UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015
OR
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-35362
TRIPADVISOR, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
80-0743202 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
141 Needham Street
Newton, MA 02464
(Address of principal executive office) (Zip Code)
Registrant’s telephone number, including area code:
(617) 670-6300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
|
x |
|
Accelerated filer |
|
¨ |
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|
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|
|||
|
Non-accelerated filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
|
Class |
|
Outstanding Shares at May 1, 2015 |
|
Common Stock, $0.001 par value per share |
|
130,709,499 shares |
|
Class B common stock, $0.001 par value per share |
|
12,799,999 shares |
TripAdvisor, Inc.
Form 10-Q
For the Quarter Ended March 31, 2015
Table of Contents
2
PART I – FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
TRIPADVISOR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
Revenue |
|
$ |
363 |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
Cost of revenue (1) |
|
|
13 |
|
|
|
8 |
|
|
Selling and marketing (2) |
|
|
157 |
|
|
|
101 |
|
|
Technology and content (2) |
|
|
49 |
|
|
|
38 |
|
|
General and administrative (2) |
|
|
33 |
|
|
|
26 |
|
|
Depreciation |
|
|
14 |
|
|
|
10 |
|
|
Amortization of intangible assets |
|
|
7 |
|
|
|
2 |
|
|
Total costs and expenses: |
|
|
273 |
|
|
|
185 |
|
|
Operating income |
|
|
90 |
|
|
|
96 |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2 |
) |
|
|
(2 |
) |
|
Interest income and other, net |
|
|
(2 |
) |
|
|
- |
|
|
Total other expense, net |
|
|
(4 |
) |
|
|
(2 |
) |
|
Income before income taxes |
|
|
86 |
|
|
|
94 |
|
|
Provision for income taxes |
|
|
(23 |
) |
|
|
(26 |
) |
|
Net income |
|
$ |
63 |
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to common stockholders (Note 13): |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.44 |
|
|
$ |
0.48 |
|
|
Diluted |
|
$ |
0.43 |
|
|
$ |
0.47 |
|
|
Weighted average common shares outstanding (Note 13): |
|
|
|
|
|
|
|
|
|
Basic |
|
|
143 |
|
|
|
142 |
|
|
Diluted |
|
|
146 |
|
|
|
146 |
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|
|
|
|
|
|
|
|
|
|
|
(1) Excludes amortization as follows: |
|
|
|
|
|
|
|
|
|
Amortization of acquired technology included in amortization of intangible assets |
|
$ |
2 |
|
|
$ |
- |
|
|
Amortization of website development costs included in depreciation |
|
|
9 |
|
|
|
6 |
|
|
|
|
$ |
11 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
(2) Includes stock-based compensation expense as follows: |
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
4 |
|
|
$ |
3 |
|
|
Technology and content |
|
$ |
6 |
|
|
$ |
6 |
|
|
General and administrative |
|
$ |
6 |
|
|
$ |
5 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
TRIPADVISOR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
|
|
|
Three months ended |
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|||||
|
|
|
March 31, |
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|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
Net income |
|
$ |
63 |
|
|
$ |
68 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments (1) |
|
|
(28 |
) |
|
|
1 |
|
|
Total other comprehensive income (loss) |
|
|
(28 |
) |
|
|
1 |
|
|
Comprehensive income |
|
$ |
35 |
|
|
$ |
69 |
|
|
(1) |
Foreign currency translation adjustments exclude income taxes due to our practice and intention to indefinitely reinvest the earnings of our foreign subsidiaries in those operations. |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
TRIPADVISOR, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares and per share amounts)
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
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2015 |
|
|
|
2014 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 4) |
|
$ |
505 |
|
|
$ |
455 |
|
|
Short-term marketable securities (Note 4) |
|
|
118 |
|
|
|
108 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $7 and $7 at March 31, 2015 and December 31, 2014, respectively |
|
|
229 |
|
|
|
151 |
|
|
Prepaid expenses and other current assets |
|
|
42 |
|
|
|
33 |
|
|
Total current assets |
|
|
894 |
|
|
|
747 |
|
|
Long-term marketable securities (Note 4) |
|
|
19 |
|
|
|
31 |
|
|
Property and equipment, net (Note 5) |
|
|
226 |
|
|
|
195 |
|
|
Other long-term assets |
|
|
39 |
|
|
|
38 |
|
|
