Travelzoo 2012 Annual Report Download

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NASDAQ: TZOO
2012 Annual Report
2013 Proxy Statement

Table of contents

  • Page 1
    NASDAQ: TZOO 2012 Annual Report 2013 Proxy Statement

  • Page 2
    This Page Intentionally Left Blank

  • Page 3
    ... at Travelzoo's principal executive offices, located at 590 Madison Avenue, 37th Floor, New York, New York 10022, for ten days prior to the meeting. A stockholder may examine the list for any legally valid purpose related to the meeting. On behalf of the entire Board of Directors, we look forward to...

  • Page 4
    ..., dating and signing the enclosed proxy card and returning it via mail to the address indicated. If you attend the meeting and prefer to vote in person, you may do so even if you have previously voted by proxy. By Order of the Board of Directors, TRAVELZOO INC. GLEN CEREMONY Corporate Secretary

  • Page 5
    ...the Reverse/Forward Split on Travelzoo Determination of Cash-Out Payment Stock Certificates U.S. Federal Income Tax Consequences Reservation of Rights No Appraisal Rights Required Vote Board of Directors' Recommendation ELECTION OF DIRECTORS (PROPOSAL 2) Nominees for a One-Year Term That Will Expire...

  • Page 6
    ... INFORMATION INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON OTHER BUSINESS STOCKHOLDER PROPOSALS FOR THE 2014 ANNUAL MEETING HOUSEHOLDING EXPENSES AND SOLICITATION COSTS APPENDIX A: CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF TRAVELZOO INC. APPENDIX B: CERTIFICATE...

  • Page 7
    ... Avenue, 37th Floor, New York, NY 10022. The meeting will begin at 10:00 a.m. local time. What am I voting on? Stockholders will vote on four items: 1. A proposal to amend the Company's Certificate of Incorporation to effect a reverse split of the Company's outstanding Common Stock, at a ratio of...

  • Page 8
    ... in writing at Travelzoo Inc., Attention: Corporate Secretary, 800 W. El Camino Real, Suite 275, Mountain View, CA 94040 before the Annual Meeting that you have revoked your proxy, or Vote in person at the Annual Meeting. • How do I vote in person? If you are a stockholder of record, you...

  • Page 9
    ...e-mail, other electronic means, or in person. Where can I find the voting results of the meeting? We intend to announce preliminary voting results at the meeting. We will publish the final results in a report on Form 8-K, which we intend to file within four business days following the Annual Meeting...

  • Page 10
    ... 8-K by logging on to Travelzoo's investor relations website at www.travelzoo.com/ir, by calling the Securities and Exchange Commission (the "SEC") at (800) SEC-0330 for the location of the nearest public reference room, or through the EDGAR system at www.sec.gov. Information on our website does not...

  • Page 11
    ... Meeting and the Reverse/Forward Split is completed, Travelzoo will arrange for the disposition of fractional share interests of stockholders who hold fewer than 25 shares immediately prior to the Reverse Split by having the Company's transfer agent aggregate such fractional share interests and sell...

  • Page 12
    ... total number of shares held in such accounts will not change as a result of the Reverse/Forward Split. Shares will be converted into the right to receive a cash payment per share equal to the greater of (1) the average per-share price received in the sale of the Aggregated Shares on the open market...

  • Page 13
    ... at the Annual Meeting and the Reverse/Forward Split is completed, Travelzoo will arrange for the disposition of the fractional share interests of Cashed-Out Stockholders resulting from the Reverse Split by having the Company's transfer agent sell the Aggregated Shares in open market transactions...

  • Page 14
    ... those persons holding shares of Common Stock as nominees for others, in the same manner as stockholders whose shares are registered in their names on the books of the Company. Nominees will be advised that they may effect the Reverse/Forward Split for their beneficial holders. Accordingly, we also...

  • Page 15
    ... updated the Board of Directors on the then current and anticipated costs related to administering the Company's stockholder accounts, including transfer agent and administration fees and printing and postage costs associated with the mailing of proxy materials and annual reports to each stockholder...

  • Page 16
    ... an updated fairness opinion at or near the Effective Date of the proposed transaction. Travelzoo expects to benefit from substantial cost savings as a result of the Reverse/Forward Split. The cost of administering each registered stockholder's account is the same regardless of the number of shares...

