Travelzoo 2013 Annual Report Download - page 93

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(g) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Additions and improvements are capitalized.
Maintenance and repairs are expensed as incurred. The Company also includes in fixed assets the capitalized cost of internal-
use software and website development, including software used to upgrade and enhance its website and processes supporting
the Company’s business in accordance with the framework established by the FASB accounting guidance for accounting for the
cost of computer software developed or obtained for internal use and accounting for website development costs. Costs incurred
in the planning stage and operating stage are expensed as incurred while costs incurred in the application development stage
and infrastructure development stage are capitalized, assuming such costs are deemed to be recoverable.
Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Estimated useful
lives are 3 to 5 years for computer hardware and software, capitalized internal-use software and website development costs, and
office equipment and office furniture. The Company depreciates leasehold improvements over the term of the lease or the
estimated useful life of the asset, whichever is shorter.
(h) Advertising Costs
Advertising production costs are expensed as incurred. Online advertising is expensed as incurred over the period the
advertising is displayed. Advertising costs amounted to $26.9 million, $28.3 million and $32.0 million for years ended
December 31, 2013, 2012 and 2011, respectively. In the years ended December 31, 2013, 2012 and 2011, approximately $19.2
million, $19.6 million, and $19.5 million, respectively, of advertising services was purchased from the Company’s advertisers
under non-barter agreements and recorded in sales and marketing expense.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, along with net
operating loss carryforwards and credit carryforwards, if it is more likely than not that the tax benefits will be realized. To the
extent a deferred tax asset cannot be recognized under the preceding criteria, valuation allowances must be established.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
(j) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of the FASB accounting standard relating
to impairment of long-lived assets, which requires an impairment loss to be recognized on assets to be held and used if the
carrying amount of a long-lived asset group is not recoverable from its undiscounted cash flows. The amount of the impairment
loss is measured as the difference between the carrying amount and the fair value of the asset group. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to sell. The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. No
impairment loss was recognized during years ended December 31, 2013, 2012 and 2011.
(k) 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 the portion
of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the
Company’s consolidated statements of operations. Total stock-based compensation for the years ended December 31, 2013,
2012 and 2011 was $1.4 million, $1.2 million and $750,000, respectively. See Note 9 to the accompanying consolidated
financial statements for a further discussion on stock-based compensation.
(l) Foreign Currency
All foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and
liabilities are translated into U.S. dollars at exchange rates prevailing at the balance sheet dates. Revenues, costs and expenses
are translated into U.S. dollars at average exchange rates for the period. Gains and losses resulting from translation are recorded
as a component of accumulated other comprehensive income (loss).
Realized gains and losses from foreign currency transactions are recognized as gain or loss on foreign currency in the
consolidated statements of operations.