company's obligations under the 2016 Credit Facility.  There
are no specific financial or incurrence covenants.

We borrowed $73 million from this uncommitted credit facility in September 2016.
These funds were used for general working capital needs of the Company,
primarily for partial repayment of our long term debt, and the liability is
recorded in short-term liabilities on our consolidated balance sheet as of
December 31, 2016. The Company was borrowing under a one-month interest period
of 1.9% per annum at December 31, 2016, which will reset periodically. Interest
will be payable on a monthly basis while the Company is borrowing under the
one-month interest rate period.

Chinese Credit Facilities

In addition to our borrowings under the 2015 Credit Facility and 2016 Credit Facility, we maintain two credit facilities in China (jointly, the "Chinese Credit Facilities"). As of December 31, 2016 and December 31, 2015, we had short-term borrowings outstanding of $7 million and $1 million, respectively.


We are parties to a $30 million, one-year revolving credit facility with Bank of
America (the "Chinese Credit Facility-BOA") that is currently subject to review
on a periodic basis with no specific expiration period. Our Chinese Credit
Facility-BOA currently bears interest at a rate based on 100% of the People's
Bank of China's base rate, which was 4.35% as of December 31, 2016. As of
December 31, 2016, there are no outstanding borrowings under the Chinese Credit
Facility-BOA.

We are also parties to a RMB 70,000,000 (approximately $10 million), one-year
revolving credit facility with J.P. Morgan Chase Bank ("Chinese Credit
Facility-JPM") which was reduced from RMB 125,000,000 (approximately $18
million) during the year ended December 31, 2016. Our Chinese Credit
Facility-JPM currently bears interest at a rate based on 100% of the People's
Bank of China's base rate, which was 4.35% as of December 31, 2016. As of
December 31, 2016, we had $7 million of outstanding borrowings from the Chinese
Credit Facility - JPM.

Office Lease Commitments

In June 2013, TripAdvisor LLC ("TA LLC"), our indirect, wholly owned subsidiary,
entered into a lease, for a new corporate headquarters (the "Lease"). Pursuant
to the Lease, the landlord built an approximately 280,000 square foot rental
building in Needham, Massachusetts (the "Premises"), and leased the Premises to
TA LLC as our new corporate headquarters for an initial term of 15 years and 7
months or through December 2030. TA LLC also has an option to extend the term of
the Lease for two consecutive terms of five years each.

Because we were involved in the construction project and were responsible for
paying a portion of the costs of normal finish work and structural elements of
the Premises, the Company was deemed for accounting purposes to be the owner of
the Premises during the construction period under build to suit lease accounting
guidance under GAAP. Therefore, the Company recorded project construction costs
during the construction period incurred by the landlord as a
construction-in-progress asset and a related construction financing obligation
on our consolidated balance sheets. The amounts that the Company has paid or
incurred for normal tenant improvements and structural improvements had also
been recorded to the construction-in-progress asset.



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Upon completion of construction at end of the second quarter of 2015, we
evaluated the construction-in-progress asset and construction financing
obligation for de-recognition under the criteria for "sale-leaseback" treatment
under GAAP. We concluded that we have forms of continued economic involvement in
the facility, and therefore did not meet the provisions for sale-leaseback
accounting. This determination was based on the Company's continuing involvement
with the property in the form of non-recourse financing to the lessor.
Therefore, the Lease is accounted for as a financing obligation. Accordingly, we
began depreciating the building asset over its estimated useful life and
incurring interest expense related to the financing obligation imputed using the
effective interest rate method. We bifurcate our lease payments pursuant to the
Premises into: (i) a portion that is allocated to the building (a reduction to
the financing obligation) and; (ii) a portion that is allocated to the land on
which the building was constructed. The portion of the lease obligations
allocated to the land is treated as an operating lease that commenced in 2013.
The financing obligation is considered a long-term finance lease obligation and
is recorded to long-term liabilities on our consolidated balance sheet. At the
end of the lease term, the carrying value of the building asset and the
remaining financing obligation are expected to be equal, at which time we may
either surrender the leased asset as settlement of the remaining financing
obligation or extend the initial term of the lease for the continued use of the
asset. In the years ended December 31 2016, 2015, and 2014, the Company recorded
$7 million, $4 million, and $0 million of interest expense, respectively, $3
million, $2 million, and $0 million of depreciation expense, respectively, and
$2 million, $1 million, $1 million, of rent expense in general and
administrative expense on our consolidated statements of operations,
respectively, related to the Premises.

We also lease an aggregate of approximately 465,000 square feet at approximately
40 other locations across North America, Europe and Asia Pacific, in cities such
as, New York, Boston, London, Sydney, Barcelona, Paris, and Beijing, primarily
for our sales offices, subsidiary headquarters, and international management
teams, pursuant to leases with various expiration dates, with the latest
expiring in June 2027.

As of December 31, 2016, future minimum commitments under our corporate
headquarters lease and other non-cancelable operating leases for office space
with terms of more than one year and contractual sublease income were as
follows:



                                                                                                           Total Lease
                                                                                                           Commitments
                                               Corporate              Other                                  (Net of
                                           Headquarters Lease       Operating                               Sublease
                  Year                            (1)                 Leases         Sublease Income         Income)
                                                                          (in millions)
                  2017                     $                9     $           17     $             (1 )   $          25
                  2018                                      9                 17                   (1 )              25
                  2019                                      9                 18                   (1 )              26
                  2020                                      9                 17                    -                26
                  2021                                     10                 16                    -                26
               Thereafter                                  87                 33                    -               120
      Total minimum lease payments         $              133     $        
 118     $             (3 )   $         248



(1) Amount includes an $84 million financing obligation, which we have recorded

in other long-term liabilities on our consolidated balance sheet at December

31, 2016, related to our corporate headquarters lease.

