Travelzoo 2013 Annual Report Download - page 74

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Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with
sales, marketing and production staff, expenses related to our participation in industry conferences, and public relations
expenses. Sales and marketing expenses were $74.9 million, $68.2 million and $65.5 million for 2013, 2012 and 2011,
respectively. Advertising expenses accounted for 36%, 41% and 49%, respectively, of total sales and marketing expenses and
consisted primarily of online advertising which we refer to as traffic acquisition cost and subscriber acquisition costs. The goal
of our advertising was to acquire new subscribers for our e-mail products, increase the traffic to our websites, and increase
brand awareness.
Sales and marketing expenses increased $6.6 million in 2013 compared to 2012. The increase was primarily due to an
$8.8 million increase in salary and employee related expenses due primarily to an increase in headcount, offset by a $1.6
million decrease in Search traffic acquisition costs. These increases in salary and employee related expenses were aligned with
our investments intended to drive future growth, which were focused on increasing sales headcount, our analytic capabilities
and our audience, both in terms of number of subscribers and the size of our audience from growing sources such as mobile
devices and social media.
Sales and marketing expenses increased $2.7 million in 2012 compared to 2011. The increase was primarily due to a $6.3
million increase in salary and employee related expenses due primarily to an increase in headcount, and a $1.0 million increase
in Search traffic acquisition costs, offset by a $2.0 million dollar decrease in television advertising expense and a $2.6 million
decrease in subscriber acquisition costs.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative, executive, and software
development staff, fees for professional services, rent, bad debt expense, amortization of intangible assets, and general office
expense. General and administrative expenses were $41.7 million, $38.7 million and $34.5 million for 2013, 2012 and 2011,
respectively.
General and administrative expenses increased $3.0 million in 2013 compared to 2012. The increase was primarily due to
a $1.9 million increase in salary and employee related expenses due primarily to an increase in product development
headcount, and a $1.2 million increase in rent, office and insurance expense due to the continuing expansion of our business.
General and administrative expenses increased $4.1 million in 2012 compared to 2011. The increase was primarily due to
a $2.2 million increase in salary and employee related expenses due primarily to an increase in headcount, and a $1.3 million
increase in professional services and other expenses and a $453,000 increase in rent, office and insurance expense due to the
continuing expansion of our business.
Unexchanged Promotional Shares
On April 21, 2011, the Company entered into an agreement with the State of Delaware resolving all claims relating to a
previously-announced unclaimed property review. 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
shareholders of Travelzoo.com Corporation following a 2002 merger, as previously disclosed in the company’s report on Form
10-K. In the preliminary findings under the unclaimed property review, up to 3.0 million shares were identified as
“demandable” under Delaware escheat laws. While the Company continues to take the position that such shares were a
promotional incentive and were issuable only to persons who establish their eligibility as shareholders, the Company
determined that it was in its best interest to promptly resolve all claims relating to the unclaimed property review. Under the
terms of the agreement, the Company made a $20.0 million cash payment to the State of Delaware in April 2011 and received a
complete release of those claims. The $20.0 million payment was recorded as an expense in the 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. During the three months ended March 31, 2012, the Company recorded a $3.0 million charge related
to this unexchanged promotional merger shares contingency.