Overstock.com 2010 Annual Report Download - page 57

Table of Contents
recorded a full valuation allowance of $77.1 million and $80.2 million, respectively, against our net deferred tax assets consisting primarily of net operating
loss carryforwards. In assessing the realizability of our deferred tax assets, we considered the four sources of taxable income. Because we have no carryback
ability and have not identified any viable tax planning strategies, two of the sources are not available. Reversing taxable temporary differences have been
properly considered as the deferred tax liabilities reverse in the same period as existing deferred tax assets. However, reversing the deferred tax liabilities is
insufficient to fully recover existing deferred tax assets. Our valuation allowance is net of deferred tax liabilities and there are no deferred tax assets or
liabilities that have an indefinite reversal period. Therefore, future taxable income, the most subjective of the four sources, is the remaining source available
for realization of our net deferred tax assets.
We consider future taxable income and evaluate the need for a valuation allowance on a regular basis. The determination of recording or releasing tax
valuation allowances is made, in part, pursuant to an assessment regarding the likelihood that we will generate future taxable income against which benefits of
our deferred tax assets may be realized. This assessment requires us to exercise significant judgment and make estimates with respect to our ability to generate
revenues, gross profits, operating income and taxable income in future periods. Among other factors, we must make assumptions regarding overall business
and retail industry conditions, operating efficiencies, the competitive environment and changes in regulatory requirements which may impact our ability to
generate taxable income and, in turn, realize the value of our deferred tax assets. Operating losses in some prior periods and significant economic uncertainties
in the market have made the projection of future taxable income uncertain. Accordingly, we have a valuation allowance recorded against our deferred tax
assets as it is not "more likely than not" that the assets will be realized. A change in our assessment of the likelihood that we will generate future taxable
income may result in a full or partial release of the valuation allowance against our deferred tax assets in future periods.
Impairment of long-lived assets
We review property and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is measured by comparison of the assets' carrying amount to future undiscounted net cash flows the
assets are expected to generate. Cash flow forecasts are based on trends of historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds their fair values. There were no impairments to long-lived assets recorded
during the years ended December 31, 2010, 2009, and 2008.
Valuation of goodwill
Goodwill is not amortized, but must be tested for impairment at least annually. In accordance with this guidance, we test for impairment of goodwill in
the fourth quarter or when we deem that a triggering event has occurred. Goodwill totaled $2.8 million at December 31, 2010 and 2009.There were no
impairments to goodwill recorded during the years ended December 31, 2010, 2009, and 2008.
Loss contingencies
In the normal course of business, we are involved in legal proceedings and other potential loss contingencies. We accrue a liability for such matters when
it is probable that a loss has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be estimated, the most
probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in
the range is accrued. We expense legal fees as incurred.
Accounting pronouncements issued not yet adopted
See Item 15 of Part IV, "Financial Statements"—Note 2—"Accounting Policies" subheading "Accounting Pronouncements Issued Not Yet Adopted."
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