Orbitz 2009 Annual Report Download - page 76

expense is recognized based on the terms of the individual agreements, which are generally over the ratio of
the number of impressions delivered over the total number of contracted impressions, or pay-per-click, or on a
straight-line basis over the term of the contract. Offline marketing expense is recognized in the period in
which it is incurred. Our online marketing costs are significantly greater than our offline marketing costs.
Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). 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”
(“SFAS No. 141(R)”). 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.
The Predecessor’s operations were included in the consolidated U.S. federal income tax return of Cendant
up to the date of the Blackstone Acquisition, which occurred on August 23, 2006. In addition, the Predecessor
has filed consolidated, combined and unitary state income tax returns with Cendant in jurisdictions where
required or permitted. However, the provision for income taxes was computed as if the Predecessor filed its
U.S. federal, state and foreign income tax returns on a standalone basis (on a “Separate Company” basis). To
the extent that the Predecessor’s Separate Company income tax payable, if any, relates to a period in which it
was included in Cendant’s U.S. federal and state income tax returns, any such income tax payable is included
in other current liabilities in our consolidated balance sheets. Furthermore, the Separate Company deferred tax
assets and liabilities related to the Predecessor’s operations are based upon estimated differences between the
book and tax basis of the assets and liabilities for the Predecessor as of August 22, 2006 and prior balance
sheet dates. The Successor’s deferred tax assets and liabilities may be adjusted in connection with the
finalization of Cendant’s prior years’ income tax returns, or in connection with the final settlement of the
consequences of the separation of Cendant into four independent companies.
For the period August 23, 2006 to December 31, 2006, our operations were included in the initial
consolidated U.S. federal income tax return of Travelport. In addition, for this period we filed consolidated,
combined and unitary state income tax returns with Travelport in jurisdictions where required or permitted.
However, the provision for income taxes was computed as if we filed our U.S. federal, state and foreign
income tax returns on a Separate Company basis. For the period August 23, 2006 to December 31, 2006, we
did not have a Separate Company income tax payable.
For the period January 1, 2007 to February 7, 2007, the operations of Travelport were included in the
consolidated U.S. federal and state income tax returns for the year ended December 31, 2007 for Orbitz
Worldwide, Inc. and its subsidiaries. However, the provision for income taxes was computed as if we filed our
U.S. federal, state and foreign income tax returns on a Separate Company basis without the inclusion of the
operations of Travelport. Furthermore, the Separate Company deferred tax assets and liabilities have been
calculated using our tax rates on a Separate Company basis. The deferred tax assets and liabilities are based
upon estimated differences between the book and tax bases of our assets and liabilities as of December 31,
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ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)