  • Page 17
    ...Name Holders of Travelzoo Common Stock (through a nominee such as a bank or broker) Current and Former Travelzoo Employees and Directors (all of which will be treated the same as other stockholders) Stockholders with a Record Account of Fewer than 25 Shares: If we complete the Reverse/Forward Split...

  • Page 18
    ... Stock in your account immediately prior to the Reverse Split, your shares would be converted into 1.20 shares in the Reverse Split and then back to 30 shares in the Forward Split. Street Name Holders of Travelzoo Common Stock: Travelzoo expects that the Reverse/Forward Split will treat stockholders...

  • Page 19
    ...Select Market. The number of shares of authorized and outstanding Common Stock will not change as a result of the Reverse/Forward Split. As a result of the Reverse/Forward Split, the Company's transfer agent will sell the Aggregated Shares on the open market to permit payment of the Cash-Out Payment...

  • Page 20
    ... the Reverse/Forward Split is completed. In order to receive their cash payments with respect to such shares, these stockholders must complete and sign the letter of transmittal and return it with their stock certificate(s) to Travelzoo's transfer agent, Computershare Trust Company, N.A., before...

  • Page 21
    ... to limitations. Non-U.S. Holders U.S. Federal Income Tax Consequen ces to Non-U.S. Holders Who Are Not Cashed Out by the Reverse/Forward Split If you (1) continue to hold Common Stock immediately after the Reverse/Forward Split, and (2) receive no cash as a result of the Reverse/Forward Split, you...

  • Page 22
    ... directors or officers of the Company, including, without limitation, the shares held by Azzurro Capital Inc., our principal stockholder. Abstentions will have the effect of a vote against the amendments to Travelzoo's Certificate of Incorporation to effect the Reverse Split followed by the Forward...

  • Page 23
    Board of Directors' Recommendation THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENTS TO TRAVELZOO'S CERTIFICATE OF INCORPORATION TO EFFECT A 1-FOR-25 REVERSE STOCK SPLIT, FOLLOWED IMMEDIATELY BY A 25-FOR-1 FORWARD STOCK SPLIT OF TRAVELZOO'S COMMON STOCK. 17

  • Page 24
    ... an employee of the Company in October 2011, serving as the Head of Strategy. Mr. Bartel served as Chief Executive Officer from October 2008 to June 2010, after serving as Executive Vice President from September 1999 to November 2007. From 1995 to 1998, Mr. Bartel worked as an Engagement Manager at...

  • Page 25
    ... 2007 to January 2010, Mr. Ehrlich served as Chief Executive Officer of ParAccel, Inc., a technology company. From 2003 to 2006, Mr. Ehrlich was Senior Vice President, Marketing and Chief Strategy Officer of NetIQ Corporation. From 1998 to 2002, Mr. Ehrlich was Vice President, Product Management and...

  • Page 26
    ...: Accounting, finance, international management and non-executive directorships. Required Vote Our Certificate of Incorporation, as amended, does not authorize cumulative voting. Delaware law and our bylaws provide that directors are to be elected by a plurality of the votes of the shares present...

  • Page 27
    ... disclosure of information to the SEC and investment community and (ii) to review and supervise preparation of all SEC filings, press releases and other broadly disseminated correspondence. Nominating Committee Since it was a "Controlled Company" as referred to above during 2012, the Company was not...

  • Page 28
    ... website located at corporate.travelzoo.com/governance. A copy of the code of ethics is also available in print to stockholders and interested parties without charge upon written request delivered to our Corporate Secretary at Travelzoo Inc., 800 W. El Camino Real, Suite 275, Mountain View, CA 94040...

  • Page 29
    ...,400 Name Mr. Holger Bartel Mr. Ralph Bartel Mr. Ehrlich Mr. Neale-May Ms. Urso Certain Relationships and Related Party Transactions Total ($) 45,680 - 89,680 66,000 66,400 The Company maintains policies and procedures to ensure that our directors, executive officers and employees avoid conflicts...

  • Page 30
    ... Financial Officer Head of Strategy, Chairman of the Board of Directors President, North America President, Local Deals Position Christopher Loughlin has served as Chief Executive Officer since July 2010 after service as Executive Vice President, Europe from May 2005 to June 2011 and Vice President...

  • Page 31
    ... of our named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis and the other tabular and narrative disclosure in the Company's proxy statement for its 2013 Annual Meeting of Stockholders. Required Vote...

  • Page 32
    ... and corporate performance. In the course of its review, the Committee considered the advice and input of the Company's CEO and data prepared by management, including a comparison of the current compensation of the named executive officers with publicly available information. Management did...

