Overstock.com 2004 Annual Report Download - page 74

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,
chargebacks and coupons redeemed by customers and other discounts to obtain such sales.
Fulfillment partner revenue
Fulfillment partner revenue consists of merchandise sold through the Company's Website and shipped by third parties directly to consumers and other
businesses, and is recognized when services have been rendered (generally when verification of the shipment of the product is communicated to the Company
from the third party that shipped the product). Prior to July 1, 2003, the Company did not physically handle the merchandise sold in these transactions, as the
merchandise was shipped directly by a third party vendor, who also handled all customer returns related to these fulfillment partner sales. During that period,
the Company recognized as revenue only the net portion of the price customers paid for the purchased products since the Company acted as an agent in such
transactions. Beginning July 1, 2003, the Company took responsibility for returned items relating to these sales and began accepting returned items relating to
these sales into the Company's warehouse, and the Company now handles the possible resale of returned items. As a result, beginning July 1, 2003, the
Company is considered to be the primary obligor for these sales transactions, and assumes the risk of loss on returned items. As a consequence, the Company
now records revenue from sales transactions involving fulfillment partners on a gross basis, rather than on a net basis as was recorded prior to July 1, 2003.
During September 2004, the Company added an online auction service to its Website. The Auctions tab allows sellers to list items for sale, buyers to bid
on items of interest, and users to browse through listed items online. The Company is not considered the seller of the items sold on the auction site and has no
control over the pricing of those items. Therefore, for these sales, only the listing fees for items listed and commissions for items sold are recorded as revenue
during the period items are listed or items are sold. Our auction business revenues were insignificant in 2004. Revenue from the auctions business is included
in the fulfillment partner segment in 2004, as it is not large enough to separate out as its own segment at this early stage of the business.
During the fourth quarter of 2003, the Company added a discount travel store to its Website. The Company used fulfillment partners to supply the travel
products and services (flights, hotels, rental cars, etc.). For the products and services sold in the travel store, the Company did not have inventory risk or
pricing control, and did not provide customer service. Therefore, for these sales the Company was not considered to be the primary obligor, and recorded only
the commission as revenue in the period the transaction occurred. In May 2004, the Company closed its travel store in order to make improvements to the
travel product offerings. The Company reopened its travel store in January 2005. During 2003 and 2004, revenues from the Travel store were insignificant.
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