Off-Balance Sheet Arrangements

As of December 31, 2016, other than the items discussed above, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K of the SEC, that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

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Contingencies


In the ordinary course of business, we and our subsidiaries are parties to
regulatory and legal matters. These matters may relate to claims involving
alleged infringement of third-party intellectual property rights, defamation,
taxes, regulatory compliance and other claims. Periodically, we review the
status of all significant outstanding matters to assess the potential financial
exposure. When (i) it is probable that an asset has been impaired or a liability
has been incurred, and (ii) the amount of the loss can be reasonably estimated,
we record the estimated loss in our consolidated statements of operations. We
provide disclosure in the notes to the consolidated statements for loss
contingencies that do not meet both of these conditions if there is a reasonable
possibility that a loss may have been incurred that would be material to the
financial statements. Significant judgment is required to determine the
probability that a liability has been incurred and whether such liability is
reasonably estimable. We base accruals made on the best information available at
the time which can be highly subjective. Although occasional adverse decisions
or settlements may occur, the Company does not believe that the final
disposition of any of these matters will have a material adverse effect on the
business.  However, the final outcome of these matters could vary significantly
from our estimates. There may be claims or actions pending or threatened against
us of which we are currently not aware and the ultimate disposition of which
would have a material adverse effect on us.

We are also under audit by the IRS and various other domestic and foreign tax
authorities with regards to income tax matters. We have reserved for potential
adjustments to our provision for income taxes that may result from examinations
by, or any negotiated agreements with, these tax authorities. Although we
believe our tax estimates are reasonable, the final determination of audits
could be materially different from our historical income tax provisions and
accruals. The results of an audit could have a material effect on our financial
position, results of operations, or cash flows in the period for which that
determination is made.

By virtue of previously filed consolidated income tax returns filed with
Expedia, we are currently under an IRS audit for the 2009, 2010, and 2011 tax
years, and have various ongoing state income tax audits. We are separately under
examination by the IRS for the 2012 and 2013 tax years and have commenced an
employment tax audit with the IRS for the 2013 and 2014 tax years. These audits
include questioning of the timing and the amount of income and deductions and
the allocation of income among various tax jurisdictions. These examinations may
lead to proposed or ordinary course adjustments to our taxes. We are no longer
subject to tax examinations by tax authorities for years prior to 2008. As of
December 31, 2016, no material assessments have resulted, except as noted below
regarding our 2009 and 2010 IRS audit with Expedia. As of December 31, 2016, no
material assessments have resulted, except as noted below regarding our 2009 and
2010 IRS audit with Expedia.

In January 2017, as part of the Company's IRS audit of Expedia, we received
Notices of Proposed Adjustment from the IRS for the 2009 and 2010 tax years.
These proposed adjustments are related to certain transfer pricing arrangements
with our foreign subsidiaries, and would result in an increase to our worldwide
income tax expense in an estimated range of $10 million to $14 million after
consideration of competent authority relief, exclusive of interest and
penalties.  We disagree with the proposed adjustments and we intend to defend
our position through applicable administrative and, if necessary, judicial
remedies.  Our policy is to review and update tax reserves as facts and
circumstances change. Based on our interpretation of the regulations and
available case law, we believe the position we have taken with regard to
transfer pricing with our foreign subsidiaries is sustainable.  In addition to
the risk of additional tax for 2009 and 2010 transactions, if the IRS were to
seek transfer pricing adjustments of a similar nature for transactions in
subsequent years, we would be subject to significant additional tax liabilities.

Additionally, we earn an increasing portion of our income, and accumulate a
greater portion of cash flows, in foreign jurisdictions which we consider
indefinitely reinvested. Any repatriation of funds currently held in foreign
jurisdictions may result in higher effective tax rates and incremental cash tax
payments. In addition, there have been proposals to amend U.S. tax laws that
would significantly impact the manner in which U.S. companies are taxed on
foreign earnings. Although we cannot predict whether or in what form any
legislation will pass, if enacted, it could have a material adverse impact on
our U.S. tax expense and cash flows.

See "Note 10- Income Taxes" in the notes to our consolidated financial statements in Item 8 for further information on potential contingencies surrounding current audits by the IRS and various other domestic and foreign tax authorities, and other income tax matters.

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Certain Relationships and Related Party Transactions

For information on our relationships with Expedia and Liberty TripAdvisor Holdings, Inc. refer to "Note 16 -Related Party Transactions" in the notes to our consolidated financial statements in Item 8.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that management use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with GAAP.


Preparation of the consolidated financial statements and accompanying notes
requires that management make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements as well as
revenue and expenses during the periods reported. Management bases its estimates
on historical experience, where applicable and other assumptions that it
believes are reasonable under the circumstances. Actual results may differ from
estimates under different assumptions or conditions.

There are certain critical estimates that we believe require significant judgment in the preparation of the consolidated financial statements. We consider an accounting estimate to be critical if:

• It requires us to make an assumption because information was not

available at the time or it included matters that were highly uncertain

at the time management was making the estimate; and/or

• Changes in the estimate or different estimates that management could

have selected may have had a material impact on our financial condition

or results of operations.



Our significant accounting policies and estimates are more fully described in
"Note 2- Significant Accounting Policies" in the notes to our consolidated
financial statements in Item 8. A discussion of information about the nature and
rationale for our critical accounting estimates is below.

