UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File No.:
000-50171
TRAVELZOO INC.
(Exact Name of Registrant as
Specified in its Charter)
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DELAWARE
(State or Other Jurisdiction
of
Incorporation or Organization)
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36-4415727
(I.R.S. Employer
Identification No.)
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590 Madison Avenue, 37th Floor,
New York, New York
(Address of Principal
Executive Offices)
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10022
(Zip
Code)
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Registrants telephone number, including area code:
(212) 484-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated filer
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Smaller
reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2009, the aggregate market value of voting
stock held by non-affiliates of the Registrant, based upon the
closing sales price for the Registrants Common Stock, as
reported on the NASDAQ Global Select Market, was $60,650,437.
The number of shares outstanding of the Registrants Common
Stock as of February 26, 2010 was 16,443,828.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2010
Annual Meeting of Stockholders are incorporated by reference in
this
Form 10-K
in response to Part III, Items 10, 11, 12, 13, and 14.
TRAVELZOO
INC.
Table of
Contents
2
Forward-Looking
Statements
The information in this Report contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are
based upon current expectations, assumptions, estimates and
projections about Travelzoo Inc. and our industry. These
forward-looking statements are subject to the many risks and
uncertainties that exist in our operations and business
environment that may cause actual results, performance or
achievements of Travelzoo to be different from those expected or
anticipated in the forward-looking statements. Any statements
contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. For example, words
such as may, will, should,
estimates, predicts,
potential, continue,
strategy, believes,
anticipates, plans, expects,
intends, and similar expressions are intended to
identify forward-looking statements. Travelzoos actual
results and the timing of certain events could differ
significantly from those anticipated in such forward-looking
statements. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those discussed in
this Report in Part I Item 1A and the risks discussed
in our other Securities and Exchange Commission
(SEC) filings. The forward-looking statements
included in this Report reflect the beliefs of our management on
the date of this Report. We undertake no obligation to update
publicly any forward-looking statements for any reason, even if
new information becomes available or other events or
circumstances occur in the future.
PART I
Overview
Travelzoo Inc. (the Company or
Travelzoo) is a global Internet media company. We
inform over 18 million subscribers worldwide, as well as
millions of Web site users, about the best travel and
entertainment deals available from thousands of companies. We
publish these offers by sourcing, researching, test-booking, and
selecting offers professionally. We provide airlines, hotels,
cruise lines, vacation packagers, and other travel and
entertainment companies with a fast, flexible, and cost
effective way to reach millions of consumers. Our revenues are
generated from advertising fees.
Our publications and products include the Travelzoo Web
sites (www.travelzoo.com, www.travelzoo.ca, www.travelzoo.co.uk,
www.travelzoo.de, www.travelzoo.com.es, www.travelzoo.fr, among
others), the Travelzoo Top 20
e-mail
newsletter, the Newsflash
e-mail
alert service, the SuperSearch
pay-per-click
travel search tool, and the Travelzoo Network, a network
of third-party Web sites that list deals published by Travelzoo.
We also operate Fly.com, a travel search engine that
allows users to quickly and easily find the best prices on
flights from hundreds of airlines and online travel agencies.
Starting November 1, 2009, the Travelzoo Web sites
in Asia Pacific (cn.travelzoo.com, www.travelzoo.co.jp,
www.travelzoo.com.au, www.travelzoo.com.hk,
www.travelzoo.com.tw, among others), the Travelzoo Top 20
e-mail
newsletters in Asia Pacific and the Newsflash
e-mail
alert service in Asia Pacific are published by Travelzoo (Asia)
Limited and Travelzoo Japan K.K., wholly owned subsidiaries of
Azzurro Capital Inc., under a license agreement with the
Company. See Note 11 to the accompanying consolidated
financial statements.
More than 2,000 companies use our services, including
American Airlines, Avis Rent A Car, British Airways,
Harrahs Entertainment, Expedia, Fairmont Hotels and
Resorts, Interstate Hotels & Resorts, JetBlue Airways,
Kimpton Hotels, Liberty Travel, Marriott Hotels, Royal
Caribbean, Spirit Airlines, Starwood Hotels & Resorts
Worldwide, United Airlines, and Virgin Atlantic.
Our revenues are generated from advertising fees. Our revenues
have grown on an annual basis since we began operations in 1998.
Our revenues increased from approximately $84,000 for the period
from May 21, 1998 (inception) to December 31, 1998, to
approximately $94.0 million for the year ended
December 31, 2009.
We have two operating segments based on geographic regions:
North America and Europe. North America consists of our
operations in Canada and the U.S. Europe consists of our
operations in France, Germany, Spain, and
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the U.K. For the year ended December 31, 2009, European
operations were 17% of revenues. Financial information with
respect to our business segments and certain financial
information about geographic areas appears in Note 8
Segment Reporting and Significant Customer
Information, to the accompanying consolidated financial
statements.
Our principal business office is located at 590 Madison Avenue,
37th Floor, New York, New York 10022.
Travelzoo is controlled by Ralph Bartel, who held beneficially
approximately 66.3% of the outstanding shares as of
February 26, 2010.
The Company was formed as a result of a combination and merger
of entities founded by the Companys majority stockholder,
Ralph Bartel. In 1998, Mr. Bartel founded Travelzoo.com
Corporation, a Bahamas corporation, which issued
5,155,874 shares via the Internet to approximately 700,000
Netsurfer stockholders for no cash consideration. In
1998, Mr. Bartel also founded Silicon Channels Corporation,
a California corporation, to operate the Travelzoo Web
site. During 2001, Travelzoo Inc. was formed as a subsidiary of
Travelzoo.com Corporation, and Mr. Bartel contributed all
of the outstanding shares of Silicon Channels Corporation to
Travelzoo Inc. in exchange for 8,129,273 shares of
Travelzoo Inc. and options to acquire an additional
2,158,349 shares at $1.00.
During January 2001, the Board of Directors of Travelzoo.com
Corporation proposed that Travelzoo.com Corporation be merged
with Travelzoo Inc. whereby Travelzoo Inc. would be the
surviving entity. On March 15, 2002, the stockholders of
Travelzoo.com Corporation approved the merger with Travelzoo
Inc. On April 25, 2002, the certificate of merger was filed
in Delaware upon which the merger became effective and
Travelzoo.com Corporation ceased to exist. Each outstanding
share of common stock of Travelzoo.com Corporation was converted
into the right to receive one share of common stock of Travelzoo
Inc. Under and subject to the terms of the merger agreement,
stockholders were allowed a period of two years following the
effective date of the merger to receive shares of Travelzoo Inc.
The records of Travelzoo.com Corporation showed that, assuming
all of the shares applied for by the Netsurfer stockholders were
validly issued, there were 11,295,874 shares of
Travelzoo.com Corporation outstanding. As of April 25,
2004, two years following the effective date of the merger,
7,180,342 shares of Travelzoo.com Corporation had been
exchanged for shares of Travelzoo Inc. Prior to that date, the
remaining shares which were available for issuance pursuant to
the merger agreement were included in the issued and outstanding
common stock of Travelzoo Inc. and included in the calculation
of basic and diluted earnings per share. After April 25,
2004, the Company ceased issuing shares to the former
stockholders of Travelzoo.com Corporation, and no additional
shares are reserved for issuance to any former stockholders,
because their right to receive shares has now expired. On
April 25, 2004, the number of shares reported as
outstanding was reduced from 19,425,147 to 15,309,615 to reflect
actual shares issued as of the expiration date. Earnings per
share calculations reflect this reduction of the number of
shares reported as outstanding. As of February 26, 2010,
there were 16,443,828 shares of common stock outstanding.
In October 2004, the Company announced a program under which it
would make cash payments to persons who establish that they were
stockholders of Travelzoo.com Corporation, and who failed to
submit requests for shares in Travelzoo Inc. within the required
time period. See Note 3 to the accompanying consolidated
financial statements.
Travelzoo is listed on the NASDAQ Global Select Market under the
symbol TZOO.
Our
Industry
While our mission is to provide our subscribers and users the
highest quality information about the best travel and
entertainment deals, our revenues are generated from advertising
fees. According to Kantar Media, travel companies in the
U.S. spent $2.8 billion in 2009 on advertising, with
$815 million in 2009 being spent on advertising in
newspapers (source: Kantar Media, 2010). We believe that
newspapers are currently the main medium for travel companies to
advertise their offers though the percentage spent on
advertising in newspapers has been decreasing.
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We believe that several factors are causing and will continue to
cause travel companies to increase their spending on Internet
advertising of offers:
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The Internet Is Consumers Preferred Information
Source. Market research shows that the Internet
has become consumers preferred information source for
travel (source: Forresters North American Technographics
Travel Online Survey, Q1 2008).
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Benefits of Internet Advertising vs. Print
Advertising. Internet advertising provides travel
companies advantages compared to print advertising. These
advantages include real-time listings, real-time updates, and
performance tracking. See Benefits to Travel
and Entertainment Companies below.
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New Advertising Opportunities. The Internet
allows travel companies to advertise their sales and specials in
a fast, flexible, and cost-effective manner that has not been
possible before.
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Suppliers Selling Directly. We believe that
many travel suppliers prefer to sell directly to consumers
through suppliers Web sites versus selling through travel
agents. Internet advertising attracts consumers to
suppliers Web sites.
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Problems
Travel Companies Face and Limitations of Newspaper
Advertising
We believe that travel companies often face the challenge of
being able to effectively and quickly market and sell their
excess inventory (i.e. airline seats, hotel rooms, or cruise
cabins that are likely to be unfilled). The success of marketing
excess inventory can have a substantial impact on a travel
companys profitability. Almost all costs of travel
services are fixed. That is, the costs do not vary with sales. A
relatively small amount of unsold inventory can have a
significant impact on the profitability of a travel company.
We believe that travel companies need a fast, flexible, and
cost-effective solution for marketing excess inventory. The
solution must be fast, because travel services are a quickly
expiring commodity. The period between the time when a company
realizes that there is excess inventory and the time when the
travel service has become worthless is very short. The solution
must be flexible, because the travel industry is dynamic and the
demand for excess inventory is difficult to forecast. It is
difficult for travel companies to price excess inventory and to
forecast the marketing effort needed to sell excess inventory.
The marketing must be cost-effective, because excess inventory
is often sold at highly discounted prices, which lowers margins.
We believe that newspaper advertising, with respect to
advertising excess inventory, suffers from a number of
limitations which do not apply to the Internet:
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typically, ads must be submitted 2 to 5 days prior to the
publication date, which makes it difficult to advertise
last-minute inventory;
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once an ad is published, it cannot be updated or deleted when an
offer is sold out;
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once an ad is published, the travel company cannot change a
price;
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in many markets, the small number of newspapers and other print
media reduces competition, resulting in high rates for newspaper
advertising; and
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newspaper advertising does not allow for detailed performance
tracking.
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Our
Products and Services
We provide airlines, hotels, cruise lines, vacation packagers,
other travel suppliers, and entertainment companies with a fast,
flexible, and cost-effective way to reach millions of Internet
users. Our publications include the Travelzoo Web sites,
the Travelzoo Top 20
e-mail
newsletter, and the Newsflash
e-mail
alert service. We operate SuperSearch, a
pay-per-click
travel search tool and the Travelzoo Network, a network
of third-party Web sites that list deals published by Travelzoo.
We also operate Fly.com, a travel search engine that
enables users to find and compare the best flight options from
multiple sources, including airline and online travel agency Web
sites. While our products provide advertising opportunities for
travel and entertainment companies, they also provide
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Internet users with a free source of information on current
sales and specials from thousands of travel and entertainment
companies.
As travel and entertainment companies increasingly utilize the
Internet to promote their offers, we believe that our products
will enable them to take advantage of the lower cost and
real-time communication enabled by the Internet. Our listing
management software allows travel and entertainment companies to
add, update, and delete special offer listings on a real-time
basis. Our software also provides travel and entertainment
companies with real-time performance tracking, enabling them to
optimize their marketing campaigns.
The following table presents an overview of our products:
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Publication
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Product
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Content
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Schedule
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Reach/Usage*
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Advertiser Benefits
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Consumer Benefits
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Travelzoo Web sites
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Web sites in the U.S., Canada, France, Germany, Spain, and the
U.K. listing thousands of outstanding sales and specials from
more than 2,000 travel and entertainment companies
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24/7
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10.6 million unique visitors per month
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Broad reach, sustained exposure, targeted placements by
destination and travel segment
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24/7 access to deals, ability to search and browse by
destination or keyword
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Travelzoo Top 20
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Popular e-mail newsletter listing 20 of the weeks most
outstanding deals
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Weekly
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15.9 million subscribers
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Mass push advertising vehicle to quickly stimulate
incremental travel and entertainment purchases
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Weekly access to 20 outstanding, handpicked deals chosen from
among thousands
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Newsflash
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Regionally-targeted e-mail alert service with a single
time-sensitive and newsworthy travel and entertainment offer
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Within two hours of an offer being identified
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14.0 million subscribers
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Regional targeting, 100% share of voice for advertiser, flexible
publication schedule
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Breaking news offers delivered just-in-time
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SuperSearch
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Travel search tool using a proprietary algorithm to recommend
sites and enable one-click searching
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On-demand
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6.0 million monthly searches
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Drives qualified traffic directly to advertiser site on a
pay-per-click basis
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Saves time and money by recommending the sites most likely to
have great rates for a specific itinerary
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Travelzoo Network
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A network of third-party Web sites that list outstanding deals
published by Travelzoo
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24/7
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Over 160 third-party Web sites
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Drives qualified users with substantial distribution beyond the
Travelzoo audience
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Contextually relevant travel deals that have been handpicked and
professionally reviewed
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Fly.com
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Travel search engine that enables users to find and compare the
best flight options from multiple sources
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On-demand
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1.5 million monthly searches since launch in February 2009
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Provides advertisers a low cost distribution channel and
retention of the user engagement on the advertisers Web
site
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Free access to real-time price comparisons from airlines and
online travel agencies
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For Travelzoo Web sites, reach information is based on
data from Google Analytics. For Top 20, Newsflash,
SuperSearch, Travelzoo Network, and Fly.com,
reach/usage information is based on internal Travelzoo
statistics as of December 31, 2009. |
In 2009, 83% of our total revenues were generated from our North
America operations, and 17% of our total revenues were generated
from our European operations. See Note 8 to the
accompanying consolidated financial statements.
Benefits
to Travel and Entertainment Companies
Key features of our solution for travel and entertainment
companies include:
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Real-Time Listings of Special Offers. Our
technology allows travel and entertainment companies to
advertise special offers on a real-time basis.
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Real-Time Updates. Our technology allows
travel and entertainment companies to update their listings on a
real-time basis.
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Real-Time Performance Reports. We provide
travel and entertainment companies with real-time tracking of
the performance of their advertising campaigns. Our solution
enables travel and entertainment companies to optimize their
campaigns by removing or updating unsuccessful listings and
further promote successful listings.
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Access to Millions of Consumers. We provide
travel and entertainment companies fast access to over
15 million travel shoppers.
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Global Reach. We offer access to Internet
users across the U.S., Canada, France, Germany, Spain, and the
U.K.
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Benefits
to Consumers
Our Travelzoo Web sites (www.travelzoo.com,
www.travelzoo.ca, ww.travelzoo.co.uk, www.travelzoo.de,
www.travelzoo.com.es, www.travelzoo.fr, among others),
Travelzoo Top 20 newsletter, Newsflash, SuperSearch
search tool, the Travelzoo Network, and Fly.com
search engine provide consumers information on current
offers at no cost to the consumer. Key features of our products
include:
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Aggregation of Offers From Many Companies. Our
Travelzoo Web sites and our Travelzoo Top 20
e-mail
newsletter aggregate information on current offers from more
than 2,000 travel and entertainment companies. This saves the
consumer time when searching for travel and entertainment sales
and specials.
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Current Information. Compared to newspaper
ads, we provide consumers more current information, since our
technology enables travel and entertainment companies to update
their listings on a real-time basis.
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Reliable Information. We operate a Test
Booking Center to check the availability of travel and
entertainment deals included in the Travelzoo Top 20
before publishing.
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Search Tools. We provide consumers with the
ability to search for specific offers.
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Growth
Strategy
Key elements of our strategy include:
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Build Strong Brand Awareness. We believe that
it is essential to establish a strong brand with Internet users
and within the travel industry. We currently utilize online
marketing and direct marketing to promote our brand to
consumers. In addition, we believe that we build brand awareness
by product excellence that is promoted by
word-of-mouth.
We utilize sponsorships at industry conferences and public
relations to promote our brand within the travel industry.
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Increase Reach: In order to attract more users
to our products, we intend to expand our advertising campaigns
as our business grows. We believe that we also can attract more
users by product excellence that is promoted by
word-of-mouth.
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Quality User Base: We believe that, in
addition to increasing our reach, we need to maintain the
quality of our user base. We believe that high quality content
attracts a quality user base.
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Increase Number of Advertising Clients: We
intend to continue to grow our advertising client base by
expanding the size of our sales force. See
Sales and Marketing below.
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Excellent Service: We believe that it is
important to provide our advertising clients with excellent
service.
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Replicate Business Model in Foreign
Markets. We believe that there is an opportunity
to replicate our business model in selected foreign markets. We
believe that there will be an additional market opportunity for
us. In addition, we believe that we would strengthen our
strategic position if we offered global advertising solutions to
existing and new clients.
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Clients
As of December 31, 2009, our advertising client base
included more than 2,000 travel and entertainment companies,
including airlines, hotels, cruise lines, vacations packagers,
tour operators, car rental companies, and travel agents. Some of
our clients are:
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American Airlines
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Interstate Hotels & Resort
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Apple Vacations
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JetBlue Airways
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Avis Rent A Car
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Kimpton Hotels
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British Airways
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Liberty Travel
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CheapTickets
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Lufthansa
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Cirque du Soleil
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Marriott Hotels
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Delta Air Lines
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Orbitz Worldwide
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Expedia
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Royal Caribbean
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Fairmont Hotels and Resorts
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Spirit Airlines
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Funjet Vacations
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Starwood Hotels & Resorts Worldwide
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Harrahs Entertainment
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Travelocity
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Hawaiian Airlines
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United Airlines
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Hertz International
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Virgin America
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Hilton Hotels
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Virgin Atlantic
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InterContinental Hotels Group
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Walt Disney Parks & Resorts
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As discussed in Note 8 to the accompanying consolidated
financial statements, we did not have any clients that accounted
for 10% or more of our total revenues during the year ended
December 31, 2009. One client accounted for 10% or more of
our total revenues during the year ended December 31, 2008
and two clients each accounted for 10% or more of our total
revenues during the year ended December 31, 2007. The
agreements with these clients are in the form of multiple
insertion orders from groups of entities under common control.
Although we did not have any clients that accounted for 10% or
more of our total revenues during the year ended
December 31, 2009, it is possible that we may have a client
or clients that account for 10% or more of our total revenues in
future years because management believes there is a high
concentration in the online travel agency industry.
Sales and
Marketing
As of December 31, 2009, our advertising sales force and
sales support staff consisted of 51 employees worldwide. We
intend to grow our advertising client base by expanding the size
of our sales force.
We currently utilize online marketing and direct marketing to
promote our brand to consumers. In addition, we utilize an
online marketing program to acquire new subscribers for our
e-mail
publications. We believe that we build brand awareness by
product excellence that is promoted by
word-of-mouth.
We utilize sponsorships at industry conferences and public
relations to promote our brands within the travel industry.
Technology
We have designed our technology to serve a large volume of Web
traffic and send a large volume of
e-mails in
an efficient and scalable manner.
We co-locate our production servers with Equinix, Inc.
(Equinix), a global provider of hosting, network,
and application services. Equinixs facilities include
features such as power redundancy, multiple egress and peering
to other ISPs, fire suppression and access to our own separate
physical space. We believe our arrangements with Equinix will
allow us to grow without being limited by our own physical and
technological capacity, and will also provide us with sufficient
bandwidth for our anticipated needs. Because of the design of
our Web sites, our users are not required to download or upload
large files from or to our Web sites, which allows us to
continue increasing the number of our visitors and page views
without adversely affecting our performance or requiring us to
make significant additional capital expenditures.
8
Our software is written using widely used standards, such as
Visual Basic Script, and HTML, and interfaces with products from
Microsoft. We have generally standardized our hardware platform
on HP servers and Cisco switches.
Competition
We face intense competition. We compete for advertising dollars
with large Internet portal sites, such as America Online, MSN
and Yahoo!, that offer listings or other advertising
opportunities for travel companies. We compete with search
engines like Google and Yahoo! Search that offer
pay-per-click
listings. We compete with travel meta-search engines and online
travel deal publishers. We compete with large online travel
agencies like Expedia and Priceline that also offer advertising
placements. In addition, we compete with newspapers, magazines
and other traditional media companies that operate Web sites
which provide advertising opportunities. We expect to face
additional competition as other established and emerging
companies, including print media companies, enter our market. We
believe that the primary competitive factors are price and
performance.
Many of our current and potential competitors have longer
operating histories, significantly greater financial, technical,
marketing and other resources and larger client bases than we
do. In addition, current and potential competitors may make
strategic acquisitions or establish cooperative relationships to
expand their businesses or to offer more comprehensive solutions.
New technologies could increase the competitive pressures that
we face. The development of competing technologies by market
participants or the emergence of new industry standards may
adversely affect our competitive position. Competition could
result in reduced margins on our services, loss of market share
or less use of our products by travel and entertainment
companies and consumers. If we are not able to compete
effectively with current or future competitors as a result of
these and other factors, our business could be materially
adversely affected.
Government
Regulation and Legal Uncertainties
There are increasing numbers of laws and regulations pertaining
to the Internet, including laws and regulations relating to user
privacy, liability for information retrieved from or transmitted
over the Internet, online content regulation, and domain name
registration. Moreover, the applicability to the Internet of
existing laws governing issues such as intellectual property
ownership and infringement, copyright, patent, trademark, trade
secret, obscenity, libel and personal privacy is uncertain and
developing.
Privacy Concerns. Government agencies are
considering adopting regulations regarding the collection and
use of personal identifying information obtained from
individuals when using Internet sites or
e-mail
services. While we have implemented and intend to implement
additional programs designed to enhance the protection of the
privacy of our users, these programs may not conform to any
regulations which may be adopted by these agencies. In addition,
these regulatory and enforcement efforts may adversely affect
our ability to collect demographic and personal information from
users, which could have an adverse effect on our ability to
provide advertisers with demographic information. The European
Union (the EU) has adopted a directive that imposes
restrictions on the collection and use of personal data. The
directive could impose restrictions that are more stringent than
current Internet privacy standards in the U.S. The
directive may adversely affect our operations in Europe.
Anti-Spam Legislation. In December 2003, the
CAN-SPAM Act of 2003, a federal anti-spam law, was enacted in
the U.S. This law pre-empts various state anti-spam laws
and establishes a single standard for
e-mail
marketing and customer communications. We believe that this new
law will, on an overall basis, benefit our business as we do not
use spam techniques or practices and may benefit now that others
are prohibited from doing so.
Domain Names. Domain names are the users
Internet addresses. The current system for
registering, allocating and managing domain names has been the
subject of litigation and of proposed regulatory reform. We have
registered travelzoo.com, travelzoo.ca, travelzoo.co.jp,
travelzoo.com.au, travelzoo.com.tw, travelzoo.co.uk,
travelzoo.de, travelzoo.fr, travelzoo.org, travelzoo.net,
weekend.com, and weekends.com, among other domain names, and
have registered Travelzoo as a trademark in the
United States, Canada, the EU, and in various
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countries in Asia Pacific. In January 2009, we purchased the
domain name fly.com. Because of these protections, it is
unlikely, yet possible, that third parties may bring claims for
infringement against us for the use of our domain name and
trademark. In the event such claims are successful, we could
lose the ability to use our domain names. There can be no
assurance that our domain names will not lose their value, or
that we will not have to obtain entirely new domain names in
addition to or in lieu of our current domain names if changes in
overall Internet domain name rules result in a restructuring in
the current system of using domain names which include
.com, .net, .gov,
.edu and other extensions.
Jurisdictions. Due to the global nature of the
Internet, it is possible that, although our transmissions over
the Internet originate primarily in California, the governments
of other states and foreign countries might attempt to regulate
our business activities. In addition, because our service is
available over the Internet in multiple states and foreign
countries, these jurisdictions may require us to qualify to do
business as a foreign corporation in each of these states or
foreign countries, which could subject us to taxes and other
regulations.
