Orbitz 2013 Annual Report Download - page 48

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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.
Our trademarks and trade names are indefinite-lived intangible assets. We test these assets for impairment by comparing
their carrying values to their estimated fair values. If the estimated fair values are less than the carrying amounts of the
intangible assets, then the carrying values are reduced to fair value through an impairment charge recorded in our consolidated
statements of operations. We use a market or income valuation approach, or a combination of both, to estimate fair values of
the relevant trademarks and trade names.
Our testing for impairment involves estimates of our future cash flows, which requires us to assess current and projected
market conditions as well as operating performance. Our estimates may differ from actual cash flows due to changes in our
operating performance, capital structure or capital expenditure needs as well as changes to general economic and travel
industry conditions. We must also make estimates and judgments in the selection of a discount rate that reflects the risk inherent
in those future cash flows. The impairment analysis may also require certain assumptions about other businesses with limited
financial histories. A variation of the assumptions used could lead to a different conclusion regarding the fair value of an asset
and could have a significant effect on our consolidated financial statements. We use the income approach to estimate the fair
value of all reporting units and use the market approach to corroborate this estimate. Pursuant to our policy, we performed the
annual impairment test as of December 31, 2013 and determined that no impairment of goodwill or indefinite-lived intangible
assets existed as of that date as the fair value of the reporting units exceeded the carrying value.
Occupancy Taxes
We are involved in a number of lawsuits brought by states, cities and counties over issues involving the payment of hotel
occupancy or similar taxes. We do not believe that we are liable for these taxes, generally imposed on entities that own, operate
or control hotels or provide hotel rooms or similar accommodations. We accrue for potential losses in those circumstances that
we believe a loss is probable and for which we are able to develop a reasonable estimate of any such loss. The ultimate
resolution of these lawsuits or contingencies may differ substantially from our estimates.
Income Taxes
Our provision for income taxes is determined using the asset and liability method. Under 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 the combined federal and state effective tax rates that are applicable to us in a given year. 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. Increases
to the valuation allowance are recorded as increases 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, as well as the consideration of other
factors. We currently have a valuation allowance for our deferred tax assets of $108.6 million, of which $105.5 million relates
to foreign jurisdictions. On a quarterly basis, we assess the level of valuation allowance required; if sufficient positive evidence
exists in future periods to support a release of some or all of the valuation allowance, such a release may have a material impact
on our results of operations. Following completion of our long-term financing arrangement in the first quarter of 2013, which
resolved a significant negative factor, and based on recent and expected future taxable income, we believe it is more likely than
not that our deferred tax assets will be realized. Specifically, the Company had expected that interest rates and interest expense
on a debt refinancing would be significantly higher than the rates actually achieved. See Note 10 - Income Taxes of the Notes
to the Consolidated Financial Statements.
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 (see Note 7 - Tax Sharing Liability of the Notes to Consolidated Financial Statements for further
details). 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.
The valuation of the tax sharing liability requires us to make certain estimates in projecting the quarterly depreciation
and amortization benefit we expect to receive, as well as the associated effective income tax rates. The estimates require certain