Overstock.com 2008 Annual Report Download - page 69

Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial
instruments consist of cash and cash equivalents, marketable securities, trade accounts and contracts receivable, accounts payable and
long-term obligations. We consider investments in highly-liquid instruments with a remaining maturity of 90 days or less at the date of
purchase to be cash equivalents.
Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term
obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. However, the fair
values of our investments may be subject to fluctuations due to volatility of the stock market in general, investment-specific
circumstances, and changes in general economic conditions.
At December 31, 2008, we had $100.6 million in cash and cash equivalents and $9.0 million in marketable securities.
Hypothetically, an increase or decrease in interest rates of one hundred basis points would have an estimated impact of $1.1 million on
our earnings or loss, or the fair market value or cash flows of these instruments. Our cash, cash equivalents and marketable securities
consisted of U.S. agency securities, money market funds and top tier commercial paper.
At December 31, 2008, we had approximately $67.5 million of convertible senior notes outstanding which bear interest at a fixed
rate of 3.75%. At December 31, 2008, there were no borrowings outstanding under our lines of credit and letters of credit totaling
$2.2 million were outstanding under our credit facilities.
The fair value of the convertible senior notes is sensitive to interest rate changes. Interest rate changes would result in increases or
decreases in the fair value of the convertible senior notes, due to differences between market interest rates and rates in effect at the
inception of the obligation. Unless we elect to repurchase our convertible senior notes in the open market, changes in the fair value of
convertible senior notes have no impact on our cash flows or consolidated financial statements. The estimated fair value of our 3.75%
convertible senior notes as of December 31, 2008 was $38.1 million. The fair value of the convertible senior notes was derived using a
convertible pricing model with observable market inputs, which include stock price, dividend payments, borrowing costs, equity
volatility, interest rates and interest spread.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Form 10-K and are
presented beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports
filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and
communicated to management, including the CEO (principal executive officer) and Senior Vice President, Finance (principal financial
officer), as appropriate, to allow timely decisions regarding required disclosure.
Management of the Company, under the supervision and with the participation of our CEO (principal executive officer) and
Senior Vice President, Finance (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures
(as such term is defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2008. Based upon this
evaluation, our CEO and Senior Vice President, Finance concluded that our disclosure controls and procedures were effective as of
December 31, 2008.
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or
under our the supervision of, our CEO (principal executive officer) and Senior Vice President, Finance (principal financial officer), to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control
over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
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