| As filed with the Securities and Exchange Commission on April 11, 2002 |
| SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
| FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| (Mark One) |
| [X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Financial Statements Only for the fiscal year ended December 31, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _________________ |
| TRAVELZOO INC. (Exact name of registrant as specified in its charter) |
| Delaware (State or other jurisdiction of incorporation or organization) |
36-441572 (I.R.S. Employer Identification No.) |
| 800 West El Camino Real Suite 180 Mountain View, California 94040 (650) 943-2400 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) |
| Securities registered pursuant to Section 12(b) of the Act: | None |
| Securities registered pursuant to Section 12(g) of the Act: | Common Stock, no par value |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
At April 1, 2002, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $_________*.
*As of December 31, 2001, all the voting and non-voting common stock of the registrant was held by affiliates. Upon consummation of a merger approved on March 15, 2002, Travelzoo.com Corporation will be merged with and into the registrant and the holders of shares of Travelzoo.com Corporation who elect to participate in the merger will become stockholders of the registrant.
At April 9, 2002, 19,425,147 shares of our common stock were outstanding.
Documents Incorporated by Reference: None
Pursuant to Securities Exchange Act Rule 15d-2, the registrant hereby files this Special Financial Report containing the audited financial statements of Travelzoo.com Corporation and Affiliate for the fiscal year ended December 31, 2001.
| |
|
Page |
| |
Independent Auditors' Report |
F-2 |
| |
Combined Balance Sheets |
F-3 |
| |
Combined Statements of Operations |
F-4 |
| |
Combined Statements of Stockholders' Equity |
F-5 |
| |
Combined Statements of Cash Flows |
F-6 |
| |
Notes to Combined Financial Statements |
F-7 |
F-1
The Board of Directors and Stockholders
Travelzoo.com Corporation:
We have audited the accompanying combined balance sheets of Travelzoo.com Corporation and affiliate (collectively, the Companies) as of December 31, 2001 and 2000, and the related combined statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2001. These combined financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined financial statements include the accounts of Travelzoo.com Corporation and affiliate, as defined in Note 1(a). The combined financial statements present the combined accounts of entities majority-owned by a principal stockholder engaged in the operation of the www.Travelzoo.com website.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Travelzoo.com Corporation and affiliate as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Mountain View, California
January 25, 2002, except as to Note 10,
which is as of March 15, 2002
F-2
Combined Balance Sheets
| December 31, |
||||
| 2001 |
2000 |
|||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 609,919 | 45,586 | |
| Accounts receivable, less allowance for doubtful accounts of $55,228 and $145,144 as of December 31, 2001 and December 31, 2000, respectively |
892,337 | 783,960 | ||
| Deposits | 32,508 | 110,752 | ||
| Prepaid expenses and other current assets | 18,179 | 110,998 | ||
| Deferred income taxes | 65,051 |
111,113 |
||
| Total current assets | |
1,617,994 |
|
1,162,409 |
| Deferred income taxes | 15,298 | — | ||
| Property and equipment, net | 137,200 | 194,315 | ||
| Intangible assets, net | |
360,238 |
|
196,667 |
| Total assets | $ | 2,130,730 |
1,553,391 |
|
| Liabilities and Stockholders' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 175,351 | 176,892 | |
| Accrued expenses | 284,318 | 223,263 | ||
| Deferred revenue | 86,721 | 2,500 | ||
| Income tax payable | 646,457 | 523,804 | ||
| Payable to principal stockholder | — |
50,216 |
||
| Total current liabilities | |
1,192,847 |
|
976,675 |
| Deferred income taxes | — |
2,568 |
||
| Total liabilities | |
1,192,847 |
|
979,243 |
| Commitments and contingency | ||||
| Stockholders' equity: | ||||
| Common stock | 78,173 | 78,173 | ||
| Retained earnings |
|
859,710 |
495,975 |
|