Intellectual
Property
Our success depends to a significant degree upon the protection
of our brand names, including Travelzoo and Top 20.
If we were unable to protect the Travelzoo and Top
20 brand names, our business could be materially adversely
affected. We rely upon a combination of copyright, trade secret
and trademark laws to protect our intellectual property rights.
We have registered the Travelzoo and Top 20
trademarks, among others, with the United States Patent and
Trademark Office. We have registered the Travelzoo and
Travelzoo Top 20 trademarks with the Office for
Harmonization in the Internal Market of the European Community.
We have registered the Travelzoo trademark in Australia,
Canada, China, Hong Kong, Japan, South Korea, and Taiwan. The
steps we have taken to protect our proprietary rights, however,
may not be adequate to deter misappropriation of proprietary
information.
We may not be able to detect unauthorized use of our proprietary
information or take appropriate steps to enforce our
intellectual property rights. In addition, the validity,
enforceability and scope of protection of intellectual property
in Internet-related industries are uncertain and still evolving.
The laws of other countries in which we may market our services
in the future are uncertain and may afford little or no
effective protection of our intellectual property.
Employees
As of December 31, 2009, we had 193 employees
worldwide. None of our employees are represented under
collective bargaining agreements. We consider our relations with
our employees to be good. Because of our anticipated further
growth, we expect that the number of our employees will continue
to increase for the foreseeable future.
Internet
Access to Other Information
We make available free of charge, on or through our Web site
(www.travelzoo.com), annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as well as proxy statements, as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the SEC. Information included on our Web site
does not constitute part of this Report.
Investing in our common stock involves a high degree of risk.
Any or all of the risks listed below as well as other variables
affecting our operating results could have a material adverse
effect on our business, our quarterly and annual operating
results or financial condition, which could cause the market
price of our stock to decline or cause substantial volatility in
our stock price, in which event the value of your common stock
could decline. You should also keep these risk factors in mind
when you read forward-looking statements.
10
Risks
Related to Our Financial Condition and Business Model
We
cannot assure you that we will be profitable.
In the year ended December 31, 2009, we generated net
income of $5.2 million. Although we had been profitable in
the past, we incurred a net loss in 2008, and there is no
assurance that we will continue to be profitable in the future.
We forecast our future expense levels based on our operating
plans and our estimates of future revenues. We may find it
necessary to significantly accelerate expenditures relating to
our sales and marketing efforts or otherwise increase our
financial commitment to creating and maintaining brand awareness
among Internet users and travel companies. If our revenues grow
at a slower rate than we anticipate, or if our spending levels
exceed our expectations or cannot be adjusted to reflect slower
revenue growth, we may not generate sufficient revenues to be
profitable. We expect our operations in Europe to incur losses
in the next 12 months. We expect that this will have a
material negative impact on our operating margins, net income
and cash flows. Any of these developments could result in a
significant decrease in the trading price of our common stock.
Fluctuations
in our operating results may negatively impact our stock
price.
Our quarterly and annual operating results may fluctuate
significantly in the future due to a variety of factors that
could affect our revenues or our expenses in any particular
period. You should not rely on
quarter-to-quarter
comparisons of our results of operations as an indication of
future performance. Factors that may affect our results include:
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mismatches between resource allocation and client demand due to
difficulties in predicting client demand in a new market;
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changes in general economic conditions that could affect
marketing efforts generally and online marketing efforts in
particular;
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the magnitude and timing of marketing initiatives, including our
acquisition of new subscribers and our expansion efforts in
other regions;
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the introduction, development, timing, competitive pricing and
market acceptance of our products and services and those of our
competitors;
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our ability to attract and retain key personnel;
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our ability to manage our anticipated growth and expansion;
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our ability to attract traffic to our Web sites;
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technical difficulties or system downtime affecting the Internet
generally or the operation of our products and services
specifically;
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payments which we may make to previous stockholders of
Travelzoo.com Corporation who failed to submit requests for
shares in Travelzoo Inc. within the required time
period; and
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volatility of our operating results in new markets.
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We may significantly increase our operating expenses related to
advertising campaigns for Travelzoo for a certain period
if we see a unique opportunity for a brand marketing campaign,
if we find it necessary to respond to increased brand marketing
by a competitor, or if we decide to accelerate our acquisition
of new subscribers.
If revenues fall below our expectations in any quarter and we
are unable to quickly reduce our operating expenses in response,
our operating results would be lower than expected and our stock
price may fall.
Our
business model may not be adaptable to a changing
market.
Our current revenue model depends on advertising fees paid
primarily by travel and entertainment companies. If current
clients decide not to continue advertising their offers with us
and we are unable to replace them with new clients, our business
may be adversely affected. To be successful, we must provide
online marketing solutions that achieve broad market acceptance
by travel and entertainment companies. In addition, we must
attract sufficient
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Internet users with attractive demographic characteristics to
our products. It is possible that we will be required to further
adapt our business model in response to changes in the online
advertising market or if our current business model is not
successful. If we are not able to anticipate changes in the
online advertising market or if our business model is not
successful, our business could be materially adversely affected.
We may
not be able to obtain sufficient funds to grow our business and
any additional financing may be on terms adverse to your
interests.
For the year ended December 31, 2009 our cash and cash
equivalents increased by $5.6 million to
$19.8 million. We intend to continue to grow our business,
and intend to fund our current operations and anticipated growth
from the cash on hand. However, this may not be sufficient to
meet our needs. We may not be able to obtain financing on
commercially reasonable terms, or at all.
If additional financing is not available when required or is not
available on acceptable terms, we may be unable to fund our
expansion, successfully promote our brand name, develop or
enhance our products and services, take advantage of business
opportunities, or respond to competitive pressures, any of which
could have a material adverse effect on our business.
If we choose to raise additional funds through the issuance of
equity securities, you may experience significant dilution of
your ownership interest, and holders of the additional equity
securities may have rights senior to those of the holders of our
common stock. If we obtain additional financing by issuing debt
securities, the terms of these securities could restrict or
prevent us from paying dividends and could limit our flexibility
in making business decisions.
Our
business may be sensitive to recessions.
The demand for online advertising may be linked to the level of
economic activity and employment in the U.S. and abroad.
Specifically, our business is dependent on the demand for online
advertising from travel and entertainment companies. The recent
recession decreased consumer travel and caused travel and
entertainment companies to reduce or postpone their marketing
spending generally, and their online marketing spending in
particular. Continued or future recessions could have a material
adverse effect on our business and financial condition.
Our
operations could be significantly hindered by the occurrence of
a natural disaster or other catastrophic event.
Our operations are susceptible to outages due to fire, floods,
power loss, telecommunications failures, unexpected technical
problems in the systems that power our Web sites and distribute
our e-mail
newsletters, break-ins and similar events. In addition, a
significant portion of our network infrastructure is located in
Northern California, an area susceptible to earthquakes. We do
not have multiple site capacity in the event of any such
occurrence. Outages could cause significant interruptions of our
service. In addition, despite our implementation of network
security measures, our servers are vulnerable to computer
viruses, physical and electronic break-ins, and similar
disruptions from unauthorized tampering with our computer
systems. We do not carry business interruption insurance to
compensate us for losses that may occur as a result of any of
these events.
Technological
or other assaults on our service could harm our
business.
We are vulnerable to coordinated attempts to overload our
systems with data, which could result in denial or reduction of
service to some or all of our users for a period of time. We
have experienced denial of service attacks in the past, and may
experience such attempts in the future. Any such event could
reduce our revenue and harm our operating results and financial
condition. We do not carry business interruption insurance to
compensate us for losses that may occur as a result of any of
these events.
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Risks
Related to Our Markets and Strategy
Our
international expansion is expected to result in substantial
operating losses, and is subject to other material
risks.
In May 2005, we began operations in the U.K. In 2006 we began
operations in Canada, Germany and Spain. In 2007, we began
operations in France.
Although our revenues in Europe increased 70% in the twelve
months ended December 31, 2009 from the same period last
year, we expect our operations in Europe will continue to incur
losses in the next 12 months primarily as a result of
significant expenses related to subscriber acquisition and the
launch of Fly.com. We intend to continue adding a
significant number of subscribers in selected countries in which
we operate as we believe this is one of the factors that will
allow us to increase our advertising rates and increase our
revenues in Europe.
The losses from our operations in Europe may not have any
recognizable tax benefit. We expect this will have a material
negative impact on our net income and cash flows. Any of these
developments could result in a significant decrease in the
trading price of our common stock. In addition to uncertainty
about our ability to generate net income from our foreign
operations and expand our international market position, there
are certain risks inherent in doing business internationally,
including:
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trade barriers and changes in trade regulations;
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difficulties in developing, staffing and simultaneously managing
foreign operations as a result of distance, language and
cultural differences;
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stringent local labor laws and regulations;
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currency exchange rate fluctuations;
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risks related to government regulation; and
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potentially adverse tax consequences.
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We may
not be able to continue developing awareness of our brand
name.
We believe that continuing to build awareness of the
Travelzoo and Fly.com brand names is critical to
achieving widespread acceptance of our business. Brand
recognition is a key differentiating factor among providers of
online advertising opportunities, and we believe it could become
more important as competition in our industry increases. In
order to maintain and build brand awareness, we must succeed in
our marketing efforts. If we fail to successfully promote and
maintain our brand, incur significant expenses in promoting our
brand and fail to generate a corresponding increase in revenue
as a result of our branding efforts, or encounter legal
obstacles which prevent our continued use of our brand name, our
business could be materially adversely affected.
Our
business may be sensitive to events affecting the travel
industry in general.
Events like the war with Iraq or the terrorist attacks on the
U.S. in 2001 or the current global financial crisis have a
negative impact on the travel industry. We are not in a position
to evaluate the net effect of these circumstances on our
business. In the longer term, our business might be negatively
affected by financial pressures on the travel industry. However,
our business may also benefit if travel companies increase their
efforts to promote special offers or other marketing programs.
If such events result in a long-term negative impact on the
travel industry, such impact could have a material adverse
effect on our business.
We
will not be able to attract travel and entertainment companies
or Internet users if we do not continually enhance and develop
the content and features of our products and
services.
To remain competitive, we must continually improve the
responsiveness, functionality and features of our products and
services. We may not succeed in developing features, functions,
products or services that travel and entertainment companies and
Internet users find attractive. This could reduce the number of
travel and entertainment companies and Internet users using our
products and materially adversely affect our business.
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We may
lose business if we fail to keep pace with rapidly changing
technologies and client needs.
Our success is dependent on our ability to develop new and
enhanced software, services and related products to meet rapidly
evolving technological requirements for online advertising. Our
current technology may not meet the future technical
requirements of travel and entertainment companies. Trends that
could have a critical impact on our success include:
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rapidly changing technology in online advertising;
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evolving industry standards, including both formal and de
facto standards relating to online advertising;
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developments and changes relating to the Internet;
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competing products and services that offer increased
functionality; and
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changes in travel company, entertainment company, and Internet
user requirements.
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If we are unable to timely and successfully develop and
introduce new products and enhancements to existing products in
response to our industrys changing technological
requirements, our business could be materially adversely
affected.
Our
business and growth will suffer if we are unable to hire and
retain highly skilled personnel.
Our future success depends on our ability to attract, train,
motivate and retain highly skilled employees. We may be unable
to retain our skilled employees, or attract, assimilate and
retain other highly skilled employees in the future. We have
from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate
qualifications. If we are unable to hire and retain skilled
personnel, our growth may be restricted, which could adversely
affect our future success.
We may
not be able to effectively manage our expanding
operations.
Since the commencement of our operations, we have experienced a
period of rapid growth. In order to execute our business plan,
we must continue to grow significantly. As of December 31,
2009, we had 193 employees. We expect that the number of
our employees will continue to increase for the foreseeable
future. This growth has placed, and our anticipated future
growth will continue to place, a significant strain on our
management, systems and resources. We expect that we will need
to continue to improve our financial and managerial controls and
reporting systems and procedures. We will also need to continue
to expand and maintain close coordination among our sales,
production, marketing, IT, and finance departments. We may not
succeed in these efforts. Our inability to expand our operations
in an efficient manner could cause our expenses to grow
disproportionately to revenues, our revenues to decline or grow
more slowly than expected and could otherwise have a material
adverse effect on our business.
Our
operations may be adversely affected by changes in our senior
management.
On November 18, 2009, the Company entered into an
employment agreement with Christopher Loughlin, the
Companys current Executive Vice President, Europe, under
which, effective July 1, 2010, Mr. Loughlin will serve
as the Companys Chief Executive Officer. Mr. Loughlin
will replace Holger Bartel as Chief Executive Officer.
Mr. Loughlin served as the Companys Vice President of
Business Development from 2001 to 2005 and served as the
Companys Senior Vice President and General Manager,
Travelzoo U.K. from 2005 to 2006. Since 2006 Mr. Loughlin
has served as the Companys Executive Vice President,
Europe, and has extensive familiarity with the business and
operations of the Company. However, there can be no assurances
that these changes in the senior management of the Company will
not have an adverse effect on the business of the Company,
temporarily or otherwise.
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Intense
competition may adversely affect our ability to achieve or
maintain market share and operate profitably.
We face intense competition. We compete for advertising dollars
with large Internet portal sites, such as America Online, MSN
and Yahoo!, that offer listings or other advertising
opportunities for travel companies. These companies have
significantly greater financial, technical, marketing and other
resources and larger client bases. We compete with search
engines like Google and Yahoo! Search that offer
pay-per-click
listings. We compete with travel meta-search engines and online
travel deal publishers. We compete with large online travel
agencies like Expedia and Priceline that also offer advertising
placements. In addition, we compete with newspapers, magazines
and other traditional media companies that operate Web sites
which provide online advertising opportunities. We expect to
face additional competition as other established and emerging
companies, including print media companies, enter the online
advertising market. Competition could result in reduced margins
on our services, loss of market share or less use of
Travelzoo by travel companies and consumers. If we are
not able to compete effectively with current or future
competitors as a result of these and other factors, our business
could be materially adversely affected.
Loss
of any of our key management personnel could negatively impact
our business.
Our future success depends to a significant extent on the
continued service and coordination of our management team,
particularly Holger Bartel, our Chief Executive Officer, and
Christopher Loughlin, who is scheduled to become our Chief
Executive Officer on July 1, 2010. The loss or departure of
any of our officers or key employees could materially adversely
affect our ability to implement our business plan. We do not
maintain key person life insurance for any member of our
management team. In addition, we expect new members to join our
management team in the future. These individuals will not
previously have worked together and will be required to become
integrated into our management team. If our key management
personnel are not able to work together effectively or
successfully, our business could be materially adversely
affected.
We may
not be able to access third party technology upon which we
depend.
We use technology and software products from third parties,
including Microsoft. Technology from our current or other
vendors may not continue to be available to us on commercially
reasonable terms, or at all. Our business will suffer if we are
unable to access this technology, to gain access to additional
products or to integrate new technology with our existing
systems. This could cause delays in our development and
introduction of new services and related products or
enhancements of existing products until equivalent or
replacement technology can be accessed, if available, or
developed internally, if feasible. If we experience these
delays, our business could be materially adversely affected.
Risks
Related to the Market for our Shares
Our
stock price has been volatile historically and may continue to
be volatile.
The trading price of our common stock has been and may continue
to be subject to wide fluctuations. During 2009, the sales price
of our common stock on the NASDAQ Global Select Market ranged
from $3.72 to $15.38. Our stock price may fluctuate in response
to a number of events and factors, such as quarterly variations
in operating results; announcements of technological innovations
or new products by us or our competitors; changes in financial
estimates and recommendations by securities analysts; the
operating and stock price performance of other companies that
investors may deem comparable to us; and news reports relating
to trends in our markets or general economic conditions.
In addition, the stock market in general, and the market prices
for Internet-related companies in particular, have experienced
volatility that often has been unrelated to the operating
performance of such companies. These broad market and industry
fluctuations may adversely affect the price of our stock,
regardless of our operating performance.
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We are
controlled by a principal stockholder.
Ralph Bartel, who founded Travelzoo and who is our Chairman of
the Board, is our largest stockholder, holding beneficially, as
of February 26, 2010, approximately 66.3% of our
outstanding shares. Through his share ownership, he is in a
position to control Travelzoo and to elect our entire board of
directors.
Risks
Related to Legal Uncertainty
We may
become subject to burdensome government regulations and legal
uncertainties affecting the Internet which could adversely
affect our business.
To date, governmental regulations have not materially restricted
use of the Internet in our markets. However, the legal and
regulatory environment that pertains to the Internet is
uncertain and may change. Uncertainty and new regulations could
increase our costs of doing business, prevent us from delivering
our products and services over the Internet or slow the growth
of the Internet. In addition to new laws and regulations being
adopted, existing laws may be applied to the Internet. New and
existing laws may cover issues which include:
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user privacy;
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anti-spam legislation;
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consumer protection;
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copyright, trademark and patent infringement;
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pricing controls;
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characteristics and quality of products and services;
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sales and other taxes; and
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other claims based on the nature and content of Internet
materials.
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We may
be liable as a result of information retrieved from or
transmitted over the Internet.
We may be sued for defamation, negligence, copyright or
trademark infringement or other legal claims relating to
information that is published or made available in our products.
These types of claims have been brought, sometimes successfully,
against online services in the past. The fact that we distribute
information via
e-mail may
subject us to potential risks, such as liabilities or claims
resulting from unsolicited
e-mail or
spamming, lost or misdirected messages, security breaches,
illegal or fraudulent use of
e-mail or
interruptions or delays in
e-mail
service. In addition, we could incur significant costs in
investigating and defending such claims, even if we ultimately
are not liable. If any of these events occur, our business could
be materially adversely affected.
Claims
may be asserted against us relating to shares not issued in our
2002 merger.
The merger of Travelzoo.com Corporation into the Company became
effective on April 25, 2002. Stockholders of Travelzoo.com
Corporation were allowed a period of two years following the
effective date to receive shares in the Company. After
April 25, 2004, two years following the effective date, we
ceased issuing shares to the former stockholders of
Travelzoo.com Corporation. Many of the Netsurfer
stockholders, who had applied to receive shares of
Travelzoo.com Corporation in 1998 for no cash consideration, did
not elect to receive their shares which were issuable in the
merger prior to the end of the two-year period. A total of
4,115,532 of our shares which had been reserved for issuance in
the merger were not claimed.
It is possible that claims may be asserted against us in the
future by former stockholders of Travelzoo.com Corporation
seeking to receive our shares, whether based on a claim that the
two-year deadline for exchanging their shares was unenforceable
or otherwise. In addition, one or more jurisdictions, including
the Bahamas or the State of Delaware, may assert rights to
unclaimed shares under escheat statutes. If such escheat claims
are asserted, we intend to challenge the applicability of
escheat rights in that, among other reasons, the identity,
residency and eligibility of the holders in question cannot be
determined. There were certain conditions applicable to the
issuance of shares to the Netsurfer stockholders, including
requirements that (i) they be at least 18 years of
age, (ii) they be
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residents of the U.S. or Canada and (iii) they not
apply for shares more than once. The Netsurfer stockholders were
required to confirm their compliance with these conditions, and
were advised that failure to comply could result in cancellation
of their shares in Travelzoo.com Corporation. Travelzoo.com
Corporation was not able to verify that the applicants met the
requirements referred to above at the time of their applications
for issuance of shares. If claims are asserted by persons
claiming to be former stockholders of Travelzoo.com Corporation,
we intend to assert that their rights to receive their shares
expired two years following the effective date of the merger, as
provided in the merger agreement. We also expect to take the
position, if escheat or similar claims are asserted in respect
of the unissued shares in the future, that we are not required
to issue such shares. Further, even if it were established that
unissued shares were subject to escheat claims, we would assert
that the claimant must establish that the original Netsurfer
stockholders complied with the conditions to issuance of their
shares. We are not able to predict the outcome of any future
claims which might be asserted relating to the unissued shares.
If such claims were asserted, and were fully successful, that
could result in us being required to issue up to an additional
4,068,000 shares of common stock for no additional payment,
which would result in substantial dilution of the ownership
interests of the other stockholders, and in our earnings per
share, which could adversely affect the market price of the
common stock.
On October 15, 2004, we announced a program under which we
would make cash payments to people who establish that they were
former stockholders of Travelzoo.com Corporation, and who failed
to submit requests to convert shares into Travelzoo Inc. within
the required time period. The accompanying consolidated
financial statements include a charge in general and
administrative expenses of $7,000 for these cash payments for
the year ended December 31, 2009. The total cost of this
program is not reliably estimable because it is based on the
ultimate number of valid requests received and future levels of
our common stock price. Our common stock price affects the
liability because the amount of cash payments under the program
is based in part on the recent level of the stock price at the
date valid requests are received. We do not know how many of the
requests for shares originally received by Travelzoo.com
Corporation in 1998 were valid, but we believe that only a
portion of such requests were valid. As noted above, in order to
receive payment under the program, a person is required to
establish that such person validly held shares in Travelzoo.com
Corporation. Assuming 100% of the requests from 1998 were valid,
former stockholders of Travelzoo.com Corporation holding
approximately 4,068,000 shares had not submitted claims
under the program as of December 31, 2009.
Our
internal controls over financial reporting may not be effective,
and our independent auditors may not be able to certify as to
their effectiveness, which could have a significant and adverse
effect on our business.
We are obligated to evaluate our internal controls over
financial reporting in order to allow management to report on,
and our independent auditors to opine on, our internal controls
over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the
SEC, which we collectively refer to as Section 404. In our
Section 404 evaluation, we have identified areas of
internal controls that may need improvement and have instituted
remediation efforts where necessary. Currently, none of our
identified areas that need improvement has been categorized as
material weaknesses. We may identify conditions that may result
in significant deficiencies or material weaknesses in the future.
We may
be unable to protect our registered trademark or other
proprietary intellectual property rights.
Our success depends to a significant degree upon the protection
of the Travelzoo brand name. We rely upon a combination
of copyright, trade secret and trademark laws and non-disclosure
and other contractual arrangements to protect our intellectual
property rights. The steps we have taken to protect our
proprietary rights, however, may not be adequate to deter
misappropriation of proprietary information.
We have registered the Travelzoo trademark in the U.S.,
Australia, Canada, China, Hong Kong, Japan, South Korea,
Taiwan, and the U.K. If we are unable to protect our rights in
the mark in North America, Europe, and Asia Pacific, a key
element of our strategy of promoting Travelzoo as a brand
could be disrupted and our business could be adversely affected.
We may not be able to detect unauthorized use of our proprietary
information or take appropriate steps to enforce our
intellectual property rights. In addition, the validity,
enforceability, and scope of protection of intellectual property
in Internet-related industries are uncertain and still evolving.
The laws of
17
countries in which we may market our services in the future are
uncertain and may afford little or no effective protection of
our intellectual property. The unauthorized reproduction or
other misappropriation of our proprietary technology could
enable third parties to benefit from our technology and brand
name without paying us for them. If this were to occur, our
business could be materially adversely affected.
We may
face liability from intellectual property litigation that could
be costly to prosecute or defend and distract managements
attention with no assurance of success.
We cannot be certain that our products, content and brand names
do not or will not infringe valid patents, copyrights or other
intellectual property rights held by third parties. While we
have a trademark for Travelzoo, many companies in
the industry have similar names including the word
travel. We expect that infringement claims in our
markets will increase in number as more participants enter the
markets. We may be subject to legal proceedings and claims from
time to time relating to the intellectual property of others in
the ordinary course of our business. We may incur substantial
expenses in defending against these third party infringement
claims, regardless of their merit, and such claims could result
in a significant diversion of the efforts of our management
personnel. Successful infringement claims against us may result
in monetary liability or a material disruption in the conduct of
our business.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We are headquartered in New York, New York, where we occupy
approximately 10,600 square feet of leased office space. In
addition to our New York office, we have several leased offices
throughout the U.S. and Canada for our North America
operations, including offices in Chicago, Illinois, Las Vegas,
Nevada, Los Angeles, California, Miami, Florida, Mountain View,
California, San Francisco, California, and Toronto, Ontario.
We also have leased offices for our Europe operations in France,
Germany, Spain, and the U.K., including offices in Barcelona,
Hamburg, London, Manchester, Munich, and Paris.