Intangible assets, net (Note 6) |
|
|
196 |
|
|
|
214 |
|
|
Goodwill (Note 6) |
|
|
720 |
|
|
|
734 |
|
|
TOTAL ASSETS |
|
$ |
2,094 |
|
|
$ |
1,959 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
26 |
|
|
$ |
19 |
|
|
Deferred merchant payables |
|
|
148 |
|
|
|
93 |
|
|
Deferred revenue |
|
|
77 |
|
|
|
57 |
|
|
Credit facility borrowings (Note 7) |
|
|
40 |
|
|
|
38 |
|
|
Borrowings, current (Note 7) |
|
|
40 |
|
|
|
40 |
|
|
Taxes payable |
|
|
6 |
|
|
|
20 |
|
|
Accrued expenses and other current liabilities (Note 9) |
|
|
115 |
|
|
|
114 |
|
|
Total current liabilities |
|
|
452 |
|
|
|
381 |
|
|
Deferred income taxes, net |
|
|
39 |
|
|
|
39 |
|
|
Other long-term liabilities (Note 10) |
|
|
174 |
|
|
|
154 |
|
|
Borrowings, net of current portion (Note 7) |
|
|
250 |
|
|
|
260 |
|
|
Total Liabilities |
|
|
915 |
|
|
|
834 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value |
|
|
|
|
|
|
|
|
|
Authorized shares: 100,000,000 |
|
|
- |
|
|
|
- |
|
|
Shares issued and outstanding: 0 and 0 |
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value |
|
|
- |
|
|
|
- |
|
|
Authorized shares: 1,600,000,000 |
|
|
|
|
|
|
|
|
|
Shares issued: 132,898,365 and 132,315,465 |
|
|
|
|
|
|
|
|
|
Shares outstanding: 130,704,192 and 130,121,292 |
|
|
|
|
|
|
|
|
|
Class B common stock, $0.001 par value |
|
|
- |
|
|
|
- |
|
|
Authorized shares: 400,000,000 |
|
|
|
|
|
|
|
|
|
Shares issued and outstanding: 12,799,999 and 12,799,999 |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
692 |
|
|
|
673 |
|
|
Retained earnings |
|
|
691 |
|
|
|
628 |
|
|
Accumulated other comprehensive income (loss) |
|
|
(59 |
) |
|
|
(31 |
) |
|
Treasury stock-common stock, at cost, 2,194,173 and 2,194,173 shares, March 31, 2015 and December 31, 2014, respectively |
|
|
(145 |
) |
|
|
(145 |
) |
|
Total Stockholders’ Equity |
|
|
1,179 |
|
|
|
1,125 |
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
2,094 |
|
|
$ |
1,959 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
TRIPADVISOR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(in millions, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
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||
|
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|
|
|
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|
Class B |
|
|
paid-in |
|
|
Retained |
|
|
comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Common stock |
|
|
common stock |
|
|
capital |
|
|
earnings |
|
|
income (loss) |
|
|
Treasury Stock |
|
|
|
|
|
||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Total |
|
|||||||
|
Balance as of December 31, 2014 |
|
|
132,315,465 |
|
|
$ |
- |
|
|
|
12,799,999 |
|
|
$ |
- |
|
|
$ |
673 |
|
|
$ |
628 |
|
|
$ |
(31 |
) |
|
|
(2,194,173 |
) |
|
$ |
(145 |
) |
|
$ |
1,125 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
Issuance of common stock related to exercises of options and vesting of RSUs |
|
|
582,900 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
Tax benefits on equity awards, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
Minimum withholding taxes on net share settlements of equity awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2015 |
|
|
132,898,365 |
|
|
$ |
- |
|
|
|
12,799,999 |
|
|
$ |
- |
|
|
$ |
692 |
|
|
$ |
691 |
|
|
$ |
(59 |
) |
|
|
(2,194,173 |
) |
|
$ |
(145 |
) |
|
$ |
1,179 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
TRIPADVISOR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
63 |
|
|
$ |
68 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment, including amortization of internal-use software and website development |
|
|
14 |
|
|
|
10 |
|
|
Stock-based compensation expense |
|
|
16 |
|
|
|
14 |
|
|
Amortization of intangible assets |
|
|
7 |
|
|
|
2 |
|
|
Deferred tax expense |
|
|
3 |
|
|
|
1 |
|
|
Excess tax benefits from stock-based compensation |
|
|
(7 |
) |
|
|
(11 |
) |
|
Other, net |
|
|
2 |
|
|
|
2 |
|
|
Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
|
Accounts receivable, prepaid expenses and other assets |
|
|
(71 |
) |
|
|
(38 |
) |
|
Accounts payable, accrued expenses and other liabilities |
|
|
4 |
|
|
|
(5 |
) |
|
Deferred merchant payables |
|
|
60 |
|
|
|
34 |
|
|
Income taxes, net |
|
|
(13 |
) |
|
|
18 |
|
|
Deferred revenue |
|
|
21 |
|
|
|
14 |
|
|
Net cash provided by operating activities |
|
|
99 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(5 |
) |
|
|
- |
|
|
Capital expenditures, including internal-use software and website development |
|
|
(31 |
) |
|
|
(20 |
) |
|
