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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2020
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: 1-36691
Booking Holdings Inc.
(Exact name of registrant as specified in its charter) 
Delaware
06-1528493
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
800 Connecticut Avenue
Norwalk, Connecticut 06854
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 299-8000
Former name, former address and former fiscal year, if changed, since last report: N/A
 _____________________________________________________________________________________________
 Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
 
Trading Symbols
 
Name of each exchange on which registered:
Common Stock par value $0.008 per share
 
BKNG
 
The NASDAQ Global Select Market
0.800% Senior Notes Due 2022
 
BKNG 22A
 
The NASDAQ Stock Market LLC
2.150% Senior Notes Due 2022
 
BKNG 22
 
The NASDAQ Stock Market LLC
2.375% Senior Notes Due 2024
 
BKNG 24
 
The NASDAQ Stock Market LLC
1.800% Senior Notes Due 2027
 
BKNG 27
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes No .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes No
Number of shares of Common Stock outstanding at April 30, 2020:
Common Stock, par value $0.008 per share
 
40,930,911
(Class)
 
(Number of Shares)





Booking Holdings Inc.
Form 10-Q
 
For the Three Months Ended March 31, 2020
 
PART I - FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
Consolidated Balance Sheets at March 31, 2020 (Unaudited) and December 31, 2019
Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2020 and 2019
Consolidated Statements of Comprehensive (Loss) Income (Unaudited) For the Three Months Ended March 31, 2020 and 2019
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) For the Three Months Ended March 31, 2020 and 2019
Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2020 and 2019
Notes to Unaudited Consolidated Financial Statements
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II - OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
SIGNATURES

2



PART I — FINANCIAL INFORMATION
Item 1.  Financial Statements

Booking Holdings Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
 
 
March 31,
2020
 
December 31,
2019
 
 
(Unaudited)
 
 
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
6,363

 
$
6,312

Short-term investments (Includes available-for-sale debt securities:
Amortized cost of $414 and $998, respectively)
 
826

 
998

Accounts receivable, net (Allowance for credit losses of $245 and $49, respectively)
 
667

 
1,680

Prepaid expenses and other current assets, net (Allowance for credit losses of $5 and $6, respectively)
 
1,404

 
843

Total current assets
 
9,260

 
9,833

Property and equipment, net
 
720

 
738

Operating lease assets
 
596

 
620

Intangible assets, net
 
1,897

 
1,954

Goodwill
 
2,391

 
2,913

Long-term investments (Includes available-for-sale debt securities:
Amortized cost of $775 and $2,192, respectively)
 
2,056

 
4,477

Other assets, net (Allowance for credit losses of $49 and $0, respectively)
 
942

 
867

Total assets
 
$
17,862

 
$
21,402

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
926

 
$
1,239

Accrued expenses and other current liabilities
 
1,255

 
1,578

Deferred merchant bookings
 
960

 
1,561

Convertible debt
 
995

 
988

Total current liabilities
 
4,136

 
5,366

Deferred income taxes
 
786

 
876

Operating lease liabilities
 
438

 
462

Long-term U.S. transition tax liability
 
1,021

 
1,021

Other long-term liabilities
 
93

 
104

Long-term debt
 
7,553

 
7,640

  Total liabilities
 
14,027

 
15,469

 
 
 
 
 
Commitments and Contingencies (see Note 13)
 


 


Convertible debt
 
4

 

 
 
 
 
 
Stockholders' equity:
 
 

 
 

Common stock, $0.008 par value,
Authorized shares: 1,000,000,000
Issued shares: 63,369,751 and 63,179,471, respectively
 

 

Treasury stock, 22,439,549 and 21,762,070 shares, respectively
 
(24,115
)
 
(22,864
)
Additional paid-in capital
 
5,758

 
5,756

Retained earnings
 
22,530

 
23,232

Accumulated other comprehensive loss
 
(342
)
 
(191
)
  Total stockholders' equity
 
3,831

 
5,933

Total liabilities and stockholders' equity
 
$
17,862

 
$
21,402

See Notes to Unaudited Consolidated Financial Statements.