  • Page 33
    ... Stock Option Agreements between Travelzoo Inc. and both Glen Ceremony and Shirley Tafoya, dated January 23, 2012 (incorporated by reference to our Current Report on Form 8-K (File No. 000-50171), filed March 30, 2012). Base Salary. The Committee considered two types of potential base salary...

  • Page 34
    ... content of the Company's publications, and the development of the Travelzoo brand. Mr. Loughlin received Discretionary Bonuses totaling $17,500 for 2012. Pursuant to the terms of Mr. Ceremony's employment agreement dated May 9, 2011 and effective June 15, 2011, Mr. Ceremony is eligible to receive...

  • Page 35
    ... the Company's management information systems, his leadership in the areas of corporate governance and business ethics, and the quality of his management of the Company's relationships with the investment community. Mr. Ceremony received Discretionary Bonuses totaling $50,000 for 2012. Pursuant...

  • Page 36
    ... budget, subject to an annual limit of $1.5 million. For 2012, Mr. Webb did not receive any Operating Income Share Performance Bonus as the criteria were not met. Other Compensation-Related Matters Stock Options. The Company grants certain executive officers stock options (which represent the right...

  • Page 37
    ... 1, 2010) Glen Ceremony (4) Chief Financial Officer (effective June 15, 2011) Holger Bartel (5) Head of Strategy (effective October 1, 2011), consultant and Chairman of the Board of Directors Shirley Tafoya President, North America Mark K. Webb (6) President Local Deals (effective February 27, 2012...

  • Page 38
    ... Vice President, Europe. Mr. Loughlin's compensation from January 1, 2010 to June 30, 2010 is denominated in British pounds and was translated into U.S. dollars using the average 2010 daily exchange rates of £1 = $1.54431 as published on oanda.com. Mr. Ceremony became the Chief Financial Officer on...

  • Page 39
    ... 31, 2012 Option Awards Number of Securities Underlying Unexercised Options (#) Exercisable 150,000 0 0 Number of Securities Underlying Unexercised Options (#) Unexercisable 150,000 50,000 50,000 (1) (2) (2) Name Christopher Loughlin Glen Ceremony(3) Shirley Tafoya(4) Option Exercise Price ($) 14...

  • Page 40
    33

  • Page 41
    ... for, or engage in, any business competitive with the Company or solicit the Company's customers or employees during the term of his employment and for a period of one year thereafter. Mr. Ceremony entered into an employment agreement with the Company on June 15, 2011. Pursuant to the terms of the...

  • Page 42
    and work product to the Company. Furthermore, Mr. Bartel agreed to not, directly or indirectly, solicit the Company's customers or employees during the term of his employment and for a period of one year thereafter. Ms. Tafoya entered into an employment agreement with the Company on August 4, 2010. ...

  • Page 43
    ... Committee has reviewed and discussed the CD&A with management and, based on such review and discussions, the Compensation Committee recommended to the Company's Board of Directors that the CD&A be included in the proxy statement on Schedule 14A. Compensation Committee Kelly M. Urso (Chair) David...

  • Page 44
    ... those shares a person has or shares the power to vote, or the power to dispose of. Beneficial Ownership Beneficial Owner Directors and Named Executive Officers Holger Bartel Ralph Bartel(3)* David J. Ehrlich Glen Ceremony Christopher Loughlin Donovan Neale-May Shirley Tafoya Kelly M. Urso Mark...

  • Page 45
    PRINCIPAL ACCOUNTANT FEES AND SERVICES Independent Public Accountants KPMG LLP ("KPMG") served as Travelzoo's independent registered public accounting firm for our 2012 fiscal year. KPMG representatives are not expected to be present at the Annual Meeting or to make a formal statement. Consequently,...

  • Page 46
    ...'s internal controls, and the overall quality of Travelzoo's financial reporting. Management represented to the committee that Travelzoo's consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. The committee has reviewed and...

  • Page 47
    ... our annual meeting of stockholders, with a plurality vote standard retained for contested director elections. The Company will provide the address and number of shares held by CalSTRS upon an oral or written request for such information sent to the Corporate Secretary. In accordance with SEC rules...

  • Page 48
    ... or present for a vote of stockholders at next year's Annual Meeting an amendment to the bylaws that would implement majority voting in uncontested director elections. If stockholders return a validly executed proxy solicited by the Board of Directors, the shares represented by the proxy will be...

