Travelzoo 2015 Annual Report Download

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NASDAQ: TZOO
2015 Annual Report
2016 Proxy Statement

Table of contents

  • Page 1
    NASDAQ: TZOO 2015 Annual Report 2016 Proxy Statement

  • Page 2

  • Page 3
    TRAVELZOO INC. Table of Contents Page Information About the Annual Meeting Election of Directors (Proposal 1) Corporate Governance Information About Executive Officers Approval of Option Grants (Proposal 2) Advisory Vote On the Compensation of Named Executive Officers (Proposal 3) Compensation ...

  • Page 4
    [This page intentionally left blank]

  • Page 5
    ... during ordinary business hours at Travelzoo's principal executive offices, located at 590 Madison Avenue, 37th Floor, New York, NY 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...

  • Page 6
    ... that the Annual Meeting of Stockholders of Travelzoo Inc., a Delaware corporation, will be held on Friday, May 6, 2016, at 10:00 a.m., local time, at 590 Madison Avenue, 37th Floor, New York, NY 10022, U.S.A., for the following purposes: To elect seven members of the Company's Board of Directors...

  • Page 7
    ... were 14,387,412 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 6, 2016 at 590 Madison Avenue, 37th Floor, New York, NY 10022, U.S.A. The meeting will begin at 10:00 a.m. local time. What am I voting...

  • Page 8
    ... of three 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 9
    ... 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 U.S. Securities and Exchange Commission ("SEC") at (800) SEC-0330 for the location of the nearest public reference...

  • Page 10
    ...(PROPOSAL 1) Under Travelzoo's bylaws, the number of directors of Travelzoo is fixed, and may be increased or decreased from time to time, by resolution of the Board of Directors. Each director holds office for a term of one year, until the annual meeting of stockholders next succeeding the director...

  • Page 11
    ... Tarka has been a member of Travelzoo's Board of Directors since August 2015. She has been the founder and Chief Executive Officer of Mobissimo since September 2000. Mobissimo is an online travel search engine which allows users to compare prices of airline tickets, hotel rooms, and car rentals...

  • Page 12
    ... President and General Manager of the HP Software Online Business at Hewlett-Packard Company since March 2013. From April 2007 to March 2013, she held several product leadership positions across the consumer search, e-commerce, and advertising businesses at Yahoo!. She is a member of the Board of...

  • Page 13
    ... expert within the meaning of the regulations of SEC. Compensation Committee The Compensation Committee reviews and approves the compensation and benefits for the Company's executive officers and directors, and makes recommendations to the Board of Directors regarding such matters. The Compensation...

  • Page 14
    ... our 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...

  • Page 15
    ... to receive certain retainers and fees. In 2015, there were no adjustments to the director compensation policy. The retainers and meeting fees are as follows: Description Annual Chairman of the Board retainer Annual Board member retainer Annual Audit Committee Chair retainer Fee for attendance of...

  • Page 16
    ... 51.7% of the Company's outstanding shares. On August 20, 2015, Travelzoo acquired the Travelzoo Asia Pacific business ("Asia Pacific"), which includes the Travelzoo businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently operated by Azzurro...

  • Page 17
    ...worked at PWC LLP and from 1990 to 1998 he was at Coopers & Lybrand LLP. Mr. Ceremony received his B.S. in Business Administration from California State University, Sacramento. Vivian Hong has been President, Asia Pacific since October 2015 after service as co-Chief Executive Officer of Asia Pacific...

  • Page 18
    ...exercise price are subject to adjustment in the event there is any change in the number of shares of outstanding common stock of the Company by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar event. Transfer Restrictions...

  • Page 19
    ... Registration The Company has registered the shares of common stock made available under the Option Agreement under the Securities Act of 1933, as amended. Personal Interest Mr. Holger Bartel is Travelzoo's Chairman of the Board and the Global Chief Executive Officer. Option Agreement with President...

  • Page 20
    ...exercise price are subject to adjustment in the event there is any change in the number of shares of outstanding common stock of the Company by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar event. Transfer Restrictions...

  • Page 21
    ...exercise price are subject to adjustment in the event there is any change in the number of shares of outstanding common stock of the Company by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar event. Transfer Restrictions...

