Travelzoo 2014 Annual Report Download

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NASDAQ: TZOO
2014 Annual Report
2015 Proxy Statement

Table of contents

  • Page 1
    NASDAQ: TZOO 2014 Annual Report 2015 Proxy Statement

  • Page 2
    This Page Intentionally Left Blank

  • Page 3
    TRAVELZOO INC. Table of Contents Page Information About the Annual Meeting Election of Directors (Proposal 1) Corporate Governance Information About Executive Officers Advisory Vote On the Compensation of Named Executive Officers (Proposal 2) Compensation Discussion and Analysis Security Ownership ...

  • Page 4
    ..., New York, NY 10022 at 10:00 a.m. local time. In connection with the meeting, we enclose a notice of the meeting, a proxy statement and a proxy card. Detailed information relating to Travelzoo's activities and operating performance is contained in our 2014 Annual Report on Form 10-K, as filed with...

  • Page 5
    ..., 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 2

  • Page 6
    ...there were 14,730,454 shares of our Common Stock issued and outstanding. Where and when is the Annual Meeting? The Annual Meeting of Stockholders will take place on May 1, 2015 at 590 Madison Avenue, 37th Floor, New York, NY 10022. The meeting will begin at 10:00 a.m. local time. What am I voting on...

  • Page 7
    ... ways: • • Submit a valid, later-dated proxy before the Annual Meeting, Notify our Corporate Secretary 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...

  • Page 8
    ... file within four business days following the Annual Meeting. You can obtain a copy of the Form 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...

  • Page 9
    ...and public relations agencies, such as Ogilvy & Mather, in Silicon Valley, New York, London and Los Angeles. During his 30 years as an international marketing and brand strategist, Mr. Neale-May has consulted with over 300 leading multi-nationals, new venture starts and emerging growth companies. Mr...

  • Page 10
    ... University College London. She did a postgraduate course at London Business School and is a Qualified Chartered Accountant in the United Kingdom. Areas of Ms. Reilly's relevant experience: Accounting, finance, international management and non-executive directorships. Required Vote Our Certificate...

  • Page 11
    ...Company does not require that directors attend the Annual Meeting. Audit Committee The Audit Committee's primary responsibilities are to oversee and monitor (i) the integrity of Travelzoo's financial statements, (ii) the qualifications and independence of our independent registered public accounting...

  • Page 12
    ...the Company's ability to manage its risks. Code of Ethics We have adopted a code of ethics that applies to our Chief Executive Officer and our Chief Financial Officer, who also serves as our principal accounting officer. This code of ethics is posted on our website located at corporate.travelzoo.com...

  • Page 13
    ...December 31, 2013 and were included in prepaid expenses and other and accounts payable in the consolidated balance sheets in our 2014 Annual Report on Form 10-K. In addition, as part of the sale of the Asia Pacific operating segment in 2009, the Company obtained an option, which expires in June 2020...

  • Page 14
    ... the named executive officers of Travelzoo as of March 6, 2015. Name Christopher Loughlin Glen Ceremony Shirley Tafoya Richard Singer Simon Talling-Smith Age 41 47 51 36 46 Position Chief Executive Officer Chief Financial Officer President, North America Managing Director, Europe President, Products...

  • Page 15
    ... the shares of the Company's Common Stock present in person or represented by proxy and entitled to vote on the proposal will be considered as the approval, by an advisory vote, of the compensation of our named executive officers. Board of Directors' Recommendation THE BOARD OF DIRECTORS UNANIMOUSLY...

  • Page 16
    .... 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 rely on a service from Equilar Inc...

  • Page 17
    ... and salary ranges for similarly situated executives in 2014. The Committee did not make any changes to the salaries of Mr. Richard Singer, Ms. Shirley Tafoya and Mr. Simon Talling-Smith. Incentive Bonus Pay In 2014, 2013 and 2012, Mr. Christopher Loughlin, Mr. Glen Ceremony, Ms. Shirley Tafoya and...

  • Page 18
    ... during 2014, the Board of Directors considered factors such Mr. Ceremony's role as an advisor to the CEO on how to manage the Company's financial performance, his initiatives to improve the Company's management information systems, his leadership in the areas of corporate governance and business...

