Travelzoo 2009 Annual Report Download - page 49

Since the total cost of the program is not reliably estimable, the amount of expense recorded in a period is equal
to the actual number of valid claims received during the period multiplied by (i) the number of shares held by each
individual former stockholder and (ii) the applicable settlement price based on the recent price of our common stock
at the date the claim is received as stipulated by the program. Requests are generally paid within 30 days of receipt.
Please refer to Note 3 to the consolidated financial statements for further details about our liabilities to former
stockholders.
Results of Operations
The following table sets forth, as a percentage of total revenues, the results of our operations for the years
ended December 31, 2009, 2008 and 2007.
2009 2008 2007
Year Ended
December 31,
Revenues ................................................. 100.0% 100.0% 100.0%
Cost of revenues............................................ 6.0 3.5 1.2
Gross profit............................................ 94.0 96.5 98.8
Operating expenses:
Sales and marketing ....................................... 52.9 53.6 51.4
General and administrative .................................. 26.5 26.4 17.4
Total operating expenses .................................. 79.4 80.0 68.8
Income from operations ...................................... 14.6 16.5 30.0
Other income and expenses, net ................................ (0.1) 1.0 1.9
Income from continuing operations before income taxes .............. 14.5 17.5 31.9
Income taxes .............................................. 7.7 10.1 16.5
Income from continuing operations .............................. 6.8 7.4 15.4
Loss from discontinued operations, net of taxes ..................... (1.3) (12.4) (3.8)
Net income (loss) ........................................... 5.5% (5.0)% 11.6%
For the year ended December 31, 2009, we reported income from continuing operations of approximately
$6.4 million. As of December 31, 2009, we had retained earnings of approximately $27.0 million. Our operating
margin decreased to 14.6% for the year ended December 31, 2009 from 16.5% in 2008. The main reason for the
decrease in operating margin is our cost of revenues as a percentage of revenues increased for the year ended
December 31, 2009 compared to prior year (see “Cost of Revenues” below). This was partially offset by a decrease
in operating expense as a percentage of revenues for the year ended December 31, 2009 compared to prior year (see
“Operating Expenses” below).
We do not know whether our cost of revenues as a percentage of revenues will continue to increase in future
periods. Our cost of revenues will increase if the number of searches performed on Fly.com increases because we
pay a fee based on the number of searches performed on Fly.com. We expect fluctuations of cost of revenues as a
percentage of revenues from quarter to quarter. Some of the fluctuations may be significant and have a material
impact on our results of operations.
We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods.
Increased competition in our industry may require us to increase advertising for our brand and for our products.
Increases in the average cost of acquiring new subscribers (see “Subscriber Acquisition” below) may result in an
increase of sales and marketing expenses as a percentage of revenue. We may decide to accelerate our subscriber
acquisition for various strategic and tactical reasons and, as a result, increase our marketing expenses. We may see a
unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses. Further,
we expect our strategy to replicate our business model in selected foreign markets (see “Growth Strategy” below) to
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