Travelzoo 2002 Annual Report Download

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L
TRA
VEZOO
TRA
VEL
ZOOTravelzoo Inc.
590 Madison Avenue, 21st Floor
New York, NY 10022
May 1, 2003
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Travelzoo Inc. on June 4,
2003. We will hold the meeting at The Warwick Hotel, Kent Room, 65 West 54th Street, New York, New
York 10019 at 10:00 a.m. Eastern Standard Time.
In connection with the meeting, we enclose a notice of the meeting, a proxy statement and a proxy card.
Detailed information relating to Travelzoo's activities and operating performance is contained in our 2002
Annual Report on Form 10-K, as Ñled 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
with the enclosed proxy card. Please note that you can attend the meeting and vote in person, even if you have
previously voted. If you plan to attend the meeting in person, please provide advance notice to Travelzoo by
checking the box on your proxy card. In addition, you may provide notice to Travelzoo that you plan to attend
in person by delivering written notice to Travelzoo's Secretary at 590 Madison Avenue, 21st Floor, New York,
New York 10022.
If you hold your shares in street name through a bank or broker, please bring identiÑcation and proof of
ownership, such as an account statement or letter from your bank or broker, for admittance to the meeting. An
admission list containing the names of all of those planning to attend will be placed at the registration desk at
the entrance to the meeting, where you must check in to gain admittance.
Travelzoo will make available an alphabetical list of stockholders entitled to vote at the meeting for
examination by any stockholder during ordinary business hours at 590 Madison Avenue, 21st Floor, New
York, New York 10022, from May 19, 2003 until the meeting.
On behalf of the entire Board of Directors, we look forward to seeing you at the meeting.
Sincerely,
R
ALPH
B
ARTEL
Chairman of the Board of Directors, President,
Chief Executive OÇcer, and Secretary

Table of contents

  • Page 1
    TRAVELZ OO Travelzoo Inc. 590 Madison Avenue, 21st Floor New York, NY 10022 May 1, 2003 Dear Stockholder: You are cordially invited to attend the Annual Meeting of Stockholders of Travelzoo Inc. on June 4, 2003. We will hold the meeting at The Warwick Hotel, Kent Room, 65 West 54th Street, New ...

  • Page 2
    ... that the Annual Meeting of Stockholders of Travelzoo Inc., a Delaware corporation, will be held on Wednesday, June 4, 2003, at 10:00 a.m. Eastern Standard 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...

  • Page 3
    ...record at the close of business on April 30, 2003. On the record date, there were 19,425,147 shares of our common stock outstanding. Where and when is the Annual Meeting? The Annual Meeting of Stockholders will take place on June 4, 2003 at The Warwick Hotel, Kent Room, 65 West 54th Street, New York...

  • Page 4
    ... meeting. We will publish the Ã'nal results in our Quarterly Report on Form 10-Q for the second quarter of 2003, which we will Ã'le on or before August 15, 2003. You can obtain a copy of the Form 10-Q by logging on to Travelzoo's investor relations website at www.corporate.travelzoo.com, by calling...

  • Page 5
    ... University. Donovan Neale-May, 50, has served as a director since February 1999. Since 1987, Mr. Neale-May has been President of Neale-May & Partners, a strategic marketing and public relations Ã'rm with 80 full-time communications professionals headquartered in Palo Alto, California. Kelly M. Urso...

  • Page 6
    ... supervise preparation of all SEC Ã'lings, press releases and other broadly disseminated correspondence. Audit Committee Report The Audit Committee oversees Travelzoo's Ã'nancial reporting process on behalf of your Board of Directors. Management is primarily responsible for the Ã'nancial statements...

  • Page 7
    ... or to assure compliance with laws and regulations and Travelzoo's business conduct policies. Audit Committee David J. Ehrlich Donovan Neale-May Kelly M. Urso Director Compensation During 2002 we compensated each director for his or her service to us. Such compensation consisted of options for each...

  • Page 8
    ...by June 30, 2003: Number of Shares(1) Amount of Common Stock BeneÃ'cially Owned Exercisable Options(2) Total % of Shares Outstanding Name Ralph Bartel David J. Ehrlich Suzanne L. Kavert Suzanna Mak Donovan Neale-May Lisa Su Kelly M. Urso Directors and executive oÇcers as a group (7 persons...

