Overstock.com 2007 Annual Report Download - page 67

Sales and marketing expenses also included stock-based compensation related to the adoption of SFAS 123(R) in 2006 of $301,000 during the year
ended December 31, 2006 compared to $4,000 of stock-based compensation in 2005.
Technology expenses. Technology expenses increased 134%, from $27.9 million for the year ended December 31, 2005 to $65.2 million for the same
period in 2006, representing 3% and 8% of total revenue for those respective periods. Technology expenses also included stock-based compensation related to
the adoption of SFAS 123(R) in 2006 of $684,000 during the year ended December 31, 2006, compared to $11,000 of stock-based compensation in 2005.
We incurred a "stair-step" increase in technology costs over these two years, as we had made significant investments in all of our major systems, with
approximately $60 million of capital expenditures in 2005 and an additional $26 million in 2006 (including increases to capital leases). The increases in
expense are related primarily to increased depreciation expense, as well as increases in maintenance and support costs, and increased IT personnel, including
consultants. These increased expenses resulted in a significant increase in technology expenses as a percent of sales for the full-year 2006.
General and administrative expenses. General and administrative ("G&A") expenses increased 42%, from $33.0 million during the year ended
December 31, 2005 to $46.8 million during the same period in 2006, representing 4% and 6% of total revenue for each of the respective periods. We incurred
stock-based compensation within general and administrative expenses of approximately $2.7 million for the year ended December 31, 2006 compared to
$51,000 in stock-based compensation in 2005.
The increase in G&A expenses in 2006 compared to 2005 related to increases in payroll-related expenses, professional fees, merchandising, legal and
finance costs, and also due to increased costs related to our relocation of our corporate offices to larger facilities in the third quarter of 2005.
A large portion of our technology and general and administrative expenses are now non-cash expenses. Total depreciation and amortization (including
amortization of stock- based compensation) in 2006 was $36 million. This compared to only $14 million of similar non-cash expenses in 2005.
Restructuring expenses. 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 3
—"Restructuring Expense"). The planned actions included 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. We recorded $5.7 million of restructuring charges in 2006, of which $4.6 million related to costs to
terminate a co-location data center lease. Other costs included in the restructuring charge related to $638,000 of accelerated amortization of leasehold
improvements in our current office facilities that we are attempting to sublease, and $450,000 of costs to return these office facilities to their original
condition as required by the lease agreement.
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.
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