Travelzoo 2004 Annual Report Download

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L
TRA
VEZOO
TRA
VEL
ZOO
NASDAQ: TZOO
2004 Annual Report
2005 Proxy Statement

Table of contents

  • Page 1
    TRAVELZ OO NASDAQ: TZOO 2004 Annual Report 2005 Proxy Statement

  • Page 2
    ... relating to Travelzoo's activities and operating performance is contained in our 2004 Annual Report on Form 10-K, as Ã'led with the Securities and Exchange Commission, which is also enclosed. Whether or not you plan to attend the Annual Meeting of Stockholders, please vote your shares via mail...

  • Page 3
    ... that the Annual Meeting of Stockholders of Travelzoo Inc., a Delaware corporation, will be held on Wednesday, June 1, 2005, at 10:00 a.m., local time, at The Warwick Hotel, Kent Room, 65 West 54th Street, New York, New York 10019, for the following purposes: 1. To elect Ã've directors for terms...

  • Page 4
    ... May 2, 2005, we began mailing these proxy materials to all stockholders of record at the close of business on April 25, 2005. On the record date, there were 16,250,479 shares of our common stock outstanding. Where and when is the Annual Meeting? The Annual Meeting of Stockholders will take place on...

  • Page 5
    ... obtain a copy of the Form 10-Q by logging on to Travelzoo's investor relations Web site at www.travelzoo.com/ir, by calling the Securities and Exchange Commission at (800) SEC-0330 for the location of the nearest public reference room, or through the EDGAR system at www.sec.gov. Information on our...

  • Page 6
    ... the Board of Directors, President, and Chief Executive OÇcer Executive Vice President Director Director Director Each of the director nominees listed above was elected to be a director at the Company's Annual Meeting of Stockholders held on June 2, 2004. Our board of directors has determined that...

  • Page 7
    ... Bartel, our Chairman of the Board of Directors, and Ms. Urso were the only directors who attended the 2004 Annual Meeting. Audit Committee The Audit Committee's primary responsibilities are to oversee and monitor (i) the integrity of Travelzoo's Ã'nancial statements, (ii) the qualiÃ'cations and...

  • Page 8
    ... of the Board of Directors. Since it is a ""Controlled Company'' under Rule 4350(c)(5) of the NASD Manual, on account of the stock ownership by Ralph Bartel, such a committee is not required. Through his share ownership, Mr. Bartel is in a position to control Travelzoo and to elect our entire board...

  • Page 9
    ... with laws and regulations and Travelzoo's business conduct policies. Audit Committee David J. Ehrlich (Chairman) Donovan Neale-May Kelly M. Urso Director Compensation During 2004, we compensated Mr. Ehrlich, Mr. Neale-May, and Ms. Urso for their services to us. Such compensation consisted...

  • Page 10
    ... Amount of Common Stock BeneÃ'cially Owned Number of Exercisable % of Shares Shares(1) Options(2) Total Outstanding Holger Bartel Ralph Bartel David J. Ehrlich Kelly N. Ford Steven M. Ledwith Donovan Neale-May Lisa Su Shirley Tafoya Kelly M. Urso Directors and executive oÇcers as a group...

  • Page 11
    ... Su Shirley Tafoya 38 37 47 30 42 President, Chief Executive OÇcer, Chief Financial OÇcer, Chairman of the Board of Directors, and Secretary Executive Vice President Vice President of Marketing Chief Technology OÇcer Controller (Chief Accounting OÇcer) Senior Vice President of Sales Ralph...

  • Page 12
    ... Su Controller Steven Ledwith Chief Technology OÇcer Holger Bartel Executive Vice President Shirley Tafoya Senior Vice President of Sale Kelly Ford Vice President of Marketing 2004 2003 2002 2004 2003 2002 2004 2003 2002 2004 2003 2002 2004 2003 2002 2004 2003 2002 $225,001 $196,002 $192,000...

  • Page 13
    ... the company by reviewing the salary regularly and making adjustments relative to the company's overall performance. Salary Travelzoo targets executives' annual salaries to be competitive with comparable companies in the Internet and media industries with whom the company competes for management. It...

