Orbitz 2013 Annual Report Download - page 76

ORBITZ WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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The income tax benefit for the year ended December 31, 2013 was due primarily to the release of the valuation
allowance of $174.4 million related to our U.S. federal deferred tax assets. 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.
The tax benefit recorded for the year ended December 31, 2013 was disproportionate to the amount of pre-tax book
income due primarily to the release of our U.S. valuation allowance.
The provisions for income taxes for the years ended December 31, 2012 and 2011 were due primarily to taxes on the net
income of certain European-based subsidiaries that had not established a valuation allowance and U.S. state and local income
taxes. We are required to assess whether valuation allowances should be established against our deferred tax assets based on the
consideration of all available evidence using a “more likely than not” standard on each tax jurisdiction. We assessed the
available positive and negative evidence to estimate if sufficient future taxable income would be generated to utilize the
existing deferred tax assets.
We currently have a valuation allowance for our deferred tax assets of $108.6 million, of which $105.5 million relates to
foreign jurisdictions. We will continue to assess the level of the 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 would likely have a
material impact on our results of operations. With respect to the valuation allowance established against our non-U.S.-based
deferred tax assets, a significant piece of objective negative evidence evaluated in our determination was cumulative losses
incurred over the three-year period ended December 31, 2013. This objective evidence limited our ability to consider other
subjective evidence such as future income projections.
The tax provisions recorded for the years ended December 31, 2012 and 2011 were disproportionate to the amount of
pre-tax net loss incurred during each respective period primarily because we were not able to realize any tax benefits on the
goodwill and trademark and trade names impairment charges. The provision for income taxes only includes the tax effect of the
net income or net loss of certain foreign subsidiaries that had not established a valuation allowance and U.S. state and local
income taxes.
Our effective income tax rate differs from the U.S. federal statutory rate as follows:
Years Ended December 31,
2013 2012 2011
Federal statutory rate 35.0% 35.0 % 35.0 %
State and local income taxes, net of federal benefit 197.5 — (1.8)
Taxes on non-U.S. operations at differing rates ** (0.4) (4.7)
Change in valuation allowance ** 0.2 (4.7)
Goodwill impairment charges 0.0 (35.4) (29.6)
Reserve for uncertain tax positions 32.8 — 0.4
Other ** (0.5) (0.4)
Effective income tax rate ** (1.1)% (5.8)%
**Not meaningful due to the low level of pre-tax income and release of U.S. valuation allowance of $174.4 million in
2013