| Total stockholders' equity | |
937,883 |
|
574,148 |
| Total liabilities and stockholders' equity | $ |
2,130,730 |
|
1,553,391 |
| See accompanying notes to combined financial statements | ||||
F-3
Combined Statements of Operations
| Years ended December 31, |
||||||
| 2001 |
2000 |
1999 |
||||
| Revenues: | ||||||
| Advertising | $ | 6,141,456 | 3,852,066 | 893,244 | ||
| Commissions | 6,482 |
97,451 |
61,015 |
|||
| Total revenues | 6,147,938 | 3,949,517 | 954,259 | |||
| Cost of revenues | 304,081 |
282,195 |
132,803 |
|||
| Gross profit | 5,843,857 |
3,667,322 |
821,456 |
|||
| Operating expenses: | ||||||
| Sales and marketing | 3,274,747 | 1,484,495 | 350,720 | |||
| General and administrative | 1,354,088 | 1,201,982 | 326,686 | |||
| Merger expenses | 332,721 |
231,303 |
— |
|||
| Total operating expenses | 4,961,556 |
2,917,780 |
677,406 |
|||
| Income from operations | 882,301 | 749,542 | 144,050 | |||
| Interest income | 2,702 |
— |
— |
|||
| Income before income taxes | 885,003 | 749,542 | 144,050 | |||
| Income taxes | 521,268 |
387,856 |
38,646 |
|||
| Net income |
$ |
363,735 |
|
361,686 |
|
105,404 |
| Pro forma net income per share (Note 1(b))(unaudited): | ||||||
| Pro forma basic and diluted net income per share |
$ | .02 |
.02 |
.01 |
||
| Shares used in computing pro forma basic net income per share |
19,425,147 |
19,372,791 |
19,323,064 |
|||
| Shares used in computing pro forma diluted net income per share |
|
19,425,147 |
|
19,466,810 |
|
19,355,147 |
| See accompanying notes to combined financial statements | ||||||
F-4
Combined Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
| Common stock |
|||||||||||
| Travelzoo.com Corporation |
Travelzoo Inc. |
Retained | Total Stockholders' |
||||||||
| Shares |
Amount |
Shares |
Amount |
Earnings |
equity |
||||||
| Balances, December 31, 1998 | 11,155,874 | $ | 10,000 | 8,129,273 | $ | 50,000 | 28,885 | 88,885 | |||
| Net income | — |
— |
— |
— |
105,404 |
105,404 |
|||||
| Balances, December 31, 1999 | 11,155,874 | 10,000 | 8,129,273 | 50,000 | 134,289 | 194,289 | |||||
| Issuance of common stock upon exercise of options |
70,000 | 3,500 | — | — | — | 3,500 | |||||
| Stock-based compensation expense |
— | 9,221 | — | — | — | 9,221 | |||||
| Issuance of common stock to directors |
70,000 | 5,452 | — | — | — | 5,452 | |||||
| Net income | — |
— |
— |
— |
361,686 |
361,686 |
|||||
| Balances, December 31, 2000 | 11,295,874 | 28,173 | 8,129,273 | 50,000 | 495,975 | 574,148 | |||||
| Issuance of common stock to Travelzoo.com Corporation |
— | — | 11,295,874 | — | — | — | |||||
| Net income | — |
— |
— |
— |
363,735 |
363,735 |
|||||
| Balances, December 31, 2001 |
11,295,874 |
$ |
28,173 |
|
19,425,147 |
$ |
50,000 |
|
859,710 |
|
937,883 |
| See accompanying notes to combined financial statements | |||||||||||
F-5
Combined Statements of Cash Flows
| Years ended December 31, |
||||||
| 2001 |
2000 |
1999 |
||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 363,735 | 361,686 | 105,404 | ||
| Adjustments to reconcile net income to net cash | ||||||
| provided by operating activities: | ||||||
| Depreciation and amortization | 138,628 | 54,914 | 5,795 | |||
| Deferred income taxes | 28,196 | (93,381) | (10,870) | |||
| Provision for losses on accounts receivable | (88,507) | 135,144 | 10,000 | |||
| Loss on disposal of property and equipment | 567 | 4,212 | — | |||
| Stock-based compensation expense | — | 9,221 | — | |||
| Non-cash revenues other than barter | (16,449) | — | — | |||
| Changes in operating assets and liabilities: |
||||||
| Accounts receivable | (19,870) | (591,562) | (280,806) | |||
| Deposits | 78,244 | (102,566) | (5,055) | |||
| Prepaid expenses and other current assets | 92,819 | (92,765) | (10,534) | |||
| Accounts payable | (1,541) | 113,086 | 55,330 | |||
| Accrued expenses | 61,055 | 134,806 | 93,909 | |||
| Deferred revenue | 11,384 | (3,300) | 5,800 | |||
| Income tax payable | 122,653 | 479,881 | 34,466 | |||
| Payable to principal stockholder | (216) |
(831) |
1,047 |
|||
|
Net cash (used in) provided by operating activities |
770,698 |
408,545 |
4,486 |
|||
| Cash flows from investing activities: | ||||||
| Purchase of property and equipment | (31,365) | (227,589) | (17,601) | |||
| Purchases of intangible assets | (125,000) | (200,000) | — | |||
