Overstock.com 2002 Annual Report Download - page 38

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. 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
Cash equivalents include short-term, highly liquid instruments with original maturities of 90 days or less. At December 31, 2001 and 2002, the
Company's cash and cash equivalents were held by two banks. The Company does not believe that, as a result of this concentration, it is subject to any
unusual financial risk beyond the normal risk associated with commercial banking relationships. The Company's financial instruments, including cash, cash
equivalents, accounts receivable, and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these
instruments.
Marketable securities consist of funds deposited into a capital management account managed by a financial institution. The financial institution has
invested these funds in municipal, government and corporate bonds which are classified as available-for-sale and reported at fair value using the specific
identification method. Realized gains and losses are included in earnings and were not significant during the year ended December 31, 2002. Unrealized gains
and losses are excluded from earnings and reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits.
Accounts receivable
Accounts receivable consist of amounts due from customers and from credit cards billed but not yet received at period end. The Company recorded an
allowance for doubtful accounts of $0 and $70 at December 31, 2001 and 2002, respectively.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents, investment
securities, and receivables. The Company invests its cash primarily in money market, government and corporate securities which are uninsured.
The Company's accounts receivable are derived primarily from revenue earned from customers located in the United States. The Company maintains an
allowance for doubtful accounts based upon the expected collectibility of accounts receivable. During the year ended December 31, 2002, the Company
recorded sales to its most significant customer totaling $14,620. There were no sales to this customer during 2000 and 2001. At December 31, 2002, the
Company had a receivable of $3,577 from this customer. No other customer accounted for greater than 10% of revenues or receivables during 2000, 2001 or
2002.
Inventories
Inventories consist of merchandise purchased for resale and are stated at the lower of average cost or market.
Property and equipment
Property and equipment, which includes capitalized leases, are recorded at cost and depreciated using the straight-line method over the estimated useful
lives of the related assets or the term of the related lease, whichever is shorter, as follows:
Years
Computer software 3
Computer hardware 5
Furniture and equipment 5
Leasehold improvements are amortized over the shorter of the term of the related leases or estimated service lives. Upon sale or retirement of assets, cost
and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations.
Other long-term assets
Other long-term assets include deposits, the cost of acquiring the Overstock.com and other related domain names. The cost of the domain names is being
amortized using the straight-line method over 5 years.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the tangible net assets acquired for the purchase of Gear.com (see
Note 4). From November 28, 2000, the date of the Gear.com acquisition, through December 2001, the Company amortized its goodwill on a straight-line basis
using a 2 year estimated life.
Effective January 1, 2002, Overstock.com adopted Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets.
SFAS 142 applies to all goodwill and identified intangible assets acquired in a business combination. Under this standard, all goodwill and long-lived