  • Page 22
    ... our named executive officers' total compensation for 2015 was in the form of performance-based compensation based on the achievement of quarterly corporate financial measures such as revenue, operating income and audience marketing. This is not a mechanical process, and our Board of Directors uses...

  • Page 23
    ... included salary and total compensation information based on the title, job description, and geographic location of similarly situated executives. The most significant aspects of the CEO's role in the compensation determination process are evaluating employee performance, establishing business...

  • Page 24
    ... is publicly available. The Committee did not make any changes to the base salaries of its named executive officers. Incentive Bonus Pay In 2015, 2014 and 2013, Mr. Christopher Loughlin, Mr. Glen Ceremony, Ms. Vivian Hong, Mr. Richard Singer, Mr. Michael Stitt, and Mr. Simon Talling-Smith received...

  • Page 25
    ... role in developing the Asia Pacific business and team. Ms. Hong received a Discretionary Bonus totaling $179,178 for 2015. Pursuant to the terms 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...

  • Page 26
    ... 2015, the Chief Executive Officer considered factors such as Mr. Stitt's leadership role in developing the North America business and team. Mr. Stitt received a Discretionary Bonuses totaling $14,500 for 2015. Pursuant to the terms of Mr. Talling-Smith's employment agreement dated April 12, 2013...

  • Page 27
    ... business and team. Mr. Talling-Smith received a Discretionary Bonuses totaling $50,000 for 2015. Other Compensation-Related Matters Stock Options. The Company grants certain executive officers stock options (which represent the right to purchase a specific number of shares of company common stock...

  • Page 28
    ... 2015 2014 2013 Glen Ceremony Chief Financial Officer 2015 2014 2013 Vivian Hong (3) President, Asia Pacific 2015 2014 2013 Richard Singer (4) President, Europe 2015 2014 2013 Michael Stitt (5) President, North America 2015 2014 2013 Simon Talling-Smith (6) President, Products & Emerging Business...

  • Page 29
    ... rate of £1 = $1.53 for 2015, £1 = $1.65 for 2014 and £1 = $1.56 for 2013. Mr. Stitt was promoted to President, North America in October 2015. Mr. Talling-Smith's employment terminated on December 14, 2015 and in exchange for executing a general release of claims was entitled to receive $210,000...

  • Page 30
    ...annual Performance Bonus payments under the terms of employment agreement. The business measurements and performance goals for determining the Performance Bonus payout are described in the CD&A. Name (1) Christopher Loughlin Glen Ceremony Vivian Hong Richard Singer Michael Stitt Simon Talling-Smith...

  • Page 31
    ... his base salary for a six month period in exchange for executing a general release of claims as to the Company. Assuming that Mr. Ceremony was terminated by the Company as of December 31, 2015 without cause, Mr. Ceremony would have been entitled to receive $235,000. If Mr. Ceremony's employment is...

  • Page 32
    .... Talling-Smith's employment was terminated effective December 14, 2015 and, in exchange for executing a general release of claims, Mr. Talling-Smith was entitled to receive $210,000 and medical benefits of approximately $5,064. Mr. Talling-Smith agreed that the Company owns any discoveries and work...

  • Page 33
    ... does not intend to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Compensation Committee Report The information contained in this report shall not be deemed to be "soliciting material" or "filed" with the SEC or subject to the...

  • Page 34
    ... Glen Ceremony Vivian Hong Richard Singer Michael Stitt Simon Talling-Smith Directors and executive officers as a group (13 persons) * Persons Owning More Than 5% of Common Stock ** Less than 1% 7,430,538 - - - - - 325,000 50,000 - - 3,500 4,000 7,813,038 (1) Represents shares subject to stock...

  • Page 35
    ... more than 10% of the Company's common stock are required to file reports of ownership and changes in ownership with the SEC. Such directors, executive officers and beneficial holders of more than 10% of the Company's common stock are required by SEC regulations to furnish the Company with copies of...

  • Page 36
    PRINCIPAL ACCOUNTANT FEES AND SERVICES Independent Public Accountants KPMG LLP ("KPMG") served as Travelzoo's independent registered public accounting firm for our 2015 fiscal year. KPMG representatives are expected to be present at the Annual Meeting and will be available to respond to questions at...

  • Page 37
    ...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 discussed the consolidated...

  • Page 38
    ... any amendments thereto by contacting 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 2015 Annual Report are available on the Internet at corporate.travelzoo.com/annualreport. These documents...

