Orbitz 2008 Annual Report Download - page 24

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We and others in the online travel industry are currently subject to various lawsuits related to hotel occupancy tax in numerous jurisdictions in the U.S.
Other jurisdictions may be considering similar lawsuits. An adverse ruling in the existing hotel occupancy tax cases could require us to pay tax retroactively and
prospectively, and possibly penalties, interest or fines. The proliferation of new hotel occupancy tax cases could result in substantial additional defense costs.
These events could also adversely impact our business and financial performance.
We are involved in various legal proceedings and may experience unfavorable outcomes, which could harm us.
We are involved in various legal proceedings, including, but not limited to, actions relating to intellectual property, in particular patent claims against us, tax
matters, employment law and other negligence, breach of contract and fraud claims, that involve claims for substantial amounts of money or for other relief or
that might necessitate changes to our business or operations. The defense of these actions may be both time consuming and expensive. If any of these legal
proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations and
could cause the market value of our common stock to decline.
We have identified material weaknesses in our internal controls over financial reporting that, if not corrected, could result in material misstatements in our
financial statements.
We are not currently required to comply with Section 404 of the Sarbanes Oxley Act of 2002 and are therefore not required to make an assessment of the
effectiveness of our internal controls over financial reporting for that purpose. However, in connection with the audit of our financial statements for the year
ended December 31, 2007, our auditors and we have identified certain matters involving our internal control over financial reporting that constitute material
weaknesses under standards established by the Public Company Accounting Oversight Board (United States) ("PCAOB").
The PCAOB defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important
enough to merit attention by those responsible for oversight of our financial reporting. A control deficiency exists when the design or operation of a control does
not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A
deficiency in design exists when:
•
a control necessary to meet the control objective is missing; or
•
an existing control is not properly designed such that, even if the control operates as designed, the control objective is not always met.
A deficiency in operation exists when a properly designed control does not operate as designed, or when the person performing the control does not possess
the necessary authority or qualifications to perform the control effectively.
The material weaknesses identified result from inadequate external reporting, technical accounting and tax staff, inadequate integrated financial systems and
financial reporting and closing processes and inadequate written policies and procedures. Specifically, the following items were identified:
•
insufficient complement of external reporting, technical accounting or tax staff commensurate to support stand-alone external financial
reporting under public company or SEC requirements;
•
lack of a fully integrated financial consolidation and reporting system, and as a result, extensive manual analysis, reconciliation and
adjustments are required in order to produce financial statements for external reporting purposes;
17
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008