Overstock.com 2010 Annual Report Download - page 108

Table of Contents
Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. ACCOUNTING POLICIES (Continued)
Advertising expense
We expense the cost of producing advertisements the first time the advertising takes place and expense the cost of communicating advertising in the
period during which the advertising space or airtime is used. Internet advertising expenses are recognized as incurred based on the terms of the individual
agreements, which are generally: 1) a commission for traffic driven to the Website that generates a sale or 2) a referral fee based on the number of clicks on
keywords or links to our Website generated during a given period. Advertising expense is included in sales and marketing expenses and totaled $53.2 million,
$48.9 million and $52.8 million during the years ended December 31, 2010, 2009 and 2008, respectively. Prepaid advertising, which consists primarily of
prepaid advertising airtime, (included in Prepaids and other assets in the accompanying consolidated balance sheets) was $2.9 million and $1.6 million at
December 31, 2010 and 2009, respectively.
Stock-based compensation
We measure compensation expense for all outstanding unvested share-based awards at fair value on date of grant and recognize compensation expense
over the service period for awards expected to vest on a straight line basis. The estimation of stock awards that will ultimately vest requires judgment, and to
the extent actual results differ from estimates, such amounts will be recorded as an adjustment in the period estimates are revised. We consider many factors
when estimating expected forfeitures, including types of awards, recipients of awards and historical experience. Actual results may differ substantially from
these estimates (see Note 18 "Stock-Based Awards").
Loss contingencies
In the normal course of business, we are involved in legal proceedings and other potential loss contingencies. We accrue a liability for such matters when
it is probable that a loss has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be estimated, the most
probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in
the range is accrued. We expense legal fees as incurred.
Restructuring
Restructuring expenses are primarily comprised of lease termination costs. ASC Topic 420, Accounting for Costs Associated with Exit or Disposal
Activities, requires that when an entity ceases using a property that is leased under an operating lease before the end of the contractual term, the termination
costs should be recognized and measured at fair value when the entity ceases using the facility. Key assumptions in determining the restructuring expenses
and related liability include the terms that may be negotiated to exit certain contractual obligations (see Note 3 "Restructuring Expense").
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using
enacted tax rates in effect for the year in which the differences are expected to affect taxable income.
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