Overstock.com 2006 Annual Report Download - page 59

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The application of SFAS 123(R) had the following effect on the year ended December 31, 2006 reported amounts relative to
amounts that would have been reported using the intrinsic value method under previous accounting (in thousands, except per share
amounts):
SFAS 123(R) Adjustments
Year ended
December 31, 2006
Operating loss $ (4,120)
Net loss $ (4,120)
Net loss per common share—basic and diluted $ (0.20)
Seasonality
Based upon the Company's historical experience, increased revenues typically occur during the fourth quarter because of the
Christmas retail season. The actual quarterly results for each quarter could differ materially depending upon consumer preferences,
availability of product and competition, among other risks and uncertainties. Accordingly, there can be no assurances that seasonal
variations will not materially affect the Company's results of operations in the future. The following table reflects the Company's
revenues for each of the quarters available since 2004 (in thousands):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2006 $178,044 $159,192 $156,885 $294,029
2005 165,881 150,638 167,779 315,018
2004 82,078 87,792 103,444 221,321
Comparison of Years Ended December 31, 2004 and 2005
Revenue
Total revenue grew from $494.6 million in 2004, to $799.3 million in 2005, representing growth of 62%. During this same
period, direct revenue increased from $213.2 million to $324.9 million (52% growth) and fulfillment partner revenue grew from
$281.4 million to $474.4 million (69% growth). The significant increase in total revenue was due primarily to the increase in the
number of orders (including both direct and fulfillment partner orders), which grew from 5.8 million in 2004 to 8.4 million in 2005 as
a result of increased marketing efforts. Additionally, fulfillment partner revenue grew as a result of an increase in the number of
fulfillment partners, which grew from 380 in 2004 to 460 in 2005. The increase in total revenue is also a reflection of our ability to
acquire new customers from our marketing efforts, as evidenced by the addition of 3.8 million new customers during the year ended
December 31, 2005 compared to 2.5 million new customers in the same period of 2004, an increase of 52%.
Gross bookings totaled $535.7 million and $868.0 million for the years ended December 31, 2004 and 2005, respectively,
representing an increase of 62%. Gross bookings differ from GAAP revenue in that gross bookings represent the gross sales price of
goods sold by the Company before returns, sales discounts and before payments to fulfillment partners prior to July 1, 2003.
Gross Margins
Total Gross Margins—Cost of goods sold increased $254.0 million or 59% in absolute dollars, from $428.4 million during the
year ended December 31, 2004 to $682.4 million during the year ended December 31, 2005. In comparing the years 2004 and 2005,
total revenue increased 62% (from $494.6 million to $799.3 million) while gross profit dollars increased 77% (from $66.2 million to
$116.9 million) during the same periods. As a percent of total revenue, cost of goods sold decreased from 87% to 85% for those
respective periods resulting in improved gross margins of 13.4% and 14.6% for the years ended December 31, 2004 and 2005,
respectively.
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