Overstock.com 2007 Annual Report Download - page 53

a $28.3 million improvement from $(27.4 million) in Q4 2006. We believe that, because our current capital expenditures are significantly lower than our
depreciation levels, discussing EBITDA at this stage of our business is useful to us and investors. During 2005 and 2006, we made significant investments in
our systems and overall infrastructure. In 2007, capital expenditures were $2.6 million while depreciation expense was $29.5 million, and therefore we believe
that EBITDA was a reasonable measure of actual cash used or cash generated by the operations of the business in 2007.
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations regulate the disclosure of certain non-GAAP financial
information. Our measure of "EBITDA" is a non-GAAP financial measure. EBITDA, which we reconcile to "Operating loss" in our income statement, is
earnings before interest, taxes, depreciation, amortization and stock-based compensation. EBITDA is used in addition to and in conjunction with results
presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. EBITDA reflects an additional way of
viewing our results that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our results. You should
review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. Our discussion above and below
(i) explains why management believes that presentation of EBITDA provides useful information to investors regarding our financial condition and results of
operations, (ii) to the extent material, discloses the additional purposes, if any, for which management uses this non-GAAP measure, and (iii) provides a
reconciliation of this measure to our operating losses. For further details on EBITDA, see the reconciliation of this non-GAAP measure to our GAAP
operating loss below (in thousands):
Three months ended
December 31,
Twelve months ended
December 31,
2006 2007 2006 2007
Operating loss $(40,885) $(5,486) $(93,766) $(41,599)
Add: Depreciation and amortization 11,525 6,670 32,327 29,495
Stock-based compensation expense 1,032 1,136 4,120 4,522
Stock-based compensation to consultants for service (8) (91) 23 189
Stock-based compensation for performance share plan — (900) — (550)
Treasury stock issued to employees as compensation 108 (434) 787 494
Restructuring costs—asset impairment and depreciation 791 — 791 2,169
EBITDA $(27,437) $ 895 $(55,718) $ (5,280)
Commentary—Balance Sheet Items. We ended the year with $147.4 million in cash, cash equivalents and marketable securities, compared to
$127.0 million at the end of 2006. Working capital increased to $71.2 million from $65.1 million.
We ended the year with $25.9 million of inventory (including inventory in-transit of $3.1 million), an increase from the $20.3 million of inventory we
had at the end of 2006, but we have been able to turn our inventory more efficiently (inventory turns on the direct business increased from 4.6 times to 6.8
times) due to better inventory management and maintaining a more attractive product selection.
Commentary—Cash Flows. For the year ended December 31, 2007, we generated $10.0 million in cash flows from operations compared to cash
outflows of $26.3 million during 2006. "Free Cash Flow" (a non-GAAP measure) for the three months ended December 31, 2006 and 2007 totaled
$48.2 million and $55.3 million, respectively. For the years ended December 31, 2006 and 2007, free cash flow was $(49.7) million and $7.3 million.
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations regulate the disclosure of certain non-GAAP financial
information. Free cash flow reflects an additional
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