| Loan repayment by principal stockholder | — |
— |
12,000 |
|||
| Net cash used in investing activities | (156,365) |
(427,589) |
(5,601) |
|||
| Cash flows from financing activities: | ||||||
| Proceeds from issuance of common stock | — | 3,500 | — | |||
| Loans from principal stockholder | — | 50,000 | — | |||
|
Repayment of loans from principal stockholder |
(50,000) |
— |
— |
|||
|
Cash provided by (used in) financing activities |
(50,000) |
53,500 |
— |
|||
| Net increase (decrease) in cash | 564,333 | 34,456 | (1,115) | |||
| Cash at beginning of year | 45,586 |
11,130 |
12,245 |
|||
| Cash at end of year | $ | 609,919 |
45,586 |
11,130 |
||
| Supplemental disclosure of cash flow information: | ||||||
| Cash paid for income taxes | $ | 385,102 | 1,356 | 15,050 | ||
| Non-cash investing activity - intangible asset acquired for future advertising services |
89,286 |
— |
— |
|||
| See accompanying notes to combined financial statements | ||||||
F-6
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
| (a) | Description of Business and Basis of Presentation |
| The accompanying combined financial statements include the accounts of Travelzoo.com Corporation and its majority-owned subsidiary, Travelzoo Inc., consolidated with its subsidiaries (collectively, the Companies). The combined financial statements present the Companies on a combined basis because of their common ownership by Mr. Ralph Bartel (the Principal Stockholder), and because these entities combined represent the historical operations of the www.Travelzoo.com website business. Travelzoo.com was incorporated in the Bahamas on May 21, 1998. Travelzoo Inc. was incorporated in Delaware as a wholly- owned subsidiary of Travelzoo.com Corporation on January 18, 2001. The Companies operate the www.Travelzoo.com website, which provides an online advertising medium for the travel industry. All intercompany transactions have been eliminated in combination. |
| Prior to January 22, 2001, Travelzoo.com Corporation operated the website through service agreements with Silicon Channels Corporation. Silicon Channels Corporation was also founded by the Principal Stockholder and incorporated in California on September 28, 1998. Under the latest service agreement dated January 2, 1999 and in effect for the period from January 2, 1999 to January 22, 2001, Silicon Channels Corporation operated the website, produced and distributed a newsletter and sold advertising in return for 50% of the income before income taxes generated from the website. Prior to January 2, 1999, Silicon Channels Corporation received 5% of the net income generated by the website under a service agreement with Travelzoo.com Corporation dated October 10, 1998. The January 2, 1999 service agreement was terminated on January 22, 2001 in connection with the merger of Silicon Channels Corporation and Travelzoo Inc. described below. |
| On January 22, 2001, the Principal Stockholder contributed all the outstanding shares of common stock of Silicon Channels Corporation to Travelzoo Inc. in exchange for 8,129,273 shares of common stock of Travelzoo Inc. and options to acquire 2,158,349 shares of common stock of Travelzoo Inc. at $1.00 per share. Silicon Channels Corporation became a wholly-owned subsidiary of Travelzoo Inc. as a result of the contribution. The transaction was accounted for as a combination of entities under common control using “as-if pooling-of-interests” accounting. Under this method of accounting, the assets and liabilities of Silicon Channels Corporation and Travelzoo Inc. were carried forward to the combined company at their historical costs. In addition, all prior period financial statements of Travelzoo Inc. have been restated to include the combined results of operations, financial position and cash flows of Silicon Channels Corporation. |
| As of December 31, 2001, the Principal Stockholder owned approximately 52% of the outstanding common stock of Travelzoo.com Corporation. The 48% of Travelzoo.com Corporation not owned by the Principal Stockholder was owned by approximately 700,000 individual stockholders. As of December 31, 2001, Travelzoo.com Corporation owned 58% of the outstanding common stock of Travelzoo Inc. and the Principal Stockholder owned the remaining 42%. |