  • Page 19
    ... of Mr. Singer's employment agreement dated October 31, 2011, effective January 16, 2012 and as amended July 1, 2012 and January 1, 2013, Mr. Singer is eligible to receive a quarterly Performance Bonus for each quarter during 2014. Mr. Singer's Performance Bonus is payable in British pounds and have...

  • Page 20
    ... the cost of personal entertainment. Named executive officers and employees may seek reimbursement for business related expenses in accordance with our business expense reimbursement policy. Employment Agreements. The Company has entered into employment agreements with the named executive officers...

  • Page 21
    ... Managing Director, Europe (effective July 1, 2012) 542,000 110,000 (8) 953,800 80,000 (10) 3,869 (13) 1,689,669 329,284 - - 128,725 (10) 26,980 (14) 484,989 2013 311,573 9,099 (8) - 291,295 (10) 24,168 (14) 636,135 2012 Simon Talling-Smith (7) 2014 President, Products...

  • Page 22
    ... Director, Europe on July 1, 2012. Mr. Singer's compensation is denominated in British pounds and was translated into U.S. dollars using the annual average daily exchange rate of £1 = $1.65 for 2014, £1 = $1.56 for 2013 and £1 = $1.58 for 2012. (7) Mr. Talling-Smith became the President, Products...

  • Page 23
    ... of our named executive officers during the fiscal year ended December 31, 2014. Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Threshold Target Maximum ($) ($) ($) Christopher Loughlin (1) Glen Ceremony (1) Shirley Tafoya (1) Richard Singer (1) Simon Talling-Smith (1) 176,000...

  • Page 24
    ... Agreements and Potential Payments Upon Termination or Change-in-Control The Company has employment agreements with its named executive officers and certain other employees. The employment agreements as of December 31, 2013 with the Company's named executive officers are described below. Mr...

  • Page 25
    ... area in which he worked immediately prior to a change of control, Mr. Talling-Smith will be entitled to receive his base salary and medical benefits for a six month period in exchange for executing a general release of claims as to the Company. Assuming that Mr. Talling-Smith was terminated by the...

  • Page 26
    ... by reference into a document filed under the Securities Act or the Exchange Act. The Company's Compensation 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...

  • Page 27
    ...Ownership Number of Percent of Shares(1) Total(2) 200,000 7,230,538 37,500 300,000 7,768,038 1.36% 49.09% ** 2.04 52.26% Beneficial Owner Directors and Named Executive Officers Holger Bartel Ralph Bartel(3)* Glen Ceremony Christopher Loughlin Simon Talling-Smith Richard John Singer Shirley Tafoya...

  • Page 28
    ..., Products & Emerging Business, hired on August, 2013 as the Company has now determined that Mr. Talling-Smith should be considered a Section 16 named executive officer. Mr. Talling-Smith did not purchase or sell the Company's stock during fiscal year 2014. PRINCIPAL ACCOUNTANT FEES AND SERVICES...

  • Page 29
    ... audit of Travelzoo's consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board ("PCAOB"), and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States. In...

  • Page 30
    ... Investor Relations, Travelzoo Inc., 590 Madison Avenue, 37th Floor, New York, New York 10022 or by telephone at (212) 484-4900. This proxy statement and the 2014 Annual Report are available on the Internet at corporate.travelzoo.com/annualreport. These documents are also included in our SEC filings...

  • Page 31
    ...with any subsequent information we filed or will file with the SEC and other publicly available information. A copy of any public filing is also available, at no charge, by contacting Investor Relations, Travelzoo Inc., 590 Madison Avenue, 37th Floor, New York, New York 10022 or by telephone at (212...

  • Page 32
    ... 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 33
    ... 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 May 1, 2015, or any adjournments or...

  • Page 34
    ... the proxy statement and 2014 Annual Report of Travelzoo Inc. Date , 2015 (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 35
    ...) _____ DELAWARE (State or other jurisdiction of incorporation 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...

  • Page 36
    ...'s Common Stock, as reported on the NASDAQ Global Select Market, was $141,253,375. The number of shares of Travelzoo common stock outstanding as of February 13, 2015 was 14,730,454 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its 2014 Annual Meeting of...

