Overstock.com 2006 Annual Report Download - page 89

Download and view the complete annual report

Please find page 89 of the 2006 Overstock.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 122

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122

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 of long-lived assets during 2004, 2005
and 2006.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the tangible net assets acquired in business
combinations.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets,
goodwill is not amortized but tested for impairment at least annually. When evaluating whether goodwill is impaired, the Company
compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If the carrying amount exceeds
its fair value, then the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied
fair value of the goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is
allocated to all the other assets and liabilities within the reporting unit based on fair value. The excess of the fair value of a reporting
unit over the amount allocated to its other assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized
when the carrying amount of goodwill exceeds its implied fair value. The Company evaluated its goodwill during 2004 and 2005, and
determined that no impairment charge should be recorded.
In conjunction with the discontinuance of the Company's travel subsidiary ("OTravel"), the Company performed an evaluation of
the goodwill associated with the reporting unit pursuant to SFAS 142, and SFAS 144, Accounting for the Impairment of Long-Lived
Assets and determined that goodwill of approximately $4.5 million was impaired in 2006 (see Note 5).
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 as well as advertisement
revenue derived from its cars listing business. 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
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.
F-11