Orbitz 2009 Annual Report Download - page 63

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, which occurred on August 23, 2006. 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 were 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. The deferred tax assets and liabilities 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 may be adjusted in connection with the ultimate finalization of Travelport’s
income tax returns.
For the year ended December 31, 2008, the provision for U.S. federal, state and foreign income taxes and
the calculation of the deferred tax assets and liabilities were based solely on the operations of Orbitz
Worldwide, Inc. and its subsidiaries.
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 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 taxable exchange, the Founding Airlines incurred a taxable gain. 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 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
timing 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 are $226 million as of
December 31, 2008, the timing of payments may change. Any changes in timing of payments are recognized
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