Business Combination Valuations and Recoverability of Goodwill, Indefinite and Definite-Lived Intangible Assets


Business Combination Valuations and Goodwill. We account for acquired businesses
using the purchase method of accounting which requires that the tangible assets
and identifiable intangible assets acquired and assumed liabilities be recorded
at the date of acquisition at their respective fair values. Any excess purchase
price over the estimated fair value of the net tangible and intangible assets
acquired is allocated to goodwill. When determining the fair values of assets
acquired and liabilities assumed, management makes significant estimates and
assumptions, especially with respect to intangible assets. Significant estimates
in valuing certain intangible assets include but are not limited to future
expected cash flows from customer and supplier relationships, acquired
technology and trade names from a market participant perspective, useful lives
and discount rates. Management's estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from estimates.
Valuations are performed by management or third party valuation specialists
under management's supervision, where appropriate.

We assess goodwill, which is not amortized, for impairment annually during the
fourth quarter, or more frequently, if events and circumstances indicate
impairment may have occurred. We test goodwill for impairment at the reporting
unit level. Goodwill is assigned to reporting units that are expected to benefit
from the synergies of the business combination as of the acquisition date. We
evaluate our reporting units when changes in our operating structure occur, and
if necessary, reassign goodwill using a relative fair value allocation approach.
Once goodwill has been allocated to the reporting units, it no longer retains
its identification with a particular acquisition and becomes identified with the
reporting unit in its entirety. Accordingly, the fair value of the reporting
unit as a whole is available to support the recoverability of its goodwill. We
have determined each of our operating segments with goodwill represents a
reporting unit for the purpose of assessing impairment for our 2016 impairment
analysis.



                                       56
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In the evaluation of goodwill for impairment, we generally first perform a
qualitative assessment to determine whether it is more likely than not (i.e., a
likelihood of more than 50%) that the estimated fair value of the reporting unit
is less than the carrying amount. However, the Company has the option to
qualitatively assess whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. Periodically, we may choose to
forgo the initial qualitative assessment and proceed directly to a quantitative
analysis to assist in our annual evaluation. When assessing goodwill for
impairment, our decision to perform a qualitative impairment assessment for an
individual reporting unit in a given year is influenced by a number of factors,
such as the size of the reporting unit's goodwill, the significance of the
excess of the reporting unit's estimated fair value over carrying value at the
last quantitative assessment date, and the amount of time in between
quantitative fair value assessments and the date of acquisition to establish an
updated baseline quantitative analysis. During a qualitative assessment, if we
determine that it is not more likely than not that the implied fair value of the
goodwill is less than its carrying amount, no further testing is necessary. If,
however, we determine that it is more likely than not that the implied fair
value of the goodwill is less than its carrying amount, we then perform a
quantitative assessment and compare the estimated fair value of the reporting
unit to the carrying value. If the carrying value of a reporting unit exceeds
its estimated fair value, the goodwill of that reporting unit is potentially
impaired and we proceed to step two of the impairment analysis. In step two of
the analysis, we will record an impairment loss equal to the excess of the
carrying value of the reporting unit's goodwill over its implied fair value
should such a circumstance arise.

In determining the estimated fair values of reporting units in a quantitative
goodwill impairment test, we generally use a blend, of the following recognized
valuation methods: the income approach (discounted cash flows model) and the
market valuation approach, which we believe compensates for the inherent risks
of using either model on a stand-alone basis. The discounted cash flows model
indicates the fair value of the reporting units based on the present value of
the cash flows that we expect the reporting units to generate in the future. Our
significant estimates in the discounted cash flows model include: weighted
average cost of capital; long-term rate of growth and profitability of the
reporting unit; income tax rates and working capital effects. The market
valuation approach indicates the fair value of the business based on a
comparison to comparable publicly traded firms in similar lines of business and
other precedent transactions. Our significant estimates in the market approach
model include identifying similar companies with comparable business factors
such as size, growth, profitability, risk and return on investment and assessing
comparable revenue and/or income multiples in estimating the fair value of the
reporting units. Valuations are performed by management or third party valuation
specialists under management's supervision, where appropriate. We believe that
the estimated fair values assigned to our reporting units in impairment tests
are based on reasonable assumptions that marketplace participants would use.
However, such assumptions are inherently uncertain and actual results could
differ from those estimates. During the Company's annual goodwill impairment
test during the fourth quarter of 2016, a qualitative assessment of the Hotel,
Vacation Rentals and Attraction reporting units' goodwill was performed, and a
quantitative assessment of the Restaurant reporting unit goodwill was performed.
For fiscal 2016, we determined the fair value of all our reporting units were
significantly in excess of their carrying values. Accordingly, we did not
recognize any impairment charges during the year ending December 31, 2016.
During fiscal 2016, there were no significant changes in any of our estimates or
assumptions that had a material impact on the outcome of our impairment
calculations. However, as we periodically reassess estimated future cash flows
and asset fair values, changes in our estimates and assumptions may cause us to
realize material impairment charges in the future.

As part of our qualitative assessment for our 2016 goodwill impairment analysis
of our Hotel, Vacation Rentals and Attractions reporting units, the factors that
we considered included, but were not limited to: (a) changes in macroeconomic
conditions in the overall economy and the specific markets in which we operate,
(b) our ability to access capital, (c) changes in the online travel industry,
(d) changes in the level of competition, (e) evaluation of our current and
future forecasted financial results (f) comparison of our current financial
performance to historical and budgeted results, (g) changes in excess market
capitalization over book value based on our common stock price and other market
specific information, (h) changes in estimates and/or assumptions since the last
quantitative analysis, (i) changes in the regulatory environment; and (j)
changes in strategic outlook or organizational structure and leadership of the
reporting units. As part of our quantitative assessment for our Restaurants
reporting unit we determined its estimated fair value using a blend of an income
approach (discounted cash flow model) and market valuation approach using an
equal weighting. We concluded the estimated fair value was significantly in
excess of its carrying value. We also performed a sensitivity analysis,
calculating estimated fair values using different rates for the weighted-average
cost of capital and long-term rates of growth in the income approach and
different



                                       57
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revenue/income multiples in our market approach and the estimated fair value remained in excess of its carrying value.