We believe that our leased facilities are adequate to meet our
current needs; however, we intend to expand our operations and
therefore may require additional facilities in the future. We
believe that such additional facilities are available.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are subject to legal proceedings and
claims in the ordinary course of business, including claims of
alleged infringement of trademarks, copyrights and other
intellectual property rights, as well as claims by former
employees. We are not currently aware of any legal proceedings
or claims pending or threatened that we believe will have,
individually or in the aggregate, a material adverse effect on
our financial condition or results of operations.
|
|
Item 4.
|
(Removed
and Reserved)
|
18
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
Since August 18, 2004, our common stock has been trading on
the NASDAQ Global Select Market under the symbol
TZOO. From December 30, 2003 to August 17,
2004, our common stock was traded on the NASDAQ SmallCap Market
under the symbol TZOO. The following table sets
forth, for the periods indicated, the high and low sales prices
per share of our common stock as reported by NASDAQ.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
2009:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
15.38
|
|
|
$
|
12.00
|
|
Third Quarter
|
|
$
|
14.94
|
|
|
$
|
10.51
|
|
Second Quarter
|
|
$
|
12.35
|
|
|
$
|
5.93
|
|
First Quarter
|
|
$
|
6.84
|
|
|
$
|
3.72
|
|
2008:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
8.39
|
|
|
$
|
4.11
|
|
Third Quarter
|
|
$
|
9.54
|
|
|
$
|
6.42
|
|
Second Quarter
|
|
$
|
13.26
|
|
|
$
|
8.57
|
|
First Quarter
|
|
$
|
17.20
|
|
|
$
|
9.61
|
|
On February 26, 2010, the last reported sales price of our
common stock on the NASDAQ Global Select Market was $11.40 per
share.
As of February 26, 2010, there were approximately 123,000
stockholders of record.
Dividend
Policy
Travelzoo has not declared or paid any cash dividends since
inception and does not expect to pay cash dividends for the
foreseeable future. We currently intend to retain future
earnings to finance the expansion of our business. The payment
of dividends will be at the discretion of our board of directors
and will depend upon factors such as future earnings, capital
requirements, our financial condition and general business
conditions.
Sales of
Unregistered Securities
There were no unregistered sales of equity securities during
fiscal year 2009.
Repurchases
of Equity Securities
There were no shares of the Companys outstanding common
stock repurchased during the year ended December 31, 2009.
19
Performance
Graph
The following graph compares, for the dates specified, the
cumulative total stockholder return for Travelzoo, the NASDAQ
Stock Market (U.S. companies) Index (the NASDAQ
Market Index), and the Standard & Poors
500 Publishing Index (the S&P 500 Publishing).
Measurement points are the last trading day of each of the
Companys fiscal years ended December 31, 2004,
December 31, 2005, December 31, 2006,
December 31, 2007, December 31, 2008, and
December 31, 2009. The graph assumes that $100 was invested
on December 31, 2004 in the Common Stock of the Company,
the NASDAQ Market Index and the S&P 500 Publishing and
assumes reinvestment of any dividends. The stock price
performance on the following graph is not indicative of future
stock price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement Point
|
|
|
12/31/2004
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
Travelzoo Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
23.05
|
|
|
|
$
|
31.38
|
|
|
|
$
|
14.34
|
|
|
|
$
|
5.83
|
|
|
|
$
|
12.88
|
|
NASDAQ Market Index
|
|
|
$
|
100.00
|
|
|
|
$
|
101.37
|
|
|
|
$
|
111.03
|
|
|
|
$
|
121.92
|
|
|
|
$
|
72.49
|
|
|
|
$
|
104.31
|
|
S&P 500 Publishing
|
|
|
$
|
100.00
|
|
|
|
$
|
87.26
|
|
|
|
$
|
100.62
|
|
|
|
$
|
75.56
|
|
|
|
$
|
32.44
|
|
|
|
$
|
49.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The selected consolidated financial data set forth below are
derived from audited consolidated financial statements. The
following selected consolidated financial data is qualified in
its entirety by, and should be read in conjunction with,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the notes thereto included elsewhere
herein.
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands, except per share data)
|
|
Revenues
|
|
$
|
93,973
|
|
|
$
|
80,817
|
|
|
$
|
78,904
|
|
|
$
|
69,525
|
|
|
$
|
50,772
|
|
Income from continuing operations
|
|
|
13,708
|
|
|
|
13,312
|
|
|
|
23,679
|
|
|
|
29,753
|
|
|
|
14,870
|
|
Income from continuing operations, net of taxes
|
|
|
6,418
|
|
|
|
5,913
|
|
|
|
12,108
|
|
|
|
16,803
|
|
|
|
7,963
|
|
Loss from discontinued operations, net of taxes
|
|
|
(1,233
|
)
|
|
|
(10,029
|
)
|
|
|
(2,999
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,185
|
|
|
|
(4,116
|
)
|
|
|
9,109
|
|
|
|
16,803
|
|
|
|
7,963
|
|
Basic net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.41
|
|
|
$
|
0.82
|
|
|
$
|
1.08
|
|
|
$
|
0.49
|
|
Discontinued operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
|
|
|
$
|
|
|
Net income (loss) per share
|
|
$
|
0.32
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.61
|
|
|
$
|
1.08
|
|
|
$
|
0.49
|
|
Diluted net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
$
|
0.75
|
|
|
$
|
1.01
|
|
|
$
|
0.45
|
|
Discontinued operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
|
|
|
$
|
|
|
Net income (loss) per share
|
|
$
|
0.32
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.57
|
|
|
$
|
1.01
|
|
|
$
|
0.45
|
|
Shares used in per share calculation basic
|
|
|
16,408
|
|
|
|
14,273
|
|
|
|
14,847
|
|
|
|
15,503
|
|
|
|
16,249
|
|
Shares used in per share calculation diluted
|
|
|
16,416
|
|
|
|
16,190
|
|
|
|
16,074
|
|
|
|
16,712
|
|
|
|
17,731
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
|
$
|
19,776
|
|
|
$
|
14,179
|
|
|
$
|
22,641
|
|
|
$
|
33,415
|
|
|
$
|
24,469
|
|
Short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,887
|
|
Working capital
|
|
|
27,250
|
|
|
|
17,642
|
|
|
|
26,202
|
|
|
|
36,472
|
|
|
|
48,136
|
|
Total assets
|
|
|
46,132
|
|
|
|
35,322
|
|
|
|
37,286
|
|
|
|
43,700
|
|
|
|
55,452
|
|
Stockholders equity
|
|
|
30,771
|
|
|
|
20,763
|
|
|
|
25,902
|
|
|
|
36,817
|
|
|
|
48,533
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of Travelzoos
financial condition and results of operations should be read in
conjunction with, and is qualified in its entirety by reference
to, the consolidated financial statements and the notes thereto
appearing elsewhere in this report.
Overview
Travelzoo Inc. is a global Internet media company. We inform
over 18 million subscribers worldwide, as well as millions
of Web site users, about the best travel and entertainment deals
available from thousands of companies. We publish these offers
by sourcing, researching, test-booking, and selecting offers
professionally. We provide airlines, hotels, cruise lines,
vacation packagers, and other travel and entertainment companies
with a fast, flexible, and cost effective way to reach millions
of consumers. Our revenues are generated from advertising fees.
21
Our publications and products include the Travelzoo Web
sites (www.travelzoo.com, www.travelzoo.ca, www.travelzoo.co.uk,
www.travelzoo.de, www.travelzoo.com.es, www.travelzoo.fr, among
others), the Travelzoo Top 20
e-mail
newsletter, and the Newsflash
e-mail
alert service. We operate SuperSearch, a
pay-per-click
travel search tool and the Travelzoo Network, a network
of third-party Web sites that list deals published by Travelzoo.
We also operate Fly.com, a travel search engine that
allows users to quickly and easily find and compare the best
prices on flights from hundreds of airlines and online travel
agencies. More than 2,000 travel and entertainment companies use
our services.
On October 31, 2009, we completed the sale of our Asia
Pacific operating segment to Azzurro Capital Inc. and its
wholly-owned subsidiaries, Travelzoo (Asia) Limited and
Travelzoo Japan K.K. The results of operations of the Asia
Pacific operating segment have been classified as discontinued
operations for all periods presented. We have not had
significant ongoing involvement with the operations of the Asia
Pacific operating segment and have not had any economic
interests in the Asia Pacific operating segment since the
completion of the sale. Starting November 1, 2009, the
Travelzoo Web sites in Asia Pacific (cn.travelzoo.com,
www.travelzoo.co.jp, www.travelzoo.com.au, www.travelzoo.com.hk,
www.travelzoo.com.tw, among others), the Travelzoo Top 20
e-mail
newsletters in Asia Pacific and the Newsflash
e-mail
alert service in Asia Pacific are published by Travelzoo (Asia)
Limited and Travelzoo Japan K.K., wholly owned subsidiaries of
Azzurro Capital Inc., under a license agreement with the
Company. See Note 11 to the accompanying consolidated
financial statements.
Our revenues are advertising revenues, consisting of listing
fees paid primarily by travel and entertainment companies to
advertise their offers on the Travelzoo Web sites, in the
Travelzoo Top 20
e-mail
newsletter, in the Newsflash
e-mail
alert service, in SuperSearch, through the Travelzoo
Network, and on Fly.com. Revenues are principally
generated from the sale of advertising in the U.S. Listing
fees are based on placement, number of listings, number of
impressions, number of click-throughs, or number of referrals.
Smaller advertising agreements typically $2,000 or
less per month typically renew automatically each
month if they are not terminated by the client. Larger
agreements are typically related to advertising campaigns and
are not automatically renewed.
We have two operating segments based on geographic regions:
North America and Europe. North America consists of our
operations in Canada and the U.S. Europe consists of our
operations in France, Germany, Spain, and the U.K. For the year
ended December 31, 2009, our operations in Europe accounted
for 17% of revenues and our operations in North America
accounted for 83% of revenues.
When evaluating the financial condition and operating
performance of the Company, management focuses on the following
financial and non-financial indicators:
|
|
|
|
|
Growth of number of subscribers of the Companys
newsletters and page views of the homepages of the Travelzoo
Web sites;
|
|
|
|
Operating margin;
|
|
|
|
Growth in revenues in the absolute and relative to the growth in
reach of the Companys publications; and
|
|
|
|
Revenue per employee as a measure of productivity.
|
Critical
Accounting Policies
We believe that there are a number of accounting policies that
are critical to understanding our historical and future
performance, as these policies affect the reported amounts of
revenue and the more significant areas involving
managements judgments and estimates. These significant
accounting policies relate to revenue recognition, the allowance
for doubtful accounts, and liabilities to former stockholders.
These policies, and our procedures related to these policies,
are described in detail below.
Revenue
Recognition
We recognize revenue on arrangements in accordance with SEC
Staff Accounting Bulletin for revenue recognition. We recognize
advertising revenues in the period in which the advertisement is
displayed, provided that evidence of an arrangement exists, the
fees are fixed or determinable and collection of the resulting
receivable is reasonably assured. If fixed-fee advertising is
displayed over a term greater than one month, revenues are
22
recognized ratably over the period as described below. The
majority of insertion orders have terms that begin and end in a
quarterly reporting period. In the cases where at the end of a
quarterly reporting period the term of an insertion order is not
complete, the Company recognizes revenue for the period by
pro-rating the total arrangement fee to revenue and deferred
revenue based on a measure of proportionate performance of its
obligation under the insertion order. The Company measures
proportionate performance by the number of placements delivered
and undelivered as of the reporting date. The Company uses
prices stated on its internal rate card for measuring the value
of delivered and undelivered placements. Fees for variable-fee
advertising arrangements are recognized based on the number of
impressions displayed, number of clicks delivered, or number of
referrals generated during the period.
Under these policies, no revenue is recognized unless persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collection is deemed
reasonably assured. The Company evaluates each of these criteria
as follows:
|
|
|
|
|
Evidence of an arrangement. We consider an
insertion order signed by the client or its agency to be
evidence of an arrangement.
|
|
|
|
Delivery. Delivery is considered to occur when
the advertising has been displayed and, if applicable, the
click-throughs have been delivered.
|
|
|
|
Fixed or determinable fee. We consider the fee
to be fixed or determinable if the fee is not subject to refund
or adjustment and payment terms are standard.
|
|
|
|
Collection is deemed reasonably assured. We
conduct a credit review for all transactions at the time of the
arrangement to determine the creditworthiness of the client.
Collection is deemed reasonably assured if we expect that the
client will be able to pay amounts under the arrangement as
payments become due. If we determine that collection is not
reasonably assured, then we defer the revenue and recognize the
revenue upon cash collection. Collection is deemed not
reasonably assured when a client is perceived to be in financial
distress, which may be evidenced by weak industry conditions, a
bankruptcy filing, or previously billed amounts that are past
due.
|
Revenues from advertising sold to clients through agencies are
reported at the net amount billed to the agency.
Allowance
for Doubtful Accounts
We record a provision for doubtful accounts based on our
historical experience of write-offs and a detailed assessment of
our accounts receivable and allowance for doubtful accounts. In
estimating the provision for doubtful accounts, management
considers the age of the accounts receivable, our historical
write-offs, the creditworthiness of the client, the economic
conditions of the clients industry, and general economic
conditions, among other factors. Should any of these factors
change, the estimates made by management will also change, which
could impact the level of our future provision for doubtful
accounts. Specifically, if the financial condition of our
clients were to deteriorate, affecting their ability to make
payments, additional provision for doubtful accounts may be
required.
Liability
to Former Stockholders
On October 15, 2004, we announced a program under which we
would make cash payments to people who establish that they were
former stockholders of Travelzoo.com Corporation, and who failed
to submit requests to convert shares into Travelzoo Inc. within
the required time period. We account for the cost of this
program as an expense recorded in general and administrative
expenses and a current accrued liability. The ultimate total
cost of this program is not reliably estimable because it is
based on the ultimate number of valid requests received and
future levels of the Companys common stock price. The
Companys common stock price affects the liability because
the amount of cash payments under the program is based in part
on the recent level of the stock price at the date valid
requests are received. We do not know how many of the requests
for shares originally received by Travelzoo.com Corporation in
1998 were valid. We believe that only a portion of such requests
were valid. In order to receive payment under the program, a
person is required to establish that such person validly held
shares in Travelzoo.com Corporation.
23
Since the total cost of the program is not reliably estimable,
the amount of expense recorded in a period is equal to the
actual number of valid claims received during the period
multiplied by (i) the number of shares held by each
individual former stockholder and (ii) the applicable
settlement price based on the recent price of our common stock
at the date the claim is received as stipulated by the program.
Requests are generally paid within 30 days of receipt.
Please refer to Note 3 to the consolidated financial
statements for further details about our liabilities to former
stockholders.
Results
of Operations
The following table sets forth, as a percentage of total
revenues, the results of our operations for the years ended
December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenues
|
|
|
6.0
|
|
|
|
3.5
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
94.0
|
|
|
|
96.5
|
|
|
|
98.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
52.9
|
|
|
|
53.6
|
|
|
|
51.4
|
|
General and administrative
|
|
|
26.5
|
|
|
|
26.4
|
|
|
|
17.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
79.4
|
|
|
|
80.0
|
|
|
|
68.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14.6
|
|
|
|
16.5
|
|
|
|
30.0
|
|
Other income and expenses, net
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
14.5
|
|
|
|
17.5
|
|
|
|
31.9
|
|
Income taxes
|
|
|
7.7
|
|
|
|
10.1
|
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6.8
|
|
|
|
7.4
|
|
|
|
15.4
|
|
Loss from discontinued operations, net of taxes
|
|
|
(1.3
|
)
|
|
|
(12.4
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5.5
|
%
|
|
|
(5.0
|
)%
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, we reported income
from continuing operations of approximately $6.4 million.
As of December 31, 2009, we had retained earnings of
approximately $27.0 million. Our operating margin decreased
to 14.6% for the year ended December 31, 2009 from 16.5% in
2008. The main reason for the decrease in operating margin is
our cost of revenues as a percentage of revenues increased for
the year ended December 31, 2009 compared to prior year
(see Cost of Revenues below). This was partially
offset by a decrease in operating expense as a percentage of
revenues for the year ended December 31, 2009 compared to
prior year (see Operating Expenses below).
We do not know whether our cost of revenues as a percentage of
revenues will continue to increase in future periods. Our cost
of revenues will increase if the number of searches performed on
Fly.com increases because we pay a fee based on the
number of searches performed on Fly.com. We expect
fluctuations of cost of revenues as a percentage of revenues
from quarter to quarter. Some of the fluctuations may be
significant and have a material impact on our results of
operations.
We do not know what our sales and marketing expenses as a
percentage of revenue will be in future periods. Increased
competition in our industry may require us to increase
advertising for our brand and for our products. Increases in the
average cost of acquiring new subscribers (see Subscriber
Acquisition below) may result in an increase of sales and
marketing expenses as a percentage of revenue. We may decide to
accelerate our subscriber acquisition for various strategic and
tactical reasons and, as a result, increase our marketing
expenses. We may see a unique opportunity for a brand marketing
campaign that will result in an increase of marketing expenses.
Further, we expect our strategy to replicate our business model
in selected foreign markets (see Growth Strategy
below) to
24
result in a significant increase in our sales and marketing
expenses and have a material adverse impact on our results of
operations. We expect fluctuations of sales and marketing
expenses as a percentage of revenue from year to year and from
quarter to quarter. Some of the fluctuations may be significant
and have a material impact on our results of operations.
We do not know what our general and administrative expenses as a
percentage of revenue will be in future periods. There may be
fluctuations that have a material impact on our results of
operations. We expect our headcount to continue to increase in
the future. The Companys headcount is one of the main
drivers of general and administrative expenses. Therefore, we
expect our absolute general and administrative expenses to
continue to increase. We expect our continued expansion into
foreign markets to result in a significant additional increase
in our general and administrative expenses. Our general and
administrative expenses as a percentage of revenue may also
fluctuate depending on the number of requests received related
to a program under which the Company intends to make cash
payments to people who establish that they were former
stockholders of Travelzoo.com Corporation, and who failed to
submit requests to convert shares into Travelzoo Inc. within the
required time period.
Reach
The following table sets forth the number of subscribers of each
of our
e-mail
publications in North America and Europe as of December 31,
2009 and 2008 and the total number of page views for the
homepages of the Travelzoo Web sites in North America and
Europe for the years ended December 31, 2009 and 2008.
Management considers page views for the Travelzoo
homepages as indicators for the growth of Web site traffic.
Management reviews these non-financial metrics for two reasons:
First, to monitor our progress in increasing the reach of our
products. Second, to evaluate whether we are able to convert
higher reach into higher revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Year-Over-Year
|
|
|
2009
|
|
2008
|
|
Growth(1)
|
|
Subscribers:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
Travelzoo Top 20
|
|
|
12,680,000
|
|
|
|
10,769,000
|
|
|
|
18
|
%
|
Newsflash
|
|
|
10,905,000
|
|
|
|
8,888,000
|
|
|
|
23
|
%
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Travelzoo Top 20 ,
|
|
|
3,206,000
|
|
|
|
2,176,000
|
|
|
|
47
|
%
|
Newsflash
|
|
|
3,116,000
|
|
|
|
2,075,000
|
|
|
|
50
|
%
|
Page views of homepages of Travelzoo Web sites:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
36,455,000
|
|
|
|
28,600,000
|
|
|
|
27
|
%
|
Europe
|
|
|
16,491,000
|
|
|
|
7,237,000
|
|
|
|
128
|
%
|
|
|
|
(1) |
|
The comparability of year-over-year changes of page views of the
homepages of Travelzoo Web sites may be limited due to
the design and navigation of the Web sites. |
In North America, revenues for the year ended December 31,
2009 increased by 9% from the previous year. The total number of
subscribers in North America to the Travelzoo Top 20
e-mail
newsletter as of December 31, 2009 increased by 18%
compared to December 31, 2008 and page views of the
homepages of the Travelzoo North America Web sites in
North America for the year ended December, 31, 2009 increased by
27% from the previous year. In North America, revenues for the
year ended December 31, 2009 compared to the year ended
December 31, 2008 increased at a lower rate than the rate
of increase in the number of subscribers to our Travelzoo Top
20
e-mail
newsletter and the rate of increase in Web site traffic. In
North America, we believe we were unable to fully convert higher
reach into higher revenues because we were unable to increase
our advertising rates significantly due to intense competition
in our industry.
In Europe, revenues for the year ended December 31, 2009
increased by 70% from the previous year. The total number of
subscribers in Europe to the Travelzoo Top 20
e-mail
newsletter as of December 31, 2009 increased by 47%
compared to December 31, 2008 and page views of the
homepages of the Travelzoo Web sites in Europe for the
25
year ended December 31, 2009 increased by 128% from the
previous year. In Europe, revenues increased at a higher rate
than the rate of growth in subscribers to the Travelzoo Top
20
e-mail
newsletter.
Revenues
Our total revenues increased to $94.0 million for the year
ended December 31, 2009 from $80.8 million for the
year ended December 31, 2008. This represents an increase
of $13.2 million or 16%. $6.7 million of the increase
in revenues came from our operations in Europe, which had an
increase of 70% in revenues year-over-year and was attributed
primarily to a $4.7 million increase in revenue from
fixed-fee advertising delivered in the Travelzoo Top 20
e-mail
newsletter and on the Travelzoo Web site, an $818,000
increase in revenue from variable-fee advertising delivered in
the Travelzoo Top 20
e-mail
newsletter and on the Travelzoo Web site, and a $706,000
increase in revenue from our Newsflash
e-mail
alert service. In local currency terms, revenues from our
operations in Europe increased 98% year-over-year. The
strengthening of the U.S. dollar relative to the British
Pound Sterling and the Euro in the year ended December 31,
2009 compared to the year ended December 31, 2008 had an
unfavorable impact on the revenues from our operations in
Europe. Had foreign exchange rates remained constant in these
periods, revenues from our operations in Europe for the year
ended December 31, 2009 would have been approximately
$2.1 million higher than reported revenues of
$16.3 million. $6.6 million of the increase in
revenues came from our operations in North America and was
attributed primarily to a $4.4 million increase in revenues
from our publications, which includes the Travelzoo Web
site, the Travelzoo Top 20
e-mail
newsletter and the Newsflash
e-mail
alert service and a $2.1 million increase in revenues from
our search products, which consist of SuperSearch and
Fly.com. We launched Fly.com in February 2009.
Our total revenues increased to $80.8 million for the year
ended December 31, 2008 from $78.9 million for the
year ended December 31, 2007. This represents an increase
of $1.9 million or 2%. $3.7 million of the increase in
revenues came from our operations in Europe, an increase of 64%
year over year, and resulted primarily from a $3.5 million
increase in revenue from fixed-fee advertising delivered in the
Travelzoo Top 20
e-mail
newsletter and on the Travelzoo Web site. The increase in
revenues from our operations in Europe was offset by a
$1.9 million decrease in revenues from our operations in
North America. With respect to the decrease in North American
revenue, the Company recorded a decrease in revenues of
approximately $2.8 million from its publications which
included the Travelzoo Web site, Travelzoo Top 20
newsletter and Newsflash, and a decrease in revenues
of approximately $4.6 million from SuperSearch.
These decreases were offset by approximately
$3.1 million increased revenue from new customers and
approximately $2.4 million increased revenue from the
Travelzoo Network.
As discussed in Note 8 to the accompanying consolidated
financial statements, none of our customers accounted for 10% or
more of our revenue in the year ended December 31, 2009.
Orbitz Worldwide accounted for 13% of our total revenues in the
year ended December 31, 2008. In the year ended
December 31, 2007, Orbitz Worldwide and Expedia, Inc.
accounted for 15% and 11% of our total revenues, respectively.
No other clients accounted for 10% or more of our total revenues
during the years ended December 31, 2008 or 2007. The
agreements with these clients are in the form of multiple
insertion orders from groups of entities under common control.
Although we did not have any clients that accounted for 10% or
more of our total revenues during the year ended
December 31, 2009, it is possible that we may have a client
or clients that account for 10% or more of our total revenues in
future years because management believes there is a high
concentration in the online travel agency industry.
Management believes that our ability to increase revenues in the
future depends mainly on the following factors:
|
|
|
|
|
Our ability to increase our advertising rates;
|
|
|
|
Our ability to sell more advertising to existing clients;
|
|
|
|
Our ability to increase the number of clients;
|
|
|
|
Our ability to develop new revenue streams; and
|
|
|
|
Our ability to launch new products.
|
26
We believe that we can increase our advertising rates only if
the reach of our publications increases. We do not know if we
will be able to increase the reach of our publications. We
believe that we can sell more advertising only if the market for
online advertising continues to grow and if we can maintain or
increase our market share. We believe that the market for online
advertising continues to grow. We do not know if we will be able
to maintain or increase our market share. We have historically
increased the number of clients in each year since inception. We
do not know if we will be able to increase the number of clients
in the future. We do not know if we will have market acceptance
of our new products.
