Orbitz 2009 Annual Report Download - page 47

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These expense decreases were partially offset by a $6 million increase in our wages and benefits, a $4 million
increase in our tax consulting costs, a $3 million increase in losses resulting from foreign currency fluctuations and
a $4 million increase in other operating expenses. The increase in wages and benefits was primarily due to an
increase in stock based compensation and higher staffing levels as we continue to build our hotel sourcing team
and as we realize the full year impact of capabilities added in 2007 in the areas of finance and legal to undertake
corporate-level functions previously provided by Travelport. A decrease due to the sale of our offline U.K. travel
subsidiary in July 2007 (due to the inclusion of seven months of expense from that subsidiary in 2007) partially
offset the increase in wages and benefits. We incurred higher tax consulting costs during the year ended
December 31, 2008 as a result of the transition of the corporate tax function, which was previously provided by
Travelport, to us.
Marketing
Our marketing expense is primarily comprised of online marketing costs, such as search and banner advertising,
and offline marketing costs, such as television, radio and print advertising. Our investment in online marketing is
significantly greater than our investment in offline marketing. Marketing expense increased $8 million, or 3%, to
$310 million for the year ended December 31, 2008 from $302 million for the year ended December 31, 2007.
The increase in marketing expense was driven by an increase in our international marketing expense,
which increased $8 million, to $84 million for the year ended December 31, 2008 from $76 million for the
year ended December 31, 2007. Higher online marketing costs for our international locations, driven by
growth in transaction volume and higher cost per transaction, primarily drove this increase. A reduction in
offline marketing costs at our international locations partially offset this increase. Offline marketing costs
decreased due to a general shift in spending from offline to online marketing. In the prior year, we launched a
new offline advertising campaign for our ebookers brand in the U.K., which did not continue into 2008. Our
domestic marketing expense remained flat year over year, at $226 million for each of the years ended
December 31, 2008 and December 31, 2007.
Depreciation and Amortization
Depreciation and amortization increased $9 million, or 16%, to $66 million for the year ended
December 31, 2008 from $57 million for the year ended December 31, 2007. The increase in depreciation and
amortization expense resulted from an increase in capitalized software placed in service, primarily related to
the roll-out of our new technology platform in July 2007, and the acceleration of depreciation on certain assets
whose useful lives were shortened during the year ended December 31, 2008.
Impairment of Goodwill and Intangible Assets
During the year ended December 31, 2008, in connection with our annual planning process, we lowered
our long-term earnings forecast in response to changes in the economic environment, as described in the
section entitled “Industry Trends” above. These factors, coupled with a prolonged decline in our market
capitalization, indicated potential impairment of our goodwill, trademarks and trade names. Additionally, given
the current environment, our distribution partners are under increased pressure to reduce their overall costs and
could attempt to terminate or renegotiate their agreements with us on more favorable terms to them. These
factors indicated that the carrying value of certain of our finite-lived intangible assets, specifically customer
relationships, may not be recoverable. As a result, we performed an impairment test of our goodwill,
indefinite-lived intangible assets and finite-lived intangible assets. Based on the testing performed, we recorded
a non-cash impairment charge of $297 million, of which $210 million related to goodwill, $74 million related
to trademarks and trade names and $13 million related to customer relationships (see Note 4 — Impairment of
Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements). There was no
impairment during the year ended December 31, 2007. Due to the current economic uncertainty and other
factors, we cannot assure that goodwill, indefinite-lived intangible assets and finite-lived intangible assets will
not be further impaired in future periods.
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