Overstock.com 2008 Annual Report Download - page 58

Table of Contents
restructuring program was substantially completed by the end of the second quarter of 2007. There were no restructuring expenses
recorded during the third and fourth quarters of 2007 (see Item 15 of Part IV, "Financial Statements"—Note 3—"Restructuring
Expense").
During fiscal year 2006, we recorded $5.7 million of restructuring charges, 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.
During fiscal year 2007, we recorded $12.3 million of restructuring charges, of which $9.9 million related to the termination of a
logistics services agreement, termination and settlement of a lease related to vacated warehouse facilities in Indiana, and abandonment
and marketing for sub-lease office and data center space in our current corporate office facilities. We also recorded an additional
$2.2 million of restructuring charges related to accelerated depreciation of leasehold improvements located in the abandoned office
and co-location data center space and $200,000 of other miscellaneous restructuring charges.
Non-operating income (expense)
Interest income, interest expense and other income (expense). Interest income is derived from the investment of our cash in short-
term investments. Over the last two years, interest income totaled $3.6 million and $4.8 million for the years ended December 31,
2006 and 2007, respectively. Comparing 2006 and 2007, the increase in interest income is due to an increase in total cash and interest
rates in 2007, and from interest income earned from our notes receivable related to the sale of our OTravel business which occurred in
the second quarter of 2007 (see Item 15 of Part IV, "Financial Statements"—Note 4—"Acquisition and Subsequent Discontinued
Operations"). During Q2 of 2006, we recorded $1.9 million of interest income related to the sale of Foreign Notes (see Item 15 of
Part IV, "Financial Statements"—Note 5—"Marketable Securities").
Interest expense is largely related to interest incurred on our convertible notes, capital leases and our credit lines. Interest expense
for the years ended December 31, 2006 and 2007 totaled $4.8 million and $4.2 million, respectively. The decrease from 2006 to 2007
is due primarily to the fact that we had $20 million of borrowings outstanding on our inventory line of credit in the first quarter of
2006, and no borrowings outstanding during the same period in 2007.
Other income (expense) for the year ended December 31, 2006 was income of $81,000 and net expense of $92,000 in 2007.
Discontinued operations
We determined during the fourth quarter of 2006 to sell our travel subsidiary ("OTravel"). As a result, OTravel's operations were
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 and $3.9 million for the years ended December 31, 2006 and 2007, respectively.
In conjunction with the discontinuance of OTravel, we performed an evaluation of the goodwill associated with the reporting unit
pursuant to SFAS 142 and SFAS 144 and determined that goodwill of approximately $4.5 million was impaired as of December 31,
2006 based on a non-binding letter of intent from a third party to purchase this business. On April 25, 2007, we completed the sale of
OTravel for cash proceeds of $9.9 million, net of cash transferred, and $6.0 million of notes. Based on the estimated fair value of the
discounted cash flows of the net proceeds from the sale, we recorded an additional goodwill impairment of $3.8 million. There was no
additional impairment of goodwill during the year ended December 31, 2007 (see Item 15 of Part IV, "Financial Statements"—Note 4
—"Acquisition and Subsequent Discontinued Operations").
On January 21, 2009, we entered into a Note Purchase Agreement to sale both the senior and junior promissory notes to Castles
Travel, Inc for $1.3 million in cash and recognized a loss on the settlement of these notes and interest receivable of approximately
$3.9 million (see Item 15 of Part IV, "Financial Statements"—Note 4—"Acquisition and Subsequent Discontinued Operations").
Income taxes
For the year ended December 31, 2006 and 2007, we incurred net operating losses, and consequently paid insignificant amounts
of federal, state and foreign income taxes. As of December 31, 2006 and 2007, we had net operating loss carry-forwards of
approximately $145.2 million and $164.2 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 carry-forwards will begin to expire in 2018.
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