Overstock.com 2010 Annual Report Download - page 53

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Table of Contents
Auctions tab of our Website, advertisement revenue derived from our cars and real estate listing business, and from advertising on our shopping pages. We
have organized our operations into two principal segments based on the primary source of revenue: direct revenue and fulfillment partner revenue.
Revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured. Revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of packages through
multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are
delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times, which are
calculated using the following factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfillment source (either our
warehouses or those of our fulfillment partners); (iii) the delivery destination; and (iv) actual transit time experience, which shows that delivery date is
typically one to eight business days from the date of shipment.
We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our
estimates.
The following table shows the effect that hypothetical changes in the estimate of average shipping transit times would have had on the reported amount
of revenue and net income for the year ended December 31, 2010 (in thousands):
Year ended December 31, 2010
Change in the Estimate of Average Transit Times (Days)
Increase
(Decrease)
Revenue
Increase
(Decrease)
Net Income
2 $ (5,453) $ (828)
1 $ (4,345) $ (679)
As reported As reported As reported
-1 $ 4,176 $ 667
-2 $ 7,150 $ 1,157
When we are the primary obligor in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have
several but not all of these indicators, revenue is recorded gross. If we are not the primary obligor in the transaction and amounts earned are determined using
a fixed percentage, revenue is recorded on a net basis. Currently, the majority of both direct revenue and fulfillment partner revenue is recorded on a gross
basis, as we are the primary obligor. In our statements of operations, we present revenue net of sales taxes.
We periodically provide incentive offers to our customers to encourage purchases. Such offers include discount offers, such as percentage discounts off
current purchases and other similar offers, which, when used by our customers, are treated as a reduction of revenue.
Direct revenue
Direct revenue is derived from merchandise sales to individual consumers and businesses that are fulfilled from our leased warehouses. Direct revenue
comes from sales that occur primarily through our Website, but may also occur through offline channels.
47