Overstock.com 2010 Annual Report Download - page 106

Table of Contents
Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. ACCOUNTING POLICIES (Continued)
Club O loyalty program
We have a customer loyalty program called Club O for which we sell annual memberships. We record membership fees as deferred revenue and we
recognize revenue ratably over the membership period. The Club O program allows members to earn reward dollars for qualifying purchases made on our
Website. We also have a co-branded credit card program (see "Co-branded credit card program" below for more information). Co-branded cardholders are
also Club O members and earn additional reward dollars for purchases made on our Website, and from other merchants. Reward dollars earned may be
redeemed on future purchases made through our Website. Club O reward dollars expire 90 days after the customer's Club O membership expires. We account
for these transactions as multiple element arrangements and allocate value to the elements using their relative fair values. We include the value of reward
dollars earned in deferred revenue and we record it as a reduction of revenue at the time the reward dollars are earned.
We recognize revenue for Club O reward dollars when: (i) customers redeem their reward dollars as part of a purchase at our Website, (ii) reward dollars
expire or (iii) the likelihood of reward dollars being redeemed by a customer is remote ("reward dollar breakage"). Due to the loyalty program's short history,
currently no reward dollar breakage is recognized until the reward dollars expire. However, in the future we plan to recognize such breakage based upon
historical redemption patterns.
Co-branded credit card revenue
During the year ended December 31, 2009, we had a co-branded credit card agreement with a commercial bank, for the issuance of credit cards bearing
the Overstock brand, under which the bank paid us fees for new accounts, renewed accounts and card usage. New and renewed account fees were recognized
as revenues on a straight-line basis over the estimated life of the credit card relationship. Credit card usage fees were recognized as revenues as actual credit
card usage occurred. Our co-branded credit card agreement with this bank terminated effective August 30, 2009.
In March 2010, we entered into a co-branded credit card agreement with a different commercial bank for the issuance of credit cards bearing the
Overstock.com brand, under which the bank pays us fees for new accounts and for customer usage of the cards. The agreement also provides for a customer
loyalty program offering reward dollars that customers will accrue from card usage and can use to make purchases on our Website (see "Club O loyalty
program" above for more information). We launched this co-branded card in September 2010. New account fees are recognized as revenue on a straight-line
basis over the estimated life of the credit card relationship. Credit card usage fees are recognized as revenues as actual credit card usage occurs.
Deferred revenue
Customer orders are recorded as deferred revenue prior to estimated delivery of products or services. We record amounts received for Club O
membership fees as deferred revenue and we recognize it ratably over the membership period. We record Club O reward dollars as deferred revenue at the
time they are earned and we recognize it as revenue upon redemption. If reward dollars are not redeemed, we recognize revenue upon expiration. In addition,
we also sell gift cards and record related deferred revenue at the time of the sale. We sell gift cards without expiration dates and we recognize revenue upon
redemption. If a gift card is not redeemed, we recognize revenue when the likelihood of
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