  • Page 39
    ... 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) 484-4900. INTEREST OF CERTAIN...

  • Page 40
    ... 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 41
    ... STOCKHOLDERS 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 6, 2016, or any adjournments...

  • Page 42
    ...THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS For Against Abstain NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as name (s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give...

  • Page 43
    ... 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 44
    ... 30, 2015, 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 $82,343,052. The number of shares of the Registrant's common stock outstanding as...

  • Page 45
    ...Accountants on Accounting and Financial Disclosures Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 46
    ... search engine that allows users to quickly and easily find the best prices on flights from hundreds of airlines and online travel agencies. On August 20, 2015 we acquired the Travelzoo Asia Pacific business ("Asia Pacific"), which includes the Travelzoo businesses in Australia, China, Hong Kong...

  • Page 47
    ... 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 48
    ..., and cost-effective way to reach millions of Internet users. Our publications include the Travelzoo websites, the Travelzoo Top 20 e-mail newsletter, 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...

  • Page 49
    ... cost distribution channel and retention of 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...

  • Page 50
    ... offer access to Internet users in Australia, Canada, China, France, Germany, Hong Kong, Japan, Southeast Asia, Spain, Taiwan, the U.K and U.S. Real-Time Listings of Special Offers. Our technology allows local businesses to advertise special offers on a realtime basis. Real-Time Performance Reports...

  • Page 51
    ... of our advertisers are: Ace the Himalaya AirAsia Air New Zealand Atlantis, Paradise Island, Bahamas Apple Vacations British Airways Cathay Pacific Airways Cirque du Soleil Delta Air Lines Expedia Fairmont Hotels and Resorts Fareportal Hawaiian Airlines Hong Kong Tourism Board Hotwire Iceland Air...

  • Page 52
    ... with large Internet portal sites such as MSN and Yahoo! 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...

  • Page 53
    ... Asia Pacific, Europe and North America. None of our employees are represented under collective bargaining agreements. We consider our relations with our employees to be good. Internet Access to Other Information We make available free of charge, on or through our website (www.travelzoo.com), annual...

  • Page 54
    ... the Internet generally 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...

  • Page 55
    ...addition of a hotel booking platform may result in additional costs that exceed revenue and may trigger additional stock volatility. Our Local Deals and Getaway formats of advertising include the sale of vouchers directly to consumers to advertise promotional deals provided by merchants. For example...

  • Page 56
    ... 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 57
    ... our recent loss of revenue from certain online booking engines, airlines and vacation packagers. We may not add enough additional revenue, such as hotel revenue from Getaways or the hotel booking platform, in order to replace the lost revenue. Furthermore, the new revenue may cost more to generate...

  • Page 58
    ... our Local Deals and Getaway merchants, we are selling vouchers on behalf of the merchants directly to our members and we face exposures should merchants not fully honor the deals. As for our travel business, we are only collecting an advertising fee from the advertiser and the members are booking...

  • Page 59
    ... undeliverable. As a result, the reported number of members should not be considered as representative of the number of persons who continue to actively consider our deals by reviewing our e-mail offers. We may not be able to obtain sufficient funds to grow our business and any additional financing...

  • Page 60
    ... began operations in Canada, Germany, and Spain. In 2007, we began operations in France. In addition, from 2007 through 2009, we began operations in Asia Pacific, including in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. Our revenues in Europe decreased 8% in 2015 compared to 2014...

  • Page 61
    ... in Asia Pacific. A decline in the growth rates of our international businesses could have a negative impact on our gross profit and earnings per share growth rates and, as a consequence, our stock price. Many of these regions have different customs, currencies, levels of consumer acceptance...

  • Page 62
    ... not succeed in developing features, functions, products, or services that travel and entertainment companies and Internet users find attractive. This could reduce the number of travel and entertainment companies and Internet users using our products and materially adversely affect our business. We...

  • Page 63
    ...our acquisition of Travelzoo Asia Pacific, we now compete or may compete in the future with large online travel service providers, like Ctrip and eLong. We compete with companies like Groupon and LivingSocial that sell vouchers for deals from local businesses such as spas, hotels and restaurants. We...

  • Page 64
    ..., 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 65
    ... 51.2% of the Company's outstanding shares. 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 defend. Shareholder lawsuits for securities violations are often...