  • Page 37
    ... 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 38
    ....travelzoo.com.au, www.travelzoo.com.hk, www.travelzoo.com.tw, among others), the Travelzoo iPhone and Android applications in Asia Pacific, the Travelzoo Top 20 e-mail newsletters in Asia Pacific and the Newsflash email alert service in Asia Pacific have been published by Travelzoo (Asia) Limited...

  • Page 39
    .... In April 2011, the Company entered into an agreement which required a $20.0 million cash payment to the State of Delaware resolving all claims relating to the State of Delaware's unclaimed property review, which related primarily to the Company's unexchanged promotional shares contingency. In...

  • Page 40
    ... real-time listings, real-time updates, and performance tracking. See "Benefits to Travel, Entertainment and Local Businesses" below. New Advertising Opportunities. The Internet allows advertisers to advertise their sales and specials in a fast, flexible, and cost-effective manner that has not been...

  • Page 41
    ... to develop. Our Products and Services We provide airlines, hotels, cruise lines, vacation packagers, other travel suppliers, entertainment and local businesses with a fast, flexible, and cost-effective way to reach millions of Internet users. Our publications include the Travelzoo websites, the...

  • Page 42
    ...the user engagement on the advertiser's website * For Travelzoo websites, reach information is based on data from Google Analytics. For Top 20, Newsflash, Local Deals and Getaway, Travelzoo Network, SuperSearch, Fly.com and Travelzoo mobile applications, reach/usage information is based on internal...

  • Page 43
    ...Our Travelzoo websites (www.travelzoo.com, 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...

  • Page 44
    ..., spas, and activity companies. Some of our advertisers are: Air New Zealand Atlantis, Paradise Island, Bahamas Apple Vacations British Airways CheapTickets Cirque du Soleil Delta Air Lines Expedia Fairmont Hotels and Resorts Fareportal Hawaiian Airlines Hong Kong Tourism Board Hotwire Iceland...

  • Page 45
    ...! that offer listings or other advertising opportunities to travel, entertainment and local businesses. We compete with search engines like Google and Bing that offer pay-per-click listings. We compete with travel meta-search engines like Kayak and online travel and entertainment deal publishers. We...

  • Page 46
    ... user's Internet "addresses." The current system for registering, allocating and managing domain names has been the subject of litigation and of proposed regulatory reform. We have registered travelzoo.com, travelzoo.ca, travelzoo.co.jp, travelzoo.com.au, travelzoo.com.tw, travelzoo.co.uk, travelzoo...

  • Page 47
    ...or the operation of our products and services specifically; and volatility of our operating results in new markets. We may significantly increase our operating expenses related to advertising campaigns for the Travelzoo and Fly.com brands, as well as our hotel booking platform, for a certain period...

  • Page 48
    ..., 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. For example, a consumer could buy a voucher for $99 for...

  • Page 49
    ... major competitors and certain new market entrants are offering mobile applications for travel products and other functionality, including proprietary last-minute discounts for hotel bookings. Advertising and distribution opportunities may be more limited on mobile devices given their smaller screen...

  • Page 50
    ... travel and entertainment companies. In addition, we must attract sufficient Internet users with attractive demographic characteristics to our products. It is possible that we will be required to further adapt our business model and products in response to changes in the online advertising market or...

  • Page 51
    ... 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, or if existing advertisers do not believe that utilizing our products provides them with a long-term increase in customers...

  • Page 52
    ... and employment in the U.S. and abroad. Specifically, our business is primarily dependent on the demand for online advertising from travel and entertainment companies. The recent recession decreased consumer travel and caused travel and entertainment companies to reduce or postpone their marketing...

  • Page 53
    ... by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. In 2014, the FASB issued a new accounting standard related to revenue recognition...

  • Page 54
    ...we fail to retain our existing members or acquire new members, our revenue and business will be harmed. We spent $7.8 million, $5.5 million and $5.4 million on online marketing initiatives relating to member acquisition for years ended December 31, 2014, 2013 and 2012 and expect to continue to spend...

  • Page 55
    ... to online advertising; developments and changes relating to the Internet; competing products and services that offer increased functionality; and changes in travel company, entertainment company, and Internet user requirements. If we are unable to timely and successfully develop and introduce new...

  • Page 56
    ... entertainment and local businesses. These companies have significantly greater financial, technical, marketing and other resources and larger advertiser bases. We compete with search engines like Google and Bing that offer pay-per-click listings. We compete with travel metasearch engines like Kayak...

