Overstock.com 2012 Annual Report Download - page 66

Table of Contents

"Free cash flow" (a non-GAAP measure) for the years ended December 31, 2012, and 2011, was $15.7 million and $16.9 million, respectively.
See "Non-GAAP financial measures" below for a reconciliation of Free Cash Flow to net cash provided by operating activities.

For the years ended December 31, 2012 and 2011, our operating activities resulted in net cash inflows of $28.1 million and $25.7 million,
respectively.
Cash received from customers generally corresponds to our net revenues as our customers primarily use credit cards to buy from us causing our
receivables from these sales transactions to settle quickly. We have payment terms with our fulfillment partners that generally extend beyond the amount
of time necessary to collect proceeds from our customers. As a result, following our typically seasonally strong fourth quarter sales, at December 31 of
each year, our cash, cash equivalents and accounts payable balances normally reach their highest level (other than as a result of cash flows provided by
or used in investing and financing activities). However, our accounts payable balance normally declines during the first three months following year-
end, which normally results in a decline in our cash and cash equivalents balances from the year-end balance. The seasonality of our business causes
payables and accruals to grow significantly in the fourth quarter, and then decrease in the first quarter when they are typically paid.
The $28.1 million of net cash provided by operating activities during the year ended December 31, 2012 was primarily due to net income of
$14.7 million, non-cash depreciation, amortization and stock compensation expense of $19.5 million, and an increase in deferred revenue of
$10.4 million primarily due to strong sales growth at the end of year and an increase in the amount of orders sold but not yet delivered to our customers
due to shipping holidays near year-end, partially offset by a decrease in accounts payable of $7.9 million, an increase in accounts receivable of
$5.8 million and an increase in inventory of $3.5 million primarily for home and garden products.
The $25.7 million of net cash provided by operating activities during the year ended December 31, 2011 was primarily due to a decrease in
inventory of $9.1 million from an effort to maintain lower inventory levels and a shift in sales mix, particularly in clothing and shoes, from a direct
inventory-based model to a fulfillment partner-based model to reduce seasonal inventory risks, an increase in accrued liabilities of $7.0 million primarily
related to marketing and legal expenses, an increase in deferred revenue of $4.0 million primarily due to continued growth of our Club O loyalty
program and an increase in accounts payable of $2.9 million.

Cash provided by investing activities corresponds with purchases, sales, and maturities of marketable securities and cash expenditures for fixed
assets, including internal-use software and website development costs. For the years ended December 31, 2012 and 2011, investing activities resulted in
net cash outflows of $13.8 million and $8.9 million, respectively.
The $13.8 million used in investing activities during the year ended December 31, 2012 resulted primarily from expenditures for fixed assets of
$12.5 million, which largely consisted of software and hardware purchases, and a $1.4 million investment in precious metals in an effort to diversify
our investments.
The $8.9 million used in investing activities during the year ended December 31, 2011 resulted primarily from expenditures for fixed assets of
$8.7 million, which largely consisted of software and hardware purchases.
57