Overstock.com 2005 Annual Report Download - page 88

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Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
value of derivatives not designated as hedges are recorded in the statement of operations. As of December 31, 2005, the Company had
not designated any derivative instruments as hedges.
Earnings (loss) per share
In accordance with SFAS 128 "Earnings per share", basic earnings (loss) per share is computed by dividing net income (loss)
attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings
(loss) per share is computed by dividing net income (loss) attributable to common shares for the period by the weighted average
number of common and potential common shares outstanding during the period. Potential common shares, composed of incremental
common shares issuable upon the exercise of stock options, warrants and convertible senior notes, are included in the calculation of
diluted net loss per share to the extent such shares are dilutive.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods indicated (in
thousands):
Year ended December 31,
2003 2004 2005
Net loss attributable to common shares $ (11,810 )$ (4,728 )$ (25,103 )
Weighted average common shares outstanding—basic 16,198 17,846 19,429
Effective of dilutive securities:
Warrants — — —
Employee stock options — — —
Convertible senior notes — — —
Weighted average common shares outstanding—diluted 16,198 17,846 19,429
Earnings (loss) per common share—basic: $ (0.73 ) $ (0.26 ) $ (1.29 )
Earnings (loss) per common share—diluted: $ (0.73 ) $ (0.26 ) $ (1.29 )
The stock options, warrants and convertible senior notes outstanding were not included in the computation of diluted earnings per
share because to do so would have been antidilutive. The number of shares of stock options outstanding at each year-end was
2,849,000 shares, 2,399,000 shares and 1,299,000 shares for 2003, 2004 and 2005, respectively. As of December 31, 2005, the
Company had $74.9 million of convertible senior notes outstanding (Note 11), which could potentially convert into 1,010,000 shares
of common stock in the aggregate.
Recently issued accounting pronouncements
In March 2005, the FASB issued Financial Interpretation ("FIN") 47 which clarifies guidance provided by SFAS No. 143,
"Accounting for Asset Retirement Obligations." FIN 47 is effective for the Company beginning the quarter ending March 31, 2006.
The adoption of FIN 47 is not expected to have a significant impact on the Company's financial position, results of operations or cash
flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Based Payment. This standard requires companies to
measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value. The effective date is the first annual reporting period beginning after June 15, 2005. The Company will begin expensing all
stock-based
F-18