  • Page 57
    ..., procedures, and policies at the acquired company. Integration of the acquired company's accounting, human resources, and other administrative systems, and coordination of product, engineering, and sales and marketing functions. Transition of operations, users, and customers onto our existing...

  • Page 58
    ... innovations or new products by us or our competitors; changes in financial estimates and recommendations by securities analysts; the operating and stock price performance of other companies that investors may deem comparable to us; and news reports relating to trends in our markets or general...

  • Page 59
    ... make the Company's services less attractive to the Company's customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices or incur more costs to comply or defend itself. The Company has implemented policies and procedures...

  • Page 60
    ... and, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal costs necessary to capture...

  • Page 61
    ... of our websites and mobile applications, related to our Local Deals, Getaway and planned hotel booking platform. Our existing security measures may not be successful in preventing security breaches. For example, outside parties may attempt to fraudulently induce employees, merchants or customers to...

  • Page 62
    ... of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Travelzoo.com Corporation in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under...

  • Page 63
    ...or regulation imposing obligations on us as a money services business, our regulatory compliance costs to meet these obligations would likely increase which could reduce our net income. In addition, the costs for third parties to sell vouchers would increase, which may restrict our ability to enlist...

  • Page 64
    ... America operations, including offices in Chicago, Illinois; Austin, Texas; Boston, Massachusetts; Las Vegas, Nevada; Los Angeles, California; Miami, Florida; Mountain View, California; San Diego, California; San Francisco, California; Toronto, Ontario; and Vancouver, British Columbia. We also have...

  • Page 65
    ... 13, 2015, the last reported sales price of our common stock on the NASDAQ Global Select Market was $8.58 per share. As of February 13, 2015, there were approximately 182 stockholders of record of our shares. Dividend Policy Travelzoo has not declared or paid any cash dividends since inception and...

  • Page 66
    ...performance on the following graph is not indicative of future stock price performance. Measurement Point 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 Travelzoo Inc. NASDAQ Market Index S&P 500 Publishing $ $ $ 100 $ 100 $ 100 $ 336.70 $ 116.91 $ 60.46 $ 200.00 $ 114...

  • Page 67
    ... 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 68
    ... 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. Our Travelzoo websites include our Local Deals and Getaway listings that...

  • Page 69
    ... as Google, Yahoo! and Microsoft which may reduce the level or quality of Internet traffic to our services, in particular our Search products, SuperSearch and Fly.com, the competitive market pricing of voucher-based offerings may lead to us reducing our take rate (i.e., our commission) in order to...

  • Page 70
    ... Fly.com. Our cost of revenues may 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, due to customer service costs related to vouchers sold...

  • Page 71
    ... 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. In late 2012, we bought an online hotel booking platform to assist in our development of a product to better...

  • Page 72
    ...our operations for the periods indicated. Year Ended December 31, 2014 2013 2012 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing General and administrative Unexchanged promotional shares Total operating expenses Income from operations Other income Income before income...

  • Page 73
    ... with Travelzoo Inc. The total member amounts exclude Asia Pacific members of 3,500,000, 3,600,000 and 3,100,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Annual revenue divided by number of members at the beginning of the year. Annual revenue divided by number of employees...

  • Page 74
    ...travel publications (Top 20, Website, Newsflash, Travelzoo Network), Getaway vouchers and hotel booking. Search revenue includes SuperSearch and Fly.com. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). Year Ended December 31, 2014 2013 2012 North...

  • Page 75
    ... partners of the Travelzoo Network, fees we pay related to user searches on Fly.com, amortization of capitalized website development costs, credit card fees, certain estimated member refunds and customer service costs associated with vouchers we sell and hotel booking, and salary expenses associated...

  • Page 76
    ... with sales, marketing and production staff, expenses related to our participation in industry conferences, and public relations expenses. Sales and marketing expenses were $67.2 million, $74.9 million and $68.2 million for 2014, 2013 and 2012, respectively. Advertising expenses accounted for...

  • Page 77
    ... to Travelzoo Asia Pacific and increased interest income due to higher cash balances. Income Taxes Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflect federal, state and country statutory rates applicable to our worldwide income, adjusted to take into account...