Indefinite-Lived Intangible Assets. Intangible assets that have indefinite lives
are not amortized and are tested for impairment annually during the fourth
quarter, or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The carrying value of indefinite-lived
intangible assets that is subject to annual assessment for impairment is $30
million at December 31, 2016 and consists of trademarks and tradenames. Similar
to the qualitative assessment for goodwill, we may assess qualitative factors to
determine if it is more likely than not that the implied fair value of the
indefinite-lived intangible asset is less than its carrying amount. If we
determine that it is not more likely than not that the implied fair value of the
indefinite-lived intangible asset is less than its carrying amount, no further
testing is necessary. If, however, we determine that it is more likely than not
that the implied fair value of the indefinite-lived intangible asset is less
than its carrying amount, we compare the implied fair value of the
indefinite-lived asset with its carrying amount. If the carrying value of an
individual indefinite-lived intangible asset exceeds its implied fair value, the
individual asset is written down by an amount equal to such excess. The
assessment of qualitative factors is optional and at our discretion. We may
bypass the qualitative assessment for any indefinite-lived intangible asset in
any period and resume performing the qualitative assessment in any subsequent
period. We base our measurement of fair value of indefinite-lived intangible
assets using the relief-from-royalty method. This method assumes that the trade
name and trademarks have value to the extent that their owner is relieved of the
obligation to pay royalties for the benefits received from them. This method
requires us to estimate future revenues, the appropriate royalty rate and the
weighted average cost of capital. The use of different estimates or assumptions
in determining the fair value of our indefinite-lived intangible assets may
result in different values for these assets, which could result in impairment,
or, in the period in which an impairment is recognized, could result in a
materially different impairment charge. During the Company's annual
indefinite-lived intangible impairment test during the fourth quarter of 2016, a
qualitative assessment was performed. As part of our qualitative assessment we
considered, amongst other factors, the amount of excess fair value of our trade
names and trademarks to the carrying value of those same assets, using the
results of our most recent quantitative assessment, while also considering
changes in estimates and/or assumptions since the last quantitative analysis.
After considering these factors and the impact that changes in such factors
would have on the inputs used in our previous quantitative assessment, we
determined that it was more likely than not that our indefinite-lived intangible
assets were not impaired as of December 31, 2016.

Definite-Lived Intangible Assets and Other Long-Lived Assets. Intangible assets
with definite lives and other long-lived assets are carried at cost and are
amortized on a straight-line basis over their estimated useful lives of one to
twelve years. The straight-line method of amortization is currently used for our
definite-lived intangible assets as it approximates, to date, or is our best
estimate, of the distribution of the economic use of our identifiable intangible
assets. We review the carrying value of long-lived assets or asset groups,
including property and equipment, to be used in operations whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable.

Factors that would necessitate an impairment assessment include a significant
adverse change in the extent or manner in which an asset is used, a significant
adverse change in legal factors or the business climate that could affect the
value of the asset, or a significant decline in the observable market value of
an asset, among others. If such facts indicate a potential impairment, we assess
the recoverability of the asset group by determining if the carrying value of
the asset group exceeds the sum of the projected undiscounted cash flows
expected to result from the use and eventual disposition of the assets over the
remaining economic life of the primary asset of the group. If the recoverability
test indicates that the carrying value of the asset group is not recoverable, we
will estimate the fair value of the asset group using appropriate valuation
methodologies which would typically include an estimate of discounted cash
flows. Any impairment would be measured by the amount that the carrying values,
of such asset groups, exceed their fair value and would be included in operating
income on the consolidated statement of operations. We have not identified any
circumstances that would warrant an impairment charge for any recorded definite
lived or other long term assets, including our cost method investments, on our
consolidated balance sheet at December 31, 2016.

The use of different estimates or assumptions in determining the fair value of
our goodwill, indefinite-lived and definite-lived intangible assets may result
in different values for these assets, which could result in different fair



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values at the date of acquisition or in an impairment analysis or, in period in which an impairment is recognized, could result in a materially different impairment charge.


For additional information on our goodwill, indefinite-lived intangibles and
definite-lived intangibles refer to "Note 8- Goodwill and Intangible Assets,
Net" in the notes to our consolidated financial statements in Item 8.

Income Taxes


We record income taxes under the asset and liability method. Deferred tax assets
and liabilities reflect our estimation of the future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
book and tax purposes. We determine deferred income taxes based on the
differences in accounting methods and timing between financial statement and
income tax reporting. Accordingly, we determine the deferred tax asset or
liability for each temporary difference based on the enacted tax rates expected
to be in effect when we realize the underlying items of income and expense. We
consider all relevant factors when assessing the likelihood of future
realization of our deferred tax assets, including our recent earnings experience
by jurisdiction, expectations of future taxable income and the carryforward
periods available to us for tax reporting purposes, as well as assessing
available tax planning strategies. We may establish a valuation allowance to
reduce deferred tax assets to the amount we believe is more likely than not to
be realized. Due to inherent complexities arising from the nature of our
businesses, future changes in income tax law, tax sharing agreements or
variances between our actual and anticipated operating results, we make certain
judgments and estimates. Therefore, actual income taxes could materially vary
from these estimates.

