Orbitz 2014 Annual Report Download - page 61

ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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than its carrying value. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment
charge in our Consolidated Statements of Operations.
For purposes of goodwill impairment testing, 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.
We assess our trademarks and trade names for impairment by comparing their carrying values to their estimated fair
values. Impairment exists when the estimated fair value of the trademark or trade name is less than its carrying value. If
impairment exists, then the carrying value is reduced to fair value through an impairment charge in our Consolidated
Statements of Operations. We use an income based valuation approach to estimate fair values of the relevant trademarks and
trade names.
Restricted Cash
In order to collateralize letters of credit and similar instruments, as well as for other general business purposes, we have
funds deposited as restricted cash.
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. The agreement governs the allocation of tax benefits resulting from a taxable exchange that took
place in connection with the Orbitz initial public offering in December 2003 (the “Orbitz IPO”). As a result of this taxable
exchange, the Founding Airlines incurred a taxable gain. The taxable exchange caused Orbitz to 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.
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. Although the expected gross remaining payments that may be due under this
agreement were $96.2 million as of December 31, 2014, the timing and amount of payments may change. Any changes in
timing of payments are recognized prospectively as accretions to the tax sharing liability in our Consolidated Balance Sheets
and non-cash interest expense in our Consolidated Statements of Operations. Any changes in the estimated amount of
payments, including changes to tax rates, are recognized in Selling, general and administrative expense in our Consolidated
Statements of Operations.