  • Page 66
    ...'s stated expiration date (if any); or (iii) a later date provided by applicable state law. Purported class actions against other companies have been filed in federal and state court claiming that coupons similar to the vouchers are subject to the CARD Act and various state laws governing gift cards...

  • Page 67
    ... through our websites and applications, including consumer data, content that is produced by our editorial staff and errors or omissions related to our product offerings. Such information, whether accurate or inaccurate, may result in our being sued by our advertisers, merchants, members or third...

  • Page 68
    ... 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 69
    ...this voluntary program in general and administrative expenses of $1,000 for the year ended December 31, 2015. The total cost of this voluntary program is not reliably estimable because it is based on the ultimate number of valid requests received and future levels of the Company's common stock price...

  • Page 70
    ..., including offices in Chicago, Illinois; Austin, Texas; Los Angeles, California; Miami, Florida; Mountain View, California; San Diego, California; San Francisco, California; Toronto, Ontario; and Vancouver, British Columbia. We believe that our leased facilities are adequate to meet our current...

  • Page 71
    ...09 $20.91 On March 14, 2016, the last reported sales price of our common stock on the NASDAQ Global Select Market was $8.16 per share. As of March 14, 2016, there were approximately 194 stockholders of record of our shares. Dividend Policy Travelzoo has not declared or paid any cash dividends since...

  • Page 72
    ...31, 2015. 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 Purchased Under the Programs (1) October 1, 2015 - October 31, 2015 November 1, 2015 - November 30, 2015 December...

  • Page 73
    ... performance on the following graph is not indicative of future stock price performance. Measurement Point 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 Travelzoo Inc. NASDAQ Market Index S&P 500 Publishing $ $ $ 100 $ 100 $ 100 $ 59.40 $ 98.20 $ 111.22 $ 45.89 $ 113...

  • Page 74
    ... statements for further information related to the acquisition of the Travelzoo Asia Pacific business....16,315 Consolidated Balance Sheet Data: Year Ended December 31, 2015 2014 2013 (In thousands) 2012 2011 Cash and cash equivalents Working capital Total assets Stockholders' equity $ $ $ $ 35,...

  • Page 75
    ... 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 76
    ... search engine that allows users to quickly and easily find the best prices on flights from hundreds of airlines and online travel agencies. On August 20, 2015 we acquired the Travelzoo Asia Pacific business ("Asia Pacific"), which includes the Travelzoo businesses in Australia, China, Hong Kong...

  • Page 77
    ... high-quality deals from travel companies, such as hotels, airlines, cruises or car rentals and includes products such as Top 20, Website, Newsflash, Travelzoo Network as well as Getaway vouchers. The revenues generated from these products are based upon a fee for number of e-mails delivered to...

  • Page 78
    ... 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 and due to member refunds on vouchers sold. Our cost of revenues...

  • Page 79
    ... in Asia Pacific, including in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. 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. In...

  • Page 80
    ... for the periods indicated. Year Ended December 31, 2015 2014 2013 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing Product development General and administrative Unexchanged promotional shares Total operating expenses Income from operations Other income (loss...

  • Page 81
    ..., 2015 2014 2013 Asia Pacific Total members Average cost per acquisition of a new member Revenue per member (2) Revenue per employee (3) Mobile application downloads Social media followers Europe Total members Average cost per acquisition of a new member Revenue per member (2) Revenue per employee...

  • Page 82
    ... publications (Top 20, Website, Newsflash, Travelzoo Network), Getaway vouchers and hotel booking platform. Search revenue includes SuperSearch and Fly.com. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). Year Ended December 31, 2015 2014 2013...

  • Page 83
    ... 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 bookings, and salary expenses associated with network...

  • Page 84
    ... 2015, 2014 and 2013, respectively. General and administrative expenses decreased $4.8 million in 2015 compared to 2014. The decrease was primarily due to a $3.7 million decrease in salary and employee related expenses due in part to a decrease in headcount and professional services costs. General...

  • Page 85
    ...March 31, 2011. 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 shares, which were not covered by the settlement and release by the State of Delaware. During the three months ended...

  • Page 86
    ... is currently under examination, including a review of the impact of the sale of Asia Pacific business segment in 2009. In connection with this examination, we have received a Revenue Agent's Report (RAR) from the IRS, generally issued at the conclusion of an IRS examination. The RAR proposes an...