We record liabilities to address uncertain tax positions we have taken in
previously filed tax returns or that we expect to take in a future tax return.
The determination for required liabilities is based upon an analysis of each
individual tax position, taking into consideration whether it is more likely
than not that our tax position, based on technical merits, will be sustained
upon examination. For those positions for which we conclude it is more likely
than not it will be sustained, we recognize the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement with
the taxing authority. The difference between the amount recognized and the total
tax position is recorded as a liability. The ultimate resolution of these tax
positions may be greater or less than the liabilities recorded.

We have not provided for deferred U.S. income taxes on undistributed earnings of
our foreign subsidiaries, which we intend to reinvest permanently outside the
United States. Should we distribute earnings of foreign subsidiaries in the form
of dividends or otherwise, we may be subject to U.S. income taxes. Due to
complexities in tax laws and various assumptions that would have to be made, it
is not practicable, at this time, to estimate the amount of unrecognized
deferred U.S. taxes on these earnings.

See "Note 10- Income Taxes" in the notes to our consolidated financial statements in Item 8 for further information on income taxes.

Stock-Based Compensation

Stock Options


The exercise price for all stock options granted by us to date has been equal to
the market price of the underlying shares of common stock at the date of grant.
In this regard, when making stock option awards, our practice is to determine
the applicable grant date and to specify that the exercise price shall be the
closing price of our common stock on the date of grant. Stock options granted
during the year ended December 31, 2016 have a term of ten years from the date
of grant and generally vest over a four-year requisite service period.

During the year ended December 31, 2016, we issued 1,063,672 of primarily
service based stock non-qualified stock options under our Amended and Restated
2011 Stock and Annual Incentive Plan (the "2011 Incentive tock Plan") with a
weighted average grant-date fair value per option of $22.95. We will amortize
the fair value as stock-based compensation expense over the vesting term on a
straight-line basis, with the amount of compensation expense recognized at any
date at least equaling the portion of the grant-date fair value of the award
that is vested at that date. The estimated fair value of the options granted
under the 2011 Incentive Plan to date, have been calculated



                                       59

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using a Black-Scholes Merton option-pricing model ("Black-Scholes model"). The
Black-Scholes model incorporates assumptions to fair value stock-based awards,
which includes the risk-free rate of return, expected volatility, expected term
and expected dividend yield.

Our risk-free interest rate is based on the rates currently available on
zero-coupon U.S. Treasury issues, in effect at the time of the grant, whose
remaining maturity period most closely approximates the stock option's expected
term assumption. Our expected volatility is calculated by equally weighting the
historical volatility and implied volatility on our own common stock. Historical
volatility is determined using actual daily price observations of our common
stock price over a period equivalent to or approximate to the expected term of
our stock option grants to date. Implied volatility represents the volatility
calculated from the observed prices of our actively traded options on our common
stock, with remaining maturities in excess of six months and market prices
approximate to the exercise prices of the stock option grant. We estimate our
expected term using historical exercise behavior and expected post-vest
termination data. Our expected dividend yield is zero, as we have not paid any
dividends on our common stock to date and do not expect to pay any cash
dividends for the foreseeable future.

Restricted Stock Units (RSUs)


RSUs are stock awards that are granted to employees entitling the holder to
shares of our common stock as the award vests. During the year ended December
31, 2016, we issued 2,015,898 of primarily service based RSUs under the 2011
Incentive Plan with a weighted average grant date fair value per option of
$63.71. RSUs are measured at fair value based on the number of shares granted
and the quoted price of our common stock at the date of grant. We amortize the
fair value as stock-based compensation expense over the vesting term (generally
a four-year requisite service period) on a straight-line basis, with the amount
of compensation expense recognized at any date at least equaling the portion of
the grant-date fair value of the award that is vested at that date.

Estimates of fair value are not intended to predict actual future events or the
value ultimately realized by employees who receive these awards, and subsequent
events are not indicative of the reasonableness of our original estimates of
fair value. In the third quarter of 2016 we adopted new accounting guidance from
the Financial Accounting Standards Board ("FASB") on stock compensation, or ASU
2016-09, as described in "Recently Adopted Accounting Pronouncements" below and
have elected to account for forfeitures as they occur, rather than continue to
estimate expected forfeitures. Refer to "Note 4- Stock Based Awards and Other
Equity Instruments" in the notes to our consolidated financial statements in
Item 8 for further information on our equity award activity.

Websites and Internal Use Software Development Costs


We capitalize certain costs incurred during the application development stage
related to the development of websites and internal use software when it is
probable the project will be completed and the software will be used as
intended. Such costs are amortized on a straight-line basis over the estimated
useful life of the related asset, generally estimated to be three years.
Capitalized costs include internal and external costs, if direct and
incremental, and deemed by management to be significant. We expense costs
related to the planning and post-implementation phases of software and website
development as these costs are incurred. Maintenance and enhancement costs
(including those costs in the post-implementation stages) are typically expensed
as incurred, unless such costs relate to substantial upgrades and enhancements
to the website or software resulting in added functionality, in which case the
costs are capitalized. To the extent that we change the manner in which we
develop and test new features and functionalities related to our websites and
internal use software, assess the ongoing value of capitalized assets or
determine the estimated useful lives over which the costs are amortized, the
amount of website and internal use software development costs we capitalize and
amortize could change in future periods.

As of December 31, 2016 and 2015, our recorded capitalized software and website
development costs, net of accumulated amortization, were $86 million and $71
million, respectively. For the years ended December 31, 2016 and 2015, we
capitalized $62 million and $52 million, respectively, related to software and
website development costs. For the years ended December 31, 2016, 2015 and 2014,
we recorded amortization of capitalized software and website development costs
of $46 million, $37 million and $30 million, respectively, which is included in
depreciation expense on our consolidated statements of operations for those
years.



