Orbitz 2012 Annual Report Download - page 39

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increase in customer service costs largely driven by the growth in our private label distribution channel, a $1.4 million increase
in credit card processing fees due primarily to the volume growth at ebookers, a $0.8 million increase in connectivity and
processing costs, a $0.5 million increase in customer refunds and charge-backs, and an increase in hotel occupancy taxes.
Cost of revenue increased $1.1 million (a $2.0 million decrease excluding the impact of foreign currency fluctuations)
for the year ended December 31, 2011 compared with the same period in 2010. The increase was primarily driven by a $2.9
million increase in customer refunds and charge-backs and a $2.4 million increase in credit card processing fees. These
increases were partially offset by a $2.3 million decrease in customer service costs, a $1.1 million decrease in ticketing costs, a
$0.9 million decrease in hosting costs and a $0.7 million decrease in connectivity and processing costs.
In 2011, customer refunds, charge-backs and credit card processing fees increased from the prior year due primarily to
higher volume at ebookers. In addition, customer service costs decreased primarily due to higher customer service staffing
levels required as a result of the travel disruptions caused by the volcano eruption in Iceland in April 2010. Ticketing and
connectivity and processing costs decreased primarily due to lower domestic transaction volume, and the decrease in hosting
costs resulting from the termination of our airline hosting agreements in 2010 and 2011.
Selling, General and Administrative
Our selling, general and administrative expense is comprised of wages and benefits, contract labor costs, network
communications, systems maintenance and equipment costs and other costs, which include professional fees, foreign currency
transaction and hedging and other administrative costs.
Years Ended
December 31, Increase/ (Decrease) Years Ended December 31, Increase/ (Decrease)
2012 2011 $ % 2011 2010 $ %
Selling, general and
administrative: (in thousands) (in thousands)
Wages and benefits (a) . . . . . . . . . . . . . . . . $ 142,531 $ 152,887 $ (10,356) (7)% $ 152,887 $ 146,754 $ 6,133 4%
Contract labor (a) . . . . . . . . . . . . . . . . . . . . 26,329 27,002 (673) (2)% 27,002 20,245 6,757 33%
Network communications, systems
maintenance and equipment . . . . . . . . . 28,619 25,760 2,859 11 % 25,760 25,051 709 3%
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,774 64,968 (2,194) (3)% 64,968 52,064 12,904 25%
Total selling, general, and
administrative . . . . . . . . . . . . . . . . $ 260,253 $ 270,617 $ (10,364) (4)% $ 270,617 $ 244,114 $ 26,503 11%
(a) The amounts presented above for wages and benefits and contract labor are net of amounts capitalized related to
software development.
Selling, general and administrative expense decreased $10.4 million ($8.2 million excluding the impact of foreign
currency fluctuations) for the year ended December 31, 2012 compared with the year ended December 31, 2011. The decrease
in expense was primarily driven by a $10.4 million decrease in wages and benefits, a $1.4 million decrease in facilities
expense, a $1.3 million decrease in travel expense, a $0.7 million decrease in foreign currency losses and hedging costs and a
$0.7 million decrease in contract labor costs, partially offset by a $2.0 million increase in network communications costs, a $1.0
million increase in professional fees, and a $0.9 million increase in systems maintenance and equipment costs. Wages and
benefits and contract labor costs decreased due to the annualized impact of the centralization of our finance function in Europe
in 2011, cost savings achieved from the migration of HotelClub to the global platform and lower incentive compensation. The
increase in professional fees was due primarily to higher legal costs, primarily related to hotel occupancy tax and patent
infringement cases, partially offset by a $5.0 million insurance reimbursement received in 2012 for hotel occupancy tax
litigation cases compared with a reimbursement of $2.5 million received in 2011.
Selling, general and administrative expense increased $26.5 million ($17.9 million excluding the impact of foreign
currency fluctuations) for the year ended December 31, 2011 compared with the same period in 2010. The increase was
primarily driven by a $9.2 million increase in legal costs, net of insurance reimbursements, a $6.8 million increase in contract
labor costs, a $6.1 million increase in wages and benefits, a $2.1 million increase in facilities costs, a $0.7 million increase in
network communications, systems maintenance and equipment costs and a $0.6 million increase in travel expenses. Legal
costs, net of insurance reimbursements, increased primarily due to ongoing litigation, contract disputes and lower insurance
reimbursements in 2011. Wages and benefits, contract labor costs and travel expenses increased primarily due to higher staffing
levels required to support our strategic initiatives including the global platform migration.