Overstock.com 2003 Annual Report Download - page 54

The Company is subject to risks common to rapidly growing Internet-based companies, including rapid technological change, growth and consumer
acceptance of the Internet, dependence on principal products, new product development, new product introductions and other activities of competitors, and a
limited operating history in Internet related e-commerce activities.
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. 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, 2002 and 2003, three banks
held the Company's cash and cash equivalents. 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 capital management accounts managed by two financial institutions. The financial institutions have
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 other income (expense), net in
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the Statement of Operations. 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 $145 and $650 at December 31, 2002 and 2003, 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 years ended December 31, 2002 and 2003, the
Company recorded sales to its most significant customer totaling $14,620 and $21,044, respectively. There were no sales to this customer during 2001. At
December 31, 2002 and 2003, the Company had a receivable of $3,577 and $5,345, respectively, from this customer. No other customer accounted for greater
than 10% of revenues or receivables during 2001, 2002 or 2003.
Inventories
Inventories consist of merchandise purchased for resale and are stated at the lower of average cost or market. The Company establishes reserves for
estimated obsolescence or damage equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future
demand and market conditions.
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.
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