3



Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
 
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Agency revenues
 
$
1,424

 
$
1,949

Merchant revenues
 
659

 
603

Advertising and other revenues
 
205

 
285

Total revenues
 
2,288

 
2,837

Operating expenses:
 
 

 
 

Marketing expenses
 
851

 
1,193

Sales and other expenses
 
377

 
215

Personnel, including stock-based compensation of $6 and $74, respectively
 
484

 
501

General and administrative
 
201

 
191

Information technology
 
78

 
65

Depreciation and amortization
 
117

 
116

Impairment of goodwill
 
489

 

Total operating expenses
 
2,597

 
2,281

Operating (loss) income
 
(309
)
 
556

Other income (expense):
 
 

 
 

Interest income
 
32

 
35

Interest expense
 
(64
)
 
(66
)
Net (losses) gains on marketable equity securities
 
(307
)
 
451

Impairment of investment
 
(100
)
 

Foreign currency transactions and other
 
26

 
(8
)
Total other (expense) income
 
(413
)
 
412

(Loss) income before income taxes
 
(722
)
 
968

Income tax (benefit) expense
 
(23
)
 
203

Net (loss) income
 
$
(699
)
 
$
765

Net (loss) income applicable to common stockholders per basic common share
 
$
(17.01
)
 
$
17.01

Weighted-average number of basic common shares outstanding (in 000's)
 
41,093

 
45,007

Net (loss) income applicable to common stockholders per diluted common share
 
$
(17.01
)
 
$
16.85

Weighted-average number of diluted common shares outstanding (in 000's)
 
41,093

 
45,436



See Notes to Unaudited Consolidated Financial Statements.


4



Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)

 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Net (loss) income
 
$
(699
)
 
$
765

Other comprehensive (loss) income, net of tax
 
 
 
 
Foreign currency translation adjustments, net of tax
 
(77
)
 
(12
)
Net unrealized (losses) gains on available-for-sale securities, net of tax
 
(74
)
 
159

Total other comprehensive (loss) income, net of tax
 
(151
)
 
147

Comprehensive (loss) income
 
$
(850
)
 
$
912




See Notes to Unaudited Consolidated Financial Statements.

5



Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019
(In millions except share data)
 

 
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
 
 
 
Shares
(in 000's)
 
Amount
 
Shares
(in 000's)
 
Amount
 
 
 
 
Total
Balance, December 31, 2019
 
63,179

 
$

 
(21,762
)
 
$
(22,864
)
 
$
5,756

 
$
23,232

 
$
(191
)
 
$
5,933

Cumulative effect of adoption of accounting standards update
 

 

 

 

 

 
(3
)
 

 
(3
)
Net loss
 

 

 

 

 

 
(699
)
 

 
(699
)
Foreign currency translation adjustments
 

 

 

 

 

 

 
(77
)
 
(77
)
Net unrealized losses on available-for-sale securities
 

 

 

 

 

 

 
(74
)
 
(74
)
Reclassification adjustment for convertible debt in mezzanine
 

 

 

 

 
(4
)
 

 

 
(4
)
Exercise of stock options and vesting of restricted stock units and performance share units
 
191

 

 

 

 

 

 

 

Repurchase of common stock
 

 

 
(678
)
 
(1,251
)
 

 

 

 
(1,251
)
Stock-based compensation and other stock-based payments
 

 

 

 

 
6

 

 

 
6

Balance, March 31, 2020
 
63,370

 
$

 
(22,440
)
 
$
(24,115
)
 
$
5,758

 
$
22,530

 
$
(342
)
 
$
3,831




 
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
 
 
 
Shares
(in 000's)
 
Amount
 
Shares
(in 000's)
 
Amount
 
 
 
 
Total
Balance, December 31, 2018
 
62,949

 
$

 
(17,317
)
 
$
(14,711
)
 
$
5,445

 
$
18,367

 
$
(316
)
 
$
8,785

Net income
 

 

 

 

 

 
765

 

 
765

Foreign currency translation adjustments
 

 

 

 

 

 

 
(12
)
 
(12
)
Net unrealized gains on available-for-sale securities
 

 

 

 

 

 

 
159

 
159

Exercise of stock options and vesting of restricted stock units and performance share units
 
173

 

 

 

 

 

 

 

Repurchase of common stock
 

 

 
(1,619
)
 
(2,856
)
 

 

 

 
(2,856
)
Stock-based compensation and other stock-based payments
 

 

 

 

 
74

 

 

 
74

Balance, March 31, 2019
 
63,122

 
$

 
(18,936
)
 
$
(17,567
)
 
$
5,519

 
$
19,132

 
$
(169
)
 
$
6,915



See Notes to Unaudited Consolidated Financial Statements.


