Overstock.com 2008 Annual Report Download - page 57

Table of Contents
The following table has been included to provide investors additional information regarding our classification of fulfillment costs
and gross profit percentage, thus enabling investors to better compare our gross profit percentage with others in our industry (in
thousands):
Years ended December 31,
2006 2007
Total revenue $ 780,137 100% $ 765,902
Cost of goods sold
Product costs and other cost of goods sold 629,477 81% 594,276
Fulfillment costs 60,856 7%47,076
Total cost of goods sold 690,333 88%641,352
Gross profit $ 89,804 12%$ 124,550
As displayed in the above table, fulfillment costs during the years ended December 31, 2006 and 2007 were $60.9 million and
$47.1 million, representing 7% and 6% of total revenue for those respective periods. Fulfillment costs as a percentage of sales may
vary due to several factors, such as our ability to manage costs at our warehouses, significant changes in the number of units received
and fulfilled, the extent to which we utilize third party fulfillment services and warehouses, and our ability to effectively manage
customer service costs and credit card fees.
Operating expenses
Sales and marketing. Sales and marketing expenses totaled $70.9 million and $55.5 million for the years ended December 31,
2006 and 2007, representing 9% and 7% of total revenue for those respective periods. Comparing 2006 and 2007, sales and marketing
expenses decreased 22% from 2006 to 2007. We direct customers to our Website primarily through a number of targeted online
marketing channels, such as sponsored search, affiliate marketing, portal advertising, e-mail campaigns, and other initiatives. We also
utilize channels such as nation-wide television, print and radio advertising campaigns. Sales and marketing expenses also include
stock-based compensation related to the adoption of SFAS 123(R) in 2006 of $301,000 and $336,000 for the years ended
December 31, 2006 and 2007, respectively.
Costs associated with our discounted shipping promotions are not included in marketing expense. Rather they are accounted for as
a reduction of revenue and therefore affect sales growth and gross profit. We consider discounted shipping promotions as an effective
marketing tool, and intend to continue to offer them as we deem appropriate as part of our overall marketing plan.
Technology expenses. Technology expenses totaled $65.2 million and $59.5 million for the years ended December 31, 2006 and
2007, respectively (8% of revenue in both years). From 2006 to 2007, technology expenses decreased 9% primarily due to decreased
depreciation expense. Technology expenses also included stock-based compensation related to the adoption of SFAS 123(R) in 2006
of $684,000 and $764,000 for the years ended December 31, 2006 and 2007, respectively.
General and administrative expenses. General and administrative ("G&A") expenses totaled $46.8 million and $42.0 million for
the years ended December 31, 2006 and 2007, respectively, representing approximately 6% of total revenue for both years. Comparing
fiscal years 2006 and 2007, general and administrative expenses decreased 10%. The decrease in G&A expenses relates to decreases
in corporate facilities costs, payroll-related expenses, professional fees, merchandising, legal and finance costs as we have made
reductions to our corporate office space and headcount.
We incurred stock-based compensation related to the adoption of SFAS 123(R) in 2006 within general and administrative
expenses of approximately $2.7 million and $3.0 million for the years ended December 31, 2006 and 2007, respectively.
A large portion of our technology and general and administrative expenses are non-cash expenses. These non-cash expenses
(which include depreciation and amortization and stock-based compensation and excludes non-cash restructuring costs) for the year
ended December 31, 2007 were $34.2 million, compared to similar non-cash expense of $37.3 million during 2006. We estimate that
that these non-cash expenses for 2008 will be approximately $28-$30 million.
Overall, our total operating expenses decreased 10% during fiscal 2007 compared to the previous year, while total revenues
decreased 2% and gross profit increased 39%.
Restructuring expenses. During the fourth quarter of 2006, we commenced a facilities consolidation and restructuring program
designed to reduce our overall expense structure in an effort to improve future operating performance. The facilities consolidation and
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