F-7
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
| During January 2001, the Board of Directors of Travelzoo.com Corporation proposed that Travelzoo.com Corporation be merged with Travelzoo Inc. whereby Travelzoo Inc. will be the surviving entity. Each share of Travelzoo.com Corporation outstanding at the consummation of the proposed merger will be exchanged for one share of Travelzoo Inc. The proposed merger will be consummated upon approval of the holders of a majority of the outstanding common stock of Travelzoo.com Corporation and the registration of the common stock of Travelzoo Inc. with the U.S. Securities and Exchange Commission. The proposed merger will be accounted for as a combination of entities under common control using “as-if pooling-of-interests” accounting. Under this method of accounting, the assets and liabilities of Travelzoo.com Corporation and Travelzoo Inc. will be carried forward to the combined company at their historical costs. In addition, all prior period financial statements of Travelzoo Inc. will be restated to include the combined results of operations, financial position and cash flows of Travelzoo.com Corporation. |
| The following unaudited pro forma financial information for the three-year period ended December 31, 2001 is presented to give effect to the proposed merger between Travelzoo.com Corporation and Travelzoo Inc. on the accompanying historical combined statement of stockholders’ equity as if the merger had been consummated on January 1, 1999 using the proposed exchange ratio. The pro forma presentation assumes all stockholders elect to exchange their shares. |
| Common Stock |
Additional | Total | |||||||
| Travelzoo Inc. |
Paid-in | Retained | stockholders' | ||||||
| Shares |
Amount |
capital |
earnings |
Equity |
|||||
| Balances, December 31, 1998 | 19,285,147 | $ | 192,851 | (132,851) | 28,885 | 88,885 | |||
| Net income | — |
— |
— |
105,404 |
105,404 |
||||
| Balances, December 31, 1999 | 19,285,147 | 192,851 | (132,851) | 134,289 | 194,289 | ||||
| Issuance of common stock upon exercise of options |
70,000 | 700 | 2,800 | — | 3,500 | ||||
| Stock-based compensation expense | — | — | 9,221 | — | 9,221 | ||||
| Issuance of common stock to directors |
70,000 | 700 | 4,752 | — | 5,452 | ||||
| Net income | — |
— |
— |
361,686 |
361,686 |
||||
| Balances, December 31, 2000 | 19,425,147 | 194,251 | (116,078) | 495,975 | 574,148 | ||||
| Net income | — |
— |
— |
363,735 |
363,735 |
||||
| Balances, December 31, 2001 | 19,425,147 |
$ | 194,251 |
(116,078) |
859,710 |
937,883 |
|||
| (b) | Pro Forma Net Income Per Share (Unaudited) |
| Pro forma net income per share gives effect to the proposed merger between Travelzoo.com Corporation and Travelzoo Inc. described in Note 1(a) as if the merger had been consummated on January 1, 1999 using the proposed exchange ratio. The pro forma presentation assumes all stockholders elect to exchange their shares. |
| Pro forma basic net income per share is computed using the weighted-average number of outstanding shares of common stock and shares vested under the board of directors’ share program (see Note 5). Pro forma diluted net income per share is computed using the weighted-average number of outstanding shares of common stock described above and dilutive potential common stock from options to purchase common stock using the treasury method and unvested shares issuable under the directors’ program. A reconciliation of the weighted-average basic number of shares and the weighted-average diluted number of shares used in the calculations follows: |
F-8
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
| Years ended December 31, |
|||||||
| 2001 |
2000 |
1999 |
|||||
| Weighted-average basic number of shares | 19,425,147 | 19,372,791 | 19,323,064 | ||||
| Effect of directors shares vesting | — | — | 32,083 | ||||
| Effect of employee stock options | — |
94,019 |
— |
||||
| Weighted-average diluted number of shares | 19,425,147 |
19,466,810 |
19,355,147 |
||||
| For all periods presented, 2,158,349 options to purchase shares of common stock at $1.00 per share were not included in the calculation of pro forma diluted income per share because their effect was antidilutive. In 2001, options to purchase 210,000 shares of common stock at an exercise price of $2.00 also were excluded for the same reason. |
