Travelzoo 2009 Annual Report Download - page 57

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to 2007 due primarily to the increase in losses from our Europe business segment which was treated as having no
recognizable tax benefit.
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 and Europe, and
corresponding U.S. tax credits, if any.
During the year ended December 31, 2008, the Company realized tax benefits of $110,000 upon the exercise of
stock options by Ralph Bartel. The tax benefit reduced the Company’s income tax payable and increased additional
paid-in capital by this amount.
In January 2009, the Internal Revenue Service issued a Notice of Proposed Adjustment contesting the
Company’s tax deductions in 2005 and 2006 related to the program under which the Company made cash payments
to people who established 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. The Company does not agree
with the Notice of Proposed Adjustment and started discussions with the Appeals Division of the IRS in February
2010. If the Company were to agree with the Notice of Proposed Adjustment, the result would be an additional
payment of approximately $590,000, plus interest. The Company believes it has adequately provided for this matter
in the balance of our long-term tax liabilities and it is not expected to have a material impact on the Company’s
results of operations.
Discontinued Operations
On October 31, 2009, we completed the sale of our Asia Pacific operating segment to Azzurro Capital Inc. and
its wholly-owned subsidiaries, Travelzoo (Asia) Limited and Travelzoo Japan K.K. The results of operations of the
Asia Pacific operating segment have been classified as discontinued operations for all periods presented. We
received $2.1 million, net of cash provided, and have a net receivable from Travelzoo (Asia) Limited and Travelzoo
Japan K.K. of $1.1 million. We realized a gain of $3.4 million related to the sale of the net assets of the Asia Pacific
business segment to Azzurro Capital Inc. The resulting gain on the sale is reflected as an addition to additional paid-
in capital as both the Company and Azzurro Capital Inc. are under the common control of Ralph Bartel. We
recorded a tax benefit of $4.4 million in discontinued operations for the tax benefit associated with the loss on
investments in the Asia Pacific subsidiaries as a result of their dissolution.
Liquidity and Capital Resources
As of December 31, 2009 we had $19.8 million in cash and cash equivalents. Cash and cash equivalents
increased from $14.2 million on December 31, 2008 primarily as a result of cash provided by operating activities
and financing activities as explained below. We expect that cash on hand will be sufficient to provide for working
capital needs for at least the next 12 months.
2009 2008 2007
Year Ended December 31,
(In thousands)
Net cash provided by (used in) operating activities ............. $5,125 $(3,325) $ 9,894
Net cash used in investing activities ........................ (3,752) (4,742) (663)
Net cash provided by (used in) financing activities ............. 4,219 185 (19,822)
Effect of exchange rate changes on cash and cash equivalents ..... 5 (580) (183)
Net increase (decrease) in cash and cash equivalents ............ $5,597 $(8,462) $(10,774)
Cash provided by or used in operating activities is net income or net loss adjusted for certain non-cash items
and changes in assets and liabilities. Net cash provided by operating activities during the year ended December 31,
2009 increased by $8.5 million compared to the year ended December 31, 2008. The increase in cash provided by
operating activities was due primarily to a decrease in cash used in our operations in Europe and a decrease in cash
used in our operations in Asia Pacific during the first 10 months of fiscal year ended December 31, 2009. As the
international expansion started to generate more revenue in year ended December 31, 2009, net cash used in
32