  • Page 49
    ... Investor Relations, Travelzoo Inc., 590 Madison Avenue, 37th Floor, New York, New York 10022 or by telephone at (212) 4844900. This proxy statement and the 2012 Annual Report are available on the Internet at corporate.travelzoo.com/annualreport. These documents are also included in our SEC filings...

  • Page 50
    ... discontinue mailings of multiple annual reports and proxy statements. Requests for additional copies, or requests for a single copy to be delivered to a shared address should be directed to Investor Relations, Travelzoo Inc., 590 Madison Avenue, 37th Floor, New York, New York 10022 or by telephone...

  • Page 51
    ... THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Glen Ceremony as his/her Proxy, with full power of substitution, to represent him/her at the Annual Meeting of Stockholders of Travelzoo Inc. (the "Company") on September 12, 2013, or any adjournments or...

  • Page 52
    ... proxy statement and 2012 Annual Report of Travelzoo Inc. Date , 2013 (signature) (signature, if jointly held) Please sign exactly as name appears at left. If stock is jointly held each owner should sign. Executors, Administrators, Trustees, Guardians and Corporate Officers should indicate their...

  • Page 53
    ... to the Effective Time shall thereafter represent only the right to receive a payment in cash equal to the Share Value for each share of Common Stock previously represented by such certificate. The total number of shares of stock which the Corporation shall have the authority to issue is 40,000,000...

  • Page 54
    ... necessary number of shares required by applicable law were voted in favor of the proposed amendment. The stockholders of the Corporation duly adopted this Certificate of Amendment. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly executed in its corporate name...

  • Page 55
    ...: FIRST: The name of the Corporation is Travelzoo Inc. SECOND: The Corporation's original Certificate of Incorporation was filed with the Secretary of State on January 19, 2001. THIRD: follows: " A. Classes and Number of Shares. Section A of Article FOURTH of the Certificate of Incorporation of...

  • Page 56
    IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly executed in its corporate name as of the __ day of ____, 2013. TRAVELZOO INC. By: _____ Name: Title: B-2

  • Page 57
    ... or organization) 36-4415727 (I.R.S. employer identification no.) 590 Madison Avenue, 37th Floor New York, New York (Address of principal executive offices) 10022 (Zip code) Registrant's telephone number, including area code: (212) 484-4900 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF...

  • Page 58
    ... June 29, 2012, the aggregate market value of voting stock held by non-affiliates of the Registrant, based upon the closing sales price for the Registrant's Common Stock, as reported on the NASDAQ Global Select Market, was $ 169,514,556 . The number of shares of Travelzoo common stock outstanding as...

  • Page 59
    ... and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships...

  • Page 60
    ...), the Travelzoo iPhone and Android applications, the Travelzoo Top 20 e-mail newsletter, and the Newsflash e-mail alert service. We operate SuperSearch , a pay-per-click travel search tool, and the Travelzoo Network , a network of third-party websites that list deals published by Travelzoo. We...

  • Page 61
    ...the number of shares reported as outstanding. As of December 31, 2012 , there were 15,361,873 shares of common stock outstanding. On April 21, 2011, the Company entered into an agreement with the State of Delaware resolving all claims relating to an unclaimed property review which began in 2010. The...

  • Page 62
    ... be updated or deleted when an offer is sold out; once an ad is published, the company cannot change a price or offer; in many markets, the small number of newspapers, television companies, radio stations and other print media reduces competition, resulting in high rates for traditional advertising...

  • Page 63
    ...the Newsflash e-mail alert service, and the Local Deals and Getaway e-mail alert services. We operate SuperSearch, a pay-per-click travel search tool and the Travelzoo Network , a network of third-party websites that list deals published by Travelzoo. We also operate Fly.com , a travel search engine...

  • Page 64
    ... e-mail alert service with a single time-sensitive and newsworthy offer from local merchants such as spas and restaurants A network of third-party websites that list outstanding deals published by Travelzoo Travel search tool using a proprietary algorithm to recommend sites and enable one-click...

  • Page 65
    ...www.travelzoo.ca, ww.travelzoo.co.uk, www.travelzoo.de, www.travelzoo.es, www.travelzoo.fr, among others), Travelzoo Top 20 e-mail newsletter, Newsflash, Local Deals, Getaway, the Travelzoo Network, SuperSearch search tool, and Fly.com search engine provide consumers information on current offers at...