Our goal is to increase our advertising rates at least once a
year in each market, preferably as of January 1 of each year.
However, we did not increase our advertising rates in the
U.S. on January 1, 2008 and 2009 due to intense
competition in our industry. We intend to review advertising
rates and consider increases once a year as of January 1.
However, there is no assurance that there will be increases of
advertising rates. Depending on the level of competition in the
industry and the condition of the online advertising market, we
may decide not to increase our advertising rates in all or
certain markets.
Average revenue per employee decreased to $487,000 for the year
ended December 31, 2009 from $496,000 for the year ended
December 31, 2008 and our average revenue per employee
decreased to $496,000 for the year ended December 31, 2008
from $612,000 for the year ended December 31, 2007.
Cost
of Revenues
Cost of revenues consists primarily of network expenses,
including fees we pay for co-location services, depreciation and
maintenance of network equipment, payments made to third-party
partners of the Travelzoo Network, fees we pay related to
user searches on Fly.com, amortization of capitalized Web
site development costs, and salary expenses associated with
network operations staff. Our cost of revenues increased to
$5.6 million for the year ended December 31, 2009 from
$2.8 million for the year ended December 31, 2008. As
a percentage of revenue, cost of revenues was 6.0%, up from 3.5%
for the year ended December 31, 2008. The $2.8 million
increase in cost of revenues for the year ended
December 31, 2009 compared to the year ended
December 31, 2008 was primarily due to a $1.5 million
increase in fees we paid related to user searches on
Fly.com, an $862,000 increase in depreciation,
amortization and maintenance costs, and a $355,000 increase in
payments made to third-party partners of the Travelzoo
Network. Our cost of revenues increased to $2.8 million
for the year ended December 31, 2008 from $957,000 for the
year ended December 31, 2007. As a percentage of revenue,
cost of revenues was 3.5%, up from 1.2% for the year ended
December 31, 2007. The $1.9 million increase in cost
of revenues for the year ended December 31, 2008 compared
to the year ended December 31, 2007 was primarily due to a
$990,000 increase in payments made to affiliate partners of the
Travelzoo Network and a $302,000 increase in salary
expense.
Operating
Expenses
Sales and
Marketing
Sales and marketing expenses consist primarily of advertising
and promotional expenses, salary expenses associated with sales,
marketing, and production staff, expenses related to our
participation in industry conferences, and public relations
expenses. Sales and marketing expenses increased to
$49.7 million for the year ended December 31, 2009
from $43.3 million for the year ended December 31,
2008. The $6.4 million increase in sales and marketing
expenses for the year ended December 31, 2009 compared to
the year ended December 31, 2008 was primarily due to a
$2.4 million increase in salary and employee related
expenses, a $2.6 million increase in advertising to acquire
new subscribers for our
e-mail
products, a $2.1 million increase in marketing expenses for
Fly.com, and an $876,000 increase in advertising to
acquire traffic to our Web sites offset by a $1.0 million
decrease in brand marketing expenses and a $373,000 decrease in
trade and other marketing expenses.
Sales and marketing expenses for the year ended
December 31, 2008 increased to $43.3 million from
$40.5 million for the year ended December 31, 2007.
The $2.8 million increase in sales and marketing expense
for the year ended December 31, 2008 compared to the year
ended December 31, 2007 was primarily due to a
$3.1 million increase in salary and employee expenses and a
$936,000 increase in trade and other marketing expenses offset
by a $1.2 million decrease in brand marketing expenses.
27
The goal of our advertising campaigns is to acquire new
subscribers for our
e-mail
products, increase the traffic to our Web sites, and increase
brand awareness for Travelzoo and Fly.com. For the
years ended December 31, 2009, 2008, and 2007, advertising
expenses accounted for 61%, 59%, and 67% respectively, of sales
and marketing expenses. Advertising activities during these
three year periods consisted primarily of online advertising.
Our goal is to increase our revenues from advertising sales. One
important factor that drives our revenues is our advertising
rates. We believe that we can increase our advertising rates
only if the reach of our publications increases. In order to
increase the reach of our publications, we have to acquire a
significant number of new subscribers in every quarter and
continue to promote our brand. One significant factor that
impacts our advertising expenses is the average cost per
acquisition of a new subscriber. We believe that the average
cost per acquisition depends mainly on the advertising rates
which we pay for media buys, our ability to manage our
subscriber acquisition efforts successfully, and the degree of
competition in our industry.
In May 2005, we began operations in the U.K. In 2006, we began
operations in Canada, Germany, and Spain. In 2007, we began
operations in France. The continuing
build-up of
our business in Europe is expected to result in a relatively
high level of sales and marketing expense in the foreseeable
future.
General
and Administrative
General and administrative expenses consist primarily of
compensation for administrative, executive, and software
development staff, fees for professional services, rent, bad
debt expense, amortization of intangible assets and general
office expense. General and administrative expenses increased to
$24.9 million for the year ended December 31, 2009
from $21.4 million for the year ended December 31,
2008. The $3.6 million increase in general and
administrative expenses was primarily due to a $2.1 million
increase in salary and employee related expenses, a $686,000
increase in depreciation and amortization expense, and a
$137,000 increase in legal and professional services expense.
General and administrative expenses increased to
$21.4 million for the year ended December 31, 2008
from $13.7 million for the year ended December 31,
2007. The $7.6 million increase in general and
administrative expenses for the year ended December 31,
2008 compared to the year ended December 31, 2007 was
primarily due to a $4.1 million increase in salary and
employee related expenses, a $1.7 million increase in rent
and office expense, and a $1.3 million increase in
professional services expense.
We expect our headcount to continue to increase in the future.
The Companys headcount is one of the main drivers of
general and administrative expenses. Therefore, we expect our
general and administrative expenses to continue to increase.
Our strategy to replicate our business model in foreign markets
is expected to result in a significant additional increase in
our general and administrative expenses.
Subscriber
Acquisition
The table set forth below provides for each quarter in 2007,
2008, and 2009, an analysis of our average cost for acquisition
of new subscribers for our Travelzoo Top 20 newsletter
and our Newsflash
e-mail
alert service for our North America and Europe operating
segments.
The table includes the following data:
|
|
|
|
|
Average Cost per Acquisition of a New
Subscriber: This is the quarterly costs of
consumer marketing programs whose purpose was primarily to
acquire new subscribers, divided by total new subscribers added
during the quarter.
|
|
|
|
New Subscribers: Total new subscribers who
signed up for at least one of our
e-mail
publications throughout the quarter. This is an unduplicated
subscriber number, meaning a subscriber who signed up for two or
more of our publications is only counted once.
|
28
|
|
|
|
|
Subscribers Removed From List: Subscribers who
were removed from our lists throughout the quarter either as a
result of their requesting removal, or based on periodic list
maintenance after we determined that the
e-mail
address was likely no longer valid.
|
|
|
|
Balance: This is the number of subscribers at
the end of the quarter, computed by taking the previous
quarters subscriber balance, adding new subscribers during
the current quarter, and subtracting subscribers removed from
list during the current quarter.
|
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Cost per
|
|
|
|
Subscribers
|
|
|
|
|
|
|
Acquisition of a New
|
|
|
|
Removed from
|
|
|
|
|
Period
|
|
Subscriber
|
|
New Subscribers
|
|
List
|
|
Balance
|
|
|
|
Q1 2007
|
|
$
|
2.61
|
|
|
|
730,063
|
|
|
|
(345,896
|
)
|
|
|
10,611,505
|
|
|
|
|
|
Q2 2007
|
|
$
|
3.03
|
|
|
|
552,488
|
|
|
|
(335,304
|
)
|
|
|
10,828,689
|
|
|
|
|
|
Q3 2007
|
|
$
|
3.92
|
|
|
|
385,408
|
|
|
|
(255,008
|
)
|
|
|
10,959,089
|
|
|
|
|
|
Q4 2007
|
|
$
|
3.78
|
|
|
|
279,967
|
|
|
|
(242,822
|
)
|
|
|
10,996,234
|
|
|
|
|
|
Q1 2008
|
|
$
|
4.97
|
|
|
|
296,565
|
|
|
|
(270,427
|
)
|
|
|
11,022,372
|
|
|
|
|
|
Q2 2008
|
|
$
|
3.39
|
|
|
|
348,506
|
|
|
|
(303,623
|
)
|
|
|
11,067,255
|
|
|
|
|
|
Q3 2008
|
|
$
|
3.73
|
|
|
|
360,916
|
|
|
|
(292,052
|
)
|
|
|
11,136,119
|
|
|
|
|
|
Q4 2008
|
|
$
|
2.75
|
|
|
|
487,681
|
|
|
|
(341,057
|
)
|
|
|
11,282,743
|
|
|
|
|
|
Q1 2009
|
|
$
|
2.29
|
|
|
|
720,320
|
|
|
|
(259,537
|
)
|
|
|
11,743,526
|
|
|
|
|
|
Q2 2009
|
|
$
|
2.15
|
|
|
|
885,031
|
|
|
|
(277,439
|
)
|
|
|
12,351,118
|
|
|
|
|
|
Q3 2009
|
|
$
|
1.80
|
|
|
|
1,076,367
|
|
|
|
(418,417
|
)
|
|
|
13,009,068
|
|
|
|
|
|
Q4 2009
|
|
$
|
1.61
|
|
|
|
619,831
|
|
|
|
(380,626
|
)
|
|
|
13,248,273
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Cost per
|
|
|
|
Subscribers
|
|
|
|
|
|
|
Acquisition of a New
|
|
|
|
Removed from
|
|
|
|
|
Period
|
|
Subscriber
|
|
New Subscribers
|
|
List
|
|
Balance
|
|
|
|
Q1 2007
|
|
$
|
3.89
|
|
|
|
159,439
|
|
|
|
(31,350
|
)
|
|
|
783,379
|
|
|
|
|
|
Q2 2007
|
|
$
|
4.43
|
|
|
|
206,003
|
|
|
|
(39,690
|
)
|
|
|
949,692
|
|
|
|
|
|
Q3 2007
|
|
$
|
2.96
|
|
|
|
331,903
|
|
|
|
(32,689
|
)
|
|
|
1,248,906
|
|
|
|
|
|
Q4 2007
|
|
$
|
5.85
|
|
|
|
165,781
|
|
|
|
(33,357
|
)
|
|
|
1,381,330
|
|
|
|
|
|
Q1 2008
|
|
$
|
3.90
|
|
|
|
362,417
|
|
|
|
(45,152
|
)
|
|
|
1,698,595
|
|
|
|
|
|
Q2 2008
|
|
$
|
4.89
|
|
|
|
226,156
|
|
|
|
(31,055
|
)
|
|
|
1,893,696
|
|
|
|
|
|
Q3 2008
|
|
$
|
4.52
|
|
|
|
253,961
|
|
|
|
(38,418
|
)
|
|
|
2,109,239
|
|
|
|
|
|
Q4 2008
|
|
$
|
3.32
|
|
|
|
160,172
|
|
|
|
(46,736
|
)
|
|
|
2,222,675
|
|
|
|
|
|
Q1 2009
|
|
$
|
3.09
|
|
|
|
295,450
|
|
|
|
(40,542
|
)
|
|
|
2,477,583
|
|
|
|
|
|
Q2 2009
|
|
$
|
2.74
|
|
|
|
408,026
|
|
|
|
(52,491
|
)
|
|
|
2,833,118
|
|
|
|
|
|
Q3 2009
|
|
$
|
3.53
|
|
|
|
541,509
|
|
|
|
(99,396
|
)
|
|
|
3,275,231
|
|
|
|
|
|
Q4 2009
|
|
$
|
3.97
|
|
|
|
443,280
|
|
|
|
(117,519
|
)
|
|
|
3,600,992
|
|
|
|
|
|
In North America, we have noted a general trend of decreasing
average cost per acquisition of a new subscriber
(CPA) over the last five quarters after a period of
increasing CPA. The recent quarterly decreases in CPA reflect
the effects of new advertising campaigns and decreases in
advertising rates by our media suppliers. We do not consider the
decrease in CPA to be indicative of a longer-term trend or to
indicate that our CPA is likely to stay at this level or is
likely to decrease further.
In Europe, we see a large fluctuation in the CPA. The average
cost fluctuates from quarter to quarter and from country to
country. The decline in CPA in Europe in Q4 2008 reflects the
change in the exchange rates between Q3 2008 and Q4 2008 and
accounted for $0.51 of the decrease in the CPA. In Q4 2009, a
higher proportion of the total subscribers we acquired were in
Germany, where historically, the acquisition costs have been
higher compared to
29
the other countries in Europe. This was the primary reason for
the increase in the CPA in Q4 2009 compared to Q3 2009.
Future increases in CPA are likely to result in higher absolute
marketing expenses and potentially higher relative marketing
expenses as a percentage of revenue. Going forward, we expect
continued upward pressure on online advertising rates and
continued activity from competitors, which will likely increase
our CPA over the long term. The effect on operations is that
greater absolute and relative marketing expenditure may be
necessary to continue to grow the reach of our publications.
However, it is possible that the factors driving subscriber
acquisition cost increases can be partially or completely offset
by new or improved methods of subscriber acquisition using
techniques which are under evaluation.
Segment
Information
We have presented the business segments based on our
organizational structure as of December 31, 2009.
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In thousands)
|
|
Net revenues
|
|
$
|
77,967
|
|
|
$
|
71,339
|
|
|
$
|
73,232
|
|
Income from operations
|
|
|
19,227
|
|
|
|
21,118
|
|
|
|
28,959
|
|
Income from operations as % of revenues
|
|
|
25
|
%
|
|
|
30
|
%
|
|
|
40
|
%
|
In North America, revenues increased $6.6 million or 9% in
the year ended December 31, 2009 compared to the year ended
December 31, 2008 (see Revenues above). Income
from operations for North America as a percentage of revenue in
the year ended December 31, 2009 decreased by
5 percentage points compared to the prior year. This was
primarily due to approximately 3 percentage point increase
in cost of revenues as a percentage of revenue in the year ended
December 31, 2009 compared to the prior year. Cost of
revenues for North America increased by $2.5 million to
$5.1 million for the year ended December 31, 2009 and
was primarily due to a $1.4 million increase in fees we
paid related to user searches on Fly.com, an $825,000
increase in depreciation and maintenance costs and a $314,000
increase in payments made to third-party partners of the
Travelzoo Network. Sales and marketing expenses increased
to $35.7 million for the year ended December 31, 2009
from $31.9 million for the year ended December 31,
2008. This $3.8 million decrease was primarily due to a
$2.0 million increase in marketing expenses for
Fly.com, a $1.3 million increase in advertising to
acquire traffic to our Web sites, a $1.3 million increase
in salary and employee related expenses, and a $1.1 million
increase in advertising to acquire new subscribers for our
e-mail
products offset by a $1.0 million decrease in brand
marketing expense and a $627,000 decrease in trade and other
marketing expenses. General and administrative expenses for
North America increased to $17.9 million for the year ended
December 31, 2009 from $15.7 million in the prior
year. This $2.2 million increase was primarily due to a
$799,000 increase in salary and employee related expenses, a
$645,000 increase in depreciation and amortization expense, and
a $379,000 increase in professional services expenses.
In North America, revenues decreased 3% in the year ended
December 31, 2008 compared to the year ended
December 31, 2007 (see Revenues above). Income
from operations for North America as a percentage of revenue in
the year ended December 31, 2008 decreased by
10 percentage points compared to the prior year. This was
primarily due to an 8 percentage point increase in general
and administrative expenses as a percentage of revenue in the
year ended December 31, 2008 compared to the prior year.
General and administrative expenses for North America increased
to $15.7 million for the year ended December 31, 2008
compared to $10.5 million in the prior year. This
$5.2 million increase was primarily due to a
$3.3 million increase in salary and employee related
expenses, a $1.3 million increase in rent and office
expense, and a $1.0 million increase in professional
services expenses. Sales and marketing expenses decreased to
$31.9 million for the year ended December 31, 2008
from $32.9 million for the year ended December 31,
2007. This $1.0 million decrease was primarily due to a
$1.2 million decrease in brand marketing and a
$1.1 million decrease in advertising to acquire traffic to
our Web sites offset by a $1.2 million increase in salary
expenses.
30
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In thousands)
|
|
Net revenues
|
|
$
|
16,339
|
|
|
$
|
9,623
|
|
|
$
|
5,856
|
|
Loss from operations
|
|
|
(5,463
|
)
|
|
|
(7,809
|
)
|
|
|
(5,172
|
)
|
Loss from operations as % of revenues
|
|
|
33
|
%
|
|
|
81
|
%
|
|
|
88
|
%
|
In Europe, revenues increased by $6.7 million or 70% in the
year ended December 31, 2009 compared to the year ended
December 31, 2008 (see Revenues above). Our
loss from operations in Europe was $5.5 million in the year
ended December 31, 2009 compared to $7.8 million in
the year ended December 31, 2008. The $6.7 million
increase in revenues was offset by a $2.6 million increase
in sales and marketing expenses and a $1.5 million increase
in general and administrative expenses. The $2.6 million
increase in sales and marketing expenses was due primarily to a
$1.5 million increase in advertising to acquire new
subscribers for our
e-mail
products and a $1.1 million increase in salary and employee
related expenses offset by a $437,000 decrease in advertising to
acquire traffic to our Web sites. The $1.5 million increase
in general and administrative expenses was due primarily to a
$1.4 million increase in salary and employee related
expenses. The strengthening of the U.S. dollar relative to
the British Pound Sterling had a favorable impact on the loss
from our operations in Europe. Had foreign exchange rates
remained constant in these periods, the loss from our operations
in Europe for the year ended December 31, 2009 would have
been approximately $177,000 higher.
In Europe, revenues increased by $3.8 million or 64% in the
year ended December 31, 2008 compared to the year ended
December 31, 2007 (see Revenues above). Our
loss from operations in Europe was $7.8 million in the year
ended December 31, 2008 compared to $5.2 million in
the year ended December 31, 2007. The $3.8 million
increase in revenues was offset by a $3.7 million increase
in sales and marketing expenses and a $2.4 million increase
in general and administrative expenses. The $3.7 million
increase in sales and marketing expenses was due primarily to a
$1.9 million increase in salary expense, a $769,000
increase in advertising to acquire traffic to our Web sites, and
a $714,000 increase in advertising to acquire new subscribers
for our
e-mail
products. The $2.4 million increase in general and
administrative expenses was due primarily to an $873,000
increase in salary and employee related expenses, a $444,000
increase in rent and office expenses, a $375,000 increase in
intercompany charges, and a $302,000 increase in professional
services expense.
Interest
Income
For the years ended December 31, 2009 and 2008, interest
income consisted primarily of interest earned on cash, cash
equivalents and restricted cash. For the year ended
December 31, 2007, interest income consisted primarily of
interest earned on cash and cash equivalents. Our interest
income decreased to $49,000 for the year ended December 31,
2009 from $284,000 for the year ended December 31, 2008 due
primarily to lower interest rates. Our interest income decreased
to $284,000 for the year ended December 31, 2008 from
$1.3 million for the year ended December 31, 2007 due
primarily to lower interest rates and less cash and cash
equivalents.
Income
Taxes
For the year ended December 31, 2009, we recorded an income
tax expense from continuing operations of $7.3 million. For
the years ended December 31, 2008 and 2007, we recorded
income tax expense from continuing operations of
$8.2 million and $13.1 million, respectively. Our
effective tax rates from continuing operations for 2009, 2008
and 2007 were 53%, 58% and 52%, respectively. For the years
ended December 31, 2009 and December 31, 2008, we
recorded reductions of $39,000 and $421,000 of income tax
expense, respectively, related to the reversal of tax
liabilities previously recorded for uncertain tax positions,
respectively. Our income is generally taxed in the U.S. and
our income tax provisions reflect federal and state statutory
rates applicable to our levels of income, adjusted to take into
account expenses that are treated as having no recognizable tax
benefit. Our effective tax rate decreased in 2009 compared to
2008 due primarily to the decrease in losses from our Europe
business segment which was treated as having no recognizable tax
benefit. Our effective tax rate increased in 2008 compared
31
to 2007 due primarily to the increase in losses from our Europe
business segment which was treated as having no recognizable tax
benefit.
We expect that our effective tax rate in future periods may
fluctuate depending on the total amount of expenses representing
payments to former stockholders, losses or gains incurred by our
operations in Canada and Europe, and corresponding U.S. tax
credits, if any.
During the year ended December 31, 2008, the Company
realized tax benefits of $110,000 upon the exercise of stock
options by Ralph Bartel. The tax benefit reduced the
Companys income tax payable and increased additional
paid-in capital by this amount.
In January 2009, the Internal Revenue Service issued a Notice of
Proposed Adjustment contesting the Companys tax deductions
in 2005 and 2006 related to the program under which the Company
made cash payments to people who established that they were
former stockholders of Travelzoo.com Corporation, and who failed
to submit requests to convert shares into Travelzoo Inc. within
the required time period. The Company does not agree with the
Notice of Proposed Adjustment and started discussions with the
Appeals Division of the IRS in February 2010. If the Company
were to agree with the Notice of Proposed Adjustment, the result
would be an additional payment of approximately $590,000, plus
interest. The Company believes it has adequately provided for
this matter in the balance of our long-term tax liabilities and
it is not expected to have a material impact on the
Companys results of operations.
Discontinued
Operations
On October 31, 2009, we completed the sale of our Asia
Pacific operating segment to Azzurro Capital Inc. and its
wholly-owned subsidiaries, Travelzoo (Asia) Limited and
Travelzoo Japan K.K. The results of operations of the Asia
Pacific operating segment have been classified as discontinued
operations for all periods presented. We received
$2.1 million, net of cash provided, and have a net
receivable from Travelzoo (Asia) Limited and Travelzoo Japan
K.K. of $1.1 million. We realized a gain of
$3.4 million related to the sale of the net assets of the
Asia Pacific business segment to Azzurro Capital Inc. The
resulting gain on the sale is reflected as an addition to
additional paid-in capital as both the Company and Azzurro
Capital Inc. are under the common control of Ralph Bartel. We
recorded a tax benefit of $4.4 million in discontinued
operations for the tax benefit associated with the loss on
investments in the Asia Pacific subsidiaries as a result of
their dissolution.
Liquidity
and Capital Resources
As of December 31, 2009 we had $19.8 million in cash
and cash equivalents. Cash and cash equivalents increased from
$14.2 million on December 31, 2008 primarily as a
result of cash provided by operating activities and financing
activities as explained below. We expect that cash on hand will
be sufficient to provide for working capital needs for at least
the next 12 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
5,125
|
|
|
$
|
(3,325
|
)
|
|
$
|
9,894
|
|
Net cash used in investing activities
|
|
|
(3,752
|
)
|
|
|
(4,742
|
)
|
|
|
(663
|
)
|
Net cash provided by (used in) financing activities
|
|
|
4,219
|
|
|
|
185
|
|
|
|
(19,822
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
5
|
|
|
|
(580
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
5,597
|
|
|
$
|
(8,462
|
)
|
|
$
|
(10,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by or used in operating activities is net income
or net loss adjusted for certain non-cash items and changes in
assets and liabilities. Net cash provided by operating
activities during the year ended December 31, 2009
increased by $8.5 million compared to the year ended
December 31, 2008. The increase in cash provided by
operating activities was due primarily to a decrease in cash
used in our operations in Europe and a decrease in cash used in
our operations in Asia Pacific during the first 10 months
of fiscal year ended December 31, 2009. As the
international expansion started to generate more revenue in year
ended December 31, 2009, net cash used in
32
operating activities in Europe and Asia Pacific started to
decrease compared to prior year. Net cash used in operating
activities during the year ended December 31, 2008
increased by $13.2 million compared to the year ended
December 31, 2007. The increase in cash used in operating
activities was due primarily to increases in cash used in our
operations in Asia Pacific and Europe and a decrease in cash
provided by our operations in North America.