  • Page 87
    ... expenses decreased $7.3 million from 2014 to 2013. This decrease was primarily due to a $5.3 million decrease in Search traffic acquisition costs and a $1.3 million decrease in salary and employee related expense. Liquidity and Capital Resources As of December 31, 2015, we had $35.1 million in cash...

  • Page 88
    ...total cost of this program is still undeterminable because it is dependent on our stock price and on the number of valid requests ultimately received. Consistent with our growth, we have experienced fluctuations in our cost of revenues, sales and marketing expenses and our general and administrative...

  • Page 89
    ..., including interest, of approximately $3.0 million as of December 31, 2015. 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 would result in additional federal and state tax expense...

  • Page 90
    ... the agency. 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...

  • Page 91
    ... of Travelzoo.com Corporation that may be realized as a result of our cash program for these claimants and the 2009 IRS audit claims. Please refer to Note 5 and 6 to the accompanying consolidated financial statements for further information regarding our loss contingencies. Recent Accounting...

  • Page 92
    ... currency risk associated with agreements being denominated in British Pound Sterling and Euros. Our operations in Asia Pacific expose us to foreign currency risk associated with agreements being denominated in Australian dollars, Chinese Yuan, Hong Kong dollar, Japanese Yen and Taiwanese Yuan. We...

  • Page 93
    ... 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) Consolidated Statements...

  • Page 94
    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, 2015 and 2014, and the related consolidated statements of ...

  • Page 95
    ... per share (5,000 shares authorized; none issued) Common stock, $0.01 par value (40,000 shares authorized; 14,518 shares issued and outstanding as of December 31, 2015 and 15,801 shares issued,14,730 shares outstanding as of December 31, 2014) Treasury stock (at cost, 0 and 1,071 shares at December...

  • Page 96
    ... OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2015 2014 2013 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing Product development General and administrative Unexchanged promotional shares Total operating expenses Income from operations...

  • Page 97
    ... INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2015 2014 2013 Net income (loss) Other comprehensive income (loss): Foreign currency translation adjustment Total comprehensive income (loss) $ 10,864 (1,306) $ 13,062 (2,228) $ (6,582) 296...

  • Page 98
    ...expense Retirement of treasury stock Repurchase of common stock Proceeds from sale of shares fractionalized from reverse/forward stock split, including transaction costs Acquisition of Asia Pacific business Foreign currency translation adjustment Net income Balances, December 31, 2015 15,362 - (371...

  • Page 99
    ... of cash flow information: Cash paid for income taxes, net Cash paid for interest Note payable for the acquisition of the Asia Pacific business Funds held by transfer agent for settlement of reverse/forward stock split Payable to shareholders for reverse/forward stock split Leasehold improvements...

  • Page 100
    ... 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 that allow our members to purchase vouchers...

  • Page 101
    ...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 102
    ... 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...

  • Page 103
    ...-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, 2015, 2014 and 2013...

  • Page 104
    ... (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. This accounting standard update became effective for the Company on January 1, 2015. The adoption of this accounting standard update did not have a material impact...

  • Page 105
    ...,062 14,768 41 14,809 0.88 $ $ $ (6,582) 15,269 (0.43) (6,582) 15,269 - 15,269 (0.43) $ $ $ For the years ended December 31, 2015, 2014 and 2013, options to purchase 775,000, 125,000 and 475,000 shares of common stock, respectively, were not included in the computation of diluted net loss per...

  • Page 106
    ... Value 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, 2015 Cash Total cash Certificates of deposit Merchant bank deposit Total...

  • Page 107
    ...31, 2015 2014 Computer hardware and software Office equipment and office furniture Capitalized internal-use software and website development...the years ended December 31, 2015, 2014 and 2013, respectively. Amortization of capitalized internal-use software and website development costs was $308,000, $...

  • Page 108
    ... Deals and Getaway merchant payable included in accounts payable was $19.1 million and $20.6 million, as of December 31, 2015 and 2014, respectively. Accrued expenses and other consist of the following (in thousands): December 31, 2015 2014 Accrued advertising expense Accrued compensation expense...

  • Page 109
    ... 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 Australia, Canada, China, France, Germany, Hong Kong, Japan, Singapore...