  • Page 66
    ... existing and new advertisers. Advertisers As of December 31, 2012, our advertiser base included more than 2,000 travel, entertainment and local businesses, including airlines, hotels, cruise lines, vacations packagers, tour operators, destinations, car rental companies, travel agents, theater and...

  • Page 67
    ... travel and entertainment deal publishers. We compete with large online travel agencies like Expedia and Priceline that also offer advertising placements and capture consumer interest. We compete with companies like Groupon and LivingSocial that sell vouchers for deals from local businesses such as...

  • Page 68
    ... growth, we expect that the number of our employees will continue to increase for the foreseeable future. Internet Access to Other Information We make available free of charge, on or through our website (www.travelzoo.com), annual reports on Form 10-K, quarterly reports on Form 10-Q and current...

  • Page 69
    ... stock volatility. During the third quarter of 2010, we launched our Local Deals format of advertising and during the second quarter of 2011, we launched our Getaway format of advertising, under which we sell vouchers directly to consumers to advertise promotional deals provided by merchants...

  • Page 70
    ... of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us. We must continue to attract and retain advertisers in order to increase revenue and maintain profitability. If new advertisers do not find our marketing and promotional services effective...

  • Page 71
    An increase in our refund rates related to our Local Deals and Getaway could reduce our liquidity and profitability. We provide refunds related to our Local Deals and Getaway voucher sales. As we increase our revenue, our refund rates may exceed our historical levels. A downturn in general economic ...

  • Page 72
    ... issuing new cards and related expenses. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments, process electronic funds transfers, or facilitate other types of online payments, and...

  • Page 73
    ... related to subscriber acquisition and the launch of Fly.com . We intend to continue adding a significant number of subscribers in selected countries in which we operate as we believe this is one of the factors that will allow us to increase our advertising rates and increase our revenues in Europe...

  • Page 74
    ... to achieve or maintain market share and operate profitably. We compete for advertising dollars with large Internet portal sites, such as MSN and Yahoo!, that offer listings or other advertising opportunities to travel, entertainment and local businesses. These companies have significantly greater...

  • Page 75
    publishers. We compete with large online travel agencies like Expedia and Priceline that also offer advertising placements and capture consumer interest. We compete with companies like Groupon and LivingSocial that sell vouchers for deals from local businesses such as spas, hotels and restaurants. ...

  • Page 76
    ... results of operations and dilute the economic and voting rights of our stockholders. Also, the anticipated benefit of many of our acquisitions may not materialize. Risks Related to the Market for our Shares Our stock price has been volatile historically and may continue to be volatile. The trading...

  • Page 77
    ... his share ownership, he is in a position to control Travelzoo and to elect our entire board of directors. Risks Related to Legal Uncertainty We may become subject to shareholder lawsuits over securities violations due to volatile stock price and this can be burdensome to management and costly to...

  • Page 78
    ...coupons with expiration dates and other restrictions. In addition, investigations by certain state attorney general offices have been launched against other companies with regards to similar issues. If similar claims are asserted against the Company in respect of the Local Deals and Getaway vouchers...

  • Page 79
    ...sued by our advertisers, merchants, subscribers or third parties and as a result our revenue and goodwill could be materially and adversely affected. Claims have been asserted against us relating to shares not issued in our 2002 merger. The merger of Travelzoo.com Corporation into the Company became...

  • Page 80
    ...succeed in deterring misappropriation of proprietary information. We have registered the Travelzoo trademark in the U.S., Australia, Canada, China, Hong Kong, Japan, South Korea, Taiwan, the EU and the U.K. If we are unable to protect our rights in the mark in North America, Europe, and Asia Pacific...

  • Page 81
    ..., Priceline, Yahoo! Inc., American Express, KAYAK and BookIt. Item 1B. Unresolved Staff Comments None. Item 2. Properties We are headquartered in New York, New York, where we occupy approximately 10,600 square feet of leased office space. In addition to our New York office, we have several leased...

  • Page 82
    .... Repurchases of Equity Securities Stock repurchase activity during the three months ended December 31, 2012 was as follows: Total Number of Shares Purchased as Part of Publicly Announced Programs Period Total Number of Shares Purchased Average Price Paid per Share Maximum Shares that May Yet be...

  • Page 83
    ... performance on the following graph is not indicative of future stock price performance. Measurement Point 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Travelzoo Inc. NASDAQ Market Index S&P 500 Publishing $ $ $ 100 $ 100 $ 100 $ 40.64 $ 59.46 $ 37.18 $ 89.84 $ 85...