  • Page 14
    .... Bartel's annual salary was increased to $250,000 from $200,000 as of July 1, 2004. Compensation Committee Ralph Bartel (Chairman) Suzanna Mak Kelly M. Urso Compensation Committee Interlocks and Insider Participation During 2004, Ralph Bartel, the Chief Executive OÇcer of Travelzoo, was a member...

  • Page 15
    ...Travelzoo's stock wasn't registered under Section 12 of the Exchange Act prior to that date. Price information is not given for periods prior to 2002 because the shares of the Company were not publicly traded before 2002. 3,000 2,500 500 Publishing TravelzooS&P Inc. Market Index NASDAQ NASDAQ Market...

  • Page 16
    ... at the Annual Meeting or to make a formal statement. Consequently, representatives of KPMG LLP will not be available to respond to questions at the meeting. Principal Accountant Fees and Services During Ã'scal year 2004, KPMG charged fees for services rendered to Travelzoo as follows: Service 2003...

  • Page 17
    ... be directed to Investor Relations, Travelzoo Inc., 590 Madison Avenue, 21st Floor, New York, New York, 10022 or by telephone at (212) 521-4200. Other We will bear the cost of solicitation of proxies. Proxies will be solicited by mail and also may be solicited by our executive oÇcers and other...

  • Page 18
    ...June 30, 2004, the aggregate market value of voting stock held by non-aÇliates of the Registrant, based upon the closing sales price for the Registrant's Common Stock, as reported on the NASDAQ SmallCap Market, was $57,538,253. The number of shares outstanding of the Registrant's Common Stock as of...

  • Page 19
    ...Other Information PART III Directors and Executive OÇcers of the Registrant Executive Compensation Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services 2 17 17 17...

  • Page 20
    ... newsletter, and the NewsÃ-ash e-mail product. The Company also operates SuperSearch, a pay-per-click travel search engine. More than 300 companies purchase our advertising services, including American Airlines, ATA, Avis Rent-A-Car, British Airways, Carnival Cruise Lines, Liberty Travel, Delta Air...

  • Page 21
    ... reÃ-ect the reduction of the number of shares reported as outstanding during the period. In October 2004, the Company announced a program under which it will make cash payments to persons who establish that they were stockholders of Travelzoo.com Corporation, and who failed to submit requests...

  • Page 22
    ...the Travelzoo Web site, the Travelzoo Top 20 e-mail newsletter, and the NewsÃ-ash e-mail alert service. The Company also operates SuperSearch, a pay-per-click travel search engine. While our products provide advertising opportunities for travel companies, they also provide Internet users with a free...

  • Page 23
    ... SuperSearch, reach/usage information is based on internal Travelzoo statistics as of December 31, 2004. In 2004, the Travelzoo Web site and the Travelzoo Top 20 e-mail newsletter accounted for approximately 80% of our total revenues. In July 2004, we discontinued our Weekend.com e-mail newsletter...

  • Page 24
    ...Ã-ash, and our SuperSearch search engine provide consumers information on current special oÃ...ers at no cost to the consumer. Key features of our products include: ‚ Aggregation of OÃ...ers From Many Companies. Our Travelzoo Web site and our Travelzoo Top 20 e-mail newsletter aggregate information on...

  • Page 25
    ... 2004, our client base included approximately 340 travel companies, including airlines, hotels, cruise lines, vacations packagers, tour operators, car rental companies, and travel agents. Some of our clients are: American Airlines Apple Vacations ATA Avis Rent A Car British Airways Budget Rent A Car...

  • Page 26
    ... switches. Competition We compete with large Internet portal sites, such as About.com, America Online, Lycos, MSN and Yahoo!, that oÃ...er listings or other advertising opportunities for travel companies. We also compete with search engines like Google or Overture that oÃ...er pay-per-click listings. In...

