Overstock.com 2010 Annual Report Download - page 107

Table of Contents
Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. ACCOUNTING POLICIES (Continued)
its redemption becomes remote based on our historical redemption experience. We consider the likelihood of redemption to be remote after 36 months.
Sales returns allowance
We inspect all returned items when they arrive at our processing facility. We refund the full cost of the merchandise returned and all original shipping
charges if the returned item is defective or we or our fulfillment partners have made an error, such as shipping the wrong product.
If the return is not a result of a product defect or our or our fulfillment partners error and the customer initiates a return of an unopened item within
30 days of delivery, except for computers and electronics, we refund the full cost of the merchandise minus the original shipping charge and return shipping
fees. However, we reduce refunds for returns initiated more than 30 days after delivery or that are received at our returns processing facility more than
45 days after initial delivery.
If our customer returns an item that has been opened or shows signs of wear, we issue a partial refund minus the original shipping charge and return
shipping fees.
Revenue is recorded net of estimated returns. We record an allowance for returns based on current period revenues and historical returns experience. We
analyze actual historical returns, current economic trends and changes in order volume and acceptance of our products when evaluating the adequacy of the
sales returns allowance in any accounting period. Our actual product returns have not differed materially from our estimates. The average actual returns as
percentage of revenues for the years ended, December 31, 2010, 2009, and 2008 were 8.2%, 8.6% and 9.0%, respectively. The allowance for returns was
$11.5 million and $11.9 million at December 31, 2010 and 2009, respectively.
Credit card chargeback allowance
Revenue is recorded net of estimated credit card chargebacks. We maintain an allowance for credit card chargebacks based on current period revenues
and historical chargeback experience. The allowance for chargebacks was $125,000 and $139,000 at December 31, 2010 and 2009, respectively.
Cost of goods sold
Cost of goods sold includes product costs, warehousing costs, outbound shipping costs, handling and fulfillment costs, customer service costs and credit
card fees, and is recorded in the same period in which related revenues have been recorded. Cost of goods sold, including product cost and other costs and
fulfillment and related costs are as follows (in thousands):
Year ended December 31,
2010 2009 2008
Total net revenue $ 1,089,873 100% $ 876,769 100% $ 829,850 100%
Cost of goods sold
Product costs and other cost of goods sold 842,064 78% 664,537 76% 638,368 77%
Fulfillment and related costs 58,169 5% 47,480 5% 47,246 6%
Total cost of goods sold 900,233 83% 712,017 81% 685,614 83%
Gross profit $ 189,640 17% $ 164,752 19% $ 144,236 17%
F-18