Net cash used in investing activities was $3.8 million for
the year ended December 31, 2009 compared $4.7 million
for the year ended December 31, 2008. The $1.0 million
decrease in net cash used in investing activities was primarily
due to a $1.9 million decrease in purchases of property and
equipment and an $875,000 decrease in the purchase of restricted
cash, offset by $1.8 million of cash used to purchase the
fly.com domain name. The $1.9 million decrease in purchases
of property and equipment was primarily due to decreases in
capitalized internal-use software and Web site development costs
associated with Fly.com. Net cash used in investing
activities was $4.7 million for the year ended
December 31, 2008 compared to $663,000 for the year ended
December 31, 2007. The $4.1 million increase in net
cash used in investing activities was due primarily to a
$3.2 million increase in purchases of property and
equipment during the year ended December 31, 2008 and
$875,000 used to purchase a certificate of deposit which is
restricted because it serves as the collateral for a standby
letter of credit for the security deposit of our corporate
headquarters. The increase in purchases of property and
equipment was due primarily to capitalized internal-use software
and Web site development costs, leasehold improvements and
office furniture purchased for new offices in North America, and
computers and equipment purchased for a new data center.
Net cash provided by financing activities was $4.2 million
for the year ended December 31, 2009. Net cash provided by
and used in financing activities was $185,000 and
$19.8 million for the years ended December 31, 2008
and 2007, respectively. The net cash provided by financing
activities in the year ended December 31, 2009 was from the
cash received from the sale of our Asia Pacific business segment
and the cash received from the exercise of stock options. The
net cash provided by financing activities in the year ended
December 31, 2008 was due to the exercise of stock options.
The net cash used in the year ended December 31, 2007 was
due to the repurchase of 1 million shares of common stock
totaling $19.8 million.
Our capital requirements depend on a number of factors,
including market acceptance of our products and services, the
amount of our resources we devote to development of new
products, cash payments to former stockholders of Travelzoo.com
Corporation, expansion of our operations, and the amount of our
resources we devote to promoting awareness of the Travelzoo
brand. Since the inception of the program under which we
would make cash payments to people who establish that they were
former stockholders of Travelzoo.com Corporation, and who failed
to submit requests to convert shares into Travelzoo Inc. within
the required time period, we have incurred expenses of
$2.7 million. While future payments for this program are
expected to decrease, the total cost of this program is still
undeterminable because it is dependent on our stock price and on
the number of valid requests ultimately received. Consistent
with our growth, we have experienced a substantial increase in
our sales and marketing and general and administrative expenses,
and we anticipate that these increases will continue for the
foreseeable future. We believe cash on hand will be sufficient
to pay such costs. In addition, we will continue to evaluate
possible investments in businesses, products and technologies,
the consummation of any of which would increase our capital
requirements.
Although we currently believe that we have sufficient capital
resources to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months,
unanticipated events or a less favorable than expected
development of our business in Europe may require us to sell
additional equity or debt securities or establish credit
facilities to raise capital in order to meet our capital
requirements.
If we sell additional equity or convertible debt securities, the
sale could dilute the ownership of our existing stockholders. If
we issue debt securities or establish a credit facility, our
fixed obligations could increase, and we may be required to
agree to operating covenants that would restrict our operations.
We cannot be sure that any such financing will be available in
amounts or on terms acceptable to us.
If the development of our business in Europe is less favorable
than expected, we may decide to significantly reduce the size of
our operations and marketing expenses in these markets with the
objective of reducing cash outflow. In the year ended
December 31, 2009, cash used in operating activities in
Europe was $3.2 million.
33
On October 31, 2009, the Company completed the sale of its
Asia Pacific operating segment to Azzurro Capital Inc. pursuant
to the terms of the Asset Purchase Agreements. The results of
operations of the Asia Pacific operating segment have been
classified as discontinued operations for all periods presented.
The Company will not have significant ongoing involvement with
the operations of the Asia Pacific operating segment and will
not have any economic interests in the Asia Pacific operating
segment after the sale is completed. For 10 months ended
October 31, 2009, cash used in operating activities in Asia
Pacific was $3.4 million. Further information concerning
the transaction is provided in the Companys reports on
Form 8-K
filed on October 5 and November 3, 2009 and in Note 11
to the accompanying consolidated financial statements.
The following summarizes our principal contractual commitments
as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Total
|
|
|
Operating lease obligations
|
|
$
|
3,894
|
|
|
$
|
2,923
|
|
|
$
|
2,033
|
|
|
$
|
1,924
|
|
|
$
|
161
|
|
|
$
|
10,935
|
|
Purchase obligations
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
5,099
|
|
|
$
|
2,923
|
|
|
$
|
2,033
|
|
|
$
|
1,924
|
|
|
$
|
161
|
|
|
$
|
12,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We also have contingencies related to net unrecognized tax
benefits of approximately $2.0 million as of
December 31, 2009, which we are unable to make reasonably
reliable estimates on the timing of the cash settlements with
the respective taxing authorities.
Growth
Strategy
Our growth strategy has three main elements:
|
|
|
|
|
International expansion: We want to grow our
revenue and operating profit through replicating the
Travelzoo business in attractive international markets in
Europe and in North America. We want to develop a strong
competitive position through building a strong global brand and
unique global content.
|
|
|
|
Expand scope of Travelzoo business: We want to
grow our revenue and operating profit through expanding the
Travelzoo product offerings and content into
entertainment (e.g., Broadway shows, sporting events).
|
|
|
|
Fly.com: We want to grow revenue and operating
profits through building up Fly.com, our new meta-search
engine for airfares. We have identified meta-search as an
opportunity with attractive economics and great synergies with
Travelzoo.
|
We launched the Travelzoo business in the U.K. in 2005,
in Canada in 2006, in Germany in 2006, in France in 2007, and in
Spain in 2008. We began developing and offering entertainment
content and related advertising services in 2008. We launched
Fly.com in February 2009.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued a new accounting standard which
establishes a framework for measuring the fair value of assets
and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some
cases require, estimates of fair market value. The new
accounting standard became effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. Effective January 1, 2009, we adopted a new
FASB Staff Position (FSP) which delayed the
effective date of fair value measurement for all non-financial
assets and non-financial liabilities, except those recognized or
disclosed at fair value in the financial statements on a
recurring basis, until the beginning of the first quarter of
fiscal 2009. The adoption of the new FASB staff position did not
have a material impact on our consolidated results of operations
or financial condition.
Effective January 1, 2009, we adopted a new FASB Staff
Position relating to determination of the useful life of
intangible assets, which amends the factors an entity should
consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets.
This guidance applies prospectively to intangible assets that
are acquired individually or with a group of other assets in
business combinations and asset acquisitions. Under this new
FASB Staff Position, entities which estimate the useful life of
a recognized intangible asset must consider their historical
experience in renewing or extending similar arrangements or, in
the absence of
34
historical experience, must consider assumptions that market
participants would use about renewal or extension. The adoption
of this standard did not have an impact on our consolidated
results of operations or financial condition.
In April 2009, the FASB issued a new FASB staff position
relating to interim disclosures about fair value of financial
instruments, which require an entity to provide interim
disclosures about the fair value of all financial instruments
and to include disclosures related to the methods and
significant assumptions used in estimating those instruments.
This FSP was effective for interim and annual periods ending
after June 15, 2009. The adoption of these pronouncements
did not have a material impact on our consolidated results of
operations or financial condition.
In May 2009, the FASB issued a new accounting standard relating
to subsequent events, which is effective for interim and annual
periods ending after June 15, 2009. This new accounting
standard is intended to establish general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. In particular, this new accounting
standard sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition
or disclosure in the financial statements and the circumstances
under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements. Effective June 30, 2009, we adopted this new
accounting standard. The adoption of this standard did not have
a material impact on our consolidated results of operations or
financial condition.
In June 2009, the FASB issued a new accounting standard that
changes the consolidation model for variable interest entities,
which is effective for interim and annual reporting periods
beginning after November 15, 2009. Earlier adoption is
prohibited. The new accounting standard requires a company to
perform qualitative analysis when determining whether it must
consolidate a variable interest entity and ongoing reassessments
to determine if a company must consolidate a variable interest
entity. The new accounting standard also requires a company to
provide additional disclosures about its involvement with
variable interest entities, any significant changes in risk
exposure due to that involvement and how its involvement with a
variable interest entity affects the companys financial
statements. A company will also be required to disclose any
significant judgments and assumptions made in determining
whether it must consolidate a variable interest entity. We are
currently assessing the future impact of this new accounting
standard on our consolidated results of operations and financial
condition.
In June 2009, the FASB issued ASU
2009-01,
Generally Accepted Accounting Principles (ASU
2009-01).
ASU 2009-01
established The FASB Accounting Standards
Codification, or Codification, which became the single
source of authoritative GAAP recognized by the FASB to be
applied by nongovernmental entities. On the effective date, the
Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will
become non-authoritative. ASU
2009-01 is
effective for interim and annual periods ending after
September 15, 2009. We adopted the provisions of ASU
2009-01 for
the period ended September 30, 2009. There was no material
impact on our consolidated results of operations, financial
condition or cash flows.
In August 2009, the FASB issued ASU
2009-05, a
new accounting standard update regarding the measurement of
liabilities at fair value. This standard update provides
techniques to use in measuring fair value of a liability in
circumstances in which a quoted price in an active market for
the identical liability is not available. This standard update
is effective prospectively for all interim and annual reporting
periods upon issuance. Effective August 2009, we adopted this
new accounting standard update. The adoption of this new
accounting standard update did not have a material impact on our
consolidated results of operations or financial condition.
In October 2009, the FASB issued ASU
2009-13, a
new accounting standard update for revenue recognition with
multiple deliverables. The new accounting standard update
defines when individual deliverables included in a
multiple-element arrangement may be treated as separate units of
accounting. The update primarily provides two significant
changes: 1) eliminates the need for objective and reliable
evidence of the fair value for the undelivered element in order
for a delivered item to be treated as a separate unit of
accounting, and 2) eliminates the residual method to
allocate the arrangement consideration. In addition, the update
also expands the disclosure requirements for revenue
recognition. The new accounting standard update will be
effective for us January 1, 2011, with early adoption
permitted. We are currently assessing the future impact of this
new accounting standard on our consolidated results of
operations and financial condition.
35
In January 2010, the FASB issued ASU
2010-06, a
new accounting standard which requires reporting entities to
make new disclosures about recurring or nonrecurring fair-value
measurements including significant transfers into and out of
Level 1 and Level 2 fair value measurements and
information on purchases, sales, issuances, and settlements on a
gross basis in the reconciliation of Level 3 fair value
measurements. The guidance is effective for annual reporting
periods beginning after December 15, 2009, except for
Level 3 reconciliation disclosures that are effective for
annual periods beginning after December 15, 2010. We do not
expect the adoption of this new accounting standard to have a
material impact on our consolidated results of operations or
financial condition.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We believe that our potential exposure to changes in market
interest rates is not material. The Company has no outstanding
debt and is not a party to any derivatives transactions. We
invest in highly liquid investments with short maturities.
Accordingly, we do not expect any material loss from these
investments.
Our operations in Canada expose us to foreign currency risk
associated with agreements being denominated in Canadian
Dollars. Our operations in Europe expose us to foreign currency
risk associated with agreements being denominated in British
Pound Sterling and Euros. We are exposed to foreign currency
risk associated with fluctuations of these currencies as the
financial position and operating results of our operations in
Canada and Europe will be translated into U.S. Dollars for
consolidation purposes. We do not use derivative instruments to
hedge these exposures. We are a net receiver of
U.S. Dollars from our foreign subsidiaries and therefore
benefit from a weaker U.S. dollar and are adversely
affected by a stronger U.S. dollar relative to the foreign
currency used by the foreign subsidiary as their functional
currency. We have performed a sensitivity analysis as of
December 31, 2009, using a modeling technique that measures
the change in the fair values arising from a hypothetical 10%
adverse movement in the levels of applicable foreign currency
exchange rates relative to the U.S. dollar with all other
variables held constant. The foreign currency exchange rates we
used were based on market rates in effect at December 31,
2009. The sensitivity analysis indicated that a hypothetical 10%
adverse movement in such foreign currency exchange rates would
have resulted in an incremental $296,000 foreign exchange loss
for the twelve month period ended December 31, 2009.
36
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
TRAVELZOO
INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
37
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Stockholders
Travelzoo Inc.:
We have audited the accompanying consolidated balance sheets of
Travelzoo Inc. and subsidiaries (Travelzoo) as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2009. We
also have audited Travelzoos internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Travelzoos management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
managements report. Our responsibility is to express an
opinion on these consolidated financial statements and an
opinion on Travelzoos internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Travelzoo Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, Travelzoo maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by COSO.
Mountain View, California
March 16, 2010
38
TRAVELZOO
INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,776
|
|
|
$
|
14,179
|
|
Accounts receivable, less allowance for doubtful accounts of
$501 and $357 at 2009 and 2008, respectively
|
|
|
11,279
|
|
|
|
11,397
|
|
Income tax receivable
|
|
|
6,061
|
|
|
|
1,709
|
|
Deposits
|
|
|
139
|
|
|
|
185
|
|
Prepaid expenses and other current assets
|
|
|
1,103
|
|
|
|
647
|
|
Deferred tax assets
|
|
|
966
|
|
|
|
1,089
|
|
Assets held for sale
|
|
|
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
39,324
|
|
|
|
30,037
|
|
Deposits, less current portion
|
|
|
381
|
|
|
|
292
|
|
Deferred tax assets, less current portion
|
|
|
52
|
|
|
|
|
|
Restricted cash
|
|
|
875
|
|
|
|
875
|
|
Property and equipment, net
|
|
|
4,089
|
|
|
|
4,100
|
|
Intangible assets, net
|
|
|
1,411
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
46,132
|
|
|
$
|
35,322
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,834
|
|
|
$
|
6,434
|
|
Accrued expenses
|
|
|
4,278
|
|
|
|
3,913
|
|
Deferred revenue
|
|
|
828
|
|
|
|
666
|
|
Deferred rent
|
|
|
134
|
|
|
|
101
|
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
1,281
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,074
|
|
|
|
12,395
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
533
|
|
|
|
465
|
|
Long-term tax liabilities
|
|
|
2,139
|
|
|
|
900
|
|
Deferred rent, less current portion
|
|
|
615
|
|
|
|
799
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share
(5,000 shares authorized; none issued)
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share (40,000 shares
authorized; 16,444 and 14,285 shares issued and outstanding
at 2009 and 2008, respectively)
|
|
|
164
|
|
|
|
143
|
|
Additional paid-in capital
|
|
|
4,772
|
|
|
|
185
|
|
Retained earnings
|
|
|
27,008
|
|
|
|
21,823
|
|
Accumulated other comprehensive loss
|
|
|
(1,173
|
)
|
|
|
(1,388
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
30,771
|
|
|
|
20,763
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
46,132
|
|
|
$
|
35,322
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
39
TRAVELZOO
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
93,973
|
|
|
$
|
80,817
|
|
|
$
|
78,904
|
|
Cost of revenues
|
|
|
5,628
|
|
|
|
2,842
|
|
|
|
957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
88,345
|
|
|
|
77,975
|
|
|
|
77,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
49,707
|
|
|
|
43,297
|
|
|
|
40,526
|
|
General and administrative
|
|
|
24,930
|
|
|
|
21,366
|
|
|
|
13,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
74,637
|
|
|
|
64,663
|
|
|
|
54,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
13,708
|
|
|
|
13,312
|
|
|
|
23,679
|
|
Interest income and other income
|
|
|
61
|
|
|
|
284
|
|
|
|
1,302
|
|
Gain (loss) on foreign currency
|
|
|
(78
|
)
|
|
|
494
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
13,691
|
|
|
|
14,090
|
|
|
|
25,161
|
|
Income tax expense
|
|
|
7,273
|
|
|
|
8,177
|
|
|
|
13,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6,418
|
|
|
|
5,913
|
|
|
|
12,108
|
|
Loss from discontinued operations, net of tax
|
|
|
(5,642
|
)
|
|
|
(10,029
|
)
|
|
|
(2,999
|
)
|
Income tax benefit related to dissolution of Asia Pacific
business segment
|
|
|
4,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(1,233
|
)
|
|
|
(10,029
|
)
|
|
|
(2,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
5,185
|
|
|
$
|
(4,116
|
)
|
|
$
|
9,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.41
|
|
|
$
|
0.82
|
|
Discontinued operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.20
|
)
|
Net income (loss)
|
|
$
|
0.32
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.61
|
|
Diluted net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
$
|
0.75
|
|
Discontinued operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.19
|
)
|
Net income (loss)
|
|
$
|
0.32
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.57
|
|
Shares used in computing basic net income (loss) per share
|
|
|
16,408
|
|
|
|
14,273
|
|
|
|
14,847
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
16,416
|
|
|
|
16,190
|
|
|
|
16,074
|
|
See accompanying notes to consolidated financial statements
40
TRAVELZOO
INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balances, December 31, 2006
|
|
|
15,250
|
|
|
$
|
153
|
|
|
|
|
|
|
$
|
2,076
|
|
|
$
|
34,566
|
|
|
$
|
22
|
|
|
$
|
36,817
|
|
Repurchase of common stock
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(19,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,822
|
)
|
Retirement of common stock
|
|
|
|
|
|
|
(10
|
)
|
|
|
19,822
|
|
|
|
(2,076
|
)
|
|
|
(17,736
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202
|
)
|
|
|
(202
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,109
|
|
|
|
|
|
|
|
9,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
14,250
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
25,939
|
|
|
|
(180
|
)
|
|
|
25,902
|
|
Proceeds from exercise of stock options
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Tax benefit of non-qualified stock option exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,208
|
)
|
|
|
(1,208
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,116
|
)
|
|
|
|
|
|
|
(4,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
14,285
|
|
|
|
143
|
|
|
|
|
|
|
|
185
|
|
|
|
21,823
|
|
|
|
(1,388
|
)
|
|
|
20,763
|
|
Proceeds from exercises of stock options
|
|
|
2,158
|
|
|
|
21
|
|
|
|
|
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
2,158
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Capital contribution from majority shareholder, net of
receivable of $1.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
2,356
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
215
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,185
|
|
|
|
|
|
|
|
5,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
16,444
|
|
|
$
|
164
|
|
|
$
|
|
|
|
$
|
4,772
|
|
|
$
|
27,008
|
|
|
$
|
(1,173
|
)
|
|
$
|
30,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
41
TRAVELZOO
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,185
|
|
|
$
|
(4,116
|
)
|
|
$
|
9,109
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,992
|
|
|
|
667
|
|
|
|
193
|
|
Deferred income taxes
|
|
|
139
|
|
|
|
769
|
|
|
|
584
|
|
Stock-based compensation
|
|
|
94
|
|
|
|
|
|
|
|
|
|
Provision for losses on accounts receivable
|
|
|
258
|
|
|
|
316
|
|
|
|
(48
|
)
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
Foreign currency translation loss related to dissolution of Asia
Pacific business segment
|
|
|
110
|
|
|
|
|
|
|
|
|
|
Net foreign currency effects
|
|
|
78
|
|
|
|
(500
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(197
|
)
|
|
|
(2,443
|
)
|
|
|
(2,614
|
)
|
Deposits
|
|
|
(15
|
)
|
|
|
25
|
|
|
|
(300
|
)
|
Income tax receivable
|
|
|
(4,352
|
)
|
|
|
(1,709
|
)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(357
|
)
|
|
|
1,059
|
|
|
|
(1,465
|
)
|
Accounts payable
|
|
|
877
|
|
|
|
1,054
|
|
|
|
2,110
|
|
Accrued expenses
|
|
|
77
|
|
|
|
877
|
|
|
|
2,404
|
|
Deferred revenue
|
|
|
160
|
|
|
|
314
|
|
|
|
(302
|
)
|
Deferred rent
|
|
|
(163
|
)
|
|
|
828
|
|
|
|
109
|
|
Income tax payable
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Other non-current liabilities
|
|
|
1,239
|
|
|
|
(356
|
)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
5,125
|
|
|
|
(3,325
|
)
|
|
|
9,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,992
|
)
|
|
|
(3,867
|
)
|
|
|
(627
|
)
|
Purchases of restricted cash
|
|
|
|
|
|
|
(875
|
)
|
|
|
|
|
Purchases of intangible assets
|
|
|
(1,760
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,752
|
)
|
|
|
(4,742
|
)
|
|
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
2,158
|
|
|
|
75
|
|
|
|
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
110
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(19,822
|
)
|
Proceeds from sale of Asia Pacific business segment, net of cash
provided
|
|
|
2,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
4,219
|
|
|
|
185
|
|
|
|
(19,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
5
|
|
|
|
(580
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,597
|
|
|
|
(8,462
|
)
|
|
|
(10,774
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
14,179
|
|
|
|
22,641
|
|
|
|
33,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
19,776
|
|
|
$
|
14,179
|
|
|
$
|
22,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds received
|
|
$
|
5,760
|
|
|
$
|
8,193
|
|
|
$
|
13,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
42
TRAVELZOO
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008, and 2007
|
|
(1)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
The
Company and Basis of Presentation
|
Travelzoo Inc. (the Company or
Travelzoo) is a global Internet media company. We
inform over 18 million subscribers worldwide, as well as
millions of Web site users, about the best travel and
entertainment deals available from thousands of companies. We
publish these offers by sourcing, researching, test-booking, and
selecting offers professionally. We provide airlines, hotels,
cruise lines, vacation packagers, and other travel and
entertainment companies with a fast, flexible, and cost
effective way to reach millions of consumers. Our revenues are
generated from advertising fees. Our publications and products
include the Travelzoo Web sites (www.travelzoo.com,
www.travelzoo.ca, www.travelzoo.co.uk, www.travelzoo.de,
www.travelzoo.com.es, www.travelzoo.fr, among others), the
Travelzoo Top 20
e-mail
newsletter, the Newsflash
e-mail
alert service, the SuperSearch
pay-per-click
travel search tool, and the Travelzoo Network, a network
of third-party Web sites that list deals published by Travelzoo.
We also operate Fly.com, a travel search engine that
allows users to quickly and easily find the best prices on
flights from hundreds of airlines and online travel agencies.
Starting November 1, 2009, the Travelzoo Web sites
in Asia Pacific (cn.travelzoo.com, www.travelzoo.co.jp,
www.travelzoo.com.au, www.travelzoo.com.hk,
www.travelzoo.com.tw, among others), the Travelzoo Top 20
e-mail
newsletters in Asia Pacific and the Newsflash
e-mail
alert service in Asia Pacific are published by Travelzoo (Asia)
Limited and Travelzoo Japan K.K., wholly owned subsidiaries of
Azzurro Capital Inc., under a license agreement with the Company.
Travelzoo is controlled by Ralph Bartel, who held beneficially
approximately 66.3% of the outstanding shares as of
February 26, 2010.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. All foreign subsidiaries use the local currency
of their respective countries as their functional currency.
Assets and liabilities are translated at exchange rates
prevailing at the balance sheet dates. Revenues, costs and
expenses are translated into U.S. dollars at average
exchange rates for the period.
Certain prior period amounts have been reclassified to conform
to current year presentation. Specifically, $1.1 million
for the year ended December 31, 2007 has been reclassified
from cost of revenues to general and administrative expense.
These amounts are primarily costs associated with salary and
benefits for software developers and professional services
related to software development. Additionally, as described in
Note 11, Discontinued Operations, the Company
has classified the financial results of its Asia Pacific
operating segment as discontinued operations for all periods
presented due to the sale of the assets of its Asia Pacific
subsidiaries, which constituted the Companys Asia Pacific
operating segment, to Travelzoo (Asia) Limited and Travelzoo
Japan K.K., wholly-owned subsidiaries of Azzurro Capital Inc.
The notes to the Companys consolidated financial
statements relate to continuing operations only, unless
otherwise indicated.
The Company was formed as a result of a combination and merger
of entities founded by the Companys majority stockholder,
Ralph Bartel. In 1998, Mr. Bartel founded Travelzoo.com
Corporation, a Bahamas corporation, which issued
5,155,874 shares via the Internet to approximately 700,000
Netsurfer stockholders for no cash consideration. In
1998, Mr. Bartel also founded Silicon Channels Corporation,
a California corporation, to operate the Travelzoo Web
site. During 2001, Travelzoo Inc. was formed as a subsidiary of
Travelzoo.com Corporation, and Mr. Bartel contributed all
of the outstanding shares of Silicon Channels Corporation to
Travelzoo Inc. in exchange for 8,129,273 shares of
Travelzoo Inc. and options to acquire an additional
2,158,349 shares at $1.00.