  • Page 27
    ....'' The mark was registered by the PTO on May 13, 2003. Employees As of December 31, 2004, we had 49 employees, of whom 14 worked in sales, business development, and marketing, 23 in production, 3 in network operations and 9 were involved in Ã'nance, administration, and corporate operations. None of...

  • Page 28
    ... travel companies to list their special oÃ...ers with us; ‚ attract additional Internet users to the Travelzoo Web site; ‚ increase the functionality of our products and services; ‚ maintain our current, and develop new, business relationships; ‚ respond eÃ...ectively to competitive pressures...

  • Page 29
    ... to our Web site; ‚ technical diÇculties or system downtime aÃ...ecting the Internet generally or the operation of our products and services speciÃ'cally; and ‚ payments which we make to previous stockholders of Travelzoo.com Corporation who failed to submit requests for shares in Travelzoo Inc...

  • Page 30
    ... of the Travelzoo brand name is critical to achieving widespread acceptance of our business. Brand recognition is a key diÃ...erentiating factor among providers of online advertising opportunities, and we believe it could become more important as competition in our industry increases. In order to...

  • Page 31
    ... 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 companies and Internet users Ã'nd attractive. This...

  • Page 32
    ...competition may adversely aÃ...ect our ability to achieve or maintain market share and operate proÃ'tably. We compete with large Internet portal sites, such as About.com, America Online, Lycos, MSN and Yahoo!, that oÃ...er listings or other advertising opportunities for travel companies. These companies...

  • Page 33
    ...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 aÃ...ecting the Internet which could adversely aÃ...ect our business. To...

  • Page 34
    ... and in the our earnings per share, which could adversely aÃ...ect the market price of the common stock. On October 15, 2004, we announced a program under which we will make cash payments to persons who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to submit...

  • Page 35
    ... 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...

  • Page 36
    ... 3.50 3.55 4.00 On March 28, 2005, the last reported sales price of the common stock on the NASDAQ National Market was $42.80 per share. Holders As of March 3, 2005, there were 129,279 holders of record of the common stock. Dividend Policy Travelzoo has not declared or paid any cash dividends since...

  • Page 37
    ... advertising opportunities for travel companies, they also provide Internet users with a free source of information on current sales and specials from hundreds of travel companies. Our publications include the Travelzoo Web site, the Travelzoo Top 20 e-mail newsletter, and the NewsÃ-ash e-mail...

  • Page 38
    ... and operating performance of the Company, management focuses on the following Ã'nancial and non-Ã'nancial indicators: ‚ Growth of number of subscribers of the Company's newsletters and page views of selected sections of the Travelzoo Web site; ‚ Growth in revenues in the absolute and relative...

  • Page 39
    ...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...

  • Page 40
    ... of our operations for the years ended December 31, 2004, 2003 and 2002. Year Ended December 31, 2004 2003 2002 Revenues Cost of revenues Gross proÃ't Operating expenses: Sales and marketing General and administrative Merger expenses Total operating expenses Income from operations Interest...

  • Page 41
    ... table sets forth the number of subscribers of each of our e-mail publications as of December 31, 2004 and 2003 and the total number of page views for selected sections of the Travelzoo Web site for the years ended December 31, 2004 and 2003. Management considers the Travelzoo homepage and the front...

  • Page 42
    ...-location services to support the increase in revenues. Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of advertising and promotional expenses, public relations expenses, conference expenses, and salary expenses associated with sales and marketing staÃ.... Sales...

  • Page 43
    ...make cash payments to former stockholders of Travelzoo.com Corporation, who failed to submit requests for shares in Travelzoo Inc. within the required time period. The expenses are based on the number of actual valid claims received and the Company's stock price. The Company expects expenses related...

  • Page 44
    ... driven by a gradual increase in online advertising rates by our media suppliers as well as increased activity from competitors using similar forms of online advertising for their own marketing eÃ...orts. The decline in new subscriber acquisition costs in Q3 2004 and Q4 2004 reÃ-ects the eÃ...ect of new...