  • Page 110
    ... before income tax expense are as follows (in thousands): Year Ended December 31, 2015 2014 2013 U.S. Foreign $ $ 5,334 570 5,904 $ $ 14,363 3,538 17,901...provision is generally that portion of income tax expense that is currently payable to the taxing authorities. The Company makes estimated ...

  • Page 111
    ...the following (in thousands): Year Ended December 31, 2015 2014 2013 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 Uncertain tax positions...

  • Page 112
    ... Company has received a Revenue Agent's Report (RAR) generally issued at the conclusion of an IRS examination, which was consistent with the Notice of Proposed Adjustment received earlier from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business segment with additional...

  • Page 113
    ...starting on July 1, 2011. The options expire in November 2019. As of December 31, 2015, 300,000 of these options were vested and outstanding. In 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...

  • Page 114
    .... The fair value of 2015, 2013 and 2012 stock options was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: 2015 2013 2012 Weighted-average fair value of options granted per share Historical volatility Risk-free interest rate Dividend yield...

  • Page 115
    ... 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 116
    .... Note 12: Segment Reporting and Significant Customer Information The Company manages its business geographically and has three reportable operating segments: Asia Pacific, Europe and North America. Asia Pacific consists of the Company's operations in Australia, China, Hong Kong, Japan, Taiwan, and...

  • Page 117
    ...of December 31, 2015 and 2014, the Company had one customer that accounted for 15% and 10%, respectively, of accounts receivable. Accounts receivable representing 10% or more of total accounts receivable was related to an advertising technology company that assists us with our Search product traffic...

  • Page 118
    ... publications (Top 20, Website, Newsflash, Travelzoo Network), Getaway vouchers and hotel booking platform. Search revenue includes SuperSearch and Fly.com. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). Year Ended December 31, 2015 2014 2013...

  • Page 119
    ... Party Transactions On August 20, 2015, Travelzoo acquired the Travelzoo Asia Pacific business ("Asia Pacific"), which includes the Travelzoo businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently operated by Azzurro Capital Inc. ("Azzurro...

  • Page 120
    ... promissory note outstanding was $267,000 for the year ended December 31, 2015. In January 2016, the full amount of the loan was paid off by Travelzoo (Europe) Limited. On September 28, 2015, Holger Bartel, Executive Chairman and Chairman of the Board of Directors, was granted 400,000 stock options...

  • Page 121
    ... Ended Dec 31, 2015 Sep 30, 2015 Jun 30, 2015 Mar 31, 2015 Dec 31, 2014 Sep 30, 2014 Jun 30, 2014 Mar 31, 2014 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing General and administrative Product Development Unexchanged promotional shares Total operating expenses Income...

  • Page 122
    ...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/ HOLGER BARTEL Holger Bartel Chairman of the Board and Global CEO /s/ GLEN CEREMONY Glen Ceremony Chief Financial Officer March 14...

  • Page 123
    Item 9B. Other Information Not applicable. 80

  • Page 124
    ...Item 10. Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference to Travelzoo's Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of Travelzoo's fiscal year ended...

  • Page 125
    Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is set forth in the definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, which is incorporated herein by reference. PART IV Item 15. Exhibits and Financial ...

  • Page 126
    ... report to be signed on its behalf by the undersigned, thereunto duly authorized. TRAVELZOO INC. By: /s/ GLEN CEREMONY Glen Ceremony Chief Financial Officer ... of the Board of Directors and Global CEO March 14, 2016 Chief Financial Officer and Principal Accounting Officer Director March 14...

  • Page 127
    ...Effect a Reverse Stock Split Followed by a Forward Stock Split Of Travelzoo's Common Stock. By-laws of Travelzoo Inc. (Incorporated by reference to our Pre-Effective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002). Form of Director and Officer...

  • Page 128
    ... addendum, dated May 1, 2011, between Michael Stitt and Travelzoo Inc. Employment Agreement, dated September 30, 2015, between Michael Stitt and Travelzoo Inc. Separation Agreement and General Release, dated December 14, 2015, between Simon Talling-Smith and Travelzoo Inc. 10.11* - 10.12* - 10...

  • Page 129
    ... Mike Stitt dated March 7, 2016. Nonqualified Stock Option Agreement between Travelzoo Inc. and Richard Singer dated March 7, 2016. Subsidiaries of Travelzoo Inc. Consent of Independent Registered Public Accounting Firm Power of Attorney (included on signature page) Certification of Chief Executive...

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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