Orbitz 2014 Annual Report Download - page 72

ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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has not reserved for the remainder of the ruling because it believes that the general excise tax splitting provision plainly applies
to the transactions in question, and that the award of “failure to pay” penalties is entirely unsupported by the record in the case,
and that interest on penalties should not have been awarded. Although we believe that it is not probable that Orbitz ultimately
will be liable for more than $4.2 million as a result of the court’s order, it is possible that Orbitz will not prevail, and if it does
not, the amount of any final award of general excise tax, penalties and interest against Orbitz could exceed $26.0 million. It is
also possible that the State of Hawaii could prevail in its cross-appeal on the issue of whether the transient accommodations tax
applies to the OTCs’ merchant model hotel transactions. The OTCs’ appeal on the Tax Court of Appeals’ ruling on General
Excise Tax, and Hawaii’s cross-appeal on the Tax Court of Appeals’ determination that the OTCs are not subject to Hawaii’s
transient accommodations tax, are currently pending before the Hawaii Supreme Court. The Hawaii Supreme Court heard oral
argument on both appeals on October 2, 2014.
In an unrelated matter, Trilegiant Corporation filed an action for breach of contract and declaratory judgment in the
Supreme Court of New York against us, alleging that we are obligated to make a series of termination payments arising out of a
promotion agreement that we terminated in 2007. In 2007, we accrued the present value of the termination payments and in
2010 we ceased making termination payments due to a dispute with Trilegiant. On October 2, 2013, the Court denied Orbitz’s
motion for summary judgment on one of its affirmative defenses, and on December 24, 2013, the court rejected most of our
remaining defenses. On August 22, 2014, the court denied Orbitz’s remaining affirmative defenses. As of December 31, 2014,
we had an accrual totaling $13.5 million, which includes $1.8 million for potential interest. The parties have a dispute as to the
rate of prejudgment interest. Trilegiant has asserted an applicable rate of 9%, and as of October 2014, was seeking
approximately $3.1 million in interest. Although we believe we will prevail on this issue, it is possible that the Court will
determine that the higher rate of interest applies, and if it does, we estimate that we would owe approximately $3.6 million in
interest.
We cannot estimate our aggregate range of loss in the cases for which we have not recorded an accrual, except to the
extent taxing authorities have issued assessments against us. Although we believe it is unlikely that an adverse outcome will
result from these proceedings, an adverse outcome could be material to us with respect to our financial position, earnings or
cash flows in any given reporting period.
Surety Bonds and Bank Guarantees
In the ordinary course of business, we obtain surety bonds and bank guarantees, to secure performance of certain of our
obligations to third parties. At December 31, 2014 and 2013, there were $7.5 million and $6.7 million of surety bonds
outstanding, respectively, of which $5.3 million and $6.2 million were secured by cash collateral or letters of credit,
respectively. At December 31, 2014 and 2013, there were $25.3 million and $24.7 million of bank guarantees outstanding,
respectively. All bank guarantees were secured by restricted cash at December 31, 2014 and 2013.