6



Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
OPERATING ACTIVITIES:
 
 
 
 
Net (loss) income
 
$
(699
)
 
$
765

Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
 
 
 
 

Depreciation and amortization
 
117

 
116

Provision for expected credit losses and chargebacks
 
262

 
40

Deferred income tax (benefit) expense
 
(97
)
 
89

Net losses (gains) on marketable equity securities
 
307

 
(451
)
Stock-based compensation expense and other stock-based payments
 
11

 
78

Operating lease amortization
 
46

 
42

Amortization of debt discount and debt issuance costs
 
14

 
14

Unrealized foreign currency transaction gains on Euro-denominated debt
 
(33
)
 

Impairment of goodwill
 
489

 

Impairment of investment
 
100

 

Other
 
2

 
7

Changes in assets and liabilities:
 
 
 
 

Accounts receivable
 
760

 
(24
)
Prepaid expenses and other current assets
 
(445
)
 
(669
)
Deferred merchant bookings and other current liabilities
 
(1,135
)
 
561

Other long-term assets and liabilities
 
(79
)
 
(418
)
Net cash (used in) provided by operating activities
 
(380
)
 
150

 
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
 

Purchase of investments
 
(72
)
 
(445
)
Proceeds from sale and maturity of investments
 
1,885

 
2,665

Additions to property and equipment
 
(80
)
 
(111
)
Net cash provided by investing activities
 
1,733

 
2,109

 
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
 
Proceeds from revolving credit facility and short-term borrowings
 

 
250

Repayments of short-term borrowings
 

 
(25
)
Payments for repurchase of common stock
 
(1,281
)
 
(2,773
)
Net cash used in financing activities
 
(1,281
)
 
(2,548
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents
 
(21
)
 
(2
)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents
 
51

 
(291
)
Total cash and cash equivalents and restricted cash and cash equivalents,
beginning of period (see Note 14)
 
6,332

 
2,645

Total cash and cash equivalents and restricted cash and cash equivalents,
end of period (see Note 14)
 
$
6,383

 
$
2,354

 
 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for income taxes (see Note 14)
 
$
762

 
$
816

Cash paid during the period for interest
 
$
68

 
$
68


See Notes to Unaudited Consolidated Financial Statements.

7



Booking Holdings Inc.
Notes to Unaudited Consolidated Financial Statements
 
1.                                      BASIS OF PRESENTATION
 
Management of Booking Holdings Inc. (the "Company") is responsible for the Unaudited Consolidated Financial Statements included in this document. The Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The Company prepared the Unaudited Consolidated Financial Statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements. These statements should be read in combination with the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
 
The Unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The functional currency of the Company's subsidiaries is generally the respective local currency. For international operations, assets and liabilities are translated into U.S. Dollars at the rate of exchange existing at the balance sheet date. Income statement amounts are translated at monthly average exchange rates applicable for the period. Translation gains and losses are included as a component of "Accumulated other comprehensive loss" in the accompanying Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.
 
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for any subsequent quarter or the full year, especially during the periods that are impacted by the COVID-19 pandemic.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, COVID-19, was first detected in Wuhan, China, and has since spread to other regions, including Europe and the United States. On March 11, 2020, the World Health Organization declared that the rapidly spreading COVID-19 outbreak was a global pandemic (the "COVID-19 pandemic"). In response to the COVID-19 pandemic, many governments around the world have implemented, and continue to implement, a variety of measures to reduce the spread of COVID-19, including travel restrictions and bans, instructions to residents to practice social distancing, quarantine advisories, shelter-in-place orders and required closures of non-essential businesses. These government mandates have forced many of the customers on whom the Company’s business relies, including hotels and other accommodation providers, airlines and restaurants, to seek government support in order to continue operating, to curtail drastically their service offerings or to cease operations entirely. Further, these measures have materially adversely affected, and may further adversely affect, consumer sentiment and discretionary spending patterns, economies and financial markets, and the Company’s workforce, operations and customers.
 