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Revenue Recognition


We recognize revenue from our services rendered when the following four revenue
recognition criteria are met: persuasive evidence of an arrangement exists,
services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. Deferred revenue, which primarily relates
to our subscription-based and commission based arrangements, is recorded when
payments are received in advance of our performance as required by the
underlying agreements.

Click-based advertising and transaction revenue. Click-based revenue is derived
primarily from click-through fees charged to our travel partners for traveler
leads sent to the travel partners' website. We record revenue from click-through
fees in the same period as when the traveler makes the click-through to the
travel partners' website. Our instant booking transaction model revenue is
comprised of commissions earned on all valid instant booking reservations. In
the transaction model, our instant booking commission revenue is recorded at the
time a traveler books a hotel transaction on our partner's site where we, as
facilitator for such booking, do not assume associated cancellation risk. Under
the other instant booking model, called the consumption model, we assume
cancellation risk associated with booking, and we record that revenue in the
month in which the traveler's stay at a hotel occurs. We have no post-booking
service obligations for all instant booking transactions, regardless of the
model chosen.

Display-based and subscription-based advertising. We recognize display-based
advertising revenue ratably over the advertising period or upon delivery of
advertising impressions, depending on the terms of the advertising contract.
Subscription-based advertising revenue is recognized ratably over the related
contractual period over which service is delivered.

Attractions. We work with local operators, or merchant partners, to provide
travelers with access to tours and activities in popular destinations worldwide,
earning a commission for such service. While the merchant of record, we receive
cash from the consumer at the time of booking of the destination activity and
record these amounts, net of commissions, as deferred merchant payables on our
consolidated balance sheet. Commission revenue is recorded as deferred revenue
at the time of booking and later recognized when the consumer has completed the
destination activity. We pay the destination activity operators after the
travelers' use.  In transactions where we are not the merchant of record, we
invoice and receive commissions directly from our merchant partners and record
commission revenue when the consumer has completed the destination activity.

Restaurants. We recognize reservation revenues (or per seated diner fees) on a
transaction-by-transaction basis as diners are seated by our restaurant
customers. Subscription-based revenue is recognized ratably over the related
contractual period over which the service is delivered.

Vacation Rentals. We generate revenue from customers for online advertising
services related to the listing of their properties for rent primarily on either
a subscription basis over a fixed-term, or on a commission basis for
transactions that are booked on our platform. Payments for term-based
subscriptions received in advance of services being rendered are recorded as
deferred revenue and recognized ratably to revenue on a straight-line basis over
the listing period. Our commission revenue is primarily generated on our
free-to-list option, in lieu of a pre-paid subscription fee. When a
commissionable transaction is booked on our platform, we receive cash from the
traveler that includes both our commission, which is recorded as deferred
revenue, and the amount due to the property owner, which is recorded to deferred
merchant payables on our consolidated balance sheet.  We pay the amount due to
the property owner and recognize our commission revenue at the time of the
traveler's stay. Additional revenues are also derived on a pay-per-lead basis,
as we provide leads for rental properties to property managers. Pay-per-lead
revenue is billed and recognized in the period when the leads are delivered to
the property managers.

New and Recently Adopted Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted


In January 2017, the FASB issued new accounting guidance which assist 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



                                       61

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which the financial statements have not been issued or made available for issuance. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements and related disclosures.


In January 2017, the FASB issued new accounting guidance to simplify the
accounting for goodwill impairment. The guidance removes Step two of the
goodwill impairment test, which requires a hypothetical purchase price
allocation. Under the new guidance, a goodwill impairment will now be the amount
by which a reporting unit's carrying value exceeds its fair value, not to exceed
the carrying amount of goodwill. All other goodwill impairment guidance will
remain largely unchanged. Entities will continue to have the option to perform a
qualitative assessment to determine if a quantitative impairment test is
necessary.  The guidance is effective for annual and interim periods in fiscal
years beginning after December 15, 2019 with early adoption permitted for any
goodwill impairment tests performed after January 1, 2017 and will be applied
prospectively. We are in the process of evaluating the impact of adopting this
new guidance on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued new accounting guidance which requires
entities to show the changes in the total of cash, cash equivalents, restricted
cash and restricted cash equivalents in the statement of cash flow. The guidance
is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2017, with early adoption permitted, including
adoption in an interim period, but any adjustments must be reflected as of the
beginning of the fiscal year that includes that interim period. Upon adoption,
an entity may apply the new guidance only retrospectively to all prior periods
presented in the financial statements. We anticipate adopting this new guidance
on January 1, 2018, on a retrospective basis, with no material impact on our
consolidated financial statements and related disclosures.

In October 2016, the FASB issued new accounting guidance which amends the
consolidation guidance on how a reporting entity that is the single decision
maker of a variable interest entity should treat indirect interests in the
entity held through related parties that are under common control within the
reporting entity when determining whether it is the primary beneficiary of that
variable interest entity. The guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2016,
with early adoption permitted. We anticipate adopting this new guidance on
January 1, 2017, on a retrospective basis, with no material impact on our
consolidated financial statements and related disclosures.

In October 2016, the FASB issued new accounting guidance on income tax
accounting associated with intra-entity transfers of assets other than
inventory. This accounting update, which is part of the FASB's simplification
initiative, is intended to reduce diversity in practice and the complexity of
tax accounting, particularly for those transfers involving intellectual
property. This new guidance requires an entity to recognize the income tax
consequences of an intra-entity transfer of an asset other than inventory when
the transfer occurs. 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. We are in
the process of evaluating the impact of adopting this new guidance on our
consolidated financial statements and related disclosures and our intended
adoption date.

