Overstock.com 2006 Annual Report Download - page 45

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following Management's Discussion and Analysis of Financial Condition and Results of Operation should be read in
conjunction with our Consolidated Financial Statements and the related Notes thereto. This discussion contains forward-looking
statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and
intentions, as set forth under "Special Note Regarding Forward-Looking Statements." Our actual results and the timing of events
could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set
forth in the following discussion and under "Risk Factors" and elsewhere in this Form 10-K.
Recent Developments
During the fourth quarter of 2006, in an effort to improve future operating performance, we commenced implementation of a
facilities consolidation and restructuring program designed to reduce our overall expense structure (see Item 15 of Part IV, "Financial
Statements"—Note 4—"Restructuring Expense"). The planned actions include the termination of a co-location data center lease,
marketing of the current office facilities for sub-lease, and marketing non-core businesses for sale. At December 31, 2006, we accrued
a liability of $5.9 million associated with the termination of the co-location data center lease and other costs related to our facilities
consolidation plan, including $5.5 million related to lease termination costs and $450,000 related to the asset retirement obligation
(see Item 15 of Part IV, "Financial Statements"—Note 9—"Asset Retirement Obligation").
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 our 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.
Please see the "Executive Commentary" below as well as the rest of Management's Discussion and Analysis for discussion of
other recent developments.
Overview
We are an online "closeout" retailer offering discount brand name merchandise, including bed-and-bath goods, home décor,
kitchenware, watches, jewelry, electronics and computers, sporting goods, apparel, designer accessories and travel services, among
other products. We also sell books, magazines, CDs, DVDs, videocassettes and video games ("BMMG"), and we operate as part of
our Website an online auction site—a marketplace for the buying and selling of goods and services.
Our company, based in Salt Lake City, Utah, was founded in 1997, and we launched our first Website through which customers
could purchase products in March 1999. Our Websites offer our customers an opportunity to shop for bargains conveniently, while
offering our suppliers an alternative inventory liquidation distribution channel. We continually add new, limited inventory products to
our Websites in order to create an atmosphere that encourages customers to visit frequently and purchase products before our
inventory sells out. We offer approximately 36,000 products under multiple shopping tabs on our main website, plus almost 500,000
media products on our BMMG tab.
Closeout merchandise is typically available in inconsistent quantities and prices and often is only available to consumers after it
has been purchased and resold by disparate liquidation wholesalers. We believe that the traditional liquidation market is therefore
characterized by fragmented supply and fragmented demand. We utilize the Internet to aggregate both supply and demand and create a
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