Travelzoo 2006 Annual Report Download - page 56

cash equivalents and short-term investments increased to $44.4 million on December 31, 2005 from $36.5 million
on December 31, 2004 primarily as a result of cash provided by operating activities explained below. We expect that
cash flows generated from operations will continue to be sufficient to provide for working capital needs for at least
the next 12 months.
Net cash provided by operating activities in the year ended December 31, 2006 was $17.3 million. Net cash
provided by operating activities in the year ended December 31, 2005 was $8.1 million. Net cash provided by
operating activities in the year ended December 31, 2004 was $4.5 million. In the year ended December 31, 2006, net
cash provided by operating activities resulted primarily from net income and a net decrease in accounts receivable
offset by a decrease in accrued expenses and an increase in deferred income taxes. In the year ended December 31,
2005, net cash provided by operating activities resulted primarily from net income and a net increase in accrued
expenses and accounts payable offset by increases in accounts receivable and deferred income taxes. In the year ended
December 31, 2004, net cash provided by operating activities resulted primarily from net income and a net increase in
accrued expenses and tax benefit of stock options exercises offset by an increase in accounts receivable and a decrease
in income tax payable. The tax benefit 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 period than fixed fee
advertising because it is billed in arrears while fixed fee advertising is billed in advance.
Net cash provided by investing activities was $20.2 million during the year ended December 31, 2006. Net
cash used in investing activities was $10.0 million and $10.1 million during the years ended December 31, 2005 and
2004, respectively. In 2006, net cash was provided primarily by the sale of short-term investments of $35 million
offset by the purchase of short-term investments of $14.7 million. In 2005 and 2004, net cash was used primarily for
purchases of short-term investments of $49.5 million and $10.0 million, respectively. In 2005, net cash used in
investing activities was offset by sale of short-term investments of $39.7 million.
Net cash used in financing activities was $28.6 million and $89,000 for the years ended December 31, 2006
and 2005, respectively. Net cash provided by financing activities was $28.5 million in the year ended December 31,
2004. The net cash used in the year ended December 31, 2006 was due primarily to the repurchase of 1 million
shares of common stock totaling $28.6 million. The net cash used in the year ended December 31, 2005 was due
primarily to additional costs from the issuance of common stock in 2004 offset by proceeds from stock option
exercises. The net cash provided in the year ended December 31, 2004 was due primarily to the proceeds from
issuance of common stock in a private placement transaction and upon exercises of stock options by directors.
Our capital requirements depend on a number of factors, including market acceptance of our products and services,
the amount of our resources we devote to development of new products, cash payments to former stockholders of
Travelzoo.com Corporation, expansion of our operations, and the amount of our resources we devote to promoting
awareness of the Travelzoo brand. Since the inception of the program under which we would make cash payments to
people who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to submit
requests to convert shares into Travelzoo Inc. within the required time period, we have incurred expenses of $2.6 million.
While future payments for this program are expected to decrease, the total cost of this program is still undeterminable
because it is dependent on our stock price and on the number of requests ultimately received. Consistent with our growth,
we have experienced a substantial increase in our sales and marketing expenses since inception, and we anticipate that
these increases will continue for the foreseeable future. We believe cash on hand and generated during those periods will
be sufficient to pay such costs. In addition, we will continue to evaluate possible investments in businesses, products and
technologies, the consummation of any of which would increase our capital requirements.
Although we currently believe that we have sufficient capital resources to meet our anticipated working capital
and capital expenditure requirements beyond the next 12 months, unanticipated events and opportunities may
require us to sell additional equity or debt securities or establish new credit facilities to raise capital in order to meet
our capital requirements. If we sell additional equity or convertible debt securities, the sale could dilute the
ownership of our existing stockholders. If we issue debt securities or establish a new credit facility, our fixed
obligations could increase, and we may be required to agree to operating covenants that would restrict our
operations. We cannot be sure that any such financing will be available in amounts or on terms acceptable to us.
We expect that cash on hand will be sufficient to finance the expansion of our European operations.
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