In August 2016, the FASB issued new accounting guidance which clarifies how
companies present and classify certain cash receipts and cash payments in the
statement of cash flows. The new guidance specifically addresses the following
cash flow topics in an effort to reduce diversity in practice: (1) debt
prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds;
(3) contingent consideration payments made after a business combination; (4)
proceeds from the settlement of insurance claims; (5) proceeds from the
settlement of corporate-owned life insurance policies, including bank-owned life
insurance policies; (6) distributions received from equity method investees; (7)
beneficial interests in securitization transactions; and (8) separately
identifiable cash flows and application of the predominance principle. The
guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017, with early adoption permitted. Upon
adoption, an entity may apply the new guidance only retrospectively to all prior
periods presented in the financial statements. We anticipate adopting this new
guidance on January 1, 2018, on a retrospective basis, and it is not expected to
have a material impact on our consolidated financial statements and related
disclosures.



                                       62
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In June 2016, the FASB issued new accounting guidance on the measurement of
credit losses for financial assets measured at amortized cost, which includes
accounts receivable, and available-for-sale debt securities. For financial
assets measured at amortized cost, this new guidance requires an entity to (1)
estimate its lifetime expected credit losses upon recognition of the financial
assets and establish an allowance to present the net amount expected to be
collected, (2) recognize this allowance and changes in the allowance during
subsequent periods through net income; and (3) consider relevant information
about past events, current conditions and reasonable and supportable forecasts
in assessing the lifetime expected credit losses. For available-for-sale debt
securities, this new guidance made several targeted amendments to the existing
other-than-temporary impairment model, including (1) requiring disclosure of the
allowance for credit losses, (2) allowing reversals of the previously recognized
credit losses until the entity has the intent to sell, is more-likely-than-not
required to sell the securities or the maturity of the securities, (3) limiting
impairment to the difference between the amortized cost basis and fair value;
and (4) not allowing entities to consider the length of time that fair value has
been less than amortized cost as a factor in evaluating whether a credit loss
exists. This guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019, with early adoption
permitted, including interim periods within those fiscal years beginning after
December 15, 2018. We are in the process of evaluating the impact of adopting
this new guidance on our consolidated financial statements and related
disclosures and our intended adoption date.

In February 2016, the FASB issued new accounting guidance on leases that is
intended to provide enhanced transparency and comparability by requiring lessees
to record right-of-use assets and corresponding lease liabilities on the balance
sheet at the present value of the lease payments. The new guidance will classify
leases as either finance or operating leases, with classification determining
the presentation of expenses and cash flows on our consolidated financial
statements. The guidance also requires new disclosures to help financial
statement users better understand the amount, timing and uncertainty of cash
flows arising from leases. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2018,
with early adoption permitted, which will require the recognition and
measurement of leases at the beginning of the earliest comparative period
presented in the financial statements using a modified retrospective
approach. We are currently evaluating the effect that the updated standard will
have on our consolidated financial statements and related disclosures, as well
as still determining our adoption date. We anticipate giving additional updates
on our Form-10Q's during the first and second quarters of 2017.

In January 2016, the FASB issued a new accounting update which amends the
guidance on the classification and measurement of financial instruments.
Although the accounting update retains many current requirements, it
significantly revises accounting related to (1) the classification and
measurement of investments in equity securities and (2) the presentation of
certain fair value changes for financial liabilities measured at fair value. The
accounting update also amends certain fair value disclosures of financial
instruments and clarifies that an entity should evaluate the need for a
valuation allowance on a deferred tax asset related to available-for-sale debt
securities in combination with the entity's evaluation of their other deferred
tax assets. The update requires entities to carry all investments in equity
securities, including other ownership interests such as partnerships,
unincorporated joint ventures and limited liability companies at fair value,
with fair value changes recognized through net income. This requirement does not
apply to investments that qualify for equity method accounting, investments that
result in consolidation of the investee or investments in which the entity has
elected the practicability exception to fair value measurement. Under current
U.S. GAAP, the Company's available-for-sale investments in equity securities
with readily identifiable market value are remeasured to fair value each
reporting period with changes in fair value recognized in accumulated other
comprehensive income (loss). However, under the new accounting literature, fair
value adjustments will be recognized through net income and could vary
significantly quarter to quarter. For the investments currently accounted for
under the cost method, an entity can elect to measure its investments, which do
not have a readily determinable fair value, at cost less impairment, if any,
plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer.
Additionally, this accounting update will simplify the impairment assessment of
equity investments without readily determinable fair values by requiring a
qualitative assessment to identify impairment. When a qualitative assessment
indicates that impairment exists, an entity is required to measure the
investment at fair value. In addition, this accounting update eliminates the
requirement for public business entities to disclose the methods and significant
assumptions used to estimate the fair value that is currently required to be
disclosed for financial instruments measured at amortized cost in the balance
sheet. We anticipate adopting this new guidance on January 1, 2018 and are in
the process of evaluating the impact of adopting this new guidance on our
consolidated financial statements and related disclosures.



                                       63

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In May 2014, the FASB issued new accounting guidance on revenue from contracts
with customers which will replace numerous requirements in GAAP, and provide
companies with a single revenue recognition model for recognizing revenue from
contracts with customers. The core principle of the new standard is that a
company should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. This
guidance also requires additional disclosures about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. In 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 two permitted transition methods under this new accounting
guidance are the full retrospective method, in which case the guidance would be
applied to each prior reporting period presented and the cumulative effect of
applying the guidance would be recognized at the earliest period shown, or the
modified retrospective method, in which case the cumulative effect of applying
the guidance would be recognized at the date of initial application. This
guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017 and early adoption is permitted for
fiscal years beginning after December 15, 2016.

