Overstock.com 2006 Annual Report Download - page 86

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Overstock.com, Inc.
Notes to Consolidated Financial Statements
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, home décor, kitchenware, watches,
jewelry, electronics and computers, sporting goods, apparel, designer accessories and travel services, among other products. The
Company also sells books, magazines, CDs, DVDs, videocassettes and video games ("BMMG"). The Company's online auction site
was launched in September 2004 as part of the Company's Website—which acts as an online marketplace for the buying and selling of
goods and services.
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. On
July 1, 2005, the Company acquired SkiWest, Inc. ("SkiWest") and integrated the SkiWest travel offerings with the Company's
existing travel offerings.
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 consolidated financial statements also include the accounts of a variable interest entity for which the Company was the primary
beneficiary through November 30, 2006 (Note 26). 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
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 2006 was $54.7 million and
$56.3 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 cash or cash equilvalents, or available-for-sale marketable securities on the 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.
F-8