Travelzoo 2015 Annual Report Download - page 102

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(c) 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 Getaways 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. We accrue costs associated with refunds in accrued expenses on the
consolidated balance sheets. 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.
(d) 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.
(e) Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States of America. Actual results could differ materially
from those estimates.
(f) Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with remaining maturities of less than three months on the date of
purchase.
(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 costs are expensed as incurred. Online advertising is expensed as incurred over the period the advertising is
displayed. Advertising costs amounted to $25.6 million, $20.8 million and $27.8 million for years ended December 31, 2015,
2014 and 2013, respectively.