Travelzoo 2007 Annual Report Download - page 62

Income Taxes
For the year ended December 31, 2007, we recorded an income tax provision of $13.0 million. For the years
ended December 31, 2006 and 2005, we recorded income tax provisions of $14.2 million and $7.9 million,
respectively. Our effective tax rates for 2007, 2006 and 2005 were 59%, 46% and 50%, respectively. Our income is
generally taxed in the U.S. and our income tax provisions reflect federal and state statutory rates applicable to our
levels of income, adjusted to take into account expenses that are treated as having no recognizable tax benefit. Our
effective tax rate increased in 2007 compared to 2006 due primarily to the increase in losses from our Europe and
Asia Pacific business segments for which no income tax benefit is currently recognized. Our effective tax rate
decreased in 2006 compared to 2005 due primarily to a decrease in the expenses related to the program to make cash
payments to former stockholders which were treated as non tax deductible expenses for financial statement
reporting purposes.
We expect that our effective tax rate in future periods may fluctuate depending on the total amount of expenses
representing payments to former stockholders, losses or gains incurred by our operations in Canada, Europe and
Asia Pacific, and corresponding U.S. tax credits, if any.
During the year ended December 31, 2005, the Company realized tax benefits of $435,000 upon the exercises
of stock options by directors. The tax benefit reduced the Company’s income tax payable and increased additional
paid-in capital by this amount.
Liquidity and Capital Resources
As of December 31, 2007 we had $22.6 million in cash and cash equivalents. Cash and cash equivalents
decreased from $33.4 million on December 31, 2006 primarily as a result of cash provided by operating activities
offset by cash used in financing activities as explained below. Cash, cash equivalents and short-term investments
decreased to $33.4 million on December 31, 2006 from $44.4 million on December 31, 2005 primarily as a result of
cash provided by operating activities offset by cash used in financing activities as explained below. We expect that
cash flows generated from operations coupled with existing cash balances will 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, 2007 was $9.9 million. 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. In the year ended December 31, 2007,
net cash provided by operating activities resulted primarily from net income and increases in accrued expenses and
accounts payable offset by increases in accounts receivable and prepaid expenses and other current assets. 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.
Net cash used in investing activities was $663,000 during the year ended December 31, 2007. 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 during the year ended December 31, 2005. In 2007, net cash was used
primarily for capital expenditures. 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, net cash was used primarily
for purchases of short-term investments of $49.5 million offset by the sale of short-term investments of
$39.7 million.
Net cash used in financing activities was $19.8 million, $28.6 million and $89,000 for the years ended
December 31, 2007, 2006 and 2005, respectively. The net cash used in the year ended December 31, 2007 was due
to the repurchase of 1 million shares of common stock totaling $19.8 million. The net cash used in the year ended
December 31, 2006 was due 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.
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