  • Page 45
    ... The tax beneÃ't of stock options resulted from exercises during 2004 of stock options by directors. The increase in accounts receivable resulted from higher revenues during 2004 and greater days of sales outstanding relating to a higher mix of variable fee advertising, which has a longer collection...

  • Page 46
    ... and Qualitative Disclosures About Market Risk The Company has no outstanding debt, is not a party to any derivatives transactions, and does not have any other material liabilities or assets which are subject to risks relating to currency exchange rates and commodity price risks. We invest in...

  • Page 47
    ... 8. Consolidated Financial Statements TRAVELZOO INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements...

  • Page 48
    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 as of December 31, 2003 and 2004, and the related consolidated statements of operations, ...

  • Page 49
    ...Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized, none outstanding Common stock, $0.01 par value; 40,000,000 shares authorized, 16,233,204 shares outstanding as of December 31, 2004 and 19,425,147 shares reported as outstanding as of...

  • Page 50
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF OPERATIONS 2004 Years Ended December 31, 2003 2002 Revenues Cost of revenues Gross proÃ't Operating expenses: Sales and marketing General and administrative Merger expenses Total operating expenses Income from operations Interest income Income ...

  • Page 51
    ... options ÏÏ 173,589 Tax beneÃ't of non-qualiÃ'ed stock options exercise Recovery of proÃ't from purchase and sale of stock by employees ÏÏÏ ÃŒ Proceeds from issuance of common stock, net of related issuance costs 750,000 Balances, December 31, 2004 16,233,204 (41,155) 1,736 ÃŒ ÃŒ 7,500 $162...

  • Page 52
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 2004 Year Ended December 31, 2003 2002 Cash Ã-ows from...: Proceeds from issuance of common stock, net of related costs Proceeds from stock option exercises Recovery of proÃ't from purchase and sale of stock by employees Net cash provided by...

  • Page 53
    ... of SigniÃ'cant Accounting Policies (a) The Company and Basis of Presentation Travelzoo Inc. is an Internet media company that publishes sales and specials for hundreds of travel companies. The Company's products include the Travelzoo Web Site, the Travelzoo Top 20 e-mail newsletter, the NewsÃ-ash...

  • Page 54
    ....com Corporation and Travelzoo Inc. (b) Revenue Recognition Substantially all revenue consists of advertising sales. Advertising revenues are derived from the sale of advertising on the Travelzoo Web site, in the Travelzoo Top 20 e-mail newsletter, in NewsÃ-ash, and in SuperSearch. The Company...

  • Page 55
    ... of advertising on the Travelzoo Web site. The Company recorded these revenues on a net basis. The gross revenue received by DoubleClick from advertising on the Travelzoo Web site was $-0-, $-0- and $82,939 for the years ended December 31, 2004, 2003, and 2002 respectively. The Company's share of...

  • Page 56
    ...31, 2004 2003... at cost less ...number of clicks to the seller's other Web sites through advertising placed on the Travelzoo Web site. The fair value of the advertising services of $89,286 was determined based on the cash price of similar advertising services and recorded as deferred revenue. The revenue...

  • Page 57
    ... costs amounted to $11,770,246, $6,745,769 and $3,960,464 for the years ended December 31, 2004, 2003, and 2002, respectively. During the years ended December 31, 2004, 2003 and 2002, $-0-, $429,296 and $546,214, respectively, of advertising services were purchased from the Company's clients...

  • Page 58
    ... (in years Annual volatility Risk-free interest rates Dividend Rate l) Web Site Development Costs 33,589 $ 0.06 $ 0.56 5 51% 4.5% Ì The Company accounts for Web site development costs in accordance with EITF Issue No. 00-02, Accounting for Website Development Costs. Internal Web site...

  • Page 59
    ... up to an additional 4,115,532 shares of common stock for no additional payment. On October 15, 2004, the Company announced a program under which it will make cash payments to persons who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to submit requests...

  • Page 60
    ...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...

  • Page 61
    ...931,924 was recorded in stockholders' equity for the tax beneÃ't of stock options exercises. Income tax expense for the years ended December 31, 2004, 2003, and 2002, diÃ...ered from the amounts computed by applying the U.S. federal statutory tax rate applicable to the Company's level of pretax income...

