Expedia 2008 Annual Report Download - page 55

As a result of continued adverse conditions in the markets in which we operate, we will continue to
monitor goodwill and long-lived intangible assets, as well as long-lived tangible assets, for possible future
impairment. We cannot assure that these assets will not be further impaired in future periods.
Amortization of Non-Cash Distribution and Marketing
Amortization of non-cash distribution and marketing expense consisted mainly of advertising from
Universal Television contributed to us by IAC at Spin-Off with an original value of $17 million. We used this
advertising without any cash cost, and during 2006 had fully utilized all media time.
Operating Income (Loss)
2008 2007 2006 2008 vs 2007 2007 vs 2006
Year Ended December 31, % Change
($ in thousands)
Operating income (loss) ...... $(2,428,953) $529,069 $351,329 (559)% 51%
% of revenue .............. (82.7)% 19.9% 15.7%
In 2008, the recording of a significant operating loss and the resulting year-over-year decline was due to
the impairment of long-term assets of approximately $3 billion.
In 2007, the increase in operating income was primarily due to an increase in gross profit, the impairment
charge of $47 million in 2006 and a decrease in amortization of intangibles and amortization of non-cash
distribution and marketing, partially offset by growth in sales and marketing expense and technology and
content expense.
Operating Income Before Amortization (“OIBA”)
2008 2007 2006 2008 vs 2007 2007 vs 2006
Year Ended December 31, % Change
($ in thousands)
OIBA...................... $697,774 $669,487 $599,018 4% 12%
% of revenue ................ 23.8% 25.1% 26.8%
In 2008, the increase in OIBA was primarily due to higher revenue, partially offset by lower gross margin
and increased operating expenses. OIBA as a percentage of revenue decreased primarily due to lower gross
margin as well as higher growth in sales and marketing expense and technology and content expense as a
percentage of revenue during 2008.
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.
Definition of OIBA
We provide OIBA as a supplemental measure to GAAP operating income (loss) and net income (loss).
We define OIBA as operating income (loss) plus: (1) stock-based compensation expense, (3) amortization of
intangible assets and goodwill and intangible asset impairment, if applicable, (4) amortization of non-cash
distribution and marketing expense 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 measure, GAAP financial
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