Orbitz 2009 Annual Report Download - page 62

Goodwill and Other Intangibles
As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” we assess the carrying value of
goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently whenever
events occur and circumstances change indicating potential impairment. We perform our annual impairment
testing of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year, subsequent to
the completion of our annual planning process.
We assess goodwill for possible impairment using a two-step process. The first step is used to identify if
there is potential goodwill impairment. If step one indicates that an impairment may exist, a second step is
performed to measure the amount of the goodwill impairment, if any. Application of the goodwill impairment
test requires management’s judgment, including the identification of reporting units, assigning assets and
liabilities to reporting units and determining the fair value of each reporting unit. We estimate the fair value of
our reporting units to which goodwill is allocated using generally accepted valuation methodologies, including
market and income based approaches, and relevant data available through and as of the testing date. The
market approach is a valuation method in which fair value is estimated based on observed prices in actual
transactions and on asking prices for similar assets. Under the market approach, the valuation process is
essentially that of comparison and correlation between the subject asset and other similar assets. The income
approach is a method in which fair value is estimated based on the cash flows that an asset could be expected
to generate over its useful life, including residual value cash flows. These cash flows are then discounted to
their present value equivalents using a rate of return that accounts for the relative risk of not realizing the
estimated annual cash flows and for the time value of money. Variations of the income approach are used to
estimate certain of the intangible asset fair values.
Our trademarks and trade names are indefinite-lived intangible assets. We test these assets for impairment
by comparing their carrying value to their estimated fair value. If the estimated fair value is less than the
carrying amount of the intangible asset, then the carrying value is reduced to fair value through an impairment
charge recorded to our consolidated statement of operations. We use a market or income valuation approach,
as described above, to estimate fair values of the relevant trademarks and trade names.
Our testing for impairment involves estimates of our future cash flows, which requires us to assess current
and projected market conditions as well as operating performance. Our estimates may differ from actual cash
flows due to changes in our operating performance, capital structure or requirements for operating and capital
expenditures as well as changes to general economic conditions and the travel industry in particular. We must
also make estimates and judgments in the selection of a discount rate that reflects the risk inherent in those
future cash flows. The impairment analysis may also require certain assumptions about other businesses with
limited financial histories. A variation of the assumptions used could lead to a different conclusion regarding
the carrying value of an asset and could have a significant effect on our consolidated financial statements.
Accounting for Income Taxes
We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.”
Accordingly, our provision for income taxes is determined using the asset and liability method. Under this
method, deferred tax assets and liabilities are calculated based upon the temporary differences between the
financial statement and income tax bases of assets and liabilities using the combined federal and state effective
tax rates that are applicable to us in a given year. The deferred tax assets are recorded net of a valuation
allowance when, based on the weight of available evidence, we believe it is more likely than not that some
portion or all of the recorded deferred tax assets will not be realized in future periods. Increases to the
valuation allowance are recorded as increases to the provision for income taxes. Under the current standard, to
the extent that any valuation allowances established in purchase accounting are reduced, these reductions are
recorded as adjustments to goodwill rather than to the provision for income taxes. Beginning January 1, 2009,
these reductions will be recorded through our statement of operations as a result of our adoption of
SFAS No. 141(R), “Business Combinations.” The realization of the deferred tax assets, net of a valuation
allowance, is primarily dependent on estimated future taxable income. A change in our estimate of future
taxable income may require an increase or decrease to the valuation allowance.
62