Overstock.com 2006 Annual Report Download - page 27

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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 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. If we are unsuccessful in disposing of our travel business, we may encounter unforeseen operating or other difficulties.
We may face risks relating to the planned sale of our travel business.
In the fourth quarter of 2006, we determined to reduce our expense structure and sell non-core businesses. We have taken steps to
accomplish the sale of OTravel (our travel business), and have classified it as a discontinued operation. As a result, we have
implemented plans designed to reduce our travel business' operating expenses and maintain its core operations at current level of
performance and have discontinued plans and operations designed to expand this portion of our business. There can be no assurance
that our plans to sell our travel business will succeed, or that we will achieve terms of sale favorable to us. Additionally, we may
encounter problems associated with the sale which may reduce sales proceeds, cost us expenses or expose us to unanticipated
litigation during or following the sale. The determination to discontinue expansion plans, and support our travel business operations at
a maintenance level, may cause us to forego improvements and upgrades to its software platforms and business processes and
procedures necessary to maintain a competivive operation. The sale of such a subsidiary may present these and other problems which
may have a material, adverse effect on the remainder of our business operations. We may not succeed in the sale and as a result, we
may have to continue operations of our travel business for some time, and may incur as a result unanticipated operational costs. We
are exploring the possibility of selling some or all of our travel business. We may be unable to do so at a price equal to the price we
paid for the Ski West business or at a price we consider acceptable.
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 repurchase program approved by our Board of Directors in 2005, we retired
$33.0 million and $10.0 million of the Senior Notes in June and November 2005 for $27.9 million and $7.8 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, 2006, $77.0 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 performance, which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control.
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