  • Page 62
    ..., 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...

  • Page 63
    ...ering of 402,500 shares of common stock sold by the Company's Chief Executive OÇcer and principal stockholder. The oÃ...ering was intended primarily to allow the Company to satisfy the requirement for listing on the NASDAQ SmallCap Market that the Company have 300 round lot holders. The costs of the...

  • Page 64
    ... 31, 2004 2004 2004 2003 (In thousands) Sept 30, June 30, Mar 31, 2003 2003 2003 Revenues 10,509 $9,507 $7,201 $6,462 $5,201 $4,785 $4,291 $3,714 Cost of revenues 166 183 166 179 141 93 81 83 Gross proÃ't Operating expenses: Sales and marketing General and administrative Merger expenses Total...

  • Page 65
    ...entitled ""Election of Directors'' and ""Section 16(a) BeneÃ'cial Ownership Reporting Compliance'' appearing in Travelzoo's DeÃ'nitive Proxy Statement for the Annual Meeting of Stockholders to be Ã'led with the SEC within 120 days after the end of Travelzoo's Ã'scal year ended December 31, 2004. The...

  • Page 66
    ... ""Stock Ownership by Directors and Executive OÇcers'' and ""Security Ownership of Certain BeneÃ'cial Owners'' in Travelzoo's DeÃ'nitive Proxy Statement for the Annual Meeting of Stockholders to be Ã'led with the SEC within 120 days after the end of Travelzoo's Ã'scal year ended December 31, 2004...

  • Page 67
    ... Schedules The following documents are Ã'led as part of this report: (1) Our Consolidated Financial Statements are included in Part II, Item 8: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of...

  • Page 68
    ...Executive OÇcer, and Chief Financial OÇcer Controller (Chief Accounting OÇcer) March 30, 2005 March 30, 2005 /s/ DAVID J. EHRLICH David J. Ehrlich SUZANNA MAK Suzanna Mak Director March 31, 2005 /s/ Director March 29, 2005 /s/ DONOVAN NEALE-MAY Donovan Neale-May /s/ KELLY M. URSO Kelly...

  • Page 69
    ... 10.8 Ì Agreement with Click Here, Inc. dated July 1, 2004 10.9 Ì Agreement with Click Here, Inc. dated January 21, 2005 21.1 Ì Subsidiaries of Travelzoo Inc.** 23.1 Ì Consent of Independent Registered Public Accounting Firm** 24.1 Ì Power of Attorney (included on signature page) 31.1 Ì Certi...

  • Page 70
    EXHIBIT 21.1 Subsidiaries of Travelzoo Inc. Travelzoo USA, Inc., a California corporation* Travelzoo.com Canada, Inc., a corporation formed under the Business Corporations Act of Canada * Formerly Silicon Channels Corporation

  • Page 71
    ... and the related consolidated statements of operations, stockholders' equity, and cash Ã-ows for each of the years in the three-year period ended December 31, 2004, which report appears in the December 31, 2004 Annual Report on Form 10-K of Travelzoo Inc. /s/ KPMG LLP Mountain View, California March...

  • Page 72
    ... information; and b. any fraud, whether or not material, that involves management or other employees who have a signiÃ'cant role in the Registrant's internal control over Ã'nancial reporting. TRAVELZOO INC. By: RALPH BARTEL Ralph Bartel Chairman of the Board, Chief Executive OÇcer, and Chief...

  • Page 73
    ... the Registrant has duly caused this Report to be signed on its behalf by the undersigned ...report fairly presents, in all material respects, the Ã'nancial condition and results of operations of the Registrant. TRAVELZOO INC. By: RALPH BARTEL Ralph Bartel Chairman of the Board, Chief Executive...

  • Page 74
    Investors Relations: Travelzoo Inc. ATTN: Investor Relations 590 Madison Avenue 21st Floor New York, NY 10022 Web site: www.travelzoo.com/ir