Overstock.com 2009 Annual Report Download - page 83

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, 2009, we had $139.8 million in cash and cash equivalents. Hypothetically, an increase or decrease in interest rates of one hundred basis
points would have an estimated impact of $1.4 million on our earnings or loss, or the fair market value or cash flows of these instruments.
At December 31, 2009, we had approximately a face amount $60.0 million of convertible senior notes outstanding which bear interest at a fixed rate of
3.75%. At December 31, 2009, there were no borrowings outstanding under our lines of credit and letters of credit totaling $2.6 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 at December 31, 2009 was $53.6 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
We did not have any circumstances described in Item 304(b) of Regulation S-K. However, see the information included in our Report on Form 8-K/A
dated November 23, 2009 for a description of our disagreement with our previous independent registered public accounting firm.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Restatement
On January 29, 2010, the Audit Committee of the Board of Directors concluded, based on the recommendation of management, that we would restate
(1) our consolidated financial statements for the year ended December 31, 2008 and (2) our quarterly consolidated financial statements for all interim periods
in the year ended December 31, 2008 and the interim periods ended March 31, 2009, June 30, 2009 and September 30, 2009 within this Form 10-K to correct
the following errors:
Accounting for amounts that we pay our drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of
time. Specifically, these errors related to
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