Travelzoo 2014 Annual Report Download - page 82

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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 sold that are not redeemed by purchasers upon expiration, which we
recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to
merchants, members or others.
Commission revenues generated through provision of hotel booking reservations to hotels are recognized upon the
estimated date the stay occurs at the hotel, which includes estimates of cancellations of the hotel bookings based upon historical
patterns. If the hotel booking cannot be canceled then revenue is recognized upon booking.
Reserve for Member Refunds
We record an estimated reserve for member 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 expenses on the consolidated
balance sheets. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical
reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of
redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which
could impact the level of our future reserves for member refunds. Specifically, if the financial condition of our advertisers, the
business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our
members, additional reserves for member refunds may be required.
Estimated member refunds that are determined to be recoverable from the merchant are recorded in the consolidated
statements of operations as a reduction to revenue. Estimated member refunds that are determined not to be recoverable from
the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported
results of operations could differ from the amount we previously accrued.
Allowance for Doubtful Accounts
We record a provision for doubtful accounts based on our historical experience of write-offs and a detailed assessment of
our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, management
considers the age of the accounts receivable, our historical write-offs, the creditworthiness of the advertiser, the economic
conditions of the advertiser’s industry, and general economic conditions, among other factors. Should any of these factors
change, the estimates made by management will also change, which could impact the level of our future provision for doubtful
accounts. Specifically, if the financial condition of our advertisers were to deteriorate, affecting their ability to make payments,
additional provision for doubtful accounts may be required.
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe we have
adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will
not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the
refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such
differences will impact the provision for income taxes in the period in which such determination is made. The provision for
income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the
related net interest.
Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations, state
taxes, certain benefits realized related to stock option activities, the extent that our earnings are indefinitely reinvested outside
the U.S. and tax asset valuation allowance determinations, including on certain loss carryforwards. For the years ended
December 31, 2014, 2013 and 2012, our effective tax rates were 23%, 285% and 29%, respectively. Our future effective tax
rates could be materially impacted by earnings being lower than anticipated in countries where we have lower statutory rates
and higher than anticipated in countries where we have higher statutory rates, changes in the deferred tax assets or liabilities,
changes in tax asset valuation allowance determinations, changes in our judgment about whether certain foreign earnings are
indefinitely reinvested outside the U.S., or changes in tax laws, regulations, and accounting principles. In addition, we are
subject to the continuous examination of our income tax returns by the IRS and other tax authorities. We regularly assess the
likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
See Note 6 to the accompanying consolidated financial statements for further information.