Overstock.com 2005 Annual Report Download - page 25

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personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced
or if government agencies investigate our privacy practices.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication
necessary to effect secure transmission of confidential information such as customer credit card numbers. We cannot assure you that
advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a
compromise or breach of the algorithms that we use to protect customer transaction data. If any such compromise of our security were
to occur, it could harm our reputation, business, prospects, financial condition and results of operations. A party who is able to
circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by
such breaches. We cannot assure you that our security measures will prevent security breaches or that failure to prevent such security
breaches will not harm our business, prospects, financial condition and results of operations.
We may be subject to product liability claims that could be costly and time consuming.
We sell products manufactured for us by third parties, some of which may be defective. If any product that we sell were to cause
physical injury or injury to property, the injured party or parties could bring claims against us as the manufacturer and/or retailer of the
product. Our insurance coverage may not be adequate to cover every claim that could be asserted. If a successful claim were brought
against us in excess of our insurance coverage, it could adversely affect our business. Even unsuccessful claims could result in the
expenditure of funds and management time and could have a negative impact on our business.
We may face risks relating to our recent acquisition of Ski West, Inc. and the development of our travel business.
We acquired all of the capital stock of Ski West, Inc., an on-line travel company, on July 1, 2005 and integrated Ski West with
our travel operations to form OTravel.com, Inc (our travel business). There can be no assurance about the future performance of our
travel business. We may encounter unforeseen operating or other difficulties. The integration of any acquired business can be difficult,
and unforeseen problems can arise. Our travel business operates on a software platform that is different from the ones we use in the
rest of our business, and it may be difficult or expensive for us to achieve any necessary or desirable integration. Although we have
operated a travel service in the past, the travel business operated by Ski West is substantially greater than the travel business we
operated, and will involve new and potentially unforeseen risks, including exposure to seasonal and other fluctuations in leisure travel,
including disruptions resulting from domestic or international terrorist incidents or expectations or perceptions of leisure travelers
regarding the safety and desirability of leisure travel.
We have significant indebtedness.
In connection with our sale of our 3.75% Convertible Senior Notes (the "Senior Notes") in November 2004, we incurred $120.0
million of indebtedness, due December 1, 2011. Under the Share Repurchase Program (see Notes 11 and 15 of the notes to the
financial statements), we retired $33.0 million and $10.0 million of the Senior Notes in June and November 2005 for $27.9 million
and $7.7 million in cash, respectively. As a result of the note retirements, we recognized a gain of $6.2 million for the year ended
December 31, 2005, net of the associated unamortized discount of $1.2 million. As of December 31, 2005, $74.9 million of the Senior
Notes remained outstanding. As a result of this indebtedness, our principal and interest payment obligations increased substantially.
The degree to which we are leveraged could materially and adversely affect our ability to obtain additional financing for working
capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. Our
ability to meet our debt service obligations is dependent upon our future
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