During January 2001, the Board of Directors of Travelzoo.com
Corporation proposed that Travelzoo.com Corporation be merged
with Travelzoo Inc. whereby Travelzoo Inc. would be the
surviving entity. On March 15,
43
2002, the stockholders of Travelzoo.com Corporation approved the
merger with Travelzoo Inc. On April 25, 2002, the
certificate of merger was filed in Delaware upon which the
merger became effective and Travelzoo.com Corporation ceased to
exist. Each outstanding share of common stock of Travelzoo.com
Corporation was converted into the right to receive one share of
common stock of Travelzoo Inc. Under and subject to the terms of
the merger agreement, stockholders were allowed period of two
years following the effective date of the merger to receive
shares of Travelzoo Inc. The records of Travelzoo.com
Corporation showed that, assuming all of the shares applied for
by the Netsurfer stockholders were validly issued, there were
11,295,874 shares of Travelzoo.com Corporation outstanding.
As of April 25, 2004, two years following the effective
date of the merger, 7,180,342 shares of Travelzoo.com
Corporation had been exchanged for shares of Travelzoo Inc.
Prior to that date, the remaining shares which were available
for issuance pursuant to the merger agreement were included in
the issued and outstanding common stock of Travelzoo Inc. and
included in the calculation of basic and diluted earnings per
share. After April 25, 2004, the Company ceased issuing
shares to the former stockholders of Travelzoo.com Corporation,
and no additional shares are reserved for issuance to any former
stockholders, because their right to receive shares has now
expired. On April 25, 2004, the number of shares reported
as outstanding was reduced from 19,425,147 to 15,309,615 to
reflect actual shares issued as of the expiration date. Earnings
per share calculations reflect this reduction of the number of
shares reported as outstanding. As of December 31, 2009,
there were 16,443,828 shares of common stock outstanding.
It is possible that claims may be asserted against the Company
in the future by former stockholders of Travelzoo.com
Corporation seeking to receive shares in the Company, whether
based on a claim that the two-year deadline for exchanging their
shares was unenforceable or otherwise. In addition, one or more
jurisdictions, including the Bahamas or the State of Delaware,
may assert rights to unclaimed shares of the Company under
escheat statutes. If such escheat claims are asserted, the
Company intends to challenge the applicability of escheat
rights, in that, among other reasons, the identity, residency
and eligibility of the holders in question cannot be determined.
There were certain conditions applicable to the issuance of
shares to the Netsurfer stockholders, including requirements
that (i) they be at least 18 years of age,
(ii) they be residents of the U.S. or Canada and
(iii) they not apply for shares more than once. The
Netsurfer stockholders were required to confirm their compliance
with these conditions, and were advised that failure to comply
could result in cancellation of their shares in Travelzoo.com
Corporation. Travelzoo.com Corporation was not able to verify
that the applicants met the requirements referred to above at
the time of their applications for issuance of shares. If claims
are asserted by persons claiming to be former stockholders of
Travelzoo.com Corporation, the Company intends to assert that
their rights to receive their shares expired two years following
the effective date of the merger, as provided in the merger
agreement. The Company also expects to take the position, if
escheat or similar claims are asserted in respect of the
unissued shares in the future, that it is not required to issue
such shares. Further, even if it were established that unissued
shares were subject to escheat claims, the Company would assert
that the claimant must establish that the original Netsurfer
stockholders complied with the conditions to issuance of their
shares. The Company is not able to predict the outcome of any
future claims which might be asserted relating to the unissued
shares. If such claims were asserted, and were fully successful,
that could result in the Companys being required to issue
up to an additional approximately 4,068,000 shares of
common stock for no additional payment.
On October 15, 2004, the Company announced a program under
which it would make cash payments to people who establish that
they were former stockholders of Travelzoo.com Corporation, and
who failed to submit requests to convert shares into Travelzoo
Inc. within the required time period. The accompanying
consolidated financial statements includes a charge in general
and administrative expenses of $7,000 for the year ended
December 31, 2009. The total cost of this program is not
reliably estimable because it is based on the ultimate number of
valid requests received and future levels of the Companys
common stock price. The Companys common stock price
affects the liability because the amount of cash payments under
the program is based in part on the recent level of the stock
price at the date valid requests are received. The Company does
not know how many of the requests for shares originally received
by Travelzoo.com Corporation in 1998 were valid, but the Company
believes that only a portion of such requests were valid. As
noted above, in order to receive payment under the program, a
person is required to establish that such person validly held
shares in Travelzoo.com Corporation. Assuming 100% of the
requests from 1998 were valid, former stockholders of
Travelzoo.com Corporation holding approximately
4,068,000 shares had not submitted claims under the program.
44
All revenue consists of advertising sales. Advertising revenues
are principally derived from the sale of advertising in North
America and Europe on the Travelzoo Web site, in the
Travelzoo Top 20
e-mail
newsletter, in Newsflash, from SuperSearch, from
the Travelzoo Network, and from Fly.com.
The Company recognizes revenues in accordance with Securities
and Exchange Commission Staff Accounting Bulletin for revenue
recognition. Advertising revenues are recognized in the period
in which the advertisement is displayed, provided that evidence
of an arrangement exists, the fees are fixed or determinable and
collection of the resulting receivable is reasonably assured.
Where collectibility is not reasonably assured, the revenue will
be recognized upon cash collection, provided that the other
criteria for revenue recognition have been met. The Company
recognizes revenue for fixed-fee advertising arrangements
ratably over the term of the insertion order as described below.
The majority of insertion orders have terms that begin and end
in a quarterly reporting period. In the cases where at the end
of a quarterly reporting period the term of an insertion order
is not complete, the Company recognizes revenue for the period
by pro-rating the total arrangement fee to revenue and deferred
revenue based on a measure of proportionate performance of its
obligation under the insertion order. The Company measures
proportionate performance by the number of placements delivered
and undelivered as of the reporting date. The Company uses
prices stated on its internal rate card for measuring the value
of delivered and undelivered placements. Fees for variable-fee
advertising arrangements are recognized based on the number of
impressions displayed, number of clicks delivered, or number of
referrals generated during the period.
Under these policies, no revenue is recognized unless persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collection is deemed
reasonably assured. The Company evaluates each of these criteria
as follows:
|
|
|
|
|
Evidence of an arrangement. The Company
considers an insertion order signed by the client or its agency
to be evidence of an arrangement.
|
|
|
|
Delivery. Delivery is considered to occur when
the advertising has been displayed and, if applicable, the
click-throughs have been delivered.
|
|
|
|
Fixed or determinable fee. The Company
considers the fee to be fixed or determinable if the fee is not
subject to refund or adjustment and payment terms are standard.
|
|
|
|
Collection is deemed reasonably assured. The
Company conducts a credit review for all transactions at the
time of the arrangement to determine the creditworthiness of the
client. Collection is deemed reasonably assured if it is
expected that the client will be able to pay amounts under the
arrangement as payments become due. If it is determined that
collection is not reasonably assured, then revenue is deferred
and recognized upon cash collection. Collection is deemed not
reasonably assured when a client is perceived to be in financial
distress, which may be evidenced by weak industry condition,
bankruptcy filing, or previously billed amounts that are past
due.
|
Insertion orders that include fixed-fee advertising are invoiced
upon acceptance of the insertion order and on the first day of
each month over the term of the insertion order, with the
exception of Travelzoo Top 20 or Newsflash
listings, which are invoiced upon delivery. Insertion orders
that include variable-fee advertising are invoiced at the end of
the month. The Companys standard terms state that in the
event that Travelzoo fails to publish advertisements as
specified in the insertion order, the liability of Travelzoo to
the client shall be limited to, at Travelzoos sole
discretion, a pro rata refund of the advertising fee, the
placement of the advertisements at a later time in a comparable
position, or the extension of the term of the insertion order
until the advertising is fully delivered. The Company believes
that no significant obligations exist after the full delivery of
advertising.
Revenues from advertising sold to clients through agencies are
reported at the net amount billed to the agency.
|
|
(c)
|
Net
Income (Loss) Per Share
|
Net income (loss) per share has been calculated in accordance
with FASB accounting guidance for earnings per share. Basic net
income (loss) per share is computed using the weighted-average
number of common shares outstanding for the period. Diluted net
income (loss) per share is computed by adjusting the
weighted-average
45
number of common shares outstanding for the effect of potential
common shares outstanding during the period. Potential common
shares included in the diluted calculation consist of
incremental shares issuable upon the exercise of outstanding
stock options calculated using the treasury stock method.
The following table sets forth the calculation of basic and
diluted net income (loss) per share (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations, net of tax
|
|
$
|
6,418
|
|
|
$
|
5,913
|
|
|
$
|
12,108
|
|
Loss from discontinued operations, net of tax
|
|
|
(1,233
|
)
|
|
|
(10,029
|
)
|
|
|
(2,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,185
|
|
|
$
|
(4,116
|
)
|
|
$
|
9,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
16,408
|
|
|
|
14,273
|
|
|
|
14,847
|
|
Effect of dilutive securities stock options
|
|
|
8
|
|
|
|
1,917
|
|
|
|
1,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares
|
|
|
16,416
|
|
|
|
16,190
|
|
|
|
16,074
|
|
Basic net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.41
|
|
|
$
|
0.82
|
|
Discontinued operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.20
|
)
|
Net income (loss)
|
|
$
|
0.32
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.61
|
|
Diluted net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
$
|
0.75
|
|
Discontinued operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.19
|
)
|
Net income (loss)
|
|
$
|
0.32
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.57
|
|
There were options to purchase an additional 300,000 shares
of common stock outstanding as of December 31, 2009, but
because the exercise price of these options was higher than the
closing stock price at December 31, 2009, they have been
excluded from the computation of diluted net loss per share for
the year ended December 31, 2009 as their effect was
anti-dilutive. All options outstanding as of December 31,
2008 and 2007 were included in the computation of diluted net
income (loss) per share for the years ended December 31,
2008 and 2007.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent assets
and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the
United States of America. Actual results could differ materially
from those estimates.
|
|
(e)
|
Property
and Equipment
|
Property and equipment are stated at cost less accumulated
depreciation. Additions, improvements and major renewals are
capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. The Company also includes in fixed assets
the capitalized cost of internal-use software and Web site
development, including software used to upgrade and enhance its
Web site and processes supporting the Companys business in
accordance with the framework established by the FASB accounting
guidance for accounting for the cost of computer software
developed or obtained for internal use and accounting for Web
site development costs. Costs incurred in the planning stage and
operating stage are expensed as incurred while costs incurred in
the application development stage and infrastructure development
stage are capitalized, assuming such costs are deemed to be
recoverable.
46
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Computer hardware and software
|
|
$
|
2,374
|
|
|
$
|
1,794
|
|
Office equipment and office furniture
|
|
|
2,229
|
|
|
|
1,637
|
|
Capitalized internal-use software and Web site development
|
|
|
1,319
|
|
|
|
1,265
|
|
Leasehold improvements
|
|
|
781
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,703
|
|
|
|
5,397
|
|
Less accumulated depreciation
|
|
|
(2,614
|
)
|
|
|
(1,297
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,089
|
|
|
$
|
4,100
|
|
|
|
|
|
|
|
|
|
|
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Estimated useful lives are
3 to 5 years for computer hardware and software,
capitalized internal-use software and Web site development
costs, and office equipment and office furniture. The Company
depreciates leasehold improvements over the term of the lease or
the estimated useful life of the asset, whichever is shorter.
Depreciation expense was $1.5 million, $601,000, and
$172,000 for the years ended December 31, 2009, 2008 and
2007, respectively.
As of December 31, 2009 and 2008, our capitalized
internal-use software and Web site development costs, net of
accumulated amortization, were $905,000 and $1.3 million,
respectively. For the years ended December 31, 2009, 2008
and 2007, we recorded amortization of capitalized internal-use
software and Web site development costs of $409,000, $6,000 and
$-0-, respectively.
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Acquired amortized intangible assets:
|
|
|
|
|
|
|
|
|
Internet domain names
|
|
$
|
2,117
|
|
|
$
|
381
|
|
Less accumulated amortization
|
|
|
706
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,411
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
Intangible assets have a useful life of 5 years.
Amortization expense was $357,000, $13,000 and $12,000 for the
years ended December 31, 2009, 2008 and 2007, respectively.
In January 2009, the Company purchased the fly.com domain name
for $1.8 million.
Future amortization expense related to intangible assets at
December 31, 2009 is as follows (in thousands):
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2010
|
|
$
|
354
|
|
2011
|
|
|
354
|
|
2012
|
|
|
352
|
|
2013
|
|
|
351
|
|
|
|
|
|
|
|
|
$
|
1,411
|
|
|
|
|
|
|
The expected amortization expense is an estimate. Actual amounts
of amortization expense may differ from estimated amounts due to
additional intangible asset acquisitions, impairment of
intangible assets, accelerated amortization of intangible assets
and other events.
47
|
|
(g)
|
Cash
and Cash Equivalents
|
Cash equivalents consist of highly liquid investments with
remaining maturities of less than three months on the date of
purchase.
Advertising production costs are expensed as incurred. Online
advertising is expensed as incurred over the period the
advertising is displayed. Advertising costs amounted to
$30.4 million, $25.8 million and $27.3 million
for the years ended December 31, 2009, 2008, and 2007,
respectively. In the years ended December 31, 2009, 2008
and 2007, approximately $4.3 million, $2.4 million,
and $410,000, respectively, of advertising services was
purchased from the Companys clients under non-barter
agreements and recorded in sales and marketing expense.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
are recognized for deductible temporary differences, along with
net operating loss carryforwards and credit carryforwards, if it
is more likely than not that the tax benefits will be realized.
To the extent a deferred tax asset cannot be recognized under
the preceding criteria, valuation allowances must be
established. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled.
|
|
(j)
|
Comprehensive
Income (Loss)
|
Comprehensive income (loss) consists of two components, net
income (loss) and other comprehensive income (loss). Other
comprehensive income (loss) refers to gains and losses that
under generally accepted accounting principles are recorded as
an element of stockholders equity but are excluded from
net income (loss). The Companys other comprehensive income
(loss) is comprised of foreign currency translation adjustments.
The following are components of comprehensive income (loss) (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss)
|
|
$
|
5,185
|
|
|
$
|
(4,116
|
)
|
|
$
|
9,109
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
215
|
|
|
|
(1,208
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
5,400
|
|
|
$
|
(5,324
|
)
|
|
$
|
8,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, as reflected in the
consolidated balance sheets, consists of cumulative foreign
currency translation adjustments.
|
|
(k)
|
Impairment
of Long-Lived Assets
|
The Company accounts for long-lived assets in accordance with
the provisions of the FASB accounting standard relating to
impairment of Long-Lived Assets, which requires an impairment
loss to be recognized on assets to be held and used if the
carrying amount of a long-lived asset group is not recoverable
from its undiscounted cash flows. The amount of the impairment
loss is measured as the difference between the carrying amount
and the fair value of the asset group. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell. The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable. No
impairment loss was recognized during the year ended
December 31, 2009.
48
|
|
(l)
|
Stock-Based
Compensation
|
The Company accounts for its employee stock options under the
fair value method, which requires stock-based compensation to be
estimated using the fair value on the date of grant using an
option-pricing model. The value of the portion of the award that
is expected to vest is recognized as expense over the related
employees requisite service periods in the Companys
Condensed Consolidated Statements of Income.
The Company recorded $94,000 stock-based compensation expense
for fiscal year 2009 and did not record any stock-based
compensation expense in fiscal years 2008 or 2007. See
Note 7 for a further discussion on stock-based compensation.
All foreign subsidiaries use the local currency of their
respective countries as their functional currency. Assets and
liabilities are translated into U.S. dollars at exchange rates
prevailing at the balance sheet dates. Revenues, costs and
expenses are translated into U.S. dollars at average
exchange rates for the period. Gains and losses resulting from
translation are recorded as a component of accumulated other
comprehensive income (loss).
Realized gains and losses from foreign currency transactions are
recognized as gain or loss on foreign currency in the
consolidated statements of operations.
|
|
(n)
|
Certain
Risks and Uncertainties
|
The Companys cash, cash equivalents and accounts
receivable are potentially subject to concentration of credit
risk. Cash and cash equivalents are placed with financial
institutions that management believes are of high credit
quality. The accounts receivable are derived from revenue earned
from customers located in the U.S. and internationally.
None of the Companys customers accounted for 10% or more
of gross receivable at December 31, 2009. One of the
Companys customers accounted for 16% of gross accounts
receivable at December 31, 2008.
The Company maintains an allowance for doubtful accounts based
upon its historical experience, the age of the receivable and
customer specific information. Determining appropriate
allowances for these losses is an inherently uncertain process,
and ultimate losses may vary from the current estimates. The
allowance for doubtful accounts was $501,000 and $357,000 at
December 31, 2009 and 2008, respectively.
|
|
(o)
|
Recent
Accounting Pronouncements
|
In September 2006, the Financial Accounting Standards Board
(FASB) issued a new accounting standard which
establishes a framework for measuring the fair value of assets
and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some
cases require, estimates of fair market value. The new
accounting standard became effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. Effective January 1, 2009, the Company
adopted a new FASB Staff Position (FSP) which
delayed the effective date of fair value measurement for all
non-financial assets and non-financial liabilities, except those
recognized or disclosed at fair value in the financial
statements on a recurring basis, until the beginning of the
first quarter of fiscal 2009. The adoption of the new FASB staff
position did not have a material impact on the Companys
consolidated results of operations or financial condition.
Effective January 1, 2009, the Company adopted a new FASB
Staff Position relating to determination of the useful life of
intangible assets, which amends the factors an entity should
consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets.
This guidance applies prospectively to intangible assets that
are acquired individually or with a group of other assets in
business combinations and asset acquisitions. Under this new
FASB Staff Position, entities which estimate the useful life of
a recognized intangible asset must consider their historical
experience in renewing or extending similar arrangements or, in
the absence of historical experience, must consider assumptions
that market participants would use about renewal or extension.
The adoption of this standard did not have an impact on the
Companys consolidated results of operations or financial
condition.
49
In April 2009, the FASB issued a new FASB staff position
relating to interim disclosures about fair value of financial
instruments, which require an entity to provide interim
disclosures about the fair value of all financial instruments
and to include disclosures related to the methods and
significant assumptions used in estimating those instruments.
This FSP was effective for interim and annual periods ending
after June 15, 2009. The adoption of these pronouncements
did not have a material impact on the Companys
consolidated results of operations or financial condition.
In May 2009, the FASB issued a new accounting standard relating
to subsequent events, which is effective for interim and annual
periods ending after June 15, 2009. This new accounting
standard is intended to establish general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. In particular, this new accounting
standard sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition
or disclosure in the financial statements and the circumstances
under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements. Effective June 30, 2009, the Company adopted
this new accounting standard. The adoption of this standard did
not have a material impact on the Companys consolidated
results of operations or financial condition.
In June 2009, the FASB issued a new accounting standard that
changes the consolidation model for variable interest entities,
which is effective for interim and annual reporting periods
beginning after November 15, 2009. Earlier adoption is
prohibited. The new accounting standard requires a company to
perform qualitative analysis when determining whether it must
consolidate a variable interest entity and ongoing reassessments
to determine if a company must consolidate a variable interest
entity. The new accounting standard also requires a company to
provide additional disclosures about its involvement with
variable interest entities, any significant changes in risk
exposure due to that involvement and how its involvement with a
variable interest entity affects the companys financial
statements. A company will also be required to disclose any
significant judgments and assumptions made in determining
whether it must consolidate a variable interest entity. The
Company is currently assessing the future impact of this new
accounting standard on its consolidated results of operations
and financial condition.
In June 2009, the FASB issued ASU
2009-01,
Generally Accepted Accounting Principles (ASU
2009-01).
ASU 2009-01
established The FASB Accounting Standards
Codification, or Codification, which became the single
source of authoritative GAAP recognized by the FASB to be
applied by nongovernmental entities. On the effective date, the
Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will
become non-authoritative. ASU
2009-01 is
effective for interim and annual periods ending after
September 15, 2009. The Company adopted the provisions of
ASU 2009-01
for the period ended September 30, 2009. There was no
material impact on the Companys consolidated results of
operations, financial condition or cash flows.
In August, 2009, the FASB issued ASU
2009-05, a
new accounting standard update regarding the measurement of
liabilities at fair value. This standard update provides
techniques to use in measuring fair value of a liability in
circumstances in which a quoted price in an active market for
the identical liability is not available. This standard update
is effective prospectively for all interim and annual reporting
periods upon issuance. Effective August 2009, the Company
adopted this new accounting standard update. The adoption of
this new accounting standard update did not have a material
impact on the Companys consolidated results of operations
or financial condition.
In October 2009, the FASB issued ASU
2009-13, a
new accounting standard update for revenue recognition with
multiple deliverables. The new accounting standard update
defines when individual deliverables included in a
multiple-element arrangement may be treated as separate units of
accounting. The update primarily provides two significant
changes: 1) eliminates the need for objective and reliable
evidence of the fair value for the undelivered element in order
for a delivered item to be treated as a separate unit of
accounting, and 2) eliminates the residual method to
allocate the arrangement consideration. In addition, the update
also expands the disclosure requirements for revenue
recognition. The new accounting standard update will be
effective for the Company January 1, 2011, with early
adoption permitted. The Company is currently assessing the
future impact of this new accounting standard on its
consolidated results of operations and financial condition.
In January 2010, the FASB issued ASU
2010-06, a
new accounting standard which requires reporting entities to
make new disclosures about recurring or nonrecurring fair-value
measurements including significant transfers
50
into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and
settlements on a gross basis in the reconciliation of
Level 3 fair value measurements. The guidance is effective
for annual reporting periods beginning after December 15,
2009, except for Level 3 reconciliation disclosures that
are effective for annual periods beginning after
December 15, 2010. The adoption of this new accounting
standard update did not have a material impact on the
Companys consolidated results of operations or financial
condition.
|
|
(2)
|
Financial
Instruments
|
At December 31, 2009, restricted cash consisted of a
certificate of deposit for $875,000 serving as collateral for a
standby letter of credit for the security deposit of our
corporate headquarters. Cash equivalents consist of highly
liquid investments with remaining maturities of three months or
less on the date of purchase held in money market funds. The
Company believes that the carrying amounts of these financial
assets are a reasonable estimate of their fair value. The fair
value of these financial assets was determined using the
following inputs at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
16,673
|
|
|
$
|
16,673
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,673
|
|
|
$
|
16,673
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Commitments
and Contingencies
|
The Company leases office space in Canada, France, Germany,
Spain, the U.K., and the U.S. under operating lease
agreements which expire between February 28, 2010 and
January 31, 2014. Rent expense was $3.8 million,
$3.7 million and $2.4 million for the years ended
December 31, 2009, 2008, and 2007, respectively. We are
committed to pay a portion of the related operating expenses
under certain of these lease agreements. These operating
expenses are not included in the table below. Certain of these
lease agreements have free or escalating rent payment
provisions. We recognize rent expense under such arrangements on
a straight line basis. The future minimum rental payments under
these operating leases as of December 31, 2009 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Total
|
|
Minimum rental payments
|
|
$
|
3,894
|
|
|
$
|
2,923
|
|
|
$
|
2,033
|
|
|
$
|
1,924
|
|
|
$
|
161
|
|
|
$
|
10,935
|
|
It is possible that claims may be asserted against the Company
in the future by former stockholders of Travelzoo.com
Corporation seeking to receive shares in the Company, whether
based on a claim that the two-year deadline for exchanging their
shares was unenforceable or otherwise. In addition, one or more
jurisdictions, including the Bahamas or the State of Delaware,
may assert rights to unclaimed shares of the Company under
escheat statutes. If such escheat claims are asserted, the
Company intends to challenge the applicability of escheat
rights, in that, among other reasons, the identity, residency
and eligibility of the holders in question cannot be determined.
There were certain conditions applicable to the issuance of
shares to the Netsurfer stockholders, including requirements
that (i) they be at least 18 years of age,
(ii) they be residents of the U.S. or Canada and
(iii) they not apply for shares more than once. The
Netsurfer stockholders were required to confirm their compliance
with these conditions, and were advised that failure to comply
could result in cancellation of their shares in Travelzoo.com
Corporation. Travelzoo.com Corporation was not able to verify
that the applicants met the requirements referred to above at
the time of their applications for issuance of shares. If claims
are asserted by persons claiming to be former stockholders of
Travelzoo.com Corporation, the Company intends to assert that
their rights to receive their shares expired two years following
the effective date of the merger, as provided in the merger
agreement. The Company also expects to take the position, if
escheat or similar claims are asserted in respect of the
unissued shares in the future, that it is not required to issue
such shares. Further, even if it were established that unissued
shares were subject to escheat claims, the Company would assert
that the claimant must establish that the
51
original Netsurfer stockholders complied with the conditions to
issuance of their shares. The Company is not able to predict the
outcome of any future claims which might be asserted relating to
the unissued shares. If such claims were asserted, and were
fully successful, that could result in the Companys being
required to issue up to an additional approximately
4,068,000 shares of common stock for no additional payment.