The COVID-19 pandemic and the resulting economic conditions and government orders have resulted in a material decrease in consumer spending and an unprecedented decline in travel and restaurant activities and consumer demand for related services. The Company’s financial results and prospects are almost entirely dependent on the sale of such travel and restaurant-related services. The Company’s results for the quarter ended March 31, 2020 have been significantly and negatively impacted as compared to the corresponding period in 2019.
 
Due to the uncertain and rapidly evolving nature of current conditions around the world, the Company is unable to predict accurately the impact that the COVID-19 pandemic will have on its business going forward. The Company currently expects, however, that the COVID-19 pandemic will impact its financial performance for the quarter ended June 30, 2020, much more significantly than it impacted the quarter ended March 31, 2020, primarily because an increasing number of markets and locations will have been subject to the governmental measures and economic disruptions noted above during the entirety of the second quarter (as compared to the first quarter, when the effects of the outbreak were largely limited to China and certain other Asian markets during January 2020 and much of February 2020). With the spread of COVID-19 to other regions, such as Europe and the United States, the Company expects the COVID-19 pandemic and its effects to continue to have a significant adverse impact on its business for the duration of the pandemic and during the subsequent economic recovery, which could be an extended period of time.


8



Given the volatility in global markets and the financial difficulties faced by many of the Company's travel service provider and restaurant customers and marketing affiliates, the Company has increased its provision for expected credit losses (also referred to as provision for bad debt or provision for uncollectible accounts) on receivables from and prepayments to its travel service provider and restaurant customers and marketing affiliates (see Note 7). Moreover, due to the high level of cancellations of existing reservations, the Company has incurred, and expects to continue to incur, higher than normal cash outlays to refund consumers for prepaid reservations (see Note 2). Any material increase in the Company’s provision for expected credit losses and any material increase in cash outlays to consumers would have a corresponding adverse effect on the Company's results of operations and related cash flows.

As a result of the deterioration of the Company’s business due to the COVID-19 pandemic, the Company has determined that a portion of its goodwill has experienced a decline in value at March 31, 2020 and recorded a significant impairment charge (see Note 8). In addition, the Company has recorded a significant impairment charge for one of the Company's long-term investments due to the impact of the COVID-19 pandemic on the business of the investee and the Company's estimate of the resulting decline in the value of the investment (see Notes 5 and 6). It is possible that the Company may also have to record additional significant impairment charges in future periods.

See Note 9 for additional information about the Company’s existing debt arrangements, including $4.1 billion of debt issued in April 2020. The Company’s continued access to sources of liquidity depends on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing, the Company’s operating performance and its credit ratings. If the Company’s credit ratings were to be downgraded, or financing sources were to ascribe higher risk to its rating levels, the Company or its industry, the Company’s access to capital and the cost of any financing would be negatively impacted. There is no guarantee that additional debt financing will be available in the future to fund the Company’s obligations, or that it will be available on commercially reasonable terms, in which case the Company may need to seek other sources of funding.

The extent of the effects of the COVID-19 pandemic on the Company’s business, results of operations, cash flows and growth prospects is highly uncertain and will ultimately depend on future developments. These include, but are not limited to, the severity, extent and duration of the pandemic and its impact on the travel and restaurant industries and consumer spending more broadly. Even if economic and operating conditions for the Company’s business improve, the Company cannot predict the long-term effects of the pandemic on its business or the travel and restaurant industries as a whole. If the travel and restaurant industries are fundamentally changed by the COVID-19 pandemic in ways that are detrimental to the Company’s operating model, the Company’s business may continue to be adversely affected even as the broader global economy recovers.

Certain governments have passed or are considering legislation to help businesses weather the COVID-19 pandemic through loans, wage subsidies, tax relief or other financial aid.  Subsequent to March 31, 2020. the Company is participating in, or has applied to participate in, the United Kingdom's job retention scheme, the Netherlands' wage subsidy program and certain other jurisdictions' programs, and is assessing whether it will take advantage of any other offerings.

