Overstock.com 2009 Annual Report Download - page 76

Table of Contents
The increase in cash provided by operations related to the increase of accounts payable and accrued liabilities was partially offset by $4.5 million of increased
accounts receivable related primarily to uncleared credit card transactions at year end and $2.1 million of increased inventory prepayments made as of
December 31, 2009 to secure inventory to be delivered in the first quarter of 2010 to support sales. Prepayments for inventory at the end of the prior year were
lower due to the decreased sales demand experienced by the retail industry due to generally poor economic conditions.
In December 2008, our credit card processor informed us that it would begin requiring a reserve from us due to the inherent risks of credit card
processing and its assessment of the risks of processing our customer credit cards, and began withholding approximately 1% of our daily credit card
remittances as a reserve. The credit card processor indicated that it expected to continue such withholding until the reserve reached a total of $3.5 million,
which it did in August 2009. During September 2009, our processor informed us that it had reassessed the reserve requirement and reduced our reserve to
$1.75 million and refunded the excess balance of $1.75 million to us. At December 31, 2009 the remaining reserve was $1 million, which is included in
Accounts Receivable in the consolidated balance sheet. Subsequent to the end of the year, the credit card processor refunded the $1 million or the full amount
of the reserve, reducing the reserve to zero.
The credit card processor may increase or decrease the amount of this reserve at any time based on its assessment of the inherent risks of credit card
processing and its assessment of the risks of processing our customers' credit cards. Any increase in the amount of the reserve established by the processor
could have an adverse effect on our cash flow, and any material unexpected increase could have a material adverse effect on our liquidity, business, prospects,
results of operations and financial condition.
Cash provided by investing activities. Cash provided by investing activities corresponds with purchases, sales, and maturities of marketable securities
and cash expenditures for fixed assets, including internal-use software and website development costs.
For the years ended December 31, 2008 and 2009, investing activities resulted in net cash inflows of $19.5 million and $2.9 million, respectively.
Investing activities for the year ended December 31, 2009 provided net cash of $2.9 million, primarily from the sale of marketable securities of
$8.9 million and the collection of a $1.3 million note receivable related to a settlement of notes from the sale of our travel subsidiary to Castles Travel (see
Item 1 of Part I, "Financial Statements"—Note 5—"Acquisition and Subsequent Discontinued Operations"), partially offset by capital expenditures of
$7.3 million.
Investing activities resulted in cash inflows of $19.5 million for the year ended December 31, 2008, resulting from payments received from purchases,
sales and maturities, net of purchases, of marketable securities of $36.7 million and a note receivable of $1.5 million related to the sale of the Company's
interest in a variable interest entity, offset in part by outflows for expenditures of fixed assets of $18.7 million.
Cash used in financing activities. For the years ended December 31, 2008 and 2009, financing activities resulted in net cash outflows of $22.3 million
and $5.7 million, respectively. The cash used in 2009 was primarily for the retirement of long-term debt (see Item 1 of Part I, "Financial Statements"—
Note 19—"Stock and Debt Repurchase Program"). For the year ended December 31, 2008, financing activities included cash outflows of $3.8 million for
capital lease obligations, $6.6 million paid to retire convertible senior notes and $13.5 million used to buy back stock. These outflows were partially offset by
$1.5 million received from stock option exercises.
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