Orbitz 2013 Annual Report Download - page 40

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40
Marketing
Our marketing expense is primarily composed of online marketing costs, such as search engine marketing and travel
research; offline marketing costs, such as television, radio and print advertising; and commissions to affiliates. Our online
marketing spending is significantly greater than our offline marketing spending.
Marketing expense increased $39.5 million (a $39.9 million increase excluding the impact of foreign currency
fluctuations) for the year ended December 31, 2013 compared with the year ended December 31, 2012 due largely to the
growth of our private label distribution channel which increased affiliate commissions by $23.5 million and increased due to
search engine and other online marketing of $32.7 million, partially offset by lower offline marketing spend of $16.7 million.
Marketing expense increased $11.3 million ($15.1 million excluding the impact of foreign currency fluctuations) for the
year ended December 31, 2012 compared with the year ended December 31, 2011 due primarily to higher global online
marketing spending as well as growth in our private label distribution channel, partially offset by a decline in offline marketing.
Depreciation and Amortization
Depreciation and amortization expense decreased $1.9 million (a $1.8 million decrease excluding the impact of foreign
currency fluctuations) for the year ended December 31, 2013 compared with the year ended December 31, 2012. The decrease
in depreciation and amortization expense was due primarily to certain fixed and other assets that were written off in 2012 and
in the first quarter of 2013 (see Impairment discussion below).
Depreciation and amortization expense decreased $3.5 million on both a reported and constant currency basis, for the
year ended December 31, 2012 compared with the year ended December 31, 2011. The decrease in depreciation and
amortization expense was due primarily to certain fixed and other assets that became fully depreciated and amortized in 2011.
Impairment
As a result of our decision during the first quarter of 2013 to exit the Away Network business, we recorded a $2.6
million non-cash charge for the year ended December 31, 2013 to impair property and equipment associated with that business.
As of December 31, 2013, we performed our annual impairment test for goodwill and intangible assets and determined
that no impairment existed as of that date.
For the year ended December 31, 2012, in connection with our annual impairment test for goodwill and intangible
assets, and as a result of lower than expected performance and a decline in expected future cash flows for the Americas
reporting unit, we recorded a non-cash impairment charge of $321.2 million, of which $301.9 million related to goodwill, $17.6
million related to trademarks and trade names associated with Orbitz and CheapTickets and $1.6 million related to finite-lived
intangible assets. (See Note 4 - Goodwill and Intangible Assets of the Notes to Consolidated Financial Statements).
Also in 2012, we reduced the unfavorable contract liability by $1.2 million due to the negotiation of a new agreement
with one of our airline suppliers, resulting in the termination of the former agreement with this airline. The $1.2 million
reduction in the liability was composed of a $2.6 million non-cash increase to net revenue (see Air Net Revenue discussion
above) and a $1.4 million non-cash charge related to the in-kind marketing and promotional support that we expected to receive
under the old agreement (see Note 8 - Unfavorable Contracts of the Notes to Consolidated Financial Statements).
Net Interest Expense
Net interest expense increased $7.2 million for the year ended December 31, 2013 compared with the year ended
December 31, 2012. The increase in net interest expense was due primarily to higher interest rates as a result of the refinancing
of our debt that was completed in March 2013 and again in May 2013. See Note 6 - Term Loan and Revolving Credit Facility
of the Notes to the Consolidated Financial Statements. Interest expense under our debt agreements increased by $9.4 million
largely due to the higher interest rates. The increase in net interest expense was also driven by higher amortization expense for
deferred financing costs of $2.2 million and the mark-to-market effect of derivative interest rate contracts of $0.9 million.
These increases were partially offset by lower letter of credit fees of $3.7 million, and lower non-cash interest expense related
to the tax sharing liability of $1.7 million
Net interest expense decreased $3.9 million for the year ended December 31, 2012 compared with the year ended
December 31, 2011. The decrease in net interest expense was due primarily to lower effective interest rates on the Term Loan