  • Page 9
    ...Travelzoo. Mr. Bartel received no salary directly from Travelzoo in 2000. (2) The options issued to Mr. Bartel during 2001 and 2002 constitute compensation for participation on the Board of Directors... the market value or future appreciation of our common share price. The Black-Scholes model was ...

  • Page 10
    ... 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 11
    ..., and provides for an annual salary of $192,000. No changes to Mr. Bartel's salary were made in 2002. Compensation Committee Ralph Bartel Kelly M. Urso Compensation Committee Interlocks and Insider Participation During 2002, Ralph Bartel, the Chief Executive OÇcer of Travelzoo, was a member of the...

  • Page 12
    ... year 2002, KPMG charged fees for services rendered to Travelzoo as follows: Service 2002 Fees Audit Audit-related Tax All other fees Total $170,985 Ì Ì Ì $170,985 YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE ""FOR'' THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS TRAVELZOO'S PRINCIPAL...

  • Page 13
    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 employees personally or by telephone, but such persons will not be speciÃ'cally compensated for such services. It is contemplated that brokerage ...

  • Page 14
    ... Statement of Purpose The Audit Committee (the ""Committee'') will assist the Board of Directors (the ""Board'') of Travelzoo Inc. (the ""Company'') in fulÃ'lling the Board's oversight responsibilities with regard to the Company's Ã'nancial reporting process. The duties of the Committee are ones of...

  • Page 15
    ...included in the Annual Report on Form 10-K. 7. Review and discuss, prior to issuance or Ã'ling, the Company's Ã'nancial statements proposed to be included in the Company's public earnings reports and the Company's Quarterly Reports on Form 10-Q with the Company's Ã'nancial management and independent...

  • Page 16
    ... and any material reports or inquiries received from regulators or government agencies. 2. Review all related party transactions and potential conÃ-ict of interest situations involving the Company's principal shareholders or members of the Board or senior management. 3. Authorize and oversee...

  • Page 17
    ... in and Disagreements with Accountants on Accounting and Financial Disclosures PART III Directors and Executive OÇcers of the Registrant Executive Compensation Security Ownership of Certain BeneÃ'cial Owners and Management Certain Relationships and Related Transactions Controls and Procedures...

  • Page 18
    ...exible, and costeÃ...ective way to reach millions of users. Our products include the Travelzoo website, the Travelzoo Top 20 newsletter, and the Weekend.com newsletter. More than 200 companies use our services. Our clients include American Airlines, American Express, Alamo Rent-a-Car, Apple Vacations...

  • Page 19
    ... to consumers by advertising sales and specials via the Internet that attract consumers to supplier's websites. Problems Travel Companies Face and Limitations of Newspaper Advertising We believe that travel companies often face the challenge of being able to eÃ...ectively market and sell excess...

  • Page 20
    ... their marketing campaigns. Our Travelzoo website at http://www.travelzoo.com lists sales and specials from approximately 200 travel companies. The site reaches 4.7 million Internet users per month (source: comScore Media Metrix, 7/2002). Our Travelzoo Top 20 is a weekly e-mail newsletter that...

  • Page 21
    ... rental companies, and travel agents. Some of our clients are: American Airlines American Express Alamo Rent-a-Car Apple Vacations America West Vacations Avis Rent A Car British Airways Budget Rent A Car Delta Air Lines Expedia Funjet Vacations Hilton Hotels JetBlue Airways Lufthansa Marriott Hotels...

  • Page 22
    ... Travelzoo e-mail product that allows travel companies to announce time-sensitive and newsworthy sales and specials just as they are released. 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...

  • Page 23
    ... the user's Internet ""addresses.'' The current system for registering, allocating and managing domain names has been the subject of litigation and of proposed regulatory reform. We own the domain names for travelzoo.com, travelzoo.net, travelzoo.org, travelzoo.ca, travelzoo.co.uk, weekend.com, and...

  • Page 24
    ... and retain additional travel companies to list their special oÃ...ers with us; ‚ attract additional Internet users to the Travelzoo website; ‚ increase the functionality of our products and services; ‚ maintain our current, and develop new, business relationships; ‚ respond eÃ...ectively to...