During 2016, we have made measurable progress toward completing our evaluation
of the potential changes from adopting the new standard on our future financial
reporting and disclosures. We have established a cross-functional implementation
team from across our organization and have made significant progress in the
review of our contracts portfolio and our current accounting policies and
practices to identify potential differences that could result from applying the
requirements of the new standard to our revenue contracts. We will continue to
evaluate the impact that this new guidance will have, if any, on the Company's
consolidated financial statements and related disclosures and are still
determining the method of adoption we will elect for this new guidance. We
anticipate adopting this new guidance on January 1, 2018, and plan on giving
additional updates on our progress and further conclusions on our Form-10Q's
during the first and second quarters of 2017.

Recently Adopted Accounting Pronouncements


In March 2016, the FASB issued new accounting guidance on stock compensation, or
ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, which changes how companies account for
certain aspects of stock-based payment awards to employees, including the
accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the consolidated statement of cash
flows. The new guidance permits recognizing the impact of forfeitures on
stock-based compensation as they occur or to recognize stock-based compensation
expense net of expected forfeitures, requires companies to record excess tax
benefits and tax deficiencies as income tax benefit or expense in the
consolidated statement of operations when the awards vest or are settled, and
eliminates the requirement to reclassify cash flows related to excess tax
benefits from operating activities to financing activities on the consolidated
statement of cash flows.

We elected to early adopt the new guidance in the third quarter of 2016, which
requires us to reflect any adjustments as of January 1, 2016, the beginning of
the annual period that includes the interim period of adoption. The primary
impact of adoption was the recognition of excess tax benefits and tax
deficiencies in our provision for income taxes rather than additional paid-in
capital for all periods in 2016. There was no impact to our provision for income
taxes as previously reported for 2015 or prior periods. Additionally, our
consolidated statement of cash flows now present excess tax benefits as an
operating activity on a retrospective basis. As a result of the retrospective
implementation of this guidance, the impact on the consolidated statement of
cash flows for the years ended December 31, 2015 and 2014 was an increase of $36
million and $20 million in cash flows from operating activities with an
offsetting reduction in cash flows from financing activities. Finally, we have
elected to account for forfeitures as they occur, rather than estimate expected
forfeitures. The net cumulative effect of this change was recognized as a $1
million reduction to retained earnings as of January 1, 2016.



                                       64

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Adoption of the new guidance resulted in the recognition of net excess tax
expense and benefit in our provision for income taxes rather than additional
paid-in capital. As a result, we recorded $1 million of income tax benefit for
the year ended December 31, 2016, and impacted our previously reported quarterly
results for the three months ended March 31, 2016 and June 30, 2016, as follows:



                                                      Three months ended March 31, 2016
                                                   As Reported             As Adjusted (1)(2)
                                                     (in millions, except per share data)
Consolidated Statement of Operations:

Operating income                                $              42         $                 42
Provision for income taxes                                    (11 )                         (9 )
Net income                                                     27                           29
Basic EPS                                       $            0.19         $               0.20
Diluted EPS                                     $            0.18         $               0.20

Consolidated Statement of Cash Flows:
Net cash provided by operating activities       $             120         $                124
Net cash used in financing activities           $             (94 )       $                (98 )




                                                Three months ended June 30, 2016
                                              As Reported            As Adjusted (1)
                                              (in millions, except per share data)
Consolidated Statement of Operations:

Operating income                            $             48         $             47
Provision for income taxes                               (11 )                    (10 )
Net income                                                34                       34
Basic EPS                                   $           0.23         $           0.23
Diluted EPS                                 $           0.23         $           0.23

                                                 Six months ended June 30, 2016
                                              As Reported            As Adjusted (2)
                                                          (in millions)
Consolidated Statement of Cash Flows:
Net cash provided by operating activities   $            357         $      

363

Net cash used in financing activities       $           (123 )       $           (129 )



(1) The election to account for forfeitures as they occur did not have a

material impact for the three months ended March 31, 2016 and resulted in an

increase to stock-based compensation expense of approximately $1 million for

the three months ended June 30, 2016.

(2) Includes the reclassification of cash flows related to excess tax benefits

     from financing activities to operating activities of $4 million and $2
     million for the three months ending March 31, 2016 and June 30, 2016,
     respectively.


In September 2015, the FASB issued new accounting guidance which eliminates the
requirement for an acquirer in a business combination to account for
measurement-period adjustments retrospectively. Instead, acquirers must
recognize measurement-period adjustments during the period in which they
determine the amounts, including the effect on earnings of any amounts that
would have been recorded in previous periods if the accounting had been
completed at the acquisition date. The Company adopted this guidance in the
first quarter of 2016. The adoption of this guidance did not have a material
impact on our consolidated financial statements and related disclosures.



                                       65

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In April 2015, the FASB issued new accounting guidance which clarifies the
accounting for fees paid by a customer in a cloud computing arrangement. This
standard clarified whether a customer should account for a cloud computing
arrangement as an acquisition of a software license or as a service arrangement
by providing characteristics that a cloud computing arrangement must have in
order to be accounted for as a software license acquisition. If a cloud
computing arrangement includes a software license, the customer should account
for the software license element of the arrangement consistent with the
acquisition of other software licenses. If the arrangement does not include a
software license, the customer should account for a cloud computing arrangement
as a service contract. The company prospectively adopted this guidance in the
first quarter of 2016. The adoption of this guidance did not have a material
impact on our consolidated financial statements and related disclosures.

© Edgar Online, source Glimpses

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Mean consensus HOLD
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Average target price 48,3 $
Spread / Average Target 11%
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NameTitle
Stephen Kaufer President, Chief Executive Officer & Director
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