| (c) | Use of Estimates |
| Management of the Companies have 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 from those estimates. |
| (d) | Property and Equipment |
| Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets of three years. |
| (e) | Intangible Assets |
| In December 2000, the Companies purchased the Internet domain name Weekend.com for cash of $200,000. In October 2001, the Companies purchased the Internet domain name Weekends.com for $125,000 in cash and $89,286 in future advertising services. These intangible assets are stated at cost, net of accumulated amortization and are being amortized on a straight-line basis over the estimated useful life of five years. Amortization expense of $3,333 and $50,715 was recorded in 2000 and 2001, respectively. |
| On January 22, 2001, the Principal Stockholder transferred ownership of the Travelzoo trademark to the Companies. The transfer was recorded at the historical cost basis of the Principal Stockholder of $-0-. |
| (f) | Revenue Recognition |
| Revenue consists of advertising and commissions from e-commerce transactions. Advertising revenues are derived principally from the sale of display advertising, classified advertising, and banner advertising on the www.Travelzoo.com website. Commissions are generated from bookings of travel services through customer advertising on the www.Travelzoo.com website. |
F-9
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
| Advertising revenues are recognized in the period in which the advertisement is displayed, provided that evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain at the end of the period, and collection of the resulting receivable is reasonably assured. If advertising is displayed within one month, revenues are recognized at the end of the display period. If advertising is displayed over two or more months, revenues are recognized ratably over the period. To the extent that the minimum guaranteed impressions are not met during the contract period, the Companies defer recognition of the corresponding revenues until the guaranteed impressions are achieved. Fees for banner advertising are recognized based on the number of impressions displayed or clickthroughs delivered during the period. |
| The Companies have outsourced part of their advertising sales and production activities to DoubleClick, Inc. (DoubleClick). Under the terms of the agreement with DoubleClick, the Companies receive a portion of the revenue received by DoubleClick from customers for the display of advertising on the www.Travelzoo.com website. The Companies record these revenues on a net basis. The gross revenue received by DoubleClick from advertising on the www.Travelzoo.com website was $600,454, $430,130, and $137,159 for the years ended December 31, 2001, 2000, and 1999, respectively. The Companies’ share of this income, which has been recorded as revenue, was $332,736, $231,885, and $66,691 for the years ended December 31, 2001, 2000, and 1999, respectively. |
| Commissions are recorded as the net amount received by the Companies and are recognized in the period in which the commissions earned are reported to the Companies by the e-commerce partner. |
| Revenues from advertising barter transactions are recognized in the period during which the advertisements are displayed on the www.Travelzoo.com website. Expenses from barter transactions are recognized in the period during which the advertisements are displayed on the barter partner’s website. Barter transactions are recorded at the fair value of the advertising provided based on cash received by the Companies for transactions involving similar types of advertising during the six months preceding the transaction in accordance with Emerging Issues Task Force (EITF) Issue No. 99-17, Accounting for Advertising Barter Transactions. The amounts included in advertising revenues and sales and marketing expenses for barter transactions were $-0-, $37,000, and $83,000 for the years ended December 31, 2001, 2000, and 1999, respectively. |
