Overstock.com 2009 Annual Report Download - page 110

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Table of Contents
Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. ACCOUNTING POLICIES (Continued)
In October 2009, the Company introduced O.biz, a website where customers and businesses can shop for bulk and business related items, while offering
manufacturers, distributors and other retailers an alternative sales channel for liquidating their inventory.
Deferred revenue
Customer orders are recorded as deferred revenue prior to estimated delivery of products ordered or services rendered. In addition, amounts received in
advance for Club O membership fees are recorded as deferred revenue and recognized ratably over the membership period. The Company sells gift cards and
records related deferred revenue at the time of the sale. Gift cards are sold without expiration dates and revenue is recognized upon redemption. If a gift card
is not redeemed, the Company recognizes revenue when the likelihood of its redemption becomes remote based on the Company's historical redemption
experience. The Company considers the likelihood of redemption to be remote after 36 months.
Sales returns allowance
The Company inspects all returned items when they arrive at its processing facility. The Company will refund the full cost of the merchandise returned
and all original shipping charges if the returned item is defective or there has been a Company error, such as shipping the wrong product.
If the return is not a result of a product defect or Company error and the customer initiates a return of an unopened item within 30 days of delivery,
except for computers and electronics, the Company will refund the full cost of the merchandise minus the original shipping charge and actual return shipping
fees. However, the Company will reduce refunds for returns initiated more than 30 days after delivery or that are received at its returns processing facility
more than 45 days after initial delivery.
If the Company's customer returns an item that has been opened or shows signs of wear, it will issue a partial refund minus both the original shipping
charge and return shipping fees.
Total net revenue is recorded net of estimated returns. The Company records an allowance for returns based on current period revenues and historical
returns experience. The Company analyzes actual historical returns, current economic trends and changes in order volume and acceptance of its products
when evaluating the adequacy of the sales returns allowance in any accounting period. The Company's actual product returns have not differed materially
from its estimates. The Company is not currently aware of any trends that it expects would significantly change future returns experience compared to
historical experience. The sales returns allowance was $16.2 million at December 31, 2008 and $11.9 million at December 31, 2009.
Credit card chargeback allowance
Revenue is recorded net of credit card chargebacks. The Company maintains an allowance for credit card chargebacks based on current period revenues
and historical chargeback experience. The allowance for chargebacks was $365,000 at December 31, 2008, and $139,000 at December 31, 2009.
F-16