On October 15, 2004, the Company announced a program under
which it would make cash payments to people who establish that
they were former stockholders of Travelzoo.com Corporation, and
who failed to submit requests to convert shares into Travelzoo
Inc. within the required time period. The accompanying
consolidated financial statements include a charge in general
and administrative expenses of $7,000 for the year ended
December 31, 2009. The total cost of this program is not
reliably estimable because it is based on the ultimate number of
valid requests received and future levels of the Companys
common stock price. The Companys common stock price
affects the liability because the amount of cash payments under
the program is based in part on the recent level of the stock
price at the date valid requests are received. The Company does
not know how many of the requests for shares originally received
by Travelzoo.com Corporation in 1998 were valid, but the Company
believes that only a portion of such requests were valid. As
noted above, in order to receive payment under the program, a
person is required to establish that such person validly held
shares in Travelzoo.com Corporation. Assuming 100% of the
requests from 1998 were valid, former stockholders of
Travelzoo.com Corporation holding approximately
4,068,000 shares had not submitted claims under the program.
|
|
(4)
|
Other
Balance Sheet Items
|
The details of changes to the allowance for doubtful accounts
are as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
726
|
|
Additions charged to costs and expenses, net
|
|
|
(48
|
)
|
Deductions write-offs
|
|
|
(388
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
290
|
|
Additions charged to costs and expenses, net
|
|
|
321
|
|
Deductions write-offs
|
|
|
(254
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
357
|
|
Additions charged to costs and expenses, net
|
|
|
258
|
|
Deductions write-offs
|
|
|
(114
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
501
|
|
|
|
|
|
|
The details of prepaid expenses and other current assets as of
December 31, 2009 and 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Prepaid expenses
|
|
$
|
1,009
|
|
|
$
|
523
|
|
Other current assets
|
|
|
94
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
1,103
|
|
|
$
|
647
|
|
|
|
|
|
|
|
|
|
|
52
The details of accrued expenses as of December 31, 2009 and
2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued compensation expense
|
|
$
|
2,627
|
|
|
$
|
1,790
|
|
Accrued advertising expense
|
|
|
1,207
|
|
|
|
1,404
|
|
Accrued professional services expense
|
|
|
140
|
|
|
|
266
|
|
Accrued payments to third-party partners of the Travelzoo
Network
|
|
|
122
|
|
|
|
308
|
|
Other accrued expenses
|
|
|
182
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
4,278
|
|
|
$
|
3,913
|
|
|
|
|
|
|
|
|
|
|
The components of income (loss) from continuing operations
before income tax expense for the years ended December 31,
2009, 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
17,879
|
|
|
$
|
21,762
|
|
|
$
|
30,891
|
|
Foreign
|
|
|
(4,188
|
)
|
|
|
(7,672
|
)
|
|
|
(5,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,691
|
|
|
$
|
14,090
|
|
|
$
|
25,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) from continuing operations for the
years ended December 31, 2009, 2008, and 2007 consisted of
the following current and deferred components categorized by
federal and state jurisdictions. The current provision is
generally that portion of income tax expense that is currently
payable to the taxing authorities. The Company makes estimated
payments of these amounts during the year. The deferred tax
provision results from changes in the Companys deferred
tax assets (future deductible amounts) and tax liabilities
(future taxable amounts), which are presented in the last table
of this footnote.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,872
|
|
|
$
|
(144
|
)
|
|
$
|
5,728
|
|
State
|
|
|
1,638
|
|
|
|
(93
|
)
|
|
|
1,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,510
|
|
|
$
|
(237
|
)
|
|
$
|
7,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,020
|
|
|
$
|
796
|
|
|
$
|
6,816
|
|
State
|
|
|
1,388
|
|
|
|
(27
|
)
|
|
|
1,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,408
|
|
|
$
|
769
|
|
|
$
|
8,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,368
|
|
|
$
|
483
|
|
|
$
|
9,851
|
|
State
|
|
|
3,101
|
|
|
|
101
|
|
|
|
3,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,469
|
|
|
$
|
584
|
|
|
$
|
13,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, an income tax benefit of $110,000 was recorded in
stockholders equity for the tax benefit of stock option
exercises.
53
Income tax expense from continuing operations for the years
ended December 31, 2009, 2008 and 2007 differed from the
amounts computed by applying the U.S. federal statutory tax
rate applicable to the Companys level of pretax income as
a result of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal tax at statutory rates
|
|
$
|
4,792
|
|
|
$
|
1,368
|
|
|
$
|
7,739
|
|
State taxes, net of federal income tax benefit
|
|
|
1,004
|
|
|
|
885
|
|
|
|
2,079
|
|
Foreign losses not benefited
|
|
|
1,434
|
|
|
|
6,166
|
|
|
|
3,073
|
|
Non-deductible expenses and other
|
|
|
43
|
|
|
|
(242
|
)
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
7,273
|
|
|
$
|
8,177
|
|
|
$
|
13,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating losses incurred in the foreign subsidiaries were
treated as having no recognizable tax benefit.
The tax effects of temporary differences that give rise to
significant portions of the Companys deferred tax assets
and liabilities as of December 31, 2009 and 2008, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign net operating loss carryforwards
|
|
$
|
5,799
|
|
|
$
|
7,793
|
|
Capital loss
|
|
|
1,820
|
|
|
|
|
|
Accruals and allowances
|
|
|
352
|
|
|
|
180
|
|
Deferred rent
|
|
|
320
|
|
|
|
342
|
|
Deferred revenue
|
|
|
245
|
|
|
|
166
|
|
State income taxes
|
|
|
102
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
8,638
|
|
|
|
8,882
|
|
Valuation allowance
|
|
|
(7,620
|
)
|
|
|
(7,793
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets net of valuation allowance
|
|
|
1,018
|
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, equipment and intangible assets
|
|
|
(533
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(533
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
485
|
|
|
$
|
624
|
|
|
|
|
|
|
|
|
|
|
The Company has a valuation allowance of approximately
$5.8 million as of December 31, 2009 related to
foreign net operating loss carryforwards of approximately
$20.7 million for which it is more likely than not that the
tax benefit will not be realized. If not utilized, the foreign
net operating loss carryforwards begin to expire in 2014. The
Company also has a valuation allowance of $1.8 million as
of December 31, 2009 related to the capital loss
carryforward of $1.8 million for which it is more likely
than not that the tax benefit will not be realized. If not
utilized, the capital loss carryforward will expire
December 31, 2014. The total amount of the valuation
allowance represented a decrease of approximately $173,000 from
the amount recorded as of December 31, 2008 and was
primarily due to a decrease in the allowance against the foreign
net operating loss carryforward related to Asia Pacific offset
by an increase in allowance against the operating loss from
Europe and a valuation allowance recorded against the
$1.8 million capital loss in 2009.
On January 1, 2007, the Company adopted the FASB standard
for accounting for uncertainty in income taxes, which clarifies
the accounting for uncertainty in income tax positions. There
was no effect to the financial statements upon implementation of
this FASB accounting standard. To the extent accrued interest
and penalties do not ultimately become payable, amounts accrued
will be reduced and reflected as a reduction in the overall
income tax provision in the period that such determination is
made. At December 31, 2009, the Company had approximately
$2.0 million in total unrecognized tax benefits and
approximately $136,000 in accrued interest. The Company has not
accrued any penalties related to uncertain tax positions as the
Company believes that it is more
54
likely than not that there will not be any assessment of
penalties. A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Unrecognized tax benefits balance at January 1, 2007
|
|
$
|
1,107
|
|
Increase related to prior year tax positions
|
|
|
38
|
|
Decrease related to prior year tax positions
|
|
|
|
|
Increase related to current year tax positions
|
|
|
|
|
Settlements
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2007
|
|
|
1,145
|
|
Increase related to prior year tax positions
|
|
|
6
|
|
Decrease related to prior year tax positions
|
|
|
|
|
Increase related to current year tax positions
|
|
|
|
|
Settlements
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(363
|
)
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2008
|
|
|
788
|
|
Increase related to prior year tax positions
|
|
|
44
|
|
Decrease related to prior year tax positions
|
|
|
|
|
Increase related to current year tax positions
|
|
|
1,210
|
|
Settlements
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(39
|
)
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2009
|
|
$
|
2,003
|
|
|
|
|
|
|
At December 31, 2009, unrecognized tax benefits of
approximately $793,000, if recognized, would favorably affect
the Companys effective income tax rate. Unrecognized tax
benefits of approximately $1.2 million, if recognized,
would be recorded in discontinued operations.
The Company files income tax returns in the U.S. federal
jurisdiction and various states and foreign jurisdictions. The
Company is no longer subject to U.S. federal and certain
state tax examinations for years before 2005 and is no longer
subject to California tax examinations for years before 2004.
The Company is currently under examination by the Internal
Revenue Service (IRS) for the 2005 and 2006 tax
years. In January 2009, the IRS issued a Notice of Proposed
Adjustment contesting the Companys tax deductions in 2005
and 2006 related to the program under which the Company made
cash payments to people who established that they were former
stockholders of Travelzoo.com Corporation, and who failed to
submit requests to convert shares into Travelzoo Inc. within the
required time period. The Company does not agree with the Notice
of Proposed Adjustment and started discussions with the Appeals
Division of the IRS in February 2010. If the Company were to
agree with the Notice of Proposed Adjustment, the result would
be an additional payment of approximately $590,000, plus
interest. The Company believes it has adequately provided for
this matter and it is not expected to have a material impact on
the Companys results of operations.
As of December 31, 2009, the authorized capital stock of
Travelzoo Inc. was comprised of 40,000,000 shares of
$.01 par value common stock and 5,000,000 shares of
$.01 par value preferred stock. As of December 31,
2009, there were 16,443,828 shares outstanding of common
stock and no shares of preferred stock issued or outstanding.
During January 2001, the Board of Directors of Travelzoo.com
Corporation proposed that Travelzoo.com Corporation be merged
with Travelzoo Inc. whereby Travelzoo Inc. would be the
surviving entity. On March 15, 2002, the stockholders of
Travelzoo.com Corporation approved the merger with Travelzoo
Inc. On April 25, 2002, the certificate of merger was filed
in Delaware upon which the merger became effective and
Travelzoo.com Corporation ceased to exist. Each outstanding
share of common stock of Travelzoo.com Corporation was converted
into the right to receive one share of common stock of Travelzoo
Inc. Under and subject to the terms of the merger
55
agreement, stockholders were allowed a period of two years
following the effective date of the merger to receive shares of
Travelzoo Inc. The records of Travelzoo.com Corporation showed
that, assuming all of the shares applied for by the Netsurfer
stockholders were validly issued, there were
11,295,874 shares of Travelzoo.com Corporation outstanding.
As of April 25, 2004, two years following the effective
date of the merger, 7,180,342 shares of Travelzoo.com
Corporation had been exchanged for shares of Travelzoo Inc.
Prior to that date, the remaining shares which were available
for issuance pursuant to the merger agreement were included in
the issued and outstanding common stock of Travelzoo Inc. and
included in the calculation of basic and diluted earnings per
share. After April 25, 2004, the Company ceased issuing
shares to the former stockholders of Travelzoo.com Corporation,
and no additional shares are reserved for issuance to any former
stockholders, because their right to receive shares has now
expired. On April 25, 2004, the number of shares reported
as outstanding was reduced from 19,425,147 to 15,309,615 to
reflect actual shares issued as of the expiration date.
In April 2007, Travelzoo announced a share repurchase program
authorizing the repurchase of up to 1.0 million shares of
common stock in the open market or in private transactions.
During the year ended December 31, 2007, the Company
purchased and retired 1.0 million shares of common stock
for aggregate consideration of $19.8 million and completed
the share repurchase under this program.
|
|
(7)
|
Stock-based
Compensation and Stock Options
|
The Company accounts for its employee stock options under the
fair value method, which requires stock-based compensation to be
estimated using the fair value on the date of grant using an
option-pricing model. The value of the portion of the award that
is expected to vest is recognized as expense over the related
employees requisite service periods in the Companys
Condensed Consolidated Statements of Income. Cash flows
resulting from tax deductions in excess of the compensation cost
recognized for those options (excess tax benefits) are
classified as financing cash flows. For fiscal year 2008, the
Company recorded $110,000 of excess tax benefit.
In October 2001, the Company granted to each director fully
vested and exercisable options to purchase 30,000 shares of
common stock with an exercise price of $2.00 per share for their
services as a director in 2000 and 2001. A total of 210,000
options were granted. The options expire in October 2011.
150,000 options, 17,275 options and 30,000 options were
exercised during the years ended December 31, 2004, 2005
and 2008, respectively. As of December 31, 2009, 12,725
options are vested and remain outstanding.
In March 2002, Travelzoo Inc. granted to each director options
to purchase 5,000 shares of common stock with an exercise
price of $3.00 per share that vested in connection with their
services as a director in 2002. A total of 35,000 options were
granted. In October 2002, 1,411 options were cancelled upon the
resignation of a director. The options expire in March 2012.
23,589 of these options and 5,000 of these options were
exercised during the year ended December 31, 2004 and 2008,
respectively. As of December 31, 2009, 5,000 options are
vested and remain outstanding.
In January 2009, 2,158,349 options were exercised at $1.00 per
share. As described in Note 1, these options were granted
in 2001 as part of the combination and merger of entities
founded by the Companys majority stockholder, Ralph Bartel.
In November 2009, the Company granted to one if its employees
options to purchase 300,000 shares of common stock with an
exercise price of $14.97. 75,000 options vest and become
exercisable annually starting in July 1, 2011. The options
expire in November 2019. As of December 31, 2009, none of
the options are vested and 300,000 options are outstanding.
Total stock-based compensation for fiscal year 2009 was $94,000.
The Company did not provide any stock-based compensation in
fiscal years 2007 or 2008.
The Company utilized the Black-Scholes option pricing model to
value the stock options granted in 2009. The Company does not
have enough historical exercise data to estimate the expected
life of the options and therefore used an expected life of
6.25 years, as defined under the simplified method. The
risk-free interest rate used for the award is based on the
U.S. Treasury yield curve in effect at the time of grant.
The Company used a forfeiture rate of 0% as the Company does not
have enough historical forfeiture data to estimate the
forfeiture rate.
56
The fair value of stock options was estimated using the
Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
2009
|
|
|
Weighted-average fair value of options granted per share
|
|
$
|
11.56
|
|
Implied volatility
|
|
|
93
|
%
|
Risk-free interest rate
|
|
|
2.56
|
%
|
Dividend yield
|
|
|
|
|
Expected life in years
|
|
|
6.25
|
|
As of December 31, 2009, there was approximately
$3.4 million of unrecognized stock-based compensation
expense related to outstanding stock options. This amount is
expected to be recognized over 4.5 years. To the extent the
actual forfeiture rate is different from what we have
anticipated, stock-based compensation related to these options
will be different from our expectations.
Option activity as of December 31, 2009 and changes during
the fiscal year ended December 31, 2007, 2008, and 2009
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted-Average
|
|
Intrinsic
|
|
|
|
|
Weighted-Average
|
|
Remaining
|
|
Value
|
|
|
Shares
|
|
Exercise Price
|
|
Contractual Life
|
|
(in thousands)
|
|
Outstanding at January 1, 2007
|
|
|
2,211,074
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,211,074
|
|
|
$
|
1.03
|
|
|
|
3.11 years
|
|
|
$
|
27,974
|
|
Exercised
|
|
|
(35,000
|
)
|
|
$
|
2.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
2,176,074
|
|
|
$
|
1.01
|
|
|
|
2.09 years
|
|
|
$
|
9,900
|
|
Options granted
|
|
|
300,000
|
|
|
$
|
14.97
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,158,349
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
317,725
|
|
|
$
|
14.26
|
|
|
|
9.44 years
|
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable and fully vested at December 31, 2009
|
|
|
17,725
|
|
|
$
|
2.28
|
|
|
|
1.95 years
|
|
|
$
|
177
|
|
The aggregate intrinsic value in the table above represents the
total pretax intrinsic value (the difference between the
Companys closing stock price on the last trading day of
fiscal year 2007, 2008, and 2009 and the exercise price,
multiplied by the number of
in-the-money
options) that would have been received by the option holders had
all option holders exercised their options on December 31,
2007, 2008, and 2009. This amount changes based on the fair
market value of the Companys stock. The Companys
policy is to issue shares from the authorized shares to fulfill
stock option exercises.
The total intrinsic value of options exercised in the year ended
December 31, 2009 was $9.1 million and the total
intrinsic value of options exercised in the year ended
December 31, 2008 was $267,000.
Outstanding options at December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
|
|
|
|
|
Outstanding and
|
|
Remaining
|
|
Weighted-Average
|
Exercise Price
|
|
Exercisable
|
|
Contractual Life
|
|
Exercise Price
|
|
$2.00
|
|
|
12,725
|
|
|
|
1.83 years
|
|
|
$
|
2.00
|
|
$3.00
|
|
|
5,000
|
|
|
|
2.25 years
|
|
|
$
|
3.00
|
|
$14.97
|
|
|
300,000
|
|
|
|
9.89 years
|
|
|
$
|
14.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317,725
|
|
|
|
9.44 years
|
|
|
$
|
14.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
(8)
|
Segment
Reporting and Significant Customer Information
|
The Company manages its business geographically and has two
operating segments: North America and Europe. North America
consists of the Companys operations in Canada and the
U.S. Europe consists of the Companys operations in
France, Germany, Spain, and the U.K. The Company began
operations in Europe in May 2005.
Management relies on an internal management reporting process
that provides revenue and segment operating income (loss) for
making financial decisions and allocating resources. Management
believes that segment revenues and operating income (loss) are
appropriate measures of evaluating the operational performance
of the Companys segments.
The following is a summary of operating results and assets (in
thousands) by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009:
|
|
North America
|
|
|
Europe
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
Revenues from unaffiliated customers
|
|
$
|
77,707
|
|
|
$
|
16,266
|
|
|
$
|
|
|
|
$
|
93,973
|
|
Intersegment revenues
|
|
|
260
|
|
|
|
73
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
77,967
|
|
|
|
16,339
|
|
|
|
(333
|
)
|
|
|
93,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
19,227
|
|
|
|
(5,463
|
)
|
|
|
(56
|
)
|
|
|
13,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008:
|
|
North America
|
|
|
Europe
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
Revenues from unaffiliated customers
|
|
$
|
71,245
|
|
|
$
|
9,572
|
|
|
$
|
|
|
|
$
|
80,817
|
|
Intersegment revenues
|
|
|
94
|
|
|
|
51
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
71,339
|
|
|
|
9,623
|
|
|
|
(145
|
)
|
|
|
80,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
21,118
|
|
|
|
(7,809
|
)
|
|
|
3
|
|
|
|
13,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007:
|
|
North America
|
|
|
Europe
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
Revenues from unaffiliated customers
|
|
$
|
73,062
|
|
|
$
|
5,842
|
|
|
$
|
|
|
|
$
|
78,904
|
|
Intersegment revenues
|
|
|
171
|
|
|
|
14
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
73,233
|
|
|
|
5,856
|
|
|
|
(185
|
)
|
|
|
78,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
28,959
|
|
|
|
(5,172
|
)
|
|
|
(108
|
)
|
|
|
23,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
|
|
|
|
|
As of December 31, 2009:
|
|
North America
|
|
Europe
|
|
Operations
|
|
Elimination
|
|
Consolidated
|
|
Property and equipment, net:
|
|
$
|
3,908
|
|
|
$
|
181
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,089
|
|
Total assets
|
|
|
64,095
|
|
|
|
4,960
|
|
|
|
|
|
|
|
(22,923
|
)
|
|
|
46,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
|
|
|
|
|
As of December 31, 2008:
|
|
North America
|
|
Europe
|
|
Operations
|
|
Elimination
|
|
Consolidated
|
|
Property and equipment, net:
|
|
$
|
3,890
|
|
|
$
|
210
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,100
|
|
Total assets
|
|
|
63,476
|
|
|
|
3,934
|
|
|
|
831
|
|
|
|
(32,919
|
)
|
|
|
35,322
|
|
Revenue for each segment is recognized from the locations within
a designated geographic region. Property and equipment are
attributed to the geographic region in which the assets are
located.
Significant customer information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
Percent of
|
|
|
Revenues
|
|
Accounts Receivable
|
|
|
Year Ended December 31,
|
|
December 31,
|
|
December 31,
|
Customer
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
Orbitz Worldwide
|
|
|
|
*
|
|
|
13
|
%
|
|
|
15
|
%
|
|
|
|
*
|
|
|
16
|
%
|
Expedia, Inc.
|
|
|
|
*
|
|
|
|
*
|
|
|
11
|
%
|
|
|
|
*
|
|
|
|
*
|
58
The agreements with these customers are in the form of multiple
insertion orders from groups of entities under common control,
in either the Companys standard form or in the
customers form.
|
|
(9)
|
Employee
Benefit Plan
|
The Company maintains a 401(k) Profit Sharing Plan &
Trust (the 401(k) Plan) for its employees in the
United States. The 401(k) Plan allows employees of the Company
to contribute up to 80% of their eligible compensation, subject
to certain limitations. Since 2006, the Company matches employee
contributions up to $1,500 per year. Employee contributions are
fully vested upon contribution, whereas the Companys
matching contributions are fully vested after the first year of
service. The Company also has various defined contribution plans
for our international employees. The Companys
contributions to these benefit plans were approximately
$705,000, $420,000 and $111,000 for the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively.
|
|
(10)
|
Related
Party Transaction
|
In November 2007, the Company entered into an independent
contractor agreement with Holger Bartel, the Companys
current Chief Executive Officer, a member of the Companys
Board of Directors, and brother of Ralph Bartel, who
controls the Company, to provide consulting services. Fees and
expenses for these services during the year ended
December 31, 2008 totaled approximately $591,000. Effective
October 1, 2008, Holger Bartel was appointed as Chief
Executive Officer of the Company and the independent contractor
agreement between the Company and Holger Bartel was terminated
on September 30, 2008.
On October 31, 2009, the Company completed the sale of its
Asia Pacific operating segment to Azzurro Capital Inc. and its
wholly owned subsidiaries, Travelzoo (Asia) Limited and
Travelzoo Japan K.K. Azzurro Capital Inc. is owned and
controlled by the Ralph Bartel 2005 Trust, on behalf of itself.
Ralph Bartel, the Companys Chairman and principal
shareholder, is a member of the board of directors of Azzurro
Capital Inc. and is currently the sole beneficiary of the Ralph
Bartel 2005 Trust. The Companys receivables from Travelzoo
(Asia) Limited and Travelzoo Japan K.K. subsequent to
October 31, 2009 totaled $94,000 as of December 31,
2009 and are part of prepaid expenses and other current assets
in the accompanying Consolidated Balance Sheets. See
Note 11 for a further discussion on the sale of the
Companys Asia Pacific operating segment.
|
|
(11)
|
Discontinued
Operations
|
On September 30, 2009, the Company and its principal Asia
Pacific subsidiaries entered into two definitive Asset Purchase
Agreements (Asset Purchase Agreements) with Azzurro
Capital Inc. and its newly formed wholly-owned
subsidiaries, Travelzoo (Asia) Limited and Travelzoo Japan K.K.
to acquire substantially all of the assets, and with the
exception of intercompany loans, assume substantially all of the
liabilities of Travelzoos principal Asia Pacific
subsidiaries, which constitute Travelzoos Asia Pacific
operating segment. The aggregate purchase price under the Asset
Purchase Agreements was $3,600,000, subject to a working capital
adjustment, as defined in the Asset Purchase Agreements, based
on unaudited balance sheets as of October 31, 2009.
