Travelzoo 2007 Annual Report Download - page 81

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax
assets and liabilities as of December 31, 2007 and 2006, are as follows (in thousands):
2007 2006
Deferred tax assets:
Foreign net operating loss carryforwards ............................ $3,154 —
State income taxes ............................................. 1,031 1,253
Accruals and allowances ........................................ 335 665
Intangible assets .............................................. 89 98
Total deferred tax assets ....................................... 4,609 2,016
Valuation allowance ............................................ (3,154) —
Net deferred tax assets ........................................ $1,455 $2,016
Deferred tax liabilities:
Property and equipment ......................................... $ (62) $ (39)
Total deferred tax liabilities .................................... (62) (39)
Net deferred tax assets ........................................... $1,393 $1,977
The Company has a valuation allowance of approximately $3.2 million as of December 31, 2007 related to
foreign net operating loss carryforwards of approximately $12.1 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 amount of the valuation allowance represented an increase of approximately $3.2 million over the amount
recorded as of December 31, 2006 and was due to the increase in foreign operating losses that were recognized in
2007.
On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions.
There was no effect to the financial statements upon implementation of FIN 48. The Company had a liability of
$1.1 million for income taxes associated with uncertain tax positions at January 1, 2007. Consistent with the
provisions of FIN 48, the Company reclassified approximately $1.1 million of income tax liabilities from income
taxes payable to other long-term tax liabilities in the Consolidated Balance Sheets because payment of cash is not
anticipated within one year of the balance sheet date. Interest and penalties related to income tax liabilities are
included in income tax expense. 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. The balance of accrued interest recorded in the Consolidated Balance Sheets at
January 1, 2007 was approximately $57,000. This amount was also reclassified from income taxes payable to other
long-term tax liabilities upon adoption of FIN 48. At December 31, 2007, the Company had approximately
$1.1 million in total unrecognized tax benefits and approximately $111,000 in accrued interest. The Company has
not accrued any penalties related to our uncertain tax positions as we believe that it is more likely than not that there
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TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)