Overstock.com 2014 Annual Report Download - page 85
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Table of Contents
Inventories, consisting of merchandise purchased for resale, are accounted for using a standard costing system which approximates the first-in-first-
out (“FIFO”) method of accounting, and are valued at the lower of cost or market. We write down our inventory for estimated obsolescence and to lower of
cost or market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory allowance
represents the new cost basis of such products. Reversal of the allowance is recognized only when the related inventory has been sold or scrapped.
Prepaid inventories, net represent inventories paid for in advance of receipt. Prepaid inventories, net were $3.2 million and $1.8 million at
December 31, 2014 and 2013, respectively.
Prepaids and other assets represent expenses paid prior to receipt of the related goods or services, including advertising, license fees, maintenance,
packaging, insurance, and other miscellaneous costs. Total prepaids and other assets were $12.6 million and $10.3 million at December 31, 2014 and 2013,
respectively.
Fixed assets, which include assets such as technology infrastructure, internal-use software, website development, furniture and fixtures and leasehold
improvements, are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets or the term of the
related capital lease, whichever is shorter, as follows:
Computer software 2-4
Computer hardware 3-4
Furniture and equipment 3-5
Leasehold improvements are amortized over the shorter of the term of the related leases or estimated useful lives.
Depreciation and amortization expense is classified within the corresponding operating expense categories on the consolidated statements of
income as follows (in thousands):
Cost of goods sold - direct $ 282
$ 380
$ 470
Technology 16,651
12,917
14,177
General and administrative 1,131
1,225
1,362
Total depreciation and amortization, including internal-use software and website development $ 18,064
$ 14,522
$ 16,009
Included in fixed assets is the capitalized cost of internal-use software and website development, including software used to upgrade and enhance
our Website and processes supporting our business. We capitalize costs incurred during the application development stage of internal-use software and
amortize these costs over the estimated useful life of two to three years. Costs incurred related to design or maintenance of internal-use software are expensed
as incurred.
During the years ended December 31, 2014 and 2013, we capitalized $13.9 million and $11.4 million, respectively, of costs associated with internal-
use software and website development, both developed internally and acquired externally. Depreciation of costs associated with internal-use software and
website development was $10.8 million and $8.0 million for those respective periods.
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