Overstock.com 2003 Annual Report Download - page 55

Other long-term assets
Other long-term assets include deposits and 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. 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
intangible assets, including those acquired before initial application of the standard will not be amortized, but will be tested for impairment at least annually.
Accordingly, the Company ceased amortization of its goodwill in January 2002. The Company evaluated the $2,784 of unamortized goodwill during 2002 and
2003, and determined that no impairment charge should be recorded.
The following table shows what the Company's net loss and net loss per common share would have been for the years ended December 31, 2001, 2002
and 2003 exclusive of the amortization expense:
Year ended December 31,
2001 2002 2003
Reported net loss $(13,806) $(4,560) $(11,887)
Add back: Goodwill amortization 3,056 — —
Adjusted net loss $(10,750) $(4,560) $(11,887)
Basic and diluted loss per share:
Reported net loss per common share $ (1.29) $ (0.88) $ (0.75)
Add back: Goodwill amortization 0.28 — —
Adjusted net loss per common share $ (1.01) $ (0.88) $ (0.75)
Impairment of long-lived assets
The Company reviews 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 the projected discounted future cash flows arising from the assets
or their fair values, whichever is more determinable.
F-9
Revenue recognition
The Company derives its revenue from three sources: direct revenue, fulfillment partner revenue, and warehouse revenue. Revenue from all three sources
is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) the product has been shipped and
the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured.
Direct revenue consists of merchandise sales made to individual consumers and businesses that are fulfilled from our warehouse. The Company generally
requires payment by credit card at the point of sale. From time to time, the Company grants credit to its business customers on normal credit terms. Amounts
received prior to shipment of goods to customers are recorded as deferred revenue. Direct revenue is recorded net of returns, chargebacks and coupons
redeemed by customers and other discounts to obtain such sales.
Fulfillment partner revenue consists of sales of merchandise of third parties on the Company's Website, and is recognized when services have been
rendered (generally when verification of the shipment of the product is communicated to the Company from the third party that shipped the product). Prior to
July 1, 2003, the Company did not physically handle the merchandise sold in these transactions, as the merchandise was shipped directly by a third party
vendor, who also handled all customer returns related to these fulfillment partner sales. During that period, the Company recognized as revenue only the
commission portion of the price customers paid for the purchased products since the Company acted as an agent in such transactions. Beginning July 1, 2003,
the Company took responsibility for all returned items relating to these sales and began accepting returned items relating to these sales into the Company's
warehouse, and the Company now handles the possible resale of any returned items. As a result, beginning July 1, 2003, the Company is considered to be the
primary obligor for these sales transactions, and assumes the risk of loss on the returned items. As a consequence, the Company now records revenue from
sales transactions involving fulfillment partners on a gross basis, rather than recording a commission on sales as was recorded prior to July 1, 2003.
During the fourth quarter of 2003, the Company added a discount travel store to the Company's Website. Fulfillment partners are used to supply the
travel products (flights, hotels, rental cars, etc.) in the store. For the products sold in the travel store, the Company does not currently have inventory risk or