Change in Presentation and Reclassification
In the year ended December 31, 2019 and prior periods, the Company's marketing expenses were presented in the Consolidated Statements of Operations as "Performance marketing" and "Brand marketing" expenses. In the first quarter of 2020, the Company changed the presentation of marketing expenses by combining "Performance marketing" and "Brand marketing" into "Marketing expenses" in the Unaudited Consolidated Statement of Operations because of the increased convergence of performance marketing and brand marketing channels in areas including digital marketing and the Company's view of overall marketing expenditure as its investment in customer acquisition and retention.  The change in presentation had no impact on operating income or net income. The Unaudited Statement of Operations for the three months ended March 31, 2019 has been recast to conform to the current year presentation.

In addition to the change in presentation for marketing expenses, certain amounts from prior periods have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements Adopted
Simplifying the Test for Goodwill Impairment

In January 2017, the Financial Accounting Standards Board ("FASB") issued a new accounting update to simplify the test for goodwill impairment. The revised guidance eliminates the previously required step two of the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment. Under the revised guidance, a goodwill impairment loss will be measured at the amount by which a reporting unit’s carrying amount exceeds its fair value,

9



not to exceed the carrying amount of goodwill. The Company adopted this update in the first quarter of 2020 and applied it on a prospective basis (see Note 8 for further information on the goodwill impairment test performed at March 31, 2020).

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued a new accounting update on the measurement of credit losses for certain financial assets measured at amortized cost and available-for-sale debt securities. For financial assets measured at amortized cost, this update 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 update 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. The Company adopted this update in the first quarter of 2020 and applied this update on a modified retrospective basis. Upon adoption of the new standard on January 1, 2020, the Company recorded a net decrease to its retained earnings of $3 million, net of tax. See Note 7 for further information related to allowance for expected credit losses on accounts receivable and other financial assets and Note 5 for further information related to investments in available-for-sale debt securities.

Other Recent Accounting Pronouncement

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued a new accounting update relating to income taxes.  This update provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.  This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. 

For public business entities, this update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  Early adoption is permitted. The amendment related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The Company is currently evaluating the impact to its Consolidated Financial Statements of adopting this update and does not expect it to have a material impact.  


10



2.    REVENUE

Disaggregation of revenue

Geographic Information

The Company's international information consists of the results of Booking.com, agoda and Rentalcars.com in their entirety and the results of the international businesses of KAYAK and OpenTable. This classification is independent of where the consumer resides, where the consumer is physically located while using the Company's services or the location of the travel service provider or restaurant. For example, a reservation made through Booking.com (which is domiciled in the Netherlands) at a hotel in New York by a consumer in the United States is part of the Company's international results. The Company's geographic information is as follows (in millions):
 
 
 
 
International
 
 
 
 
United States
 
The Netherlands
 
Other
 
Total
Total revenues for the three months ended March 31,
 
 
 
 
 
 
 
 
2020
 
$
285

 
$
1,677

 
$
326

 
$
2,288

2019 (1)
 
366

 
2,072

 
399

 
2,837

(1) Geographic information for the three months ended March 31, 2019 has been recast to conform to the current period presentation.
Revenue by Type of Service

Approximately 85% and 84% of the Company's revenue for the three months ended March 31, 2020 and 2019, respectively, relates to online accommodation reservation services. Revenue from all other sources of online travel reservation services and advertising and other revenues each represent less than 10% of the Company's total revenues.

Deferred Revenue

Cash payments received from travelers in advance of the Company completing its service obligations are included in "Deferred merchant bookings" in the Company's Consolidated Balance Sheets and are comprised principally of amounts estimated to be payable to the travel service providers as well as the Company's estimated deferred revenue for its commission or margin and fees. The Company expects to complete its service obligation within one year from the reservation date. The amounts are subject to refunds for cancellations.

The following table summarizes the activity of deferred revenue for online travel reservation services for the three months ended March 31, 2020 (in millions):
Balance, December 31, 2019
$
220

Revenues recognized from the beginning deferred revenue balance
(150
)
Cancellations
(46
)
Payments received from travelers, net of amounts estimated to be payable to travel service providers, and other
120

Balance, March 31, 2020
$
144



Loyalty and Other Incentive Programs

The Company provides loyalty programs where participating consumers are awarded loyalty points on current transactions that can be redeemed in the future. At March 31, 2020 and December 31, 2019, liabilities for loyalty program incentives of $76 million and $80 million, respectively, were included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets. The Company’s largest loyalty program is at OpenTable, where points can be redeemed for rewards such as qualifying reservations at participating restaurants, third-party gift cards and accommodation reservations booked through some of the Company’s other platforms. The estimated fair value of the loyalty points that are expected to be redeemed is recognized as a reduction of revenue at the time the incentives are granted.  


