Orbitz 2014 Annual Report Download - page 46

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based on the percentage of points that are projected to be redeemed. The determination of the redemption rate of the loyalty
program requires the use of assumptions and estimates.
Impairment of Long-Lived Assets, Goodwill and Indefinite-Lived Intangible Assets
Long-Lived Assets
We evaluate the recoverability of our long-lived assets, including property and equipment and finite-lived intangible
assets, when circumstances indicate that the carrying value of those assets may not be recoverable. This analysis is performed
by comparing the carrying values of the assets to the current and expected future cash flows to be generated from these assets,
on an undiscounted basis. If this analysis indicates that the carrying value of an asset is not recoverable, the carrying value is
reduced to fair value through an impairment charge in our Consolidated Statements of Operations. The evaluation of long-lived
assets for impairment requires assumptions about operating strategies and estimates of future cash flows. An estimate of future
cash flows requires us to assess current and projected market conditions as well as operating performance. A variation of the
assumptions used could lead to a different conclusion regarding the recoverability of an asset and could have a significant effect
on our consolidated financial statements.
Goodwill and Indefinite-Lived Intangible Assets
We assess the carrying value of goodwill and other indefinite-lived intangible assets for impairment annually or more
frequently whenever events occur and circumstances change indicating potential impairment. We perform our annual
impairment testing of goodwill and other indefinite-lived intangible assets as of December 31.
We assess goodwill for possible impairment using a two-step process. The first step identifies if there is potential
goodwill impairment. If the step one analysis indicates that impairment may exist, a step two analysis is performed to measure
the amount of the goodwill impairment, if any. Application of the goodwill impairment test requires management’s judgment,
including identifying reporting units, assigning assets and liabilities to reporting units and determining the fair value of each
reporting unit. We estimate the fair value of our reporting units to which goodwill is allocated using generally accepted
valuation methodologies, including market and income based approaches, and relevant data available through and as of the
testing date. Under the market approach, the valuation process is essentially that of comparison and correlation between the
subject asset and other similar assets. The income approach is a method in which fair value is estimated based on the cash flows
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 an income valuation approach 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, 2014 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 and the indefinite-lived intangible assets exceeded the
carrying values.
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