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BUSINESS NEWS

INVESTING

Financial Glossary

PERSONAL FINANCE AT WALLETPOP

SMALL BUSINESS

Overstock.com Reports Third Quarter 2008 Financial Results; Announces Intent to Restate Previous Financial Statements

PR Newswire

Posted: 2008-10-24 09:00:00

SALT LAKE CITY, Oct. 24 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today reported financial results for the quarterly period ending September 30, 2008. As described below, the prior period amounts used in the comparisons below and elsewhere in this press release have been revised from those previously reported and remain subject to further adjustment.

    Key Q3 2008 metrics (comparison to Q3 2007 as revised as described below):
    --  Total revenue:  $186.9m vs. $160.1m (a 17% gain);
    --  Gross margin: 17.2% vs. 17.1%;
    --  Gross profit:  $32.1m vs. $27.4m (a 17% gain);
    --  Sales and marketing expense: $11.9m vs. $8.8m (a 35% increase);
    --  Contribution (gross profit less marketing expense):  $20.2m vs. $18.5m
        (a 9% gain);
    --  G&A/Technology expense: $24.4m vs. $24.3m (a 1% increase);
    --  Net loss: $1.6m [$(0.07)/share] vs. $5.6m [$(0.24)/share] (a
        $0.17/share improvement);
    --  EBITDA:  $2.2m vs. $3.2m (a $1.0m decrease);
    --  EBITDA (TTM):  $4.7m vs. ($41.9)m (a $46.6m improvement);
    --  Operating cash flows (TTM): $14.9m vs. $6.2m (an $8.7m improvement);
        and
    --  Completed $20m repurchase program: Retired $9.5m face value of our
        convertible debt for $6.6m.

"Other than that, Mrs. Lincoln, how did you like the play?"

Dear Owner:

We have an accounting restatement that mostly reflects fall-out from our Oracle ERP implementation of a few years ago. Dave's letter below explains the problem and the solution. Our 1st Commandment is "Maintain a bullet proof balance sheet," But while the spirit is strong, the flesh made a mistake. The short version is: when we upgraded our system, we didn't hook up some of the accounting wiring; however, we thought we had manual fixes in place. We've since found that these manual fixes missed a few of the unhooked wires. It also turned out there were errors cutting both ways which partially obscured the problem because we relied on reasonability testing to verify certain balances rather than a ground-up reconciliation. Now that we have found these errors, we have called a penalty on ourselves. The total effect of the errors over the five and a half year period (during which we generated nearly $3.5 billion in revenues) is a reduction in revenue of $12.9 million and a $10.3 million increase to cumulative net loss. This restatement does not affect previously reported cash flows nor change our thoughts on the business going forward.

"Other than that," we are holding our own. Revenue growth was 17% this quarter, down from 26% in the first half, but still above industry average. Expenses remain tightly managed. The net loss for the quarter was just under $1.6 million, a good improvement over last year, though this was partially due to a $2.8 million gain from repurchasing our debt at a discount. We continue to be EBITDA-positive and are generating positive TTM operating cash flows. The path to profitability seems clearer than ever. The key to getting there will be maintaining current levels of technology and G&A costs while growing contribution dollars (which should be easier this quarter).

This holiday shopping season and the quarters ahead will be challenging for the retail industry. I believe that in general we are counter-cyclical because in tough times consumers become deal-hunters: it remains to be seen if that dynamic can offset the macro dynamics settling over the whole economy. Yet the last two years were spent leaning out Overstock, and that has positioned us well for this scenario. Our supply chain is flexible, which lets us take advantage of shocks and dislocations in the supply chains of others. Over the last month or two, we have seen a significant spike in the number of distributors and brands who are signing up to work with us, and we have been buying inventory more opportunistically than we have in years. Our product offering and customer satisfaction are at all-time highs.

I look forward to speaking with you about your business and current business conditions during the upcoming conference call. Until then, I remain,



Your humble servant,
                                            Patrick M. Byrne

P.S. Please email questions to Kevin Moon at kmoon@overstock.com prior to the conference call

Dear Owner:

As the Company's principal financial and accounting officer, I bear the responsibility for the accuracy of our financial reporting. I am extremely disappointed that we have a restatement and I owe you an explanation of what happened.

