Expedia 2007 Annual Report Download - page 50

Operating Income Before Amortization (“OIBA”)
2007 2006 2005 2007 vs 2006 2006 vs 2005
Year Ended December 31 % Change
($ in thousands)
OIBA...................... $669,487 $599,018 $627,441 12% (5)%
% of revenue ................ 25% 27% 30%
In 2007, the increase in OIBA was primarily due to an increase in gross profit, partially offset by growth
in sales and marketing expenses and technology and content expenses. OIBA as a percentage of revenue
decreased primarily due to growth in sales and marketing expenses as a percentage of revenue, partially offset
by an increase in gross margin.
In 2006, the decrease in OIBA was primarily due to higher operating expenses, partially offset by higher
revenue and the improvement in gross margin.
Definition of OIBA
We provide OIBA as a supplemental measure to GAAP. We define OIBA as operating income plus:
(1) amortization of non-cash distribution and marketing expense, (2) stock-based compensation expense,
(3) amortization of intangible assets and goodwill and intangible asset impairment, if applicable and (4) certain
one-time items, if applicable.
OIBA is the primary operating metric used by which management evaluates the performance of our
business, on which internal budgets are based, and by which management is compensated. Management
believes that investors should have access to the same set of tools that management uses to analyze our results.
This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but
should not be considered a substitute for, or superior to, GAAP. We endeavor to compensate for the limitation
of the non-GAAP measure presented by also providing the comparable GAAP measures, GAAP financial
statements, and descriptions of the reconciling items and adjustments, to derive the non-GAAP measure. We
present a reconciliation of this non-GAAP financial measure to GAAP below.
OIBA represents the combined operating results of Expedia, Inc.’s businesses, taking into account
depreciation, which we believe is an ongoing cost of doing business, but excluding the effects of other non-
cash expenses that may not be indicative of our core business operations. We believe this measure is useful to
investors for the following reasons:
• It corresponds more closely to the cash operating income generated from our core operations by
excluding significant non-cash operating expenses, such as stock-based compensation; and
• It provides greater insight into management decision making at Expedia, as OIBA is our primary
internal metric for evaluating the performance of our business.
OIBA has certain limitations in that it does not take into account the impact of certain expenses to our
consolidated statements of income, including stock-based compensation, non-cash payments to partners,
acquisition-related accounting and certain one-time items, if applicable. Due to the high variability and
difficulty in predicting certain items that affect net income, such as tax rates, stock price and interest rates, we
are unable to provide a reconciliation to net income on a forward-looking basis without unreasonable efforts.
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