Overstock.com 2015 Annual Report Download - page 57
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Our effective tax rate for the years ended December 31, 2015 and 2014 was 60.8% and 33.4%, respectively. Our effective tax rate is affected by
recurring items such as research tax credits and non-recurring items such as changes in valuation allowances. It is also affected to a lesser extent by tax rates
in foreign jurisdictions and the relative amount of income we earn in jurisdictions, which we expect to be fairly consistent in the near term. The increase in
the 2015 effective tax rate relative to the 2014 effective tax rate is primarily attributable to current year operating losses generated by separate tax-filing
subsidiaries in domestic and foreign jurisdictions for which a valuation allowance has been established. Our current year valuation allowance is primarily
attributable to our majority-owned subsidiary Medici (dba tØ.com). In Q3 2015, we acquired an additional interest in Medici for a total ownership of 81%.
Tax losses incurred prior to our acquisition of the additional interest could not be used to offset our consolidated taxable income and were therefore fully
valued. Medici's operating losses following the additional interest acquisition do not require a valuation allowance. We do not expect increases in the
Medici operating loss valuation allowance in future years. The increase in the 2015 effective tax rate is also attributable to an increase in the valuation
allowance related to our deferred tax asset for unrealized capital losses. We have indefinitely reinvested foreign earnings of $366,000 at December 31, 2015.
We would need to accrue and pay U.S. income tax on this amount if repatriated. We do not intend to repatriate these earnings.
Based upon our historical experience, revenue typically increases during the fourth quarter because of the holiday retail season and gross margin
decreases due to increased sales of certain lower margin products, such as electronics. The actual quarterly results for each quarter could differ materially
depending upon consumer preferences, availability of product and competition, among other risks and uncertainties. Accordingly, there can be no assurances
that seasonal variations will not materially affect our results of operations in the future.
The following table reflects our total net revenues for each of the quarters in 2015, 2014 and 2013 (in thousands):
2015
$ 398,344
$ 388,013
$ 391,211
$ 480,270
2014
$ 341,207
$ 332,545
$ 352,991
$ 470,360
2013
$ 311,994
$ 293,204
$ 301,426
$ 397,593
Revenues in 2014 increased 15% compared to 2013. The growth in revenue was primarily due to a 10% increase in orders, coupled with a 7%
increase in average order size, from $158 to $169. These increases were partially offset by increased promotional activities including coupons, site sales, and
Club O Rewards (which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using those channels. The increases were
also partially offset by an increase in the revenue we defer from orders taken but not delivered at year end due to higher average daily sales in the last week of
the quarter.
Gross profit in 2014 increased 13% compared to 2013 primarily as a result of revenue growth. Gross margin decreased to 18.6% in 2014 compared to
19.0% in 2013. The decrease in gross margin was largely due to increased promotional activities including coupons, site sales, and Club O rewards due to our
driving a higher proportion of our sales using those channels.
Sales and marketing expenses as a percentage of revenue increased from 7.0% to 7.3% during 2014 as compared to the same period in 2013,
primarily due to our increased spending in the sponsored search and display ads marketing channels due to our driving a higher proportion of our sales
through those channels.
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