I am confident that we have identified and fixed the problem. To give you that same confidence, I'll give some background about what we discovered, and explain why, going forward, it is no longer an issue.

As you know, during 2005 we implemented a major system upgrade which also upgraded our accounting system. As part of this accounting system upgrade we changed from recording refunds to customers in batches to recording them transaction-by-transaction. When we issue a customer refund, the refund reduces the amount of cash we receive from our credit card processors and, as a result, our financial system should reduce our accounts receivable balance. After the implementation, in the instance of some customer refunds, this reduction wasn't happening, and we didn't catch it.

We use internal "reason codes" to track the reasons we give customer refunds. Under the new system not all reason codes were automatically recorded; some customer refunds required manual entry in the financial system. We set up automatic and manual processes so that these would be recorded. Unfortunately, we missed some of the manual customer refunds, and as a result, we did not record all that were occurring. Over time, this error built up and, on a cumulative basis, eventually became material. Separately, but on a much smaller scale, we found that our system did not reverse out shipping revenue for cancelled orders as it should have, and these $2.95 charges also added up over time.

These errors were partially masked by an offsetting error which made our overall cost of returns appear reasonable: over the past two years we under- billed our fulfillment partners for some returns-related costs and fees. In other words, we weren't recording some customer refunds and we weren't recouping some costs from partners on some returns. The combined result was that our returns costs looked reasonable. We have corrected the under billing problem and are initiating a process to collect a portion of the amounts owed, which we will record as we receive them.

As a result of our discovery of these errors, we have reexamined our procedures for testing and verification of the balance sheet. We have put into place processes to record all refunds in our financial system, and as a further check, we are reconciling refunds and the related balance sheet accounts to the credit card and bank statements rather than relying on a reasonableness test. To ensure that we record refunds in the proper period, we also adjusted our reserve for returns in each period based on our actual return experience.

    As our amended filings are not yet complete, we do not have the restated
consolidated financial statements to provide today.  However, our current
estimates of the restatement of revenue, gross profit, gross margins,
operating loss from continuing operations and net loss per share from
continuing operations are shown below. These are based on management's
calculations, and are in the process of being reviewed by our registered
public accounting firm.

Summary of restatement
    (by year, in millions)

2003         2004         2005        2006        2007
    revenue - as
     reported      $238.9      $ 494.6      $ 799.3      $788.2      $760.2
    revenue - as
     restated      $234.6      $ 490.6      $ 795.0      $780.1      $765.9
    difference      $(4.3)       $(4.0)       $(4.3)      $(8.0)       $5.7

gross profit
     - as reported  $25.7        $66.2      $ 116.9       $94.8     $ 127.6
    gross profit
     - as restated  $25.3        $66.4      $ 116.5       $89.8     $ 124.6
    difference      $(0.4)        $0.2        $(0.4)      $(5.0)      $(3.0)

gross margins
     - as reported  10.8%        13.4%        14.6%       12.0%        16.8%
    gross margins
     - as restated  10.8%        13.5%        14.7%       11.5%        16.3%
    difference       0.0%         0.2%         0.0%       -0.5%        -0.5%

operating loss
     - as
     reported     $(12.0)        $(4.9)     $ (21.2)     $(93.8)     $(41.6)
    operating loss
     - as
     restated     $(12.5)        $(4.7)      $(21.6)     $(98.8)     $(44.6)
    difference     $(0.4)         $0.2        $(0.4)      $(5.0)      $(3.0)

loss from
     continuing
     operations
     - as
     reported     $(11.5)        $(4.5)     $ (22.3)     $(94.9)     $(41.1)

loss from
     continuing
     operations
     - as
     restated     $(12.0)        $(4.4)     $(22.6)    $(100.0)      $(44.1)
    difference     $(0.5)         $0.1       $(0.3)      $(5.1)       $(3.0)

Net loss per
     share from
     continuing
     operations
     - as
     reported     $(0.73)      $(0.26)      $(1.15)     $(4.67)     $(1.73)

Net loss per
     share from
     continuing
     operations
     - as
     restated     $(0.76)      $(0.26)      $(1.17)     $(4.92)    $ (1.86)
    difference    $(0.03)       $0.00       $(0.02)     $(0.25)    $ (0.13)

