Overstock.com Investor

Regulation G: Non-GAAP Financial Measures

From time to time, management or the company may publicly disclose certain "non-GAAP financial measures" in our earnings releases, financial presentations, earnings conference calls or otherwise. These non-GAAP measures may include contribution, contribution margin and free cash flow. The company provides reconciliation to the nearest GAAP measure for these and other non-GAAP measures on a quarterly basis in the respective quarterly earnings press release found in the press release section of this website.

These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Overstock's results of operations that would be reflected in measures determined in accordance with GAAP. These measures should only be used to evaluate Overstock's results of operations in conjunction with corresponding GAAP measures.

These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance. In addition, because Overstock has reported certain non-GAAP results to investors in the past, the company believes the inclusion of non-GAAP measures provides consistency in the company's financial reporting.

Contribution (a non-GAAP financial measure which we reconcile to “Gross profit” in our consolidated statements of income and comprehensive income) consists of gross profit less sales and marketing expense and reflects an additional way of viewing our results. Contribution Margin is Contribution as a percentage of revenues. When viewed together with our GAAP results, we believe Contribution and Contribution Margin provide management and users of the financial statements information about our ability to cover our operating costs, such as technology and general and administrative expenses. Contribution and Contribution Margin are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. The material limitation associated with the use of Contribution is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income.

Overstock also discloses free cash flow. Free cash flow, which the company reconciles to net cash provided by (used in) operating activities on the cash flow statement, is operating cash flows less expenditures for fixed assets, including internal-use software and website development. Overstock considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of fixed assets, including internal-use software and website development, which can then be used to, among other things, invest in Overstock's business, make strategic acquisitions, strengthen the balance sheet and repurchase stock or retire debt. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.