Travelzoo 2004 Annual Report Download - page 58

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TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(k) Stock-Based Compensation
As allowed under SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected
to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for Ñxed plan stock awards to employees.
Had all stock-based compensation awards granted to employees and directors been accounted for using
the fair value based method, net income and net income per share would have been adjusted to the amounts
reported in the following table.
Year Ended December 31,
2004 2003 2002
Net income as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $6,037,377 $2,050,126 $853,071
Add back: Stock-based compensation included in
determination of net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì
Deduct: Stock-based compensation determined under the
fair-value based method ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (1,908)
Pro-forma net income as if the fair value based method
had been applied to all awards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $6,037,377 $2,050,126 $851,163
Pro-forma basic net income per share as if the fair value
based method had been applied to all awards ÏÏÏÏÏÏÏÏÏ $ 0.36 $ 0.11 $ 0.04
Pro-forma diluted net income per share as if the fair
value based method had been applied to all awards ÏÏÏÏ $ 0.33 $ 0.10 $ 0.04
The fair value of options granted was calculated as of the grant date using the Black-Scholes method with
the following assumptions:
2004 2003 2002
Numbers of options granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 33,589
Grant date fair value of options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì $ 0.06
Grant date fair value of the common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì $ 0.56
Expected life of the option (in years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 5
Annual volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 51%
Risk-free interest ratesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 4.5%
Dividend RateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì
(l) Web Site Development Costs
The Company accounts for Web site development costs in accordance with EITF Issue No. 00-02,
Accounting for Website Development Costs. Internal Web site development costs that qualify for capitalization
have been immaterial for the years ended December 31, 2004, 2003 and 2002.
(m) Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (""FASB'') issued SFAS 123R, Share-
Based Payment, which requires the measurement of all share-based payments to employees, including grants
of employee stock options, using a fair-value-based method and the recording of such expense in the statement
of operations. The accounting provisions of SFAS 123R are eÅective for reporting periods beginning after
June 15, 2005. The Company is required to adopt SFAS 123R in the third quarter of 2005. The pro forma
disclosures previously permitted under SFAS 123 no longer will be an alternative to Ñnancial statement
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