Overstock.com 2005 Annual Report Download - page 83

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Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
evaluated the unamortized goodwill during 2003, 2004 and 2005, and determined that no impairment charge should be recorded.
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. The Company did not record any impairment during 2003, 2004 and 2005.
Revenue recognition
The Company derives its revenue primarily from two sources: direct revenue and fulfillment partner revenue, including listing
fees and commissions collected from products being listed and sold through the Auctions tab of its Website. Both direct revenue and
fulfillment partner revenue are recorded net of returns, coupons redeemed by customers, and other discounts. Revenue 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 or the service has been provided; (3) the selling price or fee
revenue earned is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. The Company generally
requires payment by credit card at the point of sale. Amounts received prior to shipment of products or service is recorded as deferred
revenue. In addition, amounts received in advance for Club O and Club O Gold membership fees are recorded as deferred revenue and
recognized ratably over the membership period. The Company maintains a reserve for returns based on estimates of future product
returns related to current period revenues.
Direct revenue
Direct revenue consists of merchandise sales made to individual consumers and businesses that are fulfilled from the Company's
leased warehouses. 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 estimated returns, fraud and coupons redeemed by customers and other
discounts to obtain such sales.
F-13