Purchases of marketable securities |
|
|
(32 |
) |
|
|
(203 |
) |
|
Sales of marketable securities |
|
|
25 |
|
|
|
52 |
|
|
Maturities of marketable securities |
|
|
9 |
|
|
|
44 |
|
|
Net cash used in investing activities |
|
|
(34 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from credit facilities |
|
|
2 |
|
|
|
5 |
|
|
Payments to credit facilities |
|
|
- |
|
|
|
(3 |
) |
|
Principal payments on long-term debt |
|
|
(10 |
) |
|
|
(10 |
) |
|
Proceeds from exercise of stock options |
|
|
8 |
|
|
|
2 |
|
|
Payment of minimum withholding taxes on net share settlements of equity awards |
|
|
(13 |
) |
|
|
(18 |
) |
|
Excess tax benefits from stock-based compensation |
|
|
7 |
|
|
|
11 |
|
|
Other, net |
|
|
3 |
|
|
|
(1 |
) |
|
Net cash used in financing activities |
|
|
(3 |
) |
|
|
(14 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(12 |
) |
|
|
- |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
50 |
|
|
|
(32 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
455 |
|
|
|
351 |
|
|
Cash and cash equivalents at end of period |
|
$ |
505 |
|
|
$ |
319 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Capitalization of construction in-process related to build to suit lease obligation |
|
$ |
4 |
|
|
$ |
14 |
|
|
Capital expenditures incurred but not yet paid primarily related to build to suit lease |
|
$ |
8 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
TRIPADVISOR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
We refer to TripAdvisor, Inc. and our wholly-owned subsidiaries as “TripAdvisor,” “the Company,” “us,” “we” and “our” in these notes to the unaudited consolidated financial statements.
Description of Business
TripAdvisor is an online travel company, empowering users to plan and book the perfect trip. TripAdvisor’s travel research platform aggregates reviews and opinions of members about destinations, accommodations, activities and attractions, and restaurants throughout the world so that our users have access to trusted advice wherever their trips take them. Our platform not only helps users plan their trips with our unique user-generated content, but also enables users to compare real-time pricing and availability so that they can book hotels, vacation rentals, flights, activities and attractions, and restaurants.
Our flagship brand is TripAdvisor. TripAdvisor-branded websites include tripadvisor.com in the United States and localized versions of the website in 45 countries worldwide. In addition to the flagship TripAdvisor brand, we manage and operate 24 other media brands, connected by the common goal of providing comprehensive travel planning resources across the travel sector, which include: www.airfarewatchdog.com, www.bookingbuddy.com, www.cruisecritic.com, www.everytrail.com, www.familyvacationcritic.com, www.flipkey.com, www.thefork.com (including www.lafourchette.com, www.eltenedor.com, www.iens.nl and www.besttables.com), www.gateguru.com, www.holidaylettings.co.uk, www.holidaywatchdog.com, www.independenttraveler.com, www.jetsetter.com, www.niumba.com, www.onetime.com, www.oyster.com, www.seatguru.com, www.smartertravel.com, www.tingo.com, www.travelpod.com, www.tripbod.com, www.vacationhomerentals.com, www.viator.com, www.virtualtourist.com, and www.kuxun.cn.
We derive the substantial portion of our revenue through the sale of advertising, primarily through click-based advertising and, to a lesser extent, display-based advertising. In addition, we earn revenue from a combination of subscription-based and transaction-based offerings, including: Business Listings; subscription and commission-based offerings from our Vacation Rentals products; transaction revenue from selling room nights through our Jetsetter and Tingo brands; selling destination activities from Viator; fulfilling online restaurant reservations, primarily through Lafourchette; as well as other revenue including content licensing.
We have two reportable segments: Hotel and Other. Our Other segment consists of the aggregation of three operating segments, which include our Attractions, Restaurants and Vacation Rentals businesses. Our operating segments are determined based on how our chief operating decision maker manages our business, regularly assesses information and evaluates performance for operating decision-making purposes, including allocation of resources. For further information on our reportable segments see “Note 12 — Segment Information,” in these notes to our unaudited consolidated financial statements.
