Travelzoo 2005 Annual Report Download - page 63

TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(i) Income Taxes
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 diÅerences between the Ñnancial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are
recognized for deductible temporary diÅerences, along with net operating loss carryforwards and credit
carryforwards, if it is more likely than not that the tax beneÑts 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 diÅerences are expected to be recovered or settled.
(j) Comprehensive Income
Comprehensive income consists of two components, net income 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. The
Company's other comprehensive income (loss) is comprised of foreign currency translation adjustments.
(k) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144, Impairment of Long-Lived Assets. SFAS No. 144 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 Öows. The amount of the impairment loss is measured as
the diÅerence 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.
(l) 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.
The Company did not grant any stock-based compensation awards to employees or directors during the
years ended December 31, 2005, 2004 and 2003. All previously granted awards were fully vested as of
January 1, 2003.
(m) 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, 2005, 2004 and 2003.
(n) Foreign Currency
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. 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.
42