  • Page 84
    ... in our other SEC filings. The forward-looking statements included in this report reflect the beliefs of our management on the date of this report. Travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or...

  • Page 85
    27

  • Page 86
    ...), the Travelzoo Top 20 e-mail newsletter, and the Newsflash e-mail alert service. We operate SuperSearch, a pay-per-click travel search tool, and the Travelzoo Network , a network of third-party websites that list deals published by Travelzoo. We also operate Fly.com , a travel search engine that...

  • Page 87
    ...of revenues will increase if the face value of vouchers that we sell for Local Deals and Getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold, customer service costs related to vouchers sold and subscriber refunds on...

  • Page 88
    ..., Canada in 2006, Germany in 2006, France in 2007 and Spain in 2008. We also have launched new products to grow our revenue such as the introduction of Fly.com in 2009, Local Deals in 2010, Getaway in 2011 as well as our mobile application launches in 2011 and 2012. We bought an online hotel booking...

  • Page 89
    ... our operations for the periods indicated. Year Ended December 31, 2012 2011 2010 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing General and administrative Unexchanged promotional merger shares Total operating expenses Income from operations Other income and expenses...

  • Page 90
    ... agreement with Travelzoo Inc. and is not owned by the Company. These total subscriber amounts exclude Asia Pacific subscribers of 3,700,000, 3,600,000 and 3,100,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Annualized revenue divided by number of employees at the end...

  • Page 91
    ... of revenues by type and segment for the years ended December 31, 2012 , 2011 and 2010. Travel revenue includes travel publications ( Top 20 , Website , Newsflash , Travelzoo Network ) and Getaway vouchers. Search revenue includes SuperSearch and Fly.com . Local revenue includes Local Deals vouchers...

  • Page 92
    ...pay related to user searches on Fly.com , amortization of capitalized website development costs, credit card fees, certain estimated subscriber refunds and customer service costs associated with vouchers we sell, and salary expenses associated with network operations and customer service staff. Cost...

  • Page 93
    ... three months ended March 31, 2011. Since March 2012, the Company has become subject to unclaimed property reviews by most of the other states in the U.S. that relate primarily to the unexchanged promotional merger shares, which were not covered by the settlement and release by the State of Delaware...

  • Page 94
    ... to a $5.3 million increase in cost of revenue primarily related to Local Deals and Getaway credit card fees, customer service and certain subscriber refunds, a $2.0 million dollar increase in television brand advertising expense and an $8.3 million salary and employee related expense due in part to...

  • Page 95
    ... in 2011 compared to 2010 (see "Revenues" above). Europe expenses increased $8.3 million from 2010 to 2011. This increase was primarily due to a $1.3 million increase in cost of revenue primarily related to Local Deals and Getaway credit card fees, customer service and certain subscriber refunds...

  • Page 96
    ...unclaimed property audits that are focused on the unexchanged promotional merger shares will result in additional payments to states or former stockholders of Travelzoo.com Corporation. Consistent with our growth, we have experienced substantial increases in our cost of revenues, sales and marketing...

  • Page 97
    ... the relative estimated selling price of each element. The Company uses prices stated on its internal rate card, which represents stand-alone sales prices, to establish estimated selling prices. The stand-alone price is the price that would be charged if the advertiser purchased only the individual...

  • Page 98
    ... amounts that are past due. Revenues from advertising sold to advertisers through agencies are reported at the net amount billed to the agency. The Company started selling vouchers for Local Deals in third quarter 2010 and Getaway in second quarter 2011, from local businesses such as spas, hotels...

  • Page 99
    ... in this report, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk We believe that our potential exposure to changes in market interest rates is not material. The Company has...

  • Page 100
    ...47 48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Travelzoo Inc.: We have audited the accompanying consolidated balance sheets of Travelzoo Inc. and subsidiaries (Travelzoo) as of December 31, 2012 and 2011, and the related consolidated statements...

  • Page 101
    ... operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Travelzoo maintained, in all material respects, effective internal control over financial reporting as of...

  • Page 102
    ... and 16,462 shares issued and 15,962 shares outstanding as of December 31, 2011) Treasury stock (at cost, 438 and 500 shares at December 31, 2012 and 2011, respectively) Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total stockholders' equity Total liabilities and...

  • Page 103
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) 2012 2011 2010 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing General and administrative Unexchanged promotional merger shares Total operating expenses Income from operations...