  • Page 25
    ... adverse eÃ...ect on our business. Our business model is unproven and may not be adaptable to a changing market. Our current revenue model depends on advertising fees from travel companies using our products. If current clients decide not to continue listing their sales and specials with us and we are...

  • Page 26
    ... signiÃ'cant costs related to the printing and mailing of such reports. Risks Related to Our Markets and Strategy The Internet is not a proven marketing medium. The future of our business is dependent on the ongoing acceptance by travel companies of the Internet as an eÃ...ective marketing tool, and...

  • Page 27
    .... We may not succeed in developing features, functions, products or services that travel companies and Internet users Ã'nd attractive. This could reduce the number of travel companies and Internet users using our products and materially adversely aÃ...ect our business. We may lose business if we fail...

  • Page 28
    ... our services, loss of market share or less use of Travelzoo by travel companies and consumers. If we are not able to compete eÃ...ectively with current or future competitors as a result of these and other factors, our business could be materially adversely aÃ...ected. Loss of any of our key management...

  • Page 29
    ...he is in a position to control Travelzoo and to elect our entire board of directors. Investors may face signiÃ'cant restrictions on the resale of our stock due to federal penny stock regulations. If our shares trade at less than Ã've dollars per share, since the shares are not listed on a recognized...

  • Page 30
    ... 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 31
    ... and Related Stockholder Matters Our common stock has been quoted on the OTC Bulletin Board under the symbol TVZO since August 28, 2002. Trading has been very limited. The following table sets forth, for the periods indicated, the high and low sales prices per shares of our common stock as reported...

  • Page 32
    ...other travel companies with a fast, Ã-exible, and costeÃ...ective way to reach millions of users. Our products include the Travelzoo website, the Travelzoo Top 20 newsletter, and the Weekend.com newsletter. Our revenues are primarily derived from the sale of advertising on our Travelzoo website and in...

  • Page 33
    ... follows: ‚ Advertising revenues, consisting of listing fees paid by travel companies to advertise their special oÃ...ers on the Travelzoo website, the Travelzoo Top 20 e-mail newsletter, the Weekend.com e-mail newsletter, and banner advertising sales. Listing fees are based on placement, number of...

  • Page 34
    ... advertising campaigns for the Travelzoo brand. Subscription to the Travelzoo Top 20 e-mail newsletter is free. However, we believe that these additional subscribers add signiÃ'cant value to the company because the additional subscribers allow us to increase our advertising rates. The cost related...

  • Page 35
    ... 31, 2000. The increases in sales and marketing expenses was due to the decision by our management to hire more experienced sales personnel and increases of the Company's advertising of the Travelzoo brand. For the years ended December 31, 2002 and 2001, advertising expenses accounted for 69% and 69...

  • Page 36
    ... a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the Travelzoo website, the Travelzoo Top 20 newsletter, the Weekend.com newsletter and expansion of our operations and the amount of our resources we devote to promoting awareness...

  • Page 37
    ... same manner as sale-leaseback transactions. SFAS No. 145 is eÃ...ective for us beginning in 2003, and the eÃ...ect of adoption is not expected to have a material impact on our consolidated Ã'nancial statements. In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit...

  • Page 38
    ...2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock... Market Risk Our accounts receivable are subject, in normal course of business,...

  • Page 39
    Item 8. Consolidated Financial Statements TRAVELZOO INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to...

  • Page 40
    ... 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, 2002. These consolidated Ã'nancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on...

  • Page 41
    ...Current liabilities: Accounts payable Accrued expenses Deferred revenue Income tax payable Total liabilities Commitments Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized Common stock, $0.01 par value; 40,000,000 shares authorized, 19,425,147 shares issued and...

  • Page 42
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF OPERATIONS 2002 Years Ended December 31, 2001 2000 Revenues: Advertising Commissions Total revenues Cost of revenues Gross proÃ't Operating expenses: Sales and marketing General and administrative Merger expenses Total operating expenses Income ...

  • Page 43
    TRAVELZOO INC. CONSOLIDATED STATEMENTS Of STOCKHOLDERS' EQUITY Years Ended December 31, 2002, 2001 and 2000 Common Stock Shares Amount Additional Paid-in Capital Retained Earnings Total Stockholders' Equity Balances, December 31, 1999 Issuance of common stock upon exercise of options Stock-based ...

