Orbitz 2010 Annual Report Download - page 91

The equity investments contemplated by the Exchange Agreement and the Stock Purchase Agreement
were subject to customary closing conditions, including a condition that both transactions must close
simultaneously, and were subject to shareholder approval under the New York Stock Exchange rules.
In connection with the Exchange Agreement and the Stock Purchase Agreement, the Company entered
into a Shareholders’ Agreement with PAR and Travelport pursuant to which, contingent upon the completion
of the transactions contemplated by the Exchange Agreement and the Stock Purchase Agreement, PAR has the
right to designate one director and Travelport has the right to designate an additional director to our Board of
Directors. Both transactions closed in January 2010 (see Note 23 — Subsequent Events).
9. 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 IPO in December 2003. 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.
As of December 31, 2009, the estimated remaining payments that may be due under this agreement were
approximately $214 million. Payments under the tax sharing agreement are generally due in the second, third
and fourth calendar quarters of the year, with two payments due in the second quarter. We estimate that the
net present value of our obligation to pay tax benefits to the Founding Airlines was $126 million and
$124 million at December 31, 2009 and December 31, 2008, respectively. This estimate is based upon certain
assumptions, including 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, all of which we believe
are reasonable. The discount rate assumption is based on our weighted average cost of capital at the time of
the Blackstone Acquisition, which was approximately 12%. These assumptions are inherently uncertain,
however, and actual results could differ from our estimates.
The table below shows the changes in the tax sharing liability over the past two years:
Amount
(in millions)
Balance at December 31, 2007 .......................................... $141
Accretion of interest expense (a) ......................................... 17
Cash payments ...................................................... (20)
Adjustment due to a reduction in our effective tax rate (b) ...................... (14)
Balance at December 31, 2008 .......................................... 124
Accretion of interest expense (a) ......................................... 13
Cash payments ...................................................... (11)
Balance at December 31, 2009 .......................................... $126
(a) We accreted interest expense related to the tax sharing liability of $13 million, $17 million and
$14 million for the years ended December 31, 2009, December 31, 2008 and December 31, 2007,
respectively.
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ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)