Overstock.com 2004 Annual Report Download - page 71

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Overstock.com, Inc.
Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
1. BUSINESS AND ORGANIZATION
Overstock.com, Inc. (the "Company") is an online "closeout" retailer offering discount, brand-name merchandise for sale primarily over the Internet. The
Company's merchandise offerings include bed-and-bath goods, furniture, kitchenware, watches, jewelry, computers and electronics, sporting goods, apparel
and designer accessories. The Company also sells books, magazines, CDs, DVDs, videocassettes and video games.
The Company was formed on May 5, 1997 as D2—Discounts Direct, a limited liability company. On December 30, 1998, the Company was reorganized
as a C Corporation in the State of Utah and reincorporated in Delaware in May 2002. On October 25, 1999, the Company changed its name to
Overstock.com, Inc. On November 20, 2000, the Company acquired Gear.com, Inc. On July 23, 2003, the Company formed Overstock Mexico, S. de R. L. de
C.V., a wholly owned subsidiary, to distribute products in Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The 2004 consolidated
financial statements also include the accounts of a variable interest entity for which the Company is the primary beneficiary (Note 20). All significant
intercompany account balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
Cash equivalents include short-term, highly liquid instruments with original maturities of 90 days or less. At December 31, 2003 and 2004, three banks
held the Company's cash and cash equivalents. The Company does not believe that, as a result of this concentration, it is subject to any unusual financial risk
beyond the normal risk associated with commercial banking relationships. The Company's financial instruments, including cash, cash equivalents, accounts
receivable, accounts payable and accrued liabilities are carried at cost, which approximates their fair value because of the short-term maturity of these
instruments. The estimated fair value of the Company's 3.75% Convertible Senior Notes is approximately $120,000.
Marketable securities consist of funds deposited into capital management accounts managed by two financial institutions. The financial institutions have
invested these funds in municipal, government and corporate bonds and money market securities which are classified as available-for-sale and reported at fair
value using the specific identification method. Realized gains and losses are included in other income (expense), net in the Consolidated Statements of
Operations. Unrealized gains and losses are excluded from earnings and reported as a component of other comprehensive income (loss), net of related
estimated tax provisions or benefits.
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