Q1              Q2
                                      2008            2008         Total

revenue - as reported            $200.7          $188.8      $3,470.8
    revenue - as restated            $202.8          $188.8      $3,457.9
    difference                         $2.1           $(0.0)       $(12.9)

gross profit - as reported        $34.8           $34.1        $500.1
    gross profit - as restated        $34.0           $33.2        $489.7
    difference                        $(0.8)          $(0.9)       $(10.3)

gross margins - as reported       17.3%           18.1%         14.4%
    gross margins - as restated       16.7%           17.6%         14.2%
    difference                        -0.6%           -0.5%         -0.2%

operating loss - as reported      $(4.3)          $(6.3)      $(184.2)
    operating loss - as restated      $(5.1)          $(7.2)      $(194.5)
    difference                        $(0.8)          $(0.9)       $(10.3)

loss from continuing operations
     - as reported                    $(3.9)          $(6.5)
    loss from continuing operations
     - as restated                    $(4.7)          $(7.4)
    difference                        $(0.8)          $(0.9)

Net loss per share from
     continuing operations
     - as reported                   $(0.17)         $(0.28)
    Net loss per share from
     continuing operations
     - as restated                   $(0.21)         $(0.33)
    difference                       $(0.04)         $(0.05)

The net total of all these errors over the five and a half years is a reduction in revenue of $12.9 million, with a resulting reduction in gross profits and increase to our cumulative net loss of $10.3 million. You will notice that the adjustment to revenue in 2007 is positive $5.7 million. As you will recall, in the fourth quarter of 2007 we originally recorded the cumulative effect of correcting the error relating to the deferral of revenue recognition until estimated delivery date rather than ship date. As part of the required restatement process, we have reversed the cumulative adjustment previously recorded in the consolidated financial statements during the fourth quarter of 2007, and recorded the corrections in their appropriate periods.

Finally, we have performed a more detailed review of all aspects of our consolidated balance sheet. I am confident that it is accurate, and we have the controls in place to ensure it continues to be so.

                                             Sincerely,
                                             David K. Chidester
                                             Senior Vice President, Finance

On October 20, 2008, the Board of Directors of the Company concluded, based on the recommendation of management, that the Company's consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and the consolidated interim financial statements contained in the Company's Quarterly Reports on Form 10-Q for the periods ended June 30, 2008 and March 31, 2008, each as filed with the Securities and Exchange Commission, should be restated to correct errors related to the accounting of customer refunds and credits. Accordingly such reports, as well as the Company's consolidated financial statements contained in the Company's Annual Reports on Form 10-K for the fiscal years ended December 31, 2006, 2005, 2004 and 2003, should no longer be relied upon.

Management and the Board have discussed this matter with PricewaterhouseCoopers, LLP, the Company's independent registered public accounting firm. The Company intends to file an amended Annual Report on Form 10K/A for the fiscal year ended December 31, 2007 and amended Quarterly Reports on Form 10Q/A for the periods ended June 30, 2008 and March 31, 2008 by November 10, 2008.

In addition to the impact of these errors on the consolidated financial statements, management acknowledges the impact these errors have on the effectiveness of the Company's internal control over financial reporting and disclosure controls and procedures for the periods being restated. The Company is currently assessing the impact of this restatement on its internal controls over financial reporting and related disclosure for the periods that are being restated. As a result of this assessment, the Company may determine that a material weakness existed in some or all of the periods effected by the restatement. A material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.

Key financial and operating metrics (the figures reported in this section reflect the estimated effect of the adjustments discussed previously in this release):

Total revenue - Total revenue for the three months ended September 30, 2007 and 2008 was $160.1 million and $186.9 million, respectively, a 17% increase. For the nine months ended September 30, 2007 and 2008, total revenue was $471.4 million and $578.5 million, respectively, a 23% increase.

Gross profit and gross margin - Gross profit for the three months ended September 30, 2007 and 2008 was $27.4 million and $32.1 million, respectively, a 17% increase, representing margins of 17.1% and 17.2% for those respective periods. For the nine-month periods, gross profits were $78.2 million in 2007 and $99.3 million in 2008, a 27% increase. Gross margins were 16.6% and 17.2% for those respective nine-month periods.

