Overstock.com 2006 Annual Report Download - page 47

Travel business
We operate a discount travel department as part of our Website. We use fulfillment partners to supply the travel products and
services (flights, hotels, rental cars, etc.). We currently offer air, hotel and car reservation services as well as ski, cruise and vacation
packages.
On July 1, 2005, we acquired all the outstanding capital stock of Ski West, Inc. ("Ski West"), an on-line travel company whose
proprietary technology provides easy consumer access to a large, fragmented, hard-to-find inventory of lodging, vacation, cruise and
transportation bargains. The travel products are primarily in popular ski areas in the U.S. and Canada, with more recent expansion into
the Caribbean and Mexico, as well as cruises. We paid an aggregate of $25.1 million (including $111,000 of capitalized acquisition
related costs) for Ski West, and we may be subject to additional earn-out payments (based on a percentage of operating profits for
each of the four calendar years beginning with 2006 as follows: 50%, 33.3%, 20%, and 10%, respectively), subject to reduction under
certain circumstances, pursuant to a Stock Purchase Agreement dated June 24, 2005, as amended to date, among us, Ski West, and all
of the former shareholders of Ski West. Effective upon the closing, Ski West became our wholly-owned subsidiary, and we integrated
the Ski West travel offerings with our existing travel offerings and changed its name to OTravel.com, Inc.
As part of a program to reduce our expense structure and sell non-core businesses, we decided during the fourth quarter of 2006
to sell OTravel, and we have received a non-binding letter of intent from a third-party to purchase this business (see Item 15 of
Part IV, "Financial Statements"—Note 5—"Acquisition and Subsequent Discontinued Operations").
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 primarily 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
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