Travelzoo 2015 Annual Report Download - page 60

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We are subject to payments-related risks.
We accept payments for the sale of vouchers using a variety of methods, including credit cards and debit cards. We pay
interchange and other fees, which may increase over time and raise our operating expenses and lower profitability. We rely on
third parties to provide payment processing services, including the processing of credit cards and debit cards, and it could
disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to
payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could
change or be reinterpreted to make it difficult or impossible for us to comply. Moreover, under payment card rules and our
contracts with our card processors, if there is a security breach of payment card information, we could be liable to the payment
card issuing banks for their cost of issuing new cards and related expenses. If we fail to comply with these rules or
requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card
payments, process electronic funds transfers, or facilitate other types of online payments, and our business and results of
operations could be adversely affected. If one or more of these contracts are terminated and we are unable to replace them on
similar terms, or at all, it could adversely affect our results of operations.
Our reported financial results may be adversely affected by changes in United States generally accepted accounting
principles, and we may incur significant costs to adjust our accounting systems and processes to comply with significant
changes.
United States generally accepted accounting principles are subject to interpretation 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 which could change the way we account for certain of our sales transactions. The adoption of this standard
and changes in other principles or interpretations could have a significant effect on our reported financial results and could
affect the reporting of transactions completed before the effective dates of the standard. Such change could have a significant
effect on our reported financial results. In addition, we may need to significantly change our accounting systems and processes
if we are required to adopt future or proposed changes in accounting principles noted above. The cost of these changes may
negatively impact our results of operations during the periods of transition.
Risks Related to Our Markets and Strategy
Our international expansion may result in operating losses, and is subject to other material risks.
In May 2005, we began operations in the U.K. In 2006, we 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, and our operations in Europe generated an operating
income before tax of $3.9 million and $5.8 million in 2015 and 2014, respectively. We intend to continue adding a significant
number of members in selected countries in which we operate as we believe this is one of the factors that will allow us to
increase our advertising rates and increase our revenues in Europe.
If we incur losses from our operations in the future, these losses may not have any recognizable tax benefit, which is the
case for Asia Pacific business. We expect that this would have a material negative impact on our net income and cash flows.
Any of these developments could result in a significant decrease in the trading price of our common stock. In addition to
uncertainty about our ability to generate net income from our foreign operations and expand our international market position,
there are certain risks inherent in doing business internationally, including:
• trade barriers and changes in trade regulations;
• difficulties in developing, staffing and simultaneously managing foreign operations as a result of distance,
language and cultural differences;
• stringent local labor laws and regulations;
• currency exchange rate fluctuations;
• risks related to government regulation; and
• potentially adverse tax consequences.
Moreover, fluctuations in currency exchange rates can impact our revenues. For example, foreign currency movements
relative to the U.S. dollar have negatively impacted our revenues from our operations in Europe. The uncertainty and volatility