Contribution and contribution margin - "Contribution" (gross profit less sales and marketing expenses) for the three months ended September 30, 2007 and 2008 was $18.5 million (11.6% contribution margin) and $20.2 million (10.8% contribution margin), respectively, a 9% increase. For the nine months ended September 30, 2007 and 2008, contribution was $50.1 million (10.6% contribution margin) and $58.1 million (10.0% contribution margin), respectively, a 16% increase.



(in thousands)                Three months ended       Nine months ended
                                    September 30,             September 30,
                                  2007        2008         2007         2008
    Total revenue              $160,059     $186,855     $471,386     $578,505
    Cost of goods sold          132,693      154,736      393,218      479,206

Gross profit                 27,366       32,119       78,168       99,299
    Less: Sales and marketing
     expense                      8,835       11,934       28,081       41,197

Contribution                $18,531      $20,185      $50,087      $58,102
    Contribution margin           11.6%        10.8%        10.6%        10.0%

Operating loss - Operating losses for the three months ended September 30, 2007 and 2008 were $5.8 million and $4.3 million, respectively. For the nine months ended September 30, 2007 and 2008, operating losses were $37.8 million (including $12.3 million of restructuring) and $16.6 million, respectively.

EBITDA - EBITDA (a non-GAAP measure) for the three months ended September 30, 2007 and 2008 was $3.2 million and $2.2 million, respectively. For the trailing twelve months ended September 30, 2007 and 2008, EBITDA was $(41.9) million (including $12.3 million of restructuring) and $4.7 million, respectively.

Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations regulate the disclosure of certain non-GAAP financial information. Our measure of "EBITDA" is a non-GAAP financial measure. EBITDA, which we reconcile to "Operating loss" in our income statement, is earnings before interest, taxes, depreciation, amortization and stock-based compensation. EBITDA is 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. EBITDA reflects an additional way of viewing our results that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our results. Our discussion above and below (i) explains why management believes that presentation of EBITDA provides useful information to investors regarding our financial condition and results of operations, (ii) to the extent material, discloses the additional purposes, if any, for which management uses this non- GAAP measure, and (iii) provides a reconciliation of this measure to our operating losses. We believe that, because our current capital expenditures are lower than our depreciation levels, discussing EBITDA at this stage of our business is useful to us and investors because it approximates cash used or cash generated by the operations of the business.



Trailing
    (in thousands)           Three months ended       Twelve months ended
                                September 30,            September 30,
                             2007         2008        2007         2008

Operating loss         $(5,769)     $(4,255)    $(82,311)    $(23,391)
    Add: Depreciation and
     amortization            7,080        5,580       34,350       24,634
      Stock-based
       compensation          1,176          990        4,418        4,378
      Stock-based compensation
       to consultants for
       services                140         (134)         272           90
      Stock-based compensation
       relating to performance
       share plan              350            -          350         (600)
      Issuance of common stock
       from treasury for
       401(k) matching
       contribution            213            -        1,036         (415)
    EBITDA                  $3,190       $2,181     $(41,885)      $4,696

Net loss - Net loss for the three months ended September 30, 2007, was $5.6 million, or $0.24 loss per share, compared to $1.6 million, or $0.07 loss per share in 2008. For the nine months ended September 30, 2007 and 2008, net loss totaled $41.6 million and $13.7 million, respectively, or $1.76 and $0.60 loss per share for those respective periods. Net loss in 2007 included restructuring expense of $12.3 million and a loss from discontinued operations of $3.9 million.

Free Cash Flow (a non-GAAP measure) - Free cash flow for the three months ended September 30, 2007 and 2008 totaled $(2.8) million and $(9.1) million, respectively. For the trailing twelve months ended September 30, 2007 and 2008, free cash flow totaled $195,000 and $(805,000).

Free cash flow reflects an additional way of viewing our cash flows and liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow, which we reconcile to "Cash provided by operating activities," is cash flow from operations reduced by "Expenditures for property and equipment." Although we believe that cash flow from operating activities is an important measure, we believe free cash flow is a useful measure to evaluate our business since purchases of fixed assets are a necessary component of ongoing operations. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows. We believe that analyzing free cash flows on a trailing twelve month basis eliminates seasonal fluctuations in cash flows and more accurately reflects trends in this non- GAAP measure.