Basis of Presentation
The accompanying unaudited financial statements present our results of operations, financial position and cash flows on a consolidated basis. The accompanying unaudited consolidated financial statements include TripAdvisor, our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We have eliminated significant intercompany transactions and accounts.
Certain of our subsidiaries that operate in China have variable interests in affiliated entities in China in order to comply with Chinese laws and regulations, which restrict foreign investment in Internet content provision businesses. Although we do not own the capital stock of some of our Chinese affiliates, we consolidate their results as we are the primary beneficiary of the cash losses or profits of these variable interest affiliates and have the power to direct the activities of these affiliates. Our variable interest entities are not material for all periods presented.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. We prepared the unaudited consolidated financial statements following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, we have condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014, previously filed with the SEC.
8
Reclassifications
Pursuant to our disclosure in “Note 16— Segment and Geographic Information” in the notes to our consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2014, management revised our reportable segments. All prior periods disclosures have been reclassified to conform to the current reporting structure. These reclassifications had no effect on our unaudited consolidated financial statements.
All other reclassifications made to conform the prior period to the current presentation, were not material and had no net effect on our unaudited consolidated financial statements.
Accounting Estimates
We use estimates and assumptions in the preparation of our unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our unaudited consolidated financial statements include: (i) recoverability of intangible assets and goodwill, (ii) recoverability and useful life of long-lived assets, (iii) accounting for income taxes, (iv) purchase accounting for business combinations and (v) stock-based compensation.
Seasonality
Expenditures by travel advertisers tend to be seasonal. Traditionally, our strongest quarter has been the third quarter, which is a key travel research period, with the weakest quarter being the fourth quarter. However, adverse economic conditions or continued growth of our international operations with differing holiday peaks may influence the typical trend of our seasonality in the future.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncements Not Yet Adopted
Revenue From Contracts With Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. As currently issued, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and early adoption is not permitted. In April 2015, the FASB proposed deferring the effective date by one year to December 15, 2017, for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our unaudited consolidated financial statements and related disclosures.
There have been no material changes to our significant accounting policies since December 31, 2014. For additional information about our critical accounting policies and estimates, refer to “Note 2— Significant Accounting Policies”, in the notes to our consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2014.
9
NOTE 3: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS
Stock-Based Compensation Expense
The following table presents the amount of stock-based compensation expense related to stock-based awards, primarily stock options and restricted stock units (“RSUs”), on our unaudited consolidated statements of operations during the periods presented:
|
|
|
Three months ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
|
|
(in millions) |
|
|||||
|
Selling and marketing |
|
$ |
4 |
|
|
$ |
3 |
|
|
Technology and content |
|
|
6 |
|
|
|
6 |
|
|
General and administrative |
|
|
6 |
|
|
|
5 |
|
|
Total stock-based compensation |
|
|
16 |
|
|
|
14 |
|
|
Income tax benefit from stock-based compensation |
|
|
(6 |
) |
|
|
(5 |
) |
|
Total stock-based compensation, net of tax effect |
|
$ |
10 |
|
|
$ |
9 |
|
Stock-Based Award Activity and Valuation
2015 Stock Option Activity
During the three months ended March 31, 2015, we have issued 367,659 service-based non-qualified stock options under the Company’s 2011 Stock and Annual Incentive Plan, as amended (the “2011 Incentive Plan”). These stock options have a term of ten years from the date of grant and vest equitably over a four-year requisite service period.
A summary of the status and activity for stock option awards relating to our common stock for the three months ended March 31, 2015, is presented below:
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
||
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
||
|
|
|
|
|
|
|
Exercise |
|
|
Remaining |
|
|
Aggregate |
|
|||
|
|
|
Options |
|
|
Price Per |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
|
|
Outstanding |
|
|
Share |
|
|
Life |
|
|
Value |
|
||||
|
|
|
(in thousands) |
|
|
|
|
|
|
(in years) |
|
|
(in millions) |
|
|||
|
Options outstanding at January 1, 2015 |
|
|
8,651 |
|
|
$ |
44.47 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
368 |
|
|
|
86.07 |
|
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
|
(585 |
) |
|
|
34.30 |
|
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
|
(91 |
) |
|
|
51.97 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2015 |
|
|
8,343 |
|
|
$ |
46.94 |
|
|
|
4.9 |
|
|
$ |
312 |
|
|
Exercisable as of March 31, 2015 |
|
|
4,630 |
|
|
$ |
34.42 |
|
|
|
3.1 |
|
|
$ |
227 |
|
|
Vested and expected to vest after March 31, 2015 |
|
|
8,153 |
|
|
$ |
46.51 |
|
|
|
4.8 |
|
|
$ |
307 |
|
|
(1) |
Inclusive of 203,689 options which were not converted into shares due to net share settlement in order to cover the aggregate exercise price and the minimum amount of required employee withholding taxes. Potential shares that had been convertible under stock options that were withheld under net share settlement remain in the authorized but unissued pool under the 2011 Incentive Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the unaudited consolidated statements of cash flows. |
Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on The NASDAQ Global Select Market as of March 31, 2015 was $83.17. The total intrinsic value of stock options exercised for the three months ended March 31, 2015 and 2014 was $31 million and $36 million, respectively.