| In October 2001, the Companies completed the acquisition of the Weekends.com domain name. As consideration for the purchase, the Companies paid the seller $125,000 and agreed to provide a minimum number of clicks to the seller’s other websites through advertising placed on the Travelzoo website. The fair value of the advertising services of $89,286 was determined based on the cash price of similar advertising services and recorded as deferred revenue. The revenue is being recognized as the clicks are delivered. During 2001, $16,449 of revenue related to this arrangement was recognized. |
F-10
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
| (g) | Advertising Costs |
| Advertising costs (including barter advertising) amounted to $2,264,488, $1,161,800, and $169,374 for the years ended December 31, 2001, 2000, and 1999, respectively. |
| (h) | Income Taxes |
| Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. |
| (i) | Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of |
| The Companies account for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. |
| (j) | Stock-Based Compensation |
| As allowed under SFAS No. 123, Accounting for Stock-Based Compensation, the Companies have elected to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for fixed plan stock awards to employees. Deferred stock-based compensation for options granted to employees is determined as the excess of the fair value of the Companies’ common stock over the exercise price on the date options were granted. Stock-based compensation is amortized over the vesting period of the individual award. |
| (k) | Website Development Costs |
| Prior to June 30, 2000, website development costs were expensed as incurred. The Companies adopted EITF Issue No. 00-02, Accounting for Website Development Costs, on June 30, 2000. The adoption of EITF Issue No. 00-02 did not have a significant impact on the combined financial statements. Subsequent to the adoption of EITF No. 00-02, no website development costs that qualify for capitalization have been incurred. |
F-11
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
| (l) | Recent Accounting Pronouncements |
| In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137, Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133, established accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Companies adopted SFAS No. 133 on January 1, 2001. The adoption did not have an impact on the combined financial statements. |
| In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 provides guidance on the accounting for a business combination at the date a business combination is completed. The statement requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interests method. The Companies adopted SFAS No. 141 on July 1, 2001. The adoption did not have an effect on the combined financial statements. SFAS No. 142 provides guidance on how to account for goodwill and intangible assets after an acquisition is completed. The most substantive change is that goodwill will no longer be amortized but instead will be tested for impairment periodically. This statement will apply to existing goodwill and intangible assets, beginning with fiscal years starting after December 15, 2001. The Companies will adopt SFAS No. 142 as of the beginning of fiscal 2002 and the effect of adoption will not have a material impact on the combined financial statements since there is no recorded goodwill. |
| In August 2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with retirement of tangible long-lived assets and the associated retirement costs. The Companies will adopt SFAS No. 143 at the beginning of 2002, and the adoption will not have a material impact on the combined financial statements. |
| In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Impairment of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” SFAS No. 144 retains the requirements of SFAS No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and the fair value of the asset. SFAS No. 144 removes goodwill from its scope. SFAS No. 144 is applicable to the Companies' financial statements beginning in 2002. The adoption of this statement will not have a material impact on the combined financial statements. |
F-12
Notes to Combined Financial Statements
December 31, 2001, 2000, and 1999
The details of changes to the Companies’ allowance for doubtful accounts are as follows:
| Balance at December 31, 1998 | — | |||