11



In addition to the loyalty programs, at March 31, 2020 and December 31, 2019, liabilities of $22 million for other incentive programs, such as referral bonuses, credits and discounts, were included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets.

Impact of COVID-19
Due to the high level of cancellations of existing reservations as a result of the COVID-19 pandemic (see Note 1), the Company has incurred, and expects to continue to incur, higher than normal cash outlays to refund travelers for prepaid reservations, including certain situations where the Company has already transferred the prepayment to the travel service provider. For the three months ended March 31, 2020, the Company recorded a reduction in revenue of $63 million for refunds paid or estimated to be payable to travelers where the Company has agreed to provide free cancellation for certain non-refundable reservations without a corresponding estimated expected recovery from the travel service providers.

3.                                      STOCK-BASED EMPLOYEE COMPENSATION
 
Stock-based compensation expense included in "Personnel" expenses in the Unaudited Consolidated Statements of Operations was $6 million and $74 million for the three months ended March 31, 2020 and 2019, respectively.

Stock-based compensation expense related to performance share units, restricted stock units and stock options is recognized based on fair value on a straight-line basis over the respective requisite service periods and forfeitures are accounted for when they occur. The fair value on the grant date of performance share units and restricted stock units is determined based on the number of units granted and the quoted price of the Company's common stock. The fair value of employee stock options assumed in acquisitions was determined using the Black-Scholes model and the market value of the Company's common stock at the respective acquisition dates.

The Company records stock-based compensation expense for performance-based awards using its estimate of the probable outcome at the end of the performance period (i.e., the estimated performance against the performance targets). The Company periodically adjusts the cumulative stock-based compensation expense recorded when the probable outcome for these performance-based awards is updated based upon changes in actual and forecasted operating results. For the performance share units outstanding at March 31, 2020, due to the impact of the COVID-19 pandemic (see Note 1), there is a significant decline in the estimated performance over the performance periods against the performance targets. At March 31, 2020, there was a significant reduction in the number of shares that were probable to be issued as compared to December 31, 2019. As a result, in the three months ended March 31, 2020, the Company recognized a reduction in stock-based compensation expense of $73 million, which is included in "Personnel" expense in the Unaudited Consolidated Statement of Operations.

Restricted stock units granted by the Company during the three months ended March 31, 2020 had aggregate grant-date fair values of $265 million.  Restricted stock units and performance share units that vested during the three months ended March 31, 2020 had aggregate fair values at vesting of $319 million. At March 31, 2020, there was $541 million of estimated total future stock-based compensation expense related to unvested share-based awards to be recognized over a weighted-average period of 2.3 years.
 
Restricted Stock Units

The Company makes broad-based grants of restricted stock units that generally vest during a period of one- to three-years, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability.

The following table summarizes the activity of restricted stock units for employees and non-employee directors during the three months ended March 31, 2020
Restricted Stock Units
 
Shares
 
Weighted-average Grant-date Fair Value Per Share
Unvested at December 31, 2019
 
256,745

 
 
$
1,801

 
 
 
 
 
 
 
 
Granted
 
152,832

 
 
$
1,732

 
Vested
 
(109,595
)
 
 
$
1,808

 
Forfeited
 
(5,971
)
 
 
$
1,805

 
Unvested at March 31, 2020
 
294,011

 
 
$
1,762

 


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Performance Share Units

The Company grants performance share units to executives and certain other employees, which generally vest at the end of a three-year period, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. Performance share units are payable in shares of the Company's common stock upon vesting. The number of shares which ultimately will vest depends on achieving certain performance metrics by the end of the performance period, assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances.

The following table summarizes the activity of performance share units for employees during the three months ended March 31, 2020:
Performance Share Units
 
Shares
Weighted-average Grant-date Fair Value Per Share
Unvested at December 31, 2019
 
216,083

 
$
1,835

 
 
 
 
 
 
 
Vested
 
(80,266
)
 
$
1,737

 
Performance Shares Adjustment *
 
(58,427
)
 
$
1,957

 
Forfeited
 
(2,989
)
 
$
1,834

 
Unvested at March 31, 2020
 
74,401

 
$
1,841

 


* Probable outcome for these performance-based awards is updated based upon changes in actual and forecasted operating results.
    