(in thousands)                                             Trailing
                                       Three months ended  Twelve months ended
                                          September 30,       September 30,
                                        2007      2008     2007         2008
    Net cash provided by
     (used in) operating activities   $(2,456)   $(275)    $6,193    $14,864
    Expenditures for property and
     equipment                           (316)  (8,809)    (5,998)   (15,669)

Free cash flow                    $(2,772) $(9,084)      $195      $(805)

Cash and working capital - At September 30, 2008, Overstock.com had cash, cash equivalents and marketable securities of $70.5 million and working capital of $33.5 million.

About Overstock.com

Overstock.com, Inc. is an online retailer offering brand-name merchandise at discount prices. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ Global Market System and can be found online at http://www.overstock.com.

Overstock.com(R) is a registered trademark of Overstock.com, Inc. All other trademarks are the property of their respective owners.

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, statements regarding forecasts of the upcoming holiday season and retail sales anticipated for the quarters ahead, suggestions that bargain hunters during the economic downturn may increase our retail sales, that we are able to take advantage of shocks and dislocations in the supply chain, that product offerings and customer satisfaction will continue, that we have identified and fixed all accounting problems associated with failure to accurately record customer returns and billing charges to fulfillment partners, and the adjustments to be made to our financial statements as described in this press release. Our Form 10-K for the year ended December 31, 2007, our subsequent quarterly reports on Form 10-Q, or any amendments thereto, and our other subsequent filings with the Securities and Exchange Commission identify important factors that could cause our actual results to differ materially from those contained in our projections, estimates or forward-looking statements.



Overstock.com, Inc.
                Consolidated Statements of Operations (unaudited)
                      (in thousands, except per share data)

Three months ended  Nine months ended
                                         September 30,       September 30,
                                         2007      2008     2007       2008

Revenue
     Direct revenue                     $39,270   $34,176  $129,918  $125,771
     Fulfillment partner revenue        120,789   152,679   341,468   452,734

Total revenue                     160,059   186,855   471,386   578,505

Cost of goods sold
     Direct                              33,268    30,633   111,193   110,307
     Fulfillment partner                 99,425   124,103   282,025   368,899

Total cost of goods sold          132,693   154,736   393,218   479,206

Gross profit                         27,366    32,119    78,168    99,299

Operating expenses:
     Sales and marketing                  8,835    11,934    28,081    41,197
     Technology                          14,576    14,119    44,786    43,946
     General and administrative           9,724    10,321    30,842    30,751
     Restructuring                          -         -      12,283       -

Total operating expenses           33,135    36,374   115,992   115,894

Operating loss                       (5,769)   (4,255)  (37,824)  (16,595)

Interest income                       1,291       664     3,359     2,708
    Interest expense                     (1,029)     (847)   (3,085)   (2,636)
    Other income, net                       (92)    2,849       (92)    2,851

Loss from continuing operations      (5,599)   (1,589)  (37,642)  (13,672)
    Discontinued operations:
     Loss from discontinued operations      -         -      (3,924)      -

Net loss                            $(5,599)  $(1,589) $(41,566) $(13,672)

Net loss per common share - basic
     and diluted:
     Loss from continuing operations     $(0.24)   $(0.07)   $(1.59)   $(0.60)
     Loss from discontinued operations     $-        $-      $(0.17)     $-
     Net loss per common share - basic
      and diluted                        $(0.24)   $(0.07)   $(1.76)   $(0.60)
    Weighted average common shares
     outstanding - basic and diluted     23,726    22,768    23,671    22,954

Other data:
    Shopping bookings (in 000s)        $173,593  $202,019  $501,598  $620,941
    Auction gross merchandise volume
     (in 000s)                           $2,628    $2,530   $11,076    $7,105
    Average customer acquisition cost
     (shopping)                          $18.17    $21.82    $20.76    $24.83

Overstock.com, Inc.
                      Consolidated Balance Sheets (unaudited)
                                   (in thousands)

December 31,     September 30,
                                                     2007              2008
                      Assets
    Current assets:
      Cash and cash equivalents                    $101,394           $43,525
      Marketable securities                          46,000            26,938

Cash, cash equivalents and
         marketable securities                      147,394            70,463
      Accounts receivable, net                       11,208            10,081
      Note receivable                                 1,506               -
      Inventories, net                               25,643            17,481
      Prepaid inventory                               3,572             4,552
      Prepaid expenses                                7,572            10,935

