Overstock.com 2006 Annual Report Download - page 10

As part of this program to reduce our expense structure and sell non-core businesses, we decided during the fourth quarter of
2006 to sell the Company's travel subsidiary ("OTravel"), and we have received a non-binding letter of intent from a third-party to
purchase this business. As a result, OTravel's operations have been classified as a discontinued operation and therefore are not
included in the results of continuing operations. The loss from discontinued operations for OTravel was $6.9 million for the year
ended December 31, 2006, including a goodwill impairment charge of $4.5 million.
Auctions business
We operate an online auction service as part of our Website. Our auction tab allows sellers to list items for sale, buyers to bid on
items of interest, and users to browse through listed items online. For these sales we record only our listing fees and commissions for
items sold as revenue. From time to time, we also sell items returned from our shopping site on our auction site, and for these sales,
we record the revenue on a gross basis. Revenue from our auction business is included in the fulfillment partner segment, as it is not
significant enough to segregate as its own segment.
Cars listing business
We operate an online site for listing cars for sale as a part of our Website. The cars listing service allows sellers to list vehicles
for sale and allows buyers to review vehicle descriptions, post offers to purchase, and provides the means for purchasers to contact
sellers for further information and negotiations on the purchase of an advertised vehicle. Revenue from our cars listing business is
included in the fulfillment partner segment, as it is not significant enough to separate out as its own segment.
Cost of goods sold
Cost of goods sold consists of the cost of the product, as well as inbound and outbound freight, warehousing and fulfillment costs
(including payroll and related expenses), credit card fees, customer service costs and stock-based compensation.
Operating expenses
Sales and marketing expenses consist of advertising, public relations and promotional expenditures, as well as payroll and related
expenses, including stock-based compensation, for personnel engaged in marketing and selling activities. Advertising expense is the
largest component of our sales and marketing expenses and is primarily attributable to expenditures related to online marketing
activities and offline national radio and television advertising. For the years ended December 31, 2004, 2005 and 2006, our advertising
expenses totaled approximately $39.2 million, $75.3 million and $68.1 million, respectively, representing 97%, 98% and 96%,
respectively, of sales and marketing expenses.
Technology expenses consist of wages and benefits, including stock-based compensation, for technology personnel, rent, utilities,
connectivity charges, as well as support and maintenance and depreciation and amortization related to software and computer
equipment.
General and administrative expenses consist of wages and benefits, including stock-based compensation, for executive, legal,
accounting, merchandising and administrative personnel, rent and utilities, travel and entertainment, depreciation and amortization of
intangible assets and other general corporate expenses.
We have recorded no provision or benefit for federal and state income taxes as we have incurred net operating losses since
inception. We have provided a full valuation allowance on the net deferred tax assets, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding their realizability.
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