As part of the transaction, the Company and Azzurro Capital
Inc., Travelzoo (Asia) Limited and Travelzoo Japan K.K. entered
into the following additional agreements:
|
|
|
|
|
A License Agreement providing for a limited, nontransferable
(except as provided therein), perpetual, exclusive (except as
provided therein) fully
paid-up
license to perform the Licensed Services and Licensed Business
Processes (as defined in the License Agreement), and to use the
Licensed Marks, the Licensed Software, the Licensed Trade
Secrets, and the Licensed Works (as defined in the License
Agreements) in connection with the Licensed Services and
Licensed Business Processes within the Territory, which is
defined as all countries located in those time zones that are
more than five hours ahead of Greenwich Mean Time, based on
Standard time, including India and Pakistan, but excluding
Russia.
|
|
|
|
A Hosting Agreement under which Travelzoo agrees to host,
transact, process, store, implement, operate, manage, maintain
and provide access to licensed software and to data files and
content provided by Travelzoo (Asia) Limited and Travelzoo Japan
K.K. for use in connection with the Licensed Services and the
Licensed Business Processes referred to in the Hosting Agreement.
|
59
|
|
|
|
|
A Referral Agreement pursuant to which each party will, on a
non-exclusive basis, make customer referrals to each other, in
consideration for receiving a specified percentage of the
revenues derived from such referrals.
|
|
|
|
A Transition Services Agreement under which Travelzoo agrees to
provide, at the option of the Travelzoo (Asia) Limited and
Travelzoo Japan K.K., certain services on a temporary basis, at
the prices and on other terms to be determined as provided in
the Transition Services Agreement.
|
The Company and Azzurro Capital Inc. also entered into an Option
Agreement (the Option Agreement) on
September 30, 2009, under which the Company will have an
option (the Option) to acquire the assets or shares
of the Travelzoo (Asia) Limited and Travelzoo Japan K.K.,
exercisable during the month of June in any year from 2011 to
2020. The Option is also exercisable upon receipt by Travelzoo
of a notice delivered under the Option Agreement of (a) the
intent for either of both of the Travelzoo (Asia) Limited and
Travelzoo Japan K.K. to cease operations or (b) an
intention to effect an initial public offering of the shares of
either of Travelzoo (Asia) Limited or Travelzoo Japan K.K. The
purchase price under the Option will be the fair market value of
the assets and business being acquired, determined by third
party appraisal under the procedures set forth in the Option
Agreement.
A voting agreement was also reached between the Company and
Ralph Bartel with the intent to avoid any future conflicts of
interest relating to the dealings between the Company and
Azzurro Capital Inc. and their affiliates. Under the voting
agreement, Mr. Bartel agrees to vote (or cause to be voted)
any shares of the Company over which he has voting control, with
respect to any proposal relating the Asia Pacific business,
Azzurro Capital Inc., Travelzoo (Asia) Limited, or Travelzoo
Japan K.K., in the same manner and in the same proportion that
all other securities of the same class are voted at any meeting
of the stockholders of the Company, and included provisions
relating to the exercise of his voting rights as a shareholder
or director of the Company in respect of matters between the
Company and Azzurro Capital Inc. As a member of the
Companys Board of Directors, Mr. Bartel also agrees
to abstain from all deliberations and decisions of the Board of
Directors with respect to any matters relating to any dealings,
agreements or arrangements between the Company or any of its
affiliates and Azzurro Capital Inc. or any of its affiliates,
including with respect to the exercise of the Option, as
mentioned above, except to the extent his vote shall be required
to constitute a quorum or otherwise to permit the Board of
Directors to take action, in which case he shall vote with the
majority of the other members of the Board of Directors (or
shall abstain in the case of a tie).
On October 31, 2009, the Company completed the sale of its
Asia Pacific operating segment to Azzurro Capital Inc. pursuant
to the terms of the Asset Purchase Agreements. The results of
operations of the Asia Pacific operating segment have been
classified as discontinued operations for all periods presented.
The Company has not had significant ongoing involvement with the
operations of the Asia Pacific operating segment and has not had
any economic interests in the Asia Pacific operating segment
since the completion of the sale. Accordingly, the sale of the
Asia Pacific operating segment is treated as a discontinued
operation under the relevant accounting literature.
At the completion of the sale, the Company received
$2.1 million, net of cash provided, and has a net
receivable from Travelzoo (Asia) Limited and Travelzoo Japan
K.K. of $1.1 million. The Company realized a gain of
$3.4 million related to the sale of the net assets of the
Asia Pacific business segment to Azzurro Capital Inc. The
resulting gain on the sale is reflected as an addition to
additional paid-in capital in the accompanying Consolidated
Statements of Stockholders Equity as both the Company and
Azzurro Capital Inc. are under the common control of Ralph
Bartel. The Company recorded a tax benefit of $4.4 million
in discontinued operations for the tax benefit associated with
the loss on investments in the Asia Pacific subsidiaries as a
result of their dissolution.
60
The following table presents the revenues and the components of
loss from discontinued operations, net of tax (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
2,134
|
|
|
$
|
586
|
|
|
$
|
7
|
|
Cost of revenues
|
|
|
173
|
|
|
|
153
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,961
|
|
|
|
433
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,821
|
|
|
|
5,837
|
|
|
|
914
|
|
General and administrative
|
|
|
3,828
|
|
|
|
4,797
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,649
|
|
|
|
10,634
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from discontinued operations
|
|
|
(5,688
|
)
|
|
|
(10,201
|
)
|
|
|
(3,055
|
)
|
Other income and (expense)
|
|
|
(33
|
)
|
|
|
20
|
|
|
|
5
|
|
Income tax benefit
|
|
|
79
|
|
|
|
152
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(5,642
|
)
|
|
|
(10,029
|
)
|
|
|
(2,999
|
)
|
Income tax benefit related to dissolution of Asia Pacific
business segment
|
|
|
4,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(1,233
|
)
|
|
$
|
(10,029
|
)
|
|
$
|
(2,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has reclassified assets and liabilities held for
sale on the balance sheet as of December 31, 2008,
excluding cash and cash equivalents of approximately
$1.4 million. The assets held for sale consist primarily of
prepaid expenses, other current assets, and deposits of
$459,000, accounts receivable of $185,000 and property and
equipment of $159,000. Liabilities relating to assets held for
sale consist primarily of accrued expenses of $1.0 million
and accounts payable of $171,000.
61
|
|
(12)
|
Unaudited
Quarterly Information
|
The following represents unaudited quarterly financial data for
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
Dec 31,
|
|
|
Sept 30,
|
|
|
June 30,
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sept 30,
|
|
|
June 30,
|
|
|
Mar 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
23,779
|
|
|
$
|
23,576
|
|
|
$
|
23,638
|
|
|
$
|
22,980
|
|
|
$
|
19,609
|
|
|
$
|
18,600
|
|
|
$
|
21,680
|
|
|
$
|
20,928
|
|
Cost of revenues
|
|
|
1,488
|
|
|
|
1,464
|
|
|
|
1,458
|
|
|
|
1,218
|
|
|
|
908
|
|
|
|
819
|
|
|
|
599
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,291
|
|
|
|
22,112
|
|
|
|
22,180
|
|
|
|
21,762
|
|
|
|
18,701
|
|
|
|
17,781
|
|
|
|
21,081
|
|
|
|
20,412
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
12,258
|
|
|
|
13,437
|
|
|
|
12,599
|
|
|
|
11,414
|
|
|
|
10,601
|
|
|
|
10,326
|
|
|
|
10,625
|
|
|
|
11,745
|
|
General and administrative
|
|
|
6,509
|
|
|
|
6,395
|
|
|
|
6,211
|
|
|
|
5,814
|
|
|
|
5,703
|
|
|
|
5,480
|
|
|
|
5,540
|
|
|
|
4,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,767
|
|
|
|
19,832
|
|
|
|
18,810
|
|
|
|
17,228
|
|
|
|
16,304
|
|
|
|
15,806
|
|
|
|
16,165
|
|
|
|
16,388
|
|
Operating income from continuing operations
|
|
|
3,524
|
|
|
|
2,280
|
|
|
|
3,370
|
|
|
|
4,534
|
|
|
|
2,397
|
|
|
|
1,975
|
|
|
|
4,916
|
|
|
|
4,024
|
|
Interest income and other income
|
|
|
21
|
|
|
|
8
|
|
|
|
13
|
|
|
|
19
|
|
|
|
18
|
|
|
|
59
|
|
|
|
74
|
|
|
|
133
|
|
Gain (loss) on foreign currency
|
|
|
(94
|
)
|
|
|
320
|
|
|
|
(116
|
)
|
|
|
(187
|
)
|
|
|
424
|
|
|
|
(69
|
)
|
|
|
(2
|
)
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
3,451
|
|
|
|
2,608
|
|
|
|
3,267
|
|
|
|
4,366
|
|
|
|
2,839
|
|
|
|
1,965
|
|
|
|
4,988
|
|
|
|
4,298
|
|
Income tax expense
|
|
|
1,981
|
|
|
|
1,308
|
|
|
|
1,659
|
|
|
|
2,325
|
|
|
|
1,114
|
|
|
|
1,451
|
|
|
|
2,993
|
|
|
|
2,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
|
1,470
|
|
|
|
1,300
|
|
|
|
1,608
|
|
|
|
2,041
|
|
|
|
1,725
|
|
|
|
514
|
|
|
|
1,995
|
|
|
|
1,679
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
3,863
|
|
|
|
(1,595
|
)
|
|
|
(1,799
|
)
|
|
|
(1,703
|
)
|
|
|
(1,853
|
)
|
|
|
(2,303
|
)
|
|
|
(3,188
|
)
|
|
|
(2,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,333
|
|
|
$
|
(295
|
)
|
|
$
|
(191
|
)
|
|
$
|
338
|
|
|
$
|
(128
|
)
|
|
$
|
(1,789
|
)
|
|
$
|
(1,193
|
)
|
|
$
|
(1,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.09
|
|
|
$
|
.08
|
|
|
$
|
.10
|
|
|
$
|
.13
|
|
|
$
|
.12
|
|
|
$
|
.04
|
|
|
$
|
.14
|
|
|
$
|
.12
|
|
Discontinue operations
|
|
$
|
.23
|
|
|
$
|
(.10
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(.10
|
)
|
|
$
|
(.13
|
)
|
|
$
|
(.16
|
)
|
|
$
|
(.22
|
)
|
|
$
|
(.19
|
)
|
Net income (loss) per share
|
|
$
|
.32
|
|
|
$
|
(.02
|
)
|
|
$
|
(.01
|
)
|
|
$
|
.02
|
|
|
$
|
(.01
|
)
|
|
$
|
(.13
|
)
|
|
$
|
(.08
|
)
|
|
$
|
(.07
|
)
|
Diluted net income (loss) per share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.09
|
|
|
$
|
.08
|
|
|
$
|
.10
|
|
|
$
|
.13
|
|
|
$
|
.11
|
|
|
$
|
.03
|
|
|
$
|
.12
|
|
|
$
|
.10
|
|
Discontinue operations
|
|
$
|
.23
|
|
|
$
|
(.10
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(.10
|
)
|
|
$
|
(.12
|
)
|
|
$
|
(.14
|
)
|
|
$
|
(.20
|
)
|
|
$
|
(.17
|
)
|
Net income (loss) per share
|
|
$
|
.32
|
|
|
$
|
(.02
|
)
|
|
$
|
(.01
|
)
|
|
$
|
.02
|
|
|
$
|
(.01
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(.07
|
)
|
|
$
|
(.06
|
)
|
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
As of December 31, 2009, we carried out an evaluation,
under the supervision and with the participation of the
Companys management, including the Companys Chief
Executive Officer along with the Companys Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(e).
Based upon that evaluation, the Companys Chief Executive
Officer along with the Companys Chief Financial Officer
concluded that the Companys disclosure controls and
procedures are effective as of December 31, 2009 to ensure
that information required to be disclosed in the reports that
the Company files or submits under the Exchange Act, including
this report, is recorded, processed, summarized and reported,
within the time periods specified in the Commissions rules
and forms, and to ensure that information required to be
disclosed in such reports is accumulated and communicated to
management, including the Companys Chief Executive Officer
and the Companys Chief Financial Officer, to allow timely
decisions regarding required disclosure. For these purposes,
disclosure controls and procedures means controls
and other procedures of the Company that are designed to ensure
that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the Commissions rules and forms.
Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by the
62
Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
Companys management, including its principal executive and
principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding
required disclosure.
During the quarter ended December 31, 2009, there was no
change in our internal control over financial reporting (as
defined in Exchange Act
Rule 13a-15(f))
that materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial
reporting.
Managements
Report on Internal Control Over Financial Reporting
Travelzoos management is responsible for establishing and
maintaining adequate internal control over financial reporting
for Travelzoo Inc. Travelzoos internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles. Travelzoos internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of Travelzoo;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Travelzoo are
being made only in accordance with authorizations of management
and directors of Travelzoo; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of
Travelzoos assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Travelzoos management assessed the effectiveness of
Travelzoos internal control over financial reporting as of
December 31, 2009, utilizing the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated Framework.
Based on the assessment by Travelzoos management, we
determined that Travelzoos internal control over financial
reporting was effective as of December 31, 2009. The
effectiveness of Travelzoos internal control over
financial reporting as of December 31, 2009 has been
audited by KPMG LLP, Travelzoos independent registered
public accounting firm, as stated in their report which appears
in Part II, Item 8 of this Annual Report on
Form 10-K.
Holger Bartel
Chief Executive Officer
Wayne Lee
Chief Financial Officer
March 16, 2010
63
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance of the
Registrant
|
Information required by this item is incorporated by reference
to Travelzoos Definitive Proxy Statement for the 2010
Annual Meeting of Stockholders to be filed with the SEC within
120 days after the end of Travelzoos fiscal year
ended December 31, 2009 and is incorporated herein by
reference.
The following table sets forth certain information with respect
to the executive officers of Travelzoo as of March 1, 2010.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Holger Bartel, Ph.D.
|
|
|
43
|
|
|
Chief Executive Officer
|
Wayne Lee
|
|
|
38
|
|
|
Chief Financial Officer
|
Christopher Loughlin
|
|
|
36
|
|
|
Executive Vice President, Europe
|
Max Rayner
|
|
|
49
|
|
|
Chief Technology Officer
|
Shirley Tafoya
|
|
|
46
|
|
|
President, North America
|
Holger Bartel, Ph.D., has served as Chief Executive
Officer since October 2008 after serving as Executive Vice
President from 2001 to 2007 and Vice President of Sales and
Marketing from 1999 to 2001. From 1995 to 1998, Mr. Bartel
was an Engagement Manager at McKinsey & Company in Los
Angeles. From 1992 to 1994, Mr. Bartel was a research
fellow at Harvard Business School. Mr. Bartel holds an MBA
in Finance and Accounting and a Ph.D. in Economics from the
University of St. Gallen, Switzerland. He is the brother of
Ralph Bartel.
Wayne Lee, CPA, has served as Chief Financial Officer
since September 2006 after service as Director of Finance and
Vice President of Finance since 2005. From 2003 to 2005,
Mr. Lee was Business Group Controller and North American
Sales Controller of Novellus Systems, Inc. From 1998 to 2003, he
was Assistant Controller of Allegis Corporation. Mr. Lee is
a Certified Public Accountant who received his B.S. in Business
Administration from the Walter A. Haas School of Business at the
University of California, Berkeley.
Christopher Loughlin has served as Executive Vice
President, Europe since May 2005 after serving as Vice President
of Business Development since 2001. From 1999 to 2001, he was
Chief Operating Officer of Weekends.com. Mr. Loughlin holds
a BSc(Hons) in Technology Management from Staffordshire
University and an MBA from Columbia University Graduate School
of Business in New York City.
Max Rayner has served as Chief Technology Officer since
September 2009 after having served as Chief Information Officer
since November 2007 and oversees Travelzoos global IT
function, including software development and information
management. From 2005 to 2007, Mr. Rayner served as
Executive Vice President of Products and Services and CIO at
SurfControl. From 2004 to 2005, Mr. Rayner was Vice
President, System Architecture at Salesforce.com.
Mr. Rayner has a B.A. in Computer Science and Digital
Engineering from Dartmouth College and an MBA in Finance from
the University of California, Los Angeles.
Shirley Tafoya has served as Senior Vice President of
Sales since 2001 and was appointed as President, North America
in July 2008. From 1999 to 2001, Ms. Tafoya was the
Director of Western Sales at Walt Disney Internet Group. From
1998 to 1999, Ms. Tafoya was a Sales Manager at
IDG/International Data Group. Ms. Tafoya holds a
bachelors degree in Business Administration from Notre
Dame de Namur University.
|
|
Item 11.
|
Executive
Compensation
|
Information regarding executive compensation and compensation
committee interlocks is incorporated by reference to the
information in the definitive Proxy Statement relating to our
2010 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of our fiscal year ended
December 31, 2009, which is incorporated herein by
reference.
64
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information regarding security ownership of certain beneficial
owners and management and related stockholder matters is
incorporated by reference to the information in the definitive
Proxy Statement relating to our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of our fiscal year ended December 31, 2009, which
is incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information regarding certain relationships and related
transactions, and director independence is incorporated by
reference to the information set forth in the definitive Proxy
Statement relating to our 2010 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our
fiscal year ended December 31, 2009, which is incorporated
herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information regarding principal accountant fees and services is
set forth in the definitive Proxy Statement relating to our 2010
Annual Meeting of Stockholders, which is incorporated herein by
reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The following documents are filed as part of this report:
(1) Our Consolidated Financial Statements are included
in Part II, Item 8:
(2) Supplementary Consolidated Financial Statement
Schedules:
All schedules are omitted because of the absence of conditions
under which they are required or because the required
information is included in the consolidated financial statements
or notes thereto.
(3) Exhibits:
See attached Exhibit Index.
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRAVELZOO INC.
Wayne Lee
Chief Financial Officer
Date: March 16, 2010
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Wayne Lee as his
or her attorney-in-fact, with full power of substitution, for
him or her in any and all capacities, to sign any and all
amendments to this
Form 10-K,
with all exhibits and any and all documents required to be filed
with respect thereto, with the Securities and Exchange
Commission or any regulatory authority, granting unto such
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in order to effectuate the same as fully to all intents
and purposes as he or she might or could do if personally
present, hereby ratifying and confirming all that such
attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
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Signature
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Title(s)
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Date
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/s/ RALPH
BARTEL
Ralph
Bartel
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Chairman of the Board
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March 16, 2010
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/s/ HOLGER
BARTEL
Holger
Bartel
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Chief Executive Officer and Director
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March 16, 2010
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/s/ WAYNE
LEE
Wayne
Lee
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Chief Financial Officer and Principal Accounting Officer
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March 16, 2010
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/s/ DAVID
J. EHRLICH
David
J. Ehrlich
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Director
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March 16, 2010
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/s/ DONOVAN
NEALE-MAY
Donovan
Neale-May
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Director
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March 16, 2010
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/s/ KELLY
M. URSO
Kelly
M. Urso
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Director
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March 16, 2010
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66
EXHIBIT INDEX
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Exhibit
|
|
|
|
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Number
|
|
|
|
Description
|
|
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3
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.1
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|
Certificate of Incorporation of Travelzoo Inc. (Incorporated by
reference to our Pre-Effective Amendment No. 6 to our
Registration Statement on
Form S-4
(File
No. 333-55026),
filed February 14, 2002)
|
|
3
|
.2
|
|
|
|
By-laws of Travelzoo Inc. (Incorporated by reference to our
Pre-Effective Amendment No. 6 to our Registration Statement
on
Form S-4
(File
No. 333-55026),
filed February 14, 2002)
|
|
10
|
.1
|
|
|
|
Form of Director and Officer Indemnification Agreement
(Incorporated by reference to Exhibit 10.1 on
Form 10-Q
(File
No. 000-50171),
filed November 9, 2007)
|
|
10
|
.2*
|
|
|
|
Christopher Loughlin Service Agreement, dated as of May 16,
2005, between Travelzoo UK Ltd and Christopher Loughlin
(Incorporated by reference to Exhibit 10.1 on
Form 10-Q
(File No.
000-50171),
filed August 15, 2005)
|
|
10
|
.3*
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|
|
|
Christopher Loughlin Amended Service Agreement, effective as of
July 1, 2006, between Travelzoo (Europe) Limited and
Christopher Loughlin (Incorporated by reference to
Exhibit 10.2 on
Form 10-Q
(File
No. 000-50171),
filed August 9, 2006)
|
|
10
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.4*
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|
|
|
Travelzoo Inc. North America Executive Bonus Plan as Amended and
Restated Effective January 1, 2007. (Incorporated by
reference to Exhibit 10.1 on
Form 8-K
(File
No. 000-50171),
filed April 11, 2007)
|
|
10
|
.5*
|
|
|
|
Employment Agreement, dated May 8, 2001 by and between
Shirley Tafoya and Travelzoo Inc., as amended, and 2007 Addendum
to Employment Agreement by and between Travelzoo Inc. and
Shirley Tafoya (Incorporated by reference to
Exhibit 10.2 on
Form 10-Q
(File
No. 000-50171),
filed April 11, 2007)
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|
10
|
.6*
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|
|
|
Employment Agreement, dated as of December 9, 2005, between
Wayne Lee and Travelzoo Inc. (Incorporated by reference to
Exhibit 10.3 on
Form 10-Q
(File
No. 000-50171),
filed May 10, 2007)
|
|
10
|
.7*
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|
|
|
Amendment to Service Agreement between Travelzoo (Europe)
Limited and Christopher Loughlin dated as of August 13,
2007 (Incorporated by reference to Exhibit 10.1 on
Form 8-K
(File No.
000-50171),
filed August 15, 2007)
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10
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.8
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|
|
|
Agreement of Lease, effective as of February 1, 2008,
between Travelzoo Inc. and 590 Madison Avenue, LLC (Incorporated
by reference to Exhibit 10.1 on
Form 8-K
(File
No. 000-50171),
filed February 7, 2008)
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|
10
|
.9*
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|
|
|
Employment Agreement, effective as of October 1, 2008, by
and between Travelzoo Inc. and Holger Bartel (Incorporated
by reference to Exhibit 99.1 on
Form 8-K
(File
No. 000-50171),
filed September 23, 2008)
|
|
10
|
.10*
|
|
|
|
Amendment No. 1 to Employment Agreement, effective as
September 23, 2008, by and between Travelzoo Inc. and Max
Rayner (Incorporated by reference to Exhibit 99.1 on
Form 8-K
(File No.
000-50171),
filed September 29, 2008)
|
|
10
|
.11*
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|
|
|
Amendment No. 1 to Employment Agreement, effective as
September 23, 2008, by and between Travelzoo Inc. and Wayne
Lee (Incorporated by reference to Exhibit 99.2 on
Form 8-K
(File No.
000-50171),
filed September 29, 2008)
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|
10
|
.12*
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|
|
|
Amended and Restated Employment Agreement, effective as of
September 1, 2009, by and between Travelzoo Inc. and Max
Rayner (Incorporated by reference to Exhibit 10.1 on
Form 8-K
(File No.
000-50171),
filed September 2, 2009)
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|
10
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.13
|
|
|
|
Asset Purchase Agreement, dated September 30, 2009, by and
among Travelzoo Inc., Travelzoo K.K., Azzurro Capital Inc. and a
buyer entity to be designated by Azzurro Capital Inc., with
Exhibits (Incorporated by reference to Exhibit 10.1 on
Form 8-K
(File
No. 000-50171),
filed October 5, 2009)
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10
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.14
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|
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Asset Purchase Agreement, dated September 30, 2009, by and
among Travelzoo Inc., Travelzoo (Asia Pacific) Limited, Azzurro
Capital Inc. and a buyer entity to be designated by Azzurro
Capital Inc., with Exhibits (Incorporated by reference to
Exhibit 10.2 on
Form 8-K
(File
No. 000-50171),
filed October 5, 2009)
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10
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.15
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|
|
|
Option Agreement, dated September 30, 2009, between
Travelzoo Inc. and Azzurro Capital Inc. (Incorporated by
reference to Exhibit 10.3 on
Form 8-K
(File
No. 000-50171),
filed October 5, 2009)
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67
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
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.16*
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|
|
|
Employment Agreement between Travelzoo Inc. and Christopher
Loughlin dated November 18, 2009 (Incorporated by reference
to Exhibit 10.1 on
Form 8-K
(File
No. 000-50171),
filed November 23, 2009)
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|
10
|
.17*
|
|
|
|
Nonqualified Stock Option Agreement between Travelzoo Inc. and
Christopher Loughlin dated November 18, 2009 (Incorporated
by reference to Exhibit 10.2 on
Form 8-K
(File
No. 000-50171),
filed November 23, 2009)
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21
|
.1
|
|
|
|
Subsidiaries of Travelzoo Inc.
|
|
23
|
.1
|
|
|
|
Consent of Independent Registered Public Accounting Firm
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24
|
.1
|
|
|
|
Power of Attorney (included on signature page)
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|
31
|
.1
|
|
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
|
|
Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
|
|
Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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