Total current assets                        196,895           113,512
    Property and equipment, net                      27,197            24,552
    Goodwill                                          2,784             2,784
    Other long-term assets, net                          86                25
    Note receivable                                   4,181             4,589

Total assets                               $231,143          $145,462

Liabilities and Stockholders' Equity

Current liabilities:
      Accounts payable                              $70,358           $34,659
      Accrued liabilities                            37,155            25,631
      Deferred revenue                               22,965            19,730
      Capital lease obligations, current              3,796               -

Total current liabilities                   134,274            80,020
    Other long-term liabilities                       3,034             2,642
    Convertible senior notes                         75,623            66,481

Total liabilities                           212,931           149,143

Stockholders' equity:
      Common stock                                        2                 2
      Additional paid-in capital                    333,909           339,062
      Accumulated deficit                          (252,327)         (265,999)
      Treasury stock                                (63,278)          (76,670)
      Accumulated other comprehensive loss              (94)              (76)

Total stockholders' equity              18,212            (3,681)

Total liabilities and
         stockholders' equity                      $231,143          $145,462

Overstock.com, Inc.
             Consolidated Statements of Cash Flows (unaudited)
                               (in thousands)

Three months ended  Nine months ended
                                          September 30,       September 30,
                                          2007     2008      2007      2008

Cash flows from operating activities
     of continuing operations:
     Net loss                            $(5,599) $(1,589) $(41,566) $(13,672)
     Adjustments to reconcile net loss
      to cash provided by (used in)
     operating activities of continuing
      operations:
      Loss from discontinued operations      -        -       3,924       -
      Depreciation and amortization        7,080    5,580    22,825    17,964
      Loss on disposition of property
       and equipment                         -        -           1       -
      Stock-based compensation to
       employees and directors             1,176      990     3,386     3,242
      Stock-based compensation to
       consultants for services              140     (134)      280       181
      Stock-based compensation relating
       to performance share plan             350      -         350       300
      Issuance of common stock from
       treasury for 401(k) matching
       contribution                          213      -         928        19
      Amortization of debt discount and
       deferred financing fees                86       85       258       257
      Asset impairment and depreciation
       (other non-cash restructuring)        -        -       2,169       -
      Restructuring charges                  -        -      10,114       -
      Notes receivable accretion            (136)    (136)     (136)     (408)
      Gain from early extinguishment of
       debt                                  -     (2,849)      -      (2,849)
      Changes in operating assets and
       liabilities, net of effect of
       discontinued operations:
       Accounts receivable, net             (942)    (104)    7,755     1,127
       Inventories, net                   (6,792)  (3,445)      152     8,162
       Prepaid inventory                  (2,879)  (1,904)   (2,762)     (980)
       Prepaid expenses                   (1,522)    (454)   (2,784)   (3,363)
       Other long-term assets, net           100      -         366       -
       Accounts payable                    4,222    3,442   (26,199)  (35,699)
       Accrued liabilities                  (444)   1,109   (19,608)  (11,524)
       Deferred revenue                    2,605     (533)   (5,096)   (3,235)
       Other long-term liabilities          (114)    (333)     (114)     (392)

Net cash provided by (used in)
         operating activities of
         continuing operations            (2,456)    (275)  (45,757)  (40,870)

Cash flows from investing activities
     of continuing operations:
     Purchases of marketable securities   (7,783) (10,186)  (29,164)  (35,548)
     Sales and maturities of marketable
      securities                           8,924   13,298    12,324    54,637
     Expenditures for property and
      equipment                             (316)  (8,809)   (2,232)  (15,258)
     Proceeds from the sale of
      discontinued operations, net of
      cash transferred                       -        -       9,892       -
     Collection of note receivable           502      250     5,196     1,506
     Decrease in cash resulting from de-
      consolidation of variable entity       -        -         -         -

Net cash provided by (used in)
         investing activities of
         continuing operations             1,327   (5,447)   (3,984)    5,337

Cash flows from financing activities
     of continuing operations:
     Payments on capital lease
      obligations                             (5)     -      (5,256)   (3,796)
     Drawdown on line of credit              -      1,326     1,169     7,722
     Payments on line of credit              -     (1,326)   (1,169)   (7,722)
     Issuance of common stock in
      offerings, net of issuance costs       -        -         -         -
     Purchase of treasury stock              -     (1,452)      -     (13,452)
     Payments to retire senior
      convertible notes                      -     (6,550)      -      (6,550)
     Exercise of stock options               261      547     2,182     1,471