  • Page 104
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) 2012 2011 2010 Net income Other comprehensive income (loss): Foreign currency translation adjustment Total comprehensive income $ 18,198 685 18,883 $ 3,319 $ 13,157 135 13,292 $ $ (384) 2,...

  • Page 105
    ...31, 2010 Stock-based compensation expense Proceeds from exercise of stock options Repurchase of common stock Tax benefit from stock option exercise Comprehensive income: Foreign currency translation adjustment Net income Total comprehensive income Balances, December 31, 2011 Stock-based compensation...

  • Page 106
    ... from sale of Asia Pacific business segment, net of cash provided Proceeds from exercise of stock options Tax benefit of stock option exercise Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash...

  • Page 107
    ...Newsflash e-mail alert service, the SuperSearch pay-per-click travel search tool, and the Travelzoo Network , a network of third-party websites that list travel deals published by Travelzoo. We also operate Fly.com , a travel search engine that allows users to quickly and easily find the best prices...

  • Page 108
    ...the number of shares reported as outstanding. As of December 31, 2012 , there were 15,361,873 shares of common stock outstanding. On April 21, 2011, the Company entered into an agreement with the State of Delaware resolving all claims relating to an unclaimed property review which began in 2010. The...

  • Page 109
    ...advertising in North America and Europe on the Travelzoo website, in the Travelzoo Top 20 e-mail newsletter, in Newsflash , from SuperSearch , from the Travelzoo Network , and from Fly.com . The Company also generates revenue from the sale of vouchers through our Local Deals and Getaway e-mail alert...

  • Page 110
    ...provide funds to merchants, subscribers or others. (c) Reserve for Subscriber Refunds We record an estimated reserve for subscriber refunds based on our historical experience at the time revenue is recorded for Local Deals and Getaway voucher sales. We accrue costs associated with refunds in accrued...

  • Page 111
    ..., 2010 , options to purchase 75,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. (f) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of...

  • Page 112
    ... 31, 2012, 2011 and 2010 , approximately $19.6 million , $19.5 million , and $16.1 million , respectively, of advertising services was purchased from the Company's advertisers under non-barter agreements and recorded in sales and marketing expense. (k) Income Taxes Income taxes are accounted for...

  • Page 113
    ... years ended December 31, 2012, 2011 and 2010 . (m) Stock-Based Compensation The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of...

  • Page 114
    ... al. , and Turansky v. Bartel, et al ., were filed in the Southern District of New York based on similar allegations that seek to assert claims under state law derivatively on behalf of Travelzoo against certain officers and directors of the Company. These derivative actions were consolidated and on...

  • Page 115
    ... all claims relating to an unclaimed property review which began in 2010. The primary issue raised in the preliminary findings from the review, received by the Company on April 12, 2011, concerned the shares of Travelzoo, which have not been claimed by former Netsurfer stockholders of Travelzoo.com...

  • Page 116
    ... were as follows (in thousands): December 31, 2012 2011 Accrued advertising expense Accrued compensation expense Unexchanged promotional merger shares Accrued payments to merchants Other accrued expenses Reserve for subscriber refunds Total accrued expenses $ $ 2,059 3,879 3,000 101 2,038 916...

  • Page 117
    ...$ During 2011, an income tax benefit of $268,000 was recorded in stockholders' equity for the tax benefit of stock option exercises. During 2012, an income tax benefit of $ 800,000 was recorded to recognize the foreign net operating loss carryforward deferred tax assets due to a partial release of...

  • Page 118
    ... tax rate applicable to the Company's level of pretax income as a result of the following (in thousands): 2012 2011 2010 Federal tax at statutory rates State taxes, net of federal income tax benefit Foreign losses not benefited Change of valuation allowance Unexchanged promotional merger shares Non...

  • Page 119
    ... Increase related to current year tax positions Settlements Lapse of statute of limitations Unrecognized tax benefits balance at December 31, 2012 $ 2,003 - (224) - (413) - 1,366 510 - - (42) - 1,834 47 (9) 7,851 (251) (107) $ 9,365 The Company is in various stages of multiple year examinations...

  • Page 120
    ... Company's majority stockholder, Ralph Bartel. In November 2009, the Company granted to one of its employees options to purchase 300,000 shares of common stock with an exercise price of $14.97 , of which 75,000 options vest and become exercisable annually starting on July 1, 2011. The options expire...

  • Page 121
    ... by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012, 2011, and 2010. This amount changes based on the fair market value of the Company's stock. The Company's policy is to issue shares from the...

