Orbitz 2014 Annual Report Download - page 47

47
we believe a loss is probable and for which we are able to develop a reasonable estimate of any such loss. The ultimate
resolution of these lawsuits or contingencies may differ substantially from our estimates.
Income Taxes
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. The realization of the deferred tax assets,
net of a valuation allowance, is primarily dependent on estimated future taxable income, as well as the consideration of other
factors. We currently have a valuation allowance for our deferred tax assets of $109.2 million, of which $107.3 million relates
to foreign jurisdictions. On a quarterly basis, we assess the level of valuation allowance required; if sufficient positive evidence
exists in future periods to support a release of some or all of the valuation allowance, such a release may have a material impact
on our results of operations.
Tax Sharing Liability
We have a liability included in our Consolidated Balance Sheets that relates to a tax sharing agreement between Orbitz
and the Founding Airlines (see Note 8 - Tax Sharing Liability of the Notes to Consolidated Financial Statements for further
details). We use discounted cash flows in calculating and recognizing the tax sharing liability. We review the calculation of the
tax sharing liability on a quarterly basis and make revisions to our estimated timing of payments when appropriate. We also
assess whether there are any significant changes, such as changes in the amount of payments and tax rates that could materially
affect the present value of the tax sharing liability.
The valuation of the tax sharing liability requires us to make certain estimates in projecting the quarterly depreciation
and amortization benefit we expect to receive, as well as the associated effective income tax rates. The estimates require certain
assumptions as to 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. A variation of the assumptions used could lead to a different
conclusion regarding the carrying value of the tax sharing liability and could have a significant effect on our consolidated
financial statements.
Internal Use Software
We capitalize the costs of software developed for internal use. Capitalization commences when the preliminary project
stage of the application has been completed and it is probable that the project will be completed and used to perform the
function intended. Amortization commences when the software is placed into service. The determination of costs to be
capitalized and the useful life of the software require us to make estimates and judgments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our international operations are subject to risks typical of international operations, including, but not limited to, differing
economic conditions, changes in political climate, differing tax structures and foreign exchange rate volatility. Accordingly, our
future results could be materially adversely impacted by changes in these or other factors.