Orbitz 2008 Annual Report Download - page 66

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 currently enacted tax rates. 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. Decreases to the
valuation allowance are recorded as reductions to the provision for income taxes, whereas increases to the valuation allowance are recorded as increases to the
provision for income taxes. 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. 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. 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 (i.e.,
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 on 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 will be 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. These differences are based upon
estimated differences between the book and tax bases of our assets and liabilities as of December 31, 2007. Our tax assets and liabilities have been adjusted in
connection with the finalization of Travelport's income tax returns.
Accounting for 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 approximately $277 million of tax benefits resulting from a taxable exchange that took place in connection with the Orbitz
initial public offering in December 2003 ("Orbitz IPO"). As a result of this exchange, the Founding Airlines incurred a taxable gain when they sold their Orbitz
common stock at the time of the Orbitz IPO. The taxable exchange also caused Orbitz to have additional future tax deductions for depreciation and amortization
due to the increased tax basis of its assets. The additional
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Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008