  • Page 78
    ... million from 2013 to 2014. This increase was primarily due to a $2.8 million increase in salary and employee related expense due primarily to a headcount increase, and a $616,000 increase in cost of revenue primarily related to Local Deals and Getaways credit card fees and customer service. Foreign...

  • Page 79
    ... for working capital needs for at least the next twelve months. Year Ended December 31, 2014 2013 ( In thousands) 2012 Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents...

  • Page 80
    ... promotional shares contingency and related cash program. Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments to former stockholders of Travelzoo.com...

  • Page 81
    ... have contingencies related to net unrecognized tax benefits, including interest, of approximately $10.9 million as of December 31, 2014. In addition, the Company received a Revenue Agents' Report from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business segment, which...

  • Page 82
    For Local Deals and Getaways products, the Company earns a fee for acting as an agent in these transactions which is recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers ...

  • Page 83
    ... such as our liability to former stockholders of Travelzoo.com Corporation that may be realized as a result of our cash program for these claimants, state unclaimed property claims and lawsuits, including a patent infringement lawsuit. Please refer to Note 5 to the accompanying consolidated...

  • Page 84
    Item 8. Financial Statements and Supplementary Data TRAVELZOO INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) ...

  • Page 85
    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, 2014 and 2013, and the related consolidated statements of ...

  • Page 86
    ... assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $436 and $428 as of December 31, 2014 and 2013, respectively Income tax receivable Deferred tax assets Prepaid expenses and other Restricted cash Funds held for reverse/forward stock split Total current...

  • Page 87
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2014 2013 2012 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing General and administrative Unexchanged promotional shares Total operating expenses ...

  • Page 88
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2014 2013 2012 Net income (loss) Other comprehensive income (loss): Foreign currency translation adjustment Total comprehensive income (loss) $ 16,352 (2,467) $ (5,011) $ 207 (4,804) $ ...

  • Page 89
    ... 31, 2013 Stock-based compensation expense Income tax impact from stock options Repurchase of common stock Proceeds from sale of shares fractionalized from reverse/forward stock split, including transaction costs Foreign currency translation adjustment Net income Balances, December 31, 2014 15,962...

  • Page 90
    ...Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosure of cash flow information: Cash paid for income taxes, net Funds held by transfer agent for settlement of reverse/forward stock split Payable to shareholders for reverse/forward stock split...

  • Page 91
    ...), the Travelzoo Top 20 e-mail newsletter, the 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. Our Travelzoo websites include Local Deals and Getaway listings...

  • Page 92
    ... reduction of the number of shares reported as outstanding. As of December 31, 2014, there were 14,730,454 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...

  • Page 93
    ...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 services and providing hotel bookings. Advertising...

  • Page 94
    ... Local Deals and Getaways products, the Company earns a fee for acting as an agent in these transactions which is recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold...

  • Page 95
    ... 31, 2014, 2013 and 2012, approximately $14.9 million, $19.2 million, and $19.6 million, respectively, of advertising services were purchased from the Company's advertisers under nonbarter agreements and recorded in sales and marketing expense. (i) Income Taxes Income taxes are accounted for under...

  • Page 96
    ... and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. In August 2014, the FASB issued an accounting standard update that requires management to perform interim and annual assessments...

  • Page 97
    ...) $ (5,011) $ 15,269 - 15,269 (0.33) $ 18,198 15,866 1.15 18,198 15,866 35 15,901 1.14 $ $ For the years ended December 31, 2014, 2013 and 2012, options to purchase 125,000, 475,000 and 100,000 shares of common stock, respectively, were not included in the computation of diluted net loss per...

  • Page 98
    ... Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets Total (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at December 31, 2014 Cash Total cash and cash equivalents Certificates of deposit Merchant bank...

  • Page 99
    ... of December 31, 2014, capitalized internal-use software and website development costs include $917,000 of in process construction and development expected to be deployed in 2015. Intangible assets consist of the following (in thousands): December 31, 2014 2013 Internet domain names and technology...

  • Page 100
    ... $ 436 $ 708 Local Deals and Getaway merchant payable included in accounts payable was $18.1 million and $27.2 million, as of December 31, 2014 and 2013, respectively. Accrued expenses and other consist of the following (in thousands): December 31, 2014 2013 Accrued advertising expense Accrued...

