Overstock.com 2013 Annual Report Download - page 40

Table of Contents
material adjustment to the accrued estimates, the effect would be recognized during the period of the event. We believe that an appropriate estimated liability has
been established for potential exposures.
Our net unrecognized tax benefits are recorded as a liability in our consolidated balance sheets. To the extent interest and penalties would be assessed
by taxing authorities of any underpayment of income taxes, such amounts are accrued and classified as a component of income tax expense on our
consolidated statement of operations and comprehensive income (loss). Realization of the unrecognized tax benefits results in a favorable impact to the effective
tax rate.
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We review property and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset group may not be recoverable. Recoverability is measured by comparison of the assets’ carrying amount to future undiscounted net cash
flows the asset group is 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 asset group is considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair values. There were no impairments to
long-lived assets recorded during the years ended December 31, 2013, 2012 and 2011.
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Goodwill is not amortized, but must be tested for impairment at least annually. When evaluating whether goodwill is impaired, we make a qualitative
assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the qualitative assessment determines that it is more
likely than not that its fair value is less than its carrying amount, we compare 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, if any, 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 the other assets and liabilities within the reporting unit based on estimated 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.
We test for impairment of goodwill in the fourth quarter or when we deem that a triggering event has occurred. Goodwill totaled $2.8 million at
December 31, 2013 and 2012. There were no impairments to goodwill recorded during the years ended December 31, 2013, 2012 and 2011.
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See Item 15 of Part IV, "Financial Statements"—Note 2—"Accounting Policies" subheading "Accounting Pronouncements Issued Not Yet Adopted."
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Revenues in 2013 increased 19% compared to 2012. The growth in revenue was primarily due to a 17% increase in average order size, from $135 to
$158, coupled with a 2% increase in orders. The increase in average order size is largely due to a sales mix shift into the home and garden category. Although
the trend towards our home and garden category has accelerated in recent years, we do not expect the sales mix shift to continue to increase at the same rate in
2014.
Gross profit in 2013 increased 25% compared to 2012 primarily as a result of that revenue growth and a shift in product sales mix into higher
margin home and garden products. Approximately $37.0 million of the $49.2 million increase in
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