Net cash provided by (used in)
         financing activities of
         continuing operations               256   (7,455)   (3,074)  (22,327)

Effect of exchange rate changes on
      cash                                   (26)      23        (5)       (9)
     Cash provided by (used in)
      operating activities of
      discontinued operations                -        -        (204)      -
     Cash used in investing activities
      of discontinued operations             -        -         (53)      -

Net increase (decrease) in cash and
      cash equivalents                      (899) (13,154)  (53,077)  (57,869)
     Change in cash and cash equivalents
      from discontinued operations           -        -         257       -
     Cash and cash equivalents,
      beginning of period                 75,044   56,679   126,965   101,394

Cash and cash equivalents, end of
      period                             $74,145  $43,525   $74,145   $43,525

Twelve months ended
                                                         September 30,
                                                    2007              2008
    Cash flows from operating activities
     of continuing operations:
     Net loss                                     $(90,782)         $(20,142)
     Adjustments to reconcile net loss to
      cash provided by (used in)
     operating activities of continuing
      operations:
      Loss from discontinued operations              8,191               -
      Depreciation and amortization                 34,350            24,634
      Loss on disposition of property and
       equipment                                         1               -
      Stock-based compensation to
       employees and directors                       4,418             4,378
      Stock-based compensation to
       consultants for services                        272                90
      Stock-based compensation relating
       to performance share plan                       350              (600)
      Issuance of common stock from
       treasury for 401(k) matching
       contribution                                  1,036              (415)
      Amortization of debt discount and
       deferred financing fees                         258               343
      Asset impairment and depreciation
       (other non-cash restructuring)                2,960               -
      Restructuring charges                         14,997               -
      Notes receivable accretion                      (136)             (544)
      Gain from early extinguishment of debt             -            (2,849)
      Changes in operating assets and
       liabilities, net of effect of
       discontinued
      operations:
       Accounts receivable, net                      1,537            (1,806)
       Inventories, net                             40,877             6,237
       Prepaid inventory                              (979)              451
       Prepaid expenses                             (1,064)             (678)
       Other long-term assets, net                     967               105
       Accounts payable                            (10,253)            2,349
       Accrued liabilities                          (3,085)            2,176
       Deferred revenue                              2,392             1,606
       Other long-term liabilities                    (114)             (471)

Net cash provided by (used in)
         operating activities of
         continuing operations                       6,193            14,864

Cash flows from investing activities
     of continuing operations:
     Purchases of marketable securities            (29,164)          (81,601)
     Sales and maturities of marketable
      securities                                    12,324            71,571
     Expenditures for property and
      equipment                                     (5,998)          (15,669)
     Proceeds from the sale of
      discontinued operations, net of
      cash transferred                               9,892               -
     Collection of note receivable                   5,196             1,506
     Decrease in cash resulting from de-
      consolidation of variable entity                (102)              -

Net cash provided by (used in)
         investing activities of
         continuing operations                      (7,852)          (24,193)

Cash flows from financing activities
     of continuing operations:
     Payments on capital lease
      obligations                                   (5,335)           (3,801)
     Drawdown on line of credit                      9,347             8,976
     Payments on line of credit                     (9,347)           (8,976)
     Issuance of common stock in
      offerings, net of issuance costs              39,406               -
     Purchase of treasury stock                        -             (13,452)
     Payments to retire senior
      convertible notes                                -              (6,550)
     Exercise of stock options                       2,449             2,519

Net cash provided by (used in)
         financing activities of
         continuing operations                      36,520           (21,284)

Effect of exchange rate changes on
      cash                                              18                (7)
     Cash provided by (used in) operating
      activities of discontinued
      operations                                     1,265               -
     Cash used in investing activities of
      discontinued operations                         (276)              -

Net increase (decrease) in cash and
      cash equivalents                              35,868           (30,620)
     Change in cash and cash equivalents
      from discontinued operations                    (990)              -
     Cash and cash equivalents, beginning
      of period                                     39,267            74,145

Cash and cash equivalents, end of
      period                                       $74,145           $43,525