Overstock.com 2005 Annual Report Download - page 80

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Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
interest entity for which the Company is the primary beneficiary (Note 25). 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, 2004
and 2005, 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 at December 31, 2005 and 2004 was $54.7 million and $116.3 million, respectively.
Marketable securities consist of funds deposited into capital management accounts managed by two financial institutions. The
Company generally invests excess cash in "A" rated or higher short- to intermediate-term fixed income securities and money market
mutual funds. The financial institutions have invested these funds in municipal, government and corporate bonds and money market
securities which are classified as available-for-sale in "Cash or cash equivalents" or "Marketable securities" on the accompany
consolidated balance sheets and are 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.
The Company periodically evaluates whether declines in fair values of its investments are other-than-temporary. This evaluation
consists of a review of qualitative and quantitative factors, including quoted market prices, if available; other publicly available
information; or other conditions that bear on the value of our investments. At December 31, 2005, gross unrealized losses on
marketable securities were $54,000 and were determined to be temporary based on the Company's assessment of the qualitative and
quantitative factors discussed above.
Restricted cash
The Company has restricted cash of $1.6 million and $253,000 related to a prepayment agreement with a third party at
December 31, 2004 and 2005, respectively.
F-10