  • Page 44
    ...accounts receivable Loss on disposal of property and equipment Stock-based compensation expense Non-cash revenues Changes in operating assets and liabilities: Accounts... acquired for future advertising Services Reduction in carry amounts of intangible asset and deferred revenue $ 853,071 ...

  • Page 45
    ... (the ""Company'' or ""Travelzoo''). All signiÃ'cant intercompany accounts and transactions have been eliminated in consolidation. The Company publishes the Travelzoo website, the Travelzoo Top 20 e-mail newsletter, and the Weekend.com e-mail newsletter which provide advertising opportunities for...

  • Page 46
    ... on the Travelzoo website. The Company recorded these revenues on a net basis. The gross revenue received by DoubleClick from advertising on the Travelzoo website was $82,939, $600,454, and $430,130 for the years ended December 31, 2002, 2001, and 2000 respectively. The Company's share of this...

  • Page 47
    ...all outstanding stock options were excluded from the calculation of diluted earnings per share because their eÃ...ect was antidilutive. (d) Use of Estimates Management of the Company have made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses...

  • Page 48
    ... a minimum number of clicks to the seller's other websites through advertising placed on the Travelzoo website. 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 was recognized...

  • Page 49
    ... value less costs to sell. (j) 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...

  • Page 50
    ...the adoption of EITF No. 00-02, no internal website development costs that qualify for capitalization have been incurred. (l) Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other...

  • Page 51
    ... of Statement 123 to require prominent disclosures in both annual and interim Ã'nancial statements about the method of accounting for stock-based employee compensation and the eÃ...ect of the method used on reported results. The Company has adopted the new disclosure requirements of this statement...

  • Page 52
    TRAVELZOO INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ÃŒ (Continued) (4) Income Taxes Income tax expense (beneÃ't) for the years ended December 31, 2002, 2001, and 2000 consisted of the following: Current Deferred Total 2002... Company's level of pretax income as a result of the following: 2002 ...

  • Page 53
    ... tax assets because management believes that the Company is more likely than not to generate suÇcient future taxable income to realize the related tax beneÃ'ts. (5) Stockholders' Equity As of December 31, 2002 the authorized capital stock of Travelzoo Inc. comprised 40,000,000 shares of $.01 par...

  • Page 54
    ... reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within a company for making operational...

  • Page 55
    ...30, 2002 June 30, 2002 Quarters Ended Mar 31, Dec 31, 2002 2001 (In thousands) Sept 30, 2001 June 30, 2001 Mar 31, 2001 Revenues: Advertising 3,132 Commissions Total revenues ÏÏÏÏ Cost of revenues Gross proÃ't Operating expenses: Sales and marketing ÏÏÏ General and administrative Merger...

  • Page 56
    ... (Chief Accounting OÇcer) Ralph Bartel founded Travelzoo in May 1998 and has served as President, Chief Executive OÇcer, Chief Financial OÇcer and Chairman of the Board of Directors since inception. Prior to his founding of Travelzoo, from 1996 to 1997, Mr. Bartel served as Managing Assistant at...

  • Page 57
    ...Executive OÇcer and Chief Financial OÇcer along with the Company's Controller (Chief Accounting OÇcer) concluded that our disclosure controls and procedures are eÃ...ective in timely alerting them to material information relating to the Company.... (b) Reports on Form 8-K There were no reports on Form...

  • Page 58
    ... has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on March 27, 2003. TRAVELZOO INC. (Registrant) By: RALPH BARTEL Ralph Bartel Chairman of the Board, Chief Executive OÇcer, and Chief Financial...

  • Page 59
    ... SARBANES-OXLEY ACT OF 2002 I, Ralph Bartel, certify that: 1. I have reviewed this annual report on Form 10-K of Travelzoo Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made...

  • Page 60
    ...Agreement, dated as of April 1, 2000, between Travelzoo Sales, Inc. and Ralph Bartel (Incorporated by reference to our Pre-EÃ...ective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), Ã'led February 14, 2002) 10.2 ÃŒ Stock Option Agreement dated January 22, 2001, between...

  • Page 61
    EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to the requirements 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 and each of the undersigned ...