Overstock.com 2005 Annual Report Download - page 106

Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
23. BUSINESS SEGMENTS (Continued)
segment include product costs, warehousing and fulfillment costs, credit card fees and customer service costs.
Assets have not been allocated between the segments for management purposes, and as such, they are not presented here.
During the years 2003 through 2005, over 99% of sales were made to customers in the United States of America. At
December 31, 2004 and 2005, all of the Company's fixed assets were located in the United States of America.
24. INDEMNIFICATIONS AND GUARANTEES
During its normal course of business, the Company has made certain indemnities, commitments, and guarantees under which it
may be required to make payments in relation to certain transactions. These indemnities include, but are not limited to, indemnities to
various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and
officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The duration of these indemnities,
commitments, and guarantees varies, and in certain cases, is indefinite. In addition, the majority of these indemnities, commitments,
and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make.
As such, the Company is unable to estimate with any reasonableness its potential exposure under these items. The Company has not
recorded any liability for these indemnities, commitments, and guarantees in the accompanying consolidated balance sheets. The
Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification
provisions, when future payment is both probable and reasonably estimable. The Company carries specific and general liability
insurance policies that the Company believes would, in most circumstances, provide some, if not total recourse to any claims arising
from these indemnifications.
25. VARIABLE INTEREST ENTITY
In August 2004, the Company entered into an agreement which allows the Company to lend up to $10.0 million to an entity for
the purpose of buying diamonds and other jewelry, primarily to supply a new category within our jewelry store which allows
customers purchasing diamond rings to select both a specific diamond and ring setting. In November 2004, the Company loaned the
entity $8.4 million. The promissory note bears interest at 3.75% per annum. The Company receives fifty percent (50%) of any profits
of the entity. Interest on the loan is due and payable quarterly on the fifteenth day of February, May, August and November,
commencing on November 15, 2004 until the due date of November 30, 2006, on which all principal and interest accrued and unpaid
thereon, shall be due and payable. The promissory note is collateralized by all of the assets of the entity.
The Company has a ten year option to purchase ("Purchase Option") 50% of the ownership and voting interest of the entity. The
exercise price of the Purchase Option is the sum of (a) one thousand dollars, and (b) $3.0 million, which may be paid, at the
Company's election, in cash or by the forgiveness of $3.0 million of the entity's indebtedness to the Company.
The entity was evaluated in accordance with FASB Interpretation No. 46 Revised, Consolidation of Variable Interest Entities—
an Interpretation of ARB No. 51, and it was determined to be a variable interest
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