Overstock.com 2005 Annual Report Download - page 39

U.S. and Canada, with more recent expansion into the Caribbean and Mexico, as well as cruises. We have integrated the Ski West
travel offerings with our existing travel offerings and changed its name to OTravel.com, Inc.
OTravel.com generates merchant hotel revenues. Merchant hotel revenues at OTravel.com are billed to customers and recognized
on a "net" basis at the time of booking since all transactions are nonrefundable and generally noncancelable and OTravel.com has no
significant post-delivery obligations. A reserve for chargebacks and cancellations is recorded at the time of the transaction based on
historical experience.
All other revenues are considered agency revenues and relate primarily to the Company's existing travel operations. Agency
revenues are derived from airline ticket transactions, certain hotel transactions as well as cruise and car rental reservations. Agency
revenues are recognized on a net basis on air transactions when the reservation is made and secured by a credit card. A cancellation
allowance is recognized on these revenues based on historical experience. OTravel.com recognizes agency revenues on hotel
reservations, cruise and car rental reservations, either on an accrual basis for payments from a commission clearinghouse or on receipt
of commissions from an individual supplier. Revenue from our travel business is included in the fulfillment partner segment, as it is
not significant enough to separate out as its own segment.
During September 2004, we added an online auction service to our Website. Our auction tab allows sellers to list items for sale,
buyers to bid on items of interest, and users to browse through listed items online. We are not the seller of the items sold on the
auction site and we have no control over the pricing of those items. Therefore, for these sales we record only our listing fees and
commissions for items sold as revenue. Unless otherwise indicated or required by the context, the discussion herein of our financial
statements, accounting policies and related matters, pertains to our shopping site and not necessarily to our auction site. Revenue from
our auction business is included in the fulfillment partner segment, as it is not significant enough to separate out as its own segment.
Our revenue from sales on our shopping site is recorded net of returns, coupons and other discounts. Our returns policy for all
products other than those sold in our Electronics and Computers department provides for a $4.95 restocking fee and the provision that
we will not accept product returns initiated more than twenty days after the shipment date. We charge a 15% restocking fee (instead of
the $4.95 restocking fee) on all items returned for non-defective reasons from the Electronics and Computers department.
Cost of goods sold consists of the cost of the product, as well as inbound and outbound freight, fixed warehouse costs, warehouse
handling costs, credit card fees, and customer service costs. For the years ended December 31, 2003, 2004, and 2005, fulfillment costs
represented 8%, 7% and 7% of total revenue, respectively, as noted in the following table (in thousands):
Year ended December 31,
2003 2004 2005
Total revenue $ 238,945 100 % $ 494,635 100 % $ 803,822 100 %
Cost of goods sold
Product costs and other cost of goods sold 192,851 81 % 394,118 80 % 623,335 78 %
Fulfillment costs 20,302 8%34,278 7%59,931 7%
Total cost of goods sold 213,153 89 %428,396 87 %683,266 85 %
Gross profit $ 25,792 11 %$ 66,239 13 %$ 120,556 15 %
This table has been included to provide investors additional information regarding our classification of fulfillment costs and gross
margins, thus enabling investors to better compare our fulfillment costs and gross margins with others in our industry. Fulfillment
costs include warehouse costs, warehouse handling costs (excluding packaging costs), credit card fees and customer service costs. We
believe that some companies in our industry, including some of our competitors, account for fulfillment costs within operating
expenses, and therefore exclude fulfillment costs from gross margins. As a result, our gross margins may not be directly comparable to
others in our industry.
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