  • Page 101
    ... million cash payment to the State of Delaware in April, 2011 and received a complete release of those claims. Since March 2012, the Company became 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...

  • Page 102
    ... in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Travelzoo.com Corporation. The Company leases office space in Canada...

  • Page 103
    ... from changes in the Company's deferred tax assets (future deductible amounts) and tax liabilities (future taxable amounts), which are presented in the table below: Current Year Ended December 31, 2014 Deferred (In thousands) Total Federal State Foreign Year Ended December 31, 2013 $ $ Federal...

  • Page 104
    ... of the following (in thousands): Year Ended December 31, 2014 2013 2012 Federal tax at statutory rates State taxes, net of federal income tax benefit Expired capital loss carryforward Change of valuation allowance Unexchanged promotional shares Non-deductible expenses and other Total income tax...

  • Page 105
    ... million unrecognized tax benefit related to the Company's 2011 settlement with the State of Delaware. These changes may occur through settlement with the taxing authorities or the expiration of the statute of limitations on the returns filed. The Company is unable to estimate the range of possible...

  • Page 106
    ...31, 2014, 2013 and 2012, there were no stock option exercises and no excess tax benefits. In October 2001, the Company granted to each director fully vested and exercisable options to purchase 30,000 shares of common stock with an exercise price of $2.00 per share for their services as a director in...

  • Page 107
    ... January 2012, the Company granted certain executives stock options to purchase 100,000 shares of common stock with an exercise price of $28.98, of which 25,000 options vest and become exercisable annually starting on January 23, 2013. The options expire in January 2022. As of December 31, 2014, 25...

  • Page 108
    ... 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, 2014, 2013, and 2012. 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 109
    ... was intended to reduce the Company's shareholder account administration costs by reducing the number of its shareholders. On September 12, 2013, at the Company's annual shareholders meeting, Travelzoo shareholders voted in favor of the reverse/forward split, with the transaction receiving the votes...

  • Page 110
    ... shares that were a result of the reverse/forward split. The Company's transfer agent intends to pay $192,000 due to the remaining shareholders that hold a right to cash after receiving the required documentation regarding their physical stock certificates. As of December 31, 2014, the sale...

  • Page 111
    ...travel publications (Top 20, Website, Newsflash, Travelzoo Network), Getaway vouchers and hotel booking. Search revenue includes SuperSearch and Fly.com. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). Year Ended December 31, 2014 2013 2012 North...

  • Page 112
    ... the Azzurro Capital Inc. entities operating the Travelzoo business in Asia Pacific and the Company related to cross-selling audiences and hosting and development services by the Company, which were entered into in connection with the sale of Asia Pacific business segment. The fees generated by the...

  • Page 113
    ... ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as...

  • Page 114
    ...31, 2014 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 115
    Item 9B. Other Information Not applicable. 80

  • Page 116
    PART III Item 10. Directors, Executive Officers and Corporate Governance of the Registrant Information required by this item is incorporated by reference to Travelzoo's Definitive Proxy Statement for the 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of ...

  • Page 117
    ... principal accountant fees and services is set forth in the definitive Proxy Statement relating to our 2015 Annual Meeting of Stockholders, which is incorporated herein by reference. PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed as part of this report...

  • Page 118
    ... CEREMONY Glen Ceremony /s/ RALPH BARTEL Ralph Bartel /s/ MICHAEL KARG Michael Karg /s/ DONOVAN NEALE-MAY Donovan Neale-May /s/ MARY REILLY Mary Reilly Chairman of the Board of Directors February 13, 2015 Chief Executive Officer February 13, 2015 Chief Financial Officer and Principal Accounting...

  • Page 119
    ... 10.2 on Form 8-K (File No. 000-50171), filed November 23, 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) 3.3 - 10.1 - 10.2* - 10...

  • Page 120
    ...000-50171), filed March 30, 2012) Employment Agreement, dated August 4, 2011 between Shirley Tafoya and Travelzoo Inc. (Incorporated by reference to Exhibit 10.1 on Form 10-Q (File No. 000-50171), filed November 9, 2010) Employment Agreement, dated May 9, 2011 between Glen Ceremony and Travelzoo Inc...

  • Page 121
    ...the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to Section 906 of the...

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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