  • Page 122
    ... shares were recorded as part of treasury stock as of December 31, 2011 and were retired as of December 31, 2012 . Note 8: Segment Reporting and Significant Customer Information The Company manages its business geographically and has two reportable operating segments: North America and Europe...

  • Page 123
    ... of revenues by type and segment for the years ended December 31, 2012, 2011 and 2010 . Travel revenue includes travel publications ( Top 20 , Website , Newsflash , Travelzoo Network) and Getaway vouchers. Search revenue includes SuperSearch and Fly.com . Local revenue includes Local Deals vouchers...

  • Page 124
    ..., is a Director of the Company and through September 30, 2010 was the Company's Chairman. The Company's receivables from Travelzoo (Asia) Limited and Travelzoo Japan K.K. totaled $355,000 and $422,000 as of December 31, 2012 and December 31, 2011 , respectively, and were related primarily to fees...

  • Page 125
    ... Mar 31, 2012 Jun 30, 2012 Sep 30, 2012 Dec 31, 2012 Mar 31, 2011 Jun 30, 2011 Sep 30, 2011 Dec 31, 2011 (In thousands, except per share amounts) Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing General and administrative Unexchanged promotional merger share Total...

  • Page 126
    ...31, 2012 has been audited by KPMG LLP, Travelzoo's independent registered public accounting firm, as stated in their report which appears in Part II, Item 8 of this Annual Report on Form 10-K. /s/ CHRISTOPHER LOUGHLIN Christopher Loughlin Chief Executive Officer /s/ GLEN CEREMONY Glen Ceremony Chief...

  • Page 127
    ... Glen Ceremony Shirley Tafoya 39 Chief Executive Officer 45 Chief Financial Officer 49 President, North America Christopher Loughlin has served as Chief Executive Officer since July 2010 after service as Executive Vice President, Europe from May 2005 to June 2011 and Vice President of Business...

  • Page 128
    ... Information regarding principal accountant fees and services is set forth in the definitive Proxy Statement relating to our 2013 Annual Meeting of Stockholders, which is incorporated herein by reference. PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed...

  • Page 129
    ...Glen Ceremony /s/ RALPH BARTEL Ralph Bartel /s/ DAVID J. EHRLICH David J. Ehrlich /s/ DONOVAN NEALE-MAY Donovan Neale-May /s/ KELLY M. URSO Kelly M. Urso Chairman of the Board of Directors February 8, 2013 Chief Executive Officer February 8, 2013 Chief Financial Officer and Principal Accounting...

  • Page 130
    ... 2009) Nonqualified Stock Option Agreement between Travelzoo Inc. and Glen Ceremony dated January 23,2012 (Incorporated by reference to Exhibits 10.1 on Form 8-K (File No. 000-50171), filed March 30, 2012) Nonqualified Stock Option Agreement between Travelzoo Inc. and Shirley Tafoya dated January 23...

  • Page 131

  • Page 132
    ...reference to Exhibit 10.1 on Form 10-Q (File No. 000-50171), filed October 28, 2011) Subsidiaries of Travelzoo Inc. Consent of Independent Registered Public Accounting Firm Power of Attorney (included on signature page) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes...

  • Page 133
    73

  • Page 134
    EXHIBIT 21.1 SUBSIDIARIES OF TRAVELZOO INC. Subsidiaries Travelzoo (Canada) Inc. Travelzoo (Europe) Limited Travelzoo Local Inc. Jurisdiction Canada United Kingdom Delaware

  • Page 135
    ...of Travelzoo Inc. as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the effectiveness of internal control over financial reporting...

  • Page 136
    Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Christopher Loughlin, certify that: 1. I have reviewed this annual report on Form 10-K of Travelzoo Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of ...

  • Page 137
    Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Glen Ceremony, certify that: 1. I have reviewed this annual report on Form 10-K of Travelzoo Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a ...

  • Page 138
    Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K (the "Report") of Travelzoo Inc. for the period ended December 31, 2012, the undersigned certifies, pursuant to 18 U.S.C. §...

  • Page 139
    ... and results of operations of the Registrant. Date: February 8, 2013 By: /s/ GLEN CEREMONY Glen Ceremony Chief Financial Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of this Report or as a separate disclosure document.

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    Investors Relations: Travelzoo Inc. ATTN: Investor Relations 590 Madison Avenue 37th Floor New York, NY 10022 Web site: www.travelzoo.com/ir