Overstock.com 2006 Annual Report Download - page 102

Download and view the complete annual report

Please find page 102 of the 2006 Overstock.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 122

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122

expire in January 2007. Beginning July 2005, this lease was terminated and replaced with a lease for approximately 154,000 rentable
square feet in the Old Mill Corporate Center III in Salt Lake City, Utah for a term of ten years.
In February 2005, the Company and Old Mill Corporate Center III, LLC (the "Lessor") entered into a Tenant Improvement
Agreement (the "OMIII Agreement") relating to the office building. The OMIII Agreement sets forth the terms on which the Company
would pay the costs of certain improvements to the leased office space. The amount of the costs was approximately $2.0 million. The
OMIII Agreement also required the Company to provide a letter of credit in the amount of $500,000 to the Lessor to provide funds for
the removal of certain improvements upon the termination of the lease.
During the fourth quarter 2006, the Company commenced implementation of a facilities consolidation and restructuring program
(Note 4). The Company recorded a liability of $450,000 for the costs to dismantle and dispose of an escalator system and to the return
the leased facilities to their original condition under the Tenant Improvement Agreement (see Note 9) and incurred additional
amortization expense in connection with the revised useful life of certain leasehold improvements. In January 2007, the Company
began marketing its leased office facilities for sub-lease.
In July 2005, the Company entered into a Colocation Center Agreement (the "Colocation Agreement") to buildout and lease
11,289 square feet of space at Old Mill Corporate Center II for an IT data center and co-location facility. The Colocation Agreement
set forth the terms on which the Lessor would incur the costs to build out the IT data center and co-location facility and the Company
would commence to lease the space upon its completion for a term of ten years. In November 2006, the Company made the
determination to consolidate its facilities and to not occupy the IT data center and co-location facility and began negotiations with the
Lessor to terminate the lease agreement (see Note 4).
The Company leases 610,000 square feet for its warehouse facilities in Utah under operating leases which expire in August 2012.
In June 2005 and 2006, the Company entered into non-cancelable operating leases for certain computer equipment expiring in
April 2008 and June 2008. It is expected that such leases will be renewed by exercising purchase options or replaced by leases of other
computer equipment.
Minimum future payments under these leases are as follows (in thousands):
Year Ending December 31,
2007 $ 8,718
2008 7,119
2009 5,722
2010 5,532
2011 5,335
Thereafter 16,240
$48,666
Rental expense for operating leases totaled $1.9 million, $4.0 million and $11.5 million for the years ended December 31, 2004,
2005 and 2006, respectively.
Legal Proceedings
From time to time, the Company receives claims of and become subject to consumer protection, employment, intellectual
property and other commercial litigation related to the conduct of our business. Such litigation could be costly and time consuming
and could divert our management and key personnel from our business operations. The uncertainty of litigation increases these risks.
In connection with such
F-24