Orbitz 2009 Annual Report Download - page 89

have additional future tax deductions for depreciation and amortization due to the increased tax basis of its
assets. The additional tax deductions for depreciation and amortization may reduce the amount of taxes we are
required to pay in future years. For each tax period during the term of the tax sharing agreement, we are
obligated to pay the Founding Airlines a significant percentage of the amount of the tax benefit realized as a
result of the taxable exchange. The tax sharing agreement commenced upon consummation of the Orbitz IPO
and continues until all tax benefits have been utilized.
As of December 31, 2008, the estimated remaining payments that may be due under this agreement were
approximately $226 million. Payments under the tax sharing agreement are generally due in the second, third
and fourth calendar quarters of the year, with two payments due in the second quarter. We estimate that the
net present value of our obligation to pay tax benefits to the Founding Airlines was $124 million and
$141 million at December 31, 2008 and December 31, 2007, respectively. This estimate is based upon certain
assumptions, including our future operating performance and taxable income, the tax rate, the timing of tax
payments, current and projected market conditions, and the applicable discount rate, all of which we believe
are reasonable. The discount rate assumption is based on our weighted average cost of capital at the time of
the Blackstone Acquisition, which was approximately 12%. These assumptions are inherently uncertain,
however, and actual results could differ from our estimates.
The table below shows the changes in the tax sharing liability over the past two years:
Amount
(in millions)
Balance at December 31, 2006 ........................................... $135
Accretion of interest expense (a) .......................................... 14
Adjustment recorded in finalizing purchase accounting for the Blackstone
Acquisition (b) ..................................................... (8)
Balance at December 31, 2007 ........................................... 141
Accretion of interest expense (a) .......................................... 17
Cash payments ....................................................... (20)
Adjustment due to a reduction in our effective tax rate (c) ....................... (14)
Balance at December 31, 2008 ........................................... $124
(a) We accreted interest expense related to the tax sharing liability of $17 million, $14 million, $5 million
and $13 million for the years ended December 31, 2008 and December 31, 2007 and for the periods
from August 23, 2006 to December 31, 2006 and January 1, 2006 to August 22, 2006, respectively.
(b) In connection with finalizing the purchase accounting for the Blackstone Acquisition, we refined
certain estimates previously used to determine the net present value of the tax sharing liability as of
the date of the Blackstone Acquisition. This resulted in an $8 million decrease in the tax sharing
liability and a corresponding decrease in goodwill in our consolidated balance sheet (see Note 6 —
Goodwill and Intangible Assets).
(c) This adjustment was recorded to appropriately reflect our liability under the tax sharing agreement
following a reduction in our effective tax rate during the year ended December 31, 2008, which
resulted from a change in state tax law as it relates to the apportionment of income. The reduction in
our effective tax rate reduces the estimated remaining payments that may be due to the airlines under
the tax sharing agreement. The adjustment to the tax sharing liability was recorded as a reduction to
selling, general and administrative expense in our consolidated statements of operations, as this
liability represents a commercial liability, not a tax liability. If our effective tax rate changes in the
future, at either the federal or state level, we may be required to further adjust our liability under the
tax sharing agreement.
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ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)