No performance share units were granted during the three months ended March 31, 2020. The following table summarizes the estimated vesting, as of March 31, 2020, of performance share units granted in 2019 and 2018, net of forfeiture and vesting since the respective grant dates:
Performance Share Units, by grant year
 
2019
 
2018
Shares probable to be issued
 
45,361

 
29,040

Shares not subject to the achievement of minimum performance thresholds
 
45,361

 
28,647

Shares that could be issued if maximum performance thresholds are met
 
117,558

 
79,914



Stock Options

All outstanding employee stock options were assumed in acquisitions, and generally have a term of 10 years from the grant date. The following table summarizes the activity for stock options during the three months ended March 31, 2020
Employee Stock Options
 
Number of Shares
 
Weighted-average
Exercise Price
 
Aggregate
 Intrinsic Value (in millions)
 
Weighted-average Remaining Contractual Term
(in years)
Balance, December 31, 2019
 
15,122

 
 
$
484

 
 
$
24

 
2.6
Exercised
 
(100
)
 
 
$
334

 
 
 
 
 
Balance, March 31, 2020
 
15,022

 
 
$
485

 
 
$
13

 
2.4
Vested and exercisable at March 31, 2020
 
15,022

 
 
$
485

 
 
$
13

 
2.4



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4.                                      NET (LOSS) INCOME PER SHARE
 
The Company computes basic net (loss) income per share by dividing net (loss) income applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is based upon the weighted-average number of common and common equivalent shares outstanding during the period.
 
Common equivalent shares related to stock options, restricted stock units and performance share units are calculated using the treasury stock method. Performance share units are included in the weighted-average common equivalent shares based on the number of shares that would be issued if the end of the reporting period were the end of the performance period, if the result would be dilutive.
 
The Company's convertible notes have net share settlement features requiring the Company upon conversion to settle the principal amount of the debt for cash and the conversion premium for cash or shares of the Company's common stock, at the Company's option. Under the treasury stock method, if the conversion prices for the convertible notes exceed the Company's average stock price for the period, the convertible notes generally have no impact on diluted net income per share. The convertible notes are included in the calculation of diluted net income per share if their inclusion is dilutive under the treasury stock method.

A reconciliation of the weighted-average number of shares outstanding used in calculating diluted net (loss) income per share is as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Weighted-average number of basic common shares outstanding
 
41,093

 
45,007

Weighted-average dilutive stock options, restricted stock units and performance share units
 

 
229

Assumed conversion of convertible senior notes
 

 
200

Weighted-average number of diluted common and common equivalent shares outstanding
 
41,093

 
45,436



For the three months ended March 31, 2020, 259,000 potential common shares principally related to restricted stock units, performance share units and convertible senior notes were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the period.


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5.                                      INVESTMENTS

The following table summarizes, by major security type, the Company's investments at March 31, 2020 (in millions): 
 
 
Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Carrying
 Value
Short-term investments:
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
164

 
$

 
$

 
$
164

Trip.com Group convertible debt securities
 
250

 

 
(2
)
 
248

Equity securities:
 
 
 
 
 
 
 
 
Trip.com Group equity securities
 
531

 

 
(117
)
 
414

Total
 
$
945

 
$

 
$
(119
)
 
$
826

 
 
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
 
Investments in private companies:
 
 
 
 
 
 
 
 
  Debt securities
 
$
250

 
$

 
$
(20
)
 
$
230

  Equity securities
 
501

 

 
(100
)
 
401

Other long-term investments:
 
 
 
 
 
 
 
 
  Debt securities:
 
 
 
 
 
 
 
 
Trip.com Group convertible debt securities
 
525

 

 
(77
)
 
448

  Equity securities
 
461

 
522

 
(6
)
 
977

Total
 
$
1,737

 
$
522

 
$
(203
)
 
$
2,056


 

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The following table summarizes, by major security type, the Company's investments at December 31, 2019 (in millions):
 
 
Cost
 
Gross 
Unrealized 
Gains
 
Gross 
Unrealized
 Losses
 
Carrying
 Value
Short-term investments:
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
&#