Overstock.com 2006 Annual Report Download - page 90

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).
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, 2005 and 2006. Revenue from the auctions business has been
included in the fulfillment partner segment, as it is not large enough to separate out as its own segment at this early stage of the
business.
During December 2006, the Company added an online site for listing cars for sale as a part of its Website. The cars listing
service allows sellers to list vehicles for sale and allows buyers to review vehicle descriptions, post offers to purchase, and
provides the means for purchasers to contact sellers for further information and negotiations on the purchase of an advertised
vehicle. Revenue from its cars listing business is included in the fulfillment partner segment, as it is not significant enough to
separate out as its own segment.
Fulfillment partner revenue is reduced by the impact of estimated returns, chargebacks and coupons redeemed by customers
and other discounts to obtain such sales.
Total revenue is recorded net of estimated returns, coupons and other discounts. The returns policy for all products other
than those sold in the Electronics and Computers department provides for a $4.95 restocking fee and the provision that the
Company will not accept product returns initiated more than thirty days after the shipment date. There is 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
Cost of goods sold include product costs, warehousing costs, inbound and outbound shipping costs, handling and fulfillment
costs, customer service costs and credit card fees, and are recorded in the same period in which related revenues have been recorded.
Fulfillment costs include warehouse handling labor costs, fixed warehouse costs, credit card fees and customer service costs. For the
years ended December 31, 2004, 2005 and 2006, fulfillment costs totaled $34.3 million, $59.9 million and $60.9 million, respectively.
Advertising expense
The Company recognizes advertising expenses in accordance with SOP 93-7, Reporting on Advertising Costs. As such, the
Company expenses the costs of producing advertisements at the time production occurs
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