10
The fair value of stock option grants under the 2011 Incentive Plan has been estimated at the date of grant using the Black–Scholes option pricing model with the following weighted average assumptions for the periods presented:
|
|
|
Three months ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
Risk free interest rate |
|
|
1.51 |
% |
|
|
1.97 |
% |
|
Expected term (in years) |
|
|
5.21 |
|
|
|
6.38 |
|
|
Expected volatility |
|
|
41.86 |
% |
|
|
48.09 |
% |
|
Expected dividend yield |
|
— % |
|
|
— % |
|
||
The weighted-average grant date fair value of options granted was $33.79 and $47.36 for the three months ended March 31, 2015 and 2014, respectively. The total fair value of stock options vested for the three months ended March 31, 2015 and 2014 was $25 million and $23 million, respectively.
2015 RSU Activity
During the three months ended March 31, 2015, we issued 514,579 RSUs under the 2011 Incentive Plan for which the fair value was measured based on the quoted price of our common stock on the date of grant. These RSUs vest over a four-year requisite service period.
The following table presents a summary of our RSU activity during the three months ended March 31, 2015:
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant- |
|
|
Aggregate |
|
||
|
|
|
RSUs |
|
|
Date Fair |
|
|
Intrinsic |
|
|||
|
|
|
Outstanding |
|
|
Value Per Share |
|
|
Value |
|
|||
|
|
|
(in thousands) |
|
|
|
|
|
|
(in millions) |
|
||
|
Unvested RSUs outstanding as of January 1, 2015 |
|
|
1,448 |
|
|
$ |
71.33 |
|
|
|
|
|
|
Granted |
|
|
515 |
|
|
|
87.52 |
|
|
|
|
|
|
Vested and released (1) |
|
|
(287 |
) |
|
|
64.32 |
|
|
|
|
|
|
Cancelled |
|
|
(91 |
) |
|
|
65.64 |
|
|
|
|
|
|
Unvested RSUs outstanding as of March 31, 2015 |
|
|
1,585 |
|
|
$ |
78.18 |
|
|
$ |
132 |
|
|
(1) |
Inclusive of 88,714 RSUs withheld to satisfy employee minimum tax withholding requirements due to net share settlement. Potential shares which had been convertible under RSUs that were withheld under net share settlement remain in the authorized but unissued pool under the 2011 Incentive Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the unaudited consolidated statements of cash flows. |
Unrecognized Stock-Based Compensation
A summary of our remaining unrecognized stock-based compensation expense, net of estimated forfeitures, and the weighted average remaining amortization period at March 31, 2015 related to our non-vested stock options and RSU awards is presented below (in millions, except per year information):
|
|
|
Stock |
|
|
|
|
|
|
|
|
|
Options |
|
|
RSUs |
|
||
|
Unrecognized compensation expense (net of forfeitures) |
|
$ |
85 |
|
|
$ |
99 |
|
|
Weighted average period remaining (in years) |
|
|
2.7 |
|
|
|
3.2 |
|
11
NOTE 4: FINANCIAL INSTRUMENTS
Cash, Cash Equivalents and Marketable Securities
The following tables show our cash and available-for-sale securities’ amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short and long-term marketable securities for the periods presented (in millions):
|
|
|
March 31, 2015 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and |
|
|
Short-Term |
|
|
Long-Term |
|
|||
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Cash |
|
|
Marketable |
|
|
Marketable |
|
|||||||
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Equivalents |
|
|
Securities |
|
|
Securities |
|
|||||||
|
Cash |
|
$ |
478 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
478 |
|
|
$ |
478 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
|
27 |
|
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
|
|
41 |
|
|
|
- |
|
|
|
- |
|
|
|
41 |
|
|
|
- |
|
|
|
38 |
|
|
|
3 |
|
|
Certificates of deposit |
|
|
13 |
|
|
|
- |
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
Commercial paper |
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
Corporate debt securities |
|
|
81 |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
65 |
|
|
|
16 |
|
|
Subtotal |
|
|
137 |
|
|
|
- |
|
|
|
- |
|
||||||||||||||||