Overstock.com 2007 Annual Report Download - page 97

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Overstock.com, Inc.
Notes to Consolidated Financial Statements
1. BUSINESS AND ORGANIZATION
Overstock.com, Inc. (the "Company") is an online "closeout" retailer offering discount, brand-name merchandise for sale primarily over the Internet. The
Company's merchandise offerings include bed-and-bath goods, home décor, kitchenware, watches, jewelry, electronics and computers, sporting goods,
apparel, and designer accessories, among other products. The Company also sells books, magazines, CDs, DVDs, videocassettes and video games
("BMMG"). As part of its Website, the Company also offers on its Website an online auction service,—which acts as an online marketplace for the buying
and selling of goods and services, as well as an online site for listing cars for sale.
The Company was formed on May 5, 1997 as D2—Discounts Direct, a limited liability company. On December 30, 1998, the Company was reorganized
as a C Corporation in the State of Utah and reincorporated in Delaware in May 2002. On October 25, 1999, the Company changed its name to
Overstock.com, Inc. On July 23, 2003, the Company formed Overstock Mexico, S. de R. L. de C.V., a wholly owned subsidiary, to distribute products in
Mexico.
The Company has organized its operations into two principle segements based on the primary source of revenue: Direct revenue and Fulfillment partner
revenue (see "Note 23—Business Segements").
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. The consolidated financial
statements include the accounts of the Company's OTravel subsidiary through April 25, 2007 (see "Note 4—Acquistion and Subsquent Discontinued
Operations"). The consolidated financial statements also include the accounts of a variable interest entity for which the Company was the primary beneficiary
through November 30, 2006. 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 estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and
accompanying notes. Estimates are used for, but not limited to, valuation of investments, receivables valuation, revenue recognition, sales returns, incentive
discount offers, inventory valuation, depreciable lives of fixed assets, internally-developed software, valuation of acquired intangibles, income taxes, stock-
based compensation, and contingencies. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
We classify all highly liquid instruments, including money market funds with a remaining maturity of three months or less at the time of purchase as cash
equivalents.
Marketable Securities
Marketable securities consist of funds deposited into capital management accounts at two financial institutions. The Company generally invests excess
cash in "A" rated or higher short- to
F-8