Overstock.com 2006 Annual Report Download - page 57

Non-operating income (expense)
Interest income, interest expense and other income (expense). Interest income is derived from the investment of our excess cash
in short-term investments and marketable securities. In 2005, we incurred a large expense related to the valuation of the conditional
coupon of our foreign bonds. Consequentially, interest income increased from $270,000 negative interest income related to a decrease
in the valuation of the conditional coupon of our foreign bonds in 2005, to a positive $3.6 million of interest income for the year ended
December 31, 2006, including a $1.9 million gain recognized in 2006 as a result of selling the foreign bonds.
Interest expense is largely related to our convertible notes, capital leases and our credit lines. Interest expense decreased slightly
from $5.6 million during the year ended December 31, 2005 to $4.8 million during the same period in 2006. The decrease in interest
expense is related to the reduction of convertible notes outstanding related to the retirement of $43.0 million of Senior Notes in
June and November of 2005. See Item 15 of Part IV, "Financial Statements"—Note 13—"3.75% Convertible Senior Notes".
Under SFAS No. 133, the Foreign Notes were considered to be derivative financial instruments and were marked to market
quarterly. Any unrealized gain or loss related to the changes in value of the conditional coupon was recorded in the income statement
as a component of interest income or expense. Any unrealized gain or loss related to the changes in the value of the Notes was
recorded as a component of other comprehensive income (loss). On April 26, 2006, we sold the Foreign Notes for $49.5 million,
resulting in the gain on the bond instrument of $1.9 million. See Item 15 of Part IV, "Financial Statements"—Note 6—"Marketable
Securities".
Other income for the year ended December 31, 2005 relates primarily to the retirement of $43.0 million of Senior Notes for $35.7
million, which resulted in a recognized gain of $6.2 million.
Discontinued operations
As part of the 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.
Income taxes
Income taxes. For the year ended December 31, 2005 and 2006, we incurred net operating losses, and consequently paid
insignificant amounts of federal, state and foreign income taxes. As of December 31, 2005 and 2006, we had net operating loss
carryforwards of approximately $58.0 million and $145.2 million, respectively, which may be used to offset future taxable income. An
additional $21.9 million of net operating losses are limited under Internal Revenue Code Section 382 to $799,000 a year. These net
operating loss carryforwards will begin to expire in 2018.
Supplemental Information about Stock-Based Compensation
Periods prior to the adoption of SFAS 123(R)
Prior to January 1, 2006, the Company accounted for stock-based awards under the intrinsic value method, which followed the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employee,and related interpretations.
The intrinsic value method of accounting resulted in compensation expense for stock options to the extent option exercise prices were
set below market prices on the date of grant. Also, to the extent stock awards were forfeited prior to vesting, any previously
recognized expense was reversed as an offset to operating expenses in the period of forfeiture.
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